<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 11-K
PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
____________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ___________
Commission File No. 0-27150
A. Full Title of the Plan:
PATHOGENESIS CORPORATION
401(k) PROFIT SHARING PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
PathoGenesis Corporation
201 Elliott Avenue West
Seattle, WA 98119
<PAGE>
REQUIRED INFORMATION
Financial Statements and Exhibit
(a) Financial statements -- Plan financial statements and schedules prepared in
accordance with financial reporting requirements of ERISA.
See accompanying Index to Financial Statements attached hereto, which is
incorporated by reference in this report.
(b) Signatures
(c) Exhibits
23 Consent of Independent Certified Public Accountants
2
<PAGE>
Index to Financial Statements and Supplemental Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 4
Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 1998 and 1997 5
Statement of Changes in Net Assets Available for Benefits for the Year ended 6
December 31, 1998
Notes to Financial Statements 7-10
Supplemental Schedules:
Schedule 1: Line 27a -- Schedule of Assets Held for Investment Purposes as of 11
December 31, 1998
Schedule 2: Line 27d -- Schedule of Reportable Transactions for the Year ended 12
December 31, 1998
</TABLE>
All other schedules of additional information required by Section 2520.103-10 of
the Department of Labor Rules and Regulations for Reporting and Disclosure under
ERISA have been omitted because they are not applicable.
3
<PAGE>
Independent Auditors' Report
Plan Administrator
PathoGenesis Corporation 401(k) Profit Sharing Plan:
We have audited the accompanying statements of net assets available for benefits
of PathoGenesis Corporation 401(k) Profit Sharing Plan (Plan) as of December 31,
1998 and 1997, and the related statement of changes in net assets available for
benefits for the year ended December 31, 1998. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998 and 1997, and the changes in net assets available for benefits
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes at December 31, 1998 and reportable transactions for the
year ended December 31, 1998 are presented for the purpose of additional
analysis and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The Fund Information in the statement of changes in net
assets available for benefits is presented for purposes of additional analysis
rather than to present the changes in net assets available for plan benefits of
each fund. The supplemental schedules and Fund Information have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
KPMG LLP
Seattle, Washington
June 11, 1999
4
<PAGE>
PathoGenesis Corporation 401(k) Profit Sharing Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Assets
Investments, at fair value:
Shares of registered investment companies:
Fidelity Spartan Money Market Fund $ 106,053 $ 108,292
Fidelity Investment Grade Bond Fund 94,149 20,480
Fidelity Asset Manager Fund 124,247 91,236
Fidelity Balanced Fund 183,944 136,783
Fidelity Spartan Market Index Fund 559,508 230,583
Fidelity Disciplined Equity Fund 582,650 379,262
Fidelity International Growth & Income Fund 248,705 191,908
Fidelity Magellan Fund 596,206 479,440
Fidelity Contrafund 659,761 408,914
Fidelity Blue Chip Growth Fund 624,374 298,154
PathoGenesis Common Stock 310,339 --
Participant notes receivable 70,025 10,540
-------------------------------------------------------
Total investments 4,159,961 2,355,592
Receivables:
Participant's contributions -- 21,738
-------------------------------------------------------
Net assets available for benefits $4,159,961 $2,377,330
=======================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PathoGenesis Corporation 401(K) Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits With Fund Information
Year Ended December 31, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Additions Fidelity Fidelity Fidelity Fidelity Fidelity
Spartan Investment Asset Balanced Spartan
Money Grade Manager Fund Market
Market Bond Fund Fund Index
Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation in fair value
of investments $ -- 1,210 13,741 24,978 95,012
Interest -- -- -- -- --
Dividends 5,308 1,977 3,366 4,551 4,479
-----------------------------------------------------------------------------------
5,308 3,187 17,107 29,529 99,491
Less investment expenses -- -- -- -- --
-----------------------------------------------------------------------------------
5,308 3,187 17,107 29,529 99,491
Participant contributions 42,521 22,134 42,555 32,788 197,511
-----------------------------------------------------------------------------------
Total additions 47,829 25,321 59,662 62,317 297,002
-----------------------------------------------------------------------------------
Deductions
Deductions from net assets attributed
To benefits paid to participants 26 -- 6,871 2,184 7,670
-----------------------------------------------------------------------------------
Net increase prior to interfund transfers 47,803 25,321 52,791 60,133 289,332
Interfund transfers (50,042) 48,348 (19,780) (12,972) 39,593
-----------------------------------------------------------------------------------
Net increase (decrease) (2,239) 73,669 33,011 47,161 328,925
Net assets available for benefits:
Beginning of year 108,292 20,480 91,236 136,783 230,583
-----------------------------------------------------------------------------------
End of year $106,053 94,149 124,247 183,944 559,508
-----------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------------
Additions Fidelity Fidelity Fidelity Fidelity Fidelity
Disciplined International Magellan Fund Contrafund Blue Chip
Equity Growth & Growth
Fund Income Fund Fund
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation in fair value
of investments 94,677 21,146 152,921 146,526 137,149
Interest -- -- -- -- --
Dividends 4,001 1,018 3,320 3,207 979
---------------------------------------------------------------------------------------
98,678 22,164 156,241 149,733 138,128
Less investment expenses -- -- (840) -- --
---------------------------------------------------------------------------------------
98,678 22,164 155,401 149,733 138,128
Participant contributions 140,447 49,271 112,100 152,973 194,934
---------------------------------------------------------------------------------------
Total additions 239,125 71,435 267,501 302,706 333,062
---------------------------------------------------------------------------------------
Deductions
Deductions from net assets attributed
To benefits paid to participants 806 1,690 43,824 27,607 32,302
---------------------------------------------------------------------------------------
Net increase prior to interfund transfers 238,319 69,745 223,677 275,099 300,760
Interfund transfers (34,931) (12,948) (106,911) (24,252) 25,460
---------------------------------------------------------------------------------------
Net increase (decrease) 203,388 56,797 116,766 250,847 326,220
Net assets available for benefits:
Beginning of year 379,262 191,908 479,440 408,914 298,154
---------------------------------------------------------------------------------------
End of year 582,650 248,705 596,206 659,761 624,374
---------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------
Additions PathoGenesis Participant Other Total
Common Notes
Stock Receivable
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation in fair value
of investments 174,486 -- -- 861,846
Interest 102 2,950 -- 3,052
Dividends -- -- -- 32,206
-----------------------------------------------------------
174,588 2,950 -- 897,104
Less investment expenses -- -- -- (840)
-----------------------------------------------------------
174,588 2,950 -- 896,264
Participant contributions 22,113 -- -- 1,009,347
-----------------------------------------------------------
Total additions 196,701 2,950 -- 1,905,611
-----------------------------------------------------------
Deductions
Deductions from net assets attributed
To benefits paid to participants -- -- -- 122,980
-----------------------------------------------------------
Net increase prior to interfund transfers 196,701 2,950 -- 1,782,631
Interfund transfers 113,638 56,535 (21,738) --
-----------------------------------------------------------
Net increase (decrease) 310,339 59,485 (21,738) 1,782,631
Net assets available for benefits:
Beginning of year -- 10,540 21,738 2,377,330
-----------------------------------------------------------
End of year 310,339 70,025 -- 4,159,961
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PathoGenesis Corporation 401(k) Profit Sharing Plan
Notes to Financial Statements
(1) Description of Plan
The following description of the PathoGenesis Corporation ("Company")
401(k) Profit Sharing Plan ("Plan") provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all full-time and part-
time employees of the Company who are U.S. citizens or permanent residents
and who are age eighteen or older. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Each year, participants may contribute up to 20% of pretax annual
compensation, as defined by the Plan. Participants may also contribute
amounts representing distributions from other qualified defined benefit or
contribution plans. The Company may make matching and/or profit sharing
contributions at the discretion of the Company's board of directors. No
such contributions were made during 1998. Contributions are subject to
certain limitations.
Effective April 1, 1999, the Company began discretionary contributions of
50% of the first 3% of compensation that a participant contributes to the
Plan. All employer contributions are invested in PathoGenesis Corporation
common stock.
Participant Accounts
Each participant's account is credited with the participant's contribution
and allocations of (a) the Company's contributions and (b) Plan earnings.
Allocations are based on participant earnings or account balances, as
defined. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's vested account.
Vesting and Forfeitures
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's discretionary contribution
portion of their accounts plus actual earnings thereon is based on years of
continuous service. Participants vest ratably over the first four years of
credited service.
7
<PAGE>
Forfeited nonvested accounts reduce the amount of matching contributions
required for the Plan year.
Investment Options
Upon enrollment in the Plan, a participant may direct employee
contributions in 1% increments in any one or more of 11 investment options.
Fidelity Spartan Money Market Fund - a registered investment company
that invests in high-quality, U.S. dollar-denominated, short-term
money market instruments of all types.
Fidelity Investment Grade Bond Fund - a registered investment company
that invests in investment-grade debt securities.
Fidelity Asset Manager Fund - a registered investment company that
diversifies among domestic and foreign stocks, bonds, and short-term
and money market instruments.
Fidelity Balanced Fund - a registered investment company that invests
in a broadly diversified portfolio of domestic and foreign high-
yielding securities including common stocks, preferred stocks, and
bonds.
Fidelity Spartan Market Index Fund - a registered investment company
that normally will invest at least 80% of its assets in stocks of
companies that compose the Standard & Poor's 500 Index.
Fidelity Disciplined Equity Fund - a registered investment company
that invests in a broadly diversified portfolio of common stocks that
are determined through both technical and fundamental analysis to be
undervalued compared to others in their industries.
Fidelity International Growth & Income Fund - a registered investment
company that invests a majority of the fund's assets in common stocks
of foreign companies with a focus on those that pay current dividends
and show potential for capital appreciation.
Fidelity Magellan Fund - a registered investment company that invests
mainly in securities convertible into common stock of domestic,
foreign, and multinational issuers of all sizes that offer potential
for growth.
Fidelity Contrafund - a registered investment company that invests
primarily in common stocks of companies whose value is not fully
recognized by the public.
8
<PAGE>
Fidelity Blue Chip Growth Fund - a registered investment company that
invests primarily in a diversified portfolio of common stocks of well-
known and established companies.
PathoGenesis Common Stock (effective July 1, 1998) - Funds are
invested in common stock of PathoGenesis Corporation. Subsequent to
December 31, 1998, the fair value of PathoGenesis common stock
declined approximately 77%.
Participants may change their investment options daily.
Participant Notes Receivable
Participants may borrow from their fund account a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their account balance.
Loan transactions are treated as a transfer to (from) the investment fund
from (to) the Participant Notes fund. Loan terms range from 1 to 5 years,
or up to 15 years for the purchase of a primary residence. The loans are
secured by the balance in the participant's account and bear interest at
the prime rate at the time of the loan request. Interest rates at December
31, 1998 range from 8.5% to 9.0%. Principal and interest are paid ratably
through monthly payroll deductions. Participants are limited to two
outstanding loans at any point in time.
Payment of Benefits
Participants are eligible to receive distributions upon termination of
employment, upon becoming permanently disabled, upon retirement, or upon
request for a hardship withdrawal prior to termination. A participant may
defer payment up to age 70-1/2 or elect to receive a lump-sum amount or
rollover equal to the value of the participant's vested interest in his or
her account.
(2) Summary of Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method
of accounting.
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, liabilities and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
9
<PAGE>
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value based on quoted market
prices. Participant notes receivable are valued at cost which approximates
fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
Payment of Benefits
Benefits are recorded when paid.
Plan Expenses
Administrative expenses of the Plan are paid directly by the Company.
(3) Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan subject to the provisions of
ERISA. In the event of Plan termination, participants will become 100%
vested in any Company contributions and earnings thereon.
(4) Tax Status
The Internal Revenue Service has determined and informed the Company by a
letter dated April 11, 1995, that the Plan and related trust are designed
in accordance with applicable sections of the Internal Revenue Code (IRC).
The Plan has been amended since receiving the determination letter.
However, the Plan administrator and the Plan's tax counsel believe that the
Plan is designed and is currently being operated in compliance with the
applicable requirements of the IRC.
(5) Year 2000
The Plan administrator has conducted a comprehensive review of its internal
systems and applications to mitigate the risks associated with Year 2000
compliance issues and has developed a Year 2000 remediation plan. Program
conversions and testing of systems and applications are underway and
expected to be completed by December 31, 1999. The Plan administrator has
inquired of the Plan's third-party service providers relating to their Year
2000 compliance. While these parties indicate they believe they are or
will be compliant, the Plan administrator has limited ability to evaluate
their responses or to evaluate what impact, if any, such entities'
potential noncompliance may have on the Plan's operations. Costs
associated with Year 2000 remediation efforts for the Plan are paid by the
Company.
10
<PAGE>
Schedule 1
----------
PathoGenesis Corporation 401(k) Profit Sharing Plan
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
Identity of issue, Description of investment, including maturity date, Cost Current
borrower, lessor or rate of interest, collateral, par or maturity value value
similar party
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Investments Spartan Money Market Fund, 106,053 shares $106,053 $106,053
Fidelity Investments Investment Grade Bond Fund, 12,740 shares 93,409 94,149
Fidelity Investments Asset Manager Fund, 7,145 shares 135,768 124,247
Fidelity Investments Balanced Fund, 11,243 shares 182,354 183,944
Fidelity Investments Spartan Market Index Fund, 6,560 shares 508,192 559,508
Fidelity Investments Disciplined Equity Fund, 19,879 shares 578,075 582,650
Fidelity Investments International Growth & Income Fund, 11,894 shares 258,935 248,705
Fidelity Investments Magellan Fund, 4,935 shares 535,570 596,206
Fidelity Investments Contrafund, 10,700 shares 612,357 659,761
Fidelity Investments Blue Chip Growth Fund, 12,294 shares 554,631 624,374
* PathoGenesis Corporation Common Stock, 5,349 shares 163,641 310,339
Various Participant notes receivable, 8.5% to 9% -- 70,025
</TABLE>
* Party-in-interest of the Plan as defined by Section 3(14) of ERISA.
11
<PAGE>
Schedule 2
----------
PathoGenesis Corporation 401(k) Profit Sharing Plan
Item 27d - Schedule of Reportable Transactions (1)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Identity of party involved Description of asset Purchase price Selling price Expenses Cost of asset
incurred with
transaction
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity Investments Spartan Money Market Fund 59,917 -- -- 59,917
Fidelity Investments Spartan Money Market Fund -- 62,759 -- 62,759
Fidelity Investments Spartan Market Index Fund 266,407 -- -- 266,407
Fidelity Investments Spartan Market Index Fund -- 30,734 -- 30,480
Fidelity Investments Disciplined Equity Fund 194,479 -- -- 194,479
Fidelity Investments Disciplined Equity Fund -- 56,593 -- 54,743
Fidelity Investments Magellan Fund 143,924 -- 840 143,924
Fidelity Investments Magellan Fund -- 156,697 -- 160,802
Fidelity Investments Contrafund 163,548 -- -- 163,548
Fidelity Investments Contrafund -- 66,969 -- 65,063
Fidelity Investments Blue Chip Growth Fund 258,505 -- -- 258,505
Fidelity Investments Blue Chip Growth Fund -- 56,365 -- 54,596
PathoGenesis Corporation Common Stock 350,148 -- -- 350,148
PathoGenesis Corporation Common Stock -- 214,676 -- 186,889
<CAPTION>
Identity of party involved Description of asset Current value Net gain or
of asset on (loss)
transaction
date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Investments Spartan Money Market Fund 59,917 --
Fidelity Investments Spartan Money Market Fund 62,759 --
Fidelity Investments Spartan Market Index Fund 266,407 --
Fidelity Investments Spartan Market Index Fund 30,734 254
Fidelity Investments Disciplined Equity Fund 194,479 --
Fidelity Investments Disciplined Equity Fund 56,593 1,850
Fidelity Investments Magellan Fund 143,924 --
Fidelity Investments Magellan Fund 156,697 (4,105)
Fidelity Investments Contrafund 163,548 --
Fidelity Investments Contrafund 66,969 1,906
Fidelity Investments Blue Chip Growth Fund 258,505 --
Fidelity Investments Blue Chip Growth Fund 56,365 1,769
PathoGenesis Corporation Common Stock 350,148 --
PathoGenesis Corporation Common Stock 214,676 27,787
</TABLE>
(1) Reportable transactions as defined in the Department of Labor's reporting
regulations consist of (a) a single transaction in excess of 5% of the
current value of Plan assets, (b) a series of transactions with or in
conjunction with the same person, involving property other than securities,
which amount in the aggregate to more than 5% of the current value of Plan
assets, (c) a series of transactions with respect to securities of the same
issue which amount in the aggregate to more than 5% of the current value of
total Plan assets and (d) any transaction with respect to securities with
or in conjunction with a person if a prior or subsequent single transaction
has occurred with respect to securities with or in conjunction with that
same person in an amount in excess of 5% of the current value of Plan
assets. The current value of Plan assets, to apply the definition of
reportable transactions, is determined at the beginning of the Plan year.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed by the undersigned on
their behalf hereunto duly authorized.
Date: June 29, 1999 PATHOGENESIS CORPORATION
401(k) PROFIT SHARING PLAN
By: PathoGenesis Corporation
Plan Administrator
By: /s/ Alan R. Meyer
-----------------------------
Alan R. Meyer
Executive Vice President and
Chief Financial Officer
13
<PAGE>
EXHIBIT 23
----------
Consent of Independent Certified Public Accountants
The Board of Directors
PathoGenesis Corporation:
We consent to incorporation by reference in the registration statement (No. 333-
63679) on Form S-8 of PathoGenesis Corporation of our report dated June 11, 1999
relating to the statements of net assets available for benefits of PathoGenesis
Corporation 401(k) Profit Sharing Plan as of December 31, 1998 and 1997 and the
statement of changes in net assets available for benefits for the year ended
December 31, 1998, and the related supplementary schedules and Fund Information
as of and for the year ended December 31, 1998, which report appears in the
December 31, 1998 annual report on Form 11-K of PathoGenesis Corporation 401(k)
Profit Sharing Plan.
KPMG LLP
Seattle, Washington
June 28, 1999
14
