<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-32147
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORIXA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2836 91-1654387
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 667-5711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN GILLIS, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORIXA CORPORATION
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 667-5711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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WILLIAM W. ERICSON, ESQ. ALAN C. MENDELSON, ESQ.
KARA DIANE PALMER, ESQ. PATRICK A. POHLEN, ESQ.
JOHN W. ROBERTSON, ESQ. COOLEY GODWARD LLP
VENTURE LAW GROUP FIVE PALO ALTO SQUARE
4750 CARILLON POINT 3000 EL CAMINO REAL
KIRKLAND, WA 98033 PALO ALTO, CA 94306-2155
(425) 739-8700 (650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
Subject to Completion, dated September 19, 1997
PROSPECTUS
2,750,000 Shares
[CORIXA LOGO]
Common Stock
---------------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Corixa Corporation ("Corixa" or the "Company").
Prior to the 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 considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "CRXA."
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE 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.
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================================================================================================
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Underwriting
Price Discounts and Proceeds to
to Public Commissions (1) Company (2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................... $ $ $
- ------------------------------------------------------------------------------------------------
Total (3)...................... $ $ $
================================================================================================
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(1) The Company has agreed to indemnify the underwriters (the "Underwriters")
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $800,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
412,500 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, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1997.
---------------------------
LEHMAN BROTHERS
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1997
<PAGE> 3
Corixa's Core Technologies
[Graphic of syringe and components of vaccine contained therein]
Corixa's T cell vaccine approach, which includes three proprietary core
technologies, targets the prevention and treatment of cancers and certain
infectious diseases.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and will make available copies of quarterly reports for the
first three quarters of each fiscal year containing interim unaudited financial
information.
The Company has applied for trademark registration for CORIXA(TM) and the
stylized Corixa logo. This Prospectus also contains trademarks and trade names
of other companies.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
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 information under "Risk Factors." The Common Stock
offered hereby involves a high degree of risk. Unless otherwise indicated, the
information in this Prospectus (i) assumes that the Underwriters' over-allotment
option will not be exercised, (ii) assumes the issuance of 445,139 shares of
Common Stock to be issued upon the net exercise of outstanding warrants upon the
closing of the Offering, (iii) reflects the filing of the Company's Amended and
Restated Certificate of Incorporation ("Restated Certificate of Incorporation"),
authorizing a class of 10,000,000 shares of undesignated Preferred Stock and
effecting the 1-for-3.3 reverse stock split with respect to the Common Stock and
(iv) gives effect to the automatic conversion of all outstanding shares of
Series A Preferred Stock and Series B Preferred Stock into an equal number of
shares of Common Stock upon the closing of the Offering. Certain terms are
defined in the Glossary of Scientific Terms on page 74 of this Prospectus.
THE COMPANY
Corixa Corporation ("Corixa" or the "Company") is focused on the discovery
and early clinical development of vaccine products that induce specific and
potent pathogen- or tumor-reactive T lymphocyte ("T cell") responses for the
treatment and prevention of cancers and certain infectious diseases. The Company
employs the following three proprietary core technology platforms, which
together comprise the elements the Company believes are necessary for effective
T cell vaccines: (i) microsphere delivery systems that specifically activate
appropriate T cell responses; (ii) adjuvants that specifically enhance
appropriate T cell responses; and (iii) disease-specific antigens that are
essential to elicit appropriate T cell responses. The Company's strategy is to
dedicate its resources to vaccine discovery and to establish corporate
partnerships as early in the development process as possible for all aspects of
product development and commercialization. Corixa believes this research- and
partner-driven approach creates significant scientific, operational and
financial advantages for the Company and accelerates the commercial development
of new therapeutic and prophylactic T cell vaccines, as well as related
diagnostic products. The Company has entered into corporate partnerships with
nine pharmaceutical, biotechnology and diagnostic companies, including
SmithKline Beecham Biologicals S.A. ("SmithKline Beecham"), Pasteur Merieux
Connaught, a subsidiary of Rhone-Poulenc Group ("PMC") and Abbott Laboratories
("Abbott").
Although commercially available vaccines can prevent infection by a variety
of pathogens such as bacteria, viruses and parasites through antibody-based
immune responses, these responses are not sufficient to eliminate cancers or
certain infectious diseases. Moreover, commercially available vaccines do not
address therapeutic treatment of such diseases. To induce an effective immune
response against such diseases, T cells must be activated. Although Corixa's
technological approach is unproven in humans, the Company believes that the
integration of its three proprietary core technologies will result in the
activation of a protective immune response, and that this integration may be
essential for truly effective vaccines against cancers and certain infectious
diseases. The markets for such vaccine products are extensive, particularly in
oncology, given that current treatments such as chemotherapy and radiation
therapy may not lead to lasting cure or prevention.
Since its inception, Corixa has developed a diverse portfolio of potential
products and corporate partnerships based on the breadth of its proprietary core
technologies and its expertise in antigen discovery. Products based on the
Company's technologies are currently in the discovery, preclinical or early
clinical investigation stages, with the exception of a certain diagnostic
product, the sale of which has resulted in immaterial revenues to date.
- VACCINES. The Company currently has four cancer vaccine programs and
one infectious disease vaccine program. The Company has established
corporate partnerships with SmithKline Beecham for the development of
vaccines for breast and prostate cancer and for tuberculosis. In
addition, the Company is sponsoring Phase I clinical trials for Her-2/neu
peptide vaccines in breast and ovarian cancer, as well as pursuing a lung
cancer vaccine program.
3
<PAGE> 5
- ADJUVANTS. Corixa has identified a protein, known as Leishmania
elongation Initiating Factor ("LeIF"), which functions as a potent
adjuvant for enhancing immune responses. The Company has established a
corporate partnership with PMC for the use of LeIF as a novel adjuvant to
be used in vaccines for influenza, respiratory syncytial virus, HIV,
tuberculosis and malaria.
- DIAGNOSTICS. The Company pursues corporate partnerships for cancer
and infectious disease diagnostics to complement its therapeutic research
efforts and to expand its scientific platform. The Company has
established corporate partnerships for the development of diagnostics to
detect certain infectious diseases, including tuberculosis, with a number
of diagnostic companies, including Abbott, DiaMed S.A. ("DiaMed") and
Centocor UK Limited, a division of Centocor, Inc. ("Centocor").
- OTHER PRODUCTS. The Company believes that its three core
technologies create additional product opportunities outside of its
primary focus on vaccine development. The Company has established
corporate partnerships for the development of products for adoptive
immunotherapy of cancer with CellPro, Incorporated ("CellPro"), products
for the treatment of certain autoimmune diseases with ZymoGenetics, Inc.,
a wholly-owned subsidiary of Novo Nordisk A/S ("ZymoGenetics"), products
based on LeIF as an immunomodulator with Vical Incorporated ("Vical") and
certain animal health products with Heska Corporation ("Heska").
Corixa's objective is to leverage its proprietary core technologies,
research expertise and intellectual property to become the leading
research-based biotechnology company focused on the discovery of T cell
vaccines, utilizing corporate partnerships to accelerate and fund product
development and commercialization. Key elements of the Company's strategy
include: (i) integrating its three proprietary core technologies into
therapeutic and prophylactic vaccine products; (ii) establishing corporate
partnerships for vaccine products prior to the initiation of Phase II clinical
trials to reduce the costs and risks of product development and to enhance
commercial opportunities; and (iii) partnering each of its proprietary core
technologies to commercial entities to improve such entities' own existing or
development-stage vaccines, and to create new, non-vaccine products, including
diagnostics. The Company also seeks to obtain technologies that complement and
expand its existing technology base and has licensed or acquired product and
marketing rights from a number of research and academic institutions. To date,
substantially all of Corixa's revenues have resulted from corporate
partnerships, other research, development and licensing arrangements, research
grants and interest income, and only minimal revenues have been generated from
the sale of one diagnostic product.
Corixa believes that one of its key competitive advantages is its antigen
discovery program, through which the Company identifies antigens that are either
uniquely expressed or markedly over-expressed, and may therefore represent the
most effective antigens for a particular vaccine. Approximately half of Corixa's
scientific personnel are dedicated to antigen discovery. The Company's antigen
discovery activities include, among others, tumor tissue procurement and tumor
propagation, expression cloning and immunological characterization of candidate
tumor vaccine antigens. The Company has filed numerous patent applications
seeking both composition of matter and vaccine and diagnostic method of use
claims that cover approximately 160 gene sequences that are either uniquely
expressed or markedly over-expressed by breast cancer cells, approximately 60
gene sequences that are either uniquely expressed or markedly over-expressed by
prostate tumor cells or prostate tissue, and approximately 70 gene sequences
that are expressed by Mycobacterium tuberculosis.
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from, GenQuest, Inc. ("GenQuest"), a privately-held
functional genomics company engaged in discovery of new genes related to the
transformation of normal cells into cancer cells and research of novel genes
that are uniquely expressed by cancer cells. The Company believes its
relationship with GenQuest will enable the identification of additional genes
that are uniquely expressed by cancer cells and are useful in the Company's
research programs.
The Company's principal executive offices are located at 1124 Columbia
Street, Suite 200, Seattle, Washington 98104 and its telephone number is (206)
667-5711. The Company was founded and incorporated in Delaware on September 8,
1994.
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company.......... 2,750,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 10,994,331 shares
Nasdaq National Market symbol................ CRXA
Use of proceeds.............................. To fund research and development and for
working capital and general corporate
purposes. See "Use of Proceeds."
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
INCEPTION
(SEPTEMBER 8, YEAR ENDED SIX MONTHS ENDED
1994) TO DECEMBER 31, JUNE 30, INCEPTION TO
DECEMBER 31, ------------------- ------------------ JUNE 30,
1994 1995 1996 1996 1997 1997
------------------ ------- ------- ------- ------ ------------
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STATEMENTS OF OPERATIONS DATA:
Revenues:
Collaborative agreements....... $ -- $ 2,411 $ 4,402 $ 2,016 $6,939 $ 13,752
Government grants.............. -- 304 1,403 341 554 2,261
-------- ------- ------- ------- ------ --------
Total revenues.......... -- 2,715 5,805 2,357 7,493 16,013
Operating expenses:
Research and development(2).... 867 7,040 9,995 4,708 7,104 25,006
General and administrative .... 205 532 781 438 779 2,297
-------- ------- ------- ------- ------ --------
Total operating
expenses.............. 1,072 7,572 10,776 5,146 7,883 27,303
Income (loss) from operations.... (1,072) (4,857) (4,971) (2,789) (390) (11,290)
Interest income, net............. 83 691 476 213 235 1,485
Other income(3).................. -- 16 348 174 187 551
-------- ------- ------- ------- ------ --------
Net income (loss)................ $ (989) $(4,150) $(4,147) $(2,402) $ 32 $ (9,254)
======== ======= ======= ======= ====== ========
Pro forma net income (loss) per
share(4)....................... $ (0.50) $ 0.00
======= ======
Shares used in computing pro
forma net income (loss) per
share(4)....................... 8,343 8,536
======= ======
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JUNE 30, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
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BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale..................... $15,047 $ 47,495
Working capital.............................................................. 12,798 45,246
Total assets................................................................. 20,030 52,478
Long-term obligations, less current portion.................................. 5,086 5,086
Deficit accumulated during development stage................................. (9,295) (9,295)
Total stockholders' equity................................................... 11,872 44,320
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- ---------------
(1) Excludes (i) 1,187,614 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1997, 378,334 of which are fully
vested, at a weighted average exercise price of $0.71 per share, (ii)
694,512 shares of Common Stock issuable upon exercise of warrants expected
to remain outstanding after the Offering at a weighted average exercise
price of $8.04 per share, (iii) an aggregate of 1,031,039 shares reserved
for future issuance under the Company's Amended and Restated 1994 Stock
Option and Restricted Stock Plan (the "1994 Plan"), 1997 Employee Stock
Purchase Plan (the "Purchase Plan"), and 1997 Directors' Stock Option Plan
(the "Directors' Plan"), each of which was approved by the Board of
Directors of the Company on July 25, 1997 and (iv) 3,029 shares of Common
Stock issued after June 30, 1997 in connection with a collaboration
agreement. See "Management -- Stock Option Plans" and "Description of
Capital Stock."
(2) Included in research and development expenses for the period from inception
(September 8, 1994) to December 31, 1994 is $428,059 related to the purchase
of in-process research and development.
(3) Other income includes proceeds received for management and administrative
services.
(4) See Note 1 of Notes to Financial Statements for information regarding the
computation of pro forma net income (loss) per share.
(5) As adjusted to reflect the sale of the 2,750,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per
share after deducting underwriting discounts and commissions and estimated
Offering expenses and the receipt of the estimated net proceeds therefrom.
See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully the
following factors, together with the information contained in this Prospectus,
in evaluating the Company and its business before purchasing the shares of
Common Stock offered hereby. This Prospectus contains forward-looking statements
that involve risk and uncertainty. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and other factors
discussed elsewhere in this Prospectus. See "Special Note Regarding
Forward-Looking Statements."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
Corixa is at an early stage in the development of its therapeutic,
prophylactic and diagnostic products. To date, almost all of the Company's
revenues have resulted from payments made under agreements with its corporate
partners, and the Company expects that most of its revenues for the foreseeable
future will continue to result from existing and future corporate partnerships,
if any. The Company has generated only minimal revenues from diagnostic product
sales and no revenues from therapeutic product sales since inception. Vaccine
products that may result from the Company's research and development programs
are not expected to be commercially available for a number of years, if at all,
and it will be a number of years, if ever, before Corixa will receive any
significant revenues from commercial sales of such products. There can be no
assurance that the Company will receive anticipated revenues under existing
corporate partnerships, that the Company will be able to enter into any
additional corporate partnerships or that the Company will ever achieve
consistent profitability. See "Business -- Corixa's Products in Development."
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's technological approach to the development of therapeutic and
prophylactic vaccines for cancers and certain infectious diseases is unproven in
humans. Products based on the Company's technologies are currently in the
discovery, preclinical or early clinical investigation stages, and to date,
neither the Company nor any of its corporate partners have conducted any
clinical trials that incorporate the Company's proprietary microsphere delivery
systems or its proprietary adjuvants. In addition, no therapeutic vaccines for
cancer or infectious diseases targeted by the Company have been successfully
commercialized by the Company or others. There can be no assurance that the
Company will be able to successfully develop effective vaccines for such
diseases in a reasonable time frame, if ever, or that such vaccines will be
capable of being commercialized. In addition to its internal development
programs, the Company in-licenses and acquires technologies to enhance its
product pipeline. There can be no assurance that any in-licensed technologies
will prove to be effective or will result in the successful development of
commercial products. See "Business -- Corixa's Core Technology Platforms" and
"-- Patents and Proprietary Technology."
A majority of Corixa's programs are currently in the discovery stage or in
preclinical development, and only two of the Company's therapeutic vaccine
products have advanced to Phase I clinical trials. The Company's vaccines have
not been demonstrated to be safe or effective in clinical settings. There can be
no assurance that any of the Company's programs will move beyond its current
stage of development. For example, in a Company-funded early safety trial of the
Muc-1 antigen conducted by the University of Pittsburgh, the Company did not
observe a level of efficacy sufficient to support further product development.
Assuming the Company's research does advance, certain preclinical development
efforts will be necessary to determine whether any product is safe to enter
clinical trials. Under certain of the Company's existing corporate partnerships,
the respective corporate partner has primary responsibility for the clinical
development of a product. There can be no assurance that any such corporate
partner will pursue clinical development in a timely or effective manner, if at
all. If such a product receives authorization from the United States Food and
Drug Administration ("FDA") to enter clinical trials, then it may be, and in the
case of vaccine products will be, subjected to a multi-phase, multi-center
clinical study to determine its safety and efficacy. It is difficult to predict
the number or extent of clinical trials required or the period of mandatory
patient follow-up. Assuming clinical trials of any product are successful and
other data are satisfactory, the Company or its applicable corporate partner
will submit an application to the FDA and appropriate regulatory bodies in other
countries
6
<PAGE> 8
to seek permission to market the product. Typically, the review process at the
FDA takes several years, and there can be no assurance that the FDA will approve
the Company's or its corporate partner's application or will not require
additional clinical trials or other data prior to approval. Furthermore, even if
regulatory approval is ultimately obtained, delays in the approval process could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that any
product can be produced in commercial quantities at a reasonable cost or that
such product will be successfully marketed. See "Business -- Corporate
Partnerships," "-- Certain License Agreements" and "-- Government Regulation."
DEPENDENCE ON AND MANAGEMENT OF EXISTING AND FUTURE CORPORATE PARTNERSHIPS
The success of Corixa's business strategy is largely dependent on its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous relationships that may exist as a result of this strategy. Corixa
has established significant relationships with several corporate partners as of
the date of this Prospectus. For example, the Company has entered into three
collaboration and license agreements with SmithKline Beecham for the research,
development and commercialization of vaccine products aimed at the prevention
and/or treatment of tuberculosis, breast cancer and prostate cancer. In
addition, Corixa has established corporate partnerships with CellPro and
GenQuest, among others. A large percentage of the Company's revenues during the
year ended December 31, 1997 will be derived from research and development and
other funding under such corporate partnerships, and the termination of any of
these corporate partnerships would have a material adverse effect on the
Company's business, financial condition and results of operations. Several of
the Company's corporate partners have entered into agreements granting them
options to license certain aspects of the Company's technology. There can be no
assurance that any such corporate partner will exercise its option to license
such technology. The Company has also entered into corporate partnerships with
several companies for the development, commercialization and sale of diagnostic
products incorporating the Company's proprietary antigen technology. There can
be no assurance that any such diagnostic corporate partnership will ever
generate significant revenues. Furthermore, Corixa is currently engaged in
discussions with a number of pharmaceutical and diagnostic companies with
respect to potential corporate partnering arrangements covering various aspects
of the Company's technologies. However, due in part to the early stage of
Corixa's technologies, the process of establishing corporate partnerships such
as the Company's collaborations with SmithKline Beecham is difficult,
time-consuming and involves significant uncertainty, and there can be no
assurance that such discussions will lead to the establishment of any new
corporate partnership on favorable terms, or at all, or that if established, any
such corporate partnership will result in the successful development of the
Company's products or the generation of significant revenues.
Because Corixa enters into research and development collaborations with
corporate partners at an early stage of product development, the Company's
success is highly reliant upon the performance of its corporate partners. Under
existing corporate partnership arrangements, the Company's corporate partners
are generally required to undertake and fund certain research and development
activities with the Company, make payments upon achievement of certain
scientific milestones and pay royalties or make profit-sharing payments when and
if a product is commercialized. The amount and timing of resources to be devoted
to activities by its existing or future corporate partners are not within the
direct control of the Company, and there can be no assurance that any of the
Company's existing or future corporate partners will commit sufficient resources
to Corixa's research and development programs or the commercialization of its
products. If any corporate partner fails to conduct its activities in a timely
manner, or at all, the Company's preclinical or clinical development related to
such corporate partnership could be delayed or terminated. There can be no
assurance that the Company's corporate partners will perform their obligations
as expected. There can also be no assurance that the Company's current corporate
partners or future corporate partners, if any, will not pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with the Company, or that disputes will not
arise with respect to ownership of technology developed under any such corporate
partnership. Finally, there can be no assurance that any of the Company's
current corporate partnerships will not be terminated by its corporate partners
or that the Company will be able to negotiate additional corporate partnerships
in the future on acceptable terms, or at all.
7
<PAGE> 9
Because the success of the Company's business is largely dependent upon its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous issues that arise from such partnerships, management of these
relationships will require, at a minimum, significant time and effort from
Corixa's management team and effective allocation of the Company's resources to
multiple projects, as well as an ability to obtain and retain management,
scientific and other personnel sufficient to accomplish the foregoing. There can
be no assurance that Corixa's need to simultaneously manage a number of
corporate partnerships will be successful, and the failure to effectively manage
such corporate partnerships would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Strategy," "-- Corporate Partnerships" and
"-- Relationship with GenQuest, Inc."
DEPENDENCE ON IN-LICENSED TECHNOLOGY
In addition to its dependence on existing and future corporate
partnerships, Corixa's success is also dependent on its ability to enter into
licensing arrangements with commercial or academic entities to obtain technology
that is advantageous or necessary to the development and commercialization of
Corixa's products. The Company is party to various license agreements that give
it rights to use certain technologies in its and its corporate partners'
discovery, research, development and commercialization activities. Disputes may
arise as to the inventorship and corresponding rights in inventions and know-how
resulting from the joint creation or use of intellectual property by the Company
and its licensors or scientific collaborators. Additionally, many of the
Company's in-licensing agreements contain milestone-based termination
provisions. The Company's failure to meet any significant milestones in a
particular agreement could allow the licensor to terminate such agreement. There
can be no assurance that the Company will be able to negotiate additional
license agreements in the future on acceptable terms, if at all, that any of its
current license agreements will not be terminated or that it will be able to
maintain the exclusivity of its exclusive licenses. In the event the Company is
unable to obtain or maintain licenses to technology advantageous or necessary to
the Company's business, Corixa and its corporate partners may be required to
expend significant time and resources to develop or in-license similar
technology, and there can be no assurance that the Company and its corporate
partners will be successful in this regard. If the Company cannot acquire or
develop necessary technology, it may be prevented from commercializing certain
of its products. Any such event would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Strategy," "-- Certain License Agreements" and
"-- Scientific Collaborators."
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND UNCERTAINTY OF PATENT PROTECTION
Corixa's success will depend in part on its ability and that of its
corporate partners to obtain and enforce their respective patents and maintain
trade secrets, both in the United States and in other countries. As of June 30,
1997, Corixa owned or had licensed eight issued United States patents that
expire at various times between December 2008 and February 2014, 55
corresponding issued foreign patents, 76 pending United States patent
applications, as well as 19 corresponding international filings under the Patent
Cooperation Treaty and 111 pending foreign national patent applications. There
can be no assurance that the Company, its corporate partners or its licensors
have or will develop or obtain rights to products or processes that are
patentable, that patents will issue from any of the pending applications owned
or licensed by the Company or its corporate partners, that any claims allowed
will issue, or in the event of issuance, will be sufficient to protect the
technology owned by or licensed to the Company or its corporate partners. The
Company has licensed certain patent applications from Southern Research
Institute ("SRI") related to the Company's microsphere encapsulation technology,
one of which is currently the subject of an opposition proceeding before the
European Patent Office. There can be no assurance that SRI will prevail in this
opposition proceeding or that any patents will issue in Europe related to such
technology. There can also be no assurance that the Company's or its corporate
partners' current patents, or patents that issue on pending applications, will
not be challenged, invalidated, infringed or circumvented, or that the rights
granted thereunder will provide proprietary protection or competitive advantages
to Corixa. Patent applications in the United States are maintained in secrecy
until patents issue, patent applications in certain foreign countries are not
generally published until many months or years after they are filed, and
publication of technological developments in the scientific and patent
literature often occurs long after the date of such developments. Accordingly,
the
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Company cannot be certain that it or one of its corporate partners was the first
to invent the subject matter covered by any patent application or that it or one
of its corporate partners was the first to file a patent application for any
such invention.
Patent law relating to the scope and enforceability of claims in the fields
in which Corixa operates is still evolving. The patent positions of
biotechnology and biopharmaceutical companies, including the Company, are highly
uncertain and involve complex legal and technical questions for which legal
principles are not firmly established. The degree of future protection for the
Company's proprietary rights, therefore, is highly uncertain. In this regard,
there can be no assurance that independent patents will issue from each of the
76 pending United States patent applications referenced above, which include
many interrelated applications directed to common or related subject matter. In
addition, there may be issued patents and pending applications owned by others
directed to technologies relevant to the Company's or its corporate partners'
research, development and commercialization efforts. There can be no assurance
that Corixa's or its corporate partners' technology can be developed and
commercialized without a license to such patents or that such patent
applications will not be granted priority over patent applications filed by
Corixa or one of its corporate partners.
The commercial success of Corixa depends significantly on its ability to
operate without infringing the patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, the Company or its corporate partners may be enjoined from
pursuing research, development or commercialization of products or be required
to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company or its corporate partners
will not be so enjoined or will be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or will be able to
obtain or develop alternative technologies. If the Company or any of its
corporate partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such corporate
partner may be delayed or prevented from commercializing its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope and validity of
a third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances in which patent protection is not believed to be appropriate or
obtainable. Corixa attempts to protect its proprietary technology in part by
confidentiality agreements with its employees, consultants and advisors. These
agreements generally provide that all confidential information developed or made
known to the individual by Corixa during the course of the individual's
relationship with the Company will be kept confidential and not disclosed to
third parties except in specific circumstances. These agreements also generally
provide that all inventions conceived by the individual in the course of
rendering services to the Company shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known or be independently discovered by
its competitors, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Core Technology Platforms," "-- Patents and Proprietary
Technology" and "-- Scientific Collaborators."
MANAGEMENT OF GROWTH
The Company's future growth may cause a significant strain on its
management, operational, financial and other resources. The Company's ability to
manage its growth effectively will require it to implement and improve its
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new management personnel and the development of additional expertise
by management. Any increase in resources devoted to product development and
marketing and sales efforts without a corresponding increase in the Company's
operational, financial, manufacturing and management information systems could
have an adverse effect on the Company's performance. The failure of the
Company's management team to effectively manage growth could have a material
adverse effect on the Company's business, financial condition and results of
operations.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; FLUCTUATIONS IN FUTURE
EARNINGS
Corixa has experienced significant operating losses in each year since its
inception on September 8, 1994. As of June 30, 1997, the Company's accumulated
deficit was approximately $9.3 million. The Company may incur substantial
additional operating losses over at least the next several years. Such losses
have been and may continue to be principally the result of the various costs
associated with the Company's discovery, research and development programs,
preclinical studies and clinical activities. Substantially all of the Company's
revenues to date have resulted from corporate partnerships, other research,
development and licensing arrangements, research grants and interest income. The
Company's ability to achieve a consistent, profitable level of operations is
dependent in large part upon entering into agreements with corporate partners
for product discovery, research, development and commercialization, obtaining
regulatory approvals for its products and successfully manufacturing and
marketing commercial products. There can be no assurance that the Company will
be able to achieve consistent profitability. In addition, payments under
corporate partnerships and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of losses by the Company. Therefore, the Company's results of
operations for any period may fluctuate and may not be comparable to the results
of operations for any other period. See "-- Dependence on and Management of
Existing and Future Corporate Partnerships" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial capital resources after the Offering
in order to conduct its operations. The Company's future capital requirements
will depend on many factors, including, among others, the following: continued
scientific progress in its discovery, research and development programs; the
magnitude and scope of these activities; the ability of the Company to maintain
existing and establish additional corporate partnerships and licensing
arrangements; progress with preclinical studies and clinical trials; the time
and costs involved in obtaining regulatory approvals; the costs involved in
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims; the potential need to develop, acquire or license new technologies and
products; and other factors not within the Company's control. The Company
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intends to seek such additional funding through corporate partnerships, public
or private equity or debt financings and capital lease transactions; however,
there can be no assurance that additional financing will be available on
acceptable terms, if at all. Additional equity financings could result in
significant dilution to stockholders after the Offering. If sufficient capital
is not available, the Company may be required to delay, reduce the scope of,
eliminate or divest one or more of its discovery, research or development
programs, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that the net proceeds from the Offering, its existing capital resources,
committed payments under its existing corporate partnerships and licensing
arrangements, equipment financing and interest income will be sufficient to fund
its current and planned operations for at least 18 months following the
Offering. However, there can be no assurance that such funds will be sufficient
to meet the capital needs of the Company. In addition, a substantial number of
the payments to be made by Corixa's corporate partners and other licensors are
dependent upon the achievement by the Company of development and regulatory
milestones. Failure to achieve such milestones would have a material adverse
effect on the Company's future capital needs. In addition, the Company has
entered into an option agreement with one of its corporate partners pursuant to
which such corporate partner has agreed to pay certain consideration in exchange
for exclusive options to license two of Corixa's early-stage antigen discovery
programs in two cancer targets. If such options are exercised, then at the
election of the corporate partner, such consideration will either be credited
against future milestone payments or converted into Common Stock of Corixa. In
the event either or both of such options are not exercised or extended prior to
February 28, 1998 with respect to one cancer target and August 31, 1998 with
respect to the other cancer target, the Company will be required to repay the
amounts paid by such corporate partner for such option(s) over a three-year
period beginning in March 2000. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Corporate Partnerships."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might significantly delay or
prevent the Company's achievement of its scientific or business objectives.
Competition among biotechnology and biopharmaceutical companies for qualified
employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract and retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company does not maintain "key person"
life insurance on any officer, employee or consultant of the Company.
Corixa also has relationships with scientific collaborators at academic and
other institutions, some of whom conduct research at the Company's request or
assist the Company in formulating its research and development strategy. These
scientific collaborators are not employees of the Company and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. The Company has limited control
over the activities of these scientific collaborators and, except as otherwise
required by its license, consulting and sponsored research agreements, can
expect only limited amounts of time to be dedicated to the Company's activities
by such individuals. Failure of any such persons to devote sufficient time and
resources to the Company's programs could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
these collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to those of
Corixa. See "Management," "Business -- Corporate Partnerships," "-- Certain
License Agreements" and "-- Scientific Collaborators."
INTENSE COMPETITION
The biotechnology and biopharmaceutical industries are intensely
competitive. Several biotechnology and biopharmaceutical companies, as well as
certain research organizations, currently engage in or have in the past engaged
in efforts related to the development of vaccines for the treatment and
prevention of cancer and various infectious diseases, as well as the development
of diagnostic products for infectious disease indications.
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Many companies, including Corixa's corporate partners, as well as academic and
other research organizations, are also developing alternative therapies to treat
cancer and infectious diseases and, in this regard, are competitive with the
Company. Moreover, technology controlled by third parties that may be
advantageous to the Company's business may be acquired or licensed by
competitors of the Company, thereby preventing the Company from obtaining such
technology on favorable terms, or at all.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in discovery, research
and development, manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than Corixa or its corporate partners. Other
smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for discovery, research, clinical development and
marketing of products similar to those of the Company. These companies and
institutions compete with the Company in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to the Company's programs. Corixa and its corporate partners will
face competition with respect to product efficacy and safety, the timing and
scope of regulatory approvals, availability of resources, reimbursement
coverage, price and patent position, including potentially dominant patent
positions of others. There can be no assurance that competitors will not develop
more effective or more affordable products, or achieve earlier patent protection
or product commercialization than the Company and its corporate partners, or
that such competitive products will not render the Company's products obsolete.
See "Business -- Competition."
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
Corixa does not have significant manufacturing facilities. Although the
Company currently manufactures limited quantities of certain antigens and
adjuvants, including LeIF, to conduct preclinical studies and to supply
corporate partners, the Company intends to rely on third party contract
manufacturers to produce large quantities of such substances for clinical trials
and product commercialization. Additionally, the Company may be required to rely
on contract manufacturers to produce antigens, adjuvants and other components of
its products for research and development, preclinical and clinical purposes.
Corixa's vaccines and other products have never been manufactured on a
commercial scale, and there can be no assurance that such products can be
manufactured at a cost or in quantities necessary to make them commercially
viable. There can be no assurance that third party manufacturers will be able to
meet the Company's needs with respect to timing, quantity or quality. If the
Company is unable to contract for a sufficient supply of required products and
substances on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical and clinical
testing would be delayed, thereby delaying the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products. Any such delay may have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, contract
manufacturers that the Company may use must continually adhere to current Good
Manufacturing Practices ("GMP") regulations enforced by the FDA through its
facilities inspection program. If the facilities of such manufacturers cannot
pass a pre-approval plant inspection, the FDA premarket approval of the
Company's products will not be granted.
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution capability.
The Company intends to rely on its current and future corporate partners, if
any, to market its products; however, there can be no assurance that such
corporate partners have effective sales forces and distribution systems. If the
Company is unable to maintain or establish such relationships and is required to
market any of its products directly, the Company will have to develop a
marketing and sales force with technical expertise and with supporting
distribution capabilities. There can be no assurance that the Company will be
able to maintain or establish such relationships with third parties or develop
in-house sales and distribution capabilities. To the extent that the Company
depends on its corporate partners or third parties for marketing and
distribution, any revenues
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received by the Company will depend upon the efforts of such corporate partners
or third parties, and there can be no assurance that such efforts will be
successful.
GOVERNMENT REGULATION
The preclinical testing and clinical trials of any products developed by
the Company or its corporate partners and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to regulation by federal, state and
local governmental authorities in the United States, the principal one of which
is the FDA, and by similar agencies in other countries. Any product developed by
the Company or its corporate partners must receive all relevant regulatory
approvals or clearances before it may be marketed in a particular country. The
regulatory process, which includes extensive preclinical studies and clinical
trials of each product in order to establish its safety and efficacy, is
uncertain, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval or clearance. In addition, delays or rejections may be
encountered based upon changes in regulatory policy during the period of product
development and/or the period of review of any application for regulatory
approval or clearance for a product. Delays in obtaining regulatory approvals or
clearances would adversely affect the marketing of any products developed by the
Company or its corporate partners, impose significant additional costs on the
Company and its corporate partners, diminish any competitive advantages that the
Company or its corporate partners may attain and adversely affect the Company's
ability to receive royalties and generate revenues and profits. There can be no
assurance that, even after such time and expenditures, any required regulatory
approvals or clearances will be obtained for any products developed by or in
collaboration with the Company.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the new product may be marketed that could limit the potential
market for such product, and product approvals, once granted, may be withdrawn
if problems occur after initial marketing. Furthermore, manufacturers of
approved products are subject to pervasive review, including compliance with
detailed regulations governing GMP. Failure to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to renew marketing
applications and criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Company's discovery, research and development work, including radioactive
compounds and infectious disease agents. In addition, the Company cannot predict
the extent of government regulations or the impact of new governmental
regulations which might have an adverse effect on the discovery, development,
production and marketing of the Company's products, and there can be no
assurance that the Company will not be required to incur significant costs to
comply with current or future laws or regulations or that the Company will not
be adversely affected by the cost of such compliance. See
"Business -- Government Regulation."
PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE
Inherent in the use of the Company's product candidates in clinical trials,
as well as in the manufacturing and distribution of any approved products, is
the risk of financial exposure to product liability claims in the event that the
use of such products results in personal injury. There can be no assurance that
the Company will not experience losses due to product liability claims in the
future. Corixa has obtained limited product liability insurance coverage;
however, there can be no assurance that such coverage is adequate or will
continue to be available in sufficient amounts or at an acceptable cost, or at
all. There can also be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing. A product liability claim, product recall or other claim, as well as
any claims for uninsured liabilities or in excess of insured liabilities, may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that any products successfully developed by the
Company or its corporate partners, if approved for marketing, will ever achieve
market acceptance. The Company's products, if successfully developed, will
compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical and other biotechnology companies, as well as
new products currently under development by such companies and others. The
degree of market acceptance of any products developed by the Company or its
corporate partners will depend on a number of factors, including the
establishment and demonstration of the clinical efficacy and safety of the
product candidates, their potential advantage over alternative treatment methods
and reimbursement policies of government and third-party payors. There can be no
assurance that physicians, patients or the medical community in general will
accept and utilize any products that may be developed by the Company or its
corporate partners, and the lack of such market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT; UNCERTAINTY RELATED TO HEALTH
CARE REFORM
In both domestic and foreign markets, sales of the Company's or its
corporate partners' products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers, health maintenance organizations, pharmacy
benefit management companies and other organizations. Both the federal and state
governments in the United States and foreign governments continue to propose and
pass legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of the Company's or its corporate partners'
products are approved for marketing. Cost control initiatives could decrease the
price that the Company receives for any product it or any of its corporate
partners may develop in the future and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, including
pharmaceuticals. There can be no assurance that the Company's or its corporate
partners' products, if any, will be considered cost effective or that adequate
third-party reimbursement will be available to enable Corixa or its corporate
partners to maintain price levels sufficient to realize a return on their
investment. In any such event, the Company may be materially adversely affected.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market for
the Common Stock will develop or be sustained upon completion of the Offering.
The initial public offering price of the Common Stock will be determined by
negotiations between the Company and the representatives of the Underwriters.
The primary factors considered in determining such initial public offering
price, in addition to prevailing market conditions, will be the Company's
historical performance and capital structure, estimates of business potential
and earnings prospects of the Company, an assessment of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses. The
securities markets have, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's common stock. The market prices for securities of
biotechnology companies have in the past been, and can in the future be expected
to be, especially volatile. The market price of the Company's Common Stock may
be subject to substantial volatility depending upon many factors, including
announcements regarding the results of discovery efforts, preclinical and
clinical activities, technological innovations or new commercial products
developed by the Company or its competitors, changes in government regulations,
changes in the Company's patent portfolio, developments or disputes concerning
proprietary rights, changes in existing corporate partnerships or licensing
arrangements, the establishment of additional corporate partnerships or
licensing arrangements, the progress of regulatory approvals, the issuance of
new or
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changed stock market analyst reports and/or recommendations, and economic and
other external factors, as well as operating losses by the Company, fluctuations
in the Company's financial results and the degree of trading liquidity in the
Common Stock. These factors could have a material adverse effect on the
Company's business, financial condition and results of operations and the price
of the Common Stock in the public market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of the Offering, executive officers and directors
of the Company, together with entities affiliated with them, will beneficially
own approximately 57.2% of the Common Stock of the Company (approximately 55.2%
if the Underwriters' over-allotment option is exercised in full). These
stockholders, acting as a group, will continue to be able to control the
election of all members of the Company's Board of Directors and to determine all
corporate actions after the Offering. The voting power of these stockholders
could also have the effect of delaying or preventing a change in control of the
Company. See "Principal Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following the Offering could adversely affect the market price for the
Common Stock. Such sales could also make it more difficult for the Company to
sell its equity or equity-related securities in the future at a time and price
that the Company deems appropriate. Upon completion of the Offering and based on
the shares outstanding as of June 30, 1997, the Company will have outstanding an
aggregate of 10,994,331 shares of Common Stock, assuming (i) the issuance of
445,139 shares of Common Stock upon the net exercise of outstanding warrants
expected to be exercised upon the closing of the Offering, (ii) no exercise of
warrants for 694,512 shares of Common Stock expected to remain outstanding after
the closing of the Offering and (iii) no exercise of options after June 30,
1997. Of these outstanding shares of Common Stock, the 2,750,000 shares sold in
the Offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), by persons
other than "affiliates" of the Company, as defined in Rule 144 under the
Securities Act. The remaining 8,244,331 shares of Common Stock outstanding upon
completion of the Offering and held by existing stockholders will be "restricted
securities" as that term is defined by Rule 144 and Rule 701 under the
Securities Act ("Restricted Shares"). Sales of Restricted Shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock. The holders of 8,051,548 Restricted Shares,
including all officers and directors of the Company, are subject to "lock-up"
agreements with the Underwriters and/or the Company providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of the shares of Common Stock owned by them or that could be purchased
by them through the exercise of options to purchase Common Stock of the Company
for a period of 180 days after the effectiveness of the registration statement,
of which this Prospectus is a part (the "Registration Statement"), without the
prior written consent of Lehman Brothers Inc. on behalf of the Underwriters
and/or the Company, as applicable. The Company has agreed with the
representatives of the Underwriters not to release any holders from such
agreements without the prior written consent of Lehman Brothers Inc. on behalf
of the Underwriters. Such lock-up agreements may be released at any time as to
all or any portion of the shares subject to such agreements at the sole
discretion of Lehman Brothers Inc. Of the 8,051,548 shares of Common Stock that
will first become eligible for sale in the public market 180 days after the
effectiveness of the Registration Statement, 1,522,149 shares will be
immediately eligible for sale without restriction under Rule 144(k) or Rule 701
under the Securities Act and 6,524,854 shares will be immediately eligible for
sale subject to certain volume and other restrictions pursuant to Rule 144. As
of 180 days after the effectiveness of the Registration Statement, 163,357
shares of Common Stock will remain subject to the Company's right of repurchase
pursuant to stock purchase agreements and therefore will not be available for
sale under Rule 144 until such right of repurchase lapses. Beginning immediately
after the closing of the Offering, 12,593 shares will be available for sale
under Rule 144 upon the exercise of outstanding warrants, and beginning 180 days
after the closing of the Offering, 681,919 shares will be available for sale
under Rule 144 upon the exercise of outstanding warrants. Shortly after the
effectiveness of the Offering, the Company
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intends to register 2,218,653 shares of Common Stock reserved for issuance under
its stock option and stock purchase plans or currently subject to outstanding
options. In addition, holders of 7,925,862 shares of Common Stock and the
holders of warrants to purchase 694,512 shares of Common Stock may require the
Company to register their shares of Common Stock under the Securities Act, which
would permit such holders to resell a certain number of their shares without
complying with Rule 144. If such holders, by exercising their demand or
piggyback registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Common Stock. If the Company were to
include in a Company-initiated registration 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
"Shares Eligible for Future Sale" and "Description of Capital
Stock -- Registration Rights of Certain Holders."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue up to 10,000,000 shares
of Preferred Stock and fix the rights and preferences thereof without any vote
or further action by the stockholders, eliminate the right of stockholders to
act by written consent without a meeting and eliminate cumulative voting in the
election of directors. The rights of holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any Preferred Stock
that may be issued in the future. These provisions may make it more difficult
for stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. Certain provisions of
Delaware law and Washington law applicable to the Company could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. Such provisions include Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met, and Chapter 23B.19 of the Washington Business
Corporation Act, which prohibits a corporation operating in Washington from
engaging in certain significant business transactions with a person or group of
persons who beneficially own 10% of the voting securities of such corporation
for a period of five years unless certain conditions are met. After the
five-year period, such significant business transaction must still comply with
certain fair price provisions of such statute. See "Management" and "Description
of Capital Stock -- Anti-Takeover Effects of Delaware and Washington Law."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The principal purposes of the Offering are to obtain additional capital,
create a public market for the Company's Common Stock and facilitate future
access by the Company to public equity markets. As of the date of this
Prospectus, the Company plans to spend approximately $29.0 million for research
and development expenses through the end of fiscal year 1998. A portion of the
net proceeds of the Offering will support such research and development efforts.
The Company currently expects to use the remainder of the net proceeds from the
Offering for working capital and general corporate purposes. A portion of the
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies; however,
there are no plans, negotiations or discussions with respect to any such
transactions at the present time. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term
interest-bearing government and other investment grade securities. Accordingly,
the Company's management will retain broad discretion as to the allocation of
the net proceeds from the Offering and subject to certain exceptions will be
able to use and allocate such net proceeds without first obtaining stockholder
approval.
16
<PAGE> 18
ABSENCE OF DIVIDENDS
The Company has not declared or paid dividends on its Common Stock since
its inception and does not anticipate declaring or paying cash dividends to its
stockholders in the foreseeable future. See "Dividend Policy."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $8.97 in the pro forma net tangible book value per share
of Common Stock from the initial offering price set forth on the cover of this
Prospectus. Substantial additional dilution will occur upon exercise of
outstanding options and warrants to purchase the Common Stock. See "Dilution."
Additionally, in the event SmithKline Beecham elects to exercise either one of
its options to license Corixa's early-stage antigen discovery programs in
cancer, the Company may be required to issue shares of its Common Stock to
SmithKline Beecham, and additional dilution will occur as a result of any such
issuance. See "Business -- Corporate Partnerships -- Vaccines." Dilution will
also occur in the event the Company elects to exercise its right to purchase a
significant majority of the outstanding shares of GenQuest, Inc.'s capital
stock. See "Business -- Relationship with GenQuest, Inc."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Corixa or its corporate partners, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: uncertainties
related to the early stage of the Company's research and development programs;
uncertainties related to the effectiveness of the Company's technology and the
development of its products; dependence on and management of existing and future
corporate partnerships; dependence on in-licensed technology; dependence on
proprietary technology and uncertainty of patent protection; management of
growth; history of operating losses; future capital needs and uncertainty of
additional funding; dependence on key personnel; intense competition; the
Company's lack of manufacturing and marketing experience and reliance on third
parties to perform such functions; existing government regulations and changes
in, or the failure to comply with, government regulations; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Corixa disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered hereby are estimated to be $32,447,500 ($37,434,625 if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated Offering expenses. The
principal purposes of the Offering are to obtain additional capital, create a
public market for the Company's Common Stock and facilitate future access by the
Company to public equity markets. The Company currently believes that it will
spend approximately $29.0 million for research and development expenses through
the end of fiscal 1998, approximately $15.0 million of which will be from the
net proceeds of the Offering and approximately $14.0 million of which will be
from committed payments under the Company's existing collaborative agreements
and licensing arrangements (assuming no additional funding from such existing
agreements and arrangements and no new collaborative agreements or licensing
arrangements are executed). The Company currently expects to use the remainder
of the net proceeds for working capital and general corporate purposes. The
Company may also use a portion of such net proceeds to acquire or invest in
businesses, products and technologies that are complementary to those of the
Company, although no such acquisitions are planned or negotiated as of the date
of this Prospectus, and no portion of the net proceeds has been allocated for
any specific acquisition. Pending such uses, the net proceeds will be invested
in short-term, interest-bearing, government and other investment grade
securities. The Company believes that the net proceeds from the Offering, its
existing capital resources, committed payments under its existing collaborative
agreements and licensing arrangements, equipment financing and interest income
will be sufficient to fund its current and planned operations for at least 18
months following the Offering.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's discovery,
research and development programs, the number and breadth of these programs,
achievement of milestones under corporate partnerships and licensing
arrangements, the ability of the Company to establish and maintain corporate
partnerships and other licensing arrangements and the progress of the
development efforts of the Company's corporate partners. Such factors also
include the pace and amount of any acquisitions or investments, competing
technological and market developments that make the Company's technologies and
products relatively less attractive to corporate partners, the costs involved in
enforcing patent claims and other intellectual property rights and the costs and
timing of obtaining necessary regulatory approvals.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends in the foreseeable future.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth as of June 30, 1997: (a) the actual
capitalization of the Company; (b) the pro forma capitalization of the Company,
giving effect to the automatic conversion of all outstanding shares of the
Company's Preferred Stock into Common Stock and the filing of the Company's
Restated Certificate of Incorporation to authorize 40,000,000 shares of Common
Stock at a par value of $0.001 per share and 10,000,000 shares of Preferred
Stock at a par value of $0.001 per share upon the closing of the Offering; and
(c) the pro forma capitalization as adjusted to reflect (i) the sale of the
2,750,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share after deducting underwriting discounts and
commissions and estimated Offering expenses and (ii) the issuance of 445,139
shares of Common Stock upon the net exercise of outstanding warrants upon the
closing of the Offering. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion................ $ 5,086 $ 5,086 $ 5,086
Stockholders' equity (1):
Preferred Stock, $0.001 par value; 23,100,000 shares
authorized, 5,151,181 shares issued and outstanding,
actual; 10,000,000 shares authorized, none issued and
outstanding, pro forma and pro forma as adjusted...... 5 -- --
Common Stock, $0.001 par value; 40,000,000 shares
authorized, 2,648,011 issued and outstanding, actual;
7,799,192 issued and outstanding, pro forma;
10,994,331 issued and outstanding, pro forma as
adjusted.............................................. 3 8 11
Additional paid-in capital............................... 25,624 25,624 58,069
Receivable for warrants.................................. (932) (932) (932)
Deferred compensation.................................... (3,533) (3,533) (3,533)
Deficit accumulated during development stage............. (9,295) (9,295) (9,295)
------- ------- -------
Total stockholders' equity............................ 11,872 11,872 44,320
------- ------- -------
Total capitalization.................................. $16,958 $16,958 $49,406
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (i) 1,187,614 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1997, 378,334 of which are fully
vested, at a weighted average exercise price of $0.71 per share, (ii)
694,512 shares of Common Stock issuable upon exercise of warrants expected
to remain outstanding after the Offering at a weighted average exercise
price of $8.04 per share, (iii) with respect to the actual and pro forma
capitalization, 445,139 shares of Common Stock issued upon the net exercise
of outstanding warrants upon the closing of the Offering, (iv) an aggregate
of 1,031,039 shares reserved for future issuance under the 1994 Plan, the
Purchase Plan and the Directors' Plan and (v) 3,029 shares of Common Stock
issued after June 30, 1997 in connection with a collaboration agreement. See
"Management -- Stock Option Plans" and "Description of Capital Stock."
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at June 30, 1997 was
approximately $11,872,068, or $1.52 per share (after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock). Pro
forma net tangible book value per share is equal to net tangible assets
(tangible assets of the Company less total liabilities) divided by the number of
shares of Common Stock outstanding as of June 30, 1997 (after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock).
Pro forma net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after the completion of the Offering. After giving effect to the sale of the
2,750,000 shares of Common Stock offered by the Company at an assumed initial
public offering price of $13.00 per share, the receipt of net proceeds
therefrom, and the issuance of 445,139 shares of Common Stock upon the net
exercise of outstanding warrants upon the closing of the Offering, the pro forma
net tangible book value of the Company as of June 30, 1997 would have been
$44,319,568, or $4.03 per share. This represents an immediate increase in pro
forma net tangible book value of $2.51 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $8.97 per share to
new investors purchasing shares of Common Stock in the Offering. The following
table illustrates this per share dilution as of June 30, 1997:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $ 13.00
Pro forma net tangible book value before the Offering..... $ 1.52
Increase per share attributable to new investors.......... 2.51
-----
Pro forma net tangible book value after the Offering........ 4.03
-----
Dilution in pro forma net tangible book value to new
investors................................................. $ 8.97
=====
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1997
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the net exercise of outstanding warrants expected to
be exercised upon the closing of the Offering, the difference between the
existing stockholders and the purchasers of shares in the Offering at an assumed
initial public offering price of $13.00 per share (before deducting underwriting
discounts and commissions and estimated Offering expenses) with respect to the
number of shares purchased from the Company, the total cash consideration paid
and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 8,244,331 75.0% $ 20,425,793 36.4% $ 2.48
New stockholders.................... 2,750,000 25.0 35,750,000 63.6 13.00
---------- ----- ---------- -----
Total..................... 10,994,331 100.0% $ 56,175,793 100.0%
========== ===== ========== =====
</TABLE>
The foregoing computations exclude 1,187,614 shares of Common Stock
issuable upon exercise of stock options outstanding as of June 30, 1997 under
the 1994 Plan, 378,334 of which were fully vested, at a weighted average price
of $0.71 per share and 694,512 shares of Common Stock issuable upon exercise of
warrants expected to remain outstanding after the Offering at a weighted average
exercise price of $8.04 per share. In addition, there are currently an aggregate
of 1,031,039 shares of Common Stock reserved for future issuance under the 1994
Plan, the Purchase Plan and the Directors' Plan. See "Management -- Stock Plans"
and "Description of Capital Stock."
20
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations data for each of the two years ended December 31, 1996,
and the period from September 8, 1994 (date of inception) to December 31, 1994
(the "Inception Period") and the balance sheet data at December 31, 1995 and
1996 are derived from the financial statements of the Company, which have been
audited by KPMG Peat Marwick LLP or Ernst & Young LLP, independent accountants
and auditors, and which are included elsewhere herein and are qualified by
reference to such Financial Statements and Notes relating thereto. The selected
financial data with respect to the balance sheet at December 31, 1994 is derived
from financial statements audited by KPMG Peat Marwick LLP which are not
included herein. The financial data for the six month periods ended June 30,
1996 and 1997 and the period from September 8, 1994 (date of inception) to June
30, 1997 are derived from unaudited financial statements which are included
elsewhere herein. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1997. The financial data is qualified in its entirety
by, and the data should be read in conjunction with, Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements, including the related Notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED SIX MONTHS ENDED
(SEPTEMBER 8, 1994) DECEMBER 31, JUNE 30, INCEPTION TO
TO DECEMBER 31, ------------------- ------------------ JUNE 30,
1994 1995 1996 1996 1997 1997
------------------- ------- ------- ------- ------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Collaborative agreements......... $ -- $ 2,411 $ 4,402 $ 2,016 $6,939 $ 13,752
Government grants................ -- 304 1,403 341 554 2,261
------- ------- ------- ------- ------- --------
Total revenues............ -- 2,715 5,805 2,357 7,493 16,013
Operating expenses:
Research and development(1)...... 867 7,040 9,995 4,708 7,104 25,006
General and administrative....... 205 532 781 438 779 2,297
------- ------- ------- ------- ------- --------
Total operating
expenses................ 1,072 7,572 10,776 5,146 7,883 27,303
Income (loss) from operations...... (1,072) (4,857) (4,971) (2,789) (390) (11,290)
Interest income, net............... 83 691 476 213 235 1,485
Other income(2).................... -- 16 348 174 187 551
------- ------- ------- ------- ------- --------
Net income (loss).................. $ (989) $(4,150) $(4,147) $(2,402) $ 32 $ (9,254)
======= ======= ======= ======= ======= ========
Pro forma net income (loss) per
share(3)......................... $ (0.50) $ 0.00
======= =======
Shares used in computing pro forma
net income (loss) per share(3)... 8,343 8,536
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JUNE 30,
1994 1995 1996 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.... $11,064 $10,773 $11,933 $15,047
Working capital............................................. 10,939 9,743 10,101 12,798
Total assets................................................ 14,334 12,340 15,185 20,030
Long-term obligations, less current portion................. -- 816 1,175 5,086
Deficit accumulated during development stage................ (989) (5,126) (9,298) (9,295)
Total stockholders' equity.................................. 14,038 10,264 11,225 11,872
</TABLE>
- ---------------
(1) Included in research and development expenses for the Inception Period is
$428,059 related to the purchase of in-process research and development.
(2) Other income includes proceeds received for management and administrative
services.
(3) See Note 1 of Notes to Financial Statements for information regarding the
computation of pro forma net income (loss) per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains certain forward-looking statements
relating to future events or the future financial performance of the Company.
Such statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors" as well as those discussed elsewhere in
this Prospectus. The historical results set forth in this discussion and
analysis are not necessarily indicative of trends with respect to any actual or
projected future financial performance of the Company. This discussion and
analysis should be read in conjunction with the Financial Statements and the
related Notes thereto included elsewhere in this Prospectus. See "Special Note
Regarding Forward-Looking Statements."
OVERVIEW
Corixa's objective is to be the leader in the discovery and
commercialization of T cell vaccine products for the treatment and prevention of
cancers and certain infectious diseases. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate collaborations as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research-and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines. To
date, approximately 86% of the Company's revenue has resulted from payments from
such collaborative agreements and approximately 14% has resulted from funds
awarded through government grants. As of June 30, 1997, the Company had total
stockholders' equity of $11.9 million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements as early in the vaccine development stage as possible. The Company
believes that this active corporate partnering strategy enables Corixa to
maintain its focus on its fundamental strengths in vaccine discovery and
research, capitalizes on its corporate partners' strengths in product
development, manufacturing and commercialization, and significantly diminishes
the Company's financing requirements. When entering into such corporate
partnering relationships, the Company seeks to cover its research and
development expenses through research funding, milestone payments and option,
technology or license fees, while retaining significant downstream participation
in product sales through either profit-sharing or product royalties paid on
annual net sales. Revenues recognized from inception through June 30, 1997 under
the Company's collaborative agreements were approximately $13.8 million.
The Company has experienced significant operating losses in each year since
its inception. As of June 30, 1997, the Company's accumulated deficit was
approximately $9.3 million. The Company may incur substantial additional
operating losses over at least the next several years. Such losses have been and
may continue to be principally the result of the various costs associated with
the Company's discovery, research and development programs, and preclinical and
clinical activities. Substantially all of the Company's revenues to date have
resulted from corporate partnerships, other research, development and licensing
arrangements, research grants and interest income. The Company's ability to
achieve a consistent, profitable level of operations is dependent in large part
upon entering into collaborative agreements with corporate partners for product
discovery, research, development and commercialization, obtaining regulatory
approvals for its products and successfully manufacturing and marketing
commercial products. There can be no assurance that the Company will be able to
achieve consistent profitability. In addition, payments under collaborative
agreements and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of losses by the Company. Therefore, the Company's results of
operations for any period may fluctuate and may not be comparable to the results
of operations for any other period.
22
<PAGE> 24
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
Total Revenues
Revenues increased to $7.5 million for the six months ended June 30, 1997,
from $2.4 million for the same period in 1996. This increase was attributable
primarily to license revenues resulting from the agreements with SmithKline
Beecham. Revenue under government grants received in 1997 is expected to be
slightly less than that received in 1996.
Research and Development Expenses
Research and development expenses increased to $7.1 million for the six
months ended June 30, 1997, from $4.7 million for the same period in 1996. The
increase was primarily attributable to increased payroll and personnel expenses
incurred as the Company hired additional research and development personnel,
increased purchase of laboratory supplies, increased equipment depreciation and
facilities expenses in connection with the expansion of the Company's research
efforts, and the inclusion of the research and development portion of amortized
deferred compensation expense associated with the grant of certain stock
options. This non-cash compensation expense will continue to be recognized over
the vesting period of such options, typically four years. See Note 1 of Notes to
Financial Statements. The Company expects research and development expenses to
increase in the future to support the expansion of its research and development
activities.
The Company and GenQuest have entered into a Call Option Agreement under
which the Company has the right to purchase a significant majority of the
outstanding capital stock of GenQuest in exchange for shares of the Company's
Common Stock at a purchase price determined in accordance with a formula
specified in the Call Option Agreement. The Company has not made a decision as
to whether it will exercise the option. If the Company were to exercise the
option, the Company would be required to fund any future development efforts of
GenQuest which would result in the Company incurring research and development
expenses without the corresponding revenue currently provided by GenQuest.
General and Administrative Expenses
General and administrative expenses increased to $779,000 for the six
months ended June 30, 1997, from $438,000 for the same period in 1996. The
increase was primarily due to increased expenses related to business development
and the general and administrative portions of the amortized deferred
compensation expense associated with the grant of certain stock options. See
Note 1 of Notes to Financial Statements. The Company expects general and
administrative expenses to increase in the future to support the expansion of
its business development activities, and increased expenses associated with
being a public company.
Interest Income, Net
Interest income, net increased to $235,000 for the six months ended June
30, 1997, from $213,000 for the same period in 1996. This increase was due to an
increase in interest income resulting from higher average cash balances in the
first six months of 1997 which was partially offset by an increase in interest
expense resulting from higher capital lease balances outstanding in 1996. The
Company expects interest income, net to increase in 1997 due to an increase in
average cash balances as a result of the consummation of the Offering.
Other Income
Other income increased to $187,000 for the six months ended June 30, 1997,
from $174,000 for the same period in 1996. The 1997 balance consists of $162,500
and $24,000 in proceeds from management and administrative services agreements
with GenQuest and the Infectious Disease Research Institute ("IDRI"), a
not-for-profit, grant-funded private research institute, respectively, pursuant
to which the Company provides services with respect to corporate management,
accounting and financial matters, recordkeeping, personnel administration and
human resources, and treasury services as required by such agreements.
23
<PAGE> 25
Deferred Compensation
Deferred compensation of approximately $3.9 million was recorded in the six
months ended June 30, 1997, representing the difference between the exercise
prices of 645,004 shares of Common Stock subject to options granted during the
six months ended June 30, 1997 and the deemed fair value of the Company's Common
Stock on the grant dates. Deferred compensation expense of $371,210 attributed
to the shares was amortized during the six months ended June 30, 1997. The
remaining deferred compensation will be amortized to operating expense over the
vesting periods of the options.
Years Ended December 31, 1996, 1995 and Inception Period
Revenues
Revenues increased to $5.8 million in 1996, from $2.7 million in 1995. This
increase was attributable primarily to increased collaborative agreement
funding. Revenue under collaborative agreements increased to $4.4 million in
1996, from $2.4 million in 1995. Funds received from government grants increased
to $1.4 million in 1996, from $304,000 in 1995, and revenue under government
grants received in 1997 is expected to be slightly less than that received in
1996. The Company did not recognize any revenue during the Inception Period.
Research and Development Expenses
The Company's research and development expenses increased to $10.0 million
in 1996, from $7.0 million in 1995, and $867,000 in the Inception Period
(approximately $428,000 of which resulted from acquired in-process research and
development). The increases were primarily due to greater expenses associated
with additional personnel hired to support the Company's growing research
efforts and related purchases of research materials and laboratory supplies.
General and Administrative Expenses
The Company's general and administrative expenses increased to $781,000 in
1996, from $532,000 in 1995, and from $205,000 in the Inception Period. Such
expenses increased as a result of the increase in compensation and benefits paid
relating to the hiring of additional personnel.
Interest Income, Net
Interest income, net decreased to $476,000 in 1996, from $691,000 in 1995.
This decrease was due to higher outstanding capital lease balances in 1996
resulting in greater interest expense. Interest income, net was $83,000 in the
Inception Period.
Other Income
Other income increased to $348,000 in 1996, from $16,000 in 1995 due to
proceeds of $300,000 and $48,000 from management and administration agreements
with GenQuest and IDRI, respectively, pursuant to which the Company provides
services with respect to corporate management, accounting and financial matters,
recordkeeping, personnel administration and human resources, and treasury
services as required by such agreements. No other income was received during the
Inception Period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through
collaborative agreements, government grants, private placements of equity
securities and capital leases. Through June 30, 1997, the Company's operations
have used cash of $6.0 million. The private placements of equity securities have
provided the Company with aggregate gross proceeds of approximately $20.1
million. The Company has drawn down $3.8 million through capital lease
financings and $3.0 million from an advance under a collaborative agreement. As
of June 30, 1997, the Company had approximately $15.0 million in cash, cash
equivalents and securities available-for-sale.
24
<PAGE> 26
The Company has invested $5.2 million in property and equipment since
inception, including equipment acquired under capital lease financings of $3.8
million. The Company expects capital expenditures to increase over the next
several years as it expands its facilities and acquires scientific equipment to
support the planned expansion of research and development efforts.
As of June 30, 1997, the Company had net operating loss carryforwards of
approximately $6.6 million available to offset federal and state income taxes.
Research and development tax credit carryforwards for the Company were estimated
to be approximately $900,000 for federal income tax purposes. If not utilized,
the federal net operating loss and research and development tax credit
carryforwards will expire at various times through 2009. See Note 6 of Notes to
Financial Statements.
The Company believes that the net proceeds from the Offering, its existing
capital resources, committed payments under its existing collaborative
agreements and licensing arrangements, equipment financing and interest income
will be sufficient to fund its current and planned operations for at least 18
months following the Offering. The Company intends to enter into additional
corporate collaborations which will provide funding for all or a part of the
Company's research and development activities. The Company's future capital
requirements will depend on many factors, including, among others, the
following: continued scientific progress in its discovery, research and
development programs; the magnitude and scope of these activities; the ability
of the Company to maintain existing and enter into additional corporate
collaborations and licensing arrangements; progress with preclinical studies and
clinical trials; the time and costs involved in obtaining regulatory approvals;
the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; and the potential need to develop, acquire or license
new technologies and products and other factors not within the Company's
control. The Company intends to seek additional funding through corporate
collaborations, licensing arrangements, public or private equity or debt
financings and capital lease transactions; however, there can be no assurance
that additional financing will be available on acceptable terms, if at all. If
sufficient capital is not available, the Company may be required to delay,
reduce the scope of, eliminate, or divest one or more of its discovery, research
or development programs, any of 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."
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BUSINESS
INTRODUCTION
Corixa focuses on the discovery and early clinical development of a novel
class of therapeutic and prophylactic vaccines. Although commercially available
vaccines can prevent infection by a variety of pathogens such as bacteria,
viruses and parasites through antibody-based immune responses, these responses
are not sufficient to eliminate cancers or certain infectious diseases,
including tuberculosis and Acquired Immune Deficiency Syndrome ("AIDS"). To
induce an effective immune response against these diseases, pathogen- or
tumor-reactive T lymphocytes ("T cells") must be stimulated. In particular,
cytotoxic T lymphocytes ("CTL") -- specialized T cells that have the ability to
recognize and kill pathogen-infected tissue or tumor cells -- must be activated.
Corixa's therapeutic and prophylactic T cell vaccines represent a new
approach to the treatment of cancers and certain infectious diseases. The
markets for such vaccine products are extensive, particularly in oncology, given
that current treatments such as chemotherapy and radiation therapy may not lead
to lasting cure or prevention. Immunologists and molecular biologists recently
have identified certain previously unknown molecular signals that are
responsible for T cell recognition of pathogen and/or tumor-associated proteins
referred to as antigens. Corixa's vaccine products are designed to exploit these
recent developments by using each of the three components of its core technology
platform -- proprietary microsphere delivery systems, adjuvants and
antigens -- to force the immune system to recognize antigens in such a manner
that potent T cell, particularly CTL, responses are induced. The Company's
vaccines consist of proprietary antigens which may be encapsulated in
biodegradable and biocompatible microspheres combined with a proprietary
adjuvant, which is a molecule or substance capable of non-specifically enhancing
or boosting an immune response.
SCIENTIFIC BACKGROUND
A variety of prophylactic vaccine products are commercially available for
the prevention of certain infectious diseases. However, these products do not
address therapeutic treatment of such diseases. The majority of current vaccines
trigger a protective antibody response capable of destroying an invading
pathogen in the event the patient is exposed to the pathogen in the future.
Antibodies are products of specialized immune system cells called B lymphocytes
("B cells") that recognize and attach to antigens and trigger the non-specific
elimination of the pathogen. Antigens are components of the invading pathogen
that are recognized by cells of the immune system. Current vaccines are made up
of whole organisms that contain antigens or antigens themselves, which can be
peptides, proteins or carbohydrates. Such vaccines are formulated by combining
antigens with an adjuvant, an immune system booster.
The immune response begins when antigens are processed by a specialized
immune system cell called an antigen presenting cell ("APC"). Antigens are
processed by APCs through two distinct pathways, the Class I and Class II
Pathways. The antibody response produced by current vaccines results from
antigen processing only through the Class II Pathway. The Class II Pathway
breaks down antigens into specific peptides which are then presented on the
surface of an APC via major histocompatibility ("MHC") Class II proteins.
Antigen presentation via MHC Class II proteins results in activation of
CD4-positive helper T cells. These cells produce immune system hormones called
cytokines that serve to "help" with the generation of various components of both
cellular and antibody-based immune responses. Depending on the specific
cytokines that helper T cells produce, the helper T cell response is classified
as either Th1 or Th2. Th1 responses help generate and activate CTL and lead to
antibody production by B cells and possible pathogen elimination.
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Class I Antigen Presentation Pathway Class II Antigen Presentation Pathway
[GRAPHIC] [GRAPHIC]
Such antibody production can be sufficient to prevent or eliminate pathogen
infection in the case of certain diseases. However, antibody responses alone are
not sufficient in other diseases, such as cancer. In these other diseases, a
cellular immune response that includes the generation of CTL is necessary in
order to achieve protective immunity. While stimulation through the Class II
Pathway can lead to Th1 responses helpful in generating CTL, CTL activation
cannot occur without antigen presentation through the Class I Pathway. The Class
I Pathway breaks down antigens into specific peptides which are then presented
on the surface of an APC via MHC Class I proteins. Antigen presentation via MHC
Class I proteins results in generation and activation of CTL. The Company
believes that CTL are necessary to eliminate tumors and various pathogens that
antibodies alone cannot destroy.
Corixa has shown in preclinical studies that CTL are capable of eliminating
either tumors or certain pathogens in settings where antibody responses fail.
Such CTL are not only capable of preventing disease when they are activated
prior to pathogen infection but are also able to eliminate disease or a tumor
once the infection has taken place or, in the case of cancer, once a tumor has
developed.
The Company believes vaccines that can activate specific T cell responses
form the basis for a new class of products that may be used either in the
treatment or prevention of disease. Until recently, scientists lacked sufficient
understanding to design vaccine formulations capable of promoting T cell immune
reactivity against tumors or certain pathogens. The Company has incorporated
recent advances in the understanding of the molecular mechanism controlling how
antigens are normally presented to T cells and designed vaccine formulations
which incorporate disease-specific antigens into biodegradable and biocompatible
microspheres that give rise to potent CTL responses. The Company's antigen
discovery program has resulted in isolation of antigens from a variety of tumor
types and from infectious disease pathogens for which no vaccines currently
exist. Furthermore, the Company has discovered a novel adjuvant that has been
shown in preclinical studies to significantly enhance the efficacy of
microsphere formulated vaccines through the stimulation and activation of Th1
helper T cells and CTL. Corixa believes that its three proprietary core
technologies -- microsphere-mediated antigen delivery, novel adjuvants and
proprietary antigen discovery -- form the basis for the successful development
of such products.
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CORIXA'S STRATEGY
Corixa's objective is to be the leader in the discovery and
commercialization of T cell vaccine products for the treatment and prevention of
cancers and certain infectious diseases. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate partnerships as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research-and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines.
Principal elements of the Company's strategy are as follows:
Integrate the Company's Core Technologies. The Company believes that the
integration of its three proprietary core technologies may be essential to
providing effective vaccines for cancers and certain infectious diseases. These
technologies consist of: (i) proprietary delivery systems; (ii) potent, novel
adjuvants; and (iii) novel, specific antigens. Corixa believes that its three
component approach is unique among entities currently undertaking the
development of vaccines and has developed or acquired proprietary rights in each
of these technologies. Corixa also believes that integrating one or more of its
delivery systems, adjuvants or antigens with certain other companies'
proprietary technology may improve such companies' existing or
developmental-stage vaccine products.
Establish Corporate Partnerships at an Early Stage. Corixa intends to enter
into corporate partnerships as early in the vaccine development process as
possible. For those products that show promise in the preclinical or clinical
stage, the Company will seek a corporate partner no later than prior to the
initiation of Phase II clinical trials. The Company believes that this active
corporate partnering strategy provides three distinct advantages: (i) it permits
Corixa to focus on its fundamental strengths in vaccine discovery and research;
(ii) it capitalizes on the corporate partner's strengths in product development,
manufacturing and commercialization; and (iii) it significantly reduces Corixa's
financing requirements. When entering into such corporate partnering
relationships, the Company seeks to cover its research and development expenses
through research funding, milestone payments and option, technology or license
fees, while retaining significant downstream participation in product sales
through either profit-sharing or product royalties paid on annual net sales.
Partner Discrete Core Technologies and Non-Vaccine Products. Because the
Company believes that certain other companies' vaccine products may be enhanced
by components available from Corixa, the Company seeks to establish corporate
partnerships with major commercial entities for each of its proprietary core
technologies. For example, the Company may partner its proprietary antigens with
companies who have developed their own delivery and adjuvant technologies.
Similarly, Corixa believes that it can partner the Company's novel LeIF adjuvant
with a variety of vaccine companies that may have vaccine antigens but lack an
adjuvant with the appropriate Th profile. Corixa also believes it can partner
its antigen delivery technology with companies whose vaccines currently lack
sufficient recognition in vivo. Corixa further believes that certain of the
antigens it discovers may lead to the development of useful non-vaccine
products, particularly diagnostics, and the Company intends to establish
non-exclusive collaborations with a variety of diagnostic companies to generate
near-term royalty or other revenues.
CORIXA'S CORE TECHNOLOGY PLATFORMS
Corixa seeks to discover and develop products that consist in whole or in
part of its three proprietary core technologies: (i) microsphere antigen
delivery systems that specifically activate helper T cells and CTL; (ii)
adjuvants that specifically enhance helper T cell and CTL responses; and (iii)
disease specific antigens that are essential to elicit appropriate T cell
responses.
Microsphere Antigen Delivery Systems
Corixa has demonstrated in preclinical studies that potent antibody and CTL
responses can be generated against antigens using the Company's proprietary
microsphere antigen delivery system. The Company has determined that CTL
generated as a result of microsphere-mediated antigen presentation are capable
of
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killing antigen positive cells either in vitro (in test tubes) or in preclinical
studies of immune function. For example, injection of microsphere-encapsulated
tumor antigens in animals generated an immune response that prevented growth of
antigen positive tumors when such animals were later challenged with a lethal
dose of tumor cells. The immune cells responsible for this microsphere-mediated
tumor rejection were shown to be antigen specific CTL. Immunization with naked
(not encapsulated) antigens did not activate CTL responses, nor was such
immunization able to result in protective immunity in animals later challenged
in the same manner.
Corixa believes that microsphere-mediated antigen delivery may be superior
in terms of versatility, stability, safety and cost to other approaches which
circumvent the antigen presentation pathways, including the use of various gene
therapies as well as liposome or recombinant-protein lipid formulations.
Microspheres of the particular size range used by the Company are taken up only
by APCs. This is not true for formulations containing genes or lipids, where
significant amounts of the delivered product are taken up by non-APCs or lost in
the blood stream or elsewhere in the body. Microsphere delivery of antigens may
also avoid certain safety issues associated with gene therapy. Because Corixa
uses microspheres that are produced from FDA-approved, synthetic co-polymers,
there is no immune response to the microsphere itself, in contrast to the immune
response that can occur to other proteins encoded by viral or bacterial vectors
used in gene therapy. Additionally, a single, microsphere formulation may be
useful in multiple vaccine products. This avoids the repetitive costs associated
with construction, manufacture and testing of different gene therapy vectors or
recombinant protein-lipid formulations for different target indications.
Furthermore, Corixa believes that its microsphere vaccine preparations will be
stable as freeze-dried formulations, resulting in a multi-year shelf-life.
The Company has an exclusive worldwide license to a number of patents and
pending patent applications from SRI covering the composition, use and
production of microspheres for augmenting immune responses. In addition, the
Company has an exclusive worldwide license to antigen delivery technology from
the Dana-Farber Cancer Institute ("Dana-Farber") comprising patent applications
claiming the composition and use of microspheres of a particular size range for
the purpose of activating CTL. The Company is also internally developing certain
microsphere technology. See "-- Certain License Agreements" and "-- Patents and
Proprietary Technology."
Adjuvants
Adjuvants are formulations and/or additives that are routinely combined
with vaccines to boost immune responses directed against the antigens in such
vaccines. Because current vaccines depend upon the generation of antibody
responses to injected antigens, commercially available adjuvants have been
developed largely to enhance such antibody responses. To date, there are no
adjuvants that have been approved for use in humans which augment helper T cell
and CTL responses.
Corixa has identified a protein, known as LeIF, that functions as a potent
adjuvant for enhancing immune responses directed at T cell vaccine antigens.
LeIF is a protein produced by the parasite Leishmania, which is carried by
sandflies and causes both a skin and visceral disease known as Leishmaniasis. In
cell culture studies conducted by the Company, LeIF has been found to have
potent immune system stimulatory effects, both for cells from individuals who
have been exposed to the parasite and from individuals who have not been so
exposed.
Preclinical studies conducted by Corixa indicate that LeIF is a unique
protein stimulator of a Th1 response. Additional research conducted by the
Company has confirmed that the cell within the immune system that responds to
LeIF is an APC. APCs stimulated with LeIF produce large quantities of a certain
cytokine and a certain cell surface protein, both of which are molecular signals
required for the generation of potent CTL responses. Corixa has conducted
further research to determine whether LeIF functions as an adjuvant for T cell
vaccines. In prelinical studies, use of microsphere-encapsulated tumor antigens
together with LeIF resulted in tumor regression, even when administered to
animals with established tumors. In all cases, tumor regression was shown to
correlate with the in vivo development of tumor antigen reactive CTL. As a
result, Corixa's research suggests that immunity induced by the combination of
microsphere-
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encapsulated antigens and the LeIF adjuvant is both antigen specific and
long-lived. Treated animals were still able to reject lethal doses of antigen
positive tumors when challenged more than four months after therapy.
Corixa believes that the use of LeIF as an adjuvant will greatly enhance
the efficacy of its T cell vaccines. The Company also believes that LeIF,
together with microsphere-encapsulation technology, may be useful in developing
therapeutic products from current prophylactic vaccines due to the ability of
the Company's technologies to promote potent Th1 and CTL responses. Corixa has
granted licenses to or options to license its LeIF technology to several
corporate partners, including SmithKline Beecham, PMC, Vical and Heska. See
"-- Corporate Partnerships -- Adjuvants" and "-- Other Products in Development."
THROUGH A VARIETY OF PROPRIETARY METHODS,
CORIXA IMMUNOLOGICALLY "SIEVES" FOR ANTIGENS
AGAINST CANCERS AND OTHER INFECTIOUS DISEASES.
GRAPHIC
NOVEL AND
DISEASE-SPECIFIC
ANTIGENS
Antigen Discovery
Corixa's ability to discover and patent multiple antigens allows it to
select those which will work most effectively in a given vaccine (i.e., are
recognized by the greatest percentage of individuals, stimulate the strongest
immune response and are expressed by the greatest percentage of pathogen strains
or tumor types). To capitalize on this ability, over half of Corixa's scientific
personnel are devoted to antigen discovery. Discovery approaches and
technologies used by the Company in both tumor and infectious disease vaccine
development include: (i) tumor tissue procurement and SCID mouse tumor
propagation; (ii) differential display; (iii) cDNA subtraction; (iv) expression
cloning; (v) pathogen protein purification; (vi) antigenic peptide stripping;
and (vii) immunological characterization of candidate tumor vaccine antigens.
The Company's discovery approaches map patient immune responses to ensure that
discoveries focus on
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identification of pathogen and tumor proteins that are recognized by the human
immune system and are therefore antigenic. See "-- Vaccine Antigen Discovery
Methodologies."
The culmination of Corixa's antigen discovery research is the isolation of
pathogen genes that encode those antigens with significant potential to be
effective components of vaccines. Such antigens (in the form of either
recombinant proteins or biosynthetically produced peptides) are then formulated
in microspheres for vaccination. Multiple pathogen and/or tumor gene and protein
sequences have been discovered by the Company. As of June 30, 1997, the Company
had filed numerous patent applications seeking both composition of matter and/or
vaccine and diagnostic method of use claims to: (i) approximately 160 gene
sequences that are either uniquely expressed or markedly over-expressed by
breast cancer cells; (ii) approximately 60 gene sequences that are either
uniquely expressed or markedly over-expressed by prostate tumor cells or
prostate tissue; and (iii) approximately 70 gene sequences expressed by
Mycobacterium tuberculosis.
There can be no assurance that patents will issue from any of the pending
applications, or that if issued, such patents will not be challenged,
invalidated or circumvented by third parties, or that the rights granted under
any issued patents will provide adequate proprietary protection or competitive
advantages to the Company. The Company's three core technologies are at an early
stage of development. There can be no assurance that any of such technologies
will prove to be safe and effective, and products which may result from the
Company's research and development programs are not expected to be commercially
available for a number of years, if at all. See "-- Patents and Proprietary
Technology," "Risk Factors -- Uncertainties Related to Early Stage of
Development" and "-- Uncertainties Related to Technology and Product
Development."
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CORIXA'S PRODUCTS IN DEVELOPMENT
Corixa has a number of products in various stages of development, many of
which are the subject of collaborations with corporate partners. The following
table sets forth the type of product currently in development, the
application(s) for the particular product, its present stage of development and
the identity of the Company's corporate partner, if any, for such product
application.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
CORIXA'S PRODUCTS IN DEVELOPMENT
- ---------------------------------------------------------------------------------------------------
PRODUCT APPLICATION DEVELOPMENT PHASE(1) PARTNER
- ---------------- ------------------------------ --------------------- --------------------------
VACCINES Breast/Prostate Cancer Research SmithKline Beecham
Vaccines Biologicals S.A.
Two Cancer Vaccine Targets Research SmithKline Beecham
Biologicals S.A.
Her-2/neu Peptide Vaccines for Phase I Clinical Not currently partnered
Breast and Ovarian Cancer Trials
Lung Cancer, Lymphoma and Research Not currently partnered
Other Vaccines
Tuberculosis Vaccines Preclinical Studies SmithKline Beecham
Biologicals S.A.
ADJUVANTS LeIF as an Adjuvant for Preclinical Studies Pasteur Merieux Connaught
Certain Infectious Disease
Vaccines
DIAGNOSTICS Trypanosoma cruzi Development DiaMed S.A.
Trypanosoma cruzi - Diagnostic Development Centocor UK Limited
and Blood Screen
Tuberculosis Development Abbott Laboratories
Leishmaniasis Early Stage Various diagnostic
Commercialization companies
Tick-Borne Diseases Preclinical Studies Not currently partnered
OTHER PRODUCTS Adoptive Immunotherapy - Preclinical Studies CellPro, Incorporated
Cancer
Certain Autoimmune Diseases Research Novo Nordisk A/S/
ZymoGenetics, Inc.
Cancer; LeIF Gene as an Research Vical Incorporated
Immunomodulator
Certain Technologies for Development Heska Corporation
Companion Animal Health
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) "Research" indicates the discovery or creation of prototype products and
includes antigen discovery, immunomodulator discovery and
characterization.
"Development" indicates testing of prototype diagnostic assays in a
particular format and testing of such products.
"Preclinical Studies" indicates product scale up, formulation and further
testing in animals, including toxicology.
"Phase I Clinical Trials" are performed to evaluate the safety of a vaccine
and its ability to stimulate an immune response.
"Early Stage Commercialization" indicates sales to third parties for use in
diagnostic applications which have resulted in immaterial revenues to
date.
Vaccine Products
Breast and Prostate Cancer Vaccines. Breast and prostate cancer are
currently among the most widespread malignant diseases in women and men,
respectively. According to industry sources, over 525,000 patients were
diagnosed with breast cancer and over 625,000 patients were diagnosed with
prostate cancer in Europe, Japan and North America in 1995. A large percentage
of these patients undergo chemotherapy, radiation therapy and surgery, yet the
vast majority are likely to relapse with malignant disease within ten years
following surgical intervention. Corixa believes that its vaccines will
initially be useful in those patients who have undergone surgery.
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The Company has identified over 300 gene sequences that are either uniquely
expressed or markedly over-expressed in breast tumors and/or prostate tumors or
tissue. Analysis of comparative expression of such genes in multiple tumor
specimens and in normal tissue has resulted in patent filings on approximately
220 gene sequences which the Company believes may be valuable for inclusion in
vaccine products. The Company has begun the immunological characterization of
these gene sequences with the goal of selecting several antigens for use in
vaccines for breast and prostate cancer. In March 1997, Corixa entered into
corporate partnerships with SmithKline Beecham in the areas of breast and
prostate tumor vaccines. See "-- Corporate Partnerships -- Breast and Prostate
Cancer Vaccines."
Her-2/neu Peptide Tumor Vaccines. According to New Medicine, Inc., over
525,000 new breast cancer patients and 80,000 new ovarian cancer patients are
diagnosed in Europe, Japan and North America each year. Of these patients,
approximately 50% markedly over-express the gene Her-2/neu on the surface of
their respective breast and ovarian carcinomas. To date, in in vitro studies
with animal and human cells, peptides from the Her-2/neu protein have been shown
to generate potent T cell immune responses. In vitro data indicate that cells
from different patients respond to different Her-2/neu peptides. Consequently,
the Company is currently developing a "cocktail" approach to vaccine
formulation, combining multiple peptides in a single vaccine. The Company
believes that a "cocktail" of peptides may be useful as a therapeutic vaccine
for breast and ovarian cancer patients whose tumors over-express Her-2/neu.
In July 1996, pursuant to certain contractual obligations, Corixa, together
with the University of Washington, filed an investigational new drug application
to begin a clinical trial of three different Her-2/neu peptide vaccines in
breast and ovarian carcinoma patients. This Phase I clinical trial began
accruing patients in September 1996. Safety is the primary endpoint of this
clinical trial, which consists of up to 60 patients who will each receive
monthly vaccinations for a period of six months. Secondary endpoints of the
trial focus on the ability of such vaccination to lead to demonstration of
anti-Her-2/neu immune reactivity and/or clinical response. This clinical trial
currently uses naked Her-2/neu peptides together with granulocyte macrophage
colony stimulating factor as an adjuvant. The Company is also conducting
preclinical studies with microsphere-encapsulated formulations of Her-2/neu
peptides and LeIF as an adjuvant as a prelude to adding these components of its
proprietary core technology to either the current clinical trial or, if required
by the FDA, a separate Phase I clinical trial. Corixa has an exclusive worldwide
license to Her-2/neu peptide vaccine technology from the University of
Washington. See "-- Certain License Agreements."
Lung Cancer, Lymphoma and Other Vaccines. Building on the Company's initial
progress in cancer antigen discovery aimed at the development of breast and
prostate tumor vaccines, Corixa has initiated additional discovery programs in
several other tumor types, including lung cancer and Non-Hodgkin's lymphoma
("NHL"). According to industry sources, both lung cancer and NHL have mortality
rates well above the normal mortality rates for cancers generally, with five
year mortality rates of 86% and 49%, respectively. Lung cancer is now the
leading cancer killer in Europe, Japan and North America, with incidence in 1995
in those countries estimated at approximately 520,000 people. NHL incidence in
the developed world was estimated at 137,000 in 1995. Due to the magnitude and
severity of such diseases, and the absence of effective therapies in these
areas, Corixa has begun to undertake antigen discovery and vaccine development
efforts in these tumor types using approaches similar to those it uses in breast
and prostate cancer. See "-- Corixa's Vaccine Antigen Discovery Methodologies."
Additionally, Corixa is currently engaged in discussions with several
pharmaceutical companies with respect to potential corporate partnering
arrangements in the areas of lung cancer, leukemia and lymphoma vaccines. There
can be no assurance, however, that such discussions will lead to the
establishment of any new corporate partnerships on favorable terms, or at all.
See "Risk Factors -- Dependence on and Management of Existing and Future
Corporate Partnerships."
Tuberculosis Vaccines. Tuberculosis ("Tb"), caused by infection with
Mycobacterium tuberculosis ("Mtb"), results in more deaths than any other
infectious disease in the world. The market for potential Tb vaccines is
extensive. According to industry sources, there are an estimated 8.8 million new
cases of Tb worldwide. Once believed to be eradicated in the United States, Tb
is now growing in prevalence. From 1985 to 1992, the number of cases increased
20% in the United States and the percentage of patients with antibiotic
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resistant mycobacteria increased from less than 1% to more than 25% in some
areas of the country. Corixa's goal is to develop specific prophylactic vaccines
for both conventional and drug-resistant strains of Mtb.
Corixa has identified over 60 novel candidate Tb gene products that
specifically trigger appropriate helper T cell responses in vitro. These gene
products are the subject of multiple patent applications filed by the Company
covering compositions of matter and vaccine and diagnostic methods of use. The
in vitro tests have led to the selection of several candidate vaccine antigens.
Some of these antigens have been skin-tested in both infected-healthy and
infected-diseased individuals in South America to determine which antigens are
recognized by both patient populations. Results from such tests, together with
continued analysis of patient T cell responses, has led to the commencement by
Corixa of preclinical studies for both therapeutic and prophylactic vaccine use.
In October 1995, the Company entered into a corporate partnership with
SmithKline Beecham for the development of Tb vaccines. Based on the Company's
progress, the research phase of this corporate partnership was recently extended
for an additional one year period. See "-- Corporate
Partnerships -- Tuberculosis Vaccines."
Adjuvants
Corixa has discovered a gene from the parasite Leishmania that codes for
the protein LeIF, which is capable of stimulating Th1 helper and CTL responses.
The Company has demonstrated in preclinical studies that when combined with
certain target antigens, LeIF induces a stronger antibody response directed
against the target antigen than was induced by such antigen alone.
Co-administration of LeIF with various T cell vaccines in preclinical studies
for both infectious disease and tumors results in enhanced generation of anti-
vaccine reactive CTL.
Corixa currently produces LeIF as a recombinant protein in bacteria. The
Company anticipates that it will use LeIF in its proprietary vaccine
formulations and will also out-license LeIF for incorporation as an adjuvant in
vaccines outside of the Company's cancer and infectious disease targets. In
December 1996, the Company entered into a corporate partnership with PMC. This
corporate partnership provides PMC with the option to license LeIF for use with
vaccines in five different infectious disease indications. See "-- Corporate
Partnerships -- Adjuvants."
Diagnostic Products
The Company believes that many of the antigens it has discovered in the
fields of cancer and infectious disease also have applications in the diagnosis
of disease. Antigens are used in diagnostic tests to determine whether an
individual possesses antibodies against the antigen. The presence of such
antibodies indicates that the individual is infected by the pathogen. Infectious
disease diagnostic products for the following indications are currently under
development at Corixa:
Trypanosoma cruzi ("T. cruzi"). T. cruzi is an intracellular blood and
tissue parasite endemic to South America, Central America and Mexico that is
most commonly transmitted by blood transfusion. T. cruzi is responsible for the
development of Chagas' disease, which can develop into fatal infectious heart
disease. Current diagnostic procedures to determine blood exposure to T. cruzi
infection are based on the detection of patient antibodies that react with crude
extracts of this parasite. These tests often produce false results due to their
inability to distinguish antibodies against T. cruzi from antibodies against
other infectious agents. The Company has discovered and evaluated in vitro a
number of peptides encoded by genes of the T. cruzi parasite for their ability
to serve as highly specific and sensitive reagents for detection of T. cruzi.
Corixa has licensed its T. cruzi antigen technology for the development of both
blood screen and point-of-care diagnostic tests to several diagnostic companies,
including DiaMed and Centocor. See "-- Corporate Partnerships -- Diagnostic
Products."
Tuberculosis. Corixa believes that many antigens currently under
investigation by the Company could be useful in the development of novel
diagnostics to determine whether patients have been infected with Mtb. Current
diagnostic assays to determine Mtb infection are expensive and labor intensive.
The majority of patients exposed to Mtb receive chest x-rays, and attempts are
made to culture the bacterium in vitro from sputum samples. Mtb grows poorly and
slowly outside the body, which can produce false negative test results.
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In addition, standard skin tests are not ideal in detecting infection and cannot
be used in areas of the world where patients receive childhood vaccination with
bacterial strains related to Mtb. The Company is developing a combination of
proprietary antigens that may be used in detecting the presence and degree of
Mtb infection. The Company has granted to Abbott a non-exclusive license to
certain of its Tb antigen technologies and intends to pursue additional
out-licensing opportunities for this product. See "-- Corporate Partnerships --
Tuberculosis Vaccines."
Leishmaniasis. The parasite Leishmania causes a systemic disease of the
liver, spleen and bone marrow called Leishmaniasis that can be fatal if not
treated. The disease is endemic to Southern Europe, the Middle East, Africa,
China and India, as well as Central and South America. The largest United States
population infected with Leishmania are military personnel and veterans who were
exposed to the parasite while stationed in the Middle East during the Gulf War.
Leishmania has also become a leading cause of opportunistic infection in AIDS
patients in Southern Europe. Currently, the most reliable test for this parasite
infection is an extremely costly and potentially dangerous procedure requiring
the collection of bone marrow from patients and microscopically searching for
evidence of such infection. Corixa has identified and patented a Leishmania
antigen that is useful in determining whether patients are infected with the
parasite. Corixa has licensed its Leishmania diagnostic technology to various
diagnostic companies on a non-exclusive basis. The Company is currently
negotiating with other diagnostic companies who have expressed interest in
developing either rapid physician office or field-based diagnostics using the
Company's patented technology. See "-- Corporate Partnerships -- Diagnostic
Products."
Tick-Borne Diseases. There are multiple diseases, such as Lyme disease,
caused by pathogens harbored by several tick species in North America. Recent
scientific investigation has identified two tick-borne pathogens, Ehrlichia and
Babesia microti, which can lead to Lyme disease-like infections and which can
also cause death. No diagnostic tests currently exist for these pathogens.
Corixa has identified multiple genes encoded by these pathogens that the Company
believes may form the basis of novel diagnostic products and has begun
discussions with diagnostic companies that have expressed interest in this
field.
Other Products in Development
Adoptive Immunotherapy Products. Because T cells, and CTL in particular,
are generally believed to be essential for the generation of protective immunity
against tumors, scientists and clinicians have for many years studied the
potential of using CTL obtained from patients and grown outside the body (ex
vivo) for use in treating patients with advanced cancer. CTL grown ex vivo have
been shown to be effective in shrinking and/or eliminating tumors, both in
animal models and in clinical trials. This therapeutic approach, called adoptive
immunotherapy, has been limited by its dependence on the ability to grow
sufficient numbers of tumor antigen reactive CTL or other T cell populations ex
vivo for re-infusion into cancer patients. Corixa believes that several of its
core technologies will be useful in the development of adoptive immunotherapy
procedures for cancer treatment, and the Company has identified multiple tumor
antigens that can be used to stimulate in vitro growth of tumor-reactive CTL. In
addition, the Company's microsphere and adjuvant technologies have been
demonstrated to enhance the in vitro generation and growth of tumor antigen
reactive CTL. In November 1995, Corixa entered into a license and collaborative
research agreement with CellPro which provides CellPro with exclusive access to
Corixa's microsphere antigen delivery, adjuvant and antigen discovery technology
for CellPro's use in the discovery and development of products for the adoptive
immunotherapy of cancer, and CellPro's rights to such technology are exclusive
even as to the Company with respect to adoptive T cell immunotherapy of cancer.
See "-- Corporate Partnerships -- Other Products."
Autoimmune Disease Products. In some instances, the immune system can
mistakenly identify host tissue as though it was an invading pathogen. Such
mistaken recognition plays a key role in the development of diseases such as
diabetes, rheumatoid arthritis, lupus and multiple sclerosis. Severity and onset
of the disease can be associated with the development of a Th1 response.
Elimination of this type of helper T cell response has been demonstrated to have
a beneficial effect on the duration or severity of autoimmune disease in
preclinical studies. Corixa has isolated novel pathogen proteins (i.e., LeIF)
that exclusively stimulate Th1 helper T cell responses, and has entered into a
corporate partnership with ZymoGenetics aimed at the
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discovery of new pharmacologic agents useful in the treatment of autoimmune
diseases. See "-- Corporate Partnerships -- Other Products."
Products with LeIF Gene as an Immunomodulator. LeIF functions as a potent
adjuvant due in part to its ability to induce APC production of a certain
cytokine and a certain cell surface protein, two important molecular signals
required for the generation of potent cellular immune responses. Many
scientists, as well as pharmaceutical and gene therapy companies, are exploring
the utility of this cytokine and this cell surface protein to promote anti-tumor
responses. Corixa and its academic collaborators are researching the ability of
LeIF to promote anti-tumor immune responses when administered as a stand-alone
agent in preclinical studies of malignant disease. Based on the results of these
experiments, which demonstrated an anti-tumor effect of LeIF therapy, the
Company has granted Vical an option to license certain LeIF technology. See
"-- Corporate Partnerships -- Other Products."
Animal Health Products. The Company believes that certain of its vaccine
and diagnostic products also may have applications in the detection of infection
and treatment of disease in animals. One such disease is Leishmaniasis, which
can be carried by dogs. Europe is the primary market for these products. The
Company is currently collaborating with Heska, a developer and marketer of
companion animal diagnostics and therapeutic products, including vaccines for
certain parasitological diseases, to develop both diagnostics and vaccines for
the treatment of Leishmaniasis in dogs. The Company has also granted Heska a
license to use LeIF in combination with other types of vaccines in the companion
animal field. Corixa intends to explore further opportunities to out-license its
technology for use in animal health markets. See "-- Corporate
Partnerships -- Other Products."
The Company's products are in an early stage of development and have not
been demonstrated to be safe or effective. There can be no assurance that any of
the Company's programs will move beyond its current stage of development. In
addition, even if the Company is able to successfully complete its development
efforts with respect to a particular product, there can be no assurance that
regulatory approvals will be obtained or that any such product can be
successfully manufactured and commercialized. See "Risk Factors -- Uncertainties
Related to Technology and Product Development."
CORPORATE PARTNERSHIPS
Corixa's strategy is to establish multiple corporate partnerships with
pharmaceutical, biopharmaceutical and diagnostic companies that have the
expertise and capability to develop, manufacture, obtain regulatory approval of
and commercialize the Company's products. In such corporate partnerships, Corixa
seeks to cover its research and development expenses through research funding,
milestone payments and option, technology or license fees, while retaining
significant downstream participation in product sales through either profit-
sharing or product royalties paid on annual net sales. The Company has focused
initially on three areas of collaboration, including vaccine discovery programs,
diagnostic technology and out-licensing its three proprietary core technologies
for applications outside the Company's focus.
Vaccines
Breast and Prostate Cancer Vaccines
SmithKline Beecham. In March 1997, the Company entered into breast and
prostate cancer collaboration and license agreements and an option agreement
with SmithKline Beecham. The Company granted SmithKline Beecham an exclusive
worldwide license to develop, manufacture and sell vaccine products resulting
from this corporate partnership. The Company also granted SmithKline Beecham an
option to license certain other related technology for use in these cancer
vaccines. Under the collaboration and license agreements, SmithKline Beecham
agreed to provide annual research funding to support the Company's current
program to discover breast and prostate cancer antigens. To the extent breast or
prostate cancer antigens are discovered and selected for further development,
the Company is entitled to receive future payments upon the achievement of
certain contractual milestones relating to drug development and regulatory
progress, as well as royalty payments on any product sales. SmithKline Beecham
may elect to extend the research program beyond its initial two-year term based
upon mutually agreed terms. In the event SmithKline
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Beecham elects to extend the research program, payments by SmithKline Beecham
under the collaboration and license agreements for such extension, research
funding and achievement of contractual milestones may total up to $46.0 million.
SmithKline Beecham may terminate either or both of the breast and prostate
cancer programs in the event the Company does not meet certain scientific
milestones after the second anniversary of the effective date of the respective
agreements. Under the option agreement, SmithKline Beecham paid certain
consideration in exchange for exclusive options to license two of Corixa's
early-stage antigen discovery programs in two cancer targets. In the event such
options are exercised, then at SmithKline Beecham's election, such consideration
will either be credited against future milestone payments or converted into
Common Stock of Corixa. If SmithKline Beecham elects to exercise both such
options and convert such consideration into Common Stock, the number of such
shares that the Company is obligated to issue will be dependent upon the
then-current fair market value of such Common Stock. Assuming such fair market
value is $13.00 per share, the Company would be obligated to issue an aggregate
of approximately 207,433 shares of Common Stock, which amount would represent
beneficial ownership of approximately 1.85% of the Common Stock (based upon
10,994,331 shares of Common Stock to be outstanding upon completion of the
Offering). Because the fair market value of the Common Stock is variable, the
number of shares of Common Stock that the Company is obligated to issue upon
exercise of such options may be a greater or lesser number than set forth above.
In the event either or both of such options are not exercised or extended by
February 28, 1998 with respect to one cancer target and August 31, 1998 with
respect to the other cancer target, the Company will be required to repay the
amounts paid by SmithKline Beecham for such option(s) over a three-year period
beginning in March 2000. See Note 8 of Notes to Financial Statements.
Tuberculosis Vaccines
SmithKline Beecham. In October 1995, the Company entered into an option and
collaborative research agreement with SmithKline Beecham. Under the option and
collaborative research agreement, the Company granted SmithKline Beecham an
option to receive an exclusive worldwide license to the Company's vaccine
antigens discovered under Corixa's Mtb antigen discovery program. If SmithKline
Beecham exercises its option, it will receive an exclusive worldwide license to
use any or all such antigens, provided that such rights shall be co-exclusive
with Corixa in Japan. SmithKline Beecham paid an up-front technology access fee
and agreed to provide annual research funding to support the Company's program
to discover Mtb antigens. In addition, if SmithKline Beecham exercises its
option, the Company is entitled to receive an option exercise fee and future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales. Under the option and collaborative research agreement, payments by
SmithKline Beecham to Corixa for research funding, the option exercise fee and
achievement of contractual milestones may total up to approximately $19.3
million. In February 1997, the Company and SmithKline Beecham agreed to renew
the Mtb research program through May 1998, and extended SmithKline Beecham's
option to license Mtb antigens through August 1998.
Adjuvants
Pasteur Merieux Connaught. In December 1996, the Company entered into an
option and license agreement with PMC whereby the Company granted PMC an option
to license its novel adjuvant LeIF for exclusive use in influenza and
respiratory syncytial virus and non-exclusive use in HIV, Tb and malaria. Under
the option and license agreement, PMC paid an up-front option fee and, in the
event and to the extent PMC exercises its option, PMC has agreed to pay exercise
fees for each disease indication. In addition, in the event PMC exercises its
option for one or more disease fields, the Company is entitled to receive future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales and annual research funding to support the Company's preclinical
development efforts related to LeIF. PMC's option will terminate in the event
PMC has not exercised its right in at least one disease field on or before
September 1997.
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Diagnostics
The Company has entered into and intends to continue to pursue corporate
partnerships in the fields of cancer and infectious disease diagnostics to
complement its therapeutic research efforts and to expand its scientific
platform. The Company has established corporate partnerships for the development
of diagnostics for infectious diseases with Abbott, DiaMed, Centocor and other
small diagnostic companies. Under these arrangements, the Company generally
grants a non-exclusive license to Corixa's antigens for use in specified
infectious disease indications in exchange for the respective corporate
partner's agreement to make certain payments upon achievement of development
milestones, a commitment to purchase a minimum number of reagents and an
agreement to pay royalties on any product sales. In addition, the Company has
collaborated exclusively with GenQuest for the development of diagnostics for
cancer. See "-- Relationship with GenQuest, Inc."
Other Products
Adoptive Immunotherapy Products
CellPro. Effective as of November 1995, the Company entered into a license
and collaborative research agreement with CellPro. Under the license and
collaborative research agreement, the Company granted CellPro an exclusive
worldwide license to Corixa's proprietary vaccine technologies -- microsphere
antigen delivery, the LeIF adjuvant and novel cancer antigens -- in the field of
adoptive immunotherapy of cancer, and CellPro's rights to such technology are
exclusive even as to the Company with respect to adoptive T cell immunotherapy
of cancer. As consideration for the license, CellPro paid the Company up-front
license fees and agreed to make future payments upon the achievement of certain
contractual milestones relating to drug development and regulatory progress, as
well as royalty payments on any product sales. In addition, the Company is
entitled to receive annual research funding to support the corporate
partnership's scientific objectives. Under the license and collaborative
research agreement, payments by CellPro to Corixa for research funding and
achievement of contractual milestones may total up to approximately $10.2
million. The Company and CellPro must agree annually upon the scientific
objectives for the ensuing year. CellPro may terminate funding for the adoptive
immunotherapy research program in the event the Company fails to perform certain
obligations under such research program. Effective January 1997, the Company and
CellPro amended the license and collaborative research agreement to provide for
a co-exclusive license to dendritic cell vaccines incorporating the Company's
cancer vaccine technology and a sharing of any license fees or royalty payments
arising under the co-exclusive license.
Autoimmune Disease Products
ZymoGenetics. In September 1996, the Company entered into a license and
collaborative research agreement with ZymoGenetics. Under the license and
collaborative research agreement, ZymoGenetics agreed to provide annual research
funding to support the Company's research program for the discovery of certain
vaccine technology for autoimmune diseases. In addition, the Company is entitled
to receive future payments upon the achievement of certain contractual
milestones. The Company granted ZymoGenetics an exclusive worldwide license to
vaccine technology discovered under the funded research program in the fields of
diabetes, multiple sclerosis and rheumatoid arthritis. The Company retained
rights to all discoveries resulting from the funded research program in all
other fields. ZymoGenetics may terminate the license and collaborative research
agreement in the event the Company does not meet certain scientific milestones
or at any time after September 30, 1997.
LeIF Gene as an Immunomodulator
Vical. In April 1996, the Company entered into an option agreement with
Vical. Under the option agreement, Vical received an option to license the
Company's LeIF gene as a single gene immunomodulator in the field of cancer.
Vical paid an up-front option fee and, to the extent it exercises its option,
Vical has agreed to pay an option exercise fee and to make additional payments
upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on
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any product sales. The Company and Vical have amended the option agreement in
order to extend the option exercise period. As amended, the option agreement
will terminate on October 26, 1997 unless Vical exercises its option prior to
such termination.
Animal Health Products
Heska. In March 1996, the Company entered into a license and research
agreement with Heska. Under the license and research agreement, the Company
granted Heska an exclusive worldwide license to Corixa's LeIF adjuvant for use
in certain of Heska's vaccines and for use as a stand-alone vaccine against
canine leishmaniasis. In addition, the Company granted Heska a license to its
diagnostic antigen, K39, for use in detecting canine leishmaniasis. The license
is exclusive worldwide, except that it is non-exclusive in Central and South
America. Heska paid an up-front license fee and agreed to make future payments
upon the achievement of certain development milestones, as well as royalty
payments on any product sales. In December 1996, Heska made a payment to the
Company based on achievement of a development milestone for the Company's K39
diagnostic product.
The Company's corporate partnership agreements generally provide recourse
for the Company with respect to its existing product and technology rights in
the event of an uncured material breach of such an agreement by a corporate
partner. In such event, Corixa generally may elect to terminate the licenses
granted to such corporate partner under such agreement. However, because
Corixa's strategy for the discovery, research, development, clinical testing and
commercialization of its products is to enter into multiple corporate
partnerships, the success of the Company is substantially dependent on its
ability to enter into and maintain such arrangements on terms favorable to the
Company, its ability to successfully manage current or future corporate
partnerships, if any, and the ability of its corporate partners to perform their
respective obligations under such arrangements. There can be no assurance that
the Company will be able to negotiate any additional corporate partnerships on
favorable terms, or at all, that its current corporate partnerships will be
successful or that its corporate partners will perform their obligations under
such arrangements in a timely manner or at all, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on and Management of
Existing and Future Corporate Partnerships."
RELATIONSHIP WITH GENQUEST, INC.
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from, GenQuest, a privately-held company formed in 1995
to exploit functional genomics technology developed by Dr. Paul Fisher and
Columbia University. GenQuest is engaged in discovery of new genes related to
the transformation of normal cells into cancer cells and research of novel genes
that are uniquely expressed by cancer cells. The Company believes that its
relationship with GenQuest will lead to the identification of additional genes
uniquely expressed by cancer cells that are useful in the Company's research
programs.
Genomics refers to the organization, structure and regulation of genes.
Recent advances in genomics technology have allowed the isolation of genes that
are associated with specific diseases. Expression of these genes may pre-dispose
individuals to develop certain diseases or may be responsible for initiating the
disease process. Development of techniques useful in determining gene structure
has led to an increased focus on determining a specific gene's function, known
as "functional genomics." Functional genomics refers to a set of gene discovery
techniques that allow identification of function at the time a specific gene is
discovered. GenQuest's technology includes three major discovery approaches: (i)
rapid expression cloning systems that identify genes that are only expressed
when normal cells become malignant cells; (ii) surface epitope masking that
identifies genes that are uniquely expressed on the surface of cancer cells; and
(iii) differentiation induction and subtractive hybridization -- a technique
that identifies genes that are expressed when cancer cells are forced to revert
to normal cells. The Company has rights to these and other technologies for the
purpose of discovering additional cancer vaccine antigens.
In December 1996, the Company and GenQuest entered into a series of
collaborative agreements amending the original license and research
collaboration agreement entered into in February 1996. Under the
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amended license and collaboration agreement, GenQuest agreed to provide research
funding over a three-year period to support the Company's program to discover
cancer genes, related antigens and cancer-related gene products. The Company
granted GenQuest an exclusive worldwide license to certain of Corixa's existing
non-vaccine technology and technology developed by Corixa under the joint
research program in the field of cancer diagnostics and non-vaccine cancer
therapeutics. GenQuest granted Corixa an exclusive worldwide license to
GenQuest's existing technology and technology developed under the joint research
program in the field of cancer vaccines and ex vivo cell therapy of cancer. Both
the Company and GenQuest agreed to pay royalties on any sales of products
incorporating licensed technology, except that with respect to genes and gene
products developed by GenQuest during the funded research program, GenQuest is
not obligated to pay any royalties to the Company. In addition, the Company has
agreed to assume remaining royalty obligations of GenQuest to its licensor on
products incorporating the licensed technology. Either the Company or GenQuest
may terminate the license agreement within 30 days following December 31, 1997
if such party believes that the scientific objectives of the corporate
partnership have not been met. See "Certain Transactions" and Note 9 of Notes to
Financial Statements.
The Company and GenQuest have also entered into a call option agreement
(the "Call Option Agreement") under which the Company has the right to purchase
a significant majority of the outstanding shares of GenQuest's capital stock in
exchange for shares of the Company's Common Stock at a purchase price determined
in accordance with the formula specified in the Call Option Agreement. The right
becomes effective on the earlier of (i) June 23, 1998, (ii) the completion of a
30-day trading period following the Company's initial public offering during
which the average closing sale price of a share of the Company's Common Stock is
at least $19.80, or (iii) a merger of Corixa with another entity or a sale of
substantially all of Corixa's assets. Corixa's right to purchase the shares of
GenQuest capital stock terminates on the earlier of (i) January 23, 2000, (ii)
the date that the Company notifies GenQuest that it will not exercise its right,
(iii) the closing of the initial public offering of GenQuest, (iv) ten days
following the termination of the amended license agreement, or (v) ten days
following a merger of, a sale of assets by, or a change in control of Corixa.
The number of shares of Common Stock that Corixa is required to issue in order
to exercise the right is variable as the formula specified in the Call Option
Agreement takes into account the then-current fair market value of the Common
Stock and the capitalization of GenQuest as well as the date of exercise. For
example, if the Company were to exercise such right on June 23, 1998, assuming
the then-current fair market value of the Common Stock is $13.00 per share and
assuming no changes to GenQuest's capitalization in the interim, the Company
would be obligated to issue an aggregate of approximately 4,063,460 shares of
Common Stock in exchange for such outstanding shares of GenQuest's capital
stock, which amount would represent beneficial ownership of approximately 27% of
the Common Stock of the Company (based upon 10,994,331 shares of Common Stock to
be outstanding upon completion of the Offering). Because the actual number of
shares of Common Stock that the Company is obligated to issue upon exercise of
the right is dependent upon the variables described above, the number of shares
of Common Stock that Corixa would be obligated to issue and the resulting
dilution to existing stockholders of Corixa may be substantially greater or less
than that set forth in the example above. As of the date of this Prospectus,
Corixa has not made a decision as to whether it will exercise this right. In
connection with the relationship between Corixa and GenQuest, Corixa issued
warrants to purchase up to 454,533 shares in the aggregate of Corixa's Series B
Preferred Stock at an exercise price of $9.90 per share. The holders of such
warrants or their transferees (subject to certain conditions) are entitled to
certain rights with respect to the registration of the shares of Common Stock
issuable upon exercise of such warrants. See "Certain Transactions -- GenQuest,
Inc." and "Description of Capital Stock."
CERTAIN LICENSE AGREEMENTS
The Company seeks to obtain technologies that complement and expand its
existing technology base. Where consistent with its strategy, the Company has
licensed and intends to continue to license product and marketing rights from
selected research and academic institutions in order to capitalize on the
capabilities and technology bases of these entities. Under these license
agreements, the Company generally seeks to obtain unrestricted sublicense rights
consistent with its partner-driven strategy. The Company is generally obligated
under these agreements to diligently pursue product development, make
development milestone payments and pay royalties on any product sales.
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Agreements with Southern Research Institute
In May 1996, the Company entered into a license agreement with SRI. Under
the license agreement, SRI granted the Company an exclusive, worldwide,
sublicensable license (subject to the rights of certain United States
governmental agencies and a grant-back to SRI for non-commercial research
purposes) to certain polymer microsphere technology for use in the fields of
cancer and infectious disease, to the extent a product incorporates an antigen,
cytokine or adjuvant owned or controlled by Corixa. In addition, SRI granted the
Company options to exclusive, worldwide, sublicensable licenses in certain
autoimmune and viral disease fields. The Company paid up-front license fees upon
execution of the license agreement. The Company is also obligated to make future
payments upon the achievement of certain development milestones, as well as
royalty payments on any product sales, subject to an annual minimum royalty. In
addition, the Company issued SRI 15,151 shares of Common Stock upon execution of
the license agreement and a warrant exercisable for 7,575 shares for each grant
of sublicense rights to a third party, up to a maximum of 37,875 shares, and
7,575 shares for initiation of each Phase III clinical trial, up to a maximum of
37,875 shares. In April 1997, the parties amended the license agreement to
extend the Company's license in the field of cancer to include products that
incorporate third-party antigens or cytokines. The Company is obligated to share
revenues from such third-party sublicense agreements with SRI. In May 1997, the
Company issued SRI 4,545 shares of Common Stock upon the first anniversary of
the effective date of the license agreement. SRI may terminate the license
agreement in the event the Company fails to perform certain obligations under
such agreement.
Additionally, in January 1995, the Company entered into a research
agreement with SRI. Under the research agreement, the Company agreed to fund
certain research at SRI directed at the incorporation of the Company's
proprietary antigens and/or adjuvants with SRI's microsphere technology. Rights
to any related discoveries made or obtained during the funded research are
subject to the license agreement between SRI and Corixa. The Company is
obligated to provide funding to SRI under the research agreement through 1997.
Agreement with Dana-Farber Cancer Institute
In January 1995, Corixa entered into a licensing agreement with
Dana-Farber. Under the licensing agreement, Dana-Farber granted the Company an
exclusive, worldwide, sublicensable license (subject to the rights of certain
United States governmental agencies and a grant-back to Dana-Farber for
non-commercial research purposes) to certain microsphere technology related to
the induction of a CTL response for use in all fields. The Company paid up-front
license fees upon execution of the licensing agreement. The Company is also
obligated to make future payments upon the achievement of certain development
milestones, as well as royalty payments on any product sales, subject to an
annual minimum royalty. In addition, the Company issued Dana-Farber 15,151
shares of Common Stock upon execution of the licensing agreement and agreed to
issue an additional 15,151 shares of Common Stock upon issuance of the first
patent containing claims covering the licensed technology. The Company must meet
certain performance obligations in order to retain their rights under the
licensing agreement. Dana-Farber may terminate the licensing agreement in the
event the Company does not make required royalty payments or fails to perform
certain obligations under such agreement.
Agreement with the University of Pittsburgh
Corixa has an exclusive worldwide license to intellectual property
developed by a Corixa founder and consultant and the University of Pittsburgh
relating to the discovery and development of a Muc-1 peptide vaccine for use in
the diagnosis and therapy of cancer. Muc-1 is the name of a protein that is
present on the surface of ductal epithelial tissue cells. Epithelial cells are
located in tissues throughout the body, including lung, ovary, breast,
pancreatic, colon and prostate tissues. When expressed by a normal epithelial
cell, the portion of the Muc-1 protein outside the cell is covered with
carbohydrates, which serve to hide the underlying protein from the immune
system. When epithelial cells turn into epithelial cancer cells, the Muc-1
protein on the surface of such cells is only slightly covered with
carbohydrates. This allows T cells to recognize the underlying peptide sequence
of the Muc-1 protein. Work conducted by the Corixa founder and consultant at the
University of Pittsburgh confirmed that T cells obtained from cancer patients
specifically recognized a repetitive peptide sequence within Muc-1.
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In an early safety trial conducted by the University of Pittsburgh pursuant
to a sponsored research arrangement between the University and the Company, a
total of 60 breast, pancreatic and colon cancer patients whose tumors expressed
the Muc-1 antigen received escalating doses of the Muc-1 peptide vaccine
formulated in a commercially available adjuvant. The clinical trial confirmed
that vaccination of cancer patients was well-tolerated. While the Company did
not observe a level of efficacy sufficient to support product development, it
has agreed to fund a limited second dose-ranging Phase I clinical trial to be
conducted at the University of Pittsburgh. In addition, the Company is aware of,
but not participating in or sponsoring, an early-stage clinical trial currently
being conducted in Germany. See "Risk Factors -- Uncertainties Related to
Technology and Product Development."
Agreement with Infectious Disease Research Institute
In September 1994, the Company entered into a research services and
intellectual property agreement with IDRI, a not-for-profit, grant-funded
private research institute. Under this agreement, as amended and restated
effective January 1997, the Company has agreed to provide IDRI with research
funding and certain administrative and facilities support, including use of the
Company's research laboratory space. IDRI pays a services fee for the
administrative and facilities support provided by the Company. The Company's
funded research performed by IDRI is in the area of infectious disease. Under
the agreement, IDRI is obligated to disclose to the Company all significant
developments relating to information or inventions discovered at IDRI, and the
Company will own, on a royalty-free basis, all of IDRI's interest in inventions
and patent rights arising out of IDRI's research during the term of the
agreement (other than inventions and patent rights arising out of research that
is or in the future may be funded by certain governmental or not-for-profit
organizations). With respect to such rights arising out of research funded by
governmental and not-for-profit organizations, the Company has been granted a
royalty-bearing, worldwide, perpetual license, exclusive except as to rights
held by such governmental or not-for-profit organizations.
IDRI is independent of the Company, and the Company does not have the right
to control or direct IDRI's activities. A majority of the members of IDRI's
board of directors are not affiliated with the Company. However, the Company's
Chief Scientific Officer is co-founder and a member of the board of directors of
IDRI. The Company's Chief Operating Officer is also a member of the board of
directors of IDRI and the Company's Vice President of Finance and Administration
is treasurer of IDRI.
The research services and intellectual property agreement terminates on
December 31, 1999, subject to renewal for one or more three year terms at the
option of the Company. If IDRI terminates the agreement as a result of the
Company's failure to make required payments, the Company would be obligated to
pay royalties on any product sales. See "Certain Transactions."
Other License Agreements
Additionally, the Company is a party to certain other option or license
agreements useful in vaccine formulation and delivery with academic
institutions, including an exclusive license agreement with the University of
Washington for the use of Her-2/neu technology in all fields. The Company is
also a party to option or license agreements useful in its antigen discovery
program, including agreements with (i) Washington University in St. Louis,
Missouri for the use of mammaglobin, a breast cancer-related protein and genes
for prophylactic and therapeutic treatment of adenocarcinoma, (ii) Health
Research, Inc. for the use of a proprietary mouse model for all cancer fields,
and (iii) Mayo Foundation for Medical Education and Research for use of
tick-borne disease antigens. Certain of these agreements require the Company or
other parties to meet certain performance obligations in order to retain their
rights under such agreements or require the Company to make certain payments in
order to obtain or maintain rights to the subject technology.
CORIXA'S VACCINE ANTIGEN DISCOVERY METHODOLOGIES
Tumor Tissue Procurement and SCID Mouse Tumor Propagation. Corixa has
developed a variety of unique and proprietary resources that provide the Company
with sufficient tumor tissue to enable it to conduct the types of immunological
and molecular biological research it believes are necessary for antigen
discovery.
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Many scientific organizations, universities and pharmaceutical and biotechnology
companies are actively pursuing the identification of gene products that are
uniquely expressed in tumor tissue. Such gene products can form the basis not
only of vaccines, but also diagnostic and therapeutic product development.
Access to large amounts of tumor tissue is therefore one of the keys to success
in this area of research. Although many people in the United States suffer from
cancer, large quantities of tumor tissue are not readily available due to
increasing early detection. In order to gain access to sufficient tumor tissue,
the Company uses (i) agreements with multiple clinical and academic centers in
the United States and South America for provision of tumor tissue, sera and
lymphocytes obtained from cancer patients; and (ii) a proprietary system for
growing tumors of multiple types from primary biopsy specimens in mice that are
genetically pre-disposed to lack an immune system (severe combined immune
deficient ("SCID") mice). SCID mice lack an immune response and therefore are
incapable of rejecting transplanted human tumor tissues. Tumors can be
transplanted and grown in multiple numbers of SCID mice, thereby providing a
stable source of tumor tissue for use in antigen discovery. In addition, small
numbers of lymphocytes present in primary biopsy specimens continue to grow
within SCID mice transplanted with biopsy tumors, serving as a reservoir for
generation of tumor reactive T cell lines and clones as well as
antibody-producing B cells.
Differential Display. Corixa has used differential display techniques to
identify hundreds of gene sequences that are uniquely expressed or
over-expressed by tumors. This approach allows investigators to compare genes
that are expressed in different cell types simultaneously. In tumor antigen
discovery, cells are obtained from both tumor and normal tissue from individual
cancer patients. Messenger RNA (genetic information from genes that are
expressed) is prepared from both cell types and converted into DNA (called
"cDNA"). Multiple cDNA(s) are then separated from each other on the basis of
their size. Patterns of cDNA expression from tumor and normal cells are then
compared, leading to identification of cDNA(s) that are either uniquely
expressed or dramatically over-expressed in tumor cells. The sequence of nucleic
acids (the individual component molecules of DNA) in such cDNA(s) can be
determined and that information used to isolate genes from such cDNA. The
protein products of such genes then can be tested in laboratory experiments to
determine whether they can function as stimulators of immune responses in cancer
patients. Positive results from such studies indicate that such proteins are
good candidates for inclusion in tumor vaccines.
cDNA Subtraction. Corixa has used cDNA subtraction to identify genes that
are uniquely expressed or over-expressed by prostate tumors and prostate tissue.
cDNA subtraction is another molecular biology technique that allows
investigators to identify genes that are expressed in one type of tissue and not
expressed in another type of tissue. The technique takes advantage of the
ability of single strands of cDNA from identical or closely related genes to
bind to each other and form a complex. In tumor antigen discovery, cDNA(s)
(representing populations of expressed genes) obtained from normal tissue are
mixed with cDNA populations harvested from tumor tissue. cDNAs from genes that
are shared between both tissues form complexes and can be eliminated from
further analysis. Remaining cDNA(s) representing genes expressed only in tumor
tissue or only in normal tissue then can be separated and further analyzed. The
goal of such experimentation is to identify those genes that are expressed only
in tumor cells. The protein products of such genes then can be tested in
laboratory experiments to determine whether they can function as stimulators of
immune responses in cancer patients. Positive results from such studies indicate
that such proteins are good candidates for inclusion in tumor vaccines.
Expression Cloning. Corixa also uses expression cloning methods to identify
potential tumor antigens for incorporation into candidate tumor vaccines. The
Company has developed a number of proprietary improvements in expression cloning
technology. This mode of experimentation requires use of either antibodies or
immune T cells harvested from cancer or infectious disease patients. In
antibody-mediated expression cloning, genes from pathogenic organisms or tumors
are transferred into clones of bacteria in a system that will promote expression
of all transferred genes into corresponding proteins. Because of the bacteria's
rapid growth rate and capacity for protein production, pathogen or tumor
proteins are produced in significant quantity together with bacterial proteins.
These proteins are screened for their ability to react with antibody from either
pathogen-infected or cancer patients. The development of a positive
protein-antibody reaction indicates that the gene that encodes the antigen is
present in a single bacterial clone. Because CTL are felt to be extremely
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important in mounting an effective immune response against tumors, tumor antigen
expression cloning studies focus on the use of CTL for discovery of antigens by
direct expression cloning. The Company has developed multiple tumor reactive CTL
lines and clones for such experimentation.
Pathogen Protein Purification. Corixa uses protein purification techniques
to obtain candidate antigens from specific pathogens. Proteins are prepared from
a given pathogenic organism and separated based on their physical
characteristics such as size, electric charge and shape. Individual proteins are
then tested for their ability to stimulate appropriate T-helper lymphocyte
responses in vitro. Lymphocytes used in this screening process are obtained from
individuals who are infected with the pathogen but lack evidence of disease
(i.e., immune patients). Proteins that trigger helper T cell responses are then
purified to homogeneity and their precise amino acid sequence is determined. The
amino acid sequence information is then used to isolate the gene that encodes
the particular protein.
Antigenic Peptide Stripping. Most cells in the human body express MHC
proteins on their surface. The same MHC proteins are expressed on the surface of
all tissue cells within a given individual. One function of MHC proteins is to
attract and bind small peptide antigens. The complex between such peptides and
MHC proteins serves as a site of immunologic recognition by T cells. Many
different types of tumor cells also express MHC proteins. Corixa uses a
combination of biochemical techniques to purify MHC proteins and remove
antigenic peptides from the region of the MHC protein where they are bound. Such
peptides can then be purified using sophisticated peptide separation techniques,
and the purified peptides can then be sequenced using mass spectroscopy.
Comparison of such sequences with sequences of proteins from normal cells can
lead to the identification of proteins or peptides that are produced only by
tumor cells. The same sequence information can then be used to isolate the gene
that encodes this putative "tumor antigen."
Immunological Characterization of Candidate Vaccine Antigens. The Company's
discovery techniques result in the cloning and characterization of multiple
genes for possible inclusion in tumor vaccines. A key component of Corixa's
antigen discovery technology is the ability to determine which of these gene
products can function as potent antigens for generating anti-tumor immune
responses. Once candidate antigen genes are identified, Corixa systematically
determines: (i) expression of the gene product by multiple tumors from different
individuals; (ii) expression of the gene product by primary as well as
metastatic tumor tissue; (iii) absence of expression of the gene product in
normal tissue; (iv) ability of the candidate tumor antigen to generate in vitro
immune responses from T cell populations harvested from tumor and normal
patients; (v) ability of the candidate tumor antigen to generate immune
responses in specially designed tumor models; and (vi) ability of T cells
stimulated by such antigens to mediate tumor regression in specially designed
tumor models. By such systematic evaluation of candidate antigens, Corixa is
able to determine and select which antigens are appropriate for microsphere
formulation and vaccine development.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent and other proprietary protection for
the Company's vaccine and diagnostic products, antigens and adjuvants, defend
patents once obtained, preserve its trade secrets and operate without infringing
the patents and proprietary rights of third parties both in the United States
and in foreign countries. Where appropriate, the Company intends to seek patent
protection for its vaccine, discovery, screening, diagnostic and other
proprietary technologies by filing patent applications in the United States and
certain other countries. As of June 30, 1997, the Company owned or had licensed
eight issued United States patents that expire at various times between December
2008 and February 2014, 55 corresponding issued foreign patents, 76 pending
United States patent applications, as well as 19 corresponding international
filings under the Patent Cooperation Treaty and 111 pending foreign national
patent applications. The Company also holds an option to exclusively license
cancer vaccine antigens discovered by GenQuest through December 2001.
While the Company believes its patents and patent applications provide a
competitive advantage in its efforts to discover, develop and commercialize
useful vaccine and diagnostic products, antigens and adjuvants, the patent
positions of pharmaceutical and biopharmaceutical companies, including those of
the Company, are highly uncertain and involve complex legal and factual
questions for which important legal principles are
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unresolved. There can be no assurance that the Company, its corporate partners
or its licensors have or will develop or obtain rights to products or processes
that are patentable, that patents will issue from any of the pending
applications owned or licensed by the Company or its corporate partners, that
any claims allowed will issue, or in the event of issuance, will be sufficient
to protect the technology owned by or licensed to the Company or its corporate
partners. The Company has licensed certain patent applications from SRI related
to the Company's microsphere encapsulation technology, one of which is currently
the subject of an opposition proceeding before the European Patent Office. There
can be no assurance that SRI will prevail in this opposition proceeding or that
any patents will issue in Europe related to such technology. There can also be
no assurance that the Company's or its corporate partners' current patents, or
patents that issue on pending applications, will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to Corixa. Patent applications
in the United States are maintained in secrecy until patents issue, patent
applications in certain foreign countries are not generally published until many
months or years after they are filed, and publication of technological
developments in the scientific and patent literature often occur long after the
date of such developments. Accordingly, the Company cannot be certain that it or
one of its corporate partners was the first to invent the subject matter covered
by any patent application or that it or one of its corporate partners was the
first to file a patent application for any such invention.
The commercial success of the Company depends significantly on its ability
to operate without infringing patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third-party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, the Company or its corporate partners may be enjoined from
pursuing research, development or commercialization of products or be required
to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company or its corporate partners
will not be so enjoined or will be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or will be able to
obtain or develop alternative technologies. If the Company or any of its
corporate partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such corporate
partner may be delayed or prevented from commercializing its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope or validity of a
third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain
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technology, any of which may have a material adverse effect on the Company's
business, financial condition and results of operations.
Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances where patent protection is not believed to be appropriate or
obtainable. The Company's policy is to require each of its employees,
consultants and advisors to execute a confidentiality agreement upon the
commencement of any employment, consulting or advisory relationship with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual during the course of such relationship
will be kept confidential and not disclosed to third parties except in specified
circumstances. These agreements also generally provide that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by its competitors, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is a party to various license agreements that give it rights to
use certain technologies in its research, development and commercialization
activities. Disputes may arise as to the inventorship and corresponding rights
in know-how and inventions resulting from the joint creation or use of
intellectual property by the Company and its corporate partners, licensors,
scientific collaborators and consultants. There can be no assurance that the
Company will be able to maintain its proprietary position or that third parties
will not circumvent any proprietary protection the Company does have. The
failure of the Company to maintain exclusive or other rights to such
technologies could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Proprietary Technology and Uncertainty of Patent Protection."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the development, production and
marketing of any products developed by the Company or its corporate partners.
Pharmaceutical products and medical devices are subject to rigorous regulation
by the FDA in the United States and similar health authorities in foreign
countries under laws and regulations that govern, among other things, testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, export and
promotion, marketing and distribution of such products. Product development and
approval within this regulatory framework is uncertain, can take a number of
years and requires the expenditure of substantial resources. Any failure to
obtain regulatory approval, or any delay in obtaining such approvals, could
adversely affect the marketing of products under development by the Company or
its corporate partners, the Company's ability to receive product or royalty
revenues, and its liquidity and capital resources.
The nature and extent of the governmental premarket review process for the
Company's products will vary, depending on the regulatory categorization of
particular products. The Company believes that its vaccine and related
pharmaceutical products will be regulated as biologics by the FDA and comparable
regulatory bodies in other countries. The necessary steps before a new
biological product may be marketed in the United States ordinarily include: (i)
preclinical laboratory tests and in vivo preclinical studies; (ii) the
submission to the FDA of an investigational new drug application ("IND"), which
must become effective before clinical trials may commence; (iii) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
product; (iv) the submission to the FDA of a product license application and
establishment license application ("PLA/ELA"); and (v) FDA review and approval
of the PLA/ELA prior to any commercial sale or shipment of the product.
Recently, the FDA has eliminated the separate ELA requirement for certain
categories of biotechnology products and has indicated that it intends to adopt
regulations permitting the premarket review of all biologics under a single
biologics license application. However, it is impossible predict when this new
procedure will become effective or its impact upon the regulatory review of the
Company's biological products.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product.
Preclinical tests must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of preclinical
tests, together with
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manufacturing information and analytical data, are submitted to the FDA as part
of an IND, which must become effective before the commencement of clinical
trials. The IND will automatically become effective 30 days after receipt by the
FDA unless the FDA indicates prior to the end of such 30-day period that the
proposed protocol raises concerns that must be resolved to the satisfaction of
the FDA before the trials may proceed as outlined in the IND. In such case,
there can be no assurance that such resolution will be achieved in a timely
fashion, if at all. In addition, the FDA may impose a clinical hold on an
ongoing clinical trial, if, for example, safety concerns are presented, in which
case the study cannot recommence without FDA authorization under terms
sanctioned by the agency.
Clinical trials involve the administration of the product to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with good clinical
practices under protocols that detail the objectives of the trial, inclusion and
exclusion criteria, the parameters to be used to monitor safety and the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical trial must be reviewed and approved by an
independent institutional review board ("IRB") at the institutions at which the
trial will be conducted. The IRB will consider, among other things, ethical
factors and the safety of human subjects. The IRB may require changes in a
protocol, and there can be no assurance that the submission of an IND will
enable a study to be initiated or completed.
Clinical trials generally are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the product into
healthy human subjects or patients, the product is tested to assess safety,
metabolism, pharmacokinetics and pharmacological actions associated with
increasing doses. Phase II usually involves studies in a limited patient
population to (i) determine the efficacy of the potential product for specific,
targeted indications, (ii) determine dosage tolerance and optimum dosage and
(iii) further identify possible adverse reactions and safety risks. If a
compound is found to be effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials are undertaken to evaluate further
clinical efficacy and to test further for safety within a broader patient
population, generally at geographically dispersed clinical sites. There can be
no assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specific period of time, if at all, with respect to any
of the Company's products subject to such testing. In addition, after marketing
approval is granted, the FDA may require post-marketing clinical studies, which
typically entail extensive patient monitoring and may result in restricted
marketing of an approved product for an extended period of time.
The results of pharmaceutical development, preclinical studies and clinical
trials are submitted to the FDA in the form of a PLA/ELA for approval of the
manufacture, marketing and commercial shipment of the biological product. The
testing and approval process is likely to require substantial time, effort and
resources, and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny the PLA/ELA if applicable regulatory
criteria are not satisfied, require additional testing or information, or
require postmarket testing and surveillance to monitor the safety or efficacy of
the product.
Any diagnostic products developed by the Company or its corporate partners
are likely to be regulated as medical devices. In the United States, medical
devices are classified into one of three classes on the basis of the controls
deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness: Class I (general controls -- e.g., labeling, premarket
notification and adherence to GMP), Class II (general controls and special
controls -- e.g., performance standards and postmarket surveillance) and Class
III (premarket approval).
Before a new device can be introduced into the market, its manufacturer
generally must obtain marketing clearance through either a premarket clearance
under Section 510(k) of the federal Food, Drug and Cosmetic Act ("510(k)") or
approval of a premarket approval application ("PMA"). Because the Company
believes that any diagnostic device developed by it or its corporate partners
would be classified as a Class III device, such product would be subject to the
PMA approval requirement. A 510(k) clearance typically will be granted if a
company establishes that its device is "substantially equivalent" to a legally
marketed Class I or II medical device or to a Class III device for which the FDA
has not yet required the submission of PMAs. A 510(k) clearance must contain
information to support the claim of substantial equivalence, which may include
laboratory test results or the results of clinical studies. Commercial
distribution of a device subject to the
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510(k) requirement may begin only after the FDA issues an order finding the
device to be substantially equivalent to a predicate device. It generally takes
from four to 12 months from the date of submission to obtain clearance of a
510(k) submission, but it may take longer. The FDA may determine that a proposed
device is not substantially equivalent to a legally marketed device, that
additional information is needed before a substantial equivalence determination
may be made, or that the product may be approved through the PMA process. An FDA
determination of "not substantially equivalent," a request for additional
information, or the requirement of PMA approval could delay marketed
introduction of products that fall into this category. Furthermore, for any
devices cleared through the 510(k) process, modifications or enhancements that
could significantly affect safety or effectiveness, or constitute a major change
in the intended use of the device, will require new 510(k) submissions.
If a device does not qualify for the premarket notification procedure, a
company must file a PMA. The PMA requires more extensive pre-filing testing than
required for a 510(k) premarket notification and usually involves a
significantly longer review process. A PMA application must be supported by
valid scientific evidence that typically includes extensive data, including
preclinical and clinical trial data, to demonstrate that safety and efficacy of
the device. If clinical trials are required, and the device presents a
"significant risk," an investigation device exemption ("IDE") application must
be filed with the FDA and become effective prior to the commencement of clinical
trials. If the device presents a "nonsignificant risk" to trial subjects,
clinical trials may begin on the basis of appropriate IRB approval. Clinical
investigation of medical devices may involve risks similar to those involved in
the clinical investigation of pharmaceutical products.
The PMA application must contain the results of clinical trials and
nonclinical tests, a complete description of the device, and a detailed
description of the methods, facilities and controls used to manufacture the
device. The PMA review and approval process can be expensive, uncertain and
lengthy, and there can be no assurance that any approval will be granted on a
timely basis, if at all. A PMA application may be denied if applicable
regulatory criteria are not satisfied, and the FDA may impose certain conditions
upon the applicant, such as postmarket testing and surveillance.
Regulatory approval, if granted for any biopharmaceutical or medical device
product, may entail limitations on the indicated uses for which it may be
marketed, and product approvals, once granted, may be withdrawn if problems
occur after initial marketing. Manufacturers of FDA-regulated products are
subject to pervasive and continuing governmental regulation, including record
keeping requirements and reporting of adverse experiences associated with
product use. The Company and its corporate partners will be required to adhere
to applicable regulations setting forth detailed GMP requirements, which include
testing, control and documentation requirements. The FDA has recently issued
significant revisions to its medical device GMP regulations, and future changes
in regulatory regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. Manufacturing
facilities in the United States are subject to periodic inspection by the FDA
Failure to comply with GMP and other applicable regulatory requirements may
result in, among other things, warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to review pending marketing approval
applications, withdrawal of marketing approvals and criminal prosecution.
For clinical investigation and marketing of products outside the United
States, the Company and its corporate partners may be subject to regulation by
regulatory authorities in other countries. The requirements governing the
conduct of clinical trials, marketing authorization and pricing and
reimbursement vary widely from country to country. The regulatory approval
process in other countries entails risks similar to those associated with FDA
approval.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standard
prescribed by state and federal laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company's use of these materials could be
curtailed by state or federal authorities, the Company
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could be held liable for any damages that result and any liability could exceed
the resources of the Company. See "Risk Factors -- Government Regulation."
COMPETITION
The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery, research and development of products that could
compete directly with products the Company is seeking to develop. Many companies
are also developing alternative therapies to treat cancer and infectious disease
and, in this regard, are competitive with the Company. Many of the entities
developing and marketing such competing products have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining regulatory approvals
and marketing than Corixa. In addition, many of these competitors have become
more active in seeking patent protection and licensing arrangements in
anticipation of collecting royalties for use of technology that they have
developed. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. These companies and institutions compete with the Company in
recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to the Company's programs. The
Company's ability to compete effectively will depend on its ability to advance
its core technologies, license additional technology, maintain a proprietary
position in its technologies and products, obtain required government and other
public and private approvals on a timely basis, attract and retain key personnel
and enter into corporate partnerships that enable the Company and its corporate
partners to develop effective products that can be manufactured cost-effectively
and marketed successfully. The Company expects that competition among products
approved for sale will be based, among other things, on efficacy, reliability,
product safety, price and patent position. There can be no assurance that
competitors will not develop more effective or more affordable products, or
achieve earlier patent protection or product commercialization than the Company
or that such products will not render the Company's products obsolete. See "Risk
Factors -- Intense Competition."
EMPLOYEES
As of June 30, 1997, the Company employed 82 personnel, including 68 in
research and development (29 in antigen discovery, 18 in immunology, 11 in
vaccine research and 10 in research and development support) and 14 in
administration. Each of the Company's employees has signed a confidentiality
agreement and none are covered by a collective bargaining agreement. The Company
has never experienced employment-related work stoppages and considers its
employee relations to be good.
PROPERTIES
Corixa maintains its headquarters in Seattle, Washington where it leases
approximately 35,416 square feet of laboratory, discovery, research and
development, manufacturing and general administration space. The lease for this
facility expires in January 2005, with an option to renew the lease for two
additional periods of five years each. As of June 30, 1997 the Company's monthly
rent was approximately $129,000. The Company believes that its existing
facilities are adequate to meet its immediate needs and that suitable additional
space will be available in the future on commercially reasonable terms as
needed.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any
material legal proceedings.
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SCIENTIFIC COLLABORATORS
The Company has established a network of medical, clinical and scientific
advisors and collaborators to consult with the Company's scientists and to
advise the Company on its research and development program, the design of its
clinical trials and on other medical and scientific matters relating to the
Company's business. The Company's advisors and collaborators include the
following individuals:
Roberto Badaro, M.D. is an Associate Professor and Chief of the Infectious
Disease Research Unit at the Federal University of Bahia in Salvador, Bahia,
Brazil, and a Member of the Steering Committee of Integrated Chemotherapy and
Vaccine for Leishmaniasis for the World Health Organization in Geneva,
Switzerland. Dr. Badaro collaborates with the Company in a tuberculosis skin
testing program and a cancer-related tissue procurement program, each of which
is conducted in Brazil.
Martin Cheever, M.D. is a Professor of Medicine at the University of
Washington in Seattle, Washington and a co-founder of the Company. Dr. Cheever
collaborates with the Company in its research and development program focusing
on the use of Her-2/neu technology in vaccines for breast cancer. Dr. Cheever is
the inventor of Her-2/neu peptide-based vaccines for potential use in breast and
ovarian cancer.
Nora Disis, M.D. is an Assistant Professor of Medicine at the University of
Washington in Seattle, Washington. Dr. Disis collaborates with the Company in
its research and development program focusing on the use of Her-2/neu technology
in vaccines for breast cancer. Dr. Disis is the principal investigator on the
Phase I clinical trial currently being conducted by the Company and the
University of Washington using Her-2/neu peptide vaccines for breast cancer.
Olivera Finn, Ph.D. is a Professor of Molecular Genetics and Biochemistry
at the University of Pittsburgh School of Medicine, Director of the Immunology
Program at the University of Pittsburgh Cancer Institute in Pittsburgh,
Pennsylvania and a co-founder of the Company. Dr. Finn collaborates with the
Company in its research and development efforts focusing on the use of the Muc-1
peptide vaccine for the treatment of breast, pancreatic and colon cancer. Dr.
Finn is the inventor of the Muc-1 synthetic peptide vaccine that was the subject
of a Phase I clinical trial in breast, colon and pancreatic cancer recently
conducted by the University of Pittsburgh. Such vaccine is currently the subject
of a limited second dose-ranging clinical trial which is partly funded by the
Company and conducted by the University of Pittsburgh.
Paul Fisher, Ph.D. is a Director of Neuro-Oncology Research, Professor of
Clinical Pathology and a Chernow Research Scientist in the Departments of
Neurosurgery, Pathology, and Urology at the College of Physicians and Surgeons
of Columbia University in New York City, New York. Dr. Fisher is a member of the
board of directors of GenQuest and collaborates with the Company in its research
and development program focusing on the discovery and characterization of
cancer-related genes.
Richard Ostenson, M.D. is a Director of Research at Good Samaritan Cancer
Center. Dr. Ostenson collaborates with the Company in its vaccine development
program and supplies the Company with cancer cell lines and other materials used
in the Company's various research and development programs.
David Persing, Ph.D., M.D. is an Associate Professor of Microbiology at the
Mayo Clinic's Department of Laboratory Medicine and Pathology in Rochester,
Minnesota. Dr. Persing collaborates with the Company in its tick-borne disease
programs.
Elizabeth Repasky, Ph.D. is a Cancer Research Scientist with Roswell Park
Cancer Institute in Buffalo, New York. Dr. Repasky collaborates with the Company
in its tumor antigen development program and has licensed certain rights to a
proprietary mouse model.
Kenneth Rock, M.D. is the Chairman of the Department of Pathology and a
Professor at the University of Massachusetts Medical Center in Worcester,
Massachusetts and a co-founder of the Company. Dr. Rock collaborates with the
Company in its research and development efforts focusing on the use of
microsphere delivery technology to stimulate a T cell response.
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Thomas Tice, Ph.D. is the Director, Pharmaceutical Formulations Department
at SRI in Birmingham, Alabama. Dr. Tice collaborates with the Company in its
formulations of microsphere-encapsulated antigens for vaccine research.
James Watson, Ph.D. is the Scientific Director of the Genesis Research &
Development Corporation, Ltd. in Auckland, New Zealand. Dr. Watson collaborates
with the Company in its tuberculosis antigen discovery program and animal
testing.
The Company has entered into consulting or sponsored research agreements
with its principal advisors and collaborators. Each of the Company's advisors
and collaborators has also entered into a confidentiality and non-disclosure
agreement with the Company. These advisors and collaborators are generally
employed by employers other than the Company and may have commitments to or
consulting or advisory contracts with other entities that may limit their
availability to the Company. Although generally each advisor and collaborator
agrees not to perform services for another person or entity which would create a
conflict of interest with the individual's services for the Company, there can
be no assurance that such conflict will not arise.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company and their ages and positions as
of June 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- --------------------------------------------------
<S> <C> <C>
Steven Gillis, Ph.D. ........... 44 President, Chief Executive Officer and Director
Mark McDade..................... 42 Executive Vice President, Chief Operating Officer
and Director
Steven Reed, Ph.D. ............. 46 Executive Vice President and Chief Scientific
Officer
Kenneth Grabstein, Ph.D. ....... 46 Vice President and Director of Immunology
Michelle Burris................. 31 Vice President of Finance and Administration
Syamal Raychaudhuri, Ph.D. ..... 43 Vice President and Director of Vaccine Research
Joseph S. Lacob (1)............. 41 Chairman of the Board of Directors
Arnold L. Oronsky, Ph.D. (2).... 56 Director
Andrew E. Senyei, M.D.(1)(2).... 47 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
STEVEN GILLIS, PH.D. has served as President and Chief Executive Officer of
Corixa since 1994. From 1996 to the present, Dr. Gillis has also served as
Acting Chief Executive Officer and a director of GenQuest. Dr. Gillis was a
founder of Immunex Corporation ("Immunex"), a biotechnology company. From 1981
to 1994, Dr. Gillis served as Executive Vice President and Director of Research
and Development of Immunex, and from 1993 to 1994, served as Acting Chief
Executive Officer and Chairman of the Board of Immunex. From 1990 to 1994, Dr.
Gillis also served as President and Chief Executive Officer of Immunex Research
and Development Corporation, a wholly owned subsidiary of Immunex, and Chief
Scientific Officer of Immunex. In addition, Dr. Gillis is a director of
Micrologix Biotech, Inc. Dr. Gillis serves on the Scientific Advisory Board of
Medarex Corporation. Dr. Gillis graduated from Williams College with a B.A. in
Biology and English in 1975 and received his Ph.D. in Biological Sciences from
Dartmouth College in 1978.
MARK MCDADE has served as Executive Vice President and Chief Operating
Officer of Corixa since 1994. From 1996 to the present, Mr. McDade has also
served as Acting Vice President and a director of GenQuest. From 1993 to 1994,
Mr. McDade served as Chief Operating Officer of Boehringer Mannheim
Therapeutics, a pharmaceutical company, heading its worldwide pharmaceutical
operations. From 1991 to 1992, Mr. McDade was an independent consultant
providing business development and strategic consulting to a number of
biopharmaceutical and pharmaceutical companies. From 1983 to 1991, Mr. McDade
held various positions with Sandoz, Ltd., a pharmaceutical company. Mr. McDade
graduated from Dartmouth College with a B.A. in History in 1977 and received his
M.B.A. from Harvard University in 1984.
STEVEN REED, PH.D. has served as Executive Vice President and Chief
Scientific Officer of Corixa since 1994. From 1993 to the present, Dr. Reed has
served as an Associate Professor of Pathobiology at the University of
Washington. From 1993 to the present, he served as a director of IDRI, which he
founded. From 1984 to the present, Dr. Reed has served as a Professor (Adjunct)
of Medicine at the Cornell University Medical College. From 1984 to 1993, Dr.
Reed served as a Senior Scientist at the Seattle Biomedical Research Institute.
Dr. Reed graduated from Whitman College with a B.A. in Biology in 1973 and
received his Ph.D. in Microbiology from the University of Montana in 1979.
KENNETH GRABSTEIN, PH.D. has served as Vice President and Director of
Immunology of Corixa since 1994. From 1992 to 1994, Dr. Grabstein was Director
of Cellular Immunology and Director of the Flow Cytometry Facility at Immunex
Research and Development Corporation. From 1995 to the present, he has served as
Affiliate Investigator of the Clinical Research Division of the Fred Hutchinson
Cancer Research
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<PAGE> 54
Center. Dr. Grabstein graduated from the University of California, Berkeley with
a B.A. in Zoology in 1973 and received his Ph.D. in Immunology from the
University of California, Berkeley in 1982.
MICHELLE BURRIS has served as Vice President of Finance and Administration
of Corixa since February 1997. From 1996 to February 1997, she was Director of
Finance and Administration of Corixa. From 1995 to 1996, she was Controller at
Corixa. Ms. Burris held several finance and planning positions at The Boeing
Company, an aerospace company, most recently serving as Manager of Planning and
Performance from 1994 to 1995 and Manager of Operations Planning from 1992 to
1994. Ms. Burris graduated from George Mason University with a B.S. in Marketing
and Statistics in 1987 and received her M.B.A. from Seattle University in 1991.
SYAMAL RAYCHAUDHURI, PH.D. has served as Vice President of Corixa since
February 1997 and has served as Director of Vaccine Research since 1996. From
1993 to 1994, he was Director of Immunology for Actigen, Inc., a biotechnology
company, which was merged into Corixa in May 1996. From 1987 to 1993, he was a
Senior Scientist in the Department of Cellular Immunology of IDEC
Pharmaceuticals Corporation, a biopharmaceutical company. Dr. Raychaudhuri
graduated from the University of Calcutta with a B.S. in Chemistry in 1972 and
received his Ph.D. in Biochemistry from the University of Calcutta in 1980.
JOSEPH S. LACOB has served as Chairman of the Board of Corixa since 1994.
Mr. Lacob has been a general partner of Kleiner Perkins Caufield & Byers, a
venture capital firm, since 1992, and was a venture partner from 1987 to 1992.
Mr. Lacob serves as Chairman of the Board of three public companies, Cardima,
Inc., Cellpro and Microcide Pharmaceuticals, Inc., and a director of two
additional public companies, Heartport, Inc. and Pharmacyclics, Inc. Mr. Lacob
graduated from the University of California, Irvine in 1978 with a B.S. in
Biological Sciences and received his M.P.H. from the University of California,
Los Angeles in 1979. Mr. Lacob also received his M.B.A. from the Stanford
Graduate School of Business in 1983.
ARNOLD L. ORONSKY, PH.D. has served as a director of Corixa since 1994. He
is currently Chairman of the Board of Directors of Coulter Pharmaceuticals Inc.
("Coulter"), a biopharmaceutical company. From 1995 to 1996, Dr. Oronsky served
as President and Chief Executive Officer of Coulter. From 1994 to the present,
Dr. Oronsky has been a general partner at InterWest Partners, a venture capital
firm. From 1984 to 1994, Dr. Oronsky served as Vice President for Discovery
Research at Lederle Laboratories, a pharmaceutical division of American
Cyanamid, Inc., where he was responsible for the research of new drugs. Since
1988, Dr. Oronsky has served as a senior lecturer in the Department of Medicine
at Johns Hopkins Medical School. Dr. Oronsky graduated from University College,
New York University with a B.A. in History in 1962 and received his Ph.D. in
Biochemistry from Columbia University in 1968.
ANDREW E. SENYEI, M.D. has served as a director of Corixa since 1994. Dr.
Senyei has been a general partner of Enterprise Partners, a venture capital
firm, since 1988. Dr. Senyei was a founder of Molecular Biosystems, Inc. and,
prior to joining Enterprise Partners, was a practicing clinician and Adjunct
Associate Professor of Obstetrics, Gynecology and Pediatrics at the University
of California, Irvine. Dr. Senyei graduated from Occidental College with a B.A.
in Biology in 1972 and received his M.D. from Northwestern University in 1979.
The Board of Directors currently consists of five members. All directors
hold office until the next annual meeting of stockholders of the Company and
until their successors have been duly elected and qualified. The officers of the
Company are appointed annually and serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company.
The Board of Directors designated a Compensation Committee (the
"Compensation Committee") in October 1994 to review and approve the compensation
and benefits for the Company's executive officers, administer the Company's
stock option plans and make recommendations to the Board of Directors regarding
such matters. The Compensation Committee is currently comprised of Mr. Lacob and
Dr. Senyei.
The Board of Directors designated an Audit Committee in December 1994 to
review the scope and results of financial audits and other services performed by
the Company's independent accountants and to make recommendations to the Board
of Directors regarding such matters. The Audit Committee is currently comprised
of Dr. Oronsky and Dr. Senyei.
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<PAGE> 55
Directors currently receive no cash fees for services provided in that
capacity. The Company has adopted the 1997 Directors' Stock Option Plan under
which current and future nonemployee directors will be eligible to receive stock
options in consideration for their services. See "-- Stock Option and Incentive
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except as set forth below and in "Certain Transactions," no interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
Dr. Gillis is Acting Chief Executive Officer and a director of GenQuest and
Mr. McDade is Acting Vice President and a director of GenQuest. Dr. Reed and Mr.
McDade are directors of IDRI. While there is no specified amount of time that
Dr. Gillis and Mr. McDade are required to devote to their respective duties as
officers of GenQuest, the Company estimates that at the present time Dr. Gillis
and Mr. McDade each devote less then 20% of their respective time to such
duties. Neither Dr. Gillis nor Mr. McDade receive compensation from GenQuest in
connection with services they perform for GenQuest. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of such individual's fiduciary duties as a director, except
for liability (i) for any breach of such director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law (the "DGCL"), or
(iv) for any transaction from which a director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as an
injunction or recission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and directors.
The Company's Bylaws provide that the Company shall indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party and permits the Company to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
such party's status or service as a director, officer, employee or other agent
of the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.
The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among other
things, to indemnify such director or officer against certain expenses
(including attorney's fees), judgments, fines and settlement amounts
(collectively, "Liabilities") paid by such individual in connection with any
action, suit or proceeding arising out of such individual's status or service as
a director or officer of the Company (subject to certain exceptions, including
Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest or a violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) and to advance
expenses incurred by such individual in connection with any proceeding against
such individual with respect to which such individual may be entitled to
indemnification by the Company. The Company believes that its Restated
Certificate of Incorporation, Bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers.
The Company is not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
54
<PAGE> 56
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid by the Company
during the fiscal year ended December 31, 1996 to the Company's Chief Executive
Officer and the Company's other executive officers whose total cash compensation
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1)
------------------------------------------------------ --------- -----------
<S> <C> <C>
Steven Gillis, President.............................. $ 250,000 $ 20,000
Mark McDade, Executive Vice President................. 200,000 14,000
Steven Reed, Executive Vice President................. 147,000 7,000
Kenneth Grabstein, Vice President..................... 126,000 8,400
</TABLE>
- ---------------
(1) Bonus represents the amount actually paid to the employee in 1996, but
earned in the preceding year.
None of the Named Executive Officers were granted stock options or stock
appreciation rights during the fiscal year ended December 31, 1996. For option
holdings of the Named Executive Officers see "Principal Stockholders."
OPTION EXERCISES AND HOLDINGS
There were no option exercises by the Named Executive Officers during
fiscal 1996. The following table sets forth for each of the Named Executive
Officers certain information concerning the number of shares subject to both
exercisable and unexercisable stock options at December 31, 1996. Also reported
are values for "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of December 31, 1996, as determined by
the Board of Directors.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END(#)(1) AT FISCAL YEAR END($)(2)
--------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
------------------------------ ------ -------- --------- ---------
<S> <C> <C> <C> <C>
Steven Gillis................. 17,297 34,217 $ 219,153 $ 433,529
Mark McDade................... 56,817 64,395 719,871 815,885
Steven Reed................... 1,894 5,687 23,997 71,978
Kenneth Grabstein............. -- -- -- --
</TABLE>
- ---------------
(1) Options granted under the 1994 Plan may be exercised immediately upon grant
and prior to full vesting, subject to the optionee's entering into a
restricted stock purchase agreement with the Company with respect to any
unvested shares. Under such agreement, the optionee grants the Company an
option to repurchase any unvested shares at their original purchase price in
the event the optionee's employment or consulting relationship with the
Company is terminated. The Company's right of repurchase lapses as the
shares vest in a series of equal quarterly or annual installments in
accordance with the vesting schedule of the exercised options.
(2) Calculated based on an assumed initial public offering price of $13.00 per
share less the exercise price.
STOCK OPTION AND INCENTIVE PLANS
Amended and Restated 1994 Stock Option Plan
The 1994 Plan was originally adopted by the Board of Directors in October
1994 and approved by the stockholders in October 1995, amended and restated in
August 1996, which amendment and restatement was approved by the stockholders in
July 1997, and amended and restated again in July 1997, subject to stockholder
approval. The 1994 Plan provides for the grant to employees of the Company
(including officers
55
<PAGE> 57
and employee directors) of incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
for the grant of nonstatutory stock options ("NSOs") and to employees, directors
and consultants of the Company. The 1994 Plan is administered by the Board of
Directors or the Compensation Committee (the "Administrator"). The maximum
number of shares which may be subject to options granted to any one employee
under the 1994 Plan for any fiscal year is 500,000.
The Administrator has the authority to grant ISOs to employees of the
Company and to grant NSOs to employees, directors and consultants of the
Company. The Administrator determines which individuals will be granted options
under the 1994 Plan and the terms of such options, including the exercise price,
the number of shares subject to such options, the maximum term for which such
options are to remain outstanding, the date upon which such options are to
become exercisable and the vesting schedule, if any, applicable to such options,
provided that the Administrator, in its discretion, may determine that an
optionee shall have the right to exercise some or all of his or her options,
including options which would not otherwise be exercisable. The exercise price
of all ISOs granted under the 1994 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 all NSOs granted under the 1994 Plan must equal at least 85%
of the fair market value of the Common Stock on the date of grant. The exercise
price of any 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. Payment of the exercise price may be made in
cash, by check, in the Administrator's discretion, by promissory note (for
optionees other than non-employee directors), in shares of properly registered
Common Stock (valued at the fair market value as of the exercise date of the
option) that meet certain holding requirements or, to the extent the option is
exercised for vested shares, through a special sale and remittance procedure
conducted by a Company-designated brokerage firm whereby the Company is paid
sufficient funds to cover the aggregate exercise price of the purchased shares
as well as all taxes that the Company would be required to withhold as a result
of such exercise.
The term of a stock option granted under the 1994 Plan may not exceed 10
years; provided, however, that the term of an ISO granted to a 10% Stockholder
may not exceed five years. No option may be transferred by the optionee other
than by will or the laws of descent and distribution, except that an NSO may be
assigned in accordance with the terms of a domestic relations judgment, decree
or order (substantially complying with the requirements of Section 414(p) of the
Code) conveying marital property rights to any spouse or former spouse of the
optionee pursuant to applicable state domestic relations laws, and provided that
the Administrator may, in its discretion, grant transferable NSOs pursuant to
stock option grants specifying (i) the manner in which such NSOs are
transferable and (ii) that any such transfer shall be subject to applicable
laws. Except as set forth in the foregoing sentence, each option may be
exercised during the lifetime of the optionee only by such optionee. To the
extent an optionee would have the right in any calendar year to exercise for the
first time one or more ISOs 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 excess
options shall be treated as NSOs. In the event of a proposed dissolution or
liquidation of the Company, the 1994 Plan requires that each outstanding option
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the change in
control. In the event of a proposed sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation, (i) if the options are assumed or an equivalent option is
substituted, one half of the unvested portions of option grants shall be deemed
to have vested immediately prior to such sale or merger, (ii) if the options are
not assumed or an equivalent option is not substituted, all of the unvested
portions of option grants shall be deemed to have vested immediately prior to
such sale or merger, and (iii) if an executive officer of the Company is
terminated without cause within six months following the consummation of such
sale or merger, all of the entire unvested portion of option grants to such
executive officer shall be deemed to have vested and become fully exercisable
immediately prior to such termination. Upon the termination of an optionee's
employment or other relationship with the Company, such optionee will have a
limited time within which to exercise any outstanding options, which time period
will vary depending on the reason for termination. The Administrator has the
discretion to grant options that are exercisable for unvested shares of Common
Stock and, to the extent that an optionee holds options for such
56
<PAGE> 58
unvested shares of Common Stock upon termination, the Company will have the
right to repurchase any or all of the unvested shares at the per-share exercise
price paid by the optionee for the unvested shares.
As of September 15, 1997, options to purchase a total of 159,117 shares of
Common Stock had been exercised, options to purchase a total of 1,145,825 shares
at a weighted average exercise price of $0.72 per share were outstanding and an
aggregate of 706,039 shares remained available for future option grants under
the 1994 Plan. Pursuant to the July 1997 amendment to the 1994 Plan, the number
of authorized shares is subject to automatic increase, on the first trading day
of each of the ten calendar years beginning in 1998 and ending in 2007, in an
amount equal to three percent of the number of shares of Common Stock
outstanding on December 31 of the immediately preceding calendar year, up to a
maximum of 500,000 shares each year over the ten-year period.
The Board of Directors has the authority to amend the 1994 Plan as long as
such action does not adversely affect the rights and obligations with respect to
options or unvested stock issuances then outstanding under the 1994 Plan, and
provided further that stockholder approval is required to increase the number of
shares subject to the 1994 Plan (other than for permissible adjustments in the
event of certain changes in the Company's capitalization and as described
above), to materially modify the eligibility requirements for 1994 Plan
participation, or to materially increase the benefits accruing to participants
under the 1994 Plan. If not terminated earlier, the 1994 Plan will terminate in
2007.
1997 Employee Stock Purchase Plan
The Purchase Plan was adopted by the Board of Directors in July 1997. A
total of 125,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423
of the Code, will be implemented by a series of offering periods of twelve
months duration, with new offering periods (other than the first offering
period) commencing on or about February 1 and August 1 of each year. Each
offering period will consist of two consecutive purchase periods of six months
duration, with the last day of such period being designated a purchase date. The
initial offering period will begin on the date of the Offering and will continue
through July 31, 1998, with the first purchase date occurring on January 31,
1998 and subsequent purchase dates to occur every six months thereafter. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 15% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the Common Stock at
the beginning of the offering period and on the purchase date. If the fair
market value of the Common Stock on a purchase date is less than the fair market
value at the beginning of the offering period, a new twelve month offering
period will automatically begin on the first business day following the purchase
date with a new fair market value. The maximum number of shares an employee may
purchase during each offering period will be determined on the offering date by
dividing $25,000 by the fair market value of a share of the Company's Common
Stock on the offering date (subject to certain limitations imposed by the Code).
Employees may end their participation in an offering at any time during the
offering period prior to the purchase date, and participation ends automatically
on termination of employment with the Company. The Purchase Plan provides that
in the event of a merger of the Company with or into another corporation or a
sale of substantially all of the Company's assets, each right to purchase stock
under the Purchase Plan will be assumed or an equivalent right substituted by
the successor corporation unless the Board of Directors shortens the offering
period so that employees' rights to purchase stock under the Purchase Plan are
exercised prior to the merger or sale of assets. The number of authorized shares
is subject to automatic increase, on the first trading day of each of the 20
calendar years beginning in 1998 and ending in 2017. If the number of shares
reserved for issuance at such time is less than one percent of the outstanding
Common Stock, then the number of shares reserved for issuance shall be increased
until it equals one percent of the outstanding Common Stock (up to a maximum of
125,000 in any calendar year), or such lower amount as determined by the Board
of Directors. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder. If not terminated earlier, the Purchase
Plan will terminate in 2017.
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<PAGE> 59
1997 Directors' Stock Option Plan
The Directors' Plan was adopted by the Board of Directors in July 1997. A
total of 200,000 shares of Common Stock has been reserved for issuance under the
Directors' Plan. The number of authorized shares is subject to automatic
increase, on the first trading day of each of the five calendar years beginning
in 1998 and ending in 2002, in an amount equal to 50,000 shares of Common Stock
or such lesser amount as the Board of Directors may establish. The Directors'
Plan provides for the grant of NSOs to non-employee directors of the Company.
The Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Board of Directors. The Directors' Plan provides that each person who is a
non-employee director on the date of the Offering and each person who first
becomes a non-employee director of the Company after the date of the Offering
shall be granted NSOs to purchase 15,000 shares of Common Stock (the "First
Option"). Thereafter, on the date of each Annual Meeting of the Company's
stockholders, commencing in 1998, each non-employee director shall be
automatically granted an additional option to purchase 5,000 shares of Common
Stock (a "Subsequent Option") if, on such date, he or she shall have served on
the Company's Board of Directors for at least six months. The Directors' Plan
provides that the First Option shall become exercisable in installments as to
1/36th of the total number of shares subject to the First Option each month
after the date of grant of the First Option, and each Subsequent Option shall
become exercisable in installments as to one-twelfth of the total number of
shares subject to the Subsequent Option each month after of the date of grant of
that Subsequent Option. The exercise price of all options granted under the
Directors' Plan shall be equal to the fair market value of the Company's Common
Stock on the date of grant of the option. Options granted under the Directors'
Plan have a term of ten years. In the event of the dissolution or liquidation of
the Company, a sale of all or substantially all of the assets of the Company,
the merger of the Company with or into another corporation in which the Company
is not the surviving corporation or any other capital reorganization in which
more than 50% of the shares of the Company entitled to vote are exchanged, each
non-employee director shall have either (i) a reasonable time within which to
exercise the option, including any part of the option that would not otherwise
be exercisable, prior to the effectiveness of such liquidation, dissolution,
sale, merger, consolidation or reorganization, at the end of which time the
option shall terminate or (ii) the right to exercise the option, including any
part of the option that would not otherwise be exercisable, or receive a
substitute option with comparable terms as to an equivalent number of shares of
stock of the corporation succeeding the Company or acquiring its business by
reason of such liquidation, dissolution, sale, merger, consolidation or
reorganization. The Board of Directors may amend or terminate the Directors'
Plan; provided, however, that no such action may adversely affect any
outstanding options, and the provisions regarding the grant of options under the
Directors' Plan may be amended only once in any six-month period, other than to
comport with changes in the Employee Retirement Income Security Act of 1974, as
amended, or the Code. If not terminated earlier, the Directors' Plan will have a
term of ten years from the date of the Offering.
401(k) Plan
The Company has a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering all of the Company's employees. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($9,500 in 1997) and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan does not permit
matching contributions by the Company. The 401(k) Plan is intended to qualify
under Section 401 of the Code so that contributions by employees or by the
Company to the 401(k) Plan, and income earned on 401(k) Plan contributions, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. At the direction of each participant, the Company invests the assets of
the 401(k) Plan in any of five investment options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Dr. Gillis,
Mr. McDade, Dr. Reed and Dr. Grabstein, effective as of September 30, 1994. All
of the agreements provide for employment "at-will," do not provide for a
specific term and can be terminated by either the employee or the Company at
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<PAGE> 60
any time, for any reason, with or without cause. In addition, such agreements
contain a non-competition provision. In the event that any of the officers'
employment agreements are terminated other than for good cause (defined as gross
misconduct or acts or omission that involve fraud, embezzlement or
misappropriation of property), such officer will be entitled to receive his base
salary and benefits for one year and to the continued vesting, for such one-year
period, of shares subject to those certain Stock Purchase Agreements entered
into between such officer and the Company. In connection with their employment
agreements, each of the above named officers has entered into a proprietary
information and inventions agreement with the Company.
The Company has also entered into arrangements with Dr. Raychaudhuri and
Ms. Burris effective as of October 25, 1994 and March 2, 1995, respectively,
which provide for employment "at-will," do not provide for a specific term and
can be terminated by either the employee or the Company at any time, for any
reason, with or without cause. In connection with their employment agreements,
Dr. Raychaudhuri and Ms. Burris have entered into proprietary information and
inventions agreements with the Company.
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<PAGE> 61
CERTAIN TRANSACTIONS
SALES OF EQUITY SECURITIES
Between September 23, 1994 and March 31, 1995, the Company issued an
aggregate of 4,646,131 shares of Series A Preferred Stock at a price per share
of $3.30. On May 10, 1996, the Company issued 505,050 shares of Series B
Preferred Stock at a price per share of $9.90. All of the Series A and Series B
Preferred Stock issued by the Company will convert into Common Stock on a
one-for-one basis upon the closing of the Offering.
Listed below are those directors, executive officers and five percent
stockholders who have made equity investments in the Company or who have been
issued warrants to purchase shares of the Company's Preferred Stock or Common
Stock during the last three fiscal years.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
PRE-OFFERING
-----------------------------------------------------------------------
SERIES A SERIES B COMMON
COMMON PREFERRED PREFERRED STOCK SERIES B AGGREGATE
INVESTOR(1) STOCK STOCK STOCK WARRANTS WARRANTS CONSIDERATION
- ------------------------------------------ ---------- --------- --------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with Kleiner Perkins
Caufield & Byers(2)..................... 1,114,293 1,350,550 -- -- -- $ 4,476,824
Entities affiliated with Enterprise
Partners................................ -- 1,287,878 -- 192,423 -- 4,250,635
Entities affiliated with InterWest
Investors............................... -- 1,212,120 -- 183,332 -- 4,000,605
Entities affiliated with Forward
Ventures(2)............................. 278,572 303,030 -- -- 64,098 1,005,000
Entities affiliated with Olympic Venture
Partners................................ -- 374,378 -- 37,436 -- 1,235,578
S.R. One, Limited......................... -- -- 505,050 -- -- 5,000,001
Steven Gillis............................. 272,727 -- -- -- -- 4,500
Mark McDade............................... 90,909 -- -- -- -- 1,500
Steven Reed............................... 216,361 -- -- -- -- 3,570
Kenneth Grabstein......................... 189,393 -- -- -- -- 3,125
Joseph S. Lacob(2)........................ 1,076,415 1,350,550 -- -- -- 4,476,824
Andrew E. Senyei.......................... -- 1,287,878 -- 192,423 -- 4,250,635
Syamal Raychaudhuri....................... 113,636 -- -- -- -- 1,875
Arnold L. Oronsky......................... -- 1,212,120 -- 183,332 -- 4,000,605
</TABLE>
- ---------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Entities affiliated with Kleiner Perkins Caufield & Byers, a five percent
stockholder, contributed a total of 97,826 shares of Common Stock as a
capital contribution to the Company. Mr. Lacob, a director of the Company,
is a general partner of Kleiner Perkins Caufield & Byers. Entities
affiliated with Forward Ventures, a five percent stockholder, also
contributed 24,456 shares of Common Stock as a capital contribution to the
Company.
On May 10, 1996, the Company sold 505,050 shares of Series B Preferred
stock to S.R. One, Limited, a wholly owned subsidiary of SmithKline Beecham and
a five percent stockholder ("S.R. One"), for an aggregate purchase price of
$5,000,001. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Corporate Partnerships."
Holders of Preferred Stock and certain holders of Common Stock and Warrants
are entitled to certain registration rights with respect to the Common Stock
issued or issuable upon conversion thereof. See "Description of Capital
Stock -- Registration Rights."
GENQUEST, INC.
In connection with the amended license agreement with GenQuest entered into
in December 1996, the Company entered into a management services agreement under
which the Company will provide financial, legal, administrative, management and
related services to GenQuest. GenQuest will pay the Company a nominal management
fee and will reimburse the Company for its fully-burdened cost in providing such
services. Corixa's Chief Executive Officer, Chief Scientific Officer and Chief
Operating Officer are required to
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<PAGE> 62
provide specific services to GenQuest under the management services agreement,
and other members of the Company's management team are required to provide
general support. The management services agreement terminates upon the earlier
of (i) 90 days following the expiration of the Company's right to purchase
substantially all of the outstanding shares of GenQuest's capital stock, as
described below, (ii) 90 days following the date the Company purchases
GenQuest's capital stock pursuant to such right, or (iii) at the option of
either Corixa or GenQuest, upon the termination of the amended license
agreement.
In February 1996, the Company acquired an aggregate of 4,412,613 shares of
Series A Preferred Stock of GenQuest, representing approximately 16% of
GenQuest's outstanding capital stock as of June 30, 1997. GenQuest has granted
Corixa certain demand and piggyback registration rights pertaining to GenQuest
common stock issuable upon conversion of the Series A Preferred Stock and a
right to participate in future issuances of stock to maintain the Company's
pro-rata ownership interest in GenQuest. Pursuant to a voting agreement entered
into in connection with the Company's purchase of Series A Preferred Stock, the
Company is entitled to designate two of the seven nominees to the board of
directors of GenQuest.
The Company and GenQuest have also entered into the Call Option Agreement
under which the Company has the right to purchase a significant majority of the
outstanding shares of GenQuest's capital stock in exchange for shares of the
Company's Common Stock at a purchase price determined in accordance with the
formula specified in the Call Option Agreement. The right becomes effective on
the earlier of (i) June 23, 1998, (ii) the completion of a 30-day trading period
following the Company's initial public offering during which the average closing
sale price of a share of the Company's Common Stock is at least $19.80, or (iii)
a merger of Corixa with another entity or a sale of substantially all of
Corixa's assets. Corixa's right to purchase the shares of GenQuest capital stock
terminates on the earlier of (i) January 23, 2000, (ii) the date that the
Company notifies GenQuest that it will not exercise its right, (iii) the closing
of the initial public offering of GenQuest, (iv) ten days following the
termination of the amended license agreement, or (v) ten days following a merger
of, a sale of assets by, or a change in control of Corixa. The number of shares
of Common Stock that Corixa is required to issue in order to exercise the right
is variable as the formula specified in the Call Option Agreement takes into
account the then-current fair market value of the Common Stock and the
capitalization of GenQuest as well as the date of exercise. For example, if the
Company were to exercise such right on June 23, 1998, assuming the then-current
fair market value of the Common Stock is $13.00 per share and assuming no
changes to GenQuest's capitalization in the interim, the Company would be
obligated to issue an aggregate of approximately 4,063,460 shares of Common
Stock in exchange for such outstanding shares of GenQuest's capital stock, which
amount would represent beneficial ownership of approximately 27% of the Common
Stock of the Company (based upon 10,994,331 shares of Common Stock to be
outstanding upon completion of the Offering). Because the actual number of
shares of Common Stock that the Company is obligated to issue upon exercise of
the right is dependent upon the variables described above, the number of shares
of Common Stock that Corixa would be obligated to issue and the resulting
dilution to existing stockholders of Corixa may be substantially greater or less
than that set forth in the example above. As of the date of this Prospectus,
Corixa has not made a decision as to whether it will exercise this right. In
connection with the relationship between Corixa and GenQuest, Corixa issued
warrants to purchase up to 454,533 shares in the aggregate of Corixa's Series B
Preferred Stock at an exercise price of $9.90 per share. The holders of such
warrants or their transferees (subject to certain conditions) are entitled to
certain rights with respect to the registration of the shares of Common Stock
issuable upon exercise of such warrants. See "Business -- Relationship with
GenQuest, Inc." and "Description of Capital Stock."
INFECTIOUS DISEASE RESEARCH INSTITUTE
In September 1994, the Company entered into a research services and
intellectual property agreement with IDRI, a not-for-profit, grant-funded
private research institute. Under this agreement, as amended and restated
effective January 1997, the Company has agreed to provide IDRI with research
funding and certain administrative and facilities support, including use of the
Company's research laboratory space. IDRI pays a services fee for the
administrative and facilities support provided by the Company. IDRI is
independent of the Company and the Company does not have the right to control or
direct IDRI's activities. Dr. Reed, the Company's Chief Scientific Officer, is
co-founder and a member of the board of directors of IDRI.
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<PAGE> 63
Mr. McDade, the Company's Chief Operating Officer, is also a member of the board
of directors of IDRI and Ms. Burris, the Company's Vice President of Finance and
Administration, is treasurer of IDRI. The agreement terminates on December 31,
1999, subject to renewal for additional three-year terms at the option of the
Company. If IDRI terminates the agreement as a result of the Company's failure
to make required payments, the Company will be obligated to pay royalties on
sales of commercialized products, if any. See "Business -- Certain License
Agreements."
CELLPRO, INCORPORATED
On November 1, 1995, the Company entered into a research collaboration and
license agreement with CellPro whereby CellPro will make payments to Corixa to
support research activities and the parties will grant licenses to the other.
The agreement was amended effective January 1997. Mr. Lacob, Chairman of the
Board of Directors of the Company, is also the Chairman of the Board of
Directors of CellPro. See "Business -- Corporate Partnerships."
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of its
officers and directors.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors, and will continue to be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be made only for bona fide business
purposes.
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<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of shares of Common Stock offered hereby, as to (i)
each person (or group of affiliated persons) known by the Company to own
beneficially more than five percent of the Company's outstanding Common Stock,
(ii) each of the Company's directors, (iii) each of the Named Executive
Officers, and (iv) all current directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
PERCENT OF
SHARES BENEFICIALLY
OWNED(1)(2)
NUMBER OF -------------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- --------------------------------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with
Kleiner Perkins Caufield & Byers(3).................... 2,464,843 29.9% 22.4%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with
Enterprise Partners(4)................................. 1,480,301 18.0 13.5
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Entities affiliated with
InterWest Investors(5)................................. 1,395,452 16.9 12.7
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Entities affiliated with
Forward Ventures (6)................................... 645,700 7.7 5.8
9255 Towne Center Drive, Suite 300
San Diego, CA 92121
S.R. One, Limited........................................ 505,050 6.1 4.6
Bay Colony Executive Park
565 East Swedesford, Suite 315
Wayne, PA 19087
Entities affiliated with
Olympic Venture Partners(7)............................ 411,814 5.0 3.7
2420 Carillon Point
Kirkland, WA 98033
Steven Gillis, Ph.D.(8).................................. 341,412 4.1 3.1
Mark McDade(9)........................................... 229,292 2.7 2.1
Kenneth Grabstein, Ph.D.(10)............................. 206,564 2.5 1.9
Steven Reed, Ph.D.(11)................................... 197,169 2.4 1.8
Joseph S. Lacob(12)...................................... 2,426,965 29.4 22.1
Andrew E. Senyei, M.D.(4)................................ 1,480,301 18.0 13.5
Arnold L. Oronsky(5)..................................... 1,395,452 16.9 12.7
All directors and executive officers as a group (9 6,492,556 75.5 57.2
persons)(13)...........................................
</TABLE>
- ---------------
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission plus all additional
options and warrants to purchase Common Stock exercisable at any time after
60 days from June 30, 1997. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Such exercisable options are shown in the footnotes to this
table for each such person. To the Company's knowledge, the persons named
in this table have sole voting and investment power with respect to all
shares of Common Stock shown as owned by them, subject to community
property laws where applicable and except as indicated in the other
footnotes to this table.
(2) Based on 8,244,331 shares outstanding prior to the Offering and 10,994,331
shares outstanding after the Offering, and assuming no exercise of the
Underwriters' over-allotment option.
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<PAGE> 65
(3) Includes 2,364,292 shares held by Kleiner Perkins Caufield & Byers VII,
62,673 shares held by Kleiner Perkins Caufield & Byers VI and 37,878 shares
held by Cynthia Healy, Director Life Science Research at Kleiner Perkins
Caufield & Byers. Joseph S. Lacob, the Chairman of Board of Directors, is a
general partner of Kleiner Perkins Caufield & Byers VII and Kleiner Perkins
Caufield & Byers VI, and, as such, may be deemed to share voting and
investment power with respect to such shares except for the shares held by
Dr. Healy. Mr. Lacob disclaims beneficial ownership of such shares, except
to the extent of his pecuniary interest in such shares.
(4) Includes 1,184,848 shares held by Enterprise Partners III, L.P., 103,030
shares held by Enterprise Partners III Associates, L.P. and 187,538 shares
issuable upon the net exercise of outstanding warrants held by entities
affiliated with Enterprise Partners exercisable within 60 days of June 30,
1997. Andrew E. Senyei, a Director, is a general partner of Enterprise
Partners III, L.P. and Enterprise Partners III Associates, and, as such,
may be deemed to share voting and investment power with respect to such
shares.
(5) Includes 1,204,545 shares held by InterWest Partners V, L.P., 7,575 shares
held by InterWest Investors V, L.P. and 178,677 shares issuable upon the
net exercise of outstanding warrants held by InterWest Partners V, L.P.
within 60 days of June 30, 1997. Arnold L. Oronsky, a Director, is a
general partner of InterWest Partners V, L.P. and, as such, may be deemed
to share voting and investment power with respect to such shares. Dr.
Oronsky disclaims beneficial ownership of shares held by InterWest Partners
V, L.P., except to the extent of his pecuniary interest in such shares, and
disclaims beneficial ownership to all shares held by InterWest Investors V,
L.P.
(6) Includes 505,846 shares held by Forward Ventures II, L.P., 37,878 shares
held by the Royston Family Trust UTA DTD 2/12/82, whose co-trustee is Ivor
Royston, a general partner of Forward Ventures, 37,878 shares held by
Standish Fleming, a general partner of Forward Ventures and 64,098 shares
issuable upon the exercise of outstanding warrants held by individuals and
entities affiliated with Forward Ventures exercisable within 60 days of
June 30, 1997.
(7) Includes 355,660 shares held by Olympic Venture Partners III, 18,718 shares
held by OVP III Entrepreneurs Fund and 36,484 shares issuable upon the net
exercise of outstanding warrants held by entities affiliated with Olympic
Venture Partners exercisable within 60 days of June 30, 1997.
(8) Includes 68,685 shares issuable upon the exercise of outstanding options
held by Dr. Gillis exercisable within 60 days of June 30, 1997, at which
date 28,387 shares were fully vested.
(9) Includes 138,383 shares issuable upon the exercise of outstanding options
held by Mr. McDade exercisable within 60 days of June 30, 1997, at which
date 81,417 shares were fully vested.
(10) Includes 17,171 shares issuable upon the exercise of outstanding options
held by Dr. Grabstein exercisable within 60 days of June 30, 1997, at which
date 2,504 shares were fully vested.
(11) Includes 24,746 shares issuable upon the exercise of outstanding options
held by Dr. Reed exercisable within 60 days of June 30, 1997, at which
date, 5,660 shares were fully vested, and 15,151 shares held in the name of
Steven James N. Reed, UGMA WA Merrill Lynch and 15,151 shares held in the
name of Sarah Mariko Reed, UGMA WA Merrill Lynch, both of which accounts
Dr. Reed is custodian.
(12) Includes 2,364,292 shares held by Kleiner Perkins Caufield & Byers VII and
62,673 shares held by Kleiner Perkins Caufield & Byers VI. Mr. Lacob,
Chairman of the Board of Directors, is a general partner of Kleiner Perkins
Caufield & Byers VII and Kleiner Perkins Caufield & Byers VI, and, as such,
may be deemed to share voting and investment power with respect to such
shares. Mr. Lacob disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest in such shares.
(13) Includes shares referred to in footnotes (4)-(5) and (8)-(12). Also
includes 61,867 shares issuable upon the exercise of outstanding options
held by Michelle Burris, an executive officer of the Company, exercisable
within 60 days of June 30, 1997, at which date 13,707 shares were fully
vested, and 153,534 shares beneficially owned by Syamal Raychaudhuri, an
officer of the Company, which includes 39,898 shares issuable upon the
exercise of outstanding options held by Dr. Raychaudhuri exercisable within
60 days of June 30, 1997, at which date 15,508 shares were fully vested.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, and after giving effect to the amendment
of the Company's Restated Certificate of Incorporation to delete references to
the Series A Preferred Stock and Series B Preferred Stock and to increase the
authorized number of shares of Common Stock, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value, and
10,000,000 shares of Preferred Stock, $0.001 par value.
The following summary of certain characteristics of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 8,244,331 shares of Common Stock
outstanding that were held of record by approximately 84 stockholders after
giving effect to the conversion of the Company's Series A and Series B Preferred
Stock into Common Stock at a one-to-one ratio and assuming the net exercise of
outstanding warrants for 445,139 shares of Common Stock. There will be
10,994,331 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option or exercise of outstanding options under the
1994 Plan after June 30, 1997) after giving effect to the sale of the shares of
Common Stock offered hereby. See "Management -- Stock Option and Incentive
Plans."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior rights of Preferred
Stock, if any, then outstanding. Holders of Common Stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the holders of Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of the Offering will be
fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors has the authority, without further action by the stockholders, to
issue up to 10,000,000 shares of Preferred Stock in one or more series. The
Board of Directors will have the authority to issue the undesignated Preferred
Stock and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated Preferred Stock, and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. At the close of the
Offering, there will be no shares of Preferred Stock outstanding and the Company
currently has no plans to issue any shares of Preferred Stock.
WARRANTS
As of the date of this Prospectus, the Company has warrants outstanding
exercisable to purchase an aggregate of 527,533 shares of Common Stock, 195,454
shares of Series A Preferred Stock and 454,533 shares of Series B Preferred
Stock, each as described below.
In connection with the issuance of certain shares of Series A Preferred
Stock, the Company issued to the purchasers of such shares warrants to purchase
up to an aggregate of 413,191 shares of the Company's
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<PAGE> 67
Common Stock at an exercise price of $0.33 per share. The warrants expire in
December 2004 and January 2005.
In connection with a license agreement entered into in May 1996, the
Company issued the Southern Research Institute a warrant to purchase up to an
aggregate of 75,757 shares of Common Stock at an exercise price of $0.003 per
share. The warrant expires on May 22, 2006.
In connection with a facilities lease entered into in May 1996, the Company
issued to Health Science Properties, Inc. ("HSP"), John Teutsch and Robert
Mooney warrants to purchase up to an aggregate of 38,585 shares of Common Stock
at an exercise price of $6.60 per share. Messrs. Teutsch's and Mooney's warrants
expire on July 24, 2006 and HSP's warrants expire on May 10, 2008. HSP has
subsequently distributed such warrants to its shareholders.
In connection with a capital equipment lease entered into in December 1994,
the Company issued to Comdisco, Inc. a warrant to purchase up to an aggregate of
31,818 shares of the Company's Series A Preferred Stock. Upon the closing of the
Offering, such warrant will become a warrant exercisable to purchase the same
number of shares of Common Stock at an exercise price of $3.30 per share. The
warrant expires on the later of December 9, 2004 and five years after the
Company's initial public offering.
In connection with a license agreement entered into in January 1996, the
Company issued the Mayo Foundation for Medical Education and Research a warrant
to purchase up to an aggregate of 12,121 shares of the Company's Series A
Preferred Stock, subject to certain milestones. Upon the closing of the
Offering, the warrant will become a warrant exercisable to purchase the same
number of shares of Common Stock at an exercise price of $6.60 per share. The
warrant expires on January 1, 2006.
In connection with a license agreement entered into in April 1996, the
Company issued Vaxcel, Inc. a warrant to purchase up to an aggregate of 151,515
shares of the Company's Series A Preferred Stock, subject to certain milestones.
Upon the closing of the Offering, the warrant will become a warrant exercisable
to purchase the same number of shares of Common Stock at an exercise price of
$6.60 per share. The warrant expires upon the earlier to occur of (i) the
termination of the license agreement entered into in connection with the
issuance of the warrant and (ii) ten years from the date of execution of such
warrant.
In connection with the relationship between Corixa and GenQuest, the
Company issued warrants to purchase up to an aggregate of 454,533 shares of the
Company's Series B Preferred Stock an exercise price of $9.90 per share. The
warrants expire on the earlier of (i) December 23, 2001 or (ii) the closing of
the sale of the assets or capital stock of the Company.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 7,925,862 shares of Common Stock and certain holders of
warrants exercisable for up to 694,512 additional shares of Common Stock (the
"Registrable Securities") or their transferees (subject to certain conditions)
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Of such holders, holders of 35,555 Registrable
Securities have certain rights to registration of such Registrable Securities in
the Offering. All such rights have been waived or have expired by reason of
lapse of time.
The registration rights are provided for under the terms of an amended and
restated investors' rights agreement (the "Rights Agreement") between the
Company and the holders of Registrable Securities. Certain holders of at least
40% of the Registrable Securities then outstanding may require, on two occasions
at any time after one year following the effective date of the Offering, that
the Company use its best efforts to register the Registrable Securities for
public resale; provided, among other limitations, that the proposed aggregate
selling price, prior to deductions for underwriting discounts and commissions,
is at least $5,000,000. The Company may delay such registration by up to 120
days for business reasons (but not more than once in any one-year period). If
the Company registers any of its Common Stock either for its own account or for
the account of other security holders, the holders of Registrable Securities are
entitled to include their shares of Common Stock in the registration. Generally
speaking, a holder's right to include shares in either a demand or piggyback
underwritten registration is subject to the ability of the underwriters to limit
the number of shares
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<PAGE> 68
included in the offering. Certain holders of at least 20% of the Registrable
Securities then outstanding may also require the Company, on no more than one
occasion over any one-year period, to register all or a portion of their
Registrable Securities on Form S-3 when use of such form becomes available to
the Company, provided, among other limitations, that the proposed aggregate
selling price, prior to deductions for underwriting discounts and commissions,
is at least $500,000. The Company may delay such registration by up to 120 days
for business reasons. Subject to certain limitations contained in the Rights
Agreement, all fees, costs and expenses of registrations effected pursuant to
the Rights Agreement, excluding those incurred with respect to registrations on
Form S-3, must be borne by the Company, and all selling expenses (including
underwriting discounts and selling commissions) relating to Registrable
Securities must be borne by the holders of the securities being registered.
Subject to certain limitations contained in the Rights Agreement, all fees,
costs, and expenses (excluding selling expenses) for the first two registrations
on Form S-3 each year shall be borne by the Company and, thereafter, by the
holders of the securities being registered (including selling expenses).
ANTI-TAKEOVER EFFECTS OF DELAWARE AND WASHINGTON LAW
The Company is subject to the provisions of Section 203 of the DGCL. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date,
the business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders (not by written consent), by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Additionally, the laws of the State of Washington, where the Company's
principal executive offices are located, impose restrictions on certain
transactions between certain foreign corporations and significant stockholders.
Chapter 23B.19 of the Washington Business Corporation Act (the "WBCA") prohibits
a "target corporation," with certain exceptions, from engaging in certain
"significant business transactions" with a person or group of persons who
beneficially own 10% or more of the voting securities of the target corporation
(an "acquiring person") for a period of five years after such acquisition,
unless the transaction or acquisition of such shares is approved by a majority
of the members of the target corporation's board of directors prior to the time
of acquisition. Such prohibited transactions include, among other things, a
merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person, termination of 5% or more
of the employees of the target corporation as a result of the acquiring person's
acquisition of 10% or more of the shares or allowing the acquiring person to
receive disproportionate benefit as a stockholder. After the five-year period, a
significant business transaction may take place as long as
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<PAGE> 69
it complies with certain fair price provisions of the statute. A target
corporation includes a foreign corporation if (i) the corporation has a class of
voting stock registered pursuant to Section 12 or 15 of the Exchange Act, (ii)
the corporation's principal executive office is located in Washington, (iii) any
of (a) more than 10% of the corporation's stockholders of record are Washington
residents, (b) more than 10% of its shares are owned of record by Washington
residents, or (c) 1,000 or more of its stockholders of record are Washington
residents, (d) a majority of the corporation's employees are Washington
residents or more than 1,000 Washington residents are employees of the
corporation, and (e) a majority of the corporation's tangible assets are located
in Washington or the corporation has more than $50.0 million of tangible assets
located in Washington. A corporation may not "opt out" of this statute and,
therefore, the Company anticipates this statute will apply to it. Depending upon
whether the Company meets the definition of a target corporation, Chapter 23B.19
of the WBCA may have the effect of delaying, deferring or preventing a change in
control of the Company.
In addition, upon completion of the Offering, certain provisions of the
Company's charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of delaying
or preventing changes in control or management of the Company, which could have
an adverse effect on the market price of the Company's Common Stock. In the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Company's stock option and purchase plans generally provide for the acceleration
of one-half of the unvested portion of options in the event the successor
corporation assumes the option or grants an equivalent option and the
acceleration of all of the unvested portion of options in the event the
successor corporation does not assume the options or grant an equivalent option.
In addition, the Company's stock option and purchase plans allow an optionee, in
the discretion of the Board of Directors, to exercise some or all of the their
options, including non-vested shares, or to have the vesting of options
accelerated upon a change of control or similar event. The Board of Directors
has the authority to issue up to 10,000,000 shares of Preferred Stock and to fix
the rights, preferences, privileges and restrictions, including voting rights,
of these shares without any further vote or action by the stockholders. The
rights of the holders of the 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. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, 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, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value of
the Common Stock. The Company has no present plan to issue shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is The
Harris Trust Company. Its address is Suite 4900, 601 South Figueroa Street, Los
Angeles, California 90017 and its telephone number is (213) 239-0600.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and based on the shares outstanding as of
June 30, 1997, the Company will have a total of 10,994,331 shares of Common
Stock outstanding (11,406,831 shares if the Underwriters' over-allotment options
are exercised in full), assuming the net exercise of outstanding warrants for
445,139 shares of Common Stock immediately upon the closing of the Offering, no
exercise of warrants for 694,512 shares, and no exercise of options after June
30, 1997. Of these shares, the 2,750,000 shares offered hereby (3,162,500 shares
if the Underwriters' over-allotment options are exercised in full) will be
freely tradable without restriction or registration under the Securities Act by
persons other than "affiliates" of the Company, as defined under the Securities
Act. The remaining 8,244,331 shares of Common Stock outstanding are Restricted
Shares.
The holders of 8,051,548 Restricted Shares, including all officers and
directors of the Company and certain other stockholders, are subject to
"lock-up" agreements with the Representatives of the Underwriters and/or the
Company providing that they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the shares of Common Stock owned by
them or that could be purchased by them through the exercise of options to
purchase Common Stock of the Company for a period of 180 days after the
effectiveness of the Registration Statement (the "Lockup Period") without the
prior written consent of Lehman Brothers Inc. on behalf of the Underwriters
and/or the Company, as applicable. The Company has agreed with the
Representatives of the Underwriters not to release any holders from such
agreements without the prior written consent of Lehman Brothers Inc. on behalf
of the Underwriters. Such lock-up agreements may be released at any time as to
any or all of the shares subject to such agreements at the sole discretion of
Lehman Brothers Inc. Of the 8,051,548 Restricted Shares that will first become
eligible for sale in the public market 180 days after the effectiveness of the
Registration Statement, 1,522,149 shares will be immediately eligible for sale
without restriction under Rule 144(k) or Rule 701, and 6,524,854 shares will be
immediately eligible for sale subject to certain volume and other restrictions
pursuant to Rule 144. As of 180 days after the effectiveness of the Registration
Statement, 163,357 shares of Common Stock will remain subject to the Company's
right of repurchase pursuant to stock purchase agreements and therefore will not
be available for sale under Rule 144 until such right of repurchase lapses.
Beginning immediately after the closing of the Offering, 12,593 shares will be
available for sale under Rule 144 upon the exercise of outstanding warrants, and
beginning 180 days after the closing of the Offering, an additional 681,919
shares will be available for sale under Rule 144 upon the exercise of warrants.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed to be "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 109,943 shares immediately after the
Offering); or (ii) the average weekly trading volume of the Common Stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the Restricted Shares proposed to be
sold (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits the resale of shares
issued prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to certain compensatory benefit plans
and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Exchange Act, in reliance upon Rule 144 but
without compliance with certain restrictions, including the holding period
requirements, contained in Rule 144. In addition, the Securities and Exchange
Commission (the "Commission") has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, as well as the shares acquired upon exercise
of such options
69
<PAGE> 71
(including exercises after the date of this Prospectus). Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
Prospectus, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company has also agreed not, directly or indirectly, to offer for sale,
sell, pledge or otherwise dispose of (or enter into transaction or device which
is designed to, or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other than Common
Stock sold in the Offering and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans currently
existing or pursuant to currently outstanding contractual obligations, options,
warrants or rights), or sell or grant options, rights or warrants with respect
to any shares of Common Stock (other than the grant of options pursuant to
currently existing option plans or contractual obligations) for a period of 180
days after the effectiveness of the Registration Statement, without the prior
written consent of Lehman Brothers Inc.
After completion of this Offering, the Company intends to register on a
Form S-8 registration statement under the Securities Act, during the 180-day
lockup period, the resale of 1,893,653 shares of Common Stock issuable upon
exercise of outstanding options or reserved for issuance under the 1994 Plan,
200,000 shares of Common Stock reserved for issuance under the Directors' Plan
and 125,000 shares reserved for issuance under the Purchase Plan. Such
registration will permit the resale of shares so registered by non-affiliates in
the public market without restriction under the Securities Act upon expiration
of the Lockup Period.
In addition, beginning one year after the Offering, holders of 7,925,862
shares of Common Stock and holders of warrants to acquire 694,512 shares of
Common Stock may require the Company to register their shares of Common Stock
under the Securities Act, which would permit such holders to resell a certain
number of their shares without complying with Rule 144. Registration and sale of
such shares could have an adverse effect on the trading price of the Common
Stock. If the Company were to include in a Company-initiated registration any
Registrable Securities pursuant to the exercise of piggyback registration
rights, such sales could have an adverse effect on the Company's ability to
raise needed capital. See "Description of Capital Stock -- Registration Rights."
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that the sale or
availability for shares of additional Common Stock will have on the trading
price of the Common Stock. Nevertheless, sales of a substantial number of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors -- Shares Eligible for Future Sale" and
"Description of Capital Stock."
70
<PAGE> 72
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, the Underwriters named below, for whom Lehman Brothers
Inc., Invemed Associates, Inc., Vector Securities International, Inc. are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of each
such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Lehman Brothers Inc...............................................
Invemed Associates, Inc...........................................
Vector Securities International, Inc..............................
---------
Total................................................... 2,750,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page hereof, and to certain dealers at
such initial public offering price less a selling 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 Underwriters or to
certain other brokers or dealers. After the initial offering to the public, the
offering price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Commission and
that there has been no material adverse change or any development involving a
prospective material adverse change in the condition of the Company from that
set forth in the Registration Statement otherwise than as set forth or
contemplated in this Prospectus, and that certain certificates, opinions and
letters have been received from the Company and its counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
additional 412,500 shares of Common Stock, exercisable solely to cover
over-allotments, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page hereof. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
The Representatives have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated by and among the
Company and the Representatives. The primary factors considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance and capital
structure, estimates of business potential and earnings prospects of the
Company, an assessment of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
71
<PAGE> 73
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Representatives over-allot (i.e., if they sell
more shares of Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Common Stock in
connection with the Offering, the Representatives may reduce that short position
by purchasing Common Stock in the open market. The Representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment option described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the Offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
At the request of the Company, the Underwriters have reserved up to 137,500
shares of Common Stock for sale at the initial public offering price to
officers, employees and certain other persons associated with the Company. The
number of shares available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby. Reserved shares purchased by
individuals will, except as restricted by applicable securities laws, be
available for resale following the Offering.
For a period of 180 days after the effectiveness of the Registration
Statement, without the prior written consent of Lehman Brothers Inc., and/or the
Company, as applicable, the Company and holders of 8,051,548 shares of Common
Stock have agreed not to offer, sell or contract to sell, pledge, grant any
option to purchase, make any short sale, pledge or otherwise dispose of,
directly or indirectly, any shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of, or any other rights to purchase
or acquire Common Stock of the Company other than issuances pursuant to existing
employee compensation plans, existing contractual obligations of the Company,
transfers that will not result in any change in beneficial ownership, including,
but not limited to, pro rata partnership distributions and transfers into trusts
for the benefit of the original holder or members of the original holder's
immediate family, certain pledges, or transfers that constitute bona fide gifts.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by its counsel, Venture Law Group, A Professional Corporation, 4750
Carillon Point, Kirkland, Washington 98033. Certain legal matters will be passed
upon for the Underwriters by Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, California 94306.
72
<PAGE> 74
EXPERTS
The financial statements of Corixa Corporation, as of December 31, 1995 and
1996, and for each of the two years in the period ended December 31, 1996, and
for the period from September 8, 1994 (date of inception) to December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Corixa Corporation for the period from
September 8, 1994 (date of inception) to December 31, 1994 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1, of which this Prospectus constitutes a part, under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits and schedules filed
therewith for further information with respect to the Company and the Common
Stock offered hereby. Statements contained herein concerning the provisions of
any documents are not necessarily complete, and in each instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement, including exhibits and schedules filed therewith,
may be inspected without charge at the principal office of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates. The
Commission also maintains a site on the World Wide Web at http://www.sec.gov
where such materials may be obtained. The Company has filed the Registration
Statement, including the exhibits and schedules hereto, electronically with the
Commission via the Commissions' Electronic Data Gathering, Analysis, and
Retrieval ("EDGAR") system. The Company intends to distribute to its
stockholders annual reports containing audited financial statements examined by
an independent public accountant and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
73
<PAGE> 75
GLOSSARY OF SCIENTIFIC TERMS
ADJUVANT: a substance capable of non-specifically enhancing or boosting an
immune response.
ANTIBODY: a product of B cells that recognizes and attaches to antigens
thereby triggering the elimination of an invading pathogen.
ANTIGEN: a component of a pathogen consisting of a protein, peptide and/or
carbohydrate that is recognized by cells of the immune system.
ANTIGEN PRESENTING CELL ("APC"): a specialized immune system cell that
breaks down antigens and presents the component parts to T cells, thereby
initiating an immune response.
B LYMPHOCYTES ("B CELLS"): specialized immune system cells that produce
antibodies.
CYTOKINES: immune system hormones that serve to enhance or maintain
cellular and antibody-based immune responses.
CYTOTOXIC T LYMPHOCYTES ("CTL"): specialized T cells that have the ability
to recognize and kill pathogen-infected tissue or tumor cells.
HELPER T CELLS: specific antigen-reactive T cells that serve to enhance or
maintain immune response through the production of specific cytokines.
HER-2/NEU: a gene that is markedly over-expressed on the surface of
approximately 50% of breast and ovarian carcinomas.
LEISHMANIA ELONGATION INITIATING FACTOR ("LEIF"): a protein produced by the
parasite Leishmania that the Company has found to function as a potent adjuvant.
MICROSPHERES: synthetic microscopic particles that the Company uses to
encapsulate antigens for use in vaccines.
T LYMPHOCYTES ("T CELLS"): specialized immune system cells that generate a
cellular immune response against pathogens or tumor cells, including the
activation of antigen-reactive helper T cells and CTL.
TH1 RESPONSE: a particular type of helper T cell response that enhances the
generation and activation of CTL and leads to antibody production by B cells.
74
<PAGE> 76
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<PAGE> 77
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM SEPTEMBER 8, 1994
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors..............................................F-2
Audited Financial Statements
Balance Sheets...............................................................F-4
Statements of Operations.....................................................F-5
Statements of Stockholders' Equity...........................................F-6
Statements of Cash Flows.....................................................F-7
Notes to Financial Statements................................................F-8
F-1
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Corixa Corporation (a development stage company) for
the period from September 8, 1994 (date of inception) to December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 results of operations and the cash flows of Corixa
Corporation for the period from September 8, 1994 (date of inception) to
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
April 28, 1995
F-2
<PAGE> 79
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying balance sheets of Corixa Corporation (a
development stage company) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1996 and for the period from
September 8, 1994 (date of inception) through 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 audit. The financial statements as of December 31, 1994, and for the period
from September 8, 1994 (date of inception) through December 31, 1994, were
audited by other auditors whose report dated April 28, 1995 expressed an
unqualified opinion on those statements. The financial statements for the period
from September 8, 1994 (date of inception) to December 31, 1994 included a
cumulative loss of $989,250. Our opinion on the statements of operations and
cash flows for the period from September 8, 1994 (date of inception) through
December 31, 1996, insofar as it relates to amounts for the period prior to
January 1, 1995, is based solely on the report of other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Corixa Corporation (a development stage company) at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996 and for the
period from September 8, 1994 (date of inception) through December 31, 1996 in
conformity with generally accepted accounting principles.
Seattle, Washington
January 31, 1997,
except Footnote 11, as to which the date is
, 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the reverse stock split described in paragraph 1 of Note 11 to the financial
statements.
Seattle, Washington
September 19, 1997
F-3
<PAGE> 80
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, JUNE 30,
------------------------- JUNE 30, 1997
1995 1996 1997 (NOTE 11)
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 3,003,938 $ 2,088,226 $ 295,251
Securities available-for-sale........................... 7,768,727 9,845,180 14,751,336
Accounts receivable (including $166,640 and $269,400
receivable from an affiliated company at December 31,
1996 and June 30, 1997, respectively)................ 52,119 687,048 415,737
Prepaid expenses........................................ 177,735 264,859 408,085
----------- ----------- -----------
Total current assets...................................... 11,002,519 12,885,313 15,870,409
Property and equipment, net............................... 1,269,068 2,237,196 3,917,132
Other assets, net......................................... 68,301 62,402 242,287
----------- ----------- -----------
Total assets.............................................. $12,339,888 $15,184,911 $20,029,828
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 570,109 $ 978,738 $ 918,673
Deferred revenue........................................ 412,917 1,318,130 1,345,102
Current portion of obligations.......................... 276,936 487,758 808,162
----------- ----------- -----------
Total current liabilities................................. 1,259,962 2,784,626 3,071,937
Long-term obligations, less current portion............... 815,888 1,175,354 5,085,823
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized shares -- 23,100,000 (16,100,000
designated as Series A and 1,666,667 designated as
Series B); (10,000,000 pro forma)
Issued and outstanding Series A shares -- 4,646,131
(no shares pro forma) (aggregate liquidation
preference of $15,332,279 at December 31, 1996).... 4,646 4,646 4,646 --
Issued and outstanding Series B shares -- 505,050 (no
shares pro forma) (aggregate liquidation preference
of $5,000,001 at December 31, 1996)................ -- 505 505 --
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 2,492,811 at
December 31, 1995, 2,594,137 at December 31, 1996,
and 2,648,011 at June 30, 1997 (7,799,192 shares
pro forma)......................................... 2,493 2,594 2,648 7,799
Additional paid-in capital.............................. 15,382,893 21,655,080 25,623,952 25,623,952
Receivable for warrants................................. -- (1,140,000) (931,697) (931,697)
Deferred compensation................................... -- -- (3,532,585) (3,532,585)
Deficit accumulated during development stage............ (5,125,994) (9,297,894) (9,295,401) (9,295,401)
----------- ----------- ----------- -----------
Total stockholders' equity................................ 10,264,038 11,224,931 11,872,068 $11,872,068
----------- ----------- ----------- ===========
Total liabilities and stockholders' equity................ $12,339,888 $15,184,911 $20,029,828
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 81
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 8, 1994
(DATE OF YEAR ENDED
INCEPTION) DECEMBER 31,
TO -------------------------
DECEMBER 31, 1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Collaborative agreements........... $ -- $ 2,410,834 $ 4,401,560
Government grants.................. -- 304,029 1,402,979
----------- ----------- -----------
Total revenues................... -- 2,714,863 5,804,539
Operating expenses:
Research and development........... (438,783) (7,039,757) (9,994,796)
In-process research and
development...................... (428,059) -- --
General and administrative......... (205,533) (531,880) (780,904)
----------- ----------- -----------
Total operating
expenses....................... (1,072,375) (7,571,637) (10,775,700)
----------- ----------- -----------
Income (loss) from operations........ (1,072,375) (4,856,774) (4,971,161)
Interest income...................... 83,125 772,426 642,011
Interest expense..................... -- (82,024) (165,613)
Other income......................... -- 16,399 348,000
----------- ----------- -----------
Net income (loss).................... $ (989,250) $(4,149,973) $(4,146,763)
=========== =========== ===========
Pro forma net income (loss)
per share (unaudited).............. $ (0.50)
===========
Shares used in computation
of pro forma net income
(loss) per share................... 8,342,583
===========
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 8, 1994 PERIOD FROM
(DATE OF SIX MONTHS ENDED SEPTEMBER 8, 1994
INCEPTION) JUNE 30, (DATE OF
TO ------------------------- INCEPTION) TO
DECEMBER 31, 1994 1996 1997 JUNE 30, 1997
----------------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Collaborative agreements................. $ 6,812,394 $ 2,016,432 $ 6,939,588 $13,751,982
Government grants........................ 1,707,008 341,051 553,571 2,260,579
----------- ----------- ----------- -----------
Total revenues......................... 8,519,402 2,357,483 7,493,159 16,012,561
Operating expenses:
Research and development................. (17,473,336) (4,708,234) (7,104,054) (24,577,390)
In-process research and
development............................ (428,059) -- -- (428,059)
General and administrative............... (1,518,317) (438,359) (779,047) (2,297,364)
Total operating ----------- ----------- ----------- -----------
expenses............................. (19,419,712) (5,146,593) (7,883,101) (27,302,813)
----------- ----------- ----------- -----------
Income (loss) from operations.............. (10,900,310) (2,789,110) (389,942) (11,290,252)
Interest income............................ 1,497,562 279,910 390,652 1,888,214
Interest expense........................... (247,637) (67,120) (155,571) (403,208)
Other income............................... 364,399 174,000 187,274 551,673
----------- ----------- ----------- -----------
Net income (loss).......................... $(9,285,986) $(2,402,320) $ 32,413 $(9,253,573)
=========== =========== =========== ===========
Pro forma net income (loss)
per share (unaudited).................... $ 0.00
===========
Shares used in computation
of pro forma net income
(loss) per share......................... 8,536,343
===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 82
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING
------------------ ------------------ PAID-IN FOR DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS COMPENSATION STAGE TOTAL
--------- ------ --------- ------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to original
employees and
founders for cash,
at $0.017 per
share............... -- $ -- 2,338,048 $2,338 $ 38,257 $ -- $ -- $ -- $ 40,595
Issuance of common
stock, valued at
$0.017 per share,
in business
combination......... -- -- 115,863 116 1,796 -- -- -- 1,912
Issuance of Series A
convertible
preferred stock
for cash, at
$3.30 per share..... 4,480,427 4,480 -- -- 14,780,975 -- -- -- 14,785,455
Issuance of Series A
convertible
preferred stock,
valued at $3.30 per
share, in business
combination......... 62,674 63 -- -- 206,761 -- -- -- 206,824
Issuance of warrants,
for cash, to
purchase common
stock............... -- -- -- -- 1,354 -- -- -- 1,354
Net unrealized loss
on securities
available-for-sale.. -- -- -- -- -- -- -- (9,208) (9,208)
Net loss for the
period from
inception through
December 31, 1994... -- -- -- -- -- -- -- (989,250) (989,250)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1994..... 4,543,101 4,543 2,453,911 2,454 15,029,143 -- -- (998,458) 14,037,682
Issuance of Series A
convertible
preferred stock at
$3.30 per share,
for cash............ 103,030 103 -- -- 339,897 -- -- -- 340,000
Issuance of common
stock, valued at
$0.33 per share,
for services........ -- -- 42,233 42 13,895 -- -- -- 13,937
Repurchase of common
stock at $0.017 per
share............... -- -- (3,333) (3) (52) -- -- -- (55)
Issuance of warrants,
for cash, to
purchase common
stock............... -- -- -- -- 10 -- -- -- 10
Net unrealized gain
on securities
available-for-sale.. -- -- -- -- -- -- -- 22,437 22,437
Net loss for the year
ended December 31,
1995................ -- -- -- -- -- -- -- (4,149,973) (4,149,973)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1995..... 4,646,131 4,646 2,492,811 2,493 15,382,893 -- -- (5,125,994) 10,264,038
Issuance of common
stock, valued at
$0.33 per share,
for services........ -- -- 33,328 33 12,967 -- -- -- 13,000
Stock options
exercised........... 67,998 68 22,372 -- -- -- 22,440
Issuance of Series B
convertible
preferred stock for
cash, at $9.90 per
share............... 505,050 505 -- -- 4,999,496 -- -- -- 5,000,001
Issuance of Series A
convertible
preferred stock and
common stock
warrants for
acquired technology. -- -- -- -- 97,352 -- -- -- 97,352
Net unrealized loss
on securities
available-for-sale.. -- -- -- -- -- -- -- (25,137) (25,137)
Warrants issued in
exchange for
receivable.......... 1,140,000 (1,140,000) -- -- --
Net loss for the year
ended December 31,
1996................ -- -- -- -- -- -- (4,146,763) (4,146,763)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1996..... 5,151,181 5,151 2,594,137 2,594 21,655,080 (1,140,000) -- (9,297,894) 11,224,931
Warrants payment
received
(unaudited)......... -- -- -- -- -- 208,303 -- -- 208,303
Stock options
exercised
(unaudited)......... -- -- 49,329 49 27,586 -- -- -- 27,635
Issuance of
common stock, valued
at $8.25 per share
for services
(unaudited)......... -- -- 4,545 5 37,491 -- -- -- 37,496
Net unrealized loss on
securities
available-for-sale
(unaudited)......... -- -- -- -- -- -- -- (29,920) (29,920)
Deferred compensation
related to stock
option grants
(unaudited)......... -- -- -- -- 3,903,795 -- (3,903,795) -- --
Amortization of
deferred
compensation
(unaudited)......... -- -- -- -- -- -- 371,210 -- 371,210
Net income for the
period ended June
30, 1997
(unaudited)......... -- -- -- -- -- -- -- 32,413 32,413
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997
(unaudited)........... 5,151,181 $5,151 2,648,011 $2,648 $25,623,952 $ (931,697) $(3,532,585) $(9,295,401) $11,872,068
========= ====== ========= ====== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 83
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER 8, 1994 SEPTEMBER 8, 1994 PERIOD FROM
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, (DATE OF INCEPTION) SIX MONTHS ENDED JUNE 30, SEPTEMBER 8, 1994
TO DECEMBER 31, -------------------------- TO DECEMBER 31, -------------------------- (DATE OF INCEPTION)
1994 1995 1996 1996 1996 1997 TO JUNE 30, 1997
------------------- ----------- ------------ ------------------- ------------ ----------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING
ACTIVITIES
Net (loss)
income........... $ (989,250) $(4,149,973) $ (4,146,763) $ (9,285,986) $ (2,402,320) $ 32,413 $ (9,253,573)
Adjustments to
reconcile net
loss to net cash
used in
operating
activities:
Depreciation and
amortization.. 3,649 293,241 571,106 867,996 239,733 457,530 1,325,526
In-process
research and
development... 428,059 -- -- 428,059 -- -- 428,059
Equity
instruments
granted in
exchange for
services and
technology.... -- 13,937 97,352 111,289 107,352 245,784 357,073
Amortization
of deferred
compensation.. -- -- -- -- -- 371,210 371,210
Changes in
certain assets
and liabilities:
Accounts
receivable.... -- (52,119) (634,929) (687,048) 53,749 271,311 (415,737)
Interest
receivable.... (158,923) 108,576 50,347 -- -- -- --
Prepaid expenses.. (10,908) (165,262) (87,124) (263,294) (139,248) (143,226) (406,520)
Other assets.... (54,967) 76,184 5,899 27,116 (27,063) (471,325) (444,209)
Accounts
payable and
accrued
expenses.... (68,050) 414,356 408,629 754,935 (65,909) (60,064) 694,871
Deferred
revenue..... -- 412,917 905,213 1,318,130 408,333 26,972 1,345,102
------------ ----------- ------------ ------------- ------------ ----------- ------------
Net cash provided
by (used in)
operating
activities...... (850,390) (3,048,143) (2,830,270) (6,728,803) (1,825,373) 730,605 (5,998,198)
INVESTING
ACTIVITIES
Purchases of
securities
available-for-
sale............ (11,932,613) (5,222,538) (11,269,688) (28,424,839) (10,578,495) (7,444,633) (35,869,472)
Proceeds from
maturities of
securities
available-for-
sale............ -- 9,450,000 9,117,751 18,567,751 5,701,550 2,800,000 21,367,751
Purchases of
property and
equipment....... (27,367) (270,475) (543,619) (841,461) (114,907) (544,172) (1,385,633)
Cash acquired in
acquisitions.... 29,939 -- -- 29,939 -- -- 29,939
------------ ----------- ------------ ------------- ------------ ----------- ------------
Net cash provided
by (used in)
investing
activities...... (11,930,041) 3,956,987 (2,695,556) (10,668,610) (4,991,852) (5,188,805) (15,857,415)
FINANCING
ACTIVITIES
Proceeds from
issuance of
convertible
preferred
stock........... $ 14,785,455 $ 340,000 $ 5,000,001 $ 20,125,456 $ 5,000,001 $ -- $ 20,125,456
Borrowings from
collaborative
agreement....... -- -- -- -- -- 3,000,000 3,000,000
Proceeds from
issuance of
common stock.... 40,595 -- 35,440 76,035 440 27,648 103,683
Proceeds from
issuance of
warrants........ 1,354 10 -- 1,364 -- -- 1,364
Repurchase of
common
stock........... -- (55) -- (55) -- -- (55)
Principal payments
on capital
leases.......... -- (151,355) (425,327) (576,682) (178,809) (362,423) (939,105)
Payments on notes
due to
stockholders.... -- (140,479) -- (140,479) -- -- (140,479)
------------ ----------- ------------ ------------- ------------ ----------- ------------
Net cash provided
by financing
activities...... 14,827,404 48,121 4,610,114 19,485,639 4,821,632 2,665,225 22,150,864
Net increase
(decrease) in
cash and cash
equivalents..... 2,046,973 956,965 (915,712) 2,088,226 (1,995,593) (1,792,975) 295,251
Cash and cash
equivalents at
beginning of
period.......... -- 2,046,973 3,003,938 -- 3,003,938 2,088,226 --
------------ ----------- ------------ ------------- ------------ ----------- ------------
Cash and cash
equivalents
at end of
period.......... $ 2,046,973 $ 3,003,938 $ 2,088,226 $ 2,088,226 $ 1,008,345 $ 295,251 $ 295,251
============ =========== ============ ============= ============ =========== ============
SUPPLEMENTAL
SCHEDULE
OF NONCASH
OPERATING,
INVESTING,
AND FINANCING
ACTIVITIES
Assets acquired
pursuant to
capital leases.. $ -- $ 1,244,179 $ 995,615 $ 2,239,794 $ 549,162 $ 1,593,294 $ 3,833,088
Warrants issued
in exchange
for
technology.... -- -- 97,352 97,352 97,352 4,510 101,862
Interest paid... -- 82,024 165,613 247,637 67,120 155,571 403,208
</TABLE>
See accompanying notes.
F-7
<PAGE> 84
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
Corixa Corporation (the Company), a development stage company, is focused
on the discovery and early clinical development of vaccine products that induce
specific and potent pathogen- or tumor-reactive T lymphocyte (T cell) responses
for the treatment and prevention of cancers and certain infectious diseases. The
Company employs the following three proprietary core technology platforms, which
together comprise the elements the Company believes are necessary for effective
T cell vaccines: (i) microsphere delivery systems that specifically activate
appropriate T cell responses; (ii) adjuvants that specifically enhance
appropriate T cell responses; and (iii) disease-specific antigens that are
essential to elicit appropriate T cell responses. Principal activities to date
include conducting research and development, pursuing intellectual property
protection, entering into collaborative in- and out-licensing agreements,
raising capital, recruiting scientific and management personnel, and
establishing a research facility.
Interim Financial Information
The financial information at June 30, 1997 and for the six months ended
June 30, 1996 and 1997 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows 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 entire year.
Cash and Cash Equivalents
All short-term investments, which consist primarily of bankers' acceptances
and certificates of deposit, with maturities of three months or less at date of
purchase are considered to be cash equivalents. The amounts are recorded at
cost, which approximates fair market value.
Securities Available-for-Sale
The Company's investment portfolio is classified as available-for-sale, and
such securities are stated at fair value, with the unrealized gains and losses
reflected in stockholders' equity. Interest earned on securities is included in
interest income. The amortized cost of investments is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization and
accretions are included in interest income. The cost of securities sold is
calculated using the specific identification method.
Management of Credit Risk
The Company is subject to concentration of credit risk, primarily from its
cash investments. Credit risk for cash investments is managed by purchase of
investment grade securities and diversification of the investment portfolio
among issuers and maturities.
Property and Equipment
Property and equipment is stated at cost and is depreciated on the
straight-line method over the assets' estimated useful lives, which range from
three to four years. Leasehold improvements are amortized over the lesser of
their estimated useful lives or the term of the lease. Amortization of assets
recorded under capital leases is included in depreciation.
F-8
<PAGE> 85
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). The Company has adopted the disclosure-only
provisions of Statement 123, and applies Accounting Principles Board Opinion No.
25 (APB 25) and related Interpretations in accounting for its stock option
plans. Accordingly, the Company's stock-based compensation expense is recognized
based on the intrinsic value of the option on the date of grant. Pro forma
disclosure of net loss and earnings per share under Statement 123 is provided in
Note 5 to the financial statements.
The Company records deferred compensation for the difference between the
exercise price and the deemed fair value for financial reporting purposes of
stock options granted. The compensation expense related to such grants is
amortized over the vesting period.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Other Financial Instruments
At December 31, 1996 and June 30, 1997, the carrying value of financial
instruments such as receivables and payables approximated their fair values,
based on the short-term maturities of these instruments. Additionally, the
carrying value of long-term liabilities approximated fair values because the
underlying interest rates reflect market rates at the balance sheet dates.
Investment in GenQuest
The Company's preferred stock investment in GenQuest, which constitutes
less than 20% of the voting stock of GenQuest, is accounted for using the cost
method. The carrying value of this investment is zero. See Note 9.
Revenues
Revenue under collaborative agreements typically consists of nonrefundable
up-front fees, ongoing research and development payments, and milestone and
royalty payments. Revenue from nonrefundable up-front fees is recognized upon
satisfaction of related obligations. Revenue from ongoing research and co-
development payments is recognized ratably over the term of the agreement, as
the Company believes such payments will approximate the research and development
expense being incurred associated with the agreement. Revenue from milestone,
royalty, and other contingent payments will be recognized as earned. Advance
payments received under any agreements in excess of amounts earned are recorded
as deferred revenue. Revenue under cost reimbursement contracts is recognized as
the related costs are incurred.
Research and Development Expenses
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the liability method under
Statement of Accounting Standards No. 109, "Accounting for Income Taxes."
F-9
<PAGE> 86
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Historical and Pro Forma Net Income (Loss) Per Share
Historical net income (loss) per share is based on the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares from preferred stock, stock options, and warrants are
not included in the per share calculation when the effect of their inclusion
would be antidilutive, except that, in accordance with Securities and Exchange
Commission requirements, for pro forma purposes, common and common equivalent
shares issued during the 12-month period immediately preceding the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to the initial public offering using the
treasury stock method, even though their inclusion would be antidilutive. In
addition, for pro forma purposes, all outstanding shares of convertible
preferred stock are assumed to have been converted to common stock at the time
of issuance. Historical net loss per share for the periods ended December 31,
1996, 1995 and 1994 were $1.23, $1.24 and $0.30, respectively.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1996 presentation.
2. ACQUISITIONS
The Company acquired two companies in 1994. The acquisitions were accounted
for using the purchase method of accounting, whereby the purchase prices were
allocated to the assets acquired and liabilities assumed based on their relative
fair values. The excess of the cost over the fair value of net assets acquired
was accounted for as in-process research and development, which was expensed.
Iasys Corporation: In September 1994, the Company acquired all of the
outstanding common stock of Iasys Corporation (Iasys). The purchase price
consisted of 115,863 shares of the Company's common stock valued at an aggregate
of $1,912 and the assumption of certain liabilities principally related to
intellectual property and start-up costs approximating $200,300. These
liabilities were paid during 1994. In 1995, Iasys was merged into the Company.
Actigen, Inc.: In December 1994, the Company acquired all of the
outstanding common stock of Actigen, Inc. (Actigen). The purchase price
consisted of issuing 62,674 shares of the Company's Series A Preferred Stock
valued at an aggregate of $206,824, a note payable of $42,500, and the
assumption of certain liabilities approximating $121,500. The note payable was
repaid in 1995. In 1996, Actigen was merged into the Company.
The Company acquired all of the capital stock of Actigen and Iasys. In
conjunction with these acquisitions, assets acquired and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Fair value of assets and research and development
acquired................................................ $573,018
Fair value of preferred stock issued...................... 206,824
Fair value of common stock issued......................... 1,912
Notes payable issued...................................... 42,500
Liabilities assumed....................................... 321,782
</TABLE>
F-10
<PAGE> 87
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
MARKET UNREALIZED UNREALIZED AMORTIZED
VALUE GAINS LOSSES COST
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasury obligations................ $ 7,768,727 $ 14,338 $ (1,109) $ 7,755,498
=========== ======= ======== ===========
December 31, 1996
U.S. Treasury obligations................ $ 9,845,180 $ 842 $ (12,750) $ 9,857,088
=========== ======= ======== ===========
June 30, 1997
U.S. Treasury obligations................ $14,751,336 $ 7 $ (41,835) $14,793,164
=========== ======= ======== ===========
</TABLE>
There were no realized gains or losses on sales of available-for-sale
securities for the years ended December 31, 1995 and 1996. All securities
available-for-sale mature within one year.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment............................... $1,253,887 $2,088,170 $3,606,780
Computers.......................................... 170,188 370,471 500,909
Leasehold improvements............................. 124,272 628,940 1,114,263
----------- ---------- ----------
1,548,347 3,087,581 5,221,952
Accumulated depreciation and amortization.......... 279,279 850,385 1,304,820
----------- ---------- ----------
$1,269,068 $2,237,196 $3,917,132
=========== ========== ==========
</TABLE>
At December 31, 1996 and June 30, 1997, the Company held equipment under
capitalized leases with an original cost of $2,295,831 and $3,991,782,
respectively, and a net book value of $1,595,970 and $2,891,924, respectively.
These leases are secured by the underlying assets.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Holders of shares of Series A Preferred Stock and Series B Preferred Stock
(Series A shares and Series B shares) are entitled to receive cash dividends at
the rate of $0.26 per share and $0.79 per share, respectively. Such dividends
shall be payable only when, as, and if declared by the Board and shall be
noncumulative. As of June 30, 1997, the Board has not declared any dividends.
Series A shares and Series B shares are entitled to equal votes with the
common stock on ordinary course matters and have the right to vote separately as
a single class on certain material events, and, at the option of the holder, may
be converted at any time into common stock. The conversion ratios at December
31, 1996 and June 30, 1997 were 1-for-1. The conversion rate may be adjusted
from time to time, based on provisions included in the Company's Amended and
Restated Certificate of Incorporation. Each Series A share and Series B share
shall be converted into shares of common stock, based on the then-effective
respective conversion prices of the Series A shares and Series B shares,
automatically upon the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933,
F-11
<PAGE> 88
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
as amended, covering the offer and sale of Common Stock for the account of the
Company in which the per share price is at least $23.10 and the gross cash
proceeds to the Company are at least $10,000,000, or upon the consent of a
majority of the holders of such shares, which consent the Company has solicited
and received; see Note 11.
Series A shares and B shares also have preferential liquidation rights over
common stock. In the event of liquidation, holders of Series A shares shall be
entitled to be paid out of the assets of the Company an amount per share equal
to the sum of $3.30 per share, plus all declared and unpaid dividends, if any.
After the payment of the full liquidation preference of the Series A shares, the
holders of Series B shares shall be entitled to be paid out of the assets of the
Company legally available for distribution, an amount per share equal to the sum
of $9.90 per share plus all declared and unpaid dividends on such shares. Any
remaining assets of the Company shall be distributed ratably to the holders of
the common stock, Series A shares, and Series B shares, up to an aggregate of
$9.90 per common share and $29.70 per share for Series A shares and Series B
shares, respectively, on an as if converted to common stock basis.
Stock Option Plan
The Company has a stock option plan under which an aggregate of 1,310,981
shares of common stock were reserved for grants to employees, members of the
Board of Directors, and consultants. Options granted under this plan may be
designated as incentive or nonqualified at the discretion of the Plan
Administrator. Refer to Note 11 for the July 1997 amendment to the Plan.
Generally, the options vest over a four-year period with 25% vesting in the
first year and the remainder vesting monthly thereafter. All options expire no
later than ten years from the date of grant. Incentive stock options are
exercisable at not less than the fair market value of the stock at the date of
grant, and nonqualified stock options are exercisable at prices determined at
the discretion of the Plan Administrator, but not less than 85% of the fair
market value of the stock at the date of grant. The Plan allows option holders
to exercise options prior to vesting, but the stock received is subject to
repurchase by the Company at the original purchase price in the event of
termination. The repurchase rights expire according to the original option
vesting terms.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER AVERAGE
OUTSTANDING PRICE PER EXERCISE
OPTIONS SHARE PRICE
-------------- ---------- --------
<S> <C> <C> <C>
Options granted..................... 167,127 $ 0.33 $ 0.33
--------- ------- ---
Balance at December 31, 1994.......... 167,127 0.33 0.33
Options granted..................... 341,643 0.33 0.33
Options canceled.................... (11,969) 0.33 0.33
--------- ------- ---
Balance at December 31, 1995.......... 496,801 0.33 0.33
Options granted..................... 182,413 0.33-0.99 0.58
Options exercised................... (67,999) 0.33 0.33
Options canceled.................... (6,090) 0.33-0.99 0.38
--------- ------- ---
Balance at December 31, 1996.......... 605,125 0.33-0.99 0.40
Options granted (unaudited)......... 645,004 0.99 0.99
Options exercised (unaudited)....... (49,329) 0.33-0.99 0.56
Options canceled (unaudited)........ (13,186) 0.33-0.99 0.50
--------- ------- ---
Balance at June 30, 1997
(unaudited)......................... 1,187,614 0.33-0.99 0.71
========= ======= ===
</TABLE>
F-12
<PAGE> 89
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred compensation of approximately $3.9 million was recorded during the
six months ended June 30, 1997 representing the difference between the exercise
prices of options granted during that period and the deemed fair market value.
Options considered fully vested as of December 31, 1995, 1996, and June 30,
1997 were 48,048, 246,806, and 378,334, respectively, at weighted average
exercise prices of $0.33, $0.34, and $0.41, respectively. Options exercised as
of December 31, 1996 and June 30, 1997 for which the underlying stock continues
to be restricted amounted to 34,281 and 56,969, respectively. The weighted
average remaining contractual life of the outstanding options at December 31,
1995 and 1996 was 9.3 years and 8.6 years, respectively. At December 31, 1996
and June 30, 1997, options for 637,857 shares and 6,039 shares, respectively,
remain available for grant.
The weighted average fair value of options granted during 1995 and 1996 was
$0.11 and $0.17 per option, respectively.
Pro forma information regarding net income and earnings per share required
by Statement 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions on the
option grant date: risk-free interest rates of 6.3% to 6.5%, expected volatility
of 0.0%, expected option life of four years, and a dividend yield of 0.0%
Under Statement 123, if the Company had elected to recognize the
compensation cost based upon the fair value of the options granted at the grant
date, net income would have been reduced as follows (the estimated fair value of
the options is amortized to expense over the options' vesting period or upon the
achievement of certain milestones):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net loss:
As reported............................. $(4,149,973) $(4,146,763)
Pro forma............................... $(4,158,556) $(4,170,558)
Net loss per share:
As reported............................. $(1.24) $(1.23)
Pro forma............................... $(1.24) $(1.24)
</TABLE>
The Statement 123 pro forma disclosures above are not necessarily
indicative of future pro forma disclosures because of the manner in which
Statement 123 calculations are phased in over time.
Stock Warrants
In connection with sales of Series A shares in 1995 and 1994, the Company
issued stock warrants to certain stockholders at an aggregate purchase price of
$0.003 per share to purchase 413,191 shares of common stock at an exercise price
of $0.33 per share. These warrants expire in 2004 and 2005.
During 1996, the Company issued warrants to purchase 114,342 shares of
common stock at exercise prices ranging from $0.003 to $6.60 per share and
163,636 Series A shares at an exercise price of $6.60 per share. These warrants
were issued in connection with certain collaborative agreements and the leasing
of office and research facilities. The weighted average grant-date fair value
ranged from $0.99 to negligible per share, and negligible per share for common
stock and Series A shares, respectively. Vesting of 75,757 warrants to purchase
common stock and 163,636 warrants to purchase Series A shares is contingent upon
the achievement of certain milestones. The Company has recognized research and
development expense for the calculated fair
F-13
<PAGE> 90
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value of those warrants (warrants to purchase 61,321 and 42,424 common shares
and Series A shares, respectively) for which milestone achievement was deemed
probable by management at December 31, 1996. Final valuation will be calculated
at the actual achievement of these milestones based on the fair value of the
underlying stock at that date.
Warrants to purchase 31,818 shares of Series A Preferred Stock were issued
in 1994. (See Note 7.) Warrants to purchase 454,533 shares of Series B Preferred
Stock were issued in 1996. (See Note 9.)
Total common stock, Series A share and Series B share warrants outstanding
at December 31, 1996 and June 30, 1997 were 527,533, 195,454, and 454,533,
respectively, at weighted average exercise prices of $2.24, $6.07, and $9.90 per
share, respectively.
Stock Repurchase Agreements
Since its inception, the Company has sold approximately 945,185 shares of
common stock at a price of $0.017 per share to employees and scientific founders
of the Company under agreements which allow the Company, at its option, to
repurchase the shares at the original purchase price if the employment or
consulting relationship with the Company ceases for any reason. Under the
repurchase agreements, the shares subject to repurchase are generally reduced in
cumulative pro rata increments over a four-year period beginning at the issuance
date. As of December 31, 1996 and June 30, 1997, 413,516 shares and 295,369
shares, respectively, were subject to repurchase.
Under the terms of all of the repurchase agreements, if the Company is
acquired by merger, consolidation, or sale of assets, the repurchase agreements
will cease to apply.
Shares Reserved
Common stock was reserved for the following purposes:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Conversion of preferred stock............................. 5,151,181 5,151,181
Warrants to purchase preferred stock which are convertible
to common............................................... 649,987 649,987
Stock options............................................. 1,242,982 1,193,653
Warrants to purchase common stock......................... 527,533 527,533
License, technology, and patent rights agreements......... 54,545 34,848
---------- ----------
7,626,228 7,557,202
</TABLE>
6. INCOME TAXES
At December 31, 1996 and June 30, 1997, the Company had net operating loss
carryforwards of approximately $7,490,000 and $6,621,000, respectively, and
research and experimentation credit carryforwards of approximately $314,000 and
$908,000, respectively, which are available to offset future federal taxable
income and income taxes, respectively, if any, through 2009. Utilization of
federal income tax and research and development tax credit carryforwards is
subject to limitations under applicable regulations in effect under the Internal
Revenue Code of 1986, as amended. Accordingly, the Company's use of losses
incurred through the date of this ownership change may be limited during the
carryforward period.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance equal to the deferred tax assets due to the
uncertainty of
F-14
<PAGE> 91
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
realizing the benefits of the assets. The valuation allowance for deferred tax
assets increased $1,528,000, $1,475,000, and $396,000 during 1995, 1996, and the
six months ended June 30, 1997, respectively. The effects of temporary
differences that give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......... $ 1,565,000 $ 2,547,000 $ 2,251,000
Research and experimentation credit and
foreign tax credit carryforwards....... 144,000 339,000 933,000
Deferred revenue.......................... 140,000 448,000 457,000
Other..................................... 15,000 33,000 112,000
----------- ----------- -----------
1,864,000 3,367,000 3,753,000
Deferred tax liabilities:
Depreciation.............................. 6,000 34,000 24,000
----------- ----------- -----------
Net deferred tax asset.................... 1,858,000 3,333,000 3,729,000
Less valuation allowance.................. (1,858,000) (3,333,000) (3,729,000)
----------- ----------- -----------
Net deferred tax assets..................... $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
7. LONG-TERM OBLIGATIONS AND COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Capital lease obligations................... $ 1,092,824 $ 1,663,112 $ 2,893,985
Advance from corporate partner.............. -- -- 3,000,000
----------- ----------- -----------
1,092,824 1,663,112 5,893,985
Less current portion of capital lease
obligations............................... 276,936 487,758 808,162
----------- ----------- -----------
$ 815,888 $ 1,175,354 $ 5,085,823
=========== =========== ===========
</TABLE>
In December 1994, the Company entered into a master lease agreement to
lease certain equipment. In connection with the draw down of the this lease line
in 1994, the Company issued the lessor warrants to purchase 31,818 shares of the
Company's Series A Preferred Stock at $3.30 per share. The term of the warrants
is either ten years from the date of issuance or five years from the effective
date of an initial public offering by the Company, whichever is longer. The term
may expire sooner if certain conditions, as defined in the warrant agreement,
are met.
A $1,500,000 lease line was obtained in 1996, of which approximately
$1,200,000 remained available at December 31, 1996. In March 1997, the remaining
lease line was renegotiated to $1,450,000, of which approximately $721,000
remained available at June 30, 1997. Both leases are secured by the underlying
equipment.
The $3 million advance from the corporate partner at June 30, 1997
represents payments received in exchange for options to license two of Corixa's
early-state cancer targets. Refer to Note 8 with regard to the future
application of the advance.
The Company rents office and research facilities under noncancelable
operating leases which expire in January 2005. The Company has issued an
irrevocable standby letter of credit in the amount of $750,000 as security
deposit on the lease. The Company has options to renew the lease for two
additional terms of five years each.
F-15
<PAGE> 92
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Minimum future rental payments under all lease agreements at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------------------------------------------- ---------- -----------
<S> <C> <C>
1997....................................................... $ 635,371 $ 1,024,606
1998....................................................... 693,132 1,319,393
1999....................................................... 457,571 2,424,681
2000....................................................... 187,443 2,514,227
2001....................................................... -- 2,589,654
Thereafter................................................. -- 8,332,779
---------- -----------
Total minimum payments..................................... 1,973,517 $18,205,340
===========
Less interest.............................................. 310,405
----------
Present value of minimum lease payments.................... 1,663,112
Less current portion....................................... 487,758
----------
Capital lease obligations, less current portion............ $1,175,354
==========
</TABLE>
Rent expense was $364,240, $638,037, and $768,803 for the years ended
December 31, 1995, 1996, and the six-month period ended June 30, 1997,
respectively.
8. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
The Company has various collaborative research agreements with academic
universities and research institutions, which expire at various intervals
through 1999. Certain agreements stipulate the reimbursement by the Company of
research costs incurred by these universities and institutions on behalf of the
Company. Included in research and development expenses for the years ended
December 31, 1995 and 1996 and the six-month period ended June 30, 1997 are
reimbursements approximating $900,000, $1,400,000, and $827,000, respectively.
As of December 31, 1996, the Company is committed to reimburse the universities
and institutions $650,000 and $65,000 in 1997 and 1998, respectively. As of June
30, 1997, the Company is obligated to reimburse the universities and
institutions $348,000, $14,500, and $33,000 in 1997, 1998, and 1999,
respectively.
The Company has entered into certain license agreements and obtained
options to negotiate license agreements under the terms of which the Company
received license, technology, and patent rights. During 1995 and 1996 and the
six-month period ended June 30, 1997, the Company paid initial license and/or
option fees approximating $80,000, $185,000, and $145,000, respectively, and
issued 36,363 and 33,328 shares of common stock during 1995 and 1996,
respectively, (plus a commitment to issue an additional 33,333 and 21,212
shares, respectively, upon the achievement of certain events of which 19,697
were issued in 1997) for such rights. In conjunction with certain 1996
collaboration agreements, the Company also issued options to purchase 129,393
shares of common stock and warrants to purchase 75,757 and 163,636 shares of
common stock and Series A Preferred Stock, respectively. See Note 5.
Certain agreements call for royalty and milestone payments to be paid by
the Company. The agreements are for terms from 10 to 17 years or the expiration
of the last issued patent within the licensed technology, unless terminated
earlier for certain specified events, as defined in the respective agreements.
Additionally, the Company has entered into research and license agreements
and granted options to other parties to negotiate license agreements under the
terms of which the Company provides license, technology, and patent rights.
Under the terms of the agreements, the Company will receive additional license
fees, option fees and/or reimbursement of certain research and development costs
through 1998. The agreements provide
F-16
<PAGE> 93
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for one-time payments upon the achievement of certain milestones and the payment
of royalties based on product sales.
The Company entered into an agreement during 1997 with a third party
pursuant to which the third party agreed to advance consideration in exchange
for exclusive options to license two of Corixa's early-state programs in two
cancer targets (see Note 7). In the event such options are exercised, the
consideration will be credited against future milestone payments or converted to
common stock of Corixa, as per the agreement. If either or both of such options
are not exercised or extended between February 28, 1998 and August 18, 1998, the
Company will be required to refund the consideration over a three-year period
beginning March 2000.
9. INVESTMENTS IN AND AGREEMENTS WITH GENQUEST
In February 1996, the Company entered a license and research collaboration
agreement with GenQuest, Inc., a Delaware corporation (GenQuest) for the purpose
of discovering, characterizing, developing, and commercializing novel genes for
use in the treatment, prevention, or diagnosis of cancer or pre-neoplastic cell
proliferation disease.
In February 1996, the Company acquired an aggregate of 4,412,613 shares of
series A preferred stock of GenQuest in exchange for the transfer of certain
intellectual property rights in connection with the collaboration, which shares
represent approximately 16% of GenQuest's outstanding capital stock at December
31, 1996. As a result of its ownership of series A preferred stock of GenQuest,
the Company has certain registration rights with respect to public offerings of
GenQuest and rights of first offer which allow the Company to participate
ratably in future issuances of stock to maintain its ownership percentage of
GenQuest.
Additionally, the Company is entitled to voting rights equivalent to the
number of shares of common stock of GenQuest into which such shares of series A
preferred stock can be converted and is a party to a voting agreement among
GenQuest and all but two of its stockholders. Under the terms of the voting
agreement, the Company has a right to designate two of seven nominees to the
Board of Directors of GenQuest and the stockholders of GenQuest who are parties
to the voting agreement have agreed to vote their shares in favor of such
nominees. The Company's right to designate such nominees will terminate when the
Company owns less than 10% of the voting capital stock of GenQuest.
In December 1996, the Company and GenQuest amended the license and
collaboration agreement and, in connection with this amendment, entered into an
administrative services and management agreement. As part of the collaboration,
GenQuest has agreed to provide funding in support of certain research and
development projects conducted by the Company and GenQuest on a collaborative
basis. Additionally, the Company has agreed that certain administrative and
management services will be provided to GenQuest by certain Company employees,
including the Company's Chief Executive Officer, Chief Scientific Officer, and
Chief Operating Officer, and GenQuest has agreed to reimburse the Company for
such services. Either the Company or GenQuest may terminate the license
agreement within 30 days after December 31, 1997 if such party believes that the
scientific objectives of the collaboration have not been met.
In 1996, the Company recognized other income of $300,000 as a result of
administrative services provided to GenQuest.
Under the license agreement, the Company and GenQuest agreed to
cross-license certain technologies and products owned or controlled by them as
of February 1996 and technologies and products developed under the collaborative
research program. The Company is required to pay GenQuest, when product sales
commence, certain royalties on sales of products that use technology licensed
from GenQuest, and GenQuest is required to pay the Company, when product sales
commence, certain royalties on the sale of products that use technology licensed
from the Company. In addition, sales of certain products developed by GenQuest
using technology developed by the Company in the collaborative research program
would be royalty-free.
F-17
<PAGE> 94
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 1996, in connection with the modification of the collaboration
between the Company and GenQuest and the issuance of series B preferred stock of
GenQuest to additional investors (18,309,271 shares at $0.50 per share), the
Company, GenQuest and certain stockholders of GenQuest entered into a call
option agreement. Under the terms of this agreement, the Company has the right
to purchase a significant majority of the outstanding shares of GenQuest's
capital stock held by the stockholders of GenQuest at a purchase price
determined in accordance with a formula stipulated in the agreement. This right
becomes effective on the earlier of June 23, 1998, the completion of a 30-day
trading period following the Company's initial public offering during which the
average closing sale price of a share of the Company's common stock meets the
minimum requirement stipulated in the agreement, and a merger of the Company
with another entity or a sale of substantially all of the Company's assets, and
terminates on the earlier of January 23, 2000, the date that the Company
notifies GenQuest that it will not exercise this right, the closing of the
initial public offering of GenQuest, and 10 days following a merger of or sale
of assets by the Company.
In conjunction with the relationship between the Company and GenQuest, the
Company issued warrants to purchase 454,533 shares of the Company's Series B
shares at a price of $9.90 per share. The warrants expire on the earlier of
December 23, 2001 or certain events as specified in the warrant agreements. A
receivable of $1.14 million from GenQuest, which represents the value of the
warrants, is included in equity at December 31, 1996. The receivable will be
paid over the three-year funding life of the current collaborative agreement out
of the proceeds therefrom. Amounts expected to be applied against the receivable
in 1997, 1998 and 1999 approximate $488,432, $325,784 and $325,784,
respectively.
The Company's investment in GenQuest is recorded in the balance sheet at
$-0-, which was the historical cost of the technology exchanged for the
preferred stock of GenQuest issued to the Company. The Company did not recognize
the increased value of its equity investment resulting from the GenQuest
issuance of Series B preferred stock due to uncertainty regarding its ultimate
realization.
10. 401(K) PLAN
The Company has a 401(k) defined contribution plan (the Plan), as defined
by the Internal Revenue Code. The Plan is for the benefit of all qualifying
employees and permits voluntary contributions (by the employees) of up to 15% of
their base salary (as defined by the Plan). Currently, the Company does not
match contributions.
11. SUBSEQUENT EVENTS
Initial Public Offering
On July 25, 1997, the Company's Board of Directors authorized the Company
to file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with an initial public offering of its common
stock (the Offering). In connection with the Offering, the Company's Board of
Directors and stockholders authorized a class of 10,000,000 shares of Preferred
Stock and approved a reverse stock split of the outstanding shares of common
stock and convertible preferred stock on the basis of one new share of stock for
every 3.3 outstanding shares of stock. The reverse stock split will become
effective at the time an Amended and Restated Certificate of Incorporation is
filed with the Secretary of State of the State of Delaware. All outstanding
convertible preferred stock, common and common equivalent shares and per-share
amounts in the accompanying financial statements and related notes to financial
statements have been retroactively adjusted to give effect to the reverse stock
split.
In addition, in connection with the Offering, the Company has solicited and
received the consent of the holders of the Series A shares and Series B shares
to the automatic conversion of all of the outstanding Series A shares and Series
B shares upon the closing of the Offering. Immediately prior to the
effectiveness of
F-18
<PAGE> 95
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the reverse stock split and upon the closing of the Offering, all outstanding
Series A shares will automatically convert into 4,646,131 shares of common stock
and all of the outstanding Series B shares will automatically convert to 505,050
shares of common stock (in each case subject to adjustment upon the occurrence
of certain dilutive events). Unaudited pro forma stockholders' equity at June
30, 1997, as adjusted for the assumed conversion of the Series A shares and
Series B shares, is set forth in the accompanying balance sheet.
Amended Stock Option Plan
On July 25, 1997, the Company amended and restated the 1994 Plan, whereby
the number of shares authorized under the 1994 Plan was increased by 700,000
shares and is subject to automatic increase on the first trading day of each of
the ten calendar years beginning in 1998 and ending in 2007, in an amount equal
to 3% of the number of shares of common stock outstanding on December 31 of the
immediately preceding calendar year, up to a maximum of 500,000 shares each year
over the ten-year period.
1997 Employee Stock Purchase Plan
On July 25, 1997, the Company adopted the 1997 Employee Stock Purchase Plan
(the Purchase Plan). A total of 125,000 shares of common stock are reserved for
issuance under the Purchase Plan. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions at a price equal to 85% of
the fair market value of the Company's common stock on the first day or the last
day of the applicable six-month offering period, whichever is lower. The
Purchase Plan will begin on the effective date of the Company's initial public
offering.
The number of authorized shares is subject to automatic increase on the
first trading day of each of the 20 calendar years beginning in 1998 and ending
in 2017. If the number of shares reserved for issuance is less than 1% of the
outstanding common stock, the number of shares reserved for issuance shall be
increased until it equals 1% of the outstanding common stock (up to a maximum of
125,000 in any calendar year), or such lower amount as determined by the Board
of Directors. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder. If not terminated earlier, the Purchase
Plan will have a term of 20 years.
1997 Directors' Stock Option Plan
The Directors' Plan was adopted by the Company on July 25, 1997. A total of
200,000 shares of common stock has been reserved for issuance under the
Directors' Plan. The number of authorized shares is subject to automatic
increase, on the first trading day of each of the five calendar years beginning
in 1998 and ending in 2002 in an amount equal to 50,000 shares of common stock
or such lesser amount as the Board of Directors may establish. The Directors'
Plan provides for the grant of nonqualified stock options (NSOs) to nonemployee
directors of the Company. The Directors' Plan provides that each person who is a
nonemployee director on the date of the offering and each person who first
becomes a nonemployee director of the Company after the date of the offering
shall be granted NSOs to purchase 15,000 shares of common stock (the First
Option). Thereafter, on the date of each annual meeting of the Company's
stockholders, commencing in 1998, each nonemployee director shall be
automatically granted an additional option to purchase 5,000 shares of common
stock (a Subsequent Option) if, on such date, he or she shall have served on the
Company's Board of Directors for at least six months. The First Options and
Subsequent Options generally vest over 36 and 12 months, respectively, and have
10-year terms. The exercise price of such options shall be equal to the fair
market value of the Company's common stock on the date of grant of the option.
The Plan has a 10-year term unless terminated earlier.
F-19
<PAGE> 96
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Business............................ 26
Management.......................... 52
Certain Transactions................ 60
Principal Stockholders.............. 63
Description of Capital Stock........ 65
Shares Eligible for Future Sale..... 69
Underwriting........................ 71
Legal Matters....................... 72
Experts............................. 73
Additional Information.............. 73
Glossary of Scientific Terms........ 74
Index to Financial Statements....... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
======================================================
======================================================
2,750,000 SHARES
[CORIXA LOGO]
CORIXA CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
======================================================
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee.............................................. $ 13,417
NASD filing fee................................................... 4,928
Nasdaq listing fee................................................ 44,986
Printing and engraving expenses................................... 205,000
Legal fees and expenses........................................... 330,000
Accounting fees and expenses...................................... 160,000
Blue Sky qualification fees and expenses.......................... 5,000
Transfer Agent and Registrar fees................................. 10,500
Miscellaneous fees and expenses................................... 26,169
Total................................................... $ 800,000
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of the
Registrant provide that: (i) the Registrant is required to indemnify its
directors, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary; (ii)
the Registrant may, in its discretion, indemnify officers, employees and agents
in those circumstances where indemnification is not required by law; (iii) the
Registrant is required to advance expenses, as incurred, to its directors in
connection with defending a proceeding (except that it is not required to
advance expenses to a person against whom the Registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit);
(iv) the rights conferred in the Bylaws are not exclusive, and the Registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (v) the Registrant may not retroactively
amend the Bylaw provisions in a way that it adverse to such directors, executive
officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors that provide the maximum indemnity allowed to directors
and executive officers by Section 145 of the Delaware General Corporation Law
and the Bylaws, as well as certain additional procedural protections. In
addition, such indemnity agreements provide that directors will be indemnified
to the fullest possible extent not prohibited by law against all expenses
(including attorney's fees) and settlement amounts paid or incurred by them in
any action or proceeding, including any derivative action by or in the right of
the Registrant, on account of their services as directors or executive officers
of the Registrant or as directors or officers of any other Company or enterprise
when they are serving in such capacities at the request of the Registrant. The
Company will not be obligated pursuant to the indemnity agreements to indemnify
or advance expenses to an indemnified party with respect to proceedings or
claims initiated by the indemnified party and not by way of defense, except with
respect to proceedings specifically authorized by the Board of Directors or
brought to enforce a right to indemnification under the indemnity agreement, the
Company's Bylaws or any statute or law. Under the agreements, the Company is not
obligated to indemnify the indemnified party (i) for any expenses incurred by
II-1
<PAGE> 98
the indemnified party with respect to any proceeding instituted by the
indemnified party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous; (ii) for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement; (iii) with respect to any proceeding
brought by the Company against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (iv) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the Company pursuant to the
provisions of Section 16(b) of the Exchange Act and related laws; (v) on account
of the indemnified party's conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest, or to constitute willful
misconduct or a knowing violation of the law; (vi) an account of any conduct
from which the indemnified party derived an improper personal benefit; (vii) on
account of conduct the indemnified party believed to be contrary to the best
interests of the Company or its stockholders; (viii) on account of conduct that
constituted a breach of the indemnified party's duty of loyalty to the Company
or its stockholders; or (ix) if a final decision by a court having jurisdiction
in the matter shall determine that such indemnification is not lawful.
The indemnification provision in the Bylaws and the indemnification
agreements entered into between the Registrant and its directors, may be
sufficiently broad to permit indemnification of the Registrant's directors for
liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since September 8, 1994 (the date of incorporation of the Company), the
Company has issued and sold the following securities:
1. In September 1994, the Company issued and sold an aggregate of
2,338,048 shares of Common Stock to nine founders at a purchase price of
$0.017 per share.
2. On September 30, 1994, the Company issued 115,863 shares of Common
Stock in connection with the merger of Iasys Corporation with and into the
Company, in addition the Company repurchased 3,333 shares of common stock
from Iasys.
3. From September 30, 1994 to March 31, 1995, the Company issued and
sold, pursuant to a Series A Preferred Stock Purchase Agreement, an
aggregate of 4,646,131 shares of Series A Preferred Stock to 16 investors
at a purchase price of $3.30 per share.
4. From December 2, 1994 to January 4, 1995, the Company issued
warrants to purchase an aggregate of 413,191 shares of Common Stock at an
exercise price of $0.33 per share.
5. On December 9, 1994, January 1, 1996 and April 1, 1996, the Company
issued warrants to purchase an aggregate of 195,454 shares of Series A
Preferred Stock at exercise prices ranging from $3.30 to $6.60.
6. From January 1, 1995 to August 20, 1997, the Company issued 77,264
shares of Common Stock at a value of $0.33 per share in connection with the
entering into of certain collaboration agreements and the reaching of
certain milestones or other events pursuant to such agreements.
7. On October 1, 1995, the Company transferred 5,871 shares of Common
Stock to the Seattle Biomedical Research Institute ("SBRI") and an
individual affiliated with SBRI, 2,537 of which represent a new issuance,
in exchange for certain intellectual property rights.
8. On May 10, 1996, the Company issued and sold, pursuant to a Series
B Preferred Stock Purchase Agreement, an aggregate of 505,050 shares of
Series B Preferred Stock to one investor at a per share price of $9.90.
9. On May 20, 1996 and May 31, 1996, the Company issued warrants to
purchase 38,585 shares of Common Stock at an exercise price of $6.60 per
share.
II-2
<PAGE> 99
10. On May 22, 1996, the Company issued a warrant to purchase 75,757
shares of Common Stock at an exercise price of $0.003 per share.
11. On December 23, 1996, the Company issued warrants to each holder
of Series B Preferred Stock of GenQuest to purchase up to an aggregate of
454,533 shares of the Company's Series B Preferred Stock at an exercise
price of $9.90 per share.
12. From February 1, 1996 through June 30, 1997, the Company issued
117,327 shares of Common Stock at a weighted average exercise price of
$0.55 per share to eleven employees, directors and consultants, pursuant to
the exercise of stock options granted under the 1994 Plan.
The sales and issuances of securities in the transaction described in
paragraphs 1-10 were deemed to be exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act") in reliance on Section 4(2) of
the Securities Act or Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering. The sales and issuances of securities in
the transaction described in paragraph 11 were deemed to be exempt from
registration under the Securities Act, by virtue of Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates, options and warrants issued in such transactions. All recipients
had adequate access, through their employment or other relationships with the
Company, to information about the Company.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of Registrant
3.2* Form of Amended and Restated Certificate of Incorporation of Registrant to be
filed with the Delaware Secretary of State
3.3 Bylaws of Registrant
4.1 Specimen Common Stock Certificate
5.1 Opinion of Venture Law Group, A Professional Corporation
10.1* 1994 Amended and Restated Stock Option and Restricted Stock Plan and forms of
stock purchase and stock option agreement
10.2* 1997 Directors' Stock Option Plan and form of stock option agreement
10.3* 1997 Employee Stock Purchase Plan and form of subscription agreement
10.4 Corixa Corporation 401(k) Savings & Retirement Plan
10.5* Form of Indemnification Agreement
10.6* Amended and Restated Investors' Rights Agreement dated as of May 10, 1996
between Registrant and certain holders of its capital stock
10.7* Lease Agreement dated October 28, 1994 and amended December 29, 1995 between
Registrant and Fred Hutchinson Cancer Research Center
10.8* Lease Agreement dated May 31, 1996 between Registrant and Health Science
Properties, Inc.
10.9+* Tuberculosis Collaboration and License Agreement between Registrant and
SmithKline Beecham Biologicals S.A. dated October 6, 1995
10.10+* Tuberculosis Collaboration and License Agreement Extension between Registrant
and SmithKline Beecham Biologicals S.A. dated February 25, 1997
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
10.11+* Option Agreement between Registrant and SmithKline Beecham Biologicals S.A.
dated March 1, 1997
10.12+* Special Biologicals and Material Transfer Agreement between Registrant and
SmithKline Beecham Biologicals S.A. dated March 1, 1997
10.13+* Breast Cancer Collaboration and License Agreement between Registrant and
SmithKline Beecham Biologicals S.A. dated March 1, 1997
10.14+* Prostate Cancer Collaboration and License Agreement between Registrant and
SmithKline Beecham Biologicals S.A. dated March 1, 1997
10.15+* Research Collaboration and License Agreement between Registrant and CellPro,
Incorporated dated November 1, 1995
10.16+* First Amendment to Research Collaboration and License Agreement between
Registrant and CellPro, Incorporated dated January 1, 1997
10.17+* Research Agreement between Registrant and ZymoGenetics, Inc. dated September
30, 1996
10.18+* Licensing Agreement between Registrant and Dana-Farber Cancer Institute, Inc.
dated January 1, 1995
10.19+* License, Development and Supply Agreement between Registrant and Abbott
Laboratories dated July 24, 1997
10.20+* Option and License Agreement between Registrant and Pasteur Merieux Connaught
dated December 23, 1996
10.21* Amendment to Option and License Agreement between Registrant and Pasteur
Merieux Connaught dated March 28, 1997
10.22+* Amended and Restated License and Research Collaboration Agreement dated
December 23, 1996 between Registrant and GenQuest, Inc.
10.23+ Amendment No. 1 to the Amended and Restated License and Research
Collaboration Agreement dated January 1, 1997 by and between Registrant and
GenQuest, Inc.
10.24+* Form of Amended and Restated Call Option Agreement dated December 23, 1996 by
and among Registrant, GenQuest, Inc. and investors of GenQuest listed on
Exhibit A thereto
10.25+* Amended and Restated Administrative Services and Management Agreement dated
December 23, 1996 by and between Registrant and GenQuest, Inc.
10.26+* Amended and Restated Research Services and Intellectual Property Agreement
effective as of January 1, 1997 by and between Registrant and the Infectious
Disease Research Institute
10.27+* License Agreement dated November 20, 1995 by and between Registrant and
Health Research, Inc.
10.28* Amendment No. 1 to License Agreement dated January 1, 1997 by and between
Registrant and Health Research, Inc.
10.29+* License Agreement dated May 22, 1996 by and among Registrant, Southern
Research Institute and University of Alabama at Birmingham Research
Foundation
10.30+* Amendment No. 1 to License Agreement dated April 30, 1997 by and among
Registrant, Southern Research Institute and University of Alabama at
Birmingham Research Foundation
11.1* Statement of Computation of Pro Forma Net Loss Per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.3 Consent of Venture Law Group, A Professional Corporation (included in Exhibit
5.1)
24.1* Power of Attorney (see page II-6)
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested.
II-4
<PAGE> 101
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 hereunder, 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 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Seattle, State of Washington, on this 19th day of September, 1997.
CORIXA CORPORATION
By: /s/ STEVEN GILLIS
------------------------------------
Steven Gillis
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<S> <C> <C>
/s/ STEVEN GILLIS President, Chief Executive September 19, 1997
---------------------------------------- Officer and Director
(Steven Gillis) (Principal Executive
Officer)
/s/ MICHELLE BURRIS* Vice President, Finance and September 19, 1997
---------------------------------------- Administration (Principal
(Michelle Burris) Financial and Accounting
Officer)
/s/ MARK MCDADE* Executive Vice President, September 19, 1997
---------------------------------------- Chief
(Mark McDade) Operating Officer and
Director
/s/ JOSEPH S. LACOB* Chairman of the Board of September 19, 1997
---------------------------------------- Directors
(Joseph S. Lacob)
/s/ ARNOLD L. ORONSKY* Director September 19, 1997
----------------------------------------
(Arnold L. Oronsky)
/s/ ANDREW E. SENYEI* Director September 19, 1997
----------------------------------------
(Andrew E. Senyei)
*By: /s/ STEVEN GILLIS
-------------------------------------
Steven Gillis, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
-------- ------------------------------------------------------------------ ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement....................................
3.1* Amended and Restated Certificate of Incorporation of Registrant...
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed with the Delaware Secretary of State.......
3.3 Bylaws of Registrant..............................................
4.1 Specimen Common Stock Certificate.................................
5.1 Opinion of Venture Law Group, A Professional Corporation..........
10.1* 1994 Amended and Restated Stock Option and Restricted Stock Plan
and forms of stock purchase and stock option agreement............
10.2* 1997 Directors' Stock Option Plan and form of stock option
agreement.........................................................
10.3* 1997 Employee Stock Purchase Plan and form of subscription
agreement.........................................................
10.4 Corixa Corporation 401(k) Savings & Retirement Plan...............
10.5* Form of Indemnification Agreement.................................
10.6* Amended and Restated Investors' Rights Agreement dated as of May
10, 1996 between Registrant and certain holders of its capital
stock.............................................................
10.7* Lease Agreement dated October 28, 1994 and amended December 29,
1995 between Registrant and Fred Hutchinson Cancer Research
Center............................................................
10.8* Lease Agreement dated May 31, 1996 between Registrant and Health
Science Properties, Inc...........................................
10.9+* Tuberculosis Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated October
6, 1995...........................................................
10.10+* Tuberculosis Collaboration and License Agreement Extension between
Registrant and SmithKline Beecham Biologicals S.A. dated February
25, 1997..........................................................
10.11+* Option Agreement between Registrant and SmithKline Beecham
Biologicals S.A. dated March 1, 1997..............................
10.12+* Special Biologicals and Material Transfer Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated March 1,
1997..............................................................
10.13+* Breast Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated March 1,
1997..............................................................
10.14+* Prostate Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated March 1,
1997..............................................................
10.15+* Research Collaboration and License Agreement between Registrant
and CellPro, Incorporated dated November 1, 1995..................
10.16+* First Amendment to Research Collaboration and License Agreement
between Registrant and CellPro, Incorporated dated January 1,
1997..............................................................
10.17+* Research Agreement between Registrant and ZymoGenetics, Inc. dated
September 30, 1996................................................
10.18+* Licensing Agreement between Registrant and Dana-Farber Cancer
Institute, Inc. dated January 1, 1995.............................
10.19+* License, Development and Supply Agreement between Registrant and
Abbott Laboratories dated July 24, 1997...........................
10.20+* Option and License Agreement between Registrant and Pasteur
Merieux Connaught dated December 23, 1996.........................
10.21* Amendment to Option and License Agreement between Registrant and
Pasteur Merieux Connaught dated March 28, 1997....................
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
-------- ------------------------------------------------------------------ ------------
<S> <C> <C>
10.22+* Amended and Restated License and Research Collaboration Agreement
dated December 23, 1996 between Registrant and GenQuest, Inc. ....
10.23+ Amendment No. 1 to the Amended and Restated License and Research
Collaboration Agreement dated January 1, 1997 by and between
Registrant and GenQuest, Inc. ....................................
10.24+* Form of Amended and Restated Call Option Agreement dated December
23, 1996 by and among Registrant, GenQuest, Inc. and investors of
GenQuest listed on Exhibit A thereto..............................
10.25+* Amended and Restated Administrative Services and Management
Agreement dated December 23, 1996 by and between Registrant and
GenQuest, Inc. ...................................................
10.26+* Amended and Restated Research Services and Intellectual Property
Agreement effective as of January 1, 1997 by and between
Registrant and the Infectious Disease Research Institute..........
10.27+* License Agreement dated November 20, 1995 by and between
Registrant and Health Research, Inc. .............................
10.28* Amendment No. 1 to License Agreement dated January 1, 1997 by and
between Registrant and Health Research, Inc. .....................
10.29+* License Agreement dated May 22, 1996 by and among Registrant,
Southern Research Institute and University of Alabama at
Birmingham Research Foundation....................................
10.30+* Amendment No. 1 to License Agreement dated April 30, 1997 by and
among Registrant, Southern Research Institute and University of
Alabama at Birmingham Research Foundation.........................
11.1* Statement of Computation of Pro Forma Net Loss Per Share..........
23.1 Consent of Ernst & Young LLP, Independent Auditors................
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors............
23.3 Consent of Venture Law Group, A Professional Corporation (included
in Exhibit 5.1)...................................................
24.1* Power of Attorney (see page II-6).................................
27.1* Financial Data Schedule...........................................
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested.
<PAGE> 1
Exhibit 1.1
2,750,000 SHARES
CORIXA CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
September ___, 1997
LEHMAN BROTHERS INC.
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Corixa Corporation, a Delaware corporation (the "Company"),
proposes to sell 2,750,000 shares (the "Firm Stock") of the Company's Common
Stock, par value $0.001 per share (the "Common Stock"). In addition, the
Company proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 412,500 shares of the
Common Stock on the terms and for the purposes set forth in Section 2 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the
Company. The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 with
respect to the Stock has (i) been prepared by the Company in
conformity with the requirements of the United States
Securities Act of 1933 (the "Securities Act") and the rules
and regulations (the "Rule and Regulations") of the United
States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement and all the
amendments thereto have been delivered by the Company to you
as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time"
means the date and the time as of which such registration
statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission;
"Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in
such registration
1.
<PAGE> 2
statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all
exhibits and financial statements and schedules, all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 5(a) hereof and deemed
to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations and any registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations; and "Prospectus"
means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of
the Rules and Regulations. The Commission has not issued any
order preventing or suspending the use of any Preliminary
Prospectus.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the case
may be, conform in all material respects to the requirements
of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; provided that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the state of Delaware, is duly qualified to do
business and is in good standing as a foreign corporation in
each jurisdiction in which its ownership or lease of property
or the conduct of its business requires such qualification,
except for jurisdictions in which the failure to so qualify
would not in the aggregate have a material adverse effect upon
the Company. The Company has all requisite corporate power
and authority necessary to own or hold its properties and to
conduct its business as described in the Prospectus.
(d) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued and
outstanding shares of capital stock of the Company have been
duly and validly authorized and issued, are fully paid and
non- assessable and conform in all material respects to the
description thereof contained in the Prospectus.
2.
<PAGE> 3
(e) The unissued shares of the Stock to be issued
and sold by the Company to the Underwriters hereunder have
been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and non-assessable; and
the Stock will conform to the description thereof contained in
the Prospectus.
(f) This Agreement has been duly authorized,
executed and delivered by the Company.
(g) The execution, delivery and performance of
this Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the
Company is bound or to which any of the property or assets of
the Company is subject, except where such conflict, breach,
violation or default would not have a material adverse effect
on the financial position, stockholders' equity, results of
operations, business or prospects of the Company (hereinafter
a "Material Adverse Effect"), nor will such actions result in
any violation of the provisions of the charter or by-laws of
the Company or any statute, order, rule or regulation of any
court or governmental agency or body having jurisdiction over
the Company or any of its properties or assets; and except for
the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities
Exchange Act of 1934 (the "Exchange Act") and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby.
(h) Except as described in the Prospectus, there
are no contracts, agreements or understandings between the
Company and any person granting such person the right (other
than rights which have been waived or satisfied) to require
the Company to file a registration statement under the
Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company
to include such securities in the securities registered
pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement
filed by the Company under the Securities Act.
(i) Except as described in the Prospectus, the
Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A, or
Regulations D or S, of the Securities Act, other than shares
issued pursuant to
3.
<PAGE> 4
employee benefit plans, qualified stock options plans or other
employee compensation plans or pursuant to outstanding
contractual obligations which have been disclosed in writing
to the Representatives, options, rights or warrants.
(j) The Company has not sustained, since the date
of the latest audited financial statements included in the
Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any material change in the
capital stock, or any change in the long-term debt (other than
pursuant to currently outstanding capital lease line
arrangements), of the Company or any material adverse change,
or any development involving a prospective material adverse
change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company, otherwise than as set forth or
contemplated in the Prospectus.
(k) The financial statements (including the
related notes and supporting schedules) filed as part of the
Registration Statement or included in the Prospectus present
fairly the financial condition and results of operations of
the Company, at the dates and for the periods indicated, and
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout
the periods involved.
(l) Ernst & Young LLP, who have certified certain
financial statements of the Company, whose report appears in
the Prospectus and who have delivered the initial letter
referred to in Section 7(g) hereof, are independent public
accountants as required by the Securities Act and the Rules
and Regulations.
(m) Except as described in the Prospectus, the
Company owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of its
business as now conducted and has no reason to believe that
the conduct of its business will conflict with, and has not
received any notice of any claim of conflict with, any such
rights of others.
(n) There are no legal or governmental
proceedings pending to which the Company is a party or of
which any property or assets of the Company is the subject
which are required to be described in the Prospectus and which
are not so described; and to the Company's knowledge, no such
proceedings are threatened or overtly contemplated by
governmental authorities or others.
4.
<PAGE> 5
(o) There are no contracts or other documents
which are required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the Securities
Act or by the Rules and Regulations which have not been
described in the Prospectus or filed as exhibits to the
Registration Statement.
(p) No relationship, direct or indirect, exists
between or among the Company on the one hand, and the
directors, officers, stockholders, customers or suppliers of
the Company on the other hand, which is required to be
described in the Prospectus which is not so described.
(q) The Company (i) makes and keeps accurate
books and records in all material respects and (ii) maintains
internal accounting controls which provide reasonable
assurance that (A) all transactions are executed in accordance
with management's authorization, (B) all transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability
for its assets is compared with existing assets at reasonable
intervals.
(r) The Company (i) is not in violation of its
charter or by-laws, (ii) is not in default in any material
respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is
a party or by which it is bound or to which any of its
properties or assets is subject and (iii) is not in violation
of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets is subject, the
effect of which violation in (iii) above would have a Material
Adverse Effect, and the Company or has not failed to obtain
any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business as
described in the Prospectus.
2. Purchase of the Stock by the Underwriters. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company agrees to sell 2,750,000
shares of the Firm Stock to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of
shares of the Firm Stock set opposite that Underwriter's name in Schedule 1
hereto. The respective purchase obligations of the Underwriters with respect
to the Firm Stock shall be rounded among the Underwriters to avoid fractional
shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option
to purchase up to 412,500 shares of Option Stock. Such option is granted
solely for the purpose of covering over-allotments in the sale of Firm Stock
and is exercisable as provided in Section 4 hereof.
5.
<PAGE> 6
Shares of Option Stock shall be purchased severally for the account of the
Underwriters in proportion to the number of shares of Firm Stock set opposite
the name of such Underwriters in Schedule 1 hereto. The respective purchase
obligations of each Underwriter with respect to the Option Stock shall be
adjusted by the Representatives so that no Underwriter shall be obligated to
purchase Option Stock other than in 100 share amounts. The price of both the
Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock
to be delivered on the First Delivery Date or the Second Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all the Stock
to be purchased on such Delivery Date as provided herein.
3. Offering of Stock by the Underwriters. Upon
authorization by the Representatives of the release of the Firm Stock, the
several Underwriters propose to offer the Firm Stock for sale upon the terms
and conditions set forth in the Prospectus.
It is understood that 137,500 shares of the Firm Stock will
initially be reserved by the several Underwriters for offer and sale upon the
terms and conditions set forth in the Prospectus and in accordance with the
rules and regulations of the National Association of Securities Dealers, Inc.
to employees and persons having business relationships with the Company who
have heretofore delivered to the Representatives offers or indications of
interest to purchase shares of Firm Stock in form satisfactory to the
Representatives, and that any allocation of such Firm Stock among such persons
will be made in accordance with timely directions received by the
Representatives from the Company; provided, that under no circumstances will
the Representatives or any Underwriter be liable to the Company or to any such
person for any action taken or omitted in good faith in connection with such
offering to employees and persons having business relationships with the
Company. It is further understood that any shares of such Firm Stock which are
not purchased by such persons will be offered by the Underwriters to the public
upon the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of
and payment for the Firm Stock shall be made at the office of Venture Law
Group, 4750 Carillon Point, Kirkland, Washington, at 10:00 A.M., New York City
time, on the fourth full business day following the date of this Agreement or
at such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to
the Representatives for the account of each Underwriter against payment to or
upon the order of the Company of the purchase price by federal funds wire
transfer. Such payment shall be made upon delivery of the Firm Stock to the
Representatives for the respective accounts of the several Underwriters
(including, without limitation, by "full-fast" electronic transfer by
Depository Trust Company) against receipt therefor signed by Lehman Brothers
Inc. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation
of each Underwriter hereunder. Upon delivery, the Firm Stock shall be
registered in such names and in such denominations as the Representatives shall
request in writing not less than two full
6.
<PAGE> 7
business days prior to the First Delivery Date. For the purpose of expediting
the checking and packaging of the certificates for the Stock, the Company shall
make the certificates representing the Firm Stock available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 2 may be exercised by written
notice being given to the Company by the Representatives. Such notice shall
set forth the aggregate number of shares of Option Stock as to which the option
is being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been
exercised nor later than the fifth business day after the date on which the
option shall have been exercised. The date and time the shares of Option Stock
are delivered are sometimes referred to as the "Second Delivery Date" and the
First Delivery Date and the Second Delivery Date are sometimes each referred to
as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this
Section 4 (or at such other place as shall be determined by agreement between
the Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by federal funds wire transfer.
Such payment shall be made upon delivery of the Firm Stock to the
Representatives for the respective accounts of the several Underwriters
(including, without limitation, by "full-fast" electronic transfer by
Depository Trust Company) against receipt therefor signed by Lehman Brothers
Inc. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation
of each Underwriter hereunder. Upon delivery, the Option Stock shall be
registered in such names and in such denominations as the Representatives shall
request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery
Date.
7.
<PAGE> 8
5. Further Agreements of the Company. The Company
agrees:
(a) To prepare the Prospectus in a form approved
by the Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than
Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has
been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to
furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a signed
copy of the Registration Statement as originally filed with
the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives
such number of the following documents as the Representatives
shall reasonably request: (i) conformed copies of the
Registration Statement as originally filed with the Commission
and each amendment thereto (in each case excluding exhibits
other than this Agreement and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required
at any time after the Effective Time in connection with the
offering or sale of the Stock or any other securities relating
thereto and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to
comply with the Securities Act, to notify the Representatives
and, upon their request, to file such document and to prepare
and furnish without charge to each Underwriter and to
8.
<PAGE> 9
any dealer in securities as many copies as the Representatives
may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or
omission or effect such compliance.
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any
amendment to the Registration Statement or supplement to the
Prospectus or any Prospectus pursuant to Rule 424 of the Rules
and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective
Date, to make generally available to the Company's security
holders and to deliver to the Representatives an earnings
statement of the Company (which need not be audited) complying
with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule
158);
(g) For a period of five years following the
Effective Date, to furnish to the Representatives copies of
all materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements
furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) For a period of five years following the
Effective Date, promptly from time to time to take such action
as the Representatives may reasonably request to qualify the
Stock for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; provided
that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 180 days from the Effective
Date, not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee
benefit plans, qualified
9.
<PAGE> 10
stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently
outstanding contractual obligations, options, warrants or
rights), or sell or grant options, rights or warrants with
respect to any shares of Common Stock or securities
convertible into or exchangeable for Common Stock (other than
the grant of options pursuant to option plans existing on the
date hereof or pursuant to currently outstanding contractual
obligations), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, in
each case without the prior written consent of Lehman Brothers
Inc.; provided that notwithstanding the foregoing, in
connection with corporate partnerships and other collaborative
arrangements that the Company may enter into during such 180
day period, the Company shall be allowed to issue, offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) shares of Common Stock and securities
convertible into or exchangeable for Common Stock, and to sell
or grant options, rights, or warrants with respect to shares
of Common Stock and securities convertible into or
exchangeable for Common Stock to such corporate partners or
collaborators, or designees thereof, without the prior written
consent of Lehman Brothers Inc.; provided further, that any
such corporate partner or collaborator, or designee thereof,
will be bound by and subject to the restrictions set forth in
this Section 5(i) for the remainder of such 180 day period;
(j) To cause each officer, director and
stockholder holding more than 1% of the outstanding securities
of the Company to furnish to the Representatives, prior to the
First Delivery Date, a letter or letters, in form and
substance reasonably satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree
not to offer, sell, contract to sell, make any short sale
(including, but not limited to, a "short against the box"),
pledge, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or securities convertible into or
exchangeable for Common Stock for a period of 180 days from
the Effective Date, without the prior written consent of
Lehman Brothers Inc.;
(k) Prior to the Effective Date, to apply for the
inclusion of the Stock on the Nasdaq National Market System
and to use its best efforts to complete that listing, subject
only to official notice of issuance, prior to the First
Delivery Date;
(l) To apply the net proceeds from the sale of
the Stock being sold by the Company as set forth in the
Prospectus; and
(m) To take such reasonable steps as shall be
necessary to ensure that the Company shall not become an
"investment company" within the meaning of
10.
<PAGE> 11
such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs
incident to the authorization, issuance, sale and delivery of the Stock and any
taxes payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement and any other related documents in connection with
the offering, purchase, sale and delivery of the Stock; (e) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (f) any applicable
listing or other fees; (g) the fees and expenses of qualifying the Stock under
the securities laws of the several jurisdictions as provided in Section 5(h)
and of preparing, printing and distributing a Blue Sky Memorandum (including
related fees and expenses of counsel to the Underwriters); (h) all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, incident to the offer and sale of shares of the Stock by
the Underwriters to employees and persons having business relationships with
the Company and its subsidiaries, as described in Section 3; and (i) all other
costs and expenses incident to the performance of the obligations of the
Company under this Agreement; provided that, except as provided in this Section
6 and in Section 11 the Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the Underwriters.
7. Conditions of Underwriters' Obligations. The
respective obligations of the Underwriters hereunder are subject to the
accuracy, when made and on each Delivery Date, of the representations and
warranties of the Company contained herein, to the performance by the Company
of its obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed
with the Commission in accordance with Section 5(a); no stop
order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or
threatened by the Commission; and any request of the
Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall
have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Cooley Godward LLP, counsel
for the Underwriters, is material or omits to state a fact
which, in the opinion of such
11.
<PAGE> 12
counsel, is material and is required to be stated therein or
is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal
matters incident to the authorization, form and validity of
this Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel
for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Venture Law Group shall have furnished to the
Representatives its written opinion, as counsel to the
Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
counsel for the Underwriters, to the effect that:
(i) The Company has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of the state of
Delaware, is duly qualified to do business and is
validly existing as a foreign corporation in each
jurisdiction in which its ownership or lease of
property or the conduct of its business requires such
qualification, except for jurisdictions in which the
failure to so qualify would not in the aggregate have
a material adverse effect on the Company. The
Company has all requisite corporate authority
necessary to own or hold its properties and conduct
its business as described in the Prospectus;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the issued and outstanding shares of capital
stock of the Company have been duly and validly
authorized and issued, are fully paid and
non-assessable and conform in all material respects
to the description thereof contained in the
Prospectus, and the shares of Stock being delivered
on such Delivery Date have been duly and validly
authorized and, when delivered by the Company in
accordance with the terms hereof, will be duly and
validly issued, fully paid and non-assessable and
conform in all material respects to the description
thereof contained in the Prospectus;
(iii) There are no preemptive or other
rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any
shares of the Stock pursuant to the Company's charter
or by-laws or any agreement or other instrument known
to such counsel;
(iv) To such counsel's knowledge and
other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which
the Company is a party or of which any property or
assets of the
12.
<PAGE> 13
Company is the subject which are required to be
described in the Prospectus and which are not so
described; and, to such counsel's knowledge, no such
proceedings are threatened by governmental
authorities or others;
(v) The Registration Statement was
declared effective under the Securities Act as of the
date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date
specified therein and, to such counsel's knowledge,
no stop order suspending the effectiveness of the
Registration Statement has been issued and, to such
counsel's knowledge, no proceeding for that purpose
is pending or threatened by the Commission;
(vi) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements (including
supporting schedules) and financial data derived
therefrom, and other financial data and statistical
information included therein, as to which such
counsel need express no opinion) comply as to form in
all material respects with the requirements of the
Securities Act and the Rules and Regulations;
(vii) The statements (a) in the Prospectus
under captions "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale,"
and (b) in the Registration Statement in Part II,
Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters,
documents or proceedings set forth therein, fairly
present in all material respects the information
called for with respect to such legal matters,
documents and proceedings and fairly summarize in all
material respects the matters referred to therein;
(viii) To such counsel's knowledge, there
are no contracts or other documents which are
required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which
have not been described or filed as exhibits to the
Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(ix) This Agreement has been duly
authorized, executed and delivered by the Company;
(x) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the
Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation
of the
13.
<PAGE> 14
transactions contemplated hereby (other than the
indemnification and contribution obligations of the
Company hereunder, as to which such counsel need
express no opinion) will not conflict with or result
in a breach or violation of any of the terms or
provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel
to which the Company is a party or by which the
Company is bound or to which any of the property or
assets of the Company is subject and which is filed
as an exhibit to the Registration Statement, nor will
such actions result in any violation of the
provisions of the charter or by-laws of the Company
or any statute, order, rule or regulation known to
such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of
its properties or assets; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this Agreement
by the Company and the consummation of the
transactions contemplated hereby; and
(xi) To the best of such counsel's
knowledge, except as described in the Prospectus,
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of
the United States of America, the laws of the State of
Washington and the General Corporation Law of the State of
Delaware and that such counsel is not admitted in the State of
Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to
the effect that (x) such counsel has acted as counsel to the
Company on a regular basis (although the Company is also
represented by its Corporate Counsel and, with respect to
patent and certain other intellectual property matters by
other outside counsel), has acted as counsel to the Company in
connection with previous financing transactions and has acted
as counsel to the Company in connection with the preparation
of the
14.
<PAGE> 15
Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead it
to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances in which they were made, not
misleading (except with respect to the financial statements
(including supporting schedules) and financial data derived
therefrom, and other financial data and statistical
information included therein, as to which no such statement
need be expressed), or that the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading (except with respect to
the financial statements (including supporting schedules) and
financial data derived therefrom, and other financial data and
statistical information included therein, as to which no such
statement need be expressed). The foregoing opinion and
statement may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus except for the
statements made in the Prospectus under the captions "Shares
Eligible For Future Sale" and "Description of Capital Stock",
insofar as such statements relate to the Stock and concern
legal matters.
(e) Seed and Berry LLP shall have furnished to
the Representatives its written opinion as patent counsel to
the Company addressed to the Underwriters and dated such
Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
(i) the statements in the Registration
Statement and the Prospectus under the captions "Risk
Factors -- Dependence on Proprietary Technology and
Uncertainty of Patent Protection" and "Business --
Patents and Proprietary Technology" and certain
specified statements under the caption "Business"
generally, to the extent such statements constitute a
description or summary of the legal matters, documents
or proceedings relating to patent matters on which
such counsel has represented the Company (the
"Representation") and to the extent such legal
matters, documents or proceedings have been disclosed
to such counsel, are accurate and complete statements
and nothing has come to such counsel's attention that
causes such counsel to believe that such sections of
the Registration Statement and the Prospectus contain
any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading;
(ii) to the best of such counsel's
knowledge there are no legal or governmental
proceedings pending relating to patent rights, trade
15.
<PAGE> 16
secrets, trademarks, service marks or other
proprietary information or materials of the Company,
and to the best of such counsel's knowledge no such
proceedings are threatened or contemplated by
governmental authorities or others;
(iii) based solely upon a review of
matters which counsel has been engaged to provide
direct substantive attention, such counsel has no
reason to believe that the Company is infringing or
otherwise violating any patents, trade secrets,
trademarks, service marks or other proprietary rights
of others, and to the best of such counsel's
knowledge there are no infringements by others of any
of the Company's patents, trade secrets, trademarks,
service marks or other proprietary information or
materials which in the judgment of such counsel could
affect materially the use thereof by the Company; and
(iv) based solely upon a review of
matters which counsel has been engaged to provide
direct substantive attention, such counsel has no
reason to believe that the Company does not own or
possess adequate licenses or other rights to use all
material patents, patent applications and trademarks
described in the Prospectus and necessary to conduct
the business now being conducted by the Company as
described in the Prospectus.
(f) The Representatives shall have received from
Cooley Godward LLP, counsel for the Underwriters, such opinion
or opinions, dated such Delivery Date, with respect to the
issuance and sale of the Stock, the Registration Statement,
the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass
upon such matters.
(g) At the time of execution of this Agreement,
the Representatives shall have received from Ernst & Young
LLP, a letter, in form and substance satisfactory to the
Representatives, addressed to the Underwriters and dated the
date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date hereof (or,
with respect to matters involving changes or developments
since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial
information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection
with registered public offerings.
16.
<PAGE> 17
(h) With respect to the letter of referred to in
the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the
Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm
with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all
material respects the conclusions and findings set forth in
the initial letter.
(i) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of
its Chairman of the Board, its President or a Vice President
and its Vice President of Finance and Administration stating
that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 7(a) and
7(j) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(j) (i) The Company shall not have sustained
since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the
capital stock or long-term debt of the Company or any change,
or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus,
the
17.
<PAGE> 18
effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock
being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of
this Agreement there shall not have occurred any of the
following: (i) trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the
Company on any exchange or in the over-the-counter market,
shall have been suspended or minimum prices shall have been
generally established on any such exchange or such market by
the Commission, by such exchange or by any other regulatory
body or governmental authority having jurisdiction, (ii) a
general banking moratorium shall have been declared by Federal
or New York or Washington State authorities, (iii) the United
States shall have become engaged in active hostilities, there
shall have been an escalation in active hostilities involving
the United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there
shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of
a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public
offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in
the Prospectus.
(l) The Nasdaq National Market System shall have
approved the Stock for inclusion, subject only to official
notice of issuance and evidence of satisfactory distribution.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless
each Underwriter its officers and employees and each person,
if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock),
to which that Underwriter, officer, employee or controlling
person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact
18.
<PAGE> 19
contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document
prepared or executed by the Company (or based upon any written
information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the
securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called
a "Blue Sky Application"), (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment
or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to,
the Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company
shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct), and shall
reimburse each Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer,
employee or controlling person in connection with
investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or
in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written
information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein pursuant to
Section 8(e) hereof; provided further, that the indemnity
agreement provided in this Section 8(a) with respect to any
Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage,
liability or action based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged
omission to state therein a material fact purchased Stock, if
a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the
time required by the Securities Act and the Rules and
Regulations thereunder unless the failure to deliver the
corrected Prospectus is the result of noncompliance by the
Company with Section 5(c) hereof. The foregoing indemnity
agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
19.
<PAGE> 20
(b) Each Underwriter, severally and not jointly,
shall indemnify and hold harmless the Company, each of its
officers and employees, each of its directors, and each
person, if any, who controls the Company within the meaning of
the Securities Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer,
employee or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment
or supplement thereto, or (B) in any Blue Sky Application or
(ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity
with written information concerning such Underwriter furnished
to the Company through the Representatives by or on behalf of
that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer, employee
or controlling person promptly upon demand for any legal or
other expenses reasonably incurred by the Company or any such
director, officer, employee or controlling person in
connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or
action as such expenses are incurred. The foregoing indemnity
agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such
director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified
party under this Section 8 of notice of any claim or the
commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement
of that action; provided, however, that the failure to notify
the indemnifying party shall not relieve it from any liability
which it may have under this Section 8 except to the extent it
has been materially prejudiced by such failure and, provided
further, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 8. If
any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this
Section 8 for any legal or
20.
<PAGE> 21
other expenses subsequently incurred by the indemnified party
in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that the
Representatives shall have the right to employ counsel to
represent jointly the Representatives and those other
Underwriters and their respective officers, employees and
controlling persons who may be subject to liability arising
out of any claim in respect of which indemnity may be sought
by the Underwriters against the Company under this Section 8
if, in the reasonable judgment of the Representatives, it is
advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees
and expenses of such separate counsel shall be paid by the
Company. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought
hereunder unless such settlement, compromise or consent
includes an unconditional release of each indemnified party
from all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such
action effected without its prior written consent (which
consent shall not be unreasonably withheld), but if settled
with the consent of the indemnifying party or if there be a
final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this
Section 8 shall for any reason be unavailable to or
insufficient to hold harmless an indemnified party under
Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action 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
loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering
of the Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other
with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other with respect
to such offering shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Stock
purchased under this Agreement (before deducting expenses)
received by the Company, on the one hand, and the total
underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased
under this
21.
<PAGE> 22
Agreement, on the other hand, bear to the total gross proceeds
from the offering of the shares of the Stock under this
Agreement, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information
supplied by the Company or the Underwriters, the intent of the
parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to
this Section 8(d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as
a result of the loss, claim, damage or liability, or action in
respect thereof, referred to above in this Section 8(d) shall
be deemed to include, for purposes of this Section 8(d), 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 Section 8(d), no Underwriter shall be
required to contribute any amount in excess of the amount by
which the total price at which the Stock underwritten by it
and distributed to the public was offered to the public
exceeds the amount of any damages which such Underwriter has
otherwise paid or become liable to pay by reason of any untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 8(d) are
several in proportion to their respective underwriting
obligations and not joint.
(e) The Representatives, on behalf of the several
Underwriters, severally represent and warrant to the Company
that (a) the statements with respect to the public offering of
the Stock by the Underwriters set forth on the cover page of
and the legend concerning over-allotments on the inside front
cover page of the Prospectus, (b) the information set forth in
the first, second and sixth paragraphs under the caption
"Underwriting" in the Prospectus and (c) the information with
respect to over-allotments and stabilization set forth in the
eighth paragraph and the first and second sentences of the
ninth paragraph under the caption "Underwriting" in the
Prospectus (collectively the "Underwriter Information") is
correct and constitutes the only information concerning such
Underwriters furnished in writing to the Company by or on
behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus. The Company
acknowledges that it has received the Underwriter Information.
The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the
Representatives to enter into this Agreement on its behalf and
to act for it in the manner herein provided.
22.
<PAGE> 23
9. Defaulting Underwriters. If, on either Delivery Date,
any Underwriter defaults in the performance of its obligations under this
Agreement, the remaining non-defaulting Underwriters shall be obligated to
purchase the Stock which the defaulting Underwriter agreed but failed to
purchase on such Delivery Date in the respective proportions which the number
of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; provided, however, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock
which the defaulting Underwriter or Underwriters agreed but failed to purchase
on such date exceeds 9.09% of the total number of shares of the Stock to be
purchased on such Delivery Date, and any remaining non-defaulting Underwriter
shall not be obligated to purchase more than 110% of the number of shares of
the Stock which it agreed to purchase on such Delivery Date pursuant to the
terms of Section 2. If the foregoing maximum is exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated,
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Sections 6 and 11. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Stock which a defaulting Underwriter agreed but
failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company for damages caused by
its default. If other underwriters are obligated or agree to purchase the
Stock of a defaulting or withdrawing Underwriter, either the Representatives or
the Company may postpone the Delivery Date for up to seven full business days
in order to effect any changes that in the opinion of counsel for the Company
or counsel for the Underwriters may be necessary in the Registration Statement,
the Prospectus or in any other document or arrangement.
10. Termination. The obligations of the Underwriters
hereunder may be terminated by the Representatives by notice given to and
received by the Company prior to delivery of and payment for the Firm Stock if,
prior to that time, any of the events described in Sections 7(j) or 7(k), shall
have occurred or if the Underwriters shall decline to purchase the Stock for
any reason permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If the
Company shall fail to tender the Stock for delivery to the Underwriters by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because
23.
<PAGE> 24
any other condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, the Company will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
shall pay the full amount thereof to the Representatives. If this Agreement is
terminated pursuant to Section 10 by reason of the default of one or more
Underwriters, the Company shall not be obligated to reimburse any defaulting
Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant
to Section 11(d), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent
by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
Michelle Burris (Fax: 206-667-5762).
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf
of the Representatives.
13. Persons Entitled to Benefit of Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters,
the Company, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(A) the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if any, who control any Underwriter within the meaning of
Section 15 of the Securities Act and (B) the indemnity agreement of the
Underwriters contained in Section 8(b) of this Agreement shall be deemed to be
for the benefit of directors of the Company, officers and employees of the
Company and any person controlling the Company within the meaning of Section 15
of the Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this
Section 16, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision contained herein.
24.
<PAGE> 25
14. Survival. The respective indemnities,
representations, warranties and agreements of the Company and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Stock and shall remain in full force and effect, regardless of any
investigation made by or on behalf of any of them or any person controlling any
of them.
15. Definition of the Term "Business Day". For purposes
of this Agreement, "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
16. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of New York.
17. Counterparts. This Agreement may be executed in one
or more counterparts and, if executed in more than one counterpart, the
executed counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
25.
<PAGE> 26
If the foregoing correctly sets forth the agreement between
the Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
CORIXA CORPORATION
By _____________________________________
Steven Gillis, Ph.D.
President and Chief Executive Officer
Accepted:
LEHMAN BROTHERS INC.
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By _____________________________
Authorized Representative
26.
<PAGE> 27
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc.
Invemed Associates, Inc.
Vector Securities
---------
Total
---------
</TABLE>
27.
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
CORIXA CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES.........................................................1
1.1 Registered Office.........................................................1
1.2 Other Offices.............................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................................1
2.1 Place Of Meetings.........................................................1
2.2 Annual Meeting............................................................1
2.3 Special Meeting...........................................................1
2.4 Manner Of Giving Notice; Affidavit Of Notice..............................2
2.5 Advance Notice Of Stockholder Nominees....................................2
2.6 Quorum....................................................................3
2.7 Adjourned Meeting; Notice.................................................4
2.8 Conduct Of Business.......................................................4
2.9 Voting....................................................................4
2.10 Waiver Of Notice.........................................................4
2.11 Record Date For Stockholder Notice; Voting; Giving Consents..............5
2.12 Proxies..................................................................5
ARTICLE III - DIRECTOR................................................................6
3.1 Powers....................................................................6
3.2 Number Of Directors.......................................................6
3.3 Election, Qualification And Term Of Office Of Directors...................6
3.4 Resignation And Vacancies.................................................6
3.5 Place Of Meetings; Meetings By Telephone..................................7
3.6 Regular Meetings..........................................................7
3.7 Special Meetings; Notice..................................................8
3.8 Quorum....................................................................8
3.9 Waiver Of Notice..........................................................8
3.10 Board Action By Written Consent Without A Meeting........................9
3.11 Fees And Compensation Of Directors.......................................9
3.12 Approval Of Loans To Officers............................................9
3.13 Removal Of Directors.....................................................9
3.14 Chairman Of The Board Of Directors.......................................9
ARTICLE IV - COMMITTEES..............................................................10
4.1 Committees Of Directors..................................................10
4.2 Committee Minutes........................................................10
4.3 Meetings And Action Of Committees........................................10
ARTICLE V - OFFICERS.................................................................11
5.1 Officers.................................................................11
5.2 Appointment Of Officers..................................................11
5.3 Subordinate Officers.....................................................11
5.4 Removal And Resignation Of Officers......................................11
5.5 Vacancies In Offices.....................................................12
5.6 Chief Executive Officer..................................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.7 President................................................................12
5.8 Vice Presidents..........................................................12
5.9 Secretary................................................................12
5.10 Chief Financial Officer.................................................13
5.11 Representation Of Shares Of Other Corporations..........................13
5.12 Authority And Duties Of Officers........................................14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.....14
6.1 Indemnification Of Directors And Officers................................14
6.2 Indemnification Of Others................................................14
6.3 Payment Of Expenses In Advance...........................................14
6.4 Indemnity Not Exclusive..................................................15
6.5 Insurance................................................................15
6.6 Conflicts................................................................15
ARTICLE VII - RECORDS AND REPORTS....................................................15
7.1 Maintenance And Inspection Of Records....................................15
7.2 Inspection By Directors..................................................16
7.3 Annual Statement To Stockholders.........................................16
ARTICLE VIII - GENERAL MATTERS.......................................................16
8.1 Checks...................................................................16
8.2 Execution Of Corporate Contracts And Instruments.........................16
8.3 Stock Certificates; Partly Paid Shares...................................17
8.4 Special Designation On Certificates......................................17
8.5 Lost Certificates........................................................18
8.6 Construction; Definitions................................................18
8.7 Dividends................................................................18
8.8 Fiscal Year..............................................................18
8.9 Seal.....................................................................18
8.10 Transfer Of Stock.......................................................18
8.11 Stock Transfer Agreements...............................................19
8.12 Registered Stockholders.................................................19
ARTICLE IX - AMENDMENTS..............................................................19
</TABLE>
<PAGE> 4
BYLAWS
OF
CORIXA CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is Corporation Service Company.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices at
any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of stockholders shall be held on such date,
time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors each year. At the meeting,
directors shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
(a) A special meeting of the stockholders may be called at any
time by the Board of Directors, the chairman of the board, the president or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than eighty percent of the votes at that meeting.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the chairman of the board or the president, the
request shall be in writing,
<PAGE> 5
specifying the time of such meeting and the general nature of the business
proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the president, any vice president, or the secretary of
the corporation. No business may be transacted at such special meeting otherwise
than as specified in such notice. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting
will be held at the time requested by the person or persons calling the meeting,
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting given in accordance with Section 2.2(b). Nominations of
persons for election to the board of directors may be made at a special meeting
of stockholders at which directors are to be selected pursuant to such notice of
meeting (i) by or at the direction of the board of directors or (ii) by any
stockholder of the corporation who is a stockholder of record at the time of
giving of notice provided for in this paragraph, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in Section
2.5.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
All notices of meetings of stockholders shall be in writing and
shall be sent or otherwise given in accordance with this Section 2.4 of these
Bylaws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting (or such longer
or shorter time as is required by Section 2.5 of these Bylaws, if applicable).
The notice shall specify the place, date, and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
Only persons who are nominated in accordance with the procedures
set forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.
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To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation not less than
sixty (60) days nor more than ninety (90) days prior to the meeting; provided,
however, that in the event that less than sixty (60) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this Section 2.5. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
2.6 QUORUM.
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
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2.7 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.
2.9 VOTING.
(a) The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
(b) Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
Bylaws.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
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ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER OF DIRECTORS.
Upon the adoption of these bylaws, the number of directors
constituting the entire Board of Directors shall be five. Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, directors
shall be elected at each annual meeting of stockholders to hold office until the
next annual meeting. Directors need not be stockholders unless so required by
the certificate of incorporation or these Bylaws, wherein other qualifications
for directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote of the stockholders
or by court order may be filled only by the affirmative vote of a majority of
the shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
quorum. Each director so elected shall hold office until the next annual meeting
of the stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or
these Bylaws:
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(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation
or these Bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
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3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.8 QUORUM.
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these Bylaws.
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3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the certificate of incorporation
or these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee. Written consents representing actions
taken by the board or committee may be executed by telex, telecopy or other
facsimile transmission, and such facsimile shall be valid and binding to the
same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the certificate of incorporation
or these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the corporation or of
its subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with [OR WITHOUT] cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of
the whole board, designate one or more committees, with each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (a) amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), (b) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, (d) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the provisions of Section 3.5 (place of meetings
and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum),
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Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of
these Bylaws, with such changes in the context of such provisions as are
necessary to substitute the committee and its members for the Board of Directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the Board of Directors and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
5.2 APPOINTMENT OF OFFICERS.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents as
the business of the corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract
of employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
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Any officer may resign at any time by giving written notice to
the attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the corporation. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all
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<PAGE> 16
meetings and actions of directors, committees of directors, and stockholders.
The minutes shall show the time and place of each meeting, the names of those
present at directors' meetings or committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
-13-
<PAGE> 17
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers
of the corporation shall respectively have such authority and perform such
duties in the management of the business of the corporation as may be designated
from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (a) who is or was
a director or officer of the corporation, (b) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
The corporation shall have the power, to the maximum extent and
in the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (a) who is or
was an employee or agent of the corporation, (b) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately
-14-
<PAGE> 18
be determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 INSURANCE.
The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any 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 the General
Corporation Law of Delaware.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article
VI, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The corporation shall, either at its principal executive offices
or at such place or places as designated by the Board of Directors, keep a
record of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these Bylaws as amended to
date, accounting books, and other records.
-15-
<PAGE> 19
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to so
act on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
-16-
<PAGE> 20
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer or an assistant treasurer, or
the secretary or an assistant secretary of such corporation representing the
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the corporation is authorized to issue more than one class of
stock or more than one series of any class, then the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
-17-
<PAGE> 21
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions,
rules of construction, and definitions in the Delaware General Corporation Law
shall govern the construction of these Bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the
funds of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include but
not be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 FISCAL YEAR.
The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
The corporation may adopt a corporate seal, which may be altered
at pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession,
-18-
<PAGE> 22
assignation or authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or repealed
by the stockholders entitled to vote; provided, however, that the corporation
may, in its certificate of incorporation, confer the power to adopt, amend or
repeal Bylaws upon the directors; provided, further, any amendment to the Bylaws
that increases or reduces the authorized number of directors shall require the
affirmative approval of at least two-thirds of the directors. The fact that such
power has been so conferred upon the directors shall not divest the stockholders
of the power, nor limit their power to adopt, amend or repeal Bylaws.
Notwithstanding the foregoing, any amendments to this Article IX shall require
approval of holders of two-thirds of the outstanding Common Stock.
-19-
<PAGE> 23
CERTIFICATE OF ADOPTION OF BYLAWS
OF
CORIXA CORPORATION
CERTIFICATE OF ADOPTION BY SECRETARY
The undersigned hereby certifies that the undersigned is the duly
elected, qualified, and acting Secretary of Corixa Corporation, a Delaware
corporation, and that the foregoing Bylaws were adopted as the Bylaws of the
corporation on July 25, 1997.
Executed this 25th day of July 1997.
/s/ William W. Ericson
----------------------------------------
William W. Ericson, Secretary
<PAGE> 1
Exhibit 4.1
[CORIXA CERTIFICATE]
THIS CERTIFICATE IS TRANSFERABLE IN
CHICAGO, ILLINOIS OR NEW YORK, NEW YORK
CUSIP 21887F 10 0
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
OF SHARES
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE PER SHARE, OF
CORIXA CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL]
/s/ WILLIAM W. ERICSON /s/ STEVEN GILLIS
- -------------------------------- --------------------------------
SECRETARY PRESIDENT AND CHIEF
EXECUTIVE OFFICER
[STAMP]
<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --______________ Custodian__________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act________________________________________
in common (State)
UNIF TRF MIN ACT -- ______________ Custodian (until age _____)
(Cust)
__________________ under Uniform Transfers
(Minor)
to Minors Act_____________________________
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED, ____________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------
X
------------------------------------------------------
X
------------------------------------------------------
THE SIGNATURE(S) TO THE ASSIGNMENT MUST CORRESPOND
NOTICE: WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15
<PAGE> 1
EXHIBIT 5.1
September 17, 1997
Corixa Corporation
1124 Columbia Street, Suite 200
Seattle, WA 98104
REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-32147)
-------------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-32147) (the "Registration Statement") filed by you, Corixa Corporation, with
the Securities and Exchange Commission on July 25, 1997, and as amended, in
connection with the registration under the Securities Act of 1933, as amended,
of shares of your Common Stock (the "Shares"). As your counsel in connection
with this transaction, we have examined the proceedings taken and we are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
WWE
<PAGE> 1
EXHIBIT 10.4
SUMMARY OF MATERIAL MODIFICATIONS
Your retirement plan has been amended effective as of December 12, 1994,
or, if later, the first day of the Plan's first plan year. The amendment was
made to conform the plan with certain requirements mandated by the Uniformed
Services Employment and Reemployment Rights Act of 1994. This is a summary of
the modification that was made to the plan. It should be read in conjunction
with the Summary Plan Description that has already been distributed to you.
Your Plan has been modified to provide that if you are a veteran and are
reemployed under the Uniformed Services Employment and Reemployment Rights Act
of 1994, your qualified military service may be considered service with the
Employer. In addition, loan repayments to the Plan may be suspended for any part
of any period during which you are performing service in the uniformed services.
If you may be affected by any of these provisions, ask your Administrator for
further details.
<PAGE> 2
AMENDMENT TO REGIS RETIREMENT PLAN SERVICES REGIONAL
PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
1. Article VI of the Plan is amended by the addition of the new
subsection, effective as of the following date:
a. For Plans not entitled to extended reliance as described in Revenue
Ruling 94-76, the first day of the first Plan Year beginning on or after
December 31, 1994, or if later, 90 days after December 31, 1994; or
b. For Plans entitled to extended reliance as described in Revenue
Ruling 94-76, as of the first day of the first plan year beginning in 1999.
However, in the event of a transfer of assets to the Plan from a money purchase
plan that occurs after the after the date of the most recent determination
letter, the effective date of the amendment shall be the date immediately
preceding the date of such transfer of assets.
TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN
Notwithstanding any provision of this plan to the contrary, to the
extent that any optional form of benefit under this plan permits a distribution
prior to the employee's retirement, death, disability, or severance from
employment, and prior to plan termination, the optional form of benefit is not
available with respect to benefits attributable to assets (including the
post-transfer earnings thereon) and liabilities that are transferred, within the
meaning of Section 414 (1) of the Internal Revenue Code, to this plan from a
money purchase pension plan qualified under 401 (a) of the Internal Revenue Code
(other than any portion of those assets and liabilities attributable to
voluntary employee contributions).
2. Article VI is amended by the addition of the following new
subsection, effective as of December 12, 1994:
UNIFORMED SERVICES
Notwithstanding any provision of this plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414 (u) of the Internal
Revenue Code.
Loan repayments will be suspended under this plan as permitted under
Code Section 414 (u) (4).
1
<PAGE> 3
Pursuant to the terms of the Plan regarding amendments,
______________________________, as the sponsor of the prototype, hereby
adopts this amendment as of the date set forth below.
Regis Retirement Plan Services
By:_______________________
Title:______________________
Date:______________________
2
<PAGE> 4
REGIS RETIREMENT PLAN SERVICES, INC.
DEFINED CONTRIBUTION PLAN AND TRUST
Copyright 1992 Regis Retirement Plan Services, Inc.
<PAGE> 5
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
<TABLE>
<S> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS..........................................................18
2.2 DETERMINATION OF TOP HEAVY STATUS....................................................18
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER..........................................22
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY..............................................23
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES........................................23
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR...............................................24
2.7 RECORDS AND REPORTS..................................................................25
2.8 APPOINTMENT OF ADVISERS..............................................................25
2.9 INFORMATION FROM EMPLOYER............................................................25
2.10 PAYMENT OF EXPENSES..................................................................26
2.11 MAJORITY ACTIONS.....................................................................26
2.12 CLAIMS PROCEDURE.....................................................................26
2.13 CLAIMS REVIEW PROCEDURE..............................................................26
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY............................................................27
3.2 EFFECTIVE DATE OF PARTICIPATION......................................................27
3.3 DETERMINATION OF ELIGIBILITY.........................................................28
3.4 TERMINATION OF ELIGIBILITY...........................................................28
3.5 OMISSION OF ELIGIBLE EMPLOYEE........................................................28
3.6 INCLUSION OF INELIGIBLE EMPLOYEE.....................................................28
3.7 ELECTION NOT TO PARTICIPATE..........................................................28
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE................................................29
</TABLE>
<PAGE> 6
ARTICLE IV
CONTRIBUTION AND ALLOCATION
<TABLE>
<S> <C>
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION......................................30
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION...........................................31
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.................................31
4.4 MAXIMUM ANNUAL ADDITIONS.............................................................38
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS............................................46
4.6 TRANSFERS FROM QUALIFIED PLANS.......................................................46
4.7 VOLUNTARY CONTRIBUTIONS..............................................................48
4.8 DIRECTED INVESTMENT ACCOUNT..........................................................49
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS...........................................50
4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS.................................................50
4.11 INTEGRATION IN MORE THAN OF PLAN.....................................................50
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND..........................................................51
5.2 METHOD OF VALUATION..................................................................51
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT............................................51
6.2 DETERMINATION OF BENEFITS UPON DEATH.................................................52
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY.....................................53
6.4 DETERMINATION OF BENEFITS UPON TERMINATION...........................................53
6.5 DISTRIBUTION OF BENEFITS.............................................................57
6.6 DISTRIBUTION OF BENEFITS UPON DEATH..................................................63
6.7 TIME OF SEGREGATION OR DISTRIBUTION..................................................68
6.8 DISTRIBUTION FOR MINOR BENEFICIARY...................................................68
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN.......................................68
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
6.10 PRE-RETIREMENT DISTRIBUTION..........................................................69
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP....................................................69
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS............................................70
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS...................................................70
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE................................................71
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE..........................................71
7.3 OTHER POWERS OF THE TRUSTEE..........................................................73
7.4 LOANS TO PARTICIPANTS................................................................76
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS.............................................79
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES........................................79
7.7 ANNUAL REPORT OF THE TRUSTEE.........................................................79
7.8 AUDIT................................................................................80
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE.......................................80
7.10 TRANSFER OF INTEREST.................................................................81
7.11 TRUSTEE INDEMNIFICATION..............................................................82
7.12 EMPLOYER SECURITIES AND REAL PROPERTY................................................82
7.13 DIRECT ROLLOVER......................................................................82
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT............................................................................83
8.2 TERMINATION..........................................................................84
8.3 MERGER OR CONSOLIDATION..............................................................85
</TABLE>
<PAGE> 8
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C>
9. EMPLOYER ADOPTIONS...................................................................85
9.2 PARTICIPANT'S RIGHTS................................................................85
9.3 ALIENATION...........................................................................85
9.4 CONSTRUCTION OF PLAN.................................................................86
9.5 GENDER AND NUMBER....................................................................86
9.6 LEGAL ACTION.........................................................................87
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS...............................................87
9.8 BONDING..............................................................................87
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE...........................................88
9.10 INSURER'S PROTECTIVE CLAUSE..........................................................88
9.11 RECEIPT AND RELEASE FOR PAYMENTS.....................................................88
9.12 ACTION BY THE EMPLOYER...............................................................88
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITIES.................................88
9.14 HEADINGS.............................................................................89
9.15 APPROVAL BY INTERNAL REVENUE SERVICE.................................................89
9.16 UNIFORMITY...........................................................................90
9.17 PAYMENT OF BENEFITS..................................................................90
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER..........................................90
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS..............................................90
10.3 DESIGNATION OF AGENT.................................................................91
10.4 EMPLOYEE TRANSFERS...................................................................91
10.5 PARTICIPATION EMPLOYER CONTRIBUTION AND FORFEITURES..................................91
10.6 AMENDMENT............................................................................92
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
10.7 DISCONTINUANCE OF PARTICIPATION......................................................92
10.8 ADMINISTRATOR'S AUTHORITY............................................................92
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE....................................92
ARTICLE XI
CASH OR DEFERRED PROVISIONS
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION......................................93
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION..............................................94
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.................................99
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS....................................................101
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS......................................104
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS................................................108
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS..................................111
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP...................................................116
</TABLE>
<PAGE> 10
ARTICLE I
DEFINITIONS
As used in this Plan, the following words and phrases shall have
the meanings set forth herein unless a different meaning is clearly required by
the context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed
by the Employer and accepted by the Trustee which sets forth the elective
provisions of this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which
is a member of a controlled group of corporations (as defined in Code Section
414 (b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section 414 (c))
with the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Code Section 414 (m)) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414 (o).
1.5 "Aggregate Account" means with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject, to the provisions
of Section 2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased
Participants's interest in the Plan is payable, subject to the restrictions of
Sections 6.2 and 6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or
replace from time to time
1.9 "Compensation" with respect to any Participant means one of the
following:
(a) "Compensation" on Form W-2. Compensation is defined
as wages as defined in Code Section 3401 (a), and all other
payments of Compensation to an Employee by the Employer (in the
course of the Employer's trade or business) for which the
Employer is required to
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<PAGE> 11
furnish the Employee a written statement under Code Sections
6041 (d) and 6051 (a) (3). Compensation must be determined
without regard to any rules under Code Section 3401 (a) that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401 (a) (2).
Compensation for any Self-Employed Individual shall be equal to
his Earned Income.
(b) Code Section 3401 (a) wages. Compensation is defined
as wages within the meaning of Code Section 3401 (a) for the
purposes of income tax withholding at the source but determined
without regard to any rules that limit the remuneration included
in wages based on the nature or location of the employment or
the services performed (such as the exception for agricultural
labor in Code Section 3401 (a) (2)).
(c) 415 safe-harbor compensation. Compensation is
defined as wages, salaries, and fees for professional services
and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered
in the course of employment with the Employer maintaining the
Plan to the extent that the amounts are includible in gross
income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, and reimbursements, or other expense allowances
under a nonaccountable plan (as described in Regulation Section
1-62-2 (c)), and excluding the following:
(1) Employer contributions to a plan of Deferred
Compensation, which are not includible in the Employee's
gross income for the taxable year in which contributed,
or Employer contributions under a simplified employee
pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a
plan of Deferred compensation;
(2) Amounts realized from the exercise of a non
qualified stock option, or when restricted stock (or
property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
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(4) other amounts which received special tax benefits,
or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase
of an annuity contract described in section 403 (b) of
the Internal Revenue Code (whether or not the
contributions are actually excludable from the gross
income of the Employee).
In addition, if specified in the Adoption Agreement, Compensation
for all Plan purposes shall also include compensation which is not currently
includible in the Participant's gross income by reason of the application of
Code Sections 125, 402 (a) (8), 402 (h) (1) (B), or 403 (b).
Compensation in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415 (d).
Notwithstanding the above, for Plan Years beginning on or after
January 1, 1994, the Compensation of each Employee taken into account under the
Plan shall not exceed the "OBRA '93 annual compensation limit." The "OBRA '93
annual compensation limit" is $150,000, as adjusted by the Commissioner for
increases in the cost-of-living in accordance with Code Section 401 (a) (17)
(B). The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401 (a) (17) shall
mean the "OBRA '93 annual compensation limit" set forth; in this Section.
In applying these limitations, the family group of a Highly
Compensated Participant who is subject to the Family Member aggregation rules of
Code Section 414 (q) (6) because such Participant is either a "five percent
owner" of the Employer or one of the ten (10) Highly Compensated Employees paid
the greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules, the adjusted limitation is exceeded, then (except for
purposes of determining the portion of Compensation up to the integration level
if this plan is integrated), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this Section prior to the application of this limitation.
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<PAGE> 13
For Plan Years beginning prior to January 1, 1989, the $200,000
limit (without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
1.10 "Contract" or "Policy" means any life insurance policy, retirement
income policy, or annuity contract (group or individual) issued by the Insurer.
In the event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "Deferred Compensation" means, with respect to any Participant,
that portion of the Participant's total Compensation which has been contributed
to the Plan in accordance with the Participant's deferral election pursuant to
Section 11.2.
1.12 "Early Retirement Date" means the date specified in the Adoption
Agreement on which a Participant or Former Participant has satisfied the age and
service requirements specified in the Adoption Agreement (Early Retirement Age).
A Participant shall become fully Vested upon satisfying this requirement if
still employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the
service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.13 "Earned Income" means with respect to a Self-Employed Individual,
the net earnings from self-employment in the trade or business with respect to
which the Plan is established, for which the personal services of the individual
are a material income-producing factor. Net earnings will be determined without
regard to items not included in gross income and the deductions allocable to
such items. Net earnings are reduced by contributions by the Employer to a
qualified Plan to the extent deductible under Code Section 404. In addition, for
Plan Years beginning after December 31 , 1989, net earnings shall be determined
with regard to the deduction allowed to the Employer by Code Section 164 (f).
1.14 "Elective Contribution" means the Employer's contributions to the
Plan that are made pursuant to the Participant's defferal election pursuant to
Section 11.2. In addition, if selected in E3 of the Adoption Agreement, the
Employer's matching contribution made pursuant to Section ll.l (b) shall be
considered an Elective Contribution for purposes of the Plan. Elective
Contributions shall be subject to the requirements of Sections 11.2 (b) and 11.2
(c) and shall further be required to satisfy the discrimination requirements of
Regulation 1.401 (k)-l (b) (3), the provisions of which are specifically
incorporated herein by reference.
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<PAGE> 14
1.15 "Eligible Employee" means any Employee specified in D1 of the
Adoption Agreement.
1.16 "Employee" means any person who is employed by the Employer, but
excludes any person who is employed as an independent contractor. The term
Employee shall also include Leased Employees as provided in Code Section 414 (n)
or (o).
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be treated as
employed by a single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement,
any Participating Employer (as defined in Section 10.1) which shall adopt this
Plan, any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is
integrated with Social Security, a Participant's Compensation which is in excess
of the amount set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the
excess of Elective Contributions and Qualified Non-Elective Contributions made
on behalf of Highly Compensated Participants for the Plan Year over the maximum
amount of such contributions permitted under Section 11.4 (a).
1.20 "Excess Deferred compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 11.2 (f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402 (g), which is incorporated
herein by reference.
1.21 "Family Member" means, with respect to an affected Participant,
such Participant's spouse, and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414 (q) (6) (B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
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<PAGE> 15
1.23 "Fiscal Year" means the Employer's accounting year as specified in
the Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive 1-Year Breaks in
Service.
Furthermore, for purposes of paragraph (a) above, in the case of
a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. In addition, the term Forfeiture
shall also include amounts deemed to be Forfeitures pursuant to any other
provision of this Plan.
1.25 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.26 "414 (s) Compensation" with respect to any Employee means his
Compensation as defined in Section 1.9. However, for purposes of this Section,
Compensation shall be Compensation paid and shall be determined by including, in
the case of a non-standardized Adoption Agreement, any items that are excluded
from Compensation pursuant to the Adoption Agreement. The amount of "414 (s)
Compensation" with respect to any Employee shall include "414 (s) Compensation"
during the entire twelve (12) month period ending or the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1,
1992, or the date that is sixty (60) days after the date final Regulations are
issued, "414 (s) Compensation" shall only be recognized as of an Employee's
effective date of participation.
In addition, if specified in the Adoption Agreement, "414 (s)
Compensation" shall also include compensation which is not currently includible
in the Participant's gross income by reason of the application of Code Sections
125, 402 (a) (8), 402 (h) (1) (B), or 403 (b), plus Elective Contributions
attributable to Deferred Compensation recharacterized as voluntary Employee
contributions pursuant to 11.5 (a).
1.27 "415 Compensation" means compensation as defined in Section 4.4 (f)
(2).
1.28 "Highly Compensated Employee" means an Employee described in Code
Section 414 (q) and the Regulations thereunder and generally means an
6
<PAGE> 16
Employee who performed services for the Employer during the "determination year"
and is in one or more of the following groups:
(a) Employees who at any time during the "determination
year" or "look-back year" were "five percent owners" as defined
in Section 1.35 (c).
(b) Employees who received "415 Compensation" the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were
in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were of
officers of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and received
"415 Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code Section
415 (b) (i)( A) for any such Plan Year. The number of officers
shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. If the
Employer does not have at least one officer whose annual "415
Compensation" is inexcess of 50 percent of the Code Section 415
(b) (1) (A) limit, then the highest paid officer of the Employer
will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d)
above where these paragraphs are modified to substitute
"determination year" for "look-back year".
The "determination year" shall be the Plan Year for which testing
is being performed, and the "look-back year" shall be the immediately preceding
twelve-month period. However, if the Plan Year is a calendar year, or if another
Plan of the Employer so provides, then the "look-back year" shall be the
calendar year ending with or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable) shall be the period of
time, if any, which extends beyond the "look-back year" and ends on the last day
of the Plan Year for which testing is being performed (the "lag period"). With
respect to this election, it shall be applied on a uniform and consistent basis
to all plans, entities, and arrangements of the Employer.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the applicant of Code
Sections 125, 402 (a)
7
<PAGE> 17
(8), 402 (h) (1) (B) and, in the case of Employer contributions made pursuant to
a salary reduction agreement, Code Section 403 (b), Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are those for the calendar
year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees
who are non-resident aliens and who received no earned income (within the
meaning of Code Section 911 (d)) from the Employer constituting United States
source income within the meaning of Code Section 861 (a) (3) shall not be
treated as Employees. Additionally, all Affiliated Employers shall be taken into
account as a single employer and Leased Employees within the meaning of Code
Sections 414 (n) (2) and 414 (o) (2) shall be considered Employees unless such
Leased Employees are covered by a plan described in Code Section 414 (n) (5) and
are not covered in any qualified plan maintained by the Employer. The exclusion
of Leased Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. In addition, Highly
Compensated Former Employees shall be treated as Highly Compensated Employees
without regard to whether they performed sevices during the "determination
year".
1.29 "Highly Compensated Former Employee" means a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55:
(or the last year ending before the Employee's 55th birthday), the Employee
either received "415 Compensation" in excess of $50,000 or was a "five percent
owner". For purposes of this Section, "determination year", "415 Compensation"
and "five percent owner" shall be determined in accordance with Section 1.28.
Highly Compensated Former Employees shall be treated as Highly Compensated
Employees. The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414 (q) definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.31 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation,
8
<PAGE> 18
holidays, sickness, jury duty, disability, lay-off, military duty or leave of
absence) during the applicable computation period; (3) each hour for which back
pay is awarded or agreed to by the Employer without regard to mitigation of
damages. The same Hours of Service shall not be credited both under (l) or (2),
as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service
are required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer, or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining
a Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). The provisions as Department of Labor regulations
2530.200b-2 (b) and (c) are incorporated herein by reference.
Hours of service will be credited for employment with all
Affiliated Employers and for any individual considered to be a Leased Employee
pursuant to Code Sections 414 (n) or 414( o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method
selected in the Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall
issue one or more policies under the Plan.
1.33 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as
9
<PAGE> 19
an investment adviser under the Investment Advisers Act of 1940, a bank, or an
insurance company.
1.34 "Joint and Survivor Annuity" means an annuity for the life of a
Participant with a survivor annuity for the life of the Participant's spouse
which is not less than 1/2, nor greater than the amount of the annuity payable
during the joint lives of the Participant and the Participant's spouse. The
Joint and Survivor Annuity will be the amount of benefit which can be purchased
with the Participant's Vested interest in the Plan.
1.35 "Key Employee" means an Employee as defined in Code Section 416 (i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined
within the meaning of the Regulations under Code Section 416)
having annual "415 Compensation" greater than 50 percent of the
amount in effect under Code Section 415 (b) (1) (A) for any such
Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater than the
dollar limitation in effect under Code Section 415 (c) (1) (A)
for the calendar year in which such Plan Year ends and owning (or
considered as owning within the meaning of Code Section 318) both
more than one-half percent interest and the largest interests in
the Employee.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent
(5%) of the outstanding stock of the Employer or stock possessing
more than five percent (5%) of the total combined voting power of
all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the
capital or profits interest in the Employer. In determining
percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414 (b), (c), (m) and (o) shall be
treated as separate employers.
(d) a "five percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more than $150,
000. "One percent owner' means any person who owns (or is
considered as owning within the meaning of Code Section 318) more
than one percent (1%) of the outstanding stock or the Employer or
stock possessing more than one percent (1%) of the total combined
voting power of all stock of the Employer or, in the case of an
unincorporated
10
<PAGE> 20
business, any person who owns more than one percent (1%) of the
capital or profits interest in the Employer. In determining
percentage ownership hereunder, employers that would otherwise
be aggregated under Code Sections 414 (b) (c), (m) and (o) shall
be treated as separate employers. However, in determining
whether an individual has "415 Compensation' of more than
$150,000, "415 Compensation" from each employer required to be
aggregated under Code Sections 414 (b) (c), (m) and (o) shall be
taken into account.
For purposes of this Section, the determination of. "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Sections 125, 402 (a) (8), 402 (h) (1) (B) and, in the case of Employer
contributions made pursuant to a salary reduction agreement, Code Section 403
(b).
1.36 "Late Retirement Date" means the date of, or the first day of the
month or the Anniversary Date coinciding with or next following, whichever
corresponds to the election made for the Normal Retirement Date, a Participant's
actual retirement after having reached his Normal Retirement Date.
1.37 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section 414
(n) (6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employee.
A leased employee shall not be considered an Employee of the
recipient if: (i) such employee is covered by a money purchase pension plan
providing: (1) a nonintegrated employer contribution rate of at least 10 percent
of compensation, as defined in Code Section 415 (c) (3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employees gross income under Code Sections 125, 402 (a) (8), 402 (h), or 403
(b),(2) immediate participation, and (3) full and immediate vesting; and (ii)
leased employees do not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
1.38 "Net Profit" means with respect to any Fiscal Year the Employer's
net income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income, or of
contributions made by the Employer to this Plan and any other qualified plan.
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1.39 "Non-Elective Contribution" means the Employer's contributions to
the Plan other than those made pursuant to the Participant's deferral election
made pursuant to Section 11.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4.3 (b) shall be considered a Non-Elective
Contribution for purposes of the Plan.
1.40 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.41 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "Normal Retirement Age" means the age specified in the Adoption
Agreement at which time a Participant shall become fully Vested in his
Participant's Account.
1.43 "Normal Retirement Date" means the date specified in the Adoption
Agreement on which a Participant shall become eligible to have his benefits
distributed to him.
1.44 "1-Year Break in Service" means (a) if the 1,000 hour method is
selected in the Adoption Agreement, the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer; or (b) if the elasped time method is selected in the Adoption
Agreement, a Period of Severance of at least 12 consecutive months. Period of
Severance means the period commencing with the earlier of:
(i) the date an Employee separates from service by reason
of quitting, retirement, death or discharge; or
(ii) the first anniversary of the first day of the period
in which an employee remains absent from service (with or
without pay) for any reason other than quitting,
retirement, death or discharge; or
(iii) the second anniversary of the first day of the
period in which an Employee remains absent from service
(with or without pay) because of a "maternity or paternity
leave of absence", and ending with the date such Employee
resumes service. A Break in Service shall not include (i)
any period during which the Employee is absent in the
service of the armed forces of the United States,
including any period during which his reemployment rights
as a veteran are protected by law; (ii) any period during
which the Employee is on a leave of absence authorized by
the Employer not to exceed two years (which leaves shall
be granted on a nondiscriminatory basis to all
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<PAGE> 22
Employees similarly situated), provided, however, that
if the Employee fails to return to service prior to the
expiration of such authorized leave, his Period of
Severance shall be deemed to commence on the date such
authorized leave commenced.
Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence."
"Authorized leave of absence a means an unpaid, temporary
cessation from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.45 "Owner-Employee" means a sole proprietor who owns the entire
interest in the Employer or a partner who owns more than 10% of either the
capital interest or the profits interest in the Employer and who receives income
for personal services from the Employer.
1.46 "Participant" means any Eligible Employee who participates in the
Plan as provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.47 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest under the Plan resulting from (a) the Employer's contributions in the
case of a Profit Sharing Plan or Money Purchase Plan, and (b) the Employer's
Non-Elective Contributions in the case of a 401 (k) Profit Sharing Plan.
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<PAGE> 23
1.48 "Participant's Combined Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest under the Plan resulting from the Employer's contributions.
1.49 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions and Qualified Non-Elective Contributions. A separate accounting
shall be maintained with respect to that portion of the Participant's Elective
Account attributable to Elective Contributions made pursuant to Section 11.2,
Employer matching contributions if they are deemed to be Elective Contributions,
and any Qualified Non-Elective Contributions.
1.50 "Participants Rollover Account means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with Section 4.6.
1.51 "Plan" means this instrument (hereinafter referred to as Regis
Retirement Plan Services, Inc. Defined Contribution Plan and Trust Basic Plan
Document #01) including all amendments thereto, and the Adoption Agreement as
adopted by the Employer.
1.52 Plan Year means the Plan's accounting year as specified in C2 of
the Adoption Agreement.
1.53 "Pre-Retirement Survivor Annuity" means an immediate annuity for
the life of the Participant's spouse, the payments under which muse be equal to
the actuarial equivalent of 50% of the Participant's Vested interest in the Plan
as of the date of death.
1.54 "Qualified Non-Elective Account" means the account established
hereunder to which Qualified Non-Elective Contributions are allocated.
1.55 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to E5 of the Adoption Agreement
and Section 11.1 (d) which are used to satisfy the "Actual Deferral Percentage"
tests. Qualified Non-Elective Contributions are nonforfeitable when made and are
distributable only as specified in Sections 11.2 (c) and 11.8. In addition, the
Employer's contributions to the Plan that are made pursuant to Section 11.7 (n)
and which are used to satisfy the "Actual Contribution Percentage" tests shall
be considered Qualified Non-Elective Contributions.
1.56 "Qualified Voluntary Employee Contribution Account" means the
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<PAGE> 24
account established and maintained by the Administrator for each Participant
with respect to his total interest under the Plan resulting from the
Participant's tax deductible qualified voluntary employee contributions made
pursuant to Section 4.9
1.57 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasurer or his delegate, and as amended from time to time.
1.58 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.59 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.60 "Self-Employed Individual" means an individual who has earned
income for the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had earned income but for
the fact that the trade or business had no net profits for the taxable year. A
Self-Employed Individual shall be treated as an Employee.
1.61 "Shareholder-Employee" means a Participant who owns more than five
percent (5%) of the Employer's outstanding capital stock during any year in
which the Employee elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.62 "Short Plan Year" means, if specified in the Adoption Agreement,
that the Plan Year shall be less than a 12 month period. If chosen, the
following rules shall apply in the administration of this Plan. In determining
whether an Employee has completed a Year of Service for benefit accrual purposes
in the Short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2 (c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "Super Top Heavy Plan" means a plan described in Section 2.2 (b)
1.64 "Taxable Wage Base" means, with respect to any year, the maximum
amount of earnings which may be considered wages for such year under Code
Section 3121 (a) (1).
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<PAGE> 25
1.65 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.66 "Top Heavy Plan" means a plan described in Section 2.2 (a)
1.67 "Top Heavy Plan Year" means a Plan Year commencing after December
31, 1983 during which the Plan is a Top Heavy Plan.
1.68 "Top Paid Group" shall be determined pursuant to Code Section 414
(q) and the Regulations thereunder and generally means the Top 20 Percent of
Employees who performed services for the Employee during the applicable year,
ranked according to the amount of "415 Compensation" (as determined pursuant to
Section 1.28) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
shall be treated as Employees pursuant to Code Section 414 (n) or (o). Employees
who are non-resident aliens who received no earned income (within the meaning of
Code Section 911 (d) (2)) from the Employer constituting United States source
income within the meaning of Code Section 861 (a) (3) shall not be treated as
Employees. Additionally, for the purpose of determining the number of active
Employees in any year, the following additional Employees shall also be
excluded, however, such Employees shall be considered for the purpose of
identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours
per week;
(c) Employees who normally work less than six (6) months
during a year and;
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414 (q) definition is applicable.
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1.69 "Total and Permanent Disability" means the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
12 months. The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. However, if the condition constitutes
total disability under the federal Social Security Acts, the Administrator may
rely upon such determination that the Participant is Totally and Permanently
Disabled for the purposes of this Plan. The determination shall be applied
uniformly to all Participants.
1.70 "Trustee" means the person or entity named in B6 of the Adoption
Agreement and any successors.
1.71 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
1.72 "Vested~ means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.73 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.7.
1.74 "Year of Service" means (a) if the 1,000 hour method is selected in
the Adoption Agreement, the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at least
1000 Hours of Service or (b) if the elapsed time method is selected, twelve (12)
Months of Service.
If the 1,000 hour method is selected in the Adoption Agreement,
then forpurposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after a
1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The succeeding computation periods shall
begin with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period, the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed Hour
of Service. An Employee who is credited with 1,000 Hours of Service in both the
initial eligibility computation period and the first Plan Year which commences
prior to the first anniversary of the Employee's initial eligibility computation
period will be credited with two Years of Service for
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<PAGE> 27
purposes of eligibility to participate. For vesting purposes, and all other
purposes not specifically addressed in this Section, the computation period
shall be the Plan Year, including periods prior to the Effective Date of the
Plan unless specifically excluded pursuant to the Adoption Agreement.
If the Elapsed time method is selected in the Adoption Agreement,
then for purposes of determining an Employee's initial or continued eligibility
to participate and vesting, an. Employee will receive credit for the aggregate
of all time periods commencing with the Employee's first day of employment or
reemployment and ending on the date a Break in Service begins. The first day of
employment is the first day the Employee performs and Hour of Service. An
Employee will also receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be expressed in terms of
days.
Years of Service and breaks in service will be measured on the
same computation period.
Years of Service with any predecessor Employer which maintained
this Plan shall be recognized. Years of Service with any other predecessor
Employer shall be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be
recognized.
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the
special vesting requirement of Code Section 416 (b) pursuant to Section 6.4 of
the Plan and the special minimum allocation requirements of Code Section 416 (c)
pursuant to Section 4.3 (i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any
Plan Year beginning after December 31, 1983, in which, as of the
Determination Date, (1) the Present Value of Accrued Benefits of
Key Employees and (2) the sum of the Aggregate Accounts of Key
Employees under this Plan and all Plans of an Aggregation Group,
exceeds sixty percent (60%) of the Present Value of Accrued
Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under the Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but
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<PAGE> 28
such Participant was a Key Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit and/or Aggregate Account balance shall not be
taken into account for purposes of determining whether this Plan is a Top Heavy
or Super Top Heavy Plan (or whether any Aggregation Group which includes this
Plan is a Top Heavy Group). In addition, if a Participant or Former Participant
has not performed any services for any Employer maintaining the Plan at any time
during the five year period ending on the Determination Date, any accrued
benefit for such Participant of Former Participant shall not be taken into
account for the purposes of determining whether this Plan is a Top Heavy or
Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for
any Plan Year beginning after December 31, 1983, in which, as of
the Determination Date, (1) the Present Value of Accrued Benefits
of Key Employees and (2) the sum of the Aggregate Accounts of Key
Employees under this Plan and all plans of an Aggregation Group,
exceeds ninety percent (90%) of the Present Value of Accrued
Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate
Account as of the Determination Date is a sum of:
(1) his Participant's Combined Account balance as of the
most recent valuation occurring within a twelve (12) month
period ending on the Determination Date;
(2) for a Profit Sharing Plan, an adjustment for any
contributions due as of the Determination Date. Such
adjustment shall be the amount of any contributions
actually made after the valuation date but before the
Determination Date, except for the first Plan Year when
such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year;
(3) for a Money Purchase Plan, contributions that would be
allocated as of a date not later than the Determination
Date, even though those amounts are not yet made or
required to be made.
(4) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of
distributions made after the valuation date and prior to
the Determination Date, such distributions are not
included as distributions for top heavy purposes to the
extent that such distributions are already included in the
Participant's Aggregate Account balance as of the
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<PAGE> 29
valuation date. In the case of a distribution of an
annuity Contract, the amount of such distribution is
deemed to be the current actuarial value of the Contract,
determined on the date of the distribution.
Notwithstanding anything herein to the contrary, all
distributions, including distributions made prior to
January 1, 1984, and distributions under a terminated plan
which if it had not been terminated would have been
required to be included in an Aggregation Group, will be
counted. Further, distributions from the Plan (including
the cash value of life insurance policies) of a
Participant's account balance because of death shall be
treated as a distribution for the purpose of this
paragraph.
(5) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate
Account balance.
(6) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee
and made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always
consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this
Plan is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or
plan-to-plan transfers accepted after December 31, 1983 as
part of the Participant's Aggregate Account balance.
However, rollovers or plan-to-plan transfers accepted
prior to January 1, 1984 shall be considered as part of
the Participant's Aggregate Account balance.
(7) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or
made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of
this Section. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of
the date on which such rollover or plan-to-plan transfer
accepted.
(8) For the purposes of determining whether two employers
are to be treated as the same employer in 2.2 (c) (6) an
2.2 (c) (7)
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<PAGE> 30
above, all employers aggregated under Code Section 414
(b), (c), (m) and (o) are treated as the same employer.
(d) "Aggregation Group means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each qualified plan of the
Employer, including any Simplified Employee Pension Plan,
in which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four
preceding Plan Years, and each other qualified plan of the
Employer which enables any qualified plan in which a Key
Employee participates to meet the requirements of Code
Sections 401 (a) (4) or 410, will be required to be
aggregated. Such group shall be known as a Required
Aggregation Group.
In the case of a Required Aggregation Group, each plan in
the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan
in the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top
Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan of the Employer, including any
Simplified Employee Pension Plan, not required to be
included in the Required Aggregation Group, provided the
resulting group, taken as a whole, would continue to
satisfy the provisions of Code Sections 401 (a) (4) and
410. Such group shall be known as a Permissive Aggregation
Group.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if
the Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those Plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last five
(5) years ending on the Determination Date.
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<PAGE> 31
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year,
the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee shall be as determined
using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code
Section 411 (b) (1) (C). The determination of the Present Value
of Accrued Benefit shall be determined as of the most recent
valuation date that falls within or ends with the 12- month
period ending on the Determination Date, except as provided in
Code Section 416 and the Regulations thereunder for the first and
second plan years of a defined benefit plan.
However, any such determination must include present value
of accrued benefit attributable to any Plan distributions
referred to in Section 2.2 (c) (4) above, an Employee
contributions referred to in Section 2.2 (c) (5) above or any
related or unrelated rollovers referred to in Sections 2.2 (c)
(6) and 2.2 (c) (7) above.
(g) "Top Heavy Group" means an Aggregation Group in which,
as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined
for all Participants.
(h) The Administrator shall determine whether this Plan is
a Top Heavy Plan on the Anniversary Date specified in the
Adoption Agreement Such determination of the top heavy ratio
shall be in accordance with Code Section 416 and the Regulations
thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure
that the Plan is being operated for the exclusive benefit of the
Participants and their
22
<PAGE> 32
Beneficiaries in accordance with the terms of the Plan, the
Code, and the Act.
(b) The Employer shall establish a "funding policy and
method", i e , it shall determine whether the Plan has a short
run need for liquidity (e g , to pay benefits) or whether
liquidity is a long run goal and investment growth (and stability
of same) is a more current need, or shall appoint a qualified
person to do so. The Employer or its delegate shall communicate
such needs and goals to the Trustee, who shall coordinate such
Plan needs with its investment policy. The communication of such
a "funding policy and method" shall not, however, constitute a
directive to the Trustee as to investment of the Trust Funds.
Such "funding policy and method" shall be consistent with the
objectives of this Plan and with the requirements of Title I of
the Act.
(c) The Employer may, in its discretion, appoint an
Investment Manager to manage all or a designated portion of the
assets of the Plan. In such event, the Trustee shall follow the
directive of the Investment Manager in investing the assets of
the Plan managed by the Investment Manager.
(d) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been
delegated or allocated by it under the provisions of this Plan or
pursuant to procedures established hereunder. This requirement
may be satisfied by formal periodic review by the Employer or by
a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other
appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this position.
If the Employer does not appoint an Administrator, the Employer will function as
the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
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<PAGE> 33
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the
Employer and accepted in writing by each Administrator. In the
event that no such delegation is made by the Employer, the
Administrators may allocate the responsibilities among
themselves, in which event the Administrators shall notify the
Employer and the Trustee in writing of such action and specify
the responsibilities of each Administrator. The Trustee
thereafter shall accept and rely upon any documents executed by
the appropriate Administrator until such time as the Employer or
the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and determine all questions arising in connection
with the administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401 (a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to
the eligibility of Employees to participate or remain a
Participant hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to
all nondiscretionary or otherwise directed disbursements from the
Trust Fund;
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<PAGE> 34
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to make
and publish such for regulation of the Plan as are consistent
with the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any Insurer, and to designate the Insurer from
which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or
desirable to be contributed to the Trust Fund;
(h) to consult with the Employer and the Trustee regarding
the short and long-term liquidity needs of the Plan in order that
the Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(i) to prepare and distribute to Employees a procedure for
notifying Participants and Beneficiaries of their rights to elect
Joint and Survivor Annuities and Pre-Retirement Survivor
Annuities if required by the Code and Regulations thereunder;
(j) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the
Employer shall supply full and timely information to the Administrator on all
maters relating to the Compensation of all Participants, their Hours of Service,
their Years of
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<PAGE> 35
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan The Administrator may rely upon
such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information. 2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2. 5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with
the Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In the
event the claim is denied the reasons for the denial shall be specifically set
forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section 2
.12 shall be entitled to request the Administrator to give further consideration
to his claim by filing with the Administrator a written request for a hearing.
Such request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator
26
<PAGE> 36
shall then conduct a hearing within the next 60 days, at which the claimant may
be represented by an attorney or any other representative of his choosing and
expense and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder
on the date he has satisfied the requirements specified in the Adoption
Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant
shall become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a noneligible Employee to an Eligible Employee, such Employee
shall become a Participant as of the date he becomes an Eligible Employee.
In the event an Employee who has satisfied the Plan's eligibility
27
<PAGE> 37
requirements and would otherwise become a Participant shall go from
classification of an Eligible Employee to a noneligible Employee and becomes
ineligible to participate and has not incurred a 1-Year Break in Service, such
Employee shall participate in the plan as of the date he returns to an eligible
class of Employees. If such Employee does incur a 1Year Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each
Employee for participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all Persons,
as long as the same is made pursuant to the Plan and the Act. Such determination
shall be subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's Account shall
be forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution, if necessary after the
application of Section 4.3 (e), so that the omitted Employee receives a total
amount which the said Employee would have received and he not been omitted. Such
contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the
28
<PAGE> 38
ineligible person shall constitute a Forfeiture for the Plan Year in which the
discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may subject to the approval of the Employer, elect
voluntary not to participate in the Plan. The election not to participate must
be submitted to the Employer in writing. For Standardized Plans, a Participant
or an Eligible Employee may not elect to participate. Furthermore, the foregoing
election no to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for
one or more Owner-Employees who control both the business for
which this Plan is established and one or more other entities,
this Plan and the plan established for other trades or businesses
must, when looked at as a single Plan, satisfy Code Sections 401
(a) and (d) for the Employees of this and all other entities
(b) If the Plan provides contributions or benefits for one
or more Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must
be included in a plan which satisfies Code Sections 401 (a) and
(d) and which provides contributions and' benefits not less
favorable than provided for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under
the plans of two or more trades or businesses which are not
controlled and the individual controls a trade or business, then
the benefits or contributions of the employees under the plan of
the trades or businesses which are controlled must be as
favorable as those provided for him under the most favorable plan
of the trade or business which is not controlled.
(d) For purposes of the preceding paragraphs, an
Owner-Employee, or two or more Owner-Employees, will be
considered to control an entity if the Owner-Employee, or two or
more Owner-Employees together:
(1) own the entire interest in an unincorporated entity,
or
(2) in the case of a partnership, own more than 50 percent
of either the capital interest or the profits interest in
the partnership.
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<PAGE> 39
(e) For purposes of the preceding sentence, an
Owner-Employee, or two or more Owner-Employees, shall be treated
as owning any interest in a Partnership which is owned, directly
or indirectly by a partnership which such Owner-Employee or such
two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For a Money Purchase Plan -
(1) The Employer shall make contributions over such period
of years as the Employer may determine on the following
basis. On behalf of each Participant eligible to share in
allocations, for each year of his participation in this
Plan, the Employer shall contribute the amount specified
in the Adoption Agreement. All contributions by the
Employer shall be made in cash or in such property as is
acceptable to the Trustee. The Employer shall be required
to obtain a waiver from the Internal Revenue Service for
any Plan Year in which it is unable to make the full
required contribution to the Plan. In the event a waiver
is obtained, this Plan shall be deemed to be an
individually designed plan.
(2) For any Plan Year beginning prior to January 1, 1990,
and if elected in the non-standardized Adoption Agreement
for any Plan Year beginning on or after January 1, ;990,
the Employer shall not contribute on behalf of a
Participant who performs less than a Year of Service
during any Plan Year, unless there is a Short Plan Year or
a contribution is required pursuant to 4.3 (h).
(3) Notwithstanding the foregoing, the Employer's
contribution. for any Fiscal Year shall not exceed the
maximum, amount allowable as a deduction to the Employer
under the provisions of Code Section 404. However, to the
extent necessary to provide the top heavy minimum
allocations, the Employer shall make a contribution even
if it exceeds the amount which is deductible under Code
Section 404
(b) For a Profit Sharing Plan-
(1) For each Plan Year, the Employer shall contribute to
the Plan such amount as specified by the Employer in the
Adoption
30
<PAGE> 40
Agreement. Notwithstanding the foregoing, however, the
Employer's contribution for any Fiscal Year shall not
exceed the maximum amount allowable as a deduction to
the Employer under the provisions of Code Section 404.
All contributions by the Employer shall be made in cash
or in such property as is acceptable to the Trustee.
(2) Except, however, to the extent necessary to provide
the top heavy minimum allocations, the Employer shall make
a contribution even if it exceeds current or accumulated
Net Profit or the amount which is deductible under Code
Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the
Administrator shall credit as of each Anniversary Date, or other
valuation date, all amounts allocated to each such Participant as
set forth herein.
(b) The Employer shall provide the Administrator with ail
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable period of time after the date of receipt by
the Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) For a Money Purchase Plan:
(i) The Employer's Contribution shall be allocated
to each Participant's Combined Account in the
manner set forth in Section 4.1 herein and as
specified in Section E2 of the Adoption Agreement.
(2) For an Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated
to each Participant's Account, except as provided
in Section 4.3 (f), in a dollar amount equal to
5.7% of the sum of each Participant's total
compensation plus Excess Compensation. If the
Employer does not contribute such amount for all
Participants, each Participant will be
31
<PAGE> 41
allocated a share of the contribution in the
same proportion that his total Compensation plus
his total Excess Compensation for the Plan Year
bears to the total Compensation plus the total
Excess Compensation of all Participants for that
year.
Regardless of the preceding, 4.3% shall be substituted for
5.7% above if Excess Compensation is based on more than
20% and less than or equal to 80% of the Taxable Wage
Base. If Excess Compensation is based on less than 100%
and more than 80% of the Taxable Wage Base, then 5.4%
shall be substituted for 5.7% above.
(ii) The balance of the Employers contribution over
the amount allocated above, if any, shall be
allocated to each Participant's Combined Account in
the same proportion that his total Compensation for
the Year bears to the total Compensation of all
Participants for such year.
(iii) Except, however, for any Plan Year beginning
prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan
Year beginning on or after January 1, 1990, a
Participant who performs less than a Year of
Service during any Plan Year shall not share in the
Employer's contribution for that year, unless there
is a Short Plan Year or a contribution is required
pursuant to Section 4.3 (h).
(3) For a Non-Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated
to each Participant's Account in the same
proportion that each such Participant's
Compensation for the year bears to the total
Compensation of all Participants for such year.
(ii) Except, however, for any Plan Year beginning
prior to January 1, 1990, and if elected in the
nonstandardized Adoption Agreement for any Plan
Year beginning on or after January 1, l990, a
Participant who performs less than a Year of
Service during any Plan Year shall not share in the
Employer's contribution for that year, unless there
is a Short Plan Year or a contribution is required
pursuant to Section 4.3 (h).
(c) As of each Anniversary Date or other valuation date,
before allocation of Employer contributions and Forfeitures, any
earnings or losses (net appreciation or net depreciation) of the
Trust Fund shall be
32
<PAGE> 42
allocated in the same proportion that each Participant's and
Former Participant"s nonsegregated accounts bear to the total of
all Participants and Former Participants nonsegregated accounts
as of such date. If any nonsegregated account of a Participant
has been distributed prior to the Anniversary Date or other
valuation date subsequent to a Participant's termination of
employment, no earnings or losses shall be credited to such
account.
Notwithstanding the above, with respect to contributions made to
a 401 (k) Plan after the previous Anniversary Date or allocation date, the
method specified in the Adoption Agreement shall be used.
(d) Participants' Accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited, with
any dividends or interest received on insurance contracts.
(e) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of
Former Participants, if any, in accordance with Section 6.4 (g)
(2) or be used to satisfy any contribution that may be required
pursuant to Section 3.5 and/or 6.9. The remaining Forfeitures, if
any, shall be treated in accordance with the Adoption Agreement
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.4) to any Participant's Account to exceed
the amount allowable by the Code, the excess shall be reallocated
in accordance with Section 4.5. Except, however, for any Plan
Year beginning prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year beginning
on or after January 1, 1990, a Participant who performs less than
a Year of Service during any Plan Year shall not share in the
Plan Forfeitures for that year, unless there is a Short Plan Year
or a contribution required pursuant to Section 4.3 (h).
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the
sum of the Employers contributions and Forfeitures allocated to
the Participant's Combined Account of each Non-Key Employee shall
be equal to at least three percent (3%) of such Non-Key
Employee's "415 Compensation" (reduced by contributions and
forfeitures, if any, allocated to each Non-Key Employee in any
defined contribution plan included with this plan in a Required
Aggregation Group). However, if (i) the sum of the Employer's
contributions and Forfeitures allocated to the Participant's
Combined Account of each Key Employee for such Top Heavy Plan
Year is less than three percent (3%) of each Key Employee's "415
Compensation" and (ii) this Plan is not required to be
33
<PAGE> 43
included in a Aggregation Group to enable a defined benefit plan
to meet the requirements of Code Section 401 (a) (4) or 410, the
sum of the Employer's contributions and Forfeitures allocated to
the Participant's Combined Account of each Non-Key Employee shall
be equal to the largest percentage allocated to the Participant's
Combined Account of any Key Employee
However, for each Non-Key Employee who is a Participant in
a paired Profit Sharing Plan or 40 (k) Profit Sharing Plan and a
paired Money Purchase Plan, the minimum 3% allocation specified
above shall be provided in the Money Purchase Plan.
If this is an integrated Plan, then for any Top Heavy Plan
Year the Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each
Participant's Account. If the Employer does not contribute
such amount for all Participants, the amount shall be
allocated to each Participant's Account in the same
proportion that his total Compensation for the Plan Year
bears to the total Compensation of all Participants for
such year.
(2) The balance of the Employer's contribution over the
amount allocated under subparagraph (1) hereof shall be
allocated to each Participant's Account in a dollar amount
equal to 3% multiplied by a Participant's Excess
Compensation. If the Employer does not contribute such
amount for all Participants, each Participant will be
allocated a snare of the contribution in the same
proportion that his Excess Compensation bears to the total
Excess Compensation of ail Participants for that year.
(3) The balance of the Employer is contribution over the
amount allocated under subparagraph (2) hereof shall be
allocated to each Participant's Account in a dollar amount
equal to 2.7% multiplied by the sum of each Participant's
total Compensation plus Excess Compensation. If the
Employer does not contribute such amount: for all
Participants, each Participant will be allocated a share
of the contribution in the same proportion that his total
Compensation plus his total Excess Compensation for the
Plan Year bears to the total Compensation plus the total
Excess Compensation of all Participants for that year.
Regardless of the preceding, 1.3% shall be substituted for
2.7% above if Excess Compensation is based on more than
20% and less than or equal to 80% of the Taxable Wage
Base. If Excess
34
<PAGE> 44
Compensation is based on less than 100% and more than
80% of the Taxable Wage Base, then 2.4% shall be
substituted for 2.7% above.
(4) The balance o the Employer's contributions over the
amount allocated above, if any, shall be allocated to each
Participant's Account in the same proportion that his
total compensation for the Plan Year bears to the total
compensation of all Participants for such year.
For each Non-Key Employee who is a Participant in this
Plan and another non-paired defined contribution plan maintained
by the Employer, the minimum 3% allocation specified above shall
be provided as specified in F3 of the Adoption Agreement.
(g) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's Combined
Account of any Key Employee shall be equal to the ratio of the
sum of the Employer's contributions and Forfeitures allocated on
behalf of such Key Employee divided by the "415 Compensation" for
such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations
set forth in this Section shall be allocated to the Participant's
Combined Account of all Non-Key Employees who are Participants
and who are employed by the Employer on the last day of the Plan
Year, including Non-Key Employees who have (1) failed to complete
a Year of Service; or (2) declined to make mandatory
contributions (if required) or, in the case of a cash or deferred
arrangement, elective contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in
any Plan Year in which the Employer maintains both this Plan and
a defined benefit pension plan included in a Required Aggregation
Group which is top heavy, the Employer shall not be required to
provide a Non-Key Employee with both the full separate minimum
defined benefit plan benefit and the full separate defined
contribution plan allocations. Therefore, if the Employer
maintains both a Defined Benefit and a Defined Contribution Plan
that are a Top Heavy Group, the top heavy minimum benefits shall
be provided as follows:
(1) Applies if F1b of the Adoption Agreement is Selected -
(i) The requirements of Section 2.1 shall apply
except that each Non-Key Employee who is a
Participant in the Profit Sharing Plan or Money
Purchase Plan and who is also a Participant in the
35
<PAGE> 45
Defined Benefit Plan shall receive a minimum
allocation of five percent (5%) of such
Participant's " 415 Compensation" from the
applicable Defined Contribution Plan(s).
(ii) For each Non-Key Employee who is a Participant
only in the Defined Benefit Plan the Employer will
provide a minimum non-integrated benefit equal to
2% of his highest five consecutive year average
"415 Compensation" for each Year of Service while a
Participant in the Plan, in which the Plan is top
heavy, no to exceed ten.
(iii) For each Non-Key Employee who is a
Participant only in this Defined Contribution Plan,
the Employer shale provide a contribution equal to
3% of his "415 Compensation.
(2) Applies if Flc of the Adoption Agreement is Selected -
(i) The minimum allocation specified in Section 4.3
(i) (1) (i) shall be 7 1/2% if the Employer elects
in the Adoption Agreement for years in which the
Plan is Top Heavy, but not Super- Top Heavy.
(ii) The minimum benefit specified in Section 4.3
(i) (1 (ii) shall be 3% if the Employer elects in
the Adoption Agreement for years in which the Plan
is Top Heavy, but not Super Top Heavy.
(iii) The minimum allocation specified in Section
4.3 (i) (1) (iii) shall be 4% if the Employer-
elects in the Adoption Agreement for years in which
the Plan is Top Heavy, but not Super Top Heavy.
(j) For the purposes of this Section, "415 Compensation"
shall be limited to the same dollar limitation set forth in
Section 1.9. However, for Plan Years beginning prior to January
1, 1989, the $200,000 limit shall apply only for Top Heavy Plan
Years and shall not be adjusted.
(k) Notwithstanding anything herein to the contrary any
participant who terminated employment during the Plan Year for
reasons other- than death, Total and Permanent Disability, or
retirement shall or shall not share in the allocations of the
Employer's Contributions and Forfeitures as provided in the
Adoption Agreement. Notwithstanding the foregoing for Plan Years
beginning after 1989, this is a standardized Plan, any such
terminated Participant shall share in the allocations as provided
in this Section provided sucr Participant completed more than 500
Hours of Service.
(l) Notwithstanding anything herein to the contrary,
Participants
36
<PAGE> 46
terminating for reasons of death, Total and Permanent
Disability, or retirement shall share in the allocations
as provided in this Section regardless of whether they
completed a Year of Service during the Plan Year
(m) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts
shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable
to pre-break service; and
(2) one account representing his employer derived account
balance in the Plan attributable to post-break service.
(n) Notwithstanding any election in the Adoption Agreement
to the contrary, if this is a non-standardized Plan that would
otherwise fail to meet the requirements of Code Sections 401 (a)
(26), 410 (b) (1), or 410 (b) (2) (A) (i) and the Regulations
thereunder because Employer Contributions have not been allocated
to a sufficient number or percentage of Participants for a Plan
Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year
shall be expanded to include the minimum number of
Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified above.
The specific participants who shall become eligible under
the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and,
when compared to similarly situated Participants, have
completed the greatest number of Hours of Service in the
Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied then the group of
Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be
further expanded to include the minimum number of
Participants who are not actively employed on the last day
of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall
become eligible to share shall be those Participants, when
compared to similarly situated Participants, who have
completed the greatest number of Hours of Service in the
Plan Year before terminating employment.
Nothing in this Section shall permit the reduction of a
37
<PAGE> 47
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated
to satisfy these requirements. In such even, the Employer over
shall make an additional contribution equal to the amount such
affected Participants would have received had they been included
in the allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) (1) If the Participant does not participate in, and
has never participated in another qualified plan maintained by
the Employer, or a welfare benefit fund (as defined in Code
Section 419 (e)), maintained by the Employer, or an individual
medical account (as defined in Code Section 415(1)(2)) maintained
by the Employer, which provides Annual Additions, the amount of
Annual Additions which may be credited to the Participant's
accounts for any Limitation Year shall not exceed the lesser of
the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Employer contribution that would otherwise
be contributed or allocated to the Participant's accounts would
cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the amount contributed or allocated
will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant
on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Yea-,
uniformly determined for all Participants similarly
situated
(3) As soon as is administratively feasible after the end
of Limitation Year, the Maximum Permissible Amount for
such Limitation Year shall be determined on the basis of
the Participant's actual compensation for such Limitation
Year.
(4) If pursuant to Section 4.4 (a) (2) or Section 4.5,
there is an Excess Amount the excess will be disposed of
in one of the following manners, as uniformly determined
by the Administrator for all Participants similarly
situated.
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<PAGE> 48
(i) Any Deferred Compensation or nondeductible
Voluntary Employee Contributions, to the extent
they would reduce the Excess Amount will be
distributed to the Participant;
(ii) If, after the application of subparagraph (i),
an Excess Amount still exists, and the Participant
is covered by the Plan at the end of the Limitation
Year, the Excess Amount in the Participant's
account will be used to reduce Employer
contributions (including any allocation of
Forfeitures) for such Participant in the next
Limitation Year, and each succeeding Limitation
Year if necessary;
(iii) If, after the application of subparagraph
(i), an Excess Amount still exists, and the
Participant is not covered by the Plan at the end
of a Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The
suspense account will be applied to reduce future
Employer contributions (including allocation of any
Forfeitures) for all remaining Participants in the
next Limitation Year, and each succeeding
Limitation Year if necessary;
(iv) If a suspense account is in existence at any
time during a Limitation Year pursuant to this
Section, it will not participate in the allocation
of investment gains and losses. If a suspense
account is in existence at any time during a
particular limitation year, all amounts in the
suspense account must be allocated and reallocated
to participants' accounts before any employer
contributions or any employee contributions may be
made to the plan for that limitation year. Excess
amounts may not be distributed to participants or
former participants.
(b) (1) This subsection applies if, in addition to this
plan, the Participant is covered under another qualified
Prototype defined contribution plan maintained be the Employer,
or a welfare benefit fund (as defined in Code Section 419 (e))
maintained by the Employer, or an individual medical account (as
defined in Code Section 415 (1) (2)) maintained by the Employer,
which provides Annual Additions, during any Limitations Year. The
Annual Additions which may be credited to a Participant's
accounts under this Plan for any such Limitation Year shall not
exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's accounts under the other
plans and welfare benefit funds for the same Limitation Year. If
the Annual Additions with respect to the Participant under other
defined contribution plans and welfare benefit funds maintained
by the employer are less than the Maximum Permissible Amount and
the Employer contribution that would otherwise be contributed or
allocated to the Participant's accounts under this Plan would
cause the Annual
39
<PAGE> 49
Additions for the Limitation Year to exceed this limitation, the
amount contributed or allocated will be reduced so that the
Annual additions under this such plans and welfare benefit funds
for the Limitation Year will equal the Maximum Permissible
Amount. If the Annual Additions with respect to the Participant
under such other defined contribution plans and welfare benefit
funds in the aggregate are equal to or greater than the Maximum
Permissible Amount, no amount will be contributed or allocated to
the Participant's account under this Plan for the Limitation
Year.
(2) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant
in the manner described in Section 4.4 (a) (2).
(3) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for
the Limitation Year will be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(4) If, pursuant to Section 4.4 (b) (2) or Section 4.5, a
Participant's Annual Additions under this Plan and such
other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to
consist of the Annual Additions last allocated, except
that Annual Additions attributable to a welfare benefit
fund or individual medical account will be deemed to have
been allocated first regardless of the actual allocation
date.
(5) If an Excess Amount was allocated to a Participant on
an allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount
attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such
date, times.
(ii) the ratio of (1) the Annual Additions
allocated to the Participant for the Limitation
Year as of such date under this Plan to (2) the
total Annual Additions allocated to the Participant
for the Limitation Year as of such date under this
and all the other qualified defined contribution
plans.
(6) Any Excess Amount attributed to this Plan will be
disposed in the manner described in Section 4.4 (a) (4).
40
<PAGE> 50
(c) If the Participant is covered under another qualified
defined contribution plan maintained by the Employer which is not
a Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year
will be limited in accordance with Section,. 4.4 (b), unless the
Employer provides other limitations in the Adoption Agreement.
(d) If the Employer maintains, or at any time maintained a
qualified defined benefit plan covering any Participant in this
Plan the sum of the Participant's Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. The Annual Additions which may be credited to
the Participant's account under this Plan for any Limitation Year
will be limited in accordance with the Limitation on Allocations
Section of the Adoption Agreement.
Except, however, if the Plans are standardized paired
plans, the rate of accrual in the defined benefit plan will be
reduced to the extent necessary so that the sum of the Defined
Contribution Fraction and Defined Benefit Fraction will equal
1.0.
(e) For purposes of applying the limitations or Code
Section 415, the transfer of funds from one qualified plan to
another is not an "annual addition. In addition, the following
are not Employee contributions for the purposes of Section 4.4
(f) (1) (2): (1) rollover contributions (as defined in Code
Sections 402 (a) (5), 403 (a) (4), 403 (b) (8) and 408 (d) (3));
(2) repayments of loans made to a Participant from the Plan; (3)
repayments of distributions received by an Employee pursuant to
Code Section 411 (a) (7) (B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411 (a) (3) (D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from
gross income under Code Section 408 (k) (6).
(f) For purposes of this Section, the following terms
shall be defined as follows:
(1) Annual Additions means the sum credited to a
Participant's accounts for any Limitation Year of (1)
Employer contributions, (2) effective with respect to
"limitation years" beginning after December 31, 1986,
Employee contributions, (3) forfeitures, (4) amounts
allocated,, after March 31, 1984, to an individual medical
account as defined in Code Section 415(1)(2), which is
cart c- a pension or annuity plan maintained by the
Employer and (5) amounts derived from contributions paid
or accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to post-
retirement medical benefits allocated the
41
<PAGE> 51
separate account of a key employee (as defined in Code
Section 419 A (d) (3)) under a welfare benefit fund (as
defined in Code Section 419 (e)) maintained by the
Employer. Except, however, the "415 Compensation"
percentage limitation referred to in paragraph (a) ( above
shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419 A (f)
(2)) after separation from service which is otherwise
treated as an "annual addition" or (2) any amount
otherwise treated as an "annual addition" under Code
Section 415(1)(1) Notwithstanding the foregoing, for
"limitation years" beginning prior to January 1, 1987,
only that portion of Employee contributions equal to the
lesser of Employee contributions in excess of six percent
(6%) of "415 Compensation or one-half of Employee
contributions shall be considered an "annual addition".
For this purpose, any Excess Amount applied under Sections
4.4 (a) (4) and 4.4 (b) (6) in the Limitation Year reduce
Employer contributions shall be considered Annual
Additions for such Limitation Year.
(2) Compensation means a Participant's Compensation as
defined in Section E1 of the Adoption Agreement.
(i) Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in
which contributed, or Employer contributions under
a simplifed employee pension plan to the extent
such contributions are excludable from the
Employee's gross income, or any distributions from
a plan of deferred compensation;
(ii) contributions made by the Employer to a plan
of deferred compensation to the extent that all or
a portion of such contributions are recharacterized
as a voluntary Employee contribution;
(iii) amounts realized from the exercise of a
non-qualified stock option, or when restricted
stock (or property ) held by an Employee becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iv) amounts realized from the sale, exchange or
other disposition of stock acquired under a
qualified stock option; and
(v) other amounts which received special tax
benefits, or contributions made by an Employer
whether or not under a salary
42
<PAGE> 52
reduction agreement) towards the purchase of an
annuity contract described in Code Section 403 (b)
(whether or not the contributions are excludable from
the gross income of the Employee).
For purposes of applying the limitations of this Section
4.4, Compensation for any Limitation Year is the
Compensation actually paid or includible in gross income
during such year. Notwithstanding the preceding sentence
Compensation or a Participant in a profit- sharing plan
who is permanently and totally disabled (as defined in
Code Section 22(e)(3)) is the Compensation such
Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation
paid immediately before becoming permanently and totally
disabled; such imputed Compensation for the disabled
Participant may be taken into account only if the
Participant is not a Highly Compensated Employee and
contributions made on behalf of such Participant are
nonforfeitable when made.
(3) Defined Benefit Fraction means a fraction, the
numerator of which is the sum of the Participant's
Projected Annual Benefits under all the defined benefit
plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of
125 percent of the dollar limitation determined for the
Limitation Year under Code Sections 415 (b) and (d) or
percent of his Highest Average Compensation including any
adjustments under Code Section 415 (b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation
Year beginning after December 31, 1986, in one or mere
defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of
the annual benefits under such plans which the Participant
had accrued as of the end of the close of the last
Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence applies
only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Code Section 415
for all Limitation Years beginning before January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan
Year, 100 shall be substituted for 125 unless the extra
minimum allocation is being made pursuant to the
Employer's election in F
43
<PAGE> 53
1 of the Adoption Agreement. However, for any Plan
Year in which this Plan is a Super Top Heavy Plan,
100 shall be substituted for 125 in any even:
(4) Defined Contribution Dollar Limitation means $30,000
or, if greater, one-fourth of the defined benefit dollar
limitation set forth in Code Section 415 (b) (1) as in
effect for the Limitation Year.
(5) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to
the Participant's account under all the defined
contribution plans (whether or not terminated) maintained
by the employer for the current and all prior Limitation
Years, (including the Annual Additions attributable to the
Participant's nondeductible voluntary employee
contributions to any defined benefit plans, whether or not
terminated, maintained by the Employer and the annual
additions attributable to all welfare benefit funds, as
defined in Code Section 419 (e), and individual medical
accounts, as defined in Code Section 415(1)(2), maintained
by the Employer), and the denominator of which is the sum
of the maximum aggregate amounts for the current and all
prior Limitation Years of Service with the Employer
(regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount
in any Limitation Year is the lesser of 125 percent of the
Defined Contribution Dollar Limitation. Or 35 percent of
the Participant's Compensation for such year. For
Limitation Years beginning prior to January 1, 1987, the
"annual addition" shall not be recomputed to treat all
Employee contributions as an Annual Addition.
If the Employee was a Participant as of the end of the
first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence
on May 5, 1986, the numerator of this fraction will be
adjusted if the sum of this fraction and the Defined
Benefit Fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal
to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated
using the fractions as they would be computed as of the
end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the
44
<PAGE> 54
terms and; conditions of the plan made after May 5, 1986,
but using the Code Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1,
1987.
Notwithstanding the foregoing, for any Top Heavy Plan
Year,100 shall be substituted for 125 unless the extra
minimum allocation is being made pursuant to the
Employer's election in F1 of the Adoption Agreement.
However, for any Plan Year in which this Plan is a Super
Top Heavy Plan, 100 shall be substituted for 125 in any
event.
(6) Employer means the Employer that adopts this Plan and
all Affiliated Employers, except that for purposes of this
Section. Affiliated Employers shall be determined pursuant
to the modification made by Code Section 415 (h).
(7) Excess Amount means the excess of the Participant's
Annual Additions for the Limitation Year over the Maximum
Permissible Amount.
(8) Highest Average Compensation means the average
Compensation for the three consecutive Years of Service
with the Employer that produces the highest average. A
Year of Service with the Employer is the 12 consecutive
month period defined in Section E1 of the Adoption
Agreement which is used to determine Compensation under
the Plan.
(9) Limitation Year means the Compensation Year (a 12
consecutive month period) as elected by the Employer in
the Adoption Agreement. All qualified plans maintained by
the Employer must use the same Limitation Year. If the
Limitation Year is amended to a different 12 consecutive
month period, the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.
(10) Master or Prototype Plan means a plan the form of
which is the subject of a favorable opinion letter from
the Internal Revenue Service.
(11) Maximum Permissible Amount means the maximum Annual
Addition that may be contributed or allocated to a
Participant's account under the plan for any Limitation
Year, which shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation
for the Limitation
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<PAGE> 55
Year.
The Compensation Limitation referred to in (ii) shall not
apply to any contribution for medical benefits within the
meaning of Code Sections 401 (h) or 419 (f) (2)) which is
otherwise treated as an annual addition under Code
Sections 415(1)(1) or 419A (d) (2).
If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different 12
consecutive month period, the Maximum Permissible Amount
will not exceed the Defined Contribution Dollar
Contribution multiplied by the following fraction:
number of months in the short Limitation Year
12
(12) Projected Annual Benefit means the annual retirement
benefit (adjusted to an actuarially equivalent straight
life annuity if such benefit is expressed in a form other
than a straight life annuity or qualified Joint and
Survivor Annuity) to which the Participant would be
entitled under the terms of the plan assuming:
(i) the Participant will continue employment until
Normal Retirement Age (or current age, if later),
and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
(g) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder,
the terms of which are specifically incorporated herein by
reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's annual
Compensation, a reasonable error in determining the amount of
elective deferrals (within the meaning of Code Section 402 (g)
(3), that may be made with respect to a Participant, or other
faces and circumstances to which Regulation 1 415-6 (b) (6) shall
be applicable, the "annual additions" under this Plan would cause
the maximum provided in Section 4.4 to be exceeded, the
Administrator shall treat the excess in accordance with Section
4.4
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<PAGE> 56
(a) (4).
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the
consent of the Administrator, amounts may be transferred from
other qualified plans, provided that the trust from which such
funds are transferred permits the transfer to be made and the
transfer will not jeopardize the tax exempt status of the Plan or
create adverse tax consequences for the Employer. The amounts
transferred shall be set up in a separate account herein referred
to as a "Participant's Rollover Account". Such account shall be
fully Vested at all times and shall not be subject to forfeiture
for any reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan and
may not be withdrawn by, or distributed to the Participant, in
whole or in part, except as provided in Paragraphs (c) and (d) of
this Section.
(c) Amounts attributable to elective contributions (as
defined in Regulation 1.401 (k)-1 (g) (4)), including amounts
treated as elective contributions, which are transferred from
another qualified plan in a plan-to-plan transfer shall be
subject to the distribution limitations provided for in
Regulation 1.401 (k)-l (d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Participant's Rollover
Account shall be used to provide additional benefits to the
Participant or his Beneficiary. Any distributions of amounts held
in a Participant's Rollover Account shall be made in a manner
which is consistent with and satisfies the provisions of Section
6 5, including, but not limited to, all notice and consent
requirements of Code Sections 411 (a) (11) and 417 and the
Regulations thereunder. Furthermore, such amounts shall be
considered as part of a Participant's benefit in determining
whether an involuntary cash-out of benefits without Participant
consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account
for each Participant until such time as the allocations pursuant
to this Plan have been made, at which time they may remain
segregated or be invested as part of the general Trust Fund to be
determined by the Administrator.
(f) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section 401
(a). The term
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<PAGE> 57
"amounts transferred from other qualified plans" shall
mean: (1) amounts transferred to this Plan directly from
another qualified plan; (ii) lump-sum distributions received by
an Employee from another qualified plan which are eligible for
tax free rollover to a qualified plan and which are transferred
by the Employee to this Plan within sixty (60) days following his
receipt thereof; (iii) amounts transferred to this Plan from a
conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for
tax- free rollover to a qualified plan and (C) were deposited in
such conduit individual retirement account within sixty (60) days
of receipt thereof and other than earnings on said assets; and
(iv) amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of clause
(iii) above, and transferred by the Employee to this Plan within
sixty (60) days of his receipt thereof from such conduit
individual retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish
that the amounts to be transferred to this Plan meet the
requirements of this Section and may also require the Employee to
provide an opinion of counsel satisfactory to the Employer that
the amounts to be transferred meet the requirements of this
Section.
(h) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction
of any "Section 411 (d) (6)) protected benefit" as described in
Section 8.1.
4.7 VOLUNTARY CONTRIBUTIONS
(a) If this is an amendment to a Plan that had previously
allowed voluntary Employee contributions, then, except as
provided in 4.7 (b) below, this Plan will not accept voluntary
Employee contributions for Plan Years beginning after the Plan
Year in which this Plan is adopted by the Employer.
(b) For 401 (k) Plans, if elected in the Adoption
Agreement, each Participant may, at the discretion of the
Administrator in a nondiscriminatory manner, elect to voluntarily
contribute a percentage of his compensation earned while a
Participant under this Plan. Such contributions shall be withheld
by payroll deduction and shall be paid to the Trustee within a
reasonable period of time but in no event later than 90 days
after the receipt of the contribution.
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<PAGE> 58
(c) The balance in each Participant's Voluntary
Contribution Account shall be fully Vested at all times and shall
not be subject to Forfeiture for any reason.
(d) A Participant may elect to withdraw his voluntary
contributions from his Voluntary Contribution Account and the
actual earnings thereon in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not
limited to, all notice and consent requirements of Code Sections
411 (a) (11) and 417 and the Regulations thereunder. If the
administrator maintains sub-accounts with respect to voluntary
contributions (and earnings thereon) which were made on or before
a specified date, a Participant shall be permitted to designate
which sub-account shall be the source for his withdrawal. No
Forfeitures shall occur solely as a result of an Employee's
withdrawal of Employee contributions.
In the event such a withdrawal is made, the Administrator
may impose, on a uniform and non- discriminatory basis, a
suspension period during which the Participant may not make
voluntary contributions. However, in the event a Participant has
received a hardship distribution pursuant to Regulation 1.401
(k)- 1 (d) (2) (iii) (B) from any plan maintained by the
Employer, then such Participant shall be barred from making any
voluntary contributions for a period of twelve (12) months after
receipt of the withdrawal or distribution.
(e) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Voluntary Contribution
Account shall be used to provide additional benefits to the
Participant or his Beneficiary.
(f) The Administrator may direct that voluntary
contributions made after a valuation date be segregated into a
separate account until such time as the allocations pursuant to
this Plan have been made, at which time they may remain
segregated or be invested as part of the general Trust Fund, to
be determined by the Administrator.
4.8 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants
shall direct the Trustee as to the investment of all of their
individual account balances. Participants shall direct the
Trustee in writing to invest their account in specific assets as
permitted by the Administrator provided such investments are in
accordance with the Department of Labor regulations and are
permitted by the Plan. However, the Plan may, but
49
<PAGE> 59
is not required to, comply with Act Section 404 (c) and the
regulations thereunder. That portion of the account of any
Participant so directing will thereupon be considered a Directed
Investment Account.
(b) A separate Directed Investment Account shall be
established for each Participant who has directed an investment.
Transfers between the Participant's regular account and their
Directed Investment Account shall be charged and credited as the
case may be to each account. The Directed Investment Account
shall not share in Trust Fund Earnings, but it shall be charged
or credited as appropriate with the net earnings, gains, losses
and expenses as well as any appreciation or depreciation in
market value during each Plan Year attributable to such account.
(c) The Administrator shall establish a procedure, to be
applied in a uniform and nondiscriminatory manner, setting forth
the permissible investment options under this Section, how often
changes between investments may be made, and any other
limitations that the Administrator shall impose on a
Participant's right to direct investments.
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously
permitted deductible voluntary contributions, then each
Participant who made a "Qualified Voluntary Employee
Contribution" within the meaning of Code Section 219 (e) (2) as
it existed prior to the enactment of the Tax Reform Act of 1986,
shall have his contribution held in a separate Qualified
Voluntary Employee Contribution Account which shall be fully
Vested at all times. Such contributions, however, shall not be
permitted if they are attributable to taxable years beginning
after December 31, 1986.
(b) A Participant may, upon written request delivered to
the Administrator, make withdrawals from his Qualified Voluntary
Employee Contribution Account. Any distribution shall be made in
a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and
consent requirements of Code Sections 411 (a) (11) and 417 and
the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Qualified Voluntary
Employee Contribution Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary
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<PAGE> 60
Employee Contributions made pursuant to this Section be
segregated into a separate account for each Participant, they
shall be invested as part of the general Trust Fund and share in
earnings and losses.
4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS
In the event this Plan previously provided for voluntary or
mandatory Employee contributions, then, with respect to Plan Years beginning
after December 31, 1986, such contributions must satisfy the provisions of Code
Section 401 (m) and the Regulations thereunder.
4. 11 INTEGRATION IN MORE THAN ON PLAN
If the Employer and/or an Affiliated Employer maintain qualified
retirement plans integrated with Social Security such that any Participant in
this Plan is covered under more than one of such plans, then such plans will be
considered to be one plan and will be considered to be integrated if the extent
of the integration of all such plans does not exceed 100%. For purposes of the
preceding sentence the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable, under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date", to determine the net worth of the
assets comprising the Trust Fund as it exists on the "valuation date". In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the
Trust Fund which are listed on a registered stock exchange, the Administrator
shall direct the Trustee to value the same at the prices they were last traded
on such exchange preceding the close of business on the "valuation date". If
such securities were not traded on the "valuation date", or if the exchange on
which they were last traded prior to the was not open for business on the
"valuation date", then the securities
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<PAGE> 61
shall be valued at the prices at which they were last traded prior to the
"valuation date". Any unlisted security held in the Trust Fund shall be valued
at its bid price next preceding the close of business on the "valuation date",
which bid price shall be obtained from a registered broker or an investment
banker. In determining the fair market value of assets other than securities for
which trading or bid prices can be obtained, the Trustee may appraise such
assets itself, or in its discretion, employ one or more appraisers for that
purpose and rely on the Values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer
and retire for the purposes hereof on or after his Normal Retirement Date or
Early Retirement Date upon such normal retirement date or early retirement date,
all amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.3, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested.
The Administrator shall direct, in accordance with the provisions
of Sections 6.6 and 6.7, the distribution of the deceased
Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, The
administrator shall direct, in accordance with the provisions of
Sections 6.6 and 6.7, the distribution of any remaining amounts
credited to the accounts of such deceased Former Participant to
such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of
death and such evidence of the right of any person to receive
payment of the value of the account of a deceased Participant or
Former Participant as the Administrator may deem desirable. The
Administrator's determination of death and of the right of any
person to receive
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payment shall be conclusive.
(d) Unless otherwise elected in the manner prescribed in
Section 6.6, the Beneficiary of the Pre-Retirement Survivor
Annuity shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse for
the Pre-Retirement Survivor Annuity if:
(1) the Participant and his spouse have validly waived the
(Pre-Retirement) Survivor Annuity in the manner prescribed
in Section 6.6, and the spouse has waived his or her right
to be the Participant's Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and there is
no "qualified domestic relations order" as defined in Code
Section 414 (p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator, Participant may
at any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change
with the Administrator. However, the Participant's spouse must
again consent in writing to any change in Beneficiary unless the
original consent acknowledged that the spouse had the right to
limit consent only to a specific Beneficiary and that the spouse
voluntarily elected to relinquish such right. The Participant
may, at any time, designate a Beneficiary for death benefits
payable under the Plan that are in excess of the Pre-Retirement
Survivor Annuity. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the
death benefit shall be payable to his estate.
(e) If the Plan provides an insured death benefit and a
Participant dies before any insurance coverage to which he is
entitled under the Plan is effected, his death benefit from such
insurance coverage shall be limited to the standard rated premium
which was or should have been used for such purpose.
(f) In the event of any conflict between the terms of this
Plan and the terms of any Contract issued hereunder, the Plan
provisions shall control.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability
prior to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Administrator,
in accordance with the provisions of Sections 6.5 and 6.7, shall direct the
distribution to such Participant of all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS IN EVEN OF DISABILITY
(a) On or before the Anniversary Date, or other valuation
date, coinciding with or subsequent to the termination of a
Participant's employment for any reason other than retirement,
death, or Total and Permanent Disability, the Administrator may
direct that the amount of the Vested portion of such Terminated
Participant's Combined Account be segregated and invested
separately. In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations pursuant to Section 4.3 until such time as a
distribution is made to the Terminated Participant. The amount of
the portion of the Participant's Combined Account which is not
Vested may be credited to a separate account (which will always
share in gains and losses of the Trust Fund) and at such time as
the amount becomes a Forfeiture shall be treated in accordance
with the provisions of the Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted,
in the event that the amount of the Vested portion of the
Terminated Participants Combined Account equals or exceeds the
fair market value of any insurance Contacts, the Trustee, when so
directed by the Administrator and agreed to by the Terminated
Participant, shall assign, transfer, and set over to such
Terminate Participant all Contracts on his life in such form or
with such endorsements, so that the settlement options and forms
of payment are consistent with the provisions of Section 6.5. In
the event that the Terminated Participant's Vested portion does
not at least equal the fair market value of the Contracts, if
any, the Terminated Participant may pay over to the Trustee the
sum needed to make the distribution equal to the value of the
Contracts being assigned or transferred, or the Trustee, pursuant
to the Participant's election, may borrow the cash value of the
Contracts from the Insurer so that the value of the Contracts is
equal to the Vested portion of the Terminated Participant's
Combined Account and then assign the Contracts to the Terminated
Participant.
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<PAGE> 64
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in
the distribution had the Terminated Participant remained in the
employ of the Employer (upon the Participant's death. Total and
Permanent Disability, Early or Normal Retirement). However, at
the election of the Participant, the Administrator shall direct
that the entire Vested portion of the Terminated Participant's
Combined Account to be payable of such Terminated Participant
provided the conditions, if any, set forth in the Adoption
Agreement have been satisfied. Any distribution under this
paragraph shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including but not
limited to, all notice and consent requirements of Code Sections
411 (a) (11) and 417 the Regulations thereunder
Notwithstanding the above, if the value of a Terminated
Participant's Vested benefit derived from Employer and Employee
contributions does not exceed, and at the time of any prior
distribution, has never exceeded $3,500, the Administrator shall
direct that the entire Vested benefit be paid to such Participant
in a single lump-sum without regard to the consent of the
Participant or the Participant s spouse. A Participant's Vested
benefit shall not include Qualified Voluntary Employee
Contributions within the meaning of Code Section 72 (o) (5) (B)
for Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall
be a percentage of such Participant's Account determined on the
basis of the Participant's number of Years of Service according
to the vesting schedule specified in the Adoption Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top
heavy vesting schedules as elected by the Employer in the
Adoption Agreement will automatically apply to the Plan. The
minimum top heavy vesting schedule applies to all benefits within
the meaning of Code Section 411 (a) (7) except those attributable
to Employee contributions, including benefits accrued before the
effective date of Code Section 416 and benefits accrued before
the Plan became top heavy. Further, no decrease in a
Participant's Vested percentage may occur in the event the Plan's
status as top heavy changes for any Plan Year. However, this
Section does not apply to the account balances of any Employee
who does not have an Hour of Service after the Plan has initially
become top heavy and the Vested percentage of such Employee's
Participant's Account shall be determined without regard to this
Section 6.4 (c).
If in any subsequent Plan Year, the Plan ceases to be a
Top
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Heavy Plan, the Administrator shall continue to use the
vesting schedule in effect while the Plan was a Top Heavy Plan
for each Employee who had an Hour of Service during a Plan Year
when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the
Plan or upon any full or partial terminal on of the Plan, all
amounts credited to the account of any affected Participant shall
become 100% Vested and shall not thereafter be subject to
Forfeiture.
(e) If this is an amended or restated Plan, then
notwithstanding the vesting schedule specified in the Adoption
Agreement, the Vested percentage of a Participant's Account shall
not be less than the Vested percentage attained as of the later
of the effective date or adoption date of this amendment and
restatement. The computation of a Participant"s nonforfeitable
percentage of his interest in the Plan shall not be reduced as
the result of any direct or indirect amendment to this Article,
or due to changes in the Plan's status as a Top Heavy Plan.
(f) If the Plan's vesting schedule is amended, or if the
Plan is amended in any way that directly or indirectly affects
the computation of the Participant's nonforfeitable percentage or
if the Plan is deemed amended by an automatic change to a top
heavy vesting schedule, then each Participant with at least 3
Years of Service as of the expiration date of the election period
may elect to have his nonforfeitable percentage computed under
the Plan without regard to such amendment or change.
Notwithstanding the foregoing, for Plan Years beginning before
January 1, 1989, or with respect to Employees who fail to
complete at least one (1) Hour of Service in a Plan Year
beginning after December 31, 1988, five (5) shall be substituted
for three (3) in the preceding sentence. If a Participant fails
to make such election, then such Participant shall be subject to
the new vesting schedule. The Participant's election period shall
commence on the adoption date of the amendment and shall end 60
days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice
of the amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by
the Employer before a 1-Year Break in Service occurs, he shall
continue to participate in the Plan in the same manner as if such
termination had
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not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in
Service, and such Former Participant had received a
distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him
before the earlier of five (5) years after the first date
on which the Participant is subsequently reemployed by the
Employer or the close of the first period of 5 consecutive
1-Year Breaks in Service commencing after the
distribution. If a distribution occurs for any reason
other than a separation from service, the time for
repayment may not end earlier than five (5) years after
the date of separation. In the event the Former
Participant does repay the full amount distributed to him,
the undistributed portion of the Participant's Account
must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Anniversary Date or
other valuation date preceding his termination. If an
employee receives a distribution pursuant to this section
and the employee resumes employment covered under this
plan, the employee's employer-derived account balance will
be restored to the amount on the date of distribution if
the employee repays to the plan the full amount of the
distribution attributable to employer contributions before
the earlier of 5 years after the first date on which the
participant is subsequently re-employed by the employer,
or the date the participant incurs 5 consecutive 1-year
breaks in service following the date of the distribution.
If a non-Vested Former Participant was deemed to have
received a distribution and such Former Participant is
reemployed by the Employer before five (5) consecutive
1-Year Breaks in Service, then such Participant will be
deemed to have repaid the deemed distribution as of the
date of reemployment.
(3) If any Former Participant is reemployed after a 1-
Year Break in Service has occurred, Years of Service shall
include Years of Service prior to his 1-Year Break in
Service subject to the following rules:
(i) Any Former Participant who under the Plan does
not have a nonforfeitable right to any interest in
the Plan resulting from Employee contributions
shall lose credits if his consecutive 1-Year Breaks
in Service equal or exceed the greater of (A) five
(5) or (B) the aggregate number of his pre-break
Years of Service:
(ii) After five (5) consecutive 1-Year Breaks in
Service, a Former
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Participant's Vested Account balance attributable
to pre-break service shall not be increased as a
result of post-break service;
(iii) A former Participant who is reemployed and
who has not had his Years of Service before a 1-
Year Break in Service disregarded pursuant to (i)
above, shall participate in the Plan as of his date
of reemployment;
(iv) If a Former Participant completes a Year of
Service (a 1-Year Break in Service previously
occurred, but employment had not terminated), he
shall participate in the Plan retroactively from
the first day of the Plan Year during which he
completes one (1) Year of Service.
(h) In determining Years of Service for purposes of
vesting under the Plan, Years of Service shall be excluded as
specified in the Adoption Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a
Participant who is married on the "annuity starting date" and who
does not die before the "annuity starting date" shall receive the
value of all of his benefits in the form of a Joint and Survivor
Annuity. The Joint and Survivor Annuity is an annuity that
commences immediately and shall be equal in value to a single
life annuity. Such joint and survivor benefits following the
Participant's death shall continue to the spouse during the
spouse's lifetime at a rate equal to 50% of the rate at which
such benefits were payable to the Participant. This Joint and
Survivor Annuity shall be considered the designated qualified
Joint and Survivor Annuity and automatic form of payment for the
poses of this Plan. However, the Participant may elect to receive
a smaller annuity benefit with continuation of payments to the
spouse at a rate of seventy-five percent (75%) or one hundred
percent (100%) of the rate payable to a Participant during his
lifetime which alternative Joint and Survivor Annuity shall be
equal in value to the automatic Joint and 50% Survivor Annuity.
An unmarried Participant shall receive the value of his benefit
in the form or a life annuity. Such unmarried Participant,
however, may elect in writing to waive the life annuity. The
election must comply with the provisions of this Section as if it
were an election to waive the Joint and Survivor Annuity by a
married Participant, but without the spousal consent requirement.
The Participant may elect to have any annuity provided for in
this Section distributed upon the attainment the "earliest
retirement age" under the Plan. The "earliest retirement age" is
the earliest date on which, under the Plan, the Participant could
elect to receive retirement benefits.
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(2) Any election to waive the Joint and
Survivor Annuity must be made by the Participant in
writing during the election period and be consented to by
the Participant's spouse. If the spouse is legally
incompetent to give consent, the spouse's legal guardian,
even such guardian is the Participant, may give consent.
Such election shall designate a Beneficiary (or a form of
benefits) that may not be changed without spousal consent
(unless the consent of the spouse expressly permits
designations by the Participant without the requirement of
further consent by the spouse). Such spouse's consent
shall be irrevocable and must acknowledge the effect of
such election and be witnessed by a Plan representative or
a notary public. Such consent shall not be required if it
is established to the satisfaction of the Administrator
that the required consent cannot be obtained because there
is no spouse the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The
election made by the Participant and consented to by his
spouse may be revoked by the Participant in writing
without the consent of the spouse at any time during the
election period. The number of revocations shall not be
limited. Any new election must comply with the
requirements of this paragraph. A former spouse's waiver
shall not be binding on a new spouse.
(3) The election period to waive the Joint and Survivor
Annuity shall be the 90 day period ending on the "annuity
starting date."
(4) For purposes of this Section and Section 6.6, the
"annuity starting dates" means the first day of the first
period for which an amount is paid as an annuity, or, in
the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred
which entitles the Participant to such benefit.
(5) With regard to the election, the Administrator shall
provide to the Participant no less than 30 days and no
more than 90 days before the "annuity starting date" a
written explanation of:
(i) the terms and conditions of the Joint and
Survivor Annuity, and
(ii) the Participant's right to make and the effect
of an election to waive the Joint and Survivor
annuity, and
(iii) the right of the Participant's spouse to
consent to any election to waive the Joint and
Survivor Annuity, and
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(iv) the right of the Participant to revoke such
election, and the effect of such revocation.
(b) In the event a married Participant duly elects
pursuant to paragraph (a) (2) above not to receive his benefit in
the form of a Joint and Survivor Annuity, or if such Participant
is not married, in the form of a life annuity, the Administrator,
pursuant to the election or the Participant, shall direct the
distribution to a Participant or his Beneficiary any amount to
which he is entitled under the Plan in one or more or the
following methods which are permitted pursuant to the Adoption
Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to
provide such installment payments, the Administrator may
direct that the Participant's interest in the Plan be
segregated and invested separately, and that the funds in
the segregated account be used for the payment of the
installments. The period over which such payment is to be
made shall not extend beyond the Participant's life
expectancy (or the life expectancy of the Participant and
his designated Beneficiary);
(3) Purchase of or providing an annuity. However, such
annuity may not be in any form that will provide for
payments over a period extending beyond either the life of
the Participant (or the lives of the Participant and his
designated Beneficiary) or the life expectancy of the
Participant (or the life expectancy of the Participant and
his designated Beneficiary).
(c) The present value of a Participant's Joint and
Survivor Annuity derived from Employer and Employee contributions
may not be paid without his written consent if the value exceeds,
or has ever exceeded at the time of any prior distribution,
$3,500. Further, the spouse of a Participant must consent in
writing to any immediate distribution. If the value of the
Participant's benefit derived from Employer and Employee
contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the Administrator
may immediately distribute such benefit without such
Participant's consent. No distribution may be made under the
preceding sentence after the "annuity starting date" unless the
Participant and his spouse consent in writing to such
distribution. Any written consent required under this paragraph
must be obtained not more than 90 days
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before commencement of the distribution and shall be made in a
manner consistent with Section 6.5 (a) (2).
(d) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded at the time of any prior
distribution, $3,500 shall require such Participants consent if
such distribution commences prior to the later of his Normal
Retirement Age or age 62. With regard to this required consent:
(1) No consent shall be valid unless the Participant has
received a general description of the material features
and an explanation of the relative values of the optional
forms of benefit available under the Plan that would
satisfy the notice requirements of Code Section 417.
(2) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any
election to defer the receipt of benefits shall not apply
with respect to distributions which are required under
Section 6.5 (e).
(3) Notice of the rights specified under this paragraph
shall be provided no less than 30 days and no more than 90
days before the "annuity starting date".
(4) Written consent of the Participant to the distribution
must not be made before the Participant receives the
notice and must not be made more than 90 days before the
"annuity starting date".
(5) No consent shall be valid if a significant detriment
is imposed under the Plan on any Participant who does not
consent to the distribution
(e) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits, made on
or after January 1, 1985, whether under the Plan or through the
purchase of an annuity Contract, shall be made in accordance with
the following requirements and shall otherwise comply with Code
Section 401 (a) (9) and the Regulations thereunder (including
Regulation Section 1. 401 (a) (9)-2), the provisions of which are
incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him
not later than April 1st of the calendar year following
the later of (i) the calendar year in which the
Participant attains age 70 1/2 or (ii) the calendar year
in which the Participant retires, provided,
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however, that this clause (ii) shall not apply in the case
of a Participant who is a "five (5) percent owner" at any
time during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or, in the
case of a Participant who becomes a "five (5) percent
owner' during any subsequent Plan Year, clause (ii) shall
no longer apply and the required beginning date shall be
the April 1st of the calendar year following the calendar
year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant must begin
no later than the applicable April 1st as determined under
the preceding sentence and must be made over the life of
the Participant or, if benefits are paid in the form of a
Joint and Survivor Annuity, the life expectancy of the
Participant and designated Beneficiary in accordance with
Regulations. For Plan Years beginning after December 31,
1988 clause (ii) above shall not apply to any Participant
unless the Participant had attained age 70 1/2 before
January 1, 1988 and was not a "five (5) percent owner" at
any time during the Plan Year ending with or within the
calendar year in which the Participant attained age 66 1/2
or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries
shall only be made in accordance with the incidental death
benefit requirements of Code Section 401 (a) (9) (G) and
the Regulations thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then present value of the payments
to be made over the period of the Participant's life
expectancy exceeds fifty percent (50%) of the then present
value of the total payments to be made to the Participant
and his Beneficiaries.
(f) For purposes of this Section, the life expectancy of a
Participant shall be redetermined annually in accordance with
Regulations if permitted pursuant to the Adoption Agreement. If
the Participant may elect whether recalculations will be made,
then the election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then
the life expectancy of the Participant shall not be subject to
recalculation. Life expectancy shall be computed using the return
multiples in Tables V and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any
annuity
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Contract purchased and distributed to a Participant or
spouse shall comply with all of the requirements of this Plan.
(h) Subject to the spouse's right of consent afforded
under the Plan, the restrictions imposed by this Section shall
not apply if a Participant has, prior to January 1, 1984, made a
written designation to have his retirement benefit paid in an
alternative method acceptable under Code Section 401 (a) as in
effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant
who has not terminated employment is not fully Vested in his
Participant's Account and the Participant may increase the Vested
percentage in such account:
(1) A separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution, and
(2) At any relevant time the Participant's Vested portion
of the separate account shall be equal to an amount ("X")
determined by the formula:
X equals P (AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance
at the relevant time, D is the amount of distribution, and
R is the ratio of the account balance at the relevant time
to the account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested
Participant who dies before the annuity starting date and who has
a surviving spouse shall have the Pre- Retirement Survivor
Annuity paid to his surviving spouse. The Participant's spouse
may direct that payment of the Pre-Retirement Survivor Annuity
commence within a reasonable period after the Participant's
death. If the spouse does not so direct, payment of such benefit
will commence at the time later of his Normal Retirement Age or
age 62. However, the spouse may elect a later commencement date.
Any distribution to the Participant's spouse shall be subject to
the rules specified in Section 6.6 (h)
(b) Any election to waive the Pre-Retirement Survivor
Annuity before the Participant's death must be made by the
Participant in
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writing during the election period and shall require the
spouse's irrevocable consent in the same manner provided for
in Section 6.5 (a) (2). Further, the spouse's consent must
acknowledge the specific nonspouse Beneficiary.
Notwithstanding the foregoing, the nonspouse Beneficiary need
not be acknowledged, provided the consent of the spouse
acknowledges that the spouse has the right to limit consent
only to a specific beneficiary and that the spouse voluntarily
elects to relinquish such right.
(c) The election period to waive the Pre- Retirement
Survivor Annuity shall begin on the first day of the Plan Year in
which the Participant attains age 35 and end on the date of the
Participant's death. An earlier waiver (with spousal consent) may
be made provided a written explanation of the Pre-Retirement
Survivor Annuity is given to the Participant and such waiver
becomes invalid at the beginning of the Plan Year in which the
Participant turns age 35. In the event a Vested Participant
separates from service prior to the beginning of the election
period, the election period shall begin on the date of such
separation from service.
(d) With regard to the election, the Administrator shall
provide each Participant within the applicable period, with
respect to such Participant (and consistent with Regulations) a
written explanation of the Pre-Retirement Survivor Annuity
containing comparable information to that required pursuant to
Section 6.5 (a) (5). For the purposes of this paragraph, the term
"applicable period" means, with respect to a Participant,
whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan
Year in which the Participant attains age 32 and ending
with the close of the Plan Year preceding the Plan Year in
which the Participant attains age 35;
(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an
individual who becomes a Participant after age 32, the
explanation must be provided by the end of the three-year
period beginning with the first day of the first Plan Year
for which the individual is a Participant;
(3) A reasonable period ending after the Plan no longer
fully subsidizes the cost of the Pre-Retirement Survivor
Annuity with respect to the Participant;
(4) A reasonable period ending after Code Section 401 (a)
(11) applies to the Participant; or
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(5) A reasonable period after separation from service in
the case of a Participant who separates before attaining
age 35. For this purpose, the Administrator must provide
the explanation beginning one year before the separation
from service and ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for this
Section shall apply only to Participants who are credited with an
Hour of Service on or after August 23, 1988. Former Participants
who are not credited with an Hour of Service on or after August
23, 1984 shall be provided with rights to the Pre-Retirement
Survivor Annuity in accordance with Section 303 (e) (2) of the
Retirement Equity Act of 1984.
(f) If the value the Pre-Retirement Survivor Annuity
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the immediate
distribution of such amount to the Participant"s spouse. No
distribution may be made under the preceding sentence after the
annuity starting date unless the spouse consents in writing. If
the value exceeds, or has ever exceeded at the time of any prior
distribution, $3,500, an immediate distribution of the entire
amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution. Any
written consent required under this paragraph must be obtained
not more than 90 rays before commencement of the distribution and
shall be made in a manner consistent with Section 6.5 (a) (2).
(g) (1) In the event there is an election to waive the
Pre-Retirement Survivor Annuity, and for death benefits in excess
of the Pre-Retirement Survivor Annuity, such death benefits shall
be paid to the Participant's Beneficiary by either of the
following methods, as elected by the Participant (or if no
election has been made prior to the Participant's death, by his
Beneficiary) subject to the rules specified in Section 6.6 (h))
and the selections made in the Adoption Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be
determined by the Participant or his Beneficiary.
After periodic installments commence, the
Beneficiary shall have the right to reduce the
period over which such periodic installments shall
be made, and the cash amount of such periodic
installments shall be adjusted accordingly.
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(iii) If death benefits in excess of the
Pre-Retirement Survivor Annuity are to be paid to
the surviving spouse, such benefits may be paid
pursuant to (i) or (ii) above, or used to purchase
an annuity so as to increase the payments made
pursuant to the Pre-Retirement Survivor Annuity;
(2) In the event the death benefit payable pursuant to
Section 6.2 is payable in installments, then, upon the
death of the Participant, the Administrator may direct
that the death benefit be segregated and invested
separately, and that the funds accumulated in the
segregated account, be used for the payment of the
installments.
(h) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant made on
or after January 1, 1985, shall be made in accordance with the
following requirements and shall otherwise comply with Code
Section 401 (a) (9) and the Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the
distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest
shall be distribution at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as
of his date of death.
(2) If a Participant dies before he has begun to receive
any distributions of his interest in the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed
to his Beneficiaries in accordance with the following
rules subject to the selections made in the Adoption
Agreement and Subsections 6.6 (h) (3) and 6.6 (i) below:
(i) The entire death benefit shall be distributed
to the Participant's Beneficiaries by December 31st
of the calendar year in which the fifth anniversary
of the Participant's death occurs;
(ii) The 5-year distribution requirement of (i
above shall not apply to any portion of the
deceased Participant's interest which is
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payable to or for the benefit of a designated
Beneficiary. In such event, such portion shall be
distributed over the life of such designated
Beneficiary ( or over a period not extending beyond
the life expectancy of such distribution begins not
later than December 31st of the calendar year in
which the Participant died;
(iii) However, in the event the Participant's
spouse (determined as of the date of the
Participant's death) is his designated Beneficiary,
the provisions of (ii) above shall apply except
that the requirement that distributions commence
within one year of the Participant's death shall
not apply. In lieu thereof, distributions must
commence on or before the later of: (1) December
31st of the calendar year immediately following the
calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the
Participant would have attained age 70 1/2. If the
surviving spouse dies before distributions to such
spouse begin, then the 5-year distribution
requirement of this Section shall apply as if the
spouse was the Particpant.
(3) Notwithstanding subparagraph (2) above, or any
selections made in the Adoption Agreement, if a
Participant's death benefits are to be paid in the form of
a Pre-Retirement Survivor Annuity, then distributions to
the Participant's surviving spouse must commence on or the
later of: (1) December 31st of the calendar year
immediately following the calendar year in which the
Participant died; or (2) December 31st of the calendar
year in which the Participant would have attained age 70
1/2.
(i) For purposes of Section 6.6 (h) (2), the elect
on by a designated Beneficiary to be excepted from
the 5-year distribution requirement (if permitted
in the Adoption. Agreement) must be made no later
than December 31st of the calendar year following
the calendar year or the Participant's death.
Except, however, with respect to a designated
Beneficiary who is the Participant's surviving
spouse, the election must be made by the earlier
of: (1) December 31st of the calendar year
immediately following the calendar year in which
the Participant died or, if later, the calendar
year in which the Participant would have attained
age 70 1/2; or (2) December 31st of the calendar
year which contains the fifth anniversary of the
date of the Participant's death. An election by a
designated Beneficiary must be in writing and shall
be irrevocable as of the last day of the election
period stated herein. In the absence of an election
by the Participant or a designated Beneficiary, the
5-year distribution requirement shall apply.
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(j) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of
a life annuity) shall or shall not be redetermined annually as
provided in the Adoption Agreement and in accordance with
Regulations. If the Participant or the Participant's spouse may
elect, pursuant to the Adoption Agreement, to have life
expectancies recalculated, then the election, once mace shall be
irrevocable. If no election is made by the time distributions
must commence, then the life expectancy of the Participant and
the Participant's spouse shall not be subject to recalculation.
Life expectancy and joint and last survivor expectancy shall be
computed using the return multiples in Tables V and VI of
Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's
interest in the Plan is distributed to such Participant's spouse,
the portion of the distribution attributable to the Participant's
Voluntary Contribution Account shall be in the same proportion
that the Participant's Voluntary Contribution Account bears to
the Participant's total interest in the Plan.
(l) Subject to the spouse's right of consent afforded
under the Plan, the restrictions imposed by this Section shall
not apply if a Participant has, prior to January 1, 1984, made a
written designation to have his death benefits paid in an
alternative method acceptable under Code Section 401(a) as in
effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a
distribution is to be made, or a series of payments are to commence, on or as of
an Anniversary Date, the distribution or series of payments may be made or begun
on such date or as soon thereafter as is practicable, but in no event later than
180 days after the Anniversary Date. However, unless a Former Participant elects
in writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein; (b) the
10th anniversary of the year in which the Participant commenced participation in
the Plan; or (c) the date the Participant terminates his service with the
Employer.
Notwithstanding the foregoing the failure of a Participant and,
if
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applicable, the Participant's spouse, to consent to a distribution pursuant to
Section 6.5 (d)) shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution
payable to a Participant or his Beneficiary hereunder shall, at the later of the
Particpant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored,
first from Forfeitures, if any, and then from an additional Employer
contribution if necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
For Profit Sharing Plans and 401 (k) Profit Sharing Plans, if
elected in the Adoption Agreement, at such time as a Participant shall have
attained the age specified in the Adoption Agreement, the Administrator, at the
election of the Participant, shall direct the distribution of up to the Vested
amount then credited to the accounts maintained on behalf of the Participant. In
the event that the Administrator makes such a distribution, the Participant
shall continue to be eligible to participate in the Plan on the same basis as
any other Employee. Any distribution made pursuant to this Section shall be made
n a manner consistent with Section 6.5, including, but not limited to, all
notice and consent requirements or Code Sections 411 (a) (11) and 417 and the
Regulations thereunder.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) For Profit Sharing Plans, if elected in the Adoption
Agreement, the Administrator, at the election of the Participant,
shall
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direct the distribution to any Participant in any one Plan
Year up to the lesser of 100% of the Vested portion of his
Participant's Combined Account valued as of the last Anniversary
Date or other valuation date or the amount necessary to satisfy
the immediate and heavy financial need of the Participant. Any
distribution made pursuant to this Section shall be deemed to be
made as of the first day of the Plan Year or, if later, the
valuation date immediately preceding the date of distribution,
and the account from which the distribution is made shall be
reduced accordingly. Withdrawal under this Section shall be
authorized only if the distribution is on account of:
(1) Medical expenses described in Code Section 213 (d)
incurred by the Participant, his spouse, or any of his
dependents (as defined in Code Section 152);
(2) The purchase (excluding mortgage payments) of a
principal residence for the Participant;
(3) Funeral expenses for a member of the Particpant's
family;
(4) Payment of tuition and related educational fees for
the next 12 months of- post-secondary education for the
Participant, his spouse, children, or dependents; or
(5) The need to prevent the eviction of the Particpant
from his principal residence or foreclosure on the
mortgage of the Particpant's principal residence.
(b) Any distribution made pursuant to this Section shall
be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Sections 411 (a) (11) and
417 and the Regulations thereunder
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not reached the "earliest retirement age" under the Plan. For
the purposes of this Section, "alternate payee", "qualified domestic relations
order" and "earliest retirement age" shall have the meaning set forth under Code
Section 414 (p).
6 13 SPECIAL RULE FOR NON-ANNUITY PLANS
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If elected in the Adoption Agreement, the following shall apply
to a Participant in a Profit Sharing Plan or 401 (k) Profit Sharing Plan and to
any distribution, made on or after the first day of the first plan year
beginning after December 31, 1988, from or under a separate account attributable
solely to accumulated deductible employee contributions, as defined in Code
Section 72 (o) (5) (B), and maintained on behalf of a participant in a money
purchase pension plan, (including a target benefit plan):
(a) The Participant shall be prohibited from electing
benefits in the form of a life annuity;
(b) Upon the death of the Participant, the Participant's
entire Vested account balances will be paid to his or her
surviving spouse, or, if there is no surviving spouse or the
surviving spouse has already consented to waive his or her
benefit, in accordance with Section 6.6, to his designated
Beneficiary;
(c) If a distribution is one to which Code Sections 401
(a) (11) and 417 do not apply, such distribution may commence
less than 30 days after the notice required under Regulation
Section 1.411 (a)-11 (c) is given, provided that:
(1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least
30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution; and
d) Except to the extent otherwise provided in this Section
and Section 6.5 (h), the other provisions of Sections 6.2, 6.5
and 6.6 regarding spousal consent and the forms of distributions
shall be inoperative with respect to this Plan.
This Section shall not apply to any Participant if it is
determined that this Plan is a direct or indirect transferee of a defined
benefit plan or money purchase plan, or a target benefit plan, stock bonus or
profit sharing plan which would otherwise provide for a life annuity form of
payment to the Participant.
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
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The Trustee shall have the following categories of
responsibilities:
(a) Consistent with the "funding policy and method"
determined by the Employer to invest, manage, and control the
Plan assets subject, however, to the direction of an Investment
Manager if the Employer should appoint such manager as to all or
a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants or, in the
event of their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year a
written annual report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall
act by a majority of their number, but may authorize one or more
of them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund
to keep the Trust Fund invested without distinction between
principal and income and in such securities or property, real or
personal, wherever situated, as the Trustee shall deem advisable,
including, but not limited to, stocks, common or preferred, bonds
and other evidences of indebtedness or ownership, and real estate
or any interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the
short and long-term financial needs of the Plan on the basis of
information furnished by the Employer. In making such
investments, the Trustee shall not be restricted to securities or
other property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee shall
give due regard to any limitations imposed by the Code or the Act
so that at all times this Plan may qualify as a qualified Plan
and Trust.
(b) The Trustee may employ a bank or trust company
pursuant to the terms of its usual and customary bank agency
agreement under which the duties of such bank or trust company
shall be of a custodial, clerical and record-keeping nature.
(c) Notwithstanding Section 7.2 (a), the Employer, in
writing to the Trustee, may delegate investment responsibility to
the Administrator. If the Administrator has been delegated such
authority,
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the Trustee shall invest trust assets in accordance with the
Administrators direction, unless the Trustee determines, in the
exercise of its responsibility under ERISA as a co-fiduciary of
the Plan, that such investments are not permitted under the terms
of the Plan, Trust, or the Act. The Trustee shall not be liable
or responsible for losses or unfavorable results arising from the
Trustee's compliance with directions received from the
Administrator.
(d) The Trustee may from time to time transfer to a
common, collective or pooled trust fund maintained by any
corporate Trustee hereunder pursuant to Revenue Ruling 81-100,
all or such part of the Trust Fund as the Trustee may deem
advisable, and such part or all of the Trust Fund so transferred
shall be subject to all the terms and provisions of the common,
collective, or pooled trust fund which contemplate the
commingling for investment purposes of such trust assets with
trust assets of other trusts. The Trustee may withdraw from such
common, collective, or pooled trust fund all or such part of the
Trust Fund as the Trustee may deem advisable.
(e) The Trustee, at the direction of the Administrator and
pursuant to instructions from the individual designates in the
Adoption Agreement for such purpose shall ratably apply for, own,
and pay all premiums on Contracts on the lives of the
Participants. Any initial or additional Contract purchased on
behalf of a Participant shall have a face amount of not less than
$1000 or the limitation of the Insurer, whichever is greater. If
a life insurance Contract is to be purchased for a Participant,
the aggregate premium for ordinary life insurance for each
Participant must be less than 50% of the aggregate contributions
and Forfeitures allocated to a Participant's Combined Account.
For purposes of this limitation, ordinary life insurance
Contracts are Contracts with both non-decreasing death benefits
and non-increasing premiums. If term insurance or universal life
insurance is purchased with such contributions, the aggregate
premium must be 25% or less of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. If
both term insurance and ordinary life insurance are purchased
with such contributions, the amount expended for term insurance
plus one-half of the premium for ordinary life insurance may not
in the aggregate exceed 25% of the aggregate Employer
contributions and Forfeitures allocated to a Participant's
Combined Account. The Trustee must distribute the Contracts to
the Participant or convert the entire value of the Contracts at
or before retirement into cash or provide for a periodic income
so that no portion of such value may be used to continue life
insurance protection beyond retirement. Notwithstanding the
above, the limitations imposed herein with respect to the
purchase of life insurance shall not apply, in the case of a
Profit Sharing Plan, to the portion of a Participant's Account
that has
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accumulated for at least two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary
amounts credited to a Participant's Qualified Voluntary Employee
Contribution Account pursuant to Section 4.9, shall not be
applied to the purchase of life insurance contracts.
(f) The Trustee will be the owner of any life insurance
Contract purchased under the terms of this Plan. The Contract
must provide that the proceeds will be payable to the Trustee;
however, the Trustee shall be required to pay over all proceeds
of the Contract to the Participant's designated Beneficiary in
accordance with the distribution provisions of Article VI. A
Participant's spouse will be the designated beneficiary pursuant
to Section 6.2, unless a qualified election has been made in
accordance with Sections 6.5 and 6.6 of the Plan, if applicable.
Under no circumstances shall the Trust retain any part of the
proceeds. However, the Trustee shall not pay the proceeds in a
method that would violate the requirements of the Retirement
Equity Act, as stated in Article VI of the Plan, or Code Section
401 (a) (9) and the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of this
Plan, shall have the following powers and authorities to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase
of securities margin accounts may be opened and maintained;
(b) To sell exchange convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other
property held by Trustee, by private contract or at public
auction. No person dealing with the Trustee shall be bound to see
to the application of the purchase money or to into the validity,
expediency, or propriety of any such sale or other disposition,
with or without advertisement:
(c) To vote upon any stocks, bonds, or other securities;
to give general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges, subscription rights or other options, and to make any
payments incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers
of an
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owner with respect to stocks, bonds, securities, or other
property. However, the Trustee shall not vote proxies relating to
securities for which it has not been assigned full investment
management responsibilities. In those cases where another party
has such investment authority or discretion, be it the
Administrator or an outside Investment Manager, the Trustee will
deliver all proxies to said party who will then have full
responsibility for voting those proxies;
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or
more of the Trustee's nominees, and to hold any investments in
bearer form, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust
Fund;
(e) To borrow or raise money for the purposes of the Plan
in such amount and upon such terms and conditions, as the Trustee
shall deem advisable; and for any sum so borrowed, to issue a
promissory note as Trustee, and to secure the repayment thereof
by pledging all, or any part, of the Trust Fund; and no person
lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity,
expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the
best interests of the Plan, without liability for interest
thereon;
(g) To accept and retain for such time as it may deem
advisable any securities or other property received or acquired
by it as Trustee hereunder, whether or not such securities or
other property would normally be purchased as investments
hereunder
h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to
commence or defend suits or legal or administrative proceedings,
and to represent the Plan in all suits and legal and
administrative proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel
may or may not be agent or counsel for the Employer;
(k) To apply for and procure from the Insurer as an
investment of
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the Trust Fund such annuity, or other Contracts (on
the life of any Participant) as the Administrator shall deem
proper; to exercise, at any time or from time to time, whatever
rights and privileges may be granted under such annuity, or other
Contracts; to collect, receive, and settle for the proceeds of
all such annuity, or other Contracts as and when entitled to do
so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or
savings accounts bearing a reasonable rate of interest in the
Trustee's bank;
(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To sell, purchase and acquire put or call options if
the options are traded on and purchased through a national
securities exchange registered under the Securities Exchange Act
of 1934 as amended, or, if the options are not traded on a
national securities exchange, are guaranteed by a member firm of
the New York Stock Exchange;
(o) To deposit monies in federally insured savings
accounts or certificates or deposit in banks or savings and loan
associations;
(p) To pool all or any of the Trust Fund, from time to
time, with assets belonging to any other qualified employee
pension benefit trust created by the Employer or any Affiliated
Employer, and to commingle such assets and make joint or common
investments and carry joint accounts on behalf of this Plan and
such other trust or trusts, allocating undivided shares or
interests in such investments or accounts or any pooled assets of
the two or more trusts in accordance with their respective
interests;
(q) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the
Trustee may deem necessary to carry out the purposes of the Plan.
(r) Directed Investment Account. The powers granted to the
Trustee shall be exercised in the sole fiduciary discretion of
the Trustee. However, if elected in the Adoption Agreement, each
Participant shall direct the Trustee to separate and keep
separate all or a portion of his interest in the Plan; and
further, each participant is authorized and empowered, in his
sole discretion, to give directions to the Trustee in such form
as the Trustee may require concerning the investment of the
Participant's Directed Investment Account, which directions must
be followed by the Trustee subject, however, to restrictions on
payment of life insurance premiums. Neither the Trustee nor any
other persons including the Administrator or otherwise
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shall be under any duty to question any such direction of the
Participant or to review any securities or other property, real
or personal, or to make any suggestions to the Participant in
connection therewith, and the Trustee shall comply as promptly as
practicable with directions given by the Participants hereunder.
Any such direction may be of a continuing nature or otherwise and
may be revoked by the Participant at any time in such form as the
Trustee may require. The Trustee may refuse to comply with any
direction from the Participant in the event the Trustee, in its
sole and absolute discretion, deems such directions improper by
virtue of applicable law, and in such event, the Trustee shall
not be responsible or liable for any loss or expense which may
result. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's
Directed Investment Account.
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee
may, in the Trustee's sole discretion, make loans to Participants
or Beneficiaries under the following circumstances: (1) loans
shall be made available to all Participants and Beneficiaries on
a reasonably equivalent basis; (2) loans shall not be made
available to Highly Compensated Employees in an amount greater
than the amount made available to other Participants; (3) loans
shall bear a reasonable rate of interest (4) loans shall be
adequately secured; and (5) shall provide for periodic repayment
over a reasonable period of time
(b) Loans shall not be made to any Shareholder-Employee or
Owner-Employee unless an exemption for such loan is obtained
pursuant to Act Section 408 and further provided that such loan
would not be subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that
provide for a repayment period extending beyond such
Participant's Normal Retirement Date.
(d) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser or:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date on
which such loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on which such loan
was made, or
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(2) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Employee under the Plan.
For purposes of this limit, all plans of the Employer
shall be considered one plan. Additionally, with respect to any
loan made prior to January 1, 1987, the $50,000 limit specified
in (1) above shall be unreduced.
(e) No Participant loan shall take into account the
present value of such Participant's Qualified Voluntary Employee
Contribution Account.
(f) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a
period not to exceed five (5) years. However, loans used to
acquire any dwelling unit which, within a reasonable time, is to
be used (determined at the time the loan is made) as a principal
residence of the Participant shall provide for periodic repayment
over a reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1,
1987 which are used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a
reasonable period of time is to be used (determined at the time
the loan is made) as a principal residence of the Participant or
a member of his family (within the meaning of Code Section 267
(c) (4)) may provide for periodic repayment over a reasonable
period of time that may exceed five (5) years. Additionally,
loans made prior to January 1, 1987, provide for periodic
payments which are made less than quarterly and which do not
necessarily result in level amortization.
(g) An assignment or pledge of any portion of a
Participant's interest in the Plan and a loan, pledge,, or
assignment with respect to any insurance Contract purchased under
the Plan, shall be treated as a loan under this Section.
(h) Any loan made pursuant to this Section after August
18, 1985 where the Vested interest of the Participant is used to
secure such loan shall require the written consent of the
Participant's spouse in a manner consistent with Section 6.5 (a)
provided the spousal consent requirements of such Section apply
to the Plan. Such written consent must be obtained within the
90-day period prior to the date the loan is made. Any security
interest held by the Plan by reason of an outstanding loan to the
Participant shall be taken into account in determining the amount
of the death benefit or Pre-Retirement Survivor Annuity. However,
no spousal consent shall be required under this paragraph if the
total accrued benefit subject to the security is not in excess of
$3,500.
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(i) With regard to any loans granted or renewed on or
after the last day of the first Plan Year beginning after
December 31, 1988, a Participant loan program shall be
established which must include, but need not be limited to, the
following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or
financial need selected in the Adoption Agreement;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that
will be taken preserve plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is
hereby incorporated by reference and made a part of this plan.
Furthermore, such Participant loan program may be modified or
amended in writing from time to time without the necessity of
amending this Section of the Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from
time to time, in accordance with the terms or the Plan, make payments out of the
Trust Fund. The Trustee shall not be responsible in any way for the application
of such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set
forth in the Trustee's fee schedule (if the Trustee has such a schedule)) or as
agreed upon in writing by the Employer and the Trustee. An individual serving as
Trustee who already receives full-time pay from the Employer shall not receive
compensation
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from this Plan. In addition, the Trustee shall be reimbursed for any reasonable
expenses, including reasonable counsel fees incurred by i, as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid or
advanced by the Employer. All taxes of any kind and all kinds whatsoever that
may be levied or assessed under existing or future laws upon, or in respect of,
the Trust Fund or the income thereof, shall be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer's contribution for each Plan Year,
the Trustee, or its agent, shall furnish to the Employer and Administrator a
written statement of account with respect to the Plan Year for which such
contribution was made setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust
Fund;
(d) all payments and distributions made from the Trust
Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its
receipt of each such statement of account, shall acknowledge
receipt thereof in writing and advise the Trustee and/or
Administrator of its approval or disapproval thereof. Failure by
the Employer to disapprove any such statement of account within
thirty (30) days after its receipt thereof shall be deemed an
approval thereof. The approval by the Employer of any statement
of account shall be binding as to all matters embraced therein as
between the Employer and the Trustee to the same extent as if the
account of the Trustee had been settled by judgment or decree in
an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive
the Trustee of its right to have its accounts judicially settled
if the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by
the Act and the regulations thereunder for any Plan Year, the
Administrator shall direct the Trustee to engage on behalf of all
Participants an
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independent qualified public accountant for that purpose. Such
accountant shall, after an audit of the books and records of the
Plan in accordance with generally accepted auditing standards,
within a reasonable period after the close of the Plan Year,
furnish to the Administrator and the Trustee a report of his
audit setting forth his opinion as to whether any statements,
schedules or lists, that are required by Act Section 103 or the
Secretary of Labor to be filed with the Plan's annual report, are
presented fairly in conformity with generally accepted accounting
principles applied consistently.
(b) All auditing and accounting fees shall be an expense
of and may, at the election of the Administrator, be paid from
the Trust Fund.
(c) If some or all of the information necessary to enable
the Administrator to comply with Act Section 103 is maintained by
a bank insurance company, or similar institution, regulated and
supervised and subject to periodic examination by a state or
federal agency, it shall transmit and certify the accuracy of
that information to the Administrator as provided in Act. Section
103 (b) within one hundred twenty (120) days after the end of the
Plan Year or such other date as may be prescribed under
regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to
the Employer, at least thirty (30) days before its effective
date, a written notice of his resignation.
(b) The Employer may remove the Trustee by mailing by
registered or certified mail, addressed to such Trustee at his
last known address, at least thirty (30) days before its
effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of
any Trustee, a successor may be appointed by the Employer; and
such successor, upon accepting such appointment in writing and
delivering same to the Employer shall, without further act,
become vested with all the estate, rights, powers, discretions,
and duties of his predecessor with like respect as if he were
originally named as a Trustee herein. Until such a successor is
appointed, the remaining Trustee or Trustees shall have full
authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors
prior to the death, resignation, incapacity, or removal of,
Trustee. In the event a successor is so designated by the
Employer and accepts such
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designation, the successor shall, without further act, become
vested with all the estate, rights, powers, discretion and duties
of his predecessor with the like effect as if he were originally
named as Trustee herein immediately upon the death, resignation,
incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as
such, he shall furnish to the Employer and Administrator a
written statement of account with respect to the portion of the
Plan Year during which he served as Trustee. This statement shall
be either (i) included as part of the annual statement of account
for the Plan year required under Section 7.7 or (ii) set forth in
a special statement. Any such special statement of account should
be rendered to the Employer no later than the due date of the
annual statement of account for the Plan Year. The procedures set
forth in Section 7.7 for the approval by the Employer of annual
statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any
such special statement in the manner provided in Section 7.7,
shall have the same effect upon the statement as the Employer's
approval of an annual statement of account. No successor to the
Trustee shall have any duty or responsibility to investigate the
acts or transactions of any predecessor who has rendered all
statements of account required by Section 7.7 and this
subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this clan, the
Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing, or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401 (a), provided that the trust to
which such transfers are made permits the transfer to be made
7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee
against any and all claims, losses, damages, expenses and liabilities the
Trustee may incur in the exercise and performance of the Trustee's powers and
duties hereunder, unless the same are determined to be due to gross negligence
or willful misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying
Employer securities" and "qualifying Employer real property," as those terms are
defined in the Act. However, no more than 100% in the case of a Profit Sharing
Plan
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or 401(k) Plan or 10%, in the case of a Money Purchase Plan of the fair market
value of all the assets in the Trust Fund may be invested in "qualifying
Employer securities" and "qualifying Employer real property".
7.13 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
(b) An eligible rollover distribution is any distribution
of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (not less expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any a distribution
to the extent such distribution is required under section 401 (a)
(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(c) An eligible retirement plan is an individual
retirement account described in section 408 (a) of the Code, an
individual retirement annuity described in Section 408 (b) of the
Code, an annuity plan described in section 403 (a) of the Code,
or the qualified trust described in section 401 (a) of the Code,
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or an individual retirement annuity.
(d) A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in section 414 (p) of the Code, are
distributees with regard to the interest of the spouse or former
spouse.
(e) A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend
this Plan subject to the limitations of this Section. However,
any amendment which affects the rights, duties or
responsibilities of- the Trustee and Administrator may only be
made with the Trustee's and Administrator's written consent. Any
such amendment shall become effective as provided therein upon
its execution. The Trustee shall not be required to execute any
such amendment unless the amendment affects the duties of the
Trustee hereunder
(b) The Employer may (1) change the choice of options in
the Adoption Agreement, (2) add overriding language in the
Adoption. Agreement when such language is necessary to satisfy
Code Sections 415 or 416 because of the required aggregation of
multiple Plans, and (3) add certain model amendments published by
the Internal Revenue Service which specifically provide that
their adoption will not cause the Plan to be treated as an
individually designed plan. An Employer that amends the Plan for
any other reason, including a waiver of the minimum funding
requirement under Code Section 412 (d) will no longer participate
in this Prototype Plan and will be considered to have an
individually designed plan.
(c) The Employer expressly delegates authority to the
sponsoring organization of this Plan, the right to amend this
Plan by submitting a copy of the amendment to each Employer who
has adopted this Plan after first having received a ruling or
favorable determination from the Internal Revenue Service that
the Plan as amended qualifies under Code Section 401(a) and the
Act. For purposes of this Section, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the
sponsoring organization does not adopt the amendments made by the
mass submitter, it will no longer be identical to or a minor
modifier of the mass submitter plan.
(d) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to
be used for or diverted to any purpose other than for the
exclusive benefit of the Participants or their Beneficiaries or
estates; or causes any reduction in the amount credited to the
account of any Participant; or causes or permits any portion of
the Trust Fund to revert to or become property of the Employer.
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(e) Except as permitted by Regulations (including
Regulation 1.411 (d) -4), no Plan amendment or transaction having
the effect of a Plan amendment (such as a merger, plan transfer
or a similar transaction) shall be effective if it eliminates or
reduces any "Section 411 (d) (6) protected benefit" or adds or
modifies conditions relating to "Section 411 (d) (6)) protected
benefits" the result of which is a further restriction on such
benefit unless such protected benefits are preserved with respect
to benefits accrued as of the late of the adoption date or
effective date of the amendment. "Section 411 (d) (6) protected
benefits" are benefits described in Code Section 411 (d) (6) (A),
early retirement benefits and retirement-type subsidies, and
optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and Administrator
written notice of such termination. Upon any full or partial
termination all amounts credited to the affected Participants
Combined Accounts shall become 100% Vested and shall not
thereafter be subject to forfeiture and all unallocated amounts
shall be allocated to the accounts of all Participants in
accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer
shall direct the distribution of the assets to Participants in a
manner which is consistent with and satisfies the provisions of
Section 6.5. Distributions to a Participant shall be made in cash
(or in property if permitted in the Adoption Agreement) or
through the purchase of irrevocable nontransferable deferred
commitments from the Insurer. Except as permitted by Regulations,
the termination of the Plan shall not result in the reduction of
"Section 411 (d) (6) protected benefits" as described in Section
8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation and such merger or consolidation does not otherwise result in the
elimination or reduction of any "Section 411 (d) (6) protected benefits" as
described in Section 8.1 (e).
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ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by
executing the Adoption Agreement in form satisfactory to the
Trustee, and it shall provide such additional information as the
Trustee may require. The consent of the Trustee to act as such
shall be signified by its execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the
affiliation of the Employer and the participation of its
Participants shall be separate and apart from that of any other
employer and its participants hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant plant or Employee at any time regardless of the effect
which such discharge shall have upon him as a Participant of this Plan.
9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable to any person (including a Participant or
his Beneficiary) shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be void; and
no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal
process for or against such person, and the same shall not be
recognized except to such extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, for any
reason, under any provision of this Plan. At the time a
distribution is to be made to or for a Participant's or
Beneficiary's benefit, such proportion of the amount to
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be distributed as shall equal such indebtedness shall be paid to
the Plan, to apply against or discharge such indebtedness. Prior
to making a payment, however, the Participant or Beneficiary must
be given written notice by the Administrator that such
indebtedness is to be so paid in whole or part from his
Participant's Combined Account. If the Participant or Beneficiary
does not agree that the indebtedness is a valid claim against his
Vested Participant's Combined Account, he shall be entitled to a
review of the validity of the claim in accordance with procedures
provided in Sections 2.12 and 2 13.
(c) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414 (p), and
those other domestic relations orders permitted to be so treated
by the Administrator under the provisions of the Retirement.
Equity Act of 1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic relations
orders and to administer distributions under such qualified
orders. Further, to the extent provided under a "qualified
domestic relations order", a former spouse of a Participant shall
be treated as the spouse or surviving spouse for all purposes
under the Plan
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to
the Act and the laws of the State or Commonwealth in which the Employer's
principal office is located, other than its laws respecting choice of law, to
the extent not preempted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding
the Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other pertaining
thereto incurred by them for which they shall have become liable.
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9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan
or of the Trust, by termination of either, by power of revocation
or amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any Trust Fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to,
purposes other than the exclusive benefit of Participants,
Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution
under a mistake of fact pursuant to Section 403 (c) (2) (A) of
the Act, the Employer may demand repayment of such contribution
at any time within one (1) year following the ,time of payment
and the Trustees shall return such amount to the Employer within
the one (1) year period. Earnings of the Plan attributable to the
contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412 (a) (2)), and the bond; shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall
be responsible for the validity of any Contract issued hereunder or for the
failure on the part of the Insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
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9.10 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity or this Plan or for the tax or legal aspects
of this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision or
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.11 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of this Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer.
9.12 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2)
the Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan.
In general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the sole authority
to appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of the
Adoption Agreement or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
Trust, except those assets, the management of which has been assigned to an
Investment Manager or Administrator, who shall be solely responsible for the
management of the assets assigned to it, all as specifically provided in the
Plan. Each named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the provisions or
the Plan, authorizing or providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such direction, information
or action of another named Fiduciary as being proper under the Plan, and is not
required under the Plan to inquire into the propriety of any such direction,
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information or action. It is intended under the Plan that each named Fiduciary
shall be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity.
9.14 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.15 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if,
pursuant of a timely application filed by or in behalf of the
Plan, the Commissioner of Internal Revenue Service or his
delegate should determine that the Plan does not initially
qualify as a tax-exempt plan under Code Sections 401 and 501, and
such determination is not contested, or if contested, is finally
upheld, then if the Plan is a new plan, it shall be void ab
initio and all amounts contributed to the Plan, by the Employer,
less expenses paid, shall be returned within on year and the Plan
shall terminate, and the Trustee shall be discharged from all
further obligations. If the disqualification relates to an
amended plan, then the Plan shall operate as if it had not been
amended and restated.
(b) Except as specifically stated in the Plan, any
contribution by the Employer to the Trust Fund is conditioned
upon the deductibility of the contribution by the Employer under
the Code and, to the extent any such deduction is disallowed, the
Employer may within one (1) year following a final determination
of the disallowance, whether by agreement with the Internal
Revenue Service or by final decision of a court of competent
jurisdiction, demand repayment of such disallowed contribution
and the Trustee shall return such contribution within one (1)
year following the disallowance. Earnings of the Plan
attributable to the excess contribution may not be returned to
the Employer, but any losses attributable thereto must reduce the
amount so returned.
9 16 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner
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9.17 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10
and Section 6.11 only upon Death, Total and Permanent Disability, Normal or
Early Retirement, Termination of Employment, or upon Plan Termination.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent
or the Employer and Trustee, any Affiliated Employer may adopt this Plan and all
of the provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to
select the same Adoption Agreement provisions as those selected
by the Employer other than the Plan Year, the Fiscal Year, and
such other items that must, by necessity, vary among employers.
(b) Each such Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions
made by Participating Employers, as well as all increments
thereof.
(d) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the
Employer or a Participating Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited to
such Participant's Combined Account as well as his accumulated
service time with the transferor or predecessor, and his length
of participation in the Plan, shall continue to his credit.
(e) Any expenses of the Plan which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total
amount standing to the credit of all Participants employed by
such Employer bears to the total standing to the credit of all
Participants.
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10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this
Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each
Plan Year shall be allocated among all Participants of all Participating
Employers in accordance with the provisions of this Plan. On the basis of the
information furnished by the Administrator, the Trustee shall keep separate
books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register Contracts so as
to evidence that a particular Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from one Participating
Employer to another, the employing Employer shall immediately notify the Trustee
thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there
shall be a Participating Employer hereunder shall only be by the written action
of each and every Participating Employer and with the consent of the Trustee
where such consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating
Employer shall be permitted to discontinue or revoke its participation in the
Plan at any time. At the time of any such discontinuance or revocation,
satisfactory evidence thereof and of any applicable conditions imposed shall be
delivered to the Trustee. The Trustee shall thereafter transfer, deliver and
assign Contracts and other Trust Fund
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assets allocable to the Participants of such Participating Employer to such new
Trustee as shall have been designated by such Participating Employer, in the
event that it has established a separate pension plan for its Employees
provided, however, that no such transfer shall be made if the result is the
elimination or reduction of any "Section 411 (d) (6) protected benefits in
accordance with Section 8.1 (e). If no successor is designated, the Trustee
shall retain such assets for the Employees of said Participating Employer
pursuant to the provisions of Article VII hereof. In no such event shall any
part of the corpus or income of the Trust Fund as it relates to such
Participating Employer be used for or diverted for purposes other than for the
exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part
from making a contribution which it would otherwise have made under the Plan by
reason of having no current or accumulated earnings or profits, or because such
earnings or profits are less than the contribution which it would otherwise have
made, then, pursuant to Code Section 404 (a) (3) (B), so much of the
contribution which such Participating Employer was so prevented from making may
be made, for the benefit of the participating employees of such Participating
Employer, by other Participating Employers who are members of the same
affiliated group within the meaning of Code Section 1504 to the extent of their
current or accumulated earnings or profits, except that such contribution by
each such other Participating Employer shall be limited to the proportion of its
total current and accumulated earnings or profits remaining after adjustment for
its contribution to the Plan made without regard to this paragraph which the
total prevented contribution bears to the total current and accumulated earnings
or profits of all the Participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a
contribution is made under this paragraph shall not be required to reimburse the
contributing Participating Employers.
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ARTICLE XI
CASH OR DEFERRED PROVISIONS
Notwithstanding any provisions in the Plan to the contrary, the
provisions of this Article shall apply with respect to any 401 (k) Profit
Sharing Plan.
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 11.2 (a), which amount
shall be deemed an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a
matching contribution equal to the percentage specified in the
Adoption Agreement of the Deferred Compensation and/or Voluntary
Contributions of each Participant eligible to share in the
allocations of the matching contribution, which amount shall be
deemed an Employer's Non-Elective or Elective Contribution as
selected in the Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a
discretionary amount, if any, which shall be deemed an Employer's
Non-Elective Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a
Qualified Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Fiscal Year shall not exceed the maximum
amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer
shall be made in cash or in such property as is acceptable to the
Trustee.
(f) Except, however, to the extent necessary to provide
the top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net Profit
or the amount which is deductible under Code Section 404.
(g) Employer Elective Contributions accumulated through
payroll deductions shall be paid to the Trustee as of the
earliest date on which such contributions can reasonably be
segregated from the Employer's general assets, but in any event
within ninety (90) days from the date on which such amounts would
otherwise have been payable to the Participant in cash. The
provisions of Department of
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Labor regulations 2510.3-102 are incorporated herein by
reference. Furthermore, any additional Employer contributions
which are allocable to the Participant's Elective Account for a
Plan Year shall be paid to the Plan no later than the
twelve-month period immediately following the close of such Plan
Year.
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) If selected in the Adoption Agreement, each
Participant may elect to defer his Compensation which would have
been received in the Plan Year, but for the deferral election,
subject to the limitations of this Section and the Adoption
Agreement. A deferral election (or modification of an earlier
election) may not be made with respect to Compensation which
currently available on or before the date the Participant
executed such election, or if later, the latest of the date the
Employer adopts this cash or deferred arrangement, or the date
such arrangement first became effective. Any elections made
pursuant to this Section shall become effective as soon as is
administratively feasible.
Additionally, if elected in the Adoption Agreement, each
Participant may elect to defer and have allocated for a Plan Year
all or a portion of any cash bonus attributable to services
performed by the Participant for the Employer during such Plan
Year and which would have been received by the Participant on or
before two and one-half months following the end of the Plan Year
but for the deferral. A deferral election may not be made with
respect to cash bonuses which are currently available on or
before the date the Particpant executed such election.
Notwithstanding the foregoing, cash bonuses attributable to
services performed by the Participant during a Plan Year but
which are to be paid to the Participant later than two and
one-half months after the close of such Plan Year will be
subjected to whatever deferral election is in effect at the time
such cash bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are
reduced shall be that Participant's Deferred Compensation and be
treated as an Employer Elective Contribution and allocated to
that Participant's Elective Account.
Once made, a Participant's election to reduce Compensation
shall remain in in effect until modified or terminated.
Modifications may be made as specified in the Adoption Agreement,
and terminations may be made at any time. Any modification or
termination of an election will become effective as soon as is
administratively feasible.
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(b) The balance in each Participant's Elective Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account and
Qualified Non-Elective Account may be distributable as permitted
under the Plan, but in no event prior to the earlier of:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant,
subject to the limitations of Section 11.8;
(4) the termination of the Plan without the existence at
the time of Plan termination of another defined
contribution plan (other than an employee stock ownership
plan as defined in Code Section 4975 (e) (7)) or the
establishment of a successor defined contribution plan
(other than an employee stock ownership plan as defined in
Code Section 4975 (e) (7)) by the Employer or an
Affiliated Employer within the period ending twelve months
after distribution of all assets from the Plan maintained
by the Employer;
(5) the date of the sale by the Employer to an entity that
is not an Affiliated Employer of substantially all of the
assets (within the meaning of Code Section 409 (d) (2))
with respect to a Participant who continues employment
with the corporation acquiring such assets; or
(6) the date of the sale by the Employer or an affiliated
Employer of its interest in a subsidiary (within the
meaning of Code Section 409 (d) (3)) to an entity that is
not an Affiliated Employer with respect to a Participant
who continues employment with such subsidiary.
(d) In any Plan year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all
other plans, contracts or arrangements of the Employer
maintaining this Plan shall not exceed the limitation imposed by
Code Section 402 (g), as in effect for the calendar year in which
such Plan Year began. If such dollar limitation is excluded
solely from elective deferrals under this Plan or any other Plan
maintained by the Employer, a Participant will be deemed to have
notified the Administrator of such excess amount which shall be
distributed in a manner consistent with Section 11.2 (f).
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This dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415 (d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship
distribution pursuant to Regulation 1.401 (k) -1(d) (2) (iii) (B)
from any other plan maintained by the Employer or from his
Participant's Elective Account pursuant to Section 11.8, then
such Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period
of twelve (12) months following the receipt of the distribution.
Furthermore, the dollar limitation under Code Section 402 (g)
shall be reduced, with respect to the Participant's taxable year
the following the taxable year in which the hardship distribution
was made, by the amount of such Participant's Deferred
Compensation, if any, made pursuant to this Plan (and any other
plan maintained by the Employer) for the taxable year of the
hardship distribution.
(f) If a Participant's Deferred Compensation under this
Plan together with any elective deferrals (as defined in
Regulation 1.402 (g)-1(b)) under another qualified cash or
deferred arrangement (as defined in Code section 401 (k)), a
simplified employee pension (as defined in Code Section 408 (k)),
a salary reduction arrangement (within the meaning of Code
Section 3121 (a) (5) (D)), a deferred compensation plan under
Code Section 457, or a trust described in Code Section 501 (c)
(18) cumulatively exceed the limitation imposed by Code Section
402 (g) (as adjusted annually in accordance with the method
provided in Code Section 415 (d) pursuant to Regulations) for
such Participant's taxable year, the Participant may, not later
than March 1st following the close of his taxable year, notify
the Administrator in writing of such excess and request that his
Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator
shall direct the Trustee to distribute such excess amount (and
any income allocable to such excess amount) to the Particpant not
later than the first April 15th following the close of the
Participant's taxable year. Distributions in accordance with this
paragraph may be made for any taxable year of the Participant
which begins after December 31, 1986. Any distribution of less
than the entire amount of Excess Deferred Compensation and Income
shall be treated as a pro rata distribution of Excess Deferred
Compensation and income. The amount distributed shall not exceed
the Participant's Deferred Compensation under the Plan for the
taxable year. Any distribution on or before the last day of the
Participant's taxable year must satisfy each of the following
conditions:
(1) the Participant shall designate the distribution as
Excess Deferred Compensation;
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(2) the distribution must be made after the date on which
the Plan received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
(4) Any distribution made pursuant to this Section shall
be made first from unmatched Deferred Compensation and,
thereafter simultaneously from Deferred Compensation which
is matched and matching contributions which relate to such
Deferred Compensation. However, any such matching
contributions which are not Vested shall be forfeited in
lieu of being distributed.
Any distribution under this Section shall be made first
from unmatched Deferred Compensation and, thereafter,
simultaneously from Deferred Compensation which is matched and
matching contributions which are not vested shall be forfeited in
lieu of being distributed.
For the purpose of this Section, "Income" means the amount
of income or loss for the taxable year of the Particpant and the
allocable gain or loss for the period between the end of the
taxable year of the Participant and the date of distribution
("gap period"). The income or loss allocable to the Participant's
Excess Deferred Compensation for the respective period by a
fraction. The numerator of the fraction is the Participant's
Excess Deferred Compensation for the taxable year of the
Participant. The denominator is the balance, as of the last day
of the respective period, of the Participant's Elective Account
that is attributable to the Participant's Deferred Compensation
reduced by the gain allocable to such total amount for the
respective period and increased by the loss allocable to such
total amount for the respective period.
In lieu of the "fractional method" described above, a
"safe harbor method" may be used to calculate the allocable
income or loss for the "gap period". Under such "safe harbor
method", allocable income or loss for the "gap period" shall be
deemed to equal ten percent (10%) of the income or loss allocable
to a Participant's Excess Deferred Compensation for the taxable
year of the Participant "s Excess Deferred Compensation for the
taxable year of the Particpant multiplied by the number of
calendar months in the "gap period". For purposes of determining
the number of calendar months in the "gap period", a distribution
occurring on or before the fifteenth day of the month shall be
treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day
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shall be treated as having been made on the first day of the next
subsequent month.
Income or loss allocable to any distribution of Excess
Deferred Compensation on or before the last day of the taxable
year of the Participant shall be calculated from the first day of
the taxable year of the Participant to the date on which the
distribution is made pursuant to either the "fractional method"
or the "safe harbor method."
Notwithstanding the above, for the 1987 calendar year, and
for Plan years beginning on or after the date this Plan is
adopted, Income during the "gap period" shall not be taken into
account.
(g) Notwithstanding the above; a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by
any distribution and/or recharacterization of Excess Contribution
pursuant to section 11.5 (a) for the Plan year beginning with or
within the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair
market value of the Participant's Elective Account shall be used
to provide benefits to the Participants or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each
Participant in a federally insured savings account, certificate
of deposit in a bank or savings and loan association, money
market certificate, or other short-term debt security acceptable
to the Trustee until such time as the allocations pursuant to
Section 11.3 have been made.
(j) The Employer and the Administrator shall adopt a
procedure necessary to implement the salary reduction elections
provided for herein.
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the
Administrator shall credit as of each Anniversary Date, or other
valuation date, all amounts allocated to each such Participant as
set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation
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of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the
Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) With respect to the Employer's Elective contribution
made pursuant to Section 11.1 (a), to each Participant's
Elective Account in an amount equal to each such
Participant's Elective Account in an amount equal to each
such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Matching Contribution
made pursuant to Section 11.1 (b), to each Participant's
Account, or Participant's Elective Account as selected in
E3 of the Adoption Agreement, in accordance with section
11.1 (b).
Except, however, a Participant who is not credited with a
year of Service during any Plan Year shall or shall not
share in the Employer's Matching Contribution for that
year as provided in E3 of the Adoption Agreement. However,
for Plan Years beginning after 1989, if this is a
standardized Plan, a Participant shall share in the
Employer's Matching Contribution regardless of Hours of
Service.
(3) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 11.1 (c), to each
Participant's Account in accordance with the provisions of
Sections 4.3 (b) (2) or 4.3 (b) (3), whichever is
applicable, 4.3 (k) and 4.3 (l).
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1 (d), to each
Participant's Qualified Non-Elective Contribution Account
in the same proportion that each such Participant's
Compensation for the year bears to the total Compensation
of all Participants for such the total Compensation of all
Participants for such year. However, for any Plan Year
beginning prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Particpant who is
not credited with a Year of Service during any Plan Year
shall not share in the Employer's Qualified Non-Elective
Contribution for that year, unless required pursuant to
section 4.3 (h). In addition, the provisions of Sections
4.3 (k) and 4.3 (l) shall apply with respect to the
allocation of the Employer's Qualified Non-Elective
contribution.
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(c) Notwithstanding anything in the Plan to the contrary,
for Plan Years beginning after December 31, 1988, in determining
whether a Non-Key Employee has received the required minimum
allocation pursuant to Section 4.3 (f) such Non-Key Employee's
Deferred Compensation and matching contributions used to satisfy
the "Actual Deferred Percentage" test pursuant to Section 11.4
(a) or the "Actual Contribution Percentage" test of Section 11.6
(a) shall not be taken into account.
(d) Notwithstanding anything herein to the contrary,
participants who terminated employment during the Plan Year shall
share in the salary reduction contributions made by the Employer
for the year of termination without regard to the Hours of
Service credited.
(e) Notwithstanding anything herein to the contrary (other
than Sections 11.3 (d) and 11.3 (g)), any Participant who
terminated employment during the Plan Year for reasons other than
death, Total and Permanent Disability, or retirement shall or
shall not share in the allocations of the Employer's Matching
Contribution made pursuant to Section 11.1 (b), the Employer's
Nonelective Contributions made pursuant to Section 11.1 (c), the
Employer's Qualified Non-Elective Contribution made pursuant to
Section 11.1 (d), and Forfeitures as provided in the Adoption
Agreement. Notwithstanding the foregoing, for Plan Years
beginning after 1989, if this is a standardized Plan, any such
terminated Participant shall share in such allocations provided
the terminated Participant completed more than 500 Hours of
Service.
(f) Notwithstanding anything herein to the contrary,
Participants terminating for reasons of death, Total and
Permanent Disability, or retirement shall share in the allocation
of the Employer's Matching Contribution made pursuant to Section
11.1 (b), the Employer's Non-Elective Contributions made pursuant
to section 11.1 (c), the Employer's Qualified non-Elective
Contribution made pursuant to Section 11.1 (d), and Forfeitures
as provided in this section regardless of whether they completed
a Year of Service during the Plan year.
(g) Notwithstanding any election in the Adoption Agreement
to the contrary, if this is a non-standardized Plan that would
otherwise fail to meet the requirements of Code Sections 401 (a)
(26), 410 (b) (1), or 410 (b) (2) (A) (i) and the Regulations
thereunder because Employer matching Contributions made pursuant
to section 11.1 (b), Employer Non-Elective Contributions made
pursuant to Section 11.1 (c) or
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Employer Qualified Non-Elective Contributions made pursuant to
section 11.1 (d) have not been allocated to a sufficient number
or percentage of Participants for a Plan Year, then the following
rules shall apply:
(1) The group of Participants eligible to share in the
respective contributions for the Plan Year shall be
expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to
satisfy the applicable test specified above. The specific
participants who shall become eligible under the terms of
this paragraph shall be those who are actively employed on
the last day of the Plan Year and, when compared to
similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share for the Plan year shall be
further expanded to include the minimum number of
Participants who are not actively employed on the last day
of the Plan year as are necessary to satisfy the
applicable test. The specific Participants who shall
become eligible to share shall be those Participants, when
compared to similarly situated Participants, who have
completed the greatest number of Hours of Service in the
Plan Year before terminating employment.
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year
beginning after December 31, 1986, the annual allocation derived
after Employer Elective Contributions and Qualified Non-Elective
Contributions to a Participant's Elective Account and Qualified
Non-Elective Account shall satisfy one of the
following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than the
"Actual Deferral Percentage" of the Non-Highly Compensated
Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the
highly Compensated Participant group over the "Actual
Deferral Percentage" for the Non-Highly Compensated
Participant group shall not be more than two percentage
points. Additionally, the "Actual Deferral Percentage" for
the highly Compensated Participant group shall not exceed
the "Actual Deferral Percentage" for the Non-Highly
Compensated Participant group
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multiplied by 2. The provisions of Code Section 401 (k)
(3) and regulation 1.401 (k) -1(b) are incorporated herein
by reference.
However, for Plan years beginning after December 31, 1988,
to prevent the multiple use of the alternative method
described in (2) above and Code Section 401 (m) (9) (A),
any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 11.2 and to make
Employee contributions or to receive matching
contributions under this Plan or under any other plan
maintained by the Employer or an Affiliated Employer shall
have his actual contribution ratio reduced pursuant to
Regulation 1.401 (m) -2, the provisions of which are
incorporated herein by reference.
(b) For the purpose of this Section "Actual Deferral
Percentage" means, with resect to the highly Compensated
Participant group and Non-Highly Compensated Participant group
for a Plan year, the average of the ratios, calculated separately
for each Participant in such group, of the amount of Employer
Elective Contributions and Qualified non-Elective Contributions
allocated to each Participant's Elective Account and Qualified
Non-Elective Account for such Plan year, to such Participant's
"414 (s) Compensation" for such Plan Year. The actual deferral
ratio for each group, for Plan Years beginning after December 31,
1988, shall be calculated to the nearest one-hundredth of one
percent of the Participant's "414 (s) Compensation". Employer
Elective Contributions allocated to each Non-Highly Compensated
Participant's Elective Account shall be reduced by Excess
Deferred Compensation to the extent such excess amounts are made
under this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual
deferral ratio of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414 (q)
(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees
paid the greatest "415 compensation" during the year, the
following shall apply:
(1) The combined actual deferral ratio for the family
group (which shall be determined by aggregating employer
Elective Contributions and "414 (s) Compensation" of all
eligible Family Members (including Highly Compensated
Participants). However, in applying the $200,000 limit to
"414 (s) Compensation" for Plan Years beginning after
December 31, 1988, Family Members shall include only the
affected Employee's spouse and any lineal descendants who
have not attained age 19 before the close of the Plan
Year.
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(2) The Employer Elective Contributions and "414 (s)
Compensation" of all Family Members shall be disregarded
for purposes of determining the Actual Deferral
Percentage' of the Non-Highly Compensated Participant
group except to the extent taken into account in paragraph
(1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group
in accordance with paragraphs (1) and (2) above.
(d) For the purposes of this Section and Code Sections
4011 (a) (4), 410 (b) and 401 (k), if two or more plans which
include cash or deferred arrangements are considered one plan for
the purposes or Code Section 401 (a) (4) or 410 (b) (other than
Code Section 401 (b) (2) (A) (ii) as in effect for Plan Years
beginning after December 31, 1988), the cash or deferred
arrangements included in such plans shall be treated as one
arrangement. In addition, two or more cash or deferred
arrangements may be considered as a single arrangement for
purposes of determining whether or not such arrangements satisfy
Code Sections 401 (a) (4), 410 (b) and 401 (k). In such a case,
the cash or deferred arrangements included in such plans and the
plans including such arrangements shall be treated as one
arrangement and as one plan for purposes of this Section and Code
Sections 401 (a) (4), 410 (b) and 401 (k). For plan years
beginning after December 31, 1989, plans may be aggregated under
this paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after
December 31 , 1988, an employee stock ownership plan described in
Code Section 4975 (e) (7) may not be combined with this Plan for
purposes of determining whether the employee stock ownership plan
or this Plan satisfies this and Code Sections 401 (a) (4), 410
(b) and 401 (k).
(e) For the purposes of this Section, if a Highly
Compensate Participant is a Participant under two (2) or more
cash or deferred arrangements (other than a cash or deferred
arrangement which is part of an employee stock ownership plan as
defined in Code Section 4975 (e) (7) for Plan Years beginning
after December 31, 1988) of the Employer or an Affiliated
Employer, all such cash or deferred arrangements shall be treated
as one cash or deferred arrangement for the purpose of
determining the actual deferral ratio with respect to such Highly
Compensated Participant. However, for Plan Years beginning
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after December 31, 1988, if the cash or deferred arrangements
have different Plan Years, this paragraph shall be applied by
treating all cash or deferred arrangements ending with or within
the same calendar year as a single arrangement.
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's
Elective Contributions and Qualified Non- Elective Contributions do not satisfy
one of the tests set forth in Section 11.4, for Plan Years beginning after
December 31, 1986, the Administrator shall adjust Excess Contributions pursuant
to the options set forth below:
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, the Highly Compensated
Participant having the highest actual deferral ratio shall have
his portion of Excess Contributions distributed to him and/or at
his election recharacterized as a voluntary Employee contribution
pursuant to Section 4.7 until one of the tests set forth in
Section 11.4 is satisfied, or until his actual deferral ratio
equals the actual deferral ratio of the Highly Compensated
Participant having the second highest actual deferral ratio. This
process shall continue until one of the tests set forth in
Section 11.4 is satisfied. For each Highly Compensated
Participant, the amount of Excess Contributions is equal to the
Elective Contributions and Qualified Non- Elective Contributions
made on behalf of such Highly Compensated Participant (determined
prior to the application of this paragraph) minus the amount
determined by multiplying the Highly Compensated Participant's
actual deferral ratio (determined after application of this
paragraph) by his "414 (s) Compensation". However, in determining
the amount of Excess Contributions to be distributed and/or
recharacterized with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be reduced by
any Excess Deferred Compensation previously distributed to such
affected Highly Compensated Participant for his taxable year
ending with or within such Plan Year. Any distribution and/or
recharacterazation of Excess Contributions shall be made in
accordance with the following:
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close
of the Plan Year following the Plan Year to which
they are allocable;
(ii) shall be made first from unmatched Deferred
Compensation and, thereafter, simultaneously from
Deferred Compensation
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which is matched and matching contributions which
relate to such Deferred Compensation. However, any
such matching contributions which are not Vested
shall be forfeited in lieu of being distributed;
(iii) shall be made from Qualified Non- Elective
Contributions only to the extent that Excess
Contributions exceed the balance in the
Participant's Elective Account attributable to
Deferred Compensation and Employer matching
contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess
Contributions pursuant to (a) above, such recharacterized
amounts:
(i) shall be deemed to have occurred on the date on
which the last of those Highly Compensated
Participants with Excess Contributions to be
recharacterized is notified of the
recharacterization and the tax consequences of such
recharacterization;
(ii) for Plan Years ending on or before August 8,
1988, may be postponed but not later than October
24, 1988;
(iii) shall not exceed the amount of Deferred
Compensation on behalf of any Highly Compensated
Participant for any Plan Year;
(iv) shall be treated as voluntary Employee
contributions for purposes of Code Section 401 (a)
(4) and Regulation 1.401(k)-l(b). However, for
purposes of Sections 2.2 and 4.3 (f),
recharacterized Excess Contributions continue to be
treated as Employer contributions that are Deferred
Compensation. For Plan Years beginning aster
December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions
shall continue to be nonforfeitable and subject to
the same distribution rules provided for in Section
11.2 (c);
(v) which relate to Plan Years ending on or before
October 24, 1988, may be treated as either Employer
contributions or voluntary Employee contributions
and therefore shall not be subject to the
restrictions of Section 11.2 (c);
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(vi) are not permitted if the amount
recharacterized plus voluntary Employee
contributions actually made by such Highly
Compensated Participant, exceed the maximum amount
of voluntary Employee contributions (determined
prior to application of Section 11.6) that such
Highly Compensated Participant is permitted to make
under the Plan in the absence of
recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less
than the entire amount of Excess Contributions shall be
treated as a pro rata distribution and/or
recharacterization of Excess Contributions and Income.
(4) The determination and correction of Excess
Contributions of a Highly Compensated Participant whose
actual deferral ratio is determined under the "family
aggregation rules shall be accomplished by reducing the
actual deferral ratio as required herein and the Excess
Contributions for the family unit shall be allocated among
the Family Members in proportion to the Elective
Contributions of each Family Member that were combined to
determine the group actual deferral ratio.
(i) If the actual deferral ratio for the Highly
Compensated. Participant is determined in
accordance with Section 11.4 (c) (1) (ii), then the
actual deferral ratio shall be reduced as required
herein and the Excess Contributions for the family
unit shall be allocated among the Family Members in
proportion to the Elective Contributions of each
Family Member that were combined to determine the
group actual deferral ratio.
(ii) If the actual deferral ratio for the Highly
Compensated Participant is determined under Section
11.4 (c) (l) (i), then the actual deferral ratio
shall first be reduced as required herein, but not
below the actual deferral ratio of the group of
Family Members who are not Highly Compensated
Participants without regard to family aggregation.
The Excess Contributions resulting from this
initial reduction shall be allocated (in proportion
to Elective Contributions) among the Highly
Compensated Participants whose Elective
Contributions were combined to determine the actual
deferral ratio. If further reduction is still
required, then Excess Contributions resulting from
this further reduction shall be determined by
taking into account the contributions of all Family
Members and shall allocated among them in
proportion to their respective Elective
Contributions.
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<PAGE> 117
(b) Within twelve (12) months after the end of the Plan
Year, the Employer shall make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in
an amount sufficient to satisfy one of the tests set forth in
Section 11.4 (a). Such contribution shall be allocated to the
Participant's Qualified Non-Elective Account of each Non-Highly
Compensated Participant in the same proportion that each
Non-Highly Compensated Participant's Compensation for the year
bears to the total Compensation of all Non-Highly Compensated
Participants.
(c) For purposes of this Section, "Income" means the
income or loss allocable to Excess Contributions which shall
equal the sum of the allocable gain or loss for the Plan Year and
the allocable gain or loss for the period between the end of the
Plan Year and the date of distribution ("gap period"). The income
or loss allocable to Excess Contributions for the Plan Year and
the "gap period" is calculated separately and is determined by
multiplying the income or loss for the Plan Year or the "gap
period" by a fraction. The numerator of the fraction is the
Excess Contributions for the Plan Year. The denominator of the
fraction is the total of the Participant's Elective Account
attributable to the Elective Contributions and the Participant's
Qualified Non-Elective Account as of the end of the Plan Year or
the "gap period", reduced by the gain allocable to such total
amount for the Plan Year or the "gap period" and increased by the
loss allocable to such total amount for the Plan Year or the "gap
period".
In lieu of the "fractional method" described above, a
"safe harbor method" may be used to calculate the allocable
Income for the "gap period". Under such "safe harbor method",
allocable Income for the "gap period" shall be deemed to equal
ten percent (10%) of the Income allocable to Excess Contributions
for the Plan Year of the Participant multiplied by the number of
calendar months in the "gap period". For purposes of determining
the number of calendar months in the "gap period", a distribution
occurring on or before the fifteenth day of the month shall be
treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall
be treated as having been made on the first day of the next
subsequent month.
Notwithstanding the above, for Plan Years which began in 1987, and for
Plan Years beginning on or after the date this Plan is adopted, Income during
the "gap period shall not be taken into account.
(d) Any amounts not distributed or recharacterized within
2 1/2 months after the end of the Plan Year shall be subject to
the 10% Employer excise tax imposed by Code Section 4979.
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11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage., for Plan Years
beginning after the later of the Effective Date of this Plan or
December 31, 1986, for the Highly Compensated Participant group
shall not exceed the greater of:
(1) 125 percent of such percentage for the Non- Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant
group plus 2 percentage points. However, for Plan Years
beginning after December 31, 1988, to prevent the multiple
use of the alternative method described in this paragraph
and Code Section 401 (m) (9) (A), any Highly Compensated
Participant eligible to make elective deferrals pursuant
to Section 11.2 or any other cash or deferred arrangement
maintained by the Employer or an Affiliated Employer and
to make Employee contributions or- to receive matching
contributions under any plan maintained by the Employer or
an Affiliated Employer shall have his actual contribution
ratio reduced pursuant to Regulation 1.401 (m)-2. The
provisions of Code Section 401 (m) and Regulations 1.401
(m) -l (b) and 1.1.401 (m)-2 are incorporated herein by
reference.
(b) For the purposes of this Section and Section 11.7,
"Actual Contribution Percentage" for a Plan Year means, with
respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group, the average of the
ratios (calculated separately for each Participant in each group)
of:
(1) the sum of Employer matching contributions made
pursuant to Section 11.1 (b) (to the extent such matching
contributions are not used to satisfy the tests set forth
in Section 11.4), voluntary Employee contributions made
pursuant to Section 4.7 and Excess Contributions
recharacterized as voluntary Employee contributions
pursuant to Section 11.5 on behalf of each such
Participant for such Plan Year; to
(2) the Participant's "414 (s) Compensation" for such Plan
Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions
pursuant to Section 11.7 (d), only Employer matching
contributions
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<PAGE> 119
contributed to the Plan prior to the end of the succeeding Plan
Year shall be considered. In addition, the Administrator may
elect to take into account, with respect to Employees eligible to
have Employer matching contributions made pursuant to Section
11.1 (b) or voluntary Employee contributions made pursuant to
Section 4.7 allocated to their accounts, elective deferrals (as
defined in Regulation 1.402 (g)-l (b)) and qualified non-elective
contributions (as defined in Code Section 401 (m) (4) (C))
contributed to any plan maintained by the Employer. Such elective
deferrals and qualified nonelective contributions shall be
treated as Employer matching contributions subject to Regulation
1.401 (m)-l (b) (2) which is incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, the
Plan Year must be the same as the plan year of the plan to which
the elective deferrals and the qualified non- elective
contributions are made.
(d) For the purpose of determining the actual contribution
ratio of a Highly Compensated Employee who is subject to the
Family Member aggregation rules of Code Section 414 (q) (6)
because such Employee is either a "five percent owner" of the
Employer or one of the ten (10) Highly Compensated Employees paid
the greatest "415 Compensation" during the year, the following
shall apply:
(1) The combined actual contribution ratio for the family
group (which shall be treated as one Highly Compensated
Participant) shall be determined by aggregating Employer
matching contributions made pursuant to Section 11.1 (b)
(to the extent such matching contributions are not used to
satisfy the tests set forth in Section 11.4), voluntary
Employee contributions made pursuant to Section 4.7,
Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and "414 (s)
Compensation" of all eligible Family Members (including
Highly Compensated Participant). However, in applying the
$200,000 limit to "414 (s) Compensation" for Plan Years
beginning after December 31, 1988, Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close
of the Plan Year.
(2) The Employer matching contributions made pursuant to
Section 11.1 (b) (to the extent such matching
contributions are not used to satisfy the tests set forth
in Section 11.4), voluntary Employee contributions made
pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions
pursuant to Section 11.5 and "414 (s) Compensation" of all
Family Members shall be disregarded for purposes of
determining the "Actual Contribution Percentage" of
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<PAGE> 120
the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group
in accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections 401 (a)
(4), 410 (b) and 401 (m), if two or more plans of the Employer to
which matching contributions, Employee contributions or both, are
made are treated as one plan for purposes of Code Sections 401
(a) (4) or 410 (b) (other than the average benefits test under
Code Section 410 (b) (2) (A) (ii) as in effect for Plan Years
beginning after December 31, 1988), such plans shall be treated
as one plan. In addition, two or more plans of the Employer to
which matching contributions, Employee contributions, or both,
are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401
(a) (4), 410 (b) and 401 (m). In such a case, the aggregated
plans must satisfy this Section and Code Sections 401 (a) (4),
410 (b) and 401 (m) as though such aggregated plans were a single
plan. For plan years beginning after December 31, 1989, plans may
be aggregated under this paragraph only if they have the same
plan year.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, an employee stock ownership plan described in
Code Section 4975 (e) (7) may not be aggregated with this Plan
for purposes of determining whether the employee stock ownership
plan or this Plan satisfies this Section and Code Sections 401
(a) (4), 410 (b) and 401 (m).
(f) If a Highly Compensated Participant is a Participant
under two or more plans (other than an employee stock ownership
plan as defined in Code Section 4975 (e) (7) for Plan Years
beginning after December 31, 1988) which are maintained by the
Employer or an Affiliated Employer to which matching
contributions, Employee contributions, or both, are made, all
such contributions on behalf of such Highly Compensated
Participant shall be aggregated for purposes of determining such
Highly Compensated Participant's actual contribution ratio.
However, for Plan Years beginning after December 31, 1988, if the
plans have different plan years, this paragraph shall be applied
by treating all plans ending with or within the same calendar
year as a single plan.
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(g) For purposes of Section 11.6 (a) and 11.7, a Highly
Compensated Participant and a Non-Highly Compensated Participant
shall include any Employee eligible to have matching
contributions made pursuant to Section 11.1 (b) (whether or not a
deferred election was made or suspended pursuant to Section 11.2
(e) allocated to his account for the Plan Year or to make salary
deferrals pursuant to Section 11.2 (if the Employer uses salary
deferrals to satisfy the provisions of this Sect on) or voluntary
Employee contributions pursuant to Section 4.7 (whether or not
voluntary Employee contributions are made) allocated to his
account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution"
shall mean an Employer contribution made to the Plan, or to a
contract described in Code Section 403 (b), on behalf of a
Participant on account of an Employee contribution made by such
Participant, or on account of a participant's deferred
compensation, under a plan maintained by the Employer.
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after
December 31, 1986, the "Actual Contribution Percentage" for the
Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated
Participant group pursuant to Section 11.6 (a), the Administrator
(on or before the fifteenth day of the third month following the
end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to
the Highly Compensated Participant having the highest actual
contribution ratio, his portion of Excess Aggregate Contributions
(and Income allocable to such contributions) or, if forfeitable,
forfeit such non-Vested Excess Aggregate Contributions
attributable to Employer matching contributions (and Income
allocable to such Forfeitures) until either one of the tests set
forth in Section 11.6 (a) is satisfied or until his actual
contribution ratio equals the actual contribution ratio or the
Highly Compensated Participant having the second highest actual
contribution ratio. This process shall continue until one of the
tests set forth in Section 11.6 (a) is satisfied. The
distribution and/or Forfeiture of Excess Aggregate Contributions
shall be made in the following order:
(1) Employer matching contributions distributed and/or
forfeited pursuant to Section 11.5 (a) (1);
(2) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 (a) (2);
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<PAGE> 122
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire
amount of Excess Aggregate Contributions (and Income) shall be
treated as a pro rata distribution of Excess Aggregate
Contributions and Income. Distribution of Excess Aggregate
Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income).
Forfeitures of Excess Aggregate Contributions shall be treated in
accordance with Section 4.3. However, no such Forfeiture may be
allocated to a Highly Compensated Participant whose contributions
are reduced pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts
other than voluntary Employee contributions, including forfeited
matching contributions, shall be treated as Employer
contributions for purposes of Code Sections 404 and 415 even if
distributed from the Plan.
(d) For :the purposes of this Section and Section 11.6,
"Excess Aggregate Contributions means, with respect to any Plan
Year, the excess of:
(1) the aggregate amount of Employer matching
contributions made pursuant to Section 11.1 (a) (to the
extent such contributions are taken into account pursuant
to Section 11.6 (a)), voluntary Employee contributions
made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions
pursuant to Section 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken account pursuant
to Section 11.6 (c) actually made on behalf of the Highly
Compensated Participant group for such Plan Year, over
(2) the maximum amount of such contributions permitted
under the limitations of Section 11.6 (a).
(e) For each Highly Compensated Participant, the amount of
Excess Aggregate Contributions is equal to the total Employer
matching contributions made pursuant to Section 11.1 (b) (to the
extent taken into account pursuant to Section 11.6 (a)) voluntary
Employee contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant
to Section 11.6 (c) on behalf of the Highly Compensated
Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio (determined
after application of this paragraph) by his "414 (s)
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Compensation". The actual contribution ratio must be rounded to
the nearest one-hundredth of one percent for Plan Years beginning
after December 31, 1988. In no case shall the amount of Excess
Aggregate Contribution with respect to any Highly Compensated
Participant exceed the amount of Employer matching contributions
made pursuant to Section 11.1 (b) (to the extent taken into
account pursuant to Section 11.6 (a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 11.5 and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 11.6
(c) on behalf of such Highly Compensated Participant for such
Plan Year.
(f) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after
first determining the Excess Contributions, if any, to be treated
as voluntary Employee contributions due to recharacterization for
the plan year of any other qualified cash or deferred arrangement
(as defined in Code Section 401 (k)) maintained by the Employer
that ends with or within the Plan Year or which are treated as
voluntary Employee contributions due to recharacterization
pursuant to Section 11.5.
(g) The determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual:
contribution ratio is determined under the family aggregation
rules shall be accomplished by reducing the actual contribution
percentage ratio as required herein and the Excess Aggregate
Contributions for the family unit shall be allocated among the
famify Members in proportion to the sum of Employer matching
contributions made pursuant to Section 11.1(b) (to the extent
taken into account pursuant to Section 11.6(a)) voluntary
Employee contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section. 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant
to Section 11.6(c) of each Family Member that were combined to
determine the group actual contribution ratio.
(1) If the actual contribution ratio for the Highly
Compensated Participants determined in accordance with
Section 11.6 (d) (1), then the actual contribution ratio
shall be reduced and the Excess Aggregate Contributions
for the family unit shall be allocated among the Family
Members in proportion to the sum of Employer matching
contributions made pursuant to Section 11.1 (b) (to the
extent taken into account pursuant to Section 11.6 (a)),
voluntary Employee
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contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5 and any Qualified
Non-Elective Contributions or elective deferrals taken
into account pursuant to Section 11.6 (c) of each Family
Member that were combined to determine the group actual
contribution ratio.
(2) If the actual contribution ratio for the highly
Compensated Participant is determined under Section 11.6
(d) (2), then the actual contribution ratio shall first be
reduced, as required herein, but not below the actual
contribution ratio of the group of Family Members who are
not Highly Compensated Participants without regard to
family aggregation. The Excess Aggregate Contributions
resulting from this initial reduction shall be allocated
among the Highly Compensated Participants whose Employer
matching contributions made pursuant to Section 11.1 ( b)
(to the extent taken into account pursuant to Section 11.6
(a)), voluntary Employee contributions made pursuant to
Section 4.7, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 11.5
and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 11.6 (c)
were combined to determine the actual contribution ratio.
If further reduction is still required, then Excess
Aggregate Contributions resulting from this further
reduction shall be determined by taking into account the
contributions of all Family Members and shall be allocated
among them in proportion to their respective Employer
matching contributions made pursuant to Section 11.1 (b)
(to the extent taken into account pursuant to Section
11.6( a)), voluntary Employee contributions made pursuant
to Section 4.7, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 11.5
and any Qualified Non-Elective Contributions or elective
deferrals taken intoaccount pursuant to Section 11.6 (c).
(h) Notwithstanding the above, within twelve (12) months
after the end of the Plan Year, the Employer may make a special
Qualified Non- Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to satisfy one
of the tests set forth in Section 11.6. Such contribution shall
be allocated to the Participant's Qualified Non-Elective Account
of each Non-Highly Compensated Participant in the same proportion
that each Non-Highly Compensated Participant's Compensation for
the year bears to the total Compensation of all Non-Highly
Compensated Participants. A separate accounting shall be
maintained for the purpose of excluding such contributions from
the "Actual Deferral Percentage" tests pursuant to Section 11.4.
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(i) For purposes of this Section, "Income" means the
income or loss allocable to Excess Aggregate Contributions which
shall equal the sum of the allocable gain or loss for the Plan
Year and the allocable gain or loss for the period between the
end of the Plan Year and the date of distribution ("gap period").
The income or loss allocable to Excess Aggregate Contributions
for the Plan Year and the "gap period" is calculated separately
and is determined by multiplying the income or loss for the Plan
Year or the "gap period" by a fraction. The numerator of the
fraction is the Excess Aggregate Contributions for the Plan Year.
The denominator of the fraction is the total Participant's
Account and Voluntary Contribution Account attributable to
Employer matching contributions subject to Section 11.6,
voluntary Employee contributions made pursuant to Section 4.7,
and any Qualified Non-Elective Contributions and elective
deferrals taken into account pursuant to Section 11.6 (c) as of
the end of the Plan Year or the "gap period" reduced by the gain
allocable to such total amount for the Plan Year or the "gap
period" and increased by the loss allocable to such total amount
for the Plan Year or the "gap period"
In lieu of the "fractional method" described above, a
"safe harbor method" may be used to calculate the allocable
Income for the "gap period". Under such "safe harbor method"
allocable Income for the "gap period" shall be deemed to equal
ten percent (10%) of the Income allocable to Excess Aggregate
Contributions for the Plan Year of the Participant multiplied by
the number of calendar months in the "gap period". For purposes
of determining the number of calendar months in the "gap period",
a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the
preceding month and a distribution occurring after such fifteenth
day shall be treated as having been made on the first day of the
next subsequent month.
The Income allocable to Excess Aggregate Contributions
resulting from recharacterization of Elective Contributions shall
be determined and distributed as if such recharacterized Elective
Contributions had been distributed as Excess Contributions.
Notwithstanding the above, for Plan Years which began in
1987, and for Plan Years beginning on or after the date this Plan
is adopted, Income during the "gap period" shall not be taken
into account
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant,
shall direct the Trustee to distribute to any Participant in any
one Plan Year up to the lesser of (1) 100% of the Vested portion
of his accounts as
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specified in the Adoption Agreement valued as of the last
Anniversary Date or other valuation date or (2) the amount
necessary to satisfy the immediate and heavy financial need of
the Participant. Any distribution made pursuant to this Section
shall be deemed to be made as of the first day of the Plan Year
or, if later, the valuation date immediately preceding the date
of distribution, and the account from which the distribution is
made shall be reduced accordingly. Withdrawal under this Section
shall be authorized only if the distribution is on account of one
of the following or any other items permitted by the Internal
Revenue Service:
(1) Medical expenses described in Code Section 213 (d)
incurred by the Participant, his spouse, or any of his
dependents (as defined in Code Section 152);
(2) The purchase (excluding mortgage payments) of a
principal residence for the Participant;
(3) Payment of tuition and related educational fees for
the next 12 months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(4) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence.
(b) No distribution shall be made pursuant to this Section
unless the Administrator, based upon the Participant's
representation and such other facts as are known to the
Administrator, determines that all of the following conditions
are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant
(including any amounts necessary to pay any federal,
state, or local taxes or penalties reasonably anticipated
to result from the distribution); (2) The Participant has
obtained all distributions, other than hardship
distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the
Employer, provide that the Participant's elective
deferrals and voluntary Employee contributions will be
suspended for at least twelve (12) months after receipt of
the hardship distribution; and
(4) The Plan, and all other plans maintained by the
Employer, provide that the Participant may not make
elective deferrals for
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the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402 (g) for such next
taxable year less the amount of such Participant's
elective deferrals for the taxable year of the hardship
distribution.
(c) Notwithstanding the above, distributions from the
Participant's Elective Account and Qualified Non- Elective
Account pursuant to this Section shall be limited solely to the
Participant's Deferred Compensation and any income attributable
thereto credited to the Participant's Elective Account as of
December 31, 1988.
(d) Any distribution made pursuant to this Section shall
be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Sections 411 (a) (11) and
417 and the Regulations thereunder.
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 1
TO THE
AMENDED AND RESTATED LICENSE AND RESEARCH
COLLABORATION AGREEMENT
This Amendment No. 1 (the "Amendment") to the Amended and Restated
License and Research Collaboration Agreement (the "Collaboration Agreement") is
made effective as of January 1, 1997 (the "Effective Date") by and between
GenQuest, Inc., a Delaware corporation, having its principal place of business
at 1124 Columbia Street, Suite 464, Seattle, Washington 98104 ("GenQuest") and
Corixa Corporation, a Delaware corporation having its principal place of
business at 1124 Columbia Street, Suite 464, Seattle, Washington 98104
("Corixa").
RECITALS
GenQuest and Corixa entered into the Collaboration Agreement dated as of
December 23, 1996 pursuant to which GenQuest and Corixa agreed to collaborate in
the discovery and characterization of novel genes through functional assays for
treatment of cancer or preneoplastic cell proliferation diseases in humans and
animals, with a view to developing technology and/or possible products for use
and/or sale by the parties.
GenQuest and Corixa now wish to amend the Collaboration Agreement in
certain respects as hereinafter provided.
Except as otherwise provided herein, definitions of capitalized words
shall be those set forth in the Collaboration Agreement.
The parties now agree as follows:
AMENDMENT
Section 3.2 of Article 3 of the Collaboration Agreement is amended in
its entirety to read as follows:
"3.2 Research Efforts and Funding.
(a) During the Research Term, the parties shall maintain
scientific staff, laboratories, offices and other facilities appropriate and
necessary to carry out the Research Plan in accordance with the terms of the
Research Plan and shall expend best efforts to achieve the objectives of the
Research Plan. Each of the parties shall keep detailed records of its Research
expenditures in accordance with Section 13.3 hereof and shall deliver to the
other party, on a quarterly basis, a report of such expenditures.
(b) Corixa shall use its best efforts to perform the Research
Services set forth in the Research Plan. In that connection, during the Research
Term, Corixa agrees to dedicate to the performance of the Research at least the
number of full-time equivalent person-years ("FTEs") per year set forth in
Schedule 3.2. It is understood that the FTEs assigned to the
<PAGE> 2
Research shall be qualified scientists or experts as is required for work to be
conducted under the Research. Corixa shall keep contemporaneous written records
of FTEs allocated to the Research such as payroll records, time sheets or
equivalent. In addition, to further the purposes of the Research, during the
Research Term each party may, at such maximum cost, provide certain of its
employees to work or meet from time to time at the other party's facilities,
subject to approval by the Research Management Committee; provided, however,
that any such employees shall be subject to appropriate confidentiality
provisions to be agreed upon by the parties.
(c) GenQuest shall provide research funding in support of the
Research Plan during each of the years ended December 31, 1998 and December 31,
1999 in a minimum amount equal to [***] of the research funding paid during the
year ended December 31, 1997 (the "Annual Research Funding"). [***] The Research
Plan shall be updated by the Research Management Committee pursuant to Section
3.1 to provide for the Annual Research Funding set forth in this Section 3.2(c).
GenQuest shall pay the Annual Research Funding for each of 1998 and 1999 in four
equal installments payable to Corixa at the beginning of each calendar quarter."
ENTIRE AGREEMENT
Except as provided otherwise herein, all other terms and conditions of
the Collaboration Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
CORIXA CORPORATION
By: /s/ MARK McDADE
-------------------------------
Name: Mark McDade
-----------------------------
Title: COO
----------------------------
GENQUEST, INC.
By: /s/ ALAN D. FRAZIER
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Name: Alan D. Frazier
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Title: Chairman of the Board
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 31,
1997, except for paragraph 1 of Note 11, as to which the date is
, 1997, in Amendment No. 2 to the Registration Statement (Form
S-1) and related Prospectus of Corixa Corporation for the registration of
3,162,500 shares of its Common Stock.
Seattle, Washington
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The foregoing consent is in the form that will be signed upon the
completion of the reverse stock split described in paragraph 1 of Note 11 to the
financial statements.
/s/ ERNST & YOUNG LLP
Seattle, Washington
September 19, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors
Corixa Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
September 19, 1997
