-----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, LIIckrPbHTjN+mTdCl4BXx6D03O2BjZzmg4fNqZ3O9GQ3MizPRTgdagMmqHQj71M FtKJUYBKZPle8cvzr57wEQ== 0000950168-97-001853.txt : 19970714 0000950168-97-001853.hdr.sgml : 19970714 ACCESSION NUMBER: 0000950168-97-001853 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970711 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMERIS INC CENTRAL INDEX KEY: 0000911326 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561808663 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-31109 FILM NUMBER: 97639488 BUSINESS ADDRESS: STREET 1: 4727 UNIVERSITY DR STE 100 CITY: DURHAM STATE: NC ZIP: 27707 BUSINESS PHONE: 9194196050 MAIL ADDRESS: STREET 1: 4727 UNIVERSITY DRIVE STE 100 CITY: DURHAM STATE: NC ZIP: 27707 S-1 1 TRIMERIS, INC. S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997 REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TRIMERIS, INC. (Exact name of registrant as specified in its charter) DELAWARE 8733 56-1808663 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Organization) Industrial Code Number) Identification No.)
4727 UNIVERSITY DRIVE, SUITE 100 DURHAM, NORTH CAROLINA 27707 (919) 419-6050 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DR. M. ROSS JOHNSON PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIFIC OFFICER 4727 UNIVERSITY DRIVE, SUITE 100 DURHAM, NORTH CAROLINA 27707 (919) 419-6050 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO:
COUNSEL TO COMPANY COUNSEL TO UNDERWRITERS FRED D. HUTCHISON, ESQUIRE JOHN B. WATKINS, ESQUIRE ALEXANDER D. LYNCH, ESQUIRE HUTCHISON & MASON PLLC WILMER, CUTLER & PICKERING BROBECK, PHLEGER & HARRISON LLP 4011 WESTCHASE BOULEVARD 2445 M ST., N.W. 1633 BROADWAY SUITE 400 WASHINGTON, D.C. 20037 47TH FLOOR RALEIGH, NORTH CAROLINA 27607 (202) 663-6000 NEW YORK, NEW YORK 10019 (919) 829-9600 (212) 581-1600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. 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, 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, please 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(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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE [CAPTION] TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER- BE REGISTERED REGISTERED (1) PER SHARE (2) ING PRICE (2) Common Stock, par value $.001 per share................. 2,875,000 $14.00 $40,250,000.00
AMOUNT OF REGISTRATION FEE $12,197.00
(1) Includes 375,000 shares of Common Stock which the Underwriters have the option to purchase from the Company solely to cover over-allotments, if any. (2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c). 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 THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. (A redherring appears on the left-hand side of this page, rotated 90 degrees. Text follows.) 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 jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. SUBJECT TO COMPLETION, DATED JULY 11, 1997 PROSPECTUS 2,500,000 Shares [LOGO] Trimeris, Inc. Common Stock All of the 2,500,000 shares of Common Stock offered hereby (the "Offering") are being sold by Trimeris, Inc. ("Trimeris" or the "Company"). Prior to this Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company intends to file an application to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "TRMS." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," BEGINNING ON PAGE 6. 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. [CAPTION] Price to Underwriting Discounts Proceeds to Public and Commissions(1) Company(2) Per Share............................... $ $ $ Total(3)................................ $ $ $
1. For information regarding indemnification of the Underwriters, see "Underwriting." 2. Before deducting expenses of the Offering payable by the Company, estimated at approximately $800,000. 3. The Company has granted the Underwriters an option, exercisable within 30 days from the date hereof, to purchase up to 375,000 additional shares of Common Stock on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, total Price to Public will be $ , Underwriting Discounts and Commissions will be $ and Proceeds to the Company will be $ . See "Underwriting." The shares of Common Stock offered by the Underwriters are subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and to certain other conditions. It is expected that delivery of such shares will be made through the offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about , 1997. UBS Securities Montgomery Securities , 1997 [Model for T-20 inhibition of HIV Fusion and infection of a host cell as more fully described on Page 25] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 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, INCLUDING THE INFORMATION UNDER "RISK FACTORS." THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Trimeris is a biopharmaceutical company engaged in the discovery and development of novel therapeutic agents that block viral infection by inhibiting viral fusion with host cells. Viral fusion is a complex process by which viruses infect host cells. The Company's lead product candidate, T-20, inhibits fusion of the Human Immunodeficiency Virus-1 ("HIV") with host cells. T-20 is currently being tested in a Phase I/II clinical trial in HIV-infected patients in the United States. T-20 and the Company's other product candidates are designed to inhibit viral fusion, unlike other currently approved therapeutic agents that target replicating viruses inside infected cells. The Company has developed a proprietary technology platform in the field of fusion inhibition which is being applied to the discovery and development of novel products for the treatment of a variety of viral diseases. T-20 is a proprietary 36 amino acid synthetic peptide which has demonstrated significant inhibition of HIV in preclinical testing. Preliminary review of the data from the Phase I/II clinical trial indicates that no drug-induced adverse events have been reported and no dose-limiting toxicities have been observed. T-20 is being administered by intravenous delivery in the current Phase I/II clinical trial. The Company is preparing to begin a Phase II clinical trial in HIV-infected patients in the United States that will compare delivery of a constant therapeutic dose by a continuous, subcutaneous infusion pump to delivery by subcutaneous injections. The Company believes that delivery of a continuous therapeutic dose may inhibit viral fusion more effectively than other delivery mechanisms. After completion of the continous, subcutaneous infusion Phase II trial, the Company intends to begin a Phase II pivotal trial in a larger population of HIV-infected patients who are either resistant to, or intolerant of, currently approved antiviral therapies. Concurrently with the start of the pivotal Phase II clinical trial, the Company intends to begin a trial of T-20 in HIV-infected pediatric patients. In addition, throughout the T-20 clinical process, the Company intends to work with the United States Food and Drug Administration (the "FDA") to design and implement a clinical trial strategy involving the administration of T-20 to HIV-infected patients in combination with approved HIV antiviral agents. HIV infection causes Acquired Immunodeficiency Syndrome ("AIDS"), which is the leading cause of death in the United States and Western Europe of men and women between the ages of 25 and 44. Currently approved HIV antivirals inhibit reverse transcriptase ("RT") and protease, two viral enzymes which are required for HIV replication. RT and protease inhibitors must penetrate HIV-infected host cells in order to be effective. HIV is prone to mutations that produce resistance to RT and protease inhibitors. In an effort to overcome drug resistance, physicians have begun to use RT and protease inhibitors in various combinations. While combination therapy with RT and protease inhibitors represents an advance in the treatment of HIV infection, it has not yet proven to be a cure. Moreover, although these combinations have slowed the emergence of resistance, new mutant strains have been identified which are resistant to several of the drugs currently used in combination therapy. Due to the complexity of the dosing regimens for many combination therapies, which can include 14-16 pills taken at six to eight specific times during the day, and the toxic side effects that can result from the use of such drugs, many patients are unable to, or fail to, follow the recommended dosing regimens. Such noncompliance leads to a reduction in the effectiveness of such drugs and an increased opportunity for the development of resistance. The Company believes that T-20 may offer a new paradigm for the treatment of HIV. Preclinical testing and early clinical trial results suggest that T-20 is less toxic than currently approved HIV antivirals. The Company believes that T-20's reduced toxicity is due to its unique extracellular mechanism of action and its chemical structure. Furthermore, the Company believes that the delivery of a continuous therapeutic dose of T-20 by subcutaneous infusion will enhance patient compliance, thereby reducing the likelihood of the development of resistance. Through its study of the HIV fusion process, the Company has developed a proprietary technology platform aimed at discovering antiviral compounds to treat other diseases. The cornerstone of this platform is the Company's Computerized Anti-Fusion Searching Technology ("CAST"), a proprietary computer algorithm which identifies target sequences within certain viral proteins that have the potential to interact during the fusion process. CAST has enabled the Company to design product candidates for Respiratory Syncytial Virus ("RSV") and Human Parainfluenza Virus ("HPIV") fusion inhibition. The 3 Company has identified, and filed patent applications disclosing, numerous discrete peptide sequences, which include potential fusion targets in other viruses such as hepatitis B and C, influenza and herpes. T-786 is the Company's lead product candidate for treatment of RSV infection, which is a significant cause of pediatric bronchiolitis and pneumonia. T-786 is a proprietary 36 amino acid synthetic peptide which shows potent, specific and selective inhibition of RSV infection IN VITRO. T-786 significantly reduced the level of viral infection in an animal model. Preclinical testing of T-786 is currently in progress. Upon successful completion of these preclinical tests, the Company anticipates that it will begin clinical trials with T-786 in 1998. The Company was incorporated under Delaware law as SL-1 Pharmaceuticals, Inc. on January 7, 1993 and changed its name to Trimeris, Inc. on February 11, 1993. The Company's principal executive office is located at 4727 University Drive, Durham, North Carolina 27707, and its telephone number is (919) 419-6050. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) REFLECTS THE AUTOMATIC CONVERSION UPON THE COMPLETION OF THIS OFFERING OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO 6,261,615 SHARES OF COMMON STOCK (THE "PREFERRED STOCK CONVERSION"), AND (III) REFLECTS THE FILING OF A THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS, WILL AUTHORIZE 10,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK. SEE "DESCRIPTION OF CAPITAL STOCK," "CAPITALIZATION" AND "UNDERWRITING." THE COMPANY HAS FILED FOR REGISTRATION OF "TRIMERIS" AND THE COMPANY'S LOGO AS TRADEMARKS AND SERVICE MARKS OF THE COMPANY. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS AND TRADE NAMES OF COMPANIES OTHER THAN THE COMPANY. 4 THE OFFERING Common Stock Offered.................................. 2,500,000 shares Common Stock Outstanding after this Offering.......... 9,864,676 shares (1) Use of Proceeds....................................... To fund increased research and development activities, to fund the expansion of facilities, to provide working capital and to fund other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market Symbol................ TRMS
SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM INCEPTION FOR THE (JANUARY 7, 1993) FOR THE SIX MONTHS ENDED THROUGH YEARS ENDED DECEMBER 31, JUNE 30, DECEMBER 31, 1993 1994 1995 1996 1996 1997 (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue.......................................... $ -- $ -- $ 104 $ 55 $ -- $ 212 Research and development expenses................ ( 691) 2,747 4,012 5,146 2,278 2,859 Operating loss................................... (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) Other income (expenses).......................... 11 (250) (311) (120) (54) (45) Net loss......................................... (1,311) (3,944) (5,739) (6,972) (3,134) (3,478) Pro forma net loss per share (2) (3)............. $ (1.48) $ (0.59) Pro forma weighted average shares used in computing pro forma net loss per share (2) (3)............................................ 4,705 5,880
AS OF JUNE 30, 1997 (UNAUDITED) PRO PRO FORMA AS ACTUAL FORMA (3) ADJUSTED (4) BALANCE SHEET DATA: Cash and cash equivalents............................................................... $ 8,912 $ 8,912 $ 38,337 Working capital......................................................................... 8,019 8,019 37,444 Total assets............................................................................ 10,585 10,585 40,010 Notes payable and capital lease obligations, less current portion....................... 488 488 488 Accumulated deficit..................................................................... (21,443) (21,443) (21,443) Total stockholders' equity.............................................................. 8,847 8,847 38,272
(1) Excludes (i) 260,326 shares of Common Stock reserved for issuance pursuant to stock options outstanding as of June 30, 1997 and (ii) an aggregate of 56,684 shares of Common Stock issuable upon the exercise of warrants outstanding as of June 30, 1997. Also excludes an aggregate of 239,770 shares of Common Stock reserved for future issuance as of June 30, 1997 under the Company's New Stock Option Plan (the "Stock Option Plan"). See "Management -- Stock Option Plans," "Description of Capital Stock" and Note 1 of Notes to Financial Statements. (2) Computed on the basis described in Note 1 of Notes to Financial Statements. (3) Pro forma to give effect to the automatic conversion upon the completion of this Offering of all outstanding shares of the Company's Series A, B, C and D Preferred Stock, par value $.001 per share (the "Preferred Stock"), into 6,261,615 shares of Common Stock. (4) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. DEVELOPMENT STAGE COMPANY. The Company commenced operations in January 1993 and is subject to all of the business risks associated with a biopharmaceutical company in the early stage of development, including constraints on the Company's financial, personnel and other resources, and uncertainties regarding the Company's novel product discovery and development programs. Prospective investors, therefore, have limited historical financial information about the Company upon which to base their evaluation of the Company's performance and an investment in the shares offered hereby. Since its inception, substantially all of the Company's resources have been dedicated to the development, patenting, preclinical testing and Phase I/II clinical trials of T-20, the development of its proprietary technology platform, and research and development and preclinical testing of other potential product candidates and compounds discovered by the Company. The Company has yet to generate any revenues from product sales or royalties, and there can be no assurance that it will be able to generate any such revenues or royalties in the future. Product candidates and compounds discovered by the Company and developed through the Company's product development programs will require significant additional, time-consuming and costly research and development, preclinical testing and extensive clinical trials prior to submission of any regulatory application for commercial use. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY. The Company has incurred losses since its inception. As of June 30, 1997, the Company's accumulated deficit was approximately $21.4 million. Such losses have resulted principally from expenses incurred in the Company's research and development activities associated with the development, patenting, preclinical testing and Phase I/II clinical trials of T-20, the development of its proprietary technology platform, research and development and preclinical testing of other potential product candidates and compounds discovered by the Company, and from general and administrative expenses. The Company expects to incur substantial losses for the foreseeable future and expects losses to increase as the Company's research and development, preclinical testing and clinical trial efforts expand. The amount and timing of the Company's operating expenses will depend on several factors, including the status of the Company's research and development activities, product candidate and compound discovery and development efforts, including preclinical testing and clinical trials, the timing of regulatory actions, the costs involved in preparing, filing, prosecuting, maintaining, protecting and enforcing patent claims and other proprietary rights, the ability of the Company to establish, internally or through relationships with third parties, manufacturing, sales, marketing and distribution capabilities, technological and other changes in the competitive landscape, changes in the Company's existing research and development relationships and strategic alliances, evaluation of the commercial viability of potential product candidates and other factors, many of which are outside of the Company's control. As a result, the Company believes that period-to-period comparisons of financial results in the future are not necessarily meaningful and results of operations in prior periods should not be relied upon as an indication of future performance. Any deviations in results of operations from levels expected by securities analysts and investors could have a material adverse effect on the market price of the Common Stock. The Company's ability to achieve profitability will depend, in part, upon its or its collaborative partners' ability to successfully develop and obtain regulatory approval for T-20 and other product candidates and compounds discovered by the Company, and to develop the capacity, either internally or through relationships with third parties, to manufacture, sell, market and distribute approved products, if any. There can be no assurance that the Company will ever generate significant revenues or achieve profitable operations. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and "Business -- Programs and Product Candidates Under Development." DEPENDENCE ON A SINGLE PRODUCT CANDIDATE. T-20 is the only product candidate developed by the Company which has been tested in humans. The Company's success will depend, in significant part, upon the ability of the Company to establish the safety and effectiveness of T-20 in humans, to obtain the requisite regulatory approvals for the commercialization of T-20, to establish relationships for the commercial-scale production of T-20 at acceptable cost and with appropriate quality, to successfully market T-20, and to achieve market acceptance of T-20 by the medical community, including health care providers and third-party payors. Failure of the Company or its collaborative partners to successfully develop and commercialize T-20 would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Programs and Product Candidates Under Development." 6 TECHNOLOGICAL UNCERTAINTY. The Company's product development programs are based upon a novel technology designed to facilitate the discovery of product candidates and compounds which are designed to treat viral infection through the inhibition of viral fusion. The Company is not aware of any other approved antiviral pharmaceutical products which target the inhibition of viral fusion. Accordingly, product development utilizing the Company's novel mechanism of action involves a high degree of risk, is highly uncertain, and could result in unanticipated developments, clinical or regulatory delays, unexpected adverse side effects or inadequate therapeutic effectiveness, any of which could slow or suspend the Company's product development efforts which could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company's technologies will lead to the discovery and development of any commercially viable products, that the Company's research or product development efforts as to any particular product candidate or compound will be successfully completed, that any such product candidates or compounds will be proven to be safe and effective, or that required regulatory approvals will be obtained. The Company's development programs are subject to the risks inherent in the development of new products using new technologies and approaches. There can be no assurance that unforeseen problems will not develop with these technologies or applications, that the Company will be able to address successfully technological challenges it encounters in its research and development programs or that commercially feasible product candidates or compounds will ultimately be developed by the Company. See "Business -- Programs and Product Candidates Under Development" and " -- Clinical Development Programs." UNCERTAINTIES RELATED TO CLINICAL TRIALS AND CLINICAL TRIAL STRATEGY. Before obtaining required regulatory approvals for the commercial sale of any of its product candidates or compounds, the Company must demonstrate through preclinical testing and clinical trials that each product candidate or compound is safe and effective for use in humans for each target indication. To date, the Company has conducted initial preclinical testing of certain of its product candidates and is conducting a Phase I/II clinical trial of T-20. After completion of the Phase I/II clinical trial, the Company intends to conduct a Phase II clinical trial and a pivotal clinical trial of T-20. These clinical trials will involve a relatively small patient population. No assurance can be given that the results of early clinical trials will support the commencement of further clinical trials of T-20, that the results of the clinical trials will support the Company's applications for regulatory approval, or that regulatory authorities will not require the Company to conduct additional clinical trials either prior to, or after, regulatory approval is obtained. The Company may find, at any stage of this complex process, that potential product candidates or compounds that appeared promising in preclinical testing and early clinical trials do not demonstrate safety or effectiveness on a larger scale in advanced clinical trials or do not receive the requisite regulatory approvals. Accordingly, any product development program undertaken by the Company may be curtailed, redirected or eliminated at any time, which could result in delays in conducting further preclinical testing and clinical trials, in unexpected adverse events in further preclinical testing and clinical trials, and in additional development expenses. Furthermore, administration of the Company's potential product candidates or compounds may prove to have undesirable or unintended side effects in humans. The occurrence of side effects could interrupt, delay or halt clinical trials of each such product candidate or compound and could delay or 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. In addition, this Prospectus reflects the Company's estimates regarding the timing of future preclinical testing and clinical trials. Such preclinical testing and clinical trials may be delayed or cancelled for a number of reasons, including the receipt of unanticipated preclinical testing or clinical trial results, changes in the focus of the Company or its collaborators, financial requirements and resources, manufacturing issues, technological developments and competitive factors. Accordingly, no assurance can be given that the Company's preclinical testing or clinical trials will commence on their target dates, or at all. Delays in such testing and trials could have a material adverse effect on the Company's business, financial condition and results of operations. The rate of completion of the Company's clinical trials will depend upon, among other factors, obtaining or manufacturing adequate amounts of the Company's product candidates from third-party manufacturers and sufficient patient enrollment. See "Business -- Lack of Manufacturing Capabilities" for a description of certain risks associated with the manufacturing of the Company's product candidates and compounds. 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 clinical trial. Delays in planned patient enrollment may result in increased costs or delays or both, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Programs and Product Candidates Under Development" and " -- Government Regulation." 7 DEPENDENCE ON COLLABORATIONS AND LICENSES WITH OTHERS. The Company intends to consider entering into collaborative and license arrangements with collaborative partners, licensees and third parties to seek regulatory approval of and to manufacture and commercialize certain of its existing and potential product candidates and compounds. Accordingly, the Company's success will depend, in part, upon the subsequent success of such third parties in performing preclinical testing and clinical trials, obtaining the requisite regulatory approvals, scaling up manufacturing, successfully commercializing the licensed product candidates or compounds and otherwise performing their obligations. There can be no assurance that the Company will be able to maintain its existing arrangements or enter into acceptable collaborative and license arrangements in the future on acceptable terms, if at all, that such arrangements will be successful, that the parties with which the Company has or may establish arrangements will perform their obligations under such arrangements, or that potential collaborators will not compete with the Company by seeking alternative means of developing therapeutics for the diseases targeted by the Company. There can also be no assurance that the Company's existing or any future arrangements will lead to the development of product candidates or compounds with commercial potential, that the Company will be able to obtain proprietary rights or licenses for the proprietary rights with respect to any technology or product candidates or compounds developed in connection with these arrangements, or that the Company will be able to ensure the confidentiality of any proprietary rights and information developed in such arrangements or prevent the public disclosure thereof. The Company currently has licenses from certain third parties, and in the future may require additional licenses from these or other parties, to effectively develop potential product candidates and compounds. Pursuant to a license agreement with Duke University (the "Duke License"), the Company has obtained an exclusive, worldwide license to existing and certain future technologies in the field of antiviral therapeutics developed by several researchers at Duke University for the life of each particular patent filed in connection with such technologies. Unless the Duke License is renewed, the Company will not be entitled to any additional technologies developed after 2000 or after any earlier termination. None of the technologies licensed by the Company from Duke University is the subject of a separate individual license agreement. Rather, the Company's rights to such technologies are licensed solely pursuant to the Duke License. The early termination of the Duke License due to the Company's failure to develop the licensed technologies or the failure of the Company to renew the Duke License on acceptable terms, or at all, could have a material adverse effect on the Company's business, financial condition and results of operations. Pursuant to a Cooperative and Strategic Alliance Agreement (the "MiniMed Agreement"), the Company and MiniMed Inc. ("MiniMed") have agreed to jointly design, develop and implement a system for the continual delivery of T-20 utilizing the MiniMed continuous infusion pump. The failure of the Company and MiniMed to achieve their collective objectives could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such licenses or agreements can be maintained or that additional licenses can be obtained on acceptable terms, if at all, or will be renewable if obtained, or that the patents underlying such licenses, if any, will be valid and enforceable, or that the proprietary nature of the patented technology underlying such licenses will remain proprietary. See "Business -- License and Collaborative Agreements." FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company has experienced negative cash flows from operations since its inception and does not anticipate generating sufficient positive cash flows to fund its operations in the foreseeable future. The Company has expended, and expects to continue to expend in the future, substantial funds to pursue its product candidate and compound discovery and development efforts, including expenditures for continued clinical trials of T-20, research and development and preclinical testing of other potential product candidates and compounds discovered by the Company and the development of its proprietary technology platform. The Company expects that its existing capital resources, together with the net proceeds of this Offering and the interest earned thereon, will be adequate to fund its capital requirements through 1998. However, the Company's future capital requirements and the adequacy of available funds will depend on many factors, including the results of the clinical trials relating to T-20, the progress and scope of the Company's product development programs, the magnitude of these programs, the results of preclinical testing and clinical trials, the need for additional facilities based on the results of these clinical trials and other product development programs, changes in the focus and direction of the Company's product development programs, the costs involved in preparing, filing, prosecuting, maintaining, protecting and enforcing patent claims and other intellectual property rights, competitive factors and technological advances, the cost, timing and outcome of regulatory reviews, changes in the requirements of the FDA, administrative and legal expenses, evaluation of the commercial viability of potential product candidates and compounds, the establishment of capacity, either internally or through the establishment of relationships with third parties, for manufacturing, sales, marketing and distribution functions and other factors, many of which are outside of the Company's control. Thus, there can be no assurance that the net proceeds of this Offering, together with the interest earned thereon, will be sufficient to fund the Company's capital requirements during the period discussed above. The Company believes that substantial additional funds will be required to continue to fund its operations and that the Company will be required to obtain additional funds through equity or debt financings or licenses, agreements or other arrangements with partners and others, or from other sources. The 8 terms of any such equity financings may be dilutive to stockholders, and the terms of any debt financings may contain restrictive covenants which limit the Company's ability to pursue certain courses of action. There can be no assurance that such funds will be available to the Company on acceptable terms, if at all, or that any such financings will be adequate to meet the Company's future capital requirements. If adequate funds are not available, the Company may be required to delay, scale-back or eliminate certain aspects of its preclinical testing, clinical trials and research and development programs or attempt to obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies or product candidates or compounds, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend, in part, on its ability, and the ability of its collaborators or licensors, to obtain protection for its products and technologies under United States and foreign patent laws, to preserve its trade secrets, and to operate without infringing the proprietary rights of third parties. Because of the substantial length of time and expense associated with bringing new products through development to the marketplace, the pharmaceutical and biotechnology industries place considerable importance on obtaining, and maintaining, patent and trade secret protection for new technologies, products and processes. The Company has obtained rights to certain patents and patent applications and may, in the future, seek rights from third parties to additional patents and patent applications. There can be no assurance that patent applications relating to the Company's potential products or technologies will result in patents being issued, that any issued patents will afford adequate protection to the Company, or that such patents will not be challenged, invalidated, infringed or circumvented. Furthermore, there can be no assurance that others have not developed, or will not develop, similar products or technologies that will compete with those of the Company without infringing upon the Company's intellectual property rights. Legal standards relating to the scope of claims and the validity of patents in the biopharmaceutical industry are uncertain and still evolving, and no assurance can be given as to the degree of protection that will be afforded any patents issued to, or licensed by, the Company. There can be no assurance that, if challenged by others in litigation, any patents assigned to or licensed by the Company, will not be found invalid. Furthermore, there can be no assurance that the Company's activities would not infringe patents owned by others. Defense and prosecution of patent matters can be expensive and time-consuming and, regardless of whether the outcome is favorable to the Company, can result in the diversion of substantial financial, management and other resources. An adverse outcome could subject the Company to significant liability to third parties, require the Company to obtain licenses from third parties, or require the Company to cease any related research and development activities and product sales. No assurance can be given that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to the Company, if at all. Moreover, the laws of certain countries may not protect the Company's proprietary rights to the same extent as U.S. law. The Company also relies on trade secrets, know-how and other proprietary information, which it seeks to protect, in part, through the use of confidentiality agreements with employees, consultants, advisors, and others. There can be no assurance that such agreements will provide adequate protection for the Company's trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure, that employees of the Company, consultants, advisors or others will maintain the confidentiality of such trade secrets or proprietary information, or that the trade secrets or proprietary know-how of the Company will not otherwise become known, or be independently developed by, competitors. In January 1997, the United States Patent and Trademark Office instituted an interference proceeding between an issued patent licensed by the Company from Duke University and a pending patent application owned by a third party. The Company believes that no interference-in-fact exists and, through its licensor, is taking all reasonable action to have the interference dismissed. However, no assurance can be given that the interference will be dismissed. Furthermore, no assurance can be given that, should the interference proceed, as between the two parties to the interference, the Company's licensor will be found to be the first inventor of the invention which is declared to be the subject matter of the interference. Failure of the Company's licensor to prevail in the interference and any loss of the involved patent rights could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Patents, Proprietary Technology and Trade Secrets." EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL. Human pharmaceutical products are subject to lengthy and rigorous preclinical testing and clinical trials and other extensive, costly and time-consuming procedures mandated by the FDA and foreign regulatory authorities. The regulatory approval process, which includes the establishment of the safety and effectiveness of each product candidate and compound for each target indication and confirmation by the FDA that good laboratory, clinical and manufacturing practices were maintained during testing and manufacturing, typically 9 takes a number of years, varying based upon the type, complexity and novelty of the pharmaceutical product. This process requires the expenditure of substantial resources and gives larger companies with greater financial resources a competitive advantage over the Company. To date, no product candidate or compound being evaluated by the Company has been submitted for approval by the FDA or any other regulatory authority for commercialization, and there can be no assurance that any such product candidate or compound will ever be approved for commercialization or that the Company will be able to obtain the labeling claims desired for its product candidates or compounds. There can be no assurance that submission to the FDA of a request for authorization to conduct clinical trials on an investigational drug will be approved on a trial basis, if at all. 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 NDA will be approved by the FDA. The approval process is affected by a number of factors, including the severity of the targeted indications, the availability of alternative treatments and the risks and benefits demonstrated in the clinical trials. The FDA may reject an NDA if applicable regulatory criteria are not satisfied, or may require additional clinical trials or information with respect to the product candidate or compound. Even if FDA approval is obtained, further clinical trials, including post-market trials, may be required in order to provide additional data on safety and will be required in order to obtain approval for the use of a product as treatment for clinical indications other than those for which the product was initially approved. The FDA will also require post-market reporting and may require surveillance programs to monitor the side effects of any approved products. Results of post-market programs may limit the further marketing, manufacturing process or labeling, and an NDA supplement may be required to be submitted to the FDA. Any failure of the Company to successfully complete its clinical trials and obtain approvals of corresponding NDAs would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is and will continue to be dependent upon the laboratories conducting its preclinical testing and clinical trials to maintain both good laboratory and good clinical practices, and, if any of the Company's product candidates or compounds obtain the requisite regulatory approvals, the Company will be dependent upon any third-party manufacturers of its products to maintain compliance with the FDA's good manufacturing practice ("GMP") requirements. Various federal and foreign statutes 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 will require the expenditure of substantial resources by the Company. In addition, these requirements and processes vary widely from country to country. The time required for completing preclinical testing and clinical trials is uncertain, and the FDA approval process is unpredictable and uncertain, and no assurance can be given that necessary approvals will be granted on a timely basis, or at all. The Company may decide to replace a product candidate or compound in preclinical testing and/or clinical trials with a modified product candidate or compound, 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 legislation, administrative action or FDA policy during the period of product development and FDA review. Similar delays or rejections may be encountered in other countries. While certain of the Company's product candidates and compounds, including T-20, have been and will continue to be designed to treat serious or life-threatening illnesses, such product candidates and compounds may not qualify for accelerated development and/or approval under FDA regulations and, even if some of the Company's product candidates or compounds qualify for accelerated development and/or approval, they may not be approved for marketing on an accelerated basis, or at all. There can be no assurance that, even after substantial time and expenditures, any of the Company's product candidates or compounds under development will receive commercialization approval in any country on a timely basis, or at all. If the Company is unable to demonstrate the safety and effectiveness of its product candidates and compounds to the satisfaction of the FDA or foreign regulatory authorities, the Company will be unable to commercialize its product candidates and compounds and the Company's business, financial condition and results of operations would be materially and adversely affected. Furthermore, even if regulatory approval of a product candidate or compound is obtained, the approval may entail limitations on the indicated uses for which the product candidate or compound may be marketed. A marketed product or compound, 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, compound, manufacturer or facility may result in restrictions on such product, compound, manufacturer or facility, including withdrawal of the product or compound from the market. The failure to comply with applicable regulatory requirements can, among other things, result in fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, refusal to permit exports from the United States, recalls or seizures of products or compounds, operating and production 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 product candidates or compounds. 10 The effect of governmental regulation may be to delay the marketing of new products or compounds 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 product candidates or compounds. A delay in obtaining or failure to obtain regulatory approvals could have a material adverse effect on the Company's business, financial condition and results of operations. The extent and character of potentially adverse governmental regulation that may arise from future legislation or administrative action cannot be predicted. In April 1997, the Company and MiniMed entered into the MiniMed Agreement pursuant to which the parties have agreed to jointly design, develop and implement a system for the delivery of T-20 utilizing the MiniMed continuous infusion pump. There can be no assurance that the FDA will approve, on a timely basis, if at all, the delivery of T-20 utilizing the MiniMed continuous infusion pump on a timely basis, if at all. The failure of the Company and MiniMed to collectively develop a continual T-20 delivery system which receives FDA approval on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. The Company and its existing and potential future collaborative partners are 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 the Company's product development programs. Compliance with such laws, regulations and requirements may be costly and time-consuming and the failure to maintain such compliance by the Company or its existing and future collaborative partners could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, this Prospectus reflects the Company's estimates regarding future regulatory submission dates. Regulatory submissions can be delayed, or plans to submit proposed products can be cancelled, for a number of reasons, including the receipt of unanticipated preclinical testing or clinical trial reports, changes in regulations, adoption of new, or unanticipated enforcement of existing, regulations, technological developments and competitive developments. Accordingly, no assurance can be given that the Company's anticipated submissions will be made on their target dates, or at all. Delays in such submissions could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation." INTENSE COMPETITION. The Company is engaged in segments of the biopharmaceutical industry, including the treatment of HIV, that are intensely competitive and rapidly changing. If successfully developed and approved, the product candidates and compounds that the Company is currently developing will compete with numerous existing therapies. For example, 11 drugs are currently approved for the treatment of HIV. In addition, a number of companies are pursuing the development of novel pharmaceutical products that target the same diseases that the Company is targeting, and some companies, including several multinational pharmaceutical companies, are simultaneously marketing several different drugs and may therefore be able to market their own combination drug therapies. 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 for the treatment of HIV developed by the Company's competitors, including Glaxo Wellcome plc ("Glaxo"), Merck & Co., Inc. ("Merck") and Abbott Laboratories, Inc. ("Abbott"), will not be more effective, or more effectively marketed and sold, than T-20, should it be successfully developed and receive regulatory approval, or any other therapeutic for HIV that may be developed by the Company. Competitive products or the development by others of a cure or new treatment methods may render the Company's technologies and products and compounds obsolete, noncompetitive or uneconomical prior to the Company's recovery of development or commercialization expenses incurred with respect to any such technologies or products or compounds. 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, sell, market and distribute 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. 11 New developments in areas in which the Company is conducting its research and development are expected to continue at a rapid pace in both industry and academia. If the Company's product candidates and compounds are successfully developed and approved, the Company will face competition based on the safety and effectiveness of its products and compounds, the timing and scope of regulatory approvals, availability of manufacturing, sales, marketing and distribution capabilities, reimbursement coverage, price and patent position. There can be no assurance that the Company's competitors will not develop more effective or more affordable technologies 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's business, financial condition and results of operations. See "Business -- Competition." LACK OF MANUFACTURING CAPABILITIES. The Company has no experience in manufacturing pharmaceuticals and has no commercial manufacturing capacity. The Company has established relationships and intends to establish additional relationships with third-party manufacturers for the production of quantities of its product candidates or compounds sufficient to conduct its planned preclinical testing and clinical trials and the commercial production of any approved products or compounds. There can be no assurance that the Company will be able to retain or establish relationships with third-party manufacturers on acceptable terms, if at all, or that such third-party manufacturers will be able to manufacture products in commercial quantities under GMP requirements on a cost-effective basis. The Company's anticipated peptide-based therapeutics are difficult and expensive to manufacture using existing technologies. The Company, and its third-party manufacturers, are currently using solid-phase sequential peptide synthesis to manufacture T-20. This chemical methodology is inherently inefficient and complex. Due to technical limitations, solid-phase sequential peptide synthesis is the most expensive way to chemically assemble the Company's current peptide product candidates, including T-20. There can be no assurance that the Company or its third-party manufacturers will be able to manufacture T-20 on a cost-effective basis or that the Company will be successful in its efforts to develop an alternative, more efficient manufacturing method for T-20 or any of its other peptide product candidates. The Company's dependence upon third parties for the manufacture of its products, product candidates and compounds may materially and adversely affect the Company's profit margins and its ability to develop and commercialize product candidates, products and compounds 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, product candidates or compounds or that third-party manufacturers will maintain the necessary governmental licenses and approvals to continue manufacturing the Company's products, product candidates or compounds. Any failure to maintain existing or establish new relationships with third parties for the Company's manufacturing requirements on a timely basis and on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Manufacturing." LACK OF SALES, MARKETING AND DISTRIBUTION CAPABILITIES. The Company has no experience in sales, marketing or distribution of pharmaceuticals and currently has no personnel employed in any such capacities. Some therapeutics for HIV can be marketed to a concentrated group of physicians in a relatively narrow geographic scope. The Company may consider developing internal sales, marketing and distribution capabilities for T-20, should it be successfully developed and receive regulatory approval. For the remainder of the Company's product candidates and compounds, should they be successfully developed and receive regulatory approval, the Company may rely on marketing partners or other arrangements with third parties which have established distribution systems and direct sales forces for the sales, marketing, and distribution of such products and compounds. In the event that the Company is unable to reach agreement with one or more marketing partners to market these other products and compounds, the Company would be required to develop internal sales, marketing and distribution capabilities for such products and compounds. There can be no assurance that the Company will be able to establish sales, marketing or distribution capabilities or make arrangements with third parties to perform such activities on acceptable terms, if at all, or that any internal capabilities or third-party arrangements will be cost-effective. The failure to establish such capabilities would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, any third parties with which the Company establishes sales, marketing or distribution arrangements may have significant control over important aspects of the commercialization of the Company's products and compounds, including market identification, marketing methods, pricing, composition of sales force and promotional activities. For example, the MiniMed Agreement contemplates that MiniMed will participate in the sales, marketing and distribution of any products jointly developed by the parties. There can be no assurance that the Company will be able to control the amount and timing of resources that MiniMed or any other third party may devote to the Company's products or compounds 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 products. See "Business -- Sales, Marketing and Distribution." 12 UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success will depend upon the acceptance by the medical community, including health care providers and third-party payors, of the Company's antifusion technology as a safe and effective means of treating viral infection. The Company's success will additionally be dependent upon the acceptance by the medical community, including health care providers and third-party payors, of any products or compounds developed by the Company. The degree of market acceptance will depend upon a number of factors, including the establishment and demonstration in clinical trials of the safety and effectiveness of the Company's products and compounds, the receipt and scope of regulatory approvals, the demonstration of the potential advantages of the Company's products and compounds over existing treatment methods, and the reimbursement policies of government and third-party payors with respect to antiviral therapeutics based upon blocking viral fusion. Moreover, companies that market and sell HIV antivirals and other HIV-related therapeutics have from time to time been subject to protests and boycotts by patient advocacy and activist groups. These protests and boycotts have focused on, among other things, availability of such therapeutics and pricing concerns. Market acceptance of such therapeutics, including any products or compounds that the Company may develop, will be dependent, in part, on the continued support by such groups. There can be no assurance that the Company's products or compounds will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of the Company's products, if successfully developed, to achieve significant market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON THIRD PARTIES FOR CLINICAL TRIALS. The Company has engaged, and intends to continue to engage, third-party contract research organizations ("CROs") to perform certain functions in connection with the development of the Company's product candidates and compounds. The Company intends to design clinical trials, but have CROs conduct the clinical trials, and the Company will rely on the CROs to perform many important aspects of the clinical trials. As a result, these aspects of the Company's product development programs will be outside the direct control of the Company. There can be no assurance that the CROs or other third parties will perform all of their obligations under their arrangements with the Company. In addition, there can be no assurance that any such arrangements will be renewed or any new arrangements will be available on acceptable terms, if at all, or that any such arrangements, if entered into, will be successful. In the event that the CROs do not perform clinical trials in a satisfactory manner or breach their obligations to the Company, the commercialization of any product candidate or compound may be delayed or precluded, which could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES. 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 agencies and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services in an effort to promote cost containment measures and alternative health care delivery systems and they may mandate predetermined discounts from list prices. If the Company succeeds in bringing one or more products or compounds to the market, there can be no assurance that these products or compounds will be considered cost-effective or that reimbursement to the consumer will be available or will be sufficient to allow the Company or its potential collaborative partners to sell the Company's products or compounds on a competitive basis. The business and financial condition of pharmaceutical companies will continue to be affected by economic, political and regulatory influences, including 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. Because of the high cost of the treatment of AIDS or HIV using combination therapy, many state legislatures are reassessing reimbursement policies for such therapy. In addition, an increasing emphasis on managed care in the United States to reduce the overall costs of health care 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, the announcement and/or adoption of such proposals or efforts could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Third Party Reimbursement and Health Care Reform Measures." HAZARDOUS MATERIALS. The Company's product development programs involve the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds, including Class IV type hazardous materials. 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. The Company may incur substantial additional costs to comply with environmental regulations if the Company develops manufacturing capacity. 13 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. In addition, the use of pharmaceutical products that may be developed by the Company's potential collaborators in clinical trials and the subsequent sale of products by the Company or its potential collaborators may cause the Company to bear a portion of those risks. A successful product liability claim or series of claims brought against the Company could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not currently have any product liability insurance relating to clinical trials or any products or compounds it may develop and there can be no assurance that the Company will be able to obtain or maintain adequate product liability insurance on acceptable terms, if at all, or that such insurance will provide adequate coverage against potential liabilities. Furthermore, there can be no assurance that any collaborators or licensees of the Company will agree to indemnify the Company, be sufficiently insured, or have a net worth sufficient to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by the Company could have a material adverse effect on the Company's business, financial condition and results of operations. NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. The Company is highly dependent upon the efforts of the principal members of its scientific and management staff. The loss of the services of one or more members of the Company's scientific or management staff could significantly delay or prevent the achievement of the Company's research, development or business objectives and could have a material adverse effect on the Company's business, financial condition and results of operations. At present, the Company only has individual employment agreements with Dr. Johnson, the Company's President, Chief Executive Officer and Chief Scientific Officer, and Mr. Megaro, the Company's Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary. In addition, the Company relies on consultants and advisors, including the members of its Scientific Advisory Board, to assist the Company in formulating its research and development strategy. The loss of the services of certain members of the Company's Scientific Advisory Board or certain consultants could materially and adversely affect the Company to the extent that the Company is pursuing research or development in areas of such scientific advisor's or consultant's expertise. Due to the specialized scientific nature of the Company's business, the Company is also highly dependent upon its ability to attract and retain qualified scientific, technical and key management personnel. There is intense competition for qualified personnel in the areas of the Company's activities by academic institutions, biotechnology companies and pharmaceutical companies and there can be no assurance that the Company will be able to continue to attract and retain the qualified personnel necessary for the development of its existing business and its expansion into areas and activities requiring additional expertise. The loss of, or failure to recruit, scientific, technical, and managerial personnel could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's scientific advisors and consultants may be employed by or have consulting agreements with entities other than the Company, some of which may compete with the Company. To the extent that members of the Company's Scientific Advisory Board or the consultants have consulting arrangements with or become employed by any competitor of the Company, the Company's business, financial condition or results of operations could be materially and adversely affected. Under certain circumstances, inventions or processes independently discovered by the scientific advisors or the consultants will remain the property of such persons or their employers. In addition, the institutions with which the scientific advisors and the consultants are affiliated may make available the research services of their scientific and other skilled personnel, including the scientific advisors and the consultants, to competitors of the Company pursuant to sponsored research agreements. Under such sponsored research agreements, such institutions may be obligated to assign or license to a competitor of the Company patents and other proprietary information that may result from research sponsored by an entity other than the Company, including research performed by a scientific advisor or a consultant for a competitor of the Company. The Company requires all employees, consultants and certain of its contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone outside the Company and require disclosure and assignment to the Company of their ideas, developments, discoveries or inventions developed during the course of their service to the Company. However, no assurance can be given that competitors of the Company will not gain access to trade secrets and other proprietary information developed by the Company and disclosed to the scientific advisors and the consultants. See "Business -- Human Resources" " -- Scientific Advisory Board" and "Management." SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common Stock (including shares issued upon the exercise of outstanding options and warrants) in the public market after this Offering or the prospect of such sales could materially and adversely affect the market price of the Common Stock and may have a material adverse effect on the Company's ability to raise any necessary capital to fund its future operations. Upon completion of this Offering, the Company will have 14 9,870,795 shares of Common Stock outstanding (assuming no exercise of options and warrants outstanding as of July 9, 1997). Of these shares, the 2,500,000 shares offered hereby will be freely tradeable without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except that any shares held by "affiliates" of the Company within the meaning of the Securities Act will be subject to the resale limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). The remaining 7,370,795 outstanding shares are "restricted" securities that may be sold only if registered under the Securities Act, or sold in accordance with an applicable exemption from registration, such as Rule 144. Rule 144 imposes a holding period with respect to securities purchased directly from an issuer or an "affiliate" of an issuer. The officers and directors of the Company and other holders of Common Stock who together hold 7,346,510 shares of Common Stock have agreed not to sell, offer, make any short sale or otherwise dispose of or enter into any contract, arrangement or commitment to sell or otherwise dispose of any Common Stock without the prior written consent of UBS Securities LLC for a period of 180 days from the date of this Prospectus (the "Lock-up Agreements"). Approximately 244,111 shares of Common Stock will be eligible for resale in the public market without restriction in reliance on Rule 144(k) immediately following the completion of this Offering, 238,790 shares of which are subject to the Lock-up Agreements. An additional 765,669 (757,491 shares of which are subject to the Lock-up Agreements) will be eligible for resale in the public market pursuant to Rule 701 under the Securities Act beginning approximately 90 days after the effective date of this Prospectus, except to the extent that such shares are subject to vesting restrictions or certain contractual restrictions on sale or transfer pursuant to agreements with the Company. After the expiration of the 180-day lock-up period, an additional 3,729,746 shares of Common Stock will be eligible for resale in the public market pursuant to Rule 144. From time to time thereafter, the remaining shares of Common Stock outstanding will become eligible for resale in the public market pursuant to Rule 144. Approximately 90 days after the completion of this Offering, the Company intends to file a registration statement on Form S-8 under the Securities Act to register the future issuance of shares of Common Stock reserved for issuance under the Company's Stock Option Plan. As of July 9, 1997, 253,501 shares of Common Stock were reserved for issuance pursuant to outstanding options and 240,476 shares of Common Stock were reserved for future issuance under the Company's Stock Option Plan. Such registration statement will automatically become effective upon filing. Accordingly, shares registered thereunder will, subject to Rule 144 limitations applicable to affiliates, be available for sale in the public market, except to the extent that such shares are subject to vesting restrictions with the Company or certain contractual restrictions on sale or transfer (including options covering 233,263 shares which are subject to Lock-up Agreements). After this Offering, the holders of approximately 6,261,615 shares of Common Stock and the holders of warrants to purchase an aggregate of 56,684 shares of Common Stock will be entitled to certain demand and piggyback rights with respect to the registration of such shares under the Securities Act. If such holders, by exercising their demand registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price of the Company's Common Stock. If the Company, either on its own behalf or on behalf of certain stockholders, were to initiate a registration and include shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales could have a material adverse effect on the Company's ability to raise needed capital. See "Certain Transactions," "Shares Eligible for Future Sale," "Description of Capital Stock -- Registration Rights" and "Underwriting." CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES. The Company's directors, executive officers and entities affiliated with them will, in the aggregate, beneficially own approximately 47.9% of the Company's outstanding shares of Common Stock following the completion of this Offering (or approximately 35.8% if the Underwriters exercise their over-allotment option in full). As a result, these stockholders, if acting together, would be able to significantly influence all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers and consolidations, sales of all or substantially all of the assets of the Company or other business combination transactions. This may discourage a tender offer for the Company's Common Stock or a change in control of the Company. See "Principal Stockholders" and "Description of Capital Stock." ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's Board of Directors is authorized to issue up to 10,000,000 shares of Preferred Stock and to determine the price, rights, preferences and limitations of those shares without any further vote or action by the Company's stockholders. 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 Preferred Stock that may be issued in the future. While the Company has no present intention to issue shares of Preferred Stock, such issuance could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. In addition, the Company is subject to the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL") which, subject to certain exceptions, prohibits the Company from engaging in certain business combinations with certain stockholders (each, an "interested stockholder") for a period of three years after the date of the transaction in which the stockholder became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 15 could have the effect of delaying or preventing a change of control of the Company. The Company's Third Amended and Restated Certificate of Incorporation provides for staggered terms for the members of the Board of Directors. The staggered Board of Directors, the Company's Third Amended and Certificate of Incorporation and certain provisions of the DGCL may have the effect of delaying, deterring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price and may adversely affect the market price, and the voting and other rights of the holders, of the Common Stock. See "Description of Capital Stock -- Delaware Law and Certain Charter Provisions." NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this Offering, there has been no public market for the Company's Common Stock and there can be no assurance that an active public market for the Common Stock will develop or be sustained after this Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations between the Company and the representatives of the Underwriters and may not be indicative of the market price at which the Common Stock of the Company will trade after this Offering. Among the factors to be considered in such negotiations, in addition to prevailing market conditions, are certain financial information of the Company, market valuations of other companies that the Company and the representatives of the several underwriters believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The initial public offering price set forth on the cover page of this Prospectus should not, however, be considered an indication of the actual value of the Common Stock. Such price is subject to change as a result of market conditions and other factors. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to this Offering at or above the initial offering price. The market price of the Common Stock, like that of the securities of many other biotechnology and pharmaceutical companies, is likely to be highly volatile. Factors such as announcements of technological innovations or new products by the Company or its competitors, preclinical testing or clinical trial results relating to or regulatory approvals or disapprovals of the Company's or competitors' product candidates, government regulation, health care legislation, developments or disputes concerning patent or other proprietary rights of the Company or its competitors, including litigation, fluctuations in the Company's operating results, and market prices of the capital stock of biotechnology and pharmaceutical companies in general could have a significant impact on the future market price of the Common Stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations that may be unrelated to the operating performance of particular companies. In addition, in the past, following periods of volatility in the market price of the securities of companies in the biotechnology and pharmaceutical 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's business, financial condition and results of operations. 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. See "Underwriting." BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds of the Offering will be added to the Company's working capital and will be available for research and development, capital expenditures, working capital and general corporate purposes. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be received upon completion of this Offering. Accordingly, the Company's 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." IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered hereby will incur an immediate and substantial dilution in the net tangible book value of the Common Stock from the initial public offering price. The current stockholders of the Company, including the Company's directors and officers, acquired their shares of Common Stock for consideration substantially less than the initial public offering price of the shares of Common Stock offered hereby. Additionally, the Company has issued options to acquire shares of the Common Stock at prices significantly below the initial public offering price. To the extent outstanding options to purchase the Common Stock are exercised, there will be further dilution. See "Dilution." NO DIVIDENDS. The Company has not paid cash dividends on its Common Stock since its inception and does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share are estimated to be approximately $29.4 million (approximately $34.0 million if the Underwriters' over-allotment option is exercised in full), after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the net proceeds of this Offering to fund the continued clinical trials of T-20, increased research and development activities, including ongoing development of the Company's technologies, preclinical testing and clinical trials, and other costs associated with the Company's product discovery and development programs. The Company also intends, depending on the results of ongoing preclinical testing and clinical trials, to use some of the net proceeds for the expansion of its facilities. The remainder of the aggregate net proceeds will be used to provide working capital and to fund other general corporate purposes. The amounts actually expended for each purpose and the timing of such expenditures may vary significantly depending upon a number of factors, including the status of the Company's research, product candidate and compound discovery and development efforts, including preclinical testing and clinical trials, the timing of regulatory actions, the costs involved in preparing, filing, prosecuting, maintaining, protecting and enforcing patent claims and other proprietary rights, the ability of the Company to establish, internally or through relationships with third parties, manufacturing, sales, marketing and distribution capabilities, technological and other changes in the competitive landscape, changes in the Company's existing research and development relationships and strategic alliances, evaluation of the commercial viability of potential product candidates and compounds, needs for additional facilities and other factors, many of which are outside of the Company's control. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be received upon completion of this Offering. Accordingly, the Company's management will have broad discretion in the application of the net proceeds. The Company may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to those of the Company, although the Company currently has no agreements and is not involved in any negotiations with respect to any such transactions. Pending such uses, the Company intends to invest the net proceeds in investment grade, interest-bearing securities. DIVIDEND POLICY The Company has not paid any dividends on its Common Stock since its inception. The Company currently intends to retain any future earnings to fund its operations and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 17 CAPITALIZATION The following table sets forth, as of June 30, 1997, (i) the actual capitalization of the Company, (ii) the pro forma capitalization of the Company after giving effect to the Preferred Stock Conversion and the filing of the Company's Third Amended and Restated Certificate of Incorporation upon the completion of the Offering, and (iii) the pro forma capitalization of the Company as adjusted to give effect to the sale of the 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share and after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The table should be read in conjunction with the Financial Statements and the related Notes thereto included elsewhere in this Prospectus.
AS OF JUNE 30, 1997 PRO FORMA ACTUAL PRO FORMA AS ADJUSTED Notes payable and obligations under capital leases, excluding current installments........................................................ $ 488 $ 488 $ 488 Stockholders' equity (deficit): Series A, B, C and D Preferred Stock................................................... 53 -- -- Preferred Stock, $.001 par value per share, 10,000,000 shares authorized and no shares issued and outstanding........................................................................ -- -- -- Common Stock, $.001 par value per share, 80,000,000 shares authorized 1,092,472 shares issued and outstanding, actual; 7,354,087 shares issued and outstanding, pro forma and 9,854,087 shares issued and outstanding, pro forma as adjusted (1)................. 1 7 10 Additional paid-in capital............................................................ 32,435 32,482 61,904 Deficit accumulated during the development stage...................................... (21,443) (21,443 ) (21,443) Deferred compensation................................................................. (1,935) (1,935 ) (1,935) Notes receivable from stockholders...................................................... (264) (264 ) (264) Total stockholders' equity......................................................... 8,847 8,847 38,272 Total capitalization............................................................... $ 9,335 $ 9,335 $ 38,760
(1) Excludes (i) 10,589 shares of Common Stock issued by the Company after June 30, 1997, (ii) 260,326 shares of Common Stock reserved for issuance pursuant to stock options outstanding as of June 30, 1997 at a weighted average exercise price of $.59 per share, and (iii) 56,684 shares of Common Stock issuable upon exercise of warrants outstanding as of June 30, 1997 at a weighted average exercise price of $4.25 per share. Also excludes an aggregate of 239,770 shares of Common Stock reserved for future issuance under the Company's Stock Option Plan as of June 30, 1997. See "Management -- Stock Option Plans," "Description of Capital Stock" and Note 1 of Notes to Financial Statements. 18 DILUTION The pro forma net tangible book value of the Company's Common Stock as of June 30, 1997 was approximately $8.3 million, or $1.13 per share, after giving effect to the Preferred Stock Conversion. After giving effect to the sale by the Company of the 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share (after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company), the pro forma net tangible book value of the Company as of June 30, 1997 would have been approximately $37.8 million, or $3.83 per share. This represents an immediate increase in net tangible book value of $2.70 per share to existing stockholders and an immediate dilution in net tangible book value of $9.17 per share to purchasers in this Offering. "Net tangible book value" represents the amount of tangible assets of the Company less total liabilities. Dilution represents the difference between the amount per share paid by purchasers in this Offering and the pro forma net tangible book value per share upon completion of this Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share..................................... $13.00 Pro forma net tangible book value per share as of June 30, 1997................... $1.13 Increase in book value per share attributable to new investors.................... 2.70 Pro forma net tangible book value per share after this Offering..................... 3.83 Dilution per share to new investors (1)............................................. $ 9.17
(1) If the Underwriters' over-allotment is exercised in full, the dilution to new investors will be $8.86 per share. The following table sets forth, on a pro forma basis as of June 30, 1997, the difference between 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 holders of Common Stock and by the new investors, after giving effect to the Preferred Stock Conversion and before deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, at an assumed initial public offering price of $13.00 per share:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE Existing stockholders........................................... 7,354,087 75% $30,488,588 48% $ 4.15 New investors................................................... 2,500,000 25 32,500,000 52 13.00 Total.................................................... 9,854,087 100% $62,988,588 100% $ 6.39
The foregoing tables assume no exercise of outstanding options or warrants. As of June 30, 1997, (i) 260,326 shares of Common Stock were issuable upon exercise of outstanding stock options at a weighted average exercise price of $0.59 per share, and (ii) an aggregate of 56,684 shares of Common Stock were issuable upon the exercise of outstanding warrants at a weighted-average exercise price of $4.25 per share. Also excludes an aggregate of 239,770 shares of Common Stock reserved for future issuance under the Company's Stock Option Plan as of June 30, 1997. To the extent the outstanding options are exercised, there will be further dilution to new investors. See "Capitalization," and "Management -- Stock Option Plans," "Description of Capital Stock" and Note 1 of Notes to Financial Statements. 19 SELECTED FINANCIAL DATA The selected financial data set forth below with respect to the Company's Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and with respect to the Company's Balance Sheets as of December 31, 1995 and 1996 are derived from the audited Financial Statements of the Company which are included elsewhere in this Prospectus and are qualified by reference to such Financial Statements and the related Notes thereto. Statements of Operations data for the period from inception (January 7, 1993) through December 31, 1993 and Balance Sheet data at December 31, 1993 and 1994 are derived from audited Financial Statements of the Company not included herein. The selected financial data as of June 30, 1997 and for the six months ended June 30, 1996 and 1997 are derived from unaudited Financial Statements included elsewhere in this Prospectus. The unaudited Financial Statements include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for the fair presentation of its financial position and the results of its operations for those periods. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The selected financial data set forth below is qualified in its entirety by, and should be read in conjunction with, the Financial Statements, the related Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
PERIOD FROM INCEPTION FOR THE (JANUARY 7, 1993) FOR THE SIX MONTHS ENDED THROUGH DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30, 1993 1994 1995 1996 1996 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) STATEMENTS OF OPERATIONS DATA: Revenue...................................... $ -- $ -- $ 104 $ 55 $ -- $ 212 Operating expense: Research and development expenses............ 691 $ 2,747 $ 4,012 $ 5,146 $ 2,278 2,859 General and administrative expenses.......... 631 947 1,520 1,761 802 786 Total operating expenses................ 1,322 3,694 5,532 6,907 3,080 3,645 Operating loss............................... (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) Interest income.............................. 16 8 49 47 32 33 Interest expense............................. (5) (258) (360) (167) (86) (78) Total other income (expense)............ 11 (250) (311) (120) (54) (45) Net loss................................ $ (1,311) $(3,944) $(5,739) $(6,972) $(3,134) $(3,478) Pro forma net loss per share (1)(2).......... $ (1.48) $ (0.59) Pro forma weighted average shares used in computing pro forma net loss per share (1)(2)..................................... 4,705 5,880
AS OF AS OF DECEMBER 31, JUNE 30, 1993 1994 1995 1996 1997 (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents............................................... $ 509 $ 277 $ 1,343 $ 132 $ 8,912 Working capital (deficiency)............................................ 183 (4,067) 322 (1,305) 8,019 Total assets............................................................ 1,802 1,873 3,058 1,684 10,585 Long-term notes payable and capital lease obligations, less current portion............................................................... 401 751 703 576 488 Accumulated deficit..................................................... (1,311) (5,254) (10,994) (17,965) (21,443) Total stockholders' equity.............................................. 701 (3,236) 1,324 (409) 8,847
(1) Computed on the basis described in Note 1 of Notes to Financial Statements. (2) Pro forma to give effect to the Preferred Stock Conversion. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Trimeris commenced operations in January 1993, has a limited operating history and is a development stage company. Since its inception, substantially all of the Company's resources have been dedicated to the development, patenting, preclinical testing and a Phase I/II clinical trial of T-20, the development of its proprietary technology platform and research and development and preclinical testing of other potential product candidates and compounds discovered by the Company. The Company has incurred losses since its inception and, as of June 30, 1997, had an accumulated deficit of approximately $21.4 million. The Company has received revenue solely from Small Business Innovative Research ("SBIR") grants and an investigative contract and has yet to generate any revenue from product sales or royalties, and there can be no assurance that it will be able to generate any such revenues or royalties in the future. Product candidates and compounds discovered by the Company and developed through the Company's product development programs will require significant additional, time-consuming and costly research and development, preclinical testing and extensive clinical trials prior to submission of any regulatory application for commercial use. The Company has incurred losses since its inception. Such losses have resulted principally from expenses incurred in the Company's research and development activities associated with the development, patenting, preclinical testing and a Phase I/II clinical trial of T-20, the development of its proprietary technology platform, research and development and preclinical testing of other potential product candidates and compounds discovered by the Company, and from general and administrative expenses. The Company expects to incur substantial losses for the foreseeable future and expects losses to increase as the Company's research and development, preclinical testing and clinical trial efforts expand. The amount and timing of the Company's operating expenses will depend on several factors, including the status of the Company's research and development activities, product candidate and compound discovery and development efforts, including preclinical testing and clinical trials, the timing of regulatory actions, the costs involved in preparing, filing, prosecuting, maintaining, protecting and enforcing patent claims and other proprietary rights, the ability of the Company to establish, internally or through relationships with third parties, manufacturing, sales, marketing and distribution capabilities, technological and other changes in the competitive landscape, changes in the Company's existing research and development relationships and strategic alliances, evaluation of the commercial viability of potential product candidates and other factors, many of which are outside of the Company's control. As a result, the Company believes that period-to-period comparisons of financial results in the future are not necessarily meaningful and results of operations in prior periods should not be relied upon as an indication of future performance. Any deviations in results from operations from levels expected by securities analysts and investors could have a material adverse effect on the market price of the Common Stock. The Company's ability to achieve profitability will depend, in part, upon its or its collaborated partners' ability to successfully develop and obtain regulatory approval for T-20 and other product candidates and compounds discovered by the Company, and to develop the capacity, either internally or through relationships with third parties, to manufacture, sell, market and distribute approved products, if any. There can be no assurance that the Company will ever generate significant revenues or achieve profitable operations. See "Risk Factors -- Development Stage Company" and " -- History of Operating Losses; Accumulated Deficit; Uncertainty of Future Profitability." RESULTS OF OPERATIONS COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997 REVENUE. There was no revenue recognized for the six months ended June 30, 1996. Revenue recognized for the six months ended June 30, 1997 consisted of approximately $112,000 of income from SBIR grants, and $100,000 from an investigative contract. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses increased from approximately $2.3 million for the six months ended June 30, 1996 to approximately $2.9 million for the six months ended June 30, 1997. The increase is primarily due to increased costs related to additional personnel and related laboratory research supplies to support 21 these personnel and the continuation of Phase I/II clinical trials for T-20. Total research personnel were 24 and 28 at June 30, 1996 and 1997, respectively. The Company expects its research and development expenses to increase substantially in the future due to continued expansion of product development activities, including preclinical testing and clinical trials. GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses decreased from approximately $802,000 for the six months ended June 30, 1996 to approximately $786,000 for the six months ended June 30, 1997. The Company expects its administrative expenses to increase in the future to support the expansion of its product development activities. OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and expense. Total other expenses decreased from approximately $55,000 for the six months ended June 30, 1996 to $45,000 for the six months ended June 30, 1997. This change was primarily due to fluctuations in cash balances and borrowings. COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 REVENUE. Total revenue was approximately $0, $104,000 and $54,000 for 1994, 1995 and 1996, respectively. An SBIR grant was received in 1995, and revenue was recognized as earned under this grant in 1995 and 1996. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses increased from $2.7 million in 1994 to approximately $4.0 million in 1995 and increased to approximately $5.1 million in 1996. The increases are primarily due to increased costs related to additional personnel and related laboratory research supplies to support these personnel. During 1996, the Company began Phase I/II clinical trials for T-20 and incurred costs associated with these clinical trials. Total research personnel were 17, 25 and 25 at December 31, 1994, 1995 and 1996, respectively. GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses increased from approximately $948,000 in 1994 to approximately $1.5 million in 1995, and increased to approximately $1.8 million in 1996. These increases are primarily due to increased costs related to additional personnel and professional fees incurred in the patent application process. OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and expense. Total other expense increased from approximately $250,000 in 1994 to approximately $311,000 in 1995 and decreased to approximately $120,000 in 1996. The increase from 1994 to 1995 was primarily due to an increase in interest expense of approximately $102,000 net of an increase in interest income of approximately $41,000. The decrease from 1995 to 1996 was primarily due to a reduction in interest expense of approximately $193,000 as a result of the exchange of notes payable for preferred stock during 1995. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through the private placement of equity securities, the issuance of notes to stockholders and equipment lease financing. Net cash used by operating activities was approximately $3.8 million, approximately $4.8 million and approximately $5.8 million in 1994, 1995 and 1996, respectively, and approximately $2.9 million and approximately $3.5 million for the six months ended June 30, 1996 and June 30, 1997, respectively. The cash used by operating activities was used primarily to fund research and development and general and administrative expenses. Cash provided by financing activities was approximately $3.6 million, approximately $6.1 million, and approximately $4.8 million in 1994, 1995 and 1996, respectively, and approximately $3.3 million and approximately $12.4 million for the six months ended June 30, 1996 and 1997, respectively. The cash provided by financing activities was primarily from the sale of equity securities and notes to stockholders. As of June 30, 1997, the Company had approximately $8.9 million in cash and cash equivalents compared to approximately $132,000 as of December 31, 1996. The increase resulted from the receipt of approximately $12.8 million from the sale of equity securities during 1997, partially offset by approximately $3.5 million used by operations. The Company has experienced negative cash flows from operations since its inception and does not anticipate generating sufficient positive cash flows to fund its operations in the foreseeable future. The Company has expended, and expects to continue to expend in the future, substantial funds to pursue its product candidate and compound discovery and development efforts, including expenditures for continued clinical trials of T-20, research and development and preclinical testing of other product candidates and compounds discovered by the Company and the development of its proprietary technology platform. The Company expects that its existing capital resources, together with the net proceeds of the Offering and the interest earned thereon, will be adequate to fund its capital requirements through 1998. However, the Company's future capital requirements and the adequacy of available funds will depend on many factors, including the results of the clinical trials relating to T-20, the progress and scope of the Company's product development programs, the magnitude of these programs, the results of preclinical testing and clinical trials, the need for additional facilities based on the results of these clinical trials and other product development programs, changes in the focus and direction of the Company's product development programs, the 22 costs involved in preparing, filing, processing, maintaining, protecting and enforcing patent claims and other intellectual property rights, competitive factors and technological advances, the cost, timing and outcome of regulatory reviews, changes in the requirements of the FDA, administrative and legal expenses, evaluation of the commercial viability of potential product candidates and compounds, the establishment of capacity, either internally or through relationships with third parties, for manufacturing, sales, marketing and distribution functions and other factors, many of which are outside of the Company's control. Thus, there can be no assurance that the net proceeds of this Offering, together with the interest earned thereon, will be sufficient to fund the Company's capital requirements during the period discussed above. The Company believes that substantial additional funds will be required to continue to fund its operations and that the Company will be required to obtain additional funds through equity or debt financing or licenses, agreements or other arrangements with collaborative partners and others, or from other sources. The terms of any such equity financings may be dilutive to stockholders and the terms of any debt financings may contain restrictive covenants which limit the Company's ability to pursue certain courses of action. There can be no assurance that such funds will be available to the Company on acceptable terms, if at all, or that such financings will be adequate to meet the Company's future capital requirements. If adequate funds are not available, the Company may be required to delay, scale-back or eliminate certain aspects of its preclinical testing, clinical trials and research and development programs or attempt to obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies or product candidates or compounds, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional Funding" and "Use of Proceeds." NET OPERATING LOSS CARRYFORWARDS As of June 30, 1997, the Company had a net operating loss carryforward of approximately $21 million. The Company has recognized a valuation allowance equal to the deferred asset represented by this net operation 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 (the "Code"). See Note 6 of Notes to Financial Statements. 23 BUSINESS THE COMPANY Trimeris is a biopharmaceutical company engaged in the discovery and development of novel therapeutic agents that block viral infection by inhibiting viral fusion with host cells. Viral fusion is a complex process by which viruses infect host cells. The Company's lead product candidate, T-20, inhibits fusion of HIV with host cells. T-20 is currently being administered to HIV-infected patients in a Phase I/II clinical trial. T-20 and the Company's other product candidates are designed to inhibit viral fusion, unlike other currently approved therapeutic agents that target later steps in the infection process. The Company has developed a proprietary technology platform in the field of fusion inhibition, which will be applied to the discovery and development of novel products for the treatment of a variety of viral diseases. OVERVIEW OF VIRAL DISEASE Viruses are infectious particles which contain either RNA or DNA and rely on host cells to maintain their life cycle. Outside a host cell, a virus particle cannot replicate. However, after infecting a host cell, a virus exploits the metabolic mechanisms of that host cell to reproduce and make new infectious virus particles that can infect other cells. The genetic material of viruses is surrounded by a protein coat, called a nucleocapsid. The nucleocapsid of certain viruses, known as enveloped viruses (HIV, RSV, HPIV, influenza and hepatitis B and C), is surrounded by a bilayer membrane consisting of both lipids and proteins. Certain of these viral proteins facilitate the binding process of the virus to the host cell. These proteins contain peptide domains that associate with one another to form coiled coils during the infection process. These coiled-coil protein domains come together in very specific structural rearrangements that help the viral membrane fuse with the host cell membrane. This coiled-coil interaction permits the viral fusion process to take place, thereby allowing the virus to inject its genetic material into the host cell. The following diagram illustrates the process by which certain viruses (HIV, for example) infect a host cell. [DEPICTION OF THE HIV LIFE CYCLE AS MORE FULLY DESCRIBED BELOW] HIV LIFE CYCLE. STEP 1: HIV attaches to the surface of a human immune cell when the gp120 protein binds to a particular host cell receptor. After attachment, gp120 is stripped away from the virus and certain peptide domains within the gp41 transmembrane protein rearrange and bind to each other very tightly to form coiled coils which mediate the fusion of the viral and host cell membranes. STEP 2: The virus injects its genetic material (RNA) into the cell. An HIV viral enzyme (reverse transcriptase) then converts this RNA into DNA. STEP 3: The viral DNA is transported to the nucleus and is integrated into the host cell's chromosomes. STEP 4: The infected cell begins to produce new viral RNA, which then uses a portion of the host cell's protein synthesis machinery to make many different viral proteins. STEP 5: The viral enzyme called protease cuts these new proteins into smaller pieces. STEP 6: These protein pieces assemble with the HIV RNA and lipids to make new infectious virus particles. STEP 7: Mature HIV particles are released from the surface of the infected cell to begin a new cycle of infection. [DEPICTION OF MODEL FOR HIV FUSION MORE FULLY DESCRIBED BELOW] MODEL FOR HIV FUSION. PRE-FUSION: The HIV gp41 protein contains two peptide domains which are predicted to associate with one another to help the virus fuse with the host cell membrane. However, these two peptide domains are presumably kept apart by the gp120 protein in a pre-fusion state until the virus attaches to a host cell. ATTACHMENT: The gp120 protein is stripped away from the virus after gp120 binds to host cell receptors. The two specific peptide domains within the gp41 protein can then rearrange and bind to each other very tightly to form a coiled-coil structure. In doing so, the tip of the gp41 protein is now positioned to penetrate the host cell membrane. FUSION: The virus is now drawn closer to the host cell membrane surface and the viral and host cell membranes fuse together. PENETRATION: Once the membranes fuse together, the virus can inject its genetic material into the host cell and the infection process is completed. 24 THE COMPANY'S TECHNOLOGY The Company's academic founders, Dr. Dani Bolognesi and Dr. Thomas Matthews, both of the Duke University Center for AIDS Research, have discovered a novel method to block HIV infection by inhibiting viral fusion with host cells. This discovery was licensed to the Company and led to the Company's development of its proprietary technology platform. The Company is using its proprietary techonology platform to support its discovery and development programs. Unlike therapeutic agents targeting viral replication processes inside host cells, the Company's product candidates prevent one of the first steps in the infection process that occurs outside of the host cell. The Company's goal is to use its expertise in the field of fusion inhibition to discover, develop and market novel peptides or small molecules to inhibit viral fusion for the treatment of a variety of diseases. T-20, the Company's lead product candidate for treating HIV infection, is currently being tested in a Phase I/II clinical trial in the United States. T-20 is a proprietary 36 amino acid synthetic peptide that binds to a key peptide domain of the HIV gp41 protein and blocks HIV viral fusion by interfering with the interactions between peptide domains within viral proteins that are required for HIV entry into a host cell. The following diagram illustrates the use of T-20 to inhibit viral fusion. [DEPICTION OF THE USE OF T-20 TO BLOCK VIRAL FUSION AS MORE FULLY DESCRIBED BELOW] MODEL FOR T-20 INHIBITION OF HIV FUSION. The gp120 protein is stripped away from the virus after gp120 binds to a particular host cell receptor. Two specific peptide domains in the gp41 protein are thus freed and can bind to one another to form a coiled coil. However, if T-20 is present in the bloodstream, it binds very tightly to one of the two peptide domains within the gp41 protein. Therefore, T-20 blocks the ability of gp41 to form a natural, coiled-coil structure. As a result, the tip of the gp41 protein does not effectively penetrate the host cell membrane. Since the virus cannot penetrate and inject its genetic material into the cell, HIV infection of the host cell is inhibited. 25 Through its study of the HIV fusion process, the Company has developed a proprietary technology platform aimed at discovering antiviral compounds. The cornerstone of this platform is CAST, a proprietary computer algorithm which identifies target sequences within certain viral proteins that have the potential to interact during the fusion process. Once identified by the CAST algorithm, these target sequences form the basis for designing highly selective and potent peptide inhibitors of viral fusion. CAST has enabled the Company to design product candidates for RSV and HPIV fusion inhibition. The Company has identified, and has filed patent applications disclosing, numerous discrete peptide sequences, which include potential fusion targets in other viruses such as hepatitis B and C, influenza and herpes. In addition to viral targets, CAST has identified protein sequences which may have a role in bacterial pathogenesis, thus providing the Company with the basis for future work aimed at the potential discovery of antibiotic agents. Ultimately, the Company plans to explore CAST-identified sequences across a wide range of targets, including those associated with cancer, immunology and neurology. PROGRAMS AND PRODUCT CANDIDATES UNDER DEVELOPMENT The following table describes the various stages of development of the Company's programs and product candidates.
INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1) HIV T-20 Phase I/II RSV T-786 Preclinical HIV Second generation inhibitors Preclinical RSV Small molecules Preclinical HPIV T-205 Research HPIV Small molecules Research HIV Small molecules Research Influenza Virus Small molecules Discovery Hepatitis B Virus Small molecules Discovery Hepatitis C Virus Small molecules Discovery Epstein-Barr Virus Small molecules Discovery (1) "Phase I/II" indicates that the product candidate is being tested in clinical trials for safety and preliminary indications of biological activity in a limited patient population. "Preclinical" indicates that the Company is testing a product candidate in animal models. "Research" indicates the Company is pursuing the discovery of prototype compounds and evaluating prototype compounds in IN VITRO testing. "Discovery" indicates that the Company is developing assay systems to screen chemical libraries of small molecules. See "Risk Factors -- Uncertainties Related to Clinical Trials and Clinical Trial Strategy," " -- Extensive Government Regulation; No Assurance of Regulatory Approval" and "Business -- Government Regulation."
CLINICAL DEVELOPMENT PROGRAM T-20 T-20 is a proprietary compound which has demonstrated significant inhibition of HIV in preclinical testing and is currently being tested in Phase I/II clinical trials. T-20 inhibits HIV viral fusion with host cells and thus operates by a completely different mechanism of action than any other currently approved HIV antiviral. HIV targets primarily the human immune cells known as CD4+ T-cells and macrophages. HIV-infected cells ultimately lose their immune function, leading to eventual degeneration of the immune system, which results in opportunistic infections, neurological dysfunctions, neoplasms and death. T-20 is a 36 amino acid synthetic peptide whose sequence is derived from the gp41 protein of HIV. In preclinical testing, T-20 displayed potent antiviral activity and reduced HIV viral load significantly in animal models. In those tests, T-20 displayed notable pharmaceutical properties, including long half-life, significant bioavailability, chemical stability and rapid distribution into lymphatic tissue, a major reservoir of HIV. In December 1996, the Company began a Phase I/II clinical trial administering an intravenous formulation of T-20 to HIV-infected patients. Preliminary review of the data from the Phase I/II clinical trial indicates that no drug-induced adverse events have been reported and no dose-limiting toxicities have been observed. The Company anticipates that the full results of this clinical trial will be available in the third quarter of 1997. There can be no assurance that the results from the Phase I/II clinical trial will support future clinical trials or will be predictive of results that will be obtained in pivotal clinical trials. 26 T-20 CLINICAL DEVELOPMENT The Company believes that delivery of a continuous therapeutic dose of T-20 using a subcutaneous infusion delivery system may suppress HIV more effectively than other delivery mechanisms. Accordingly, the Company, together with MiniMed, is developing a continuous, subcutaneous infusion delivery system for administering T-20. The Company believes that the ease of use of a continuous, subcutaneous infusion delivery system may increase patient compliance. In addition, the Company believes that such a system may reduce the amount of T-20 necessary to maintain effective HIV suppression. The Company is preparing to begin a Phase II clinical trial that will compare delivery of a constant therapeutic dose of T-20 by a continuous, subcutaneous infusion pump to delivery by subcutaneous injections. The Company anticipates that this clinical trial will be conducted at the University of Alabama at Birmingham under the supervision of Dr. Michael Saag and at the UCLA Medical Center under the supervision of Dr. Ron Mitsuyasu. Each site is expected to enroll 16 to 24 HIV-infected patients and measure pharmacokinetics of T-20 drug delivery using the continuous, subcutaneous infusion pump and the effect of this treatment approach on primary surrogate markers. This trial will also analyze the T-20 dosing range when using the MiniMed continuous, subcutaneous infusion pump. The Company anticipates that this Phase II clinical trial will be completed in the first quarter of 1998. After completion of the continuous, subcutaneous infusion Phase II trial, the Company intends to begin a pivotal Phase II trial in a larger population of HIV-infected patients who are either resistant to, or intolerant of, currently approved antiviral therapies (RT and protease inhibitors). Historically, pivotal Phase II trials of this type involving HIV antivirals have included approximately 300-400 patients and have taken approximately 18-24 months to complete. The Company anticipates that this pivotal Phase II trial will begin in the first half of 1998. Concurrently with the start of the pivotal Phase II trial, the Company intends to begin a study of T-20 in HIV-infected pediatric patients. Historically, studies of this type involving HIV antivirals have included approximately 40-60 pediatric patients and have taken approximately 18-30 months to complete. Throughout the T-20 clinical trial process, the Company intends to work with the FDA to design and implement a clinical trial strategy involving the administration of T-20 to HIV-infected patients in combination with approved HIV antiviral agents. The Company also believes that it will be able to conduct its T-20 clinical trial programs pursuant to the accelerated approval procedure authorized by the FDA for drugs intended to treat serious or life-threatening illnesses. However, there can be no assurance that T-20 will be eligible for accelerated development and/or approval under these regulations. Further, there can be no assurance that T-20 (if eligible for accelerated development and/or approval under these regulations) will be approved by the FDA for marketing on an accelerated basis, or at all. The anticipated timing of the Company's T-20 clinical trials may be delayed or cancelled for a number of reasons, including the receipt of unanticipated T-20 clinical trial results, changes in the focus of the Company or its collaborators, financial requirements and resources, manufacturing issues, technological developments and competitive factors. Accordingly, no assurance can be given that the Company's T-20 clinical trials will commence on their target dates, or at all. Delays in such clinical trials could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Extensive Government Regulation; No Assurance of Regulatory Approval," " -- Uncertainties Related to Clinical Trials and Clinical Trial Strategy" and "Business -- Government Regulation." HIV MARKET AND EXISTING THERAPIES HIV infection causes AIDS, which is the leading cause of death in the United States and Western Europe in men and women between the ages of 25 and 44. The World Health Organization estimates that, as of late 1996, approximately 750,000 people were infected with HIV in the United States, and approximately 510,000 people were infected in Western Europe. The first drugs approved in the United States to treat HIV infection inhibit the synthesis of virus DNA from viral RNA in infected cells by targeting RT, the viral enzyme essential for such synthesis. Approved RT inhibitors include AZT, 3TC, ddI, ddC, d4T, nevirapine and delavirdine. Worldwide sales of RT inhibitors were approximately $1.1 billion in 1996. A second class of HIV antivirals inhibit HIV protease, a viral enzyme required to cleave newly synthesized viral proteins into the correct size so the virus can assemble itself into new infectious virus particles. Approved HIV protease inhibitors include indinavir, ritonavir, saquinavir and nelfinavir mesilate. Worldwide sales of protease inhibitors were approximately $425 million in 1996 and are projected to grow significantly over the next several years. HIV is prone to mutations that produce resistance to RT and protease inhibitors. Once resistance emerges to one drug, these strains may also be resistant to most, if not all, of the drugs in the same chemical or functional class (a phenomenon known as cross-resistance). In an effort to overcome such resistance, physicians have begun to use RT and protease inhibitors in various combinations. While combination therapy with RT and protease inhibitors represents an advance in treatment of HIV infection, combination therapy has not yet proven to be a cure. Moreover, although these combination therapies have 27 slowed the emergence of resistance, new mutant strains have been identified which are resistant to several of the drugs currently used in combination therapy. Equally problematic is that even brief instances of non-compliance with the strict drug dosing regimens associated with these combination therapies may reduce the effectiveness of combination therapy and can accelerate the emergence of resistance. For example, in order to maintain a high blood level of the drug and to present a continuous challenge to the targeted virus, many current drugs require complex dosing, with some medications to be taken with meals and some on an empty stomach. A typical combination therapy regimen includes 14 to 16 pills taken at six to eight times during the day. This type of complex dosing regimen can easily lead to noncompliance or only partial compliance. Orally administered, small molecule drugs such as RT and protease inhibitors generally reach peak levels in the bloodstream within a short period of time after being taken by the patient. Drug levels then gradually fall over time as the drug is either absorbed into tissues or is eliminated from the body. At the point in the day when the drug level reaches its lowest concentration in the bloodstream (prior to the patient's taking another dose), the drug level may not be sufficiently high to effectively inhibit the virus. If a patient misses a dose or delays taking the drug for a short period of time, the drug level in the body will fall even lower, thus allowing the virus to replicate and potentially develop resistant strains. The Company believes that one solution to this problem is drug delivery using a continuous, subcutaneous infusion system through which a controlled, programmable amount of the drug could be delivered throughout the day. Toxicity is also an issue associated with the use of RT and protease inhibitors. Accumulating data indicate that certain patients are unable to take RT and protease inhibitors, either alone or in combination, due to toxic side effects, including gastrointestinal disorders, peripheral neuropathy and kidney stones. Furthermore, recent information has suggested that protease inhibitors may cause diabetes-like symptoms in some patients. Clinical studies with some RT and protease inhibitors indicate that a significant number of HIV positive patients discontinue therapy soon after they begin treatment because (i) they cannot tolerate the toxic side effects, (ii) they rapidly become resistant to these therapies, or (iii) demands of the drug dosing regimen (the number of pills the patients are required to take on a strict schedule) are too great. If the side effects of the drugs prove too severe, or if a patient's virus becomes resistant to available drug combinations, there are no other antiviral treatments currently available. T-20 COMMERCIALIZATION STRATEGY The Company has entered into a strategic alliance with MiniMed under which the parties will collaborate to deliver T-20 using MiniMed's continuous infusion pump. MiniMed pumps, currently used for insulin therapy, are generally attached to a belt, strapped to a leg or draped on a cord around the neck. These pumps weigh approximately 3.5 ounces and are approximately the size of a pager. The Company expects that MiniMed will play an active role in the marketing of its pump for T-20 delivery and will provide patient support and product service for the pump and related disposable products. The Company plans to work directly with MiniMed to pursue necessary regulatory approvals for the delivery of T-20 using the MiniMed pump. See "Risk Factors -- Dependence on Collaborations and Licenses with Others," " -- Extensive Government Regulation; No Assurance of Regulatory Approvals," "Business -- License and Collaborative Agreements" and " -- Government Regulation." The manufacture of peptides requires significant expertise, facilities and equipment. Accordingly, the Company has elected to work with several third-party contract manufacturers to supply quantities of T-20 to be used in the Company's currently planned clinical trials. The Company may continue to rely on third-party manufacturers throughout the clinical and initial commercialization phases of T-20 development. The Company has also established an in-house T-20 manufacturing process development and control team that is attempting to develop an improved process for the synthetic manufacture of T-20, which may result in increased production volume and lower unit costs. See "Business -- Manufacturing" and "Risk Factors -- Lack of Manufacturing Capabilities" for a discussion of manufacturing processes and certain risks associated with manufacturing peptides. The Company does not currently have sales, marketing or distribution capabilities and is evaluating strategies for the sale, marketing and distribution of T-20, including developing internal capabilities and entering into collaborative arrangements. The Company believes that it may be feasible to develop internal sales, marketing and distribution capability for T-20, since the market for HIV therapeutics is comprised of a concentrated group of physicians in medical practices that treat HIV patients. The Company will continue to explore alternative opportunities to market T-20, either internally or in conjunction with appropriate marketing partners. See "Risk Factors -- Lack of Sales, Marketing and Distribution Capabilities" and "Business -- Sales, Marketing and Distribution." 28 PRECLINICAL DEVELOPMENT PROGRAMS The Company is using its proprietary technology platform to discover and develop fusion inhibitors for other viral diseases where there are substantial unmet medical needs. T-786 T-786 is the Company's lead product candidate for the treatment of RSV infection, which is a significant cause of pediatric bronchiolitis and pneumonia. Each year in the United States, approximately 2.4 million cases of pediatric RSV infection are reported, 100,000 infants are hospitalized with RSV infections, and 5,000 deaths are attributed to RSV. There is currently only one product approved for the treatment of RSV infection, and the Company believes that this product is used sparingly because its effectiveness is limited and its side effects are significant. T-786 is a proprietary 36 amino acid synthetic peptide derived from a CAST predicted domain of the RSV fusion protein. T-786 shows potent, specific and selective inhibition of RSV infection IN VITRO. In preclinical testing, T-786 significantly reduced the level of viral infection in an animal model. Because RSV infects lung tissue primarily, the Company believes that aerosol delivery of its RSV therapeutic directly to the lung may be the most effective method for administering T-786. The Company is currently developing an aerosol formulation of T-786 for preclinical evaluation. Preclinical testing of T-786 is currently in progress. Upon successful completion of these tests, the Company anticipates that it will begin clinical trials for T-786 in 1998. SECOND-GENERATION HIV FUSION INHIBITORS Using CAST, the Company has designed proprietary second-generation, peptide HIV fusion inhibitors which bind to regions of the HIV fusion protein target that are different from the region bound by T-20. In preclinical testing, these second-generation compounds have been shown to be highly effective against a wide range of HIV strains IN VITRO. In preclinical testing, these compounds have demonstrated pharmaceutical characteristics distinct from T-20. The Company believes that these second-generation compounds could provide a range of future options for the continuing treatment of HIV infection. The Company expects to begin testing its lead second-generation HIV fusion inhibitor in animal models in the fourth quarter of 1997. ANTI-RSV SMALL MOLECULES The Company has identified a series of small-molecule inhibitors of RSV infection using its high-throughput screening assays. These assays were designed based upon the CAST platform. Using its proprietary knowledge of the chemical structure of these compounds, the Company has developed a number of analogs which have demonstrated potency against RSV in preclinical testing. Several of these analogs have also demonstrated low toxicity. The Company is continuing to synthesize analogs of these compounds to evaluate their pharmaceutical properties and will continue preclinical testing to identify lead compounds. RESEARCH AND DISCOVERY PROGRAMS The Company is leveraging its proprietary technology platform and expertise in viral fusion to discover and develop lead compounds and product candidates to treat a variety of diseases caused by other viruses. ANTI-HPIV COMPOUNDS Using CAST, the Company has developed a series of proprietary peptides which inhibit HPIV IN VITRO. T-205, the Company's lead anti-HPIV peptide, was derived from a coiled-coil domain of the HPIV fusion protein. T-205 shows specific, selective and potent inhibition of HPIV infection IN VITRO. HPIV is a cause of respiratory disease in young infants. There are no drugs currently approved for the treatment of HPIV. The Company is conducting a research program to evaluate T-205 and other peptide candidates for possible advancement to preclinical development. The Company has also discovered several small-molecule inhibitors of HPIV using the Company's high-throughput HPIV screening assay. This assay was designed based on the CAST platform. These compounds show potent, dose-response inhibition of HPIV IN VITRO. The Company is currently synthesizing analogs of these compounds to evaluate their pharmaceutical properties. 29 ANTI-HIV SMALL MOLECULES The Company has indentified a series of small-molecule compounds which inhibit HIV infection IN VITRO using the Company's high-throughput HIV screening assays. These assays were designed based on the CAST platform. The Company plans to continue screening its chemical libraries to discover additional anti-HIV small-molecule compounds. INFLUENZA VIRUS The Company has initiated an early-stage discovery program to create a high-throughput screening assay based on CAST to identify potential small-molecule inhibitors of influenza viral fusion. The Company has established a collaboration with Dr. Judith White at the University of Virginia to assist in the discovery and development of fusion inhibitors for influenza virus. HEPATITIS B AND C VIRUS The Company has initiated early-stage discovery programs to create high-throughput screening assays that can identify potential small-molecule inhibitors of the hepatitis B and C viruses. Additionally, in collaboration with Dr. Timothy Block of the Thomas Jefferson Medical School, the Company plans to synthesize and test peptides derived from CAST-identified regions of the hepatitis B virus. The Company has been awarded a Phase I Small Business Innovative Research grant from the Department of Health and Human Services for this program. EPSTEIN-BARR VIRUS The Company has initiated an early-stage discovery program in Epstein-Barr virus ("EBV") through a collaboration with Dr. Joseph Pagano of the University of North Carolina at Chapel Hill. EBV causes infectious mononucleosis and has been linked to a variety of cancers. Dr. Pagano is working with the Company's scientists to develop a strategy for inhibiting a key protein required for EBV replication. Using CAST, the Company has identified key interactive peptide domains within this molecular target and has synthesized peptide inhibitors for the molecular target IN VITRO. BUSINESS STRATEGY The Company's goal is to become a leader in anti-fusion viral therapy. To achieve this objective, the principal elements of the Company's strategy are to: (Bullet) VALIDATE FUSION INHIBITION THERAPY BY OBTAINING REGULATORY APPROVAL FOR T-20. T-20 has been shown in preclinical testing to inhibit HIV fusion. T-20 is currently being tested in Phase I/II clinical trials, and the Company anticipates that a Phase II pivotal trial will begin in the first half of 1998. The Company believes that it will be able to conduct its pivotal T-20 clinical trials program pursuant to the accelerated approval procedure authorized by the FDA for drugs intended to treat serious or life-threatening illnesses. The Company believes that regulatory approval of T-20, if obtained, will provide important evidence to support the validity of viral fusion inhibition therapy. (Bullet) LEVERAGE ANTI-FUSION EXPERTISE TO DEVELOP OTHER ANTIVIRAL THERAPIES. The Company believes that its proprietary technology platform, including CAST, is applicable to many other viral targets that may be susceptible to fusion inhibition. For example, using CAST, the Company designed T-786 for treatment of RSV infection. Upon the successful completion of preclinical testing, the Company anticipates that it will begin clinical trials of T-786 in 1998. The Company also has research and discovery programs to identify compounds to inhibit fusion of other viruses, including HPIV, influenza, hepatitis B and C, and EBV. Additionally, as the Company refines and enhances CAST, the Company believes that it will be able to develop new, high-throughput screening assays for multiple targets. (Bullet) TAILOR COMMERCIALIZATION CAPABILITIES TO SPECIFIC PRODUCT MARKETS. The Company intends to evaluate the appropriate commercializaton strategy for each of its product candidates, depending on the size and nature of the market. For example, the Company believes that it may develop its own capability to sell and market T-20 in the United States because a relatively small number of physicians write the majority of prescriptions for HIV drugs in the United States. MANUFACTURING The Company has no experience in manufacturing pharmaceuticals and has no commercial manufacturing capacity. The Company has established relationships and intends to establish additional relationships with third-party manufacturers for the production of quantities of its product candidates or compounds sufficient to conduct its planned preclinical testing and clinical trials and the commercial production of any approved products or compounds. 30 Three different methods are currently available for the synthetic manufacture of peptides such as T-20, namely solid-phase sequential peptide synthesis, peptide synthesis by fragment condensation and solution-phase peptide synthesis. In solid-phase sequential peptide synthesis, peptides are synthetically manufactured by sequentially linking together amino acids to form a peptide chain. The peptide chain is attached to a solid support from which the finished peptide is chemically released after completion of this amino acid assembly process. Because of certain technical limitations inherent in this process that limit its efficiency, solid-phase sequential peptide synthesis is the most expensive way to chemically assemble the Company's current peptide product candidates, including T-20. Peptides may also be manufactured using a process known as peptide synthesis by fragment condensation, in which peptide segments that match sequential regions along the parent peptide sequence are synthesized using solid-phase peptide chemistry techniques. This process is technically more difficult to accomplish than solid-phase sequential peptide synthesis and may not lead to a process that is commercially feasible. However, if successful, this process is generally more economical than solid-phase sequential peptide synthesis for peptides that are longer than approximately 15 amino acids in length. In the third peptide manufacturing method, solution-phase peptide synthesis, peptides are synthetically manufactured by linking all amino acids together in the peptide chain entirely in solution. This chemical assembly process is technically the most difficult to design and implement and may be technically infeasible on a commercial scale for peptides longer than approximately 15 amino acids. However, the Company believes that cost savings may be achieved beyond those possible using fragment condensation peptide synthesis if technical difficulties with the technology are overcome. The Company and its third-party manufacturers have manufactured sufficient quantities of T-20 using solid-phase sequential peptide synthesis to complete preclinical testing and initiate the Phase I/II clinical trial. The Company has entered into agreements with two contract manufacturers for the solid-phase sequential peptide synthetic manufacture of T-20 for use in the clinical trial. The Company has also established a manufacturing process development and control team consisting of four individuals with significant pharmaceutical experience in peptide and small organic molecule process development and manufacturing. This team is currently working to implement a strategy to manufacture T-20 using peptide synthesis by fragment condensation. The Company anticipates that such a process may be available to support later-stage T-20 clinical trial needs. This team will also coordinate process implementation with third-party manufacturers and help to ensure regulatory compliance in the manufacturing process. Although the Company has no plans at present to evaluate solution-phase peptide synthesis for T-20, the Company may chose to evaluate the use of this process for T-20 in the future. There can be no assurance that the Company or its third-party manufacturers will be able to manufacture T-20 on a cost-effective basis or that the Company will be successful in its efforts to develop an alternative, more efficient manufacturing method for T-20 or any of its other peptide product candidates. There can be no assurance that the Company will be able to retain or establish relationships with any third-party manufacturers on acceptable terms, if at all, or that such third-party manufacturers will be able to manufacture products in commercial quantities under GMP requirements on a cost-effective basis. The Company's dependence upon third parties for the manufacture of its products, product candidates and compounds may adversely affect the Company's profit margins and its ability to develop and commercialize product candidates, products and compounds 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, product candidates or compounds or that third-party manufacturers will maintain the necessary governmental licenses and approvals to continue manufacturing the Company's products, product candidates or compounds. Any failure to maintain existing or establish new relationships with third parties for the Company's manufacturing requirements on a timely basis and on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Lack of Manufacturing Capabilities" and " -- Extensive Government Regulation; No Assurance of Regulatory Approval." LICENSING AND COLLABORATIVE AGREEMENTS The Company intends to consider entering into collaborative and licensing arrangements with collaborative partners, licensees and third parties to seek regulatory approval of and to manufacture and commercialize certain of its existing and potential product candidates and compounds. These collaborations could provide the Company with funding, research and development resources, access to libraries of diverse compounds and clinical development, manufacturing, sales, marketing and distribution capabilities. Accordingly, the Company's success will depend, in part, upon the subsequent success of such third parties in performing preclinical testing and clinical trials, obtaining the requisite regulatory approvals, scaling up manufacturing, successfully commercializing the licensed product candidates or compounds and otherwise performing their obligations. There can be no assurance that the Company will be able to maintain its existing arrangements or enter into acceptable collaborative and license arrangements in the future on acceptable terms, if at all, that such arrangements will be 31 successful, that the parties with which the Company has or may establish arrangements will perform their obligations under the arrangements, or that potential collaborators will not compete with the Company by seeking alternative means of developing therapeutics for the diseases targeted by the Company. There can also be no assurance that the Company's existing or any future arrangements will lead to the development of product candidates or compounds with commercial potential, that the Company will be able to obtain proprietary rights or licenses for proprietary rights with respect to any technology developed in connection with these arrangements, or that the Company will be able to ensure the confidentiality of any proprietary rights and information developed in such arrangements or prevent the public disclosure thereof. The Company currently has licenses from certain third parties, and in the future may require additional licenses from these or other parties, to effectively develop potential product candidates and compounds. In April 1997, the Company and MiniMed entered into the MiniMed Agreement. Under the agreement, the Company and MiniMed will collaborate in the development and delivery of therapies for the treatment of targeted indications by combining the continuous infusion delivery pump of MiniMed and the antiviral product candidates and compounds being developed by the Company. The first collaborative project under the terms of the agreement will involve the continuous delivery of T-20. The parties intend to initiate clinical trials for the delivery of T-20 with MiniMed's continuous infusion delivery pump in the third quarter of 1997. While MiniMed's continuous infusion pump has been approved for the continuous, subcutaneous infusion of other therapies, there can be no assurance that the FDA will approve on a timely basis, if at all, the use of the delivery of T-20 utilizing the MiniMed continuous infusion pump. The parties are evaluating other product candidates and compounds for inclusion under the agreement. Under the terms of the agreement, a joint management committee will determine an implementation strategy for each collaborative project. The agreement contains certain exclusivity and noncompetition provisions, subject to the Company's right, under certain circumstances, to terminate such obligations with respect to T-20 in exchange for certain royalty payments. The failure of the Company and MiniMed to achieve their collective objectives could have a material adverse effect on the Company's business, financial condiiton and results of operations. Pursuant to the Duke License, the Company has obtained from Duke University an exclusive, worldwide, royalty-free license to all discoveries and inventions in the field of antiviral therapeutics emanating from the laboratories of Drs. Dani Bolognesi, Thomas J. Matthews, Michael Greenberg and Kent Weinhold of the Duke University Center for AIDS Research for the period from February 3, 1993 until February 2, 2000. The Company's rights to each of these discoveries and inventions expire upon the expiration of the life of the particular patent. Multiple discoveries and inventions have flowed to the Company under the Duke License and include those upon which United States patents have been issued. None of the technologies licensed by the Company from Duke University is the subject of a separate license agreement. Rather, the Company's rights to such technologies are licensed solely pursuant to the Duke License. While the Company believes it will be able to successfully negotiate an extension or renewal of the Duke License, there can be no assurance that the Company will be able to obtain such an extension or renewal or that such an extension or renewal will be on acceptable terms. The early termination of the Duke License or the failure of the Company to renew the Duke License on acceptable terms, if at all, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- License and Collaborative Agreements" and " -- Extensive Government Regulation; No Assurance of Regulatory Approval." SALES, MARKETING AND DISTRIBUTION The Company has no experience in sales, marketing or distribution of pharmaceuticals and currently has no personnel employed in any such capacities. However, the Company intends to develop such capability in certain areas. For example, because a relatively small number of physicians write the majority of prescriptions for HIV drugs in the United States, the Company intends to consider developing in-house sales, marketing and distribution capabilities to address the market. In other areas, however, the Company may rely on marketing partners or other arrangements with third parties which have established distribution systems and direct sales forces for the sales, marketing and distribution of such products and compounds. In the event that the Company is unable to reach agreement with one or more marketing partners to market these other products and compounds, it may be required to develop internal sales, marketing and distribution capabilities for such products and compounds. There can be no assurance that the Company will be able to establish sales, marketing or distribution capabilities or make arrangements with third parties to perform such activities on acceptable terms, if at all, or that any internal capabilities or third-party arrangements will be cost-effective. The failure to establish such capabilities would have a material adverse effect on the Company's business, financial condition and results of operations. 32 In addition, any third parties with which the Company establishes sales, marketing or distribution arrangements may have significant control over important aspects of the commercialization of the Company's products, and compounds including market identification, marketing methods, pricing, composition of sales force and promotional activities. For example, the MiniMed Agreement contemplates that MiniMed will participate in the sales, marketing and distribution of any products jointly developed by the parties. There can be no assurance that the Company will be able to control the amount and timing of resources that MiniMed or any other third party may devote to the Company's products or compounds 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 compounds and the withdrawal of support for the Company's products and compounds. See "Risk Factors -- Lack of Sales, Marketing and Distribution Capabilities." PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS The Company's success will depend, in part, on its ability, and the ability of its collaborators or licensors, to obtain protection for its products and technologies under United States and foreign patent laws, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. Because of the substantial length of time and expense associated with bringing new products through development to the marketplace, the pharmaceutical and biotechnology industries place considerable importance on obtaining, and maintaining, patent and trade secret protection for new technologies, products and processes. As of June 30, 1997, the Company was the sole assignee of one pending United States patent application and one pending patent application under the Patent Cooperation Treaty designating the United States, directed to combinatorial therapy employing its proprietary antifusion peptides and other therapeutic agents, and the owner of one pending provisional application, directed to certain antifusion chemical compounds discovered by the Company's proprietary screening method. In addition, as of June 30, 1997, the Company was the assignee or owner, along with Duke University, of 14 pending United States applications, along with certain corresponding foreign patent applications, directed to numerous antifusion peptides and their therapeutic uses. Under the Duke License, the Company is the exclusive licensee under Duke University's rights in these jointly-owned patent applications, as well as the exclusive licensee under two issued United States patents, seven pending United States patent applications, and certain corresponding foreign patent applications directed to antifusion peptides. Legal standards relating to the scope of claims and the validity of patents in the biotechnology industry are uncertain and still evolving, and no assurance can be given as to the degree of protection that will be afforded any patents issued to, or licensed by, the Company. There can be no assurance that, if challenged by others in litigation, any patents assigned to, or licensed by, the Company, will not be found invalid. Furthermore, there can be no assurance that the Company's activities will not infringe patents owned by others. Defense and prosecution of patent matters can be expensive and time-consuming, and regardless of whether the outcome is favorable to the Company, can result in the diversion of substantial financial, management and other resources. An adverse outcome could subject the Company to significant liability to third parties, require the Company to obtain licenses from third parties, or require the Company to cease any related product sales. No assurance can be given that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to the Company, if at all. Moreover, the laws of certain countries may not protect the Company's proprietary rights to the same extent as U.S. law. The Company also relies on trade secrets, know-how and other proprietary information, which it seeks to protect, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. There can be no assurance that such agreements will provide adequate protection for the Company's trade secrets, know-how, or other proprietary information in the event of any unauthorized disclosure, that employees of the Company, consultants, advisors, or others, will maintain the confidentiality of such trade secrets or proprietary information, or that the trade secrets or proprietary know-how of the Company will not otherwise become known, or be independently developed by, competitors. In January 1997, the United States Patent and Trademark Office instituted an interference between an issued patent licensed by the Company from Duke University and a pending patent application owned by a third party. The Company believes that no interference-in-fact exists and, through its licensor, is taking all reasonable action to have the interference dismissed. However, no assurance can be given that the interference will be dismissed. Furthermore, no assurance can be given that, should the interference proceed, as between the two parties to the interference, the Company's licensor will be found to be the first inventor of the invention which is declared to be the subject matter of the interference. Failure of the Company's licensor to prevail in the interference and any loss of the involved patent rights could have a material adverse 33 effect on the Company's business, financial results and results of operations. See "Risk Factors -- Patents, Proprietary, Technology and Trade Secrets." COMPETITION The Company is engaged in segments of the biopharmaceutical industry, including the treatment of HIV, that are intensely competitive and rapidly changing. If successfully developed and approved, the product candidates and compounds that the Company is currently developing will compete with numerous existing therapies. For example, 11 drugs are currently approved for the treatment of HIV. In addition, a number of companies are pursuing the development of novel pharmaceutical products that target the same diseases that the Company is targeting, and some companies, including several multinational pharmaceutical companies, are simultaneously marketing several different drugs and may therefore be able to market their own combination drug therapies. 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. Although the Company believes that there is a significant future market for therapeutics that treat HIV and other viral diseases, 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 for the treatment of HIV developed by the Company's competitors, including Glaxo, Merck and Abbott, will not be more effective, or more effectively marketed and sold, than T-20, should it be successfully developed and receive regulatory approval, or any other therapeutic for HIV that may be developed by the Company. Competitive products or the development by others of a cure or new treatment methods may render the Company's technologies and products and compounds obsolete, noncompetitive or uneconomical prior to the Company's recovery of development or commercialization expenses incurred with respect to any such technologies or products or compounds. 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, sell, market and distribute 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. For use individually or in combination therapy, 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. New developments in areas in which the Company is conducting its research and development are expected to continue at a rapid pace in both industry and academia. If the Company's product candidates and compounds are successfully developed and approved, the Company will face competition based on the safety and effectiveness of its products and compounds, the timing and scope of regulatory approvals, availability of manufacturing, sales, marketing and distribution capabilities, 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's business, financial condition and results of operations. See "Risk Factors -- Intense Competition." GOVERNMENT REGULATION Human pharmaceutical products are subject to lengthy and rigorous preclinical testing and clinical trials and other extensive, costly and time-consuming procedures mandated by the FDA and foreign regulatory authorities. The regulatory approval process, which includes the establishment of the safety and effectiveness of each product candidate and compound for each target indication and confirmation by the FDA that good laboratory, clinical and manufacturing practices were maintained during testing and manufacturing, typically takes a number of years, varying based upon the type, complexity and novelty of the pharmaceutical product. This process requires the expenditure of substantial resources and gives larger companies with greater financial resources a competitive advantage over the Company. To date, no product candidate or compound being evaluated by the Company has been submitted for approval by the FDA or any other regulatory authority for commercialization, and there can be no assurance that any such product candidate or compound will ever be approved for commercialization or that the Company will be able to obtain the labeling claims desired for its product candidates or compounds. 34 The steps required by the FDA before new drugs may be marketed in the United States include: (i) preclinical studies; (ii) the submission to the FDA of a request for authorization to conduct clinical trials on an investigational drug (an "IND"); (iii) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for its intended use; (iv) submission to the FDA of an NDA; and (v) review and approval of the NDA by the FDA before the drug may be shipped or sold commercially. In the United States, preclinical testing includes both IN VITRO and IN VIVO laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Laboratories involved in preclinical testing must comply with FDA regulations regarding good laboratory practices. Preclinical testing results are submitted to the FDA as part of the IND and, unless there is objection by the FDA, the IND will become effective 30 days following its receipt by the FDA. There can be no assurance that submission of an IND will result in the commencement of human clinical trials. Clinical trials, which involve the administration of the investigational drug to healthy volunteers or to patients under the supervision of a qualified principal investigator, are typically conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted in accordance with good clinical procedures under protocols that detail the objectives of the clinical trial, the parameters to be used to monitor safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical trial must be conducted under the auspices of an independent Institutional Review Board (an "IRB") at the institution where the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Compounds must be formulated according to GMP requirements. Phase I clinical trials represent the initial administration of the investigational drug to a small group of healthy human subjects or, more rarely, to a group of selected patients with a targeted disease or disorder. The goal of Phase I clinical trials is typically to test for safety (adverse effects), dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical pharmacokinetics. Phase II clinical trials involve a small sample of the actual intended patient population and seek to assess the effectiveness of the drug for the specific targeted indications, to determine dose tolerance and the optimal dose range and to gather additional information relating to safety and potential adverse effects. Once the investigational drug is found to have some effectiveness and the acceptable safety profile in the targeted patient population, Phase III clinical trials are initiated to establish further clinical safety and effectiveness of the investigational drug in a broader sample of the general patient population at geographically dispersed study sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for all physician labeling. The results of the research and product development, manufacturing, preclinical testing, clinical trials and related information are submitted to the FDA in the form of an NDA for approval of the marketing and shipment of the drug. The approval process is affected by a number of factors, including the severity of the targeted indications, the availability of alternative treatments and the risks and benefits demonstrated in the clinical trials. The FDA may reject an NDA if applicable regulatory criteria are not satisfied, or may require additional testing or information with respect to the product candidate or compound. Even if FDA approval is obtained, further clinical trials, including post-market trials, may be required in order to provide additional data on safety and will be required in order to obtain approval for the use of a product as treatment for clinical indications other than those for which the product was initially approved. The FDA will also require post-market reporting and may require surveillance programs to monitor the side effects of any approved products. Results of post-market programs may limit the further marketing, manufacturing process or labeling, and an NDA supplement may be required to be submitted to the FDA. Any failure of the Company to successfully complete its clinical trials and obtain approvals of corresponding NDAs would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is and will continue to be dependent upon the laboratories conducting its preclinical testing and clinical trials to maintain both good laboratory and good clinical practices, and, if any of the Company's product candidates or compounds obtain the requisite regulatory approvals, the Company will be dependent upon the manufacturers of its products to maintain compliance with GMP requirements. Various federal and foreign statutes 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 will require the expenditure of substantial resources by the Company. In addition, these requirements and processes vary widely from country to country. The time required for completing preclinical testing and clinical trials is uncertain, and the FDA approval process is unpredictable and uncertain, and no assurance can be given that necessary approvals will be granted on a timely basis, or at all. The Company may decide to replace a product 35 candidate or compound in preclinical testing and/or clinical trials with a modified product candidate or compound, 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 legislation, administrative action or FDA policy during the period of product development and FDA review. Similar delays or rejections may be encountered in other countries. 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. 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 these 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 post-market clinical trials would usually be underway when the product obtains this accelerated approval. If, after approval, a post-market clinical trial establishes that the drug does not perform as expected, or if post-market 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. These two accelerated approval 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. While certain of the Company's product candidates and compounds, including T-20, have been designed to treat serious or life-threatening illnesses, such product candidates and compounds may not qualify for accelerated development and/or approval under FDA regulations and, even if some of the Company's product candidates qualify for accelerated development and/or approval, they may not be approved for marketing on an accelerated basis, or at all. There can be no assurance that, even after substantial time and expenditures, any of the Company's product candidates or compounds under development will receive commercialization approval in any country on a timely basis, or at all. If the Company is unable to demonstrate the safety and effectiveness of its product candidates and compounds to the satisfaction of the FDA or foreign regulatory authorities, the Company will be unable to commercialize its product candidates and compounds; and the Company's business, financial condition and results of operations would be materially and adversely affected. Furthermore, even if regulatory approval of a product candidate or compound is obtained, the approval may entail limitations on the indicated uses for which the product candidate or compound may be marketed. A marketed product or compound, 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, compound, manufacturer or facility may result in restrictions on such product, compound, manufacturer or facility, including withdrawal of the product or compound from the market. The failure to comply with applicable regulatory requirements can, among other things, result in fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, refusal to permit exports from the United States, recalls or seizures of products, operating and production 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 product candidates or compounds. The effect of governmental regulation may be to delay the marketing of new products or compounds 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 product candidates or compounds. A delay in obtaining or failure to obtain regulatory approvals could have a material adverse effect on the Company's business, financial condition and results of operations. The extent and character of potentially adverse governmental regulation that may arise from future legislation or administrative action cannot be predicted. 36 In April 1997, the Company and MiniMed entered into the MiniMed Agreement pursuant to which the parties have agreed to jointly design, develop and implement a system for the continual delivery of T-20 utilizing the MiniMed continuous infusion pump. There can be no assurance that the FDA will approve the delivery of T-20 utilizing the MiniMed continuous infusion pump on a timely basis, if at all. The failure of the Company and MiniMed to collectively develop a continual T-20 delivery system which receives FDA approval on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. The Company and its existing and potential future collaborative partners are 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 the Company's product development programs. Compliance with such laws, regulations and requirements may be costly and time-consuming and the failure to maintain such compliance by the Company or its existing and future collaborative partners could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, this Prospectus reflects the Company's estimates regarding future regulatory submission dates. Regulatory submissions can be delayed, or plans to submit proposed products can be cancelled, for a number of reasons, including the receipt of unanticipated preclinical testing or clinical trial reports, changes in regulations, adoption of new, or unanticipated enforcement of existing, regulations, technological developments and competitive developments. Accordingly, no assurances can be given that the Company's anticipated submissions will be made on their target dates, or at all. Delays in such submissions could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation." THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES 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 agencies and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services in an effort to promote cost containment measures and alternative health care delivery systems and they may mandate predetermined discounts from list prices. If the Company succeeds in bringing one or more products or compounds to the market, there can be no assurance that these products or compounds 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 or compounds on a competitive basis. The business and financial condition of pharmaceutical companies will continue to be affected by economic, political and regulatory influences, including 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. Because of the high cost of the treatment of AIDS or HIV using combination therapy, many state legislatures are reassessing reimbursement policies for such therapy. In addition, an increasing emphasis on managed care in the United States to reduce the overall costs of health care 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's business, financial condition and results of operations. See "Risk Factors -- Uncertainty of Third Party Reimbursement and Health Care Reform Measures." FACILITIES The Company currently leases approximately 21,000 square feet of laboratory and office space at 4727 University Drive, Suite 100, Durham, North Carolina. The Company leases this space under a sublease agreement which expires on September 30, 1999. Depending on the results of clinical trials and the progress of the Company's product development programs, the Company may require facilities in addition to those currently under lease. The Company believes that there will be suitable facilities available as needed. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 37 HUMAN RESOURCES As of June 30, 1997, the Company had 37 full-time employees, including a technical scientific staff of 29. None of the Company's employees are covered by collective bargaining arrangements, and management considers relations with its employees to be good. See "Risk Factors -- Need to Attract and Retain Key Officers, Employees and Consultants." SCIENTIFIC ADVISORY BOARD The Company has assembled a Scientific Advisory Board (the "SAB") comprised of eight individuals (the "Scientific Advisors") who are leaders in the fields of viral disease research and treatment. Members of the SAB review the Company's research, development and operating activities and are available for consultation with the Company's management and staff relating to their respective areas of expertise. The SAB holds regular meetings. Several of the individual Scientific Advisors have separate consulting relationships with the Company and meet more frequently, on an individual basis, with the Company's management and staff to discuss the Company's ongoing research and development projects. Certain of the Scientific Advisors own Common Stock and/or hold options to purchase Common Stock. The Scientific Advisors are expected to devote only a small portion of their time to the business of the Company. The Scientific Advisors are all employed by entities other than the Company. Each Scientific Advisor has entered into a letter agreement with the Company that contains confidentiality and non-disclosure provisions that prohibit the disclosure of confidential information to anyone outside the Company. Such letter agreements also provide that all inventions, discoveries or other intellectual property that come to the attention of or are discovered by the Scientific Advisor while performing services under the letter agreement with the Company will be assigned to the Company. The current members of the SAB are as follows: DANI P. BOLOGNESI, PH.D. James B. Duke Professor of Surgery, Professor of Microbiology/Immunology, Vice Chairman of the Department of Surgery for Research and Development, Director of the Duke University Center for AIDS Research -- Duke University. ROBERT C. GALLO, M.D. Professor and Director, Institute of Human Virology -- University of Maryland Biotechnology Institute. ERIC HUNTER, PH.D. Professor of Microbiology, Director, Center for AIDS Research -- The University of Alabama at Birmingham. THOMAS J. MATTHEWS, PH.D. Associate Professor of Experimental Surgery -- Duke University. JOSEPH S. PAGANO, M.D. Professor of Medicine and Microbiology and Immunology, Director of The Lineberger Comprehensive Cancer Center -- The University of North Carolina at Chapel Hill. JEROME J. SCHENTAG, PHARM.D. Professor of Pharmacy and Pharmaceutics, Director, The Clinical Pharmacokinetics Laboratory, Millard Fillmore Hospital, Director, Center for Clinical Pharmacy Research -- The State University of New York at Buffalo School of Pharmacy. JUDITH M. WHITE, PH.D. Professor of Cell Biology and Microbiology -- University of Virginia. RICHARD J. WHITLEY, M.D. Loeb Eminent Scholar Chair in Pediatrics, Professor of Pediatrics, Microbiology and Medicine -- The University of Alabama at Birmingham. 38 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The following table sets forth certain information with respect to executive officers, directors and certain key employees of the Company:
NAME AGE POSITION M. Ross Johnson, Ph.D.................................... 52 President, Chief Executive Officer, Chief Scientific Officer and Director Matthew A. Megaro........................................ 39 Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary Samuel Hopkins, Ph.D..................................... 38 Vice President of Medical Affairs Dennis M. Lambert, Ph.D.................................. 50 Vice President of Biological and Molecular Sciences M.C. Kang, Ph.D.......................................... 45 Director of Chemistry Michael A. Recny, Ph.D................................... 41 Director of Business Development Timothy J. Creech........................................ 36 Director of Finance Jesse I. Treu, Ph.D.(1).................................. 50 Chairman of the Board of Directors Dani P. Bolognesi, Ph.D.(2).............................. 56 Director Brian H. Dovey(2)........................................ 55 Director Andrew S. McCreath(1).................................... 41 Director Charles A. Sanders, M.D.(1)(2)........................... 65 Director
(1) Member of the Audit Committee. (2) Member of the Compensation Committee. M. ROSS JOHNSON, PH.D. joined the Company as Chief Scientific Officer and a Director in January 1995 and was named President and Chief Executive Officer in March 1996. Prior to joining the Company, Dr. Johnson was President and Chief Executive Officer of Parnassus Pharmaceuticals, Inc. ("Parnassus"), a biopharmaceutical company, from March 1994 to October 1994. In October 1994, Parnassus filed for protection under the United States Bankruptcy Code. From 1987 to March 1994, Dr. Johnson served as Vice President of the Chemical Development Division and Division of Chemistry, respectively, at Glaxo, a multinational pharmaceutical company. Prior to joining Glaxo, Dr. Johnson held a number of scientific management positions at Pfizer Inc., a multinational pharmaceutical company. Dr. Johnson received his Ph.D. degree in Organic Chemistry from the University of California at Santa Barbara. MATTHEW A. MEGARO joined the Company as Chief Financial Officer and Vice President of Business Development in March 1995 and was named Chief Operating Officer, Executive Vice President and Secretary of the Company in June 1997. Prior to joining the Company, Mr. Megaro was Chief Operating Officer of Parnassus from January 1994 to October 1994. In October 1994, Parnassus filed for protection under the United States Bankruptcy Code. Prior to joining Parnassus, Mr. Megaro was Chief Financial Officer, Vice President of Finance and Administration of Athena Neurosciences, Inc., a biopharmaceutical company, from 1988 to January 1994. SAMUEL HOPKINS, PH.D. joined the Company as Director of Drug Development in April 1995 and was named Vice President of Medical Affairs in June 1997. Prior to joining the Company, Dr. Hopkins was Director of Oncology and Antiviral Drug Product Development and Senior Clinical Research Scientist, respectively, at Cato Research, Ltd., a contract research organization from 1991 to April 1995. From 1987 to 1991, Dr. Hopkins was a Senior Research Scientist in the Division of Virology at Burroughs Wellcome Co., a multinational pharmaceutical company. Dr. Hopkins received his Ph.D. degree in Biochemisty and Biophysics from the Medical College of Virginia. DENNIS M. LAMBERT, PH.D. joined the Company as Director of Virology in March 1993, was named Senior Director of Virology and Molecular Biology in September 1995, and was named Vice President of Biological Molecular Sciences in June 1997. Prior to joining the Company, Dr. Lambert was Assistant Director, Department of Molecular Virology and Host Defense, at SmithKline Beecham Corp., a pharmaceutical company, from 1988 to July 1993. Dr. Lambert received his Ph.D. degree in Microbiology/Virology from Indiana State University at Terre Haute. 39 M.C. KANG, PH.D. joined the Company as a consultant in October 1995 and was named Director of Chemistry in August 1996. Prior to joining the Company, Dr. Kang held various positions at Glaxo from 1990 to October 1995, most recently serving as Director of Chemical Development. Prior to joining Glaxo, Dr. Kang was a Development Chemist in the Medical Products Division at E.I. DuPont de Nemours and Company, a chemical company from 1986 to 1990. Dr. Kang received his Ph.D. degree in Synthetic Organic Chemistry from Oregon State University. MICHAEL A. RECNY, PH.D. joined the Company as Director of Biochemical Sciences in March 1995, and was named Director of Business Development in November 1996. Prior to joining the Company, Dr. Recny was Senior Director of Biological Sciences at Parnassus from November 1993 to October 1994. From 1988 to November 1993, Dr. Recny was Director of Protein Biochemistry at Procept, Inc., a biopharmaceutical company. Prior to joining Procept, Inc., Dr. Recny was a Staff Scientist/Laboratory Head at Genetics Institute Inc., a biopharmaceutical company. Dr. Recny received his Ph.D. degree in Biochemistry from the University of Illinois at Urbana-Champaign. TIMOTHY J. CREECH, C.P.A. joined the Company as Director of Finance in July 1997. Prior to joining the Company, Mr. Creech was Corporate Controller at Performance Awareness Corporation, a software company, from July 1996 to June 1997. From December 1993 to July 1996, Mr. Creech was Director of Finance at Avant! Corporation, a software company. From 1990 to December 1993, Mr. Creech was a senior manager at KPMG Peat Marwick LLP, independent auditors for the Company. JESSE I. TREU, PH.D. has been Chairman of the Board of Directors of the Company since its inception. Dr. Treu has been a general partner of Domain Associates, a venture capital firm specializing in investments in life sciences, since 1986. Dr. Treu serves on the Boards of Directors of Biosite Diagnostics, Inc. and GelTex Pharmaceuticals, Inc. Dr. Treu received his Ph.D. in Physics from Princeton University. DANI P. BOLOGNESI, PH.D. was a founder of the Company and has been a Director since its inception. Dr. Bolognesi has held a number of positions at Duke University since 1971, and now serves as James B. Duke Professor of Surgery, Professor of Microbiology/Immunology, Vice Chairman of the Department of Surgery for Research and Development and Director of the Duke University Center for AIDS Research. Dr. Bolognesi is the Co-Chair of the National Institute of Allergy and Infectious Diseases Vaccine Working Group ("NIAID"), Chair of the Office of AIDS Research Coordinating Committee for Vaccines, Chair of the Office of AIDS Research Task Force Vaccine Reasearch and Development Area Review Panel, Chair of the panel to recommend strategies for the long-term care of the United States biomedical chimpanzee population, and is a member of the NIAID Vaccine Selection Committee. Dr. Bolognesi received his Ph.D. in Virology from Duke University. BRIAN H. DOVEY has been a Director of the Company since its inception. Mr. Dovey has been a general partner of Domain Associates, a venture capital firm specializing in investments in life sciences, since 1988. Mr. Dovey is President of the National Venture Capital Association and is a member of the Boards of Trustees of the Coriell Institute and the University of Pennsylvania School of Nursing. Mr. Dovey is Chairman of the Board of Directors of Creative BioMolecules and also serves on the Boards of Directors of Connetics Corporation, Geron Corporation, NABI and Vivus, Inc. ANDREW S. MCCREATH, C.F.A. has been a Director of the Company since October 1996. In January 1996, Mr. McCreath became a founding partner of Lawrence & Company Inc., a private investment firm in Toronto, Canada which specializes in the technology, health care, and leisure industries. From 1991 to December 1995, Mr. McCreath served as a partner and director of Gordon Capital Corporation, a Canadian investment bank. Mr. McCreath serves on the Board of Directors of Galaxy Brands International. CHARLES A. SANDERS, M.D. has been a Director of the Company since October 1996. From 1989 to May 1995, Dr. Sanders was Chairman of the Board of Directors and Chief Executive Officer of Glaxo and a member of the Board of Directors of Glaxo plc. Prior to joining Glaxo, Dr. Sanders held a number of positions at Squibb Corporation, a multinational pharmaceutical corporation, including Vice Chairman, Chief Executive Officer of the Science and Technology Group and Chairman of the Science and Technology Committee of the Board. Dr. Sanders serves on the Boards of Directors of Magainin Pharmaceuticals, Vertex Pharmaceuticals and Staff Mark, Inc. Dr. Sanders received an M.D. degree from Southwestern Medical College of the University of Texas. BOARD OF DIRECTORS In accordance with the terms of the Company's Third Amended and Restated Certificate of Incorporation to be filed upon the completion of this Offering, the Board of Directors of the Company will be divided into three classes, denominated Class I, Class II and Class III, with members of each class holding office for staggered three-year terms. At each annual stockholder meeting commencing with the 1998 annual meeting, the successors to the Directors whose terms expire will be 40 elected to serve from the time of their election and qualification until the third annual meeting of stockholders following their election or until a successor has been duly elected and qualified. Officers serve at the discretion of the Board. The Compensation Committee of the Board was established in April 1997 to determine the salaries and incentive compensation of the executive officers of the Company and to provide recommendations for the salaries and incentive compensation of the other employees and consultants of the Company. The Compensation Committee also administers the Company's benefit plans, including the Stock Option Plan. Mr. Dovey serves as the Chairman of the Compensation Committee and the other members of the committee are Drs. Bolognesi and Sanders. The Audit Committee of the Board was established in July 1997 to review, act on and report to the Board with respect to various auditing and accounting matters, including the selection of the Company's independent auditors, the scope of the annual audits, the fees to be paid to the independent auditors, the performance of the Company's independent auditors and the accounting practices of the Company. Dr. Treu serves as the Chairman of the Audit Committee and the other members of the committee are Mr. McCreath and Dr. Sanders. EXECUTIVE COMPENSATION The following table sets forth certain information with respect to the annual and long-term compensation paid by the Company during the fiscal year ended December 31, 1996 to the Company's President and Chief Executive Officer and to the Company's two other most highly compensated executive officers who were serving as executive officers and whose 1996 compensation exceeded $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION SECURITIES ANNUAL COMPENSATION UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) M. Ross Johnson (1) 1996 $ 238,800 $50,000 117,648(2) President, Chief Executive Officer and Chief Scientific Officer Richard A. Franco (3) 1996 60,000 -- 94,118(2) Former President and Chief Executive Officer Matthew A. Megaro 1996 160,300 44,000 51,765(2) Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary Max N. Wallace (5) 1996 144,900 26,000 52,765(2) Former Executive Vice President, General Counsel and Secretary ALL OTHER NAME AND PRINCIPAL POSITION COMPENSATION M. Ross Johnson (1) $ -- President, Chief Executive Officer and Chief Scientific Officer Richard A. Franco (3) 244,897(4) Former President and Chief Executive Officer Matthew A. Megaro -- Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary Max N. Wallace (5) -- Former Executive Vice President, General Counsel and Secretary
(1) Dr. Johnson was named President and Chief Executive Officer of the Company in April 1996. (2) For information regarding the vesting and subsequent exercise of these options, see the table entitled Option Grants in the Year Ended December 31, 1996 and the notes thereto and "Certain Transactions." (3) Mr. Franco resigned as President and Chief Executive Officer of the Company in March 1996. (4) Consists of amounts paid to Mr. Franco following the termination of his employment with the Company pursuant to a severance arrangement with the Company. (5) Mr. Wallace resigned as Executive Vice President, General Counsel and Secretary in July 1997. 41 STOCK OPTION INFORMATION The following table sets forth certain information concerning stock options granted to the Named Executive Officers of the Company during the year ended December 31, 1996. No stock appreciation rights were granted to any of the Named Executive Officers during 1996 and no stock appreciation rights were outstanding as of December 31, 1996. OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1996
POTENTIAL REALIZABLE VALUE AT INDIVIDUAL GRANTS ASSUMED ANNUAL RATES NUMBER OF PERCENT OF OF SECURITIES TOTAL STOCK PRICE UNDERLYING OPTIONS GRANTED EXERCISE APPRECIATION OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION FOR OPTION TERM(3) NAME GRANTED(#)(1) 1996 SHARE(2) DATE 5% 10% M. Ross Johnson 117,648(4) 24% $0.34 05/01/06 $25,156 $63,750 Richard A. Franco 94,118 19 0.34 03/25/06 20,125 51,000 Matthew A. Megaro 51,765(5) 11 0.34 05/01/06 11,069 28,050 Max N. Wallace 52,765(6) 11 0.34 05/01/06 11,282 28,592
(1) These options were granted under the Company's Stock Option Plan. (2) The exercise price per share of the options was equal to the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. (3) The potential realizable value of the options reported above was calculated by assuming that the market price of the Common Stock of the Company appreciates 5% and 10% compounded annually over the term of the options (10 years). These assumed annual rates of appreciation were used in compliance with the rules of the Securities and Exchange Commission and are not intended to forecast future prices appreciation of the Common Stock of the Company. These amounts do not represent the Company's estimate of future stock price performance. The actual value realized from the options could be substantially higher or lower than the values reported above, depending upon the future appreciation or depreciation of the Common Stock during the option period and the timing of exercise of the options. (4) In October 1996, the Board of Directors granted options to purchase 35,295 shares, 35,295 shares and 47,058 shares which were scheduled to vest ratably over a 48-month period which commenced in January 1995, July 1995 and March 1996, respectively. In May 1997, the Board of Directors accelerated the vesting of these options subject to certain restrictions on the underlying shares of Common Stock which lapse over the same period of time over which the options were to vest. See "Certain Transactions." (5) In October 1996, the Board of Directors granted options to purchase 23,530 shares, 23,530 shares and 4,705 shares which were scheduled to vest ratably over a 48-month period which commenced in March 1995, July 1995 and March 1996, respectively. In May 1997, the Board of Directors accelerated the vesting of these options subject to certain restrictions on the underlying shares of Common Stock which lapse over the same period of time over which the options were to vest. See "Certain Transactions." (6) In October 1996, the Board of Directors granted options to purchase 17,648 shares, 27,648 shares and 7,469 shares which were scheduled to vest ratably over a 48-month period which commenced in March 1993, July 1995 and March 1996, respectively. In May 1997, the Board of Directors accelerated the vesting of these options subject to certain restrictions on the underlying shares of Common Stock which lapse over the same period of time over which the options were to vest. See "Certain Transactions." YEAR-END OPTION TABLE The following table sets forth certain information concerning stock options exercised by the Named Executive Officers during 1996, the number of options held by the Named Executive Officers as of December 31, 1996, and the value of any in-the-money options as of December 31, 1996. AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1996 AND YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN-THE-MONEY NUMBER OF SECURITIES OPTIONS AS UNDERLYING OF DECEMBER UNEXERCISED OPTIONS AS OF 31, 1996 SHARES ACQUIRED DECEMBER 31, 1996 (1)(#) (2) NAME ON EXERCISE (#) EXERCISABLE UNEXERCISABLE EXERCISABLE M. Ross Johnson -- 39,718 77,930 $ 502,830 Richard A. Franco 27,452 -- -- -- Matthew A. Megaro -- 22,676 29,089 287,078 Max N. Wallace -- 28,232 24,533 357,419 NAME UNEXERCISABLE M. Ross Johnson $ 986,594 Richard A. Franco -- Matthew A. Megaro 368,267 Max N. Wallace 310,588
(1) In May 1997, the Board of Directors accelerated all options set forth below subject to certain restrictions on the underlying shares of Common Stock which lapse over time. See the table entitled Options Granted in the Year Ended December 31, 1996 and the notes thereto and "Certain Transactions." (2) There was no public trading market for the Common Stock as of December 31, 1996. Accordingly, these values have been calculated on the basis of an assumed initial public offering price of $13.00 per share, less the applicable exercise price per share, multiplied by the number of shares underlying such options. 42 STOCK OPTION PLANS The Company's Stock Option Plan was adopted by the Board of Directors in May 1996 and approved by the stockholders in July 1996. In April 1997, the Stock Option Plan was amended by the Board of Directors to increase the number of shares of Common Stock authorized for issuance thereunder. This amendment to the Stock Option Plan was approved by the stockholders of the Company in June 1997. A total of 852,942 shares of Common Stock have been authorized for issuance under the Stock Option Plan. As of June 30, 1997, options to purchase a total of 352,846 shares of Common Stock had been exercised, options to purchase a total of 260,326 shares at a weighted average exercise price of $.59 per share were outstanding, and 239,770 shares remained available for future option grants. The Stock Option Plan provides for the grant to employees of the Company (including officers and employee directors) of "incentive stock options" within the meaning of Section 422 of the Code and for the grant of nonstatutory stock options to employees, Directors, consultants, advisors or other independent contractors of the Company. To the extent an optionee would have the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value (under all plans of the Company and determined for each share as of the date the option to purchase the share was granted) in excess of $100,000, any such options will be treated as nonstatutory stock options. The Stock Option Plan is administered by the Board of Directors or a committee of the Board of Directors. Subject to the provisions of the Stock Option Plan, the Board determines the terms of options granted under the Stock Option Plan, including the number of shares subject to the option, exercise price, term and exercisability. The exercise price of all incentive stock options granted under the Stock Option Plan must be at least equal to the fair market value of the Common Stock of the Company on the date of grant. The exercise price of any incentive stock option granted to an optionee who owns stock representing more than 10% of the voting power of the Company's outstanding capital stock (a "10% Stockholder") must equal at least 110% of the fair market value of the Common Stock on the date of grant. The Board determines the term of options. The term of a stock option granted under the Stock Option Plan may not exceed ten years; provided, however, that the term of an incentive stock option may not exceed five years for 10% Stockholders. No option may be transferred or assigned by the optionee other than by will or the laws of descent or distribution. In the event an optionee ceases to be employed by the Company for any reason other than death or disability, each outstanding option held by such optionee will terminate and cease to be exercisable no later than three months after the date of such cessation of employment. Should the optionee's employment terminate by reason of death or disability (within the meaning of Section 22(e)(3) of the Code), each outstanding option held by such optionee will terminate and cease to be exercisable no later than twelve months after the date of held by such optionee such cessation of employment. An optionee's employment shall be deemed to have terminated on account of death if the optionee dies within three months following such cessation of employment. In the event of certain transactions involving changes in control of the Company, the Stock Option Plan provides that the Board may elect, in its sole discretion, to provide that any unexercisable portion of all options will accelerate so that each option will be fully exercisable for all of the shares subject to such option as of a date prior to the effective date of the transaction as the Board so determines, conditioned upon the consummation of such transfer of control. The Board may further elect, in its sole discretion, to provide that any options which become exercisable solely by reason of transfer of control and which are not exercised as of the date such transfer of control will terminate effective as of the date of a transfer of control. The Board may terminate or amend the Stock Option Plan at any time; provided however, that without the approval of the Company's stockholders, there shall be (a) no increase in the total number of shares of stock covered by the Stock Option Plan (except in the case of a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the Common Stock), (b) no change in the class of persons eligible to receive incentive stock options, and (c) no extension of the period during which incentive stock options may be granted beyond the date which is 10 years following the date the Stock Option Plan is adopted by the Company or the date the Stock Option Plan is approved by the stockholders of the Company. In any event, no amendment may adversely affect any then outstanding option or any unexercised portion thereof, without the consent of the optionee, unless such amendment is required to enable an option designated as an incentive stock option to qualify as an incentive stock option. If not previously terminated, the Stock Option Plan will terminate in 2006. As of June 30, 1997, the Company had outstanding 9,412 nonqualifed stock options under its previous stock option plan at a weighted average exercise price of $.43 per share. The Board of Directors has determined not to grant additional options under such plan. 43 EMPLOYMENT AGREEMENTS In December 1994, the Company entered into an employment arrangement with Dr. Johnson, its President, Chief Executive Officer and Chief Scientific Officer. Pursuant to this arrangement, Dr. Johnson is entitled to receive minimum annual compensation of $225,000, an annual bonus based upon the achievement of certain milestones and all health insurance and other benefits generally made available to the Company's employees. In the event that Dr. Johnson's employment is terminated for any reason other than for cause, Dr. Johnson's employment arrangement provides that Dr. Johnson is entitled to his base salary and benefits for one year from the date of such termination. In February 1995, the Company entered into an employment arrangement with Mr. Megaro, its Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary. Pursuant to this arrangement, Mr. Megaro is entitled to receive minimum annual compensation of $130,000, an annual bonus based upon the achievement of certain milestones and all health insurance and other benefits generally made available to the Company's employees. In the event that Mr. Megaro's employment is terminated for any reason other than for cause, Mr. Megaro's employment arrangement provides that Mr. Megaro is entitled to his base salary and benefits for up to six months from the date of such termination, subject to certain limitations. COMPENSATION OF DIRECTORS The Company does not currently compensate its Directors for attending Board or committee meetings, but reimburses Directors for their reasonable travel expenses incurred in connection with attending meetings of the Board or committees of the Board. Also, non-employee Directors are entitled to be granted options under the Company's Stock Option Plan. The Company intends to reevaluate its policy with respect to compensation of non-employee Directors after completion of this Offering. On October 21, 1996, the Company granted Dr. Sanders options to purchase 5,883 shares of Common Stock at an exercise price of $.34 per share. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Effective April 10, 1997, the Board of Directors established a Compensation Committee which is responsible for determining the salaries and incentive compensation of the executive officers of the Company and to provide recommendations for the salaries and incentive compensation of the other employees and consultants of the Company. The Compensation Committe also administers the Company's benefit plans, including the Stock Option Plan. Mr. Dovey serves as the Chairman of the Compensation Committee and the other members of the committee are Drs. Bolognesi and Sanders. None of Mr. Dovey, Dr. Bolognesi, nor Dr. Sanders was an officer or employee of the Company during 1996 or any prior year. During 1996 and prior to the formation of the Compensation Committee, the Board of Directors as a whole made decisions relating to compensation of the Company's executive officers. Dr. Johnson, the Company's President, Chief Executive Officer and Chief Scientific Officer, Mr. Wallace, the Company's former Executive Vice President, General Counsel and Secretary and Mr. Franco, the Company's former President and Chief Executive Officer, participated in all such discussions and decisions concerning the compensation of executive officers of the Company, except that Dr. Johnson and Messrs. Wallace and Franco were excluded from discussions regarding their own compensation. 44 CERTAIN TRANSACTIONS Since February 1995, the Company has issued an aggregate of 274,511 shares of Common Stock to Dr. Johnson, the Company's President, Chief Executive Officer and Chief Scientific Officer at an aggregate purchase price of $123,300, or a weighted average purchase price of $.45 per share. In June 1997, the Company issued to Dr. Johnson an aggregate of 127,060 shares of Common Stock at an aggregate purchase price of $54,636, or $.43 per share, in consideration for a full recourse secured promissory note payable to the Company, which bears interest at eight percent per annum and is due in June 1999. In May 1997, the Company issued to Dr. Johnson an aggregate of 117,648 shares of Common Stock upon the exercise of certain options granted to Dr. Johnson at an aggregate exercise price of $40,000, or $.34 per share, in consideration for a full recourse secured promissory note payable to the Company, which bears interest at eight percent per annum and is due in May 1999. In April 1997, the Company issued to Dr. Johnson an aggregate of 33,333 shares of Series C Preferred Stock (convertible into 3,922 shares of Common Stock upon the completion of the Offering) at an aggregate purchase price of $20,000, or $.60 per share. Certain shares of Common Stock purchased from the Company by Dr. Johnson are subject to the Company's right of repurchase and certain other restrictions which lapse over a period of time. Since March 1995, the Company has issued an aggregate of 146,079 shares of Common Stock to Mr. Megaro, the Company's Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary at an aggregate purchase price of $80,000, or a weighted average purchase price of $.55 per share. In June 1997, the Company issued Mr. Megaro an aggregate of 76,471 shares of Common Stock at an aggregate purchase price of $32,883, or $.43 per share, in consideration for a full recourse secured promissory note payable to the Company which bears interest at eight percent per annum and is due in June 1999. In May 1997, the Company issued Mr. Megaro an aggregate of 51,765 shares of Common Stock upon the exercise of certain options granted to Mr. Megaro at an aggregate exercise price of $17,600, or $.34 per share, in consideration for a full recourse secured promissory note payable to the Company which bears interest at eight percent per annum and is due in May 1999. In April 1997, the Company issued Mr. Megaro an aggregate of 41,667 shares of Series C Preferred Stock (convertible into 4,902 shares of Common Stock upon the completion of the Offering) at an aggregate purchase price of $25,000, or $.60 per share. Certain shares of Common Stock purchased from the Company by Mr. Megaro are subject to the Company's right of repurchase and certain other restrictions which lapse over a period of time. Since March 1995, the Company has issued an aggregate of 129,705 shares of Common Stock to Mr. Wallace, the Company's former Executive Vice President, General Counsel and Secretary at an aggregate purchase price of $37,790, or a weighted average purchase price of $.29 per share. In June 1997, the Company issued Mr. Wallace an aggregate of 34,589 shares of Common Stock at an aggregate purchase price of $14,874, or $.43 per share, in consideration for a full recourse secured promissory note payable to the Company which bears interest at eight percent per annum and is due in June 1999. In May 1997, the Company issued Mr. Wallace an aggregate of 52,765 shares of Common Stock upon the exercise of certain options granted to Mr. Wallace at an aggregate exercise price of $17,941, or $.34 per share, in consideration for a full recourse secured promissory note payable to the Company which bears interest at eight percent per annum and is due in May 1999. On July 10, 1997, Mr. Wallace resigned as an officer and Director of the Company and entered into an agreement with the Company pursuant to which he will serve as a consultant to the Company until December 31, 1997. Thereafter, Mr. Wallace will receive severance payments until June 30, 1998 based on his annual salary at the time of his resignation. In addition, the Company has agreed to terminate its right of repurchase and other restrictions with respect to approximately 50,000 shares of Common Stock held by Mr. Wallace for which such restrictions would not otherwise have lapsed at the time of his resignation. The following table summarizes the shares of Preferred Stock purchased by affiliates of the Directors and the holders of more than five percent (5%) of the Common Stock. See the table entitled "Principal Stockholders" and the notes thereto for further information relating to the beneficial ownership of such shares.
SERIES A SERIES B SERIES C PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK Domain Partners II, L.P. (1)........................ 2,000,000 11,095,920 Domain Partners III, L.P. (2)....................... 5,932,528 2,061,997 DP III Associates, L.P. (2)......................... 206,466 71,336 Biotechnology Investments Limited (3)............... 1,000,000 6,900,650 2,866,668 Lawrence & Company Inc. (4)......................... 2,283,334 Sentron Medical, Inc................................ 2,000,000 1,333,334
(1) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates, II, L.P., the general partner of Domain Partners II, L.P. (2) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates, III, L.P., the general partner of Domain Partners III, L.P. and DP III Associates, L.P. (3) Pursuant to a contractual agreement, Domain Associates is the U.S. venture capital advisor to Biotechnology Investments Limited. Dr. Treu and Mr. Dovey are general partners of Domain Associates. (4) Mr. McCreath is a founding partner of Lawrence & Company Inc. For information regarding employment agreements with Named Executive Officers, see "Management -- Employment Agreements." For information regarding compensation of Directors, see "Management -- Compensation of Directors." 45 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of July 1, 1997 (after giving effect to the Preferred Stock Conversion) and as adjusted to give effect to the sale of the shares of Common Stock offered hereby, by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially 5% or more of the outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii) each of the Company's Directors, and (iv) all Directors and executive officers of the Company as a group.
NUMBER OF PERCENTAGE SHARES OWNERSHIP(1) BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER OWNED(1) OFFERING OFFERING Domain Partners II, L.P. (2)............................................................ 2,570,559 35.0% 26.1% Domain Partners III, L.P. (2)........................................................... 2,570,559 35.0 26.1 DP III Associates, L.P. (2)............................................................. 2,570,559 35.0 26.1 Biotechnology Investments Limited (3)................................................... 1,295,068 17.6 13.1 Sentron Medical, Inc. (4)............................................................... 392,158 5.3 4.0 M. Ross Johnson (5)..................................................................... 274,511 3.7 2.8 Matthew A. Megaro (6)................................................................... 146,079 2.0 1.5 Max N. Wallace (7)...................................................................... 132,148 1.8 1.3 Richard A. Franco....................................................................... 53,334 * * Jesse I. Treu (2)....................................................................... 2,570,559 35.0 26.1 Dani P. Bolognesi (8)................................................................... 124,295 1.7 1.3 Brian H. Dovey (2)...................................................................... 2,570,559 35.0 26.1 Charles A. Sanders (9).................................................................. 17,648 * * Andrew A. McCreath (10)................................................................. 268,628 3.7 2.7 All executive officers and directors as a group (eight persons) (11).............................................................. 3,533,868 47.9 35.8
* Less than one percent. (1) Applicable percentage ownership is based on 7,354,087 shares of Common Stock outstanding as of July 1, 1997 after giving effect to the Preferred Stock Conversion. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission based on factors including voting or investment power with respect to securities. Shares of Common Stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days after July 1, 1997, are deemed outstanding for computing the percentage ownership of the person or entity holding such securities, but are not deemed outstanding for computing the percentage ownership of any other person or entity. Except as indicated, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock as beneficially owned by them, and there are no other affiliations among the stockholders listed in the table. (2) Consists of shares held by affiliated entities as follows: (i) 1,597,342 shares beneficially owned by Domain Partners II, L.P., whose general partner is One Palmer Square Associates II, L.P.; (ii) 940,533 shares beneficially owned by Domain Partners III, L.P., whose general partner is One Palmer Square Associates III, L.P.; and (iii) 32,684 shares beneficially owned by DP III Associates, L.P., whose general partner is One Palmer Square Associates III, L.P. Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates II, L.P. and One Palmer Square Associates III, L.P. In such capacities, Dr. Treu and Mr. Dovey each may be deemed to be the beneficial owner of such shares, although each disclaims such beneficial ownership except to the extent of his pecuniary interest, if any. The address for Domain Partners II, L.P., Domain Partners III, L.P., DP III Associates, L.P., Dr. Treu and Mr. Dovey is One Palmer Square, Princeton, New Jersey 08542. (3) Biotechnology Investments Limited ("BIL") has entered into a contractual arrangement with Domain Associates whereby Domain Associates serves as the United States venture capital advisor to BIL. Domain Associates has neither voting nor investment power over BIL's shares. Dr. Treu and Mr. Dovey are general partners of Domain Associates. The address for BIL is St. Peter Port House, Sausmarez Street, St. Peter Port, Guernsey, GY13PH, Channel Islands. (4) The address for Sentron Medical, Inc. is 4445 Lake Forest Drive, Suite 600, Cincinnati, Ohio 45242. (5) Includes 184,030 shares subject to certain contractual restrictions, which restrictions lapse with respect to 9,318 shares within 60 days after July 1, 1997. (6) Includes 93,709 shares subject to certain contractual restrictions, which restrictions lapse with respect to 4,470 shares within 60 days after July 1, 1997. (7) Includes (i) 37,375 shares subject to certain contractual restrictions, which restrictions lapse with respect to 2,033 shares within 60 days after July 1, 1997 and (ii) 2,443 shares beneficially owned by Diana Parrish, Mr. Wallace's wife. For information concerning the subsequent lapsing of these restrictions, see "Certain Transactions." (8) Includes 12,943 shares that Dr. Bolognesi may acquire pursuant to stock options exercisable within 60 days after July 1, 1997 and the following shares as to which Dr. Bolognesi disclaims beneficial ownership: (i) 11,765 shares beneficially owned by James C. Bolognesi Irrevocable Trust, for which James C. Bolognesi, Dr. Bolognesi's son, is the sole beneficiary and Sarah Bolognesi, Dr. Bolognesi's wife, is the sole trustee; (ii) 11,765 shares beneficially owned by Michael P. Bolognesi Irrevocable Trust, for which 46 Michael P. Bolognesi, Dr. Bolognesi's son, is the sole beneficiary and Sarah Bolognesi is the sole trustee; and (iii) 5,450 shares that Sarah Bolognesi may acquire pursuant to certain stock options exercisable within 60 days after July 1, 1997. (9) Includes 1,961 shares that Dr. Sanders may acquire pursuant to stock options exercisable within 60 days after July 1, 1997. (10) Includes 268,628 shares beneficially owned by Lawrence & Company Inc., of which Mr. McCreath is a partner. In such capacity, Mr. McCreath may be deemed to be the beneficial owner of such shares, although he disclaims such beneficial ownership except to the extent of his pecuniary interest, if any. (11) See notes (2)-(10). 47 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock (after giving effect to the Preferred Stock Conversion and the filing of the Third Amended and Restated Certificate of Incorporation upon the completion of this Offering). The following description of the capital stock of the Company is a summary, does not purport to be complete, is subject to, and qualified in its entirety by, the provisions of the Third Amended and Restated Certificate of Incorporation, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, and by applicable law. COMMON STOCK As of June 30, 1997, there were 7,354,087 shares of Common Stock outstanding, as adjusted to reflect the Preferred Stock Conversion upon the completion of this Offering, held of record by 70 stockholders. The holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights applicable to any outstanding Preferred Stock that may be issued in the future. The Company has not declared or paid cash dividends on its capital stock. The Company currently intends to retain any future earnings to fund its operations and, therefore, does not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets of the Company remaining after the payment of all debts and other liabilities, subject to the prior distribution rights of shares of Preferred Stock if any, then outstanding. There are no preemptive, subscription or conversion rights applicable to the Common Stock. The outstanding shares of Common Stock are, and the shares offered by the Company in this Offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to the rights of the holders of shares of any class or series of Preferred Stock that the Company may designate and issue in the future. PREFERRED STOCK The Board of Directors has the authority, without action by the stockholders, to designate and issue 10,000,000 shares of Preferred Stock in one or more series and to designate the rights, preferences and limitations of all series, any or all of which may be superior to the rights of the Common Stock. It is not possible to state the actual effect of the issuance of any shares of Preferred Stock upon the rights of the holders of Common Stock until the Board of Directors determines the specific rights of the holders of Preferred Stock. However, the effects might include, among others, restricting dividends on Common Stock, diluting the voting power of the Common Stock, impairing the liquidation rights of the Common Stock, and making it more difficult for a third party to acquire the Company, which could have the effect of discouraging a third party from acquiring, or deterring a third party from paying a premium to acquire, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. See "Risk Factors -- Anti-Takeover Effect of Certain Charter and Bylaw Provisions." WARRANTS As of June 30, 1997, the Company had outstanding warrants entitling the purchasers thereof to purchase a total of 56,684 shares of Common Stock at a weighted-average exercise price of $4.25 per share (the "Warrants"). The Warrants have expiration dates ranging from 2003 to 2005. REGISTRATION RIGHTS The holders, or their permitted transferees, of approximately 6,261,615 shares of Common Stock and 56,684 shares of Common Stock issuable upon exercise of the Warrants (the "Registrable Securities") are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of certain agreements between the Company and holders of Registrable Securities. Subject to certain limitations set forth in the agreements, certain of the holders may require the Company, at its expense, on not more than two occasions, to file a registration statement under the Securities Act with respect to the public resale of Registrable Securities. 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 security holders, the holders of Registrable Securities are entitled to notice of the registration and are entitled to include, at the Company's expense, such shares therein, subject to certain conditions and limitations. Further, the holders of Registrable Securities may require the 48 Company at its expense to register their shares on Form S-3 when the use of such form becomes available to the Company, subject to certain conditions and limitations. All registration expenses must be borne by the Company and all selling expenses relating to Registrable Securities must be borne by the holder of the securities being registered. DELAWARE LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to the provisions of DGCL Section 203 which, subject to certain exceptions, prohibits the Company from engaging in certain business combinations with interested stockholders for a period of three years after the date of the transaction in which the stockholder became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. For purposes of Section 203, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. The application of Section 203 could have the effect of delaying or preventing a change of control of the Company. The Company's Third Amended and Restated Certificate of Incorporation provides that effective upon this Offering, each director will serve for a three-year term and that approximately one-third of the directors are to be elected annually. Candidates for directors shall be nominated only by the Board of Directors or by a stockholder who gives written notice to the Company in the manner prescribed by the Bylaws. The number of directors may be fixed by resolution of the Board of Directors. The Board currently consists of six members and the Board may appoint new directors to fill vacancies or newly created directorships between stockholder meetings. The Third Amended and Restated Certificate of Incorporation does not provide for cumulative voting at stockholder meetings for election of directors. A director may be removed from office only for cause by the affirmative vote of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors or without cause by the affirmative vote of at least two-thirds of the voting power of the outstanding shares of stock entitled to vote in the election of directors. Any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by written consent. The staggered Board of Directors, the Company's Third Amended and Restated Certificate of Incorporation and certain other provisions of the DGCL may have the effect of delaying, deterring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price and may adversely affect the market price, and the voting and other rights of the holders, of the Common Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is Wachovia Bank of North Carolina, N.A. SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock (including shares issued upon the exercise of outstanding options and warrants) in the public market after this Offering or the prospect of such sales could materially and adversely affect the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock of the Company in the public market after the restrictions described below lapse could also materially and adversely affect the prevailing market price of the Common Stock and the ability of the Company to raise equity capital in the future. Upon the completion of this Offering, the Company will have 9,870,795 shares of Common Stock outstanding (assuming no exercise of options and warrants outstanding as of July 9, 1997). Of these shares, the 2,500,000 shares sold in this Offering will be freely tradeable without restrictions unless held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 7,370,795 shares were issued and sold in reliance upon certain exemptions from the registration requirements of the Securities Act. These shares may be sold in the public market only if registered, or pursuant to an exemption from such registration, such as Rule 144 or Rule 144(k) under the Securities Act. Approximately 244,111 shares of Common Stock will be eligible for resale in the public market without restriction in reliance on Rule 144(k) immediately following the completion of this Offering, 238,790 shares of which are subject to the Lock-up Agreements described below. An additional 765,669 shares (757,491 shares of which are subject to the Lock-up Agreements) will be eligible for resale in the public market pursuant to Rule 701 under the Securities Act beginning approximately 90 days after the effective date of this Prospectus, except to the extent that such shares are subject to vesting restrictions or certain contractual restrictions on sale or transfer pursuant to agreements with the Company. 757,491 shares of which are subject to the Lock-up Agreements. After the expiration of the 180-day lock-up period described below, an additional 3,729,746 shares of Common Stock will be eligible for resale in the public market pursuant to Rule 144. From time to time 49 thereafter, the remaining shares of Common Stock outstanding will become eligible for resale in the public market pursuant to Rule 144. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), who has beneficially owned restricted securities (as that term is defined in Rule 144) for at least one year is entitled to sell, within any three month period, a number of such securities that does not exceed the greater of one percent of the then outstanding class of securities (in the case of the Common Stock, approximately 98,708 shares, based on the number of shares to be outstanding after this Offering) or the average weekly trading volume in such securities in the public market during the four calendar weeks preceding the filing of the seller's Form 144, provided certain requirements concerning availability of public information concerning the issuer of the restricted securities, manner of sale and notice of sale are satisfied. A person who is not an affiliate of the issuer, has not been an affiliate within three months prior to the sale and has beneficially owned the restricted securities for at least two years is entitled to sell such shares under Rule 144(k) without regard to any of the limitations described above. Rule 144 also provides that affiliates who are selling shares that are not restricted securities must nonetheless comply with the same restrictions applicable to restricted securities with the exception of the holding period requirement The one-year and two-year holding periods described above do not begin to run until the full purchase price or other consideration is paid by the person acquiring the restricted securities from the issuer or an affiliate of the issuer and may include the holding period of a prior owner who is not an affiliate of the issuer. Securities issued in reliance on Rule 701 (such as shares of Common Stock issued before the completion of this Offering upon the exercise of options) are also restricted securities and, beginning approximately 90 days after the effective date of this Prospectus, may be resold by persons other than affiliates of the Company subject only to the manner of sale provisions of Rule 144 and may be resold by affiliates under Rule 144 without compliance with the one-year holding period. The executive officers, directors, employees and certain other stockholders of the Company, who together beneficially own or have dispositive power over 7,346,510 shares of Common Stock outstanding prior to this Offering, have agreed that they will not sell, offer, make any short sale or otherwise dispose of or enter into any contract, arrangement or commitment to sell or otherwise dispose of any shares of Common Stock or securities exerciseable into or convertible into shares of Common Stock owned by them for a period of 180 days after the date of this Prospectus without the prior written consent of UBS Securities LLC. Approximately 90 days after the completion of this Offering, the Company intends to file a registration statement on Form S-8 under the Securities Act to register the future issuance of shares of Common Stock reserved for issuance under the Company's stock option plan. As of July 9, 1997, 253,501 shares of Common Stock were reserved for issuance pursuant to outstanding options and 240,476 shares of Common Stock were reserved for future issuance under the Company's stock option plan. Such registration statement will automatically become effective upon filing. Accordingly, shares registered thereunder will, subject to Rule 144 limitations applicable to affiliates, be available for sale in the public market, except to the extent that such shares are subject to vesting restrictions with the Company or certain contractual restrictions on sale or transfer (including options covering 233,263 shares which are subject to Lock-up Agreements). After this Offering, the holders of approximately 6,261,215 shares of Common Stock and the holders of warrants to purchase an aggregate of 56,684 shares of Common Stock will be entitled to certain demand and piggyback rights with respect to the registration of such shares under the Securities Act. If such holders, by exercising their demand registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price of the Company's Common Stock. If the Company, either on its own behalf or on behalf of certain stockholders, were to initiate a registration and include shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales could have a material adverse effect on the Company's ability to raise needed capital. See "Certain Transactions," "Shares Eligible for Future Sale," "Description of Capital Stock -- Registration Rights" and "Underwriting." 50 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below (the "Underwriters"), for whom UBS Securities LLC and Montgomery Securities are acting as representatives (the "Representatives"), have agreed to purchase from the Company the following respective number of shares of Common Stock:
UNDERWRITERS SHARES UBS Securities LLC........................................................... Montgomery Securities........................................................ Total................................................................. 2,500,000
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any such shares are purchased. The Underwriting Agreement contains certain provisions whereby if any Underwriter defaults in its obligations to purchase shares, and the aggregate obligations of the Underwriters so defaulting do not exceed ten percent of the shares offered hereby, the remaining Underwriters, or some of them, must assume such obligations. The Underwriters have advised the Company that the Underwriters propose to offer the shares of the Common Stock directly to the public at the offering price set forth on the cover of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the public offering of the shares of Common Stock, the offering price and other selling terms may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to additional 375,000 shares of Common Stock to cover over-allotments, if any, at the public offering price set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares of Common Stock offered hereby. The Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. In connection with the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may overallot the Offering, creating a syndicate short position. In addition, the Underwriters may bid for and purchase shares of Common Stock in the open market to cover syndicate short positions or to stabilize the price of the Common Stock. Finally, the Underwriters may reclaim selling concessions from syndicate members in the Offering if the syndicate repurchases previously distributed Common Stock in syndicate covering transactions, in stabilizing transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The executive officers, directors, employees and certain other stockholders of the Company who beneficially own or have dispositive power over 7,346,510 shares of Common Stock outstanding prior to this Offering, including Common Stock to be issued upon the completion of this Offering pursuant to the Preferred Stock Conversion, have agreed that they will not, 51 without the prior written consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock owned by them for a period of 180 days after the date of this Prospectus. The Company has agreed that it will not, without the prior written consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus, except that the Company may grant options under the Stock Option Plan and may issue shares pursuant to other currently outstanding options. The Representatives have advised the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority in excess of five percent of the number of shares of Common Stock offered hereby. In June 1997, an entity affiliated with UBS Securities LLC purchased in connection with the Company's Series D Preferred Stock financing an aggregate of 2,000,000 shares of Series D Preferred Stock at a price of $.75 per share. Such Preferred Stock will convert into 235,295 shares of Common Stock upon the completion of this Offering. Prior to this Offering, there has been no public market for the Common Stock of the Company. The initial public offering price will be determined by negotiations between the Company and the Representatives and may not be indicative of the market price at which the Common Stock of the Company will trade after this Offering. Among the factors to be considered in such negotiations, in addition to prevailing market conditions, are certain financial information of the Company, market valuations of other companies that the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The initial public offering price set forth on the cover page of this Prospectus should not, however, be considered an indication of the actual value of the Common Stock. Such price is subject to change as a result of market conditions and other factors. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to this Offering at or above the initial offering price. 52 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Hutchison & Mason PLLC, Raleigh, North Carolina, counsel to the Company. Certain legal matters will be passed upon for the Company by Wilmer, Cutler & Pickering, Washington D.C., special counsel to the Company. As of the date of this Prospectus, a member of Hutchison & Mason PLLC beneficially owns 3,530 shares of the Company's Common Stock and a partner of Wilmer, Cutler & Pickering beneficially owns 9,804 shares of the Company's Common Stock. A principal of AspenTree Capital, financial advisor to the Company and beneficial owner of 26,864 shares of the Company's Common Stock, serves as a consultant to Wilmer, Cutler & Pickering on certain matters other than those relating to the Company. Certain legal matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York. EXPERTS The financial statements of the Company, as of December 31, 1995 and 1996 and for each of the years in the three-year period ended December 31, 1996, and the period from inception (January 7, 1993) to December 31, 1996 have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The statements in this Prospectus under the captions "Risk Factors -- Uncertainty Regarding Patents and Proprietary Rights" and "Business -- Patents, Proprietary Technology and Trade Secrets", relating to U.S. patent matters, have been reviewed and approved by Pennie & Edmonds LLP, New York, New York, patent counsel to the Company, and are included herein in reliance upon such review and approval by the firm as experts in U.S. patent law. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-l under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which is a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules hereto. 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 as a part thereof. Statements made in this Prospectus concerning the contents of any contracts or documents are not necessarily complete, and, in each such instance, if such contract or document is filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description, and each such statement is qualified in its entirety by reference to such exhibit. Any interested party may inspect the Registration Statement, without charge, at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of all or any portion of the Registration Statement, including exhibits and schedules thereto, may be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's public reference facilities in Chicago, Illinois and New York, New York. The Commission maintains a World Wide Web site that will contain reports, proxy and information statements and other information regarding the Company. The address of such site is http://www.sec.gov. As a result of the filing of this Registration Statement and the completion of the Offering contemplated hereby, the Company will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith will be required to file reports and other information with the Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at its principal offices. The Company intends to furnish its stockholders annual reports containing financial statements audited by its independent auditors and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. 53 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO FINANCIAL STATEMENTS
PAGE Independent Auditors' Report........................................................................................... F-2 Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (unaudited)............................................. F-3 Statements of Operations for the Years Ended December 31, 1994, 1995, and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited) and for the period from Inception to December 31, 1996................................................... F-4 Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994, 1995, and 1996 and for the Six Months Ended June 30, 1997 (unaudited)................................................ F-5 Statements of Cash Flows for the Years Ended December 31, 1994, 1995, and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited) and for the period from Inception to December 31, 1996................................................... F-6 Notes to Financial Statements.......................................................................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Trimeris, Inc.: We have audited the accompanying balance sheets of Trimeris, Inc. (A Development Stage Company) (the "Company") as of December 31, 1995 and 1996, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1996 and for the cumulative period from the date of inception to December 31, 1996. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, and for the cumulative period from the date of inception to December 31, 1996, in conformity with generally accepted accounting principles. March 17, 1997 except for Note 11(a) as to which the date is June 30, 1997 Raleigh, North Carolina KPMG PEAT MARWICK LLP F-2 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
PRO FORMA AS OF JUNE STOCKHOLDERS' AS OF DECEMBER 31, 30, EQUITY AS OF 1995 1996 1997 JUNE 30, 1997 (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................... $ 1,343,346 $ 131,540 $ 8,912,343 Accounts receivable................................................. 793 32,752 44,758 Loans to employees.................................................. -- 2,985 -- Prepaid expenses.................................................... 9,564 45,470 311,753 Total current assets............................................ 1,353,703 212,747 9,268,854 Property, furniture and equipment, net of accumulated depreciation of $921,135, $1,611,544 and $1,911,663 at December 31, 1995, 1996 and June 30, 1997 (unaudited), respectively............................. 1,230,394 896,672 698,372 Other assets: Equipment held for resale, less allowance of $60,972, $54,029 and $54,029 at December 31, 1995, 1996 and June 30, 1997 (unaudited), respectively...................................................... 60,972 54,029 54,029 Exclusive license agreement, net of accumulated amortizaton of $6,632, $9,044 and $10,250 at December 31, 1995, 1996 and June 30, 1997 (unaudited), respectively.................................... 34,368 31,956 30,750 Patent costs........................................................ 298,154 412,619 444,949 Equipment deposits.................................................. 58,830 58,830 58,830 Other assets, net of accumulated amortization of $10,233, $14,531 and $16,518 at December 31, 1995, 1996 and June 30, 1997 (unaudited), respectively......................................... 21,427 16,876 28,967 Total other assets.............................................. 473,751 574,310 617,525 Total assets.................................................... $ 3,057,848 $ 1,683,729 $ 10,584,751 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................................................... $ 118,016 $ 254,845 $ 337,173 Current installments of obligations under capital leases............ 527,406 500,248 332,332 Accrued expenses.................................................... 385,797 762,548 580,012 Total current liabilities....................................... 1,031,219 1,517,641 1,249,517 Notes payable......................................................... 166,718 259,000 260,000 Obligations under capital leases, excluding current installments...... 536,184 316,537 228,111 Total liabilities............................................... 1,734,121 2,093,178 1,737,628 Stockholders' equity (deficit): Series A Preferred Stock at $.001 par value per share. 3,000,000 shares authorized, issued and outstanding......................... 3,000 3,000 3,000 $ -- Series B Preferred Stock at $.001 par value per share. 29,000,000 shares authorized; issued and outstanding 20,635,564 and 27,135,564 shares at December 31, 1995, 1996 and June 30, 1997 (unaudited) respectively............................ 20,636 27,136 27,136 -- Series C Preferred Stock at $.001 per share. 20,000,000 shares authorized; issued and outstanding 3,333,335 and 13,317,740 shares at December 31, 1996 and June 30, 1997 (unaudited), respectively...................................................... -- 3,333 13,317 -- Series D Preferred Stock at $.001 par value per share 10,666,667 shares authorized; issued and outstanding 9,047,962 at June 30, 1997 (unaudited)......................................... -- -- 9,048 -- Common Stock at $.001 par value per share. Authorized 80,000,000 shares; issued and outstanding 352,412, 436,688 and 1,092,472 shares at December 31, 1995, 1996 and June 30, 1997 (unaudited), respectively...................................................... 353 437 1,092 7,354 Additional paid-in capital.......................................... 12,293,582 17,535,897 32,434,995 32,481,234 Deficit accumulated during the development stage.................... (10,993,844) (17,965,252) (21,442,925) (21,442,925) Deferred compensation............................................... -- -- (1,935,000) (1,935,000) Notes receivable from stockholders.................................. -- (14,000) (263,540) (263,540) Total stockholders' equity (deficit)............................ 1,323,727 (409,449) 8,847,123 $ 8,847,123 Commitments and contingencies (notes 2, 10, and 11) Total liabilities and stockholders' equity (deficit)............ $ 3,057,848 $ 1,683,729 $ 10,584,751
See accompanying notes to financial statements. F-3 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
CUMULATIVE FROM INCEPTION (JANUARY 7, FOR THE 1993) SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, TO DECEMBER 31, JUNE 30, 1994 1995 1996 1996 1996 1997 (UNAUDITED) Revenue........................... $ -- $ 104,453 $ 54,465 $ 158,918 $ -- $ 211,875 Operating expenses: Research and development........ 2,746,867 4,011,875 5,146,072 12,596,163 2,278,084 2,858,785 General and administrative...... 947,518 1,520,974 1,759,965 4,859,704 801,547 786,445 Total operating expenses... 3,694,385 5,532,849 6,906,037 17,455,867 3,079,631 3,645,230 Operating loss.................. (3,694,385) (5,428,396) (6,851,572) (17,296,949) (3,079,631) (3,433,355) Other income (expense): Interest income................. 8,611 49,176 46,992 121,449 31,672 33,319 Interest expense................ (258,191) (360,158) (166,828) (789,752) (85,623) (77,637) (249,580) (310,982) (119,836) (668,303) (53,951) (44,318) Net loss........................ $ (3,943,965) $ (5,739,378) $ (6,971,408) $ (17,965,252) $ (3,133,582) $ (3,477,673) Pro forma net loss per share....................... $ (1.48) $ (0.59) Pro forma weighted average shares used in per share computations.................... 4,705,000 5,880,000
See accompanying notes to financial statements. F-4 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND 1996, AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
DEFICIT ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE NUMBER PAR NUMBER PAR PAID-IN DEVELOPMENT DEFERRED OF SHARES VALUE OF SHARES VALUE CAPITAL STAGE COMPENSATION Balance at January 7, 1993........... -- $ -- -- $ -- $ -- $ -- -- -- Issuances of Common Stock............. -- -- 217,647 218 1,632 -- -- Issuances of Series A Preferred Stock............. 3,000,000 3,000 -- -- 1,997,000 -- -- Stock issuance costs............. -- -- -- -- (33,813) -- -- Common Stock issued in exchange for exclusive license........... -- -- 96,471 96 40,904 -- -- Common Stock issued in exchange for consulting services.......... -- -- 5,882 6 2,494 -- -- Loss for the period............ -- -- -- -- -- (1,310,501) -- Balance as of December 31, 1993.............. 3,000,000 3,000 320,000 320 2,008,217 (1,310,501) -- Issuances of Common Stock............. -- -- 11,911 12 5,051 -- -- Common Stock issued in exchange for consulting services.......... -- -- 4,706 5 1,995 -- -- Loss for the period............ -- -- -- -- -- (3,943,965) -- Balance as of December 31, 1994.............. 3,000,000 3,000 336,617 337 2,015,263 (5,254,466) -- Issuances of Common Stock............. -- -- 15,795 16 7,894 -- -- Issuance of Series B Preferred Stock... 20,635,564 20,636 -- -- 10,297,146 -- -- Stock issuance costs............. -- -- -- -- (26,721) -- -- Loss for the period............ -- -- -- -- -- (5,739,378) -- Balance as of December 31, 1995.............. 23,635,564 23,636 352,412 353 12,293,582 (10,993,844) -- Issuances of Common Stock............. -- -- 83,688 84 28,370 -- -- Common Stock issued in exchange for consulting services.......... -- -- 588 -- 200 -- -- Issuances of Series B Preferred Stock............. 6,500,000 6,500 -- -- 3,243,500 -- -- Issuances of Series C Preferred Stock............. 3,333,335 3,333 -- -- 1,996,668 -- -- Stock issuance costs............. -- -- -- -- (26,423) -- -- Loss for the period............ -- -- -- -- -- (6,971,408) -- Notes receivable from stockholders for the purchase of shares......... -- -- -- -- -- -- -- Balance as of December 31, 1996.............. 33,468,899 33,469 436,688 437 17,535,897 (17,965,252) -- Issuances of Series C Preferred Stock............. 9,984,405 9,984 -- -- 5,980,658 -- -- Issuances of Series D Preferred Stock............. 9,047,962 9,048 -- -- 6,776,923 -- -- Issuances of Common Stock............. -- -- 656,494 656 251,198 -- -- Repurchase of Common Stock............. -- -- (710) (1) (301) -- -- Stock issuance costs............. -- -- -- -- (109,380) -- -- Issuance of Common Stock and options at below market value............. -- -- -- -- 2,000,000 -- (2,000,000) Amortization of deferred compensation...... -- -- -- -- -- -- 65,000 Loss for the period............ -- -- -- -- -- (3,477,673) -- Balance as of June 30, 1997 (unaudited)....... 52,501,266 $52,501 1,092,472 $1,092 $32,434,995 $ (21,442,925) $ (1,935,000) NOTES NET RECEIVABLE STOCKHOLDERS' FROM EQUITY STOCKHOLDERS (DEFICIT) Balance at January 7, 1993........... $ -- $ -- Issuances of Common Stock............. -- 1,850 Issuances of Series A Preferred Stock............. -- 2,000,000 Stock issuance costs............. -- (33,813) Common Stock issued in exchange for exclusive license........... -- 41,000 Common Stock issued in exchange for consulting services.......... -- 2,500 Loss for the period............ -- (1,310,501) Balance as of December 31, 1993.............. -- 701,036 Issuances of Common Stock............. -- 5,063 Common Stock issued in exchange for consulting services.......... -- 2,000 Loss for the period............ -- (3,943,965) Balance as of December 31, 1994.............. -- (3,235,866) Issuances of Common Stock............. -- 7,910 Issuance of Series B Preferred Stock... -- 10,317,782 Stock issuance costs............. -- (26,721) Loss for the period............ -- (5,739,378) Balance as of December 31, 1995.............. -- 1,323,727 Issuances of Common Stock............. -- 28,454 Common Stock issued in exchange for consulting services.......... -- 200 Issuances of Series B Preferred Stock............. -- 3,250,000 Issuances of Series C Preferred Stock............. -- 2,000,001 Stock issuance costs............. -- (26,423) Loss for the period............ -- (6,971,408) Notes receivable from stockholders for the purchase of shares......... (14,000) (14,000) Balance as of December 31, 1996.............. (14,000) (409,449) Issuances of Series C Preferred Stock............. -- 5,990,642 Issuances of Series D Preferred Stock............. -- 6,785,971 Issuances of Common Stock............. (249,540) 2,314 Repurchase of Common Stock............. -- (302) Stock issuance costs............. -- (109,380) Issuance of Common Stock and options at below market value............. -- -- Amortization of deferred compensation...... -- 65,000 Loss for the period............ -- (3,477,673) Balance as of June 30, 1997 (unaudited)....... $ (263,540) $ 8,847,123
See accompanying notes to financial statements. F-5 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
CUMULATIVE FROM INCEPTION (JANUARY 7, FOR THE 1993) SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, TO DECEMBER 31, JUNE 30, 1994 1995 1996 1996 1996 1997 (UNAUDITED) Cash flows from operating activities: Net Loss................................... $(3,943,965) $(5,739,378) $(6,971,408) $ (17,965,252) $(3,133,582) $(3,477,673) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization of property, furniture and equipment...... 356,009 543,796 690,419 1,631,486 324,270 300,109 Other amortization....................... 7,055 6,707 8,699 25,565 1,206 66,206 Provision for equipment held for resale................................. 16,821 -- -- 60,972 -- -- Stock issued for consulting services..... 2,000 -- 200 4,700 -- -- Stock issued to repay interest on notes to stockholders........................ -- 194,521 -- 194,521 -- -- Debt issued for research and development............................ -- -- 193,350 193,350 -- -- Loss on disposal of property and equipment.............................. 16,686 -- -- 16,686 -- -- Decrease (increase) in assets: Accounts receivable and loans to employees.............................. (8,223) 7,430 (34,944) (35,737) (7,449) (9,021) Prepaid expenses......................... 2,680 (3,574) (35,906) (45,470) (112) (266,283) Other assets............................. (719) (16,260) 253 (68,651) 2,401 (12,091) Increase (decrease) in liabilities: Accounts payable......................... (351,554) (20,409) 136,829 254,845 45,605 82,328 Accrued expenses......................... 137,275 270,778 183,401 673,292 (111,906) (182,536) Net cash used by operating activities.... (3,765,935) (4,756,389) (5,829,107) (15,059,693) (2,879,567) (3,498,961) Cash flows from investing activities: Purchase of property and equipment......... (57,608) (97,467) (26,529) (430,469) (234,032) (101,809) Equipment held for resale.................. 21,475 -- 6,943 (115,001) 6,943 -- Organizational costs....................... -- -- -- (8,217) -- -- Patent costs............................... (20,474) (213,454) (116,454) (414,608) (76,418) (32,330) Net cash used in investing activities.... (56,607) (310,921) (136,040) (968,295) (303,507) (134,139) Cash flows from financing activities: Proceeds from issuance of notes payable.... 3,600,000 2,716,718 92,282 6,409,000 71,782 1,000 Lease costs................................ -- -- -- (13,371) -- -- Accounts receivable........................ 265,650 -- -- -- -- -- Principal payments under capital lease obligations.............................. (281,067) (432,958) (576,973) (1,297,589) (62,659) (256,342) Proceeds from issuance of Common Stock..... 5,063 7,910 14,454 29,277 -- 2,314 Proceeds from issuance of Preferred Stock.................................... -- 3,869,167 5,250,001 11,119,168 3,244,664 12,776,613 Repurchase of Common Stock................. -- -- -- -- -- (302) Stock issuance costs....................... -- (26,721) (26,423) (86,957) -- (109,380) Net cash provided by financing activities............................. 3,589,646 6,134,116 4,753,341 16,159,528 3,253,787 12,413,903 Net increase (decrease) in cash and cash equivalents............................ (232,896) 1,066,806 (1,211,806) 131,540 70,713 8,780,803 Cash and cash equivalents at beginning of period..................................... 509,436 276,540 1,343,346 -- 1,343,346 131,540 Cash and cash equivalents at end of period... $ 276,540 $ 1,343,346 $ 131,540 $ 131,540 $ 1,414,059 $ 8,912,343 Supplemental disclosure of cash flow information: Cash paid during the period for interest... $ 154,097 $ 178,913 $ 154,228 $ 691,728 $ 85,623 $ 56,233
Supplemental disclosures of noncash investing and financing activities are described in Note 8. See accompanying notes to financial statements. F-6 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Trimeris, Inc. was incorporated on January 7, 1993 to discover and develop novel therapeutic agents that block viral infection by inhibiting viral fusion with host cells. The financial statements have been prepared in accordance with Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises," to recognize the fact that the Company is devoting substantially all of its efforts to establishing a new business and planned principal operations have not commenced. CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. PROPERTY, FURNITURE AND EQUIPMENT Property, furniture and equipment are recorded at cost. Property, furniture and equipment under capital leases are initially recorded at the present value of minimum lease payments at the inception of the lease. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property, furniture and equipment held under capital leases and leasehold improvements are amortized using the straight line method over the lesser of the lease term or estimated useful life of the asset. ORGANIZATION COSTS Organization costs are amortized using the straight-line method over five years. EXCLUSIVE LICENSE The exclusive license is amortized using the straight-line method over seventeen years. PATENTS The costs of patents are capitalized and will be amortized using the straight-line method over the remaining lives of the patents from the date the patents are granted. RESEARCH AND DEVELOPMENT Research and development costs are charged to operations as incurred. DEFERRED FINANCING COSTS Financing costs were incurred as part of the Company's capital lease agreements and are amortized straight-line over the lease term. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. 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 and disclosure of contingent 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. F-7 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED) Upon the completion of the Company's initial public offering (the "Offering") of Common Stock (the "Common Stock"), all of the outstanding shares of Series A, B, C, and D Preferred Stock (the "Preferred Stock") will convert into 6,261,615 shares of Common Stock. The unaudited pro forma presentation of stockholders' equity has been prepared giving effect to the conversion of all the Preferred Stock into Common Stock on June 30, 1997, assuming that the initial public offering price per share in connection with this Offering is $13.00. PRO FORMA NET LOSS PER SHARE (UNAUDITED) The pro forma net loss per share is computed based upon the weighted average number of common shares and common equivalent shares (using the treasury stock method) outstanding after certain adjustments described below. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive, except that, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all common and common equivalent shares issued during the twelve-month period prior to the initial filing of the registration statement relating to the Offering, even when anti-dilutive, have been included in the calculation as if they were outstanding for all periods, using the treasury stock method and an assumed initial public offering price of $13.00 per share. The pro forma net loss per common share gives effect to the mandatory conversion of all outstanding shares of Preferred Stock into 6,261,615 shares of Common Stock upon the completion of this Offering. HISTORICAL NET LOSS PER COMMON SHARE Net loss per common share on a historical basis is computed in the same manner as pro forma net loss per common share, except that Series A, B, C and D Preferred Stock are not assumed to be converted. Net loss per common share on a historical basis is as follows:
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) Net loss to common stockholders.................... $(3,943,965) $(5,739,378) $(6,971,408) $(3,133,582) $(3,477,673) Net loss per common share.......................... $ (3.57) $ (5.06) $ (6.04) $ (2.77) $ (2.96) Weighted average number of common and common equivalent shares outstanding.................... 1,105,000 1,134,000 1,154,000 1,133,000 1,173,000
Fully diluted net loss per common share is the same as primary net loss per common share. STOCK SPLIT Effective July 11, 1997, the Company declared a one for eight and one-half reverse stock split for common shareholders. This stock split has been retroactively applied and all periods presented have been restated. The conversion prices for the Preferred Stock discussed in Note 4 will be adjusted for this reverse stock split. F-8 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 2. LEASES The Company is obligated under various capital leases for furniture and equipment that expire at various dates during the next four years. The gross amount of furniture and equipment and related accumulated amortization recorded under capital leases and included in property, furniture and equipment were as follows at December 31, 1995, 1996 and June 30, 1997 (unaudited):
JUNE 30, 1995 1996 1997 (UNAUDITED) Furniture and equipment.................................... $1,790,110 $ 1,930,423 $ 1,980,665 Less accumulated amortization.............................. (780,082) (1,084,160) (1,347,996) $1,010,028 $ 846,263 $ 632,669
The Company also has several non-cancelable operating leases, primarily for office space and office equipment, that extend through September 1999. Rental expense, including maintenance charges, for operating leases during 1994, 1995, 1996 and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited) was $454,307, $532,146, $552,001, $254,717 and $300,018 respectively. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 1996 are:
CAPITAL OPERATING LEASES LEASES Year ending December 31: 1997...................................................................... $552,675 $ 514,774 1998...................................................................... 274,991 520,721 1999...................................................................... 114,871 419,255 2000...................................................................... 7,117 -- Total minimum lease payments.............................................. 949,654 $1,454,750 Less amount representing interest......................................... 132,869 Present value of net minimum capital lease payments....................... 816,785 Less current installments of obligations under capital leases............... 500,248 Obligations under capital leases, excluding current installments.......... $316,537
Additionally, under a warrant agreement dated August 24, 1993 with a lessor, the Company issued warrants to acquire Series B Preferred Stock at the initial Series B Preferred Stock per share offering price, such that the aggregate purchase price for the shares equals $118,756. The warrants shall be exercisable prior to the earlier of the tenth annual anniversary date of the grant date or fifth anniversary date of Trimeris' Initial Public Offering. The shares have not been issued as of December 31, 1996. During the year ended December 31, 1995, the lease with the aforementioned lessor was amended to increase the credit limit by $750,000 to $2.0 million. As part of this amendment, Trimeris granted the lessor additional warrants to purchase shares valued at $71,250 of Series B Preferred Stock at the initial per share offering price. 3. NOTES PAYABLE In March 1995, the Company entered into a Financial Assistance Agreement with the North Carolina Biotechnology Center (the "Center"). Under this agreement, the Center agreed to extend to the Company a line of credit up to $250,000 for the funding of certain research performed by the Company. This note payable is unsecured and bears interest at 8.5% on the balance of all outstanding principal. The note matures in March 2000, at which time principal and accrued interest is to be F-9 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 3. NOTES PAYABLE -- Continued repaid. At December 31, 1995, 1996 and June 30, 1997 (unaudited), the total principal and interest due were $162,218, $262,600 and $284,000, respectively. In November 1995, the Company entered into a Collaborative Funding Assistance Agreement with the Center. Under this agreement, the Center agreed to lend the Company up to $10,000 for the funding of certain research performed by the Company. This note payable is unsecured and bears interest at 8.75% on the balance of all outstanding principal. The note matures in December 2000, at which time principal and accrued interest is to be repaid. At December 31, 1995, 1996 and June 30, 1997 (unaudited), the total principal due was $4,500, $9,000 and $10,000, respectively. 4. STOCKHOLDERS' EQUITY (DEFICIT) The Company has the authority to issue 121,750,000 shares of stock consisting of 69,750,000 shares of Common Stock, par value $0.001 per share, and 52,000,000 shares of Preferred Stock, par value $0.001 per share, of which 3,000,000 shares shall be designated Series A Preferred Stock, 29,000,000 shares shall be designated Series B Preferred Stock, and 20,000,000 shares shall be designated Series C Preferred Stock. During 1996 and the six months ended June 30, 1997 (unaudited), loans with an interest rate of 8% totaling $14,000 and $249,540, respectively, were issued to employees of the Company for purchase of shares of the Company's Common Stock. This amount has been presented as contra-equity in the statement of stockholders' equity (deficit). PREFERRED STOCK DIVIDENDS Holders of the Preferred Stock are not entitled to receive dividends, provided however, that in the event the Company shall at any time declare or pay a dividend on the Common Stock, other than a stock dividend, each holder of Preferred Stock shall receive a dividend equal to the dividend that would have been payable to such holder if the Preferred Stock had been converted into Common Stock on the date of record for holders of the Common Stock. In the event of a merger or consolidation, holders of Preferred Stock will have the right to redeem the shares within 15 days of receipt of such notice. Any redeemed shares will be considered permanently retired. LIQUIDATION Upon any liquidation, dissolution, or winding up of the Company, holders of the Preferred Stock shall be entitled, before any distribution is made upon the Common Stock, to be paid for each share in cash an amount equal to (i) $0.67 per share in the case of the Series A Preferred Stock, (ii) $0.50 per share in the case of the Series B Preferred Stock or (iii) $0.60 per share in the case of Series C Preferred Stock in addition to other considerations. If the assets to be distributed are insufficient to permit full payment to the preferred stockholders, then the assets of the Company shall be distributed on a pro rata basis to each class of preferred stockholders. The value of any noncash distribution shall be determined by an independent appraiser or securities exchange if the item is an actively traded security. CONVERSION Holders of Preferred Stock have the right, at any time, to convert into such number of shares of common stock as is obtained by multiplying the number of shares to be converted by the preferred stock's "Basic Liquidation Preference" ($0.67 for Series A Preferred Stock, $0.50 for Series B Preferred Stock $0.60 for Series C Preferred Stock and $0.75 for Series D Preferred Stock) and dividing such amount by the Preferred Stock's conversion price in effect at the time of conversion. The respective preferred stock conversion prices are as follows as of December 31:
1994 1995 1996 Series A......................................... $0.670 $0.534 $0.524 Series B......................................... -- 0.500 0.500 Series C......................................... -- -- 0.600
F-10 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 4. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued The Preferred Stock conversion price will be reduced in the event of the Company's issuing any shares of its Common Stock without consideration or for a consideration per share of less than the conversion price of any series of Preferred Stock in effect immediately prior to the time of such issue or sale, subject to certain limitations. The Company shall at times reserve and keep available out of its authorized Common Stock or treasury shares, such number of common shares sufficient to cover the conversion of all outstanding Preferred Stock. The Company may at its option, require the conversion of all (but not less than all) the shares at the time outstanding if the Company shall complete a firm commitment underwritten public offering involving the sale of the Company's Common Stock (i) at a price to the public of at least $10 per share appropriately adjusted for stock splits and dividends and stock combinations, and (ii) yielding gross proceeds to the Company of at least $20 million. VOTING Each holder of Preferred Stock shall be entitled to one vote for each share of Common Stock which would be issuable to holder upon conversion. Each holder of Common Stock is entitled to one vote per share. Preferred and common stockholders shall vote together as a class. RESTRICTIONS The Company cannot, without the consent of the preferred stockholders: (i) authorize any new classes of stock unless that class ranks junior to the Preferred Stock, (ii) increase the authorized amount of Preferred Stock, or (iii) authorize any obligation or security which is convertible into Preferred Stock. COMMON STOCK DIVIDENDS The holders of Common Stock shall be entitled to receive dividends as from time to time may be declared by the Board of Directors taking into account the rights of the preferred stockholders. LIQUIDATION After payment to the preferred stockholders as discussed above, holders of Common Stock shall be entitled, together with the holders of Preferred Stock, to share ratably, according to the number of shares held by them in all remaining assets of the Company available for distribution. 5. STOCK OPTION PLAN In 1993, the Company adopted a stock option plan which allows for the issuance of non-qualified and incentive stock options. During 1996, the Trimeris, Inc. New Stock Option Plan (the "Stock Option Plan") was implemented that replaced the 1993 plan. Under this new Stock Option Plan, the Company may grant non-qualified or incentive stock options for up to 4,545,000 shares of Common Stock. The exercise price of each option shall not be less than the fair market value of the Company's Common Stock on the date of grant and an option's maximum term is ten years. All outstanding incentive stock options have been issued at $.04. The vesting period occurs ratably over four years. All incentive stock options which had been granted under the 1993 plan were cancelled at inception of the new Stock Option Plan while the non-qualified stock options remain outstanding at an exercise price of $.05. No more grants will be made under the 1993 plan. F-11 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 5. STOCK OPTION PLAN -- Continued Stock option transactions for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited) are as follows:
JUNE 30, 1994 1995 1996 1997 (UNAUDITED) Options outstanding at January 1......................................... 27,276 141,411 166,191 482,804 Granted.................................................................. 114,341 37,753 572,206 100,782 Exercised (at $.43/share)................................................ (147) (4,755) (28,394) (319,540) Cancelled................................................................ (59) (8,218) (227,199) (3,720) Options outstanding at end of period..................................... 141,411 166,191 482,804 260,326
The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, compensation cost related to stock options issued to employees would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. For the period ended June 30, the Company has recorded a deferred charge of $2.0 million, representing the difference between the exercise price and the deemed fair value of the Company's Common Stock for 347,529 shares of Common Stock and 79,959 shares subject to Common Stock Options granted in the second quarter of 1997. The deferred compensation will be amortized to expense over the period the shares and options vest, generally four years. SFAS 123, Accounting for Stock-Based Compensation, permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25. The pro forma disclosures have not been included as the fair value of the options granted in 1996 and 1995 are immaterial. 6. INCOME TAXES At December 31, 1996, the Company has net operating loss carryforwards (NOL's) for federal income tax purposes of approximately $17.4 million which expire in varying amounts between 2009 and 2012. The Company has NOL's for state tax purposes of approximately $17.4 million which expire in varying amounts between 1999 and 2002. Additionally, the Company has research and development credits of $261,000 which expire in varying amounts between 2008 and 2011. The Tax Reform Act of 1986 contains provisions which limit the ability to utilize net operating loss carryforwards in the case of certain events including significant changes in ownership interests. If the Company's NOL's are limited, and the Company has taxable income which exceeds the permissible yearly NOL, the Company would incur a federal income tax liability even though NOL's would be available in future years. F-12 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 6. INCOME TAXES -- Continued The components of deferred tax assets and deferred tax liabilities as of December 31, 1995 and 1996 and June 30, 1997 (unaudited) are as follows:
JUNE 30, 1995 1996 1997 (UNAUDITED) Deferred tax assets: Tax loss carryforwards......................................................... $ 4,100,000 $ 6,823,000 $ 8,165,000 Tax credits.................................................................... 158,000 261,000 297,000 Reserves and accruals.......................................................... 76,000 211,000 56,000 Start-up costs................................................................. 114,000 109,000 57,000 4,448,000 7,404,000 8,575,000 Valuation allowance.............................................................. (4,448,000) (7,404,000) (8,575,000) Net deferred asset............................................................. -- -- -- Deferred tax liabilities: Deferred tax liability......................................................... -- -- -- Net deferred tax assets and (liability)..................................... $ -- $ -- $ --
The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. 7. PROFIT SHARING PLAN The Company has adopted a 401(k) Profit Sharing Plan (the "Plan") covering all qualified employees. The effective date of the Plan is January 1, 1994. Participants may elect a salary reduction from 1% to 10% as a contribution to the Plan. Modifications of the salary reductions may be made annually. The Plan permits the Company to match up to 8% of a participant's salary, but to date, the Company has elected not to match participants' contributions. The normal retirement age shall be the later of a participant's 65th birthday or the fifth anniversary of the first day of the Plan year in which participation commenced. The Plan does not have an early retirement provision. 8. SUPPLEMENTARY CASH FLOW INFORMATION Capital lease obligations of $345,104, $330,168 and $195,179 were incurred in 1995 and 1996 and for the six months ended June 30, 1997 (unaudited), respectively, for leases of new furniture and equipment. During 1995, the Company exchanged notes payable to stockholders, including accrued interest of $6.4 million for Series B Preferred Stock. Shares issued under the license and consulting agreements have been valued by the Board of Directors taking into consideration the fair value of the most recently issued preferred stock or the value of the services, whichever is more readily determinable. 9. EQUITY FINANCING An initial investment of $2 million was provided by Domain Partners II, L.P. ("Domain") and Biotechnology Investments Limited ("BIL") to fund the start up phase of the Company. During the year ended December 31, 1995, Domain, BIL and others invested an additional $3.9 million to fund continued operations of the Company through the purchase of shares of Series B Preferred Stock. In addition, the Company exchanged notes payable, including accrued interest, of $6.4 million for shares of Series B Preferred Stock. These notes were payable to Domain and BIL and were entered into during the years ended December 31, 1994 and 1995. A total of 20,635,564 shares were issued for a total consideration of $10.3 million. F-13 TRIMERIS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- CONTINUED 9. EQUITY FINANCING -- Continued In March and October 1996, Domain, BIL, and others invested an additional $5.3 million to fund continued operations of the Company through the purchase of 6,500,000 shares of Series B Preferred Stock and 3,333,335 shares of Series C Preferred Stock, respectively. Common stock was issued during 1994, 1995, and 1996 through purchase by Company personnel and also through the exercise of stock options. 10. CONTINGENCIES The Company is involved in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company. 11. SUBSEQUENT EVENTS (a) During the six months ended June 30, 1997 equity financing of approximately $12.8 million has been received from current and new investors. (b) The Company's Certificate of Incorporation was amended on July 11, 1997, giving the Company the authority to issue 142,666,667 shares of stock consisting of 80,000,000 shares of Common Stock, par value $.001 per share, and 62,666,667 shares of Preferred Stock, par value $0.001 per share, of which 3,000,000 shares shall be designated Series A Preferred Stock, 29,000,000 shares shall be designated Series B Preferred Stock, 20,000,000 shares shall be designated Series C Preferred Stock, and 10,666,667 shares shall be designated Series D Preferred Stock. (c) During 1997, the Company entered into agreements for the production of drug material which require maximum payments of approximately $2.3 million, subject to acceptance of the material under the terms of the contracts. F-14 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. TABLE OF CONTENTS
Page Prospectus Summary............................... 3 Risk Factors..................................... 6 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....................................... 39 Certain Transactions............................. 45 Principal Stockholders........................... 46 Description of Capital Stock..................... 48 Shares Eligible for Future Sale.................. 49 Underwriting..................................... 51 Legal Matters.................................... 53 Experts.......................................... 53 Additional Information........................... 53 Index to Financial Statements.................... F-1
UNTIL , 1997 (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. 2,500,000 Shares [LOGO] Trimeris, Inc. Common Stock PROSPECTUS , 1997 UBS Securities Montgomery Securities PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses to be paid by Trimeris, Inc. (the "Registrant" or the "Company") in connection with the issuance and distribution of the securities being registered hereby other than underwriting discounts and commissions. Registration Fee -- Securities and Exchange Commission............................................................ $ 12,197 Filing Fee -- National Association of Securities Dealers, Inc..................................................... 4,525 Filing and Listing Fee -- Nasdaq National Market.................................................................. 42,177 Transfer Agent's Fee and Expenses*................................................................................ 5,000 Legal Fees and Expenses*.......................................................................................... 325,000 Printing and Engraving Expenses*.................................................................................. 175,000 Accounting Fees and Expenses*..................................................................................... 150,000 Blue Sky Fees and Expenses (including legal fees)*................................................................ 15,000 Miscellaneous*.................................................................................................... 71,101 Total...................................................................................................... $800,000
* Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") permits indemnification of officers and directors of the Company under certain conditions and subject to certain limitations. Section 145 of the DGCL 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 and 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 DGCL. The Company's Third Amended and Restated Certificate of Incorporation to be filed upon the completion of this Offering contains certain provisions permitted under DGCL relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in certain circumstances involving certain wrongful acts, such as (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 which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, (iv) for any transaction from which the director derives an improper personal benefit or (v) acts or omissions occurring prior to the date of these provisions. These provisions do not limit or eliminate the rights of the Company or any stockholder to seek equitable relief, such as an injunction or rescission, in the event of a breach of director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. The Company's Third Amended and Restated Certificate of Incorporation also contains provisions indemnifying the directors and officers of the Company to the fullest extent permitted by DGCL. The Amended and Restated Bylaws of the Company to be effective upon the completion of this Offering provides that the Company shall indemnify its directors and executive officers to the fullest extent permitted by the DGCL. 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 DGCL. The Company intends to enter into indemnification agreements with each of its directors and executive officers prior to the completion of the Offering. Generally, the indemnification agreements will provide the maximum protection available under DGCL as it may be amended from time to time. Under such indemnification agreements, 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 II-1 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 Underwriting Agreement (to be filed as Exhibit 1.1 to this Registration Statement) contains provisions by which the Underwriters have agreed, severally and not jointly, to indemnify and hold harmless 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, from and against any liability caused by any information furnished in writing by the Underwriters for use in the Registration Statement. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Except as hereinafter set forth, there have been no securities sold by the Registrant within the last three years which were not registered under the Securities Act of 1933, as amended (the "Securities Act "). Amounts in this Item 15 have been adjusted to reflect the 1-for-8.5 reverse stock split of the Registrant effected on July 11, 1997. (a) Issuances of Securities On July 1, 1997, the Registrant issued 10,589 shares of Common Stock to a key employee of the Registrant at a purchase price of $.43 per share. On June 27, 1997, the Registrant issued 9,047,962 shares of Series D Preferred Stock to certain existing stockholders and new investors at a purchase price of $.75 per share. On June 11, 1997, the Registrant issued an aggregate of 117,648 shares of Common Stock to certain executive officers and key employees of the Registrant at a purchase price of $.43 per share payable pursuant to the terms of certain promissory notes. On June 2, 1997, the Registrant issued an aggregate of 219,295 shares of Common Stock to certain executive officers and key employees of the Registrant at a purchase price of $.43 per share payable pursuant to the terms of certain promissory notes. In a series of closings held on October 7, 1996, January 16, 1997, March 27, 1997 and April 29, 1997, the Registrant issued an aggregate of 13,317,739 shares of Series C Preferred Stock to certain existing stockholders and new investors at a purchase price of $.60 per share. On October 31, 1996, the Registrant issued an aggregate of 41,177 shares of Common Stock to certain executive officers and key employees of the Registrant at a purchase price of $.34 per share payable pursuant to the terms of certain promissory notes. On June 25, 1996, the Registrant issued an aggregate of 14,118 shares of Common Stock to a former executive officer of the Registrant at a purchase price of $.34 per share. On January 26, 1996, the Registrant issued an aggregate of 589 shares of Common Stock to consultants of the Registrant at a purchase price of $.43 per share. On July 31, 1995, the Registrant issued a warrant to purchase up to an aggregate of 100,000 shares of Series B Preferred Stock (which warrant has been amended to provide for the purchase shares of Common Stock upon the completion of this Offering) at an exercise price of $0.50 per share to North Carolina Biotechnology Center. In a series of closings held on July 17, 1995, August 16, 1995, and March 22, 1996, the Registrant issued an aggregate of 27,135,564 shares of Series B Preferred Stock to existing stockholders and new investors at a purchase price of $.50 per share. On March 1, 1995, the Registrant issued an aggregate of 17,648 shares of Common Stock to certain executive officers and key employees of the Registrant at a purchase price of $.43 per share. On February 21, 1995, the Registrant issued 5,883 shares of Common Stock to an executive officer of the Registrant at a purchase price of $.43 per share. II-2 On September 16, 1994, the Registrant sold 11,765 shares of Common Stock to a former executive officer at a purchase price of $.43 per share. In a series of transactions on August 24, 1993, October 26, 1994 and February 7, 1995, the Registrant issued warrants to purchase an aggregate of 381,808 shares of Series B Preferred Stock (which warrant has been amended to provide for the purchase of shares of Common Stock upon the completion of this Offering) at an exercise price of $0.50 per share to its venture leasing partner in consideration for certain leasing arrangements. Since June 1994, the Registrant has issued options to certain employees, directors, consultants and others to purchase an aggregate of 676,282 shares of Common Stock at a weighted average exercise price of $.44 per share. 347,978 of such options have been exercised, 260,326 of such options remain outstanding at a weighted average exercise price of $.59 per share and 77,856 of such options have beem terminated. (b) No underwriters were involved in connection with the sales of securities referred to in paragraph (a) of this Item 15. (c) The shares of Series B, Series C and Series D Preferred Stock described in paragraph (a) of this Item 15 were issued in reliance on the exemption provided by Rule 506 of Regulation D promulgated pursuant to the Securities Act, as well as Section 4(2) of the Securities Act. The issuances of compensatory stock awards, stock options and the shares of Common Stock upon the exercise thereof as described in paragraph (a) of this Item 15 were issued in reliance upon the exemption provided by Section 3(b) of the Securities Act and Rule 701 promulgated thereunder, as well as Section 4(2) of the Securities Act. The warrants described in paragraph (a) of this Item 15 were issued upon reliance on exemption provided by Section 4(2) of the Securities Act. Appropriate legends are affixed to the stock certificates and warrant certificates issued in the aforementioned transactions. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 * Form of Underwriting Agreement. 3.1 * Second Restated Certificate of Incorporation of the Registrant. 3.2 * Form of Third Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the Secretary of State of Delaware upon the completion of the Offering). 3.3 * Bylaws of the Registrant. 3.4 * Form of Amended and Restated Bylaws of the Registrant (to be adopted upon the completion of the Offering). 4.1 * Specimen certificate for shares of Common Stock. 4.2 * Description of Capital Stock (contained in the Third Amended and Restated Certificate of Incorporation of the Corporation of the Registrant, filed as Exhibit 3.2). 5.1 * Opinion of Hutchison & Mason PLLC with respect to the legality of the shares being registered. 10.1 License Agreement dated February 3, 1993, between the Registrant and Duke University. 10.2 Sublease Agreement dated November 19, 1993, by and among the Registrant, Sphinx Pharmaceuticals Corporation and University Place Associates and as amended by the Lease Amendment dated August 15, 1994, and Second Agreement of Sublease dated January 16, 1995. 10.3 Cooperation and Strategic Alliance Agreement dated April 21, 1997, between the Registrant and MiniMed Inc. 10.4 * Trimeris, Inc. New Stock Option Plan. 10.5 * Trimeris, Inc. Employee Stock Purchase Plan. 10.6 * Form of Promissory Notes executed by certain executive officers in favor of the Registrant, and related collateral documents. 10.7 * Form of Stock Restriction Agreements between the Registrant and certain executive officers. 10.8 * Form of Stock Pledge Agreement between the Registrant and certain executive officers. 10.9 Employment Offer Letter with M. Ross Johnson dated December 15, 1994. 10.10 Employment Offer Letter with Matthew A. Megaro dated February 23, 1995. 10.11 Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by and among the Registrant and certain stockholders of the Registrant. 10.12* Agreement with Max N. Wallace dated July 10, 1997. 11.1 Computation of Net Income (Loss) Per Share. 23.1 * Consent of Hutchison & Mason PLLC (included in Exhibit 5.1). 23.2 Consent of KPMG Peat Marwick, LLP, Independent Auditors. 23.3 Consent of Pennie & Edmonds. 24.1 Power of Attorney (included in signature page to Registration Statement). 27 Financial Data Schedule.
II-3 * To be filed by amendment (b) Financial Statement Schedules. All financial statement schedules have been omitted because either they are not required, are not applicable, or the information is otherwise set forth in the Financial Statements and Notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing or closings specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit promt delivery to each purchaser. The undersigned Registrant hereby further undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, 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(b) 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 of 1933, 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant 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 of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant 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 of 1933, as amended, and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant 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 this 11th day of July, 1997. TRIMERIS, INC. By: /s/ M. ROSS JOHNSON M. ROSS JOHNSON, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIFIC OFFICER POWER OF ATTORNEY We, the undersigned directors and/or officers of Trimeris, Inc. (the "Company"), hereby severally constitute and appoint M. Ross Johnson, President, Chief Executive Officer and Chief Scientific Officer and Matthew A. Megaro, Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the date indicated below. WITNESS our hands on this 11th day of July, 1997. /s/ JESSE I. TREU /s/ ANDREW MCCREATH Jesse I. Treu, Ph.D. Andrew McCreath Chairman of the Board of Directors Director /s/ DANI P. BOLOGNESI /s/ MATTHEW A. MEGARO Dani P. Bolognesi, Ph.D. Matthew A. Megaro Director Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary (Principal Accounting and Financial Officer) /s/ BRIAN H. DOVEY /s/ CHARLES A. SANDERS Brian H. Dovey Charles A. Sanders, M.D. Director Director /s/ M. ROSS JOHNSON M. Ross Johnson, Ph.D. President, Chief Executive Officer, Chief Scientific Officer and Director (Principal Executive Officer)
EX-10.1 2 LICENSE AGREEMENT LICENSE AGREEMENT This Agreement is made by and between DUKE UNIVERSITY ("LICENSOR"), a nonprofit educational and research organization organized under the laws of North Carolina, and having its principal office at Durham, North Carolina, and SL-l PHARMACEUTICALS, INC. ("LICENSEE"), a Delaware corporation having its principal office at Durham, North Carolina. WHEREAS, Dani P. Bolognesi, Ph.D., is James B. Duke Professor of Surgery at Duke University and is the Director of the Duke University Center for AIDS Research; and WHEREAS, in these capacities, Dr. Bolognesi leads a team of researchers which includes Drs. Thomas J. Matthews, Alphonse Langlois, Kent J. Weinhold, Michael L. Greenberg, and Carl T. Wild (collectively referred to as the "Research Team", which is defined in 1.10 below); and WHEREAS, the Research Team has engaged in research, and plans to continue research in their laboratories at the LICENSOR, toward the development of certain Subject Technology (as hereinafter defined) in the Defined Field (as hereinafter defined); and WHEREAS, in the course of their research, Drs. Bolognesi, Matthews, and Wild have invented certain technology (hereinafter referred to as the "Duke Invention" and hereinafter defined), and LICENSOR owns all rights, title, and interest in and to the Duke Invention, including related patents, patent applications, and unpatented technology; and WHEREAS, LICENSOR has the right to grant licenses to the Duke Invention and to future inventions of the Subject Technology falling within the Defined Field, and wishes to have those Inventions utilized in the public interest; and WHEREAS, LICENSOR is willing to grant an exclusive license to LICENSEE to the Subject Technology, including any future developments and improvements thereto, by means of an irrevocable, fully paid, royalty-free, world-wide license, in accordance with the terms hereof; and WHEREAS, the LICENSEE is willing to offer as consideration for the subject license 820,000 shares of the common stock (the "Common Stock") of LICENSEE. NOW, THEREFORE, in consideration of the foregoing recitals, the covenants and agreements set forth herein, and other good and 1 valuable consideration including, but not limited to, the Common Stock of the LICENSEE to be issued to the LICENSOR as hereinafter described, the full receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE 1 - DEFINITIONS 1.01. "Assistant" shall mean any employee, agent, assistant or staff member of the Licensor under supervision of the Research Team. Each Assistant shall execute a memorandum of this Agreement to acknowledge her or his consent to be bound by the terms and conditions of this agreement relating to compensation under 3.03 below. 1.02. "Defined Field" shall mean the biomedical field of research involving the discovery, development and application of novel antiviral therapeutics; provided, however, "Defined Field" shall include diagnostics only for LICENSEE's internal research purposes and not for commercialization, and shall not include prophylactic vaccines. 1.03. "Duke Invention" shall mean the invention entitled COMPOUNDS WHICH INHIBIT HIV REPLICATION, Duke file 00799, for which an application for United States Letters Patent was filed in the United States Patent and Trademark Office on 20 July 1992 under Serial Number 07/916,540, invented by Carl T. Wild, Ph.D., Thomas J. Matthews, Ph.D., and Dani P. Bolognesi, Ph.D. 1.04. "Effective Date" shall mean the date of execution of this Agreement 1.05. "Future Technology" shall mean any Invention within the Defined Field made, developed, discovered or disclosed, either solely or jointly, within seven (7) years of the effective date of this agreement by any member or members of the Research Team or any Assistant, and shall include any rights of the University under any domestic or foreign patent applications with respect thereto and any continuations, continuations-in-part and divisionals thereof, and any domestic or foreign patents issuing with respect thereto, including any substitutes or reissues thereof. The determination of whether an Invention is within the Defined Field shall be made by LICENSOR within thirty (30) days of disclosure of such invention. Written notice of such determination shall be given by LICENSOR to LICENSEE within ten (10) days of such determination and if LICENSEE does not agree with said determination, LICENSEE shall give written notice of such disagreement to LICENSOR within ten (10) days of receipt of notice of such determination. If the parties cannot agree as to the determination within thirty (30) days of LICENSEE's notice of disagreement, then LICENSEE may submit the issue to arbitration in accordance with the procedure described herein. In each such 2 instance, LICENSEE shall give written notice to LICENSOR that arbitration under this provision is being invoked, and each party shall thereafter select one individual as an arbitrator within 15 days of such notice. Each of the two arbitrators selected by the parties shall select a third arbitrator and the three arbitrators shall comprise the panel which shall decide the issue. All proceedings under this provision shall be governed by the rules of the American Arbitration Association; provided, however, in any event the proceedings shall be completed and a decision rendered within one hundred and eighty (180) days following the selection of the third arbitrator by the arbitrators selected by LICENSOR and LICENSEE. All decisions rendered by arbitration under this provision shall be final, binding on the parties, not subject to appeal in any court of law or otherwise. 1.06. "Invention" shall mean any discovery, development, design, improvement, formula, process, technique, program, know-how, data or other information of any technical or commercial importance, whether or not patented or patentable. 1.07. "Licensed Product" shall mean any product which is produced or sold by LICENSEE that utilizes the Subject Technology. 1.08. "Net Sales" shall mean the gross sales of Licensed Products sold pursuant to this Agreement, less allowances to customers for spoiled, damaged, and returned goods, less quantity, trade, and cash discounts, and less transportation costs, use and sales taxes, and value added taxes. Net Sales shall include commissions paid to sales persons or agents and costs of collections. Licensed Products used by LICENSEE for its own use in the Field shall be considered to be "Net Sales" for purposes of computing royalty obligations, except such Licensed Products used for non-revenue producing activity such as promotional items or field trials. 1.09. "Subject Technology" shall mean the technology licensed hereunder, including the Duke Invention and Future Technology. 1.10. "Research Team" shall mean the following researchers who are working together at the Effective Date: Drs. Dani P. Bolognesi, Michael L. Greenberg, Alphonse Langlois, Thomas J. Matthews, Kent J. Weinhold, and Carl T. Wild; and shall also include other scientists who shall be added to the Research Team from time to time by written notification of the addition by the LICENSOR to the LICENSEE within thirty (30) days of such addition. Notice of the removal of a member of the Research Team for any reason shall be given in writing by LICENSOR to LICENSEE within thirty (30) days of such removal. Each member of the Research Team shall execute a copy of this Agreement to acknowledge her or his consent to be bound by the terms and 3 conditions of this agreement. ARTICLE 2 - LICENSE 2.01. LICENSOR hereby grants to the LICENSEE and LICENSEE hereby accepts from LICENSOR, upon the terms and conditions herein specified, an exclusive license to use and exploit the Subject Technology and to make, have made, use, market, sell and otherwise distribute Licensed Products, with the right to sub-license as provided in 2.02 below. Such license is worldwide to the full end of the term or terms for which Patent Rights are issued, unless sooner terminated as hereinafter provided. 2.02. To the extent of the License granted under this Agreement, LICENSEE shall have the unrestricted right to sublicense to third parties (a) the Subject Technology and (b) the right to make, have made, use, market, sell or distribute Licensed Products during the term of this Agreement. Any such sublicenses shall be subject to the terms of this Agreement and shall be no less favorable to the LICENSOR than the license granted by this Agreement. LICENSEE will be responsible for the performance hereunder by sublicensees, if any. Should LICENSEE cancel the Agreement, LICENSEE agrees to assign all such sublicenses directly to LICENSOR. 2.03. Within thirty (30) days following the execution of this Agreement and thereafter during the period of this Agreement, LICENSOR agrees to provide LICENSEE with copies of all technical know-how it may have or later obtain relative to the Subject Technology, and copies of any and all patents or patent applications owned or controlled by the LICENSOR covering the Subject Technology or the use of the Subject Technology or processes for the manufacture of the Subject Technology, including all Patent Office actions received and amendments filed, if any, relative thereto. 2.04. LICENSEE shall not disclose any unpublished technology, know-how, and data included within Subject Technology or Patent Rights and furnished by DUKE pursuant to Article 2.03 above to third parties during the term of this AGREEMENT or at any time thereafter; provided, however, that such disclosure may be made at any time: (a) with the prior written consent of DUKE, or (b) after the same shall have become public through no fault of LICENSEE. 2.05. LICENSEE agrees to diligently pursue the development of the Subject Technology. This will include manufacturing or producing Licensed Products utilizing the Subject Technology for testing, development, and sale, and also seeking required governmental approvals of such Licensed Product. A copy of the development plan for the Subject Technology is attached to and made a part of this Agreement as Exhibit A. 4 LICENSEE shall provide LICENSOR with copies of revisions of Exhibit A, and copies of new development plans for the Subject Technology upon request. ARTICLE 3 - CONSIDERATION 3.01 In consideration for the License granted pursuant to this Agreement, the LICENSEE shall issue to the LICENSOR Eight Hundred and Twenty Thousand (820,000) shares of Common Stock of the LICENSEE (collectively, the "Shares"). The issuance to the LICENSOR of the Shares as set forth above shall be in lieu of any royalty for the License granted hereunder. Moreover, the LICENSOR expressly acknowledges and agrees that the issuance by the LICENSEE of the Shares to the LICENSOR shall be adequate and satisfactory consideration for the License by the LICENSOR to the LICENSEE of any Future Technology during the term hereof. 3.02. During the term of this Agreement, representatives of LICENSOR will meet with representatives of LICENSEE at times and places mutually agreed upon to discuss the progress and results, as well as ongoing plans, with respect to the evaluation and development of Inventions licensed to LICENSEE. Provided, however, that should LICENSOR's personnel agree to consult the LICENSEE outside of Durham, North Carolina, LICENSEE will reimburse reasonable travel and living expenses incident thereto. 3.03. The parties acknowledge that Assistants and other research personnel and collaborators from other laboratories at the University and elsewhere may have certain rights in Future Technology and that it may be appropriate to compensate such personnel under applicable University policies for the transfer of Future Technology to the LICENSEE made under this Agreement. If such a compensation issue arises, the parties agree that they will provide such third party with the option to receive either (a) an immediate cash payment from LICENSEE of an amount agreed upon by the LICENSOR, LICENSEE, and the third party to be compensated for all of the third party's rights in the Future Technology, or (b) compensation to be paid by LICENSEE and based on future commercial sales of any Licensed Products incorporating such Future Technology. If the third party chooses the compensation option based on sales [(3.03(b) above], the third party's compensation shall be based on a formula as if the LICENSOR were entitled to receive from LICENSEE a royalty for LICENSEE's net sales of a Licensed Product, and said formula shall be whatever share of the gross royalties due to the LICENSOR to which that third party would be entitled under the University's Policy on Inventions, Patents, and Technology Transfer assuming that the University is receiving a royalty rate of 5% of Net Sales on any Licensed Product. ARTICLE 4 - PATENTS 5 4.01. Subject to the terms set forth below, LICENSEE will be responsible, at its own expense, for the filing and prosecution of applications for and maintenance of the appropriate United States and foreign letters patent for the Subject Technology. The LICENSOR shall have the right to review and approve (which approval will not be unreasonably withheld) such patent applications. The LICENSOR and the LICENSEE shall cooperate with each other in the prosecution of such patent applications to ensure that any such patent applications reflect, to the best of their knowledge, all items of commercial and technical interest and importance to the prosecution thereof. 4.02. The LICENSEE shall provide the LICENSOR with at least sixty (60) days notice of the foreign countries in which the LICENSEE intends to seek patent protection for the Subject Technology. The LICENSOR may elect to seek patent protection in countries not pursued by the LICENSEE, in which case the LICENSOR shall be responsible for all expenses related to such patent filings. In such instances, the LICENSEE shall forfeit its rights under this License Agreement as to those countries. 4.03. LICENSEE shall give LICENSOR prompt notice of any claim or allegation received by it that the manufacture, use, or sale of any Licensed Product constitutes an infringement of a third party patent or patents. LICENSEE shall have the primary right and responsibility, at its own expense, to defend and control the defense of any such claim against LICENSEE, by counsel of its choosing. The settlement of any such actions must be approved by LICENSOR, which approval shall not be unreasonably withheld. LICENSOR agrees to cooperate with LICENSEE in any reasonable manner deemed by LICENSEE to be necessary in defending or prosecuting such action. LICENSEE shall reimburse LICENSOR for all reasonable expenses incurred in providing such assistance. Notwithstanding the foregoing, LICENSOR, in its sole discretion and at its own expense, shall be entitled to participate through counsel of its own choosing in any such action. 4.04. In the event that any patent rights licensed to LICENSEE are infringed by a third party, LICENSEE shall have the primary right, but not the obligation, to institute, prosecute and control any action or proceeding with respect to such infringement, by counsel of its choice, including any declaratory judgment action arising from such infringement. Notwithstanding the foregoing, LICENSOR, in its sole discretion and at its own expense, shall be entitled to participate through counsel of its own choosing, in any such action; In the event that LICENSEE fails to take appropriate action in this regard, LICENSOR shall have the right to institute, prosecute and control any such action or proceeding. 6 ARTICLE 5 - GOVERNMENT CLEARANCE, PUBLICATION, OTHER USE, EXPORT 5.01. LICENSEE agrees to use its best efforts to have the Subject Technology cleared for marketing in those countries in which LICENSEE intends to sell Licensed Products by the responsible government agencies requiring such clearance. To accomplish such clearances at the earliest possible date, LICENSEE agrees to file, according to the usual practice of LICENSEE, any necessary data with such government agencies. Should LICENSEE cancel this Agreement, LICENSEE agrees to assign its full interest and title in such market clearance application, including all data relating thereto, to LICENSOR at no cost to LICENSOR. 5.02. LICENSEE further agrees that the right of publication of Subject Technology shall reside in the inventor. LICENSOR agrees to submit to LICENSEE for its review, a copy of any proposed publication relating to the Subject Technology at least sixty (60) days prior to the estimated date of publication, and if no response is received within thirty (30) days of the date submitted to LICENSEE, it will be conclusively presumed that the publication may proceed without delay. If LICENSEE determines that the proposed publication contains patentable subject matters which require protection, LICENSEE may require the delay of the publication for a period of time not to exceed sixty (60) days for the purpose of allowing the pursuit of such protection. LICENSEE shall also have the right to publish and/or co-author any publication regarding the application of the Subject Technology. 5.03. It is agreed that, notwithstanding any provisions herein, LICENSOR is free to use the Subject Technology for its own education, teaching, research, and clinical purposes without restriction and without payment of royalties or other fees. 5.04. This Agreement is subject to all of the United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes, and other commodities and technology. ARTICLE 6 - DURATION AND TERMINATION 6.01. This Agreement shall become effective upon the Effective Date, and unless sooner terminated in accordance with any of the provisions herein, shall remain in full force and effect for the life of the last-to-expire of the patents included in the Patent Rights. 6.02. LICENSEE may terminate this Agreement by giving LICENSOR written notice at least ninety (90) days prior to such 7 termination, and thereupon terminate the manufacture, use, or sale of Licensed Products covered by such patent application or patent. 6.03. Either party may immediately terminate this Agreement for fraud, willful misconduct, or illegal conduct of the other party upon written notice of same to that other party. Except as provided above, if either party fails to fulfill any of its obligations under this Agreement, the non-breaching party may terminate this Agreement, upon written notice to the breaching party, as provided below ("Notice"). Such Notice must contain a full description of the event or occurrence constituting a breach of the Agreement. The party receiving Notice will have the opportunity to cure that breach within sixty (60) days of receipt of Notice. If the breach is not cured within that time, the termination will be effective as of the sixty-first (61st) day following receipt of Notice. A party's ability to cure a breach will apply only to the first two breaches properly noticed under the terms of this Agreement, regardless of the nature of those breaches. Any subsequent breach by that party will entitle the other party to terminate this Agreement upon proper Notice. 6.04. Upon the termination of this Agreement, LICENSEE may notify LICENSOR of the amount of Licensed Products that LICENSEE has on hand and LICENSEE shall then have a license to sell only that amount of Licensed Products. 6.05. If during the term of this Agreement, LICENSEE shall become bankrupt or insolvent or if the business of LICENSEE shall be placed in the hands of a receiver or trustee, whether by the voluntary act of LICENSEE or otherwise, or if LICENSEE shall cease to exists as an active business this Agreement shall immediately terminate. ARTICLE 7 - GOVERNING LAW 7.01. This Agreement shall be construed as having been entered into in the State of North Carolina and shall be interpreted in accordance with and its performance governed by the laws of the State of North Carolina. ARTICLE 8 - NON-ASSIGNABILITY 8.01. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto. However, LICENSEE may not assign its rights in this Agreement without approval of LICENSOR, such approval not to be unreasonably withheld. 8 ARTICLE 9 - NOTICES 9.01. It shall be a sufficient giving of any notice, request, report, statement, disclosure or other communication hereunder, if the party giving the same shall deposit a copy thereof in the Post Office in certified mail, postage prepaid, addressed to the other party at its address hereinafter set forth or at such other address as the other party shall have theretofore in writing designated: LICENSOR Robert Taber, Director Office of Science and Technology M-103B Davison Building Duke University Durham. North Carolina 27708 cc: Office of the University Counsel 011 Allen Building Duke University Durham, North Carolina 27706 LICENSEE SL-1 PHARMACEUTICALS, INC. C/O Mr. Fred D. Hutchison, Attorney Petree Stockton & Robinson 4101 Lake Boone Trail, Suite 400 PO Box 300004 Raleigh, NC 27622 9.02. The date of giving any such notice, request, report, statement, disclosure or other communications shall be the U.S. postmark of such envelope if marked or actual date of receipt if delivered otherwise. ARTICLE 10 - INDEMNITY, INSURANCE, REPRESENTATIONS, STATUS 10.01. LICENSEE agrees to indemnify, hold harmless, and defend LICENSOR, its trustees, officers, employees, agents, and the Research Team, against any and all claims, suits, losses, damages, costs, fees, and expenses, including attorneys fees, resulting from or arising out of the exercise of this license. LICENSEE shall not be responsible for the negligence or intentional wrongdoing of LICENSOR. 9 10.02. LICENSEE shall maintain in force at its sole cost and expense with reputable insurance companies, general liability insurance and products liability insurance coverage in an amount reasonably sufficient to protect against liability under Article 10.01 above. LICENSOR shall have the right to ascertain from time to time that such coverage exists, such right to be exercised in a reasonable manner. In lieu of said coverage, LICENSOR agrees to consider the existence of an adequate self-insurance program as an acceptable alternative. 10.03. Nothing in this Agreement shall be deemed to be a representation or warranty by LICENSOR of the validity of any of the patents or the accuracy, safety, efficacy, or usefulness for any purpose, of any Subject Technology. LICENSOR shall have no obligation, express or implied, to supervise, monitor, review, or otherwise assume responsibility for the production, manufacture, testing, marketing, or sale of any Licensed Product, and LICENSOR shall have no liability whatsoever to LICENSEE or any third parties for or on account of any injury, loss, or damage, of any kind or nature, sustained by, or any damage assessed or asserted against, or any other liability incurred by or imposed upon LICENSEE or any other person or entity, arising out of or in connection with or resulting from: (a) the production, use, or sale of any Licensed Product; (b) the use of any Subject Technology; or (c) any advertising or other promotional activities with respect to any of the foregoing. 10.04. Neither party hereto is an agent of the other party for any purpose whatsoever. ARTICLE 11 - USE OF A PARTY'S NAME 11.01. Neither party will, without the prior written consent of the other party: (a) use in advertising, publicity, or otherwise, any trade-name, trademark, trade device, service mark, symbol, or any abbreviation contraction, or simulation thereof owned by the other party; (b) other than members of the Research Team (provided that they have consented in writing to such use), use the name of any employee or agent of the other party in any publication, publicity, advertising or otherwise; or (c) represent, either directly or indirectly, that any product or service of the other party is a product or service of the representing party or that it is made in accordance with or utilizes the information of the other party. ARTICLE 12 - SEVERANCE 12.01. Each clause of this Agreement is a distinct and 10 severable clause and if any clause is deemed illegal, void, or unenforceable, the validity, legality, or enforceability of any other clause or portion of this Agreement will not be affected thereby. ARTICLE 13 - ENTIRE AGREEMENT 13.01. This Agreement, including any schedules or other attachments which are incorporated herein by reference, contains the entire agreement between the parties as to its subject matter. This Agreement merges all prior discussions between the parties and neither party shall be bound by conditions, definitions, warranties, understandings, or representations concerning such subject matter except as provided in this Agreement as or as may be specified later in writing and signed by the properly authorized representatives of the parties. This Agreement can be modified or amended only by written agreement duly signed by persons authorized to sign agreements on behalf of the parties. ARTICLE 14 - WAIVER 14.01. The failure of a party in any instance to insist upon the strict performance of the terms of this Agreement shall not be construed to be a waiver or relinquishment of any of the terms of this Agreement, either at the time of the party's failure to insist upon strict performance or at any time in the future, and such term or terms shall continue in full force and effect. ARTICLE 15 - TITLES 15.01. All titles and article headings contained in this Agreement are inserted only as a matter of convenience and reference. They do not define, limit, extend, or describe the scope of this Agreement or the intent of any of its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates set forth below. LICENSOR DUKE UNIVERSITY By: /s/ Robert Taber ----------------------------------------------- Title: Director, Office of Science and Technology ------------------------------------------- Date: 2/5/93 -------------------------------------------- 11 ATTEST: By: /s/ Signature Illegible ---------------------------- Assistant Secretary [SEAL] LICENSEE SL-1 PHARMACEUTICALS, INC. By: /s/ Signature Illegible ----------------------------------- Title: Vice President --------------------------------- Date: Feb 3, 1993 --------------------------------- ATTEST: By: /s/ Signature Illegible ---------------------------- Secretary [SEAL] MEMBERS OF THE RESEARCH TEAM: /s/ DANI P. BOLOGNESI ---------------------------------- DANI P. BOLOGNESI, Ph.D. /s/ MICHAEL L. GREENBERG ---------------------------------- MICHAEL L. GREENBERG, Ph.D. /s/ ALPHONSE LANGLOIS ---------------------------------- ALPHONSE LANGLOIS, Ph.D. /s/ THOMAS J. MATTHEWS ---------------------------------- THOMAS J. MATTHEWS, Ph.D. /s/ KENT J. WEINHOLD ---------------------------------- KENT J. WEINHOLD, Ph.D. /s/ CARL T. WILD ---------------------------------- CARL T. WILD, Ph.D. 12 EX-10.2 3 AGREEMENT OF SUBLEASE STATE OF NORTH CAROLINA : COUNTY OF DURHAM : THIS AGREEMENT OF SUBLEASE ("Sublease"), dated as of the 19th day of November 1993, by and between SPHINX PHARMACEUTICALS CORPORATION, a Delaware corporation ("Sublessor"), party of the first part, and TRIMERIS, INC., a North Carolina corporation ("Sublessee"), party of the second part: RECITALS: A. University Place Associates, a North Carolina general partnership, as Landlord, entered into that certain lease with Sphinx Pharmaceuticals Corporation as Tenant, dated the 8th day of March, 1989, as amended and restated by agreement dated as of the 27th day of August, 1991 (the "Lease"), demising property described on Exhibit A-1 to the Lease (the "Property"). A copy of the Lease is attached hereto marked Exhibit 1. B. Sublessee desires to sublease from Sublessor 13,987 square feet of space in the building located on the Property, which space is more particularly described on Schedule A attached hereto (the "Sublease Space"), for a term commencing on the 1st day of November, 1993 and expiring on the 30th day of September, 1999 (the "Term"). C. Sublessor warrants and represents to Sublessee that the Lease is in full force and effect and that it has the right, subject to the consent of Landlord annexed hereto, to sublease the Sublease Space to Sublessee for the Term. NOW, THEREFORE, for and in consideration of the rents, covenants and agreements hereinafter contained on the part of the Sublessee to be paid, kept and performed, does hereby sublet and demise unto Sublessee, and Sublessee hereby leases from the Sublessor, the Sublease Space. TO HAVE AND TO HOLD the same unto the Sublessee, its permitted successors and assigns, for the Term, subject to the Lease and upon the rentals. terms, covenants, conditions and provisions hereinafter set forth. AND Sublessor and Sublessee hereby contract and agree each with the other as follows: 1. Sublessee covenants and agrees to pay to Sublessor at Four University Place, P. O. Box 52330, Durham, N. C. 27717 (Attn: Richard W. Reichow), for the first twelve months of the Term a monthly rental of Twenty-Seven Thousand Nine Hundred Seventy-Four ($27,974.00) Dollars, payable in equal monthly installments in advance, commencing on the first day of the first month of the Term, and continuing thereafter on or before the first day of each successive month for a total of twelve such payments. All payments shall be made without notice or demand, and without abatement, deduction or setoff of any amount whatsoever. For each successive twelve month period monthly rental shall be three (3 %) percent higher than for the immediately preceding twelve month period. For example, during the second twelve months, monthly rental will be $28,813.22, and during the third twelve months will be $29,677.62. 2. In addition to the monthly payment that Sublessee is to pay to Sublessor under ss.1 above, Sublessee shall pay to Sublessor as Additional Rent that portion of Tenant's Proportionate Share of Landlord's Expenses (as those terms are defined in the Lease), which Additional Rent shall be paid at the same time as, and in addition to, the monthly rental payments required under ss.1 above. Sublessor's Proportionate Share of Landlord's Expenses for 29,739 square feet in the 39,038 square foot Building wherein the Sublease Space is located was 76.2%, and, therefore, Sublessee's Proportionate Share of such Landlord Expenses for 13,987 square feet will be 35.83 %. Sublessee shall pay directly for all utility costs and expenses it incurs in the use of the Sublease Space. The cost of utilities metered in more than the Sublease Space will be prorated between Sublessor and Sublessee. 3. Sublessee agrees to accept the Sublease Space in an "as is" condition, and Sublessee acknowledges that it is familiar with such Space and acknowledges that no representations with respect to the condition thereof have been made by Sublessor. Sublessor will vacate the Sublease Space not later than the end of October, 1993, and Sublessee may occupy the same on November 19, 1993. Not later than December 15, 1993, Sublessee shall have completed at its expense construction of demising walls between the Sublease Space and that of Sublessor not herein demised, and will have split the HVAC and electrical service between the Sublease Space and Sublessor's remaining leased premises. Sublessee shall submit to Sublessor and to Landlord for approval its plans for the demising walls and for splitting the HVAC and electrical service (the "Work"), which approval Sublessor and Landlord shall not unreasonably withhold or delay, such Work shall not be undertaken until such approval is obtained. Sublessee shall cause such Work to be done in a good and workmanlike manner, using licensed and insured contractors, and shall promptly pay for the same. while indemnifying Landlord and Sublessor from loss, cost, damage or expenses by reason of any party performing the Work attempting to assert any claim or lien (based on labor or materials used in performing the Work) against the Landlord, Sublessor, or the building where the Sublease Space is located. 4. To the extent not otherwise inconsistent with the agreements and understandings expressed in this Sublease or applicable only to the original parties to the Lease, the terms, provisions, covenants, and conditions of the Lease are incorporated herein by reference on the following understandings: (a) The term "Landlord" as used therein shall refer to Sublessor hereunder, its successors and assigns, and the term "Tenant as used therein shall refer to Sublessee hereunder, its successors and assigns. (b) In any case where the Landlord reserves the right to enter the Premises, said right shall inure to the benefit of the Landlord as well as the Sublessor. -2- (d) Each party hereto agrees to perform and comply with the terms, provisions, covenants, and conditions of the Lease and not to do or suffer or permit anything to be done which would result in a default under or cause the Lease to be terminated or forfeited. (e) In connection with any alterations (as defined in Section 7 of the Lease) desired to be made by Sublessee, the terms of Section 7 shall be applicable to this Sublease as if the words "Landlord" and "Tenant" in said Section were "Sublessor" and "Sublessee." The Sublessee shall also obtain the Sublessor's written consent to the making of any such alterations prior to the under taking thereof, which consent the Sublessor agrees not to unreasonably withhold, and if the consent of Sublessor is obtained, Sublessee shall contact the Landlord for Landlord's consent, which Sublessor agrees to assist Sublessee in obtaining. (f) Sublessee may not assign this Sublease or sublet without Sublessor's consent first had and obtained in writing, which Sublessor will not unreasonably delay or withhold. In addition to Sublessor's consent being required. Landlord's consent in writing is also required, and If Sublessor does consent (it having no obligation to do so), Sublessor will assist Sublessee in obtaining Landlord's consent. 5. If (a) Sublessee shall default in fulfilling any of the terms. conditions, or agreements hereof, other than the covenant to pay rent. or of the Lease as herein incorporated, and such default shall not have been remedied (or proper corrective measures to cure such default commenced and after commencement diligently and continuously prosecuted in good faith) within 15 days after written notice from the Sublessor, the Sublessor may give Sublessee three days' notice of intention to end the term of this Sublease, and, at the end of said three days, the term of this Sublease shall expire with the same effect as if that day were the date hereinbefore set forth for the termination of the term hereof, but Sublessee shall remain liable to the extent provided under any environmental compliance provisions applicable to Sublessee under the Lease; or (b) Sublessee shall fail to pay the rent and additional rent as provided herein, then Sublessor may, unless Sublessee shall have cured such default within three days after written notice thereof from Sublessor, exercise as of the remedies of the Landlord set forth in Section 14 of the Lease and Sublessee shall remain liable to the extent provided therein. 6. Sublessee may use the Sublease Space for office, laboratory and research purposes, but for no other purpose without Sublessor's written consent. 7. Sublessor's rights under the Lease may be enforceable against the Landlord by the Sublessee on behalf of the Sublessor, but Sublessee shall advise Sublessor, in writing, before taking any action to enforce such rights. 8. Sublessor agrees that it will not modify or amend the Lease in any manner that would affect the Sublessee's rights hereunder without Sublessee's written consent first had and obtained. -3- 9. In the event that Sublessor defaults in keeping, observing, or performing any of the terms, provisions, covenants, and conditions contained in the Lease, and such default is not cured (or proper corrective measures to cure such default commenced) by Sublessor within the periods specified in the Lease for the curing of such defaults, Sublessee shall have the right to remedy such default after it gives Sublessor written notice thereof. If Sublessee shall incur any expense in remedying such default, Sublessee shall be entitled to recover the same from Sublessor on demand. Sublessor agrees to send promptly to Sublessee any notice of default received from the Landlord. 10. Any notice or demands to be given pursuant to the Lease or this Sublease shall be sent to Sublessor at Four University Place, Durham, North Carolina 27707 (Attn: Richard W. Reichow), and if to Sublessee at Two University Place, Durham, North Carolina 27707 (Attn: Max N. Wallace). All notices shall be in writing, may be delivered personally to the other party, or sent by express courier or delivery service, or by registered, certified or express United States Mail, and shall be deemed delivered when received or on the third Business Day (days when national banks are open for business) after the same are deposited postage prepaid with the United States Postal Service. Changes of address may be given in the same manner as notices. 11. Sublessee shall carry through the Term such insurance coverage as it desires on all property that is has, brings to, or stores on the Subleased Space (Sublessor having no obligation to carry insurance on the same), and in addition Sublessee shall maintain general public liability insurance with combined single limit coverage of not less than $2,000,000 throughout the Term, which insurance shall name Sublessor and Landlord as additional insureds. Sublessee shall cause either a certified true copy of the policy showing such liability coverage to be delivered to Sublessor, or a certificate evidencing such coverage in form and substance reasonably acceptable to Sublessor furnished to Sublessor, with evidence of payment of premiums required to keep such insurance in full force and effect throughout the Term. 12. Sublessor and Sublessee acknowledge (and so represent to Landlord) that the only broker involved in negotiations for this Sublease is Vanguard Associates, whose fee, if any, is to be paid by the Sublessee and not by Sublessor. 13. Sublessee has agreed as a part of its negotiations with Sublessor, and an integral part of this transaction, to purchase from Sublessor that used laboratory furniture and equipment which is listed on Schedule B to this Sublease. The purchase price for the same is $100,000.00, which price shall be paid in full in cash not later than forty-five days after the commencement of the Term, unless Sublessor extends in writing the time within which payment may be made. Upon the termination or expiration of this Sublease, Sublessee shall leave those items described on Schedule B in the Sublease Space in the condition in which they were found at time of purchase, reasonable wear and tear and damage by fully insured casualty only excepted. -4- IN WITNESS WHEREOF, Sublessor and Sublessee, intending to be legally bound, and with authority duly given, have executed this Sublease in duplicate originals, as of the day and year first above written. SPHINX PHARMACEUTICALS CORPORATION, a Delaware Corporation (Corporate Seal) By: /s/ Richard W. Reichow ------------------------------ Its Vice President & CFO Attest: /s/ Ann Redick - ------------------------ Asst. Secretary TRIMERIS, INC., a North Carolina Corporation (Corporate Seal) By: /s/ Signature Illegible ------------------------------ Its President Attest: - ------------------------ Secretary University Place Associates hereby consents to the foregoing Sublease. This the 19th day November, 1993. UNIVERSITY PLACE ASSOCIATES By: CWR Corp.general partner By: /s/ Signature Illegible ------------------------------ Its President -5- LEASE AMENDMENT THIS AMENDMENT ("Amendment") OF SUBLEASE ("Sublease Agreement") dated November 19, 1993 between Sphinx Pharmacueticals Corporation, a Delaware corporation, ("Sphinx") and Trimeris, Inc., a North Carolina corporation ("Trimeris") is made and entered into as of August 15, 1994. RECITALS Sphinx and Trimeris entered into that certain Sublease Agreement dated November 13, 1993 pursuant to which Trimeris leased from Sphinx certain space in Two University Place, Durham, North Carolina. Trimeris has requested that Sphinx enlarge the amount of space covered by the Sublease by 647 square feet to include additional space in the same building, such additional space is identified on Exhibit A ("Additional Lease Space"). AGREEMENT NOW, THEREFORE, for and in consideration of the premises, the mutual promises and agreements of the parties, and other good and valuable considerations paid to each other, the sufficiency and receipt of which Sphinx and Trimeris hereby acknowledge, they agree each with the other as follows: The Sublease is modified to include the 647 square feet of Additional Lease Space, increasing the total sublease space as of August 15, 1994 from 13,987 square feet to 14,634 square feet. Sphinx and Trimeris agree that all the terms and provisions of the Sublease Agreement that apply to presently leased space shall apply to the Additional Leased Space to the same extent and in the same manner as if said Additional Lease Space had been included in the Sublease Agreement at its inception, including the same sublease rate and the remaining sublease term. IN WITNESS WHEREOF, Sublessor and Sublessee, intending to be legally bound, and with authority duly given have executed this Sublease in duplicate originals, as of the day and year first above written. SPHINX PHARMACEUTICALS CORPORATION, a Delaware Corporation (Corporate Seal) By: /s/ Richard W. Reichow ------------------------- Its President & CEO Attest: /s/ Ann Redick - ------------------------ Assistant Secretary TRIMERIS, INC., a North Carolina Corporation (Corporate Seal) By: /s/ Signature Illegible ------------------------- Its President and CEO Attest: /s/ Gloria E. Ivey - ------------------------ Assist. Secretary University Place Associates hereby consents to the foregoing Sublease. This the 15th day of August, 1994. UNIVERSITY PLACE ASSOCIATES By: CWR Corp. general partner By: /s/ Signature Illegible ------------------------- It's President EXHIBIT A [FLOOR PLAN} LANDLORD'S WAIVER University Place Associates ("Landlord") is the owner of real property commonly known as Two University Place, Durham, North Carolina (the "Premises") and has leased a portion of the Premises to Sphinx Pharmaceuticals Corporation ("Tenant"), who has agreed to sublease a portion of the Premises to Trimeris, Inc. ("Subtenant"). 1. Landlord and Tenant acknowledge that it has received notice that Subtenant has or will enter into a master lease agreement with Dominion Ventures, Inc., a California corporation ("Dominion"), whereby Subtenant will lease from Dominion certain equipment (the "Equipment"), all or part of which may be located upon or fixed to the Premises. 2. Landlord and Tenant waive and release any and all rights it may have against the Equipment for any rent or other sums due or to become due, under any lease for the Premises or otherwise, and all claims and demands of every kind against the Equipment. 3. Landlord and Tenant agree that the Equipment will remain personal property and will not become part of the Premises, regardless of the manner in which it may be affixed to real property, and will allow Dominion to enter the Premises any time to remove the Equipment in the exercise of its rights and remedies arising under the aforesaid master lease agreement. 4. This Consent shall be binding upon the heirs, administrators, executors, successors and assigns of the Landlord and Tenant, and shall inure to the benefit of the successors and assigns of Dominion. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent this 13th day October, 1993. University Place Associates Sphinx Pharmaceuticals Corporation By: CWR Corp., General Partner By: /s/ Craig M. Davis By: /s/ Richard W. Reichow -------------------------- ------------------------ Craig M. Davis, President Title: Partner Title: Vice President & CFO STATE OF NORTH CAROLINA : COUNTY OF DURHAM : THIS SECOND AGREEMENT OF SUBLEASE ("Second Subleases), dated as of (the 16th day of January, 1995, by and between ELI LILLY AND COMPANY, successor by merger to SPHINX PHARMACEUTICALS CORPORATION ("Sublessor"), party of the first part, and TRIMERIS, INC., a North Carolina corporation ("Sublessee"), party of the second part: RECITALS: A. University Place Associates, a North Carolina general partnership, as Landlord, entered into that certain lease with Sphinx Pharmaceuticals Corporation as Tenant, dated the 8th day of March, 1989, as amended and restated by agreement dated as of the 27th day of August, 1991 (the "Lease.), demising property described on Exhibit A-1 to the Lease (the Property). A copy of the Lease is attached hereto marked Exhibit 1. B. Sublessee by Agreement of Sublease dated November 19, 1993 (the "First Subleases) subleased from Sublessor 13,987 square feet of space in the building located on the Property, which space is more particularly described on Schedule A attached to the First Sublease, for a term commencing on the 1st day of November, 1993, and expiring on the 30th day of September, 1999 (the "Terms). C. By amendment to the First Sublease made as of August 15, 1994, there was added to the space covered by the First Sublease an additional 647 square feet, which additional space was subject to the same terms and conditions as set forth in the First Sublease to the same extent as if it had been originally included therein. D. Sublessee desires to sublease from Sublessor an additional 7,235 square feet of space effective as of January 16, 1995, for the term and on He conditions hereafter set forth, which space is depicted on Exhibit A to this Second Sublease (the "New Sublease Space"), said area to be subleased for the remainder of the Term. E. Sublessor warrants and represents to Sublessee that the Lease is in full force and effect and that it has the right, subject to the consent of Landlord annexed hereto, to sublease the New Sublease Space to Sublessee for the Term. NOW, THEREFORE, for and in consideration of the rents, covenants and agreements hereinafter contained on the part of the Sublessee to be paid, kept and performed, Sublessor does hereby sublet and demise unto Sublessee, and Sublessee hereby leases from the Sublessor, the New Sublease Space. TO HAVE AND TO HOLD the same unto the Sublessee, its permitted and assigns, for the Term, subject to the Lease and upon the rentals, terms, covenants, conditions and provisions hereinafter set forth. AND Sublessor and Sublessee hereby contract and agree each with the other as follows: 1. Sublessee covenants and agrees to pay to Sublessor at Four University Place, P. O. Box 52330, Durham, N. C. 27717 (Attn: Mr. Gary Levine, Accounts Receivable), from January 16, 1995 through the month of September, 1996, a monthly rental of Seven Thousand Five Hundred thirty-six and 46/100 ($7,536.46) Dollars, payable $3,768.23 on execution hereof and commencing on February 1, 1995 in equal monthly installments $7,536.46 in advance, and continuing thereafter on or before the first day of each successive month through the month of September, 1996. Commencing with the first day of October, 1996, and on the first of each successive month, to and including September 1, 1999, Sublessee shall pay Sublessor a monthly rental of $10,551.04. All payments shall be made without notice or demand, and without abatement, deduction or setoff of any amount whatsoever. 2. In addition to the monthly payment that Sublessee is to pay to Sublessor under ss.1 above, Sublessee shall pay to Sublessor as Additional Rent that portion of -2- Tenant's Proportionate Share of Landlord's Expenses (as those terms are defined in the Lease), which Additional Rent shall be paid at the same time as, and in addition to, the monthly rental payments required under ss.1 above. Sublessor's Proportionate Share of Landlord's Expenses for 7,235 square feet under the Second Sublease will be 18.5%. Sublessee shall pay directly for all utility costs and expenses it incurs in the use of the Sublease Space. If there are any utilities metered in more than the Sublease Space, they will be prorated between Sublessor and Sublessee. 3. Sublessee agrees to accept the New Sublease Space in an "as is" condition, and Sublessee acknowledges that it is familiar with such space and acknowledges that no representations with respect to the condition thereof have been made by Sublessor or by Landlord. Sublessor will vacate the New Sublease not later than January 6, 1995, and Sublessee may occupy the same on January 16, 1995. Sublessor and Landlord understand that no modifications to demising walls are anticipated by Sublessee at this time. Sublessor and Landlord advise that the existing split of the HVAC and electrical service between the New Sublease Space and Sublessor's remaining leased premises will be reviewed for its appropriateness in servicing the New Sublease Space. If demising walls are needed and/or further splitting of the HVAC and electrical service is required Sublessee shall have completed, at its expense, such work ("Work") as approved by Sublessor and Landlord. Approval shall not be unreasonably withheld or delayed, but such Work shall not be undertaken until such approval is obtained. Sublessee shall cause such Work to be done in a good and workmanlike manner, using licensed and insured contractors, and shall promptly pay for the same, while indemnifying Landlord and Sublessor from loss, cost, damage or expenses by reason of any party performing the Work attempting to assert any claim or lien (based on labor or materials used in performing the Work) against Landlord, Sublessor, or the building where the sublease space is located. 4. To the extent not otherwise inconsistent with the agreements and understandings expressed in this Sublease or applicable only to the original parties to the Lease, the terms, provisions, covenants, and conditions of the Lease are incorporated herein by reference on the following understandings: -3- (a) The term "Landlord" as used therein shall refer to Sublessor hereunder, its successors and assigns, and the term "Tenant" as used therein shall refer to Sublessee hereunder, its successors and assigns. (b) In any case where the Landlord reserves the right to enter the Premises, said right shall inure to the benefit of the Landlord as well as the Sublessor. (c) With respect to work, services, repairs or the performance of other obligations required of Landlord under the Lease, Sublessor's sole obligation with respect thereto shall be to request the same, on written request from Sublessee, and to use its best efforts to obtain the same from the Landlord. (d) Each party hereto agrees to perform and comply with the terms, provisions, covenants, and conditions of the Lease and not to do or suffer or permit anything to be done which would result in a default under or cause the Lease to be terminated or forfeited. (e) In connection with any alterations (as defined in Section 7 of the Lease) desired to be made by Sublessee, the terms of Section 7 shall be applicable to this Sublease as if the words "Landlord" and "Tenant" in said Section were Sublessor's and "Sublessee." The Sublessee shall also obtain the Sublessor's written consent to the making of any such alterations prior to the under taking thereof, which consent the Sublessor agrees not to unreasonably withhold, and if the consent of Sublessor is obtained, Sublessee shall contact the Landlord for Landlord's consent, which Sublessor agrees to assist Sublessee in obtaining. (f) Sublessee may not assign this Sublease or sublet without Sublessor's consent first had and obtained in writing, which Sublessor will not unreasonably withhold or delay. In addition to Sublessor's consent being required, Landlord's consent in writing is also required, and If Sublessor does consent (it having no obligation to do so), Sublessor will assist Sublessee in obtaining Landlord's consent. -4- 5. If (a) Sublessee shall default in fulfilling any of the terms, conditions, or agreements hereof, other than the covenant to pay rent, or of the Lease as herein incorporated, and such default shall not have been remedied (or proper corrective measures to cure such default commenced and after commencement diligently and continuously prosecuted in good faith) within 15 days after written notice from the Sublessor, the Sublessor may give Sublessee three days' notice of intention to end the term of this Sublease, and, at the end of said three days, the term of this Sublease shall expire with the same effect as if that day were the date hereinbefore set forth for the termination of the term hereof, but Sublessee shall remain liable to the extent provided under any environmental compliance provisions applicable to Sublessee under the Lease; or (b) Sublessee shall fail to pay the rent and additional rent as provided herein, then Sublessor may, unless Sublessee shall have cured such default within three days after written notice thereof from Sublessor, exercise all of the remedies of the Landlord set forth in Section 14 of the Lease, and Sublessee shall remain liable to the extent provided therein. 6. Sublessee may use the New Sublease Space for office, laboratory and research purposes, but for no other purpose without Sublessor's and Landlord's written consent. 7. Sublessor's rights under the Lease may be enforceable against the Landlord by the Sublessee on behalf of the Sublessor, but Sublessee shall advise Sublessor, in writing, before taking any action to enforce such rights 8. Sublessor agrees that it will not modify or amend the Lease in any manner that would affect the Sublessee's rights hereunder without Sublessee's written consent first had and obtained. 9. In the event that Sublessor defaults in keeping, observing, or performing any of the terms, provisions, covenants, and conditions contained in the Lease, and such default is not cured (or proper corrective measures to cure such default commenced) by Sublessor within the periods specified in the Lease for the curing of such defaults, Sublessee shall have the right to remedy such default after it gives Sublessor written notice -5- thereof. If Sublessee shall incur any expense in remedying such default, Sublessee shall be entitled to recover the same from Sublessor on demand. Sublessor agrees to send promptly to Sublessee any notice of default received from the Landlord. 10. Any notice or demands to be given pursuant to the Lease or this Sublease shall be sent to Sublessor at Four University Place, Durham, North Carolina 27707 (Attn: Dr. Martin Haslanger), and if to Sublessee at Two University Place, Durham, North Carolina 27707 (Attn: Max N. Wallace). All notices shall be in writing, may be delivered personally to the other party, or sent by express courier or delivery service, or by registered, certified or express United States Mail, and shall be deemed delivered when received or on the third Business Day (days when national banks are open for business) after the same are deposited postage prepaid with the United States Postal Service. Changes of address may be given in the same manner as notices. 11. Sublessee shall carry through the Term such insurance coverage as it desires on all property that is has, brings to, or stores on the subleased space (Sublessor having no obligation to carry insurance on the same), and in addition Sublessee shall maintain general public liability insurance with combined single limit coverage of not less than $2,000,000 throughout the Term, which insurance shall name Sublessor and Landlord as additional insureds. Sublessee shall cause either a certified true copy of the policy showing such liability coverage to be delivered to Sublessor, or a certificate evidencing such coverage in form and substance reasonably acceptable to Sublessor furnished to Sublessor, with evidence of payment of premiums required to keep such insurance in full force and effect throughout the Term. 12. Sublessor and Sublessee acknowledge (and so represent to Landlord) that no broker is involved in negotiations for this Second Sublease and agree to indemnify and hold Landlord harmless from claims made against Landlord by any broker alleging employment by either Sublessor or Sublessee. -6- IN WITNESS WHEREOF, Sublessor and Sublessee, intending to be legally bound, and with authority duly given, have executed this Sublease in duplicate originals, as of the day and year first above written. ELI LILLY AND COMPANY, an Indiana Corporation (Corporate Seal) By: /s/ John Crisel ---------------------------------- Its Manager, Strategic Real Estate Attest: /s/ Daniel P. Carmichael - ----------------------------- Secretary -7- TRIMERIS, INC., a North Carolina Corporation (Corporate Seal) By: /s/ Signature Illegible ----------------------------- Its Vice President of Operations & General Counsel Attest: /s/ Gloria E. Ivey - ----------------------------- Assist. Secretary University Place Associates hereby consents to the foregoing Sublease. This the 16th day of January, 1995. UNIVERSITY PLACE ASSOCIATES By: CWR Corp. general partner By: /s/ Craig M. Davis -------------------- Its President -8- EXHIBIT A --------- Two University Place Trimeris, Inc. New Sublease Space from . Sphinx Pharmaceuticals / Eli Lilly Corp. 7,235 sq. ft. First Sublease cross hatch - 13,987 sf Aug. '94 Amendment blue - 647 sf New Sublease Space 7,235 sf Exhibit 1 AMENDED AND RESTATED LEASE STATE OF NORTH CAROLINA : COUNTY OF DURHAM : THIS AND RESTATED LEASE ("Lease"), made as of the 27th day of August, 1991, by and between UNIVERSITY PLACE ASSOCIATES, a North Carolina general partnership, hereinafter Landlords and SPHINX PHARMACEUTICALS CORPORATION, a Delaware corporation, hereinafter (whether one or more) Tenants: W I T N E S S E T H : Upon the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord property referred to as the Premises, all as follows: 1. DEMISED PREMISES. The property hereby leased to Tenant are those areas shown on Exhibit A-1 hereto attached, which consists of approximately four spaces of 13,339 square feet, 2,094 square feet, 3,741 square feet and 10,565 square feet, totaling approximately 29,739 rentable square feet, which is located in what is sometimes called the Two University Place Building (the "Building"), located at Lot 6, University Place, Durham, Durham County, North Carolina (the "Lands"), together with the right to use in common with other tenants in the Building, the parking spaces and the driveways, on said Land. 2. TERM. This Lease has already commenced on various dates as to the various areas, and shall terminate as to all areas (unless extended as herein provided) at noon September 30, 1999. 3. USE. Tenant may use the Premises for a biological research laboratory and for general office purposes, but for none other without Landlord's prior written consent, and Tenant shall never make any use of the Premises which is in violation of any lawful governmental laws, rules or regulations whether now existing or hereafter enacted insofar as they may relate to Tenant's use and occupancy of the Premises, nor may Tenant make any use of the Premises not permitted by any restrictive covenants which apply to the Premises, or which is or might constitute a nuisance or trespass, or which increases the fire insurance premiums (or makes such insurance unavailable to Landlord) on the Building. In the event of an increase in Landlord's fire insurance premiums which results from Tenant's use or occupancy of the Premises, or which increases the fire premiums (or makes such insurance unavailable to Landlord) on the Building, Tenant shall pay Landlord, on demand, the amount of such increase, or alternately Landlord may treat such use as a default hereunder. 4. RENT. All rent payable by Tenant shall be without previous demand or notice therefor by Landlord, and without set off or deduction. The Minimum Rent for the term, subject to revision to increase the rent to amortize the cost (for which Tenant is liable and not paid for by Tenant at the time) of unfitting any space unfitted after date of this Lease over the balance of the term, with interest thereon at the rate of 12.5% per annum, shall be in the amounts set forth on Exhibit B attached hereto (the "Base Rents), and shall be payable monthly in advance on or before the first day of each calendar month during the term hereof. In addition to such remedies as may be provided under the Default provisions of this lease, Landlord shall be entitled to a late charge of two percent (2%) of the amount of the monthly rent if not received by the tenth day of the month, and a charge of the lesser of any legally permissible amount or five percent (5 %) of the amount of any check given by Tenant not paid when first presented by Landlord. Tenant agrees to pay to Landlord, as Additional Rent, Tenant's Proportionate Share (hereafter defined) of all Landlord's Expenses (also hereafter defined), which Additional Rent shall be payable at the same time and in the same manner as Base Rent. Landlord's Expenses are the total of the following three components: (i) ad valorem taxes or assessments imposed against or levied on the Building and the Land (but not including Tenant's property located thereon, which are to be paid in full by Tenant), which Landlord shall pay in full when due, except if assessments are allowed to be paid over a period of years, Landlord shall elect to so pay and thus include in this component only that 2 portion of the assessment (together with interest thereon) that Landlord is required to pay in any particular calendar year; (ii) the cost of fire and extended coverage insurance which Landlord carries on the Land and the Building; and (iii) the cost of maintaining all parking, drives and other common areas on the Land, the lighting thereof, the landscaping, cleaning and refuse removal. Tenant's Proportionate Share of Landlord's Expenses is 76.2% (to be adjusted if and when Tenant exercises its option to expand into either spaces B or C (or both) as shown on Exhibit A-1. Based on 1990 figures one-twelfth of Tenant's Proportionate Share amounts to $4,004.40, and this amount Tenant shall include with its Base Rent payment as Additional Rent. The monthly payment may be adjusted annually as soon as the actual amount of Landlord's Expenses for the preceding calendar year are determined to reflect Landlord's reasonable estimate of what such expenses will be for the year in which the adjustment is made. As soon as figures are available for any preceding calendar year, Landlord shall deliver to Tenant documentation showing what those expenses in fact were, and if the amount of Additional Rent paid during such preceding calendar year was less than Tenant's Proportionate Share of the actual Landlord's Expenses, Tenant shall within thirty days pay Landlord the difference. If the amount that Tenant paid as Additional Rent exceeded its Proportionate Share of such actual Landlord's Expenses, Landlord shall within thirty days of the determination either refund to Tenant the excess so paid or credit the excess to payments due from Tenant for the current year for Additional Rent. Tenant, at any time within fifteen days after receiving Landlord's statement as to expenses for the prior year, shall have the right at its expense to inspect Landlord's books and records, but unless protested within such period the expenses will be deemed to be approved by Tenant. Since this Lease expires on September 30, 1999, Tenant's Proportionate Share will for 1999 be three-fourths of Landlord's Expenses for the entire twelve months. 5. UTILITIES. Tenant shall pay all charges for telephone, electricity, gas, sewage, and any other utilities used by Tenant on the Premises throughout the Term, and 3 Landlord agrees at all times to provide Tenant with access to such utilities, which access shall be contiguous to the Premises. 6. LANDLORD REPAIRS. The Landlord shall be responsible for maintenance of the roof and structural walls, excluding any interior painting or decoration thereon, and shall likewise maintain in good condition and repair the parking areas as shown on Exhibit A, providing Tenant shall not permit its agent, employees or invitees to place excessive loads on said parking lot, the maximum load for any vehicle not be exceed eight (8) kips per axle for the parking area in front of the Building, or more than twelve (12) kips per axle for the loading areas to the rear of the Building. Except as otherwise provided in this Lease, there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord for inconvenience, annoyance or injury to business arising from Landlord or others making any repairs, to the Building, the Premises, or the adjoining premises. 7. TENANT'S ACCEPTANCE AND MAINTENANCE OF DEMISED PREMISES. Tenant represents to Landlord that it has examined and inspected the Premises, found them to be as represented by Landlord and to be satisfactory for Tenant's intended use. Landlord has neither made nor now makes no representation or warranty as to the condition of said Premises. Tenant shall deliver at the end of this lease each and every part of the Premises in good repair and condition, reasonable wear and tear, damage by fire or other casualties and appropriation by eminent domain excepted, and also excepting any condition that Landlord is required to repair. Tenant agrees to keep the interior of the Premises including wiring, plumbing, heating and air conditioning units ("HVAC") in good condition and repair, and to enter into a maintenance contract with a reputable firm for the day-to-day maintenance of the HVAC. The maintenance contractor shall be reasonably acceptable to Landlord, and Tenant shall provide Landlord with satisfactory evidence of the contract. Unless caused by faulty construction or settling of the Building where the Premises are located, Tenant shall maintain and replace when broken all plate glass and windows, and all other damage or injury to the Premises not covered by Landlord's fire, extended coverage or vandalism insurance shall be repaired promptly by Tenant at its sole cost and expense and to the reasonable satisfaction of the Landlord. Tenant shall make at its sole cost and expense 4 replacements or restorations in quality equivalent or better than the original work, as may be required to so maintain the same, ordinary wear and tear only excepted. Tenant, however, shall make no structural or interior alterations of the Premises without Landlord's prior written consent and any work performed by Tenant shall be done in a good and workmanlike manner, and so as not to disturb or inconvenience other tenants in the Building. Tenant shall provide Landlord with at least five (5) business days advance written notice of the commencement of any such alterations to the Premises. Tenant shall not at any time permit any work to be performed on the Premises except by duly licensed contractors or artisans, each of whom must carry general public liability insurance, certificates of which shall be furnished to Landlord. At no time may Tenant do any work that results in a claim of lien against Landlord, and if requested by I landlord on termination of this lease or vacation of the Premises by Tenant, Tenant shall restore at Tenant's sole expense the Premises to the same condition as existed at the commencement of the term, ordinary wear and tear only excepted. Landlord, however, may elect to require Tenant to leave alterations performed by it. Notwithstanding anything to the contrary set forth above in this Paragraph 7, if Tenant does not perform its maintenance obligations in a timely manner as set forth in this lease, commencing the same within five (5) days of receipt of notice from Landlord specifying the work needed and thereafter diligently and continuously pursuing completion of unfulfilled maintenance obligations, Landlord shall have the right, but not the obligation, to perform such maintenance, and any amounts so expended by Landlord shall be paid by Tenant to landlord promptly after demand with interest at the maximum rate allowed by law (or the rate of 15% per annum, whichever is less) from the date of expenditure through the date paid. 8. DESTRUCTION OF DEMISED PREMISES. If the Premises are destroyed by fire or other casualty not resulting from the wrongful or negligent act of Tenant, either Landlord or Tenant may, by written notice given not later than thirty (30) days after the date of such destruction, terminate this lease, in which event rent paid for the period beyond the date of destruction shall be refunded to Tenant. If there is not total destruction and Landlord elects to repair, Landlord shall commence repair within thirty (30) days of the date of damage 5 and shall proceed with reasonable diligence to restore the Premises to substantially the same condition as existed prior to the damage. If Tenant reasonably is required to close its operations during repairs, rent shall abate while so closed, but if Tenant is able to continue its operations during repairs, rent shall be adjusted and prorated in the proportion which the area of unusable leased space bears to the total Premises, provided that Landlord shall not in such cases have any liability for losses claimed by Tenant. However, if the damages are such that Landlord concludes that restoration cannot be completed within one hundred fifty (150) days, Landlord may at its option terminate this lease. If the Premises are damaged by cause due to fault or neglect of Tenant, its agents, employees, invitees, or licensees, Landlord may repair such damage without prejudice to subrogation rights of Landlord's insurer, and there shall be no apportionment or abatement of rent. Landlord shall have no liability to repair, restore or rebuild any of Tenant's property damaged by the casualty. 9. ASSIGNMENT - SUBLEASE. Tenant may not assign or encumber this lease, and may not sublet any part or all of the Premises without the written consent of Landlord first had and obtained, which Landlord will not unreasonably withhold if to a financially responsible party. Any assignment or sublease to which Landlord may consent (one consent not being any basis to contend that Landlord should consent to a further change) shall not relieve Tenant of all of its obligations hereunder. For the purpose of this Paragraph 9, the word "assignment" shall be defined as follows: Tenant being a corporation, any dissolution or reorganization of Tenant, or the sale or other transfer of a controlling percentage of capital stock of Tenant, or the sale of fifty-one percent (51%) in value of the assets of Tenant, shall be deemed an assignment. The phrase Controlling percentages means the ownership of, and the right to vote, stock possessing at least fifty-one percent (51%) of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors, or such lesser percentage as is required to provide actual control over the affairs of the corporation. Acceptance of rent by Landlord after any non-permitted assignment shall not constitute approval thereof by Landlord. In no event shall this lease be assignable by operation of any law, and Tenant's rights hereunder may not become, and shall not be listed by Tenant as an asset under any 6 bankruptcy, insolvency or reorganization proceedings. Tenant is not, may not become, and shall never represent itself to be an agent of Landlord and Tenant expressly recognizes that Landlord's title is paramount, and that it can do nothing to affect or impair Landlord's title. If during the period commencing October 1, 1999 (assuming this lease has been validly extended), this lease shall be assigned or the Premises or any portion thereof sublet by Tenant at a rental that exceeds the rentals to be paid to Landlord hereunder, attributable to the Premises or portion thereof so assigned or sublet, then and in such event any such excess shall be paid over to Landlord by Tenant. 10. TENANT'S COMPLIANCE-INSURANCE REQUIREMENTS; INDEMNIFICATION. Tenant shall comply with all applicable laws, ordinances and regulations affecting the Premises, now existing or hereafter adopted, including general rules and regulations for tenants (a copy of the present rules are attached as Exhibit C) as may be developed from time to time by Landlord and delivered to Tenant or posted on the Premises. Throughout the term of this lease, Tenant at its sole cost and expense shall keep or cause to be kept for the mutual benefit of Landlord, Landlord's managing agent Craig Davis Properties, Inc. and Tenant (with appropriate cross-liability endorsements so showing) through companies licensed to do business in North Carolina having a Best's rating of at least A-XIII (as the same may be adjusted from time to time) public liability and property damage insurance with combined single limit coverage of at least $1,000,000.00, which policies insure against all liability of Tenant, Tenant's authorized representatives, and anyone for whom Tenant is responsible arising out of and in connection with Tenant's use of the Premises, and shall insure Tenant's performance of the indemnity provisions contained herein. Not more frequently than once every three years, Landlord may require the limits to be increased (but not more than double existing limits) if in its reasonable judgment (or that of its mortgagee) the coverage is insufficient. Tenant shall also insure its personal property located in the Premises, and shall neither have nor make any claim against Landlord for any loss or damage to the same, regardless of the cause thereof. Prior to taking possessions of the Premises and thereafter at least ten (10) business days prior to the renewal dates thereof, Tenant shall deliver to Landlord copies of original 7 policies or satisfactory certificate thereof. All such policies shall be non-assessable and shall contain language to the extent obtainable, that (A) any loss shall be payable notwithstanding any act or negligence of Landlord or Tenant that might otherwise result in forfeiture of the insurance, and (B) that they cannot be cancelled or changed except after thirty (30) days' notice to Landlord. Anything in this lease to the contrary notwithstanding, to the extent such releases or waivers are permitted under applicable law, Landlord releases and waives unto Tenant, its successors and assigns, and Tenant releases and waives unto Landlord, its successors and assigns, all rights to claim damages for any injury, loss, cost or damage to persons or to the Premises or any other casualty, as long as the amount of which injury, loss, cost or damage has been paid either to Landlord, Tenant, or any other person, firm or corporation, under the terms of any fire, extended coverage, public liability or other policy of insurance. All policies of insurance carried or maintained pursuant to this lease shall contain or be endorsed to contain a provision whereby the insurer waives all rights of subrogation against either Tenant or Landlord. Subject to the terms of the preceding subparagraph (i.e., the fourth sub-paragraph of this paragraph 10), and except for a claim caused by the negligence, gross negligence or willful misconduct of the party seeking indemnification (or that of its agents or employees as the case may be), each party agrees to indemnify and hold the other harmless from and against any and all claims, liabilities and costs (including, but not limited to, attorney's fees at all tribunal levels and costs) arising out of: (i) a party's use or occupancy of the Premises, the Building, the land on which the Building is situated, or any part thereof; (ii) any breach or default by the indemnifying party in the performance of any of its obligations under this Lease; or (iii) any injury-to a person or damage to property occurring in or about the Premises, land or the Building. Landlord shall carry through the term of the Lease (i) all-risk full replacement cost fire and extended coverage insurance on the Building and all improvements therein (save and except those installed by or the property of the Tenant); (ii) comprehensive general liability insurance with respect to the land and the Building in an amount not less than that required 8 of Tenant with respect to the Premises; and (iii) workers' compensation and employers liability insurance complying with all statutory requirements. With respect to Landlords comprehensive general liability insurance, the policy shall name Tenant as an additional insured as its interest may appear, and a certificate of such policy showing thirty (30) day notice of cancellation shall be delivered to Tenant. 11. SUBORDINATION-ATTORNMENT - LANDLORD FINANCING. Tenant agrees that this lease will either be subordinate or superior to any mortgage heretofore or hereafter executed by Landlord covering the Premises, depending on the requirements of such mortgagee. Tenant on request will execute such agreement making this lease superior or subordinate as Landlord's mortgagee may request, and will agree to attorn to said mortgagee providing the mortgagee agrees not to disturb Tenant's possession hereunder so long as Tenant is in compliance with this lease. Landlord consents to Tenant's execution of Landlord's mortgagee's subordination, attornment and non-disturbance agreement, and to be bound by the provisions thereof. Further, Tenant agrees to execute within five (5) days of request therefor, and as often as requested, estoppel certificates setting forth the facts with respect to date of occupancy, termination date of this lease, the amount of rent due and date to which rent is paid, whether or not it has any defense or offsets to the enforcement of this lease or knowledge of any default or breach by Landlord, and that this lease is in full force and effect except as to any modifications or amendments, copies of which Tenant shall attach to such estoppel certificate. If in connection with financing by Landlord of the Building, Landlord's lender shall request Tenant to execute reasonable lease modifications as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligation of Tenant hereunder, extend or reduce the term, or adversely affect to any substantial extent the leasehold interest hereby created. 12. SIGNS. Tenant may not erect, install or display any sign or advertising material upon the Building exterior, the Premises, or the walls thereof, or in any window therein, without the prior written consent of Landlord. Such signs as are permitted will be 9 Tenant's property, removable by Tenant at any time during the Term, provided Tenant repairs any damage resulting from the presence of such signs or caused during their removal 13. ACCESS TO PREMISES. Landlord shall have the right, either itself or through its authorized agents after twenty-four (24) hours' notice (no notice being required if an emergency), to enter the Premises at all reasonable times to examine the same, to show them to prospective tenants for other spaces in the Building, or for the Premises if within one hundred eight (180) days of the termination date hereof (no option to extend having been exercised), to allow inspection by mortgagees, and to make such repairs, alterations or changes as Landlord deems necessary. Tenant, its agents, employees, invitees, and guests, shall have the right of ingress and egress to common and public areas of the Building, provided Landlord by reasonable regulation may control such access for the comfort, convenience and protection of all tenants in the Building. 14. DEFAULT. If Tenant: (i) Fails to pay when due any Rent, or any other sum of money which Tenant is obligated to pay, as provided in this Lease, within ten (10) days after written notice of nonreceipt of the same from Landlord; or (ii) Breaches any other agreement or obligation herein set forth and such breach shall continue and not be remedied within fifteen (15) days after Landlord shall have given Tenant written notice specifying the breach, or if such breach cannot, with due diligence, be cured within said period of fifteen (15) days, if Tenant shall not within said fifteen (15) day period commence and thereafter diligently complete by remedy the breach; or (iii) Files (or has filed against it and not stayed or vacated within thirty (30) days after filing) any petition or action for relief under any creditor's law (including bankruptcy, reorganization, or similar action), either in state or federal court; or (iv) Makes any transfer in fraud of creditors as defined in Section 548 of the United States Bankruptcy Code (11 U.S.C ss.548), has a receiver 10 appointed for its assets (and appointment shall not have been stayed or vacated within thirty (30) days), or makes an assignment for benefit of creditors; then Tenant shall be in default hereunder, and, in addition to any other lawful right or remedy which it may have, Landlord may do the following: (i) Terminate this Lease; or (ii) Repossess the Leased Premises, and with or without terminating, relet the same at such amount as Landlord deems reasonable; and if the amount for which the Leased Premises is relet is less than Tenant's Rent and all other obligations of Tenant to Landlord hereunder, Tenant shall immediately pay the difference on demand to Landlord, but if in excess of Tenant's Rent, and all other obligations of Tenant hereunder, the entire amount obtained from such reletting shall belong to Landlord, free of any claim of Tenant thereto. All reasonable expenses of Landlord in repairing, restoring, or altering the Leased Premises for reletting as general office space, together with leasing fees and all other expenses in seeking and obtaining a new tenant, shall be charged to and be a liability of Tenant; provided, however, such expenses shall not exceed 3 month's Rent. To the extent that Landlord recovers a portion or 111 of such amounts paid by Tenant from excess rent derived from reletting, Landlord will refund such amounts to Tenant following their receipt without interest. Landlord's reasonable attorneys' fees in pursuing any of the foregoing remedies, or in collecting any Rent due by Tenant hereunder, shall, if not recovered through excess rents derived from reletting, be paid by Tenant, which fees as to rents collected shall be fifteen percent (15%) of the amount of such rents. 11 All rights and remedies of Landlord are cumulative, and the exercise of any one shall not be an election excluding Landlord at any other time from exercise of a different or inconsistent remedy. No waiver by Landlord of any covenant or condition shall be deemed to imply or constitute a further waiver of the same at a later time, and acceptance of Rent by Landlord, even with knowledge of a default by Tenant, shall not constitute a waiver of such default. 15. PROPERTY OF TENANT. Tenant shall timely pay any and all taxes levied or assessed against or upon Tenant's equipment, fixtures, furniture, leasehold improvements and personal property located in the Premises. All such items shall at all times be and remain the property of the Tenant and Tenant (if not in default hereunder), prior to the expiration date of this lease, may remove all fixtures and equipment which it has placed in the Premises, providing Tenant repairs all damages caused by such removal. If Tenant does not remove its property from the Premises upon termination (for whatever cause) of this lease, such property shall be deemed abandoned by Tenant, and Landlord may dispose of the same in whatever manner Landlord may elect. 16. EMINENT DOMAIN. If all of the Premises, or such part thereof as will make the same unusable for the purposes contemplated by this lease, be taken under the power of eminent domain (or a conveyance in lieu thereof), then either Landlord or Tenant may terminate as of the date possession is taken by the condemnor, and rent shall be adjusted between Landlord and Tenant as of such date. If only a portion of the Premises are taken and Tenant can continue use of the remainder, then this lease will not terminate, but rent shall abate in a just and proportionate amount to the loss of use occasioned by the taking. Tenant shall have no right or claim to any part of any award made to or received by Landlord for any taking and no right or claim for any alleged value of the unexpired portion of this lease; provided, however, that Tenant shall not be prevented from making a claim against the condemning party (but not against Landlord) for any moving expenses, loss of profits, or taking of Tenant's personal property (other than its leasehold estate) to which Tenant may be entitled. 12 17. QUIET ENJOYMENT. If Tenant promptly and punctually complies with each of its obligations hereunder, it shall peacefully have and enjoy the possession of the Premises during the term hereof, provided that no action of Landlord in working in other space in the Building, or in repairing restoring the Premises, shall be deemed a breach of this covenant, giving Tenant any right to modify this lease either as to term, rent payable, or other obligations to be performed. 18. NOTICES. Any notice which Landlord or Tenant is required or desires to give to the other shall be deemed sufficiently given or rendered if delivered in writing, either personally or sent by certified or registered mail, by recognized overnight courier, postage prepaid, or by Fax to: LANDLORD: c/o Craig Davis Properties, Inc. 3605 Glenwood Avenue - Suite 435 Raleigh, North Carolina 27612 (or P. O. Box 31969, Raleigh, N. C. 27622) FAX #(919) 781-1262 TENANT: Four University Place Durham, North Carolina 27707 (or P. O. Box 5233O, Durham, N. C. 27717-2330) FAX #(919) 489-9093 Any notice given herein shall be deemed delivered when actually delivered, Fax is received, the return receipt therefor is signed, or refusal to accept the mailing by the addressee is noted thereon by the postal authorities. The address of either Landlord or Tenant may be changed by notice to the other given in accordance with this Paragraph 18. 19. HOLDING OVER. If Tenant shall hold over after the expiration of the term or other temptation of this lease, such holding over shall not be deemed to be a renewal of this lease but shall be deemed to create a tenancy-at-sufferance and by such holding over Tenant shall be deemed to have agreed to be bound by all of the terms and conditions of this lease except those as to the term hereof and except that during such tenancy-at-sufferance, Tenant shall pay to Landlord (A) rent at the rate equal to one hundred twenty-five percent (125%) of that provided for in the foregoing Paragraph 4, and (B) any and all operating expenses and other forms of additional rent payable under the terms of this lease. 20. This Amended and Restated Lease supersedes and replaces any prior lease agreements or other agreements between Landlord and Tenant as to the Demised Premise. 13 21. MISCELLANEOUS. Headings of paragraphs are for convenience only and shall not be considered in construing the meaning of the contents of such paragraph. The invalidity of any portion of this lease shall not have any effect on the balance hereof. Should Landlord or Tenant institute any legal proceedings against the other for breach of any provision herein contained, the non-prevailing party shall in addition be liable for the costs and expenses of prevailing party, including its reasonable attorneys' fees. This agreement shall be binding upon the respective parties hereto, and upon their heirs, executors, successors and assigns. This agreement supersedes and cancels all prior negotiations between the parties, and changes shall be in writing signed by the party affected by such change. Landlord reserves the right to promulgate (and change from time to time) reasonable regulations it deems appropriate for the common use and benefit of all tenants, with which regulations Tenant shall comply. Landlord may sell the Premises or the Building without affecting the obligations of Tenant hereunder; upon the sale of the Premises or the Building, Landlord shall be relieved of all responsibility for the Premises and shall be released from any liability thereafter accruing under this lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid rent to Landlord's successor. Tenant agrees to attorn to any successor to landlord. This lease may not be recorded without Landlord's prior written consent, but Tenant agrees on request of Landlord to execute a memorandum hereof for recording purposes. The singular shall include the plural, and the masculine, feminine or neuter includes the other. 22. SPECIAL CONDITIONS OR ADDENDUMS. The following special conditions, if any, shall apply, and where in conflict with earlier provisions in this lease shall control. If any addendums are noted below, such addendums are incorporated herein and made a part of this lease. If there are no special conditions or addendums, the word NONE shall be written in the blank below. Lease Addendum No. 1 - Environmental Compliance Lease Addendum No. 2 - Option to Extend Lease Addendum No. 3 - Option to Expand 14 IN WITNESS WHEREOF, Landlord and Tenant have executed this lease in duplicate originals, all as of the day and year first above written. LANDLORD: UNIVERSITY PLACE ASSOCIATES (SEAL) a North Carolina General Partnership (CORPORATE SEAL) By: CWR CORP. (SEAL) a North Carolina corporation General Partner ATTEST: By: /s/ Craig M. Davis -------------------- President /s/ Donna W. Ross - ------------------- Secretary TENANT: (CORPORATE SEAL) SPHINX PHARMACEUTICALS CORPORATION, a Delaware corporation ATTEST: By: /s/ Signature Illegible ------------------------- /s/ Ann Redick - ------------------- 15 STATE OF NORTH CAROLINA : COUNTY OF WAKE : I, Mary G. Hopp, a Notary Public, certify that Craig M. Davis, President of CWR Corp., a North Carolina Corporation, personally came before me this day and acknowledged the due execution of the foregoing instrument by CWR Corp. as General Partner of University Place Associates, a North Carolina general partnership, and further acknowledged said instrument to be the act and deed of University Place Associates acting by its said General Partner. WITNESS my hand and notarial seal, this 18th day of January, 1994. /s/ Mary G. Hopp ------------------------------ Notary Public My Commission Expires:2-15-95 [OFFICIAL SEAL] MARY G. HOPP My commission expires: 2-15-95 County of Forsyth STATE OF NORTH CAROLINA : COUNTY OF DURHAM : I, Harriet Pender Tutor, a Notary Public, certify that Ann Redick personally came before me this day and acknowledged that she is Assistant Secretary of Sphinx Pharmaceuticals Corporation, a Delaware corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by Richard W. Reichow as its Vice President, attested by Ann Redick as its Assistant Secretary, and sealed with its common corporate seal.) WITNESS my hand and notarial seal, this 19th day of November, 1993. /s/ Harriet Pender Tutor ----------------------------------- Notary Public My Commission Expires: 2/22/94 16 LEASE ADDENDUM NO. 1 TO LEASE BETWEEN UNIVERSITY PLACE ASSOCIATES AS LANDLORD AND SPHINX PHARMACEUTICALS CORPORATION AS TENANT Section 25. Environmental Compliance. A. Tenant's Responsibility. Tenant covenants and agrees that the Premises will, at all times during its use or occupancy thereof, be kept and maintained so as to comply with all now existing or hereafter enacted or issued statutes, laws, rules,. ordinances, orders, permits, and regulations of all state, federal, local, and other governmental and regulatory authorities, agencies, and bodies applicable to the Premises, pertaining to environmental matters, or regulating, prohibiting or otherwise having to do with asbestos and all other toxic, radioactive, or hazardous wastes or materials including, but not limited to the Federal Clean Air Act, the Federal Water Pollution Control Act, and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as from time to time amended (all hereafter collectively called "laws"). No material shall be installed or placed in or on the Premises by Tenant, or any agent, employee, or contractor of Tenant, which contains asbestos or any other toxic or hazardous waste or substance, which causes or could cause the Premises to be in violation of any Laws (i) when such material is installed; (ii) while such material remains on the Premises; or (iii) when such material is removed from the Premises, or otherwise disturbed. B. Tenant's Liability. Tenant shall hold Landlord free, harmless, and indemnified from any penalty, fine, claim, demand, liability, cost, or charge whatsoever which Landlord shall incur, or which Landlord would otherwise incur, by reason of Tenant's actions violating this Section 25; including, but not limited to: (i) the cost of bringing the Premises and any other property (including the soil, ground water and surface water thereof and improvements thereon) contaminated as a result of Tenant's actions into compliance with all Laws; (ii) the reasonable cost of all appropriate tests and examinations of the Premises and any other property (including the soil, ground water and surface water thereof and improvements thereon) contaminated as a result of Tenant's actions to confirm that the Premises and such other property have been brought int 17 the reasonable fees and expenses of Landlord's attorneys, engineers, and consultants incurred by Landlord in enforcing and confirming compliance with this Section 25. C. Property. For the purposes of this Section 25, the Premises shall include the real estate covered by this Lease; all improvements thereon; all personal property used in connection with the Premises (including that owned by Tenant); and the soil, ground water, and surface water of the Premises. D. Inspections by Landlord. Landlord and its engineers, technicians, and consultants (collectively the "Auditors") may, from time to time as Landlord deems appropriate, conduct periodic tests and examinations ("Auditors") of the Premises to confirm and monitor Tenant's compliance with this Section 25. Such Audits shall be conducted in such manner as to minimize the interference with Tenant's permitted activities on the Premises; however, in all cases, the Audits shall be of such nature and scope as shall be reasonably required by then existing technology to confirm Tenant's compliance with this Section 25. Tenant shall fully cooperate with Landlord and its Auditors in the conduct of such Audits. The cost of such Audits shall be paid by Landlord unless an Audit shall disclose a material failure of Tenant to comply with this Section 25, in which case the cost of such Audit, shall be paid for by Tenant. E. Landlord's Liability. Landlord shall indemnify and hold Tenant harmless from any damages, loss, cost or expense, including reasonable attorneys fees, which Tenant shall incur by reason of Landlord's actions violating any Laws. Provided, however, the foregoing covenants and undertakings of Tenant contained in this Section 25 shall not apply to any condition or matter constituting a violation of any Law: (i) which existed prior to the commencement of Tenant's use or occupancy of the Premises or was not caused, in whole or in part, by Tenant or Tenant's agents, employees, officers, partners, contractors, or invitees; or (ii) to the extent such violation is caused by, or results from, the acts or neglects of Landlord or Landlord's agents, employees, officers, partners, contractors, guests or invitees. Landlord shall provide Tenant with a copy of all environmental audits, test results, correspondence with engineers and other environmental matters prior to occupancy and thereafter annually and within ten (10) days of any such event, 18 F. Tenant's Liability After Termination of Lease. The covenants contained in this Section 25 shall survive the expiration or termination of this Lease for a period of three years, provided, however, if any indication of environmental contamination exists at the expiration or termination of the Lease, after completion of a phase 1 audit at such time, the covenants contained in Section 25 shall survive the expiration or termination of this Lease for a period of seven years. 19 LEASE ADDENDUM NO. 2 TO LEASE BETWEEN UNIVERSITY PLACE ASSOCIATES AS LANDLORD AND SPHINX PHARMACEUTICALS CORPORATION AS TENANT Option to Extend Provided that Tenant has complied with all of its obligations under this Lease, and provided further that not later than June 30, 1999 Tenant gives Landlord written notice of intent to do so (failure to give notice being an absolute bar to Tenant's right to extend), Landlord agrees that the term of this Lease may, be extended as to all of the Premises (including any added thereto pursuant to Tenant's Option to Expand) for one (1) additional period of five (5) years. During such extended period all the terms and provisions of the Lease shall apply except that the rent for the first year of such extended term shall be the lesser of the then prevailing market rent for comparable space at University Place or 4% higher than it was for the year 1999. The rent as so established for the first year of the extended term will increase at the rate of 4% per year for the remaining four years. Landlord and Tenant agree to negotiate in good faith immediately upon the giving and receipt of the notice of intent to extend to fix the rent to go in effect on the commencement of the extended term. 20 LEASE ADDENDUM NO. 3 TO LEASE BETWEEN UNIVERSITY PLACE ASSOCIATES AS LANDLORD AND SPHINX PHARMACEUTICAL CORPORATION AS TENANT Options to Expand Tenant currently leases all of the Building except those spaces shown on Exhibit A labeled Duke University Medical "C" and Media-Wide "B" (the "Option Space"). Providing that it agrees to do so on the same terms and conditions as the within Lease, and with no upfitting or retrofit obligations whatsoever on the part of the Landlord, upon written notice from Tenant to such effect, Landlord agrees to use its best efforts to make either or both spaces available to Tenant. Rent at the rates then being paid by Tenant for the other Premises shall apply to the Option Space, and if Landlord relocates the tenant in either Option Space in order to make the same available to Tenant, rent on such Option Space shall commence the day following the date that such tenant vacates so that there will be no interruption of Landlord's rent stream from such space. Tenant acknowledges that Landlord may not be able to deliver either of the Option Spaces when requested by Tenant since to do so involves implementation of Landlord's Right to Relocate clause in the leases for such Option Spaces, and as to "C" this in no event will be available until after June 30, 1992. However, Tenant shall have the right to lease the Option Space (either or both) upon the termination or expiration of the existing lease for such space, and Landlord agrees to give Tenant notice of the availability of the Option Space. After receipt of such notice, Tenant shall have fifteen (15) workings days (days national banks are open for business in North Carolina) to lease all (but not part) of either (or both) Option Spaces. The rental rates for such space(s) shall be at the same annual rate per square foot as Tenant is then paying for other portions of the Premises. Additions of Option Space(s) to the Premises will result in a change in Tenant's Proportionate Share of Landlord's Expenses and appropriate adjustments to Additional Rent for which Tenant is liable under the Lease. 21 EXHIBIT B RENTAL SCHEDULE FOR TOTAL RENTS (Based Upon 29,739 Square Feet)
[ZW] . 13,339 S.F. 13,339 S.F. 2,094 S.F. 2,094 S.F. [ZW] 3,741 S.F. 3,741 S.F. LEASE PERIOD **MONTHLY **ANNUALLY MONTHLY ANNUALLY [ZW] *MONTHLY **ANNUALLY - ----------------------------------------------------------------------------------------------------------- [ZW] 1/89 - 9/30/90 ----- ----- ----- [ZW] - ----- ----- ----- 12/1/90 - 12/31/90 $ 4,763.69 ----- $ 1,006.87 ----- [ZW] $ 1,337.41 ----- 1/1/91 - 3/31/91 9,537,39 ----- 2,013.43 [ZW] - ----- 1,337.41 ----- 4/1/91 - 9/30/91 9,537.39 ----- 2,013.43 [ZW] - ----- 1,337.41 ----- 10/1/91 - 12/31/91 9,9t5.32 ----- 2,073.06 [ZW] - ----- 1,390.41 ----- 1/1/91 - 6/30/92 9,915.32 ----- 2,073.06 [ZW] - ----- 1,390.41 ----- 7/1/92 - 9/30/92 13,205.61 ----- 2,073.06 [ZW] - ----- 3,703.59 ----- 10/1/92 - 9/30/93 13,605.78 $163,269.36 2,135.88 $ [ZW] 25,630.56 3,815.82 $45,789.84 10/1/93 - 9/30/94 14,017.07 168,204.84 2,200.45 [ZW] 26,405.40 3,931.17 47,174.04 10/1/94 - 9/30/95 14,450.58 173,406.96 2,268.50 [ZW] 27,222.00 4,052.75 48,633.00 10/1/95 - 9/30/96 14,895.22 178,742.64 2,338.30 [ZW] 28,059.60 4,177.45 50,129.40 lO/1/96 - 9/30/97 15,350.97 184,211.64 2,409.85 [ZW] 28,918.20 4,305.27 51,663.24 lO/1/97 - 9/30/98 16,840.06 190,080.72 2,486.63 [ZW] 29,839.56 4,442.44 53,309.28 lO/l/983 - 9/30/99 16,340.28 196,083.36 2,565.15 [ZW] 30,781.80 4,582.73 54,992.76 TOTAL TOTAL 10,565 S.F. 10,565 S.F. 29,739 S.F. 29,739 S.F. LEASE PERIOD MONTHLY ANNUALLY **MONTHLY **ANNUALLY - -------------------------------------------------------------------------------- 1/89 - 9/30/90 $13,487.98 $161,855.76 ----- ----- 12/1/90 - 12/31/90 13,487.98 ----- $20,600.95 ----- 1/1/91 - 3/31/91 13,437.98 ----- 26,376.21 ----- 4/1/91 - 9/30/91 17,916.48 ----- ----- ----- 10/1/91 - 12/31/91 18,840.92 ----- 32,219.71 ----- 1/1/91 - 6/30/92 18,840.92 ----- 32,219.71 ----- 7/1/92 - 9/30/92 18,340.92 ----- 37,823.18 ----- 10/1/92 - 9/30/93 18,840.92 226,091.04 38,398.40 $460,780.80 10/1/93 - 9/30/94 18,840.92 226,091.04 38,989.61 467,875.32 10/1/94 - 9/30/95 18,400.71 220,808.52 39,172.54 470,070.48 10/1/95 - 9/30/96 18,400.71 220,808.52 39,811.68 477,740.16 lO/1/96 - 9/30/97 18,400.71 220,808.52 40,466.80 485,601.60 lO/1/97 - 9/30/98 19,333.95 232,007.40 42,103.08 505,236.96 lO/l/983 - 9/30/99 19,333.95 232,007.40 42,822.11 513,865.32
- -------------------------------------------------------------------------------- ** Rents shown above are minimum rental amounts assuming unupfitted space as set forth above. As space is upfitted the rental schedule will be revised accordingly by Landlord and made a part of this Lease Modification document. EXHIBIT A-1 FLOOR PLAN 23 EXHIBIT C RULES AND REGULATIONS The following rules and regulations have been adopted by the Landlord for the care, protection and benefit of the building and for the general comfort and welfare of the tenants. 1. The sidewalks, entrances, halls, passage, elevators, and stairways shall not be obstructed by the Tenant or used by him for any other purpose than for ingress and egress. 2. Toilet rooms and other water apparatus shall not be used for any purpose other than those for which they are constructed. 3. The Tenant shall not do anything in the premises, or bring or keep anything therein, which shall in any way conflict with any law, ordinance, rule or regulation affecting the occupancy and use of the premises, which are or may hereafter be enacted or promulgated by any public authority or by the Board of Fire Underwriters. 4. In order to insure proper use and care of the premises, neither the Tenant nor agent nor employee of the Tenant shall: (a) Allow any furniture, packages or articles of any kind to remain in corridors except for short periods incidental to moving same in or out of building or to cleaning or rearranging occupancy of leased space. (b) Maintain or utilize bicycles or other vehicles in the building. (c) Mark or defile elevators, toilet rooms, walls, windows, doors or any part of the building. (d) Deposit waste paper, dirt or other substances in corridors, stairways, elevators, toilets, restrooms, or any other part of the building not leased to him. (e) Tamper or interfere in any way with windows, doors, locks, air conditioning controls, heating, lighting, electric or plumbing fixtures. (f) Leave premises unoccupied without locking all doors, extinguishing lights and turning off all water outlets. 5. The Landlord shall have the right to prohibit any advertising by the Tenant which, in their opinion, tends to damage the reputation of the building or its desirability, and upon written notice from Landlord, the Tenant shall discontinue any such advertising. Exhibit C Page 2 6. The Tenant will reimburse the Landlord for the cost of repairing any damage to the leased premises or other parts of the building caused by the Tenant or the agents or employees of the Tenant, including replacing any glass broken. 7. The Landlord shall furnish a reasonable number of door keys for the needs of the Tenant, which shall be surrendered on termination of the lease, and reserves the right to require a deposit to insure their return at termination of the lease. 8. Requests for services of janitors or other building employees must be made to the Landlord. Agents or employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord. 9. Signs or any other tenant identification shall be in accordance with building standard signage. No signs of any nature shall be placed in the windows so as to be visible from the exterior of the building. All signs not approved in writing by the Landlord shall be subject to removal without notice. 10. Any improvements or alterations to the premises by Tenant shall be approved in advance by the Landlord and all such work, if approved, shall be done at the Tenant's sole expense under the supervision of the Landlord. 11. Tenant shall have a non-exclusive right to use of all driveways and parking areas adjoining said premises. Landlord shall have the authority to assign parking areas for Tenant and Tenant's employees, if deemed necessary by Landlord. 12. If additional drapes or window decorations are desired by Tenant, they shall be approved by Landlord and installed at the Tenant's expense under the direction of the Landlord. The Landlord shall have the right to make such other and further reasonable rules and regulations as, in the judgement of the Landlord, may from time to time be necessary for the safety, care and cleanliness of the premises and for the preservation of good order therein, subject to reasonable consideration and agreement from Tenant. EX-10.3 4 COOPERATION AND STRATEGIC ALLIANCE AGREEMENT COOPERATION AND STRATEGIC ALLIANCE AGREEMENT This Cooperation and Strategic Alliance Agreement (this "Agreement") is entered into as of April 21, 1997, by and between Trimeris, Inc., a Delaware corporation ("Trimeris"), and MiniMed Inc., a Delaware corporation ("MiniMed"). RECITALS A. Trimeris has developed a novel approach to the design and development of drugs and other compounds which may have application for the treatment of a variety of medical conditions. B. MiniMed is a leader in the design, development, manufacturing and marketing of advanced microinfusion systems for delivery of a variety of drugs. C. MiniMed and Trimeris wish to cooperate in the development, establishment and worldwide delivery of therapies for the treatment of various medical conditions by taking advantage of the respective technologies and other resources and assets of MiniMed and Trimeris, on the terms and subject to the conditions of this Agreement. AGREEMENT In consideration of the terms and conditions contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. Page 1 of 25 1. Definitions. (a) "Affiliate" means any person, directly or indirectly, controlling, controlled by or under common control with any other person. "Control" shall mean the direct or indirect ownership of 50% or more of the voting interest in, or 50% or more of the interest in the income of, such other person, or the ability to appoint, elect or direct at least 50% of the governing body of any such person. (b) "Alliance Coordinator" means the person designated by a Party pursuant to Section 3(e) of this Agreement, to be the primary contact person for such Party for purposes of this Agreement. (c) "FDA" means the United States Food and Drug Administration, and any successor entity that may be established hereafter which has substantially the same authority or responsibility currently vested in the United States Food and Drug Administration. (d) "Governing Rules" means the general guidelines established by the Managing Committee pursuant to Section 3(d) of this Agreement, which will be used to guide generally the activities of the Managing Committee and the Parties which are undertaken pursuant to this Agreement. (e) "Implementation Strategy" means the comprehensive approach and strategy, which may be reduced to written form, which is developed by the Managing Committee with respect to the development and implementation of business activities hereunder. The Implementation Strategy shall generally relate to the delivery of medical therapies to patients by MiniMed and Trimeris, which therapies incorporate MiniMed Products and Trimeris Compounds, as contemplated by this Agreement. Page 2 of 25 (f) "Joint Intellectual Property" means any intellectual property rights which arise from the joint activities conducted pursuant to this Agreement, and which shall be jointly owned as set forth in Section 8 of this Agreement. (g) "Law" means any local, state or federal rule, regulation, statute or law relevant to the activities undertaken pursuant to this Agreement or applicable to either of the Parties with respect to any matters set form herein. (h) "Losses" means any liabilities, damages, costs or expenses, including, without limitation, reasonable attorneys' fees (including the allocable cost of in-house counsel), which arise from any claim, lawsuit, demand or other action by any Party other than one of the Parties or an Affiliate of one of the Parties. (i) "Managing Committee" means the committee established pursuant to Section 3 which is responsible for the development and oversight of all activities pursuant to this Agreement, in accordance with the terms of this Agreement. (j) "MiniMed Products" means any products, supplies or other goods which are designed, developed, manufactured or marketed by MiniMed, whether existing on the date of this Agreement or subsequently developed, acquired or otherwise obtained by MiniMed. (k) "Party" or "Parties" rereads MiniMed or Trimeris, or MiniMed and Trimeris, collectively, as appropriate. (1) "Senior Management Representative" means an executive officer of each Party designated to facilitate the resolution of disputes hereunder, as described in Section 3 of this Agreement. Page 3 of 25 (m) "Target Therapy" means a comprehensive health care therapy which utilizes Trimeris Compounds and MiniMed Products and which is to be delivered through the cooperative efforts of the Parties as contemplated by this Agreement. (n) "Trimeris Compound" means any compound from time to time developed by Trimeris for the treatment for venous medical conditions, which compound utilizes Trimeris' cellular membrane anti-fusion technology. 2. General Agreement MiniMed and Trimeris shall collaborate and cooperate in the design, development and implementation of therapies for the treatment of medical conditions, utilizing MiniMed Products and Trimeris Compounds, as set forth herein. The identification of candidate Trimeris Compounds, and the specific terms regarding the scope and type of the collaborative efforts (including, without limitation, the economic terms with respect to the parties), shall be determined from time to time in accordance with Sections 3 and 4 of this Agreement. 3. Managing Committee. (a) MiniMed and Trimeris shall establish a Managing Committee hereunder, which shall consist of two (2) representatives from each of MiniMed and Trimeris. The initial designees are set forth in Schedule A hereto. MiniMed and Trimeris may each from time to time replace its respective representatives on the Managing Committee, in its sole and absolute discretion, by notice to the other Party. (b) It is among the objectives of the Parties to design, develop and implement the Target Therapies in a reasonably practicable fashion, subject, however, to the respective corporate regulatory, financial and other obligations and considerations of each of the Parties from time to time determined. To achieve this objective, the Managing Page 4 of 25 Committee shall be responsible for identifying Trimeris Compounds which are appropriate candidates for consideration under this Agreement, and establishing an Implementation Strategy for those Trimeris Compounds from time to time designated and determined by the Managing Committee. (c) The Managing Committee shall meet at such times and places as it shall determine appropriate to carry out its responsibilities hereunder. Such meetings may be in person or by means of telephonic communication. Either Party may designate an alternate member of the Managing Committee to act on behalf of a member on a temporary or interim basis, in the reasonable discretion of such Party. Either Party, through its Managing Committee members, may call a meeting of the Managing Committee by giving written notice thereof to the members of the other Party. (d) The Managing Committee shall establish guidelines to govern the strategic activities, co-development and related activities of the Parties; the Managing Committee shall also establish such guidelines with respect to operational matters at such time as a Target Therapy is commercialized or in a pre-commercialized phase, as contemplated by this Agreement. All such guidelines shall be subject to the qualification of Section 3(g) hereof. The Managing Committee shall be responsible for taking such other actions as may be provided for or contemplated by this Agreement, subject at all times to the requirements of Section 3(g), including the establishment and implementation of the "Governing Rules." (e) The Parties shall each name one (1) of its Managing Committee members as its Alliance Coordinator, who shall be the primary contact for purposes of this Agreement, except to the extent the parties may otherwise agree. Either Party may change its designation of Alliance Coordinator, in its sole and absolute discretion, upon written notice to the other Party. Page 5 of 25 (f) If a disagreement arises between the Parties as to any matters within the scope of this Agreement, either Party may give written notice to the other. If the Alliance Coordinators are unable to resolve the dispute satisfactorily, despite their good faith efforts, within thirty (30) days of receipt of such notice, either Alliance Coordinator may request a meeting of the Managing Committee, which will, in good faith, diligently seek to resolve the dispute. If the Managing Committee is unable to resolve the dispute, notwithstanding the exercise of good faith efforts, within thirty (30) days after such meeting, then, unless otherwise agreed by the Alliance Coordinators, the matter shall thereafter formally be referred to a Senior Management Representative of each of the Parties, the initial designations of which are set forth in Schedule A. Either Party may, in its sole discretion, change its designee of the Senior Management Representative by written notice to the other. Except as expressly provided in the immediately following sentence, neither Party shall initiate any formal action against the other, including, without limitation, the formal commencement of arbitration proceedings or the formal filing of legal action, until at least thirty (30) days have elapsed since the first communication between the Senior Management Representatives hereunder. Notwithstanding the foregoing, either Party may initiate proceedings to seek injunctive relief before the time period otherwise required hereunder shall elapse, if such Party in good faith believes that it will suffer irreparable harm without the initiation of such proceedings. (g) Notwithstanding anything to the contrary contained in this Agreement, the authority of the Managing Committee shall at all times be subject to the respective requirements and obligations of the quality systems and regulatory policies and procedures, and internal corporate governance requirements, of each of Trimeris and MiniMed. The Managing Committee shall establish Governing Rules, which shall serve as guidelines for the general activities under this Agreement, and Implementing Strategies relative to the activities for each Target Therapy, all of which shall supplement the terms hereof, but which procedures and systems shall satisfy and be consistent with the respective policies, procedures, and systems of MiniMed and Trimeris. In that regard, the Page 6 of 25 Parties shall reasonably cooperate in an attempt to assure their respective systems do not unduly impede the carrying out of the intent of this Agreement. Without limiting the generality of the foregoing, the operations and authority of the Managing Committee shall be consistent with the underlying corporate policies of each of MiniMed and Trimeris with respect to the operation of clinical trials and studies, regulatory affairs relating to development, promotion, worldwide distribution and servicing of the delivery of Target Therapies, quality assurance activities, medical device and adverse event reporting requirements, patent strategies, and the like. The Managing Committee shall establish a proposed approach for the Governing Rules within ninety (90) days of the execution of this Agreement that shall consider the relevant respective obligations of the parties. 4. Target Therapies. The Parties shall diligently pursue the design, development and ultimate commercialization of Target Therapies from time to time designated by the Managing Committee. For each Target Therapy designated as such by the Parties, the Managing Committee shall develop an Implementation Strategy, which shall consist of a comprehensive plan with respect to such activities. It is the intention of the Parties that they will cooperate jointly in such activities, as from time to time mutually determined by the Managing Committee and agreed to by the Parties. The Parties currently contemplate that the Implementation Strategies with respect to each Target Therapy may be developed in one or more phases, and may include or address, without limitation, the following: (a) Formulation of Trimeris Compounds for delivery via MiniMed Products, including, without limitation, chemical stability and materials compatibility issues. MiniMed shall be responsible generally for Investigating appropriate modalities for drug deliver alternatives. Page 7 of 25 (b) Clinical research, including the design, development, implementation and analysis of joint clinical trials and protocols, feasibility studies and similar activities from time to time agreed to by the Parties. (c) Strategies and physical requirements for the manufacture, packaging and storage of the Trimeris Compounds relative to the Target Therapies. (d) Market research activities. (e) Patent strategies with respect to Joint Intellectual Property. (f) Strategies and activities relative to the requisite regulatory approvals of and post-market regulatory compliance for the components of the Target Therapies. (Notwithstanding the foregoing, its is recognized and agreed that Trimeris will generally be responsible for the regulatory approval of the Trimeris Compounds, and MiniMed will generally be responsible for the regulatory approval of the MiniMed Products; provided, however, that the Managing Committee may from time to time determine appropriate joint regulatory strategies which may include joint or coordinated submissions to the FDA and other appropriate regulatory authorities.) (g) Market development activities, which may include, without limitation, educational and other programs for health care professionals and third party payoffs. (h) Marketing activities, which may include, without limitation, activities directed to patients, health care professionals and third party payors. (i) Clinical and technical services to provide support relative to the delivery systems for the Target Therapies, which may be based upon the current MiniMed model of providing technical services for MiniMed Products and 24-hour clinical services. Page 8 of 25 (j) Sales and related worldwide distribution activities relating to the Target Therapies, including the composition and structure of the sales force or distribution network, or other method of distribution (which may involve third parties with which the Parties may collaborate hereunder), all of which will be determined in the exercise of the Managing Committee's responsibilities. (k) Warranty, product service (including technical service and clinical service) and similar matters. (1) The right of a Party to terminate the Party's commitments with respect to a particular Target Therapy in accordance with subsection 9(e) or in the event milestones established by the Managing Committee arc not achieved. It is the intention of the Parties that they will participate in the investment, contribution, commitment and risks associated with the design, development and commercialization of the Target Therapies. Accordingly, the parties intend generally to allocate the financial costs and profits of the Target Therapies commercialized hereunder. It is currently contemplated, however, that: (i) MiniMed shall be responsible generally for all development and regulatory expenses relating to the MiniMed Products, (ii) Trimeris shall be responsible for all development and regulatory expenses relating to the Trimeris Compounds, (iii) the Parties shall share expenses for clinical trials, and marketing and selling expenses relative to the Target Therapies. The Parties may from time to time agree to allocate such costs and expenses differently in certain circumstances, which would be incorporated into an Implementation Strategy for a specified Target Therapy. In furtherance of the foregoing, the Implementation Strategy may include appropriate provisions for revenue sharing, which may vary depending upon the requirements of a particular Target Therapy, but which may include, without limitation, the following. (i) determination of an appropriate transfer price for the Trimeris Page 9 of 25 Compounds (in circumstances in which the Managing Committee determines that MiniMed is the appropriate party to undertake distribution, and on such terms as the Parties may agree), (ii) allocation for costs and expenses associated with formulation and packaging of the Trimeris Compounds and, to the extent required, the MiniMed Products, (iii) costs associated with the delivery of the Target Therapy, (iv) costs associated with clinical and technical support associated with the Target Therapy and (v) an appropriate formula or basis to determine the profits derived from the delivery of the Target Therapy. Notwithstanding the foregoing, however, the parties recognize and agree that an unanticipated disparity may occur or eventuate in the actual contribution of each Party with respect to the design, development, distribution and commercialization of a particular Target Therapy. With respect to each Target Therapy, to the extent a Party in good faith concludes that the financial return to such Party is inconsistent with this Agreement and the reasonable expectations of such Party, then it may give notice thereof to the other Party (which shall include supporting documentation for its position), to be reviewed and considered by the other Party. The Parties shall engage in good faith negotiations relative to the financial arrangement applicable as between the Parties with respect to any Target Therapy to the extent a notice is given as contemplated by this provision. With respect to any particular Target Therapy, the Parties acknowledge and agree that they may need to further collaborate with additional unrelated third parties. In such event, the Parties shall cooperate hereunder to devise an appropriate strategy with respect to pursuing such third parties. Without limiting the generality of the foregoing, the Parties acknowledge and agree that the treatment of diseases caused by enveloped viruses (which are the general targets of the Trimeris Compounds), particularly HIV/AIDS, may be best accomplished by a variety of anti-retroviral therapies, including "drug cocktails" containing multiple therapeutic agents. and that many of the components of such cocktails are best delivered by continuous infusion such as is accomplished by MiniMed Products. To the extent determined to be scientifically appropriate, the Parties, Page 10 of 25 collectively and/or individually, shall investigate the use of the Trimeris Compounds in such cocktails for use as a Target Therapy hereunder. To the extent such cocktails containing anti-viral compounds (e.g., protease inhibitors, reverse transcriptase inhibitors and the like) other than the Trimeris Compounds are identified hereunder, the Managing Committee shall in good faith cooperate to determine an appropriate business strategy (which may include, without limitation, financial allocations based upon the relative contributions of the Parties and one or more third parties) which will be recommended to the Parties for approval. 5. Pentafuside (T-20). The Parties acknowledge that they have been collaborating with respect to the development of Pentafuside, a Trimeris Compound for the treatment of HIV/AIDS, the delivery of which, with MiniMed Products, the Parties have designated as a Target Therapy hereunder. The Managing Committee shall undertake to establish the first phase of an Implementation Strategy for such Target Therapy within ninety (90) days from the date of this Agreement. 6. Representations and Warranties. (a) MiniMed Representations and Warranties. MiniMed represents and warrants to Trimeris as follows: (i) MiniMed is a corporation duly organized validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership of its property makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on MiniMed or its ability to perform hereunder. Page 11 of 25 (ii) MiniMed has the full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of MiniMed. This Agreement has been duly executed and the provisions hereof constitute the valid and legally binding obligations of MiniMed and do not require the consent, approval or authorization of, or registration, qualification, designation, declaration or filing with, any person, public or governmental authority or other entity, except for any of the foregoing which have been received or obtained or, either individually or in the aggregate, do not and would not have a material adverse effect upon MiniMed or its ability to perform its obligations hereunder. (iii) The execution and delivery of this Agreement by MiniMed, and the performance of its obligations hereunder, are not in violation or breach of, and will not conflict with or constitute a default under, the Certificate of Incorporation or Bylaws of MiniMed, or any material agreement, contract, commitment or obligation to which MiniMed is a Party or by which it is bound, and will not: conflict with or violate any applicable Law or any order or decree of any governmental agency or court having jurisdiction over MiniMed or its assets or properties. (b) Trimeris Representations and Warranties. Trimeris represents and warrants to MiniMed as follows: (i) Trimeris is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership of its property makes such Page 12 of 25 qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on Trimeris or its ability to perform hereunder. (ii) Trimeris has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of Trimeris. This Agreement has been duly executed and the provisions hereof constitute the valid and legally binding obligations of Trimeris and do not require the consent, approval or authorization of, or registration, qualification, designation, declaration or filing with, any person, public or governmental authority or other entity, except for any of the foregoing which have been received or obtained or, either individually or in the aggregate, do not and would not have a material adverse effect upon Trimeris or its ability to perform its obligations hereunder. (iii) The execution and delivery of this Agreement by Trimeris, and the performance of its obligations hereunder, are not in violation or breach of, and will not conflict with or constitute a default under, the Articles or Certificate of Incorporation or Bylaws of Trimeris, or any material agreement, contract, commitment or obligation to which Trimeris is a Party or by which it is bound, and will not conflict with or violate any applicable Law or any order or decree of any governmental agency or court having jurisdiction over Trimeris or its assets or properties. Page 13 of 25 7. Compliance With Laws. In performing their obligations hereunder, MiniMed and Trimeris shall comply in all material respects with all Laws regarding or relevant to the performance of their respective obligations hereunder, except for any noncompliance which, individually or in the aggregate, do not and would not have a material adverse affect upon either Party hereto, or the agreements contemplated hereby. Without limiting the generality of the foregoing, each Party shall comply in all respects with all of the rules, regulations, statutes and laws under the jurisdiction of the FDA, comparable regulatory bodies of any state or any foreign jurisdiction, or such other regulatory authority which may from time to time exercise jurisdiction over the activities of either MiniMed or Trimeris, or which affect, impact or otherwise relate to this Agreement or the activities conducted hereunder or contemplated hereby. MiniMed and Trimeris shall cooperate with each other during any inspection, investigation or other inquiry by any governmental agency exercising any such jurisdiction or authority, including providing appropriate information and/or documentation, as may be lawfully requested by such governmental entity. Notwithstanding the foregoing, each Party expressly reserves its rights to in good faith challenge the activities of any such governmental agency, to the extent such Party deems appropriate. Further notwithstanding the foregoing, neither MiniMed nor Trimeris shall be under any obligation to disclose information hereunder if, and to the extent, such Party in good faith is seeking to protect the attorney-client privilege with respect to any such activity or event. 8. Intellectual Property. (a) Joint Developments. Each Party shall disclose to the other any and all useful ideas, concepts, methods, procedures, processes, improvements, inventions, discoveries, and the like which arise from the joint activities conducted by the Parties hereunder ("Discoveries") of any nature, made, conceived or first reduced to practice as a result of the Parties' activities hereunder. The Parties shall jointly own any and all rights, Page 14 of 25 title and interest in and to all Discoveries that are a result of this Agreement, and such property shall constitute Joint Intellectual Property hereunder. The parties contracting for any work performed under this Agreement by a subcontractor or contract employee shall ensure all Discoveries vest with Trimeris and MiniMed. The Parties shall in good faith consider the inclusion of procedures relative to patent filings and related matters with respect to Discoveries which constitute Joint Intellectual Property, which procedures would be considered for inclusion in the Governing Rules. (b) Sole Property. All existing Trimeris intellectual property (including all aspects of the Trimeris Compounds), and all intellectual property developed solely by Trimeris independent from activities pursuant to this Agreement (which must be independently verifiable), shall be and remain the sole and exclusive property of Trimeris. All existing MiniMed intellectual property (including all aspects of the MiniMed Products), and all intellectual property developed solely by MiniMed independent from activities undertaken pursuant to this Agreement (which must be independently verifiable), shall be and remain the sole and exclusive property of MiniMed. 9. Covenant Not to Compete; Exclusivity. (a) Except as provided for herein, during the term of this Agreement, the Parties shall deal exclusively with one another with respect to the delivery of Target Therapies, subject to the inclusion of additional collaborative parties as contemplated by Section 4. (b) During the term of this Agreement and for a period of one (1) year thereafter, MiniMed shall not, without the prior written consent of Trimeris, enter into any agreement or arrangement with any other person or entity with respect to the continuous or continual microdose infusion of any pharmaceutical product which is predicated on anti-viral agents which block virus to cell membrane fusion. Page 15 of 25 (c) During the term of this Agreement and for a period of one (1) year thereafter, Trimeris shall not, without the prior written consent of MiniMed, enter into any agreement or arrangement with any person or entity with respect to the design, development or distribution of any of the Trimeris Compounds used in a Target Therapy hereunder for administration via a continuous or continual microdose infusion delivery system. (d) The Parties acknowledge and agree that, except as may be mutually determined with respect to an Implementation Strategy, or otherwise agreed to in writing (i) Trimeris may collaborate, independent of this Agreement, with other parties for the development and distribution of Trimeris Compounds used in a Target Therapy hereunder for delivery otherwise than via continuous or continual microdose infusion and (ii) except as expressly provided for in subsection (b) above, MiniMed may collaborate, independent of this Agreement, with other parties for the delivery of drugs, drug "cocktails" and compounds other than the Trimeris Compounds, some of which may be deemed to be competitive with one or more of the Trimeris Compounds. (e) Notwithstanding the foregoing, the Parties recognize that circumstances may eventuate wherein the capability of Trimeris to efficiently and effectively distribute a Trimeris compound identified for use in a Target Therapy hereunder is materially and adversely affected because of the exclusivity and noncompetition provisions contained herein ("Materially Adverse Circumstances"). In recognition of such possibility, the Management Committee may include in an Implementation Strategy the right of Trimeris to terminate its obligations with respect to the subject Trimeris Compound, subject to the terms and conditions herein and in the Implementation Strategy. In any such case, Trimeris must in good faith conclude that Materially Adverse Circumstances exist and Trimeris shall be obligated to pay MiniMed a termination fee in the form of a one-time payment and/or royalty payments for the balance of the exclusivity period. With respect to Pentafuside, if Materially Adverse Circumstances occur, Trimeris may terminate its obligations hereunder with respect to Pentafuside, in which case Page 16 of 25 Trimeris shall be obligated to pay MiniMed royalties equal to seven percent (7%) of the Net Proceeds. For purposes of this Agreement "Net Proceeds" shall mean the gross revenue derived from sales of Pentafuside formulated for delivery via continuous or continual microdose infusion, less (i) applicable taxes and other governmental charges, (ii) allowances for credits, returns, discounts, rebates and cancellations, and (iii) actual freight cost. The obligation of Trimeris to pay such royalties shall terminate on the sixth (6") anniversary of the date the FDA grants a New Drug Approval for Pentafuside. MiniMed shall have reasonable audit rights to verify such royalty payments, which shall be paid quarterly (within sixty days of the end of each calendar quarter), and shall be accompanied by a royalty report setting forth the basis for the royalty calculation. 10. Term. Extension and Termination. (a) Term. The term of this Agreement shall commence as of the date hereof and continue until the date six (6) years after the FDA grants a New Drug Approval for a Trimeris Compound used in a Target Therapy hereunder ("Initial Term"), unless sooner terminated as set forth herein. Unless sooner terminated in accordance with the terms of this Agreements the term of this Agreement shall automatically be extended for additional successive 12-month periods, unless a Party gives notice of nonrenewal at least six (6) months prior to the end of the Initial Term or any renewal term. (b) Termination. (i) Breach. If a Party materially defaults in its performance of any of its material obligations under this Agreement, and such default is not cured or resolution of a disputed breach pursuant to Subsection 3(f) is not demanded within sixty (60) days of written notice of such default by the other Party, this Agreement may be terminated at the end of such 60-day period by the Party not in default by written notice of termination to the defaulting Party, such written notice to be given not later than seventy-five (75) days after the first written notice. Page 17 of 25 (ii) Bankruptcy. In the event of the institution by or against either Party of insolvency, receivership or bankruptcy, proceedings or any other proceedings for the settlement of a Party's debts which are not dismissed within sixty (60) days, or upon a Party's making an assignment for the benefit of creditors, or upon a Party's dissolution or ceasing to do business, the other Party may terminate this Agreement upon written notice. (c) Effect of Termination. The provisions of Section 9 (Covenant Not to Compete), Section 11 (Confidentiality), Section 12 (Indemnification), and Section 13 (General), shall survive the termination of this Agreement. 11. Confidentiality (a) Disclosure of Confidential Information. Except as otherwise expressly provided in this Agreement or as may be agreed to by the Managing Committee in writing, both MiniMed and Trimeris shall retain in confidence and not use for its own benefit (other than as expressly contemplated by this Agreement) all confidential and proprietary information received from the other as a result of this Agreement during the term of this Agreement and continuing thereafter for a period of five (5) years after termination. Such information may, however, be disclosed insofar as such disclosure is necessary (where possible, with adequate safeguards for confidentiality,) to allow either Party to defend against litigation, to file and prosecute patent applications or to comply with governmental regulations, or rules or regulations of applicable self-regulatory organizations (including, without limitation, any exchange or stock market on which the securities of a Party are listed or traded, or qualified for trading), or otherwise as required by Law. Such obligation of confidentiality and non-use shall also not apply to information which: (i) is in the public domain as of the date of receipt, (ii) comes into the public domain through no fault of the Party claiming waiver, (iii) was known by the Party claiming waiver prior to disclosure, as shown by such Party's written records, (iv) Page 18 of 25 is disclosed to the Party claiming waiver by a third party having a lawful right to make such disclosure, (v) is independently developed by the Party claiming waiver, or (vi) is disclosed to a third party that has agreed in writing to be bound by obligations of confidentiality similar to those set forth herein. Nothing contained herein shall prevent either Party from disclosing information to its Affiliates or to the FDA or other regulatory authorities where necessary. (b) Press Release and Public Announcements. MiniMed and Trimeris shall not issue any press release or public announcement with respect to this Agreement without the prior consent of the other Party as to the form and content of such release, except for any such release or announcement that may be required by Law or the rules or regulations of any exchange on which the securities of a Party are listed, traded or qualified for trading. To the extent practical, the parties shall consult with each other in advance as to the form, content and timing of all releases or announcements. It is the present intention of the Parties to issue a joint press release announcing the execution of this Agreement. (c) Existing Mutual Nondisclosure Agreement. The Mutual Nondisclosure Agreement catered into by the Parties and effective as of August 21, 1996 is superseded by Section 11 of this Agreement; provided, however, that any confidential information disclosed by one Party to the other pursuant to such Mutual Nondisclosure Agreement shall be treated as if it had been disclosed after the Effective Date of this Agreement and shall therefore be subject to the terms of this Section. 12. Indemnification. (a) Indemnification by MiniMed. MiniMed shall indemnify, defend and hold Trimeris harmless from and against any and all Losses resulting from or arising out of the negligence or willful misconduct of MiniMed in the performance of its obligations under this Agreement. Without limiting the generality of the foregoing, MiniMed shall Page 19 of 25 indemnify, defend and hold Trimeris harmless from and against any losses relating to product liability claims solely with respect to MiniMed Products which are designed, developed and manufactured solely and independently by MiniMed. (b) Indemnification by Trimeris. Trimeris shall indemnify, defend and hold MiniMed harmless from and against any Losses resulting from or arising out of the negligence of willful misconduct of Trimeris in performing is obligations under this Agreement. Without limiting the generality of the foregoing, Trimeris shall indemnify, defend and hold MiniMed harmless from and against any Losses resulting from any design defect with respect to any Trimeris Compound which is the subject of the cooperative efforts pursuant to this Agreement. (c) Indemnification Procedures. A Party seeking indemnification (the "Indemnified Party") pursuant to this Section 12 shall notify, in writing, the other Party (the "Indemnifying Party") within fifteen (15) days of the assertion of any claim or discovery of any fact upon which the Indemnified Party intends to base a claim for indemnification. An Indemnified Party's failure to so notify the Indemnifying Party shall not, however, relieve the Indemnifying Party from any liability under this Agreement to the Indemnified Party with respect to such claim except to the extent that such Indemnifying Party is actually denied, during the period of delay in notice, or materially prejudiced with respect to, the opportunity to remedy or otherwise mitigate the event or activity(ies) giving rise to the claim for indemnification and thereby suffers or otherwise incurs additional quantifiable damages as a result of such failure. The Indemnifying Party, while reserving the right to contest its obligations to indemnify hereunder, shall be responsible for the defense of any claim, demand, lawsuit or other proceeding in connection with which the Indemnified Party claims indemnification hereunder. The Indemnified Party shall have the right at its own expense to participate jointly with the Indemnifying Party in the defense of any such claim, demand, lawsuit or other proceeding, but with respect to any issue involved in such claim, demand, lawsuit or other proceeding with respect to which the Indemnifying Party has acknowledged its Page 20 of 25 obligation to indemnify the Indemnified Party hereunder, the Indemnifying Party shall have the right to select counsel, settle, try or otherwise dispose of or handle such claim, demand, lawsuit or other proceeding on such terms as the Indemnifying Party shall deem appropriate, subject to any reasonable objection of the Indemnified Party. (d) Insurance. The Parties, through the Managing Committee, shall pursue the purchase of appropriate liability insurance which would jointly insure both of the Parties for the activities undertaken pursuant to this Agreement, to the extent such insurance is available to the Parties on commercially reasonable terms. The Managing Committee shall in good faith determine the most efficient and effective way to obtain such insurance and shall in good faith negotiate an appropriate allocation of the cost of acquiring any such insurance. 13. General. (a) Entire Agreement. This Agreement, including any Schedules, Exhibits and Appendices, constitutes the entire agreement and understanding relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations and agreements, whether oral or written, including that certain Letter Agreement between the parties dated December 10, 1996 (as amended) relating to the subject matter of this Agreement. (b) Counterparts and Headings. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Headings of sections and subsections of this Agreement are for convenience only and the construction of this Agreement shall not be affected by reference to such headings. (c) Notice. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all Page 21 of 25 purposes if personally delivered or mailed by first class certified or registered mail, postage prepaid, hand delivered, or sent by telecopy or by reputable courier. Notices sent by U.S. mail shall be deemed delivered three (3) days after deposit with postal authorities or upon confirmed delivery if personally delivered, sent by confirmed fax or courier service. Unless otherwise specified in writing, the mailing addresses of the parties shall be as described below. For Trimeris: Trimeris, Inc. 4727 University Drive Durham, North Carolina 27707 Attention. President Fax Number: (919)419-1816 Copy to: General Counsel at same address Fax Number: (919)419-1816 For MiniMed: MiniMed Inc. 12744 San Fernando Road Sylmar, California 91342 Attention: President Fax Number: (818) 362-6928 Copy to: General Counsel at same address Fax Number (818) 367-1460 (d) Amendment and Waiver. This Agreement may be modified, amended and supplemented only by written agreement signed by the Parties. The waiver by any Party to this Agreement of any breach or violation of any provision of this Agreement by the other Party shall not operate or be construed to be a waiver of any subsequent breach or Page 22 of 25 violation of the same or any other provision of this Agreement. (e) Assignment. Neither Party may assign its rights and obligations under this Agreement without the prior written consent of the other Party. This Agreement shall be binding upon, and inure to the benefit of, the legal successors to the Parties hereto. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. (g) Partial Invalidity. If any provision of this Agreement is held to be invalid, then the remaining provisions shall nevertheless remain in full force and effect. The Parties agree to renegotiate in good faith any term held invalid and be bound by the mutually agreed substitute provision. (h) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. When this Agreement uses the word "including" such word shall be deemed to be followed by the words "without limitation". (i) Force Majeure. Both Parties to this Agreement shall be excused from the performance of their obligations hereunder if such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and file nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, "force majeure" shall include conditions beyond the control of the Parties and not resulting from the negligence of the Party Page 23 of 25 seeking excuse, including an act of God, war, civil commotion, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. (j) Independent Contractors. The relationship of Trimeris and MiniMed established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to give either Party the power to direct and control the day-to-day activities of the other or allow one Party to create or assume any obligation on behalf of the other of any purpose whatsoever. (k) Limitation of Liability. Except as may be elsewhere herein specifically provided for, neither Party shall be liable to the other for indirect, special, incidental, consequential or punitive damages, or for any lost profits of the other Party, however caused and on any theory of liability, arising out of the performance or failure to perform any obligations set forth herein. IN WITNESS WHEREOF, this Agreement is executed and effective as of the date first above written. TRIMERIS, INC. /s/ Max N. Wallace ------------------------- Max N. Wallace Vice President, Operations and General Counsel MINIMED INC. /s/ Terrance H. Gregg ------------------------- Terrance H. Gregg President & Chief Operating Officer Page 24 of 25 Schedule A Managing Committee Trimeris, Inc. MiniMed Inc. TO BE DETERMlNED Eric S. Kentor Senior Vice President and General Counsel TO BE DETERMINED William Van Antwerp Chief Scientist Alliance Coordinator: Alliance Coordinator: TO BE DETERMINED TO BE DETERMINED Senior Management Representative Trimeris, Inc. MiniMed Inc. TO BE DETERMINED Terrance H. Gregg President & Chief Operating Officer Page 25 of 2S EX-10 5 EXHIBIT 10.9 [LOGO] TRIMERIS December 15, 1994 M. Ross Johnson, Ph.D. 153 Anderson Road Alameda, CA 94502 Dear Ross: On behalf of everyone as Trimeris, I want you to know how excited we are about the possibility of your joining our team. Your experience and "can do" attitude is just what we all think can propel Trimeris into a tremendously successful company. Here is the offer we have discussed. You would join Trimeris as Vice President of Research and Development and Chief Scientific Officer. You would be nominated and we will support your election to the Board of Directors. Your initial salary would be $225,00 per year, payable monthly. You would be granted options to purchase 300,000 shares of common stock. The exercise price of shares will be Fair Market Value of the Common Stock, which would be determined by the Board on your starting date. The price is currently $0.05 per share, and I would expect that it would not change between now and that time. These options are part of the company's management incentive option plan, and we would be pleased to work with you to set the best format (ISOs versus Non-Qualified) for your situation. The options would be subject to normal vesting schedule of four years with a one year "cliff", which means that during the first year, none vest. At the end of the first year of employment, you would become vested in the amount of 25%. From that time forward, vesting would be 25% per year on a monthly basis. In addition to this grant, you may purchase 50,000 shares immediatedly upon your joining the company, at Fair Market Value ($0.05 per share). If for any reason you coose to leave Trimeris within two years of your employment date, you must sell these 50,000 shares back back to the company and the company must buy them back from you at the purchase price within 30 days. If you are terminated for reasons other than Cause then you may keep the shares if you wish, however, if you wish to have the company repurchase them, then Trimeris will repurchase the shares for the purchase price within 30 days of separation. Trimeris Inc. Two University Place Durham, NC 27707 919/419-6050 919/419-1816 Fax As additional incentive to join Trimeris, you will be granted a one-time hiring bonus of $20,000 to be paid during your first month of employment. Also, you wi11 be eligible for a bonus during 1995 of $25,000 which will be based upon the achievement of agreed upon research and development milestones. Further we have agreed that if you were terminated for reasons other than Cause, Trimeris would provide salary and benefits continuance for 12 months. Trimeris has agreed to pay for reasonable relocation costs related to your move from California (includes moving of household goods, transportation of family members and up to three months of living expenses in North Carolina). Of course, you would be a full participant in all of the company's health and benefits plans. These are spelled out in my fax of December 13, 1994. Ross, I hope this letter accurately captures what we discussed. If not, please let me know. Once again, we think we have the potential of building substantial company in Trimeris. The sense of challenge and teamwork (and having fun too!) in creating something of lasting value and importance in human medicine is what drives each of us. We think you have the spirit and the capability to help lead Trimeris to maximize this potential. We all hope you will accept our offer to become Trimeris' Chief Scientific Officer. Sincerely, /s/ Richard A. Franco Richard A. Franco, Sr. President & Chief Executive Officer Accepted by: /s/ M. Ross Johnson 12/15/94 ---------------------------- ---------------- M. Ross Johnson, Ph.D. Date cc: Jesse Treu Also, (1 Start date to be discussed (2) Prior 1995/1996 Professional obligations to be fullfilled. /s/ M. Ross Johnson 12/15/94 EX-10 6 EXHIBIT 10.10 [LOGO] TRIMERIS February 23, 1995 Mr. Matthew A. Megaro 64 Irving Avenue Atherton, VA 94027 Dear Matt: On behalf of everyone at Trimeris, I want you to know how excited we are about your joining our team. Your experience and "can do" attitude is just what we all think can propel Trimeris into a tremendously successful company. Here is the offer we have discussed. You will join Trimeris as Chief Financial Officer. Your initial salary would be $130,000 per year, payable monthly. You would be granted options to purchase 200,000 shares of common stock. The exercise price of the shares will be Fair Market Value of the Common Stock, which would be determined by the Board on your starting date. This price is currently $0.05 per share, and I would expect that it would not change between now and that time. These options are part of the company's management incentive option plan, and we would be pleased to work with you to set the best format (ISOs verus Non-Qualified) for your situation. The options would be subject to normal vesting schedule of four years with a one year "cliff", which means that during the first year, none vest. At the end of the first year of employment, you would become vested in the amount of 25%. From that time forward, vesting would be 1/36 per month over the next three years, based upon performance. In addition to this grant, you may purchase 50,000 shares immediately upon your joining the company, at Fair Market Value ($0.05 per share). If for any reason you choose to leave Trimeris within two years of your employment date, you then must sell these 50,000 shares back to the company and the company must buy them back from you at the purchase price within 30 day. If you are terminated for reasons other than Cause then you may keep the shares if you wish, however, if you wish to have the company repurchase them, then Trimeris will repurchase the shares for the purchase price within 30 days of separation. As additional incentive to join Trimeris, you will be granted a one-time hiring bonus of $15,000 to be paid during the first month of employment. Also, you will be eligible for a bonus during 1995 of $ 10,000 which will be based upon the achievement of agreed upon milestones. Trimeris, Inc. Two University Place Durham, NC 27707 919/419-6050 919/419-1816 Fax -2- Trimeris has agreed to pay for reasonable relocation costs related to your move from California (includes moving of household goods, transportation of family members and up to one month living expenses in North Carolina.) Of course, you would be a full participant in all of the company's health benefits plans. Matt, I trust this letter accurately captures what we discussed. If not, please let me know. Once again, we think we have the potential of building a substantial company in Trimeris. The sense of challenge and teamwork (and having fun, too!) in creating something of lasting value and importance in human medicine is what drives each of us. We think you have the spirit and the capability to help lead Trimeris to maximize this potential We all look forward to your arrival on the 6th of March. Sincerely, /s/ Richard A. Franco Richard A. Franco, Sr. President & Chief Executive Officer Accepted by: /s/ Illegible Date: 3/10/95 ---------------------------- ------- cc: Jesse Treu EX-10 7 EXHIBIT 10.11 EXHIBIT 10.11 SIXTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT June 27, 1997 To the several persons named at the foot hereof Dear Sirs: This will confirm that in consideration of the purchase by you of (i) an aggregate 3,000,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, ("Series A Preferred") of Trimeris, Inc., a Delaware corporation (the "Company"), pursuant to the Preferred Stock Purchase Agreement dated as of February 11, 1993 among the Company and you and (ii) an aggregate of 27,135,564 shares of Series B Convertible Preferred Stock, par value $0.001 per share ("Series B Preferred"), of the Company pursuant to the Preferred Stock Purchase Agreements dated as of July 17, 1995, August 16, 1995 and March 22, 1996 among the Company and you, (iii) an aggregate of 13,317,739 shares of Series C Convertible Preferred Stock, par value $0.001 per share ("Series C Preferred") of the Company pursuant to the Series C Preferred Stock Purchase Agreements dated as of October 7, 1996, January 16, 1997 and March 27, 1997 among the Company and you, and (iv) an aggregate of up to 10,666,667 shares of Series D Convertible Preferred Stock, par value $0.001 per share ("Series D Preferred") pursuant to the Series D Convertible Preferred Stock Purchase Agreement of even date herewith among the Company and you, as an inducement to you to consummate the transactions contemplated by such purchase agreements, the Company hereby covenants and agrees with each of you, and with each subsequent holder of Restricted Stock (as such term is defined herein), as follows: 1. Certain Definitions. As used herein, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, par value $0.001 per share of the Company, as constituted as of the date of this Agreement, subject to adjustment pursuant to the provisions of Section 10 hereof. "Conversion Shares" shall mean shares of Common Stock issued upon conversion of the Series A Preferred, the Series B Preferred, the Series C Preferred or the Series D Preferred. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Registration Expenses" shall mean the expenses so described in Section 8 hereof. "Restricted Stock" shall mean any shares of capital stock of the Company, the certificates for which are required to bear the legend set forth in Section 2 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8 hereof. 2. Restrictive Legend. Each certificate representing the Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred, each certificate issued upon exchange or transfer of any Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred, each certificate representing Conversion Shares, and each certificate issued upon exchange or transfer of any Conversion Shares other than in a public sale or as otherwise permitted by the last paragraph of paragraph3 hereof shall be stamped or otherwise imprinted with a legend substantially in the following form: "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT AND LAWS OR EXEMPTIONS FROM REGISTRATION (INCLUDING THE EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S PROMULGATED UNDER THAT ACT) ARE AVAILABLE." 3. Notice of Proposed Transfer. Prior to any proposed transfer of any Restricted Stock (other than under the circumstances described in Section 4, 5 or 6 hereof), the holder thereof shall give written notice to the Company of its intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by an opinion of counsel reasonably satisfactory to the Company (it being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol shall be satisfactory) to the effect that the proposed transfer of the Restricted Stock may be effected without registration under the Securities Act and any applicable state securities laws, whereupon the holder of such Restricted Stock shall be entitled to transfer such Restricted Stock in accordance with the terms of its notice; provided, however, that no such opinion or other documentation shall be required if such notice shall cover a distribution by any of you which is a partnership to your respective partners. Each certificate of Restricted Stock transferred as above provided shall bear the legend set forth in Section2, unless (i)such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) or (ii)the opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities Act. The foregoing restrictions on transferability of Restricted Stock shall terminate as to any particular shares of Restricted Stock when such shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement concerning such shares. Whenever a holder of Restricted Stock is able to demonstrate to the Company (and its counsel) that the provisions of Rule144(k) of the Securities Act are available to such holder without limitation, such holder of Restricted Stock shall be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section2. 4. Required Registration. (a) At any time after July 31, 1999 the holders of Restricted Stock constituting at least a majority of the total Restricted Stock outstanding at such time (treating for the purpose of such computation the holders of the Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred as the holders of the Conversion Shares then issuable upon conversion of such Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred), may request the Company to register under the Securities Act at least 51 percent of the Restricted Stock held by such requesting holder or holders (or, if less, Restricted Stock having a reasonably anticipated aggregate price to the public of not less than $5,000,000) for sale in the manner specified in such notice; provided, however, that the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock. (b) Promptly following receipt of any notice under this Section4, the Company shall immediately notify any holders of Restricted Stock from whom notice has not been received and shall use its reasonable best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in any notices received from other holders within 20 days after their receipt of such notice from the Company); provided, however, that if the proposed method of disposition specified by the requesting holders shall be an underwritten public offering, the number of shares of Restricted Stock to be included in such an offering may be reduced (pro rata among the requesting holders based on the number of shares of Restricted Stock so requested to be registered) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the Restricted Stock to be sold. If such method of disposition shall be an underwritten public offering, the Company may designate the managing underwriter of such offering, subject to the approval of the selling holders of a majority of the Restricted Stock included in the offering, which approval shall not be unreasonably withheld. The Company shall be obligated to register Restricted Stock pursuant to this Section4 on two occasions only. Notwithstanding anything to the contrary contained herein, the obligation of the Company under this Section 4 shall be deemed satisfied only when a registration statement or registration statements covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holder, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) The Company shall be entitled to include in any registration statement referred to in this Section4, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Restricted Stock to be sold. Except as provided in this paragraph(c), the Company will not effect any other registration of its Common Stock, whether for its own account or that of other holders, (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any similar or successor rule of the Commission under the Securities Act is applicable), from the date of receipt of a notice from requesting holders pursuant to this Section 4 until the completion of the period of distribution of the registration contemplated thereby. (d) The Company shall not be obligated: (i) to file and cause to become effective any registration statement within a period of six months after the effective date of any previous registration statement filed by the Company and with respect to which the holders of the Restricted Stock, pursuant to Section 6 hereof, were given the opportunity to include therein all Restricted Stock which was requested by such holders to be included therein. (ii) if the proposed method of disposition is an underwritten public offering and the Company, after diligent efforts in good faith shall have failed to identify a reputable underwriter reasonably acceptable to it, the Company shall not be obligated to act hereunder unless the holder or holders of Restricted Stock can demonstrate to the reasonable satisfaction of the Company that one or more reputable underwriters are ready, willing and able to assist the Company in effecting such offering. 5. Form S-3 Registration. (a) If the Company shall receive, at any time after July 31, 1999, from any holder or holders of Restricted Stock a written request or requests that the Company effect a registration on FormS-3 and any related qualification or compliance with respect to Restricted Stock owned by such holder or holders, the reasonably anticipated aggregate price to the public of which would exceed $500,000, the Company will: 1. promptly give written notice of the proposed registration, and any related qualification or compliance, to all other holders of Restricted Stock; and 2. as soon as practicable, effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other government requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such holder's or holders' Restricted Stock as are specified in such request, together with all or such portion of the Restricted Stock of any holder or holders joining in such request as are specified in a written request given within thirty (30) days after receipt of such written notice from the Company, provided that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section5 (A) more than once in any 180-day period, or (B)if the Company is not entitled to use FormS-3. Subject to the foregoing, the Company shall file a registration statement covering the Restricted Stock so requested to be registered as soon as practicable after receipt of the request or requests of the holders of the Restricted Stock. (b) Registrations effected pursuant to this Section5 shall not be counted as requests for registration effected pursuant to Section4. 6. Incidental Registration. If the Company at any time (other than pursuant to Section4 or 5 hereof) proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (other than a registration effected to implement an employee benefit plan or a transaction to which Rule 145 or any similar or successor rule of the Commission under the Securities Act is applicable, on Form S-4 or S-8 or another form not available for registering the Restricted Stock for sale to the public), it will give written notice at such time to all holders of outstanding Restricted Stock of its intention to do so. Upon the written request of any such holder, given within 30 days after receipt of any such notice by the Company, to register any of its Restricted Stock (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested, to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Restricted Stock so registered; provided that nothing herein shall prevent the Company from abandoning or delaying such registration at any time. In the event that any registration pursuant to this Section6 shall be, in whole or in part, an underwritten public offering of Common Stock, any request by a holder pursuant to this Section6 to register Restricted Stock shall specify that either (i) such Restricted Stock is to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters under such registration or (ii) such Restricted Stock is to be sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings of common stock in reasonably similar circumstances. The number of shares of Restricted Stock to be included in such an underwriting may be reduced pro rata among the requesting holders of Restricted Stock (based upon the number of shares so requested to be registered) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein; provided, however, if any shares (other than Restricted Stock) are to be included in such underwriting for the account of any person other than the Company, then the number of shares of Restricted Stock and other shares to be included in such underwritten public offering shall be determined in such a manner so that the holders of the Restricted Stock shall be entitled to offer the 75 percent of all shares of stock to be offered by persons other than the Company, with the remaining 25 percent of the shares to be offered on a pro rata basis among the holders of other shares and the holders of the Restricted Stock (based on the number of shares requested to be registered). Notwithstanding anything to the contrary contained in this Section 6, in the event that there is a firm commitment underwritten public offering of securities of the Company pursuant to a registration covering Restricted Stock and a holder of Restricted Stock does not elect to sell his Restricted Stock to the underwriters of the Company's securities in connection with such offering, such holder shall refrain from selling such Restricted Stock during the period of distribution of the Company's securities by such underwriters and the period in which the underwriting syndicate participates in the after market; provided, however, that such holder shall, in any event, be entitled to sell its Restricted Stock commencing on the 90th day after the effective date of such registration statement. 7. Registration Procedures and Expenses. If and whenever the Company is required by the provisions of Section 4, 5 or 6 hereof to use its best efforts to effect the registration of any of the Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 4 hereof, shall be on Form S-1 or another form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and as to comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or blue sky laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter, shall reasonably request (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any jurisdiction); (e) immediately notify each seller under such registration statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (f) use its best efforts (if the offering is underwritten) to furnish, at the request of any seller, on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i)an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A)to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B)the registration statement, the related prospectus, and each amendment or supplement thereof, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements, the notes thereto, and the financial schedules and other financial and statistical data contained therein) and (C)to such other effects as may reasonably be requested by counsel for the underwriters or by such seller or its counsel and (ii)a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as such underwriters or seller may reasonably request; (g) make available for inspection by each seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement and permit such seller, attorney, accountant or agent to participate in the preparation of such registration statement; (h) use its best efforts to cause the Conversion Shares to be listed for quotation on the Nasdaq National Market or other stock exchange or trading system on which the Common Stock primarily trades; (i) advise each seller promptly after the Company received notice or obtains knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its good faith, reasonable efforts to prevent the issuance of any stop order to obtain its prompt withdrawal if such stop order should be issued; (j) provide and cause to be maintained a transfer agent for all Conversion Shares covered by such registration statement from and after a date not later than the effective date of such registration statement; and (k) make available to its security holders, as soon as practicable, an earnings statement covering a period of at least twelve months which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. For purposes of paragraphs (a) and (b) above and of Section4(c) hereof, the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby or six months after the effective date thereof. In connection with each registration hereunder, the selling holders of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as shall be reasonably necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Sections4, 5 and 6 hereof covering an underwritten public offering, the Company agrees to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between major underwriters and companies of the Company's size and investment stature, provided, however, that such agreement shall not contain any such provision applicable to the Company which is inconsistent with the provisions hereof and provided, further, however, that the time and place of the closing under said agreement shall be as mutually agreed upon among the Company, such managing underwriter and the selling holders of Restricted Stock. 8. Expenses. All expenses incurred by the Company in complying with Sections 4, 5 and 6 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc., Nasdaq or exchange listing fees, fees of transfer agents and registrars, costs of insurance and fees and expenses of not more than one counsel for the sellers of Restricted Stock but excluding any Selling Expenses, are herein called "Registration Expenses". All underwriting discounts, selling commissions and transfer taxes applicable to the sale of Restricted Stock are herein called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement filed pursuant to Section4, 5 or 6 hereof. All Selling Expenses in connection with any registration statement filed pursuant to Section4, 5 or 6 hereof shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such persons other than the Company (except to the extent the Company shall be a seller) as they may agree. 9. Indemnification. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder and each underwriter of Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information pertaining to such seller or underwriter furnished by such seller, such underwriter or such controlling person in writing specifically for use in such registration statement or prospectus. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus; provided, further, however, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not to exceed the proceeds (net of underwriting discounts and commissions) received by such seller from the sale of Restricted Stock covered by such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve such indemnifying party from any liability which it may have to any indemnified party under this Section9, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section9 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party shall have failed to retain counsel for the indemnified person as aforesaid or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnification provided for in the first two paragraphs of this Section 9 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and the underwriters and the sellers of such Restricted Stock, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give any notice under the third paragraph of this Section9. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company, on the one hand, or the underwriters and the sellers of such Restricted Stock, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each of you agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro rata allocation (even if all of the sellers of such Restricted Stock were treated as one entity for such purpose) or by any other method of allocation which did not take account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph, no seller hereunder shall be required to contribute an amount in excess of (i) the proportion that the public offering price of shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not to exceed the proceeds received by such seller for the sale of Restricted Stock covered by such registration statement and (ii) the amount of any damages which such seller would have otherwise have been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The indemnification of underwriters provided for in this Section9 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters. In that event the indemnification of the sellers of Restricted Stock in such underwriting shall at the sellers' request be modified to conform to such terms and conditions. The provisions of this Section 9 shall be in addition to any other rights to indemnification or contribution which an indemnified party may have pursuant to law, equity, contract or otherwise. 10. Changes in Common Stock. If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 11. Representations and Warranties of the Company. The Company represents and warrants to you as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to considerations of public policy in the case of the indemnification provisions hereof. 12. Rule 144 Reporting. The Company agrees with you as follows: (a) The Company shall make and keep public information available, as those terms are understood and defined in Rule144 under the Securities Act, at all times from and after the date it is first required to do so. (b) The Company shall file with the Commission in a timely manner all reports and other documents as the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act at any time after the Company has become subject to such reporting requirements of the Exchange Act. (c) The Company shall furnish to such holder of Restricted Stock forthwith upon request (i)a written statement by the Company as to its compliance with the reporting requirements of Rule144 (at any time from and after the date it first becomes subject to such reporting requirements), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii)a copy of the most recent annual or quarterly report of the Company, and (iii)such other reports and documents so filed as a holder may reasonably request to avail itself of any rule or regulation of the Commission allowing a holder of Restricted Stock to sell any such securities without registration. 13. Miscellaneous. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Without limiting the generality of the foregoing, the registration rights conferred herein on the holders of Restricted Stock shall inure to the benefit of any and all subsequent holders from time to time of the Restricted Stock for so long as the certificates representing the Restricted Stock shall be required to bear the legend specified in Section2 hereof. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, addressed as follows: if to the Company, to it at 4727 University Drive, Durham, North Carolina 27707, Attention: M. Ross Johnson. if to any holder of Restricted Stock, at their addresses set forth in AnnexI hereto; if to any subsequent holder of Restricted Stock to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Restricted Stock or to the holders of Restricted Stock (in the case of the Company). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes the Fifth Amended and Restated Registration Rights Agreement dated as of March 27, 1997 among the Company and certain of you. This Agreement may not be modified or amended except in writing signed by the Company and the holders of not less than 66 2/3 percent of the Restricted Stock (determined on an as-if-converted basis), provided that no such modification or amendment shall deprive any holder of Restricted Stock of any material right under this Agreement without such holder's consent. The Company may include additional purchasers of Series D Preferred as parties to this Agreement and such purchasers shall be deemed to be a "holder of Restricted Stock" provided that such purchasers execute a signature page to this Agreement. Except as otherwise provided in the preceding sentence, the Company will not grant any registration rights to any other person without the written consent of the holders of 66 2/3 percent of the Restricted Stock then outstanding (determined on an as-if-converted basis) if such rights could reasonably be expected to conflict with, or be on a parity with, the rights of holders of Restricted Stock granted under this Agreement. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this letter (herein sometimes called "this Agreement") shall be a binding agreement between the Company and you. Very truly yours, TRIMERIS, INC. By: /s/ Matthew A. Megaro _______________________________ Matthew A. Megaro Vice President of Business Development, Chief Operating Officer and Chief Financial Officer AGREED TO AND ACCEPTED as of the date first above written. DOMAIN PARTNERS II, L.P. By: One Palmer Square Associates II, L.P., its general partner By: /s/ Kathleen K. Schoemaker ______________________________ Name: Kathleen K. Schoemaker Title: Attorney-In-Fact BIOTECHNOLOGY INVESTMENTS LIMITED By: Old Court Limited By: /s/ Kathleen K. Schoemaker ________________________________ Name: Kathleen K. Schoemaker Title: Attorney-In-Fact DOMAIN PARTNERS III, L.P. By: One Palmer Square Associates III, L.P., its general partner By: /s/ Kathleen K. Schoemaker -------------------------------- Name: Kathleen K. Schoemaker Title: General Partner DP III ASSOCIATES, L.P. By: One Palmer Square Associates III, L.P., its general partner By: /s/ Kathleen K. Schoemaker ________________________________ Name: Kathleen K. Schoemaker Title: General Partner DOMINION FUND III By: Dominion Partners III, its general partner --------------------------------------- By: /s/ Signature Illegible ________________________________ Name: Kendall J. Cooper _________________________________ Title: General Partner __________________________________ SENTRON MEDICAL, INC. By: /s/ Steven R. Gailar _________________________________ Name: Steven R. Gailar _________________________________ Title: Group Director, Venture Projects _________________________________________ LAWRENCE & COMPANY INC. By: _________________________________ Name: ___________________________ Title: ___________________________ ASPENTREE CAPITAL By: /s/ Signature Illegible ____________________________________ Name: R. Bonczek ___________________________________ Title: President ___________________________________ - --------------------------------------- Jeffrey M. Lipton /s/ J. Newall - --------------------------------------- J. Edward Newall /s/ Signature Illegible - --------------------------------------- Robert R. Bonczek - --------------------------------------- William M. Tomai /s/ Roland F. Hartman - --------------------------------------- Roland F. Hartman /s/ Timothy W. Hartman - --------------------------------------- Timothy W. Hartman _______________________________________ /s/ W. Bass Watkins - --------------------------------------- W. Bass Watkins /s/ Signature Illegible - --------------------------------------- David J.M. Erskine - --------------------------------------- David K. Watkins - --------------------------------------- Laura A. Doherty - --------------------------------------- David L. Jaffe Alan J. Dankwerth and Helen K. Dankwerth, Joint Tenants With Rights Of Survivorship By: /s/ Alan J. Dankwerth _________________________________ Alan J. Dankwerth, Joint Tenant By: /s/ Helen K. Dankwerth _________________________________ Helen K. Dankwerth, Joint Tenant - --------------------------------------- Christopher W. Morgan James D. Roland and Patricia Y. Roland, Joint Tenants With Rights Of Survivorship By: _________________________________ James D. Roland, Joint Tenant By: _________________________________ Patricia Y. Roland, Joint Tenant - --------------------------------------- Gerald A. Hapka /s/ Signature Illegible - --------------------------------------- Dana G. Mead - --------------------------------------- Andrew S. Georges - --------------------------------------- Elizabeth M. Georges - --------------------------------------- Douglas Lanham /s/ Nina Parrish - --------------------------------------- Nina Parrish - --------------------------------------- Cameron D. Bruemmer /s/ Signature Illegible - --------------------------------------- Fred D. Hutchison /s/ Signature Illegible - --------------------------------------- Terry Poole - --------------------------------------- M.C. Kang /s/ Diana Parrish - --------------------------------------- Diana Parrish Lon Bonczek and Mary Makela Bonczek, Joint Tenants With Rights Of Survivorship By: /s/ Signature Illegible 6/26/97 _________________________________ Lon Bonczek, Joint Tenant By: /s/ Mary Makela Bonczek _________________________________ Mary Makela Bonczek, Joint Tenant - --------------------------------------- M. Ross Johnson - --------------------------------------- Matthew A. Megaro - --------------------------------------- Stelios Moschas PACIFIC HORIZON PARTNERS II, L.P. BY: _________________________________ Name: ___________________________ Title: ___________________________ /s/ Joseph Stephen Pagano - --------------------------------------- Joseph Stephen Pagano - --------------------------------------- Charles A. Sanders - --------------------------------------- Cynthia Frost - --------------------------------------- Eugene J. McDonald John S. Russell and Sallie M. Shuping Russell, Joint Tenants With Rights Of Survivorship By: /s/ Signature Illegible _________________________________ John S. Russell, Joint Tenant By: /s/ Sallie M. Shuping Russell _________________________________ Sallie M. Shuping Russell, Joint Tenant ANVERS L.P. By: /s/ FSIP, LLC _________________________________ FSIP, LLC, General Partner By: /s/ Signature Illegible --------------------------------- Name: Leopold Swergold ___________________________ Title: Senior Managing Director ___________________________ The Global Health Sciences Fund By: /s/ Ronald L. Grooms ----------------------------------- Name: Ronald L. Grooms ____________________________________ Title: Treasurer ___________________________________ MINIMED, INC. By: /s/ Signature Illegible ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- UBS Partners LLC By: /s/ Charles J. Delaney ----------------------------------- Name: Charles J. Delaney ____________________________________ Title: ___________________________________ By: /s/ Michael Greene ----------------------------------- Name: Michael Greene ____________________________________ Title: Vice President/Treasurer ___________________________________ EX-11.1 8 EXHIBIT 11.1 TRIMERIS, INC. EXHIBIT 11.1 -- STATEMENT RE: COMPUTATION OF PER SHARE LOSS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) Common shares outstanding (weighted average) 1,005,000 1,033,000 1,053,000 1,032,000 1,072,000 Common Stock equivalents (using the treasury stock method): Preferred Stock (1).............................. 438,000 1,508,000 3,552,000 3,289,000 4,708,000 Stock Options and Awards (weighted average) (2)........................ 100,000 100,000 100,000 100,000 100,000 Total pro forma weighted average shares............ 1,543,000 2,641,000 4,705,000 4,421,000 5,880,000 Net loss........................................... ($3,943,965) ($5,739,378) ($6,971,408) ($3,133,582) ($3,477,673) Pro forma net loss per share....................... ($2.56) ($2.17) ($1.48) ($0.71) ($0.59)
(1) Assumes the mandatory conversion of the Preferred Stock into shares of Common Stock upon the completion of the Offering. (2) Includes all options and awards issued during the twelve-month period prior to the initial filing of the registration statement relating to the Offering, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 83. EX-23 9 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Trimeris, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP Raleigh, North Carolina July 11, 1997 EX-23 10 EXHIBIT 23.3 CONSENT OF COUNSEL The undersigned hereby consents to the use of our name and the statement with respect to us appearing under the heading "Experts" in the Registration Statement on Form S-1 of Trimeris, Inc. /s/ Pennie & Edmonds LLP PENNIE & EDMONDS LLP New York, New York July 11, 1997 EX-27 11 EXHIBIT 27
5 YEAR 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1996 JUN-30-1997 131,540 8,912,343 0 0 32,752 44,758 0 0 0 0 212,747 9,268,854 2,508,216 2,610,035 1,611,544 1,911,663 1,683,729 10,584,751 2,093,178 1,737,628 0 0 0 0 33,469 52,501 3,712 1,092 (446,630) 8,793,530 1,683,729 10,584,751 0 0 54,465 211,875 0 0 0 0 6,906,037 3,645,230 0 0 166,828 77,637 (6,971,408) (3,477,673) 0 0 (6,971,408) (3,477,673) 0 0 0 0 0 0 (6,971,408) (3,477,673) (1.48) (0.59) (1.48) (0.59)
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