-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V95k2qHSgvQsMmhTOb2zWT/8QZSe6DFcTuydoMzkSM92vX2WoDtl32OLWG8TQ/cT K0FBBWvs0DmNeLK/gsKsuQ== 0000912057-96-024059.txt : 19961031 0000912057-96-024059.hdr.sgml : 19961031 ACCESSION NUMBER: 0000912057-96-024059 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19961030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIANGLE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001022622 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 561930728 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-11793 FILM NUMBER: 96649778 BUSINESS ADDRESS: STREET 1: 4 UNIVERSITY PLACE STREET 2: 4611 UNIVERSITY DRIVE CITY: DURHAM STATE: NC ZIP: 27707 BUSINESS PHONE: 9194935980 MAIL ADDRESS: STREET 1: 4 UNIVERSITY PLACE STREET 2: 4611 UNIVERSITY DRIVE CITY: DURHAM STATE: NC ZIP: 27707 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996 REGISTRATION NO. 333-11793 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 3 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ TRIANGLE PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) DELAWARE 2834 56-1930728 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
4 UNIVERSITY PLACE, 4611 UNIVERSITY DRIVE, DURHAM, NORTH CAROLINA 27707 (919) 493-5980 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DR. DAVID W. BARRY CHAIRMAN AND CHIEF EXECUTIVE OFFICER TRIANGLE PHARMACEUTICALS, INC. 4 UNIVERSITY PLACE, 4611 UNIVERSITY DRIVE DURHAM, NORTH CAROLINA 27707 (919) 493-5980 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ WITH COPIES TO: John A. Denniston, Esq. Mary A. Bernard, Esq. John R. Cook, Esq. KING & SPALDING BROBECK, PHLEGER & HARRISON LLP 120 West 45th Street 550 West "C" Street, Suite 1300 New York, New York 10036 San Diego, California 92101 (212) 556-2100 (619) 234-1966
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box: / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / _________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / _________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains a Prospectus relating to an initial public offering in the United States and Canada of an aggregate of 3,200,000 shares of Common Stock, par value $0.001 per share, of Triangle Pharmaceuticals, Inc. (the "United States Offering"), not including 600,000 shares of Common Stock that the U.S. Underwriters may purchase under an over-allotment option, together with two separate Prospectus pages relating to a concurrent offering outside the United States and Canada of an aggregate of 800,000 shares of Common Stock, par value $0.001 per share, of Triangle Pharmaceuticals, Inc. (the "International Offering"). The complete Prospectus for the United States Offering follows immediately after this Explanatory Note. Following such Prospectus is an alternate front cover page and an alternate back cover page for the International Offering. All other pages of the following Prospectus are to be used both in the United States Offering and the International Offering. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 30, 1996 4,000,000 SHARES [LOGO] COMMON STOCK The 4,000,000 shares of Common Stock, par value $0.001 per share (the "Common Stock"), offered hereby are being offered by Triangle Pharmaceuticals, Inc. ("Triangle" or the "Company") in concurrent offerings in the United States and Canada and outside the United States and Canada (collectively, the "Offerings"). See "Underwriting." Of such shares, 3,200,000 shares are initially being offered in the United States and Canada by the U.S. Underwriters (the "United States Offering") and 800,000 shares are initially being offered outside the United States and Canada by the International Underwriters (the "International Offering"). The price to public and the aggregate underwriting discounts and commissions for the Offerings will be identical. Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $7.50 and $9.50 per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. The Common Stock has been approved for listing on the Nasdaq National Market under the symbol "VIRS." For a discussion of certain risks of an investment in the shares of Common Stock offered hereby, see "Risk Factors" on pages 5-17. ----------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------
Underwriting Price to Discounts and Proceeds to Public Commissions* Company+ Per Share..................... $ $ $ Total++....................... $ $ $
- ------------ * The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." + Before deducting expenses of the Offerings payable by the Company estimated to be $700,000. ++ The Company has granted to the U.S. Underwriters a 30-day option to purchase up to 600,000 additional shares of Common Stock on the same terms per share solely to cover over-allotments, if any. If such option is exercised in full, the total price to public will be , the total underwriting discounts and commissions will be and the total proceeds to Company will be $ . See "Underwriting." ------------------- The Common Stock is being offered by the Underwriters as set forth under "Underwriting" herein. It is expected that delivery of certificates therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on or about , 1996. The Underwriters include: DILLON, READ & CO. INC. BEAR, STEARNS & CO. INC. The date of this Prospectus is , 1996 Triangle Pharmaceuticals, Inc. is a pharmaceutical company engaged in the development of new drug candidates primarily in the antiviral area. Triangle has an existing portfolio of five licensed drug candidates and two drug candidates for which the Company has a right to acquire a license. All of the Company's drug candidates are in an early phase of development. ------------------------ IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Company intends to furnish its stockholders annual reports containing audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited interim financial information for the first three quarters of each fiscal year. TRIANGLE PHARMACEUTICALS AND THE TRIANGLE LOGO ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS ALSO INCLUDES NAMES AND TRADEMARKS OF COMPANIES OTHER THAN THE COMPANY. [CHART SHOWING THE IDENTITY AND STRUCTURE OF THE COMPANY'S DRUG CANDIDATES APPEARS HERE] PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS AND NOTES THERETO AND AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES THAT THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (II) REFLECTS THE CONVERSION OF ALL OF THE COMPANY'S OUTSTANDING SHARES OF SERIES A AND SERIES B PREFERRED STOCK, PAR VALUE $0.001 PER SHARE (COLLECTIVELY, THE "PREFERRED STOCK"), INTO SHARES OF COMMON STOCK, WHICH WILL OCCUR UPON THE CLOSING OF THE OFFERINGS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN OR PROJECTED BY THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER "RISK FACTORS" AND "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. The Company Triangle is a pharmaceutical company engaged in the development of new drug candidates primarily in the antiviral area, with a particular focus on therapies for the human immunodeficiency virus ("HIV"), including the acquired immunodeficiency syndrome ("AIDS"), and the hepatitis B virus ("HBV"). Prior to their employment with the Company, members of the Company's management team played instrumental roles in the identification, clinical development and commercialization of several leading antiviral therapies. Triangle has an existing portfolio consisting of five licensed drug candidates and two drug candidates for which the Company has an option to acquire a license. In laboratory tests, four of the seven drug candidates inhibit the growth of HIV, and two of these four also inhibit the growth of HBV. The other three drug candidates have attractive preclinical profiles against certain cancers, herpes infections and psoriasis. All of the Company's drug candidates are in an early phase of development. The Company has completed a Phase Ia clinical trial and is currently conducting a Phase Ib/IIa clinical trial with one of its anti-HIV drug candidates. The Company expects to commence Phase I clinical trials for most of its other existing drug candidates by the end of 1997. The Company believes that some of its drug candidates may meet the criteria established by the United States Food and Drug Administration ("FDA") for accelerated approval. If so, the Company may be able to commercialize these drug candidates in a shorter time period than has historically been required for drugs that do not meet the criteria for accelerated approval. There can be no assurance, however, that the Company's drug candidates will qualify for accelerated approval or be approved in a time period that is shorter than would be historically expected. Treatment of HIV using combinations of drugs has recently shown significant clinical benefits including reducing virus levels and increasing patient longevity. Prior to joining the Company, the Company's management team was actively engaged for a number of years in the development of combination therapy for the treatment of HIV. The Company was founded based in part on the management team's belief that the prolonged use of combination therapy will generate demand for new anti-HIV drugs with favorable resistance and tolerance profiles. The Company believes the use of anti-HIV drugs will increase because it anticipates that (i) the use of multiple drugs in individual patients on combination therapy will increase, (ii) large numbers of previously untreated patients will begin to seek medical care as the benefits of combination therapy become more widely understood and (iii) patient longevity will increase and thus lengthen the duration of drug therapy. Triangle intends to maintain a limited corporate infrastructure that is focused on drug development. The Company does not intend to engage in drug discovery, but instead to focus on drug development, thereby avoiding much of the significant investment of time and capital that is generally required before a compound is identified and brought to clinical trials. The Company intends to use its expertise to perform internally what it believes are the most critical aspects of the development process, such as the design of clinical trials and the optimization of drug synthesis. The Company plans to out-source the conduct of clinical trials and many aspects of the manufacture of drug substance to carefully selected third parties. The Company believes that the high concentration of major prescribers of anti-HIV therapies in the United States will enable the Company to promote most drug candidates that are successfully developed to these prescribers through a small, direct sales force. The Company does not currently have a sales force. Triangle is a development stage company, has not received any revenues from the sale of products, and does not expect any of its drug candidates to be commercially available for at least the next several years. As of June 30, 1996, the Company's accumulated deficit was approximately $6.5 million. There can be no assurance that the Company will ever achieve profitable operations. The Company was incorporated in Delaware in July 1995. The Company's principal executive offices are located at 4 University Place, 4611 University Drive, Durham, North Carolina 27707, and its telephone number is (919) 493-5980. 3 The Offerings Common Stock offered by the Company............ 4,000,000 shares Common Stock to be outstanding after the Offerings...................................... 17,035,238(1) Use of proceeds................................ For general corporate purposes, including drug development programs such as preclinical testing and clinical trials, the payment of license fees and other amounts to licensors and working capital. See "Use of Proceeds." Nasdaq National Market symbol.................. VIRS
- ------------ (1) Excludes as of October 28, 1996 (i) 1,096,260 shares of Common Stock issuable upon exercise of outstanding options (at a weighted average exercise price of $2.13 per share) and (ii) 146,000 shares of Preferred Stock issuable upon exercise of outstanding warrants (at a weighted average exercise price of $1.22 per share). See "Management--Benefit Plans," "Description of Capital Stock--Preferred Stock, Warrants and Stock Options" and note 6 of notes to financial statements. Summary Financial Data
Period from inception Six Months (July 12, 1995) to Ended December 31, 1995 June 30, 1996 ------------------- -------------- Statement of Operations Data: Costs and expenses: License fees............................................................. -- $ 2,751,829 Development.............................................................. -- 1,342,591 General and administrative............................................... $ 1,004,815 1,490,156 ------------------- -------------- Loss from operations......................................................... (1,004,815) (5,584,576) Interest income.............................................................. 37,232 85,158 ------------------- -------------- Net loss..................................................................... $ (967,583) $ (5,499,418) ------------------- -------------- ------------------- -------------- Pro forma net loss per share (1)............................................. $ (0.07) $ (0.39) ------------------- -------------- ------------------- -------------- Shares used in computing pro forma net loss per share (1).................... 14,277,498 14,277,498 June 30, 1996 ----------------------------------- Actual As Adjusted(2) ------------------- -------------- Balance Sheet Data: Cash and cash equivalents.................................................... $ 5,825,617 $ 36,745,617 Investments.................................................................. 11,305,549 11,305,549 Working capital.............................................................. 16,339,403 47,259,403 Total assets................................................................. 18,030,241 48,950,241 Accumulated deficit.......................................................... (6,467,001) (6,467,001) Total stockholders' equity................................................... 16,929,031 47,849,031
- ------------ (1) See note 1 of notes to financial statements for information concerning the computation of pro forma net loss per share and shares used in computing pro forma net loss per share. (2) As adjusted to reflect the sale of the Common Stock offered hereby at an assumed initial public offering price of $8.50 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 4 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON STOCK. Development Stage Company; Uncertainty of Product Development The Company was incorporated in July 1995 and accordingly has only a limited operating history upon which an evaluation of the Company's business and prospects can be based. In addition, the Company's drug candidates are all in the early developmental stage and require significant, time-consuming and costly development, testing and regulatory clearances. The Company does not expect any of its drug candidates to be commercially available for at least the next several years. The successful development of any new drug, including any of the Company's drug candidates, is highly uncertain and is subject to a number of significant risks. These risks include, among others, the possibility that any or all of the Company's drug candidates will be found to be ineffective or toxic or otherwise fail to receive necessary regulatory clearances; that the drug candidates will be uneconomical to manufacture or market or will not achieve broad market acceptance; that third parties will hold proprietary rights that will preclude the Company from marketing the drug candidates; or that third parties will market equivalent or superior products. The failure of the Company's drug development programs to result in commercially viable products would have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Product Development Programs." History of Operating Losses; Accumulated Deficit; Uncertainty of Future Profitability The Company has incurred losses since its inception. As of June 30, 1996, the Company's accumulated deficit was approximately $6.5 million. Losses have resulted principally from costs incurred in the acquisition and development of the Company's drug candidates and general and administrative costs. These costs have exceeded the Company's revenues, which to date have been generated primarily from interest income. The Company has not generated any revenue to date from the sale of drugs and does not expect to do so for at least the next several years. The Company expects to incur significant additional operating losses over the next several years and expects losses to increase as the Company's drug development efforts expand. The Company's ability to achieve profitability will depend upon its ability to develop and obtain regulatory approval for its drug candidates and to develop the capacity (or establish relationships with third parties) to manufacture, market and sell any drug candidates it successfully develops. There can be no assurance that the Company will ever generate significant revenues or achieve profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Future Capital Needs; Uncertainty of Additional Funding The Company's drug development programs currently require and will in the future require substantial capital expenditures, including expenditures for preclinical testing, chemical synthetic scale-up, clinical trials of drug candidates and payments to the Company's licensors. The Company's future capital requirements will depend on many factors, including the progress of the Company's drug development programs, the magnitude of these programs, the scope and results of preclinical testing and clinical trials, the cost, timing and outcome of regulatory reviews, the costs under the license and/or option agreements relating to the Company's drug candidates, administrative and legal expenses, the establishment of capacity for sales and marketing functions, the establishment of relationships with third parties for manufacturing and sales and marketing functions, and other factors. The Company expects that its capital requirements will increase significantly in the future. The Company has incurred negative cash flow from operations since inception and does not expect to generate positive cash flow to fund its operations for at least the next several years. As a result, the Company believes that substantial additional equity or debt financings will be required to fund its operations. There can be no assurance that the Company will be able to consummate any such financings at all or on favorable terms, or that such financings will be adequate to meet the Company's capital requirements. Any additional equity or convertible debt financings could result in substantial dilution to the Company's stockholders. If adequate funds are not 5 available, the Company may be required to delay, reduce the scope of or eliminate one or more of its drug development programs or attempt to continue development by entering into arrangements with collaborative partners or others that may require the Company to relinquish some or all of its rights to certain technologies or drug candidates that the Company would not otherwise desire to relinquish. The Company's inability to fund its capital requirements would have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Uncertainties Related to Clinical Trials Before obtaining required regulatory approvals for the commercial sale of any of its drug candidates under development, the Company must demonstrate through preclinical testing and clinical trials that each product is safe and effective for use in each target indication. The results from preclinical testing and early clinical trials may not be predictive of results that will be obtained in pivotal clinical trials, and there can be no assurance that the Company's clinical trials will demonstrate sufficient safety and effectiveness to obtain required regulatory approvals or will result in marketable products. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The administration of any drug candidate developed by the Company may produce undesirable side effects in humans. The occurrence of side effects could interrupt, delay or halt clinical trials of such drug candidate and could ultimately prevent its approval by the FDA or foreign regulatory authorities for any and all targeted indications. The Company or the FDA may suspend or terminate clinical trials at any time if it is believed that the trial participants are being exposed to unacceptable health risks. There can be no assurance that clinical trials will demonstrate that any drug candidate under development by the Company is safe or effective. The rate of completion of the Company's clinical trials will depend upon, among other factors, obtaining adequate clinical supplies and the rate of patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the study. Delays in planned patient enrollment can result in increased costs or delays or both, which could have a material adverse effect on the Company. There can be no assurance that if clinical trials are successfully completed, the Company will be able to submit a New Drug Application ("NDA") in a timely manner or that any such application will be approved by the FDA. Any failure of the Company to complete successfully its clinical trials and obtain approvals of corresponding NDAs would have a material adverse effect on the Company. See "Business--Product Development Programs" and "Business--Government Regulation." Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights The Company's success will depend in large part on the ability of the Company and its licensors to obtain patent protection with respect to its drug candidates, defend patents once obtained, maintain trade secrets and operate without infringing upon the patents and proprietary rights of others and to obtain appropriate licenses to patents or proprietary rights held by third parties, both in the United States and in foreign countries. The Company has no patents in its own name or patent applications of its own pending, but has obtained licenses to patents and other proprietary rights from third parties with respect to each of the Company's seven drug candidates. The patent positions of pharmaceutical companies, including those of the Company, are uncertain and involve complex legal and factual questions for which important legal principles are unresolved. There can be no assurance that the Company or its licensors have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any of the pending applications or that claims allowed will be sufficient to protect the technology licensed to the Company. In addition, no assurance can be given that any patents issued to or licensed by the Company will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The Company's success will also depend in large part on the Company not breaching the licenses pursuant to which the Company obtained its technology and drug candidates. 6 A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents to technologies that cover or are similar to the technologies licensed by the Company. The Company is aware of certain patent applications previously filed by and patents already issued to others that conflict with patents or patent applications licensed to the Company either by claiming the same methods or compounds or by claiming methods or compounds that could dominate those licensed to the Company. In addition, there can be no assurance that the Company is aware of all patents or patent applications that may materially affect the Company's ability to make, use or sell any products. United States patent applications are confidential while pending in the United States Patent and Trademark Office ("PTO"), and patent applications filed in foreign countries are often first published six months or more after filing. Any conflicts resulting from third party patent applications and patents could significantly reduce the coverage of the patents licensed to the Company and limit the ability of the Company or its licensors to obtain meaningful patent protection. If patents are issued to other companies that contain competitive or conflicting claims, the Company may be required to obtain licenses to these patents or to develop or obtain alternative technology. There can be no assurance that the Company will be able to obtain any such license on acceptable terms or at all. If such licenses are not obtained, the Company could be delayed in or prevented from pursuing the development or commercialization of its drug candidates, which would have a material adverse effect on the Company. The Company is aware of significant risks regarding the patent rights licensed by the Company relating to three of the seven compounds comprising the Company's existing drug candidate portfolio. The Company may not be able to commercialize FTC, DAPD or CS-92 for HIV and/or HBV due to patent rights held by third parties other than the Company's licensors. The Company is aware of numerous patent applications and issued patents in the United States and numerous foreign countries held by third parties other than the Company's licensors that relate to these compounds and their use alone or with other compounds to treat HIV and HBV. As a result, the positions of the Company and its licensors with respect to the use of FTC, DAPD and CS-92 to treat HIV and/or HBV are highly uncertain and involve numerous complex legal and factual questions that are unknown or unresolved. If any of these questions is resolved in a manner that is not favorable to the Company's licensors or the Company, the Company would not have the right to commercialize FTC, DAPD and/or CS-92 in the absence of a license from one or more third parties, which may not be available on acceptable terms or at all. The Company's inability to commercialize any of these compounds would have a material adverse effect on the Company. FTC The Company obtained its rights to purified forms of FTC under a license from Emory University ("Emory"). In 1990 and 1991, Emory filed in the United States and thereafter in numerous foreign countries patent applications with claims to composition of matter and methods to treat HIV and HBV with FTC. Yale University ("Yale") filed patent applications on FTC and its use to treat HBV in 1991 in the United States, and subsequently licensed its rights under those patent applications to Emory. The Company's license arrangement with Emory includes all rights under the Yale patent applications. FTC belongs to the same general class of nucleosides as 3TC, which was recently approved in the United States by the FDA for use in combination with AZT for the treatment of HIV. 3TC is currently being sold by Glaxo Wellcome plc ("Glaxo") for the treatment of HIV under a license agreement with BioChem Pharma, Inc. ("BioChem Pharma"). HIV. Emory received a United States patent in 1993 covering a method to treat HIV infection with FTC. BioChem Pharma filed a patent application in the United States in 1989 and was issued a patent in 1991 covering a group of nucleosides in the same general class as FTC, but which did not include FTC. BioChem Pharma filed foreign patent applications in 1990 based upon its 1989 United States patent application, and in those foreign applications included FTC among a large class of nucleosides. The foreign patent applications are pending in a large number of countries, and have issued in a number of countries with claims directed to FTC and its use to treat HIV. In addition, BioChem Pharma filed a United States patent application in 1991 specifically directed to a purified form of FTC that exhibits advantageous properties for the treatment of HIV. BioChem Pharma filed patent 7 applications in a large number of foreign countries based upon its 1991 United States patent application, and patents have issued in certain countries. BioChem Pharma may have additional patent applications pending in the United States. In the United States, the first to invent a subject matter is entitled to patent protection on that invention. With respect to patent applications filed prior to January 1, 1996, United States patent law provides that if a party invented a technology outside the United States, then for purposes of determining the first to invent the technology, that party is deemed to have invented the technology on the earlier of the date it introduced the invention in the United States or the date it filed its patent application. In a registration statement recently filed with the United States Securities and Exchange Commission, BioChem Pharma stated that since it conducts substantially all of its research activities outside the United States, it is at a disavantage as to inventions made prior to January 1, 1996 with respect to obtaining United States patents as compared to companies that maintain research facilities in the United States. The Company does not know whether Emory or BioChem Pharma was the first to invent the subject matter claimed in their respective United States patent applications or patents, or whether BioChem Pharma invented the technology disclosed in its patent applications in the United States or introduced that technology in the United States before the date of its patent applications. In foreign countries, the first party to file a patent application on an invention, not the first to invent the subject matter, is entitled to patent protection on that invention. While the Company believes that Emory's patent applications that disclosed FTC as a useful anti-HIV agent were filed in foreign countries before BioChem Pharma filed its foreign patent applications on that subject matter, BioChem Pharma has been issued patents in several foreign countries. There can be no assurance that Emory will initiate or be successful in any foreign proceeding attempting to revoke patents issued to BioChem Pharma or addressing the relative rights of BioChem Pharma and Emory. BioChem Pharma has opposed patent claims on FTC recently granted to Emory in Japan and Australia. There can be no assurance that BioChem Pharma will not make additional challenges to any Emory patents or patent applications, or that Emory will succeed in defending any such challenges. There can be no assurance that the sale of FTC by the Company for the treatment of HIV would not be held to infringe United States and foreign patent rights of BioChem Pharma. Under the patent laws of most countries, a product can be found to infringe a third party patent either if the third party patent expressly covers the product or method of treatment using the product, or in certain circumstances, if the third party patent, while not expressly covering the product or method, covers subject matter that is substantially equivalent in nature to the product or method. If it is determined that the sale of FTC for the treatment of HIV infringes a BioChem Pharma patent, the Company would not have the right to make, use or sell FTC for the treatment of HIV in one or more countries in the absence of a license from BioChem Pharma. There can be no assurance that the Company could obtain a license from BioChem Pharma on acceptable terms or at all. HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent applications in March and May 1991 in Great Britain on a method to treat HBV with FTC. Burroughs Wellcome filed similar patent applications in other countries, which the Company believes includes the United States. Glaxo subsequently acquired Burroughs Wellcome's rights under those patent applications. Those applications were filed in foreign countries prior to the date Emory filed its patent application on the use of FTC to treat HBV, and therefore, the foreign patent applications filed by Burroughs Wellcome have priority over those filed by Emory. In July 1996, Emory instituted litigation against Glaxo in the United States District Court to obtain ownership of the patent applications filed by Burroughs Wellcome, alleging that Burroughs Wellcome converted and misappropriated Emory's invention and property, and that an Emory employee is the inventor or a co-inventor of the subject matter covered by the Burroughs Wellcome patent applications. There can be no assurance that Emory will succeed in its efforts to establish ownership rights. If Emory fails to establish ownership rights, the Company could not make, use or sell FTC for the treatment of HBV in countries in which patents are issued to Glaxo without a license from Glaxo. If Emory establishes only co-ownership rights (and not sole ownership) to these patents and patent applications, laws in Europe, Korea and perhaps other countries could prohibit Emory from licensing any co-owned patent rights without Glaxo's consent. If the Company is required to obtain a license from Glaxo to sell FTC for the treatment of HBV, there can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. 8 BioChem Pharma filed a patent application in May 1991 in Great Britain also directed to a method to treat HBV with FTC. BioChem Pharma filed similar patent applications in other countries and in January 1996, was issued a patent in the United States. Emory has informed the Company that Emory intends to challenge BioChem Pharma's issued United States patent. There can be no assurance that Emory will pursue or succeed in any such proceeding. The Company cannot sell FTC for the treatment of HBV in the United States unless the BioChem Pharma patent is held invalid by a United States court or administrative body or unless the Company obtains a license from Biochem Pharma. There can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. In July 1991, BioChem Pharma was issued a United States patent on the use of 3TC to treat HBV and has corresponding applications pending or issued in foreign countries. If it is determined that the use of FTC to treat HBV is not substantially different from the use of 3TC to treat HBV, a court could hold that the use of FTC to treat HBV infringes these BioChem Pharma 3TC patents. In addition, BioChem Pharma has filed in the United States and foreign countries several patent applications on manufacturing methods relating to a class of nucleosides that includes FTC. If the Company uses a manufacturing method that is covered by patents issuing on any of these applications, the Company would not be able to manufacture FTC without a license from BioChem Pharma. There can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. DAPD The Company obtained its rights to DAPD under a license from Emory and the University of Georgia Research Foundation, Inc. ("UGARF"). The DAPD portfolio licensed to the Company consists of two issued United States patents and several United States and foreign patent applications that cover a method for the synthesis of DAPD and its use to treat HIV and HBV. Emory and UGARF filed patent applications claiming these inventions in the United States in 1990, 1992 and 1993, respectively. BioChem Pharma filed a patent application in the United States in 1988 on a group of nucleosides in the same general class as DAPD and their use to treat HIV, and has filed corresponding patent applications in foreign countries. The PTO issued a patent to BioChem Pharma in 1993 covering a class of nucleosides that includes DAPD and its use to treat HIV. Corresponding patents have been issued to BioChem Pharma in many foreign countries. Emory has filed an opposition to BioChem Pharma's granted patent application in the European Patent Office based, in part, upon Emory's assertion that BioChem Pharma's patent does not disclose how to make DAPD, and Emory has informed the Company that Emory intends to challenge BioChem Pharma's patents and patent applications in other countries. However, there can be no assurance that a court or administrative body would invalidate BioChem Pharma's patent claims or that a sale of DAPD by the Company would not infringe BioChem Pharma's patents. If Emory, UGARF and the Company do not challenge, or are not successful in any challenge to, BioChem Pharma's issued patents or pending patent applications (or patents that may issue as a result of such applications), the Company will not be able to manufacture, use or sell DAPD in the United States and any foreign countries in which BioChem Pharma receives a patent without a license from BioChem Pharma. There can be no assurance that the Company would be able to obtain a license from BioChem Pharma on acceptable terms or at all. CS-92 The Company obtained its rights to CS-92 under a license from Emory and UGARF. Emory and UGARF have obtained two United States patents that cover CS-92 and its use to treat HIV, and have filed a European patent application and a Japanese patent application with claims limited to the use of CS-92 as a method for administering AZT, which includes the administration of CS-92 as a precursor form of AZT, to treat HIV infection. Burroughs Wellcome filed an application with the European Patent Office in September 1986 directed to a broad group of nucleosides that includes CS-92, and their use to treat HIV infection. Burroughs Wellcome subsequently filed similar applications in other countries, and the Company believes Burroughs Wellcome filed a similar patent application in the United States. Patents have been issued to Burroughs Wellcome in certain countries based upon these patent applications. Glaxo now has the rights to these patents and patent applications. There can be no assurance that, if challenged, a court would uphold the Emory/UGARF patents in light of the disclosures contained 9 in the earlier filed Burroughs Wellcome patent applications. In addition, CS-92 is metabolized to AZT in cell lines IN VITRO, and based on that, the Company believes that it may likewise be converted to AZT IN VIVO. A court could hold that United States and foreign patents owned by Glaxo covering the use of AZT to treat HIV infection would be infringed by the sale of CS-92 to treat HIV infection. If the use of CS-92 is found to infringe the patents owned by Glaxo, then the Company would not have the right to sell CS-92 in one or more countries without a license from Glaxo. There can be no assurance that the Company would be able to obtain a license from Glaxo on acceptable terms or at all. Litigation, which could result in substantial cost to the Company, may also be necessary to enforce any patents to which the Company has rights or to determine the scope, validity and enforceability of other parties' proprietary rights, which may affect the Company's drug candidates and technology. United States patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence. The Company's licensors may also have to participate in interference proceedings declared by the PTO to determine the priority of an invention, which could result in substantial cost to the Company. There can be no assurance that the Company's licensed patents would be held valid by a court or administrative body or that an alleged infringer would be found to be infringing. Further, with respect to the drug candidates licensed or optioned by the Company from Emory, UGARF and The Regents of the University of California (the "Regents"), Emory, UGARF and the Regents are primarily responsible for any litigation, interference, opposition or other action pertaining to patents or patent applications related to the licensed technology and the Company is required to reimburse them for the costs they incur in performing these activities. As a result, the Company generally does not have the ability to institute or determine the conduct of any such patent proceedings unless Emory, UGARF and/or the Regents do not elect to institute or elect to abandon such proceedings. In cases where Emory, UGARF and/or the Regents elect to institute and prosecute patent proceedings, the Company's rights will be dependent in part upon the manner in which Emory, UGARF and/or the Regents conduct the proceedings. Emory, UGARF and/or the Regents could, in any of these proceedings they elect to initiate and maintain, elect not to vigorously pursue or defend or to settle such proceedings on terms that are not favorable to the Company. An adverse outcome in any patent litigation or interference proceeding could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the Company to cease using such technology, any of which could have a material adverse effect on the Company. Moreover, the mere uncertainty resulting from the institution and continuation of any technology-related litigation or interference proceeding could have a material adverse effect on the Company pending resolution of the disputed matters. The Company also relies on unpatented trade secrets and know-how to maintain its competitive position, which it seeks to protect, in part, by confidentiality agreements with employees, consultants and others. There can be no assurance that these agreements will not be breached or terminated, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently discovered by competitors. The Company relies on certain technologies to which it does not have exclusive rights or which may not be patentable or proprietary and thus may be available to competitors. The Company has filed an application for but has not obtained a trademark registration with respect to its corporate name and its logo. Another company has filed an application to obtain a trademark registration for the name "Triangle Coordinated Care," and the Company is aware that several other companies use trade names that are similar to the Company's for their businesses. If the Company is not able to obtain any licenses that may be necessary for the Company to use its corporate name, it may be required to change its corporate name. The Company's management personnel were previously employed by other pharmaceutical companies. In many cases, these individuals are conducting drug development activities for the Company in areas similar to those in which they were involved prior to joining the Company. As a result, the Company, as well as these individuals, could be subject to allegations of violation of trade secrets and other similar claims. See "Business--Patents and Proprietary Rights." Extensive Government Regulation; No Assurance of Regulatory Approval Human pharmaceutical products are subject to rigorous preclinical testing and clinical trials and other approval procedures mandated by the FDA and foreign regulatory authorities. Various federal and foreign statutes 10 and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with appropriate United States and foreign statutes and regulations are time-consuming and require the expenditure of substantial resources. In addition, these requirements and processes vary widely from country to country. The time required for completing preclinical testing and clinical trials and obtaining regulatory approvals is uncertain. The Company may decide to replace a drug candidate in preclinical testing and/or clinical trials with a modified drug candidate, thus extending the development period. In addition, the FDA or similar foreign regulatory authorities may require additional clinical trials, which could result in increased costs and significant development delays. Delays or rejections may also be encountered based upon changes in FDA policy during the period of product development and FDA review. Similar delays or rejections may be encountered in other countries. The Company's drug candidates may not qualify for accelerated development and/or approval under FDA regulations and, even if some of the Company's drug candidates qualify for accelerated development and/or approval, they may not be approved for marketing sooner than would be historically expected or at all. There can be no assurance that even after substantial time and expenditures, any of the Company's drug candidates under development will receive marketing approval in any country on a timely basis or at all. If the Company is unable to demonstrate the safety and effectiveness of its drug candidates to the satisfaction of the FDA or foreign regulatory authorities, the Company will be unable to commercialize its drug candidates and would be materially and adversely affected. Further, even if regulatory approval of a drug candidate is obtained, the approval may entail limitations on the indicated uses for which the drug candidate may be marketed. A marketed product, its manufacturer and the manufacturer's facilities are subject to continual review and periodic inspections, and subsequent discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including withdrawal of the product from the market. The failure to comply with applicable regulatory requirements can, among other things, result in fines, suspension of regulatory approvals, refusal to approve pending applications, refusal to permit exports from the United States, product recalls, seizure of products, operating restrictions and criminal prosecutions. Further, FDA policy may change and additional government regulations may be established that could prevent or delay regulatory approval of the Company's drug candidates. The effect of governmental regulation may be to delay the marketing of new products for a considerable period of time, to impose costly requirements on the Company's activities or to provide a competitive advantage to other companies that compete with the Company. Adverse clinical results by others could have a negative impact on the regulatory process and timing with respect to the development and approval of the Company's drug candidates. A delay in obtaining or failure to obtain regulatory approvals could have a material adverse effect on the Company. The extent and character of potentially adverse governmental regulation that may arise from future legislation or administrative action cannot be predicted. The Company is also subject to various federal, state and local laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with its development work. See "Business--Government Regulation." Intense Competition; Risk of Technological Change The Company is engaged in segments of the pharmaceutical industry that are highly competitive and rapidly changing. If successfully developed and approved, the drug candidates that the Company is currently developing will compete with numerous existing therapies. In addition, a number of companies are pursuing the development of novel pharmaceuticals that target the same diseases the Company is targeting. The Company believes that a significant number of drugs are currently under development and will become available in the future for the treatment of HIV. The Company anticipates that it will face intense and increasing competition in the future as new products enter the market and advanced technologies become available. There can be no assurance that existing products or new products developed by the Company's competitors will not be more effective, or more effectively marketed and sold, than any that may be developed by the Company. Competitive products may render the Company's licensed technology and products obsolete or noncompetitive prior to the Company's recovery of 11 development or commercialization expenses incurred with respect to any such products. The development by others of a cure or new treatment methods for the indications for which the Company is developing drug candidates could render the Company's drug candidates noncompetitive, obsolete or uneconomical. Many of the Company's competitors have significantly greater financial, technical and human resources than the Company and may be better equipped to develop, manufacture and market products. In addition, many of these companies have extensive experience in preclinical testing and clinical trials, obtaining FDA and other regulatory approvals and manufacturing and marketing pharmaceutical products. Many of these competitors also have products that have been approved or are in late-stage development and operate large, well-funded research and development programs. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Furthermore, academic institutions, governmental agencies and other public and private research organizations are becoming increasingly aware of the commercial value of their inventions and are more actively seeking to commercialize the technology they have developed. If the Company's drug candidates are successfully developed and approved, the Company will face competition based on the safety and effectiveness of its products, the timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position. There can be no assurance that the Company's competitors will not develop more effective or more affordable technology or products, or achieve earlier patent protection, product development or product commercialization than the Company. Accordingly, the Company's competitors may succeed in commercializing products more rapidly or effectively than the Company, which could have a material adverse effect on the Company. See "Business-- Competition." Risks Related to License and Option Agreements The agreements pursuant to which the Company has in-licensed or obtained an option to in-license its drug candidates permit the Company's licensors to terminate the agreements under certain circumstances, such as the failure by the Company to achieve certain development milestones or the occurrence of an uncured material breach by the Company. The termination of any of these agreements could have a material adverse effect on the Company. Upon termination of the license agreements with Emory and UGARF, the Company is required to grant to Emory and UGARF a non-exclusive, royalty-free license to all of the Company's interest in the licensed technology (including any improvements to the technology developed by the Company). In addition, the license agreements with Emory, UGARF and the Regents provide that Emory, UGARF and the Regents are primarily responsible for any litigation, interference, opposition or other action pertaining to the patents related to the technology licensed to the Company, and the Company is required to reimburse them for the costs they incur in performing these activities. The Company believes that these costs as well as other costs under the license and option agreements relating to the Company's drug candidates will be substantial, and any inability or failure of the Company to pay these costs with respect to any drug candidate could result in the termination of the license or option agreement for such drug candidate. See "Business--License and Option Agreements." Lack of Manufacturing Capabilities The Company does not have any manufacturing capacity and currently plans to seek to establish relationships with third party manufacturers for the manufacture of clinical trial material and the commercial production of any products it may develop. There can be no assurance that the Company will be able to establish relationships with third party manufacturers on commercially acceptable terms or that third party manufacturers will be able to manufacture products in commercial quantities under good manufacturing practices mandated by the FDA on a cost-effective basis. The Company's dependence upon third parties for the manufacture of its products may adversely affect the Company's profit margins and its ability to develop and commercialize products on a timely and competitive basis. Further, there can be no assurance that manufacturing or quality control problems will not arise in connection with the manufacture of the Company's products or that third party manufacturers will be able to maintain the necessary governmental licenses and approvals to continue manufacturing the Company's products. 12 Any failure to establish relationships with third parties for its manufacturing requirements on commercially acceptable terms would have a material adverse effect on the Company. See "Business--Manufacturing" and "Business--Government Regulation." Lack of Sales and Marketing Capabilities The Company currently has only one marketing employee and no sales personnel. The Company will have to develop a sales force or rely on marketing partners or other arrangements with third parties for the marketing, distribution and sale of any products it develops. The Company currently intends to market in the United States most of the drug candidates that it successfully develops primarily through a direct sales force and outside the United States through a combination of a direct sales force and arrangements with third parties. There can be no assurance that the Company will be able to establish marketing, distribution or sales capabilities or make arrangements with third parties to perform those activities on terms satisfactory to the Company or that any internal capabilities or third party arrangements will be cost-effective. In addition, any third parties with which the Company establishes marketing, distribution or sales arrangements may have significant control over important aspects of the commercialization of the Company's products, including market identification, marketing methods, pricing, composition of sales force and promotional activities. There can be no assurance that the Company will be able to control the amount and timing of resources that any third party may devote to the Company's products or prevent any third party from pursuing alternative technologies or products that could result in the development of products that compete with the Company's products and the withdrawal of support for the Company's programs. See "Business--Sales and Marketing." Dependence on Third Parties for Development, Manufacturing and In-Licensing The Company intends to engage third party contract research organizations ("CROs") to perform certain functions in connection with the development of the Company's drug candidates and third parties to perform many aspects of the manufacture of drug substance. The Company intends to design clinical trials, but have CROs conduct the clinical trials. The Company will rely on the CROs to perform many important aspects of clinical trials. As a result, these aspects of the Company's drug development programs will be outside the direct control of the Company. In addition, there can be no assurance that the CROs or third parties will perform all of their obligations under arrangements with the Company. In the event that the CROs or third parties do not perform clinical trials or manufacture drug substance in a satisfactory manner or breach their obligations to the Company, the commercialization of any drug candidate may be delayed or precluded, which would have a material adverse effect on the Company. The Company does not intend to engage in drug discovery. The Company's strategy for obtaining additional drug candidates is to utilize the relationships of its management team and Scientific Advisory Board to identify compounds for in-licensing from companies, universities, research institutions and other organizations. There can be no assurance that the Company will succeed in in-licensing additional drug candidates on acceptable terms or at all. No Assurance of Market Acceptance The Company's success will depend in substantial part on the extent to which any product it develops achieves market acceptance. The degree of market acceptance will depend upon a number of factors, including the receipt and scope of regulatory approvals, the establishment and demonstration in the medical community of the safety and effectiveness of the Company's products and their potential advantages over existing treatment methods, and reimbursement policies of government and third party payors. There can be no assurance that physicians, patients, payors or the medical community in general will accept or utilize any product that the Company may develop. 13 Risks Relating to Combination Therapy The Company's success will also depend in large part on the extent to which combination therapy for the treatment of HIV in the United States and Europe and for the treatment of HBV in developing areas of the world, particularly Asia, achieves market acceptance. Present combination treatment regimens for the treatment of HIV are expensive (published reports indicate the cost per patient per year can exceed $13,000), and may increase as new combinations are developed. These costs have resulted in a limitation of reimbursement available from third party payors for the treatment of HIV infection, and the Company expects that reimbursement pressures will continue in the future. If combination therapy is accepted as a method to treat HBV, treatment regimens are also likely to be expensive. The Company expects that even the cost of monotherapy for HBV will be considered expensive in developing countries. Any failure of combination therapy to achieve significant market acceptance for the treatment of HIV or potentially HBV could have a material adverse effect on the Company. See "Business-- Product Development Programs." Dependence on Key Employees The Company is highly dependent on its senior management and scientific staff, including Dr. David Barry, the Company's Chairman and Chief Executive Officer. Except for Dr. Barry, the Company has not entered into employment agreements with any of its personnel. The loss of the services of any member of its senior management or scientific staff may significantly delay or prevent the achievement of product development and other business objectives. Retaining and attracting qualified personnel, consultants and advisors is critical to the Company's success. In order to pursue its drug development programs and marketing plans, the Company will be required to hire additional qualified scientific and management personnel. Competition for qualified individuals is intense and the Company faces competition from numerous pharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that the Company will be able to attract and retain such individuals on acceptable terms or at all, and the failure to do so would have a material adverse effect on the Company. In addition, the Company relies on members of its Scientific Advisory Board to assist the Company in formulating its drug development strategy. All of the members of the Scientific Advisory Board are employed by other employers and each such member may have commitments to or consulting or advisory contracts with other entities that may limit his availability to the Company. See "Business--Human Resources" and "Management." Uncertainty of Health Care Reform Measures and Third Party Reimbursement The business and financial condition of pharmaceutical companies will continue to be affected by the efforts of governments and third party payors to contain or reduce the cost of health care through various means. A number of legislative and regulatory proposals aimed at changing the health care system have been proposed in recent years. In addition, an increasing emphasis on managed care in the United States has and will continue to increase the pressure on pharmaceutical pricing. While the Company cannot predict whether legislative or regulatory proposals will be adopted or the effect those proposals or managed care efforts may have on its business, the announcement and/or adoption of such proposals or efforts could have a material adverse effect on the Company. In the United States and elsewhere, sales of prescription pharmaceuticals are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans that mandate predetermined discounts from list prices. Third party payors are increasingly challenging the prices charged for medical products and services. If the Company succeeds in bringing one or more products to the market, there can be no assurance that these products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow the Company to sell its products on a competitive basis. See "Business-- Health Care Reform Measures and Third Party Reimbursement." Absence of Product Liability Insurance; Insurance Risks The Company's business will expose it to potential product liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. There can be no assurance that product liability claims will not be asserted against the Company. The Company does not currently have any product liability insurance. 14 The Company intends to obtain limited product liability insurance for its clinical trials when they begin in the United States and to expand its insurance coverage if and when the Company begins marketing commercial products. However, there can be no assurance that the Company will be able to obtain product liability insurance on commercially acceptable terms or that the Company will be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect the Company against potential losses. A successful product liability claim or series of claims brought against the Company could have a material adverse effect on the Company. Hazardous Materials The Company's drug development programs involve the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds. Although the Company believes that its handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages or fines that result and any such liability could exceed the resources of the Company. Concentration of Stock Ownership; Control by Management and Existing Stockholders Upon completion of the Offerings, the Company's directors, executive officers and their respective affiliates will beneficially own approximately 67% of the outstanding Common Stock (approximately 64% if the U.S. Underwriters' over-allotment option is exercised in full). As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of the Company that may be favored by other stockholders. See "Management" and "Principal Stockholders." Potential Adverse Market Impact of Shares Eligible For Future Sale; Registration Rights Sales of a substantial number of shares of Common Stock in the public market following the Offerings could adversely affect the market price of the Common Stock. In addition, holders of approximately 9,800,000 shares of Common Stock (including shares issuable upon the exercise of outstanding warrants) are entitled to certain rights with respect to registration of such shares of Common Stock for offer or sale to the public. Any such sales may have an adverse effect on the Company's ability to raise needed capital through an offering of its equity or convertible debt securities and may adversely affect the prevailing market price of the Common Stock. See "Shares Eligible for Future Sale" and "Description of Capital Stock--Registration Rights." No Prior Market For Common Stock Prior to the Offerings, there has been no public market for the Company's Common Stock, and there can be no assurance that an active trading market will develop or be sustained after the Offerings or that investors will be able to sell the Common Stock should they desire to do so. The initial public offering price will be determined by negotiations between the Company and the representatives of the Underwriters and may bear no relationship to the price at which the Common Stock will trade upon completion of the Offerings. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Volatility of Stock Price The market price of the Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as announcements of the results of clinical trials, developments with respect to patents or proprietary rights, announcements of technological innovations, new products or new contracts by the Company or its competitors, actual or anticipated variations in the Company's operating results due to a number of factors including, among others, the level of development expenses, changes in financial estimates by securities analysts, conditions and trends in the pharmaceutical and other industries, adoption of new accounting standards affecting 15 the industry, general market conditions and other factors. As a result, it is possible that the Company's operating results will be below the expectations of market analysts and investors, which would likely have a material adverse effect on the prevailing market price of the Common Stock. Further, the stock market has experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many pharmaceutical and biotechnology companies and that often have been unrelated or disproportionate to the operating performance of such companies. These market fluctuations, as well as general economic, political and market conditions such as recessions or international currency fluctuations, may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of the securities of companies in the pharmaceutical and biotechnology industries, securities class action litigation has often been instituted against those companies. Such litigation, if instituted against the Company, could result in substantial costs and a diversion of management attention and resources, which would have a material adverse effect on the Company. The realization of any of the risks described in these "Risk Factors" could have a dramatic and adverse impact on the market price of the Common Stock. Broad Discretion in Use of Proceeds The net proceeds of the Offerings will be added to the Company's working capital and will be available for general corporate purposes, including the Company's drug development programs. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be added to its working capital. Accordingly, management will have broad discretion in the application of the net proceeds. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Antitakeover Effects of Charter, Bylaws and Delaware Law The Company's Second Restated Certificate of Incorporation authorizes the Company's Board of Directors (the "Board") to issue shares of undesignated preferred stock without stockholder approval on such terms as the Board may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any such preferred stock that may be issued in the future. Moreover, the issuance of preferred stock may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, a majority of the voting stock of the Company. The Company's Restated Bylaws provide that the Company's Board will be classified into three classes of directors beginning at the 1997 annual meeting of stockholders. With a classified Board, one class of directors is elected each year with each class serving a three-year term. These and other provisions of the Second Restated Certificate of Incorporation and the Restated Bylaws, as well as certain provisions of Delaware law, could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving the Company, even if such events could be beneficial to the interest of the stockholders. Such provisions could limit the price that certain investors might be willing to pay in the future for the Common Stock. See "Description of Capital Stock--New Preferred Stock" and "Description of Capital Stock--Antitakeover Effects of Charter, Bylaws and Delaware Law." Immediate and Substantial Dilution Purchasers of the Common Stock in the Offerings will suffer immediate and substantial dilution of $5.71 per share in the net tangible book value of the Common Stock from the initial public offering price. To the extent that outstanding options and warrants to purchase the Company's Common Stock are exercised, there will be further dilution. See "Dilution." No Dividends The Company has never declared or paid any cash dividends on its capital stock. The Company currently does not intend to pay any cash dividends in the foreseeable future and intends to retain its earnings, if any, for the operation of its business. See "Dividend Policy." 16 Potential Adverse Impact of Proposition 211 If passed by voters and upheld against potential court challenges, Proposition 211, a pending initiative on the November 1996 California ballot (i) would expose corporations and their directors and officers to a broader array of claims arising in connection with the purchase or sale of securities than those provided under current law, (ii) could limit the ability of corporations to indemnify their directors and officers, and (iii) could expose directors and officers of corporations to increased risk of personal liability. Proposition 211, if passed and upheld, could also increase litigation expenses of and the cost of related insurance for the Company, which could adversely affect the financial position and results of operations of the Company. In addition, the increased risk of personal liability to directors and officers could interfere with the ability of the Company to attract and retain directors and officers, which could adversely affect the Company's competitive position. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements herein regarding the dates on which the Company anticipates commencing clinical trials with respect to its drug candidates constitute forward-looking statements under the federal securities laws. Such statements are subject to certain risks and uncertainties that could cause the actual timing of such clinical trials to differ materially from those projected. With respect to such dates, the Company's management team has made certain assumptions regarding, among other things, the successful and timely completion of preclinical tests, the approval of an Investigational New Drug Exemption Application ("IND") for each of the Company's drug candidates by the FDA, the availability of adequate clinical supplies, the absence of delays in patient enrollment and the availability of the capital resources necessary to complete the preclinical tests and conduct the clinical trials. The Company's ability to commence clinical trials on the dates anticipated is subject to certain risks, including the risks discussed under the caption "Risk Factors" contained herein. Undue reliance should not be placed on the dates on which the Company anticipates commencing clinical trials with respect to any of its drug candidates. These estimates are based on the current expectations of the Company's management team, which may change in the future due to a large number of potential events, including unanticipated future developments. USE OF PROCEEDS The net proceeds to the Company from the sale of the 4,000,000 shares of Common Stock offered hereby are estimated to be approximately $30,920,000 ($35,660,000 if the U.S. Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $8.50 per share and after deducting the estimated underwriting discounts and commissions and estimated expenses of the Offerings payable by the Company. The Company intends to use the net proceeds of the Offerings, including the interest thereon, for general corporate purposes, including drug development programs such as preclinical testing and clinical trials, the payment of license fees and other amounts to licensors and working capital. The amounts actually expended for each purpose may vary significantly depending upon numerous factors, including the progress of the Company's drug development programs, the magnitude of these programs, the scope and results of preclinical testing and clinical trials, the cost, timing and outcome of regulatory reviews, the costs under the license and/or option agreements relating to the Company's drug candidates, administrative and legal expenses, the establishment of capacity for sales and marketing functions, the establishment of relationships with third parties for manufacturing and sales and marketing functions, and other factors. The Company believes that the net proceeds of the Offerings together with its existing cash and short-term investments will be adequate to satisfy its anticipated capital requirements through 1997. Pending application of the net proceeds of the Offerings as described above, the Company intends to invest such net proceeds in interest-bearing, investment-grade debt securities. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company currently does not intend to pay any cash dividends in the foreseeable future and intends to retain its earnings, if any, for the operation of its business. 17 CAPITALIZATION The following table sets forth the capitalization of the Company (i) at June 30, 1996, (ii) at June 30, 1996, pro forma to give effect to the conversion of all of the outstanding shares of Preferred Stock into 8,937,905 shares of Common Stock (the "Conversion") and (iii) at June 30, 1996, pro forma to give effect to the Conversion and as adjusted to give effect to the sale by the Company of the 4,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $8.50 per share, after deducting the estimated underwriting discounts and commissions and estimated expenses of the Offerings payable by the Company and the application of the net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with the Company's financial statements and the notes thereto included elsewhere herein.
June 30, 1996 ------------------------------------------- Pro Forma Actual Pro Forma As Adjusted ------------- ------------- ------------- Stockholders' equity: Preferred Stock, $0.001 par value; 10,000,000 shares authorized and 8,937,905 shares issued and outstanding on an actual basis; no shares issued and outstanding on a pro forma basis; and 5,000,000 shares authorized and no shares issued and outstanding on a pro forma as adjusted basis................................ $ 8,938 -- -- Warrants (1)...................................................... 54,280 $ 54,280 $ 54,280 Common Stock, $0.001 par value; 30,000,000 shares authorized and 4,211,833 shares issued and outstanding on an actual basis; 13,149,738 shares issued and outstanding on a pro forma basis; and 75,000,000 shares authorized and 17,149,738 shares issued and outstanding on a pro forma as adjusted basis (2)............ 4,212 13,150 17,150 Additional paid-in capital........................................ 23,540,791 23,540,791 54,456,791 Accumulated deficit............................................... (6,467,001) (6,467,001) (6,467,001) Deferred compensation............................................. (212,189) (212,189) (212,189) ------------- ------------- ------------- Total stockholders' equity...................................... 16,929,031 16,929,031 47,849,031 ------------- ------------- ------------- Total capitalization............................................ $ 16,929,031 $ 16,929,031 $ 47,849,031 ------------- ------------- ------------- ------------- ------------- -------------
- ------------ (1) Excludes as of October 28, 1996 16,000 shares of Series B Preferred Stock issuable upon exercise of outstanding warrants (at an exercise price of $5.00 per share). See "Description of Capital Stock--Preferred Stock, Warrants and Stock Options" and note 6 of notes to financial statements. (2) Excludes as of October 28, 1996 (i) 1,096,260 shares of Common Stock issuable upon exercise of outstanding options (at a weighted average exercise price of $2.13 per share) and (ii) 1,086,407 shares of Common Stock reserved for future option grants or stock issuances under the Company's benefit plans. See "Management-- Benefit Plans," "Description of Capital Stock--Preferred Stock, Warrants and Stock Options" and note 6 of notes to financial statements. 18 DILUTION The net tangible book value of the Company at June 30, 1996 was $16,929,031 or $1.29 per share, pro forma. Pro forma net tangible book value per share represents the amount of total tangible assets of the Company less total liabilities divided by the number of shares of Common Stock outstanding, after giving effect to the Conversion. After giving effect to the sale by the Company of the 4,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $8.50 per share and after deducting underwriting discounts and commissions and estimated expenses of the Offerings payable by the Company, the Company's net tangible book value as of June 30, 1996 would have been approximately $47,849,031, or approximately $2.79 per share, pro forma. This represents an immediate increase in pro forma net tangible book value per share of $1.50 to existing holders of the Company's capital stock and immediate dilution in pro forma net tangible book value per share of $5.71 to new investors purchasing Common Stock in the Offerings. The following table illustrates the per share dilution: Assumed public offering price per share............................... $ 8.50 Pro forma net tangible book value per share of Common Stock as of June 30, 1996................................................. $ 1.29 Increase per share attributable to new investors...................... 1.50 --------- Pro forma net tangible book value per share of Common Stock as adjusted as of June 30, 1996..................................... 2.79 --------- Dilution per share to new investors................................... $ 5.71 --------- ---------
The following table summarizes, as of June 30, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the existing stockholders and by new investors (after giving effect to the Conversion and before deduction of underwriting discounts and commissions and estimated expenses of the Offerings):
Shares Purchased Total Consideration ------------------------- -------------------------- Average Price Number Percent Amount Percent per Share ------------ ----------- ------------- ----------- --------------- Existing stockholders..................... 13,149,738 77% $ 23,396,032 41% $ 1.78 New investors............................ 4,000,000 23 34,000,000 59 8.50 -- -- ------------ ------------- Total................................ 17,149,738 100% $ 57,396,032 100% -- -- -- -- ------------ ------------- ------------ -------------
The foregoing table excludes as of October 28, 1996 (i) 1,096,260 shares of Common Stock issuable upon exercise of outstanding options (at a weighted average exercise price of $2.13 per share), (ii) 146,000 shares of Preferred Stock issuable upon exercise of outstanding warrants (at a weighted average exercise price of $1.22 per share) and (iii) 1,086,407 shares of Common Stock reserved for future option grants and stock issuances under the Company's benefit plans. See "Management--Benefit Plans," "Description of Capital Stock--Preferred Stock, Warrants and Stock Options" and note 6 of notes to financial statements. 19 SELECTED FINANCIAL DATA The selected statement of operations data with respect to the period from inception (July 12, 1995) to December 31, 1995 and the balance sheet data at December 31, 1995 set forth below are derived from the financial statements of the Company included elsewhere in this Prospectus, which have been audited by Price Waterhouse LLP, independent accountants. The statement of operations data for the six months ended June 30, 1996 and for the period from inception (July 12, 1995) through June 30, 1996 and the balance sheet data at June 30, 1996 set forth below are derived from unaudited financial statements of the Company, which have been prepared on the same basis as the audited financial statements of the Company and, in the opinion of the management of the Company, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations for such period and the financial position at such date. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and the notes thereto included elsewhere in this Prospectus.
Period from Period from Inception inception Six Months (July 12, 1995) (July 12, 1995) to Ended through December 31, 1995 June 30, 1996 June 30, 1996 ------------------- -------------- ---------------- Statement of Operations Data: Costs and expenses: License fees......................................... -- $ 2,751,829 $ 2,751,829 Development.......................................... -- 1,342,591 1,342,591 General and administrative........................... $ 1,004,815 1,490,156 2,494,971 ---------- -------------- ---------------- Loss from operations....................................... (1,004,815) (5,584,576) (6,589,391) Interest income............................................ 37,232 85,158 122,390 ---------- -------------- ---------------- Net loss................................................... $ (967,583) $ (5,499,418) $ (6,467,001) ---------- -------------- ---------------- ---------- -------------- ---------------- Pro forma net loss per share (1)........................... $ (0.07) $ (0.39) ---------- -------------- ---------- -------------- Shares used in computing pro forma net loss per share (1)...................................................... 14,277,498 14,277,498 December 31, 1995 June 30, 1996 ------------------- -------------- Balance Sheet Data: Cash and cash equivalents.................................. $ 3,081,586 $ 5,825,617 Working capital............................................ 2,867,117 16,339,403 Total assets............................................... 3,101,985 18,030,241 Accumulated deficit........................................ (967,583) (6,467,001) Total stockholders' equity................................. 2,887,516 16,929,031
- ------------ (1) See note 1 of notes to financial statements for information concerning the computation of pro forma net loss per share and shares used in computing pro forma net loss per share. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. Overview Triangle is a pharmaceutical company engaged in the development of new drug candidates primarily in the antiviral area. Since its inception on July 12, 1995, the Company's operating activities related primarily to recruiting personnel, negotiating the license and option arrangements for its drug candidates, raising capital and developing the Company's drug candidates. The Company has not received any revenues from the sale of products, and does not expect any of its drug candidates to be commercially available for at least the next several years. As of June 30, 1996, the Company's accumulated deficit was approximately $6,500,000. The Company's drug development programs will require substantial capital expenditures, including expenditures for preclinical testing, chemical synthetic scale-up, clinical trials of drug candidates and payments to the Company's licensors. The Company has been unprofitable since its inception and expects to incur substantial and increasing losses for at least the next several years, due primarily to the expansion of its drug development programs. The Company expects that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. See "Risk Factors--History of Operating Losses; Accumulated Deficit; Uncertainty of Future Profitability." The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The risks, expenses and difficulties encountered by companies at an early stage of development must be considered when evaluating the Company's prospects. To address these risks, the Company must, among other things, successfully develop and commercialize its drug candidates, secure all necessary proprietary rights, respond to competitive developments, and continue to attract, retain and motivate qualified persons. There can be no assurance that the Company will be successful in addressing these risks. See "Risk Factors--Development Stage Company; Uncertainty of Product Development." The operating expenses of the Company will depend on several factors, including the level of development expenses. Development expenses will depend on the progress and results of the Company's drug development efforts, which the Company cannot predict. Management may in some cases be able to control the timing of development expenses in part by accelerating or decelerating preclinical testing and clinical trial activities. As a result of these factors, the Company believes that period to period comparisons in the future are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to all of the foregoing factors, it is possible that the Company's operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of the Common Stock would likely be materially adversely affected. See "Risk Factors--Volatility of Stock Price." Results of Operations SIX MONTHS ENDED JUNE 30, 1996 The Company had total interest income of $85,158 in the six months ended June 30, 1996. License fees totaled $2,751,829 for the six months ended June 30, 1996. Of this amount, $1,100,000 related to payments due upon execution of certain license agreements and $1,000,000 related to license fees paid. License fees also included non-cash charges of $636,000 based on the fair value of Common Stock issued to licensors in connection with the execution of certain of these agreements. Future license fees may also consist of milestone payments under licensing arrangements, the amount of which could be substantial and the timing of which will depend on a number of factors that the Company cannot predict. These factors include, among others, the success of the Company's drug development programs and the extent to which the Company in-licenses additional drug candidates. Development expenses totaled $1,342,591 for the six months ended June 30, 1996. Development expenses consisted primarily of expenses for the preclinical testing of certain of the Company's drug candidates. Development expenses for the six months ended June 30, 1996 included non-cash charges of $313,327 related to the 21 amortization of deferred consulting expenses. The Company expects its development expenses to increase substantially in the future due to continued expansion of drug development activities, including preclinical testing and clinical trials. In addition, if the Company in-licenses additional drug candidates, development expenses would increase as a result. General and administrative expenses totalled $1,490,156 for the six months ended June 30, 1996. General and administrative expenses consisted primarily of compensation expenses, rent expense and amounts paid for patent prosecution and other activities under certain licensing agreements. General and administrative expenses for the six months ended June 30, 1996 included non-cash charges of $71,529 related to the amortization of deferred compensation expenses. The increase in general and administrative expenses compared to the period from July 12, 1995 to December 31, 1995 is comprised primarily of increases in rent expenses associated with office and laboratory facilities and increases in professional fees. The Company expects that its general and administrative expenses will increase in future periods. PERIOD FROM INCEPTION (JULY 12, 1995) TO DECEMBER 31, 1995 (THE "INCEPTION PERIOD") The Company had total interest income of $37,232 for the Inception Period. General and administrative expenses totaled $1,004,815 during the Inception Period, and consisted primarily of compensation paid to employees and professional fees. Liquidity and Capital Resources The Company has financed its operations since inception primarily with the net proceeds received from private placements of equity securities. As of June 30, 1996 the Company had received aggregate proceeds of approximately $22,400,000 from these transactions. From July 1995 through May 1996, the Company raised approximately $3,900,000 from the sale of its Series A Preferred Stock to 26 investors. In June 1996, the Company raised approximately $18,500,000 from the sale of its Series B Preferred Stock to 15 investors. At June 30, 1996, the Company's principal source of liquidity was $5,825,617 in cash and cash equivalents and $11,305,549 in short-term investments. On August 8, 1996 the Company obtained a $1,000,000 secured equipment lease line facility with an option to increase the facility to $2,000,000. The facility had not been utilized as of September 1, 1996, and expires on August 9, 1997. The Company expects that its capital requirements will increase substantially in future periods as the Company funds its drug development programs. The Company's future capital requirements will depend on many factors, including the progress of the Company's drug development programs, the magnitude of these programs, the scope and results of preclinical testing and clinical trials, the cost, timing and outcome of regulatory reviews, the costs under the license and/or option agreements relating to the Company's drug candidates, administrative and legal expenses, the establishment of capacity for sales and marketing functions, the establishment of relationships with third parties for manufacturing and sales and marketing functions, and other factors. Amounts payable by the Company in the future under its existing license agreements are uncertain due to a number of factors, including the progress of the Company's drug development programs, the Company's ability to obtain approval to commercialize any drug candidate and the commercial success of any approved drug. The Company's existing license agreements require future payments of up to $17,750,000 contingent upon the achievement of certain development milestones. Additionally, the Company will pay royalties based on a percentage of net sales of each licensed product incorporating these drug candidates. Most of the Company's license agreements require minimum royalty payments after regulatory approval. Depending on the Company's success and timing in obtaining regulatory approval, aggregate annual minimum royalties could range from $2,000,000 to $46,000,000 under the Company's existing license agreements. One of the Company's license agreements requires an additional payment of $500,000 at the earlier of eighteen months after execution or upon certain financing activities, such as the completion of the Offerings. The Company believes that the net proceeds of the Offerings together with its existing cash and short-term investments will be adequate to satisfy its anticipated capital requirements through 1997. The Company expects that it will be required to raise substantial additional funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources. There can be no assurance that additional funding will be available on favorable terms from any of these sources or at all. See "Risk Factors--Future Capital Needs; Uncertainty of Additional Funding." 22 Net Operating Loss Carryforwards As of December 31, 1995, the Company had a net operating loss carryforward of approximately $961,000. For the Inception Period, the Company recognized a valuation allowance equal to the deferred asset represented by its net operating loss carryforward and therefore recognized no tax benefit. The Company's ability to utilize its net operating loss carryforwards may be subject to an annual limitation in future periods pursuant to the "change in ownership rules" under Section 382 of the Internal Revenue Code of 1986, as amended. See note 5 of notes to financial statements. Recent Accounting Pronouncements In 1995, the Financial Accounting Standards Board issued two new standards, which the Company will adopt in the year ending December 31, 1996, related to long-lived assets (SFAS 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF") and stock compensation (SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"). The Company intends to adopt the disclosure alternative for stock compensation and does not expect the adoption of either standard to have a material impact on the Company's financial position or results of operations. See note 1 of notes to financial statements. 23 BUSINESS Overview Triangle is a pharmaceutical company engaged in the development of new drug candidates primarily in the antiviral area, with a particular focus on therapies for HIV, including AIDS, and HBV. Prior to their employment with the Company, members of the Company's management team played instrumental roles in the identification, clinical development and commercialization of several leading antiviral therapies. Triangle has an existing portfolio consisting of five licensed drug candidates and two drug candidates for which the Company has an option to acquire a license. In laboratory tests, four of the seven drug candidates inhibit the growth of HIV, and two of these four also inhibit the growth of HBV. The other three drug candidates have attractive preclinical profiles against certain cancers, herpes infections and psoriasis. All the Company's drug candidates are in an early phase of development. The Company has completed a Phase Ia clinical trial and is currently conducting a Phase Ib/IIa clinical trial with one of its anti-HIV drug candidates. The Company expects to commence Phase I clinical trials for most of its other existing drug candidates by the end of 1997. The Company believes that some of its drug candidates may meet the criteria established by the FDA for accelerated approval. If so, the Company may be able to commercialize these drug candidates in a shorter time period than has historically been required for drugs that do not meet the criteria for accelerated approval. There can be no assurance, however, that the Company's drug candidates will qualify for accelerated approval or be approved in a time period that is shorter than would be historically expected. Treatment of HIV using combinations of drugs has recently shown significant clinical benefits including reducing virus levels and increasing patient longevity. Prior to joining the Company, the Company's management team was actively engaged for a number of years in the development of combination therapy for the treatment of HIV. The Company was founded based in part on the management team's belief that the prolonged use of combination thereapy will generate demand for new anti-HIV drugs with favorable resistance and tolerance profiles. The Company believes the use of anti-HIV drugs will increase because it anticipates that (i) the use of multiple drugs in individual patients on combination therapy will increase, (ii) large numbers of previously untreated patients will begin to seek medical care as the benefits of combination therapy become more widely understood and (iii) patient longevity will increase and thus lengthen the duration of drug therapy. Triangle intends to maintain a limited corporate infrastructure that is focused on drug development. The Company does not intend to engage in drug discovery, but instead to focus on drug development, thereby avoiding much of the significant investment of time and capital that is generally required before a compound is identified and brought to clinical trials. The Company intends to use its expertise to perform internally what it believes are the most critical aspects of the development process, such as the design of clinical trials and the optimization of drug synthesis. The Company plans to out-source the conduct of clinical trials and many aspects of the manufacture of drug substance to carefully selected third parties. The Company believes that the high concentration of major prescribers of anti-HIV therapies in the United States will enable the Company to promote most drug candidates that are successfully developed to these prescribers through a small, direct sales force. The Company does not currently have a sales force. Triangle is a development stage company, has not received any revenues from the sale of products, and does not expect any of its drug candidates to be commercially available for at least the next several years. As of June 30, 1996, the Company's accumulated deficit was approximately $6.5 million. There can be no assurance that the Company will ever achieve profitable operations. Strategy Triangle's goal is to create a portfolio of commercialized drugs primarily for antiviral and anticancer therapies. The Company seeks to achieve its goal through the following strategies: FOCUS ON VIRAL DISEASES AND CANCER. The expertise of Triangle's management team lies in identifying, developing and commercializing drugs for the treatment of viral diseases and cancer. The Company is targeting the viral 24 disease and cancer markets because the Company believes the significant unmet medical need and the rapid pace of scientific advances occurring in the treatment of these diseases give these markets attractive growth potential. In addition, the relatively high concentration of prescribers that treat HIV and cancer may lend itself to the use of a small, specialized direct sales force in the United States. APPLY SELECTIVE CRITERIA TO DRUG CANDIDATES. The Company has in-licensed drug candidates for which the Company believes there is a higher than average probability of obtaining regulatory approval. The Company uses its expertise to identify drug candidates that it judges to have attractive preclinical profiles. In addition, the Company prefers, where practical, to in-license drug candidates that have either undergone some testing in humans (E.G., FTC and alanosine) or share characteristics with drugs that are currently approved for use in humans (E.G., CS-92, acyclovir monophosphate and 2-CdAP). The Company intends to apply these selection standards where feasible in evaluating drug candidates for potential in-licensing. LEVERAGE RELATIONSHIPS. As a result of their instrumental roles in the identification, clinical development and commercialization of antiviral and anticancer therapies, members of the Company's management team and Scientific Advisory Board have extensive contacts in academia and industry. These contacts were instrumental to the Company's acquisition of its existing drug candidates, and the Company believes they will be valuable in its efforts to develop and commercialize its existing and future drug candidates. DEVELOP DRUGS FOR USE IN COMBINATION THERAPY. Combination therapy is currently a common method to treat certain cancers and the Company believes that it is becoming an increasingly accepted method to treat viral diseases such as HIV infection. The Company seeks to identify and develop drug candidates for use in combination therapy that have resistance and tolerance profiles that are different from but complementary to the profiles of existing drugs. In addition, in contrast to single drug therapy where drugs are competitively promoted, the Company believes that the marketing of any drug it successfully develops as part of an established combination regimen with drugs produced by major pharmaceutical companies will be enhanced by the promotion of the other drugs used as part of the combination regimen. FOCUS ON SMALL MOLECULE DRUGS. Members of the Company's management are well known for their successful development of and expertise in small molecule drugs generally, and nucleosides in particular. Small molecule drugs have several advantages over large molecule drugs, such as proteins and polynucleotides. For example, they are often simpler and easier to scale-up and manufacture than large molecule drugs. Furthermore, small molecule drugs are more likely to be orally bioavailable, a significant advantage in treating long-term chronic illnesses where patients prefer not to be subjected to injections over extended periods of time. STRATEGICALLY OUT-SOURCE ROUTINE ASPECTS OF DRUG DEVELOPMENT. Triangle intends to maintain a limited corporate infrastructure that is focused on drug development. Much of the drug development process consists of routine elements that can be out-sourced to high quality, high capacity contractors. As a result, the Company intends to focus on the aspects of drug development that require particular expertise. For example, the Company intends to concentrate on the design of clinical trials and the optimization of drug synthesis and to out-source the conduct of clinical trials and many aspects of the manufacture of drug substance. The Company believes this strategy will enable it to respond rapidly to certain changing events, such as clinical trial results and the availability of funds, by increasing or decreasing expenditures on particular drug development projects or by shifting the Company's emphasis among projects. Product Development Programs The Company is currently focused on the development of drugs for the treatment of viral diseases to take advantage of the opportunities presented by the emergence of combination therapy. The Company believes that combination therapy will become the standard of treatment for HIV over the course of the next several years. The Company also believes that HBV, due to its complexity and demonstrated ability to develop resistance to a number 25 of therapeutic agents, may also be more effectively treated with combination therapy. Additionally, the Company believes that there is a significant opportunity to develop drugs for the treatment of cancer because of the limited clinical benefits offered by many of the current treatments. In evaluating drug candidates for its product development programs, the Company seeks to in-license drug candidates for which favorable preclinical, and where possible, clinical data already exist. The Company was able to evaluate preclinical, and in some cases clinical, data for each of the drug candidates it is currently developing. Unless otherwise stated, all preclinical tests and clinical trials discussed below refer to tests and trials conducted by third parties prior to the time the Company obtained rights to the applicable drug candidate. In some cases, in its drug development efforts the Company has access to and will be able to use certain results of these preclinical tests and clinical trials. The Company will not, however, be able to use or rely on all data from all preclinical tests and clinical trials conducted by third parties, and will have to conduct its own preclinical tests and clinical trials for its drug candidates. The Company also performs a variety of tests when evaluating a drug candidate that are designed to evaluate the potential activity, resistance profile and toxicity of the drug candidate. For example, anti-HIV drug candidates are tested in the Company's laboratories against both laboratory and clinical strains of HIV in several cell lines, individually and in combination with other compounds. In addition, other resistance and toxicity tests are sometimes performed on behalf of the Company by carefully selected third parties. The following table summarizes the current status of Triangle's drug candidates in its three product development programs: viral disease, cancer and psoriasis.
Drug Candidate(1) Indication Status(2) Territory(3) MKC-442 HIV Phase Ib/IIa Worldwide, except certain East Asian countries FTC HIV and HBV Preclinical(4) Worldwide DAPD HIV and HBV Preclinical Worldwide CS-92 HIV Preclinical Worldwide Acyclovir Monophosphate Resistant Herpes and Preclinical Worldwide Herpes Labialis Alanosine Brain, Lung and Preclinical(5) Worldwide other Cancers 2-CdAP Psoriasis Preclinical Worldwide
(1) Triangle has licensed all drug candidates except MKC-442 and alanosine, for which the Company has acquired options to obtain licenses. See "--License and Option Agreements." (2) For a discussion of the terms used in this column, see "--Government Regulation." (3) Indicates the geographic territory in which the Company has the right to commercialize products under the applicable license or option agreement. (4) Phase Ia single dose clinical trials with FTC were completed by Burroughs Wellcome prior to the date Triangle obtained its rights to FTC from Emory. The Company currently does not have access to all of the data from those clinical trials, and plans to initiate its own Phase Ib/IIa clinical trials that will be based in part on the published results of the Burroughs Wellcome Phase Ia clinical trials. See "--Viral Disease Program--HIV-- Development Status--FTC." (5) Phase I and Phase II clinical trials with alanosine were completed by the National Cancer Institute prior to the date Triangle obtained its rights to alanosine from the Regents. The Company is funding Phase II pilot efficacy studies that are being conducted by the University of California, San Diego and are currently scheduled to begin before the end of 1996. See "--Cancer Program--Development Status of Alanosine." 26 VIRAL DISEASE PROGRAM HIV BACKGROUND. The World Health Organization ("WHO") estimates that, as of June 30, 1995, approximately one million people were infected with HIV in the United States and approximately 500,000 people were infected with HIV in Europe. It is generally believed that, in the absence of therapeutic intervention, the vast majority of individuals infected with HIV will ultimately develop AIDS, which currently has a fatality rate approaching 100%. It is currently believed that a key factor in whether a person infected with HIV develops AIDS is the amount of HIV in the body at any one time (the "viral load" or "viral burden"). The failure of vaccines and other immunotherapy to control the virus has led current researchers to focus on halting HIV replication and reducing viral load by blocking one or both of two key enzymes required for viral replication. The first enzyme, reverse transcriptase, is active early in the replication cycle and allows the virus, which is made of RNA, to transform to its DNA form necessary for continued replication. This enzyme can be inhibited by two general classes of drugs defined both by their structure as well as their mechanism of action. The first general class, nucleoside analogue reverse transcriptase inhibitors such as AZT, ddI, ddC, d4T and 3TC, bears a strong chemical resemblance to the natural building blocks (nucleosides) of DNA and interfere with the function of the enzyme by displacing the natural nucleosides used by the enzyme. The second general class, non-nucleoside reverse transcriptase inhibitors such as nevirapine, is composed of an extremely diverse group of chemicals that act by attaching to the enzyme and modifying it so that it functions less efficiently. The second enzyme, protease, is required to permit full virus maturation. The genetic material responsible for the production of both enzymes is extremely prone to mutations that can produce resistance to drugs targeted at the enzymes. If antiviral therapy does not halt all viral replication, natural selection allows the mutant strains of virus that are resistant to the drug the patient is receiving to continue to replicate. Depending upon the particular mutations that occur, these virus strains may be resistant to only one of the drugs used in therapy or may be resistant to some or all of the drugs in the same chemical or functional class. This latter phenomenon is known as cross-resistance. Initially, HIV was treated only with AZT, a nucleoside analogue reverse transcriptase inhibitor, first introduced in 1987. Three other nucleoside analogues--ddI, ddC and d4T--were introduced to the market in the late 1980's. These drugs, when used alone, provided only short-term clinical benefit, could be toxic and were often considered expensive relative to their clinical benefits. As a result, the use of anti-HIV therapy was limited and market penetration was low (less than 25% of the infected population in the United States). More recently, clinical research in HIV has dramatically improved with the introduction in the mid-1990's of diagnostic tests that can reliably determine the viral load in the blood at any given time. As a result, it is now possible to rapidly evaluate potential therapeutic agents and combinations of agents and to accurately determine the potency and resistance profiles of these agents. This has led to the accelerated development of a number of new therapeutic agents and their use in combination therapy. Combination therapy has recently demonstrated improved therapeutic benefits for the treatment of HIV. It has been shown, for example, that the use of 3TC, a nucleoside analogue reverse transcriptase inhibitor, in combination with AZT reduces viral load by 92% to 97% and reverses or limits viral resistance to either drug. The use of protease inhibitors, such as saquinavir, ritonavir or indinavir, in combination with one or two nucleoside analogue reverse transcriptase inhibitors has provided even more benefit, sometimes rendering the virus undetectable in the blood for as long as six months to a year in certain patients. Additional combinations may be possible as new compounds are developed. In spite of these significant advances, numerous challenges remain in the treatment of HIV. In the absence of a cure, the disease is lifelong and significant benefits of combination therapy have been demonstrated for only a year at most. Although combination therapy has demonstrated the ability to markedly slow resistance development, 27 resistant mutants are already being identified to several of the drugs currently used during the course of combination therapy studies, and cross-resistance among many agents, including protease inhibitors, is being increasingly recognized. Present combination treatments are also often complex and expensive (published reports indicate the cost per patient per year can exceed $13,000). Adverse reactions to many of the drugs used in combination therapy are common and may limit compliance or even preclude use in some patients. Even brief instances of non-compliance can reduce or eliminate the ability of the combination therapy to suppress the virus, and may thus accelerate the development of resistance. The Company believes that these challenges present an opportunity to develop additional drugs that offer attractive combinations of tolerance, pharmacokinetic and resistance profiles. DEVELOPMENT STATUS. The Company is developing four compounds for the treatment of HIV: MKC-442, FTC, CS-92 and DAPD. All four are reverse transcriptase inhibitors. MKC-442. The Company is currently conducting a Phase Ib/IIa clinical trial in Europe with MKC-442 in HIV-infected patients to determine safety, optimal dosing and early indications of efficacy as measured by viral load. MKC-442, although a nucleoside analogue, functions as a non-nucleoside reverse transcriptase inhibitor. Triangle has obtained an option, which expires in December 1997, to acquire a license to this compound from Mitsubishi Chemical Corporation ("Mitsubishi") for the treatment of HIV. If Triangle exercises its option, it will obtain rights to MKC-442 worldwide except in certain East Asian countries, including Japan, China and Taiwan. Mitsubishi has agreed to fund up to $1.6 million of initial development expenses. Preclinical tests suggest that MKC-442 may possess characteristics that address several of the therapeutic challenges of HIV, including the ability of HIV to develop resistance that limits the duration of the effectiveness of many currently marketed anti-HIV drugs. When tested in cell culture assay systems against wild-type and several mutant strains of HIV known to be resistant to established non-nucleoside reverse transcriptase inhibitors, MKC-442 retained much of its ability to inhibit HIV replication. In these studies, MKC-442 displayed greater potency than nevirapine against wild-type and mutant strains of HIV. Preclinical studies of MKC-442 in two drug combinations with AZT and ddI and in three drug combinations with AZT and saquinavir suggest that MKC-442 may work well in combination therapy, allowing for more effective inhibition of HIV replication than with any of the single agents alone. Studies in animals suggest a favorable safety and pharmacokinetic profile. Animal pharmacokinetic analyses showed good oral bioavailability and excellent penetration into the central nervous system. The brain is a significant site of HIV replication that is poorly penetrated by many currently marketed anti-HIV drugs. In rats, for example, the concentration of MKC-442 in the brain was 100% of the penetration seen in the plasma. A recently completed Phase Ia study conducted by the Company evaluated the pharmacokinetics and tolerance of single escalating doses of MKC-442 in HIV-infected volunteers. The compound was well tolerated, with only a few participants experiencing minor adverse effects at the higher dose levels. In the groups receiving higher doses, concentrations of the drug in the plasma reached levels much higher than the concentration levels required to kill 90% of the virus in culture. Pharmacokinetic data from the study suggest that the compound could be given twice daily, which generally leads to significantly better patient compliance than is the case with drugs that must be taken three or four times daily. FTC. Triangle currently intends to initiate Phase Ib/IIa clinical trials with FTC for the treatment of HIV in 1997. FTC is a member of the same nucleoside series as 3TC. Triangle has licensed its worldwide rights to FTC for the treatment of HIV and HBV from Emory. IN VITRO studies have demonstrated that FTC is three to ten times more potent than 3TC against HIV and is a potent antiviral agent against HIV strains obtained from a geographically diverse set of HIV-infected patients. IN VITRO studies have also shown that FTC shares cross-resistance patterns with 3TC. The most common resistance mutation to these two agents also increases sensitivity of the virus to AZT. 28 The pharmacokinetics and metabolism of FTC have been investigated in animal studies that demonstrated that FTC was cleared rapidly from the blood stream over all doses studied and had good oral bioavailability. FTC was also well tolerated. Mild anemia in mice was seen only at extremely high doses (3000 mg/kg/day). A Phase Ia single dose study evaluated the pharmacokinetics and tolerance of FTC in 12 HIV-infected volunteers. The volunteers received six single oral doses of FTC at six day intervals ranging from 100 to 1200 milligrams. FTC was well tolerated by all subjects in the dose range studied. FTC was absorbed rapidly into the blood stream following oral administration and was excreted primarily through the kidneys. Its half-life suggests that it could be given twice daily. While food intake slightly decreased the rate of absorption, it did not affect overall oral bioavailability. The absorption, metabolism and excretion of FTC were generally consistent among the subjects. DAPD. The Company currently intends to initiate Phase I clinical trials with DAPD for the treatment of HIV in late 1997 or early 1998. DAPD is a member of a different nucleoside series from FTC and CS-92. The Company believes that DAPD is currently the only member of the nucleoside series to which it belongs in development for the treatment of viral diseases and may offer advantages over several nucleosides from other series that are already on the market because of its unique resistance profile and pharmacological properties. Triangle has licensed worldwide rights to DAPD for the treatment of HIV and HBV from Emory and UGARF. Laboratory studies indicate that DAPD inhibits the growth of HIV at submicromolar levels and is synergistic in combination with AZT, 3TC and FTC. HIV strains that are resistant to AZT, 3TC and FTC are not cross-resistant to DAPD. Pharmacokinetic studies have been completed in animals and demonstrated that DAPD is rapidly converted to dioxolane guanosine ("DXG"). Preliminary analyses of these pharmacokinetic studies indicate that DXG serum concentrations decline with a terminal half-life ranging from approximately two to eight hours. The analysis of several urine samples from this study indicate the presence of DXG with no other metabolites detected. CS-92. Triangle currently intends to initiate Phase I clinical trials with CS-92 in 1997. CS-92 is a member of the same nucleoside series as AZT. Triangle has licensed worldwide rights to CS-92 for the treatment of HIV from Emory and UGARF. CS-92 has been extensively studied IN VITRO in various cell culture systems. CS-92 demonstrated significant antiviral activity IN VITRO against HIV and appears to be significantly less toxic than AZT. The levels needed to inhibit the virus are a thousand times less than the toxic levels in cell cultures. CS-92 is also active in HIV-infected human macrophages, a significant reservoir of HIV infection in humans. CS-92 is 50 to 100 times less toxic to human bone marrow cell cultures than AZT. However, CS-92 has a resistance profile similar to AZT. In animal studies, CS-92 demonstrated low bone marrow toxicity, lack of systemic toxicity, reasonable oral bioavailability and a long half-life that suggest a favorable potential for use in humans. Animal studies of continuous oral treatment with CS-92 for 145 days produced no apparent toxicity. A similar treatment with AZT produced preliminary evidence of red blood cell toxicity as early as 34 days after treatment commenced. In a separate study conducted by the Company, when animals were given identical daily doses of either AZT or CS-92, the animals given AZT developed anemia by day 14 while the animals given CS-92 did not. Pharmacokinetic studies have also been conducted with CS-92 in animals. Oral bioavailability in rats readily yielded viral inhibitory levels in plasma for a number of hours after dosing. CS-92 also displayed favorable pharmacokinetic parameters with good oral bioavailability and a longer half-life than AZT. More detailed animal studies are currently underway. HBV BACKGROUND. HBV is the causative agent of both the acute and chronic forms of hepatitis B, a liver disease that is a major cause of illness and death throughout the world. HBV can lead to cirrhosis and cancer of the liver. In the United States approximately 300,000 people become acutely infected each year and approximately one million people currently are chronic hepatitis B carriers. Of these, as many as 5,000 die each year as a result of the consequences of this liver damage. Worldwide, over 300 million people are chronically infected. Presently, there are over 120 million carriers of hepatitis B in China, of whom one-fourth may develop chronic illnesses such as cirrhosis and liver cancer. 29 A vaccine is currently available that can prevent the transmission of HBV; however, it has no activity in those already infected with the virus. Alpha interferon, approved for the treatment of HBV, is administered by injection, is not always successful in controlling the virus and is associated with significant side-effects, the most common being severe flu-like symptoms. While a few compounds under development may have some activity in the treatment of HBV infection, the Company believes it is likely that additional drugs will be necessary to effectively treat the disease. For example, clinical trials with 3TC to date have shown good tolerance and effective suppression of HBV replication during the course of treatment. However, virus replication usually returns after a six month course of therapy has been completed. Studies of more prolonged therapy are in progress, but antiviral resistance has already been observed with certain patients. The Company believes that HBV, like HIV, may be treated more effectively with combination therapy. Therefore, even if other drugs are approved for the treatment of HBV, the Company believes there will still be a need for additional safe and effective oral therapies for chronic HBV that can be used in combination therapies. DEVELOPMENT STATUS. Two of the compounds that the Company is developing for the treatment of HIV, FTC and DAPD, are also being developed for the treatment of HBV. FTC. The Company currently intends to initiate Phase I clinical trials with FTC for the treatment of HBV in 1997. Some of the development activities the Company plans to undertake with FTC for the treatment of HIV will also be used by the Company in its development of FTC for the treatment of HBV. See "--HIV--Development Status--FTC." FTC has been shown to be a potent inhibitor IN VITRO of HBV replication, and is synergistic IN VITRO in combination with several types of interferons approved for the treatment of HBV. The anti-hepatitis activity of FTC has been demonstrated in a chimeric mouse model and against woodchuck hepatitis virus ("WHV") in naturally infected woodchucks. The infection of the woodchuck results in a disease state closely resembling that found in humans infected with HBV. In the woodchuck model, all treated animals had significantly reduced levels of WHV DNA in their blood. One week after treatment was stopped, WHV levels returned to pretreatment levels, as is seen with 3TC. DAPD. The Company currently intends to initiate Phase I clinical trials with DAPD for the treatment of HBV in late 1997 or early 1998. Some of the development activities the Company plans to undertake with DAPD for the treatment of HIV will also be used by the Company in its development of DAPD for the treatment of HBV. See "--HIV--Development Status--DAPD." DAPD has been shown to be a potent inhibitor IN VITRO of HBV replication. In a woodchuck model, DAPD was found to be as active as 3TC when administered for 12 weeks in reducing serum levels of circulating viral DNA. HERPES SIMPLEX VIRUS BACKGROUND. Herpes labialis (cold sores), caused by Herpes Simplex Virus Type-1 ("HSV-1"), is a latent viral infection that is found in approximately 90% of adults over 30. Once a person is infected, the virus may remain in the body indefinitely, evading attempts by the immune system to destroy it. In a recurrent outbreak characterized as "cold sores," the virus reactivates from its latent state spontaneously or in response to a variety of unpredictable and unavoidable stimuli, including hormonal changes, stress and exposure to sunlight. There is no effective cure for HSV-1. In the United States, there are no prescription or over-the-counter antiviral products available to treat cold sores for the general population. Drugs active specifically against HSV-1, such as acyclovir, foscarnet and gancyclovir, are approved for the treatment of oral cold sores in the United States only in patients with severely weakened immune systems. In Europe, topical acyclovir is approved for the treatment of cold sores in the general population. In addition, penciclovir cream for the topical treatment of cold sores was recently launched in the United Kingdom. The recommended application schedule, every two hours, may present a challenge to patient compliance and the Company believes there is an opportunity for medications with improved compliance profiles. 30 Genital herpes, caused by Herpes Simplex Virus Type 2 ("HSV-2"), is one of the most common sexually transmitted diseases. In the United States, it is estimated that there are between 500,000 and one million new cases annually and that as many as 60 million individuals show evidence of prior infection of HSV-2. About one-third of patients infected with HSV-2 have recurring episodes of painful genital ulcerations, which in most cases heal in three to ten days. Systemic treatment with acyclovir and, more recently, famciclovir and valacyclovir, is effective against most strains of HSV-2. However, in patients with weakened immune systems, such as AIDS patients, the healing of genital ulcerations may be prolonged, persisting for weeks or even months. Resistance to acyclovir is common in these patients because the virus has mutated to avoid the required biochemical step needed to activate the drug. Approved and experimental therapies to treat these resistant viruses are either inconvenient to administer or are associated with potentially significant toxicologic profiles. DEVELOPMENT STATUS OF ACYCLOVIR MONOPHOSPHATE. The Company is developing a topical formulation of acyclovir monophosphate ("ACVMP") for acyclovir-resistant herpes virus infections and for herpes labialis. ACVMP is a monophosphate derivative of the nucleoside acyclovir. The Company currently intends to begin Phase I clinical trials with a topical formulation of ACVMP for acyclovir-resistant herpes virus infections and for herpes labialis in 1997. Triangle has licensed worldwide rights to ACVMP from Dr. Karl Hostetler, a director of the Company and a member of its Scientific Advisory Board. Acyclovir requires the addition of three phosphates to produce the form active against herpes viruses. Normally, the first phosphate is added ("phosphorylation") by a virus-specific enzyme known as thymidine kinase, which produces ACVMP. Once ACVMP is produced, non-viral host cell enzymes add two additional phosphate groups to the molecule to produce acyclovir triphosphate, which is the active antiviral. Mutations in some herpes viruses, particularly those in patients with weakened immune systems, result in a virus that either lacks or has deficient levels of the enzyme thymidine kinase. These viruses do not perform the critical first phosphorylation and are therefore resistant to acyclovir. The administration of ACVMP overcomes this resistance because ACVMP is provided to the cell in an activated form. Previously conducted IN VITRO studies suggested that nucleotides like ACVMP were not able to penetrate cell membranes. Dr. Hostetler discovered, however, that ACVMP applied topically was effective in treating experimental infections with acyclovir-resistant herpes viruses in mice and guinea pigs, thus demonstrating that preformed monophosphates could be useful topical agents. Efficacy was superior to that of topically administered acyclovir in mouse models of acyclovir-resistant infection. ACVMP significantly reduced viral replication when applied vaginally and topically to the perigenital skin in the guinea pig genital herpes model, and ACVMP was also effective against a cutaneous model of human herpes virus infections when applied topically to mice. Efficacy was also superior to that of topical acyclovir for several strains of HSV-1, including strains of acyclovir-resistant virus. In both the mouse and guinea pig studies, ACVMP was well tolerated when applied three times a day for three to seven days. CANCER PROGRAM BACKGROUND. Cancer, which can occur in almost any part of the body, is a major cause of death in developed countries. In the United States, approximately 1.3 million new cases of cancer are diagnosed annually, and more than 1,500 people die of cancer each day. Colorectal, breast, prostate and lung cancer account for approximately half of all diagnoses. Treatments currently approved for cancer vary greatly depending on where the disease originates in the body and the extent of the disease at the time of treatment. The three conventional modes of treatment are radiation therapy, chemotherapy and surgery. Radiation therapy and chemotherapy often have significant negative side effects that may include nausea, hair loss, liver toxicity, extreme fatigue and lowered resistance to infection. Both forms of therapy generally require repeated treatments over extended periods of time. If the disease recurs in a patient following these therapies, it is frequently impossible to repeat the treatment because the recurring cancer will have developed resistance to the form of treatment used (either drug or radiation), or the patient will have received maximum levels of radiation. Surgery does not cause the same side effects as radiation therapy or 31 chemotherapy and is considered the treatment of choice for many cancers; however, many patients are not eligible for surgery because of the location of the cancerous tissue or their physical condition. Even for those patients who are not subject to these limits, surgery can be traumatic and can require long recovery periods. For most advanced stages of cancer, current therapies provide only short-term benefit and the majority of patients die of their disease within a few months to a few years. Non-small cell lung cancer ("NSCLC") is a highly fatal disease caused predominately by smoking. Approximately 100,000 people are diagnosed with the disease in the United States each year and their prognoses are typically very poor. Surgery and radiation are the treatments of choice for NSCLC, but result in only about ten percent five-year survival rates. For the 70% of patients whose tumors are not amenable to surgical removal, median survival rates are measured in months. Chemotherapeutic agents are marginally effective in extending survival in the early stages of the disease and are used primarily to relieve symptoms and sometimes shrink tumors to provide short-term benefit. Antitumor agents generally do not provide significantly prolonged benefit to NSCLC patients during their later stages of disease. The drug options for treating brain cancer are also limited. Approximately 13,500 patients in the United States develop primary brain tumors each year, and the currently approved chemotherapeutic agents lack specificity, resulting in dose-limiting toxicities. DEVELOPMENT STATUS OF ALANOSINE. The Company is funding Phase II pilot efficacy studies with alanosine that will be conducted by the University of California, San Diego for the treatment of NSCLC and brain cancers that lack the enzyme methylthioadenosine phosphorylase ("MTAP"). These clinical trials are currently scheduled to begin before the end of 1996. Alanosine is an amino acid analogue derived from STREPTOMYCES ALANOSINICUS. Triangle has obtained an option from the Regents that expires in September 1998 (with an option for Triangle to extend the exercise period for one year) for a worldwide license to use alanosine in treating various cancers lacking the enzyme MTAP. Alanosine has antitumor activity based upon its ability to interfere with the synthesis of adenosine, a molecule necessary for cellular growth and activity. Cells have only two methods of making adenosine: by DE NOVO synthesis and by the "salvage pathway." Alanosine interferes with the DE NOVO synthesis of adenosine in both malignant and normal cells. In cancer cells that lack the enzyme MTAP (a required enzyme in the salvage pathway), alanosine will deprive such cancer cells but not normal cells of all means to make adenosine. Alanosine was evaluated in Phase I and Phase II clinical trials at the National Cancer Institute ("NCI") during the early 1980's. The trials were discontinued because alanosine caused toxicity typically associated with chemotherapy and did not produce significant response rates in common tumors such as breast or colon cancers. Recently, investigators at the University of California, San Diego discovered that malignant cells from certain cancer patients lack MTAP. The enzyme deficiency occurs in up to 30% of NSCLCs and up to 75% of primary brain tumors. It is absent in a lower percentage of patients with leukemias, lymphomas, melanomas, breast cancer and renal adenocarcinomas. The Company believes that the growth of these MTAP-deficient tumors should be inhibited by alanosine. A laboratory test has been developed to identify in tumor biopsy tissue those cancers that lack MTAP and therefore are most likely to respond to therapy with alanosine. The NCI has already conducted dose-escalating studies and established dose-limiting toxicities. Triangle intends to attempt to recharacterize alanosine by using advanced molecular biological techniques to select the patients most likely to respond to alanosine: those with malignant cancer cells that lack MTAP. PSORIASIS PROGRAM BACKGROUND. Psoriasis is a chronic condition of the skin manifested by scaly patches, which may cause itching. The disease affects an estimated two percent of the world's population, including approximately five million people in the United States. It is characterized by spontaneous remissions, but relapses are common. Although it is not 32 usually a life-threatening condition, psoriasis causes significant psychological distress to those affected who may feel ostracized because of their physical appearance. In severe cases, patients suffer from extensive skin damage and, in some cases, arthritis. There is no known cure for psoriasis and sufferers are often treated for each recurrent episode. Treatments for psoriasis, though varied, are generally of only short-term benefit. They range from topical therapy for milder symptoms, including steroids, Vitamin D derivatives, coal tars and emollients, to phototherapy and more toxic systemic treatments for more severe cases, such as cyclosporine, tretinoin and methotrexate. DEVELOPMENT STATUS OF 2-CDAP. The Company currently intends to initiate Phase I clinical trials with a topical formulation of 2-CdAP for the treatment of psoriasis in the second half of 1997. 2-CdAP is a derivative of 2-CdA (cladribine), a potent immunosuppressive and anti-proliferative agent that is currently an approved drug and the treatment of choice for hairy cell leukemia. Triangle has licensed worldwide rights to the topical administration of 2-CdAP from Dr. Karl Hostetler and Dr. Dennis Carson. In a recent clinical trial, seven patients with psoriasis enrolled in a three month study of oral 2-CdA. Of six patients completing therapy, skin lesions improved in five (two dramatic responses) and joint disease improved in four. However, immunosuppression occurred in all patients and an opportunistic infection occurred in one patient. Recent experiments have shown that complex polynucleotides administered topically are absorbed by cells such as keratinocytes and macrophages within the superficial skin. Based on these findings, the Company believes that topical mononucleotides such as 2-CdAP will also penetrate the skin. If this occurs, the Company believes that the therapeutic utility of 2-CdAP in psoriasis would result from its ability to gain direct access to hyperproliferating keratinocytes in a form that would be rapidly effective. The Company believes that 2-CdAP should also penetrate lymphocytes found in the psoriatic skin, killing them without producing systemic toxicity. The Company believes that systemic toxicity is unlikely to occur because of the small amount of drug that would enter the bloodstream. License and Option Agreements The Company has entered into an option agreement with Mitsubishi with respect to the acquisition of certain license rights to MKC-442. The Company has licensed FTC from Emory and DAPD and CS-92 from Emory and UGARF. The Company has licensed ACVMP from Dr. Karl Hostetler and 2-CdAP from Dr. Karl Hostetler and Dr. Dennis Carson. The Company has entered into an option agreement with the Regents with respect to the acquisition of certain license rights to alanosine. See "Risk Factors--Risks Relating to License and Option Agreements." MITSUBISHI CHEMICAL CORPORATION In December 1995, the Company entered into an option agreement with Mitsubishi pursuant to which Mitsubishi granted the Company an option through December 1997 to obtain an exclusive license to MKC-442. If the option is exercised by the Company, the license will include all countries of the world except certain countries in East Asia, including China, Japan and Korea. Under the option agreement, Triangle has agreed to perform preclinical testing and initial Phase I and Phase IIa clinical trials with MKC-442. Mitsubishi has agreed to fund up to $1.6 million of the development costs incurred by Triangle in connection with engaging an authorized CRO and to supply certain preclinical testing and clinical trial material used by Triangle at Mitsubishi's expense. The Company is obligated to hold Mitsubishi harmless against any claims or losses incurred as a result of the Company's conducting such preclinical testing and clinical trials. Mitsubishi has the right to terminate the option agreement upon three months' notice for scientific or clinical reasons after consultation with the Company. Additional termination events include an uncured breach of the option agreement by the Company. The termination of the option agreement could have a material adverse effect on the Company. If the Company exercises its option, the Company will be required to pay a license initiation fee and make certain milestone and royalty payments, including minimum annual royalty payments, to Mitsubishi. At Mitsubishi's option, certain of these payments may be made in the form of the Company's capital stock. The Company will also be required to meet certain milestone obligations and conduct certain development work with respect to 33 MKC-442. Upon the Company's request, Mitsubishi will supply the Company with MKC-442 for formulation of drug substance under the terms of a separate supply and purchase agreement to be separately negotiated, and any purchases of MKC-442 by the Company will be credited to the Company's minimum annual royalty obligation. Mitsubishi would have the right to terminate the license agreement if the Company does not satisfy certain milestone obligations or does not cure any material breach of the license agreement. The failure of the Company to enter into the license agreement or the termination of the license agreement could have a material adverse effect on the Company. EMORY UNIVERSITY AND UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC. FTC. In April 1996, the Company entered into a license agreement with Emory pursuant to which the Company received an exclusive worldwide license to all of Emory's rights to purified forms of FTC (the "FTC Technology") for use in the HIV and HBV fields. As consideration for the exclusive license of the FTC Technology, the Company issued 500,000 shares of Common Stock and agreed to pay certain license fees, several installments of which have already been paid. In addition, the Company agreed to make certain milestone and royalty payments to Emory. Beginning the third year after the first FDA registration is granted for an anti-HIV product incorporating the FTC Technology in the United States and after the first registration is granted for an anti-HBV product incorporating the FTC Technology in certain major market countries, the Company will be required to pay Emory minimum annual royalties for the HIV and HBV indications, respectively. Under the license agreement, Emory is primarily responsible for prosecuting all patents related to the FTC Technology. The Company agreed to reimburse Emory for the patent prosecution costs it incurs after December 1996. The Company has the right to pursue any actions against third parties for infringement of the FTC Technology at the Company's expense. Upon the conclusion of any such infringement action, the Company is entitled to offset its unrecovered expenses incurred in connection with the infringement action against any milestone payments and royalties that were owing to Emory during the time the infringement action was pending. In addition, the Company is obligated to defend, indemnify and hold harmless Emory and certain of its representatives against any claims or losses incurred as a result of the Company's manufacturing, testing, design, use and sale of products utilizing the FTC Technology. Emory has the right to terminate the license agreement or to convert the exclusive license to a nonexclusive license in the event the Company does not satisfy certain milestone obligations. Emory may also terminate the license agreement upon an uncured breach of the agreement by the Company. In the event of such termination or conversion, the Company will grant Emory certain nonexclusive, royalty-free license rights in all intellectual property under the Company's control relating to the FTC Technology necessary for the marketing of products incorporating the FTC Technology. The termination of the license agreement or the conversion from an exclusive to a nonexclusive agreement could have a material adverse effect on the Company. DAPD. In March 1996, the Company entered into a license agreement with Emory and UGARF pursuant to which the Company received an exclusive worldwide license to all of Emory's and UGARF's rights to a series of nucleoside analogues including DAPD and DXG (the "DAPD Technology") for use in the HIV and HBV fields. As consideration for the exclusive license of the DAPD Technology, the Company issued an aggregate of 150,000 shares of Common Stock to Emory and UGARF. In addition, the Company agreed to make certain milestone and royalty payments to Emory and UGARF. The Company is required to pay license maintenance fees beginning March 1999 in the event certain development milestones have not been achieved. Beginning the third year after the first FDA registration is granted for an FDA-approved product incorporating the DAPD Technology, the Company will be required to pay Emory and UGARF a minimum annual royalty. Under the license agreement, Emory and UGARF are primarily responsible for prosecuting all patents related to the DAPD Technology. The Company agreed to reimburse Emory and UGARF for the patent prosecution costs they incur after the date of the license agreement. The Company has the right to pursue any actions against third parties for infringement of the DAPD Technology at the Company's expense. Upon the conclusion of any such infringement action, the Company is entitled to offset its unrecovered expenses incurred in connection with the infringement action against any milestone payments and royalties that were owing to Emory and UGARF during the time the infringement action was pending. In addition, the Company is obligated to defend, indemnify and hold harmless Emory, UGARF and certain of their representatives against any claims or losses incurred as a result of the Company's manufacturing, 34 testing, design, use and sale of products utilizing the DAPD Technology. Emory and UGARF have the right to terminate the license agreement or to convert the exclusive license to a nonexclusive license in the event the Company does not satisfy certain milestone obligations. Emory and UGARF may also terminate the license agreement upon an uncured breach of the agreement by the Company. In the event of such termination or conversion, the Company will grant Emory and UGARF certain nonexclusive, royalty-free license rights in all intellectual property under the Company's control relating to the DAPD Technology necessary for the marketing of products incorporating the DAPD Technology. The termination of the license agreement or the conversion from an exclusive to a nonexclusive agreement could have a material adverse effect on the Company. CS-92. In March 1996, the Company entered into a license agreement with Emory and UGARF pursuant to which the Company received an exclusive worldwide license to all of Emory's and UGARF's rights to CS-92 (the "CS-92 Technology") for use in the HIV field. As consideration for the exclusive license of the CS-92 Technology, the Company issued an aggregate of 50,000 shares of Common Stock to Emory, UGARF and Dr. Raymond Schinazi, a co-inventor of the CS-92 Technology. In addition, the Company agreed to make certain milestone and royalty payments to Emory and UGARF. The Company is required to pay license maintenance fees beginning March 1999 in the event certain development milestones have not been achieved. Beginning the third year after the first FDA registration is granted for an FDA-approved product incorporating the CS-92 Technology, the Company will be required to pay Emory and UGARF a minimum annual royalty. Under the license agreement, Emory and UGARF are primarily responsible for prosecuting all patents related to the CS-92 Technology. The Company agreed to reimburse Emory and UGARF for the patent prosecution costs they incur after the date of the license agreement. The Company has the right to pursue any actions against third parties for infringement of the CS-92 Technology at the Company's expense. Upon the conclusion of any such infringement action, the Company is entitled to offset its unrecovered expenses incurred in connection with the infringement action against any milestone payments and royalties that were owing to Emory and UGARF during the time the infringement action was pending. In addition, the Company is obligated to defend, indemnify and hold harmless Emory, UGARF and certain of their representatives against any claims or losses incurred as a result of the Company's manufacturing, testing, design, use and sale of products utilizing the CS-92 Technology. Emory and UGARF have the right to terminate the license agreement or to convert the exclusive license to a nonexclusive license in the event the Company does not satisfy certain milestone obligations. Emory and UGARF may also terminate the license agreement upon an uncured breach of the agreement by the Company. In the event of such termination or conversion, the Company will grant Emory and UGARF certain nonexclusive, royalty-free license rights in all intellectual property under the Company's control relating to the CS-92 Technology necessary for the marketing of products incorporating the CS-92 Technology. The termination of the license agreement or the conversion from an exclusive to a nonexclusive agreement could have a material adverse effect on the Company. DRS. HOSTETLER AND CARSON In November 1995, the Company entered into a license agreement with Dr. Karl Hostetler and Dr. Dennis Carson pursuant to which Dr. Hostetler granted the Company an exclusive worldwide license to his rights to ACVMP and Drs. Hostetler and Carson granted the Company an exclusive worldwide license to their rights to 2-CdAP (the "ACVMP and 2-CdAP Technologies"). As consideration for the exclusive license of the ACVMP and 2-CdAP Technologies, the Company sold shares of Common Stock to Drs. Hostetler and Carson. The interests of Drs. Hostetler and Carson in the shares of Common Stock vest over time as they continue to serve as consultants to the Company. The Company also agreed to make two separate milestone payments of $1.0 million each and to make royalty payments ranging from 3% to 8% of net sales of products incorporating the ACVMP and 2-CdAP Technologies to Drs. Hostetler and Carson. The Company is obligated to hold harmless Drs. Hostetler and Carson against any claims or losses caused by or arising out of the Company's use of the ACVMP and 2-CdAP Technologies. Drs. Hostetler and Carson have the right to terminate the license agreement or convert the exclusive license to a nonexclusive license in the event that the Company does not satisfy certain development, marketing and milestone obligations. Additional termination events include the failure of the Company to pay royalties to Drs. Hostetler and Carson when due. The termination of the license agreement or the conversion from an exclusive to a nonexclusive agreement could have a material adverse effect on the Company. 35 THE REGENTS OF THE UNIVERSITY OF CALIFORNIA In September 1996, the Company entered into an option agreement with the Regents pursuant to which the Regents granted the Company an option through September 1, 1998 (with an option to extend the exercise period for one year), to obtain an exclusive worldwide license to all of the Regents' rights to alanosine and related technologies (the "Alanosine Technology") for use in the treatment of various cancers lacking the enzyme MTAP. As consideration for the grant of the option, the Company agreed to pay the Regents certain option fees. In the event the Company exercises the option, the Company will be required to pay a license initiation fee and annual license maintenance fees. The Company will also be required to make certain milestone and royalty payments to the Regents, including minimum annual royalties. The Regents are primarily responsible for prosecuting all patents and initiating infringement actions related to the Alanosine Technology (and will remain primarily responsible for patent prosecution and infringement actions if the Company exercises the option). The Company has agreed to reimburse the Regents for all patent prosecution costs they incur. In addition, the Company is obligated to defend, indemnify and hold harmless the Regents and certain of their representatives against any claims or losses incurred as a result of the Company's exercise of its rights under the option agreement. The Company also entered into a sponsored research agreement (the "Research Agreement") with the Regents whereby the Company has agreed to provide approximately $450,000 to fund two clinical trials to be conducted by the University of California, San Diego. The clinical trials will be pilot Phase II clinical studies to assess the efficacy of alanosine in the treatment of NSCLC and brain cancers. Either the Regents or the Company may terminate a study upon the uncured breach of the Research Agreement by the other party. In the event both studies are terminated under the Research Agreement (other than for reasons of the uncured breach on the part of the Regents), the Company's rights under the option agreement would be terminated. The termination of the Company's rights under the option agreement, the failure of the Company to enter into the related license agreement or the termination of the license agreement could have a material adverse effect on the Company. Patents and Proprietary Rights The Company's success will depend in large part on the ability of the Company and its licensors to obtain patent protection with respect to its drug candidates, defend patents once obtained, maintain trade secrets and operate without infringing upon the patents and proprietary rights of others and to obtain appropriate licenses to patents or proprietary rights held by third parties, with respect to its drug candidates, both in the United States and in foreign countries. The Company has no patents in its own name or patent applications of its own pending, but has obtained licenses to patents and other proprietary rights from third parties with respect to each of the Company's seven drug candidates. The patent positions of pharmaceutical companies, including those of the Company, are uncertain and involve complex legal and factual questions for which important legal principles are unresolved. There can be no assurance that the Company or its licensors have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any of the pending applications or that claims allowed will be sufficient to protect the technology licensed to the Company. In addition, no assurance can be given that any patents issued to or licensed by the Company will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The Company's success will also depend in large part on the Company not breaching the licenses pursuant to which the Company obtained its technology and drug candidates. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents to technologies that cover or are similar to the technologies licensed by the Company. The Company is aware of certain patent applications previously filed by and patents already issued to others that conflict with patents or patent applications licensed to the Company either by claiming the same methods or compounds or by claiming methods or compounds that could dominate those licensed to the Company. In addition, there can be no assurance that the Company is aware of all patents or patent applications that may materially affect the Company's ability to make, use or sell any products. United States patent applications are 36 confidential while pending in the PTO, and patent applications filed in foreign countries are often first published six months or more after filing. Any conflicts resulting from third party patent applications and patents could significantly reduce the coverage of the patents licensed to the Company and limit the ability of the Company or its licensors to obtain meaningful patent protection. If patents are issued to other companies that contain competitive or conflicting claims, the Company may be required to obtain licenses to these patents or to develop or obtain alternative technology. There can be no assurance that the Company will be able to obtain any such license on acceptable terms or at all. If such licenses are not obtained, the Company could be delayed in or prevented from pursuing the development or commercialization of its drug candidates, which would have a material adverse effect on the Company. The Company is aware of significant risks regarding the patent rights licensed by the Company relating to three of the seven compounds comprising the Company's existing drug candidate portfolio. The Company may not be able to commercialize FTC, DAPD or CS-92 for HIV and/or HBV due to patent rights held by third parties other than the Company's licensors. The Company is aware of numerous patent applications and issued patents in the United States and numerous foreign countries held by third parties other than the Company's licensors that relate to these compounds and their use alone or with other compounds to treat HIV and HBV. As a result, the positions of the Company and its licensors with respect to the use of FTC, DAPD and CS-92 to treat HIV and/or HBV are highly uncertain and involve numerous complex legal and factual questions that are unknown or unresolved. If any of these questions is resolved in a manner that is not favorable to the Company's licensors or the Company, the Company would not have the right to commercialize FTC, DAPD and/or CS-92 in the absence of a license from one or more third parties, which may not be available on acceptable terms or at all. The Company's inability to commercialize any of these compounds would have a material adverse effect on the Company. FTC The Company obtained its rights to purified forms of FTC under a license from Emory. In 1990 and 1991, Emory filed in the United States and thereafter in numerous foreign countries patent applications with claims to composition of matter and methods to treat HIV and HBV with FTC. Yale filed patent applications on FTC and its use to treat HBV in 1991 in the United States, and subsequently licensed its rights under those patent applications to Emory. The Company's license arrangement with Emory includes all rights under the Yale patent applications. FTC belongs to the same general class of nucleosides as 3TC, which was recently approved in the United States by the FDA for use in combination with AZT for the treatment of HIV. 3TC is currently being sold by Glaxo for the treatment of HIV under a license agreement with BioChem Pharma. HIV. Emory received a United States patent in 1993 covering a method to treat HIV infection with FTC. BioChem Pharma filed a patent application in the United States in 1989 and was issued a patent in 1991 covering a group of nucleosides in the same general class as FTC, but which did not include FTC. BioChem Pharma filed foreign patent applications in 1990 based upon its 1989 United States patent application, and in those foreign applications included FTC among a large class of nucleosides. The foreign patent applications are pending in a large number of countries, and have issued in a number of countries with claims directed to FTC and its use to treat HIV. In addition, BioChem Pharma filed a United States patent application in 1991 specifically directed to a purified form of FTC that exhibits advantageous properties for the treatment of HIV. BioChem Pharma filed patent applications in a large number of foreign countries based upon its 1991 United States patent application, and patents have issued in certain countries. BioChem Pharma may have additional patent applications pending in the United States. In the United States, the first to invent a subject matter is entitled to patent protection on that invention. With respect to patent applications filed prior to January 1, 1996, United States patent law provides that if a party invented a technology outside the United States, then for purposes of determining the first to invent the technology, that party is deemed to have invented the technology on the earlier of the date it introduced the invention in the United States or the date it filed its patent application. In a registration statement recently filed with the United States Securities and Exchange Commission, BioChem Pharma stated that since it conducts substantially all of its research activities outside the United States, it is at a disavantage as to inventions made prior 37 to January 1, 1996 with respect to obtaining United States patents as compared to companies that maintain research facilities in the United States. The Company does not know whether Emory or BioChem Pharma was the first to invent the subject matter claimed in their respective United States patent applications or patents, or whether BioChem Pharma invented the technology disclosed in its patent applications in the United States or introduced that technology in the United States before the date of its patent applications. In foreign countries, the first party to file a patent application on an invention, not the first to invent the subject matter, is entitled to patent protection on that invention. While the Company believes that Emory's patent applications that disclosed FTC as a useful anti-HIV agent were filed in foreign countries before BioChem Pharma filed its foreign patent applications on that subject matter, BioChem Pharma has been issued patents in several foreign countries. There can be no assurance that Emory will initiate or be successful in any foreign proceeding attempting to revoke patents issued to BioChem Pharma or addressing the relative rights of BioChem Pharma and Emory. BioChem Pharma has opposed patent claims on FTC recently granted to Emory in Japan and Australia. There can be no assurance that BioChem Pharma will not make additional challenges to any Emory patents or patent applications, or that Emory will succeed in defending any such challenges. There can be no assurance that the sale of FTC by the Company for the treatment of HIV would not be held to infringe United States and foreign patent rights of BioChem Pharma. Under the patent laws of most countries, a product can be found to infringe a third party patent either if the third party patent expressly covers the product or method of treatment using the product, or in certain circumstances, if the third party patent, while not expressly covering the product or method, covers subject matter that is substantially equivalent in nature to the product or method. If it is determined that the sale of FTC for the treatment of HIV infringes a BioChem Pharma patent, the Company would not have the right to make, use or sell FTC for the treatment of HIV in one or more countries in the absence of a license from BioChem Pharma. There can be no assurance that the Company could obtain a license from BioChem Pharma on acceptable terms or at all. HBV. Burroughs Wellcome filed patent applications in March and May 1991 in Great Britain on a method to treat HBV with FTC. Burroughs Wellcome filed similar patent applications in other countries, which the Company believes includes the United States. Glaxo subsequently acquired Burroughs Wellcome's rights under those patent applications. Those applications were filed in foreign countries prior to the date Emory filed its patent application on the use of FTC to treat HBV, and therefore, the foreign patent applications filed by Burroughs Wellcome have priority over those filed by Emory. In July 1996, Emory instituted litigation against Glaxo in the United States District Court to obtain ownership of the patent applications filed by Burroughs Wellcome, alleging that Burroughs Wellcome converted and misappropriated Emory's invention and property, and that an Emory employee is the inventor or a co-inventor of the subject matter covered by the Burroughs Wellcome patent applications. There can be no assurance that Emory will succeed in its efforts to establish ownership rights. If Emory fails to establish ownership rights, the Company could not make, use or sell FTC for the treatment of HBV in countries in which patents are issued to Glaxo without a license from Glaxo. If Emory establishes only co-ownership rights (and not sole ownership) to these patents and patent applications, laws in Europe, Korea and perhaps other countries could prohibit Emory from licensing any co-owned patent rights without Glaxo's consent. If the Company is required to obtain a license from Glaxo to sell FTC for the treatment of HBV, there can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. BioChem Pharma filed a patent application in May 1991 in Great Britain also directed to a method to treat HBV with FTC. BioChem Pharma filed similar patent applications in other countries and in January 1996, was issued a patent in the United States. Emory has informed the Company that Emory intends to challenge BioChem Pharma's issued United States patent. There can be no assurance that Emory will pursue or succeed in any such proceeding. The Company cannot sell FTC for the treatment of HBV in the United States unless the BioChem Pharma patent is held invalid by a United States court or administrative body or unless the Company obtains a license from Biochem Pharma. There can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. In July 1991, BioChem Pharma was issued a United States patent on the use of 3TC to treat HBV and has corresponding applications pending or issued in foreign countries. If it is determined that the use of FTC to treat HBV is not substantially different from the use of 3TC to treat HBV, a court could hold that the use of FTC to treat HBV infringes these BioChem Pharma 3TC patents. 38 In addition, BioChem Pharma has filed in the United States and foreign countries several patent applications on manufacturing methods relating to a class of nucleosides that includes FTC. If the Company uses a manufacturing method that is covered by patents issuing on any of these applications, the Company would not be able to manufacture FTC without a license from BioChem Pharma. There can be no assurance that the Company would be able to obtain such a license on acceptable terms or at all. DAPD The Company obtained its rights to DAPD under a license from Emory and UGARF. The DAPD portfolio licensed to the Company consists of two issued United States patents and several United States and foreign patent applications that cover a method for the synthesis of DAPD and its use to treat HIV and HBV. Emory and UGARF filed patent applications claiming these inventions in the United States in 1990, 1992 and 1993, respectively. BioChem Pharma filed a patent application in the United States in 1988 on a group of nucleosides in the same general class as DAPD and their use to treat HIV, and has filed corresponding patent applications in foreign countries. The PTO issued a patent to BioChem Pharma in 1993 covering a class of nucleosides that includes DAPD and its use to treat HIV. Corresponding patents have been issued to BioChem Pharma in many foreign countries. Emory has filed an opposition to BioChem Pharma's granted patent application in the European Patent Office based, in part, upon Emory's assertion that BioChem Pharma's patent does not disclose how to make DAPD, and Emory has informed the Company that Emory intends to challenge BioChem Pharma's patents and patent applications in other countries. However, there can be no assurance that a court or administrative body would invalidate BioChem Pharma's patent claims or that a sale of DAPD by the Company would not infringe BioChem Pharma's patents. If Emory, UGARF and the Company do not challenge, or are not successful in any challenge to, BioChem Pharma's issued patents or pending patent applications (or patents that may issue as a result of such applications), the Company will not be able to manufacture, use or sell DAPD in the United States and any foreign countries in which BioChem Pharma receives a patent without a license from BioChem Pharma. There can be no assurance that the Company would be able to obtain a license from BioChem Pharma on acceptable terms or at all. CS-92 The Company obtained its rights to CS-92 under a license from Emory and UGARF. Emory and UGARF have obtained two United States patents that cover CS-92 and its use to treat HIV, and have filed a European patent application and a Japanese patent application with claims limited to the use of CS-92 as a method for administering AZT, which includes the administration of CS-92 as a precursor form of AZT, to treat HIV infection. Burroughs Wellcome filed an application with the European Patent Office in September 1986 directed to a broad group of nucleosides that includes CS-92, and their use to treat HIV infection. Burroughs Wellcome subsequently filed similar applications in other countries, and the Company believes Burroughs Wellcome filed a similar patent application in the United States. Patents have been issued to Burroughs Wellcome in certain countries based upon these patent applications. Glaxo now has the rights to these patents and patent applications. There can be no assurance that, if challenged, a court would uphold the Emory/UGARF patents in light of the disclosures contained in the earlier filed Burroughs Wellcome patent applications. In addition, CS-92 is metabolized to AZT in cell lines IN VITRO, and based on that, the Company believes that it may likewise be converted to AZT IN VIVO. A court could hold that United States and foreign patents owned by Glaxo covering the use of AZT to treat HIV infection would be infringed by the sale of CS-92 to treat HIV infection. If the use of CS-92 is found to infringe the patents owned by Glaxo, then the Company would not have the right to sell CS-92 in one or more countries without a license from Glaxo. There can be no assurance that the Company would be able to obtain a license from Glaxo on acceptable terms or at all. 39 Litigation, which could result in substantial cost to the Company, may be necessary to enforce any patents to which the Company has rights or to determine the scope, validity and enforceability of other parties' proprietary rights, which may affect the Company's drug candidates and technology. United States patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence. The Company's licensors may also have to participate in interference proceedings declared by the PTO to determine the priority of an invention, which could result in substantial cost to the Company. There can be no assurance that the Company's licensed patents would be held valid by a court or administrative body or that an alleged infringer would be found to be infringing. Further, with respect to the drug candidates licensed or optioned by the Company from Emory, UGARF and the Regents, Emory, UGARF and the Regents are primarily responsible for any litigation, interference, opposition or other action pertaining to patents or patent applications related to the licensed technology and the Company is required to reimburse them for the costs they incur in performing these activities. As a result, the Company generally does not have the ability to institute or determine the conduct of any such patent proceedings unless Emory, UGARF and/or the Regents do not elect to institute or elect to abandon such proceedings. In cases where Emory, UGARF and/or the Regents elect to institute and prosecute patent proceedings, the Company's rights will be dependent in part upon the manner in which Emory, UGARF and/or the Regents conduct the proceedings. Emory, UGARF and/or the Regents could, in any of these proceedings they elect to initiate and maintain, elect not to vigorously pursue or defend or to settle such proceedings on terms that are not favorable to the Company. An adverse outcome in any patent litigation or interference proceeding could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the Company to cease using such technology, any of which could have a material adverse effect on the Company. Moreover, the mere uncertainty resulting from the institution and continuation of any technology-related litigation or interference proceeding could have a material adverse effect on the Company pending resolution of the disputed matters. The Company also relies on unpatented trade secrets and know-how to maintain its competitive position, which it seeks to protect, in part, by confidentiality agreements with employees, consultants and others. There can be no assurance that these agreements will not be breached or terminated, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently discovered by competitors. The Company relies on certain technologies to which it does not have exclusive rights or which may not be patentable or proprietary and thus may be available to competitors. The Company has filed an application for but has not obtained a trademark registration with respect to its corporate name and its logo. Another company has filed an application to obtain a trademark registration for the name "Triangle Coordinated Care," and the Company is aware that several other companies use trade names that are similar to the Company's for their businesses. If the Company is not able to obtain any licenses that may be necessary for the Company to use its corporate name, it may be required to change its corporate name. The Company's management personnel were previously employed by other pharmaceutical companies. In many cases, these individuals are conducting drug development activities for the Company in areas similar to those in which they were involved prior to joining the Company. As a result, the Company, as well as these individuals, could be subject to allegations of violation of trade secrets and other similar claims. See "Risk Factors--Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights." Government Regulation The manufacturing and marketing of Triangle's products and its ongoing development activities are subject to extensive regulation by numerous governmental authorities in the United States and other countries. See "Risk Factors--Extensive Government Regulation; No Assurance of Regulatory Approval." FDA APPROVAL In the United States, pharmaceuticals are subject to rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act governs the testing, manufacture, approval, labeling, storage, record keeping, advertising and 40 promotion of Triangle's drug candidates and any products that Triangle may successfully develop. Product development and approval within this regulatory framework takes a number of years and involves the expenditure of substantial resources. The steps required before a new prescription drug may be marketed in the United States include (i) preclinical laboratory and animal tests, (ii) the submission to the FDA of an IND, which must be evaluated and found acceptable by the FDA before human clinical trials may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and effectiveness of the drug, (iv) the submission of an NDA to the FDA and (v) FDA approval of the NDA. Prior to obtaining FDA approval of an NDA, the facilities that will be used to manufacture the drug must undergo a preapproval inspection to ensure compliance with the FDA's Good Manufacturing Practices ("GMP") regulations. A company must also pay a one-time user fee for NDA submissions and pay annual user fees for each approved product and manufacturing establishment. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the safety and effectiveness of the product and its formulation. The results of the preclinical tests are submitted to the FDA as part of an IND, and unless the FDA objects, the IND will become effective 30 days following its receipt by the FDA. If the FDA has concerns about the proposed clinical trial, it may delay the trial and require modifications to the trial protocol prior to permitting the trial to begin. As a result, there can be no assurance that the FDA will permit a proposed IND to become effective. Clinical trials involve the administration of the pharmaceutical product to healthy volunteers or to patients identified as having the condition for which the pharmaceutical is being tested. The pharmaceutical is administered under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with protocols previously submitted to the FDA as part of the IND that detail the objectives of the trial, the parameters used to monitor safety and the efficacy criteria that are being evaluated. Each clinical trial is conducted under the auspices of an Institutional Review Board ("IRB") at the institution at which the trial is conducted. The IRB considers, among other things, ethical factors, the safety of the human subjects and the possible liability risk for the institution. Clinical trials are typically conducted in three sequential phases that may overlap. In Phase I, the initial introduction of the pharmaceutical into healthy human volunteers, the emphasis is on testing for safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase II involves trials in a limited patient population to determine the effectiveness of the pharmaceutical for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and safety risks. In serious diseases such as AIDS or cancer, patients suffering from the disease rather than healthy volunteers are used in Phase I trials. In addition, Phase I trials may be divided between Phase Ia, in which single doses of the drug are given, and Phase Ib, in which multiple doses are given. In the latter instance, some efficacy data may be obtained if the subjects are patients suffering from the disease rather than healthy volunteers, and these trials are referred to as "Phase Ib/IIa." After a compound has been shown in Phase II trials to have an acceptable safety profile and probable effectiveness, Phase III trials are undertaken to evaluate clinical effectiveness further and to further test for safety within an expanded patient population at multiple clinical study sites. The FDA reviews both the clinical trial plans and the results of the trials at each phase and may discontinue the trials at any time if there are significant safety issues. The results of the preclinical tests and clinical trials are submitted to the FDA in the form of an NDA for marketing approval. The testing and approval process is likely to require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis or at all. The approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Additional animal studies or clinical trials may be requested during the FDA review process and may delay marketing approval. Upon approval, a drug may be marketed only for the approved indications in the approved dosage forms. Further clinical trials would be necessary to gain approval for the use of the product for any additional indications or dosage forms. The FDA may also require post-marketing testing to monitor for adverse effects, which can involve significant expense. 41 A company may conduct clinical trials outside of the United States, using a product manufactured outside the country, and in some circumstances manufactured within the United States, without an IND. The FDA will accept data from foreign clinical trials to support clinical investigations in the United States and/or approval of an NDA only if the agency determines that the trials are well-designed, well-conducted, performed by qualified investigators, and conducted in accordance with internationally recognized ethical principles. The Company is currently conducting a Phase Ib/IIa clinical trial in Europe for MKC-442, for which an IND has not been submitted to FDA. Triangle intends to conduct clinical trials with some of its other drug candidates in Europe as well. There can be no assurance that clinical trials conducted in either the United States or foreign countries will demonstrate that any potential products under development by the Company are safe and effective, or that the FDA will not require additional clinical trials to support approval of an NDA. The FDA has developed several regulatory procedures to accelerate the clinical testing and approval of drugs intended to treat serious or life-threatening illnesses under certain circumstances. For example, in 1988, the FDA issued regulations to expedite the development, evaluation and marketing of drugs for life-threatening and severely debilitating illnesses, especially where no alternative therapy exists (the "1988 Regulations"). These procedures encourage early consultation between the IND sponsors and the FDA in the preclinical testing and clinical trial phases to determine what evidence will be necessary for marketing approval and to assist the sponsors in designing clinical trials. Under this program, the FDA works closely with the IND sponsors to accelerate and condense Phase II clinical trials, which may, in some cases, eliminate the need to conduct Phase III trials or limit the scope of Phase III trials. Under the 1988 Regulations, the FDA may require postmarketing clinical trials (Phase IV trials) to obtain additional information on the drug's risks, benefits and optimal use. In 1992, the FDA issued regulations establishing an accelerated NDA approval procedure for certain drugs under Subpart H of the agency's NDA approval regulations ("Subpart H Regulations"). The Subpart H Regulations provide for accelerated NDA approval for new drugs intended to treat serious or life-threatening diseases where the drugs provide a meaningful therapeutic advantage over existing treatment. Under this accelerated approval procedure, the FDA may approve a drug based on evidence from adequate and well-controlled studies of the drug's effect on a surrogate endpoint that reasonably suggest clinical benefits, or on evidence of the drug's effect on a clinical endpoint other than survival or irreversible morbidity. This approval is conditional on the favorable completion of trials to establish and define the degree of clinical benefits to the patient. Such postmarketing clinical trials would usually be underway when the product obtains this accelerated approval. If, after approval, a post-marketing clinical study establishes that the drug does not perform as expected, or if post-marketing restrictions are not adhered to or are not adequate to ensure the safe use of the drug, or other evidence demonstrates that the product is not safe and/or effective under its conditions of use, the FDA may withdraw approval. The Subpart H accelerated approval regulation can complement the 1988 Regulations for expediting the development, evaluation and marketing of drugs. These two procedures for expediting the clinical evaluation and approval of certain drugs may shorten the drug development process by as much as two to three years. The Company believes that MKC-442, FTC, CS-92, DAPD, ACVMP and alanosine may be candidates for accelerated development and/or approval under the 1988 Regulations and/or the Subpart H Regulations. However, there can be no assurance that any of these drug candidates or any future drug candidates the Company may develop ultimately will be eligible for development and/or approval under these regulations. In addition, there can be no assurance that these drug candidates or any future drug candidates (if eligible for development and/or approval under these regulations) will be approved by the FDA for marketing at all or, if approved for marketing, will be approved for marketing sooner than would be traditionally expected. Once the sale of a product is approved, the FDA regulates the manufacturing, marketing and other activities under the Federal Food, Drug, and Cosmetic Act and the FDA's implementing regulations. The FDA periodically inspects both domestic and foreign drug manufacturing facilities to ensure compliance with applicable GMP regulations and other requirements. In addition, manufacturers in the United States must register with the FDA and submit a list of every drug in commercial distribution. Foreign manufacturers are subject only to the drug listing requirement. The Company does not have or currently intend to develop the facilities to manufacture its drug candidates in commercial quantities, and intends to establish relationships with contract manufacturers for the 42 commercial manufacture of its products. Some of these contract manufacturers may be located outside the United States. There can be no assurance that the Company's contract manufacturers will be able to attain or maintain compliance with GMP regulations. Post-marketing reports are also required to monitor the product's usage and effects. Product approvals may be withdrawn, or other actions may be ordered, or sanctions imposed if compliance with regulatory requirements is not maintained. Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a "rare disease or condition," which generally is a disease or condition that affects populations of fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA, and after the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Under current law, approval of the first NDA for a drug with orphan drug designation confers United States marketing exclusivity to market such designated drug for the designated indication for a period of seven years following approval of the NDA, subject to certain limitations. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory approval process. The Company believes that alanosine, if successfully developed for the treatment of NSCLC and/or brain cancers, may qualify for orphan drug designation. There can be no assurance, however, that alanosine or any future products the Company may develop will be designated as an orphan drug. In addition, there can be no assurance that alanosine or any future products will be approved for marketing at all. FOREIGN REGULATORY APPROVAL AND SALE Many foreign countries also regulate the clinical testing, manufacturing, marketing and use of pharmaceutical products. The requirements relating to the conduct of clinical trials, product approval, manufacturing, marketing, pricing and reimbursement vary widely from country to country and there can be no assurance that the Company or any third parties with which the Company may establish collaborative relationships will be able to attain or maintain compliance with such requirements. In addition to the import requirements of foreign countries, a company must also comply with United States laws governing the export of FDA regulated products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug that has not obtained FDA approval may be exported to any country in the world without FDA authorization if the product both complies with the laws of the importing country and has obtained valid marketing authorization in one of the following countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa, the European Union, or a country in the European Economic Area. The FDA is authorized to add countries to this list in the future. Among other restrictions, a drug that has not obtained FDA approval may be exported under the new law only if it is not adulterated, accords to the specifications of the foreign purchaser, complies with the laws of the importing country, is labeled for export, is manufactured in substantial compliance with GMP regulations and is not sold in the United States. OTHER REGULATIONS In addition to regulations enforced by the FDA, the Company also is subject to regulation under the Occupational Safety and Health Act, the Controlled Substances Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other similar federal, state and local regulations governing permissible laboratory activities, waste disposal, handling of toxic, dangerous or radioactive materials and other matters. The Company believes that it is in substantial compliance, in all material respects, with applicable regulations. These regulations are subject to change, however, and may, in the future, require substantial effort and cost to the Company to comply with each of the regulations, and may possibly restrict the Company's business activities. See "Risk Factors--Hazardous Materials." Competition The Company is engaged in segments of the pharmaceutical industry that are highly competitive and rapidly changing. If successfully developed and approved, the drug candidates that the Company is currently developing 43 will compete with numerous existing therapies. In addition, a number of companies are pursuing the development of novel pharmaceuticals that target the same diseases the Company is targeting. The Company believes that a significant number of drugs are currently under development and will become available in the future for the treatment of HIV. The Company anticipates that it will face intense and increasing competition in the future as new products enter the market and advanced technologies become available. There can be no assurance that existing products or new products developed by the Company's competitors will not be more effective, or more effectively marketed and sold, than any that may be developed by the Company. Competitive products may render the Company's licensed technology and products obsolete or noncompetitive prior to the Company's recovery of development or commercialization expenses incurred with respect to any such products. The development by others of a cure or new treatment methods for the indications for which the Company is developing drug candidates could render the Company's drug candidates noncompetitive, obsolete or uneconomical. Many of the Company's competitors have significantly greater financial, technical and human resources than the Company and may be better equipped to develop, manufacture and market products. In addition, many of these companies have extensive experience in preclinical testing and clinical trials, obtaining FDA and other regulatory approvals and manufacturing and marketing pharmaceutical products. Many of these competitors also have products that have been approved or are in late-stage development and operate large, well-funded research and development programs. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Furthermore, academic institutions, governmental agencies and other public and private research organizations are becoming increasingly aware of the commercial value of their inventions and are more actively seeking to commercialize the technology they have developed. If the Company's drug candidates are successfully developed and approved, the Company will face competition based on the safety and effectiveness of its products, the timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position. There can be no assurance that the Company's competitors will not develop more effective or more affordable technology or products, or achieve earlier patent protection, product development or product commercialization than the Company. Accordingly, the Company's competitors may succeed in commercializing products more rapidly or effectively than the Company, which could have a material adverse effect on the Company. See "Risk Factors-- Intense Competition; Risk of Technological Change." Manufacturing The Company does not have any manufacturing capacity and currently plans to seek to establish relationships with third party manufacturers for the manufacture of clinical trial material and the commercial production of any products it may develop. There can be no assurance that the Company will be able to establish relationships with third party manufacturers on commercially acceptable terms or that third party manufacturers will be able to manufacture products in commercial quantities under good manufacturing practices mandated by the FDA on a cost-effective basis. The Company's dependence upon third parties for the manufacture of its products may adversely affect the Company's profit margins and its ability to develop and commercialize products on a timely and competitive basis. Further, there can be no assurance that manufacturing or quality control problems will not arise in connection with the manufacture of the Company's products or that third party manufacturers will be able to maintain the necessary governmental licenses and approvals to continue manufacturing the Company's products. Any failure to establish relationships with third parties for its manufacturing requirements on commercially acceptable terms would have a material adverse effect on the Company. See "Risk Factors--Lack of Manufacturing Capabilities" and "--Government Regulation." Sales and Marketing The Company currently has only one marketing employee and no sales personnel. The Company will have to develop a sales force or rely on marketing partners or other arrangements with third parties for the marketing, distribution and sale of any products it develops. The Company currently intends to market in the United States most of the drug candidates that it successfully develops primarily through a direct sales force and outside the 44 United States through a combination of a direct sales force and arrangements with third parties. There can be no assurance that the Company will be able to establish marketing, distribution or sales capabilities or make arrangements with third parties to perform those activities on terms satisfactory to the Company or that any internal capabilities or third party arrangements will be cost-effective. In addition, any third parties with which the Company establishes marketing, distribution or sales arrangements may have significant control over important aspects of the commercialization of the Company's products, including market identification, marketing methods, pricing, composition of sales force and promotional activities. There can be no assurance that the Company will be able to control the amount and timing of resources that any third party may devote to the Company's products or prevent any third party from pursuing alternative technologies or products that could result in the development of products that compete with the Company's products and the withdrawal of support for the Company's programs. See "Risk Factors--Lack of Sales and Marketing Capabilities." Health Care Reform Measures and Third Party Reimbursement The business and financial condition of pharmaceutical companies will continue to be affected by the efforts of governments and third party payors to contain or reduce the cost of health care through various means. A number of legislative and regulatory proposals aimed at changing the health care system have been proposed in recent years. In addition, an increasing emphasis on managed care in the United States has and will continue to increase the pressure on pharmaceutical pricing. While the Company cannot predict whether legislative or regulatory proposals will be adopted or the effect such proposals or managed care efforts may have on its business, the announcement and/or adoption of such proposals or efforts could have a material adverse effect on the Company. In the United States and elsewhere, sales of prescription pharmaceuticals are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans that mandate predetermined discounts from list prices. Third party payors are increasingly challenging the prices charged for medical products and services. If the Company succeeds in bringing one or more products to the market, there can be no assurance that these products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow the Company to sell its products on a competitive basis. See "Risk Factors-- Uncertainty of Health Care Reform Measures and Third Party Reimbursement." Human Resources As of September 10, 1996, Triangle had 20 employees, including 10 in development and 10 in finance and administration. Of these employees, 10 hold advanced degrees, of which eight are M.D.s or Ph.D.s. The Company's future success will depend in large part upon its ability to attract and retain highly qualified personnel. The Company's employees are not represented by any collective bargaining agreements, and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. Facilities The Company currently leases and occupies an approximately 26,000 square foot administrative office, laboratory and pilot manufacturing facility in Durham, North Carolina pursuant to a lease that continues through September 2003. Under the terms of the lease the Company will occupy approximately an additional 26,000 square feet beginning in August 1998. The Company believes its facilities will be adequate to meet its needs for the foreseeable future. Legal Proceedings From time to time, Triangle may be involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this Prospectus, the Company is not a party to any legal proceedings. See "Risk Factors--Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights." 45 MANAGEMENT Executive Officers, Key Employees and Directors The executive officers, key employees and directors of the Company are as follows:
Name Age Position - --------------------------------------------- --- ------------------------------------------------------------ David W. Barry, M.D. ........................ 53 Chairman of the Board and Chief Executive Officer M. Nixon Ellis, Ph.D. ....................... 46 Director, President and Chief Operating Officer Phillip A. Furman, Ph.D. .................... 51 Vice President, Research and Chief Scientific Officer James A. Klein, Jr. ......................... 34 Chief Financial Officer and Treasurer Anne F. McKay ............................... 42 Vice President, Drug Regulatory Affairs George R. Painter, III, Ph.D. ............... 46 Vice President, Chemistry and Technical Development Chris A. Rallis, J.D. ....................... 42 Vice President, Business Development, General Counsel and Secretary Carolyn S. Underwood......................... 39 Vice President, Marketing John Delehanty, Ph.D. ....................... 48 Director of Clinical Research Cary P. Moxham, Ph.D......................... 37 Director of Project Development George M. Szczech, D.V.M., Ph.D. ............ 54 Director of Toxicology and Pharmacology Anthony B. Evnin, Ph.D.(1)................... 55 Director Standish M. Fleming(2)....................... 49 Director Karl Y. Hostetler, M.D. ..................... 56 Director and Member of the Scientific Advisory Board George McFadden(1)........................... 55 Director Peter McPartland(2).......................... 42 Director
- ------------ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. David W. Barry, M.D. has served as Chairman of the Board and Chief Executive Officer since July 1995 and served as the Company's President from July through September 1995. Prior to joining the Company, Dr. Barry served as a member of the Board of Directors and as the Director of Research, Development and Medical Affairs of Wellcome plc ("Wellcome"), a pharmaceutical company, from May 1994 through May 1995. From May 1989 through May 1994, Dr. Barry served as Vice President, Research, Development and Medical Affairs of Burroughs Wellcome, a pharmaceutical company and an indirect, wholly-owned subsidiary of Wellcome. Dr. Barry is considered a leader in the field of antiviral therapy and is one of the named co-inventors of the first anti-HIV drug, AZT. Dr. Barry also directed the clinical development of the first selective anti-herpes drug, acyclovir. Before joining Burroughs Wellcome in 1977, Dr. Barry spent five years at the FDA in various capacities, including Director of the Influenza Task Force of the Bureau of Biologics and Acting Deputy Director of the Division of Virology at the Bureau of Biologics. Dr. Barry received a B.A. in French literature from Yale College and an M.D. from Yale University. Dr. Barry is currently a director of Family Health International, a not-for-profit company engaged in the business of family planning, and Molecular Biosystems, Inc., a publicly-held medical diagnostics company. M. Nixon Ellis, Ph.D. has served as a director of the Company since July 1995 and as President and Chief Operating Officer since September 1995. Prior to joining the Company, Dr. Ellis served as Global Brand Director, HIV/Retrovir of Wellcome, from January through June 1995, where he was responsible for managing a $300 million worldwide business. From April 1993 through December 1994, Dr. Ellis served as Assistant Director, Group Licensing of Wellcome. Prior to that, Dr. Ellis served as Assistant Division Director, Virology of Burroughs Wellcome from March 1991 to March 1993. Prior to assuming his management responsibilities at Wellcome, Dr. Ellis' research focused on the disease producing potential of drug resistant viral mutants. Dr. Ellis received a B.S. in biology from the University of South Carolina, an M.B.A. from the University of North Carolina, and an M.S. in medical microbiology and a Ph.D. in microbiology from the University of Georgia. 46 Phillip A. Furman, Ph.D. has served as Vice President, Research and Chief Scientific Officer of the Company since September 1995. Prior to joining the Company, Dr. Furman served as Director, Virology of Burroughs Wellcome from July 1989 through June 1995, where he played a significant role in the development of both AZT and acyclovir. Dr. Furman's research while at Burroughs Wellcome focused on the structure and function of nucleic acid polymerizing enzymes. He is a named co-inventor of the use of AZT for HIV therapy as well as a co-inventor of the use of FTC to treat HBV infections. Dr. Furman received a B.S. in biology from Piedmont College, an M.A. in microbiology from the University of Southern Florida and a Ph.D. in microbiology from Tulane University. James A. Klein, Jr. has served as Chief Financial Officer and Treasurer of the Company since November 1995, and served as Secretary and Treasurer from July through November 1995. Prior to joining the Company, Mr. Klein served as International Research, Development and Medical Financial Controller of Wellcome from May 1994 through June 1995. From June 1992 through May 1994, Mr. Klein served as Senior Financial Analyst of Burroughs Wellcome. Prior to that, Mr. Klein held various management positions in finance at Burroughs Wellcome. Mr. Klein received a B.A. in accounting from the University of Mississippi and is a certified public accountant. Anne F. McKay has served as Vice President, Drug Regulatory Affairs since October 1996. Prior to joining the Company, Ms. McKay served as Director of Regulatory Affairs with Medco Research, Inc. from July 1995 to September 1996. Prior to joining Medco, Ms. McKay served as Director of Regulatory Affairs, North America, with Burroughs Wellcome, and held various other regulatory positions during a 15-year tenure at Burroughs Wellcome. While at Burroughs Wellcome, Ms. McKay's department was responsible for providing support for various FDA submissions, including the NDA submissions for AZT and acyclovir. Ms. McKay received her B.S. in animal science from Michigan State University. George R. Painter, III, Ph.D. has served as Vice President, Chemistry and Technical Development of the Company since January 1996. From July 1995 through January 1996, Dr. Painter served as Director of Research Process for Glaxo and from June 1993 through July 1995, Dr. Painter served as Assistant Director of Virology for Burroughs Wellcome. While at Burroughs Wellcome, Dr. Painter led the international development of both an HIV protease inhibitor and FTC. He is also a co-inventor of the use of FTC to treat HBV infections. Dr. Painter received a B.S. in chemistry, an M.S. in physical chemistry and a Ph.D. in organic chemistry from Emory. Chris A. Rallis, J.D. has served as Vice President, Business Development, General Counsel and Secretary of the Company since November 1995. Prior to joining the Company, Mr. Rallis served in the following positions with Burroughs Wellcome: Vice President, Planning and Business Development from February 1994 to June 1995; Director, Planning and Business Development from June 1993 through February 1994; and Assistant General Counsel from June 1991 through June 1993. During Mr. Rallis' tenure at Burroughs Wellcome, his department was responsible for finalizing licensing agreements with Emory and Vertex Pharmaceuticals Incorporated and a consumer healthcare joint venture with Warner-Lambert Company. Mr. Rallis received an A.B. degree in economics from Harvard College and a J.D. from Duke University. Carolyn S. Underwood has served as Vice President, Marketing of the Company since January 1996. Prior to joining the Company, Ms. Underwood served as Director, CNS Marketing of Glaxo from June through December 1995. Prior to that, Ms. Underwood served as Director, Marketing Division of Nippon Wellcome KK, a pharmaceutical company of which Wellcome was one of the joint venture partners, from February 1994 through June 1995. Ms. Underwood also served as Senior Director of Marketing of Burroughs Wellcome from July 1991 through January 1994. Ms. Underwood received a B.S. in nursing from the University of North Carolina, Chapel Hill. John Delehanty, Ph.D. has served as the Director of Clinical Research of the Company since September 1996. Prior to joining the Company, Dr. Delehanty served as Associate Director of Infectious Diseases with Burroughs Wellcome (and later with Glaxo) since 1983. While at Burroughs Wellcome, Dr. Delehanty led the development of several topical antiviral drugs. Dr. Delehanty has also worked at the National Research Council and World Health Organization. Dr. Delehanty received a B.S. in biology from Villanova University and a Ph.D. in genetics from Florida State University/Oak Ridge National Laboratory. 47 Cary P. Moxham, Ph.D. has served as Director of Project Development since February 1996. Prior to joining the Company, Dr. Moxham served as Research Scientist with Burroughs Wellcome (and later with Glaxo) since 1986. From September 1994 to February 1996, Dr. Moxham served as International Project Leader for Burroughs Wellcome (and later as Product Development Leader with Glaxo), where he led the international development of two humanized monoclonal antibodies for the treatment of solid tumors. Dr. Moxham received a B.S. in biology and chemistry from Union College and a Ph.D. in biochemical pharmacology from the State University of New York at Stony Brook. George M. Szczech, D.V.M., Ph.D. has served as the Director of Toxicology and Pharmacology of the Company since January 1996. Prior to joining the Company, Dr. Szczech served as Associate Director of the Division of Toxicology and Pathology at Burroughs Wellcome from 1992 to 1995, and as Senior Toxicologic Pathologist from 1985 to 1992. Dr. Szczech has over 20 years experience in pharmaceutical development with specialization in all aspects of product safety assessment. In positions at Burroughs Wellcome, the Mead Johnson Company (now a subsidiary of Bristol-Myers Squibb) and Upjohn Company (now Pharmacia & Upjohn), he performed and published research dealing with the safety of a wide variety of pharmaceuticals. Much of his work involved establishing laboratories and procedures in the area of reproductive and developmental toxicology. Dr Szczech earned his D.V.M. at the University of Minnesota and his Ph.D. at Purdue University and is board certified in veterinary pathology and in toxicology. Anthony B. Evnin, Ph.D. has served as a director of the Company since November 1995. Since 1975, Dr. Evnin has been a general partner of Venrock Associates, a venture capital firm. Dr. Evnin received an A.B. in chemistry from Princeton University and a Ph.D. in chemistry from Massachusetts Institute of Technology. Dr. Evnin is currently a director of several privately-held companies and the following publicly-held companies: Arris Pharmaceutical Corporation, Centocor, Inc., Genetics Institute, Inc. (where he serves as Chairman of the Board), Ribozyme Pharmaceuticals, Inc. and SUGEN, Inc., all of which are biopharmaceutical companies, Escalon Medical Corp. (formerly Intelligent Surgical Lasers, Inc.), an ophthalmic company, Kopin Corporation, a semiconductor device company, and Opta Food Ingredients, Inc., a food ingredients company. Standish M. Fleming has served as a director of the Company since July 1995. Since April 1993, Mr. Fleming has been a general partner of Forward Ventures, a venture capital firm. Mr. Fleming also served in an advisory position with Forward Ventures from February 1992 through April 1993. Prior to that, Mr. Fleming joined Ventana, a venture capital firm, in 1986 and served as a fund manager from January 1990 through January 1992. Mr. Fleming received a B.A. in English from Amherst College and an M.B.A. from the University of California, Los Angeles. Mr. Fleming currently serves as a director of three privately-held companies. Karl Y. Hostetler, M.D. has served as a director of the Company since July 1995. Dr. Hostetler has served as a professor of medicine at the University of California, San Diego and has practiced medicine at the Veterans Affairs Medical Center in San Diego since January 1973. From June 1987 through June 1992, Dr. Hostetler served as a director and as Vice President of Research and Development of Vical Incorporated, a gene therapy company. Dr. Hostetler received a B.A. in chemistry from DePauw University and an M.D. from Western Reserve University. George McFadden has served as a director of the Company since November 1995. Since 1979, Mr. McFadden has served as a general partner of McFadden Brothers, an investment company. Mr. McFadden received a B.A. in history from Vanderbilt University and an M.B.A. from Columbia University. Mr. McFadden is currently a director of three privately-held companies, Washington, Inc. (where he serves as Chairman of the Board), Chemical Leaman and Squaw Valley Corp., and of one publicly-held packaging company, Ball Corp. Peter McPartland has served as a director of the Company since June 1996. Mr. McPartland has served as a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a venture capital firm, since July 1995. He served as a principal of Schroder Venture Advisers from April 1988 through July 1995. Mr. McPartland received a B.Sc. in pharmacology from University College, London. Mr. McPartland currently serves as Chairman of the Board of Cerebrus Limited (a private, United Kingdom company). Members of the Board currently hold office and serve until the next annual meeting of the stockholders of the Company or until their respective successors have been elected and qualified. The Board is currently comprised of 48 seven directors. Under the Company's Restated Bylaws, beginning with the 1997 annual meeting of stockholders the Company's Board will be classified into three classes of directors serving staggered three-year terms, with one class of directors to be elected at each annual meeting of stockholders. The classification of directors has the effect of making it more difficult to change the composition of the Board. See "Description of Capital Stock--Antitakeover Effects of Charter, Bylaws and Delaware Law." All executive officers are elected annually by and serve at the discretion of the Board. All of the Company's executive officers are employed by the Company at will. Pursuant to the Company's 1996 Stock Incentive Plan, which was adopted by the Board in August 1996 and approved by the Company's stockholders in September 1996, directors who are not officers or employees of the Company will receive periodic option grants beginning with the 1997 annual meeting of stockholders. See "-- Benefit Plans." Committees of the Board of Directors In June 1996, the Board established a Compensation Committee and an Audit Committee. The Compensation Committee, currently consisting of Dr. Evnin and Mr. McFadden, is responsible for recommending salaries and incentive compensation for executive officers and key personnel, including stock options. The Audit Committee, currently consisting of Messrs. Fleming and McPartland, is responsible for recommending the Company's independent auditors and reviewing the results and scope of audit and other services provided by such auditors. Prior to June 1996, the functions of the Compensation Committee and the Audit Committee were performed by the entire Board. Dr. Barry, the Chairman of the Board and the Company's Chief Executive Officer, and Dr. Ellis, a director and the Company's President and Chief Operating Officer, each participated in the deliberations of the Board regarding executive compensation from July 1995 to June 1996, but neither participated in the deliberations regarding his own compensation. Scientific Advisory Board The Company relies upon its Scientific Advisory Board for strategic and analytic support in developing and expanding the scope of its technologies. The Scientific Advisory Board is composed of leading scientists who meet several times each year to review the Company's research and development activities. The following individuals are members of the Scientific Advisory Board: Dennis Carson, M.D. ...... Professor of Medicine, University of California, San Diego School of Medicine Chung K. Chu, Ph.D. ...... Professor of Medicinal Chemistry and Director of Drug Discovery Group, College of Pharmacy and Department of Medicinal Chemistry, University of Georgia Research Foundation, Inc. Eriq De Clercq, M.D., Director of Rega Institute for Medical Research, Ph.D. .................... Professor of Biochemistry and Microbiology at the School of Medicine, Katholieke Universiteit Leuven, Belgium Karl Y. Hostetler, Professor of Medicine, University of California, M.D. ..................... San Diego School of Medicine Earl R. Kern, Ph.D. ...... Research Professor, Department of Pediatrics, Division of Clinical Virology, University of Alabama School of Medicine Dennis Liotta, Ph.D. ..... Professor of Chemistry, Vice President of Research, Emory University Douglas Richman, M.D. .... Professor of Pathology and Medicine, University of California, San Diego School of Medicine Raymond Schinazi, Professor of Pediatrics, Emory University School of Ph.D. .................... Medicine Robert T. Schooley, Professor of Medicine, Head of the Infectious M.D. ..................... Disease Department, University of Colorado School of Medicine Daniel D. Von Hoff, Chief Executive Officer and Director of the M.D. ..................... Institute for Drug Development, a division of the Cancer Therapy Research Center of the University of Texas
49 Each member of the Scientific Advisory Board has entered into a scientific advisor agreement, or similar consulting agreement, with Triangle in the fields of interest to the Company, whereby the member agrees to provide advice and occasional scientific counsel to the Company. Each member receives cash compensation for attending the Scientific Advisory Board meetings. In addition, most of the Scientific Advisory Board members purchased shares of Common Stock at a price of $0.01 per share that in general are subject to a four year vesting schedule. The scientific advisors are also employed by employers other than the Company and may have commitments to, or consulting contracts with, other entities that may limit their availability to the Company. Although generally each scientific advisor has agreed not to perform services for another entity that would create a conflict of interest with the scientific advisor's services for the Company, there can be no assurance that such a conflict will not arise. Inventions or processes discovered by a scientific advisor while serving in the capacity as a member of the Scientific Advisory Board will become the property of the Company; however, any inventions or processes discovered by a scientific advisor at any other time will not become the property of the Company. The scientific advisor and consulting agreements contain confidentiality and non-use provisions. See "Risk Factors--Dependence on Key Employees." Executive Compensation SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth information concerning the aggregate compensation paid by the Company to the Company's Chief Executive Officer and to the four additional most highly compensated executive officers (the "Named Executive Officers") for services rendered in all capacities to the Company for the period from inception (July 12, 1995) to December 31, 1995: Summary Compensation Table
Annual Compensation(1)(2) ------------------------ Name and Principal Position Year(2) Salary($) Bonus($) - ------------------------------------------------------------------------------ ----------- ----------- ----------- David W. Barry, M.D. Chairman and Chief Executive Officer........................................ 1995 100,000 8,000 M. Nixon Ellis, Ph.D. Director, President and Chief Operating Officer........................................................... 1995 87,500 2,000 Phillip A. Furman, Ph.D. Vice President, Research and Chief Scientific Officer.................................................... 1995 75,000 1,500 Sandra N. Lehrman, M.D.(3) Vice President, Drug Development............................................ 1995 72,917 1,500 James A. Klein, Jr. Chief Financial Officer and Treasurer....................................... 1995 62,500 1,000
- ------------ (1) The aggregate amount of perquisites and other personal benefits, if any, did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for each Named Executive Officer and has therefore been omitted. (2) This table sets forth information for the period from the Company's inception (July 12, 1995) to December 31, 1995. (3) Dr. Lehrman served as Vice President, Drug Development until July 1996 and is no longer employed by the Company. 50 STOCK OPTIONS The Company granted no stock options or stock appreciation rights during the period from inception (July 12, 1995) to December 31, 1995. In February 1996, the Company adopted a 1996 Stock Option/Stock Issuance Plan and as of September 10, 1996 had granted incentive stock options to the Named Executive Officers to purchase up to an aggregate of 563,670 shares of Common Stock (of which options to purchase 171,833 shares of Common Stock had been exercised and options to purchase 37,407 shares of Common Stock had expired unexercised as of September 10, 1996) at prices ranging from $0.075 to $7.00 per share. See "--Benefit Plans." EMPLOYMENT AGREEMENT In October 1996, the Company entered into an employment agreement with Dr. David W. Barry, the Company's Chairman and Chief Executive Officer. Pursuant to the agreement, the Company has employed Dr. Barry at a base salary of $216,000 per year for a period of two years. The Company has also agreed to provide to Dr. Barry any other benefits that are provided to the Company's other executive officers. Dr. Barry's employment is terminable at will by either the Company or Dr. Barry. In the event Dr. Barry's employment is terminated by the Company for any reason or Dr. Barry resigns at any time within three years of the date of the agreement, the Company has agreed to continue to pay Dr. Barry's then-current base salary for a period of two years and Dr. Barry has agreed that during the two-year period he will not serve as the chairman, chief executive officer or president of, or participate in or direct the development of drugs for the treatment of viral diseases for, any for-profit business in the pharmaceutical industry that competes in the United States with the Company. In addition, in the event that Dr. Barry's employment is terminated by the Company without cause at any time within three years of the date of the agreement, the Company has agreed to accelerate the vesting of any unvested stock and/or options held by Dr. Barry. The agreement will terminate automatically in the event of any change in control of the Company. Director Compensation The Company reimburses its directors for all reasonable and necessary travel and other incidental expenses incurred in connection with their attendance at meetings of the Board. Directors are not currently compensated for serving on the Board. However, the 1996 Stock Incentive Plan that will be effective upon the closing of the Offerings provides that, beginning with the 1997 annual meeting of stockholders all eligible non-employee directors will automatically receive an option to purchase 1,334 shares of Common Stock for the first year of the director's Board term and 1,333 shares of Common Stock for each additional year remaining on the director's Board term following the automatic option grant. These options will have an exercise price equal to 100% of the fair market value of the Common Stock on the grant date and will become exercisable in annual installments after the completion of each year of service following such grant. See "--Benefit Plans--1996 Stock Incentive Plan." Dr. Hostetler is a member of the Company's Scientific Advisory Board and is a party to a consulting agreement with the Company. See "--Scientific Advisory Board" and "Certain Transactions." Benefit Plans 1996 STOCK INCENTIVE PLAN The Company's 1996 Stock Incentive Plan (the "1996 Plan") will serve as the successor equity incentive program to the Company's 1996 Stock Option/Stock Issuance Plan (the "Predecessor Plan"). The 1996 Plan became effective on August 30, 1996 upon adoption by the Board and was subsequently approved by the stockholders on September 5, 1996. 2,200,000 shares of Common Stock have initially been authorized for issuance under the 1996 Plan. This initial share reserve is comprised of (i) the shares that remain available for issuance under the Predecessor Plan, including the shares subject to outstanding options thereunder, plus (ii) an additional increase of 500,000 shares. However, in no event may any one participant in the 1996 Plan receive option grants or direct stock issuances for more than 500,000 shares in the aggregate per calendar year. Outstanding options under the Predecessor Plan will be incorporated into the 1996 Plan upon the consummation of the Offerings, and no further option grants will be made under the Predecessor Plan. The incorporated 51 options will continue to be governed by their existing terms, unless the Plan Administrator (described below) elects to extend one or more features of the 1996 Plan to those options. However, except as otherwise noted below, the outstanding options under the Predecessor Plan contain substantially the same terms and conditions summarized below for the Discretionary Option Grant Program in effect under the 1996 Plan. The 1996 Plan is divided into four separate components: (i) the Discretionary Option Grant Program under which eligible individuals in the Company's employ or service (including officers and other employees, non- employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock at an exercise price not less than 85% of their fair market value on the grant date, (ii) the Stock Issuance Program under which such individuals may, in the Plan Administrator's discretion, be issued shares of Common Stock directly, through the purchase of such shares at a price not less than 100% of their fair market value at the time of issuance or as a bonus tied to the performance of services, (iii) the Salary Investment Option Grant Program under which executive officers and other highly compensated employees may elect to apply a portion of their base salary to the acquisition of special stock option grants and (iv) the Automatic Option Grant Program under which option grants will automatically be made at periodic intervals to eligible non-employee Board members to purchase shares of Common Stock at an exercise price equal to 100% of their fair market value on the grant date. The Board or a committee appointed by the Board (the "Plan Administrator") will administer the Discretionary Option Grant, Stock Issuance and Salary Investment Option Grant Programs. The Plan Administrator will have complete discretion to determine which eligible individuals will receive option grants or stock issuances, the time or times at which such option grants or stock issuances are to be made, the number of shares subject to each such grant or issuance, the vesting schedule to be in effect for the option grant or stock issuance, the maximum term for which any granted option is to remain outstanding and whether an option will be granted as an incentive stock option or a non-statutory stock option under the Federal tax laws. The administration of the Automatic Option Grant Program will be self-executing in accordance with the express provisions of such Program. In the event the Plan Administrator elects to activate the Salary Investment Option Grant Program for one or more calendar years, each executive officer and other highly compensated employee of the Company selected for participation may elect, prior to the start of the calendar year, to reduce his or her base salary for that calendar year by a specified dollar amount not less than $10,000 nor more than $50,000. If such election is approved by the Plan Administrator, the officer will be granted, on or before the last trading day in January in the calendar year for which the salary reduction is to be in effect, a non-statutory option to purchase that number of shares of Common Stock determined by dividing the total salary reduction amount by an amount equal to at least one-third and no more than two-thirds (the exact amount to be established by the Plan Administrator) of the fair market value per share of Common Stock on the grant date. The option will be exercisable at a price per share equal to the difference between the amount paid by the optionee for the option and the fair market value of the option shares on the grant date. As a result, upon exercise of the options issued under the Salary Investment Option Grant Program, the optionee will have paid 100% of the fair market value of the option shares as of the grant date. The option will become exercisable in a series of twelve (12) equal monthly installments over the calendar year for which the salary reduction is in effect and will become fully exercisable upon certain changes in the ownership or control of the Company. Under the Automatic Option Grant Program, at each Annual Stockholders Meeting, beginning with the 1997 Annual Meeting, each individual who (i) is elected or re-elected to serve as a non-employee Board member or (ii) was appointed as a non-employee Board member since the last Annual Stockholders Meeting (and whose Board term does not expire at such Meeting) will receive an option grant to purchase shares of Common Stock. The number of shares subject to the option will be equal to 1,334 shares for the first year of the optionee's Board term and 1,333 shares for each additional year remaining on the optionee's Board term following the automatic option grant. Each option granted pursuant to the Automatic Option Grant Program will have an exercise price equal to the fair market value per share of Common Stock on the grant date and will have a maximum term of 10 years, subject to earlier termination following the optionee's cessation of Board service. The options will vest as to 1,334 shares for the first year and 1,333 shares for each additional year of the optionee's Board service measured from the 52 grant date. However, each outstanding option will become fully vested upon (i) certain changes in the ownership or control of the Company or (ii) the death or disability of the optionee while serving as a Board member. The automatic options may only be exercised to the extent vested. Payment of the exercise price for the shares of Common Stock subject to option grants made under the 1996 Plan may be made in cash or in shares of Common Stock valued at fair market value on the exercise date. The optionee may elect to make payment for the option shares upon exercise through a same-day sale program, which enables the optionee to purchase the option shares without making any cash payment. In addition, the Plan Administrator may provide financial assistance to one or more optionees in the exercise of their outstanding options by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in full payment of the exercise price and associated withholding taxes incurred in connection with such exercise. In the event that the Company is acquired by merger or asset sale, the unvested portion of each outstanding option under the Discretionary Option Grant or Salary Investment Option Grant Programs that is not to be assumed by the successor corporation will automatically vest in full. Similarly, unless the Company assigns the repurchase rights associated with any unvested shares under the Stock Issuance Program to the successor corporation, such unvested shares will vest in full. Any outstanding options assumed by the successor corporation and shares that remain subject to repurchase rights assigned to the successor corporation will not vest immediately, but will vest in accordance with their original vesting schedule. The Plan Administrator will have the authority under the Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance Programs to grant options and to structure repurchase rights so that the shares subject to those options or repurchase rights will automatically vest in the event the individual's service is terminated, whether involuntarily or through a resignation for good reason, within a specified period (not to exceed eighteen (18) months) following (i) a merger or asset sale in which those options are assumed or those repurchase rights are assigned, (ii) a hostile change in control of the Company effected by a successful tender offer for more than 50% of the outstanding voting stock or by proxy contest for the election of Board members or (iii) the sale, transfer or disposition of all or substantially all of the Company's assets (each a "Corporate Transaction"). The Plan Administrator will also have the discretion to provide for the automatic acceleration of options and the lapse of any repurchase rights upon (i) a hostile change in control of the Company effected by a successful tender offer for more than 50% of the Company's outstanding voting stock or by proxy contest for the election of Board members or (ii) the termination of the individual's service, whether involuntarily or through a resignation for good reason, within a specified period (not to exceed eighteen (18) months) following such a hostile change in control. The unvested portion of the options currently outstanding under the Predecessor Plan will accelerate and such options will terminate and cease to be exercisable upon an acquisition of the Company by merger or asset sale, unless those options are assumed by the acquiring entity. The unvested portion of any options assumed by the successor corporation will automatically accelerate upon the involuntary termination of the optionee's service within twelve (12) months following the occurrence of a Corporate Transaction in which the options are assumed or replaced by the successor corporation. Stock appreciation rights may be issued in tandem with option grants made under the Discretionary Option Grant Program. The holders of these rights will have the opportunity to elect between the exercise of their outstanding stock options for shares of Common Stock or the surrender of those options for an appreciation distribution from the Company equal to the excess of (i) the fair market value of the vested shares of Common Stock subject to the surrendered option over (ii) the aggregate exercise price payable for such shares. The appreciation distribution may be made in cash or in shares of Common Stock. There are currently no outstanding stock appreciation rights. The Plan Administrator has the authority to effect the cancellation of outstanding options under the Discretionary Option Grant Program (including options incorporated from the Predecessor Plan) in return for the grant of new options for the same or a different number of option shares with an exercise price per share based upon the fair market value of the Common Stock on the new grant date. The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will terminate ten years from its effective date unless otherwise terminated by the Board prior to such date. 53 EMPLOYEE STOCK PURCHASE PLAN The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board on August 30, 1996 and was subsequently approved by the stockholders on September 5, 1996. The Purchase Plan is designed to allow eligible employees of the Company to purchase shares of Common Stock, at semi-annual intervals, through periodic payroll deductions under the Purchase Plan. A reserve of 300,000 shares of Common Stock has been established for this purpose. The Purchase Plan will be implemented in a series of successive offering periods, each with a maximum duration of twenty-four (24) months. However, the initial offering period will begin on the day the underwriting agreements are executed in connection with the Offerings and will end on the last business day in August 1998. Individuals who are eligible employees on the start date of any offering period may enter the Purchase Plan on that start date or on any subsequent semi-annual entry date (March 1 or September 1 each year). Individuals who become eligible employees after the start date of the offering period may join the Purchase Plan on any subsequent semi-annual entry date within that period. Payroll deductions may not exceed 10% of the participant's base salary for each semi-annual period of participation, and the accumulated payroll deductions will be applied to the purchase of shares on the participant's behalf on each semi-annual purchase date (the last business day of February and August each year, with the first purchase date to occur on the last business day of February, 1997) at a purchase price per share not less than 85% of the LOWER of (i) the fair market value of the Common Stock on the participant's entry date into the offering period or (ii) the fair market value of the Common Stock on the semi-annual purchase date. Should the fair market value of the Common Stock on any semi-annual purchase date be less than the fair market value of the Common Stock on the first day of the offering period, then the current offering period will automatically end and a new twenty-four (24)-month offering period will begin, based on the lower fair market value. Limitations on Liability and Indemnification Matters The Company's Second Restated Certificate of Incorporation eliminates, subject to certain exceptions, directors' personal liability to the Company or its stockholders for monetary damages for breaches of fiduciary duties. The Second Restated Certificate of Incorporation does not, however, eliminate or limit the personal liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Restated Bylaws provide that the Company shall indemnify its directors and executive officers to the fullest extent permitted under the Delaware General Corporation Law, and may indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its directors and officers. The indemnification agreements contain provisions that require the Company, among other things, to indemnify its directors and executive officers against certain liabilities (other than liabilities arising from intentional or knowing and culpable violations of law) that may arise by reason of their status or service as directors or executive officers of the Company or other entities to which they provide service at the request of the Company and to advance expenses they may incur as a result of any proceeding against them as to which they could be indemnified. The Company believes that these provisions and agreements are necessary to attract and retain qualified directors and officers. The Company has obtained an insurance policy covering directors and officers for claims that such directors and officers may otherwise be required to pay or for which the Company is required to indemnify them, subject to certain exclusions. 54 CERTAIN TRANSACTIONS Since its inception in July 1995, the Company has issued, in private placement transactions, shares of its Preferred Stock as follows: 5,231,671 shares of Series A Preferred Stock at a price of $0.75 per share (and warrants to purchase up to 130,000 shares of Series A Preferred Stock at an exercise price of $0.75 per share); and 3,706,234 shares of Series B Preferred Stock at a price of $5.00 per share (and warrants to purchase up to 16,000 shares of Series B Preferred Stock at an exercise price of $5.00 per share). The purchasers of Preferred Stock include, among others, the following executive officers, directors and holders of more than five percent of the Company's outstanding stock and their respective affiliates (all shares of Preferred Stock are convertible into Common Stock on a one-for-one basis):
Preferred Stock ---------------------- Total Executive Officers, Directors and 5% Stockholders Series A Series B Consideration - ------------------------------------------------------------------------- ---------- ---------- ------------- Venrock Associates and affiliated fund(1)................................ 1,466,667 600,000 $ 4,100,000 George McFadden and affiliated entities and individuals(2)..................................................... 1,333,000 600,000 4,000,000 Forward Ventures and affiliated funds and individual(3)...................................................... 1,050,000 600,000 3,788,000 The Wellcome Trust(4).................................................... -- 1,000,000 5,000,000 Schroder Venture Managers Limited(5)..................................... 466,667 187,083 1,285,000 David W. Barry, M.D...................................................... 266,667 40,000 400,000 M. Nixon Ellis, Ph.D..................................................... 133,333 68,151 441,000 Karl Y. Hostetler, M.D. (6).............................................. 100,000 10,000 125,000
- ------------ (1) Includes shares purchased by Venrock Associates and Venrock Associates II, L.P. Anthony B. Evnin, Ph.D. is a general partner of both entities and a director of the Company. (2) Includes shares purchased by John H. McFadden, Carol McFadden, Lesley Taylor, McFadden Brothers and several trusts for the benefit of George McFadden or his children. Mr. McFadden is a director of the Company. (3) Includes shares purchased by Forward Ventures II, L.P., Forward Ventures Vanguard Fund and Jeff Sollender, a venture partner of Forward III Associates, L.L.C. Standish M. Fleming is a general partner of Forward Ventures II, L.P., a member of Forward New Opportunities, L.L.C., which is a general partner of Forward Ventures Vanguard Fund, and a director of the Company. (4) Peter McPartland is a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a wholly-owned subsidiary of Schroder Ventures Life Sciences Advisors Limited, which acts as an advisor to The Wellcome Trust. Mr. McPartland is also a director of the Company. (5) Includes shares purchased by Schroder Venture Managers Limited, as manager for Schroder Ventures International Life Sciences Fund LP1, Schroder Ventures International Life Sciences Fund LP2, Schroder Ventures International Life Sciences Fund Trust and Schroder Venture Managers Limited, as investment manager for the Schroder Ventures International Life Sciences Fund Co-investment Scheme. Mr. McPartland is a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a wholly-owned subsidiary of Schroder Ventures Life Sciences Advisors Limited, which acts as an advisor to Schroder Venture Managers Limited. Mr. McPartland is also a director of the Company. (6) All shares purchased by a family trust. Holders of Preferred Stock, certain holders of Common Stock and holders of warrants to purchase Preferred Stock are entitled to certain registration rights with respect to the Common Stock issued or issuable upon conversion or exercise thereof. See "Description of Capital Stock--Registration Rights." 55 In November 1995, the Company entered into a license agreement and separate consulting agreements with Dr. Karl Y. Hostetler, one of the Company's directors and a member of the Company's Scientific Advisory Board, and Dr. Dennis Carson, another member of the Company's Scientific Advisory Board. Pursuant to the license agreement, the Company obtained its rights to ACVMP and 2-CdAP. See "Business--License and Option Agreements." Under the terms of the consulting agreement with Dr. Hostetler, the Company paid Dr. Hostetler an initial fee of $3,000 and agreed to sell to Dr. Hostetler shares of the Company's Series A Preferred Stock and Common Stock and to pay him an annual fee of $25,000 in consideration of the consulting services Dr. Hostetler agreed to provide in the antiviral and anticancer fields. Under the terms of the consulting agreement with Dr. Carson, the Company paid Dr. Carson an initial fee of $2,000 and agreed to sell to Dr. Carson shares of the Company's Series A Preferred Stock and Common Stock and to pay him an annual fee of $25,000 in consideration of the consulting services Dr. Carson agreed to provide in the antiviral and anticancer fields. Both consulting agreements will terminate in November 1999, unless earlier terminated by the Company. In July 1995, Dr. David W. Barry, the Chairman and Chief Executive Officer of the Company, and Forward Ventures II, L.P., a holder of more than five percent of the Company's outstanding stock, and of which Standish M. Fleming, a director of the Company, is a general partner, purchased 800,000 and 375,000 shares of Common Stock, respectively, at $0.01 per share (the then fair market value of the Common Stock as determined by the Company's Board). These shares represented all of the shares of Common Stock issued in this financing. In November 1995, Dr. Karl Y. Hostetler and Standish M. Fleming, directors of the Company, Dr. M. Nixon Ellis, a director and executive officer of the Company, and Dr. Phillip A. Furman, Dr. Sandra Lehrman and James A. Klein, Jr., all executive officers of the Company at that time, purchased 300,000, 62,500, 200,000, 150,000, 150,000 and 100,000 shares of Common Stock, respectively, at $0.01 per share (the then fair market value of the Common Stock as determined by the Company's Board). A total of 1,345,000 shares of Common Stock were issued in this financing. In December 1995, Chris A. Rallis, an executive officer of the Company, purchased 150,000 shares of Common Stock at $0.01 per share (the then fair market value of the Common Stock as determined by the Company's Board). The Company exercised its option to repurchase all 150,000 shares of Common Stock from Dr. Lehrman upon her departure from the Company in July 1996. In October 1996, the Company entered into an employment agreement with Dr. David W. Barry, the Company's Chairman and Chief Executive Officer. See "Management--Executive Compensation--Employment Agreement." The Company has also entered into indemnification agreements with each of its directors and officers. See "Management--Limitations on Liability and Indemnification Matters." The Company believes that all of the transactions set forth above were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. All future transactions between the Company and its officers, directors, principal stockholders and their respective affiliates will be approved in accordance with the Delaware General Corporation Law by a majority of the Board, including a majority of the independent and disinterested directors of the Board, and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. 56 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of October 28, 1996 (giving effect to the Conversion as if it had occurred on such date), and as adjusted to reflect the completion of the Offerings, by (i) each person known to the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers and (iv) all directors and executive officers of the Company as a group:
Percentage Beneficially Owned(2) Number of 5% Stockholders, Directors, Beneficially ---------------------------- Named Executive Officers, and Directors Owned Before After and Executive Officers as a Group (1) Shares(2) Offerings Offerings - --------------------------------------------------------------------------- ------------ ------------- ------------- Venrock Associates(3)...................................................... 2,066,667 15.9% 12.1% 30 Rockefeller Plaza New York, NY 10112 Forward Ventures II, L.P.(4)............................................... 1,975,000 15.2 11.6 10975 Torreyana Road, Suite 230 San Diego, CA 92121 The Wellcome Trust(5)...................................................... 1,000,000 7.7 5.9 183 Euston Road London, England NW1 2BE Schroder Venture Managers Limited(6)....................................... 653,750 5.0 3.8 22 Church Street Hamilton, HM 11, Bermuda David W. Barry, M.D(7)..................................................... 1,303,881 10.0 7.6 M. Nixon Ellis, Ph.D.(8)................................................... 632,351 4.8 3.7 Anthony B. Evnin, Ph.D.(9)................................................. 2,066,667 15.9 12.1 30 Rockefeller Plaza New York, NY 10112 Standish M. Fleming(10).................................................... 2,037,500 15.6 12.0 10975 Torreyana Road, Suite 230 San Diego, CA 92121 Karl Y. Hostetler, M.D.(11)................................................ 410,000 3.1 2.4 14024 Rue St. Raphael Del Mar, CA 92104 George McFadden(12)........................................................ 1,923,000 14.8 11.3 745 Fifth Avenue New York, NY 10151 Peter McPartland(13)....................................................... 653,750 5.0 3.8 20 Southampton Street London WC2E 7QG United Kingdom Phillip A. Furman, Ph.D.(14)............................................... 231,795 1.8 1.4 James A. Klein, Jr.(15).................................................... 164,391 1.3 1.0 Sandra N. Lehrman, M.D.(16)................................................ 144,333 1.1 * All directors and executive officers as a group (13 persons)(7)-(17)..................................................... 11,759,984 86.0 66.6
- ------------ * Less than 1% (1) Except as otherwise indicated, (i) the stockholders named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable and (ii) the address of all stockholders listed in the table is: 4 University Place, 4611 University Drive, Durham, North Carolina 27707. (2) Percentage ownership is based on 13,035,238 shares of Common Stock outstanding on October 28, 1996 (giving effect to the Conversion as if it had occurred on such date) and is calculated pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. 57 (3) Includes 685,736 shares of Common Stock beneficially owned by Venrock Associates II, L.P. Dr. Evnin is a general partner of Venrock Associates and Venrock Associates II, L.P. (4) Includes 1,475,000 shares of Common Stock beneficially owned by Forward Ventures II, L.P. and 500,000 shares of Common Stock beneficially owned by Forward Ventures Vanguard Fund. Mr. Fleming is a general partner of Forward Ventures II, L.P. and a member of Forward New Opportunities L.L.C., which is a general partner of Forward Ventures Vanguard Fund. (5) All shares beneficially owned by The Wellcome Trust Limited as trustee of The Wellcome Trust. (6) All shares beneficially owned by Schroder Venture Managers Limited, as manager for Schroder Ventures International Life Sciences Fund LP1, Schroder Ventures International Life Sciences Fund LP2, Schroder Ventures International Life Sciences Fund Trust and Schroder Venture Managers Limited, as investment manager for the Schroder Ventures International Life Sciences Fund Co-investment Scheme. Mr. McPartland is a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a wholly-owned subsidiary of Schroder Ventures Life Sciences Advisors Limited, which acts as an advisor to Schroder Venture Managers Limited. (7) Includes 25,381 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of October 28, 1996. (8) Includes 230,867 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of October 28, 1996. (9) Includes 1,380,931 shares of Common Stock beneficially owned by Venrock Associates and 685,736 shares of Common Stock beneficially owned by Venrock Associates II, L.P. Dr. Evnin is a general partner of Venrock Associates and Venrock Associates II, L.P. and consequently shares voting and investment power with respect to all such shares. Dr. Evnin disclaims beneficial ownership of these shares other than to the extent of his individual partnership interest. (10) Includes 1,475,000 shares of Common Stock beneficially owned by Forward Ventures II, L.P. and 500,000 shares of Common Stock beneficially owned by Forward Ventures Vanguard Fund. Mr. Fleming is a general partner of Forward Ventures II, L.P. and a member of Forward III Associates L.L.C., the general partner of Forward Ventures Vanguard Fund, and consequently shares voting and investment power with respect to all such shares. Mr. Fleming disclaims beneficial ownership of these shares other than to the extent of his individual partnership and member interests. (11) All shares of Common Stock are beneficially owned by a family trust. (12) Includes 100,000 shares, 588,000 shares, 245,000 shares, 500,000 shares and 90,000 shares of Common Stock beneficially owned by (i) McFadden Brothers, (ii) a family trust, (iii) two family trusts for the benefit of two of Mr. McFadden's children, (iv) other family members and (v) a former family member, respectively. Mr. McFadden exercises shared voting and investment power with respect to all such shares. Mr. McFadden disclaims beneficial ownership of these shares other than to the extent of his pecuniary interest in the shares beneficially owned by McFadden Brothers and the family trust. (13) Includes 653,750 shares of Common Stock beneficially owned by Schroder Venture Managers Limited, as manager for Schroder Ventures International Life Sciences Fund LP1, Schroder Ventures International Life Sciences Fund LP2, Schroder Ventures International Life Sciences Fund Trust and Schroder Venture Managers Limited, as investment manager for the Schroder Ventures International Life Sciences Fund Co-investment Scheme. Mr. McPartland is a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a wholly- owned subsidiary of Schroder Ventures Life Sciences Advisors Limited, which acts as an advisor to Schroder Venture Managers Limited. Mr. McPartland disclaims beneficial ownership of these shares other than to the extent of his individual interest arising from his position as a director of Schroder Ventures Life Sciences Advisers (UK) Ltd. (14) Includes 56,795 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of October 28, 1996. (15) Includes 41,387 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of October 28, 1996. (16) Includes 50,000 shares of Common Stock held by Dr. Lehrman's child. (17) Includes 635,623 shares of Common Stock issuable upon the exercise of options beneficially owned by certain executive officers and directors of the Company that are exercisable within 60 days of October 28, 1996. 58 DESCRIPTION OF CAPITAL STOCK As of October 28, 1996, there were 4,097,333 shares of Common Stock and 8,937,905 shares of Preferred Stock outstanding. As of such date, the Company had a total of approximately 45 stockholders. Upon completion of the Offerings, there will be 17,035,238 shares of Common Stock outstanding (assuming no exercise of outstanding options and warrants) and no shares of Preferred Stock outstanding (after giving effect to the Conversion, which will occur upon the closing of the Offerings). After completion of the Offerings, the Company's authorized capital stock will consist of 75,000,000 shares of Common Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value per share (the "New Preferred Stock"). Common Stock The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to the preferential rights that may be granted by the Board in connection with the future issuance of New Preferred Stock the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board out of funds legally available for the payment of dividends. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of New Preferred Stock. Holders of Common Stock have no preemptive rights or rights to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and the Common Stock to be outstanding upon completion of the Offerings will be, fully paid and non-assessable. Preferred Stock, Warrants and Stock Options As of October 28, 1996, a total of 5,231,671 and 3,706,234 shares of Series A Preferred Stock and Series B Preferred Stock were outstanding, respectively. Upon the closing of the Offerings, all of the Preferred Stock will be converted into 8,937,905 shares of Common Stock. As of October 28, 1996, a total of (i) 1,096,260 shares of Common Stock were issuable upon exercise of outstanding options at a weighted average exercise price of $2.13 per share and (ii) 146,000 shares of Preferred Stock were issuable upon exercise of outstanding warrants at a weighted average exercise price of $1.22 per share. All of the options have been granted under the Predecessor Plan. All of the warrants will automatically convert into the right to purchase the same number of shares of Common Stock at the same exercise price upon the completion of the Offerings. The holder of the warrants to purchase 130,000 shares of Series A Preferred Stock is entitled to certain registration rights. See "--Registration Rights." All of these options and warrants, unless exercised prior to the completion of the Offerings, will remain outstanding after the completion of the Offerings. New Preferred Stock After completion of the Offerings, the Board will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of New Preferred Stock in one or more series and to fix the rights, priorities, preferences, qualifications, limitations and restrictions, including dividend rights, conversion rights, voting rights, terms of redemption, terms of sinking funds, liquidation preferences and the number of shares constituting any series or the designation of such series, which could decrease the amount of earnings and assets available for distribution to holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. The issuance of New Preferred Stock could have the effect of delaying or preventing a change in control of the Company or make removal of management more difficult. Additionally, the issuance of New Preferred Stock may have the effect of decreasing the market price of the Common Stock, and may adversely affect the voting and other rights of the holders of Common Stock. 59 Antitakeover Effects of Charter, Bylaws and Delaware Law SECOND RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS The Company's Second Restated Certificate of Incorporation authorizes the Board to establish one or more series of undesignated New Preferred Stock, the terms of which can be determined by the Board at the time of issuance. See "--New Preferred Stock." The Second Restated Certificate of Incorporation also provides that all stockholder action must be effected at a duly called meeting of stockholders and not by a consent in writing. The Company's Restated Bylaws provide that the Company's Board will be classified into three classes of directors beginning at the 1997 annual meeting of stockholders. See "Management--Executive Officers, Key Employees and Directors." In addition, the Restated Bylaws do not permit stockholders of the Company to call a special meeting of stockholders; only the Company's Chief Executive Officer, President, Chairman of the Board or a majority of the Board are permitted to call a special meeting of stockholders. The Restated Bylaws also require that stockholders give advance notice to the Company's secretary of any nominations for director or other business to be brought by stockholders at any stockholders' meeting and require a supermajority vote of members of the Board and/or stockholders to amend certain Bylaw provisions. These provisions of the Second Restated Certificate of Incorporation and the Restated Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions may also have the effect of preventing changes in the management of the Company. See "Risk Factors--Antitakeover Effects of Charter, Bylaws and Delaware Law." DELAWARE TAKEOVER STATUTE The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder (defined as any person or entity that is the beneficial owner of at least 15% of a corporation's voting stock) for a period of three years following the time that such stockholder became an interested stockholder, unless: (i) prior to such time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder's becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time, the business combination is approved by the Board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, lease, exchange, mortgage, transfer, pledge or other disposition involving the interested stockholder and 10% or more of the assets of the corporation; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. Registration Rights The Company and the holders (the "Holders") of approximately 9,000,000 shares of Preferred Stock (which will convert to Common Stock upon the closing of the Offerings) (the "Registrable Securities") are parties to a certain Restated Investors' Rights Agreement pursuant to which the Holders are entitled to certain rights with respect to the registration of such shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"). If the Company proposes to register any of its securities under the Securities Act, either for its 60 own account or for the account of other stockholders exercising registration rights, such Holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein. A majority of such Holders of the Registrable Securities are also entitled to certain demand registration rights pursuant to which they may require the Company to file a registration statement under the Securities Act at the Company's expense with respect to their shares of Common Stock, and the Company is required to use its best efforts to effect such registration. Further, the Holders of such Registrable Securities may require the Company to file additional registration statements on Form S-3 at the Company's expense. All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares of Registrable Securities included in such registration and the right of the Company not to effect a requested registration within 180 days following an offering of the Company's securities, including the Offerings. The Company is required to bear all expenses, other than underwriting discounts and commissions, in connection with any registration of the Registrable Securities. The Company is also required to indemnify the Holders and the underwriters for the Holders, if any, under certain circumstances. The Company has also entered into two additional Investors' Rights Agreements, pursuant to which the holders ("Additional Rights Holders") of 700,000 shares of Common Stock and the holder of a warrant to purchase up to 130,000 shares of Series A Preferred Stock (which warrant automatically converts into the right to purchase Common Stock upon the closing of the Offerings) ("Additional Registrable Securities") are entitled to certain rights with respect to the registration of such shares of Common Stock under the Securities Act. If the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other stockholders exercising registration rights, such Additional Rights Holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein. These registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares of Additional Registrable Securities included in such registration. The Company is required to bear all expenses, other than underwriting discounts and commissions, in connection with any registration of the Additional Registrable Securities. The Company is also required to indemnify the Additional Rights Holders and the underwriters for the Additional Rights Holders, if any, under certain circumstances. All of the registration rights granted by the Company expire on the earlier of (i) the fifth anniversary of the closing of the Offerings or (ii) the date after which all shares of Common Stock for which registration rights have been granted may be immediately sold under Rule 144(k) under the Securities Act. Transfer Agent and Registrar American Stock Transfer & Trust Company has been appointed as the transfer agent and registrar for the Company's Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offerings, there has been no public market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices of the Common Stock. Upon completion of the Offerings, the Company will have outstanding 17,035,238 shares of Common Stock (excluding the shares of Common Stock issuable upon exercise of outstanding options and warrants). Of such shares, the 4,000,000 shares of Common Stock sold in the Offerings will be freely tradeable without restrictions under the Securities Act, except for any shares held by an "affiliate" of the Company, which will be subject to the resale limitations of Rule 144 under the Securities Act ("Rule 144"). The remaining 13,035,238 shares, which were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act, are "restricted securities" under Rule 144 and may be sold in compliance with such Rule, pursuant to registration under the Securities Act or pursuant to an exemption therefrom. Generally, under Rule 144, each person holding restricted securities for a period of two years may, every three months after the expiration of such two-year holding period, sell an amount of shares equal to the greater of (i) one percent of the Company's then outstanding Common Stock or (ii) the average weekly trading volume during the four weeks prior 61 to the proposed sale. In addition, sales under Rule 144 may be made only through unsolicited brokerage transactions or to market makers and are subject to various other conditions. None of these rules applies to restricted securities sold for the account of a person who is not and has not been an "affiliate" of the Company (as that term is defined in the Securities Act) during the three months prior to the proposed sale and who has beneficially owned the securities for at least three years. None of the outstanding shares is currently tradeable under Rule 144. Stockholders owning an aggregate of approximately 12,950,000 shares of Common Stock, representing approximately 99% of the total shares outstanding (and approximately 1,050,000 shares issuable upon exercise of outstanding options and warrants), including shares held by all executive officers and directors and certain other stockholders and option holders of the Company, have agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Common Stock or other securities of the Company that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of Common Stock or any such substantially similar securities, without the prior written consent of Dillon, Read & Co. Inc. for a period of 180 days after the date of this Prospectus. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permit (i) nonaffiliates to sell their Rule 701 shares without compliance with the public information, holding period, volume limitation or notice provisions of Rule 144 and (ii) affiliates to sell their Rule 701 shares without compliance with Rule 144's holding period restrictions. Holders of approximately 320,000 currently outstanding shares of Common Stock may sell their shares under Rule 701 at any time 90 days after the completion of the Offerings, subject to the restrictions of the 180 day lock-up agreement described above and certain other contractual restrictions. The Company intends to file a registration statement under the Securities Act on Form S-8 covering an aggregate of approximately 2,180,000 shares of Common Stock reserved for issuance under the 1996 Plan and the Purchase Plan. Such registration statement is expected to be filed as soon as practicable after the completion of the Offerings and will become effective automatically upon filing. Accordingly, shares registered under such registration statement will be available for resale by nonaffiliates in the public market, subject to any vesting restrictions with the Company and any other contractual restrictions. CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS OF COMMON STOCK The following is a discussion of certain United States federal income and estate tax consequences of the ownership and disposition of Common Stock by a "Non-United States Holder." A "Non-United States Holder" is a person or entity that, for United States federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership, or a foreign estate or trust. An alien individual may be deemed to be a resident alien (as opposed to a non-resident alien) by virtue of being present in the United States on at least 31 days in the calendar year and for an aggregate of 183 days during a three-year period ending in the current calendar year (counting, for such purposes, all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year). In addition to the "substantial presence test" described in the immediately preceding sentence, an alien may be treated as a resident alien if he (i) is a lawful permanent resident at any time during the year, or (ii) elects to be treated as a United States resident and meets the "substantial presence test" in the immediately following year. Generally, resident aliens are subject to United States federal tax as if they were United States citizens and residents. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), and administrative and judicial interpretations as of the date hereof, all of which may be changed either retroactively or prospectively. This discussion does not address all aspects of United States federal income and estate taxation that may be 62 relevant in light of any Non-United States Holder's particular facts and circumstances (such as being a United States expatriate) and does not address any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Prospective holders are urged to consult their tax advisors with respect to the particular United States federal, state, local and non-United States income and other tax consequences of holding and disposing Common Stock. Dividends Dividends paid to a Non-United States Holder of Common Stock generally will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. For purposes of determining whether tax is to be withheld at a 30% rate or at a reduced rate as specified by an income tax treaty, the Company ordinarily will presume that dividends paid to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. However, under recently proposed United States Treasury regulations which have not yet become effective, a Non-United States Holder of Common Stock would be required to file an appropriate withholding certificate (generally Form W-8) in order to claim the benefits of a tax treaty. Upon the filing of an Internal Revenue Service Form 4224 with the payor, there will be no withholding tax on dividends that are effectively connected with the Non-United States Holder's conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular United States income tax in the same manner as if the Non-United States Holder were a United States resident. A non-United States corporation receiving effectively connected dividends also may be subject to an additional "branch profits tax" which is imposed under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) of the non-United States corporation's effectively connected earnings and profits, subject to certain adjustments. Gain on Disposition of Common Stock A Non-United States Holder generally will not be subject to United States federal income tax with respect to gain realized on a sale or other disposition of Common Stock unless (i) the gain is effectively connected with a trade or business of such holder in the United States (which gain, in the case of a foreign corporation, must also be taken into account for branch profits tax purposes), (ii) in the case of certain Non-United States Holders who are non- resident alien individuals and hold the Common Stock as a capital asset, such individuals are present in the United States for 183 or more days in the taxable year of the disposition and (a) have a "tax home" in the United States for such year or (b) the gain is attributable to an office or other fixed place of business maintained in the United States by such individual, or (iii) the Company is or has been a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code at any time within the shorter of the five-year period preceding such disposition or such Non-United States Holder's holding period. The Company believes that it currently is not a United States real property holding corporation and does not anticipate that it will become one in the future. Further, even if the Company were to become a United States real property holding corporation, any gain recognized by a Non-United States Holder still would not be subject to United States tax if the shares were considered to be "regularly traded" (within the meaning of applicable United States Treasury regulations) on an established securities market (E.G., the Nasdaq National Market System, on which the Company's Common Stock will be listed) and the Non-United States Holder did not own, directly or indirectly, at any time during the five-year period ending on the date of the disposition, more than five percent of the Common Stock. Non-United States Holders should note that legislation has been proposed on several occasions that would subject certain Non-United States Holders owning a specified percentage of the stock of the Company to United States tax on the gain realized from the sale (or other disposition) of the Common Stock. Although to date this legislation has not been enacted, it is not possible to predict whether such legislation will be enacted in the future, and, if so enacted, in what form. 63 Information Reporting Requirements and Backup Withholding Generally, the Company must report to the United States Internal Revenue Service the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the United States Internal Revenue Service may make its reports available to tax authorities in the recipient's country of residence. Dividends paid to a Non-United States Holder at an address within the United States may be subject to 31% backup withholding if the Non-United States Holder fails to establish that it is entitled to an exemption or to provide a correct tax payer identification number and other information to the payor. Dividends paid to a Non-United States Holder at an address outside the United States generally will not be subject to backup withholding. Information reporting and 31% backup withholding will apply to the proceeds of a disposition of Common Stock paid to or through a United States office of a broker unless the disposing holder certifies its non-United States status or otherwise establishes an exemption. A Non-United States Holder may establish non-United States status by filing an Internal Revenue Service Form W-8 with the broker. Generally, United States information reporting and backup withholding will not apply to a payment of disposition proceeds if the payment is made outside the United States through a non-United States office of a non-United States broker. However, United States information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds outside the United States if (i) the payment is made through an office outside the United States of a broker that is either (a) a United States person, (b) a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States or (c) a "controlled foreign corporation" for United States federal income tax purposes, and (ii) the broker fails to maintain documentary evidence that the holder is a Non-United States Holder and that certain conditions are met, or that the holder otherwise is entitled to an exemption. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the United States Internal Revenue Service. Federal Estate Tax An individual Non-United States Holder who is treated as the owner of, or has made certain lifetime transfers of an interest in, the Common Stock will be required to include the value thereof in his gross estate for United States federal estate tax purposes, and may be subject to United States federal estate tax unless an applicable estate tax treaty provides otherwise. 64 UNDERWRITING The names of the U.S. Underwriters for the United States Offering and the aggregate number of shares of Common Stock that each has severally agreed to purchase from the Company, subject to the terms and conditions specified in the United States Underwriting Agreement, are as follows:
Number of U.S. Underwriters Shares - ---------------------------------------------------------------------------------- ------------ Dillon, Read & Co. Inc............................................................ Bear, Stearns & Co. Inc........................................................... ------------ Total................................................................ ------------ ------------
The U.S. Managing Underwriters are Dillon, Read & Co. Inc. and Bear, Stearns & Co. Inc. The names of the International Underwriters for the International Offering and the aggregate number of shares of Common Stock that each has severally agreed to purchase from the Company, subject to the terms and conditions specified in the International Underwriting Agreement, are as follows:
Number of International Underwriters Shares - ---------------------------------------------------------------------------------- ------------ Dillon, Read & Co. Inc............................................................ Bear, Stearns International Limited............................................... ING Baring Securities Limited..................................................... ------------ Total................................................................ ------------ ------------
The International Managing Underwriters are Dillon, Read & Co. Inc., Bear, Stearns International Limited and ING Baring Securities Limited. The U.S. Underwriters and the International Underwriters are collectively referred to herein as the "Underwriters," and the United States Underwriting Agreement and the International Underwriting Agreement are collectively referred to herein as the "Underwriting Agreements." The offering price and aggregate underwriting discounts and commissions per share for the two Offerings are identical. The closing of the United States Offering is a condition to the closing of the International Offering, and vice versa. If any shares of Common Stock offered hereby are purchased by the Underwriters, all such shares will be so purchased. The Underwriting Agreements contain certain provisions whereby if any United States Underwriter or International Underwriter defaults in its obligation to purchase such shares and if the aggregate obligations of the U.S. Underwriters or International Underwriters so defaulting do not exceed 10% of the shares offered in the United States Offering or the International Offering, respectively, the remaining U.S. Underwriters, or some of them, or the remaining International Underwriters, or some of them, as the case may be, must assume such obligations. The shares of Common Stock offered hereby are being initially offered severally by the Underwriters for sale at the price set forth on the cover page hereof, or at such price less a concession not to exceed $ per share on sales to certain dealers. The Underwriters may allow, and such dealers may reallow, a concession not to exceed $ per share to other Underwriters or to certain other dealers. The offering of the shares of Common Stock is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, 65 cancellation or modification of the offer without notice. The Underwriters reserve the right to reject any order for the purchase of the shares of Common Stock. After the initial offering of the Common Stock, the offering price, concession and reallowance may be varied by the U.S. Managing Underwriters or the International Managing Underwriters. Pursuant to the Agreement between the U.S. Underwriters and the International Underwriters (the "Agreement Between Underwriters"), each U.S. Underwriter has represented and agreed that, with certain exceptions, (i) it is not purchasing any United States Shares (as defined below) for the account of anyone other than a United States or Canadian Person (as defined below) and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any United States Shares or distribute any Prospectus relating to the United States Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between Underwriters, each International Underwriter has represented and agreed that, with certain exceptions, (i) it is not purchasing any International Shares (as defined below) for the account of any United States or Canadian Person and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any Prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between Underwriters. As used herein "United States or Canadian Person" means any resident of the United States or Canada, or any corporation, pension, profit sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters are referred to herein as the "United States Shares" and the "International Shares," respectively. Pursuant to the Agreement Between Underwriters, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed. As a result, shares of Common Stock originally purchased pursuant to the United States Underwriting Agreement may be sold outside the United States and Canada, and shares of Common Stock originally purchased pursuant to the International Underwriting Agreement may be sold in the United States and Canada. The price of any shares so sold will, unless otherwise agreed, be the price to the public, less an amount not greater than the selling concession. Pursuant to the Agreement Between Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares of Common Stock, directly or indirectly, in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which any such offer is made. Each U.S. Underwriter has further agreed to send any dealer who purchases from it any shares of Common Stock a notice stating in substance that, by purchasing such Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Common Stock in Canada or to, or for the benefit of, any resident of Canada in contravention of the securities laws of Canada and any province or territory thereof and that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between Underwriters, each International Underwriter has represented and agreed that: (i) it has not offered or sold, and during the period of six months from the date hereof will not offer or sell, any shares of Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances that have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of Public Offers of Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Regulations with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom 66 any document received by it in connection with the offer of the Common Stock if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom such document may otherwise lawfully be issued or passed on. The Company has granted to the U.S. Underwriters an option to purchase an aggregate of up to an additional 600,000 shares of Common Stock on the same terms. If the U.S. Underwriters exercise this option, each of the U.S. Underwriters will be obligated, subject to certain conditions, to purchase approximately the same proportion of the aggregate shares so purchased as the number of shares to be purchased by it shown in the above tables bears to 600,000. The U.S. Underwriters may exercise such option on or before the thirtieth day from the date hereof solely for the purpose of covering over-allotments, if any, in connection with the Offerings. Stockholders owning an aggregate of approximately 12,950,000 shares of Common Stock, representing approximately 99% of the total shares outstanding (and approximately 1,050,000 shares issuable upon exercise of outstanding options and warrants), including shares held by all executive officers and directors and certain other stockholders and option holders of the Company, have agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Common Stock or other securities of the Company that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of Common Stock or any such substantially similar securities, without the prior written consent of Dillon, Read & Co. Inc. for a period of 180 days after the date of this Prospectus. Prior to the Offerings, there has been no public market for the Common Stock. Consequently, the initial public offering price for the Common Stock will be determined by negotiation between the U.S. Managing Underwriters, the International Managing Underwriters and the Company. Factors to be considered in determining such price will be prevailing market conditions, the state of the Company's development, recent financial results of the Company, the future prospects of the Company and its industry, market valuations of securities of companies engaged in activities deemed by the U.S. Managing Underwriters and the International Managing Underwriters to be similar to those of the Company, and other factors deemed relevant. The Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. Of the 4,000,000 shares of Common Stock offered hereby by the Company, up to of such shares will be reserved for sale to persons designated by the Company. There can be no assurance that such shares will be purchased by these persons. Shares not so purchased will be reoffered immediately by the Underwriters to the public at the initial public offering price. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, as amended, or to contribute to payments that the Underwriters may be required to make in respect thereof. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, San Diego, California. A member of such firm owns a total of 13,333 shares of the Company's Common Stock. Certain legal matters will be passed upon for the Underwriters by King & Spalding, New York, New York. EXPERTS The financial statements of the Company as of December 31, 1995 and for the period from inception (July 12, 1995) to December 31, 1995, included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 67 The statements in this Prospectus under the captions "Risk Factors--Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights" and "Business--Patents and Proprietary Rights" have been reviewed and approved by Kilpatrick & Cody LLP, Atlanta, Georgia, patent counsel for the Company, as experts in such matters and are included herein in reliance upon that review and approval. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") the Registration Statement under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may be obtained at prescribed rates from the Commission's Public Reference Section at such addresses. Also, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Upon approval of the Common Stock for quotation on the Nasdaq National Market, such reports, proxy and information statements and other information also can be inspected at the office of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. 68 INDEX TO FINANCIAL STATEMENTS
Page --------- Report of Independent Accountants...................................................... F-2 Statement of Operations for the period from inception (July 12, 1995) through December 31, 1995 and the six months ended June 30, 1996 (unaudited).......................... F-3 Balance Sheet as of December 31, 1995 and June 30, 1996 (unaudited) and Pro Forma Stockholders' Equity at June 30, 1996 (unaudited).................................... F-4 Statement of Stockholders' Equity for the period from inception (July 12, 1995) through December 31, 1995 and the six months ended June 30, 1996 (unaudited)................. F-5 Statement of Cash Flows for the period from inception (July 12, 1995) through December 31, 1995 and the six months ended June 30, 1996 (unaudited).......................... F-6 Notes to Financial Statements.......................................................... F-7
F-1 Report of Independent Accountants To the Board of Directors and Stockholders of Triangle Pharmaceuticals, Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Triangle Pharmaceuticals, Inc. (the Company), a development stage company, at December 31, 1995, and the results of its operations and its cash flows for the period from inception (July 12, 1995) through December 31, 1995 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Raleigh, North Carolina April 26, 1996 F-2 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Statement of Operations
Period From Period From Inception Six Inception (July 12, 1995) Months (July 12, 1995) Through Ended Through December 31, June 30, June 30, 1995 1996 1996 --------------- ------------- --------------- (Unaudited) (Unaudited) Operating expenses: License fees................................................... -- $ 2,751,829 $ 2,751,829 Development.................................................... -- 1,342,591 1,342,591 General and administrative..................................... $ 1,004,815 1,490,156 2,494,971 --------------- ------------- --------------- 1,004,815 5,584,576 6,589,391 --------------- ------------- --------------- Interest income.................................................. 37,232 85,158 122,390 --------------- ------------- --------------- Net loss......................................................... $ (967,583) $ (5,499,418) $ (6,467,001) --------------- ------------- --------------- --------------- ------------- --------------- Pro forma net loss per share..................................... $ (0.07) $ (0.39) --------------- ------------- --------------- ------------- Shares used in computing pro forma net loss per share............ 14,277,498 14,277,498 --------------- ------------- --------------- -------------
The accompanying notes are an integral part of these financial statements. F-3 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Balance Sheet
June 30, 1996 --------------------------- Pro Forma December 31, Stockholders' 1995 Actual Equity ------------- ------------ ------------- (Unaudited) Assets Current assets: Cash and cash equivalents......................................... $ 3,081,586 $ 5,825,617 Restricted deposits............................................... -- 35,000 Investments....................................................... -- 11,305,549 Interest receivable............................................... -- 103,541 Other receivables................................................. -- 101,249 Prepaid expenses.................................................. -- 69,657 ------------- ------------ Total current assets............................................ 3,081,586 17,440,613 ------------- ------------ Laboratory and office equipment..................................... 22,605 461,154 Less accumulated depreciation....................................... (2,206) (11,526) ------------- ------------ 20,399 449,628 ------------- ------------ Restricted deposits................................................. -- 140,000 ------------- ------------ Total assets.................................................... $ 3,101,985 $ 18,030,241 ------------- ------------ ------------- ------------ Liabilities and Stockholders' Equity Current liabilities: Accounts payable.................................................. $ 122,751 $ 432,808 Accrued license fees.............................................. -- 500,000 Accrued vacation pay.............................................. -- 76,534 Other accrued expenses............................................ 91,718 91,868 ------------- ------------ Total current liabilities....................................... 214,469 1,101,210 ------------- ------------ Total liabilities............................................... 214,469 1,101,210 ------------- ------------ Commitments and contingencies....................................... -- -- Stockholders' equity: Series A convertible preferred stock, $0.001 par value; authorized 5,200,000 and 5,400,000 shares; issued and outstanding 5,181,671 and 5,231,671 shares 5,182 5,232 -- Series B convertible preferred stock, $0.001 par value; authorized -0- and 4,000,000 shares; issued and outstanding -0- and 3,706,234 shares................................................ -- 3,706 -- Warrants.......................................................... -- 54,280 $ 54,280 Common stock, $0.001 par value; authorized 14,800,000 and 30,000,000 shares; issued and outstanding 2,670,000 and 4,211,833 shares; 13,149,738 shares pro forma................... 2,670 4,212 13,150 Additional paid-in capital........................................ 3,858,997 23,540,791 23,540,791 Accumulated deficit during development stage...................... (967,583) (6,467,001) (6,467,001) ------------- ------------ ------------- 2,899,266 17,141,220 17,141,220 Deferred compensation............................................... (11,750) (212,189) (212,189) ------------- ------------ ------------- Total stockholders' equity...................................... 2,887,516 16,929,031 $16,929,031 ------------- ------------ ------------- ------------- Total liabilities and stockholders' equity...................... $ 3,101,985 $ 18,030,241 ------------- ------------ ------------- ------------
The accompanying notes are an integral part of these financial statements. F-4 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Statement of Stockholders' Equity
Series A Series B Convertible Convertible Preferred Stock Preferred Stock Common Stock Additional ----------------------- ----------------------- ----------------------- Paid-In Shares Amount Shares Amount Warrants Shares Amount Capital ---------- ----------- ---------- ----------- ----------- ---------- ----------- ------------ Initial sale of stock..... 933,334 $ 933 -- -- -- 1,175,000 $ 1,175 $ 709,642 Additional sale of stock................... 4,248,337 4,249 -- -- -- 1,495,000 1,495 3,137,355 Stock-based compensation.. -- -- -- -- -- -- -- 12,000 Net loss, July 12 through December 31, 1995....... -- -- -- -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- ---------- ----------- ------------ Balance, December 31, 1995.................... 5,181,671 5,182 -- -- -- 2,670,000 2,670 3,858,997 (Unaudited) Sale of stock............. 50,000 50 3,706,234 $ 3,706 -- 560,000 560 18,504,846 Sale of warrants.......... -- -- -- -- $ 130 -- -- -- Stock-based compensation.. -- -- -- -- 54,150 700,000 700 1,126,500 Stock options exercised... -- -- -- -- -- 281,833 282 50,448 Net loss.................. -- -- -- -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- ---------- ----------- ------------ Balance, June 30, 1996.... 5,231,671 $ 5,232 3,706,234 $ 3,706 $ 54,280 4,211,833 $ 4,212 $ 23,540,791 ---------- ----------- ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- ---------- ----------- ----------- ---------- ----------- ------------ Accumulated Deferred Deficit Compensation Total ------------- -------------- ------------ Initial sale of stock..... -- -- $ 711,750 Additional sale of stock................... -- -- 3,143,099 Stock-based compensation.. -- $ (11,750) 250 Net loss, July 12 through December 31, 1995....... $ (967,583) -- (967,583) ------------- -------------- ------------ Balance, December 31, 1995.................... (967,583) (11,750) 2,887,516 (Unaudited) Sale of stock............. -- -- 18,509,162 Sale of warrants.......... -- -- 130 Stock-based compensation.. -- (175,673) 1,005,677 Stock options exercised... -- (24,766) 25,964 Net loss.................. (5,499,418) -- (5,499,418) ------------- -------------- ------------ Balance, June 30, 1996.... $(6,467,001) $ (212,189) $ 16,929,031 ------------- -------------- ------------ ------------- -------------- ------------
The accompanying notes are an integral part of these financial statements. F-5 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Statement of Cash Flows
Period From Inception Period From (July 12, 1995) Inception (July Through Six Months 12, 1995) December 31, Ended Through June 1995 June 30, 1996 30, 1996 --------------- -------------- --------------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss....................................................... $ (967,583) $ (5,499,418) $ (6,467,001) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization.............................. 2,206 9,320 11,526 Stock-based compensation: license fees..................... -- 636,000 636,000 Stock-based compensation: development...................... -- 313,327 313,327 Stock-based compensation: general and administrative....... 250 72,230 72,480 Change in assets and liabilities: Receivables.............................................. -- (204,790) (204,790) Prepaid expenses......................................... -- (69,657) (69,657) Accounts payable......................................... 122,751 310,057 432,808 Accrued license fees, vacation pay and other expenses.... 91,718 564,342 656,060 --------------- -------------- --------------- Net cash used by operating activities.......................... (750,658) (3,868,589) (4,619,247) --------------- -------------- --------------- Cash flows from investing activities: Purchase of restricted deposits.............................. -- (175,000) (175,000) Purchase of investments...................................... -- (11,305,549) (11,305,549) Purchase of laboratory and office equipment.................. (22,605) (438,549) (461,154) --------------- -------------- --------------- Net cash used by investing activities.......................... (22,605) (11,919,098) (11,941,703) --------------- -------------- --------------- Cash flows from financing activities: Sale of stock, net of related expenses....................... 3,854,849 18,509,162 22,364,011 Sale of warrants............................................. -- 130 130 Proceeds from stock options exercised........................ -- 22,426 22,426 --------------- -------------- --------------- Net cash provided by financing activities...................... 3,854,849 18,531,718 22,386,567 --------------- -------------- --------------- Net increase in cash........................................... 3,081,586 2,744,031 5,825,617 Cash and cash equivalents at beginning of period............... -- 3,081,586 -- --------------- -------------- --------------- Cash and cash equivalents at end of period..................... $ 3,081,586 $ 5,825,617 $ 5,825,617 --------------- -------------- --------------- --------------- -------------- ---------------
Supplemental disclosure of noncash investing and financing activities (note 6) The accompanying notes are an integral part of these finanicial statements. F-6 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization Triangle Pharmaceuticals, Inc. (the Company), a development stage company, was formed July 12, 1995 as a Delaware corporation. The Company is engaged in the development of new drug candidates primarily in the antiviral area, and has not yet generated revenues from operations. Cash and cash equivalents The Company considers all short-term deposits with an initial maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value. Restricted deposits Restricted deposits consist of cash and cash equivalents which collateralize a letter of credit and which have been classified as current and long-term based on the expected release date of such restriction. Investments Investments consist primarily of commercial paper and government bonds with original maturities at date of purchase beyond three months and less than twelve months. Such investments are carried at fair value, which approximates cost, and are considered to be available-for-sale. Laboratory and office equipment Laboratory and office equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets. Laboratory equipment has an estimated useful life of 5 years. Office equipment has an estimated useful life of 4 years. Revenue recognition Revenue recognition will be based upon shipment of products. License fees License fees are charged to expense as incurred. Income taxes Statement of Financial Accounting Standards No. 109 (SFAS 109) "ACCOUNTING FOR INCOME TAXES" is the authoritative guidance for accounting for income taxes. SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactment of changes in tax law or rates. If it is "more likely than not" that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recorded. F-7 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements (Continued) 1. Organization and Summary of Significant Accounting Policies (Continued) Unaudited pro forma net loss per share and unaudited pro forma balance sheet The Company's historical capital structure is not indicative of its prospective structure given the conversion of the Series A and Series B convertible preferred stock into common stock concurrent with the closing of the Company's anticipated initial public offering (see Note 6). Accordingly, historical net loss per common share is not considered meaningful and has not been presented herein. The calculation of the shares used in computing pro forma net earnings per share includes the effect of the conversion of the Series A and Series B convertible preferred stock described in Note 2 into shares of common stock concurrent with the closing of the Company's anticipated initial public offering as if they were converted as of July 12, 1995. Also, pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common stock or equivalent shares from convertible preferred stock or stock options sold or issued at prices below the anticipated initial public offering price per share in the twelve months preceding the initial filing have been included in the calculation as if outstanding for all periods presented. Interim financial information Interim financial information for the six months ended June 30, 1996 included herein is unaudited; however, in the opinion of the Company, the interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim period. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the year. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent accounting pronouncements In 1995, the Financial Accounting Standards Board issued two new standards, which the Company will adopt in the year ending December 31, 1996, related to long-lived assets (SFAS 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF") and stock compensation (SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"). The Company intends to adopt the disclosure alternative for stock compensation and does not expect the adoption of either standard to have a material impact on the Company's financial position or results of operations. 2. Stockholders' Equity Series A preferred shares may be converted into an equal number of shares of common stock at the option of the stockholder, and the Company has reserved 5,181,671 shares of common stock for issuance in the event of such conversion. Each share of Series A preferred stock will be automatically converted to common stock upon the closing of an initial public offering with a net price per share in excess of $3.50 and net proceeds in excess of $10,000,000. Preferred voting rights are one vote for each share of common stock into which the preferred shares F-8 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements (Continued) 2. Stockholders' Equity (Continued) may be converted. Preferred dividends at a $0.05 per share annual rate may be paid from legally available assets of the Company. Such dividends are not cumulative. No dividends were declared during the period from inception through December 31, 1995. Under the terms of various agreements, the Company has the option to repurchase common stock from certain stockholders who were employed by or who provided services to the Company at the time they acquired those shares. The Company may repurchase such shares in the event the stockholder discontinues employment or provision of services. The repurchase price is limited to the amount the stockholder originally paid for the shares. The number of shares subject to repurchase decreases to zero over periods ranging from three to four years. On December 19, 1995, the Company sold 150,000 shares of common stock to an officer. The Company accrued $250 of compensation expense related to the portion of the common stock for which the Company's repurchase option had lapsed based on the difference between the fair value and the selling price per share. 3. Licensing Agreements On November 16, 1995, the Company entered into an agreement with inventors, Dr. Karl Hostetler and Dr. Dennis Carson, to license the patent rights to two drug candidates. This agreement gives the Company exclusive rights to make, have made, use, market, distribute and sell these drug candidates throughout the world. Under this agreement, the Company will pay $1,000,000 per drug candidate to the above mentioned inventors upon FDA approval of each drug candidate. Additionally, the Company will pay royalties based on a percentage of net sales (calculated on a non-cumulative calendar year basis) of each licensed drug candidate that incorporates the patented compounds. As FDA approval of these drug candidates had not been received, no license fees or royalties were paid or accrued during the period from inception through December 31, 1995. 4. Option Agreement On December 20, 1995, the Company entered into a two year option agreement with Mitsubishi Chemical Corporation (Mitsubishi) to carry out evaluation and development of an anti-HIV drug candidate, including clinical trials. Within the option period, the Company must inform Mitsubishi whether or not it intends to enter into a license agreement to acquire exclusive worldwide rights for the drug candidate, other than in the Far East. Mitsubishi has agreed to reimburse the Company for up to $1,600,000 of costs associated with development work during the option period. Development expenses for the six months ended June 30, 1996 have been reduced by approximately $100,000 related to reimbursement of such costs. 5. Income Taxes At December 31, 1995, the Company had a net operating loss carryforward of approximately $961,000, which expires in 2011. The Company's ability to utilize its net operating loss carryforward may be subject to an annual limitation in future periods pursuant to the "change in ownership" provisions under Section 382 of the Internal Revenue Code. The Company provided a valuation allowance equal to the $376,000 deferred asset represented by the net operating loss carryforward and therefore recognized no benefit in the financial statements for the period ended December 31, 1995. F-9 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements (Continued) 6. Subsequent Events Lease In January 1996, the Company entered into a lease agreement for office and laboratory facilities. The monthly rent is constant over the initial term and the lease is renewable at the option of the Company. The Company has provided a $175,000 letter of credit, collateralized by an equivalent amount of cash and cash equivalents, as security for the lessor. Minimum lease payments are as follows:
Year Amount - -------------------------------------------------------------------------------- ------------ 1996............................................................................ $ 594,364 1997............................................................................ 673,102 1998............................................................................ 886,425 1999............................................................................ 1,198,412 2000............................................................................ 1,230,960 2001............................................................................ 1,264,809 2002............................................................................ 1,300,010 2003............................................................................ 990,762
License agreements During the first four months of 1996, the Company entered into agreements with Emory University and the University of Georgia Research Foundation, Inc. to develop and commercialize two anti-HIV drug candidates, CS-92 and DAPD. The Company also entered into an agreement with Emory University to develop and commercialize the anti-HIV drug candidate, FTC. In the aggregate, these agreements require payments of $1,100,000 upon execution and payments of up to $15,750,000 contingent upon the achievement of certain development milestones. Additionally, the Company will pay royalties based on a percentage of net sales of each licensed product incorporating these drug candidates. All of the agreements require minimum royalty payments commencing three years after regulatory approval. Depending on the Company's success and timing in obtaining regulatory approval, aggregate annual minimum royalties could range from $2,000,000 (if only a single drug candidate is approved for one indication) to $46,000,000 (if all drug candidates are approved for all indications). One agreement requires additional payments totaling $1,500,000 at the earlier of eighteen months after execution or upon certain financing activities, such as an initial public offering. Through June 30, 1996 the Company had paid $1,600,000 related to these commitments. Under the terms of certain of these agreements, the Company granted 700,000 shares of its common stock to the licensors. License fee expenses of approximately $636,000 were recorded based on the fair value of these shares on the dates of grant. Option agreement In September 1996, the Company entered into a two year option agreement with the University of California, San Diego, to carry out evaluation and development of a drug candidate, including clinical trials. During the option period, the Company has the right to enter into a license agreement to acquire rights for the drug candidate, and is obligated to fund certain clinical costs up to a maximum of $436,000. F-10 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements (Continued) 6. Subsequent Events (Continued) Stock transactions In February 1996, the Company's Board of Directors approved a stock option plan (the Plan), under which the Company's Board of Directors may grant options to purchase up to 1,700,000 newly issued shares of common stock. Information concerning options granted under the Plan is as follows:
Exercise Number Price Grant Date of Options Per Share - ------------------------------------------------------ ----------- ------------- February 14, 1996..................................... 918,167 $ 0.0750 February 14, 1996..................................... 171,833 0.0825 April 19, 1996........................................ 30,000 0.0750 August 12, 1996....................................... 33,000 6.00 September 6, 1996..................................... 48,000 6.00 September 6, 1996..................................... 210,000 7.00 October 28, 1996...................................... 40,000 8.00
With the exception of the 171,833 options granted on February 14, 1996 which vest over five years, and the 48,000 options granted on September 6, 1996 which vest immediately, the options granted (or the shares received upon exercise) vest 25% on the grant date anniversary and 25% over each of the subsequent three years. Through October 28, 1996, 317,333 of the above options were exercised and 37,407 were forfeited. The Company accrued $15,880 of compensation expense in the six months ended June 30, 1996 related to the portion of the options granted and shares received upon exercise in which the optionees acquired a vested interest based on the differences between fair value and the exercise price per share. In April 1996, Board of Directors approved an amendment to the Company's certificate of incorporation increasing the number of authorized Series A preferred stock to 5,400,000. In connection with certain consulting agreements executed during the six months ended June 30, 1996, the Company sold 50,000 shares of Series A preferred and 560,000 shares of common stock. The Company accrued $313,327 of consulting expense related to the portion of the shares for which the Company's repurchase option had lapsed based on the differences between fair value and the selling price per share. In June 1996, the Board of Directors approved an amendment to the Company's certificate of incorporation increasing the number of authorized shares of common and preferred stock to 30,000,000 and 10,000,000, respectively, and authorizing 4,000,000 shares of Series B preferred stock. On June 11, 1996 the Company sold 3,706,234 Series B preferred shares. Series B preferred shares may be converted into an equal number of shares of common stock at the option of the stockholder, and the Company reserved a like number of common shares for issuance in the event of conversion. Each share of Series B preferred will automatically be converted to common stock upon the closing of an initial public offering with (i) a net price per share in excess of $7.50 per share prior to January 1, 1997 and $10 per share thereafter, and (ii) net proceeds in excess of $15,000,000. Series B preferred shares have one vote for each share of common stock into which they may be converted. Noncumulative dividends are $0.35 per share per year. F-11 Triangle Pharmaceuticals, Inc. (A Development Stage Company) Period From Inception Through December 31, 1995 Notes to Financial Statements (Continued) 6. Subsequent Events (Continued) Warrants In connection with a consulting agreement executed in May 1996, the Company issued warrants for $130 which entitle the holder to purchase 130,000 shares of Series A preferred or common stock at a price of $0.75 per share. The shares represented by the warrants vest over a five year period commencing March 1, 1996. The Company accrued $54,150 of consulting expense in the six months ended June 30, 1996 for the elapsed portion of the vesting period based on the difference between the fair value of such Series A preferred shares and the exercise price per share. In connection with an equipment lease line obtained in August 1996, the Company issued warrants which entitle the holder to purchase 16,000 shares of Series B preferred or common stock at a price of $5.00 per share. Initial public offering (IPO) The Company has initiated a plan to complete an IPO of common stock during the fourth quarter of 1996. It is anticipated that upon the closing of such IPO the Company's current classes of preferred stock would be converted to common stock on a 1:1 share ratio. F-12 - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation may not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, shares of Common Stock in any jurisdiction to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction or in which the person making such offer or solicitation is not qualified to do so. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. -------------------------- TABLE OF CONTENTS
Page --------- Prospectus Summary.................................... 3 Risk Factors.......................................... 5 Special Note Regarding Forward-Looking Statements..... 17 Use of Proceeds....................................... 17 Dividend Policy....................................... 17 Capitalization........................................ 18 Dilution.............................................. 19 Selected Financial Data............................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations................. 21 Business.............................................. 24 Management............................................ 46 Certain Transactions.................................. 55 Principal Stockholders................................ 57 Description of Capital Stock.......................... 59 Shares Eligible for Future Sale....................... 61 Certain United States Federal Tax Considerations for Non-United States Holders of Common Stock........... 62 Underwriting.......................................... 65 Legal Matters......................................... 67 Experts............................................... 67 Additional Information................................ 68 Index to Financial Statements......................... F-1
-------------------------- Until , 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. [TRIANGLE] -------------------------- 4,000,000 SHARES COMMON STOCK PROSPECTUS , 1996 --------------------- DILLON, READ & CO. INC. BEAR, STEARNS & CO. INC. - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 30, 1996 4,000,000 SHARES [LOGO] COMMON STOCK The 4,000,000 shares of Common Stock, par value $0.001 per share (the "Common Stock"), offered hereby are being offered by Triangle Pharmaceuticals, Inc. ("Triangle" or the "Company") in concurrent offerings in the United States and Canada and outside the United States and Canada (collectively, the "Offerings"). See "Underwriting." Of such shares, 3,200,000 shares are initially being offered in the United States and Canada by the U.S. Underwriters (the "United States Offering") and 800,000 shares are initially being offered outside the United States and Canada by the International Underwriters (the "International Offering"). The price to public and the aggregate underwriting discounts and commissions for the Offerings will be identical. Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $7.50 and $9.50 per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. The Common Stock has been approved for listing on the Nasdaq National Market under the symbol "VIRS." For a discussion of certain risks of an investment in the shares of Common Stock offered hereby, see "Risk Factors" on pages 5-17. ----------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------
Underwriting Price to Discounts and Proceeds to Public Commissions* Company+ Per Share..................... $ $ $ Total++....................... $ $ $
- ------------- * The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." + Before deducting expenses of the Offerings payable by the Company estimated to be $700,000. ++ The Company has granted to the U.S. Underwriters a 30-day option to purchase up to 600,000 additional shares of Common Stock on the same terms per share solely to cover over-allotments, if any. If such option is exercised in full, the total price to public will be , the total underwriting discounts and commissions will be and the total proceeds to Company will be $ . See "Underwriting." ------------------- The Common Stock is being offered by the Underwriters as set forth under "Underwriting" herein. It is expected that delivery of certificates therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on or about , 1996. The Underwriters include: DILLON, READ & CO. INC. BEAR, STEARNS INTERNATIONAL LIMITED ING BARINGS The date of this Prospectus is , 1996 [Alternate Back Cover Page for International Offering] - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation may not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, shares of Common Stock in any jurisdiction to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction or in which the person making such offer or solicitation is not qualified to do so. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. There are restrictions on the offer and sale of the shares of Common Stock offered hereby in the United Kingdom. All applicable provisions of the Financial Services Act 1986 and the Companies Act 1985 with respect to anything done by a person in relation to the Common Stock in, from or otherwise involving the United Kingdom must be complied with. See "Underwriting." In this Prospectus, references to "dollars" and "$" are to United States dollars. -------------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary.................................... 3 Risk Factors.......................................... 5 Special Note Regarding Forward-Looking Statements..... 17 Use of Proceeds....................................... 17 Dividend Policy....................................... 17 Capitalization........................................ 18 Dilution.............................................. 19 Selected Financial Data............................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations................. 21 Business.............................................. 24 Management............................................ 46 Certain Transactions.................................. 55 Principal Stockholders................................ 57 Description of Capital Stock.......................... 59 Shares Eligible for Future Sale....................... 61 Certain United States Federal Tax Considerations for Non-United States Holders of Common Stock........... 62 Underwriting.......................................... 65 Legal Matters......................................... 67 Experts............................................... 67 Additional Information................................ 68 Index to Financial Statements......................... F-1
-------------------------- Until , 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. [TRIANGLE] -------------------------- 4,000,000 SHARES COMMON STOCK PROSPECTUS , 1996 --------------------- DILLON, READ & CO. INC. BEAR, STEARNS INTERNATIONAL LIMITED ING BARINGS - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts shown are estimates, except for the registration fee, the Nasdaq National Market filing fee and the NASD fee. Registration fee.................................................. $ 15,069 Nasdaq National Market fee........................................ 17,500 NASD fee.......................................................... 4,870 Blue Sky fees and expenses........................................ 15,000 Printing and engraving expenses................................... 150,000 Legal fees and expenses........................................... 350,000 Accounting fees and expenses...................................... 100,000 Transfer Agent and Registrar fees................................. 5,000 Miscellaneous expenses............................................ 42,561 --------- TOTAL......................................................... $ 700,000 --------- ---------
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the Delaware General Corporation Law permits indemnification of officers and directors of the Company under certain conditions and subject to certain limitations. Section 145 of the Delaware General Corporation Law also provides that a corporation has the power to purchase and maintain insurance on behalf of its officers and directors against any liability asserted against such person and incurred by him or her in such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of the Delaware General Corporation Law. Article VII, Section (i) of the Restated Bylaws of the Company provides that the Company shall indemnify its directors and executive officers to the fullest extent not prohibited by the Delaware General Corporation Law. The rights to indemnity thereunder continue as to a person who has ceased to be a director, officer, employee or agent and inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company (or was serving at the Company's request as a director or officer of another corporation) shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized by the relevant section of the Delaware General Corporation Law. As permitted by Section 102(b)(7) of the Delaware General Corporation Law, Article 5, Section (a) of the Company's Second Restated Certificate of Incorporation provides that a director of the Company shall not be personally liable for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or acts or omissions that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived any improper personal benefit. The Company has entered into indemnification agreements with each of its directors. Generally, the indemnification agreements attempt to provide the maximum protection permitted by Delaware law as it II-1 may be amended from time to time. Under such additional indemnification provisions, however, an individual will not receive indemnification for judgments, settlements or expenses if he or she is found liable to the Company (except to the extent the court determines he or she is fairly and reasonably entitled to indemnity for expenses), for settlements not approved by the Company or for settlements and expenses if the settlement is not approved by the court. The indemnification agreements provide for the Company to advance to the individual any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding. In order to receive an advance of expenses, the individual must submit to the Company copies of invoices presented to him or her for such expenses. Also, the individual must repay such advances upon a final judicial decision that he or she is not entitled to indemnification. The Company intends to enter into additional indemnification agreements with each of its directors and officers to effectuate these indemnity provisions and to purchase directors' and officers' liability insurance. The U.S. Underwriting Agreement (Exhibit 1.1 hereto) and the International Underwriting Agreement (Exhibit 1.2 hereto) contain provisions by which the U.S. Underwriters and the International Underwriters, respectively, have agreed to indemnify the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each director of the Company, and each officer of the Company who signs this Registration Statement, with respect to information furnished in writing by or on behalf of the Underwriters for use in the Registration Statement. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since July 12, 1995 (the date of inception), the Company has sold and issued the following unregistered securities: (1) From July 1995 to October 28, 1996, the Company issued options to purchase an aggregate of 1,451,000 shares of Common Stock under the Predecessor Plan. An aggregate of 317,333 shares of Common Stock were issued through the exercise of options granted under the Predecessor Plan. Options to purchase 37,407 shares of Common Stock granted under the Predecessor Plan were not exercised prior to the date of termination. For additional information concerning these transactions, reference is made to the information contained under the caption "Management--Benefit Plans" in the form of the Prospectus included herein. (2) On July 19, 1995, the Company issued an aggregate of 1,175,000 shares of Common Stock to various investors for an aggregate consideration of $11,750. (3) On July 19, 1995, the Company issued an aggregate of 933,334 shares of Series A Preferred Stock to various investors for an aggregate consideration of $700,000. (4) On November 8, 1995, the Company issued an aggregate of 1,345,000 shares of Common Stock to various investors for an aggregate consideration of $13,450. (5) On November 8, 1995, the Company issued an aggregate of 4,248,337 shares of Series A Preferred Stock to various investors for an aggregate consideration of $3,186,252.75. (6) On December 19, 1995, the Company issued 150,000 shares of Common Stock to a certain investor for the consideration of $1,500. (7) On March 19, 1996, the Company issued 60,000 shares of Common Stock to a certain investor for the consideration of $600. (8) On March 20, 1996, the Company issued 60,000 shares of Common Stock to a certain investor for the consideration of $600. (9) On April 11, 1996, the Company issued 425,000 shares of Common Stock to a certain investor for the consideration of $4,250. II-2 (10) On April 11, 1996, the Company issued an aggregate of 675,000 shares of Common Stock to the University of Georgia Research Foundation, Inc. and Emory University in consideration of those parties having entered into certain License Agreements with the Company. (11) On May 9, 1996, the Company issued 40,000 shares of Common Stock to a certain investor for an aggregate consideration of $400. (12) On May 9, 1996, the Company issued 10,000 shares of Series A Preferred Stock to a certain investor for an aggregate consideration of $7,500. (13) On May 14, 1996, the Company issued 33,333 shares of Series A Preferred Stock to a certain investor for an aggregate consideration of $25,000. (14) On May 15, 1996, the Company issued 6,667 shares of Series A Preferred Stock to a certain investor for an aggregate consideration of $5,000. (15) On May 21, 1996, the Company issued a warrant to purchase up to 130,000 shares of Series A Preferred Stock (which warrant automatically converts to the right to purchase shares of Common Stock upon the completion of the Offerings) at an exercise price of $0.75 per share to Burrill & Craves for the consideration of $130. (16) On June 11, 1996, the Company issued an aggregate of 3,706,234 shares of Series B Preferred Stock to various investors for an aggregate consideration of $18,531,170. (17) On August 8, 1996, the Company issued a warrant to purchase up to 16,000 shares of Series B Preferred Stock (which warrant automatically converts to the right to purchase shares of Common Stock upon the completion of the Offerings) at an exercise price of $5.00 per share to Comdisco, Inc. in consideration of the execution of a certain Master Lease Agreement by Comdisco, Inc. The sales and issuances of securities in the above transactions were deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof and/or Regulation D and Rule 701 promulgated thereunder as transactions not involving any public offering. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to any distribution thereof. Appropriate legends were affixed to the stock certificates issued in such transactions. Similar representations of investment intent were obtained and similar legends imposed in connection with any subsequent transfers of any such securities. The Company believes that all recipients had adequate access, either through employment or other relationships, to information about the Company to make an informed investment decision. II-3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- .11 Form of U.S. Underwriting Agreement. 1.2 Form of International Underwriting Agreement. ++3.1 Restated Certificate of Incorporation of the Company. ++3.2 Form of Second Restated Certificate of Incorporation of the Company to become effective immediately prior to the Offerings. ++3.3 Bylaws of the Company, as amended. ++3.4 Form of Restated Bylaws of the Company to be effective immediately prior to the Offerings. ++4.1 Form of Certificate for Common Stock. ++5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered. ++10.1 Form of Restricted Stock Purchase Agreement. ++10.2 Form of Employee Proprietary Information and Inventions Agreement. ++10.3 Form of Scientific Advisor Agreement. ++10.4 Series A Preferred Stock Purchase Agreement among the Company and the investors listed on Schedule A thereto, dated July 19, 1995. ++10.5 Series A Preferred Stock Purchase Agreement among the Company and the investors listed on Schedule A thereto, dated October 31, 1995. ++10.6 Series A Preferred Stock Purchase Agreement among the Company and Schroder Venture Managers Limited dated November 8, 1995. ++10.7 Series A Preferred Stock Purchase Agreement among the Company and Chris Rallis dated November 8, 1995. *10.8 License Agreement between the Company, Karl Hostetler, M.D. and Dennis Carson, M.D., dated November 16, 1995. *10.9 Consulting Agreement between the Company and Karl Hostetler, M.D., dated November 16, 1995. *10.10 Consulting Agreement between the Company and Dennis Carson, M.D., dated November 16, 1995. *10.11 Option Agreement between the Company and Mitsubishi Chemical Corporation, dated December 20, 1995. ++10.12 Sublease between the Company and Eli Lilly and Company, dated January 18, 1996. ++10.13 Letter of Credit from First Union Bank, dated February 28, 1996. ++10.14 1996 Stock Option/Stock Issuance Plan. ++10.15 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant. ++10.16 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement. ++10.17 1996 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement. ++10.18 Sublease Amendment between the Company and Eli Lilly and Company, dated March 1, 1996.
II-4
EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- *10.19 License Agreement among the Company, Emory University and the University of Georgia Research Foundation, Inc. for compound DAPD, dated March 31, 1996. *10.20 License Agreement among the Company, Emory University and the University of Georgia Research Foundation, Inc. for compound CS-92, dated March 31, 1996. ++10.21 Restricted Stock Purchase Agreement among the Company and the stockholders listed on Exhibit A thereto, dated March 31, 1996. *10.22 License Agreement between the Company and Emory University for compound FTC, dated April 17, 1996. ++10.23 Restricted Stock Purchase Agreement between the Company and Emory University, dated April 17, 1996. ++10.24 Amended and Restated Investors' Rights Agreement among the Company and the investors listed on Schedule A thereto, dated April 17, 1996. ++10.25 Series A Preferred Stock Purchase Agreement among the Company and the stockholders listed on Schedule A thereto, dated May 9, 1996. ++10.26 Stock Purchase Warrant between the Company and Burrill & Craves, dated May 21, 1996. ++10.27 Investors' Rights Agreement between the Company and Burrill & Craves, dated May 21, 1996. ++10.28 Series B Preferred Stock Purchase Agreement among the Company and the investors listed on Schedule A thereto, dated June 11, 1996. ++10.29 Restated Investors' Rights Agreement among the Company and certain stockholders of the Company, dated June 11, 1996. ++10.30 Restated Co-Sale Agreement among the Company and certain stockholders of the Company, dated June 11, 1996. ++10.31 Second Amendment to Sublease between the Company and Eli Lilly and Company, dated August 2, 1996. ++10.32 Master Lease Agreement between the Company and Comdisco, Inc. dated August 8, 1996. ++10.33 Stock Purchase Warrant between the Company and Comdisco, Inc. dated August 8, 1996. ++*10.34 Option Agreement between the Company and The Regents of the University of California, dated September 1, 1996. ++*10.35 Sponsored Research Agreement between the Company and The Regents of the University of California, dated September 1, 1996. ++10.36 1996 Stock Incentive Plan. ++10.37 1996 Stock Incentive Plan Form of Notice of Grant. ++10.38 1996 Stock Incentive Plan Form of Stock Option Agreement. ++10.39 Employee Stock Purchase Plan. ++10.40 Form of Indemnification Agreement between the Company and each of its directors. ++10.41 Form of Indemnification Agreement between the Company and each of its officers. ++10.42 Form of Written Consent of Holders of Series A and Series B Preferred Stock to conversion, dated September 5, 1996.
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EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- ++10.43 Form of Waiver of Registration Rights, dated September 5, 1996. 10.44 Employment Agreement between the Company and Dr. David W. Barry, dated October 28, 1996. 11.1 Computation of pro forma net loss per share. ++23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1). 23.2 Consent of Price Waterhouse LLP, Independent Accountants. 23.3 Consent of Kilpatrick & Cody LLP. ++24.1 Power of Attorney. ++27.1 Financial Data Schedule.
- ------------------------ * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. ++ Previously filed. (B) FINANCIAL STATEMENT SCHEDULES INCLUDED SEPARATELY IN THE REGISTRATION STATEMENT. All other schedules are omitted because they are not required, are not applicable or the information is included in the Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS. The undersigned hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described in Item 14, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the shares of Common Stock being registered hereby, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Durham, County of Durham, State of North Carolina, on the 29th day of October, 1996. TRIANGLE PHARMACEUTICALS, INC. BY: /S/ DAVID W. BARRY ------------------------------------------ DAVID W. BARRY CHAIRMAN AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date - ------------------------------ --------------------------- ------------------- Chairman of the Board and /s/ DAVID W. BARRY Chief Executive Officer - ------------------------------ (Principal Executive October 29, 1996 (David W. Barry) Officer) Chief Financial Officer and /s/ JAMES A. KLEIN, JR. Treasurer - ------------------------------ (Principal Financial and October 29, 1996 (James A. Klein, Jr.) Accounting Officer) * - ------------------------------ Director, President and October 29, 1996 (M. Nixon Ellis) Chief Operating Officer * - ------------------------------ Director October 29, 1996 (Anthony B. Evnin) * - ------------------------------ Director October 29, 1996 (Standish M. Fleming) * - ------------------------------ Director October 29, 1996 (Karl Y. Hostetler) * - ------------------------------ Director October 29, 1996 (George McFadden)
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Signature Title Date - ------------------------------ --------------------------- ------------------- * - ------------------------------ Director October 29, 1996 (Peter McPartland) */s/ DAVID W. BARRY - ------------------------------ (David W. Barry, attorney in October 29, 1996 fact)
II-8 EX-1.1 2 FORM OF U.S. UNDERWRITING AGREEMENT EXHIBIT 1.1 TRIANGLE PHARMACEUTICALS, INC. COMMON STOCK ($0.001 Par Value) U.S. UNDERWRITING AGREEMENT October 31, 1996 U.S. UNDERWRITING AGREEMENT November __, 1996 Dillon, Read & Co. Inc. Bear, Stearns & Co. Inc. as representatives (the "U.S. Representatives") of the several underwriters listed on Schedule A hereto c/o Dillon, Read & Co. Inc. 535 Madison Avenue New York, New York 10022 Ladies and Gentlemen: Triangle Pharmaceuticals, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters named in Schedule A (the "Underwriters") an aggregate of 3,200,000 shares (the "U.S. Firm Shares") of Common Stock, par value $0.001 per share (the "Common Stock"), of the Company. In addition, solely for the purpose of covering over-allotments, if any, the Company proposes to sell to the Underwriters, at the Underwriters' option, an aggregate of up to 600,000 additional shares of Common Stock (the "Additional Shares"). The Additional Shares and the U.S. Firm Shares are collectively referred to herein as the "U.S. Shares". The U.S. Shares are described in the Prospectus that is referred to below. It is understood and agreed to by all parties that the Company is concurrently entering into an underwriting agreement (the "International Underwriting Agreement") providing for the sale by the Company of an aggregate of 800,000 shares of Common Stock (the "International Shares" and, together with the U.S. Firm Shares, the "Firm Shares") through certain underwriters outside the United States and Canada (the "International Underwriters"), for whom Dillon, Read & Co. Inc., Bear, Stearns International Limited and ING Baring Securities Limited are acting as representatives (the "International Representatives"). The U.S. Shares and the International Shares are collectively referred to herein as the "Shares". Anything herein or therein to the contrary notwithstanding, the respective closings under this Agreement and the International Underwriting Agreement are hereby expressly made conditional on one another. The Underwriters and the International Underwriters are simultaneously entering into an Agreement Between U.S. and International Underwriters (the "Agreement Between U.S. and International Underwriters"), which provides, among other things, for the transfer of shares of Common Stock between the two syndicates and for consultation by the International Representatives with the U.S. Representatives. Two forms of prospectus are to be used in connection with the offering and sale of shares of Common Stock contemplated by the foregoing, one relating to the U.S. Shares and the other relating to the International Shares. The latter form of prospectus will be identical to the former except for the outside front and back cover pages as included in the registration statement and amendments thereto. References herein to any Preliminary Prospectus or Prospectus (in each case as hereinafter defined), whether amended or supplemented, shall include both the international and U.S. versions thereof. The Company has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the "Act"), with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1, including prospectuses relating to the U.S. Shares and the International Shares. The Company has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses (collectively, the "Preliminary Prospectus"). Except where the context otherwise requires, the registration statement as in effect at the time of execution of this Agreement or, if the registration statement is not yet effective, as amended when it becomes effective, including all documents filed as a part thereof, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) or Rule 434(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act and, if applicable, any registration statement filed pursuant to Rule 462(b) under the Act, and any "term sheet" described in Rule 434(b) under the Act that is deemed to be a part of such registration statement pursuant to Rule 434(d) under the Act (a "Term Sheet"), is herein called the "Registration Statement", and the prospectus, any Term Sheet that, in addition to the related preliminary prospectus, constitutes a part thereof pursuant to Rule 434(a) under the Act and any prospectus required pursuant to Rule 434(b)(3) of the Act (the "Integrated Prospectus"), each in the form filed by the Company with the Commission pursuant to Rule 424(b) under the Act or, if none of such filings is required, in the form of final prospectus included in the Registration Statement at the time it became effective, is herein called the "Prospectus". Any reference herein to the "date" of a Prospectus that includes a Term Sheet shall mean the date of such Term Sheet. The Company and the Underwriters agree as follows: 1. SALE AND PURCHASE. On the basis of the representations and warranties and the other terms and conditions herein set forth, the Company agrees to sell to the respective Underwriters the U.S. Firm Shares and each of the Underwriters, severally and not jointly, agrees to purchase from the Company the number of U.S. Firm Shares set forth opposite the 2 name of such Underwriter on Schedule A, at a purchase price of $_____________ per Share. You may release the U.S. Firm Shares for public sale promptly after this Agreement becomes effective. You may, from time to time, increase or decrease the public offering price after the initial public offering to such extent as you may determine. In addition, on the basis of the representations and warranties and the other terms and conditions herein set forth, the Company grants to the several Underwriters an option to purchase, and the Underwriters shall have the right to purchase, severally and not jointly, from the Company all or a portion of the Additional Shares as may be necessary to cover overallotments made in connection with the offering of the Shares, at the same purchase price per share to be paid by the several Underwriters to the Company for the U.S. Firm Shares. This option may be exercised at any time (but not more than once) on or before the thirtieth day following the date hereof, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised and the date and time when the Additional Shares are to be delivered (such date and time being herein referred to as the "additional time of purchase"); PROVIDED, HOWEVER, that the additional time of purchase shall not be earlier than the time of purchase (as defined below) nor earlier than the second business day(1) after the date on which the option shall have been exercised nor later than the eighth business day after the date on which the option shall have been exercised. The number of Additional Shares to be purchased by each Underwriter shall be the number that bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A bears to the total number of Firm Shares (subject, in each case, to such adjustment as you may determine to eliminate fractional shares). 2. PAYMENT AND DELIVERY. Payment of the purchase price for the U.S. Firm Shares shall be made to the Company, at the Company's election (which shall be made in writing at least two business days prior to the time of purchase and the additional time of purchase (each as hereinafter defined)), as the case may be, by wire transfer to an account designated by the Company or by certified or official bank check, in New York Clearing House funds, at the office of Dillon, Read & Co., Inc., in New York City, against delivery of the U.S. Firm Shares for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 a.m., New York City time, on November __, 1996 (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 8). The time at which such payment and delivery are actually made is called the "time of purchase". The U.S. Firm Shares shall be delivered in such names and in such denominations as you shall specify on the second business day preceding the time of purchase. - ----------------------- (1) As used herein, "business day" shall mean a day on which the New York Stock Exchange is open for trading. 3 Payment of the purchase price for the Additional Shares shall be made at the additional time of purchase in the same manner and at the same office as the payment for the U.S. Firm Shares. The Additional Shares shall be delivered in such names and in such denominations as you shall specify on the second business day preceding the additional time of purchase. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Underwriters that: (a) each Preliminary Prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, fully complied when so filed in all material respects with the Act; when as the case may be, the Registration Statement becomes or became effective and at all times subsequent thereto up to the time of purchase and the additional time of purchase, as the case may be, the Registration Statement and the Prospectus, and any supplements or amendments thereto, fully complied and will fully comply in all material respects with the provisions of the Act; and the Registration Statement at all such times did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus at all such times did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the Company makes no representation or warranty with respect to any statement contained in the Registration Statement or the Prospectus in reliance upon and in conformity with information concerning the Underwriters that was furnished in writing by or on behalf of any Underwriter through you to the Company expressly for use in the Registration Statement or the Prospectus and set forth in the section of the Registration Statement and the Prospectus entitled "Underwriting"; (b) as of the date of this Agreement, the Company's authorized, issued and outstanding capitalization is as set forth under the column entitled "Actual" in the section of the Registration Statement and the Prospectus entitled "Capitalization" and, as of the time of purchase and the additional time of purchase, as the case may be, the Company's authorized, issued and outstanding capitalization will be as set forth under the column entitled "Pro Forma As Adjusted" under the section of the Registration Statement and Prospectus entitled "Capitalization"; all of the issued and outstanding shares of capital stock of the Company, including the Common Stock and the Company's Series A Preferred Stock and Series B Preferred Stock (collectively the "Preferred Stock"), have been duly authorized and validly issued and are fully paid and nonassessable and free 4 of any preemptive rights; the Shares have been duly authorized and, when issued and delivered to and paid for by the Underwriters and the International Underwriters as contemplated hereby and by the International Underwriting Agreement, will be validly issued, fully paid and nonassessable and free of any preemptive rights; the Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware with full power and authority to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus and to execute and deliver this Agreement and the International Underwriting Agreement and to issue, sell and deliver the Shares as contemplated hereby and thereby; and the Company does not own, directly or indirectly, any capital stock or other equity securities of, or ownership interest in, any corporation, partnership, joint venture or other association or entity; (c) the Company is duly qualified or licensed by, and is in good standing in, each jurisdiction in which it owns or leases property or conducts business and in each other jurisdiction where the failure, individually or in the aggregate, to be so qualified or licensed could have a material adverse effect on the business, properties, results of operations, condition (financial or otherwise) and assets of the Company (a "Material Adverse Effect"); and the Company is in compliance with all laws, orders, rules, regulations and directives issued or administered by such jurisdictions, except where the failure to be in compliance could not have a Material Adverse Effect; (d) the Company is not in violation of any provision of its certificate of incorporation or bylaws or in material breach of, or in material default under (nor has any event occurred that with notice, lapse of time or both would constitute a breach of, or default under), any provision of any license, lease, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company is a party or by which it or its properties is bound or affected or under any law, regulation or rule or any decree, judgment or order applicable to the Company; and the execution, delivery and performance of this Agreement and the International Underwriting Agreement by the Company and the consummation of the transactions contemplated hereby and thereby do not and will not violate any provision of the certificate of incorporation or bylaws of the Company or conflict with, result in any breach of, or constitute a default under (or constitute any event that with notice, lapse of time or both would constitute a breach of, or default under), any provision of any license, lease, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company is a party or by which it or its properties may be bound or affected, or under any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Company; (e) each of this Agreement and the International Underwriting Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its respective terms subject, however, to the limitations of applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and of laws relating to the availability of specific performance, injunctive relief or other equitable remedies and except to the extent that 5 rights to indemnity and contribution hereunder may be limited by federal or state securities laws or the public policy underlying such laws; (f) the capital stock of the Company, including the Shares, conforms in all material respects to the description thereof contained in the Registration Statement and the Prospectus and the certificates for the Shares are in due and proper form and the holders of the Shares will not be subject to personal liability by reason of being such holders; (g) no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Shares as contemplated by this Agreement and the International Underwriting Agreement other than registration of the Shares under the Act and any necessary qualifications under the federal securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters; (h) except as set forth in the Registration Statement and the Prospectus under the caption "Description of Capital Stock--Registration Rights" and except for rights that have been effectively waived in writing (complete and accurate copies of which have been provided to the Underwriters prior to the date of this Agreement), which waivers are in full force and effect as of the date of this Agreement, no person has the right, contractual or otherwise, to cause the Company to issue to it, or register pursuant to the Act, any securities of the Company as a result of the issuance and sale of the Shares to the Underwriters hereunder or under the International Underwriting Agreement, nor does any person have preemptive rights, rights of first refusal or other rights to purchase any of the Shares; (i) Price Waterhouse, LLP, whose report on the financial statements of the Company is filed with the Commission as part of the Registration Statement and the Prospectus, are independent public accountants with respect to the Company as required by the Act; (j) the Company has all licenses, authorizations, consents and approvals and has made all filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all authorizations, consents, licenses and approvals from other persons, in order to conduct its business, except where the failure to have any such license, authorization, consent or approval, or to make any such filing or obtain any such authorization, consent or approval would not have a Material Adverse Effect; and the Company is not in violation of, or in default under, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company, the effect of which could have a Material Adverse Effect; 6 (k) all legal or governmental proceedings, contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement have been so described or filed as required; (l) there are no actions, suits or proceedings pending or, to the best knowledge of the Company, threatened against the Company or any of its properties at law or in equity or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency that could result in a judgment, decree or order having a Material Adverse Effect; (m) the audited and unaudited financial statements included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of operations and cash flows of the Company for the periods specified, subject, in the case of the Company's unaudited financial statements, to normal recurring year-end adjustments; and such financial statements have been prepared in conformity with generally accepted accounting principals applied on a consistent basis during the periods involved; (n) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as may be otherwise stated in the Registration Statement or the Prospectus, there has not been (i) any material adverse change in the business, properties, results of operations, condition (financial or otherwise), assets or prospects of the Company, (ii) any transaction that is, or the Company reasonably expects could be, material to the Company, contemplated or entered into by the Company or (iii) any obligation, contingent or otherwise, directly or indirectly incurred by the Company that is, or the Company reasonably expects could be, material to the Company; (o) the Company has obtained the agreement of each of its directors and officers and certain of its stockholders designated by you not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, shares of Common Stock or other securities of the Company that are substantially similar to the Common Stock, including but not limited to securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities for a period of 180 days after the date of the Prospectus without the prior written consent of Dillon, Read & Co. Inc.; (p) the Company has filed all federal or state income or franchise income and franchise tax returns required to be filed and has paid all taxes shown thereon as due, and there is no tax deficiency that has been or may reasonably be asserted against the Company; and all known tax liabilities are adequately provided for on the books of the Company; 7 (q) the business, operations and facilities of the Company have been and are being conducted in compliance with all applicable laws, ordinances, rules, regulations, licenses, permits, approvals, plans, authorizations or requirements relating to occupational safety and health, pollution, protection of health or the environment, or reclamation (including, without limitation, those relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, gaseous or liquid in nature) or otherwise relating to remediating real property in which the Company has any interest, whether owned or leased, of any governmental department, commission, board, bureau, agency or instrumentality of the United States, any state or political subdivision thereof or any foreign jurisdiction and all applicable judicial or administrative agency or regulatory decrees, awards, judgments and orders relating thereto (collectively "Environmental Regulations") except such failures to comply as would not individually or in the aggregate have a Material Adverse Effect; and the Company has not received any notice from a governmental instrumentality or any third party alleging any violation of any Environmental Regulation or liability thereunder (including, without limitation, liability for costs of investigating or remediating sites containing hazardous substances or damages to natural resources); (r) the Company is not, will not become as a result of the transactions contemplated hereby and by the International Underwriting Agreement, and does not intend to conduct its business in a manner that would cause it to become, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (s) except as set forth in the Registration Statement and Prospectus, the Company has obtained valid and enforceable licenses or options for the inventions, patent applications, patents, trademarks (both registered and unregistered), tradenames, copyrights and trade secrets necessary for the conduct of the Company's business as currently conducted and as the Registration Statement and Prospectus indicate the Company contemplates conducting (collectively, the "Intellectual Property"); other than as set forth in the Registration Statement and Prospectus, to the best knowledge of the Company (for each of the following subsections): (i) there are no third parties who have any ownership rights to any Intellectual Property that has been licensed to the Company for the product indications described in the Registration Statement and Prospectus that would preclude the Company from conducting its business as currently conducted and as the Registration Statement and Prospectus indicate the Company contemplates conducting, except for the ownership rights of the owners of the Intellectual Property licensed or optioned by the Company; (ii) there are currently no sales of any products that would constitute an infringement by third parties of any Intellectual Property licensed or optioned by the Company; (iii) there is no pending or threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any Intellectual Property licensed or optioned by the Company, other 8 than non-material claims; (iv) there is no pending or threatened action, suit proceeding or claim by others challenging the validity or scope of any Intellectual Property licensed or optioned by the Company, other than non-material claims; and (v) there is no pending or threatened action, suit, proceeding or claim by others that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others; (t) as of the date of this Agreement, the Company is not required to file any registration, application, license, request for exemption, permit or other regulatory authorization with the U.S. Food and Drug Administration (the "FDA"), or any state or local regulatory body in order to conduct its business as described in the Registration Statement and Prospectus; (u) the human clinical trials, animal studies and other preclinical tests conducted by or on behalf of the Company that are described in the Registration Statement and the Prospectus (the "Company Studies"), were and, if still pending, are being conducted in accordance with experimental protocols, procedures and controls generally used by qualified experts in the preclinical or clinical study of new drugs or diagnostics; the descriptions of the results of such Company Studies contained in the Registration Statement and Prospectus are accurate and complete in all material respects, and the Company has no knowledge of any other trials, studies or tests, the results of which reasonably call into question the results described or referred to in the Registration Statement and Prospectus; and the Company has not received any notices or correspondence from the FDA or any other governmental agency requiring the termination, suspension or modification of any Company Studies; and (v) the Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. 4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees: (a) to furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states as you may designate and to maintain such qualifications in effect as long as required for the distribution of the Shares, provided that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such state (except for service of process with respect to the offering and sale of the Shares); promptly to advise you of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use every reasonable effort to obtain the withdrawal of any order of suspension as soon as possible; 9 (b) to make available to you in New York City, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time to furnish to the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendment or supplement thereto after the effective date of the Registration Statement) as the Underwriters may request for the purposes contemplated by the Act; (c) to advise you promptly and (if requested by you) to confirm such advice in writing, (i) when the Registration Statement (including any registration statement filed pursuant to Rule 462(b) under the Act) has become effective and when any post-effective amendment thereto becomes effective and (ii) when the Prospectus, including any Term Sheet or Integrated Prospectus, is filed with the Commission pursuant to Rule 424(b) under the Act, if required under the Act (which the Company agrees to file in a timely manner under such Rule); (d) to advise you promptly, confirming such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for or the entry of a stop order suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to use every reasonable effort to obtain the lifting or removal of such order as soon as possible; and to advise you promptly of any proposal to amend or supplement the Registration Statement or the Prospectus and to file no such amendment or supplement to which you shall object in writing; (e) to furnish to you and, upon request, to each of the other Underwriters for a period of five years from the date of this Agreement, (i) copies of any reports or other communications that the Company shall send to its stockholders or shall from time to time publish or publicly disseminate, (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the Commission, and (iii) such other information as you may reasonably request regarding the Company, subject to the provisions of any written agreement that, in the opinion of outside counsel to the Company, prohibit the Company from furnishing such information under any circumstances including, without limitation, an agreement by you to be subject to the provisions of such written agreement; (f) to advise the Underwriters promptly of the happening of any event known to the Company within the time during which a prospectus relating to the Shares is required to be delivered under the Act that would require the making of any change in the Prospectus then being used, so that the Prospectus, as then supplemented, would not include an untrue statement of a material fact or omit to state a material fact 10 necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading and, during such time, promptly to prepare and furnish, at the Company's expense, to the Underwriters such amendments or supplements to such Prospectus as may be necessary to reflect any such change in such quantities as reasonably requested by the Underwriters, and to furnish to you a copy of such proposed amendment or supplement before filing any such amendment or supplement with the Commission; (g) to make generally available to its security holders, and to deliver to you, an earnings statement of the Company (which will satisfy the provisions of Section 11(a) of the Act) covering a period of at least twelve months beginning after the effective date of the Registration Statement but ending not later than fifteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), as soon as is reasonably practicable after the termination of such twelve-month period; (h) to furnish to you three signed copies of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto) and a sufficient number of additional conformed copies of the foregoing (without exhibits) for distribution of a copy of each to the other Underwriters; (i) to furnish to you as early as practicable prior to the time of purchase and the additional time of purchase, as the case may be, but not later than two business days prior thereto, a copy of the latest available unaudited interim financial statements, if any, of the Company that have been read by the Company's independent certified public accountants, as stated in their letter to be furnished pursuant to Section 6(d) of this Agreement; (j) to apply the net proceeds from the sale of the Shares in the manner set forth under the caption "Use of Proceeds" in the Prospectus; (k) to pay all expenses, fees and taxes (other than any transfer taxes and fees and disbursements of counsel for the Underwriters except as set forth under Section 5 hereof and (iii) and (iv) below) in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters, the International Underwriters and to dealers (including costs of mailing and shipment), (ii) the issue, sale and delivery of the Shares, (iii) the word processing and/or printing of this Agreement, the International Underwriting Agreement, the Agreement Between U.S. and International Underwriters, the International Selling Agreement, any dealer agreement, any Statements of Information and Powers of Attorney and the reproduction and/or printing and furnishing of copies 11 of each thereof to the Underwriters, the International Underwriters, and to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including the legal fees and filing fees and other disbursements of counsel for the Underwriters in connection therewith) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters, the International Underwriters and to dealers, (v) the listing of the Shares on the Nasdaq National Market and any registration thereof under the Exchange Act; (vi) any filing for review of the public offering of the Shares by the National Association of Securities Dealers, Inc. (the "NASD") and (vii) the performance of the Company's other obligations hereunder; (l) to furnish to you, before filing with the Commission subsequent to the effective date of the Registration Statement and during the period referred to in paragraph (e) above, a copy of any document proposed to be filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act; (m) for a period of 180 days after the date hereof, without the prior written consent of Dillon, Read & Co. Inc, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Common Stock or other securities that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of Common Stock or any such substantially similar securities, or permit the registration under the Act of any shares of Common Stock or any such substantially similar securities, except for (i) the registration of the Shares and the sales to the Underwriters pursuant to this Agreement, (ii) the issuance of Common Stock upon the exercise of outstanding stock options and warrants to the extent disclosed in the Registration Statement and the Prospectus and (iii) the grant of stock options pursuant to stock option plans disclosed in the Registration Statement and Prospectus; (n) to use its best efforts to cause the Common Stock to be listed on the Nasdaq National Market; and (o) not to take, directly or indirectly, any action designated to cause or to result in, or that might reasonably be expected to constitute the stabilization or manipulation of the Common Stock to facilitate the sale or resale of the Shares. 5. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Shares are not delivered for any reason other than the termination of this Agreement pursuant to (i) the first two paragraphs of Section 8 hereof, (ii) the termination of this Agreement as a result of the failure of the condition set forth in Section 6(n) if such failure is a result of the termination of the International Underwriting Agreement pursuant to the first two paragraphs of Section 8 thereof or the default by one or more of the International Underwriters in its or their respective 12 obligations thereunder or (iii) the default by one or more of the Underwriters in its or their respective obligations hereunder, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel. 6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the time of purchase (and the several obligations of the Underwriters at the additional time of purchase are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the time of purchase and at the additional time of purchase, as the case may be), the performance by the Company of its obligations hereunder and to the following conditions: (a) The Company shall furnish to you at the time of purchase and at the additional time of purchase, as the case may be, an opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form reasonably satisfactory to King & Spalding, counsel for the Underwriters, stating that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus, execute and deliver this Agreement and the International Underwriting Agreement and issue, sell and deliver the Shares as contemplated hereby and thereby; (ii) the Company is duly qualified to do business as a foreign corporation, and is in good standing, in each state or jurisdiction of the United States where its failure, individually or in the aggregate, to do so would have a material adverse effect on the properties, assets, business or condition (financial or otherwise) of the Company; (iii) each of this Agreement and the International Underwriting Agreement has been duly authorized, executed and delivered by the Company; (iv) the Shares, when issued and delivered to and paid for by the Underwriters in accordance with this Agreement and the International Underwriting Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights; (v) the authorized capital stock of the Company, including the Shares, conforms as to legal matters in all material respects to the description thereof contained in the Registration Statement and Prospectus; 13 (vi) based on an officer's certificate to the effect that the consideration for all outstanding shares was received by the Company in accordance with the applicable resolutions of the Board of Directors of the Company, the outstanding shares of capital stock of the Company have been duly and validly authorized and issued, and are, to such counsel's knowledge, fully paid and nonassessable; (vii) the certificates for the Shares are in due and proper form; (viii) the Registration Statement has become effective under the Act and, to such counsel's knowledge, no stop order proceedings suspending the effectiveness of the Registration Statement have been instituted or threatened or are pending under the Act; (ix) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Underwriting Agreement and the International Underwriting Agreement will not contravene any provision of applicable law or regulation or the certificate of incorporation or bylaws of the Company, or, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any of its property, or, to such counsel's knowledge, constitute a breach or a default under (nor constitute any event which, with notice, lapse of time or both, would constitute a breach or default under) any agreement or other instrument filed as an exhibit to the Registration Statement and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Company of its obligations under the Underwriting Agreement or the International Underwriting Agreement, except such as may be required by the securities or blue sky laws of the various states or other jurisdictions (on which such counsel need not express any opinion) in connection with the purchase and distribution of the Shares by the Underwriters; (x) to such counsel's knowledge, there is no legal or governmental proceeding pending or threatened to which the Company is or may become a party or to which any of the properties of the Company is or may become subject that is required to be described in the Registration Statement or the Prospectus and is not so described, or of any statute, regulation, contract or other document that is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described or filed as required; (xi) to such counsel's knowledge, there is no action, proceeding or governmental investigation pending, against the Company or any of its officers 14 or directors, which are required to be described in the Prospectus but are not so described; (xii) to such counsel's knowledge and except as otherwise described in the Registration Statement and the Prospectus, no person has the right, contractual or otherwise, to cause the Company to issue to it, or register pursuant to the Act, any shares of capital stock of the Company in connection with the sale of the Shares to the Underwriters, nor does any person have preemptive rights, rights of first refusal or other rights to purchase any of the Shares; (xiii) the descriptions of the charter and bylaws of the Company and of statutes and contracts contained in "Risk Factors--Anti-takeover Effects of Charter, Bylaws and Delaware Law," "Management," "Certain Transactions," "Description of Capital Stock" (other than the statements under "--Transfer Agent and Registrar"), "Certain United States Federal Tax Considerations for Non-United States Holders of Common Stock" and in Items 14 and 15 of Part II of the Registration Statement, to the extent that such statements constitute a summary of documents referred to therein or matters of law, are accurate and fairly present the information required to be presented by the Act. In addition, such counsel shall state that such counsel has participated in conferences with certain officers and other representatives of the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the contents of the Registration Statement, the Prospectus and related matters were discussed. Such counsel state that they have not, however, except with respect to matters expressly covered in paragraph (xiii) above, independently checked or verified the accuracy, completeness or fairness of the information contained in the Registration Statement and the Prospectus. Such counsel shall also state that, based upon their participation as described in the preceding paragraph, (i) they believe that the Registration Statement and the Prospectus (except for financial statements and schedules as to which such counsel need not express any belief), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Act and the applicable rules and regulations of the Commission thereunder; (ii) such counsel shall confirm that they have no reason to believe that (except for financial statements and schedules as to which such counsel need not express any belief) either the Registration Statement or the Prospectus, as of such effective date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that (except for financial statements and schedules as to which such counsel need not express any belief) the Prospectus, as of the date of such counsel's opinion, contains any untrue statement of a material fact or omits to 15 state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iii) such counsel shall confirm that they have no reason to believe that any contract or agreement required to be described in the Registration Statement or filed as an exhibit thereto is not so described or filed. (b) The Company shall furnish to you at the time of purchase and at the additional time of purchase, as the case may be, an opinion of Kilpatrick & Cody, patent counsel for the Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form reasonably satisfactory to King & Spalding, counsel for the Underwriters, stating that: (i) Such counsel have conducted searches or are otherwise familiar with the Company's licensed and optioned proposed products as described in the table on page 23 of the Registration Statement and Prospectus (the "Licensed Properties"). Based on these searches and the counsel's information, to such counsel's knowledge, except as disclosed in the sections of the Registration Statement and Prospectus entitled "Risk Factors--Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights" and "Business--Patents and Proprietary Rights," the Licensed Properties are not claimed in any United States or foreign patents of record issued on or before August 1, 1996. (ii) Such counsel have reviewed the patents and patent applications licensed to the Company, as described in the Registration Statement and Prospectus, and, except as described in the Registration Statement and Prospectus, to such counsel's knowledge and solely with respect to the Licensed Properties: (i) such applications disclose patentable subject matter and have been filed in a timely manner; (ii) there is no prior art that anticipates the licensed or optioned inventions disclosed therein under 35 U.S.C. Section 102; (iii) such applications have not been finally abandoned; and (iv) such patents have been lawfully issued. (iii) To such counsel's knowledge, except as disclosed in the Registration Statement and Prospectus: (i) there are no third parties who have rights that would prevent the Company from using or selling the Licensed Properties as described in the Registration Statement and Prospectus; (ii) there are currently no sales of any products that would constitute an infringement by third parties of the patents and patent applications licensed or optioned by the Company as they pertain to Licensed Properties; (iii) there is no pending or threatened action, suit, proceeding or claim by others that the current or planned activities of the Company as described in the Registration Statement and Prospectus infringe or otherwise violate any intellectual property right of 16 others; (iv) there is no pending or threatened action, suit, proceeding or claim by others challenging the Company's rights in or to any of the Licensed Properties; and (v) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity of the patents or patent applications as they cover the Licensed Properties or the scope of any such patents or patent applications. (iv) The Statements in the Registration Statement and the Prospectus under the captions "Risk Factors--Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights" and "Business--Patents and Proprietary Rights", in each case insofar as such statements constitute summaries of the legal matters (including statutes and legal and governmental proceedings) or contracts or other agreements referred to therein, are accurate in all material respects. (c) The Company shall furnish to you at the time of purchase and at the additional time of purchase, as the case may be, an opinion of Chris A. Rallis, general counsel for the Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form reasonably satisfactory to King & Spalding, counsel for the Underwriters, stating that: (i) to such counsel's knowledge, the Company does not own, directly or indirectly, any capital stock or other equity securities of, or ownership interests in, any corporation, partnership, joint venture or other association or entity; (ii) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Underwriting Agreement and the International Underwriting Agreement will not contravene the certificate of incorporation or bylaws of the Company, or, to such counsel's knowledge, any provision of applicable law or regulation or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any of its property, or, to such counsel's knowledge, constitute a breach or a default under (nor constitute any event which, with notice, lapse of time or both, would constitute a breach or default under) any agreement or other instrument filed as an exhibit to the Registration Statement; (iii) to such counsel's knowledge, the Company is not in violation of any provision of its certificate of incorporation or bylaws or in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under), any license, lease, 17 indenture, mortgage, deed of trust, bank loan or credit agreement or any other agreement or instrument known to such counsel to which the Company is a party or by which the Company or any of its properties may be bound or affected or under any law, regulation or rule or any decree, judgment or order applicable to the Company and known to such counsel; and (iv) to such counsel's knowledge, there is no legal or governmental proceeding pending or threatened to which the Company is or may become a party or to which any of the properties of the Company is or may become subject that is required to be described in the Registration Statement or the Prospectus and is not so described. (d) You shall have received from Price Waterhouse, LLP a letter or letters dated, respectively, the date of this Agreement and the time of purchase and additional time of purchase, as the case may be, and addressed to the Underwriters (with reproduced copies for each of the Underwriters) in the form or forms heretofore approved by you. (e) You shall have received at the time of purchase and at the additional time of purchase, as the case may be, an opinion of King & Spalding and dated the time of purchase or the additional time of purchase, as the case may be, as to the matters referred to in paragraph (iii), paragraph (iv) and, with respect to statements in the Prospectus and the Registration Statement under the captions "Business - Government Regulation - FDA Approval," paragraph (xiii) of Section 6(a). Such counsel shall state that, in their opinion, the Registration Statement and the Prospectus, as of their respective effective or issue dates (in each case other than the financial statements and notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion), complied as to form in all material respects with the requirements of the Act and the applicable rules and regulations of the Commission thereunder. In addition, such counsel shall state that they have advised you as to the requirements of the Act and the applicable rules and regulations thereunder and rendered legal advice and assistance to you in the course of your investigation pertaining to, and your participation in the preparation of, the Registration Statement and the Prospectus. Such counsel shall state that rendering such assistance involved, among other things, discussions and inquiries concerning various legal matters and the review of the documents referred to above. Such counsel shall state that they have also participated in conferences with your representatives, representatives of the Company and its counsel and accountants during which the contents of the Registration Statement and the Prospectus and related matters were discussed and reviewed. Such counsel shall state that, nothing has come to their attention that causes such counsel to believe 18 that (i) the Registration Statement and the Prospectus (except for financial statements and schedules as to which such counsel need not express any belief), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Act and the applicable rules and regulations of the Commission thereunder; (ii) the Registration Statement (other than the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus, as to which such counsel need express no belief, and other than the information omitted therefrom in reliance upon Rule 430A under the Act and included in the Prospectus filed with the Commission pursuant to Rule 424(b)), at the time such Registration Statement became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) the Prospectus (other than the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus as to which such counsel need express no belief), on the date of such Prospectus and as of the date of the time of purchase or additional time of purchase, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) No amendment or supplement to the Registration Statement or the Prospectus shall be filed prior to the time the Registration Statement becomes effective to which you shall have reasonably objected in writing. (g) The Registration Statement shall become effective at or before 5:00 P.M., New York City time, on the date of this Agreement and, if Rule 430A or Rule 434 under the Act is used, the Prospectus including any Term Sheet constituting a part thereof, shall have been filed with the Commission pursuant to Rule 424(b) under the Act at or before 5:00 P.M., New York City time, on the second full business day after the date of this Agreement; PROVIDED, HOWEVER, that any Integrated Prospectus shall have been filed on or prior to the date on which a confirmation is sent or given; (h) Prior to the time of purchase or the additional time of purchase, as the case may be: (i) no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the Act or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement and all amendments thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) the Prospectus and all amendments or supplements thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 19 (i) Between the time of execution of this Agreement and the time of purchase or the additional time of purchase, as the case may be, there has not been (i) any material adverse change, present or prospective, in the business, properties, results of operations, condition (financial or otherwise), assets or prospects of the Company other than as described in the Registration Statement and the Prospectus, (ii) any transaction that is material to the Company, entered into by the Company, other than as described in the Registration Statement and the Prospectus, or (iii) any obligation, contingent or otherwise, directly or indirectly, incurred by the Company that is material to the Company other than as described in the Registration Statement and the Prospectus. (j) The Company, at the time of purchase or additional time of purchase, as the case may be, will deliver to you a certificate of two of its executive officers to the effect that the representations and warranties of the Company set forth in this Agreement are true and correct as of each such date and the conditions set forth in Section 6(h) and Section 6(i) have been met. (k) You shall have received signed letters, dated the date of this Agreement, from each of the directors and officers of the Company and certain stockholders of the Company designated by you to the effect that such persons shall not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Common Stock or other securities of the Company that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of Common Stock or any such substantially similar securities for a period of 180 days after the date of the Prospectus without the prior written consent of Dillon, Read & Co. Inc. (l) The Company shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement or the Prospectus as of the time of purchase and the additional time of purchase, as the case may be, as you reasonably may request. (m) The Company shall have performed such of its obligations under this Agreement as are to be performed by the terms hereof at or before the time of purchase and at or before the additional time of purchase, as the case may be. (n) The closing of the purchase and sale of the International Shares shall occur concurrently with the closing of the purchase and sale of the Shares hereunder. (o) The Shares shall have been listed on the Nasdaq National Market. 7. EFFECTIVE DATE OF AGREEMENT; TERMINATION. This Agreement shall become effective (i) if neither Rule 430A nor Rule 434 under the Act is used, when you shall have 20 received notification of the effectiveness of the Registration Statement, or (ii) if either Rule 430A or Rule 434 under the Act is used, when the parties hereto have executed and delivered this Agreement. The obligations of the several Underwriters hereunder shall be subject to termination in your absolute discretion if, at any time prior to the time of purchase or, with respect to the purchase of any Additional Shares, the additional time of purchase, as the case may be, trading in securities generally on the New York Stock Exchange shall have been suspended or minimum prices shall have been established on the New York Stock Exchange, or if a general banking moratorium shall have been declared either by the United States or New York State authorities, or if the United States shall have declared war in accordance with its constitutional processes or there shall have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in your judgment makes it impracticable to market the Shares or the International Shares. If you elect to terminate this Agreement as provided in this Section 7, the Company and each other Underwriter shall be notified promptly by written notice transmitted by facsimile and confirmed by written notice sent by registered mail, return receipt requested. If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement or if such sale is not carried out because the Company shall be unable to comply with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 5 and 9), and the Underwriters shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 9) . 8. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter shall default in its obligation to take up and pay for the Firm Shares to be purchased by it hereunder and if the number of Firm Shares that all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total number of Firm Shares, the non-defaulting Underwriters shall take up and pay for (in addition to the aggregate principal amount of Firm Shares they are obligated to purchase pursuant to Section 1) the number of Firm Shares agreed to be purchased by all such defaulting Underwriters as hereinafter provided. Such Shares shall be taken up and paid for by such non-defaulting Underwriter or Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate number of Firm Shares set opposite the names of such non-defaulting Underwriters in Schedule A. Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that it will not sell any Firm Shares 21 hereunder unless all of the Firm Shares are purchased by the Underwriters (or by substituted underwriters selected by you with the approval of the Company or selected by the Company with your approval). If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters, in accordance with the foregoing provision, the Company or you shall have the right to postpone the time of purchase for a period not exceeding five business days in order that any necessary change in the Registration Statement and the Prospectus and other documents may be effected. The term Underwriter as used in this Agreement shall refer to and include any Underwriter substituted under this Section 8 with like effect as if such substituted Underwriter had originally been named in Schedule A. 9. INDEMNITY BY THE COMPANY AND THE UNDERWRITERS. (a) The Company agrees to indemnify, defend and hold harmless each Underwriter, each person that controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Underwriter indemnified parties") from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other reasonable expenses in connection with investigating, defending or settling any such action or claim) as they are incurred (and regardless of whether the Underwriter indemnified party is a party to the litigation, if any) which, jointly or severally, any such Underwriter indemnified party may incur under the Act, the Exchange Act or otherwise arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, judgments, liabilities or expenses arise out of or are based upon any such untrue statement or alleged untrue statement contained in and in conformity with information with respect to any Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use therein with reference to such Underwriter or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in either such Registration Statement or Prospectus or necessary to make such information not misleading; PROVIDED, HOWEVER, that the indemnity agreement with respect to any Preliminary Prospectus or the Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, to the extent and only to the extent that the delivery of 22 the Prospectus (as so amended or supplemented) would have eliminated any such loss, claim, damage or liability. This indemnity agreement will be in addition to any liability the Company otherwise may have. (b) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any Underwriter indemnified party with respect to which indemnity may be sought against the Company pursuant to this Section 9, such Underwriter indemnified party shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Underwriter indemnified party and payment of all fees and expenses. An Underwriter indemnified party shall have the right to employ separate counsel in any such action or proceeding and to assume the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter indemnified party unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) the Company has failed promptly after receipt of such notice to assume the defense and employ counsel reasonably satisfactory to the Underwriter indemnified party or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both one or more Underwriter indemnified parties and the Company, and such Underwriter indemnified parties shall have reasonably concluded that there may be one or more legal defenses available to them that are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Underwriter indemnified parties), in any of which events such fees and expenses shall be borne by the Company and reimbursed as they are incurred (it being understood that the Company shall not be liable for the fees and expenses of more than one separate law firm (in addition to any local counsel) for all Underwriter indemnified parties in any one action or series of related transactions in the same jurisdiction). The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which consent shall not be unreasonably withheld or delayed), but if settled with the written consent of the Company, or if there is a final judgment with respect thereto, the Company agrees to indemnify and hold harmless each Underwriter indemnified party from and against any loss or liability by reason of such settlement or judgment. (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person that controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Company indemnified parties") from and against any losses, claims, damages, judgments, liabilities and expenses to the same extent as the foregoing indemnity from the Company to the Underwriter indemnified parties, but only with respect to information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use with respect to such Underwriter in the Registration Statement, any Preliminary Prospectus or the Prospectus. In case any action shall be brought against any Company indemnified party based on the Registration Statement, any Preliminary Prospectus or the Prospectus and in respect of which indemnity 23 may be sought against any Underwriter pursuant to this Section 9(c), such Underwriter shall have the rights and duties given to the Company by Section 9(b) (except that if the Company shall have assumed the defense thereof, such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, provided that the fees and expenses of such separate counsel shall be at the expense of such Underwriter), and the Company indemnified parties shall have the rights and duties given to the Underwriter indemnified parties by Section 9(b). (d) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless any Underwriter indemnified party or any Company indemnified party, then the party required to indemnify such indemnified party under this Section 9, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total proceeds from the offering of the Shares (net of underwriting discounts and commissions but before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, judgments, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation (even if the Underwriters were treated as one entity for such purpose) that does not take account of the equitable considerations referred to in this Section 9(d). Notwithstanding the provisions of this Section 9(d), no Underwriter indemnified party shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter indemnified party and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter 24 indemnified party otherwise has been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and are not joint. The Company hereby acknowledges and agrees with the Underwriters that the statements set forth in (i) the last paragraph on the cover page of the Prospectus, (ii) the paragraph in boldface type on the inside cover page of the Prospectus relating to stabilization, (iii) the list of Underwriters and International Underwriters under the caption "Underwriting" in the Prospectus and (iv) the statements relating to the selling concession and reallowance in the third paragraph below the tables under the caption "Underwriting" in the Prospectus constitute the only information furnished to the Company in writing by the Underwriters expressly for use in the Registration statement, any Preliminary Prospectus or the Prospectus. (e) The indemnity and contribution agreements contained in this Section 9 and the representations, warranties and covenants of the Company contained in this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter indemnified party or by or on behalf of any Company indemnified party and shall survive any termination of this Agreement or the issuance and delivery of the Shares. Subject to the provisions of Section 9(b) and Section 9(c), the Company and each Underwriter agree promptly to notify the other of the commencement of any litigation or proceeding against it in connection with the issuance and sale of the Shares or in connection with the Registration Statement or the Prospectus. 10. NOTICES. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to Dillon, Read & Co., 535 Madison Avenue, New York, New York 10022, Attention: Syndicate Department; and Bear, Stearns & Co. Inc., 245 Park Avenue, 3rd Floor, New York, New York 10167, Attention: Syndicate Department; and if to the Company, shall be sufficient in all respects if delivered or sent to the Company, at the offices of the Company at Triangle Pharmaceuticals, Inc., 4 University Place, 4611 University Drive, Durham, North Carolina 27707, Attention: Dr. David W. Barry. 11. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS AGREEMENT. 12. PARTIES AT INTEREST. The agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company, the Underwriter indemnified parties and the 25 Company indemnified parties, and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement. 13. COUNTERPARTS. This Agreement may be signed by the parties in counterparts, which together shall constitute one and the same agreement among the parties. 26 If the foregoing correctly sets forth the understanding among the Company and the Underwriters, please so indicate in the space provided below for such purpose, whereupon this letter and your acceptance shall constitute a binding agreement among the Company, and the Underwriters, severally. Very truly yours, TRIANGLE PHARMACEUTICALS, INC. By: -------------------------------- Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A DILLON, READ & COMPANY, INC. BEAR, STEARNS & CO. INC. BY: DILLON, READ & CO. INC. By: -------------------------------- Name: Title: SCHEDULE A Underwriters Number of Firm Shares - ------------ --------------------- Dillon, Read & Co. Inc.. . . . . . . . . . . . . . . . Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . EX-1.2 3 INTERNATIONAL UNDERWRITING AGREEMENT [K&S DRAFT - 10/28/96] TRIANGLE PHARMACEUTICALS, INC. COMMON STOCK ($0.001 Par Value) INTERNATIONAL UNDERWRITING AGREEMENT October 31, 1996 INTERNATIONAL UNDERWRITING AGREEMENT November , 1996 Dillon, Read & Co. Inc. Bear, Stearns International Limited ING Baring Securities Limited as representatives (the "International Representatives") of the several underwriters listed on Schedule A hereto c/o Dillon, Read & Co. Inc. 535 Madison Avenue New York, New York l0022 Ladies and Gentlemen: Triangle Pharmaceuticals, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters named in Schedule A (the "Underwriters") an aggregate of 800,000 shares (the "International Shares") of Common Stock, par value $0.001 per share (the "Common Stock"), of the Company. The International Shares are described in the Prospectus that is referred to below. It is understood and agreed to by all parties that the Company is concurrently entering into an underwriting agreement (the "U.S. Underwriting Agreement") providing for the sale by the Company of an aggregate of 3,200,000 shares of Common Stock (the "U.S. Firm Shares" and, together with the International Shares, the "Firm Shares"), and the granting of an over-allotment option with respect to up to an aggregate of 600,000 additional shares thereunder (the "Additional Shares" and, together with the U.S. Firm Shares, the "U.S. Shares"), through certain underwriters in the United States and Canada (the "U.S. Underwriters"), for whom Dillon Read & Co. Inc. and Bear, Stearns & Co. Inc. are acting as representatives (the "U.S. Representatives"). The U.S. Shares and the International Shares are collectively referred to herein as the "Shares". Anything herein or therein to the contrary notwithstanding, the respective closings under this Agreement and the U.S. Underwriting Agreement are hereby expressly made conditional on one another. The Underwriters hereunder and the U.S. Underwriters are simultaneously entering into an Agreement Between U.S. and International Underwriters (the "Agreement Between U.S. and International Underwriters") that provides, among other things, for the transfer of shares of Common Stock between the two syndicates and for consultation by the International Representatives with the U.S. Representatives. Two forms of prospectus are to be used in connection with the offering and sale of shares of Common Stock contemplated by the foregoing, one relating to the International Shares and the other relating to the U.S. Shares. The latter form of prospectus will be identical to the former except for the outside front and back cover pages as included in the registration statement and amendments thereto. References herein to any Preliminary Prospectus or Prospectus (in each case as hereinafter defined), whether amended or supplemented, shall include both the international and U.S. versions thereof. In addition, this Agreement incorporates by reference certain provisions from the U.S. Underwriting Agreement (including related definitions of terms, which are also used elsewhere herein) and, for purposes of applying the same, references (whether in these precise words or their equivalent) in the incorporated provisions to the "Underwriters" shall be to the Underwriters hereunder, to the "Shares" shall be to the Shares as defined above, to the "International Shares" shall be to the "U.S. Shares", to "this Agreement", "hereunder" or "hereof" (meaning therein in the U.S. Underwriting Agreement) shall be to this Agreement (except where this Agreement is already referred to or as the context otherwise may require) and to the "U.S. Representatives" (except where the International Representatives are already referred to or as the context may otherwise require) shall be to the addressees of this Agreement and, in general, all such provisions and defined terms shall be applied MUTATIS MUTANDIS as if the incorporated provisions were set forth in full herein having regard to their context in this Agreement as opposed to the U.S. Underwriting Agreement. The Company has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the "Act"), with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1, including prospectuses relating to the International Shares and the U.S. Shares. The Company has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses (collectively, the "Preliminary Prospectus"). Except where the context otherwise requires, the registration statement as in effect at the time of execution of this Agreement or, if the registration statement is not yet effective, as amended when it becomes effective, including all documents filed as a part thereof, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) or Rule 434(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act and, if applicable, any registration statement filed pursuant to Rule 462(b) under the Act, and any "term sheet" described in Rule 434(b) under the Act that is deemed to be a part of such registration statement pursuant to Rule 434(d) under the Act (a "Term Sheet"), is herein called the "Registration Statement", and the prospectus, any Term Sheet that, in addition to the related preliminary prospectus, constitutes a part thereof pursuant to Rule 434(a) under the Act and any prospectus required pursuant to Rule 434(b)(3) of the Act (the "Integrated Prospectus"), each in the form filed by the Company with the Commission pursuant to Rule 424(b) under the Act or, if none of such filings is required, in the form of final prospectus included in the Registration Statement at the time it became effective, is herein called the "Prospectus". Any reference herein to the "date" of a Prospectus that includes a Term Sheet shall mean the date of such Term Sheet. The Company and the Underwriters agree as follows: 2 1. SALE AND PURCHASE. On the basis of the representations and warranties and the other terms and conditions herein set forth, the Company agrees to sell to the respective Underwriters the International Shares and each of the Underwriters, severally and not jointly, agrees to purchase from the Company the number of International Shares set forth opposite the name of such Underwriter on Schedule A, at a purchase price of $______ per Share. You may release the International Firm Shares for public sale promptly after this Agreement becomes effective. You may from time to time increase or decrease the public offering price after the initial public offering to such extent as you may determine 2. PAYMENT AND DELIVERY. Payment of the purchase price for the International Shares shall be made to the Company, at the Company's election (which shall be made in writing at least two business days prior to the time of purchase (as hereinafter defined)), by wire transfer to an account designated by the Company, or by certified or official bank check, in New York Clearing House funds, at the office of Dillon, Read & Co. Inc. in New York City, against delivery of the International Shares for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 a.m., New York City time, on November __, 1996 (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 8). The time at which such payment and delivery are actually made is called the "time of purchase". The International Shares shall be delivered in such name and in such denominations as you shall specify on the second business day(1) preceding the time of purchase. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes to each of the Underwriters the same respective representations and warranties made by the Company in Section 3 of the U.S. Underwriting Agreement, which Section is incorporated herein by reference. 4. CERTAIN COVENANTS OF THE COMPANY. The Company makes to the Underwriters the same respective covenants made by the Company in Section 4 of the U.S. Underwriting Agreement, which Section is incorporated herein by reference. 5. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Shares are not delivered for any reason other than the termination of this (i) Agreement pursuant to the first two paragraphs of Section 8, (ii) the termination of this Agreement as a result of the failure of the closing of the purchase and sale of the U.S. Shares concurrently with the closing of the purchase and sale of the International Shares hereunder if such failure is a result of the termination of the U.S. Underwriting Agreement pursuant to the first two paragraphs of Section 8 thereof or the default by one or more of the U.S. Underwriters in its or their respective obligations thereunder or (iii) the default by one or more of the Underwriters in its _______________________ (1) As used herein, "business day" shall mean a day on which the New York Stock Exchange is open for trading. 3 or their respective obligations hereunder, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel. 6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the time of purchase, the performance by the Company of its obligations hereunder and to conditions identical to those set forth in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated herein by reference. 7. EFFECTIVE DATE OF AGREEMENT; TERMINATION. This Agreement shall become effective (i) if neither Rule 430A nor Rule 434 under the Act is used, when you shall have received notification of the effectiveness of the Registration Statement, or (ii) if either Rule 430A or Rule 434 under the Act is used, when the parties hereto have executed and delivered this Agreement. The obligations of the several Underwriters hereunder shall be subject to termination in your absolute discretion if, at any time prior to the time of purchase, trading in securities generally on the New York Stock Exchange shall have been suspended or minimum prices shall have been established on the New York Stock Exchange, or if a general banking moratorium shall have been declared either by the United States or New York State authorities, or if the United States shall have declared war in accordance with its constitutional processes or there shall have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in your judgment makes it impracticable to market the International Shares or the U.S. Shares. If you elect to terminate this Agreement as provided in this Section 7, the Company and each other Underwriter shall be notified promptly by written notice transmitted by facsimile and confirmed by written notice sent by registered mail, return receipt requested. If the sale to the Underwriters of the International Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement or if such sale is not carried out because the Company shall be unable to comply with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 5 and 9), and the Underwriters shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 9). 8. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter shall default in its obligation to take up and pay for the International Shares to be purchased by it hereunder and if the number of International Shares that all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total number of 4 International Shares, the non-defaulting Underwriters shall take up and pay for (in addition to the aggregate principal amount of International Shares they are obligated to purchase pursuant to Section 1) the number of International Shares agreed to be purchased by all such defaulting Underwriters as hereinafter provided. Such International Shares shall be taken up and paid for by such non-defaulting Underwriter or Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such International Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate number of International Shares set opposite the names of such non-defaulting Underwriters in Schedule A. Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that it will not sell any International Shares hereunder unless all of the International Shares are purchased by the Underwriters (or by substituted underwriters selected by you with the approval of the Company or selected by the Company with your approval). If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or you shall have the right to postpone the time of purchase for a period not exceeding five business days in order that any necessary change in the Registration Statement and the Prospectus our other documents may be effected. The term Underwriter as used in this Agreement shall refer to and include any Underwriter substituted under this Section 8 with like effect as if such substituted Underwriter had originally been named in Schedule A. 9. INDEMNITY BY THE COMPANY AND THE UNDERWRITERS. (a) The Company agrees to indemnify, defend and hold harmless each Underwriter, each person that controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Underwriter indemnified parties") from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other reasonable expenses in connection with investigating, defending or settling any such action or claim) as they are incurred (and regardless of whether the Underwriter indemnified party is a party to the litigation, if any) that, jointly or severally, any such Underwriter indemnified party may incur under the Act, the Exchange Act, or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, judgments, liabilities or expenses arise out of or are based upon any such untrue statement or alleged untrue statement contained in and in conformity with information with respect to any 5 Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use therein with reference to such Underwriter or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in either such Registration Statement or Prospectus or necessary to make such information not misleading; PROVIDED, HOWEVER, that the indemnity agreement with respect to any Preliminary Prospectus or the Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, to the extent and only to the extent that the delivery of the Prospectus (as so amended or supplemented) would have eliminated any such loss, claim, damage or liability. This indemnity agreement will be in addition to any liability the Company otherwise may have. (b) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any Underwriter indemnified party with respect to which indemnity may be sought against the Company pursuant to this Section 9, such Underwriter indemnified party shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Underwriter indemnified party and payment of all fees and expenses. An Underwriter indemnified party shall have the right to employ separate counsel in any such action or proceeding and to assume the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter indemnified party unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) the Company has failed promptly after receipt of such notice to assume the defense and employ counsel reasonably satisfactory to the Underwriter indemnified party, or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both one or more Underwriter indemnified parties and the Company, and such Underwriter indemnified parties shall have reasonably concluded that there may be one or more legal defenses available to it that are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Underwriter indemnified parties), in any of which events such fees and expenses shall be borne by the Company, and reimbursed as they are incurred (it being understood that the Company shall not be liable for the fees and expenses of more than one separate law firm (in addition to any local counsel) for all Underwriter indemnified parties in any one action or series of related transactions in the same jurisdiction). The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which consent shall not be unreasonably withheld or delayed), but if settled with the written consent of the Company, or if there is a final judgment with respect thereto, the Company agrees to indemnify and hold harmless each Underwriter indemnified party from and against any loss or liability by reason of such settlement or judgment. 6 (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person that controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Company indemnified parties") from and against any losses, claims, damages, judgments, liabilities and expenses to the same extent as the foregoing indemnity from the Company to the Underwriter indemnified parties, but only with respect to information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use with respect to such Underwriter in the Registration Statement, any Preliminary Prospectus or the Prospectus. In case any action shall be brought against any Company indemnified party based on the Registration Statement, any Preliminary Prospectus or the Prospectus and in respect of which indemnity may be sought against any Underwriter pursuant to this Section 9(c), such Underwriter shall have the rights and duties given to the Company by Section 9(b) (except that if the Company shall have assumed the defense thereof, such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof; PROVIDED that the fees and expenses of such separate counsel shall be at the expense of such Underwriter), and the Company indemnified parties shall have the rights and duties given to the Underwriter indemnified parties by Section 9(b). (d) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless any Underwriter indemnified party or any Company indemnified party, then the party required to indemnify such indemnified party under this Section 9, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total proceeds from the offering of the Shares (net of underwriting discounts and commissions but before deducting expenses) received by the Company bears to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, judgments, liabilities and expenses referred 7 to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation (even if the Underwriters were treated as one entity for such purpose) that does not take account of the equitable considerations referred to in this Section 9(d). Notwithstanding the provisions of this Section 9(d), no Underwriter indemnified party shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter indemnified party and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter indemnified party otherwise has been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and are not joint. The Company hereby acknowledges and agrees with the Underwriters that the statements set forth in the last paragraph on the cover page of the Prospectus, the paragraph in boldface type on the inside cover of the Prospectus relating to stabilization, the list of Underwriters and U.S. Underwriters under the caption "Underwriting" in the Prospectus and the statements relating to the selling concession and reallowance in the third paragraph below the tables under the caption "Underwriting" in the Prospectus constitute the only information furnished to the Company in writing by the Underwriters expressly for use in the Registration statement, any Preliminary Prospectus or the Prospectus. (e) The indemnity and contribution agreements contained in this Section 9 and the representations, warranties and covenants of the Company contained in this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter indemnified party or by or on behalf of any Company indemnified party, and shall survive any termination of this Agreement or the issuance and delivery of the International Shares. Subject to the provisions of Section 9(b) and Section 9(c), the Company and each Underwriter agree promptly to notify the other of the commencement of any litigation or proceeding against it in connection with the issuance and sale of the International Shares or in connection with the Registration Statement or the Prospectus. 10. NOTICES. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to Dillon, Read & Co. Inc., 535 Madison Avenue, New York, New York 10022, Attention: Syndicate Department; and if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company 8 at Triangle Pharmaceuticals, Inc., 4 University Place, 4611 University Drive, Durham, North Carolina 27707, Attention: Dr. David Barry. 11. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS AGREEMENT. 12. PARTIES AT INTEREST. The agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company, the Underwriter indemnified parties and the Company indemnified parties and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement. 13. COUNTERPARTS. This Agreement may be signed by the parties in counterparts, which together shall constitute one and the same agreement among the parties. 9 If the foregoing correctly sets forth the understanding among the Company and the Underwriters, please so indicate in the space provided below for such purpose, whereupon this letter and your acceptance shall constitute a binding agreement among the Company and the Underwriters, severally. Very truly yours, TRIANGLE PHARMACEUTICALS, INC. By: --------------------------- Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A DILLON, READ & CO. INC. BEAR, STEARNS INTERNATIONAL LIMITED ING BARING SECURITIES LIMITED By: DILLON, READ & CO. INC. By: ---------------------------------- Name: Title: 10 SCHEDULE A Underwriters Number of International Shares Dillon, Read & Co. Inc.......................... [ ] Bear, Stearns International Limited.......... [ ] ING Baring Securities Limited.................... [ ] 11 EX-10.8 4 LICENSE AGREEMENT EXHIBIT 10.8 LICENSE AGREEMENT This License Agreement ("Agreement") is entered into as of November 16, 1995 (the "Effective Date") between Karl Hostetler, M.D. ("Hostetler"), an individual, and Dennis Carson, M.D. ("Carson"), an individual (together "Licensor"); and Triangle Pharmaceuticals, Inc., a Delaware corporation having principal offices at 1829 East Franklin Street, Building 1000, Suite 1005, Chapel Hill, North Carolina 27514 ("Triangle"). 1. CERTAIN DEFINITIONS. 1.1 An "Affiliate" of a party shall mean an entity directly or indirectly controlling, controlled by or under common control with that party; provided that such entity shall be considered an Affiliate only for the time during which such control exists. 1.2 "Approved Agreements" shall mean: (i) The patent policy ("Patent Policy") of The University of California, San Diego ("UCSD") to the extent applicable to either of the individuals comprising Licensor; (ii) The Consulting Agreement dated October 28, 1994 between Hostetler and Vestar, Inc. (the predecessor of NeXstar, Inc.), as in effect as of the Effective Date; (iii) The Consulting Agreement dated July 30, 1990 between Carson and CIBA-GEIGY Corporation, as in effect as of the Effective Date; and (iv) So long as Hostetler or Carson (as applicable) comply with the right of first refusal contained in Section 15 below, any future agreements entered into by Hostetler or Carson and a third party, pursuant to which the third party provides funding to the research laboratory of Hostetler or Carson in an academic institution where Hostetler or Carson is employed, and pursuant to which the third party receives rights to patents or patent rights resulting from such research. 1.3 "Consulting Agreements" shall mean the two (2) Consulting Services Agreements of even date herewith between each Licensor and Triangle pursuant to which Licensors will provide consulting services to Triangle. 1.4 "Cost" shall mean all fully burdened costs incurred in connection with procurement, manufacture and testing as determined in accordance with generally accepted accounting principles, as stated in the financial statements of Triangle. If any Costs are calculated based upon unaudited financial statements of Triangle and subsequently issued and independently audited financial statements of Triangle for the same accounting period disclose different Costs, then to the extent any Royalties were * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. previously paid based upon the unaudited Costs, Licensor or Triangle, as the case may be, shall within thirty (30) days after Triangle's receipt of such audited financial statements, pay the other party an amount (or, in the case of amounts due to Triangle, Triangle may offset such amounts against any subsequent payments owed to Licensor) such that Triangle shall have paid the correct Royalty amount for such accounting period based upon the independently audited Costs. 1.5 "IND" shall mean an Investigational New Drug Application with the U.S. Food and Drug Administration or the equivalent agency of a Major Country, to commence Phase I clinical trials of a Licensed Product. 1.6 "Licensed Product" shall mean an item (other than an Orphan Drug) that the sale or distribution by Triangle would, but for the License, infringe the Patent Rights. 1.7 "Major Country" means any of the United States of America, Canada, Australia, Japan and any country in the European Union as of the Effective Date or at any time during the term of this Agreement. 1.8 "NDA" shall mean a New Drug Application with the U.S. Food and Drug Administration or the equivalent in any Major Country. 1.9 "Net Sales" means the actual billing price received by Triangle or its Affiliates or sublicensees from sales of Licensed Products or Orphan Drugs to Third Party customers (but not including the sale by Triangle to either an Affiliate or a sublicensee) during the term of this Agreement, less the following deductions: (i) any allowances actually made and taken for rejections or returns; transportation, delivery and insurance costs actually incurred; cash discounts actually allowed in amounts and for purposes customary in the trade (including private sector or governmental rebates related to such); sales, use, withholding, value-added and similar taxes and duties and similar governmental assessments (on products as shipped); (ii) in the event of distribution of such product pursuant to a reagent rental or comparable sales or lease program, the amount allocated by the party (using generally accepted accounting principles consistently applied) to equipment/instrument recovery accounts; and (iii) if a product is distributed for use in combination with or as a component of other products, a portion of the resulting revenue equal to the total revenue from such distribution multiplied by the fraction A/(A+B), where A is the retail price specified in the party's published retail price list as of the end of the applicable period ("Retail Price") for the amount of the other product or components used in the combination when distributed separately and B is the Retail Price for the amount of the product used in the combination when distributed separately; provided, however, that if the products in the combination are not distributed separately, the amount which may be 2. deducted shall be as determined using the same formula but substituting Cost for Retail Price. Net Sales shall also include the amount of any recoveries actually obtained by Triangle under a lawsuit maintained by Triangle under Section 9, less all actual costs and expenses incurred by Triangle in connection with such lawsuit. 1.10 "Orphan Drug" shall mean, in a particular country, a pharmaceutical drug: (i) that incorporates inventions of Licensor contained in the Patent Rights; and (ii) concerning which Triangle by law in such county has the exclusive right to sell such pharmaceutical drug (other than by patent); provided that such pharmaceutical drug shall be considered an Orphan Drug only for such period of time that Triangle has the exclusive right to sell such drug in such country. 1.11 "Patent Rights" shall mean (i) the patent applications of Dr. Hostetler filed on [ * ] and entitled [ * ] and all inventions described therein ("Acyclovir Patent Rights"), (ii) the joint patent application of Drs. Hostetler and Carson filed [ * ] and all inventions described therein ("Nucleotide Patent Rights") (the patent rights in clauses (i) and (ii) shall collectively be referred to herein as the "Existing Patent Rights"), (iii) all other existing and future patents and patent rights (domestic or foreign) of either Licensor in the anti-viral or anti-cancer fields (other than those owned by Triangle pursuant to Section 2.3) obtained or arising from inventions made by such Licensor prior to the earlier of the [*] anniversary of the Effective Date or, with respect to Carson or Hostetler, as applicable, the date (if any) that Triangle terminates the applicable Consulting Agreement, to the extent such Licensor is not contractually obligated to assign or license such existing and/or future patents and/or patent rights to third parties pursuant to Approved Agreements, (iv) all technology and/or "Rights" (as defined in the Consulting Agreements) owned or licensed by Licensor and not assigned to Triangle under the Consulting Agreements, but only (A) to the extent not prohibited by the Patent Policy, and (B) to the extent that any "Rights," "Inventions" or "Results" (as defined in the Consulting Agreements) assigned to Triangle under the Consulting Agreements are (1) based on, incorporate, or are improvements or derivatives of, or (2) cannot be reasonably made, used, reproduced and distributed without using or violating, such technology and/or "Rights," and (v) any and all patents whether U.S. or foreign that are or may be granted from the foregoing, including without limitation any extensions, continuations, substitutions, continuations-in-part, certificates, divisions, reissues and renewals thereof, or foreign equivalents thereof. 1.12 "Proprietary Information" of a Disclosing Party shall mean the following, to the extent previously, currently or subsequently disclosed to the other party hereunder or otherwise: information relating to Licensed Products or Orphan Drugs, the properties, composition or structure thereof or the manufacture or processing thereof or machines therefor or to the Disclosing Party's business, products, marketing efforts, * CONFIDENTIAL TREATMENT REQUESTED 3. development efforts, technology or finances (including, without limitation, names and expertise of employees and consultants, ideas, inventions (whether patentable or not), formulae, manufacturing processes, intermediates, precursors, cell lines, reagents, uses, methods of use, techniques, know-how, data, information, schematics and other technical, business, financial, customer and product development plans, forecasts, strategies and information), information contained in the patent applications included in the Patent Rights, and any other information, the disclosure of which might harm or destroy a competitive advantage of Triangle. 1.13 "Restricted Stock Purchase Agreement" shall mean the Restricted Stock Purchase Agreement dated as of October 31, 1995 among the Licensors and Triangle pursuant to which Licensors have purchased Common Stock of the Company. 1.14 "UCSD" shall mean the University of California, San Diego. 2. LICENSE GRANT; TRANSFER; IMPROVEMENTS; COOPERATION. 2.1 LICENSE GRANT. Licensor hereby grants to Triangle a transferable, sublicensable, unlimited, worldwide, exclusive license (the "Exclusive License"): (a) to fully exploit all rights, title and interest to the Patent Rights and any applicable items referenced in Section 3(o) of either Consulting Agreement, and (b) to make, have made, use, market, distribute and sell Licensed Products and Orphan Drugs. Licensor hereby grants to Triangle a transferable, sublicensable, unlimited, worldwide, non-exclusive license (together with the Exclusive License, the "License") to fully exploit all rights, title and interest to any inventions, formulae, ideas, manufacturing processes, intermediates, precursors, cell lines, reagents, uses, methods of use, techniques, know-how, data, information, improvements, modifications or derivatives, whether or not patentable or now existing, related to the Patent Rights (the "Technology"), including, without limitation, any and all patent rights, copyrights, trade secret rights and other rights in connection therewith (the "Proprietary Rights"). Triangle shall have the right to extend the License granted herein to any Affiliate or sublicensee. The defined terms "Technology" and "Proprietary Rights" under this Agreement shall include all technology and/or "Rights" (as defined in the Consulting Agreements) owned or licensed by Licensor and not assigned to Triangle under the Consulting Agreements, but only (A) to the extent not prohibited by the Patent Policy, and (B) to the extent that any "Rights," "Inventions" or "Results" (as defined in the Consulting Agreements) assigned to Triangle under the Consulting Agreements are (1) based on, incorporate, or are improvements or derivatives of, or (2) cannot be reasonably made, used, reproduced and distributed without using or violating, such technology and/or "Rights." 2.2 TRANSFER OF TECHNOLOGY. To carry on the physical transfer of Technology from Licensor to Triangle and to enable Triangle to exercise the License, Licensor will promptly disclose and provide to Triangle the Technology and existing patent applications and patents included in the Patent Rights and all files, data and other information relating to the foregoing that are under the control of Licensor. Licensor 4. agrees not to (and will bind any licensees not to), directly or through intermediaries, exploit the Patent Rights, Proprietary Rights or, in any manner, the Technology. 2.3 IMPROVEMENTS. Any improvements or modifications to Technology (whether or not patentable or copyrightable) that are developed by either party shall be owned solely by such party; except that Triangle shall own all right, title and interest to any improvements, modification or other Proprietary Rights that result from the services provided by either Licensor pursuant to the Consulting Agreement. Any modification or improvement to the Technology made by either Licensor but not owned by Triangle pursuant to the preceding sentence shall be included in the License without additional charge to Triangle, subject to the obligations of Licensor to license or assign such modifications or improvements to UCSD or any other academic employer. Licensors agree to promptly disclose to Triangle all modifications and improvements to the Technology. Except as provided to the contrary in Section 7, each party shall have the right, at its own expense, and solely in its own name, to apply for, prosecute and defend its Proprietary Rights with respect thereto. For the purposes of this Section 2.3, an improvement or a modification shall mean any invention, discovery, modification or improvement, whether patentable or not, which can be employed to reduce developing, manufacturing or assembly costs of any Licensed Product or Orphan Drug, improve performance of any Licensed Product or Orphan Drug, increase market life of any Licensed Product or Orphan Drug, broaden the applicability or range of uses of any Licensed Product or Orphan Drug or create a wholly-new product, device, part, component, treatment, procedure or test equipment. An improvement or a modification shall also include, without limitation, modifications to existing copyrightable works of authorship. 2.4 ASSISTANCE. Each Licensor agrees to assist Triangle in every proper way requested by Triangle to evidence and perfect the License and to apply for and obtain and from time to time, enforce, maintain, and defend anywhere in the world the Patent Rights and Proprietary Rights, and any regulatory approvals, all of which Triangle is granted the unilateral, exclusive, transferable right to do. Any regulatory approvals will be obtained in Triangle's name and, to the extent allowed by law, any such existing rights or approvals (or applications therefor) are hereby assigned to Triangle and shall otherwise be for the sole benefit of Triangle. Each Licensor will execute all documents Triangle may reasonably request for any of the foregoing purposes and agrees to take no actions that could in any way impair Triangle's rights and interests in the License or the Patent Rights. Each Licensor hereby irrevocably designates and appoints Triangle and its duly authorized officers and agents, as his agents and attorneys-in-fact to act for and in such Licensor's behalf and instead of Licensor, to execute and file any such document and to do all other lawfully permitted acts to further the purposes of the foregoing with the same legal force and effect as if executed by each Licensor. 3. CONSIDERATION; ROYALTIES; AUDIT. As consideration for the License, during the term of this Agreement: 5. 3.1 Triangle shall enter into the Restricted Stock Purchase Agreement and sell a total of 500,000 shares of its Common Stock to the Licensors, 300,000 shares to Dr. Hostetler and 200,000 shares to Dr. Carson, on the terms and conditions set forth therein. 3.2 Triangle will make two separate milestone payments of $1,000,000 each [*] 3.3 During the term of this Agreement, Triangle will pay royalties to Drs. Hostetler and Carson on Net Sales (calculated on a calendar year basis) of each Licensed Product that incorporates the Patent Rights in the amount of four percent (4%) on the first [*] of Net Sales in any calendar year, six percent (6%) on the next [*] of Net Sales in any calendar year, and eight percent (8%) on any Net Sales greater than [*] in any calendar year. During the term of this Agreement, Triangle will [*] on Net Sales (calculated on a calendar year basis) of each Orphan Drug that incorporates inventions of Licensor contained in the Patent Rights in the amount of three percent (3%) of Net Sales. The royalties required to be paid by Triangle pursuant to the preceding two sentences shall be the "Royalties." For Royalties on Licensed Products that incorporate the Nucleotide Patent Rights, such Royalties will be divided equally between Drs. Hostetler and Carson. For Royalties based on Licensed Products that do not incorporate the Nucleotide Patent Rights, such Royalties will be paid to the particular owner of the Patent Rights (or proportionally with any other joint owners). With respect to sales of Licensed Products in any particular country: (a) Triangle will not have any obligation to pay Royalties unless and until a patent licensed hereunder (with valid claims covering the items) incorporated in such Licensed Product has issued and remains in effect in such country; and (b) Triangle's Royalty obligations will cease with respect to any Royalty-bearing sale or use occurring after the expiration in such country of the particular patent incorporated into such Licensed Product. With respect to sales of Orphan Drugs in any particular country for any particular indication: (i) Triangle will not have any obligation to pay Royalties unless and until Triangle by law in such country has the exclusive right to sell such Orphan Drug for such particular indication; and (ii) Triangle's Royalty obligations will cease with respect to any Royalty-bearing sale or use occurring after Triangle by law in such country no longer has the exclusive right to sell such Orphan Drug for such * CONFIDENTIAL TREATMENT REQUESTED 6. particular indication. The parties agree that the Royalties payable to Drs. Hostetler and Carson pursuant to this Section 3.3 on account of sales of Licensed Products and Orphan Drugs shall be based on the Net Sales during each calendar year of each Licensed Product that incorporates the Patent Rights and each Orphan Drug that incorporates inventions of Licensor contained in the Patent Rights, with such Net Sales being calculated separately each calendar year and not including any Net Sales from any other calendar year. 3.4 Notwithstanding anything else in this Agreement, the Royalties specified in Section 3.3 shall be reduced as follows: (a) by [*] of the royalties paid to third parties for the acquisition of rights to third party technology that is incorporated by Triangle into a Licensed Product or Orphan Drug, provided that the Royalties specified in Section 3.3 shall not be reduced because of such third party licenses to less than [*] of what it would have been in the absence of this Section 3.4(a); and (b) by an amount equal to Triangle's and its sublicensees' damages, settlements, costs, losses, and other expenses (including without limitation attorneys' fees) incurred in connection with (i) third-party claims of infringement (as provided under Section 8.3) or (ii) breach of this Agreement by Licensor; provided that reductions pursuant to this Section 3.4(b) shall be spread out, if necessary, so that no payment to Licensor is reduced to less than [*] of what it would have been in the absence of this Section 3.4(b). The Royalty reduction provided in subsections (a) and (b) above shall be cumulative. For example, if both reduction provisions are applicable, then the Royalty rate may be reduced to as low [*] of the applicable Section 3.3 Royalty amount. 3.5 Royalties shall be paid within [*] after the end of each [*] with respect to Royalty-bearing Net Sales occurring in that [*]. Notwithstanding anything to the contrary in Section 3.3, Royalties with respect to Net Sales of any particular Licensed Product or Orphan Drug unit will be paid by Triangle or the Affiliate or sublicensee that made the Royalty-bearing sale or disposition from the country into which such unit was sold or disposed and will be subject to any local applicable laws or regulations. Subject to the following, payments will be made in U.S. dollars. Net Sales and the amounts payable shall first be determined in the currency of the applicable country and shall then be converted into the equivalent amount of U.S. dollars (a) at the official closing rate two business days prior to the date of payment hereunder, as established by the central bank or exchange control authorities in such country; or (b) if no such official rate is available or if conversion pursuant to such official rate cannot be effectuated by the company making the sale giving rise to the payment obligation, at the closing rate two business days prior to the date of payment hereunder established by a leading commercial bank (selected by Triangle) in the * CONFIDENTIAL TREATMENT REQUESTED 7. relevant country. If at any time conditions or legal restrictions exist which conditions or restrictions prevent the prompt remittance of the royalties due hereunder, or if conversion into U.S. dollars pursuant to the foregoing cannot be effectuated, the parties shall cooperate fully with each other and make reasonable efforts to permit conversion and remittance. If such efforts shall be unsuccessful, Triangle or its Affiliates or sublicensees shall then, as long as such conditions or restrictions shall exist in such country, pay the Royalties in the currency of such country to such person, company or bank in said country, as shall be nominated by Licensor. 3.6 Triangle and its Affiliates shall keep and maintain detailed books and records sufficient to document Net Sales, Royalties and the calculation thereof for [*] after Triangle's receipt of the particular Net Sales. Licensor or its representatives (who shall be reasonably acceptable to Triangle) shall be entitled to review and audit such books and records no more than once each year during normal business hours upon reasonable notice to Triangle and at Licensor's expense; provided that Triangle will bear any such expense if the review or audit shows an underpayment of more than [*] for the applicable period. 4. DEVELOPMENT AND MARKETING EFFORTS. 4.1 Triangle will use best efforts to produce and market Licensed Products under the License. Licensors' sole remedy for any alleged failure to use best efforts hereunder shall be to terminate the exclusivity of the License as to the Patent Rights to which such failure applies; provided that the foregoing best efforts obligation shall not apply if (a) Triangle can demonstrate that the failure to use best efforts hereunder is the result of matters beyond the control of Triangle and which would similarly have prevented Licensor or a similarly situated third party from performing such obligations; or (b) Triangle, within ninety (90) days after notice of such failure, either uses its best efforts to produce and market Licensed Products or pays in advance the applicable milestone payment described in Section 3.2. In making any such determination of Triangle's best efforts, the parties will be obligated to take into account the normal course of such programs conducted with sound and reasonable business practices and judgement. Evidence provided by Triangle that it has a substantial ongoing and active or anticipated research, development, manufacturing, marketing or licensing program, as appropriate, directed toward the Licensed Products shall be deemed satisfactory evidence of best efforts hereunder. 4.2 In addition to the requirement set forth in Section 4.1, in the event that Triangle fails to file an IND (i) on or before January 1, 2000 for a Licensed Product that incorporates either of the two (2) Existing Patent Rights and (ii) on or before January 1, 2002 for a Licensed Product that incorporates the other of the two (2) Existing Patent Rights, then only with respect to the particular Existing Patent Right that was not incorporated into a Licensed Product for which Triangle filed an IND, all rights granted hereunder to such Existing Patent Right shall automatically terminate. * CONFIDENTIAL TREATMENT REQUESTED 8. 5. NO RESTRICTION ON COMPETITION. Nothing in this Agreement shall be deemed to prohibit Triangle from developing, making, using, marketing or otherwise distributing or promoting products competitive with Licensed Products or Orphan Drugs produced hereunder, provided that Triangle does not breach any provision of Section 6 in doing so. 6. CONFIDENTIALITY. 6.1 Each party hereunder that receives Proprietary Information (a "Recipient Party") from the other party hereunder (a "Disclosing Party") understands that such information is proprietary to and constitutes trade secrets of the Disclosing Party. Except as contemplated by the terms of this Agreement, during and after the term of this Agreement, each party shall hold in confidence and not use, reproduce or directly or indirectly disclose or provide to any third party (other than, in the case of Triangle, an Affiliate, a sublicensee, or a person or entity with which Triangle has a collaborative relationship) any Proprietary Information received from the other party. Furthermore, while this Agreement remains in effect Licensor shall hold in confidence and not directly or indirectly disclose or provide to any third party, reproduce or use the Technology without Triangle's prior written consent. 6.2 Section 6.1 shall impose no obligation upon the Recipient Party with respect to any information that the Recipient Party can demonstrate (i) is or becomes generally known to the public through no action or inaction by the Recipient Party, or (ii) was disclosed to the Recipient Party without restriction by a third party not in violation of any other party's proprietary rights, or (iii) was in the Recipient Party's possession without restriction prior to disclosure, or (iv) was independently developed by the Recipient Party. 6.3 Each party shall retain ownership of all of its technology and Proprietary Rights and neither party shall have any right or license in the other's technology or Proprietary Rights except as expressly provided in this Agreement. Specifically, but without limitation, Triangle will solely own any technology created by or for it and the Proprietary Rights with respect thereto. 6.4 Immediately upon termination of this Agreement or (except for Proprietary Information licensed to Triangle hereunder) earlier upon the request of the Disclosing Party, the Receiving Party will turn over to the Disclosing Party all Proprietary Information of the Disclosing Party and all documents or media containing any such Proprietary Information and any and all copies or extracts thereof. 7. PATENT MATTERS. 7.1 Triangle shall make payment to Licensor in full for all costs incurred by Licensor on or before the Effective Date for the preparation, filing, prosecution, issuance, and maintenance of the Patent Rights and any additional legal 9. costs of the Licensors in connection with their entering into this Agreement, up to a total of [*]. Triangle agrees to make such payments to Licensor and/or directly to the third parties to which Licensor is obligated for such costs within 30 days of invoice from Licensor and/or such third parties. 7.2 Payment of all fees and costs relating to the filing, prosecution, and maintenance of the Patent Rights after the Effective Date shall be the responsibility of Triangle. During the term of this Agreement, Triangle shall have the sole right and discretion to file and prosecute patent applications and maintain patents throughout the world relating to the Technology or any improvements made by or for itself or Licensor. At Licensor's request, Triangle will discuss its decisions on these matters with Licensor, but Licensor will not attempt to file or prosecute any such patent applications or maintain any such patent (i) except as Triangle may, in its sole discretion, approve in writing and (ii) except that Licensor may continue maintenance of the Patent Rights if Triangle elects not to do so. 7.3 To the extent reasonable and practical regarding Licensed Products and Orphan Drugs, Triangle agrees to mark permanently and legibly all Licensed Products and Orphan Drugs and documentation manufactured and sold by it under this Agreement with such patent notice as is required under Title 35, United States Code. 7.4 Hostetler and Carson have further reviewed and investigated the issue of inventorship of the Nucleotide Patent Rights. Hostetler and Carson represent and warrant that, notwithstanding that Carson is named as a co- inventor on the patent application concerning the Nucleotide Patent Rights, Carson is not a co-inventor of any claim or invention contained or referenced in the Nucleotide Patent Rights. Carson hereby disclaims all right or claim as a co-inventor under the Nucleotide Patent Rights, and agrees to take all actions and execute all documents as requested by Triangle or Hostetler to remove Carson's name from patent applications or patents concerning Nucleotide Patent Rights and to otherwise confirm the representations and covenants contained in this Section 7.4. 8. INDEMNIFICATION; INFRINGEMENT SUIT CREDIT. 8.1 Subject to Section 8.2, Triangle shall hold harmless and indemnify each Licensor from and against any claims, demands, or causes of action whatsoever, including without limitation those arising on account of any injury or death of persons or damage to property caused by or arising out of, or resulting from, the exercise or practice of the License by Triangle or its officers, employees, agents, Affiliates, sublicensees or representatives. 8.2 Licensor shall promptly notify Triangle in writing of any claim or suit or threat thereof brought against Licensor in respect of which indemnification may be sought and, to the extent allowed by law, shall reasonably cooperate with Triangle in defending or settling any such claim or suit. No settlement of any claim, suit or threat * CONFIDENTIAL TREATMENT REQUESTED 10. thereof received by Licensor and for which Licensor will seek indemnification, shall be made without the prior written approval of Triangle. Licensor will permit Triangle to defend Licensor against any such claim, suit or threat thereof and Triangle shall have sole control over the defense, subject to Licensor's right to select its own counsel to review the matter for Licensor at Licensor's sole cost and expense. 8.3 If a lawsuit is filed against Triangle or either Licensor and if such claims concern the Patent Rights or Technology, Triangle may suspend those Royalties due Licensor under Section 3.3 from Net Sales of Licensed Products or Orphan Drugs in any national jurisdiction in which suit is brought, and pay such amounts into an escrow account established by Triangle until such situation is resolved. Should a patent within Patent Rights under which such Royalties are payable be held invalid, the accrued Royalties paid into escrow shall be paid to and retained by Triangle. Should litigation or settlement result in the requirement that Triangle pay royalties or other monies to a third party, the parties hereunder agree that such amounts shall offset Triangle's obligation to pay Royalties as described in Section 3.4. In the event the validity of a patent within Patent Rights is upheld, the accrued Royalties shall be paid to Licensor, subject to the terms of Section 3.4 with respect to Triangle's costs and expenses. Any damages or attorneys' fees awarded or received in settlement of any suit shall be retained by Triangle in satisfaction of its litigation expenses. 9. INFRINGEMENT BY THIRD PARTIES. Triangle shall have the first right to enforce or have enforced at no expense to Licensor any Patent Rights to the extent exclusively licensed hereunder against infringement by third parties and shall be entitled to retain recovery from such enforcement. Upon Triangle's undertaking to pay all expenditures reasonably incurred by Licensor, each Licensor shall reasonably cooperate in any such enforcement and, as necessary, join as a party therein. After first deducting its costs and expenses incurred in respect of enforcement (to the extent not otherwise awarded by settlement or a court), Triangle shall pay Licensor Royalties (calculated per Section 3.3) on the balance of any monetary recovery to the extent such monetary recovery is held to be a reasonable royalty or damages in lieu thereof. In the event that Triangle does not file suit against or commence settlement negotiations with a substantial infringer of Licensor's Patent Rights within [*] after receipt of a written demand from Licensor that Triangle bring suit, then the parties will consult with one another in an effort to determine whether a reasonably prudent licensee would institute litigation to enforce the patent in question in light of all relevant business and economic factors (including, but not limited to, the projected cost of such litigation, the likelihood of success on the merits, the probable amount of any damage award, the prospects for satisfaction of any judgment against the alleged infringer, the possibility of counterclaims against Triangle and Licensor, the diversion of Triangle's human and economic resources, the impact of any possible adverse outcome on Triangle and the effect any publicity might have on Triangle's and Licensor's respective reputations and goodwill). If the parties cannot agree, the determination will be made by a mutually and reasonably acceptable third party consultant. If after such process, it is determined that a suit should be filed and Triangle does not file suit or commence settlement * CONFIDENTIAL TREATMENT REQUESTED 11. negotiations forthwith against the substantial infringer, then Licensor shall have the right to enforce any patent licensed hereunder on behalf of themselves and Triangle (Licensor retaining all recoveries from such enforcement). 10. WARRANTY; DISCLAIMER. 10.1 Each Licensor represents and warrants to Triangle that the Licensors (separately or jointly as applicable) (i) are the sole owners of all right, title and interest in the Patent Rights and, except for Licensor's obligations pursuant to the Approved Agreements, have not received written notice of any ownership claim by a third party relating to the Technology, (ii) are not parties to any other agreement with respect to the Patent Rights and, except for Licensor's obligations pursuant to the Approved Agreements, the Technology (iii) have not assigned, transferred, licensed, pledged or otherwise encumbered the Patent Rights, except for Licensor's obligations pursuant to the Approved Agreements, the Technology (iv) have full power and authority to enter into this Agreement and to grant the License, (v) without having made any independent investigation thereof, are not aware of any actual or potential violation, infringement or misappropriation of any third party's rights (or any claim or potential claim thereof) by the Patent Rights or the Technology, and (vi) are not aware of any questions or challenges with respect to the patentability or validity of any claims of any existing patents or patent applications included in the Patent Rights or relating to the Technology. Licensor will promptly notify Triangle of any change in such information or circumstances of which it becomes aware. 10.2 EXCEPT AS EXPRESSLY PROVIDED ABOVE OR ELSEWHERE IN THIS AGREEMENT, LICENSOR MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING. 11. TERM AND TERMINATION. 11.1 The term of this Agreement shall extend from the Effective Date to the end of the term of the last to expire of the patents that have been or may be issued within the Patent Rights. Upon expiration, Triangle will be entitled to fully exploit Patent Rights and Technology without restriction or payment of Royalties or any other amounts. 11.2 This Agreement will earlier terminate: (a) automatically if Triangle shall enter liquidating bankruptcy and/or if the business of Triangle shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of Triangle or otherwise; provided that if it is 12. involuntary, termination shall not take place unless the act is not reversed within one hundred twenty (120) days. (b) in the event Triangle fails to pay to Licensor any amounts due under Section 3 within thirty (30) days after Triangle has received from Licensor written notice of such failure; PROVIDED, that Licensor shall not be entitled to terminate this Agreement if Triangle disputes any amount Licensor believes is required to be paid, so long as Triangle pays any disputed amount into a mutually and reasonably acceptable escrow. The funds deposited into such escrow shall be released pursuant to the subsequent agreement of the parties, or failing such agreement, then pursuant to the judgment of a court pursuant to Section 17.2. (c) upon thirty (30) days written notice given by Triangle with or without cause. 11.3 Upon any termination of this Agreement, nothing herein shall be construed to release any party from any liability for any obligation incurred through the effective date of termination (e.g., confidentiality and payment of then accrued Royalties) or for any breach of this Agreement prior to the effective date of such termination. Termination is not the sole remedy under this Agreement and, whether or not termination is effected, all other remedies will remain available. Triangle or any Affiliate, sublicensee, transferee or assignee may, after the effective date of such termination, sell all Licensed Products that it has on hand at the date of termination and may meet any then existing supply obligations, provided that it pays earned Royalties thereon as provided in this Agreement. 11.4 Neither party shall incur any liability whatsoever for any damage, loss or expenses of any kind suffered or incurred by the other arising from or incident to any termination of this Agreement (or any part thereof) by such party which complies with the terms of the Agreement whether or not such party is aware of any such damage, loss or expenses. 12. INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT. 13. INDEPENDENT CONTRACTORS. The parties are independent contractors and not partners, joint venturers or otherwise affiliated and neither has any right or authority to bind the other in any way. 14. ASSIGNMENT. The rights and obligations of the parties under this Agreement may not be assigned or transferred without the prior written consent of the other party (which consent shall not be unreasonably withheld) except (a) this 13. Agreement and the rights and obligations hereunder may be assigned by Triangle to (i) an acquiror of all or substantially all the assets, business or stock of Triangle or (ii) and Affiliate, and (b) the right to receive Royalties may be assigned by either or both Licensors to any trust for their benefit and/or the benefit of their spouse, children and/or parents. 15. RIGHT OF FIRST REFUSAL. Triangle shall have a right of first refusal to fund research in the anti-viral and/or anti-cancer fields (and obtain any resulting assignment or license of inventions or proprietary rights) in the laboratory of either Hostetler or Carson. Prior to entering into any agreement (or permitting any academic or other institution at which they may be conducting research to enter into any agreement) with a third party to fund research or grant rights to resulting inventions or proprietary rights, Hostetler and Carson shall notify Triangle in writing of the terms of any such proposed agreements and shall include in such notice copies of any proposed agreements. Such notice shall be deemed an offer to Triangle to enter into such agreements. Triangle shall have thirty (30) days to accept the offer contained in such notice. Upon acceptance by Triangle, such agreement(s) shall be binding between Triangle and Hostetler or Carson, as applicable. If Triangle does not accept such offer within such thirty (30) day period, Hostetler or Carson, as applicable, shall be entitled, for a period of ninety (90) days after the expiration of the thirty (30) day period, to enter into such agreements with such third party on the terms presented and offered to Triangle. If Hostetler or Carson, as applicable, does not enter into such agreements with such third party on the terms presented and offered to Triangle within such ninety (90) day period, then Hostetler or Carson (as applicable) must again comply with the terms of this Section 15 before entering into such agreements. This right of first refusal shall terminate as to, respectively, each of Hostetler and Carson if and when the Consulting Agreement for each of them is terminated; provided that such termination shall not affect any agreements the parties may have entered into pursuant to this Section 15 prior to such termination or the obligations of the parties under this Section 15 prior to such termination. 16. UCSD. In the event Triangle desires to obtain a license from UCSD relating to any technology or proprietary rights, at Triangle's request Licensor shall use its best efforts to facilitate the license to Triangle on terms that Triangle in good faith determines are reasonable (and Licensor shall have no right to prevent Triangle from entering into a license agreement that is mutually acceptable to Triangle and UCSD). Licensor shall promptly notify Triangle of any change in the UCSD patent policy, and shall promptly provide Triangle with a copy of any new UCSD patent policy. 17. MISCELLANEOUS. 17.1 AMENDMENT AND WAIVER. Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties. 14. 17.2 GOVERNING LAW AND LEGAL ACTIONS. This Agreement shall be governed by and construed under the laws of the State of North Carolina and the United States without regard to conflicts of laws provisions thereof. The sole jurisdiction and venue for actions related to the subject matter hereof shall be the North Carolina state and U.S. federal courts having within their jurisdiction the location of Triangle's principal place of business. Both parties consent to the jurisdiction of such courts and agree that process may be served in the manner provided herein for giving of notices or otherwise as allowed by North Carolina or federal law. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and attorneys' fees. 17.3 HEADINGS. Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement. 17.4 NOTICES. Notices under this Agreement shall be sufficient only if personally delivered, delivered by a major commercial rapid delivery courier service or mailed by certified or registered mail, return receipt requested to a party at its addresses set forth in the signature block below or as amended by notice pursuant to this subsection. Notices shall be deemed delivered upon actual receipt. 17.5 ENTIRE AGREEMENT. This Agreement supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among the parties relating to the subject matter of this Agreement and all past dealing or industry custom. 17.6 FORCE MAJEURE. Neither party hereto shall be responsible for any failure to perform its obligations under this Agreement (other than obligations to pay money or obligations under Section 6) and the remedies of the other party hereunder shall not apply if such failure is caused by acts of God, war, strikes, revolutions, lack or failure of transportation facilities, laws or governmental regulations or other causes which are beyond the reasonable control of such party. Obligations hereunder, however, shall in no event be excused but shall be suspended only until the cessation of any cause of such failure. In the event that such force majeure should obstruct performance of this Agreement for more than six (6) months, the parties hereto shall consult with each other to determine whether this Agreement should be modified. The party facing an event of force majeure shall use its commercially reasonable efforts to remedy that situation as well as to minimize its effects. 17.7 EXPORT CONTROL. Each party hereby agrees to comply with all export laws and restrictions and regulations of the Department of Commerce or other United States or foreign agency or authority, and not to knowingly export, or allow the export or re-export of any Proprietary Information, Licensed Product or derivative of a Licensed Product in violation of any such restrictions, laws or regulations, or, without all required licenses and authorizations, to Afghanistan, the People's Republic of China or any Group Q, S, W, Y or Z country specified in the then current Supplement No. 1 to Section 770 15. of the U.S. Export Administration Regulations (or any successor supplement or regulations). 17.8 SEVERABILITY. If any provision of this Agreement is held illegal, invalid or unenforceable by a court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 16. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this AGREEMENT. TRIANGLE PHARMACEUTICALS, INC.: By: /s/ David Barry _____________________________________ Its: Chairman and Chief Executive Officer _____________________________________ Address: 1829 East Franklin Street, Suite 1005 Chapel Hill, North Carolina 27514 Phone: (919) 969-7411 LICENSOR: /s/ Dr. Karl Hostetler ______________________________________ Dr. Karl Hostetler Address: 14024 Rue St. Raphael Del Mar, California 92014 Phone: (619) 755-7503 /s/ Dr. Dennis Carson ______________________________________ Dr. Dennis Carson Address: Department of Medicine 131 Clinical Sciences Building La Jolla, California 92014-0663 Phone: (619) 534-5408 17. EX-10.9 5 CONSULTING SERVICES AGREEMENT EXHIBIT 10.9 CONSULTING SERVICES AGREEMENT November 16, 1995 TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 The following confirms the agreement between Karl Hostetler, M.D. (the "Consultant") and Triangle Pharmaceuticals, Inc., a Delaware corporation (the "Company"), with respect to consulting services to the Company: 1. PROPRIETARY INFORMATION. Consultant understands that the Company possesses and will possess Proprietary Information which is important to its business. For purposes of this Agreement, "Proprietary Information" is information that was or will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company (including, without limitation, "Results" as defined below), which has commercial value in the Company's business. "Proprietary Information" includes, but is not limited to, information about trade secrets, computer programs, design, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, business and product development plans, customers and other information concerning the Company's actual or anticipated business, research or development, or which is received in confidence by or for the Company from any other person; PROVIDED, that "Proprietary Information" does not include any information that Consultant demonstrates (i) is or becomes generally known to the public through no action or inaction by Consultant, or (ii) was disclosed to Consultant without restriction by a third party not in violation of any other party's proprietary rights, or (iii) was in the Consultant's possession without restriction prior to disclosure, or (iv) was independently developed by Consultant and has not been licensed to the Company. Consultant understands that the consulting arrangement creates a relationship of confidence and trust between Consultant and the Company with regard to Proprietary Information. 2. COMPANY MATERIALS. Consultant understands that the Company possesses or will possess "Company Materials" which are important to its business. For purposes of this Agreement, "Company Materials" are documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents have been prepared by Consultant or by others. "Company Materials" include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebooks, customer * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. lists, computer disks, tapes or printouts, sound recordings and other printed, typewritten or handwritten documents, as well as samples, prototypes, models, products and the like. 3. CONSULTING SERVICES. In consideration of the mutual covenants and agreements hereafter set forth, the parties agree as follows: a. This Agreement will terminate on November 16, 1999, unless terminated earlier pursuant to Paragraph 4 of this Agreement. b. Consultant agrees to render consulting services ("Consulting Services") in the anti-cancer and anti-viral fields (collectively, the "Field") to the Company for the term of this Agreement. Consultant's duties shall include, but are not limited to, those duties set forth in EXHIBIT A hereto and such other duties as the Company may from time to time prescribe. Consultant also agrees to submit to the Company, in written form or other tangible form, any deliverables or results of Consultant's work under this Agreement ("Results," including, without limitation, all Inventions referred to in 3.g. below) and all documentation of work performed under this Agreement upon request and in a timely manner. Consultant shall report directly to the Chief Scientific Officer of the Company and shall provide his services in accordance with the instructions of the Chief Scientific Officer, and with such reasonable instructions given to him by any other officer of the Company. c. Consultant further agrees to render services (together with the Consulting Services, the "Services") to the Company as a member of the Company's Scientific Advisory Board for the term of this Agreement, and in such capacity shall advise the Company in fields of technical interest to the Company. As a member of the Company's Scientific Advisory Board, Consultant's time commitment will include up to 6 formal all-day meetings per year, at the Company's request, unless Consultant agrees to extend the length or number of such meetings. These meetings will be scheduled at the party's mutual convenience, which may include weekends. d. As partial consideration for Consultant's Services under this Agreement, Consultant has been permitted to purchase securities of the Company pursuant to that certain Series A Preferred Stock Purchase Agreement and that certain Restricted Stock Purchase Agreement dated October 31, 1995. Within thirty (30) days after the date of this Agreement, the Company shall pay Consultant Three Thousand Dollars ($3,000). In addition, during the term of this Agreement, Consultant shall be compensated at the rate of Twenty-Five Thousand Dollars ($25,000) per year, payable quarterly in arrears subject to deferral as described below. The Company shall not be required to pay any such amounts unless and until it has raised from and after the date of this Agreement equity financing of at least Ten Million Dollars ($10,000,000) (in addition to equity financing raised by the Company prior to the date of this Agreement). Within five (5) business days after the date that the Company has raised an additional Ten Million Dollars ($10,000,000) in equity financing (the date when such funding has been raised shall be the "Funding Date"), the Company shall pay to consultant the sum of Six Thousand Two Hundred Fifty Dollars ($6,250) for each complete quarter period 2 that has elapsed since the date of this Agreement. The Company shall also reimburse Consultant for reasonable long distance travel (transportation, lodging and meals) and telephone expenses Consultant is required to incur in providing the Services. All long-distance travel and lodging will be coach class or equivalent and must be authorized in writing by the Company in advance. The foregoing compensation is Consultant's sole compensation for rendering Services to the Company. Consultant shall provide an itemized statement and receipts for expenses. The Company agrees to reimburse Consultant for approved expenses within 45 days of receipt of Consultant's itemized statement and accompanying receipts. The foregoing shall constitute Consultant's sole compensation for rendering Services to the Company. e. All Proprietary Information and all title, patents, patent rights, copyrights, mask work rights, trade secret rights, and other intellectual property and rights anywhere in the world (collectively "Rights") in connection therewith shall be the sole property of the Company. Consultant hereby assigns to the Company any Rights Consultant may have or acquire in such Proprietary Information. At all times, both during the term of this Agreement and after its termination, Consultant will keep in confidence and trust and will not use or disclose any Proprietary Information without the prior written consent of an officer of the Company. Consultant acknowledges that any disclosure or unauthorized use of Proprietary Information will constitute a material breach of this Agreement and cause substantial harm to the Company for which damages would not be a fully adequate remedy, and, therefore, in the event of any such breach, in addition to other available remedies, the Company shall have the right to obtain injunctive relief. f. All Company Materials shall be the sole property of the Company. Consultant agrees that during the term of this Agreement, Consultant will not remove any Company Materials from the business premises of the Company or deliver any Company Materials to any person or entity outside the Company, except as required to do in connection with performance of the Services under this Agreement. Consultant further agrees that, immediately upon the Company's request and in any event upon completion of the Services, Consultant shall deliver to the Company all Company Materials, any document or media which contains Results, apparatus, equipment and other physical property or any reproduction of such property, excepting only Consultant's copy of this Agreement. At all times before or after completion of the Services, the Company shall have the right to examine the Results and any materials relating thereto to ensure Consultant's compliance with the provisions of this Agreement. g. Prior to entering into this Agreement with the Company, Consultant was employed, and continues to be employed, by University of California, San Diego (the "Institute"). The Company recognizes that in connection with Consultant's employment by the Institute, Consultant's primary responsibility is to the Institute. In connection with such employment, Consultant has entered into an Institute Patent Policy, in the form attached hereto as EXHIBIT B (the "Patent Policy"). The Company hereby acknowledges the existence of the Patent Policy and agrees to take no actions that would result in Consultant violating the Patent Policy. To the extent Consultant is not 3 prevented from doing so by virtue of the Patent Policy, Consultant will promptly disclose in writing to the Chief Scientific Officer of the Company, or to any persons designated by the Company, all "Inventions" (which term includes improvements, inventions, designs, formulas, works of authorship, trade secrets, technology, computer programs, ideas, processes, techniques, know-how and data, whether or not patentable) in the Field made or conceived or reduced to practice or developed by Consultant, either alone or jointly with others, during the term of this Agreement. Such disclosures shall be received by the Company in confidence (to the extent they are not assigned in Section 3(h) below) and do not extend the assignment made in Section 3(h) below. Consultant will not disclose Inventions covered by Section 3(h) to any person outside the Company unless requested to do so by management personnel of the Company. h. Consultant agrees that all Inventions which Consultant makes, conceives, reduces to practice or develops (in whole or in part, either alone or jointly with others) during the term of this Agreement in the course of performing the Services or (to the extent permitted by the Patent Policy and the Approved Agreements, as defined below) which relate to any Proprietary Information, shall be the sole property of the Company. Consultant agrees to assign and hereby assigns to the Company all Rights to any such Inventions. The Company shall be the sole owner of all Rights in connection therewith. No assignments in this Agreement shall extend to inventions, the assignment of which Consultant proves would be prohibited by North Carolina Commerce and Business Code section 66-57.1 or California Labor Code Section 2870 (copies of which is attached as EXHIBIT C), were Consultant an employee of the Company. In the case of Inventions which Consultant is prohibited by the terms of the Patent Policy from assigning to the Company, Consultant shall use his best efforts to facilitate the license of such Inventions from Consultant and the Institute to the Company for no additional consideration to Consultant. "Approved Agreements" shall consist of: (1) the Consulting Agreement dated October 28, 1994, between Consultant and Vestar, Inc. (the predecessor of NeXstar) as in effect on the date of this Agreement, and (2) so long as Consultant complies with the right of first refusal set forth immediately below in this Section 3.h, any future agreements entered into by Consultant and a third party, pursuant to which the third party provides funding to the research laboratory of Consultant in an academic institution where Consultant is employed, and pursuant to which the third party receives rights to patents or patent rights resulting from such research. The Company shall have a right of first refusal to fund research in the anti-viral and/or anti-cancer fields (and obtain any resulting assignment or license of inventions or proprietary rights) in the laboratory of Consultant. Prior to entering into any agreement with a third party to fund research or grant rights to resulting inventions or proprietary rights, Consultant shall notify the Company in writing of the terms of any such proposed agreements and shall include in such notice copies of any proposed agreements. Such notice shall be deemed an offer to the Company to enter into such agreements. The Company shall have thirty (30) days to accept the offer contained in such notice. Upon acceptance by the Company, such agreement(s) shall be binding between the Company and Consultant. If the Company does not accept such offer within such thirty (30) day period, Consultant shall be entitled, for a period of ninety (90) days after the expiration of the thirty (30) day period, to enter into such agreements 4 with such third party on the terms presented and offered to the Company. If Consultant does not enter into such agreements with such third party on the terms presented and offered to the Company within such ninety (90) day period, then Consultant must again comply with the terms of this Section 3.h before entering into such agreements. Consultant shall also use his best efforts to provide the Company the right of first refusal set forth above prior to any academic or other institution at which Consultant may be conducting research entering into any agreement with a third party to fund research in the laboratory of Consultant or grant rights to resulting inventions or proprietary rights. This right of first refusal shall terminate as to Consultant if and when this Consulting Agreement is terminated; provided that such termination shall not affect any agreements the Company and Consultant may have entered into pursuant to this Section 3.h prior to such termination or the obligations of Consultant under this Section 3.h prior to such termination. i. Consultant agrees to perform, during and after the term of this Agreement, all acts deemed necessary or desirable by the Company to permit and assist it, in evidencing, perfecting, obtaining, maintaining, defending and enforcing Rights and/or Consultant's assignment with respect to such Inventions in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Consultant's agents and attorneys-in-fact to act for and in behalf and instead of Consultant, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Consultant. j. Any assignment of copyright hereunder includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as "moral rights" (collectively "Moral Rights"). To the extent such Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by the laws in the various countries where Moral Rights exist, Consultant hereby waives such Moral Rights and consents to any action of the Company that would violate such Moral Rights in the absence of such consent. Consultant will confirm any such waivers and consents from time to time as requested by the Company. k. Consultant has attached hereto as EXHIBIT D a complete list of all existing Inventions to which Consultant claims ownership as of the date of this Agreement and that Consultant desires to specifically clarify are not subject to this Agreement, and Consultant acknowledges and agrees that such list is complete. If no such list is attached to this Agreement, Consultant represents that Consultant has no such Inventions at the time of signing this Agreement. l. During the term of this Agreement and for one (1) year thereafter, Consultant will not encourage or solicit any employee or consultant of the Company to leave the Company for any reason. 5 m. Except for services Consultant may continue to render to the Institute (as defined in Section 3(p) below) and/or Vestar, Inc. (the predecessor of NeXstar), Consultant agrees that during the term of this Agreement Consultant will not engage in any employment, business, or activity that is in any way competitive with the business or proposed business of the Company, and Consultant will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. In the event Consultant's consulting agreement with Vestar, Inc. (the predecessor of NeXstar) is terminated as a result of Consultant's agreement to serve as a consultant to the Company, the Company shall reimburse Consultant the sum of $25,000 (which payment shall be in addition to any payments owing to Consultant pursuant to paragraph 3.d above). Such payment shall be due on or before five (5) business days after the Funding Date (as defined in paragraph 3.d. above). n. Consultant represents that performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Consultant in confidence or in trust prior to the execution of this Agreement. Consultant has not entered into, and Consultant agrees not to enter into, any agreement either written or oral that conflicts or might conflict with Consultant's performances of the Services under this Agreement. o. In the case of technology and/or Rights which Consultant is prohibited by the terms of the Patent Policy from assigning to the Company, Consultant shall use his best efforts to facilitate the license of such technology and/or Rights from Consultant and the Institute to the Company for no additional consideration to Consultant. This Section 3(o) shall survive any termination of this Agreement (including any modifications, improvements and derivatives thereof). 4. TERMINATION. Consultant agrees that this Agreement may be terminated by the Company at any time, for any reason, with or without cause, by giving ninety (90) days prior written notice to Consultant, such termination to be effective upon the ninety-first (91st) day after the date of such notice. 5. CONSULTANT'S STATUS. Consultant is an independent contractor and is solely responsible for all taxes, withholdings, and other similar statutory obligations, including, but not limited to, Workers' Compensation Insurance; and Consultant agrees to defend, indemnify and hold Company harmless from any and all claims made by any entity on account of an alleged failure by Consultant to satisfy any such tax or withholding obligations. 6. NO AUTHORITY FOR THE COMPANY. Consultant has no authority to act on behalf of or to enter into any contract, incur any liability or make any representation on behalf of the Company. 7. STANDARD OF PERFORMANCE. Consultant's performance under this Agreement shall be conducted with due diligence and in full compliance with the highest 6 professional standards of practice in the industry. Consultant shall comply with all applicable laws and Company safety rules in the course of performing the Services. If Consultant's work requires a license, Consultant has obtained that license and the license is in full force and effect. 8. INDEMNIFICATION. Consultant will indemnify and hold Company harmless, and will defend Company against any and all loss, liability, damage, claims, demands or suits and related costs and expenses to persons or property that arise, directly or indirectly, from acts or omissions of Consultant, or breach of any term or condition of this Agreement. 9. SURVIVAL OF CERTAIN OBLIGATIONS. Consultant agrees that all obligations under paragraphs 3(e) through 3(j) and paragraphs 3(l), (n), and (o), 5 and 8 of this Agreement shall continue in effect after termination of this Agreement, and that the Company is entitled to communicate Consultant's obligations under this Agreement to any future client or potential client of Consultant. 10. GOVERNING LAW; SEVERABILITY. Consultant agrees that any dispute in the meaning, effect or validity of this Agreement shall be resolved in accordance with the laws of the State of North Carolina without regard to the conflict of laws provisions thereof. Consultant further agrees that if one or more provisions of this Agreement are held to be illegal or unenforceable under applicable North Carolina law, such illegal or unenforceable portion(s) shall be limited or excluded from this Agreement to the minimum extent required and the balance of the Agreement shall be interpreted as if such portion(s) were so limited or excluded and shall be enforceable in accordance with its terms. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Consultant, and inure to the benefit of, the parties hereto and their respective heirs, successors, assigns, and personal representatives; provided, however, that it shall not be assignable by Consultant. 12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties regarding its subject matter and can only be modified by a subsequent written agreement executed by the President or Chief Executive Officer of the Company. 13. NOTICE. All notices required or given herewith shall be addressed to the Company or Consultant at the designated addresses shown below by registered mail, special delivery, or by certified courier service: a. TO COMPANY: TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 7 b. TO CONSULTANT: Karl Hostetler, M.D. Department of Medicine (0676) 305 Clinical Sciences Building, Room 305 La Jolla, CA 92093 14. ATTORNEYS' FEES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO SIGN THIS AGREEMENT. CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY CONSULTANT. Dated: November 16, 1995 /s/ Karl Y. Hostetter ------------------------ (Signature) ------------------------ (Print Name) Accepted and Agreed to: TRIANGLE PHARMACEUTICALS, INC., a Delaware corporation By: /s/ David W. Barry -------------------------- Its: Chairman and CEO ------------------------- 8 EXHIBIT A DUTIES OF CONSULTANT 1. Evaluation of specific Company opportunities, including those relating to technologies and compounds. 2. Report to Company on presentations of interest within the Field at meetings/symposia attended. 3. Identify potential opportunities from all other sources. 4. Review/critique reports and technical data packages. 5. Assist in preparation of presentations to third parties. A-1 EXHIBIT B INSTITUTE PATENT POLICY B-1 UNIVERSITY OF CALIFORNIA PATENT POLICY I. PREAMBLE It is the intent of the President of the University of California, in administering intellectual property rights for the public benefit, to encourage and assist members of the faculty, staff, and others associated with the University in the use of the patent system with respect to their discoveries and inventions in a manner that is equitable to all parties involved. The University recognizes the need for and desirability of encouraging the broad utilization of the results of University research, not only by scholars but also in practical application for the general public benefit, and acknowledges the importance of the patent system in bringing innovative research findings to practical application. Within the University, innovative research findings often give rise to patentable inventions as fortuitous by-products, even through the research was conducted for the primary purpose of gaining new knowledge. To encourage the practical application of University research for the broad public benefit, to appraise and determine relative rights and equities of all parties concerned, to facilitate patent applications, licensing, equitable distribution of royalties, if any, to assist in obtaining funds for research, to provide for the use of invention-related income for the further support of research and education, and to provide a uniform procedure in patent matters when the University has a right or equity, the following University of California Patent Policy is adopted. II. STATEMENT OF POLICY A. An agreement to assign inventions and patents to the University, except those resulting for permissible consulting activities consulting activities without use of University facilities, shall be mandatory for all employees, for persons not employed by the University but who use University research facilities, and for those who receive gift, grant, or contract funds through the University. Exemptions from such agreements to assign may be authorized in those circumstances when the mission of the University is better served by such action, provided that overriding obligations to other parties are met and such exemptions are not inconsistent with other University policies. B. Those individuals who have so agreed to assign inventions and patents shall promptly report and fully disclose the conceptions and/or reduction to practice of potentially patentable inventions to the Director of the Patent, Trademark, and Copyright Office. They shall execute such declarations, assignments, or other documents as may be necessary in the course of invention evaluation, patent prosecution, or protection of patent or analogous property rights, to assure that title in such inventions shall be held by the University or by such other parties designated by the University as may be appropriate under the circumstances. Such circumstances would include, but not be limited to, these situations when there are overriding patent obligations of the University arising from gifts, grants, contracts, or other agreements with outside organizations. In the absence of overriding obligations to outside sponsors of research, the University may release patent rights to the inventor in those circumstances when: (1) the University elects not to file a patent application and the inventor is prepared to do so, or (2) the equity of the situation clearly indicates such release should be given, provided in either case that no further research of development to develop that invention will be conducted involving University support of facilities, and provided further that a shop right is granted to the University. C. Subject to restrictions arising from overriding obligations of the University pursuant to gifts, grants, contracts, or other agreements with outside organizations, the University agrees, for and in consideration of said assignment of patent rights, to pay annually to the named inventor(s), or to the inventor(s)' heirs, successors, or assigns, 50% of the first $100,000 of cumulative net royalties and fees per invention received by the University, 35% of the next $400,000 of cumulative net royalties and fees per invention received by the University, and 20% of all additional cumulative net royalties and fees per invention received by the University. Net royalties are defined as gross royalties and fees, less 15% thereof for administrative costs, and less the costs of patenting, protecting, and preserving patent rights, maintaining taxes or reimbursements as may be necessary or required by law. When there are two or more inventors, each inventor shall share equality in the inventor's share of royalties, unless all inventors previously have agreed in writing to a different distribution of such share. Distribution of the inventor's share shall be made annually in February from the amount received during the penultimate calendar year. In the event of any litigation, actual or imminent, or any other action to protect patent rights, the University may withhold distribution and impound royalties until resolution of the matter. D. In the disposition of any net income accruing to the University from patents, first consideration shall be given to the support of research. III. PATENT RESPONSIBILITIES AND ADMINISTRATION A. Pursuant to Standing Order 100.4 (gg), the President has responsibility for all matters relating to patents in which the University of California is in any way concerned. B. The President is advised on such matters by the Intellectual Property Advisory Council (IPAC), which is shared by the Senior Vice President--Academic Affairs. The membership of IPAC includes representatives from campuses. Agriculture and Natural Resources, the Department of Energy Laboratories, and the Director of the Patent, Trademark and Copyright office. IPAC is responsible for: 1. reviewing and proposing University policy on intellectual property matters including patents, copyrights, trademarks, and tangible research products; 2. reviewing proposed exceptions to established policies; and 3. advising the President on related matters as requested. C. The Senior Vice President--Administration is responsible for implementation of this Policy, including the following: 1. Evaluating inventions and discoveries for patentability, as well as scientific, merit and practical application, and requesting the filing and persecution of patent applications. 2. Evaluating the patent or analogous property rights or equities held by the University in an invention, and negotiating agreements with cooperating organizations. if any, with respect to such rights or equities. 3. Negotiating licenses and license option agreements with other parties concerning patent and/or analogous property rights held by the University. 4. Directing and arranging for the collection and appropriate distribution of royalties and fees. 5. Assisting University officers in negotiating agreements with cooperating organizations concerning prospective rights to patentable inventions or discoveries made as a result of research carried out under grants, contracts, or other agreements to be funded in whole or in part by such cooperating organizations, and negotiating with Federal agencies regarding the disposition of patent rights. 6. Recommending to the President appropriate action on exemptions from the agreement to assign inventions and patents to the University as required by Section II, A, above. Revised April 16, 1990 EXHIBIT C NORTH CAROLINA COMMERCE AND BUSINESS CODE SECTION 66-57.1 Section 66-57.1 Employee's right to certain inventions Any provision in an employment agreement which provides that the employees shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention that the employee developed entirely on his own time without using the employer's equipment, supplies, facility or trade secret information except for those inventions that (i) relate to the employer's business or actual or demonstrably anticipated research or development, or (ii) result from any work performed by the employee for the employer. To the extent a provision in an employment agreement purports to apply to the type of invention described, it is against the public policy of this State and is unenforceable. The employee shall bear the burden of proof in establishing that his invention qualifies under this section. CALIFORNIA LABOR CODE SECTION 2870 Section 2870 Employment agreements; assignment of rights (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer. (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. C-1 EXHIBIT D LIST OF ALL EXISTING INVENTIONS TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 Gentlemen: 1. The following is a complete list of Inventions relevant to the performance of consulting services for Triangle Pharmaceuticals, Inc. (the "Company") that have been made or conceived or first reduced to practice by me alone or jointly with others prior to the execution of the Company's Consulting Services Agreement (the "Agreement") that I desire to clarify are not subject to the Agreement. No Inventions - -------- X See below - -------- X Additional sheets attached - -------- /s/ Karl Y. Hostetter ---------------------------------- Consultant D-1 October 9, 1995 LIST OF ALL EXISTING INVENTIONS OF KARL Y. HOSTETLER 1. Lipid derivatives of dideoxynucleosides and other antiviral nucleosides for liposomal incorporation and method of use; Hostetler, Stuhmiller and Kumar, U.S. Patent 5,223,263, issued 6/29/93. NeXstar. 2. Antiviral liponucleoside; treatment of hepatitis B; Hostetler, USSN 07/730,273. NeXstar. 3. Lipid derivatives of phosphonoacids for liposomal incorporation and method of use; Hostetler, Kumar, U.S. Patent 5,194,654, issued 3/16/93. NeXstar. 4. Lipid derivatives of phosphonoacids. Hostetler, Kumar, USSN 07/993/133 allowed. NeXstar. 5. Method of converting a drug to an orally available form by covalently bonding a lipid to the drug, Hostetler, Kumar, U.S. Patent 5,411,947, issue date 5/5/95. NeXstar. 6. Stynthesis of glycerol di- and triphosphate derivatives, van den Bosch, van Wijk, Hostetler, Kumar, USSN 07/706,873. NeXstar. 7. Lipid conjugates of therapeutic peptides and protease inhibitors, Basava, Hostetler, USSN 07/734-434. NeXstar. 8. Stynthetic calcitonin peptides, Basava, Hostetler; U.S. Patent 5,175,146, issued 12/29/92. Vical. 9. Synthetic calcitonin peptides, Basava, Hostetler; U.S. Patent 5,364,840, issued 11/15/94; Vical. 10. Improved antiviral prodrugs, Hostetler, Kini, USSN 08/340,161, UCSD/NeXstar (right of first information). [*] 12. Various foreign filings of the above. * CONFIDENTIAL TREATMENT REQUESTED TRIANGLE PHARMACEUTICALS, INC. 1829 East Franklin Street Building 1000, Suite 1005 Chapel Hill, North Carolina 27514 November 16, 1995 Karl Hostetler, M.D. Dennis A. Carson, M.D. Department of Medicine (0676) Department of Medicine 305 Clinical Sciences Bldg., Rm. 305 131 Clinical Sciences Building La Jolla, CA 92093 La Jolla, CA 92093-0663 Re: TERMINATION RIGHTS Dear Karl and Dennis: This letter will confirm our agreement regarding each of your rights to terminate your respective Consulting Services Agreement with Triangle Pharmaceuticals, Inc. (the "Company") dated as of the date hereof. We have agreed that each of you will be entitled to terminate your respective Consulting Services Agreement only in the event you are permitted to, and you do in fact, terminate the License Agreement among the Company and both of you dated as of the date hereof, pursuant to the provisions of Section 11.2(b) of the License Agreement. Very truly yours, TRIANGLE PHARMACEUTICALS, INC. By: David W. Barry ____________________________________ Its: Chairman and Chief Executive Officer ___________________________________ AGREED and ACCEPTED this AGREED and ACCEPTED this ____ day of November, 1995: ____ day of November, 1995: ___________________________ ___________________________ Dr. Karl Hostetler Dr. Dennis Carson TRIANGLE PHARMACEUTICALS, INC. 1829 East Franklin Street Building 1000, Suite 1005 Chapel Hill, North Carolina 27514 November 16, 1995 Karl Hostetler, M.D. Dennis A. Carson, M.D. Department of Medicine (0676) Department of Medicine 305 Clinical Sciences Bldg., Rm. 305 131 Clinical Sciences Building La Jolla, CA 92093 La Jolla, CA 92093-0663 Re: TERMINATION RIGHTS Dear Karl and Dennis: This letter will confirm our agreement regarding each of your rights to terminate your respective Consulting Services Agreement with Triangle Pharmaceuticals, Inc. (the "Company") dated as of the date hereof. We have agreed that each of you will be entitled to terminate your respective Consulting Services Agreement only in the event you are permitted to, and you do in fact, terminate the License Agreement among the Company and both of you dated as of the date hereof, pursuant to the provisions of Section 11.2(b) of the License Agreement. Very truly yours, TRIANGLE PHARMACEUTICALS, INC. By: ____________________________________ Its: ___________________________________ AGREED and ACCEPTED this AGREED and ACCEPTED this 16 day of November, 1995: day of November, 1995: /s/ Karl Y. Hostetler ___________________________ ___________________________ Dr. Karl Hostetler Dr. Dennis Carson TRIANGLE PHARMACEUTICALS, INC. 1829 East Franklin Street Building 1000, Suite 1005 Chapel Hill, North Carolina 27514 November 16, 1995 Karl Hostetler, M.D. Dennis A. Carson, M.D. Department of Medicine (0676) Department of Medicine 305 Clinical Sciences Bldg., Rm. 305 131 Clinical Sciences Building La Jolla, CA 92093 La Jolla, CA 92093-0663 Re: TERMINATION RIGHTS Dear Karl and Dennis: This letter will confirm our agreement regarding each of your rights to terminate your respective Consulting Services Agreement with Triangle Pharmaceuticals, Inc. (the "Company") dated as of the date hereof. We have agreed that each of you will be entitled to terminate your respective Consulting Services Agreement only in the event you are permitted to, and you do in fact, terminate the License Agreement among the Company and both of you dated as of the date hereof, pursuant to the provisions of Section 11.2(b) of the License Agreement. Very truly yours, TRIANGLE PHARMACEUTICALS, INC. By: ____________________________________ Its: ___________________________________ AGREED and ACCEPTED this AGREED and ACCEPTED this ____ day of November, 1995: 16 day of November, 1995: /s/ Dennis Carson ___________________________ ___________________________ Dr. Karl Hostetler Dr. Dennis Carson EX-10.10 6 CONSULTING SERVICES AGREEMENT Exhibit 10.10 CONSULTING SERVICES AGREEMENT November 16, 1995 TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 The following confirms the agreement between Dennis Carson, M.D. (the "Consultant") and Triangle Pharmaceuticals, Inc., a Delaware corporation (the "Company"), with respect to consulting services to the Company: 1. PROPRIETARY INFORMATION. Consultant understands that the Company possesses and will possess Proprietary Information which is important to its business. For purposes of this Agreement, "Proprietary Information" is information that was or will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company (including, without limitation, "Results" as defined below), which has commercial value in the Company's business. "Proprietary Information" includes, but is not limited to, information about trade secrets, computer programs, design, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, business and product development plans, customers and other information concerning the Company's actual or anticipated business, research or development, or which is received in confidence by or for the Company from any other person; PROVIDED, that "Proprietary Information" does not include any information that Consultant demonstrates (i) is or becomes generally known to the public through no action or inaction by Consultant, or (ii) was disclosed to Consultant without restriction by a third party not in violation of any other party's proprietary rights, or (iii) was in the Consultant's possession without restriction prior to disclosure, or (iv) was independently developed by Consultant and has not been licensed to the Company. Consultant understands that the consulting arrangement creates a relationship of confidence and trust between Consultant and the Company with regard to Proprietary Information. 2. COMPANY MATERIALS. Consultant understands that the Company possesses or will possess "Company Materials" which are important to its business. For purposes of this Agreement, "Company Materials" are documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents have been prepared by Consultant or by others. "Company Materials" include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebooks, customer * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. lists, computer disks, tapes or printouts, sound recordings and other printed, typewritten or handwritten documents, as well as samples, prototypes, models, products and the like. 3. CONSULTING SERVICES. In consideration of the mutual covenants and agreements hereafter set forth, the parties agree as follows: a. This Agreement will terminate on November 16, 1999, unless terminated earlier pursuant to Paragraph 4 of this Agreement. b. Consultant agrees to render consulting services ("Consulting Services") in the anti-cancer and anti-viral fields (collectively, the "Field") to the Company for the term of this Agreement. Consultant's duties shall include, but are not limited to, those duties set forth in EXHIBIT A hereto and such other duties as the Company may from time to time prescribe. Consultant also agrees to submit to the Company, in written form or other tangible form, any deliverables or results of Consultant's work under this Agreement ("Results," including, without limitation, all Inventions referred to in 3.g. below) and all documentation of work performed under this Agreement upon request and in a timely manner. Consultant shall report directly to the Chief Scientific Officer of the Company and shall provide his services in accordance with the instructions of the Chief Scientific Officer, and with such reasonable instructions given to him by any other officer of the Company. c. Consultant further agrees to render services (together with the Consulting Services, the "Services") to the Company as a member of the Company's Scientific Advisory Board for the term of this Agreement, and in such capacity shall advise the Company in fields of technical interest to the Company. As a member of the Company's Scientific Advisory Board, Consultant's time commitment will include up to 6 formal all-day meetings per year, at the Company's request, unless Consultant agrees to extend the length or number of such meetings. These meetings will be scheduled at the party's mutual convenience, which may include weekends. d. As partial consideration for Consultant's Services under this Agreement, Consultant has been permitted to purchase securities of the Company pursuant to that certain Series A Preferred Stock Purchase Agreement and that certain Restricted Stock Purchase Agreement dated October 31, 1995. Within thirty (30) days after the date of this Agreement, the Company shall pay Consultant Two Thousand Dollars ($2,000). In addition, during the term of this Agreement, Consultant shall be compensated at the rate of Twenty-Five Thousand Dollars ($25,000) per year, payable quarterly in arrears subject to deferral as described below. The Company shall not be required to pay any such amounts unless and until it has raised from and after the date of this Agreement equity financing of at least Ten Million Dollars ($10,000,000) (in addition to equity financing raised by the Company prior to the date of this Agreement). Within five (5) business days after the date that the Company has raised an additional Ten Million Dollars ($10,000,000) in equity financing (the date when such funding has been raised shall be the "Funding Date"), the Company shall pay to consultant the sum of Six Thousand Two Hundred Fifty Dollars ($6,250) for each complete quarter period 2 that has elapsed since the date of this Agreement. The Company shall also reimburse Consultant for reasonable long distance travel (transportation, lodging and meals) and telephone expenses Consultant is required to incur in providing the Services. All long-distance travel and lodging will be coach class or equivalent and must be authorized in writing by the Company in advance. The foregoing compensation is Consultant's sole compensation for rendering Services to the Company. Consultant shall provide an itemized statement and receipts for expenses. The Company agrees to reimburse Consultant for approved expenses within 45 days of receipt of Consultant's itemized statement and accompanying receipts. The foregoing shall constitute Consultant's sole compensation for rendering Services to the Company. e. All Proprietary Information and all title, patents, patent rights, copyrights, mask work rights, trade secret rights, and other intellectual property and rights anywhere in the world (collectively "Rights") in connection therewith shall be the sole property of the Company. Consultant hereby assigns to the Company any Rights Consultant may have or acquire in such Proprietary Information. At all times, both during the term of this Agreement and after its termination, Consultant will keep in confidence and trust and will not use or disclose any Proprietary Information without the prior written consent of an officer of the Company. Consultant acknowledges that any disclosure or unauthorized use of Proprietary Information will constitute a material breach of this Agreement and cause substantial harm to the Company for which damages would not be a fully adequate remedy, and, therefore, in the event of any such breach, in addition to other available remedies, the Company shall have the right to obtain injunctive relief. f. All Company Materials shall be the sole property of the Company. Consultant agrees that during the term of this Agreement, Consultant will not remove any Company Materials from the business premises of the Company or deliver any Company Materials to any person or entity outside the Company, except as required to do in connection with performance of the Services under this Agreement. Consultant further agrees that, immediately upon the Company's request and in any event upon completion of the Services, Consultant shall deliver to the Company all Company Materials, any document or media which contains Results, apparatus, equipment and other physical property or any reproduction of such property, excepting only Consultant's copy of this Agreement. At all times before or after completion of the Services, the Company shall have the right to examine the Results and any materials relating thereto to ensure Consultant's compliance with the provisions of this Agreement. g. Prior to entering into this Agreement with the Company, Consultant was employed, and continues to be employed, by University of California, San Diego (the "Institute"). The Company recognizes that in connection with Consultant's employment by the Institute, Consultant's primary responsibility is to the Institute. In connection with such employment, Consultant has entered into an Institute Patent Policy, in the form attached hereto as EXHIBIT B (the "Patent Policy"). The Company hereby acknowledges the existence of the Patent Policy and agrees to take no actions that would result in Consultant violating the Patent Policy. To the extent Consultant is not 3 prevented from doing so by virtue of the Patent Policy, Consultant will promptly disclose in writing to the Chief Scientific Officer of the Company, or to any persons designated by the Company, all "Inventions" (which term includes improvements, inventions, designs, formulas, works of authorship, trade secrets, technology, computer programs, ideas, processes, techniques, know-how and data, whether or not patentable) in the Field made or conceived or reduced to practice or developed by Consultant, either alone or jointly with others, during the term of this Agreement. Such disclosures shall be received by the Company in confidence (to the extent they are not assigned in Section 3(h) below) and do not extend the assignment made in Section 3(h) below. Consultant will not disclose Inventions covered by Section 3(h) to any person outside the Company unless requested to do so by management personnel of the Company. h. Consultant agrees that all Inventions which Consultant makes, conceives, reduces to practice or develops (in whole or in part, either alone or jointly with others) during the term of this Agreement in the course of performing the Services or (to the extent permitted by the Patent Policy and the Approved Agreements, as defined below) which relate to any Proprietary Information, shall be the sole property of the Company. Consultant agrees to assign and hereby assigns to the Company all Rights to any such Inventions. The Company shall be the sole owner of all Rights in connection therewith. No assignments in this Agreement shall extend to inventions, the assignment of which Consultant proves would be prohibited by North Carolina Commerce and Business Code section 66-57.1 or California Labor Code Section 2870 (copies of which is attached as EXHIBIT C), were Consultant an employee of the Company. In the case of Inventions which Consultant is prohibited by the terms of the Patent Policy from assigning to the Company, Consultant shall use his best efforts to facilitate the license of such Inventions from Consultant and the Institute to the Company for no additional consideration to Consultant. "Approved Agreements" shall consist of: (1) the Consulting Agreement dated July 30, 1990, between Consultant and CIBA-GEIGY Corporation as in effect on the date of this Agreement, and (2) so long as Consultant complies with the right of first refusal set forth immediately below in this Section 3.h, any future agreements entered into by Consultant and a third party, pursuant to which the third party provides funding to the research laboratory of Consultant in an academic institution where Consultant is employed, and pursuant to which the third party receives rights to patents or patent rights resulting from such research. The Company shall have a right of first refusal to fund research in the anti-viral and/or anti-cancer fields (and obtain any resulting assignment or license of inventions or proprietary rights) in the laboratory of Consultant. Prior to entering into any agreement (or permitting any academic or other institution at which Consultant may be conducting research to enter into any agreement) with a third party to fund research or grant rights to resulting inventions or proprietary rights, Consultant shall notify the Company in writing of the terms of any such proposed agreements and shall include in such notice copies of any proposed agreements. Such notice shall be deemed an offer to the Company to enter into such agreements. The Company shall have thirty (30) days to accept the offer contained in such notice. Upon acceptance by the Company, such agreement(s) shall be binding between the Company and Consultant. If the Company does not accept such offer within such thirty (30) day period, Consultant shall be entitled, for a period of 4 ninety (90) days after the expiration of the thirty (30) day period, to enter into such agreements with such third party on the terms presented and offered to the Company. If Consultant does not enter into such agreements with such third party on the terms presented and offered to the Company within such ninety (90) day period, then Consultant must again comply with the terms of this Section 3.h before entering into such agreements. This right of first refusal shall terminate as to Consultant if and when this Consulting Agreement is terminated; provided that such termination shall not affect any agreements the Company and Consultant may have entered into pursuant to this Section 3.h prior to such termination or the obligations of Consultant under this Section 3.h prior to such termination. i. Consultant agrees to perform, during and after the term of this Agreement, all acts deemed necessary or desirable by the Company to permit and assist it, in evidencing, perfecting, obtaining, maintaining, defending and enforcing Rights and/or Consultant's assignment with respect to such Inventions in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Consultant's agents and attorneys-in-fact to act for and in behalf and instead of Consultant, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Consultant. j. Any assignment of copyright hereunder includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as "moral rights" (collectively "Moral Rights"). To the extent such Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by the laws in the various countries where Moral Rights exist, Consultant hereby waives such Moral Rights and consents to any action of the Company that would violate such Moral Rights in the absence of such consent. Consultant will confirm any such waivers and consents from time to time as requested by the Company. k. Consultant has attached hereto as EXHIBIT D a complete list of all existing Inventions to which Consultant claims ownership as of the date of this Agreement and that Consultant desires to specifically clarify are not subject to this Agreement, and Consultant acknowledges and agrees that such list is complete. If no such list is attached to this Agreement, Consultant represents that Consultant has no such Inventions at the time of signing this Agreement. l. During the term of this Agreement and for one (1) year thereafter, Consultant will not encourage or solicit any employee or consultant of the Company to leave the Company for any reason. m. Except for services Consultant may continue to render to the Institute (as defined in Section 3(p) below) and/or CIBA-GEIGY Corporation, Consultant agrees that during the term of this Agreement Consultant will not engage in any employment, business, or activity that is in any way competitive with the business or 5 proposed business of the Company, and Consultant will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. n. Consultant represents that performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Consultant in confidence or in trust prior to the execution of this Agreement. Consultant has not entered into, and Consultant agrees not to enter into, any agreement either written or oral that conflicts or might conflict with Consultant's performances of the Services under this Agreement. o. In the case of technology and/or Rights which Consultant is prohibited by the terms of the Patent Policy from assigning to the Company, Consultant shall use his best efforts to facilitate the license of such technology and/or Rights from Consultant and the Institute to the Company for no additional consideration to Consultant. This Section 3(o) shall survive any termination of this Agreement (including any modifications, improvements and derivatives thereof). 4. TERMINATION. Consultant agrees that this Agreement may be terminated by the Company at any time, for any reason, with or without cause, by giving ninety (90) days prior written notice to Consultant, such termination to be effective upon the ninety-first (91st) day after the date of such notice. 5. CONSULTANT'S STATUS. Consultant is an independent contractor and is solely responsible for all taxes, withholdings, and other similar statutory obligations, including, but not limited to, Workers' Compensation Insurance; and Consultant agrees to defend, indemnify and hold Company harmless from any and all claims made by any entity on account of an alleged failure by Consultant to satisfy any such tax or withholding obligations. 6. NO AUTHORITY FOR THE COMPANY. Consultant has no authority to act on behalf of or to enter into any contract, incur any liability or make any representation on behalf of the Company. 7. STANDARD OF PERFORMANCE. Consultant's performance under this Agreement shall be conducted with due diligence and in full compliance with the highest professional standards of practice in the industry. Consultant shall comply with all applicable laws and Company safety rules in the course of performing the Services. If Consultant's work requires a license, Consultant has obtained that license and the license is in full force and effect. 8. INDEMNIFICATION. Consultant will indemnify and hold Company harmless, and will defend Company against any and all loss, liability, damage, claims, demands or suits and related costs and expenses to persons or property that arise, directly or indirectly, from acts or omissions of Consultant, or breach of any term or condition of this Agreement. 6 9. SURVIVAL OF CERTAIN OBLIGATIONS. Consultant agrees that all obligations under paragraphs 3(e) through 3(j) and paragraphs 3(l), (n), and (o), 5 and 8 of this Agreement shall continue in effect after termination of this Agreement, and that the Company is entitled to communicate Consultant's obligations under this Agreement to any future client or potential client of Consultant. 10. GOVERNING LAW; SEVERABILITY. Consultant agrees that any dispute in the meaning, effect or validity of this Agreement shall be resolved in accordance with the laws of the State of North Carolina without regard to the conflict of laws provisions thereof. Consultant further agrees that if one or more provisions of this Agreement are held to be illegal or unenforceable under applicable North Carolina law, such illegal or unenforceable portion(s) shall be limited or excluded from this Agreement to the minimum extent required and the balance of the Agreement shall be interpreted as if such portion(s) were so limited or excluded and shall be enforceable in accordance with its terms. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Consultant, and inure to the benefit of, the parties hereto and their respective heirs, successors, assigns, and personal representatives; provided, however, that it shall not be assignable by Consultant. 12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties regarding its subject matter and can only be modified by a subsequent written agreement executed by the President or Chief Executive Officer of the Company. 13. NOTICE. All notices required or given herewith shall be addressed to the Company or Consultant at the designated addresses shown below by registered mail, special delivery, or by certified courier service: a. TO COMPANY: TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 b. TO CONSULTANT: Dennis Carson, M.D. Department of Medicine 131 Clinical Sciences Building La Jolla, CA 92093-0663 7 14. ATTORNEYS' FEES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO SIGN THIS AGREEMENT. CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY CONSULTANT. Dated: November 16, 1995 /s/ Dennis Carson ----------------------------- (Signature) ----------------------------- (Print Name) Accepted and Agreed to: TRIANGLE PHARMACEUTICALS, INC., a Delaware corporation By: /s/ David W. Barry -------------------------------- Its: Chairman and CEO ------------------------------- 8 EXHIBIT A DUTIES OF CONSULTANT 1. Evaluation of specific Company opportunities, including those relating to technologies and compounds. 2. Report to Company on presentations of interest within the Field at meetings/symposia attended. 3. Identify potential opportunities from all other sources. 4. Review/critique reports and technical data packages. 5. Assist in preparation of presentations to third parties. A-1 EXHIBIT B INSTITUTE PATENT POLICY B-1 EXHIBIT B UNIVERSITY OF CALIFORNIA PATENT POLICY I. PREAMBLE It is the intent of the President of the University of California, in administering intellectual property rights for the public benefit, to encourage and assist members of the faculty, staff, and others associated with the University in the use of the patent system with respect to their discoveries and inventions in a manner that is equitable to all parties involved. The University recognizes the need for and desirability of encouraging the broad utilization of the results of University research, not only by scholars but also in practical application for the general public benefit, and acknowledges the importance of the patent system in bringing innovative research findings to practical application. Within the University, innovative research findings often give rise to patentable inventions as fortuitous by-products, even though the research was conducted for the primary purpose of gaining new knowledge. To encourage the practical application of University research for the broad public benefit, to appraise and determine relative rights and equities of all parties concerned, to facilitate patent applications, licensing, equitable distribution of royalties, if any, to assist in obtaining funds for research, to provide for the use of invention-related income for the further support of research and education, and to provide a uniform procedure in patent matters when the University has a right or equity, the following University of California Patent Policy is adopted. II. STATEMENT OF POLICY A. An agreement to assign inventions and patents to the University, except those resulting from permissible consulting activities without use of University facilities, shall be mandatory for all employees, for persons not employed by the University but who use University research facilities, and for those who receive gift grant, or contract funds through the University. Exemptions from such agreements to assign may be authorized in those circumstances when the mission of the University is better served by such action, provided that overriding obligations to other parties are met and such exemptions are not inconsistent with other University policies. B. Those individuals who have so agreed to assign inventions and patents shall promptly report and fully disclose the conception and/or reduction to practice of potentially patentable inventions to the Director of the Patent, Trademark, and Copyright Office. They shall execute such declarations, assignments, or other documents as may be necessary in the course of invention evaluation, patent prosecution, or protection of patent or analogous property rights, to assure that title in such inventions shall be held by the University or by such other parties designated by the University as may be appropriate under the circumstances. Such circumstances would include, but not be limited to, these situations when there are overriding patent obligations of the University arising from gifts, grants, contracts, or other agreements with outside organizations. In the absence of overriding obligations to outside sponsors of research, the University may release patent rights to the inventor in these circumstances when: (1) the University elects not to file a patent application and the inventor is prepared to do so, or (2) the equity of the situation clearly indicates such release should be given, provided in either case that no further research or development to develop that invention will be conducted involving University support or facilities, and provided further that a shop right is granted to the University. C. Subject to restrictions arising from overriding obligations of the University pursuant to gifts, grants, contracts, or other agreements with outside organizations, the University agrees, for and in consideration of said assignment of patent rights, to pay annually to the named inventor(s), or to the inventor(s)' heirs, successors, or assigns, 50% of the first $100,000 of cumulative net royalties and fees per invention received by the University, 35% of the next $400,000 of cumulative net royalties and fees per invention received by the University, and 20% of all additional cumulative net royalties and fees per invention received by the University. Net royalties are defined as gross royalties and fees, less 15% thereof for administrative costs, and less the costs of patenting, protecting, and preserving patent rights, maintaining patents, the licensing of patent and related property rights, and such other costs, Taxes or reimbursements as may be necessary or required by law. When there are two or more inventors, each inventor shall share equally in the inventor's share of royalties, unless all inventors previously have agreed in writing to a different distribution of such share. Distribution of the inventor's share shall be made annually in February from the amount received during the penultimate calendar year. In the event of any litigation, actual or imminent, or any other action to protect patent rights, the University may withhold distribution and impound royalties until resolution of the matter. D. In the disposition of any net income accruing to the University from patents, first consideration shall be given to the support of research. III. PATENT RESPONSIBILITIES AND ADMINISTRATION A. Pursuant to Standing Order 100.4(gg), the President has responsibility for all matters relating to patents in which the University of California is in any way concerned. B. The President is advised on such matters by the Intellectual Property Advisory Council (IPAC), which is chaired by the Senior Vice President-Academic Affairs. The membership of IPAC includes representatives from campuses, Agriculture and Natural Resources, the Department of Energy Laboratories, and the Director of the Patent, Trademark, and Copyright Office. IPAC is responsible for: 1. reviewing and proposing University policy on intellectual property matters including patents, copyrights, trademarks, and tangible research products; 2. reviewing proposed exceptions to established policies; and 3. advising the President on related matters as requested. C. The Senior Vice President-Administration is responsible for implementation of this Policy, including the following: 1. Evaluating inventions and discoveries for patentability, as well as scientific merit and practical application, and requesting the filing and prosecution of patent applications. 2. Evaluating the patent or analogous property rights or equities held by the University in an invention, and negotiating agreements with cooperating organizations, if any, with respect to such rights or equities. 3. Negotiating licenses and license option agreements with other parties concerning patent and/or analogous property rights held by the University. 4. Directing and arranging for the collection and appropriate distribution of royalties and fees. 5. Assisting University officers in negotiating agreements with cooperating organizations concerning prospective rights to patentable inventions or discoveries made as a result of research carried out under grants, contracts, or other agreements to be funded in whole or in part by such cooperating organizations, and negotiating with Federal agencies regarding the disposition of patent rights. 6. Recommending to the President appropriate action on exemptions from the agreement to assign inventions and patents to the University as required by Section II. A. above. Revised April 16, 1990 B-2 EXHIBIT C NORTH CAROLINA COMMERCE AND BUSINESS CODE SECTION 66-57.1 Section 66-57.1 Employee's right to certain inventions Any provision in an employment agreement which provides that the employees shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention that the employee developed entirely on his own time without using the employer's equipment, supplies, facility or trade secret information except for those inventions that (i) relate to the employer's business or actual or demonstrably anticipated research or development, or (ii) result from any work performed by the employee for the employer. To the extent a provision in an employment agreement purports to apply to the type of invention described, it is against the public policy of this State and is unenforceable. The employee shall bear the burden of proof in establishing that his invention qualifies under this section. CALIFORNIA LABOR CODE SECTION 2870 Section 2870 Employment agreements; assignment of rights (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer. (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. C-1 EXHIBIT D LIST OF ALL EXISTING INVENTIONS TRIANGLE PHARMACEUTICALS, INC. 1829 E. Franklin Street Building 1000, Suite 1005 Chapel Hill, NC 27514 Gentlemen: 1. The following is a complete list of Inventions relevant to the performance of consulting services for Triangle Pharmaceuticals, Inc. (the "Company") that have been made or conceived or first reduced to practice by me alone or jointly with others prior to the execution of the Company's Consulting Services Agreement (the "Agreement") that I desire to clarify are not subject to the Agreement. No Inventions - -------- X See below - ------- X Additional sheets attached - ------- /s/ Dennis Carlson ------------------------------------ Consultant D-1 [*] * Confidential Treatment Requested [*] * Confidential Treatment Requested EX-10.11 7 OPTION AGREEMENT EXHIBIT 10.11 OPTION AGREEMENT (MKC-442) Mitsubishi Chemical Corporation Triangle Pharmaceuticals, Inc. * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. OPTION AGREEMENT -------------------------------- This Agreement made as of this 20th day of December, 1995, by and between MITSUBISHI CHEMICAL CORPORATION, with its principal office at 5-2, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan (hereinafter referred to as "MITSUBISHI") and TRIANGLE PHARMACEUTICALS, INC. with its principal office at 4 University Place, 4611 University Drive Durham, NC 27707, U. S. A. (hereinafter referred to as "TRIANGLE"). WITNESSETH: WHEREAS, MITSUBISHI has developed a certain compound coded as MKC-442 (hereinafter referred to as "COMPOUND" and defined more specifically hereinbelow); WHEREAS, as the result of the preliminary evaluation pursuant to the Secrecy Agreement dated August 21, 1995, TRIANGLE is desirous of carrying out further evaluation and development works including the pre-clinical and Phase I and Phase IIa clinical studies and obtaining an option to decide whether or not TRIANGLE enters into a license agreement for subsequent development works and commercialization of PRODUCT (as hereinafter defined); and WHEREAS, MITSUBISHI is willing to meet with such TRIANGLE's desire under the terms and conditions herein below set forth. NOW, THEREFORE, the parties hereto agree as follows. ARTICLE I. DEFINITIONS - -------------------------- Unless the context hereof clearly indicates otherwise, the following terms used herein shall have the meanings respectively assigned thereto as set forth below. 1.1 COMPOUND shall mean a compound coded as MKC-442 and its salts and esters. MKC-442 is chemically identified as follows: 6-Benzyl-1-(ethoxy methyl)-5-isopropyl uracil 1.2 PRODUCT shall mean COMPOUND in any and all dosage form ready for human therapy, either alone or in combination with any other active ingredient. 1.3 BULK MATERIAL shall mean COMPOUND to be formulated into PRODUCT. -1- 1.4 TECHNICAL INFORMATION shall mean information on COMPOUND including, but not limited to, data relating to its physical, chemical, pharmacological, toxicological and clinical characteristics, product forms and formulations now or hereafter possessed by MITSUBISHI and made available by MITSUBISHI to TRIANGLE hereunder which MITSUBISHI considers to be necessary or useful for TRIANGLE for fulfilling the purpose of this Agreement. 1.5 TERRITORY shall mean all countries of the world except East Asia, being those countries in the area bounded by, and including, Japan, Korea, China, Burma, Indonesia, and the Philippines; provided, however, that Hong Kong, Taiwan and Thailand are included in TERRITORY. 1.6 EFFECTIVE DATE shall mean the date of execution of this Agreement by both parties. 1.7 OPTION PERIOD shall mean a period of two (2) years from EFFECTIVE DATE or any extension thereof 1.8 DEVELOPMENT WORK shall mean such pre-clinical studies, Phase I and Phase IIa studies of PRODUCT as set forth in Appendix A attached hereto and made a part hereof, which are necessary for TRIANGLE to decide whether to exercise the option with respect to PRODUCT. 1.9 LICENSE AGREEMENT shall mean a license agreement for further development and commercialization of PRODUCT in TERRITORY, an outline of which is set forth in Appendix B attached hereto and made a part hereof. ARTICLE II. DISCLOSURE OF TECHNICAL INFORMATION - -------------------------------------------------- Within 30 days from the EFFECTIVE DATE, MITSUBISHI shall disclose to TRIANGLE in English TECHNICAL INFORMATION which is possessed by MITSUBISHI at the EFFECTIVE DATE and has not been disclosed theretofore to TRIANGLE. Any additional TECHNICAL INFORMATION developed by MITSUBISHI subsequent to the EFFECTIVE DATE shall be disclosed in English to TRIANGLE as soon as reasonably possible. ARTICLE III. GRANT OF OPTION - ------------------------------ 3.1 MITSUBISHI grants to TRIANGLE an exclusive option to decide within OPTION PERIOD whether or not TRIANGLE wishes to enter into LICENSE AGREEMENT. -2- 3.2 If during OPTION PERIOD TRIANGLE demonstrates in writing to MITSUBISHI's reasonable satisfaction that, despite TRIANGLE's best efforts, TRIANGLE has not been able to complete DEVELOPMENT WORK, OPTION PERIOD may be extended for an additional period or periods by mutual agreement by the parties, which additional period shall not be less than six (6) months. ARTICLE IV. DEVELOPMENT WORK - ------------------------------ 4.1 During the OPTION PERIOD, TRIANGLE shall diligently conduct DEVELOPMENT WORK in TERRITORY. Before commencement of DEVELOPMENT WORK, a protocol including timetable of DEVELOPMENT WORK shall be submitted in writing by TRIANGLE to MITSUBISHI and shall be approved by MITSUBISHI which approval shall not be unreasonably withheld. TRIANGLE may appoint as a Contract Research Organization a third party who shall be approved by MITSUBISHI in advance which approval shall not be unreasonably withheld (hereinafter referred to as "AUTHORIZED CRO") to perform DEVELOPMENT WORK. Upon request of MITSUBISHI before its approval, TRIANGLE shall disclose to MITSUBISHI the contents of a contract to be executed with a potential AUTHORIZED CRO and shall properly consider such comments as MITSUBISHI may make. Notwithstanding the foregoing, TRIANGLE shall file by itself IND and CTX and contact the relevant governmental agencies. TRIANGLE shall consult with MITSUBISHI in determining the expected efficacy and safety level in the Phase I and Phase IIa studies as set forth in Appendix A. 4.2 MITSUBISHI agrees to bear the out-of-pocket costs incurred by TRIANGLE in engaging AUTHORIZED CRO to perform DEVELOPMENT WORK in accordance with the approved protocol. MITSUBISHI shall pay to TRIANGLE such costs within thirty (30) days from presentation by TRIANGLE of each invoice for such work provided that MITSUBISHI's payment of such costs shall not exceed One Million Six Hundred Thousand U.S. Dollars ($1,600,000) in total. TRIANGLE agrees to bear any other costs and expenses incurred by it in connection with performance of DEVELOPMENT WORK. 4.3 MITSUBISHI shall supply TRIANGLE, without charge, with amounts of BULK MATERIAL or clinical trial material as reasonably demonstrated by TRIANGLE to be necessary for DEVELOPMENT WORK. BULK MATERIAL or clinical trial material supplied by MITSUBISHI shall meet the specifications to be mutually agreed upon. In the event that a lot of BULK MATERIAL or clinical trial material supplied by MITSUBISHI does not meet such specifications, TRIANGLE shall so notify MITSUBISHI within thirty (30) days from the receipt of such BULK MATERIAL or clinical trial material and return it to MITSUBISHI -3- with documentation of the failure to meet specifications. MITSUBISHI shall replace such defective BULK MATERIAL or clinical trial material and pay for all shipping costs for such defective BULK MATERIAL or clinical trial material. 4.4 TRIANGLE shall give MITSUBISHI written reports on the progress of DEVELOPMENT WORK for each [ * ] and within reasonable period after the end of each [ * ] period, TRIANGLE shall disclose to MITSUBISHI all data and information obtained through DEVELOPMENT WORK during the preceding [ * ] period. In reviewing the reports by TRIANGLE, MITSUBISHI may comment on the progress of DEVELOPMENT WORK and TRIANGLE shall properly consider such comments. 4.5 TRIANGLE shall hold MITSUBISHI harmless from any claim, loss, damages or liabilities caused by it or incurred in connection with performance of DEVELOPMENT WORK except for any claim, loss, damages or liabilities attributable to a defect in BULK MATERIAL or clinical trial material supplied by MITSUBISHI, attributable to an error in the TECHNICAL INFORMATION supplied by MITSUBISHI or resulting from the negligence or willful misconduct of MITSUBISHI or its agents or employees. MITSUBISHI agrees to give TRIANGLE prompt written notice of any matter for which it intends to seek indemnification, to allow TRIANGLE to control the defense and settlement of such matter and to cooperate with TRIANGLE in the investigation and defense of such matter. 4.6 TRIANGLE agrees that MITSUBISHI shall have the right, without any compensation to TRIANGLE, to use all data and information obtained by TRIANGLE through the evaluation and DEVELOPMENT WORK hereunder, whether patentable or not, for purpose of development, registration and commercialization of PRODUCT outside TERRITORY together with the right of sublicense to a third party. It is, however, understood that upon termination of this Agreement without the execution of LICENSE AGREEMENT, TRIANGLE agrees to assign all the title and ownership to such data and information to MITSUBISHI, without charge. ARTICLE V. EXERCISE OF OPTION - --------------------------------- 5.1 Prior to the expiration of OPTION PERIOD, TRIANGLE shall notify MITSUBISHI in writing whether or not it intends to enter into LICENSE AGREEMENT. 5.2 If TRIANGLE notifies MITSUBISHI of its intention to enter into LICENSE AGREEMENT, both parties shall, within [ * ] from the date of said notification by TRIANGLE, negotiate diligently and in good faith the detailed terms and conditions of LICENSE AGREEMENT in accordance with the terms * CONFIDENTIAL TREATMENT REQUESTED -4- outlined in Appendix B hereto and enter into LICENSE AGREEMENT. However, if the negotiations referred to in this Paragraph 5.2 have not resulted in execution of LICENSE AGREEMENT by the expiration of said [ * ] period, the parties shall submit to an independent third party mutually acceptable to TRIANGLE and MITSUBISHI and experienced in the licensing and pharmaceuticals products on an international basis (the "Arbitrator") any issues upon which the parties shall be unable to agree. Such Arbitrator, within [ * ] of the end of the [ * ] period, shall hear the positions of each of TRIANGLE and MITSUBISHI as to any disputed issues and, based upon terms that are usual and customary in transactions of this kind, shall determine the disputed provisions. Promptly thereafter, the parties shall execute LICENSE AGREEMENT containing the provisions to which they have mutually agreed as well as any other provisions which have been stipulated by the Arbitrator. 5.3 If TRIANGLE decides not to enter into LICENSE AGREEMENT, TRIANGLE shall notify MITSUBISHI without delay of such decision and reasons therefor in writing and in such case, the option granted to TRIANGLE shall become null and void. ARTICLE VI. CONFIDENTIALITY - ------------------------------ 6.1 TRIANGLE shall keep secret and confidential any and all TECHNICAL INFORMATION disclosed to TRIANGLE by MITSUBISHI hereunder and any and all data and technical information acquired by TRIANGLE through its evaluation and performance of DEVELOPMENT WORK hereunder (hereinafter referred to as "Confidential Information") and shall not use the Confidential Information for any purposes other than to carry out the evaluation or performance of DEVELOPMENT WORK hereunder, provided, however, the said obligation shall not be applied to information which TRIANGLE can prove: (a) by written record, is in its possession at the time of disclosure thereof, and was not previously acquired by TRIANGLE from MITSUBISHI under secrecy obligation; (b) is public knowledge at the time of disclosure thereof; (c) becomes public knowledge after the time of disclosure through no fault of TRIANGLE; (d) is received by TRIANGLE from a third party under no obligation of secrecy to MITSUBISHI; or (e) is required to be disclosed by a competent registration body in order for TRIANGLE to file IND and CTX. * CONFIDENTIAL TREATMENT REQUESTED -5- 6.2 It is understood that any specific information contained in the Confidential Information shall not deemed to fall in (a), (b), (c), (d) or (e) merely because it is embraced by more general information within one of said exceptions. 6.3 TRIANGLE shall not, without MITSUBISHI's prior written approval: (a) use BULK MATERIAL or clinical trial material supplied by MITSUBISHI for any purposes other than to carry out DEVELOPMENT WORK as set forth in Article 4 hereof; and (b) transfer or furnish any quantity of such BULK MATERIAL or clinical trial material to any third party. 6.4 Notwithstanding the foregoing, TRIANGLE may disclose, to the reasonably required extent, any TECHNICAL INFORMATION and BULK MATERIAL or clinical trial material which is subject to the confidentiality obligations set forth in this Article VI to AUTHORIZED CRO, consultant or any other subcontractor, provided, however, that TRIANGLE shall cause AUTHORIZED CRO, consultant or any other subcontractor to execute a written confidentiality and non-use agreement with respect to any TECHNICAL INFORMATION, the results of entrusted studies and BULK MATERIAL or clinical trial material at least as strict as set forth in this Article VI. 6.5 The obligation of confidentiality and non-use of TRIANGLE pursuant to this Article VI shall remain in force and effect for a period of [ * ] years from the EFFECTIVE DATE. 6.6 During the term of this Agreement, MITSUBISHI shall not reveal the TECHNICAL INFORMATION or transfer the BULK MATERIAL or clinical trial material to any third party in the TERRITORY other than TRIANGLE and shall keep confidential any data and information obtained by TRIANGLE through the evaluation and DEVELOPMENT WORK hereunder and shall not use such information for any purposes other than to carry out its own evaluation of the DEVELOPMENT WORK hereunder, subject to the exercise of the right which MITSUBISHI has pursuant to Paragraph 4.6 and the exceptions set forth in subparagraphs (a), (b), (c), (d) and (e) of Paragraph 6.1. ARTICLE VII. TERM AND TERMINATION - ----------------------------------- 7.1 This Agreement shall come into effect on the EFFECTIVE DATE and, unless earlier terminated, shall continue to be in effect until the date of execution of LICENSE AGREEMENT. 7.2 When the option granted to TRIANGLE becomes null and void, this Agreement shall be automatically terminated. * CONFIDENTIAL TREATMENT REQUESTED -6- 7.3 This Agreement may be terminated by the written agreement of the parties. 7.4 TRIANGLE may, after careful evaluation and after having consulted with MITSUBISHI, discontinue due to scientific or clinical reasons DEVELOPMENT WORK and terminate this Agreement at any time. TRIANGLE shall notify MITSUBISHI of its intent to terminate this Agreement three (3) months prior to stopping any ongoing study to allow MITSUBISHI to take responsibility for and continue such study at MITSUBISHI's sole expense; provided, however, that such prior notice shall not be required if TRIANGLE determines that safety of patients will be at risk if the study is continued. In the event TRIANGLE decides to discontinue its activities hereunder, and subject to the notice period above, this Agreement shall be terminated and MITSUBISHI shall bear all final costs and expenses of the AUTHORIZED CRO if the study is continued by MITSUBISHI. 7.5 MITSUBISHI may, after careful evaluation and after having consulted with TRIANGLE, discontinue due to scientific or clinical reasons to be a sponsor to support the costs for DEVELOPMENT WORK hereunder and terminate this Agreement at any time. MITSUBISHI shall notify TRIANGLE of its intent to terminate this Agreement three (3) months prior to stopping any ongoing study. In the event MITSUBISHI decides to discontinue to be a sponsor to support the costs for DEVELOPMENT WORK hereunder, and subject to the notice period above, this Agreement shall be terminated and MITSUBISHI shall bear all costs and expenses of the AUTHORIZED CRO which have accrued before the date of the termination. 7.6 If TRIANGLE defaults in the performance of or fails to be in compliance with any material agreement, condition or covenant of this Agreement, MITSUBISHI may terminate this Agreement if such default or failure shall not have been remedied within thirty (30) days after receipt by TRIANGLE of a written notice thereof from MITSUBISHI. 7.7 To the extent permitted by law, if either party shall become insolvent or shall make assignment for the benefit of creditors, or proceedings in voluntary bankruptcy shall be instituted on behalf of or against a party or a receiver or trustee of all, or substantially all of the property of a party shall be appointed, the other party shall be entitled to terminate this Agreement by giving written notice to this effect to the first party whereupon this Agreement shall terminate. 7.8 Notwithstanding the foregoing, MITSUBISHI's right granted pursuant to Paragraph 4.5, MITSUBISHI's obligation under Paragraphs 7.4 and 7.5 and TRIANGLE's obligations pursuant to Article VI shall survive the termination of this Agreement. -7- 7.9 In case of termination of this Agreement without the execution of LICENSE AGREEMENT, TRIANGLE shall promptly return all tangible TECHNICAL INFORMATION and all data and information obtained by TRIANGLE through its evaluation and DEVELOPMENT WORK hereunder including all copies thereof as well as unused BULK MATERIAL, if any. It is, however understood that TRIANGLE may retain one copy of such tangible TECHNICAL INFORMATION, data and information only for the purpose of determining its obligations hereunder. VIII. NOTICE - ---------------- Any notice or report required or permitted to be given under this Agreement by one of the parties to the other party shall be deemed to have been sufficiently given for all purposes hereof if delivered in person or transmitted by facsimile or mailed by first class mail, postage prepaid, addressed to such party at its address indicated below or to such address as shall hereafter be furnished by such party by written notice. Both parties agree to acknowledge in writing the receipt of any notice delivered in person or telex or facsimile. If to MITSUBISHI: Mitsubishi Chemical Corporation 2-24, Higashishinagawa 2-chome, Shinagawa-ku, Tokyo 140, Japan Att: General Manager, International Operations Department Pharmaceuticals and Diagnostics Company Fax: 3-5463-0705 If to TRIANGLE: TRIANGLE PHARMACEUTICALS, INC. 4 University Place, 4611 University Drive Durham, NC 27707, U. S. A. Att: Company Secretary Fax: All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of delivery if personally delivered; upon transmission if sent by facsimile transmission with confirmation mailed in accordance with these notice terms; and on the fifth business day after the date when sent if sent by mail. ARTICLE IX. GENERAL LEGAL PROVISIONS - --------------------------------------- -8- 9.1 This Agreement is personal in its nature and neither party hereto shall assign this Agreement or any right or obligation hereunder without the prior written consent of the other party. 9.2 The parties shall use their best endeavors to resolve between themselves any disagreement which may arise under this Agreement. Any such disagreement shall be adjudicated by arbitration in accordance with the UNCITRAL Arbitration Rules in force as of the EFFECTIVE DATE. The appointing authority shall be the London Court of Arbitration. Either party may initiate arbitration by notice to the other party as required the UNCITRAL Arbitration Rules. There will be three arbitrators, one selected by MITSUBISHI, and one selected by TRIANGLE. The third arbitrator will be selected by the first two arbitrators and will be of a different nationality than the first two arbitrators and the parties. The third arbitrator will serve as presiding arbitrator of the tribunal. Arbitrator shall be governed by the following rules: a. The forum shall be in London, England, the language for proceedings shall be English, and the applicable substantive law shall be the law prevailing in the State of New York, USA. b. Hearing shall commences no later than [ * ] days after initial notice by one party to the other requesting arbitration, and shall continue from day to day thereafter until completed unless adjourned by mutual consent. The arbitration panel shall render its decision in writing within thirty days following conclusion of hearings. c. Arbitration may proceed in the absence of any party if [ * ] notice has been given to that party. A decision agreed on by at least two of the arbitrators shall be the decision of the arbitration panel. Each party shall bear its own costs and attorney's fee. Costs of the arbitration panel shall be shared equally by the parties. 9.3 The validity, interpretation and performance of this Agreement shall be governed by the laws of the State of New York and of the United States. 9.4 All amendments or alteration hereof shall be made in writing and shall be of no force or effect unless signed by the duly authorized representatives of each party. 9.5. This Agreement including Appendix A and Appendix B attached hereto and made a part hereof embodies the entire understanding between parties, and * CONFIDENTIAL TREATMENT REQUESTED -9- all prior representations, warranties or agreements relating hereto are hereby superseded and shall be of no force or effect whatsoever. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MITSUBISHI CHEMICAL CORPORATION By /s/ Yousuke Ariyoshi ------------------------------------ Yousuke Ariyoshi Managing Director President, Pharmaceuticals and Title Diagnostics Company ---------------------------------- TRIANGLE PHARMACEUTICALS, INC. By /s/ David S. Barry ------------------------------------ Title Chairman and CEO ---------------------------------- -10- APPENDIX A - ---------- DEVELOPMENT WORK ----------------------------------- 1. PRECLINICAL STUDIES - ------------------------ [ * ] toxicology studies in [ * ], if required by regulatory authorities 2. CLINICAL STUDIES: - ---------------------- PHASE Ia [ * ] ADMINISTRATION Purpose: - Determine [ * ] of [ * ] - Establish [ * ] Design: - [ * ] Patient number: - [ * ] Starting dose: - To be determined likely to be [ * ] Dose escalations: - [ * ] increase per cohort Duration: - [ * ] PHASE Ib [ * ] IN DOSING FOR IIa STUDY Purpose: - Establish possible drug interactions with [ * ] - Bridging study Ia to IIa trial Design: - Determine [ * ] * CONFIDENTIAL TREATMENT REQUESTED -11- Patient number: - [ * ] Dosing regimens: - [ * ] dose or doses to be determined form phase la study - [ * ] Duration - [ * ] PHASE IIa PILOT [ * ] - [ * ] DURATION, WITH POSSIBLE EXTENSION Purpose: - Determine [ * ] Design: - Randomize patients to receive [ * ] Patient number: - [ * ] - Number of patients depends on [ * ] Dosing regimens: - To be determined from [ * ] - [ * ] Duration - [ * ] (provided regulatory authorities allow continuation past [ * ]) * CONFIDENTIAL TREATMENT REQUESTED -12- APPENDIX B - ---------- OUTLINE OF LICENSE AGREEMENT (MITSUBISHI-442) --------------------------------------------- I. PARTIES MITSUBISHI CHEMICAL CORPORATION ("MITSUBISHI") TRIANGLE PHARMACEUTICALS, INC. ("TRIANGLE") II. DEFINITIONS (1) The terms "COMPOUND", "PRODUCT", "BULK MATERIAL", "TECHNICAL INFORMATION" and "TERRITORY" as defined in the Option Agreement shall have the same meanings when used herein as are attributable to them in the Option Agreement. (2) MAJOR COUNTRIES shall mean the Federal Republic of Germany, United Kingdom, France and the United States of America. (3) PATENT RIGHT shall mean the patents and patent applications, including patents to be granted thereon, any division or continuation-in-part thereof, now or hereafter owned by MITSUBISHI in TERRITORY which relates to COMPOUND or PRODUCT. (4) APPROVAL shall mean an approval to market PRODUCT issued by the competent governmental authorities and any other governmental authorizations necessary for marketing of PRODUCT including final labeling, price approval for reimbursement where applicable, importation of COMPOUND and manufacture of PRODUCT. (5) AFFILIATE with respect to a party shall mean any corporation, partnership, association or other entity as to which the party (i) own, directly or indirectly, one-half (1/2) or more of the voting securities of such corporation (or entity), or (ii) has the power to direct or cause the direction of the management and policies of such corporation (or entity) by contract or otherwise. (6) NET SALES shall mean the gross sales price of the PRODUCT sold by TRIANGLE or its sublicensees to independent third parties less the following: transportation charges, transport insurance, sales and other taxes, refunds, rebates, allowances for returned or rejected goods or for retroactive price reductions and normal and customary trade and cash discounts. NET SALES of combination product shall be mutually agreed upon by the parties. -1- (7) EFFECTIVE DATE shall mean the date of execution of this Agreement by both parties. III. DISCLOSURE OF TECHNICAL INFORMATION - ---------------------------------------- (1) Within 30 days from the EFFECTIVE DATE, MITSUBISHI shall disclose to TRIANGLE in English TECHNICAL INFORMATION which is possessed by MITSUBISHI at the EFFECTIVE DATE and has not been disclosed theretofore to TRIANGLE. (2) Furthermore, MITSUBISHI shall disclose to TRIANGLE from time to time and as soon as reasonably possible during the term of this Agreement all data and information as a part of TECHNICAL INFORMATION, to the extent they are legally available to MITSUBISHI, as the result of development work and commercial operation by it of PRODUCT outside of TERRITORY. IV. GRANT OF LICENSE - --------------------- (1) MITSUBISHI shall grant to TRIANGLE an exclusive and non-transferable license under PATENT RIGHT and TECHNICAL INFORMATION to develop, manufacture, use and sell PRODUCT in TERRITORY together with the right to sublicense to third parties who shall be approved by MITSUBISHI in advance which approval shall not be unreasonably withheld. Said license shall not include the right to manufacture BULK MATERIAL. (2) TRIANGLE shall have the right to assign the license granted hereunder to TRIANGLE's AFFILIATES subject to the following conditions: (a) TRIANGLE shall notify MITSUBISHI in advance in writing of the assignment of the license to any of TRIANGLE's AFFILIATE. (b) TRIANGLE shall control DEVELOPMENT WORK to be conducted by such TRIANGLE's AFFILIATE and shall be responsible for compliance with all obligations hereunder by such TRIANGLE's AFFILIATE. (c) The assignment may be made from time to time on a country-by- country basis. V. DEVELOPMENT WORK - --------------------- (1) TRIANGLE shall diligently conduct, at its own expense, all necessary development work to obtain the data and information necessary for APPROVAL and future business operation of manufacturing and selling of -2- PRODUCT in TERRITORY including all necessary pre-clinical and clinical studies regarding PRODUCT ("DEVELOPMENT WORK"). Before commencement of DEVELOPMENT WORK, a protocol including timetable of DEVELOPMENT WORK shall be submitted in writing by TRIANGLE to MITSUBISHI for MITSUBISHI's review. TRIANGLE shall properly consider 'Mitsubishi's comments or advice on the protocol. TRIANGLE may appoint as a Contract Research Organization a third party who shall be approved by MITSUBISHI in advance which approval shall not be unreasonably withheld to perform DEVELOPMENT WORK. The protocol shall be developed so that TRIANGLE may be ready for the application of APPROVAL prior to the expiration of the period set forth in Paragraph VI(1). (2) MITSUBISHI shall supply to TRIANGLE reasonable amounts of BULK MATERIAL necessary for DEVELOPMENT WORK free of charge. (3) TRIANGLE shall give MITSUBISHI written reports on the progress of DEVELOPMENT WORK at the end of each [ * ] and within reasonable period after the end of each [ * ]. TRIANGLE shall allow MITSUBISHI to have access to all data and information obtained through DEVELOPMENT WORK. In reviewing the reports by TRIANGLE, MITSUBISHI may comment on the progress of DEVELOPMENT WORK and TRIANGLE shall properly consider such comments. VI. APPROVAL AND COMMENCEMENT OF SALE - -------------------------------------- (1) TRIANGLE shall use its best efforts to apply for APPROVAL in at least one of the MAJOR COUNTRIES within [ * ] from the EFFECTIVE DATE and in all remaining MAJOR COUNTRIES within [ * ] from the EFFECTIVE DATE. (2) TRIANGLE shall make its best efforts to obtain APPROVAL in each MAJOR COUNTRY within [ * ] from the date of regulatory filing for APPROVAL in such MAJOR COUNTRY and shall report quarterly to MITSUBISHI in writing the progress status of the APPROVAL process. (3) After acquisition of APPROVAL in each country in TERRITORY and if commercially feasible in such country, TRIANGLE shall commence with reasonable promptness the sale of PRODUCT in such country. TRIANGLE shall immediately notify MITSUBISHI of the commencement date of sale of PRODUCT in each country in TERRITORY. Should TRIANGLE fail to commence the sale of PRODUCT within [ * ] from the date of acquisition of APPROVAL in a certain country in TERRITORY, MITSUBISHI shall be entitled to terminate this Agreement with respect to such country and * CONFIDENTIAL TREATMENT REQUESTED -3- TRIANGLE shall promptly transfer APPROVAL or any other registration right pertaining to PRODUCT in such country to MITSUBISHI or its nominee without charge. VII. LICENSE FEE - ---------------- (1) In consideration of the license granted by MITSUBISHI to TRIANGLE, TRIANGLE shall pay to MITSUBISHI the following non-refundable license fees: (a) [ * ] within [ * ] from the EFFECTIVE DATE, provided, however, that TRIANGLE may offset [ * ] of the out-of-pocket costs incurred by TRIANGLE in engaging AUTHORIZED CRO to perform the DEVELOPMENT WORK in excess of [ * ] and all of the out-of-pocket costs incurred by TRIANGLE in engaging a contract toxicology laboratory to perform toxicology study relating to the PRODUCT required by the relevant governmental agencies, provided further that such offset of the costs of AUTHORIZED CRO shall not exceed [ * ] and such offset of the costs of AUTHORIZED CRO and the costs of the contract toxicology laboratory in total shall not exceed [ * ]; (b) [ * ] within [ * ] from the date when APPROVAL is obtained [ * ], unless MITSUBISHI elects the option set forth in subparagraph (d) below; and (c) [ * ] within [ * ] from the date when the APPROVAL is obtained in [ * ]. (d) It is, however, understood that MITSUBISHI may choose at its discretion that the license fee payable under subparagraph (b) above shall be replaced by and made in a combination of equity and cash as follows; (i) [ * ] in equity of TRIANGLE within [ * ] from the date when the first application for APPROVAL in made in a country in a MAJOR COUNTRY, and (ii) [ * ] in cash and/or equity (to be mutually agreed upon by the parties at the time of APPROVAL) within [ * ] from the date when APPROVAL is obtained in the [ * ]. * CONFIDENTIAL TREATMENT REQUESTED -4- TRIANGLE shall notify MITSUBISHI upon filing an application for APPROVAL in the first MAJOR COUNTRY. Thereafter, MITSUBISHI shall have [ * ] to elect to exercise the option set forth in this subparagraph (d). In the event MITSUBISHI elects not to exercise such option or fails to notify TRIANGLE of any election within such [ * ] period, the provisions of subparagraph (b) shall apply. (2) In addition, TRIANGLE shall pay to MITSUBISHI running royalties equal to [ * ] to be agreed upon by the parties within [ * ] after the end of each [ * ], subject to the understanding that the combined cost of the running royalties and price of BULK MATERIAL shall be equal to [ * ]. If the total amount of running royalty and price of BULK MATERIAL to be paid in any [ * ] after the APPROVAL is obtained in the U.S. is less than the following amount, TRIANGLE shall pay the balance with the payment of due for the [ * ]. [ * ] VIII. BULK MATERIAL - ----------------------- (1) Upon request of TRIANGLE, MITSUBISHI shall supply BULK MATERIAL to TRIANGLE under the Supply and Purchase Agreement to be separately agreed upon. (2) The supply price of BULK MATERIAL [ * ] shall be payable in U.S. Dollars and expressed on a per kilogram basis in the Supply and Purchase Agreement, subject to the understanding that the combined cost of the running royalties and price of BULK MATERIAL shall equal to [ * ]. Said price (the "BASE PRICE") shall be applicable for the [ * ] of the EFFECTIVE DATE (the "BASE YEAR"). The price for later [ * ] shall be adjusted as follows: [ * ] Notwithstanding the foregoing, if and when MITSUBISHI demonstrate to the reasonable satisfaction to TRIANGLE that MITSUBISHI cannot earn reasonable profit from supply of BULK MATERIAL to TRIANGLE under such price, the parties shall discuss in good faith about revision of the price taking into consideration (i) the sales price of PRODUCT, (ii) the daily dose of * CONFIDENTIAL TREATMENT REQUESTED -5- PRODUCT and (iii) the manufacturing costs of BULK MATERIAL at MITSUBISHI. Should the parties fail to agree on the revision of the price within a reasonable period, MITSUBISHI shall be released from its obligation to supply BULK MATERIAL to TRIANGLE and TRIANGLE may purchase BULK MATERIAL from third party supplier. (3) A single supply price shall be applied to all BULK MATERIAL to be used by TRIANGLE for manufacture of PRODUCT to be sold in TERRITORY. (4) All other terms and conditions for the supply of BULK MATERIAL from MITSUBISHI to TRIANGLE including forecast, purchase order, quality, purity of BULK MATERIAL, package specifications, transportation method and all other technical related matters and payment method shall be mutually agreed upon by the parties in the separate Supply and Purchase Agreement at latest prior to need for TRIANGLE to commence production of PRODUCT for commercial sales. IX. GRANT-BACK - --------------- (1) TRIANGLE shall disclose to MITSUBISHI all technical data and information, whether patentable or not, which is obtained by TRIANGLE through DEVELOPMENT WORK and commercial manufacture, use or sale of PRODUCT including but not limited to those relating to clinical trials, side-effect, new indications regarding COMPOUND and PRODUCT, when they are available (collectively "TRIANGLE's INFORMATION"). (2) TRIANGLE shall grant to MITSUBISHI a non-exclusive license to use TRIANGLE's INFORMATION for development, manufacture, use and sale of COMPOUND and PRODUCT. With respect to the use of TRIANGLE's INFORMATION outside TERRITORY such license shall be without any compensation to TRIANGLE and shall include the right to sublicense to any third party. With respect to the use of TRIANGLE's INFORMATION in TERRITORY MITSUBISHI shall be required to pay reasonable compensation to TRIANGLE for the use of patented TRIANGLE's INFORMATION and shall include the right to sublicense to any third party in the country in TERRITORY where the license granted hereunder is terminated pursuant to Paragraph X(2) or (3). X. TERM AND TERMINATION - ------------------------- (1) This Agreement shall come into effect on EFFECTIVE DATE and, unless terminated pursuant to Paragraph X (2) and (4), shall continue in effect in each country of the TERRITORY until the twentieth (20th) anniversary of the commencement date of commercial sales of PRODUCT in such country. -6- Upon expiration of such period, TRIANGLE shall have a fully paid up license. At such time as Generic Competition has occurred in a country of TERRITORY, the royalty rate for the sale of PRODUCT in said country shall thereafter be reduced to [ * ] of the applicable royalty rate and minimum annual royalty total. For the purpose of this paragraph, "Generic Competition" shall mean the lawful marketing and sales by a third party in the relevant country of any product or compound which (i) falls within the scope of original claims of PATENT RIGHT on the chemical entity and (ii) is sold and/or used for the same indication as that of PRODUCT in such country. Furthermore, in each country of the TERRITORY, the royalty rate for the sale of PRODUCT in the relevant country shall be reduced by [ * ] of the applicable rate after the later of (i) the date of expiration of (10) year period from the commencement date of commercial sale of PRODUCT or (ii) the date of expiry of the last of the PATENT RIGHT. But, in no event shall royalty rate be less than [ * ] of the original rate by any such reduction. (2) MITSUBISHI may terminate LICENSE AGREEMENT at its option, if (a) TRIANGLE has not applied for APPROVAL in at least one of MAJOR COUNTRIES within three (3) years from the EFFECTIVE DATE or in all remaining MAJOR COUNTRIES within five (5) years from the EFFECTIVE DATE pursuant to Paragraph VI (1) and TRIANGLE does not demonstrate to MITSUBISHI's reasonable satisfaction that despite TRIANGLE's reasonable efforts, the application was delayed by the reasons beyond reasonable control of TRIANGLE, or (b) TRIANGLE cannot obtain APPROVAL in each of the MAJOR COUNTRIES within two (2) years from the date of regulatory filing for APPROVAL and TRIANGLE does not demonstrate to MITSUBISHI's reasonable satisfaction that despite TRIANGLE's reasonable efforts, the APPROVAL was delayed by the reasons beyond reasonable control of TRIANGLE. Notwithstanding the foregoing, to the extent that TRIANGLE meets the diligence obligations in this Paragraph X (2) with respect to a given MAJOR COUNTRY, MITSUBISHI shall not be entitled to terminate LICENSE AGREEMENT, pursuant to this Paragraph X (2) in such MAJOR COUNTRY. (3) If (a) TRIANGLE has not applied for APPROVAL in any country in TERRITORY other than MAJOR COUNTRIES within seven (7) years from the effective date of this Agreement pursuant to Paragraph VI (1), or (b) TRIANGLE cannot obtain APPROVAL in any country in TERRITORY other than MAJOR COUNTRIES within ten (10) years from the effective date of this Agreement, the parties shall discuss in good faith and agree upon the registration policy in such country. (4) If either party fails to meet any of its obligations hereunder in any material respect, the other party may, upon sixty (60) day written notice, terminate this * CONFIDENTIAL TREATMENT REQUESTED -7- Agreement, provided, however, that if the defaulting party corrects such default within said sixty (60) day period, the notice shall be of no further force or effect. (5) In case of termination of this Agreement pursuant to Paragraph X(2) or in case of termination of this Agreement by MITSUBISHI pursuant to Paragraph X(4), TRIANGLE shall immediately return to MITSUBISHI all TECHNICAL INFORMATION and all data and information obtained by TRIANGLE prior thereto through DEVELOPMENT WORK and commercial manufacture, use or sale of PRODUCT and shall not use them for any purpose thereafter. In such case, the right granted to MITSUBISHI pursuant to Paragraph IX shall be extended to include TERRITORY. XI. PATENT DISPUTE - ------------------- If TRIANGLE or its sublicensees (i) deem it necessary after consultation with MITSUBISHI to pay royalties, license fees or milestones to any third party in order to exercise its rights under the license from MITSUBISHI or (ii) incur out-of-pocket expenses related to any patent infringement or misappropriation claim or suit against it or them as a result of the exercise of such rights, TRIANGLE may credit such amounts described in the above (i) and (ii) against future royalties, fees or other amounts payable to MITSUBISHI (except for the costs of BULK MATERIAL) up to [ * ] of such royalties, fees or other amounts. Such credit shall apply only to prospective not prior payments made to MITSUBISHI. XIII. GENERAL LEGAL CLAUSES - ------------------------------- (confidentiality, assignment, arbitration, patent enforcement and prosecution, etc.) * CONFIDENTIAL TREATMENT REQUESTED -8- EX-10.19 8 LICENSE AGREE W/AMORY, UNIVER. & TRIANGLE DAPD EXHIBIT 10.19 LICENSE AGREEMENT AMONG EMORY UNIVERSITY AND UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC. AND TRIANGLE PHARMACEUTICALS, INC. * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. DAPD TABLE OF CONTENTS ARTICLE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2. GRANT OF LICENSE . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 3. ROYALTIES AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . 11 ARTICLE 4. REPORTS AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 5. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM. . . . . . . . . . . . . . . . 27 ARTICLE 7. PATENT PROSECUTION . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 8. INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; AND INDEMNIFICATION . . . . . . . . . . . . . 36 ARTICLE 10. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 11. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 12. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY . . . . . . . . . . . . . . . . 48 ARTICLE 14. REGISTRATION OF LICENSE . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT . . . . . . . 48 ARTICLE 16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 17. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 DAPD THIS LICENSE AGREEMENT is made and entered into as of this 31st day of March 1996, by and among EMORY UNIVERSITY, a Georgia nonprofit corporation with offices at 1380 South Oxford Road, N.E., Atlanta, Georgia 30322, (hereinafter referred to as "EMORY"), the University of Georgia Research Foundation, Inc., a Georgia nonprofit corporation with offices at 631 Boyd Graduate Studies Building, Athens, GA 30602-7411 (hereinafter referred to as "UGARF") (EMORY and UGARF are together referred to here as "LICENSORS") and TRIANGLE PHARMACEUTICALS, INC., a for profit Delaware corporation with principal offices located at 4 University Place, 4611 University Drive, Durham, NC 27707 (hereinafter referred to as "COMPANY"). WITNESSETH WHEREAS, LICENSORS are the assignees of all right, title, and interest in certain inventions developed by employees of EMORY and the University of Georgia and are responsible for the protection and commercial development of such inventions; and WHEREAS, Raymond F. Schinazi, an employee of EMORY, and C. K. Chu, an employee of the University of Georgia, are named as inventors in the patents and patent applications identified in APPENDIX "A" to this Agreement and are hereafter referred to as the "Inventors"; and WHEREAS, COMPANY represents that it has the necessary expertise and will, as appropriate, acquire the resources reasonably necessary to fully develop, obtain approval for, and market therapeutic products based upon the inventions claimed in the above referenced patents and applications; and 1 DAPD WHEREAS, LICENSORS want to have such inventions developed, commercialized, and made available for use by the public; NOW, THEREFORE, for and in consideration of the mutual covenants and the premises herein contained, the parties, intending to be legally bound, hereby agree as follows. ARTICLE 1. DEFINITIONS The following terms as used herein shall have the following meaning: 1.1 "Affiliate" shall mean any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate business entity shall be regarded as in control of another corporation if it owns, or directly or indirectly controls, at least [ * ] of the voting stock of the other corporation, or (a) in the absence of the ownership of at least [ * ] of the voting stock of a corporation or (b) in the case of a non-corporate business entity, or non-profit corporation, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate business entity, as applicable. 1.2 "Agreement" or "License Agreement" shall mean this Agreement, including all EXHIBITS and APPENDICES attached to this Agreement. 1.3 "Dollars" shall mean United States dollars. 1.4 "FDA" shall mean the United States Food and Drug Administration or successor entity. * CONFIDENTIAL TREATMENT REQUESTED 2 DAPD 1.5 "Field of Use" shall mean the prevention and treatment of human immunodeficiency virus (HIV) and hepatitis B virus (HBV). 1.6 "IND" shall mean an Investigational New Drug application or its equivalent. 1.7 "Indemnitees" shall mean (a) in the case of the indemnity set forth in Subsection 9.5(a), the Inventors, LICENSORS, and their trustees, directors, employees and students, and all of their heirs, executors, administrators, successors and legal representatives; (b) in the case of the indemnity set forth in Subsection 9.5(b), COMPANY, its affiliates, sublicensees, their directors, officers, employees and their heirs, successors, executors, administrators and legal representatives; and (c) in the case of the Indemnitees referenced in Subsection 9.7(b), the parties identified in Subsections 1.7(a) and 1.7(b) above. 1.8 "Licensed Compounds" shall mean B-D-Dioxolanyl purines of the formula [CHART] wherein R is OH, CI, NH(2), or H, and X is H, alkyl, acyl, monophosphate, diphosphate or triphosphate, including all 5(1) and N(6) acylated and alkylated derivatives, salts, esters, racernic mixtures and purified enantiomers thereof. Notwithstanding the scope of this definition, neither LICENSOR represents that it shall obtain valid patent claims to any such compositions and 3 DAPD LICENSORS specifically disclaim any warranties or representations as to whether the Licensed Patents cover any [ * ]. 1.9 "Licensed Patents" shall mean (a) the patents and patent applications identified in APPENDIX "A," together with any and all substitutions, extensions, divisionals, continuations, continuations-in-part, renewals, supplementary protection certificates or foreign counterparts of such patent applications and patents which issue thereon, anywhere in the world, including reexamined and reissued patents; and (b) all other patents and patent applications in which or to which either LICENSOR acquires rights during the term hereof which contain claims covering the manufacture, use or sale of any Licensed Product to the extent that such LICENSOR possesses the right to license such patents and patent applications to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties. 1.10 "Licensed Product(s)" shall mean any Licensed Compound or any pharmaceutical product containing one or more Licensed Compounds as active ingredients, alone or in combination with other active ingredients, within the Field of Use, the manufacture, use, importation, offer for sale or sale of which is covered by any Valid Claim or which is made using Licensed Technology. 1.11 "Licensed Technology" shall mean all technical information and data, whether or not patented, known or learned, invented, or developed by the Inventors or any employees of LICENSORS working under the Inventors' direct or indirect supervision, prior to or during the term hereof and while they are under a duty to assign intellectual property rights to the * CONFIDENTIAL TREATMENT REQUESTED 4 DAPD LICENSORS, to the extent that (a) such technical information and data are useful for the manufacture, use, importation, offer for sale or sale of any Licensed Product; and (b) LICENSORS possess the right to license the use of such information to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties and without breaching any obligations of confidentiality with such parties. 1.12 "Licensed Territory" shall mean the world. 1.13 "LICENSORS" shall mean Emory University and the University of Georgia Research Foundation, Inc. "LICENSOR" means either Emory University or the University of Georgia Research Foundation, Inc. 1.14 "NDA" shall mean a New Drug Application or its equivalent. 1.15 "Net Selling Price" of Licensed Products which contain as their active ingredients only Licensed Compounds shall mean the gross selling price paid by a purchaser of such Licensed Product to COMPANY, an Affiliate or sublicensee of COMPANY, or any other party authorized by COMPANY to sell Licensed Products plus, if applicable, the value of all properties and services received in consideration of a Sale of a Licensed Product, less only (a) discounts, rebates, sales, use, or other similar taxes, transportation and handling charges and allowances; and (b) returns which are accepted by COMPANY from independent customers in accordance with COMPANY's normal practice and for which COMPANY gives credit to such purchasers or retroactive price reductions in lieu of returns, whether during the specific royalty period or not. Where a sale is deemed consummated by a gift, use, or other disposition of Licensed Products, for other than a selling price stated in cash, the term "Net Selling Price" shall mean the average gross selling price billed by COMPANY in consideration of the cash Sales of comparable Licensed Products during the then current royalty period, less only reductions permitted in subsections (a) and (b) above and such other reductions, if any, as LICENSORS agree are appropriate, which agreement will not be unreasonably withheld or delayed. 1.16 "Net Selling Price" of Licensed Products which contain as their active ingredients both Licensed Compounds and compounds other than Licensed Compounds (a 5 DAPD "Combination Product") shall be negotiated in good faith by the parties with the intention of agreeing upon a fair and equitable formula; provided, however, that if the parties are unable to agree upon such formula within a reasonable period of time, the Net Selling Price with respect to such Combination Product shall mean the gross sales price of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.15 multiplied by a fraction, the numerator of which shall be the average invoice price per gram of Licensed Compound contained in the most comparable stock keeping unit of any product having the Licensed Compound as the sole active ingredient during the applicable royalty period in the applicable country of the Licensed Territory, when such comparable product is sold for the same indication as such Combination Product and the denominator of which shall be the average invoice price per gram of the Licensed Compound sold alone as described immediately above plus the average invoice price(s) per gram of the other active ingredient(s) contained in such Combination Product in such country during the applicable royalty period when such active ingredients are sold alone for the same indication as such Combination Product. If there is no average invoice price per gram in a given country for one or more of the active ingredients comprising a Combination Product, the Net Selling Price with respect to such Combination Product shall be deemed to be the gross sales of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.15, times a fraction, the numerator of which is the number of Licensed 6 DAPD Compounds in such Combination Product and the denominator of which is the number of all active ingredients in such Combination Product. 1.17 "Phase II Commencement Date" shall mean the date of commencement of the initial well-controlled clinical trial of a Licensed Product for HIV or HBV, as applicable, sponsored by COMPANY, the primary objective of which (as reasonably determined by COMPANY) is to ascertain additional data regarding the safety and tolerance of such Licensed Product and preliminary data regarding such Licensed Product's [ * ], is commenced. For purposes of the preceding sentence, such clinical trial shall be deemed to have commenced when such Licensed Product is first administered to any patient enrolled in such clinical trial. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or co-marketing relationship with Triangle Pharmaceuticals, Inc pertaining to such Licensed Product. 1.18 "Phase II Completion Date" in respect of [HIV] shall mean the earlier of (a) [ * ] days after completion of the statistical analyses of those Phase II clinical studies which COMPANY considers reasonably necessary for purposes of inclusion in an NDA for the applicable indication; or (b) [ * ] after the last administration of a * CONFIDENTIAL TREATMENT REQUESTED 7 DAPD Licensed Product to all patients enrolled in the Phase II clinical studies; or (c) [ * ] after the first public disclosure of the final results of all such Phase II clinical studies. "Phase II Completion Date" in respect of [ * ] means the first to occur of the periods specified in clauses (a) or (c) above. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or co-marketing relationship with Triangle Pharmaceuticals, Inc. pertaining to any Licensed Product. 1.19 "Registration" shall mean, in relation to any Licensed Product, such approvals by the regulatory authorities in a given country (including pricing approvals) as may be legally required before such Licensed Product may be commercialized or Sold in such country. 1.20 "Sale" or "Sold" shall mean the sale, transfer, exchange, or other disposition of Licensed Products whether by gift or otherwise, subsequent to Registration in a given country (if such Registration is required) by COMPANY, its Affiliates, sublicensees or any third party authorized by COMPANY to make such sale, transfer, exchange or disposition. Sales of Licensed Products shall be deemed consummated upon the first to occur of: (a) receipt of payment from the purchaser; (b) delivery of Licensed Products to the purchaser or a common carrier; (c) release of Licensed Products from consignment; or (d) if otherwise transferred, exchanged, or disposed of, whether by gift or otherwise, when such transfer, exchange, gift, or other disposition occurs. Notwithstanding the foregoing definition of Sale, to the extent COMPANY distributes any Licensed Product under a Treatment IND or other expanded access program at a sales price which exceeds its fully absorbed cost therefor, such excess shall be deemed to be a Sale for which royalties are payable in accordance with the other terms hereof; * CONFIDENTIAL TREATMENT REQUESTED 9 DAPD provided, however, that such distribution shall not be deemed to be Registration of such Licensed Product. 1.21 "U.S. Government Licenses" shall mean the non-exclusive licenses to the U.S. Government or agencies thereof pursuant to [ * ], copies of which licenses are attached hereto as APPENDIX "B." 1.22 "Valid Claim" shall mean (a) an issued claim of any unexpired patent included among the Licensed Patents, or (b) a pending claim of any pending patent application included among the Licensed Patents, which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, which has not been rendered unenforceable through disclaimer or otherwise or which has not been lost through an interference proceeding. ARTICLE 2. GRANT OF LICENSE 2.1 LICENSE. LICENSORS hereby grant COMPANY and its Affiliates the exclusive right and license to practice the Licensed Patents and the Licensed Technology to make, have made, use, import, offer for sale and sell Licensed Products in the Licensed Territory during the term of this Agreement. 2.2 GOVERNMENT RIGHTS. The license granted in Section 2.1 above is conditional upon and subject to the U.S. Government Licenses and other rights retained by the United States in inventions developed by nonprofit institutions with the support of federal funds. These rights are set forth in 35 USCA Sections 201 et seq. and 37 CFR 401 et seq., which may be amended from time to time by the Congress of the United States or through administrative procedures. * CONFIDENTIAL TREATMENT REQUESTED 9 DAPD 2.3 RETAINED LICENSE. The license granted in Section 2.1 above is further conditional upon and subject to a right and license retained by LICENSORS on behalf of themselves and LICENSORS' academic research collaborators to make and use Licensed Products and practice Licensed Technology for research and educational purposes only. LICENSORS shall promptly verify the names of any research collaborators practicing the license retained in this Section 2.3 upon COMPANY's written request. 2.4 SUBLICENSES. COMPANY may grant sublicenses upon LICENSORS' written approval (which approval shall not be unreasonably withheld or delayed). In the event LICENSORS do not respond to a request for approval to sublicense within fifteen (15) days from receiving a copy of the proposed sublicense agreement from COMPANY, such request shall be deemed to be approved. COMPANY shall provide LICENSORS with complete copies of all sublicense agreements within thirty (30) days of their execution. COMPANY shall remain responsible to LICENSORS for the payment of all fees and royalties due under this Agreement, whether or not such payments are made to COMPANY by its sublicensees. COMPANY shall include in any sublicense granted pursuant to this Agreement a provision requiring the sublicensee to indemnify LICENSORS and maintain liability insurance coverage to the same extent that COMPANY is so required pursuant to Article 9 of this Agreement. 2.5 NO IMPLIED LICENSE. The license and rights granted in this Agreement shall not be construed to confer any rights upon COMPANY by implication, estoppel, or otherwise as to any technology not specifically identified in this Agreement, except as otherwise implied by law to the extent necessary to practice the Licensed Patents or Licensed Technology. 10 DAPD 2.6 THIRD PARTY LICENSES. In the event LICENSORS acquire a license from a third party relating to intellectual property which would be deemed to be Licensed Patents or Licensed Technology but for the inability to sublicense such intellectual property to COMPANY without incurring financial or other non-contingent, material obligations, LICENSORS shall give prompt notice and a copy thereof to COMPANY. Such notice shall be accompanied by such data and information in LICENSORS' possession, which LICENSORS are authorized to transfer to COMPANY, or which can be obtained from such third party in order to assist COMPANY in determining whether to sublicense such third party license. COMPANY shall have [ * ] to elect whether to obtain a sublicense under such third party license pursuant to the terms thereof, but with no additional obligations of any type other than as prescribed therein. If COMPANY fails to notify LICENSORS of its decision regarding the acquisition of such sublicense within such [ * ] period, this Section 2.6 shall no longer apply to such third party license. ARTICLE 3. ROYALTIES AND OTHER PAYMENTS 3.1 LICENSE INITIATION FEE. COMPANY shall pay LICENSORS a license initiation fee in the form of an aggregate amount of One Hundred Fifty Thousand (150,000) shares of COMPANY common stock upon the execution of this Agreement. Such shares shall be issued directly to LICENSORS or to certain Inventors, as directed by LICENSORS. Each recipient of any shares shall sign the Restricted Stock Purchase Agreement and Investors' Rights Agreement dated as of even date herewith. * CONFIDENTIAL TREATMENT REQUESTED 11 DAPD 3.2 MILESTONE PAYMENTS. COMPANY shall pay LICENSORS a milestone payment ("Milestone Payments") in the amount specified below no later than [ * ] after the occurrence of the corresponding event designated below, unless COMPANY has given LICENSORS notice of termination prior to such due date. Event Milestone Payment ----- ----------------- [ * ] [ * ] 3.3 LICENSE MAINTENANCE FEES. (a) In the event no [ * ] has been paid pursuant to Subsection 3.2(a), COMPANY shall pay to LICENSORS, on the anniversary of the date of this Agreement set forth below, the amount set forth below opposite such date unless COMPANY has given notice of termination prior to such due date: Anniversary License Maintenance Fee ----------- ----------------------- [ * ] [ * ] (b) In the event no [ * ] has been paid pursuant to Subsection 3.2(c), COMPANY shall pay to LICENSORS, on the anniversary of the date of this Agreement set forth below, the amount set forth below opposite such date unless COMPANY has given notice of termination prior to such due date: * CONFIDENTIAL TREATMENT REQUESTED 12 DAPD Anniversary License Maintenance Fee ----------- ----------------------- [ * ] [ * ] The total amount of License Maintenance Fee payments made by COMPANY to LICENSORS for the [ * ] indication shall be credited against the first Milestone Payment for such indication. 3.4 RUNNING ROYALTIES. COMPANY shall pay LICENSORS a royalty equal to the following percentages of the Net Selling Price of Licensed Products Sold in the Licensed Territory by COMPANY and its Affiliates and sublicensees for [ * ] indications: (a) PERCENTAGE OF NET SELLING PRICE CUMULATIVE NET SELLING PRICE OF LICENSED PRODUCTS FOR [ * ] [ * ] [ * ] (b) PERCENTAGE OF NET SELLING PRICE CUMULATIVE NET SELLING PRICE OF LICENSED PRODUCTS FOR [ * ] [ * ] [ * ] (c) DURATION; REDUCTION. Royalties (at the rates set forth in Section 3.4, subject to reduction or modification only as prescribed herein) shall be paid in respect of a given Licensed Product for a period of [ * ] after commercial introduction of such Licensed Product in a given country. Thereafter, royalties shall be paid only so long as the manufacture, use, offer for sale, sale or importation of such Licensed Product in such country would, in the absence of a license, infringe a Valid Claim of an issued and unexpired patent within the Licensed Patents. If, during * CONFIDENTIAL TREATMENT REQUESTED 13 DAPD such [ * ], a third party or third parties commence selling a therapeutic product in a country in which there are no Valid Claims or are Valid Claims only of the type described in Section 1.22(b) and (i) such product contains any Licensed Compound ("unlicensed unit sales") and (ii) such unlicensed unit sales for any royalty period amount to [ * ] or more of the COMPANY's unit sales of such Licensed Product in such country in such royalty period, determined in accordance with Subsection 3.4(d) below, then COMPANY's royalty obligation in such country with respect to such Licensed Product shall be suspended commencing with the royalty period next succeeding the royalty period in which such [ * ] threshold was initially exceeded and shall resume with the royalty period next succeeding the first royalty period in which such [ * ] threshold is no longer exceeded. COMPANY's royalty obligations with respect to such Licensed Product shall resume in such country if and when such Valid Claim per Subsection 1.22(b) becomes a Valid Claim per Subsection 1.22(a). (d) UNIT SALES. For purposes of this Section 3.4, (i) "unlicensed unit sales" and "COMPANY unit sales" shall be deemed to mean the grams of Licensed Compound in third party product (irrespective of dosage form) or the Licensed Product (irrespective of dosage form), respectively, as reflected on the label of each such unit; and (ii) unlicensed unit sales shall be determined by the sales reports of IMS America Ltd. of Plymouth Meeting, Pennsylvania ("IMS") or any successor to IMS or any other independent marketing auditing firm selected by COMPANY or its sublicensees and reasonably acceptable to LICENSORS. If COMPANY is entitled to a royalty suspension based on unlicensed unit sales pursuant to Subsection 3.4(c) for any royalty period, it or its sublicensees shall submit the sales report of IMS or such other independent firm, as * CONFIDENTIAL TREATMENT REQUESTED 14 DAPD applicable, for the relevant royalty period to LICENSORS, together with COMPANY's or its sublicensees' sales report for the relevant royalty period. Such sales reports for each royalty period in which COMPANY is entitled to such royalty suspension shall be submitted with the royalty report for such royalty period submitted pursuant to Section 4.1. 3.5 ANNUAL MINIMUM ROYALTIES. (a) Subject to Subsection 3.5 (c), in the event that COMPANY's total annual royalty payment to LICENSORS pursuant to Subsection 3.4(a) above during the [ * ] calendar year following the year during which the first FDA Registration is granted for a Licensed Product covered by Subsection 3.4(a) above and each calendar year thereafter for so long as there exist Valid Claims in the U.S. is less than the annual minimum royalty set forth opposite such year below (the "Annual Minimum"), COMPANY shall make a payment to LICENSORS together with the report for the fourth quarter of such year required in Section 4.1 of this Agreement equal to the difference between such Annual Minimum and the total royalties paid to LICENSORS for the preceding year pursuant to Subsection 3.4(a) above: Calendar Year Annual Minimum ------------- -------------- [ * ] [ * ] (b) Subject to Subsection 3.5 (c), in the event that COMPANY's total annual royalty payment to LICENSORS pursuant to Subsection 3.4(b) above during the [ * ] calendar * CONFIDENTIAL TREATMENT REQUESTED 15 DAPD year following the year during which the first FDA Registration is granted for a Licensed Product covered by Subsection 3.4(b) above and each calendar year thereafter for so long as there exist Valid Claims in the U.S. is less than the annual minimum royalty set forth opposite such year below (the "Annual Minimum"), COMPANY shall make a payment to LICENSORS together with the report for the fourth quarter of such year required in Section 4.1 of this Agreement equal to the difference between such Annual Minimum and the total royalties paid to LICENSORS for the preceding year pursuant to Subsection 3.4(b) above: Calendar Year Annual Minimum ------------- -------------- [ * ] [ * ] (c) If during a given year, the sum of royalty payments paid hereunder for all Licensed Products described in Subsections 3.4(a) and 3.4(b) of this Agreement exceed the sum of the applicable Annual Minimums which are required to be paid for such year pursuant to Subsections 3.5(a) and 3.5(b), COMPANY shall be deemed to have satisfied the requirements of each of Subsections 3.5(a) and 3.5(b) for such year. For any year in which Valid Claims do not exist in the United States for the entire year or this Agreement is not in effect for the entire year, the Annual Minimum shall be prorated accordingly. * CONFIDENTIAL TREATMENT REQUESTED 16 DAPD (d) Commencing upon FDA Registration for a Licensed Product and ending upon expiration of the [ * ] calendar year following the year in which such FDA Registration is granted, COMPANY may credit solely against running royalties (paid pursuant to Section 3.4), all reasonable costs incurred by COMPANY after the date hereof (including any reimbursements to LICENSORS pursuant to Section 7.1 for INTER PARTES Patent Prosecution Activities, as defined therein) in connection with any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence of the Licensed Patents or whether COMPANY's practice of the Licensed Patents infringes a third party patent. Until the end of such [ * ] calendar year, the amount of such credits shall not exceed in any year [ * ] of the royalty payments due hereunder in such year. Commencing upon the [ * ] calendar year following the year in which such FDA Registration is granted, such credits shall not exceed in any year [ * ] of the Annual Minimum payments due in such year (whether paid pursuant to Section 3.4 or 3.5). Such costs shall not be credited against any other payments due to LICENSORS under this Agreement. 3.6 REIMBURSEMENTS. COMPANY shall reimburse to LICENSORS, within [ * ]after submission to COMPANY of invoices and reasonable substantiation thereof: (a) Expenses heretofore incurred by LICENSORS in connection with the preparation, filing and prosecution of the Licensed Patents (approximating [ * ]), and (b) Expenses incurred by LICENSORS in preparing this Agreement, not to exceed [ * ]. * CONFIDENTIAL TREATMENT REQUESTED 17 DAPD 3.7 ADDITIONAL PAYMENTS IN RESPECT OF SUBLICENSE AND OTHER AGREEMENTS. In the event COMPANY grants sublicenses, sales or other rights with respect to the Licensed Products pursuant to which COMPANY receives remuneration other than royalties, then COMPANY shall pay to LICENSORS a percentage (the "Applicable Percentage") as set forth below of all payments that COMPANY receives from such sublicensees or other parties, including, without limitation, (a) [ * ]; (b) [ * ]; (c) [ * ]; (d) [ * ]; and (e) [ * ]. As used in this Section 3.7, the term [ * ] means [ * ] and all other [ * ] to COMPANY in connection with a [ * ] means payments to COMPANY equal to [ * ], where "A" is the [ * ] of COMPANY [ * ] purchased by the [ * ], "B" is the [ * ] by the [ * ], and "C" is the [ * ] of the equity which, for purposes hereof, shall be equal to [ * ] of the per share price obtained by the COMPANY in its most recent round of preferred equity financing, unless COMPANY's Board of Directors has established a new per share price in good faith, in which case, such Board determined price shall apply; provided, however, that in the event such shares or other units of equity are publicly traded on a recognized securities market, the publicly traded price shall apply; [ * ] means [ * ] COMPANY upon the fulfillment by COMPANY or the [ * ] of [ * ] or [ * ] in excess of those set forth in Section 3.2; [ * ] means [ * ] (such as [ * ]) made by [ * ] to COMPANY * CONFIDENTIAL TREATMENT REQUESTED 18 DAPD to preserve, or to avoid a forfeiture of rights under, the [ * ] in excess of those set forth in Section 3.5; and [ * ] means the amount by which actual payments made by a [ * ] to COMPANY for Licensed Products or components of Licensed Products exceeds COMPANY's standard costs for manufacture and shipment of such products plus [ * ] of such costs, "standard costs" being determined in accordance with Generally Accepted Accounting Principles. LICENSORS acknowledge that they shall not be entitled to share in any payment made by a [ * ], regardless of how such payment is denominated, that represents reimbursement or advance payment of costs incurred by COMPANY for research, development or other purposes (as agreed by LICENSORS and COMPANY) in COMPANY's pursuit of regulatory or marketing approval for any Licensed Product. With respect to a [ * ] or [ * ] concluded prior to Registration in [ * ] of the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to a sublicense or other contractual arrangement concluded after Registration in [ * ] of the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to any sublicensing or other transaction to which this Section 3.7 applies but which relates to products or compounds in addition to Licensed Products and for which an allocation would be necessary, the parties shall meet and attempt to agree on which portion of the total payments received by COMPANY pursuant to such transaction should be subject to this Section 3.7. In the event the parties cannot agree upon such allocation within a reasonable period of time, COMPANY shall select an independent certified public accountant, to which LICENSORS have * CONFIDENTIAL TREATMENT REQUESTED 19 DAPD no reasonable objection, to determine such allocation. Such allocation shall be determined in accordance with generally accepted accounting principles in the United States. 3.8 ACCRUAL OF ROYALTIES. No royalty shall be payable on a Licensed Product made, sold, or used for tests or development purposes or distributed as samples. No royalties shall be payable on sales among COMPANY, its Affiliates and sublicensees, but royalties shall be payable on subsequent sales by COMPANY, its Affiliates or sublicensees to a third party. No multiple royalty shall be payable because the manufacture, use or sale of a Licensed Product is covered by more than one Valid Claim or at least one Valid Claim and the Licensed Technology. 3.9 THIRD PARTY ROYALTIES. If COMPANY, its Affiliates or sublicensees determine after consultation with LICENSORS, but at COMPANY's discretion, that it or they are required to pay royalties or other fees to any third party (including under any third party license to which Section 2.6 applies) because the manufacture, use, offer for sale, importation, or sale of a Licensed Product infringes any patent or other intellectual property rights of such third party in a given country, and as a result of such third party royalty payments or any other fees paid to such third party, the total royalties payable by COMPANY to LICENSORS and such third parties exceeds [ * ] of COMPANY's Net Selling Price for such Licensed Product during any royalty period (such excess being referred to as "Excess Royalties"), COMPANY, its Affiliates or sublicensees may deduct from running royalties thereafter due to LICENSORS (per Section 3.4 of this Agreement) with respect to the Net Selling Price of such Licensed Product in such country up to [ * ] of the Excess Royalties. In no event shall the royalties due on such Sales of such Licensed Product in such country on account of any reduction pursuant * CONFIDENTIAL TREATMENT REQUESTED 20 DAPD to this Section 3.9 thereby be reduced to less than [ * ] of the royalties which would have been due thereunder on such Sales of such Licensed Product in such country. 3.10 COMPULSORY LICENSES. Should a compulsory license be granted to any third party in any country of the Licensed Territory to make, have made, use, import, offer for sale or sell Licensed Products, the royalty rate payable thereunder for sales of the Licensed Products by COMPANY in such country shall be adjusted to match any lower royalty rate granted to the third party for such country. COMPANY shall provide LICENSORS with prompt written notice of any governmental or judicial procedures initiated in any country to impose a compulsory license. COMPANY shall take all reasonable and legal steps as COMPANY deems appropriate which are available to oppose such compulsory license and shall, at LICENSORS' request, cooperate reasonably with LICENSORS in any legal action which LICENSORS may wish to take to oppose such compulsory license, which action shall be at LICENSORS' sole expense and may not be taken by LICENSORS if such action would materially jeopardize the validity of any Licensed Patents in such country. 3.11 REDUCTION IN ROYALTY DUE TO INVALID CLAIMS. In the event that all applicable claims of a patent or patent application included within the Licensed Patents under which COMPANY is selling or actively developing a Licensed Product shall be held invalid or not infringed by the Licensed Products COMPANY is selling or actively developing by a court of competent jurisdiction in a given country of the Licensed Territory, whether or not there is a conflicting decision by another court of competent jurisdiction in such country, COMPANY may cease all royalty payments on its, its Affiliates' or its sublicensees' sales of such Licensed Product * CONFIDENTIAL TREATMENT REQUESTED 21 DAPD covered by such claims and, if it does so, shall deposit such royalty payments in an interest-bearing escrow account until such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country or is otherwise unappealable or is unappealed within the time allowed therefor; provided, however, that if such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country, the former royalty payments shall be resumed and the royalty payments not theretofore made and interest earned thereon shall become due and payable to LICENSORS. 3.12 MOST FAVORED LICENSEE. Should COMPANY's exclusive license hereunder become nonexclusive in any country of the Licensed Territory due to LICENSORS' exercise of their conversion remedy and should LICENSORS thereafter grant to a third party a license for any Licensed Product in such country containing more favorable terms than those granted to COMPANY, then in such an event, LICENSORS promptly shall notify COMPANY and or its Affiliates or sublicensees, as applicable, and COMPANY and such 22 DAPD Affiliates or sublicensees shall have the benefit of such more favorable terms provided they accept any less favorable terms contained in such license. ARTICLE 4. REPORTS AND ACCOUNTING 4.1 ROYALTY REPORTS AND RECORDS. During the term of this Agreement, COMPANY shall furnish, or cause to be furnished to LICENSORS, written reports governing each of COMPANY's, COMPANY's Affiliates' and COMPANY's sublicensees' fiscal quarters showing: (a) the gross selling price of all Licensed Products Sold by COMPANY, its Affiliates and sublicensees, in each country of the Licensed Territory during the reporting period, together with the calculations of Net Selling Price in accordance with Sections 1.15 and 1.16; and (b) the royalties payable in Dollars, which shall have accrued hereunder in respect to such Sales; and (c) the exchange rates used, if any, in determining the amount of Dollars; and (d) a summary of all reports provided to COMPANY by COMPANY's sublicensees; and (e) the amount of any consideration received by COMPANY from sublicensees, an explanation of the contractual obligation satisfied by such consideration and calculation of any payments due LICENSORS pursuant to Section 3.7 of this Agreement; (f) the occurrence of any event triggering a Milestone Payment obligation in accordance with Section 3.2; and 23 DAPD (g) the basis for any credits taken against Annual Minimum payments in accordance with Subsection 3.5 (d), including documentation of costs incurred by COMPANY in any litigation, infringement, interference, or other action pertaining to the Licensed Patents, and any deductions from running royalty payments taken pursuant to Section 3.9, including documentation of any royalties or other fees paid to third parties. Reports shall be made semi-annually until the first Sale of a Licensed Product and quarterly thereafter. Semi-annual reports shall be due within thirty (30) days of the close of every second and fourth COMPANY fiscal quarter. Quarterly reports shall be due within sixty (60) days of the close of every COMPANY fiscal quarter. COMPANY shall keep accurate records in sufficient detail to enable royalties and other payments payable hereunder to be determined. COMPANY shall be responsible for all royalties and late payments that are due to LICENSORS that have not been paid by COMPANY's Affiliates and sublicensees. COMPANY's sublicensees shall have, and shall be notified by COMPANY that they have, the option of making any royalty payment directly to LICENSORS. 4.2 RIGHT TO AUDIT. LICENSORS shall have the right, upon prior notice to COMPANY, not more than once in each COMPANY fiscal year nor more than once in respect of any fiscal year, through an independent certified public accountant selected by LICENSORS and acceptable to COMPANY, which acceptance shall not be unreasonably refused, to have access during normal business hours to those records of COMPANY as may be reasonably necessary to verify the accuracy of the royalty reports required to be furnished by COMPANY pursuant to Section 4.1 of the Agreement. COMPANY shall include in any sublicenses granted pursuant to this Agreement a provision requiring the sublicensee to keep and maintain records of Sales made pursuant to such sublicense and to grant access to such records by LICENSORS' independent certified public accountant. If such independent certified public accountant's report shows any underpayment of royalties by COMPANY, its Affiliates or sublicensees, within thirty 24 DAPD (30) days after COMPANY's receipt of such report, COMPANY shall remit or shall cause its sublicensees to remit to LICENSORS: (a) the amount of such underpayment; and (b) if such underpayment exceeds [ * ] of the total royalties owed for the fiscal year then being reviewed, the reasonably necessary fees and expenses of such independent certified public accountant performing the audit. Otherwise, LICENSORS' accountant's fees and expenses shall be borne by LICENSORS. Any overpayment of royalties shall be fully creditable against future royalties payable in any subsequent royalty periods. Upon the expiration of [ * ] following the end of any fiscal year, the calculation of royalties payable with respect to such fiscal year shall be binding and conclusive on LICENSORS and COMPANY, unless an audit is initiated before expiration of such [ * ]. 4.3 CONFIDENTIALITY OF RECORDS. All information subject to review under this Article 4 shall be confidential. Except where provided by law, LICENSORS and its accountant shall retain all such information in confidence. ARTICLE 5. PAYMENTS 5.1 PAYMENTS AND DUE DATES. Except as otherwise provided herein, royalties and sublicense and other fees payable to LICENSORS as a result of activities occurring during the period covered by each royalty report provided for under Article 4 of this Agreement shall be due and payable on the date such royalty report is due. Payments of royalties in whole or in part may be made in advance of such due date. Any payment in excess of [ * ] shall be made by wire transfer to an account or accounts of LICENSORS * CONFIDENTIAL TREATMENT REQUESTED 25 DAPD designated by LICENSORS from time to time; provided, however, that in the event that LICENSORS fail to designate such account, COMPANY or its Affiliates and sublicensees may remit payment to LICENSORS to the address applicable for the receipt of notices hereunder; providing, further, that any notice by LICENSORS of such account or change in such account, shall not be effective until fifteen (15) days after receipt thereof by COMPANY. One hundred percent (100%) of each payment due hereunder shall be paid by COMPANY to EMORY. UGARF acknowledges and agrees that COMPANY shall have no liability to UGARF with respect to any payment due hereunder after such payment is made by COMPANY to EMORY. 5.2 CURRENCY RESTRICTIONS. Except as hereinafter provided in this Section 5.2, all royalties shall be paid in Dollars. If, at any time, legal restrictions prevent the prompt remittance of part of or all royalties with respect to any country in the Licensed Territory where Licensed Products are Sold, COMPANY or its sublicensee shall have the right and option to make such payments by depositing the amount thereof in local currency to LICENSORS' accounts in a bank or depository in such country. 5.3 INTEREST. Royalties and other payments required to be paid by COMPANY pursuant to this Agreement shall, if overdue, bear interest at the lesser of [ * ] or a per annum rate of [ * ] until paid. The payment of such interest shall not foreclose LICENSORS from exercising any other rights they may have because any payment is overdue. * CONFIDENTIAL TREATMENT REQUESTED 26 DAPD ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM 6.1 DUE DILIGENCE OBLIGATIONS. COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, use its best efforts: (a) to conduct a research and development program relating to the use of Licensed Products in the Field of Use; and (b) to diligently pursue Registration of the Licensed Products; and (c) to effectively market the Licensed Products. 6.2 FULFILLMENT; CONVERSION. (a) For purposes of this Agreement, "best efforts" shall mean that COMPANY shall use reasonable efforts including, to the extent appropriate, pursuing sublicenses or corporate alliances, consistent with those used by comparable pharmaceutical companies in the United States in research and development projects for therapeutic methods or compositions deemed to have commercial value comparable to the Licensed Products. COMPANY's best efforts obligations set forth in this Article 6 and implied by law shall be deemed to have been fulfilled if COMPANY: (i) causes the Phase II Commencement Date with respect to a first Licensed Product to occur for [ * ] (the "First Indication") to occur by the [ * ] anniversary of the date of this Agreement; and (ii) files an NDA for a Licensed Product for the First Indication by the [ * ] anniversary of the date of this Agreement; and (iii) causes the Phase II Commencement Date with respect to [ * ] (the "Second Indication") to occur by the [ * ] anniversary of the date of this Agreement; and (iv) files the NDA for a Licensed Product for the Second Indication by the * CONFIDENTIAL TREATMENT REQUESTED 27 DAPD [ * ] anniversary of the date of this Agreement; and (v) diligently pursues such Registrations for both indications; and (vi) commences marketing at least one Licensed Product within [ * ] following such Registration. COMPANY shall be entitled to obtain a maximum of three consecutive extensions of time for meeting each of its obligations to commence Phase II clinical studies or file an NDA for [ * ] by paying to LICENSORS [ * ] for a first extension of [ * ] duration, [ * ] for a second extension of [ * ] duration, and [ * ] for a third extension of [ * ] duration. Payment for any such extension must be received by LICENSORS within [ * ] business days following the expiration of the period during which any diligence obligation was required to be met. COMPANY shall provide reports to LICENSORS every [ * ] following its NDA filing(s) concerning the status of such filing(s) until final approval thereof. Each such report shall describe the status of the COMPANY's NDA and disclose any request for additional information or data received by COMPANY from the FDA during the reporting period and COMPANY's plans for complying with such request. COMPANY shall immediately notify LICENSORS if COMPANY determines that it is unwilling to comply with any FDA requirement the failure with which to comply would result in the given Licensed Product being unapprovable by the FDA (which notice is hereinafter referred to as a "Failure of Diligence Notice"). Upon receipt of such a Failure of Diligence Notice, COMPANY shall be deemed to have failed to meet its diligence obligations, and LICENSORS may thereafter invoke any remedy provided for in this Article without any further notice to COMPANY. * CONFIDENTIAL TREATMENT REQUESTED 28 DAPD (b) In the event COMPANY fails to meet any diligence requirement set forth herein in respect of a Licensed Product for a given indication, LICENSORS shall have the option in their sole discretion to (i) terminate the Agreement within the entire Licensed Territory or any portion of the Licensed Territory for such indication, (ii) convert the license granted in this Agreement into a non-exclusive license within the entire Licensed Territory or any portion of the Licensed Territory for such indication, or (iii) terminate the Agreement within a portion of the Licensed Territory and convert the license granted in this Agreement into a non-exclusive license within a portion of the Licensed Territory for such indication. (c) Upon exercise by LICENSORS of any portion of their rights under the preceding Subsection with respect to a given indication, COMPANY shall deliver to LICENSORS all data, and shall grant to LICENSORS and their sublicensees a non-exclusive, royalty free license under all intellectual property rights in COMPANY's or COMPANY's sublicensees' control and required for regulatory or commercial reasons in order to market any Licensed Product in the country or countries in which termination has occurred for such indication. COMPANY shall further provide LICENSORS, promptly upon request, copies of the IND, NDA or other documents required for regulatory approvals for Sale in the United States and any foreign countries for such indication provided that such termination has occurred with respect to such countries. COMPANY shall, further permit LICENSORS and any licensee of LICENSORS to cross-reference such filings for such indication and shall sell LICENSORS or LICENSORS' licensees any Licensed Compounds or intermediates used in the synthesis of such Licensed 29 DAPD Compounds (and not being used by COMPANY for the synthesis of other compounds) at COMPANY's cost. (d) Prior to exercising any rights under this Section, LICENSORS shall give COMPANY [ * ] notice and shall meet with COMPANY, at COMPANY's request and expense, during such [ * ] period, to discuss any disagreements about whether COMPANY has complied with the requirements of this Section. Upon expiration of such [ * ] period, LICENSORS shall have the right in their sole discretion to proceed with the exercise of all rights and remedies provided for herein unless the applicable diligence obligation is met during such [ * ] period. 6.3 PROGRESS REPORTS. COMPANY shall, no less frequently than once every [ * ] until a Licensed Product has been Registered, provide LICENSORS with a written report detailing all activities of COMPANY, its Affiliates and sublicensees related to developing Licensed Products, except to the extent required to do so more frequently pursuant to Section 6.2. 6.4 DEVELOPMENT OUTSIDE UNITED STATES. No later than COMPANY's filing of an NDA for a Licensed Product in the United States, COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, commence its best efforts: (a) to obtain Registration for a Licensed Product in such other countries of the Licensed Territory as COMPANY or COMPANY's Affiliates and sublicensees deem appropriate; and (b) upon Registration of a Licensed Product in a particular country proceed with due diligence to market such Licensed Product in such country. * CONFIDENTIAL TREATMENT REQUESTED 30 DAPD ARTICLE 7. PATENT PROSECUTION 7.1 LICENSED PATENTS ASSIGNED TO LICENSORS. (a) LICENSORS shall be primarily responsible for all patent prosecution activities pertaining to Licensed Patents assigned solely to LICENSORS. LICENSORS shall select patent counsel, acceptable to COMPANY, to prosecute, acquire from the relevant patent offices, defend and maintain and handle any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence (all of the foregoing activities being referred to as "Patent Prosecution Activities") of all such Licensed Patents and shall provide COMPANY with copies of all filings and correspondence pertaining to such Patent Prosecution Activities (pre and post the date hereof), in a timely manner, so as to give COMPANY an opportunity to comment thereon. To the extent reasonably possible, LICENSORS shall pursue Patent Prosecution Activities in respect of such Licensed Patents in at least the following countries: [ * ] and [ * ]. LICENSORS shall, upon COMPANY's request, pursue Patent Prosecution Activities in respect of such Licensed Patents in additional countries. If LICENSORS decide to abandon or allow to lapse any patent application or patent within the Licensed Patents or discontinue any other Patent Prosecution Activities in respect thereof in any country of the Licensed Territory, LICENSORS shall inform COMPANY and COMPANY shall be given the opportunity to assume Patent Prosecution Activities in respect thereof. (b) COMPANY shall reimburse LICENSORS, not later than thirty (30) days after receiving an invoice from LICENSORS (and reasonable substantiation thereof if * CONFIDENTIAL TREATMENT REQUESTED 31 DAPD requested by COMPANY), for all reasonable out-of-pocket expenses incurred by LICENSORS after the date of this Agreement for all such Patent Prosecution Activities. Invoices shall be submitted once in respect of each calendar quarter as promptly as practicable after the end of such quarter. If COMPANY fails to promptly reimburse LICENSORS for any undisputed expenses for Patent Prosecution Activities respecting any patent application or issued patent assigned solely to LICENSORS within the time allowed therefor, upon at least thirty (30) days' prior notice to COMPANY, such patent application or issued patent shall not be considered a Licensed Patent and LICENSORS shall be free, at their election, to continue or discontinue any or all of the Patent Prosecution Activities in respect of such patent application or issued patent or grant rights to such patent application or issued patent to third parties. (c) COMPANY reserves the right to terminate its obligations pursuant to Section 7.1 with respect to any patent application or patent included in the Licensed Patents in any country or countries upon at least thirty (30) days' prior written notice to LICENSORS. After the date specified in such notice on which COMPANY's obligation to pay further expenses for Patent Prosecution Activities terminates, such patent application or patent, as the case may be, shall no longer be included in the Licensed Patents in those countries in which COMPANY has exercised its rights to terminate such obligations. 7.2 LICENSED PATENTS JOINTLY ASSIGNED TO COMPANY AND LICENSORS. Any invention relating to a Licensed Compound, the invention of which under applicable patent 32 DAPD law is attributed jointly to at least one employee of either LICENSOR and at least one employee of COMPANY, shall be assigned by such employees to such LICENSOR and COMPANY. Any such jointly assigned patent, or patent application which includes claims to any Licensed Products shall be considered a Licensed Patent and subject to the terms of this Agreement. COMPANY shall be primarily responsible for all Patent Prosecution Activities pertaining to Licensed Patents jointly assigned to LICENSORS and COMPANY. COMPANY shall select patent counsel, acceptable to LICENSORS, to pursue Patent Prosecution Activities in respect of all such Licensed Patents and shall provide LICENSORS with copies of all filings and correspondence pertaining to such Patent Prosecution Activities, in a timely manner, so as to give LICENSORS an opportunity to comment thereon. COMPANY shall advise such patent counsel in writing that for purposes of such Patent Prosecution Activities, such counsel represents both COMPANY and any LICENSOR which is a joint assignee of such patent application or issued patent. COMPANY shall further inform LICENSORS of any decision by COMPANY to discontinue any Patent Prosecution Activities in respect of any pending patent application or issued patent promptly upon reaching such decision and in any case, no less than thirty (30) days before the discontinuance thereof. COMPANY shall be solely responsible for all expenses incurred by COMPANY in connection with Patent Prosecution Activities for patent applications and patents to which this Section 7.2 applies. COMPANY shall pursue Patent Prosecution Activities in respect of such Licensed Patents in those countries it deems reasonably appropriate after consultation with LICENSORS. If COMPANY fails to timely pursue Patent Prosecution Activities in respect of any patent application or issued patent jointly assigned to COMPANY and LICENSORS in any country in which LICENSORS wish to pursue such Patent Prosecution Activities, LICENSORS shall be free at their sole expense, to continue or discontinue any or all 33 DAPD of the Patent Prosecution Activities in respect of such patent application or issued patent in such country or grant their rights to such patent application or issued patent to third parties. Thereafter, LICENSORS' rights to such patent application and issued patent shall no longer be included in the license granted pursuant to Section 2.1 and COMPANY shall further, upon LICENSORS' request, license COMPANY's rights under such jointly assigned patents to LICENSORS or any licensees of LICENSORS, non-exclusively on a royalty free basis. ARTICLE 8. INFRINGEMENT 8.1 THIRD PARTY INFRINGEMENT. If COMPANY or either LICENSOR becomes aware of any activity that it believes infringes a Valid Claim, the party obtaining such knowledge shall promptly advise the others of all relevant facts and circumstances pertaining to the potential infringement. COMPANY shall have the right to enforce any rights within the Licensed Patents or the Licensed Technology against such infringement, at its own expense. LICENSORS shall cooperate with COMPANY in such effort, at COMPANY's expense, including being joined as a party or parties to such action if necessary. COMPANY may deposit up to [ * ] of any running royalties and Milestone Payments which are otherwise payable to LICENSOR during the pendency of any such infringement action in an interest-bearing escrow account (bearing interest at rates comparable to other COMPANY deposits of immediately available funds). COMPANY shall, upon the final resolution or settlement of such infringement action, provide LICENSORS with an accounting of the total royalty payments and Milestone Payments escrowed (and interest thereon) and COMPANY's expenses incurred in such infringement action. COMPANY shall be entitled to offset any expenses which COMPANY fails to recoup from any * CONFIDENTIAL TREATMENT REQUESTED 34 DAPD damage award or settlement payments arising from such infringement action against such escrowed royalties. Any escrowed payments (and interest thereon) in excess of COMPANY's unrecouped expenses shall be immediately paid to LICENSORS. Any damage award or settlement payments made to COMPANY in excess of COMPANY's expenses shall be treated as royalty bearing Sales of Licensed Products and COMPANY shall make royalty payments on such revenues in accordance with Article 3 of this Agreement. 8.2 LICENSORS' RIGHT TO PURSUE THIRD PARTY INFRINGERS. If COMPANY shall fail, within one hundred twenty (120) days after receiving notice from LICENSORS of a potential infringement, or providing LICENSORS with notice of such infringement, to either (a) terminate such infringement or (b) institute an action to prevent continuation thereof and, thereafter, to prosecute such action diligently, or if COMPANY notifies LICENSORS that it does not plan to terminate the infringement or institute such action, then LICENSORS shall have the right to do so at their own expense. COMPANY shall cooperate with LICENSORS in such effort, including being joined as a party to such action if necessary. LICENSORS shall be entitled to retain all damages or costs awarded to LICENSORS in such action. 35 DAPD ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; AND INDEMNIFICATION 9.1 WARRANTIES OF LICENSORS. (a) LICENSORS represent and warrant that, to the best of their knowledge: (i) LICENSORS have disclosed to COMPANY all potential patent rights in the control of third parties known to LICENSORS which may be needed to commercialize any Licensed Products ; and (ii) APPENDIX "A" is a complete list of all patents and patent applications included in the Licensed Patents as of the date hereof. LICENSORS will, from time to time during the term of this Agreement, promptly provide COMPANY, upon request, with an updated version of APPENDIX "A". (b) LICENSORS further represent and warrant that they are the exclusive owners of all right, title and interest in the patents and patent applications identified in APPENDIX "A" as of the date hereof, subject to the rights of the U.S. Government as described in the U.S. Government Licenses. For purposes of the representation and warranty set forth in clause (i) of Subsection 9.1(a), "LICENSORS" shall mean the Inventors and any employees of EMORY or UGARF who work in the technology transfer area. COMPANY acknowledges that LICENSORS have not undertaken any investigation with respect to the potential patent rights of any third party. 36 DAPD 9.2 WARRANTIES OF EACH PARTY. Each party hereto represents to the others that it is free to enter into this Agreement and to carry out all of the provisions hereof, including, in the case of LICENSORS, their grant to COMPANY of the license described in Section 2. 1. 9.3 MERCHANTABILITY AND EXCLUSION OF WARRANTIES. COMPANY possesses the necessary expertise and skill in the technical areas pertaining to the Licensed Patents, Licensed Products and Licensed Technology to make, and has made, its own evaluation of the capabilities, safety, utility and commercial application of the Licensed Patents, Licensed Products and Licensed Technology. ACCORDINGLY, EXCEPT AS SET FORTH IN SECTIONS 9.1 AND 9.2, LICENSORS DO NOT MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE VALIDITY OF LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS AND EXPRESSLY DISCLAIM ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY, OR COMMERCIAL APPLICATION OF THE LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS. 9.4 NO LIABILITY FOR CONSEQUENTIAL DAMAGES AND LIMITATION OF LIABILITY. LICENSORS shall not be liable to COMPANY or COMPANY's Affiliates, customers or sublicensees for compensatory, special, incidental, indirect, consequential or exemplary damages resulting from the manufacture, testing, design, labeling, use or sale of Licensed 37 DAPD Products by or through COMPANY, its Affiliates or sublicensees. This Section shall not affect COMPANY's rights hereunder to any credit or royalty reduction explicitly permitted elsewhere herein. 9.5 INDEMNIFICATION. (a) COMPANY shall defend, indemnify, and hold harmless the Indemnitees, from and against any and all claims, demands, loss, liability, expense, or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay, or incur as a result of claims, demands or actions against any of the Indemnitees arising or alleged to arise by reason of, or in connection with, any and all personal injury (including death) and property damage caused or contributed to, in whole or in part, by manufacture, testing, design, use, Sale, or labeling of any Licensed Products by COMPANY or COMPANY's Affiliates, contractors, agents or sublicensees. COMPANY's obligations under this Article shall survive the expiration or termination of this Agreement for any reason. 37 DAPD (b) LICENSORS shall indemnify and hold Indemnitees harmless from and against any and all claims, demands, loss, liability, expense or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay or incur as a result of claims, demands or actions against any of the Indemnitees arising by reason of, or in connection with, the breach by LICENSORS of any of their representations and warranties set forth in this Agreement. 9.6 INSURANCE. Without limiting COMPANY's indemnity obligations under the preceding Section, COMPANY shall, to the extent available at commercially reasonable rates and prior to any clinical trial or Sale of any Licensed Product, cause to be in force, an [ * ] insurance policy which: (a) insures LICENSORS and their Indemnitees for all claims, damages, and actions mentioned in Section 9.5(a) of this Agreement; and (b) requires the insurance carrier to provide LICENSORS with no less than [ * ] written notice of any change in the terms or coverage of the policy or its cancellation; and (c) provides Indemnitees product liability coverage in an amount no less than [ * ] per occurrence for bodily injury and [ * ] per occurrence for property damage, subject to a reasonable aggregate amount, as determined by COMPANY. * CONFIDENTIAL TREATMENT REQUESTED 39 DAPD 9.7 NOTICE OF CLAIMS; INDEMNIFICATION PROCEDURES. (a) COMPANY shall promptly notify LICENSORS of all claims involving the Indemnitees for which indemnification is or may be provided in Section 9.5(a) and shall advise LICENSORS of the policy amounts that might be needed to defend and pay any such claims. (b) An Indemnitee which intends to claim indemnification under this Article shall promptly notify the other party (the "Indemnitor") in writing of any matter in respect of which the Indemnitee or any of its employees or agents intend to claim such indemnification. The Indemnitee shall permit, and shall cause its employees and agents to permit, the Indemnitor, at its discretion, to settle any such matter and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, that such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such matter shall be settled without the prior written consent of the Indemnitor and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any matter covered by the applicable indemnification. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 39 DAPD ARTICLE 10. CONFIDENTIALITY 10.1 TREATMENT OF CONFIDENTIAL INFORMATION. Except as otherwise provided hereunder, during the term of this Agreement and for a period of [ * ] thereafter: (a) COMPANY and its Affiliates and sublicensees shall retain in confidence and use only for purposes of this Agreement, any written information and data supplied by LICENSORS to COMPANY under this Agreement; and (b) LICENSORS shall retain in confidence and use only for purposes of this Agreement any written information and data supplied by COMPANY or on behalf of COMPANY to LICENSORS under this Agreement. For purposes of this Agreement, all such information and data which a party is obligated to retain in confidence shall be called "Information." 10.2 RIGHT TO DISCLOSE. To the extent that it is reasonably necessary to fulfill its obligations or exercise its rights under this Agreement, or any rights which survive termination or expiration hereof, each party may disclose Information to its Affiliates, sublicensees, consultants, outside contractors, actual or prospective investors, governmental regulatory authorities and clinical investigators on condition that such entities or persons agree: (a) to keep the Information confidential for a [ * ] time period and to the same extent as each party is required to keep the Information confidential; and (b) to use the Information only for such purposes as such parties are authorized to use the Information. * CONFIDENTIAL TREATMENT REQUESTED 40 DAPD Each party or its Affiliates or sublicensees may disclose Information to the government or other regulatory authorities to the extent that such disclosure (i) is necessary for the prosecution and enforcement of patents, or authorizations to conduct clinical trials or commercially market Licensed Products, provided such party is then otherwise entitled to engage in such activities during the term of this Agreement or thereafter in accordance with the provisions of this Agreement, or (ii) is legally required. 10.3 RELEASE FROM RESTRICTIONS. The obligation not to disclose Information shall not apply to any part of such Information that: (a) is or becomes patented, published or otherwise part of the public domain, other than by unauthorized acts of the party obligated not to disclose such Information (for purposes of this Article 10 the "receiving party") or its Affiliates or sublicensees in contravention of this Agreement; or (b) is disclosed to the receiving party or its Affiliates or sublicensees by a third party provided that such Information was not obtained by such third party directly or indirectly from the other party to this Agreement; or (c) prior to disclosure under this Agreement, was already in the possession of the receiving party, its Affiliates or sublicensees, provided that such Information was not obtained directly or indirectly from the other party to this Agreement; or (d) results from research and development by the receiving party or its Affiliates or sublicensees, independent of disclosures from the other party of this Agreement, 41 DAPD provided that the persons developing such information have not had exposure to the information received from the other party to this Agreement; or (e) is required by law to be disclosed by the receiving party, provided that the receiving party uses reasonable efforts to notify the other party immediately upon learning of such requirement in order to give the other party reasonable opportunity to oppose such requirement; or (f) COMPANY and LICENSORS agree in writing may be disclosed. ARTICLE 11. TERM AND TERMINATION 11.1 TERM. Unless sooner terminated as otherwise provided in this Agreement, the term of this Agreement shall commence on the date of this Agreement and shall continue in full force and effect until the expiration of the last to expire Valid Claim. 11.2 TERMINATION. LICENSORS shall have the right to terminate this Agreement upon the occurrence of any one or more of the following events, provided that LICENSORS have given COMPANY the notice required in Section 11.3 and COMPANY has failed to cure the breach described in such notice: (a) failure of COMPANY to make any payment required pursuant to this Agreement when due; or (b) failure of COMPANY to timely issue COMPANY stock to LICENSORS or certain Inventors as designated by LICENSORS in accordance with the certain Restricted Stock Purchase Agreement among LICENSORS and such Inventors and COMPANY of even date herewith; or 42 DAPD (c) failure of COMPANY to render reports to LICENSORS as required by this Agreement; or (d) the institution of any proceeding by COMPANY under any bankruptcy, insolvency, or moratorium law; or (e) any assignment by COMPANY of substantially all of its assets for the benefit of creditors; or (f) placement of COMPANY's assets in the hands of a trustee or a receiver unless the receivership or trust is dissolved within thirty (30) days thereafter and provided that in the case of in involuntary bankruptcy proceeding, which is contested by COMPANY, such termination shall not become effective until the bankruptcy court of jurisdiction has entered an order upholding the petition; or (g) a decision by COMPANY or COMPANY's permitted assignee of rights under this Agreement to quit the business of developing or selling Licensed Products; or (h) the breach by COMPANY of any other material term of this Agreement. 11.3 EXERCISE. LICENSORS may exercise their right of termination by giving COMPANY, its trustees, receivers or assigns, thirty (30) days' prior written notice of LICENSORS' election to terminate. Such notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless COMPANY has cured the breach. Such notice and termination shall not 44 DAPD prejudice LICENSORS' right to receive royalties or other sums due hereunder and shall not prejudice any cause of action or claim of LICENSORS. 11.4 FAILURE TO ENFORCE. The failure of LICENSORS, at any time, or for any period of time, to enforce any of the provisions of this Agreement, shall not be construed as a waiver of such provisions or as a waiver of the right of LICENSORS thereafter to enforce each and every such provision of this Agreement. 11.5 TERMINATION BY COMPANY. COMPANY shall have the right to terminate this Agreement upon the occurrence of either of the following events: (a) the breach of a material term of this Agreement by LICENSORS; or (b) upon COMPANY's convenience and written notice of such termination given to LICENSORS at least ninety (90) days prior to the date of such termination. The termination right set forth in this Subsection 11.5(b) may be exercised by COMPANY in respect of either or both indications in the entire Licensed Territory or one or more countries (excluding the United States) of the Licensed Territory without affecting this Agreement in the remaining countries of the Licensed Territory. 11.6 EXERCISE. COMPANY may exercise its right of termination pursuant to Section 11.5(a) by giving LICENSORS thirty (30) days' prior written notice of COMPANY's election to terminate. The notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless LICENSORS have cured the breach. Such notice of termination shall not 45 DAPD prejudice any cause of action or claim of COMPANY accrued or to accrue on account of any breach or default by LICENSORS. 11.7 EFFECT. If this Agreement is terminated as a result of COMPANY's breach pursuant to Section 11.2, or in accordance with Section 11.5(b): (a) COMPANY shall use its best efforts to return, or at LICENSORS' direction, destroy, all data, writings and other documents and tangible materials supplied to COMPANY by LICENSORS; and (b) COMPANY shall further, upon LICENSORS' request and with no need for additional consideration, grant LICENSORS a non-exclusive, royalty free license (with the right to sublicense) to all of COMPANY's rights in any Licensed Patents and other patents owned by, licensed to (to the extent sublicensing is permissible and subject to the terms thereof, including any royalty obligations) or controlled by COMPANY which include claims covering or potentially covering the manufacture, use or sale of any Licensed Products, or derivatives or analogues thereof. COMPANY shall further provide LICENSORS with full and complete copies of all toxicity, efficacy, and other data generated by COMPANY or COMPANY's Affiliates, sublicensees, contractors or agents in the course of COMPANY's efforts to develop Licensed Products or obtain governmental approval for the Sale of Licensed Products, including but not limited to any IND, NDA or other documents filed with any government agency. LICENSORS and their licensees shall be authorized to cross-reference any such IND, NDA or other filings made in the United States or foreign countries where permitted by law. LICENSORS shall be authorized to provide data pertaining to the Licensed Patents and Licensed Technology to any third party with a bona fide interest in licensing such technology. Such data shall be provided on a confidential 46 DAPD basis; provided, however, that if such third party enters into a license with LICENSORS, such third party shall be free to use such data for all purposes, including to obtain government approvals to sell products containing any Licensed Compound. COMPANY shall cooperate reasonably (at no unreimbursed expense to COMPANY) with any third party licensee of LICENSORS in pursuing governmental approval to sell any product containing any Licensed Compound, including but not limited to, permitting such third parties to cross-reference any NDA filed with the FDA or Registration obtained from the FDA or analogous documents filed or obtained in any foreign countries. ARTICLE 12. ASSIGNMENT COMPANY shall not assign this Agreement or any part thereof without the prior written consent of LICENSORS, which consent shall not be unreasonably withheld or delayed. COMPANY may, however, without consent, assign or sell its rights under this Agreement (a) in connection with the transfer or sale of substantially its entire business to which this Agreement pertains, (b) in the event of its merger or consolidation with another company, or (c) to an Affiliate. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party has under this Agreement. Any assignee of this Agreement shall assume all accrued and prospective obligations including, but not limited to, those set forth in Articles 6 and 7. Any such assignee shall further, within sixty (60) days of becoming the assignee of rights hereunder, meet with LICENSORS' representatives to discuss such assignee's plans for the future development of the Licensed Products. If such assignee determines that it does not wish to continue the development or 47 DAPD marketing obligations required under this Agreement or otherwise attempt to sublicense its rights, then such assignee shall immediately terminate this Agreement. Any such termination shall be treated as a termination under Subsection 11.5(b). ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY Within sixty (60) days following the date hereof and as far as they have not previously done so, LICENSORS shall supply COMPANY with all available Licensed Technology. With respect to any Licensed Technology which becomes known to LICENSORS during the term of this Agreement, such disclosure will be made at least semi-annually or sooner, if practicable. ARTICLE 14. REGISTRATION OF LICENSE COMPANY, at its expense, may register the license granted under this Agreement in any country of the Licensed Territory where the use, sale or manufacture of a Licensed Product in such country would be covered by a Valid Claim. Upon request by COMPANY, LICENSORS agree promptly to execute any "short form" licenses submitted to it by COMPANY in order to effect the foregoing registration in such country. ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT 15.1 NOTICES RELATING TO THE ACT. LICENSORS shall use their best efforts to notify COMPANY of (a) the issuance of each U.S. patent included among the Licensed Patents, giving the date of issue and patent number for each such patent; and (b) each notice pertaining to any patent included among the Licensed Patents which LICENSORS receive as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter the "Act"), including, but not necessarily limited to, 48 DAPD notices pursuant to Sections 101 and 103 of the Act from persons who have filed an abbreviated NDA ("ANDA") of a "paper" NDA. Such notices shall be given promptly, but in any event within ten (10) days of LICENSORS' notice of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. 15.2 AUTHORIZATION RELATING TO PATENT TERM EXTENSION. LICENSORS hereby authorize COMPANY (a) to include in any NDA for a Licensed Product, as COMPANY may deem appropriate under the Act, a list of patents included among the Licensed Patents that relate to such Licensed Product and such other information as COMPANY, in its reasonable discretion, believes is appropriate to be filed pursuant to the Act; (b) to commence suit for any infringement of the Licensed Patents under Section 271(e) (2) of Title 35 of the United States Code occasioned by the submission by a third party of an IND or a paper NDA for a Licensed Product pursuant to Sections 101 or 103 of the Act; and (c) subject to LICENSORS' consent (which consent will not be unreasonably withheld or delayed), to exercise any rights that may be exercisable by LICENSORS as patent owners under the Act to apply for an extension of the term of any patent included among the Licensed Patents. In the event that applicable law in any other country of the Licensed Territory hereafter provides for the extension of the term of any patent included among the Licensed Patents in such country, upon request by COMPANY, LICENSORS shall use their best efforts to obtain such extension or, in lieu thereof, shall authorize COMPANY or, if requested by COMPANY or its sublicensees to apply for such extension, in consultation with LICENSORS. LICENSORS agree to cooperate with COMPANY or its sublicensees, as applicable, in the exercise of the authorization granted herein or which may be granted 49 DAPD pursuant to this Section 15.2 and will execute such documents and take such additional action as COMPANY may reasonably request in connection therewith, including, if necessary, permitting themselves to be joined as proper parties in any suit for infringement brought by COMPANY under subsection (b) above. The provisions of Article 8 shall apply to any suit for infringement brought by COMPANY under subsection (b) above. In the event COMPANY decides not to commence suit for infringement under subsection (b) above, COMPANY will notify LICENSORS of its decision within thirty (30) days so that LICENSORS may institute such litigation themselves, if they wish, at their own cost and expense. ARTICLE 16. MISCELLANEOUS 16.1 ARBITRATION. Any controversy, claim or dispute regarding COMPANY's failure to meet its diligence obligations in accordance with Article 6 of this Agreement, including, without limitation, any dispute concerning the scope of this arbitration clause, shall be resolved through arbitration conducted under the auspices of the American Arbitration Association pursuant to that organization's rules for commercial arbitration. Any hearings requested by COMPANY shall be held in Atlanta, Georgia. Any hearings requested by LICENSORS shall be held in Durham, North Carolina. 16.2 EXPORT CONTROLS. COMPANY acknowledges that LICENSORS are subject to United States laws and regulations controlling the export of technical data, biological materials, chemical compositions and other commodities and that LICENSORS' obligations under this Agreement are contingent upon compliance with applicable United States export laws and regulations. The transfer of technical data, biological materials, chemical 50 DAPD compositions and commodities may require a license from the cognizant agency of the United States government or written assurances by COMPANY that COMPANY shall not export data or commodities to certain foreign countries without the prior approval of certain United States agencies, or as otherwise prescribed by applicable law or regulation. LICENSORS neither represent that an export license shall not be required nor that, if required, such export license shall issue. 16.3 LEGAL COMPLIANCE. COMPANY shall comply with all laws and regulations relating to its manufacture, use, sale, labeling or distribution of Licensed Products and shall not take any action which would cause LICENSORS or COMPANY to violate any laws or regulations. 16.4 INDEPENDENT CONTRACTOR. COMPANY's relationship to LICENSORS shall be that of a licensee only. COMPANY shall not be the agent of LICENSORS and shall have no authority to act for, or on behalf of, LICENSORS in any matter. Persons retained by COMPANY as employees or agents shall not, by reason thereof, be deemed to be employees or agents of LICENSORS. 16.5 PATENT MARKING. COMPANY shall mark Licensed Products Sold in the United States with United States patent numbers. Licensed Products manufactured or Sold in other countries shall be marked in compliance with the intellectual property laws in force in such countries. The foregoing obligations shall be subject to size and space limitations. 16.6 USE OF NAMES. COMPANY shall obtain the prior written approval of LICENSORS prior to making use for any commercial purpose of the name of any of the 51 DAPD Inventors, any employee of either of the LICENSORS or of the LICENSORS, except that COMPANY may identify LICENSORS to prospective investors and in public announcements relating to consummation of this Agreement. 16.7 EFFECT. This Agreement shall not become effective or binding upon the parties until signed by EMORY's Executive Vice President, UGARF's Vice President for Research and the President or any other authorized officer of COMPANY. 16.8 GOVERNING LAW. This Agreement and all amendments, modifications, alterations, or supplements hereto, and the rights of the parties hereunder, shall be construed under and governed by the laws of the State of Georgia and the United States of America. 16.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among LICENSORS and COMPANY with respect to the subject matter hereof and shall not be modified, amended or terminated, except as herein provided or except by another agreement in writing executed by the parties hereto. 16.10 SURVIVAL. Articles 9 and 10 shall survive termination of this Agreement for any reason. Section 11.7 shall survive termination pursuant to Section 11.2 or 11.5(b). Upon expiration of this Agreement, COMPANY shall have a fully paid up license to use the Licensed Technology. 16.11 SEVERABILITY. All rights and restrictions contained herein may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. If any provision or portion of any provision of 52 DAPD this Agreement, not essential to the commercial purpose of this Agreement, shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining provisions or portions thereof shall constitute their agreement with respect to the subject matter hereof, and all such remaining provisions, or portions thereof, shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced by a valid provision which shall implement the commercial purpose of the illegal, invalid, or unenforceable provision. In the event that any provision essential to the commercial purpose of this Agreement is held to be illegal, invalid or unenforceable and cannot be replaced by a valid provision which will implement the commercial purpose of this Agreement, this Agreement and the rights granted herein shall terminate. 16.12 FORCE MAJEURE. Any delays in, or failure of performance of any party to this Agreement, shall not constitute a default hereunder, or give rise to any claim for damages, if and to the extent caused by occurrences beyond the control of the party affected, including, but not limited to, acts of God, strikes or other concerted acts of workmen, civil disturbances, fires, floods, explosions, riots, war, rebellion, sabotage, acts of governmental authority or failure of governmental authority to issue licenses or approvals which may be required. 16.13 ATTORNEYS' FEES. If any action at law, in equity or under Section 16.1 of this Agreement is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. 53 DAPD 16.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ARTICLE 17. NOTICES All notices, statements, and reports required to be given under this Agreement shall be in writing and shall be deemed to have been given upon delivery in person or when deposited in the mail in the country of residence of the party giving the notice, registered or certified postage prepaid, and addressed as follows: To LICENSORS: Emory University Director of Licensing and Patent Counsel 2009 Ridgewood Drive Atlanta, Georgia 30322 Attention: Vincent La Terza University of Georgia Research Foundation, Inc. 631 Boyd Graduate Studies Building Athens, GA 30602-7411 Attention: John Ingle To COMPANY: TRIANGLE PHARMACEUTICALS INC. 4 University Place 4611 University Drive Durham, NC 27707 Attention: Company Secretary Any party hereto may change the address to which notices to such party are to be sent by giving notice to the other party at the address and in the manner provided above. Any notice may be given, in addition to the manner set forth above, by telex, facsimile or cable, provided that the party giving such notice obtains acknowledgment by telex, facsimile or cable that such notice has been received by the party to be notified. Notice made in this 54 DAPD manner shall be deemed to have been given when such acknowledgment has been transmitted. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 55 DAPD IN WITNESS WHEREOF, LICENSORS and COMPANY have caused this Agreement to be signed by their duly authorized representatives, as of the day and year indicated below. LICENSORS: EMORY UNIVERSITY By:/s/John Temple ----------------------------------------------- John Temple Executive Vice President UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC. By:/s/Joe L. Key ----------------------------------------------- Joe L. Key Executive Vice President COMPANY: TRIANGLE PHARMACEUTICALS, INC. By:/s/David W. Barry ----------------------------------------------- Name: Title: [SIGNATURE PAGE TO DAPD LICENSE AGREEMENT] 125-194472 (3/22/96) 56 DAPD PATENT PORTFOLIO - -------------------------------------------------------------------------------- Docket No. Country Serial No. Filed Patent No. Grant Date EMU113 U.S. 07/967,460 10/28/92 5,444,063 08/22/95 Taiwan 82108587 10/16/93 China 93120708.8 10/28/93 Europe 94900424.6 10/28/93 Japan 511314/1994 10/28/93 Canada 2147893 10/28/93 Australia 55419/94 10/28/93 Vietnam S-1202/95 10/28/93 Korea 95-701648 10/28/93 Russia 95110698.14 10/28/93 EMU113DIV [ * ] [ * ] [ * ] UGA390 U.S. 07/622,762 12/5/90 5,179,104 01/12/93 Australia 91475/91 12/5/91 Canada 2099589 12/5/91 Europe 92902800.9 12/5/91 Japan 4-502956 12/5/91 UGA390CIP [ * ] [ * ] [ * ] (UGA447) Australia 50933/93 08/25/93 Canada 2143107 08/25/93 Europe 93920366.7 08/25/93 Japan 506616/1994 08/25/93 UGA447DIV [ * ] [ * ] [ * ] - -------------------------------------------------------------------------------- * CONFIDENTIAL TREATMENT REQUESTED APPENDIX "B" (Page 1 of 3) LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon. Invention Title: [ * ] Inventors: Dr. Raymond Schinazi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/Ann R. Stevens Date: 6/2/93 ------------------------------------- ----------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: ____________________________________________ Date: _________________ * CONFIDENTIAL TREATMENT REQUESTED APPENDIX "B" page 2 of 3 LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: [ * ] Inventors: Dr. Chung K. Chu Dr. Raymond Schinazi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, national Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emery University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/Ann R. Stevens Date: 6/2/93 -------------------------------------- -------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: ______________________________________________ Date: ______________ APPENDIX "B" page 3 of 3 LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: [ * ] Inventors: Dr. Chung K. Chu Dr. Raymond Schinazi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: [ * ] This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/Ann R. Stevens Date: 6/4/93 ------------------------------------------- ------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: ___________________________________________________ Date: _____________ EX-10.20 9 LICENSE AGREE W/AMORY, UNIVERS. & TRIANGLE EXHIBIT 10.20 LICENSE AGREEMENT AMONG EMORY UNIVERSITY AND UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC. AND TRIANGLE PHARMACEUTICALS, INC. * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. TABLE OF CONTENTS ARTICLE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2. GRANT OF LICENSE . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 3. ROYALTIES AND OTHER PAYMENTS . . . . . . . . . . . . . . . 11 ARTICLE 4. REPORTS AND ACCOUNTING . . . . . . . . . . . . . . . . . . 21 ARTICLE 5. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM. . . . . . . . . . . . . 25 ARTICLE 7. PATENT PROSECUTION . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 8. INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; AND INDEMNIFICATION . . . . . . . . . 33 ARTICLE 10. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 11. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . 40 ARTICLE 12. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY . . . . . . . . . . . . . 45 ARTICLE 14. REGISTRATION OF LICENSE . . . . . . . . . . . . . . . . . 45 ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT . . . 45 ARTICLE 16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE 17. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 51 THIS LICENSE AGREEMENT is made and entered into as of this 31st day of March 1996, by and among EMORY UNIVERSITY, a Georgia nonprofit corporation with offices at 1380 South Oxford Road, N.E., Atlanta, Georgia 30322, (hereinafter referred to as "EMORY"), the University of Georgia Research Foundation, Inc., a Georgia nonprofit corporation with offices at 631 Boyd Graduate Studies Building, Athens, GA 30602-7411 (hereinafter referred to as "UGARF") (EMORY and UGARF are together referred to here as "LICENSORS") and TRIANGLE PHARMACEUTICALS, INC., a for profit Delaware corporation with principal offices located at 4 University Place, 4611 University Drive, Durham, NC 27707 (hereinafter referred to as "COMPANY"). WITNESSETH WHEREAS, LICENSORS are the assignees of all right, title, and interest in certain inventions developed by employees of EMORY and the University of Georgia and are responsible for the protection and commercial development of such inventions; and WHEREAS, Raymond F. Schinazi, an employee of EMORY, and C. K. Chu, an employee of the University of Georgia, are named as inventors in the patents and patent applications identified in APPENDIX "A" to this Agreement and are hereafter referred to as the "Inventors"; and WHEREAS, COMPANY represents that it has the necessary expertise and will, as appropriate, acquire the resources reasonably necessary to fully develop, obtain approval for, and market therapeutic products based upon the inventions claimed in the above referenced patents and applications; and 1 CS-92 WHEREAS, LICENSORS want to have such inventions developed, commercialized, and made available for use by the public; NOW, THEREFORE, for and in consideration of the mutual covenants and the premises herein contained, the parties, intending to be legally bound, hereby agree as follows. ARTICLE 1. DEFINITIONS ----------------------- The following terms as used herein shall have the following meaning: 1.1 "Affiliate" shall mean any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate business entity shall be regarded as in control of another corporation if it owns, or directly or indirectly controls, at least [ * ] of the voting stock of the other corporation, or (a) in the absence of the ownership of at least [ * ] of the voting stock of a corporation or (b) in the case of a non-corporate business entity, or non-profit corporation, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate business entity, as applicable. 1.2 "Agreement" or "License Agreement" shall mean this Agreement, including all EXHIBITS and APPENDICES attached to this Agreement. 1.3 "Dollars" shall mean United States dollars. 1.4 "FDA" shall mean the United States Food and Drug Administration or successor entity. * CONFIDENTIAL TREATMENT REQUESTED 2 CS-92 1.5 "Field of Use" shall mean the prevention and treatment of human immunodeficiency virus (HIV). 1.6 "IND" shall mean an Investigational New Drug application or its equivalent. 1.7 "Indemnitees" shall mean (a) in the case of the indemnity set forth in Subsection 9.5(a), the Inventors, LICENSORS, and their trustees, directors, employees and students, and all of their heirs, executors, administrators, successors and legal representatives; (b) in the case of the indemnity set forth in Subsection 9.5(b), COMPANY, its affiliates, sublicensees, their directors, officers, employees and their heirs, successors, executors, administrators and legal representatives; and (c) in the case of the Indemnitees referenced in Subsection 9.7(b), the parties identified in Subsections 1.7(a) and 1.7(b) above. 1.8 "Licensed Compounds" shall mean the compound 3'-Azido-2',3' - -dideoxy-5-methylcytidine, and its N(4) and 5(1) alkylated, acylated or phosphorylated derivatives, including all salts, esters and purified enantiomers of the foregoing. Notwithstanding the scope of this definition, neither LICENSOR represents that it shall obtain valid patent claims to any such compositions and LICENSORS specifically disclaim any warranties or representations as to whether the Licensed Patents cover any [ * ]. 1.9 "Licensed Patents" shall mean (a) the patents and patent applications identified in APPENDIX "A,"together with any and all substitutions, extensions, divisionals, continuations, continuations-in-part, renewals, supplementary protection certificates or foreign counterparts of such patent applications and patents which issue thereon, anywhere in the world, including reexamined and reissued patents; and (b) all other patents and * CONFIDENTIAL TREATMENT REQUESTED 3 CS-92 patent applications in which or to which either LICENSOR acquires rights during the term hereof which contain claims covering the manufacture, use or sale of any Licensed Product to the extent that such LICENSOR possesses the right to license such patents and patent applications to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties. 1.10 "Licensed Product(s)" shall mean any Licensed Compound or any pharmaceutical product containing one or more Licensed Compounds as active ingredients, alone or in combination with other active ingredients, within the Field of Use, the manufacture, use, importation, offer for sale or sale of which is covered by any Valid Claim or which is made using Licensed Technology. 1.11 "Licensed Technology" shall mean all technical information and data, whether or not patented, known or learned, invented, or developed by the Inventors or any employees of LICENSORS working under the Inventors' direct or indirect supervision, prior to or during the term hereof and while they are under a duty to assign intellectual property rights to the LICENSORS, to the extent that (a) such technical information and data are useful for the manufacture, use, importation, offer for sale or sale of any Licensed Product; and (b) LICENSORS possess the right to license the use of such information to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties and without breaching any obligations of confidentiality with such parties. 1.12 "Licensed Territory" shall mean the world. 4 CS-92 1.13 "LICENSORS" means Emory University and the University of Georgia Research Foundation, Inc. "LICENSOR" shall mean either Emory University or the University of Georgia Research Foundation, Inc. 1.14 "NDA" shall mean a New Drug Application or its equivalent. 1.15 "Net Selling Price" of Licensed Products which contain as their active ingredients only Licensed Compounds shall mean the gross selling price paid by a purchaser of such Licensed Product to COMPANY, an Affiliate or sublicensee of COMPANY, or any other party authorized by COMPANY to sell Licensed Products plus, if applicable, the value of all properties and services received in consideration of a Sale of a Licensed Product, less only (a) discounts, rebates, sales, use, or other similar taxes, transportation and handling charges and allowances; and (b) returns which are accepted by COMPANY from independent customers in accordance with COMPANY's normal practice and for which COMPANY gives credit to such purchasers or retroactive price reductions in lieu of returns, whether during the specific royalty period or not. Where a sale is deemed consummated by a gift, use, or other disposition of Licensed Products, for other than a selling price stated in cash, the term "Net Selling Price" shall mean the average gross selling price billed by COMPANY in consideration of the cash Sales of comparable Licensed Products during the then current royalty period, less only reductions permitted in subsections (a) and (b) above and such other reductions, if any, as LICENSORS agree are appropriate, which agreement will not be unreasonably withheld or delayed. 5 CS-92 1. 16 "Net Selling Price" of Licensed Products which contain as their active ingredients both Licensed Compounds and compounds other than Licensed Compounds (a "Combination Product") shall be negotiated in good faith by the parties with the intention of agreeing upon a fair and equitable formula; provided, however, that if the parties are unable to agree upon such formula within a reasonable period of time, the Net Selling Price with respect to such Combination Product shall mean the gross sales price of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.15 multiplied by a fraction, the numerator of which shall be the average invoice price per gram of Licensed Compound contained in the most comparable stock keeping unit of any product having the Licensed Compound as the sole active ingredient during the applicable royalty period in the applicable country of the Licensed Territory, when such comparable product is sold for the same indication as such Combination Product and the denominator of which shall be the average invoice price per gram of the Licensed Compound sold alone as described immediately above plus the average invoice price(s) per gram of the other active ingredient(s) contained in such Combination Product in such country during the applicable royalty period when such active ingredients are sold alone for the same indication as such Combination Product. If there is no average invoice price per gram in a given country for one or more of the active ingredients comprising a Combination Product, the Net Selling Price with respect to such Combination Product shall be deemed to be the gross sales of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.15, times a fraction, the numerator of which is the number of Licensed Compounds in such Combination Product and the denominator of which is the number of all active ingredients in such Combination Product. 7 CS-92 1.17 "Phase II Commencement Date" shall mean the date of commencement of the initial well-controlled clinical trial of a Licensed Product sponsored by COMPANY, the primary objective of which (as reasonably determined by COMPANY) is to ascertain additional data regarding the safety and tolerance of such Licensed Product and preliminary data regarding such Licensed Product's [ * ], is commenced. For purposes of the preceding sentence, such clinical trial shall be deemed to have commenced when such Licensed Product is first administered to any patient enrolled in such clinical trial. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or co-marketing relationship with Triangle Pharmaceuticals, Inc pertaining to such Licensed Product. 1.18 "Phase II Completion Date" shall mean the earlier of (a) [ * ] after completion of the statistical analyses of those Phase II clinical studies which COMPANY considers reasonably necessary for purposes of inclusion in an NDA; or (b) [ * ] after the last administration of a Licensed Product to all patients enrolled in the Phase II clinical studies; or (c) [ * ] after the first public disclosure of the final results of all such Phase II clinical studies. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or co-marketing relationship with Triangle Pharmaceuticals, Inc. pertaining to any Licensed Product. * CONFIDENTIAL TREATMENT REQUESTED 7 CS-92 1.19 "Registration" shall mean, in relation to any Licensed Product, such approvals by the regulatory authorities in a given country (including pricing approvals) as may be legally required before such Licensed Product may be commercialized or Sold in such country. 1.20 "Sale" or "Sold" shall mean the sale, transfer, exchange, or other disposition of Licensed Products whether by gift or otherwise, subsequent to Registration in a given country (if such Registration is required) by COMPANY, its Affiliates, sublicensees or any third party authorized by COMPANY to make such sale, transfer, exchange or disposition. Sales of Licensed Products shall be deemed consummated upon the first to occur of: (a) receipt of payment from the purchaser; (b) delivery of Licensed Products to the purchaser or a common carrier; (c) release of Licensed Products from consignment; or (d) if otherwise transferred, exchanged, or disposed of, whether by gift or otherwise, when such transfer, exchange, gift, or other disposition occurs. Notwithstanding the foregoing definition of Sale, to the extent COMPANY distributes any Licensed Product under a Treatment IND or other expanded access program at a sales price which exceeds its fully absorbed cost therefor, such excess shall be deemed to be a Sale for which royalties are payable in accordance with the other terms hereof; provided, however, that such distribution shall not be deemed to be Registration of such Licensed Product. 1.21 "U.S. Government Licenses" shall mean the non-exclusive licenses to the U.S. Government or agencies thereof pursuant to [ * ]copies of which licenses are attached hereto as APPENDIX "B." * CONFIDENTIAL TREATMENT REQUESTED 8 CS-92 1.22 "Valid Claim" shall mean (a) an issued claim of any unexpired patent included among the Licensed Patents, or (b) a pending claim of any pending patent application included among the Licensed Patents, which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, which has not been rendered unenforceable through disclaimer or otherwise or which has not been lost through an interference proceeding. ARTICLE 2. GRANT OF LICENSE ---------------------------- 2.1 LICENSE. LICENSORS hereby grant COMPANY and its Affiliates the exclusive right and license to practice the Licensed Patents and the Licensed Technology to make, have made, use, import, offer for sale and sell Licensed Products in the Licensed Territory during the term of this Agreement. 2.2 GOVERNMENT RIGHTS. The license granted in Section 2.1 above is conditional upon and subject to the U.S. Government Licenses and other rights retained by the United States in inventions developed by nonprofit institutions with the support of federal funds. These rights are set forth in 35 USCA Sections 201 et seq. and 37 CFR 401 et seq., which may be amended from time to time by the Congress of the United States or through administrative procedures. * CONFIDENTIAL TREATMENT REQUESTED 9 CS-92 2.3 RETAINED LICENSE. The license granted in Section 2.1 above is further conditional upon and subject to a right and license retained by LICENSORS on behalf of themselves and LICENSORS' academic research collaborators to make and use Licensed Products and practice Licensed Technology for research and educational purposes only. LICENSORS shall promptly verify the names of any research collaborators practicing the license retained in this Section 2.3 upon COMPANY's written request. 2.4 SUBLICENSES. COMPANY may grant sublicenses upon LICENSORS' written approval (which approval shall not be unreasonably withheld or delayed). In the event LICENSORS do not respond to a request for approval to sublicense within fifteen (15) days from receiving a copy of the proposed sublicense agreement from COMPANY, such request shall be deemed to be approved. COMPANY shall provide LICENSORS with complete copies of all sublicense agreements within thirty (30) days of their execution. COMPANY shall remain responsible to LICENSORS for the payment of all fees and royalties due under this Agreement, whether or not such payments are made to COMPANY by its sublicensees. COMPANY shall include in any sublicense granted pursuant to this Agreement a provision requiring the sublicensee to indemnify LICENSORS and maintain liability insurance coverage to the same extent that COMPANY is so required pursuant to Article 9 of this Agreement. 2.5 NO IMPLIED LICENSE. The license and rights granted in this Agreement shall not be construed to confer any rights upon COMPANY by implication, estoppel, or otherwise as to any technology not specifically identified in this Agreement, except as otherwise implied by law to the extent necessary to practice the Licensed Patents or Licensed Technology. 2.6 THIRD PARTY LICENSES. In the event LICENSORS acquire a license from a third party relating to intellectual property which would be deemed to be Licensed Patents or Licensed Technology but for the inability to sublicense such intellectual property to COMPANY without incurring financial or other non-contingent, material obligations, LICENSORS shall give prompt 10 CS-92 notice and a copy thereof to COMPANY. Such notice shall be accompanied by such data and information in LICENSORS' possession, which LICENSORS are authorized to transfer to COMPANY, or which can be obtained from such third party in order to assist COMPANY in determining whether to sublicense such third party license. COMPANY shall have [ * ] to elect whether to obtain a sublicense under such third party license pursuant to the terms thereof, but with no additional obligations of any type other than as prescribed therein. If COMPANY fails to notify LICENSORS of its decision regarding the acquisition of such sublicense within such [ * ] period, this Section 2.6 shall no longer apply to such third party license. ARTICLE 3. ROYALTIES AND OTHER PAYMENTS ---------------------------------------- 3.1 LICENSE INITIATION FEE. COMPANY shall pay LICENSORS a license initiation fee in the form of an aggregate amount of Fifty Thousand (50,000) shares of COMPANY common stock upon the execution of this Agreement. Such shares shall be issued directly to LICENSORS or to certain Inventors, as directed by LICENSORS. Each recipient of any shares shall sign the Restricted Stock Purchase Agreement and Investors' Rights Agreement dated as of even date herewith. 3.2 MILESTONE PAYMENTS. COMPANY shall pay LICENSORS a milestone payment ("Milestone Payments") in the amount specified below no later than [ * ] after the occurrence of the corresponding event designated below, unless COMPANY has given LICENSORS notice of termination prior to such due date. * CONFIDENTIAL TREATMENT REQUESTED 11 CS-92 Event Milestone Payment ----- ----------------- [ * ] [ * ] 3.3 LICENSE MAINTENANCE FEES. In the event no [ * ] has been paid pursuant to Subsection 3.2(a), COMPANY shall pay to LICENSORS, on the anniversary of the date of this Agreement set forth below, the amount set forth below opposite such date unless COMPANY has given notice of termination prior to such due date: Anniversary License Maintenance Fee ----------- ----------------------- [ * ] [ * ] 3.4 (a) RUNNING ROYALTIES. COMPANY shall pay LICENSORS a royalty equal to the following percentages of the Net Selling Price of Licensed Products Sold in the Licensed Territory by COMPANY and its Affiliates and sublicensees: PERCENTAGE OF NET SELLING PRICE CUMULATIVE NET SELLING PRICE OF LICENSED PRODUCTS FOR [ * ] [ * ] [ * ] (b) DURATION; REDUCTION. Royalties (at the rates set forth in this Section 3.4, subject to reduction or modification only as prescribed herein) shall be paid in respect of a given Licensed Product for a period of [ * ] after commercial introduction of such Licensed Product in a given country. Thereafter, royalties shall be paid only so long as the manufacture, use, offer for sale, sale or importation of such Licensed Product in such country would, in the absence of a license, infringe a Valid Claim of an issued and unexpired patent within the * CONFIDENTIAL TREATMENT REQUESTED 12 CS-92 Licensed Patents. If, during such [ * ] period, a third party or third parties commence selling a therapeutic product in a country in which there are no Valid Claims or are Valid Claims only of the type described in Section 1.22(b) and (i) such product contains any Licensed Compound ("unlicensed unit sales") and (ii) such unlicensed unit sales for any royalty period amount to [ * ] or more of the COMPANY's unit sales of such Licensed Product in such country in such royalty period, determined in accordance with Subsection 3.4(d) below, then COMPANY's royalty obligation in such country with respect to such Licensed Product shall be suspended commencing with the royalty period next succeeding the royalty period in which such [ * ] threshold was initially exceeded and shall resume with the royalty period next succeeding the first royalty period in which such [ * ] threshold is no longer exceeded. COMPANY's royalty obligations with respect to such Licensed Product shall resume in such country if and when such Valid Claim per Subsection 1.22(b) becomes a Valid Claim per Subsection 1.22(a). (c) UNIT SALES. For purposes of this Section 3.4, (i) "unlicensed unit sales" and "COMPANY unit sales" shall be deemed to mean the grams of Licensed Compound in third party product (irrespective of dosage form) or the Licensed Product (irrespective of dosage form), respectively, as reflected on the label of each such unit; and (ii) unlicensed unit sales shall be determined by the sales reports of IMS America Ltd. of Plymouth Meeting, Pennsylvania ("IMS") or any successor to IMS or any other independent marketing auditing firm selected by COMPANY or its sublicensees and reasonably acceptable to LICENSORS. If COMPANY is entitled to a royalty suspension based on unlicensed unit sales pursuant to Subsection 3.4(b) for * CONFIDENTIAL TREATMENT REQUESTED 13 CS-92 any royalty period, it or its sublicensees shall submit the sales report of IMS or such other independent firm, as applicable, for the relevant royalty period to LICENSORS, together with COMPANY's or its sublicensees' sales report for the relevant royalty period. Such sales reports for each royalty period in which COMPANY is entitled to such royalty suspension shall be submitted with the royalty report for such royalty period submitted pursuant to Section 4.1. 3.5 ANNUAL MINIMUM ROYALTIES. (a) Subject to Subsection 3.5 (b), in the event that COMPANY's total annual royalty payment to LICENSORS pursuant to Section 3.4 above during the [ * ] calendar year following the year during which the first FDA Registration is granted for a Licensed Product covered by Subsection 3.4(a) above and each calendar year thereafter for so long as there exist Valid Claims in the U.S. is less than the annual minimum royalty set forth opposite such year below (the "Annual Minimum"), COMPANY shall make a payment to LICENSORS together with the report for the fourth quarter of such year required in Section 4.1 of this Agreement equal to the difference between such Annual Minimum and the total royalties paid to LICENSORS for the preceding year pursuant to Section 3.4 above: Calendar Year Annual Minimum ------------- -------------- [ * ] [ * ] * CONFIDENTIAL TREATMENT REQUESTED 14 CS-92 (b) For any year in which Valid Claims do not exist in the United States for the entire year or this Agreement is not in effect for the entire year, the Annual Minimum shall be prorated accordingly. (c) Commencing upon FDA Registration for a Licensed Product and ending upon expiration of the [ * ] calendar year following the year in which such FDA Registration is granted, COMPANY may credit solely against running royalties (paid pursuant to Section 3.4), all reasonable costs incurred by COMPANY after the date hereof (including any reimbursements to LICENSORS pursuant to Section 7.1 for INTER PARTES Patent Prosecution Activities, as defined therein) in connection with any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence of the Licensed Patents or whether COMPANY's practice of the Licensed Patents infringes a third party patent. Until the end of such [ * ] calendar year, the amount of such credits shall not exceed in any year [ * ] of the royalty payments due hereunder in such year. Commencing upon the [ * ] calendar year following the year in which such FDA Registration is granted, such credits shall not exceed in any year [ * ] of the Annual Minimum payments due in such year. Such costs shall not be credited against any other payments due to LICENSORS under this Agreement. 3.6 REIMBURSEMENTS. COMPANY shall reimburse to LICENSORS, within [ * ] after submission to COMPANY of invoices and reasonable substantiation thereof: (a) Expenses heretofore incurred by LICENSORS in connection with the preparation, filing and prosecution of the Licensed Patents (approximating [ * ]), and * CONFIDENTIAL TREATMENT REQUESTED 15 CS-92 (b) Expenses incurred by LICENSORS in preparing this Agreement, not to exceed [ * ]. 3.7 ADDITIONAL PAYMENTS IN RESPECT OF SUBLICENSE AND OTHER AGREEMENTS. In the event COMPANY grants sublicenses, sales or other rights with respect to the Licensed Products pursuant to which COMPANY receives remuneration other than royalties, then COMPANY shall pay to LICENSORS a percentage (the "Applicable Percentage") as set forth below of all payments that COMPANY receives from such sublicensees or other parties, including, without limitation, (a) [ * ]; (b) [ * ]; (c) [ * ]; (d) [ * ]; and (e) [ * ]. As used in this Section 3.7, the term [ * ] means [ * ] and all other [ * ] to COMPANY in connection with a [ * ]; [ * ] means payments to COMPANY equal to [ * ], where "A" is the [ * ] of COMPANY [ * ] purchased by the [ * ], "B" is the [ * ] by the [ * ], and "C" is the [ * ] of the equity which, for purposes hereof, shall be equal to [ * ] of the per share price obtained by the COMPANY in its most recent round of preferred equity financing, unless COMPANY's Board of Directors has established a new per share price in good faith, in which case, such Board determined price shall apply; provided, however, that in the event such shares or other units of equity are publicly traded on a recognized securities market, the publicly traded price shall apply; [ * ] means [ * ] COMPANY upon the fulfillment by COMPANY or the [ * ] of [ * ] * CONFIDENTIAL TREATMENT REQUESTED 16 CS-92 [ * ] or [ * ] in excess of those set forth in Section 3.2; [ * ] means [ * ] (such as [ * ]) made by [ * ] to COMPANY to preserve, or to avoid a forfeiture of rights under, the [ * ] in excess of those set forth in Section 3.5; and [ * ] means the amount by which actual payments made by a [ * ] to COMPANY for Licensed Products or components of Licensed Products exceeds COMPANY's standard costs for manufacture and shipment of such products plus [ * ] of such costs, "standard costs" being determined in accordance with Generally Accepted Accounting Principles. LICENSORS acknowledge that they shall not be entitled to share in any payment made by a [ * ], regardless of how such payment is denominated, that represents reimbursement or advance payment of costs incurred by COMPANY for research, development or other purposes (as agreed by LICENSORS and COMPANY) in COMPANY's pursuit of regulatory or marketing approval for any Licensed Product. With respect to a [ * ] or [ * ] concluded prior to Registration in [ * ] of the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to a sublicense or other contractual arrangement which is concluded after Registration in [ * ] of the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to any sublicensing or other transaction to which this Section 3.7 applies but which relates to products or compounds in addition to Licensed Products and for which an allocation would be necessary, the parties shall meet and attempt to agree on which portion of the total payments received by COMPANY pursuant to such transaction should be subject to this Section 3.7. In the event the parties cannot agree upon such allocation within a * CONFIDENTIAL TREATMENT REQUESTED 17 CS-92 reasonable period of time, COMPANY shall select an independent certified public accountant, to which LICENSORS have no reasonable objection, to determine such allocation. Such allocation shall be determined in accordance with generally accepted accounting principles in the United States. 3.8 ACCRUAL OF ROYALTIES. No royalty shall be payable on a Licensed Product made, sold, or used for tests or development purposes or distributed as samples. No royalties shall be payable on sales among COMPANY, its Affiliates and sublicensees, but royalties shall be payable on subsequent sales by COMPANY, its Affiliates or sublicensees to a third party. No multiple royalty shall be payable because the manufacture, use or sale of a Licensed Product is covered by more than one Valid Claim or at least one Valid Claim and the Licensed Technology. 3.9 THIRD PARTY ROYALTIES. If COMPANY, its Affiliates or sublicensees determine after consultation with LICENSORS, but at COMPANY's discretion, that it or they are required to pay royalties or other fees to any third party (including under any third party license to which Section 2.6 applies) because the manufacture, use, offer for sale, importation, or sale of a Licensed Product infringes any patent or other intellectual property rights of such third party in a given country, and as a result of such third party royalty payments or any other fees paid to such third party, the total royalties payable by COMPANY to LICENSORS and such third parties exceeds [ * ] of COMPANY's Net Selling Price for such Licensed Product during any royalty period (such excess being referred to as "Excess Royalties"), COMPANY, its Affiliates or sublicensees may deduct from running royalties thereafter due to LICENSORS (per Section 3.4 of this Agreement) with respect to the Net Selling Price of such * CONFIDENTIAL TREATMENT REQUESTED 18 CS-92 Licensed Product in such country up to [ * ] of the Excess Royalties. In no event shall the royalties due on such Sales of such Licensed Product in such country on account of any reduction pursuant to this Section 3.9 thereby be reduced to less than [ * ] of the royalties which would have been due thereunder on such Sales of such Licensed Product in such country. 3.10 COMPULSORY LICENSES. Should a compulsory license be granted to any third party in any country of the Licensed Territory to make, have made, use, import, offer for sale or sell Licensed Products, the royalty rate payable thereunder for sales of the Licensed Products by COMPANY in such country shall be adjusted to match any lower royalty rate granted to the third party for such country. COMPANY shall provide LICENSORS with prompt written notice of any governmental or judicial procedures initiated in any country to impose a compulsory license. COMPANY shall take all reasonable and legal steps as COMPANY deems appropriate which are available to oppose such compulsory license and shall, at LICENSORS' request, cooperate reasonably with LICENSORS in any legal action which LICENSORS may wish to take to oppose such compulsory license, which action shall be at LICENSORS' sole expense and may not be taken by LICENSORS if such action would materially jeopardize the validity of any Licensed Patents in such country. 3.11 REDUCTION IN ROYALTY DUE TO INVALID CLAIMS. In the event that all applicable claims of a patent or patent application included within the Licensed Patents under which COMPANY is selling or actively developing a Licensed Product shall be held invalid or not infringed by the Licensed Products COMPANY is selling or actively developing by a court of * CONFIDENTIAL TREATMENT REQUESTED 19 CS-92 competent jurisdiction in a given country of the Licensed Territory, whether or not there is a conflicting decision by another court of competent jurisdiction in such country, COMPANY may cease all royalty payments on its, its Affiliates' or its sublicensees' sales of such Licensed Product covered by such claims and, if it does so, shall deposit such royalty payments in an interest-bearing escrow account until such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country or is otherwise unappealable or is unappealed within the time allowed therefor; provided, however, that if such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country, the former royalty payments shall be resumed and the royalty payments not theretofore made and interest earned thereon shall become due and payable to LICENSORS. 3.12 MOST FAVORED LICENSEE. Should COMPANY's exclusive license hereunder become nonexclusive in any country of the Licensed Territory due to LICENSORS' exercise of their conversion remedy and should LICENSORS thereafter grant to a third party a license for any Licensed Product in such country containing more favorable terms than those granted to COMPANY, then in such an event, LICENSORS promptly shall notify COMPANY and or its Affiliates or sublicensees, as applicable, and COMPANY and such Affiliates or sublicensees shall have the benefit of such more favorable terms provided they accept any less favorable terms contained in such license. ARTICLE 4. REPORTS AND ACCOUNTING 4.1 ROYALTY REPORTS AND RECORDS. During the term of this Agreement, COMPANY shall furnish, or cause to be furnished to LICENSORS, written reports governing each of COMPANY's, COMPANY's Affiliates' and COMPANY's sublicensees' fiscal quarters showing: * CONFIDENTIAL TREATMENT REQUESTED 20 CS-92 (a) the gross selling price of all Licensed Products Sold by COMPANY, its Affiliates and sublicensees, in each country of the Licensed Territory during the reporting period, together with the calculations of Net Selling Price in accordance with Sections 1.15 and 1.16; and (b) the royalties payable in Dollars, which shall have accrued hereunder in respect to such Sales; and (c) the exchange rates used, if any, in determining the amount of Dollars; and (d) a summary of all reports provided to COMPANY by COMPANY's sublicensees; and (e) the amount of any consideration received by COMPANY from sublicensees, an explanation of the contractual obligation satisfied by such consideration and calculation of any payments due LICENSORS pursuant to Section 3.7 of this Agreement; (f) the occurrence of any event triggering a Milestone Payment obligation in accordance with Section 3.2; and (g) the basis for any credits taken against Annual Minimum payments in accordance with Subsection 3.5(c), including documentation of costs incurred by COMPANY in any litigation, infringement, interference, or other action pertaining to the Licensed Patents, and any deductions from running royalty payments taken pursuant to Section 3.9, including documentation of any royalties or other fees paid to third parties. * CONFIDENTIAL TREATMENT REQUESTED 21 CS-92 Reports shall be made semi-annually until the first Sale of a Licensed Product and quarterly thereafter. Semi-annual reports shall be due within thirty (30) days of the close of every second and fourth COMPANY fiscal quarter. Quarterly reports shall be due within sixty (60) days of the close of every COMPANY fiscal quarter. COMPANY shall keep accurate records in sufficient detail to enable royalties and other payments payable hereunder to be determined. COMPANY shall be responsible for all royalties and late payments that are due to LICENSORS that have not been paid by COMPANY's Affiliates and sublicensees. COMPANY's sublicensees shall have, and shall be notified by COMPANY that they have, the option of making any royalty payment directly to LICENSORS. 4.2 RIGHT TO AUDIT. LICENSORS shall have the right, upon prior notice to COMPANY, not more than once in each COMPANY fiscal year nor more than once in respect of any fiscal year, through an independent certified public accountant selected by LICENSORS and acceptable to COMPANY, which acceptance shall not be unreasonably refused, to have access during normal business hours to those records of COMPANY as may be reasonably necessary to verify the accuracy of the royalty reports required to be furnished by COMPANY pursuant to Section 4.1 of the Agreement. COMPANY shall include in any sublicenses granted pursuant to this Agreement a provision requiring the sublicensee to keep and maintain records of Sales made pursuant to such sublicense and to grant access to such records by LICENSORS' independent certified public accountant. If such independent certified public accountant's report * CONFIDENTIAL TREATMENT REQUESTED 22 CS-92 shows any underpayment of royalties by COMPANY, its Affiliates or sublicensees, within thirty (30) days after COMPANY's receipt of such report, COMPANY shall remit or shall cause its sublicensees to remit to LICENSORS: (a) the amount of such underpayment; and (b) if such underpayment exceeds [ * ] of the total royalties owed for the fiscal year then being reviewed, the reasonably necessary fees and expenses of such independent certified public accountant performing the audit. Otherwise, LICENSORS' accountant's fees and expenses shall be borne by LICENSORS. Any overpayment of royalties shall be fully creditable against future royalties payable in any subsequent royalty periods. Upon the expiration of [ * ] following the end of any fiscal year, the calculation of royalties payable with respect to such fiscal year shall be binding and conclusive on LICENSORS and COMPANY, unless an audit is initiated before expiration of such [ * ]. 4.3 CONFIDENTIALITY OF RECORDS. All information subject to review under this Article 4 shall be confidential. Except where provided by law, LICENSORS and its accountant shall retain all such information in confidence. ARTICLE 5. PAYMENTS 5.1 PAYMENTS AND DUE DATES. Except as otherwise provided herein, royalties and sublicense and other fees payable to LICENSORS as a result of activities occurring during the period covered by each royalty report provided for under Article 4 of this Agreement shall be due and payable on the date such royalty report is due. Payments of royalties in whole or in part may be made in advance of such due date. Any payment in excess of [ * ] * CONFIDENTIAL TREATMENT REQUESTED 23 CS-92 [ * ] shall be made by wire transfer to an account or accounts of LICENSORS designated by LICENSORS from time to time; provided, however, that in the event that LICENSORS fail to designate such account, COMPANY or its Affiliates and sublicensees may remit payment to LICENSORS to the address applicable for the receipt of notices hereunder; providing, further, that any notice by LICENSORS of such account or change in such account, shall not be effective until fifteen (15) days after receipt thereof by COMPANY. One hundred percent (100%) of each payment due hereunder shall be paid by COMPANY to EMORY. UGARF acknowledges and agrees that COMPANY shall have no liability to UGARF with respect to any payment due hereunder after such payment is made by COMPANY to EMORY. 5.2 CURRENCY RESTRICTIONS. Except as hereinafter provided in this Section 5.2, all royalties shall be paid in Dollars. If, at any time, legal restrictions prevent the prompt remittance of part of or all royalties with respect to any country in the Licensed Territory where Licensed Products are Sold, COMPANY or its sublicensee shall have the right and option to make such payments by depositing the amount thereof in local currency to LICENSORS' accounts in a bank or depository in such country. 5.3 INTEREST. Royalties and other payments required to be paid by COMPANY pursuant to this Agreement shall, if overdue, bear interest at the lesser of [ * ]or a per annum rate of [ * ] until paid. The payment of such interest shall not foreclose LICENSORS from exercising any other rights they may have because any payment is overdue. * CONFIDENTIAL TREATMENT REQUESTED 24 CS-92 ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM 6.1 DUE DILIGENCE OBLIGATIONS. COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, use its best efforts: (a) to conduct a research and development program relating to the use of Licensed Products in the Field of Use; and (b) to diligently pursue Registration of the Licensed Products; and (c) to effectively market the Licensed Products. 6.2 FULFILLMENT; CONVERSION. (a) For purposes of this Agreement, "best efforts" shall mean that COMPANY shall use reasonable efforts including, to the extent appropriate, pursuing sublicenses or corporate alliances, consistent with those used by comparable pharmaceutical companies in the United States in research and development projects for therapeutic methods or compositions deemed to have commercial value comparable to the Licensed Products. COMPANY's best efforts obligations set forth in this Article 6 and implied by law shall be deemed to have been fulfilled if COMPANY: (i) causes the Phase II Commencement Date with respect to a first Licensed Product to occur by the [ * ] anniversary of the date of this Agreement; and (ii) files an NDA for a Licensed Product by the [ * ] anniversary of the date of this Agreement; and (iii) diligently pursues such Registration; and (iv) commences marketing at least one Licensed Product within [ * ] following such Registration. COMPANY shall be entitled to obtain a maximum of three consecutive extensions of time for meeting each of its obligations to commence Phase II clinical studies or file an NDA, by paying to LICENSORS [ * ] * CONFIDENTIAL TREATMENT REQUESTED 25 CS-92 for a first extension of [ * ] duration, [ * ] for a second extension of [ * ] duration, and [ * ] for a third extension of [ * ] duration. Payment for any such extension must be received by LICENSORS within [ * ] business days following the expiration of the period during which any diligence obligation was required to be met. COMPANY shall provide reports to LICENSORS every [ * ] days following its NDA filing(s) concerning the status of such filing(s) until final approval thereof. Each such report shall describe the status of the COMPANY's NDA and disclose any request for additional information or data received by COMPANY from the FDA during the reporting period and COMPANY's plans for complying with such request. COMPANY shall immediately notify LICENSORS if COMPANY determines that it is unwilling to comply with any FDA requirement the failure with which to comply would result in the given Licensed Product being unapprovable by the FDA (which notice is hereinafter referred to as a "Failure of Diligence Notice"). Upon receipt of such a Failure of Diligence Notice, COMPANY shall be deemed to have failed to meet its diligence obligations, and LICENSORS may thereafter invoke any remedy provided for in this Article without any further notice to COMPANY. (b) In the event COMPANY fails to meet any diligence requirement set forth herein in respect of the Licensed Products, LICENSORS shall have the option in their sole discretion to (i) terminate the Agreement within the entire Licensed Territory or any portion of the Licensed Territory, (ii) convert the license granted in this Agreement into a non-exclusive license within the entire Licensed Territory or any portion of the Licensed Territory, or (iii) * CONFIDENTIAL TREATMENT REQUESTED 26 CS-92 terminate the Agreement within a portion of the Licensed Territory and convert the license granted in this Agreement into a non-exclusive license within a portion of the Licensed Territory. (c) Upon exercise by LICENSORS of any portion of their rights under the preceding Subsection, COMPANY shall deliver to LICENSORS all data, and shall grant to LICENSORS and their sublicensees a non-exclusive, royalty free license under all intellectual property rights in COMPANY's or COMPANY's sublicensees' control and required for regulatory or commercial reasons in order to market any Licensed Product in the country or countries in which termination has occurred. COMPANY shall further provide LICENSORS, promptly upon request, copies of the IND, NDA or other documents required for regulatory approvals for Sale in the United States and any foreign countries provided that such termination has occurred with respect to such countries. COMPANY shall, further permit LICENSORS and any licensee of LICENSORS to cross-reference such filings for such indication and shall sell LICENSORS or LICENSORS' licensees any Licensed Compounds or intermediates used in the synthesis of such Licensed Compounds (and not being used by COMPANY for the synthesis of other compounds) at COMPANY's cost. (d) Prior to exercising any rights under this Section, LICENSORS shall give COMPANY [ * ] notice and shall meet with COMPANY, at COMPANY's request and expense, during such [ * ] period, to discuss any disagreements about whether COMPANY has complied with the requirements of this Section. Upon expiration of such [ * ] period, LICENSORS shall have the right in their sole discretion to proceed with the * CONFIDENTIAL TREATMENT REQUESTED 27 CS-92 exercise of all rights and remedies provided for herein unless the applicable diligence obligation is met during such [ * ] period. 6.3 PROGRESS REPORTS. COMPANY shall, no less frequently than once every [ * ] until a Licensed Product has been Registered, provide LICENSORS with a written report detailing all activities of COMPANY, its Affiliates and sublicensees related to developing Licensed Products, except to the extent required to do so more frequently pursuant to Section 6.2. 6.4 DEVELOPMENT OUTSIDE UNITED STATES. No later than COMPANY's filing of an NDA for a Licensed Product in the United States, COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, commence its best efforts: (a) to obtain Registration for a Licensed Product in such other countries of the Licensed Territory as COMPANY or COMPANY's Affiliates and sublicensees deem appropriate; and (b) upon Registration of a Licensed Product in a particular country proceed with due diligence to market such Licensed Product in such country. ARTICLE 7. PATENT PROSECUTION 7.1 LICENSED PATENTS ASSIGNED TO LICENSORS. (a) LICENSORS shall be primarily responsible for all patent prosecution activities pertaining to Licensed Patents assigned solely to LICENSORS. LICENSORS shall select patent counsel, acceptable to COMPANY, to prosecute, acquire from the relevant patent offices, defend and maintain and handle any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence (all of the foregoing activities * CONFIDENTIAL TREATMENT REQUESTED 28 CS-92 being referred to as "Patent Prosectution Activities") of all such Licensed Patents and shall provide COMPANY with copies of all filings and correspondence pertaining to such Patent Prosecution Activities (pre and post the date hereof), in a timely manner, so as to give COMPANY an opportunity to comment thereon. To the extent reasonably possible, LICENSORS shall pursue Patent Prosecution Activities in respect of such Licensed Patents in at least the following countries: [ * ], and [ * ]. LICENSORS shall, upon COMPANY's request, pursue Patent Prosecution Activities in respect of such Licensed Patents in additional countries. If LICENSORS decide to abandon or allow to lapse any patent application or patent within the Licensed Patents or discontinue any other Patent Prosecution Activities in respect thereof in any country of the Licensed Territory, LICENSORS shall inform COMPANY and COMPANY shall be given the opportunity to assume Patent Prosecution Activities in respect thereof. (b) COMPANY shall reimburse LICENSORS, not later than thirty (30) days after receiving an invoice from LICENSORS (and reasonable substantiation thereof if requested by COMPANY), for all reasonable out-of-pocket expenses incurred by LICENSORS after the date of this Agreement for all such Patent Prosecution Activities. Invoices shall be submitted once in respect of each calendar quarter as promptly as practicable after the end of such quarter. If COMPANY fails to promptly reimburse LICENSORS for any undisputed expenses for Patent Prosecution Activities respecting any patent application or issued patent assigned solely to LICENSORS within the time allowed therefor, upon at least thirty (30) days' prior notice to COMPANY, such patent application or issued patent shall not be considered a Licensed Patent * CONFIDENTIAL TREATMENT REQUESTED 29 CS-92 and LICENSORS shall be free, at their election, to continue or discontinue any or all of the Patent Prosecution Activities in respect of such patent application or issued patent or grant rights to such patent application or issued patent to third parties. (c) COMPANY reserves the right to terminate its obligations pursuant to Section 7.1 with respect to any patent application or patent included in the Licensed Patents in any country or countries upon at least thirty (30) days' prior written notice to LICENSORS. After the date specified in such notice on which COMPANY's obligation to pay further expenses for Patent Prosecution Activities terminates, such patent application or patent, as the case may be, shall no longer be included in the Licensed Patents in those countries in which COMPANY has exercised its rights to terminate such obligations. 7.2 LICENSED PATENTS JOINTLY ASSIGNED TO COMPANY AND LICENSORS. Any invention relating to a Licensed Compound, the invention of which under applicable patent law is attributed jointly to at least one employee of either LICENSOR and at least one employee of COMPANY, shall be assigned by such employees to such LICENSOR and COMPANY. Any such jointly assigned patent, or patent application which includes claims to any Licensed Products shall be considered a Licensed Patent and subject to the terms of this Agreement. COMPANY shall be primarily responsible for all Patent Prosecution Activities pertaining to Licensed Patents jointly assigned to LICENSORS and COMPANY. COMPANY shall select patent counsel, acceptable to LICENSORS, to pursue Patent Prosecution Activities in respect of all such Licensed Patents and shall provide 30 CS-92 LICENSORS with copies of all filings and correspondence pertaining to such Patent Prosecution Activities, in a timely manner, so as to give LICENSORS an opportunity to comment thereon. COMPANY shall advise such patent counsel in writing that for purposes of such Patent Prosecution Activities, such counsel represents both COMPANY and any LICENSOR which is a joint assignee of such patent application or issued patent. COMPANY shall further inform LICENSORS of any decision by COMPANY to discontinue any Patent Prosecution Activities in respect of any pending patent application or issued patent promptly upon reaching such decision and in any case, no less than thirty (30) days before the discontinuance thereof. COMPANY shall be solely responsible for all expenses incurred by COMPANY in connection with Patent Prosecution Activities for patent applications and patents to which this Section 7.2 applies. COMPANY shall pursue Patent Prosecution Activities in respect of such Licensed Patents in those countries it deems reasonably appropriate after consultation with LICENSORS. If COMPANY fails to timely pursue Patent Prosecution Activities in respect of any patent application or issued patent jointly assigned to COMPANY and LICENSORS in any country in which LICENSORS wish to pursue Patent Prosecution Activities, LICENSORS shall be free at their sole expense, to continue or discontinue any or all of the Patent Prosecution Activities in respect of such patent application or issued patent in such country or grant their rights to such patent application or issued patent to third parties. Thereafter, LICENSORS' rights to such patent application and issued patent shall no longer be included in the license granted pursuant to Section 2.1 and COMPANY shall further, upon LICENSORS' request, license COMPANY's rights under such jointly assigned patents to LICENSORS or any licensees of LICENSORS, non-exclusively on a royalty free basis. 31 CS-92 ARTICLE 8. INFRINGEMENT ------------------------ 8.1 THIRD PARTY INFRINGEMENT. If COMPANY or either LICENSOR becomes aware of any activity that it believes infringes a Valid Claim, the party obtaining such knowledge shall promptly advise the others of all relevant facts and circumstances pertaining to the potential infringement. COMPANY shall have the right to enforce any rights within the Licensed Patents or the Licensed Technology against such infringement, at its own expense. LICENSORS shall cooperate with COMPANY in such effort, at COMPANY's expense, including being joined as a party or parties to such action if necessary. COMPANY may deposit up to [ * ] of any running royalties and Milestone Payments which are otherwise payable to LICENSOR during the pendency of any such infringement action in an interest-bearing escrow account (bearing interest at rates comparable to other COMPANY deposits of immediately available funds). COMPANY shall, upon the final resolution or settlement of such infringement action, provide LICENSORS with an accounting of the total royalty payments and Milestone Payments escrowed (and interest thereon) and COMPANY's expenses incurred in such infringement action. COMPANY shall be entitled to offset any expenses which COMPANY fails to recoup from any damage award or settlement payments arising from such infringement action against such escrowed royalties. Any escrowed payments (and interest thereon) in excess of COMPANY's unrecouped expenses shall be immediately paid to LICENSORS. Any damage award or settlement payments made to COMPANY in excess of COMPANY's expenses shall be treated as royalty bearing Sales of Licensed Products and COMPANY shall make royalty payments on such revenues in accordance with Article 3 of this Agreement. 8.2 LICENSORS' RIGHTS TO PURSUE THIRD PARTY INFRINGERS. If COMPANY shall fail, within one hundred twenty (120) days after receiving notice from LICENSORS of a potential infringement, or providing LICENSORS with notice of such infringement, to either (a) terminate such infringement or (b) institute an action to prevent continuation thereof and, thereafter, to prosecute such action diligently, or if COMPANY notifies LICENSORS that it does not plan to terminate the infringement or institute such action, then LICENSORS shall have the right to do so at their own expense. COMPANY shall cooperate with LICENSORS in such effort, including being joined as a party to such action if necessary. LICENSORS shall be entitled to retain all damages or costs awarded to LICENSORS in such action. * Confidential Treatment Requested 32 CS-92 ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; ----------------------------------------------- AND INDEMNIFICATION ------------------- 9.1 WARRANTIES OF LICENSORS. (a) LICENSORS represent and warrant that, to the best of their knowledge: (i) LICENSORS have disclosed to COMPANY all potential patent rights in the control of third parties known to LICENSORS which may be needed to commercialize any Licensed Products ; and (ii) APPENDIX "A" is a complete list of all patents and patent applications included in the Licensed Patents as of the date hereof. LICENSORS will, from time to time during the term of this Agreement, promptly provide COMPANY, upon request, with an updated version of APPENDIX "A." (b) LICENSORS further represent and warrant that they are the exclusive owners of all right, title and interest in the patents and patent applications identified in APPENDIX "A" as of the date hereof, subject to the rights of the U.S. Government, as described in the U.S. Government Licenses. For purposes of the representation and warranty set forth in clause (i) of Subsection 9.1(a), "LICENSORS" shall mean the Inventors and any employees of EMORY or UGARF who work in the technology transfer area. COMPANY acknowledges that LICENSORS have not undertaken any investigation with respect to the potential patent rights of any third party. 9.2 WARRANTIES OF EACH PARTY. Each party hereto represents to the others that it is free to enter into this Agreement and to carry out all of the provisions hereof, including, in the case of LICENSORS, their grant to COMPANY of the license described in Section 2. 1. 33 CS-92 9.3 MERCHANTABILITY AND EXCLUSION OF WARRANTIES. COMPANY possesses the necessary expertise and skill in the technical areas pertaining to the Licensed Patents, Licensed Products and Licensed Technology to make, and has made, its own evaluation of the capabilities, safety, utility and commercial application of the Licensed Patents, Licensed Products and Licensed Technology. ACCORDINGLY, EXCEPT AS SET FORTH IN SECTIONS 9.1 AND 9.2, LICENSORS DO NOT MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE VALIDITY OF LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS AND EXPRESSLY DISCLAIM ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY, OR COMMERCIAL APPLICATION OF THE LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS. 9.4 NO LIABILITY FOR CONSEQUENTIAL DAMAGES AND LIMITATION OF LIABILITY. LICENSORS shall not be liable to COMPANY or COMPANY's Affiliates, customers or sublicensees for compensatory, special, incidental, indirect, consequential or exemplary damages resulting from the manufacture, testing, design, labeling, use or sale of Licensed Products by or through COMPANY, its Affiliates or sublicensees. This Section shall not affect COMPANY's rights hereunder to any credit or royalty reduction explicitly permitted elsewhere herein. 34 CS-92 9.5 INDEMNIFICATION. (a) COMPANY shall defend, indemnify, and hold harmless the Indemnitees, from and against any and all claims, demands, loss, liability, expense, or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay, or incur as a result of claims, demands or actions against any of the Indemnitees arising or alleged to arise by reason of, or in connection with, any and all personal injury (including death) and property damage caused or contributed to, in whole or in part, by manufacture, testing, design, use, Sale, or labeling of any Licensed Products by COMPANY or COMPANY's Affiliates, contractors, agents or sublicensees. COMPANY's obligations under this Article shall survive the expiration or termination of this Agreement for any reason. (b) LICENSORS shall indemnify and hold Indemnitees harmless from and against any and all claims, demands, loss, liability, expense or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay or incur as a result of claims, demands or actions against any of the Indemnitees arising by reason of, or in 35 CS-92 connection with, the breach by LICENSORS of any of their representations and warranties set forth in this Agreement. 9.6 INSURANCE. Without limiting COMPANY's indemnity obligations under the preceding Section, COMPANY shall, to the extent available at commercially reasonable rates and prior to any clinical trial or Sale of any Licensed Product, cause to be in force, an [ * ] insurance policy which: (a) insures LICENSORS and their Indemnitees for all claims, damages, and actions mentioned in Section 9.5(a) of this Agreement; and (b) requires the insurance carrier to provide LICENSORS with no less than [ * ] written notice of any change in the terms or coverage of the policy or its cancellation; and (c) provides Indemnitees product liability coverage in an amount no less than [ * ] per occurrence for bodily injury and [ * ] per occurrence for property damage, subject to a reasonable aggregate amount, as determined by COMPANY. 9.7 NOTICE OF CLAIMS; INDEMNIFICATION PROCEDURES. (a) COMPANY shall promptly notify LICENSORS of all claims involving the Indemnitees for which indemnification is or may be provided in Section 9.5(a) and shall advise LICENSORS of the policy amounts that might be needed to defend and pay any such claims. * CONFIDENTIAL TREATMENT REQUESTED 36 CS-92 (b) An Indemnitee which intends to claim indemnification under this Article shall promptly notify the other party (the "Indemnitor") in writing of any matter in respect of which the Indemnitee or any of its employees or agents intend to claim such indemnification. The Indemnitee shall permit, and shall cause its employees and agents to permit, the Indemnitor, at its discretion, to settle any such matter and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, that such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such matter shall be settled without the prior written consent of the Indemnitor and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any matter covered by the applicable indemnification. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. ARTICLE 10. CONFIDENTIALITY 10.1 TREATMENT OF CONFIDENTIAL INFORMATION. Except as otherwise provided hereunder, during the term of this Agreement and for a period of [ * ] thereafter: (a) COMPANY and its Affiliates and sublicensees shall retain in confidence and use only for purposes of this Agreement, any written information and data supplied by LICENSORS to COMPANY under this Agreement; and * CONFIDENTIAL TREATMENT REQUESTED 37 CS-92 (b) LICENSORS shall retain in confidence and use only for purposes of this Agreement any written information and data supplied by COMPANY or on behalf of COMPANY to LICENSORS under this Agreement. For purposes of this Agreement, all such information and data which a party is obligated to retain in confidence shall be called "Information." 10.2 RIGHT TO DISCLOSE. To the extent that it is reasonably necessary to fulfill its obligations or exercise its rights under this Agreement, or any rights which survive termination or expiration hereof, each party may disclose Information to its Affiliates, sublicensees, consultants, outside contractors, actual or prospective investors, governmental regulatory authorities and clinical investigators on condition that such entities or persons agree: (a) to keep the Information confidential for a [ * ] time period and to the same extent as each party is required to keep the Information confidential; and (b) to use the Information only for such purposes as such parties are authorized to use the Information. Each party or its Affiliates or sublicensees may disclose Information to the government or other regulatory authorities to the extent that such disclosure (i) is necessary for the prosecution and enforcement of patents, or authorizations to conduct clinical trials or commercially market Licensed Products, provided such party is then otherwise entitled to engage in such activities during the term of this Agreement or thereafter in accordance with the provisions of this Agreement, or (ii) is legally required. * CONFIDENTIAL TREATMENT REQUESTED 38 CS-92 10.3 RELEASE FROM RESTRICTIONS. The obligation not to disclose Information shall not apply to any part of such Information that: (a) is or becomes patented, published or otherwise part of the public domain, other than by unauthorized acts of the party obligated not to disclose such Information (for purposes of this Article 10 the "receiving party") or its Affiliates or sublicensees in contravention of this Agreement; or (b) is disclosed to the receiving party or its Affiliates or sublicensees by a third party provided that such Information was not obtained by such third party directly or indirectly from the other party to this Agreement; or (c) prior to disclosure under this Agreement, was already in the possession of the receiving party, its Affiliates or sublicensees, provided that such Information was not obtained directly or indirectly from the other party to this Agreement; or (d) results from research and development by the receiving party or its Affiliates or sublicensees, independent of disclosures from the other party to this Agreement, provided that the persons developing such information have not had exposure to the information received from the other party to this Agreement; or (e) is required by law to be disclosed by the receiving party, provided that the receiving party uses reasonable efforts to notify the other party immediately upon learning of such requirement in order to give the other party reasonable opportunity to oppose such requirement; or (f) COMPANY and LICENSORS agree in writing may be disclosed. 39 CS-92 ARTICLE 11. TERM AND TERMINATION 11.1 TERM. Unless sooner terminated as otherwise provided in this Agreement, the term of this Agreement shall commence on the date of this Agreement and shall continue in full force and effect until the expiration of the last to expire Valid Claim. 11.2 TERMINATION. LICENSORS shall have the right to terminate this Agreement upon the occurrence of any one or more of the following events, provided that LICENSORS have given COMPANY the notice required in Section 11.3 and COMPANY has failed to cure the breach described in such notice: (a) failure of COMPANY to make any payment required pursuant to this Agreement when due; or (b) failure of COMPANY to timely issue COMPANY stock to LICENSORS or certain Inventors as designated by LICENSORS in accordance with the certain Restricted Stock Purchase Agreement among LICENSORS and such Inventors and COMPANY of even date herewith; or (c) failure of COMPANY to render reports to LICENSORS as required by this Agreement; or (d) the institution of any proceeding by COMPANY under any bankruptcy, insolvency, or moratorium law; or (e) any assignment by COMPANY of substantially all of its assets for the benefit of creditors; or 40 CS-92 (f) placement of COMPANY's assets in the hands of a trustee or a receiver unless the receivership or trust is dissolved within thirty (30) days thereafter and provided that in the case of in involuntary bankruptcy proceeding, which is contested by COMPANY, such termination shall not become effective until the bankruptcy court of jurisdiction has entered an order upholding the petition; or (g) a decision by COMPANY or COMPANY's permitted assignee of rights under this Agreement to quit the business of developing or selling Licensed Products; or (h) the breach by COMPANY of any other material term of this Agreement. 11.3 EXERCISE. LICENSORS may exercise their right of termination by giving COMPANY, its trustees, receivers or assigns, thirty (30) days' prior written notice of LICENSORS' election to terminate. Such notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless COMPANY has cured the breach. Such notice and termination shall not 41 CS-92 prejudice LICENSORS' right to receive royalties or other sums due hereunder and shall not prejudice any cause of action or claim of LICENSORS. 11.4 FAILURE TO ENFORCE. The failure of LICENSORS, at any time, or for any period of time, to enforce any of the provisions of this Agreement, shall not be construed as a waiver of such provisions or as a waiver of the right of LICENSORS thereafter to enforce each and every such provision of this Agreement. 11.5 TERMINATION BY COMPANY. COMPANY shall have the right to terminate this Agreement upon the occurrence of either of the following events: (a) the breach of a material term of this Agreement by LICENSORS; or (b) upon COMPANY's convenience and written notice of such termination given to LICENSORS at least ninety (90) days prior to the date of such termination. The termination right set forth in this Subsection 11.5(b) may be exercised by COMPANY in respect of the entire Licensed Territory or one or more countries (excluding the United States) of the Licensed Territory without affecting this Agreement in the remaining countries of the Licensed Territory. 11.6 EXERCISE. COMPANY may exercise its right of termination pursuant to Section 11.5(a) by giving LICENSORS thirty (30) days' prior written notice of COMPANY's election to terminate. The notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless LICENSORS have cured the breach. Such notice of termination shall not 42 CS-92 prejudice any cause of action or claim of COMPANY accrued or to accrue on account of any breach or default by LICENSORS. 11.7 EFFECT. If this Agreement is terminated as a result of COMPANY's breach pursuant to Section 11.2, or in accordance with Section 11.5(b): (a) COMPANY shall use its best efforts to return, or at LICENSORS' direction, destroy, all data, writings and other documents and tangible materials supplied to COMPANY by LICENSORS; and (b) COMPANY shall further, upon LICENSORS' request and with no need for additional consideration, grant LICENSORS a non-exclusive, royalty free license (with the right to sublicense) to all of COMPANY's rights in any Licensed Patents and other patents owned by, licensed to (to the extent sublicensing is permissible and subject to the terms thereof, including any royalty obligations) or controlled by COMPANY which include claims covering or potentially covering the manufacture, use or sale of any Licensed Products, or derivatives or analogues thereof. COMPANY shall further provide LICENSORS with full and complete copies of all toxicity, efficacy, and other data generated by COMPANY or COMPANY's Affiliates, sublicensees, contractors or agents in the course of COMPANY's efforts to develop Licensed Products or obtain governmental approval for the Sale of Licensed Products, including but not limited to any IND, NDA or other documents filed with any government agency. LICENSORS and their licensees shall be authorized to cross-reference any such IND, NDA or other filings made in the United States or foreign countries where permitted by law. LICENSORS shall be authorized to provide data pertaining to the Licensed Patents and Licensed Technology to any third party with a bona 43 CS-92 fide interest in licensing such technology. Such data shall be provided on a confidential basis; provided, however, that if such third party enters into a license with LICENSORS, such third party shall be free to use such data for all purposes, including to obtain government approvals to sell products containing any Licensed Compound. COMPANY shall cooperate reasonably (at no unreimbursed expense to COMPANY) with any third party licensee of LICENSORS in pursuing governmental approval to sell any product containing any Licensed Compound, including but not limited to, permitting such third parties to cross-reference any NDA filed with the FDA or Registration obtained from the FDA or analogous documents filed or obtained in any foreign countries. ARTICLE 12. ASSIGNMENT COMPANY shall not assign this Agreement or any part thereof without the prior written consent of LICENSORS, which consent shall not be unreasonably withheld or delayed. COMPANY may, however, without consent, assign or sell its rights under this Agreement (a) in connection with the transfer or sale of substantially its entire business to which this Agreement pertains, (b) in the event of its merger or consolidation with another company, or (c) to an Affiliate. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party has under this Agreement. Any assignee of this Agreement shall assume all accrued and prospective obligations including, but not limited to, those set forth in Articles 6 and 7. Any such assignee shall further, within sixty (60) days of becoming the assignee of rights hereunder, meet with LICENSORS' 44 CS-92 representatives to discuss such assignee's plans for the future development of the Licensed Products. If such assignee determines that it does not wish to continue the development or marketing obligations required under this Agreement or otherwise attempt to sublicense its rights, then such assignee shall immediately terminate this Agreement. Any such termination shall be treated as a termination under Subsection 11.5(b). ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY Within sixty (60) days following the date hereof and as far as they have not previously done so, LICENSORS shall supply COMPANY with all available Licensed Technology. With respect to any Licensed Technology which becomes known to LICENSORS during the term of this Agreement, such disclosure will be made at least semi-annually or sooner, if practicable. ARTICLE 14. REGISTRATION OF LICENSE COMPANY, at its expense, may register the license granted under this Agreement in any country of the Licensed Territory where the use, sale or manufacture of a Licensed Product in such country would be covered by a Valid Claim. Upon request by COMPANY, LICENSORS agree promptly to execute any "short form" licenses submitted to it by COMPANY in order to effect the foregoing registration in such country. ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT 15.1 NOTICES RELATING TO THE ACT. LICENSORS shall use their best efforts to notify COMPANY of (a) the issuance of each U.S. patent included among the Licensed Patents, giving the date of issue and patent number for each such patent; and (b) each notice pertaining to any patent included among the Licensed Patents which LICENSORS 45 CS-92 receive as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter the "Act"), including, but not necessarily limited to, notices pursuant to Sections 101 and 103 of the Act from persons who have filed an abbreviated NDA ("ANDA") of a "paper" NDA. Such notices shall be given promptly, but in any event within ten (10) days of LICENSORS' notice of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. 15.2 AUTHORIZATION RELATING TO PATENT TERM EXTENSION. LICENSORS hereby authorize COMPANY (a) to include in any NDA for a Licensed Product, as COMPANY may deem appropriate under the Act, a list of patents included among the Licensed Patents that relate to such Licensed Product and such other information as COMPANY, in its reasonable discretion, believes is appropriate to be filed pursuant to the Act; (b) to commence suit for any infringement of the Licensed Patents under Section 271(e) (2) of Title 35 of the United States Code occasioned by the submission by a third party of an IND or a paper NDA for a Licensed Product pursuant to Sections 101 or 103 of the Act; and (c) subject to LICENSORS' consent (which consent will not be unreasonably withheld or delayed), to exercise any rights that may be exercisable by LICENSORS as patent owners under the Act to apply for an extension of the term of any patent included among the Licensed Patents. In the event that applicable law in any other country of the Licensed Territory hereafter provides for the extension of the term of any patent included among the Licensed Patents in such country, upon request by COMPANY, LICENSORS shall use their best efforts to obtain such extension or, in lieu thereof, shall authorize COMPANY or, if requested by 46 CS-92 COMPANY or its sublicensees to apply for such extension, in consultation with LICENSORS. LICENSORS agree to cooperate with COMPANY or its sublicensees, as applicable, in the exercise of the authorization granted herein or which may be granted pursuant to this Section 15.2 and will execute such documents and take such additional action as COMPANY may reasonably request in connection therewith, including, if necessary, permitting themselves to be joined as proper parties in any suit for infringement brought by COMPANY under subsection (b) above. The provisions of Article 8 shall apply to any suit for infringement brought by COMPANY under subsection (b) above. In the event COMPANY decides not to commence suit for infringement under subsection (b) above, COMPANY will notify LICENSORS of its decision within thirty (30) days so that LICENSORS may institute such litigation themselves, if they wish, at their own cost and expense. ARTICLE 16. MISCELLANEOUS 16.1 ARBITRATION. Any controversy, claim or dispute regarding COMPANY's failure to meet its diligence obligations in accordance with Article 6 of this Agreement, including, without limitation, any dispute concerning the scope of this arbitration clause, shall be resolved through arbitration conducted under the auspices of the American Arbitration Association pursuant to that organization's rules for commercial arbitration. Any hearings requested by COMPANY shall be held in Atlanta, Georgia. Any hearings requested by LICENSORS shall be held in Durham, North Carolina. 47 CS-92 16.2 EXPORT CONTROLS. COMPANY acknowledges that LICENSORS are subject to United States laws and regulations controlling the export of technical data, biological materials, chemical compositions and other commodities and that LICENSORS' obligations under this Agreement are contingent upon compliance with applicable United States export laws and regulations. The transfer of technical data, biological materials, chemical compositions and commodities may require a license from the cognizant agency of the United States government or written assurances by COMPANY that COMPANY shall not export data or commodities to certain foreign countries without the prior approval of certain United States agencies, or as otherwise prescribed by applicable law or regulation. LICENSORS neither represent that an export license shall not be required nor that, if required, such export license shall issue. 16.3 LEGAL COMPLIANCE. COMPANY shall comply with all laws and regulations relating to its manufacture, use, sale, labeling or distribution of Licensed Products and shall not take any action which would cause LICENSORS or COMPANY to violate any laws or regulations. 16.4 INDEPENDENT CONTRACTOR. COMPANY's relationship to LICENSORS shall be that of a licensee only. COMPANY shall not be the agent of LICENSORS and shall have no authority to act for, or on behalf of, LICENSORS in any matter. Persons retained by COMPANY as employees or agents shall not, by reason thereof, be deemed to be employees or agents of LICENSORS. 48 CS-92 16.5 PATENT MARKING. COMPANY shall mark Licensed Products Sold in the United States with United States patent numbers. Licensed Products manufactured or Sold in other countries shall be marked in compliance with the intellectual property laws in force in such countries. The foregoing obligations shall be subject to size and space limitations. 16.6 USE OF NAMES. COMPANY shall obtain the prior written approval of LICENSORS prior to making use for any commercial purpose of the name of any of the Inventors, any employee of either of the LICENSORS or of the LICENSORS, except that COMPANY may identify LICENSORS to prospective investors and in public announcements relating to consummation of this Agreement. 16.7 EFFECT. This Agreement shall not become effective or binding upon the parties until signed by EMORY's Executive Vice President, UGARF's Vice President for Research and the President or any other authorized officer of COMPANY. 16.8 GOVERNING LAW. This Agreement and all amendments, modifications, alterations, or supplements hereto, and the rights of the parties hereunder, shall be construed under and governed by the laws of the State of Georgia and the United States of America. 16.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among LICENSORS and COMPANY with respect to the subject matter hereof and shall not be modified, amended or terminated, except as herein provided or except by another agreement in writing executed by the parties hereto. 49 CS-92 16.10 SURVIVAL. Articles 9 and 10 shall survive termination of this Agreement for any reason. Section 11.7 shall survive termination pursuant to Section 11.2 or 11.5(b). Upon expiration of this Agreement, COMPANY shall have a fully paid up license to use the Licensed Technology. 16.11 SEVERABILITY. All rights and restrictions contained herein may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. If any provision or portion of any provision of this Agreement, not essential to the commercial purpose of this Agreement, shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining provisions or portions thereof shall constitute their agreement with respect to the subject matter hereof, and all such remaining provisions, or portions thereof, shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced by a valid provision which shall implement the commercial purpose of the illegal, invalid, or unenforceable provision. In the event that any provision essential to the commercial purpose of this Agreement is held to be illegal, invalid or unenforceable and cannot be replaced by a valid provision which will implement the commercial purpose of this Agreement, this Agreement and the rights granted herein shall terminate. 16.12 FORCE MAJEURE. Any delays in, or failure of performance of any party to this Agreement, shall not constitute a default hereunder, or give rise to any claim for 50 CS-92 damages, if and to the extent caused by occurrences beyond the control of the party affected, including, but not limited to, acts of God, strikes or other concerted acts of workmen, civil disturbances, fires, floods, explosions, riots, war, rebellion, sabotage, acts of governmental authority or failure of governmental authority to issue licenses or approvals which may be required. 16.13 ATTORNEYS' FEES. If any action at law, in equity or under Section 16.1 of this Agreement is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. 16.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ARTICLE 17. NOTICES All notices, statements, and reports required to be given under this Agreement shall be in writing and shall be deemed to have been given upon delivery in person or when deposited in the mail in the country of residence of the party giving the notice, registered or certified postage prepaid, and addressed as follows: To LICENSORS: Emory University Director of Licensing and Patent Counsel 2009 Ridgewood Drive Atlanta, Georgia 30322 Attention: Vincent La Terza University of Georgia Research Foundation, Inc. 631 Boyd Graduate Studies Building 51 CS-92 Athens, GA 30602-7411 Attention: John Ingle To COMPANY: TRIANGLE PHARMACEUTICALS INC. 4 University Place 4611 University Drive Durham, NC 27707 Attention: Company Secretary Any party hereto may change the address to which notices to such party are to be sent by giving notice to the other party at the address and in the manner provided above. Any notice may be given, in addition to the manner set forth above, by telex, facsimile or cable, provided that the party giving such notice obtains acknowledgment by telex, facsimile or cable that such notice has been received by the party to be notified. Notice made in this manner shall be deemed to have been given when such acknowledgment has been transmitted. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 52 CS-92 IN WITNESS WHEREOF, LICENSORS and COMPANY have caused this Agreement to be signed by their duly authorized representatives, as of the day and year indicated below. LICENSORS: EMORY UNIVERSITY By: /s/ John Temple -------------------------------------- John Temple Executive Vice President UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC. By: /s/ Joe L. Key -------------------------------------- Joe L. Key Executive Vice President COMPANY: TRIANGLE PHARMACEUTICALS, INC. By: /s/ David W. Barry -------------------------------------- Name: Title: [SIGNATURE PAGE TO CS-92 LICENSE AGREEMENT] 53 APPENDIX "A" CS92 PATENT PORTFOLIO - -------------------------------------------------------------------------------- Docket No. Country Serial No. Filed Patent No. Grant Date - -------------------------------------------------------------------------------- UGA443 U.S. 07/362,756 06/07/89 5,084,445 01/28/92 - -------------------------------------------------------------------------------- UGA443CIP U.S. 07/534,523 06/06/90 5,077,279 12/31/91 - -------------------------------------------------------------------------------- Europe 90911253.4 06/06/90 - -------------------------------------------------------------------------------- Japan 2-510715 06/06/90 - -------------------------------------------------------------------------------- APPENDIX "B" (page 1 of 2) LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisions or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: [ * ] Inventors: Dr. Raymond Schinazi (Emory University) Dr. Chung K. Chu (University of Georgia) Patent Application Serial No.: [ * ] Filing Date: [ * ] Title: Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Ann R. Stevens Date: 5/18/92 ---------------------------------- --------------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: Date: - ---------------------------------------- --------------------- * CONFIDENTIAL TREATMENT REQUESTED APPENDIX "B" (page 2 of 2) LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject inventio. This license will extend to all divisions or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: [ * ] Inventors: Dr. Raymond Schinazi (Emory University) Dr. Chung K. Chu (University of Georgia) Patent Application Serial No.: [ * ] Filing Date: [ * ] Title: Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, Natioal Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Ann R. Stevens Date: 5/18/92 ---------------------------------- --------------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: Date: - ---------------------------------------- --------------------- * CONFIDENTIAL TREATMENT REQUESTED EX-10.22 10 LICENSE AGREE. BETWEEN EMORY & TRIANGLE Exhibit 10.22 LICENSE AGREEMENT BETWEEN EMORY UNIVERSITY AND TRIANGLE PHARMACEUTICALS, INC. * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterick (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. TABLE OF CONTENTS ARTICLE 1. DEFINITIONS.................................................... 2 ARTICLE 2. GRANT OF LICENSE............................................... 11 ARTICLE 3. ROYALTIES AND OTHER PAYMENTS................................... 15 ARTICLE 4. REPORTS AND ACCOUNTING......................................... 30 ARTICLE 5. PAYMENTS....................................................... 33 ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM.............................. 34 ARTICLE 7. PATENT PROSECUTION............................................. 38 ARTICLE 8. INFRINGEMENT................................................... 41 ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; AND INDEMNIFICATION........................... 43 ARTICLE 10. CONFIDENTIALITY............................................... 47 ARTICLE 11. TERM AND TERMINATION.......................................... 50 ARTICLE 12. ASSIGNMENT.................................................... 54 ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY............................... 55 ARTICLE 14. REGISTRATION OF LICENSE....................................... 55 ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT................ 55 ARTICLE 16. MISCELLANEOUS................................................. 57 ARTICLE 17. NOTICES....................................................... 61 THIS LICENSE AGREEMENT is made and entered into as of this 17th day of April 1996, by and between EMORY UNIVERSITY, a Georgia nonprofit corporation with offices at 1380 South Oxford Road, N.E., Atlanta, Georgia 30322, (hereinafter referred to as "EMORY"), and TRIANGLE PHARMACEUTICALS, INC., a for profit Delaware corporation with principal offices located at 4 University Place, 4611 University Drive, Durham, NC 27707 (hereinafter referred to as "COMPANY"). WITNESSETH WHEREAS, EMORY is the assignee of all right, title, and interest in certain inventions developed by employees of EMORY and is responsible for the protection and commercial development of such inventions; and WHEREAS, Woo-Baeg Choi, Dennis C. Liotta and Raymond Schinazi, each a current or former employee of EMORY, are named as inventors in the patents and patent applications identified in APPENDIX "A" to this Agreement and are hereafter referred to as the "Inventors"; and WHEREAS, COMPANY represents that it has the necessary expertise and will, as appropriate, acquire the resources reasonably necessary to fully develop, obtain approval for, and market therapeutic products based upon the inventions claimed in the above referenced patents and applications; and WHEREAS, LICENSOR wants to have such inventions developed, commercialized, and made available for use by the public; 1 NOW, THEREFORE, for and in consideration of the mutual covenants and the premises herein contained, the parties, intending to be legally bound, hereby agree as follows. ARTICLE 1. DEFINITIONS The following terms as used herein shall have the following meaning: 1.1 "Affiliate" shall mean any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate business entity shall be regarded as in control of another corporation if it owns, or directly or indirectly controls, at least [ * ] of the voting stock of the other corporation, or (a) in the absence of the ownership of at least [ * ] of the voting stock of a corporation or (b) in the case of a non-corporate business entity, or non-profit corporation, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate business entity, as applicable. 1.2 "Agreement" or "License Agreement" shall mean this Agreement, including all EXHIBITS and APPENDICES attached to this Agreement. 1.3 "BioChem" shall mean BioChem Pharma, Inc., located in Laval, Quebec, Canada and its Affiliates. 1.4 "Dollars" shall mean United States dollars. 1.5 "FDA" shall mean the United States Food and Drug Administration or successor entity. * Confidential Treatment Requested 2 1.6 "Field of Use" shall mean the prevention and treatment of human immunodeficiency virus (HIV) and hepatitis B virus (HBV). 1.7 "GW shall mean GlaxoWellcome plc and its Affiliates including, but not limited to, all corporate entities acquired, directly or indirectly, by GlaxoWellcome plc and its Affiliates as a result of the acquisition of Wellcome plc and its Affiliates. 1.8 "GW Know How" shall mean all data, information and know-how, whether patented or not, relating to the development and testing (including clinical studies designed to support promotional efforts) of FTC and the therapeutic use (including both the HIV and HBV indications) of FTC, developed, owned or acquired by GW prior to and during the term of an Agreement between GW and LICENSOR, dated as of February 1, 1992. This includes the data obtained from any and all research and development activities required to evaluate and develop FTC for human use and to prepare all data and documents for Registration of FTC in each country of the Licensed Territory and the right, in countries where applicable, to cross-reference all regulatory filings made by GW to enable clinical testing and to obtain Registration of FTC. 1.9 "GW Patents" shall mean all patents and patent applications necessary or useful for the manufacture, use, sale, offer for sale or importation of FTC or compounds used in the production thereof, and the therapeutic applications of FTC owned or controlled by GW or under which GW is, or shall become, empowered to grant licenses (which shall include any such patents and patent applications licensed by GW from BioChem), including any and all substitutions, extensions, divisionals, continuations, 3 continuations-in-part, renewals, supplementary protection certificates or foreign counterparts of such patent applications and patents which issue thereon, including reexamined and reissued patents. 1.10 "IND" shall mean an Investigational New Drug application or its domestic or foreign equivalent. 1.11 "Indemnitees" shall mean (a) in the case of the indemnity set forth in Subsection 9.5(a), the Inventors, LICENSOR, and their trustees, directors, employees and students, and all of their heirs, executors, administrators, successors and legal representatives; (b) in the case of the indemnity set forth in Subsection 9.5(b), COMPANY, its affiliates, sublicensees, their directors, officers, employees and their heirs, successors, executors, administrators and legal representatives; and (c) in the case of the Indemnitees referenced in Subsection 9.7(b), the parties identified in Subsections 1.7(a) and 1.7(b) above. 1.12 "Licensed Compound" or "FTC" shall mean: (a) the (-) enantiomer with the chemical name (2R-cis)-4-amino-5-fluoro-1-[2-(hydroxymethyl)-1,3- oxathiolan-5-yl]-2(1H)-pyrimidinone; (b) any mixture of the (-) enantiomer described in Subsection 1.12(a) and the (+) enantiomer with the chemical name (2S-cis)-4-amino-5-fluoro-1-[2-(hydroxymethyl)-1,3-oxathiolan-5-yl] - -2(1H)-pyrimidinone, [ * ] or (c) any salts, esters and N alkylated derivatives of any of the foregoing. "Licensed Compounds" shall mean all of the foregoing. * Confidential Treatment Requested 4 1.13 "Licensed Patents" shall mean (a) the patents and patent applications identified in APPENDIX "A," together with any and all substitutions, extensions, divisionals, continuations, continuations-in-part, renewals, supplementary protection certificates or foreign counterparts of such patent applications and patents which issue thereon, anywhere in the world, including reexamined and reissued patents and (b) all other patents and patent applications in which or to which LICENSOR acquires rights during the term hereof which contain claims covering the manufacture, use or sale of any Licensed Product to the extent that LICENSOR possesses the right to license such patents and patent applications to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties. 1.14 "Licensed Product(s)" shall mean any Licensed Compound or any pharmaceutical product containing one or more Licensed Compounds as active ingredients, alone or in combination with other active ingredients, the manufacture, use, importation, offer for sale or sale of which is covered by any Valid Claim or which is made using Licensed Technology. 1.15 "Licensed Technology" shall mean all technical information and data, whether or not patented, known or learned, invented, or developed by the Inventors or any employees of LICENSOR working under the Inventors' direct or indirect supervision, prior to or during the term hereof and while they are under a duty to assign intellectual property rights to the LICENSOR, to the extent that (a) such technical information and data are useful for the manufacture, use, importation, offer for sale or 5 sale of any Licensed Product; and (b) LICENSOR possess the right to license the use of such information to COMPANY for commercial purposes without incurring financial or other non-contingent, material obligations to any third parties and without breaching any obligations of confidentiality with such parties. 1.16 "Licensed Territory" shall mean the world. 1.17 "LICENSOR" shall mean Emory University. 1.18 "Major Market Country" shall mean Japan, Germany, France, the United Kingdom or the United States of America. 1.19 "NDA" shall mean a New Drug Application or its domestic or foreign equivalent. 1.20 "Net Selling Price" of Licensed Products which contain as their active ingredients only Licensed Compounds shall mean the gross selling price paid by a purchaser of such Licensed Product to COMPANY, an Affiliate or sublicensee of COMPANY, or any other party authorized by COMPANY to sell Licensed Products plus, if applicable, the value of all properties and services received in consideration of a Sale of a Licensed Product, less only (a) discounts, rebates, sales, use, or other similar taxes, transportation and handling charges and allowances; and (b) returns which are accepted by COMPANY from independent customers in accordance with COMPANY's normal practice and for which COMPANY gives credit to such purchasers or retroactive price reductions in lieu of returns, whether during the specific royalty period or not. Where a sale is deemed consummated by a gift, use, or other disposition of Licensed 6 Products, for other than a selling price stated in cash, the term "Net Selling Price" shall mean the average gross selling price billed by COMPANY in consideration of the cash Sales of comparable Licensed Products during the then current royalty period, less only reductions permitted in subsections (a) and (b) above and such other reductions, if any, as LICENSOR agrees are appropriate, which agreement will not be unreasonably withheld or delayed. 1.21 "Net Selling Price" of Licensed Products which contain as their active ingredients both Licensed Compounds and compounds other than Licensed Compounds (a "Combination Product") shall be negotiated in good faith by the parties with the intention of agreeing upon a fair and equitable formula; provided, however, that if the parties are unable to agree upon such formula within a reasonable period of time, the Net Selling Price with respect to such Combination Product shall mean the gross sales price of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.20 multiplied by a fraction, the numerator of which shall be the average invoice price per gram of Licensed Compound contained in the most comparable stock keeping unit of any product having the Licensed Compound as the sole active ingredient during the applicable royalty period in the applicable country of the Licensed Territory, when such comparable product is sold for the same indication as such Combination Product and the denominator of which shall be the average invoice price per gram of the Licensed Compound sold alone as described immediately above 7 plus the average invoice price(s) per gram of the other active ingredient(s) contained in such Combination Product in such country during the applicable royalty period when such active ingredients are sold alone for the same indication as such Combination Product. If there is no average invoice price per gram in a given country for one or more of the active ingredients comprising a Combination Product, the Net Selling Price with respect to such Combination Product shall be deemed to be the gross sales of such Combination Product billed to independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in Section 1.20, times a fraction, the numerator of which is the number of Licensed Compounds in such Combination Product and the denominator of which is the number of all active ingredients in such Combination Product. 1.22 "Phase II Commencement Date" shall mean the date of commencement of the initial well-controlled clinical trial of a Licensed Product for HIV or HBV, as applicable, sponsored by COMPANY, the primary objective of which (as reasonably determined by COMPANY) is to ascertain additional data regarding the safety and tolerance of such Licensed Product and preliminary data regarding such Licensed Product's antiviral effects for the applicable indication, is commenced. For purposes of the preceding sentence, such clinical trial shall be deemed to have commenced when such Licensed Product is first administered to any patient enrolled in such clinical trial. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or 8 co-marketing relationship with Triangle Pharmaceuticals, Inc pertaining to such Licensed Product. 1.23 "Phase II Completion Date" in respect of HIV shall mean the earlier of (a)[ * ] after completion of the statistical analyses of those Phase II clinical studies which COMPANY considers reasonably necessary for purposes of inclusion in an NDA for the applicable indication; or (b) [ * ] after the last administration of a Licensed Product to all patients enrolled in the last to be completed Phase II clinical study pursuant to the applicable clinical study protocol; or (c) [ * ] days after the first public disclosure of the final results of all Phase II clinical studies intended to be included by COMPANY in the first NDA for the applicable indication intended to be filed by COMPANY in any Major Market Country. "Phase II Completion Date" in respect of HBV means the first to occur of the periods specified in clauses (a) or (c) above. Notwithstanding the foregoing, the filing by COMPANY of an NDA in a Major Market Country for a given indication shall be deemed to constitute the Phase II Completion Date for such indication. For purposes of this definition, the term "COMPANY" shall include Triangle Pharmaceuticals, Inc., its Affiliates and sublicensees or any party in a co-promotion or co-marketing relationship with Triangle Pharmaceuticals, Inc. pertaining to any Licensed Product. 1.24 "Registration" shall mean, in relation to any Licensed Product, such approvals by the regulatory authorities in a given country (including pricing approvals) as * Confidential Treatment Requested 9 may be legally required before such Licensed Product may be commercialized or Sold in such country. 1.25 "Sale" or "Sold" shall mean the sale, transfer, exchange, or other disposition of Licensed Products whether by gift or otherwise, subsequent to Registration in a given country (if such Registration is required) by COMPANY, its Affiliates, sublicensees or any third party authorized by COMPANY to make such sale, transfer, exchange or disposition. Sales of Licensed Products shall be deemed consummated upon the first to occur of: (a) receipt of payment from the purchaser; (b) delivery of Licensed Products to the purchaser or a common carrier; (c) release of Licensed Products from consignment; or (d) if otherwise transferred, exchanged, or disposed of, whether by gift or otherwise, when such transfer, exchange, gift, or other disposition occurs. Notwithstanding the foregoing definition of Sale, to the extent COMPANY distributes any Licensed Product under a Treatment IND or other expanded access program at a sales price which exceeds its fully absorbed cost therefor, such excess shall be deemed to be a Sale for which royalties are payable in accordance with the other terms hereof; provided, however, that such distribution shall not be deemed to be Registration of such Licensed Product. 1.26 "U.S. Government Licenses" shall mean the non-exclusive licenses to the U.S. Government or agencies thereof pursuant to [ * ], copies of which licenses are attached hereto as APPENDIX "B." * Confidential Treatment Requested 10 1.27 "Valid Claim" shall mean (a) an issued claim of any unexpired patent included among the Licensed Patents, or (b) a pending claim of any pending patent application included among the Licensed Patents, which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, which has not been rendered unenforceable through disclaimer or otherwise or which has not been lost through an interference proceeding. 1.28 "Yale Agreement" shall mean the License Agreement between LICENSOR and Yale University, dated as of May 26, 1993, a true and correct copy of which has been provided by LICENSOR to COMPANY. ARTICLE 2. GRANT OF LICENSE 2.1 LICENSE. LICENSOR hereby grants COMPANY and its Affiliates the exclusive right and license to practice the Licensed Patents and the Licensed Technology to make, have made, use, import, offer for sale and sell Licensed Products within the Field of Use in the Licensed Territory during the term of this Agreement. 2.2 GOVERNMENT RIGHTS. The license granted in Section 2.1 above is conditional upon and subject to the U.S. Government Licenses and other rights retained by the United States in, and obligations imposed by applicable law with respect to, inventions developed by nonprofit institutions with the support of federal funds. These rights and obligations are set forth in 35 USCA Sections 201 et seq. and 37 CFR 401 et seq., which may be amended from time to time by the Congress of the United States or 11 through administrative procedures. All provisions required to be made a part hereof by such statutes and regulations are hereby incorporated herein by reference, to the extent, and only to the extent required by the foregoing, Company agrees that Licensed Products leased or sold in the United States shall be manufactured substantially in the United States. 2.3 RETAINED LICENSE. The license granted in Section 2.1 above is further conditional upon and subject to a right and license retained by LICENSOR on its behalf and LICENSOR's academic research collaborators to make and use Licensed Products and practice Licensed Technology for research and educational purposes only. LICENSOR shall promptly verify the names of any research collaborators practicing the license retained in this Section 2.3 upon COMPANY's written request. 2.4 SUBLICENSES. COMPANY may grant sublicenses upon LICENSOR's written approval (which approval shall not be unreasonably withheld or delayed). In the event LICENSOR does not respond to a request for approval to sublicense within fifteen (15) days from receiving a copy of the proposed sublicense agreement from COMPANY, such request shall be deemed to be approved. COMPANY shall provide LICENSOR with complete copies of all sublicense agreements within thirty (30) days of their execution. COMPANY shall remain responsible to LICENSOR for the payment of all fees and royalties due under this Agreement, whether or not such payments are made to COMPANY by its sublicensees. COMPANY shall include in any sublicense granted pursuant to this Agreement a provision requiring the sublicensee to indemnify 12 LICENSOR and maintain liability insurance coverage to the same extent that COMPANY is so required pursuant to Article 9 of this Agreement. 2.5 NO IMPLIED LICENSE. The license and rights granted in this Agreement shall not be construed to confer any rights upon COMPANY by implication, estoppel, or otherwise as to any technology not specifically identified in this Agreement, except as otherwise implied by law to the extent necessary to practice the Licensed Patents or Licensed Technology. 2.6 THIRD PARTY LICENSES. In the event LICENSOR acquires (a) a license from a third party relating to intellectual property which would be deemed to be Licensed Patents or Licensed Technology but for the inability to sublicense such intellectual property to COMPANY without incurring financial or other non-contingent, material obligations or (b) a license from GW for either the GW Patents or GW Know How, LICENSOR shall give prompt notice and a copy thereof to COMPANY. Such notice shall be accompanied by such data and information in LICENSOR's possession, which LICENSOR is authorized to transfer to COMPANY, or which can be obtained from such third party or GW, as applicable, in order to assist COMPANY in determining whether to sublicense such third party or GW license. COMPANY shall have [ * ] to elect whether to obtain a sublicense under such third party or GW license pursuant to the terms thereof within the Field of Use, but with no additional obligations of any type other than as prescribed therein or, in the case of a GW license, as prescribed in Section 3.3 hereof. If COMPANY fails to notify LICENSOR of its * Confidential Treatment Requested 13 decision regarding the acquisition of such sublicense within such [ * ] period, this Section 2.6 shall no longer apply to such third party or GW license, as applicable. 2.7 RIGHT OF FIRST REFUSAL TO [ * ] (a) As used in this Section 2.7, [ * ]shall mean [ * ] (b) Except as otherwise set forth in Subsection 2.7(c), prior to entering into any license or assignment agreement with a third party relating to any of LICENSOR's rights in respect of the [ * ], LICENSOR shall notify COMPANY of the terms of such proposed agreement. Such notice shall include a copy of such proposed agreement, together with all data and information in LICENSOR's possession relating to the [ * ] and its use as a therapeutic agent. Such notice shall be deemed an offer to COMPANY to enter into such proposed agreement. Thereafter, COMPANY shall have [ * ] to accept such offer. Upon acceptance of such offer by COMPANY, such proposed agreement shall be binding between COMPANY and LICENSOR. If COMPANY does not accept such offer within such [ * ], LICENSOR shall be entitled, for a period * Confidential Treatment Requested 14 of [ * ] after expiration of such [ * ] period, to enter into such proposed agreement on the terms offered to COMPANY. If LICENSOR does not enter into such proposed agreement with such third party on the terms presented to COMPANY within such [ * ], then LICENSOR must again comply with this Subsection 2.7(b) before entering into such agreement. COMPANY agrees to maintain the confidentiality of the terms of such offer in accordance with the provisions of Article 10 hereof. (c) LICENSOR may license or assign its rights in respect of [ * ] to any of the Inventors or any corporate entity formed by or on behalf of the Inventors (the foregoing being referred to as "Permitted Transferees") for purposes of clinically developing [ * ]; provided, however, that, as a condition precedent to any such license or assignment, the Permitted Transferees agree to be bound by all the terms of Subsection 2.7(b) to the same extent as LICENSOR pursuant to a written document. Such document shall be delivered to COMPANY on or before such license or assignment to the Permitted Transferees. Any purported license or assignment to such Permitted Transferees without the execution and delivery of such written document, as aforesaid, shall be void. Not more than one license or assignment permitted by this Subsection 2.7(c) may be in effect at any time. (d) LICENSOR represents that it has not licensed, assigned or otherwise transferred any of its rights in and to [ * ] on or * Confidential Treatment Requested 15 before the date hereof, except for a certain License Agreement between LICENSOR and GW, dated February 1, 1992, which has been terminated. (e) In the event COMPANY obtains a license from GW to any intellectual property relating to [ * ], COMPANY shall grant LICENSOR or any Permitted Transferee, as applicable, a sublicense thereunder with the right to sublicense, to the extent sublicensing is permissible and subject to the terms of such GW license. Such sublicense shall apply only to [ * ] and shall terminate in the event COMPANY exercises the right of first refusal set forth in Subsection 2.7(b). ARTICLE 3. ROYALTIES AND OTHER PAYMENTS 3.1 LICENSE FEES. As partial consideration for entering into this Agreement, COMPANY agrees to pay, or issue to, LICENSOR the following, unless COMPANY has given LICENSOR notice of termination of this Agreement prior to an applicable due date: (a) [ * ], payable within [ * ] days after the date hereof; (b) [ * ], payable in [ * ] monthly installments on the first day of each calendar month, commencing on the first day of the [ * ] next succeeding the date hereof; (c) [ * ], payable on the earlier of (i) [ * ] after consummation by COMPANY of either the round of private equity financing next succeeding the date hereof or its initial public offering, as applicable, or (ii) [ * ] after the date hereof; * Confidential Treatment Requested 16 (d) [ * ], payable on the earlier of (i) [ * ] after consummation by COMPANY of either the round of private equity financing next succeeding the round of private equity financing referred to in Subsection 3.1(c) above or its initial public offering, as applicable, or (ii) [ * ] [ * ] after the date hereof; and (e) 500,000 shares of COMPANY common stock upon execution of this Agreement. Such shares shall be issued directly to LICENSOR or to certain Inventors as directed by LICENSOR. Each recipient of any shares shall sign the Restricted Stock Purchase Agreement and an Amended and Restated Investors' Rights Agreement, each dated as of even date herewith. 3.2 MILESTONE PAYMENTS. (a) COMPANY shall pay LICENSOR a milestone payment ("Milestone Payments") in the amount specified below no later than [ * ] after the occurrence of the corresponding event designated below (except as specified in Subsection 3.2(b)) unless COMPANY has given LICENSOR notice of termination prior to such due date: EVENT MILESTONE PAYMENT ----- ----------------- [ * ] [ * ] * Confidential Treatment Requested 17 (vi) [ * ] [ * ] TOTAL MILESTONE PAYMENTS (b) Except as otherwise provided in this Subsection 3.2(b), only [ * ] of each Milestone Payment described in clauses (ii), (iii), (v) and (vi) of Subsection 3.2(a) shall be payable on the applicable due date as specified therein. The remaining [ * ] of the Milestone Payments set forth in such clauses for a given indication shall be payable upon the earlier of (i) [ * ] after commercial introduction by COMPANY of the first Licensed Product in [ * ]. (if such indication is [ * ]or in any [ * ] (if such indication is [ * ]) (ii) upon LICENSOR's grant of a sublicense to COMPANY in respect of the GW Patents pursuant to Section 2.6 hereof or (iii) upon GW's grant of a license to COMPANY in respect of the GW Patent Rights. In the event the sublicense referred to in clause (ii) or the license referred to in clause (iii) of this Subsection 3.2(b) above is granted prior to the achievement of a milestone to which this Subsection 3.2(b) applies, [ * ] of the applicable Milestone Payment shall be payable in accordance with Subsection 3.2(a). Notwithstanding the foregoing, at such time as COMPANY (x) obtains [ * ] for a Licensed Product for [ * ][ * ] (the "First Indication"), (y) files an NDA for Registration in [ * ] of a [ * ] (the "Second Indication") and (z) publishes Phase II/III results of clinical studies for the Second Indication in a recognized scientific * Confidential Treatment Requested 18 journal, [ * ] of the Milestone Payment payable upon NDA Filing for a Licensed Product for the Second Indication, as set forth in Subsection 3.2(a), shall be payable in accordance with the provisions thereof. 3.3 ADDITIONAL MILESTONES. In the event LICENSOR and COMPANY execute a sublicense agreement in respect of either [ * ]pursuant to Section 2.6, COMPANY shall pay LICENSOR the applicable Milestone Payment set forth below, unless COMPANY has given LICENSOR notice of termination prior to the applicable due date specified below: (a) [ * ], payable within [ * ] after the grant of a sublicense by LICENSOR to COMPANY in respect of the [ * ]; and (b) [ * ], payable within [ * ] after the grant of a sublicense by LICENSOR to COMPANY in respect of the [ * ]. 3.4 RUNNING ROYALTIES. COMPANY shall pay LICENSOR a royalty equal to the following percentages of the Net Selling Price of Licensed Products Sold in the Licensed Territory by COMPANY and its Affiliates and sublicensees for [ * ]: * Confidential Treatment Requested 19 (a) PERCENTAGE OF NET SELLING PRICE ANNUAL NET SELLING PRICE OF LICENSED PRODUCTS FOR [ * ] [ * ] [ * ] (b) PERCENTAGE OF NET SELLING PRICE ANNUAL NET SELLING PRICE OF LICENSED PRODUCTS FOR [ * ] [ * ] [ * ] By way of example only, if during a given calendar year, the Net Selling Price of all Licensed Products for [ * ] were [ * ], the royalties payable by COMPANY pursuant to Subsection 3.4(a) would be equal to [ * ] or [ * ] (c) DURATION; REDUCTION. Royalties (at the rates set forth in Subsections 3.4(a) and (b), subject to reduction or modification only as prescribed herein) shall be paid in respect of a given Licensed Product for a period of [ * ] after commercial introduction of such Licensed Product in a given country. Thereafter, royalties shall be paid only so long as the manufacture, use, offer for sale, sale or importation of such Licensed Product in such country would, in the absence of a license, infringe a Valid Claim of an issued and unexpired patent within the Licensed Patents. If, during such [ * ] period, a third party or third parties commence selling a therapeutic product in a country in which there are no Valid Claims or are Valid Claims only of the type * Confidential Treatment Requested 20 described in Section 1.27(b) and (i) such product contains any Licensed Compound ("unlicensed unit sales") and (ii) such unlicensed unit sales for any royalty period amount to [ * ] or more of the COMPANY's unit sales of such Licensed Product in such country in such royalty period, determined in accordance with Subsection 3.4(d) below, then COMPANY's royalty obligation in such country with respect to such Licensed Product shall be suspended commencing with the royalty period next succeeding the royalty period in which such [ * ] threshold was initially exceeded and shall resume with the royalty period next succeeding the first royalty period in which such [ * ] threshold is no longer exceeded. COMPANY's royalty obligations with respect to such Licensed Product shall resume in such country if and when such Valid Claim per Subsection 1.27(b) becomes a Valid Claim per Subsection 1.27(a). (d) UNIT SALES. For purposes of this Section 3.4, (i) "unlicensed unit sales" and "COMPANY unit sales" shall be deemed to mean the grams of Licensed Compound in third party product (irrespective of dosage form) or the Licensed Product (irrespective of dosage form), respectively, as reflected on the label of each such unit; and (ii) unlicensed unit sales shall be determined by the sales reports of IMS America Ltd. of Plymouth Meeting, Pennsylvania ("IMS") or any successor to IMS or any other independent marketing auditing firm selected by COMPANY or its sublicensees and reasonably acceptable to LICENSOR. If COMPANY is entitled to a royalty suspension based on unlicensed unit sales pursuant to Subsection 3.4(c) for any royalty period, it or its * Confidential Treatment Requested 21 sublicensees shall submit the sales report of IMS or such other independent firm, as applicable, for the relevant royalty period to LICENSOR, together with COMPANY's or its sublicensees' sales report for the relevant royalty period. Such sales reports for each royalty period in which COMPANY is entitled to such royalty suspension shall be submitted with the royalty report for such royalty period submitted pursuant to Section 4.1. 3.5 ANNUAL MINIMUM ROYALTIES. (a) Subject to Subsection 3.5 (c), in the event that COMPANY's total annual royalty payment to LICENSOR pursuant to Subsection 3.4(a) above during the [ * ] calendar year following the year during which the first FDA Registration is granted for a Licensed Product covered by Subsection 3.4(a) above and each calendar year thereafter for so long as there exist Valid Claims in the U.S. is less than the annual minimum royalty set forth opposite such year below (the "Annual Minimum"), COMPANY shall make a payment to LICENSOR together with the report for the fourth quarter of such year required in Section 4.1 of this Agreement equal to the difference between such Annual Minimum and the total royalties paid to LICENSOR for the preceding year pursuant to Subsection 3.4(a) above: CALENDAR YEAR ANNUAL MINIMUM ------------- -------------- [ * ] [ * ] * Confidential Treatment Requested 22 [ * ] [ * ] (b) Subject to Subsection 3.5 (c), in the event that COMPANY's total annual royalty payment to LICENSOR pursuant to Subsection 3.4(b) above during the [ * ] calendar year following the year during which the first Registration in a Major Market Country is granted for a Licensed Product covered by Subsection 3.4(b) above and each calendar year thereafter for so long as there exist Valid Claims in the U.S. is less than the annual minimum royalty set forth opposite such year below (the "Annual Minimum"), COMPANY shall make a payment to LICENSOR together with the report for the fourth quarter of such year required in Section 4.1 of this Agreement equal to the difference between such Annual Minimum and the total royalties paid to LICENSOR for the preceding year pursuant to Subsection 3.4(b) above: CALENDAR YEAR ANNUAL MINIMUM ------------- -------------- [ * ] [ * ] (c) If during a given year, the sum of royalty payments paid hereunder for all Licensed Products described in Subsections 3.4(a) and 3.4(b) of this Agreement exceeds the sum of the applicable Annual Minimums which are required to be paid for * Confidential Treatment Requested 23 such year pursuant to Subsections 3.5(a) and 3.5(b), COMPANY shall be deemed to have satisfied the requirements of each of Subsections 3.5(a) and 3.5(b) for such year. For any year in which no Valid Claims exist in the United States for the entire year or this Agreement is not in effect for the entire year, the Annual Minimum shall be prorated accordingly. (d) Commencing upon FDA Registration for a Licensed Product and ending upon expiration of the [ * ] calendar year following the year in which such FDA Registration is granted, COMPANY may credit solely against running royalties (paid pursuant to Section 3.4), all reasonable costs incurred by COMPANY after the date hereof (including any reimbursements to LICENSOR pursuant to Section 7.1 for INTER PARTES Patent Prosecution Activities, as defined therein) in connection with any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence of the Licensed Patents or whether COMPANY's practice of the Licensed Patents infringes a third party patent. Until the end of such [ * ] calendar year, the amount of such credits shall not exceed in any year [ * ] of the royalty payments due hereunder in such year. Commencing upon the [ * ] calendar year following the year in which such FDA Registration is granted, such credits shall not exceed in any year [ * ] of the Annual Minimum payments due in such year. Such costs shall not be credited against any other payments due to LICENSOR under this Agreement. * Confidential Treatment Requested 24 3.6 REIMBURSEMENTS. COMPANY shall reimburse LICENSOR, within [ * ] after submission to COMPANY of invoices and reasonable substantiation thereof, for expenses incurred by LICENSOR in preparing and reviewing this Agreement, not to exceed [ * ]. 3.7 ADDITIONAL PAYMENTS IN RESPECT OF SUBLICENSE AND OTHER AGREEMENTS. In the event COMPANY grants sublicenses, sales or other rights with respect to the Licensed Products pursuant to which COMPANY receives remuneration other than royalties, then COMPANY shall pay to LICENSOR a percentage (the "Applicable Percentage") as set forth below of all payments that COMPANY receives from such sublicensees or other parties, including, without limitation, (a) [ * ]; (b) [ * ]; (c) [ * ]; (d) [ * ]; and (e) [ * ] . As used in this Section 3.7, the term "[ * ]" means [ * ] and all other [ * ] to COMPANY in connection with a [ * ]; "[ * ]" means payments to COMPANY equal to [ * ], where "A" is the [ * ] of COMPANY [ * ] purchased by the [ * ], "B" is the [ * ] by the [ * ], and "C" is the [ * ] of the equity which, for purposes hereof, shall be equal to [ * ] of the per share price obtained by the COMPANY in its most recent round of preferred equity financing, unless COMPANY's Board of Directors has established a new per share price in good faith, in which case, * Confidential Treatment Requested 25 such Board determined price shall apply; provided, however, that in the event such shares or other units of equity are publicly traded on a recognized securities market, the publicly traded price shall apply; "[ * ]" means [ * ] to COMPANY upon the fulfillment by COMPANY or the [ * ] of [ * ] or [ * ] in excess of those set forth in Section 3.2; "[ * ]" means [ * ] (such as [ * ]) made by [ * ] to COMPANY to preserve, or to avoid a forfeiture of rights under, the [ * ] in excess of those set forth in Section 3.5; and "[ * ]" means the amount by which actual payments made by a [ * ] to COMPANY for Licensed Products or components of Licensed Products exceeds COMPANY's standard costs for manufacture and shipment of such products plus [ * ] of such costs, "standard costs" being determined in accordance with Generally Accepted Accounting Principles. LICENSOR acknowledges that it shall not be entitled to share in any payment made by a [ * ] regardless of how such payment is denominated, that represents reimbursement or advance payment of costs incurred by COMPANY for research, development or other purposes (as agreed by LICENSOR and COMPANY) in COMPANY's pursuit of regulatory or marketing approval for any Licensed Product. With respect to a [ * ] or [ * ] concluded prior to Registration in [ * ] of the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to a sublicense or other contractual arrangement concluded after Registration in [ * ] of * Confidential Treatment Requested 26 the first Licensed Product, the Applicable Percentage shall be [ * ]. With respect to any sublicensing or other transaction to which this Section 3.7 applies but which relates to products or compounds in addition to Licensed Products and for which an allocation would be necessary, the parties shall meet and attempt to agree on which portion of the total payments received by COMPANY pursuant to such transaction should be subject to this Section 3.7. In the event the parties cannot agree upon such allocation within a reasonable period of time, COMPANY shall select an independent certified public accountant, to which LICENSOR have no reasonable objection, to determine such allocation. Such allocation shall be determined in accordance with generally accepted accounting principles in the United States. 3.8 ACCRUAL OF ROYALTIES. No royalty shall be payable on a Licensed Product made, sold, or used for tests or development purposes or distributed as samples. No royalties shall be payable on sales among COMPANY, its Affiliates and sublicensees, but royalties shall be payable on subsequent sales by COMPANY, its Affiliates or sublicensees to a third party. No multiple royalty shall be payable because the manufacture, use or sale of a Licensed Product is covered by more than one Valid Claim or at least one Valid Claim and the Licensed Technology. 3.9 THIRD PARTY ROYALTIES. (a) If COMPANY, its Affiliates or sublicensees determine after consultation with LICENSOR, but at COMPANY's discretion, that it or they are required to pay royalties or other fees to any third party (including under any third party * Confidential Treatment Requested 27 or GW license to which Section 2.6 applies) because the manufacture, use, offer for sale, importation, or sale of a Licensed Product infringes any patent or other intellectual property rights of such third party in a given country ("Third Party Royalties"), COMPANY, its Affiliates or sublicensees may deduct from running royalties thereafter due to LICENSOR (per Section 3.4 of this Agreement) with respect to the Net Selling Price of such Licensed Product in such country up to [ * ] of the Third Party Royalties. In no event shall the royalties due on such Sales of such Licensed Product in such country on account of any reduction pursuant to this Subsection 3.9(a) be thereby reduced to less than [ * ] on such Sales of such Licensed Product in such country. (b) If the sum of the royalties paid hereunder and Third Party Royalties for a given Licensed Product in a given country exceeds, at any time, [ * ] of the Net Selling Price for such Licensed Product, upon COMPANY's request, LICENSOR and COMPANY agree to negotiate in good faith in an effort to agree on a reduction in the royalties payable hereunder to LICENSOR for such Licensed Product in such country. In the event the parties are unable to agree to such reduction after a reasonable period of time, not to exceed [ * ], either party may request that the issue be arbitrated in accordance with Section 16.1 of this Agreement. 3.10 COMPULSORY LICENSES. Should a compulsory license be granted to any third party in any country of the Licensed Territory to make, have made, use, import, offer for sale or sell Licensed Products, the royalty rate payable thereunder for sales of the * Confidential Treatment Requested 28 Licensed Products by COMPANY in such country shall be adjusted to match any lower royalty rate granted to the third party for such country. COMPANY shall provide LICENSOR with prompt written notice of any governmental or judicial procedures initiated in any country to impose a compulsory license. COMPANY shall take all reasonable and legal steps as COMPANY deems appropriate which are available to oppose such compulsory license and shall, at LICENSOR's request, cooperate reasonably with LICENSOR in any legal action which LICENSOR may wish to take to oppose such compulsory license, which action shall be at LICENSOR's sole expense and may not be taken by LICENSOR if such action would materially jeopardize the validity of any Licensed Patents in such country. 3.11 REDUCTION IN ROYALTY DUE TO INVALID CLAIMS. In the event that all applicable claims of all patents or patent applications included within the Licensed Patents under which COMPANY is selling or actively developing a Licensed Product shall be held invalid or not infringed by the Licensed Products COMPANY is selling or actively developing by a court of competent jurisdiction in a given country of the Licensed Territory, whether or not there is a conflicting decision by another court of competent jurisdiction in such country, COMPANY may cease all royalty payments on its, its Affiliates' or its sublicensees' sales of such Licensed Product covered by such claims and, if it does so, shall deposit such royalty payments in an interest-bearing escrow account until such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country or is otherwise 29 unappealable or is unappealed within the time allowed therefor; provided, however, that if such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country, the former royalty payments shall be resumed and the royalty payments not theretofore made and interest earned thereon shall become due and payable to LICENSOR. 3.12 MOST FAVORED LICENSEE. Should COMPANY's exclusive license hereunder become nonexclusive in any country of the Licensed Territory due to LICENSOR's exercise of their conversion remedy and should LICENSOR thereafter grant to a third party a license for any Licensed Product in such country containing more favorable terms than those granted to COMPANY, then in such an event, LICENSOR promptly shall notify COMPANY and or its Affiliates or sublicensees, as applicable, and COMPANY and such Affiliates or sublicensees shall have the benefit of such more favorable terms provided they accept any less favorable terms contained in such license. 3.13 YALE AGREEMENT. (a) LICENSOR covenants that, during the term of this Agreement, it will: (i) fulfill all of its obligations under the Yale Agreement, including, but not limited to, any royalty obligations set forth therein; (ii) take no action or omit to take any action which would cause it to be in breach of any provision of the Yale Agreement; and 30 (iii) immediately notify COMPANY in the event LICENSOR receives notice from Yale University that LICENSOR is in default under the Yale Agreement or that Yale University has terminated or intends to terminate the Yale Agreement. In the event of any default of the type described in clause (iii) above, LICENSOR agrees that if it fails or does not intend to cure such default, COMPANY may, at COMPANY's option, do so and may offset any reasonable expenses COMPANY incurs in curing such default. (b) Notwithstanding the provisions of Section 3.9, COMPANY, its affiliates and sublicensees may fully credit any royalties which it or they pay to Yale University against royalties payable hereunder. 31 ARTICLE 4. REPORTS AND ACCOUNTING 4.1 ROYALTY REPORTS AND RECORDS. During the term of this Agreement, COMPANY shall furnish, or cause to be furnished to LICENSOR, written reports governing each of COMPANY's, COMPANY's Affiliates' and COMPANY's sublicensees' fiscal quarters showing: (a) the gross selling price of all Licensed Products Sold by COMPANY, its Affiliates and sublicensees, in each country of the Licensed Territory during the reporting period, together with the calculations of Net Selling Price in accordance with Sections 1.15 and 1.16; and (b) the royalties payable in Dollars, which shall have accrued hereunder in respect to such Sales; and (c) the exchange rates used, if any, in determining the amount of Dollars; and (d) a summary of all reports provided to COMPANY by COMPANY's sublicensees; and (e) the amount of any consideration received by COMPANY from sublicensees, an explanation of the contractual obligation satisfied by such consideration and calculation of any payments due LICENSOR pursuant to Section 3.7 of this Agreement; (f) the occurrence of any event triggering a Milestone Payment obligation in accordance with Section 3.2; and 32 (g) the basis for any credits taken against Annual Minimum payments in accordance with Subsection 3.5 (d), including documentation of costs incurred by COMPANY in any litigation, infringement, interference, or other action pertaining to the Licensed Patents, and any deductions from running royalty payments taken pursuant to Section 3.9, including documentation of any royalties or other fees paid to third parties. Reports shall be made semi-annually until the first Sale of a Licensed Product and quarterly thereafter. Semi-annual reports shall be due within Minimum payments due in such thirty (30) days of the close of every second and Quarterly reports shall be due within sixty (60) days of the close of every COMPANY fiscal quarter. COMPANY shall keep accurate records in sufficient detail to enable royalties and other payments payable hereunder to be determined. COMPANY shall be responsible for all royalties and late payments that are due to LICENSOR that have not been paid by COMPANY's Affiliates and sublicensees. COMPANY's sublicensees shall have, and shall be notified by COMPANY that they have, the option of making any royalty payment directly to LICENSOR. 4.2 RIGHT TO AUDIT. LICENSOR shall have the right, upon prior notice to COMPANY, not more than once in each COMPANY fiscal year nor more than once in respect of any fiscal year, through an independent certified public accountant selected by LICENSOR and acceptable to COMPANY, which acceptance shall not be unreasonably refused, to have access during normal business hours to those records of COMPANY as may be reasonably necessary to verify the accuracy of the royalty reports required to be 33 furnished by COMPANY pursuant to Section 4.1 of the Agreement. COMPANY shall include in any sublicenses granted pursuant to this Agreement a provision requiring the sublicensee to keep and maintain records of Sales made pursuant to such sublicense and to grant access to such records by LICENSOR's independent certified public accountant. If such independent certified public accountant's report shows any underpayment of royalties by COMPANY its Affiliates or sublicensees, within thirty (30) days after COMPANY's receipt of such report, COMPANY shall remit or shall cause its sublicensees to remit to LICENSOR: (a) the amount of such underpayment; and (b) if such underpayment exceeds [ * ] of the total royalties owed for the fiscal year then being reviewed, the reasonably necessary fees and expenses of such independent certified public accountant performing the audit. Otherwise, LICENSOR's accountant's fees and expenses shall be borne by LICENSOR. Any overpayment of royalties shall be fully creditable against future royalties payable in any subsequent royalty periods. Upon the expiration of [ * ] months following the end of any fiscal year, the calculation of royalties payable with respect to such fiscal year shall be binding and conclusive on LICENSOR and COMPANY, unless an audit is initiated before expiration of [ * ]. 4.3 CONFIDENTIALITY OF RECORDS. All information subject to review under this Article 4 shall be confidential. Except where provided by law, LICENSOR and its accountant shall retain all such information in confidence. * Confidential Treatment Requested 34 35 ARTICLE 5. PAYMENTS 5.1 PAYMENTS AND DUE DATES. Except as otherwise provided herein, royalties and sublicense and other fees payable to LICENSOR as a result of activities occurring during the period covered by each royalty report provided for under Article 4 of this Agreement shall be due and payable on the date such royalty report is due. Payments of royalties in whole or in part may be made in advance of such due date. Any payment in excess of [ * ] shall be made by wire transfer to an account of LICENSOR designated by LICENSOR from time to time; provided, however, that in the event that LICENSOR fails to designate such account, COMPANY or its Affiliates and sublicensees may remit payment to LICENSOR to the address applicable for the receipt of notices hereunder; providing, further, that any notice by LICENSOR of such account or change in such account, shall not be effective until fifteen (15) days after receipt thereof by COMPANY. 5.2 CURRENCY RESTRICTIONS. Except as hereinafter provided in this Section 5.2, all royalties shall be paid in Dollars. If, at any time, legal restrictions prevent the prompt remittance of part of or all royalties with respect to any country in the Licensed Territory where Licensed Products are Sold, COMPANY or its sublicensee shall have the right and option to make such payments by depositing the amount thereof in local currency to LICENSOR's accounts in a bank or depository in such country. 5.3 INTEREST. Royalties and other payments required to be paid by COMPANY pursuant to this Agreement shall, if overdue, bear interest at the lesser of [ * ] * Confidential Treatment Requested 36 [ * ] or a per annum rate of [ * ] until paid. The payment of such interest shall not foreclose LICENSOR from exercising any other rights it may have because any payment is overdue. ARTICLE 6. DEVELOPMENT AND MARKETING PROGRAM 6.1 DUE DILIGENCE OBLIGATIONS. COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, use its best efforts: (a) to conduct a research and development program relating to the use of Licensed Products in the Field of Use; and (b) to diligently pursue Registration of the Licensed Products; and (c) to effectively market the Licensed Products. 6.2 FULFILLMENT; CONVERSION. (a) For purposes of this Agreement, "best efforts" shall mean that COMPANY shall use reasonable efforts including, to the extent appropriate, pursuing sublicenses and corporate alliances consistent with those used by comparable pharmaceutical companies in the United States in research and development projects for therapeutic methods or compositions deemed to have commercial value comparable to the Licensed Products. COMPANY's best efforts obligations set forth in this Article 6 and implied by law shall be deemed to have been fulfilled if COMPANY: (i) causes an IND to be filed in a Major Market Country with respect to a Licensed Product for [ * ] (each referred to as a [ * ]) by the end of * Confidential Treatment Requested 37 the [ * ] after the date of this Agreement; and (ii) causes the Phase II Commencement Date with respect to a first Licensed Product for each [ * ] [ * ] to occur by the end of the [ * ] after the date of this Agreement; and (iii) files an NDA for a Licensed Product for [ * ] in a Major Market Country by the end of the [ * ] [ * ] after the date of this Agreement; and (iv) diligently pursues such Registrations for [ * ]; and (v) commences marketing at least one Licensed Product within [ * ] following such Registration. COMPANY shall be entitled to obtain a maximum of three consecutive extensions of time for meeting each of its obligations to commence Phase II clinical studies or file an NDA for [ * ] by paying to LICENSOR [ * ] for a first extension of [ * ] duration, [ * ] for a second extension of [ * ] days' duration, and [ * ] for a third extension of [ * ] duration. Payment for any such extension must be received by LICENSOR within [ * ] business days following the expiration of the period during which any diligence obligation was required to be met. COMPANY shall provide reports to LICENSOR every [ * ] days following its NDA filing(s) concerning the status of such filing(s) until final approval thereof. Each such report shall describe the status of the COMPANY's NDA and disclose any request for additional information or data received by COMPANY from the FDA during the reporting period and COMPANY's plans for complying with such * Confidential Treatment Requested 38 request. COMPANY shall immediately notify LICENSOR if COMPANY determines that it is unwilling to comply with any FDA requirement the failure with which to comply would result in the given Licensed Product being unapprovable by the FDA (which notice is hereinafter referred to as a "Failure of Diligence Notice"). Upon receipt of such a Failure of Diligence Notice, COMPANY shall be deemed to have failed to meet its diligence obligations, and LICENSOR may thereafter invoke any remedy provided for in this Article without any further notice to COMPANY. (b) In the event COMPANY fails to meet any diligence requirement set forth herein in respect of a Licensed Product for a given [ * ], LICENSOR shall have the option in its sole discretion to (i) terminate the Agreement within the entire Licensed Territory or any portion of the Licensed Territory for such [ * ], (ii) convert the license granted in this Agreement into a non-exclusive license within the entire Licensed Territory or any portion of the Licensed Territory for such Major Indication, or (iii) terminate the Agreement within a portion of the Licensed Territory and convert the license granted in this Agreement into a non-exclusive license within a portion of the Licensed Territory for such [ * ]. (c) Upon exercise by LICENSOR of any portion of its rights under the preceding Subsection with respect to a given [ * ], COMPANY shall deliver to LICENSOR all data, and shall grant to LICENSOR and its sublicensees a non-exclusive, royalty free license under all intellectual property rights in COMPANY's or COMPANY's sublicensees' control and required for regulatory or commercial 39 reasons in order to market any Licensed Product in the country or countries in which termination has occurred for such [ * ]. COMPANY shall further provide LICENSOR, promptly upon request, copies of any IND, NDA or other documents required for regulatory approvals for Sale in the United States and any foreign countries for such [ * ] and any other data and information otherwise necessary or useful in connection with the development thereof provided that such termination has occurred with respect to such countries. COMPANY shall, further permit LICENSOR and any licensee of LICENSOR to cross-reference such filings for such [ * ] and shall sell LICENSOR or LICENSOR's licensees any Licensed Compounds or intermediates used in the synthesis of such Licensed Compounds (and not being used by COMPANY for the synthesis of other compounds) at COMPANY's cost. (d) Prior to exercising any rights under this Section, LICENSOR shall give COMPANY [ * ] notice and shall meet with COMPANY, at COMPANY's request and expense, during such [ * ] period, to discuss any disagreements about whether COMPANY has complied with the requirements of this Section. Upon expiration of such [ * ] period, LICENSOR shall have the right in its sole discretion to proceed with the exercise of all rights and remedies provided for herein unless the applicable diligence obligation is met during such [ * ] period. 6.3 PROGRESS REPORTS. COMPANY shall, no less frequently than once every [ * ] until a Licensed Product has been Registered, provide LICENSOR with a written report detailing all activities of COMPANY, its Affiliates and sublicensees * Confidential Treatment Requested 40 related to developing Licensed Products, except to the extent required to do so more frequently pursuant to Section 6.2. 6.4 DEVELOPMENT OUTSIDE UNITED STATES. No later than COMPANY's filing of an NDA for a Licensed Product in the United States, COMPANY shall directly, or through or in collaboration with Affiliates and sublicensees, commence its best efforts: (a) to obtain Registration for a Licensed Product in such other countries of the Licensed Territory as COMPANY or COMPANY's Affiliates and sublicensees deem appropriate; and (b) upon Registration of a Licensed Product in a particular country proceed with due diligence to market such Licensed Product in such country. ARTICLE 7. PATENT PROSECUTION 7.1 LICENSED PATENTS ASSIGNED TO LICENSOR. (a) LICENSOR shall be primarily responsible for all patent prosecution activities pertaining to Licensed Patents assigned solely to LICENSOR. LICENSOR shall select patent counsel, acceptable to COMPANY, to prosecute, acquire from the relevant patent offices, defend and maintain and handle any litigation, interference, opposition or other action pertaining to the validity, enforceability, allowability or subsistence (all of the foregoing activities being referred to as "Patent Prosecution Activities") of all such Licensed Patents and shall provide COMPANY with copies of all filings and correspondence pertaining to such Patent Prosecution Activities (pre and post the date hereof), in a timely manner, so as to give COMPANY an opportunity to 41 comment thereon. To the extent reasonably possible, LICENSOR shall pursue Patent Prosecution Activities in respect of such Licensed Patents in at least the following countries: [ * ] and [ * ]. LICENSOR shall, upon COMPANY's request, pursue Patent Prosecution Activities of such Licensed Patents in additional countries. If LICENSOR decides to abandon or allow to lapse any patent application or patent within the Licensed Patents or discontinue any other Patent Prosecution Activities in respect thereof in any country of the Licensed Territory, LICENSOR shall inform COMPANY and COMPANY shall be given the opportunity to assume Patent Prosecution Activities in respect thereof. (b) COMPANY shall reimburse LICENSOR, not later than thirty (30) days after receiving an invoice from LICENSOR (and reasonable substantiation thereof if requested by COMPANY), for all reasonable out-of-pocket expenses incurred by LICENSOR in respect of such Patent Prosecution Activities on or after the eight (8) month anniversary of the date of this Agreement. LICENSOR shall be responsible for all expenses incurred by it in respect of such Patent Prosecution Activities prior to such eight (8) month anniversary date. Invoices shall be submitted once in respect of each calendar quarter as promptly as practicable after the end of such quarter. If COMPANY fails to promptly reimburse LICENSOR for any undisputed expenses for Patent Prosecution Activities respecting any patent application or issued patent assigned solely to LICENSOR within the time allowed therefor, upon at least thirty (30) days' prior notice to COMPANY, such patent application or issued patent shall not be considered a * Confidential Treatment Requested 42 Licensed Patent and LICENSOR shall be free, at its election, to abandon or maintain the prosecution of such patent application or issued patent or grant rights to such patent application or issued patent to third parties. (c) COMPANY reserves the right to terminate its obligations pursuant to Section 7.1 with respect to any patent application or patent included in the Licensed Patents in any country or countries upon at least thirty (30) days' prior written notice to LICENSOR. After the date specified in such notice on which COMPANY's obligation to pay further expenses for Patent Prosecution Activities terminates, such patent application or patent, as the case may be, shall no longer be included in the Licensed Patents in those countries in which COMPANY has exercised its rights to terminate such obligations. 7.2 LICENSED PATENTS JOINTLY ASSIGNED TO COMPANY AND LICENSOR. Any invention relating to a Licensed Compound, the invention of which under applicable patent law is attributed jointly to at least one employee of LICENSOR and at least one employee of COMPANY, shall be assigned by such employees to such LICENSOR and COMPANY. Any such jointly assigned patent, or patent application which includes claims to any Licensed Products shall be considered a Licensed Patent and subject to the terms of this Agreement. COMPANY shall be primarily responsible for all Patent Prosecution Activities pertaining to Licensed Patents jointly assigned to LICENSOR and COMPANY. COMPANY shall select patent counsel, acceptable to LICENSOR, to pursue Patent Prosecution Activities in respect of all such Licensed Patents and shall 43 provide LICENSOR with copies of all filings and correspondence pertaining to such Patent Prosecution Activities, in a timely manner, so as to give LICENSOR an opportunity to comment thereon. COMPANY shall advise such patent counsel in writing that for purposes of such Patent Prosecution Activities, such counsel represents both COMPANY and LICENSOR. COMPANY shall further inform LICENSOR of any decision by COMPANY to discontinue any Patent Prosecution Activities in respect of any pending patent application or issued patent promptly upon reaching such decision and in any case, no less than thirty (30) days before the discontinuance thereof. COMPANY shall be solely responsible for all expenses incurred by COMPANY in prosecuting and maintaining such patents. COMPANY shall pursue Patent Prosecution Activities of such Licensed Products in those countries it deems reasonably appropriate after consultation with LICENSOR. If COMPANY fails to timely pursue Patent Prosecution Activities in respect of any patent application or issued patent jointly assigned to COMPANY and LICENSOR in any country in which LICENSOR wishes to pursue such Patent Prosecution Activities, LICENSOR shall be free at its sole expense, to continue or discontinue any or all of the Patent Prosecution Activities in respect of such patent application or issued patent in such country or grant their rights to such patent application or issued patent to third parties. Thereafter, LICENSOR's rights to such patent application and issued patent shall no longer be included in the license granted pursuant to Section 2.1 and COMPANY shall further, upon LICENSOR's 44 request, license COMPANY's rights under such jointly assigned patents to LICENSOR or any licensees of LICENSOR, non-exclusively on a royalty free basis. ARTICLE 8. INFRINGEMENT 8.1 THIRD PARTY INFRINGEMENT. If COMPANY or LICENSOR becomes aware of any activity that it believes infringes a Valid Claim, the party obtaining such knowledge shall promptly advise the other of all relevant facts and circumstances pertaining to the potential infringement. COMPANY shall have the right to enforce any rights within the Licensed Patents or the Licensed Technology against such infringement, at its own expense. LICENSOR shall cooperate with COMPANY in such effort, at COMPANY's expense, including being joined as a party to such action if necessary. COMPANY may deposit up to [ * ] of any running royalties and Milestone Payments which are otherwise payable to LICENSOR during the pendency of any such infringement action in an interest-bearing escrow account (bearing interest at rates comparable to other COMPANY deposits of immediately available funds). COMPANY shall, upon the final resolution or settlement of such infringement action, provide LICENSOR with an accounting of the total royalty payments and Milestone Payments escrowed (and interest thereon) and COMPANY's expenses incurred in such infringement action. COMPANY shall be entitled to offset any expenses which COMPANY fails to recoup from any damage award or settlement payments arising from such infringement action against such escrowed royalties. Any escrowed payments (and interest thereon) in excess of COMPANY's unrecouped expenses shall be immediately * Confidential Treatment Requested 45 paid to LICENSOR. Any damage award or settlement payments made to COMPANY in excess of COMPANY's expenses shall be treated as royalty bearing Sales of Licensed Products and COMPANY shall make royalty payments on such revenues in accordance with Article 3 of this Agreement. 8.2 LICENSOR'S RIGHT TO PURSUE THIRD PARTY INFRINGERS. If COMPANY shall fail, within one hundred twenty (120) days after receiving notice from LICENSOR of a potential infringement, or providing LICENSOR with notice of such infringement, to either (a) terminate such infringement or (b) institute an action to prevent continuation thereof and, thereafter, to prosecute such action diligently, or if COMPANY notifies LICENSOR that it does not plan to terminate the infringement or institute such action, then LICENSOR shall have the right to do so at its own expense. COMPANY shall cooperate with LICENSOR in such effort, including being joined as a party to such action if necessary. LICENSOR shall be entitled to retain all damages or costs awarded to LICENSOR in such action. ARTICLE 9. WARRANTIES; EXCLUSION OF WARRANTIES; AND INDEMNIFICATION 9.1 WARRANTIES OF LICENSOR. (a) LICENSOR represents and warrants that, to the best of its knowledge: 46 (i) LICENSOR has disclosed to COMPANY all potential patent rights in the control of third parties known to LICENSOR which may be needed to commercialize any Licensed Products ; and (ii)APPENDIX "A" is a complete list of all patents and patent applications included in the Licensed Patents as of the date hereof. LICENSOR will, from time to time during the term of this Agreement, promptly provide COMPANY, upon request, with an updated version of APPENDIX "A". (b) LICENSOR further represents and warrants that (i) it is the exclusive owner or, in the case of the patents and patent applications licensed pursuant to the Yale Agreement, the exclusive licensee, of all right, title and interest in the patents and patent applications identified in APPENDIX "A" as of the date hereof, subject to the rights of the U.S. Government as described in the U.S. Government Licenses; and (ii) all patents and patent applications licensed by it pursuant to the Yale Agreement are identified on APPENDIX "A". For purposes of the representation and warranty set forth in clause (i) of Subsection 9.1(a), "LICENSOR" shall mean the Inventor and any employees of EMORY who work in the technology transfer area. COMPANY acknowledges that LICENSOR has not undertaken any investigation with respect to the potential patent rights of any third party. 9.2 WARRANTIES OF EACH PARTY. Each party hereto represents to the others that it is free to enter into this Agreement and to carry out all of the provisions hereof, including, in the case of LICENSOR, its grant to COMPANY of the license described in Section 2. 1. 47 9.3 MERCHANTABILITY AND EXCLUSION OF WARRANTIES. COMPANY possesses the necessary expertise and skill in the technical areas pertaining to the Licensed Patents, Licensed Products and Licensed Technology to make, and has made, its own evaluation of the capabilities, safety, utility and commercial application of the Licensed Patents, Licensed Products and Licensed Technology. ACCORDINGLY, EXCEPT AS SET FORTH IN SECTIONS 9.1 AND 9.2, LICENSOR DOES NOT MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE VALIDITY OF LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS AND EXPRESSLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY, OR COMMERCIAL APPLICATION OF THE LICENSED PATENTS, LICENSED TECHNOLOGY OR LICENSED PRODUCTS. 9.4 NO LIABILITY FOR CONSEQUENTIAL DAMAGES AND LIMITATION OF Liability. LICENSOR shall not be liable to COMPANY or COMPANY's Affiliates, customers or sublicensees for compensatory, special, incidental, indirect, consequential or exemplary damages resulting from the manufacture, testing, design, labeling, use or sale of Licensed Products by or through COMPANY, its Affiliates or sublicensees. This Section shall not affect COMPANY's rights hereunder to any credit or royalty reduction explicitly permitted elsewhere herein. 48 9.5 INDEMNIFICATION. (a) COMPANY shall defend, indemnify, and hold harmless the Indemnitees, from and against any and all claims, demands, loss, liability, expense, or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay, or incur as a result of claims, demands or actions against any of the Indemnitees arising or alleged to arise by reason of, or in connection with, any and all personal injury (including death) and property damage caused or contributed to, in whole or in part, by manufacture, testing, design, use, Sale, or labeling of any Licensed Products by COMPANY or COMPANY's Affiliates, contractors, agents or sublicensees. COMPANY's obligations under this Article shall survive the expiration or termination of this Agreement for any reason. (b) LICENSOR shall indemnify and hold Indemnitees harmless from and against any and all claims, demands, loss, liability, expense or damage (including investigative costs, court costs and reasonable attorneys' fees) Indemnitees may suffer, pay or incur as a result of claims, demands or actions against any of the Indemnitees arising by reason of, or in connection with, the breach by LICENSOR of any of their representations and warranties set forth in this Agreement. 9.6 INSURANCE. Without limiting COMPANY's indemnity obligations under the preceding Section, COMPANY shall, to the extent available at commercially reasonable rates and prior to any clinical trial or Sale of any Licensed Product, cause to be in force, an [ * ] insurance policy which: * Confidential Treatment Requested 49 (a) insures LICENSOR and its Indemnitees for all claims, damages, and actions mentioned in Section 9.5(a) of this Agreement; and (b) requires the insurance carrier to provide LICENSOR with no less than [ * ] written notice of any change in the terms or coverage of the policy or its cancellation; and (c) provides Indemnitees product liability coverage in an amount no less than [ * ] per occurrence for bodily injury and [ * ] per occurrence for property damage, subject to a reasonable aggregate amount, as determined by COMPANY. 9.7 NOTICE OF CLAIMS; INDEMNIFICATION PROCEDURES. (a) COMPANY shall promptly notify LICENSOR of all claims involving the Indemnitees for which indemnification is or may be provided in Section 9.5(a) and shall advise LICENSOR of the policy amounts that might be needed to defend and pay any such claims. (b) An Indemnitee which intends to claim indemnification under this Article shall promptly notify the other party (the "Indemnitor") in writing of any matter in respect of which the Indemnitee or any of its employees or agents intend to claim such indemnification. The Indemnitee shall permit, and shall cause its employees and agents to permit, the Indemnitor, at its discretion, to settle any such matter and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, that such settlement does not adversely affect the Indemnitee's rights * Confidential Treatment Requested 50 hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such matter shall be settled without the prior written consent of the Indemnitor and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any matter covered by the applicable indemnification. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. ARTICLE 10. CONFIDENTIALITY 10.1 TREATMENT OF CONFIDENTIAL INFORMATION. Except as otherwise provided hereunder, during the term of this Agreement and for a period of [ * ] thereafter: (a) COMPANY and its Affiliates and sublicensees shall retain in confidence and use only for purposes of this Agreement, any written information and data supplied by LICENSOR to COMPANY under this Agreement; and (b) LICENSOR shall retain in confidence and use only for purposes of this Agreement any written information and data supplied by COMPANY or on behalf of COMPANY to LICENSOR under this Agreement. For purposes of this Agreement, all such information and data which a party is obligated to retain in confidence shall be called "Information." * Confidential Treatment Requested 51 10.2 RIGHT TO DISCLOSE. To the extent that it is reasonably necessary to fulfill its obligations or exercise its rights under this Agreement, or any rights which survive termination or expiration hereof, each party may disclose Information to its Affiliates, sublicensees, consultants, outside contractors, actual or prospective investors, governmental regulatory authorities and clinical investigators on condition that such entities or persons agree: (a) to keep the Information confidential for a [ * ] time period and to the same extent as each party is required to keep the Information confidential; and (b) to use the Information only for such purposes as such parties are authorized to use the Information. Each party or its Affiliates or sublicensees may disclose Information to the government or other regulatory authorities to the extent that such disclosure (i) is necessary for the prosecution and enforcement of patents, or authorizations to conduct clinical trials or commercially market Licensed Products, provided such party is then otherwise entitled to engage in such activities during the term of this Agreement or thereafter in accordance with the provisions of this Agreement, or (ii) is legally required. 10.3 RELEASE FROM RESTRICTIONS. The obligation not to disclose Information shall not apply to any part of such Information that: (a) is or becomes patented, published or otherwise part of the public domain, other than by unauthorized acts of the party obligated not to disclose such * Confidential Treatment Requested 52 Information (for purposes of this Article 10 the "receiving party") or its Affiliates or sublicensees in contravention of this Agreement; or (b) is disclosed to the receiving party or its Affiliates or sublicensees by a third party provided that such Information was not obtained by such third party directly or indirectly from the other party to this Agreement; or (c) prior to disclosure under this Agreement, was already in the possession of the receiving party, its Affiliates or sublicensees, provided that such Information was not obtained directly or indirectly from the other party to this Agreement; or (d) results from research and development by the receiving party or its Affiliates or sublicensees, independent of disclosures from the other party of this Agreement, provided that the persons developing such information have not had exposure to the information received from the other party to this Agreement; or (e) is required by law to be disclosed by the receiving party, provided that the receiving party uses reasonable efforts to notify the other party immediately upon learning of such requirement in order to give the other party reasonable opportunity to oppose such requirement; or (f) COMPANY and LICENSOR agree in writing may be disclosed. 53 ARTICLE 11. TERM AND TERMINATION 11.1 TERM. Unless sooner terminated as otherwise provided in this Agreement, the term of this Agreement shall commence on the date of this Agreement and shall continue in full force and effect until the expiration of (a) the last to expire Valid Claim or (b) COMPANY's obligations to pay royalties hereunder, whichever is last to occur. 11.2 TERMINATION. LICENSOR shall have the right to terminate this Agreement upon the occurrence of any one or more of the following events, provided that LICENSOR has given COMPANY the notice required in Section 11.3 and COMPANY has failed to cure the breach described in such notice: (a) failure of COMPANY to make any payment required pursuant to this Agreement when due; or (b) failure of COMPANY to timely issue COMPANY stock to LICENSOR or certain Inventors as designated by LICENSOR in accordance with the certain Restricted Stock Purchase Agreement between LICENSOR and COMPANY of even date herewith; or (c) failure of COMPANY to render reports to LICENSOR as required by this Agreement; or (d) the institution of any proceeding by COMPANY under any bankruptcy, insolvency, or moratorium law; or (e) any assignment by COMPANY of substantially all of its assets for the benefit of creditors; or 54 (f) placement of COMPANY's assets in the hands of a trustee or a receiver unless the receivership or trust is dissolved within thirty (30) days thereafter and provided that in the case of in involuntary bankruptcy proceeding, which is contested by COMPANY, such termination shall not become effective until the bankruptcy court of jurisdiction has entered an order upholding the petition; or (g) a decision by COMPANY or COMPANY's permitted assignee of rights under this Agreement to quit the business of developing or selling Licensed Products; or (h) the breach by COMPANY of any other material term of this Agreement. 11.3 EXERCISE. LICENSOR may exercise its right of termination by giving COMPANY, its trustees, receivers or assigns, thirty (30) days' prior written notice of LICENSOR's election to terminate. Such notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless COMPANY has cured the breach. Such notice and termination shall not prejudice LICENSOR's right to receive royalties or other sums due hereunder and shall not prejudice any cause of action or claim of LICENSOR. 11.4 FAILURE TO ENFORCE. The failure of LICENSOR, at any time, or for any period of time, to enforce any of the provisions of this Agreement, shall not be construed as a waiver of such provisions or as a waiver of the right of LICENSOR thereafter to enforce each and every such provision of this Agreement. 55 11.5 TERMINATION BY COMPANY. COMPANY shall have the right to terminate this Agreement upon the occurrence of either of the following events: (a) the breach of a material term of this Agreement by LICENSOR; or (b) upon COMPANY's convenience and written notice of such termination given to LICENSOR at least ninety (90) days prior to the date of such termination. The termination right set forth in this Subsection 11.5(b) may be exercised by COMPANY in respect of either or both Major Indications in the entire Licensed Territory or one or more countries of the Licensed Territory without affecting this Agreement in the remaining countries of the Licensed Territory. 11.6 EXERCISE. COMPANY may exercise its right of termination pursuant to Section 11.5(a) by giving LICENSOR thirty (30) days' prior written notice of COMPANY's election to terminate. The notice shall include the basis for such termination. Upon the expiration of such period, this Agreement shall automatically terminate unless LICENSOR has cured the breach. Such notice of termination shall not prejudice any cause of action or claim of COMPANY accrued or to accrue on account of any breach or default by LICENSOR. 11.7 EFFECT. If this Agreement is terminated as a result of COMPANY's breach pursuant to Section 11.2, or is terminated in whole or in part (but only with respect to that part with respect to which termination occurs) in accordance with Section 11.5(b): (a) COMPANY shall use its best efforts to return, or at LICENSOR's direction, destroy, all data, writings and other documents and tangible materials supplied to COMPANY by 56 LICENSOR if the Agreement is terminated in whole; and (b) COMPANY shall further, upon LICENSOR's request and with no need for additional consideration, grant LICENSOR a non-exclusive, royalty free license (with the right to sublicense) to all of COMPANY's rights in any Licensed Patents and other patents owned by, licensed to (to the extent sublicensing is permissible and subject to the terms thereof, including any royalty obligations) or controlled by COMPANY which include claims covering or potentially covering the manufacture, use or sale of any Licensed Products, or derivatives or analogues thereof. COMPANY shall further provide LICENSOR with full and complete copies of all toxicity, efficacy, and other data generated by COMPANY or COMPANY's Affiliates, sublicensees, contractors or agents in the course of COMPANY's efforts to develop Licensed Products or obtain governmental approval for the Sale of Licensed Products, including but not limited to any IND, NDA or other documents filed with any government agency. LICENSOR and its licensees shall be authorized to cross-reference any such IND, NDA or other filings made in the United States or foreign countries where permitted by law. LICENSOR shall be authorized to provide data pertaining to the Licensed Patents and Licensed Technology to any third party with a bona fide interest in licensing such technology. Such data shall be provided on a confidential basis; provided, however, that if such third party concludes a license with LICENSOR, such third party shall be free to use such data for all purposes, including to obtain government approvals to sell any product containing any Licensed Compound. COMPANY shall cooperate reasonably (at no unreimbursed expense to 57 COMPANY) with any third party licensee of LICENSOR in pursuing governmental approval to sell any product containing any Licensed Compound, including but not limited to, permitting such third parties to cross-reference any NDA filed with the FDA or Registration obtained from the FDA or analogous documents filed or obtained in any foreign countries. ARTICLE 12. ASSIGNMENT COMPANY shall not assign this Agreement or any part thereof without the prior written consent of LICENSOR, which consent shall not be unreasonably withheld or delayed. COMPANY may, however, without consent, assign or sell its rights under this Agreement (a) in connection with the transfer or sale of substantially its entire business to which this Agreement pertains, (b) in the event of its merger or consolidation with another company, or (c) to an Affiliate. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party has under this Agreement. Any assignee of this Agreement shall assume all accrued and prospective obligations including but not limited to those set forth in Articles 6 and 7. Any such assignee shall further, within sixty (60) days of becoming the assignee of rights hereunder, meet with LICENSOR's representatives , to discuss such assignee's plans for the future development of the Licensed Products. If such assignee determines that it does not wish to continue the development or marketing obligations required under this Agreement or otherwise attempt to sublicense its rights, then such assignee shall 58 immediately terminate this Agreement; provided, however, that any sublicense must be consummated no later than one hundred and eighty (180) days from the effective date of the assignment to such assignee. Any such termination shall be treated as a termination under Subsection 11.5(b). ARTICLE 13. TRANSFER OF LICENSED TECHNOLOGY Within sixty (60) days following the date hereof and as far as it has not previously done so, LICENSOR shall supply COMPANY with all available Licensed Technology. With respect to any Licensed Technology which becomes known to LICENSOR during the term of this Agreement, such disclosure will be made at least semi-annually or sooner, if practicable. ARTICLE 14, REGISTRATION OF LISCENSE COMPANY, at its expense, may register the license granted under this Agreement in any country of the Licensed Territory where the use, sale or manufacture of a Licensed Product in such country would be covered by a Valid Claim. Upon request by COMPANY, LICENSOR agrees promptly to execute any "short form" licenses submitted to it by COMPANY in order to effect the foregoing registration in such country. ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT 15.1 NOTICES RELATING TO THE ACT. LICENSOR shall use its best efforts to notify COMPANY of (a) the issuance of each U.S. patent included among the Licensed Patents, giving the date of issue and patent number for each such patent; and (b) each 59 notice pertaining to any patent included among the Licensed Patents which LICENSOR receives as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter the "Act"), including but not necessarily limited to notices pursuant to Sections 101 and 103 of th ACT From persons who have filed an abbreviated NDA ("ANDA") of a "paper" NDA. Such notices shall be given promptly, but in any event within ten (10) days of LICENSOR's notice of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. 15.2 AUTHORIZATION RELATING TO PATENT TERM EXTENSION. LICENSOR hereby authorizes COMPANY (a) to include in any NDA for a Licensed Product, as COMPANY may deem appropriate under the Act, a list of patents included among the Licensed Patents that relate to such Licensed Product and such other information as COMPANY in its reasonable discretion believes is appropriate to be filed pursuant to the Act; (b) to commence suit for any infringement of the Licensed pursuant to Sections 101 and 103 of the Act from persons Patents under Section the submission by a third party of an IND or a paper NDA for a Licensed Product 271(e) (2) of Title 35 of the United States Code occasioned by pursuant to (which consent will not be unreasonably withheld or delayed), to exercise any rights that may be exercisable by LICENSOR as patent owner under the Act to apply for an extension of the term of any patent included among the Licensed Patents. In the event that applicable law in any other country of the Licensed Territory hereafter provides for the extension of the term of any patent included among the Licensed Patents in such country, upon request by COMPANY, 60 LICENSOR shall use its best efforts to obtain such extension or, in lieu thereof, shall authorize COMPANY or, if requested by COMPANY or its sublicensees to apply for such extension, in consultation with LICENSOR. LICENSOR agrees to cooperate with COMPANY or its sublicensees, as applicable, in the exercise of the authorization granted herein or which may be granted pursuant to this Section 15.2 and will execute such documents and take such additional action as COMPANY may reasonably request in connection therewith, including, if necessary, permitting itself to be joined as a proper party in any suit for infringement brought by COMPANY under subsection (b) above. The provisions of Article 8 shall apply to any suit for infringement brought by COMPANY under subsection (b) above. In the event COMPANY decides not to commence suit for infringement under subsection (b) above, COMPANY will notify LICENSOR of its decision within thirty (30) days so that LICENSOR may institute such litigation itself, if it wishes, at its own cost and expense. ARTICLE 16. MISCELLANEOUS 16.1 ARBITRATION. Any controversy, claim or dispute regarding (a) COMPANY's failure to meet its diligence obligations in accordance with Article 6 of this Agreement, including, without limitation, any dispute concerning the scope of this arbitration clause or (b) the size of any royalty reduction pursuant to Subsection 3.9(b), shall be resolved through arbitration conducted under the auspices of the American Arbitration Association pursuant to that organization's rules for commercial arbitration. Any 61 hearings requested by COMPANY shall be held in Atlanta, Georgia. Any hearings requested by LICENSOR shall be held in Durham, North Carolina. 16.2 EXPORT CONTROLS. COMPANY acknowledges that LICENSOR is subject to United States laws and regulations controlling the export of technical data, biological materials, chemical compositions and other commodities and that LICENSOR's obligations under this Agreement are contingent upon compliance with applicable United States export laws and regulations. The transfer of technical data, biological materials, chemical compositions and commodities may require a license from the cognizant agency of the United States government or written assurances by COMPANY that COMPANY shall not export data or commodities to certain foreign countries without the prior approval of certain United States agencies, or as otherwise prescribed by applicable law or regulation. LICENSOR neither represents that an export license shall not be required nor that, if required, such export license shall issue. 16.3 LEGAL COMPLIANCE. COMPANY shall comply with all laws and regulations relating to its manufacture, use, sale, labeling or distribution of Licensed Products and shall not take any action which would cause LICENSOR or COMPANY to violate any laws or regulations. 16.4 INDEPENDENT CONTRACTOR. COMPANY's relationship to LICENSOR shall be that of a licensee only. COMPANY shall not be the agent of LICENSOR and shall have no authority to act for, or on behalf of, LICENSOR in any matter. Persons 62 retained by COMPANY as employees or agents shall not, by reason thereof, be deemed to be employees or agents of LICENSOR. 16.5 PATENT MARKING. COMPANY shall mark Licensed Products Sold in the United States with United States patent numbers. Licensed Products manufactured or Sold in other countries shall be marked in compliance with the intellectual property laws in force in such countries. The foregoing obligations shall be subject to size and space limitations. 16.6 USE OF NAMES. COMPANY shall obtain the prior written approval of LICENSOR prior to making use for any commercial purpose of the name of any of the Inventors, any employee of the LICENSOR, except that COMPANY may identify LICENSOR to prospective investors and in public announcements relating to consummation of this Agreement. 16.7 EFFECT. This Agreement shall not become effective or binding upon the parties until signed by LICENSOR's Executive Vice President and the President or any other authorized officer of COMPANY. 16.8 GOVERNING LAW. This Agreement and all amendments, modifications, alterations, or supplements hereto, and the rights of the parties hereunder, shall be construed under and governed by the laws of the State of Georgia and the United States of America. 16.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between LICENSOR and COMPANY with respect to the subject matter hereof and 63 shall not be modified, amended or terminated, except as herein provided or except by another agreement in writing executed by the parties hereto. 16.10 SURVIVAL. Articles 9 and 10 shall survive termination of this Agreement for any reason. Section 11.7 shall survive termination pursuant to Section 11.2 or 11.5(b). Upon expiration of this Agreement, COMPANY shall have a fully paid up license to use the Licensed Technology. 16.11 SEVERABILITY. All rights and restrictions contained herein may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. If any provision or portion of any provision of this Agreement, not essential to the commercial purpose of this Agreement, shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining provisions or portions thereof shall constitute their agreement with respect to the subject matter hereof, and all such remaining provisions, or portions thereof, shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced by a valid provision which shall implement the commercial purpose of the illegal, invalid, or unenforceable provision. In the event that any provision essential to the commercial purpose of this Agreement is held to be illegal, invalid or unenforceable and cannot be replaced by a valid provision which will 64 implement the commercial purpose of this Agreement, this Agreement and the rights granted herein shall terminate. 16.12 FORCE MAJEURE. Any delays in, or failure of performance of any party to this Agreement, shall not constitute a default hereunder, or give rise to any claim for damages, if and to the extent caused by occurrences beyond the control of the party affected, including, but not limited to, acts of God, strikes or other concerted acts of workmen, civil disturbances, fires, floods, explosions, riots, war, rebellion, sabotage, acts of governmental authority or failure of governmental authority to issue licenses or approvals which may be required. 16.13 ATTORNEYS' FEES. If any action at law, in equity or under Section 16.1 of this Agreement is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled. 16.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ARTICLE 17. NOTICES 17.1 NOTICES. All notices, statements, and reports required to be given under this Agreement shall be in writing and shall be deemed to have been given upon delivery in person or, when deposited (a) in the mail in the country of residence of the party 65 giving the notice, registered or certified postage prepaid or (b) with a professional courier service (e.g. FedEx or UPS), and addressed as follows: To LICENSOR: Emory University Director of Licensing and Patent Counsel 2009 Ridgewood Drive Atlanta, Georgia 30322 Attention: Vincent La Terza With an Informational Copy to: Emory University Office of the Vice President and General Counsel 401 Administration Building Atlanta, Georgia 30322 Attention: Joseph Crooks, Esq. To COMPANY: Triangle Pharmaceuticals Inc. 4 University Place 4611 University Drive Durham, NC 27707 Attention: Company Secretary Any party hereto may change the address to which notices to such party are to be sent by giving notice to the other party at the address and in the manner provided above. Any notice may be given, in addition to the manner set forth above, by telex, facsimile or cable, provided that the party giving such notice obtains acknowledgment by telex, facsimile or cable that such notice has been received by the party to be notified. Notice made in this manner shall be deemed to have been given when such acknowledgment has been transmitted. 66 17.2 ADDITIONAL PROVISIONS. Each party shall use reasonable efforts to give any material notice hereunder by use of a professional courier service, provided, that failure to do so shall have no effect if such notice is given in any other manner prescribed by Subsection 17.1. COMPANY shall use reasonable efforts to provide an informational copy of any notice to LICENSOR's Office of the Vice President and General Counsel as set forth in Subsection 17.1, provided, that failure to do so shall have no effect if such notice is given to LICENSOR as otherwise prescribed in Subsection 17.1. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]. 67 IN WITNESS WHEREOF, LICENSOR and COMPANY have caused this Agreement to be signed by their duly authorized representatives, under seal, as of the day and year indicated below. LICENSOR: EMORY UNIVERSITY By: /s/ John Temple ------------------------------------ John Temple Executive Vice President COMPANY: TRIANGLE PHARMACEUTICALS, INC. By: /s/ David Barry --------------------------------------- Name: Title: [SIGNATURE PAGE FOR FTC LICENSE AGREEMENT] S-1 page 1 of 3
APPENDIX "A" FTC APPLICATIONS AND PATENTS ---------------------------- Docket No. Country Serial No. Filed Patent No. Grant Date - ---------- ------- ---------- ----- ---------- ---------- EMU104 U.S. 07/473,318 02/01/90 5,204,466 04/20/93 [ * ] [ * ] [ * ] [ * ] EMU105CIP U.S. 07/659,760 02/22/91 5,210,085 05/11/93 [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
* Confidential Treatment Requested APPENDIX "A" page 2 of 3
FTC APPLICATIONS AND PATENTS ---------------------------- FOREIGN ------- Docket No. Country Serial No. Filing Date Patent No. Issue Date - ---------- ------- ---------- ----------- ---------- ---------- EMU104 PCT PCT/US91/00685 07/31/91 Publ. No. Publ. Date WO 91/11186 08/08/91 Australia 73004/91 07/31/91 658136 Barbados 81/219 07/31/91 81/219 Bulgaria 96717 07/31/91 Canada 2,075,189 07/31/91 Europe 91904454.5 07/31/91 provisional protection under Article 67(3) in Germany, Belgium, Austria, France, Luxembourg, Spain, Greece, Sweden, Denmark, Switzerland, Italy and the Netherlands Finland 923446 07/31/91 Hungary P9202496 07/31/91 Hungary P/P 00581 211.300 Japan 3-504897 07/31/91 Korea 92-701845 07/31/91 Malawi 49/92 MW 49/92 12/12/94 Monaco PV PCT/US91 07/31/91 93 2233 02/23/93 /006 Norway P923014 Romania 1256/310792 108564 Russia 92016627.04 07/31/91 Sri Lanka 10414 01/29/93 EMU108 PCT PCT/US92/01339 2/20/92 WO92/14743 9/3/92 Australia 15617/92 2/20/92 665187 Australia 37943/95 11/20/95 Brazil 9205661 2/20/92 Bulgaria 980621 2/20/92 Canada 2,104,399 2/20/92 China 92101981.5 2/20/92 China 95109814.4 2/22/92 Czechoslovakia PV-0497-92 2/20/92 Europe 92908027.3 2/20/92 Finland 933684 2/20/92 Hungary P-93 02377 2/20/92 Hungary P/P00510 6/30/95 211.344 Indonesia P-002339 2/22/92 Ireland 920545 7/21/92
APPENDIX "A" page 3 of 3 Docket No. Country Serial No. Filing Date Patent No. Issue Date - ---------- ------- ---------- ----------- ---------- ---------- EMU108 Israel 100965 2/17/92 Japan 4-507549 2/20/92 Malaysia PI 9200287 2/21/92 Mexico 92200747 2/21/92 New Zealand 241625 2/17/92 New Zealand 250842 2/17/92 Nigeria RP 48/92 2/21/92 Norway P932980 2/20/92 Pakistan 79/92 2/25/92 79/92 3/28/94 Philippines 43955 2/20/92 Poland P300471 2/20/92 Poland 310211 8/1/95 Portugal 100151 2/21/92 Republic of Korea 93-702516 2/20/92 Romania 93-01137 2/20/92 Russia 93058540.04 2/20/92 South Africa 92/1251 7/20/92 92/1251 10/27/93 Taiwan 81101183 2/18/92 Thailand 015518 2/18/92
APPENDIX "B" page 1 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: Method and Compositions for [ * ] Inventors: Dr. Dennis Liotta Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: [ * ] This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Ann R. Stevens Date: 6/4/93 --------------------------------------- --------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: Date: - --------------------------------------------- --------------- * Confidential Treatment Requested APPENDIX "B" page 2 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: Method of [ * ] and [ * ] of [ * ] Inventors: Dr. Dennis Liotta Dr. Raymond Schinazi Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Ann R. Stevens Date: 6/4/93 --------------------------------------- --------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: Date: --------------------------------------- --------------- * Confidential Treatment Requested APPENDIX "B" page 3 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: Method for [ * ] and [ * ] Inventors: Dr. Dennis Liotta Dr. Raymond Schinazi Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Patent No.: [ * ] Issue Date: May 11, 1993 Country, if other than the United States: [ * ] This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Ann R. Stevens Date: 6/4/93 --------------------------------------- --------------- Typed Name: Ann R. Stevens, Ph.D. Title: Associate Vice President for Research Accepted on behalf of Government: Date: --------------------------------------- --------------- [ * ] * Confidential Treatment Requested APPENDIX "B" page 4 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: Method of [ * ] and [ * ] Inventors: Dr. Dennis Liotta Dr. Raymond Schinazi Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Vincent La Terza Date: 12/27/95 --------------------------------------- --------------- Typed Name: Vincent La Terza Title: Director of Licensing and Patent Counsel Accepted on behalf of Government: Date: --------------------------------------- --------------- * Confidential Treatment Requested APPENDIX "B" page 5 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: Method of [ * ] and [ * ] Inventors: Dr. Dennis Liotta Dr. Raymond Schinazi Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Vincent La Terza Date: 12/27/95 --------------------------------------- --------------- Typed Name: Vincent La Terza Title: Director of Licensing and Patent Counsel Accepted on behalf of Government: Date: --------------------------------------- --------------- * Confidential Treatment Requested APPENDIX "B" page 6 of 6 LICENSE TO THE UNITED STATES GOVERNMENT --------------------------------------- This instrument confers to the United States Government, as represented by the Department of Health and Human Services, a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention. This license will extend to all divisionals or continuations of the patent application and all patents or reissues which may be granted thereon: Invention Title: [ * ] and [ * ] of [ * ] Inventors: Dr. Dennis Liotta Dr. Raymond Schinazi Dr. Woo Baeg Choi Patent Application Serial No.: [ * ] Filing Date: [ * ] Country, if other than the United States: This subject invention was conceived or first actually reduced to practice in performance of a government-funded project, National Institutes of Health Grant/Contract [ * ]. Principal rights to this subject invention have been left with the Licensor, Emory University, subject to the provisions of 37 CFR 401 and 45 CFR 8. Signed: /s/ Vincent La Terza Date: 4/11/96 --------------------------------------- --------------- Typed Name: Vincent La Terza Title: Director of Licensing and Patent Counsel Accepted on behalf of Government: Date: --------------------------------------- --------------- * Confidential Treatment Requested EX-10.44 11 EMPLOYMENT AGREEMENT (TO COME) EXHIBIT 10.44 EMPLOYMENT AGREEMENT This Employment Agreement ("AGREEMENT") is made by and between Dr. David W. Barry ("DR. BARRY") and Triangle Pharmaceuticals, Inc. ("TRIANGLE") as of October 28, 1996 (the "Effective Date"). RECITALS DR. BARRY has been an employee of TRIANGLE since July 19, 1995. TRIANGLE and DR. BARRY wish to set forth in this AGREEMENT the terms and conditions under which DR. BARRY is to be employed by TRIANGLE from the date of execution forward. In consideration of DR. BARRY's agreement to continue providing services to TRIANGLE, TRIANGLE's agreement to employ DR. BARRY on the terms and conditions set forth herein and the mutual agreements set forth herein, the parties hereto agree as follows: 1. TERM AND NATURE OF EMPLOYMENT TRIANGLE hereby employs DR. BARRY as Chief Executive Officer of TRIANGLE for a two (2) year period commencing on the Effective Date of this AGREEMENT and ending on the second anniversary of the Effective Date, unless said period of employment (the "Employment Period") is terminated earlier in accordance with the terms of this AGREEMENT or is extended pursuant to a written amendment executed by both parties. DR. BARRY hereby accepts such employment and agrees to devote his full business time and attention, best efforts, energy and skills to the business and affairs of TRIANGLE. DR. BARRY agrees to perform such other duties as may from time to time be assigned to him by the Board of Directors of TRIANGLE and shall act at all times in accordance with the best interests of TRIANGLE. DR. BARRY agrees that he shall comply with all applicable governmental laws, rules and regulations and with all of TRIANGLE's policies, rules and/or regulations applicable to the employees of TRIANGLE. The employment relationship between TRIANGLE and DR. BARRY may be terminated by TRIANGLE or by DR. BARRY at any time, with or without cause, subject to the terms and conditions contained in article 5 of this AGREEMENT and the obligations described in articles 6 and 7 hereof. 2. WAGE COMPENSATION 2.1 AMOUNT. DR. BARRY shall be compensated on the basis of an annualized salary of Two Hundred Sixteen Thousand Dollars ($216,000.00), less applicable withholding taxes. Increases in salary, if any, shall be made at the sole discretion of the Board of Directors of TRIANGLE. Nothing in this paragraph 2.1 shall be construed to limit TRIANGLE's right to terminate this AGREEMENT in accordance with the terms hereof. 2.2 PAYMENT. Salary payments will normally be made to DR. BARRY monthly or otherwise in accordance with TRIANGLE's pay period practices applicable to executive officers. 3. OTHER BENEFITS During the Employment Period, DR. BARRY shall be entitled to receive any other benefits which are provided to TRIANGLE's executive officers or other full time employees, in accordance with TRIANGLE's policies and practices. 4. FORMER EMPLOYMENT 4.1 NO CONFLICT. DR. BARRY represents and warrants that the execution and delivery by him of this AGREEMENT, his employment by TRIANGLE and his performance of duties under this AGREEMENT will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship, or any other contractual obligations. 4.2 NO USE OF PRIOR CONFIDENTIAL INFORMATION. DR. BARRY will not intentionally disclose to TRIANGLE or use on its behalf any confidential information belonging to any of his former employers, but during his employment by TRIANGLE he will use in the performance of his duties all information (but only such information) which is generally known and used by persons with training and experience comparable to his own or is common knowledge in the industry or otherwise legally in the public domain. 5. TERMINATION 5.1 TERMINATION OF AGREEMENT DUE TO DEATH. DR. BARRY's employment and this AGREEMENT shall terminate upon DR. BARRY's death. In the event that DR. BARRY's employment ends due to his death, TRIANGLE's obligations under this AGREEMENT shall immediately cease and DR. BARRY's estate shall be entitled to no severance benefits or any other benefits under this AGREEMENT, except -2- that if DR. BARRY dies within three (3) years after the date of this AGREEMENT, any options or stock of the Company then owned by DR. BARRY shall automatically accelerate and become fully vested. This provision shall not otherwise limit any benefits available under TRIANGLE's benefit plans. 5.2 INVOLUNTARY TERMINATION FOR CAUSE. Notwithstanding anything to the contrary herein, DR. BARRY's employment and this AGREEMENT may be terminated by TRIANGLE upon written notification upon the occurrence of any of the following: a. DR. BARRY being formally charged with the commission of a felony, or being convicted of a misdemeanor involving moral turpitude. b. DR. BARRY's demonstrable fraud or dishonesty. c. DR. BARRY's use of illegal drugs or any illegal substance, or his use of alcohol in any manner that materially interferes with the performance of his duties under this AGREEMENT. d. DR. BARRY's intentional, reckless or grossly negligent conduct detrimental to the best interests of TRIANGLE, including, without limitation, any misappropriation or unauthorized use of TRIANGLE's property or improper disclosure of confidential information. e. DR. BARRY's failure to perform material duties under this AGREEMENT if such failure has continued for 20 days after DR. BARRY has been notified in writing by TRIANGLE of the nature of DR. BARRY's failure to perform. f. DR. BARRY's chronic absence from work for reasons other than illness. g. DR. BARRY's violation of TRIANGLE's policy prohibiting sexual harassment. h. DR. BARRY's violation of TRIANGLE's policy prohibiting unlawful discrimination. In the event that DR. BARRY's employment is terminated with cause by TRIANGLE pursuant to this paragraph 5.2 of this AGREEMENT within three (3) years after the Effective Date, TRIANGLE will continue to pay salary payments to DR. BARRY (based upon his then-current salary) for a period of two (2) years following termination. In the event that DR. BARRY's employment is terminated with cause by TRIANGLE for any of the reasons enumerated in this paragraph 5.2, DR. BARRY shall have certain obligations to refrain from disclosing TRIANGLE's confidential or proprietary information, as more fully described in article 6 below. In the event that DR. BARRY's employment is -3- terminated with cause by TRIANGLE for any of the reasons enumerated in this paragraph 5.2 within three (3) years after the Effective Date, DR. BARRY shall have certain obligations to refrain from engaging in competitive activities, as more fully described in article 7, below. DR. BARRY acknowledges and agrees that the continuing salary payments described in this paragraph 5.2, shall constitute good and sufficient consideration for his agreement to abide by the terms of articles 6 and 7 hereof. Termination of DR. BARRY pursuant to this section 5.2 shall be in addition to and without prejudice to any other right or remedy to which TRIANGLE may be entitled at law, in equity, or under this AGREEMENT. 5.3 INVOLUNTARY TERMINATION FOR OTHER THAN CAUSE. TRIANGLE may terminate DR. BARRY's employment and this AGREEMENT at any time for any reason upon written notification to DR. BARRY. If TRIANGLE so terminates pursuant to this paragraph 5.3 (i.e., none of the matters specified in paragraph 5.2 has occurred) within three (3) years after the Effective Date, TRIANGLE will continue to pay salary payments to DR. BARRY (based upon his then-current salary) for a period of two (2) years following termination. If TRIANGLE terminates DR. BARRY's employment pursuant to this paragraph 5.3 within three (3) years after the Effective Date, it will also accelerate DR. BARRY's vesting in any unvested stock and/or options previously granted to him and any group health benefits provided to DR. BARRY during his employment pursuant to this AGREEMENT will be continued, if permitted by law, by TRIANGLE at its expense for a period of two (2) years following termination. Except as described in this paragraph 5.3, TRIANGLE shall have no other obligations to DR. BARRY in the event that DR. BARRY's employment is terminated pursuant to this paragraph 5.3. In the event that DR. BARRY's employment is terminated by TRIANGLE pursuant to this paragraph 5.3, DR. BARRY shall have certain obligations to refrain from disclosing TRIANGLE's confidential or proprietary information, as more fully described in article 6 below. In the event that DR. BARRY's employment is terminated by TRIANGLE pursuant to this paragraph 5.3 within three (3) years after the Effective Date, DR. BARRY shall have certain obligations to refrain from engaging in competitive activities, as more fully described in article 7 below. DR. BARRY acknowledges and agrees that the continuing salary payments and other benefits described in this paragraph 5.3 shall constitute good and sufficient consideration for his agreement to abide by the terms of articles 6 and 7 hereof. 5.4 RESIGNATION. DR. BARRY may terminate his employment and this AGREEMENT at any time for any reason upon written notification to TRIANGLE. If DR. BARRY resigns from his employment for any reason within three (3) years after the Effective Date, except as provided to the contrary below, TRIANGLE will continue to pay salary payments to DR. BARRY (based upon his then-current salary) for a period of two (2) years following termination. If DR. BARRY resigns from his employment pursuant to this paragraph 5.4 within three (3) years after the Effective Date, except as provided to the contrary below, any group health benefits provided to DR. BARRY during his employment pursuant to this AGREEMENT will be continued, if permitted by law, by TRIANGLE at -4- its expense for a period of two (2) years following termination. Notwithstanding the foregoing, if DR. BARRY terminates his employment and does not at the time of termination intend to engage in competitive activities of the type prohibited by article 7, then TRIANGLE shall not be obligated to make the salary payments and provide group health benefits to DR. BARRY pursuant to the preceding two (2) sentences; provided, however, that if DR. BARRY, within two (2) years after his termination of employment under this paragraph 5.4 decides he would like to engage in competitive activities that are prohibited by paragraph 7, then TRIANGLE shall make the salary payments and provide group health benefits to DR. BARRY for the period of time between the date DR. BARRY decides he would like to so compete and the expiration of the two (2) year period after DR. BARRY's termination of his employment under this paragraph 5.4 (but, notwithstanding DR. BARRY's desire to compete, in no event shall DR. BARRY be permitted to engage in the competitive activities described in paragraph 7 for the period of time described in paragraph 7). Except as described in this paragraph 5.4, TRIANGLE shall have no other obligations to DR. BARRY in the event that DR. BARRY resigns from his employment for any reason pursuant to this paragraph 5.4. In the event that DR. BARRY resigns from his employment with TRIANGLE pursuant to this paragraph 5.4, DR. BARRY shall have certain obligations to refrain from disclosing TRIANGLE's confidential or proprietary information, as more fully described in article 6 hereof. In the event that DR. BARRY resigns from his employment with TRIANGLE pursuant to this paragraph 5.4, DR. BARRY shall have certain obligations to refrain from engaging in competitive activities, as more fully described in article 7 hereof. DR. BARRY acknowledges and agrees that the continuing salary payments and other benefits described in this paragraph 5.4 shall constitute good and sufficient consideration for his agreement to abide by the terms of articles 6 and 7 hereof. 6. CONFIDENTIALITY DR. BARRY acknowledges that he is bound by the terms of that certain Employee Proprietary Information and Inventions Agreement between TRIANGLE and DR. BARRY dated September 7, 1995 (the "Confidentiality Agreement"). 7. NON-COMPETITION DR. BARRY agrees and promises that if his employment is terminated pursuant to paragraph 5.2, 5.3 or 5.4 hereof within three (3) years after the Effective Date, then, for the period of time described below, he will not be engaged in any other business or as a consultant to or general partner, employee, officer or director of any partnership, firm, corporation, or other entity, or as an agent for any person, or otherwise, if: (1) such other business, partnership, firm, corporation, entity or person is engaged in for-profit activity in the pharmaceutical industry within the United States and competes with TRIANGLE in the field of viral diseases; and (2) DR. BARRY either (a) is the President, Chief Executive Officer or Chairman of such other business, partnership, firm, corporation, -5- entity or person; or (b) participates in or directs the development of drugs for the treatment of viral diseases for such other business, partnership, firm, corporation, entity or person. This agreement to refrain from engaging in competitive activities shall continue for the period during which TRIANGLE is required by the terms of paragraphs 5.2, 5.3 or 5.4 of this AGREEMENT to make salary payments to DR. BARRY following his termination (i.e., two (2) years in the case of termination under paragraph 5.2, 5.3 or 5.4). This agreement to refrain from engaging in competitive activities shall be binding upon DR. BARRY even if DR. BARRY is not compensated for the activities described in this article 7. 8. TERMINATION UPON MERGER. Notwithstanding anything to the contrary in this Agreement, this Agreement shall automatically terminate upon a "Merger." A "Merger" shall consist of the consolidation or merger of TRIANGLE into or with any other entity or entities that results in the exchange of shares representing 50% or more of the outstanding shares of voting capital stock of TRIANGLE for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof, or the sale or transfer by TRIANGLE or all or substantially all of its assets. Upon termination of this Agreement, all of the obligations of TRIANGLE and DR. BARRY under this Agreement, including without limitation, Sections 5 and 7, shall terminate; provided, however, that DR. BARRY's obligations under the Confidentiality Agreement shall continue pursuant to the terms of the Confidentiality Agreement. 9. GENERAL PROVISIONS 9.1 GOVERNING LAW. This AGREEMENT and the rights of the parties thereunder shall be governed by and interpreted under North Carolina law without regard to principles of conflicts of law. 9.2 ASSIGNMENT. DR. BARRY may not delegate, assign, pledge or encumber his rights or obligations under this AGREEMENT or any part thereof. 9.3 NOTICE. Any notice required or permitted to be given under this AGREEMENT shall be sufficient if it is in writing and is sent by registered or certified mail, postage prepaid, or personally delivered, to the following addresses, or to such other addresses as either party shall specify by giving notice under this section: TO TRIANGLE: Triangle Pharmaceuticals, Inc. 4 University Place 4611 University Drive Durham, NC 27707 -6- TO DR. BARRY: Dr. David Barry 1810 South Lakeshore Drive Chapel Hill, NC 27514 9.4 AMENDMENT. This AGREEMENT may be waived, amended or supplemented only by a writing signed by both of the parties hereto. To be valid, TRIANGLE's signature must be by a person specially authorized by TRIANGLE's Board of Directors to sign such particular document. 9.5 WAIVER. No waiver of any provision of this AGREEMENT shall be binding unless and until set forth expressly in writing and signed by the waiving party. To be valid, TRIANGLE's signature must be by a person specially authorized by TRIANGLE's Board of Directors to sign such particular document. The waiver by either party of a breach of any provision of this AGREEMENT shall not operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision. No failure or delay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power or privilege. No action taken pursuant to this AGREEMENT shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. 9.6 SEVERABILITY. All provisions contained herein are severable and in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties' expressed intent; and in every case the remainder of this AGREEMENT shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 9.7 HEADINGS. Article and section headings are inserted herein for convenience of reference only and in no way are to be construed to define, limit or affect the construction or interpretation of the terms of this AGREEMENT. 9.8 DRAFTING PARTY. The provisions of this AGREEMENT have been prepared, examined, negotiated and revised by each party hereto, and no implication shall be drawn and no provision shall be construed against either party by virtue of the purported identity of the drafter of this AGREEMENT, or any portion thereof. 9.9 ARBITRATION. The parties agree that any and all disputes that they have with one another which arise out of DR. BARRY's employment or under the terms of this AGREEMENT shall be resolved through final and binding arbitration, as specified herein. This shall include, without limitation, disputes relating to this AGREEMENT, DR. -7- BARRY's employment by TRIANGLE or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, and any claims of discrimination or other claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of DR. BARRY's employment with TRIANGLE or its termination. The only claims not covered by this paragraph 9.9 are claims for benefits under the workers' compensation laws or claims for unemployment insurance benefits, which will be resolved pursuant to those laws. Binding arbitration will be conducted in Durham, North Carolina, in accordance with the rules and regulations of the American Arbitration Association. Each party will bear one half of the cost of the arbitration filing and hearing fees, and the cost of the arbitrator. Each party will bear its own attorneys' fees, unless otherwise decided by the arbitrator. DR. BARRY understands and agrees that the arbitration shall be instead of any civil litigation and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. 10. ENTIRE AGREEMENT Except for the Confidentiality Agreement, this AGREEMENT constitutes the entire agreement between the parties pertaining to the subject matter hereof and completely supersedes all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the parties, whether oral or written, including, without limitation, that certain Memorandum between TRIANGLE and DR. BARRY dated July 10, 1995 (the "Memorandum") (all of which shall have no substantive significance or evidentiary effect). The parties specifically acknowledge and agree that, except for the Confidentiality Agreement, all prior agreements and understandings between DR. BARRY and TRIANGLE that pertained to DR. BARRY's employment with TRIANGLE, including the Memorandum, are completely superseded. Each party acknowledges, represents and warrants that this AGREEMENT is fully integrated and not in need of parol evidence in order to reflect the intentions of the parties. This AGREEMENT is executed as of this 28th day of October, 1996. TRIANGLE PHARMACEUTICALS, INC. /s/ David W. Barry By: /s/ M. Nixon Ellis - ----------------------------------- -------------------------------- Dr. David W. Barry M. Nixon Ellis, President and Chief Operating Officer -8- EX-11.1 12 COMP OF PRO FORMA Exhibit 11.1
Computation of Pro Forma Net Loss Per Share (Unaudited) Period From Inception (July 12, 1995) Six Months Through Ended December 31, 1995 June 30, 1996 Historical weighted average shares outstanding 1,617,939 3,244,698 Effect of applying SAB Topic 4:D(1) 2,479,394 852,635 Series A preferred stock, convertible to Common Stock at consummation of the planned initial public offering (2) 5,231,671 5,231,671 Series B preferred stock, convertible to Common Stock at consummation of the planned initial public offering (2) 3,706,234 3,706,234 Common stock equivalents for preferred stock warrants outstanding (2) 146,000 146,000 Common stock equivalents for options outstanding (2) 1,096,260 1,096,260 --------------- -------------- Shares used in computing pro forma net loss per share 14,277,498 14,277,498 --------------- --------------- --------------- --------------- Net loss $ (967,583) $ (5,499,418) --------------- --------------- --------------- --------------- Pro forma loss per share $ (0.07) $ (0.39) --------------- --------------- --------------- ---------------
_________________________________________ (1) Effect of including all common stock issued at prices below the expected public offering price during the twelve month period preceding the planned offering as if it was outstanding at inception (July 12, 1995). (2) Issuance of convertible preferred stock, preferred stock warrants and common stock options at prices below the expected public offering price during the twelve month period preceding the planned offering have been included as common stock equivalents as if they had been issued as common stock as of July 12, 1995. EX-23.2 13 CONSENT OF PW Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated April 26, 1996 relating to the financial statements of Triangle Pharmaceuticals, Inc., which appears in such Prospectus. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Financial Data." PRICE WATERHOUSE LLP Raleigh, North Carolina October 29, 1996 EX-23.3 14 CONSENT OF K&C EXHIBIT 23.3 [LETTERHEAD] CONSENT FORM The undersigned hereby consent to the use of our name and the statement with respect to us that appears under the heading "Experts" in the Registration Statement on Form S-1 and related Prospectus of Triangle Pharmaceuticals, Inc. KILPATRICK & CODY L.L.P. Dated: October 29, 1996 /s/ Kilpatrick & Cody ------------------------ -----END PRIVACY-ENHANCED MESSAGE-----