<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1998
REGISTRATION NO. 333-57751
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
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 NO.)
</TABLE>
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 754-5711
STEVEN GILLIS, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORIXA CORPORATION
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 754-5711
------------------------
COPIES TO:
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WILLIAM W. ERICSON ANDREW GOODMAN KENNETH CLARK
VENTURE LAW GROUP ROSNER BRESLER GOODMAN & WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION UNTERMAN, LLP 650 PAGE MILL ROAD
4750 CARILLON POINT 521-5TH AVENUE, 28TH FLOOR PALO ALTO, CA 94304
KIRKLAND, WA 98033 NEW YORK, NY 10175
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and the effective time of the proposed merger of GenQuest, Inc. with
and into a subsidiary of the Registrant as described in the Agreement and Plan
of Merger dated as of June 22, 1998, attached as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding Company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per
share............................ 1,080,000 N/A $7,290 $100
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</TABLE>
(1) Based on an assumed price of $6.8396 per share of the Registrant's Common
Stock.
(2) Estimated solely for purposes of determining the amount of the registration
fee in accordance with Rule 457(f)(2) under the Securities Act of 1933.
Based upon one-third of the aggregate par value of the capital stock to be
received by the Registrant in exchange for the Common Stock registered, the
issuer of such capital stock having an accumulated deficit.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
GENQUEST, INC.
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 754-5799
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of GenQuest, Inc., a Delaware corporation ("GenQuest"), to be held at 2:00 p.m.
local time, on Tuesday, September 1, 1998, at The Boardroom in the Royalton
Hotel, 44 West 44th Street, New York, New York (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger dated as of June
22, 1998 (the "Merger Agreement"), by and among Corixa Corporation, a Delaware
corporation ("Corixa"), Chinook Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Corixa ("Chinook"), and GenQuest, and to approve
the merger (the "Merger") of GenQuest with and into Chinook under the terms set
forth in the Merger Agreement. Pursuant to the Merger Agreement (i) GenQuest
will merge with and into Chinook, (ii) each outstanding share of GenQuest
capital stock, other than shares as to which appraisal rights may have been
properly exercised and shares owned by GenQuest or Corixa, will be converted
into cash and the right to receive a fraction of one share of the common stock
of Corixa, $0.001 par value per share ("Corixa Common Stock"), based upon the
series and class of GenQuest capital stock being converted, at exchange ratios
that will be determined by series and class of GenQuest capital stock based upon
the last reported closing price on the Nasdaq National Market of Corixa Common
Stock for the 30 trading days immediately preceding and the 30 trading days
including and immediately following the execution of the Merger Agreement on
June 22, 1998 (the "Exchange Ratios"), (iii) each outstanding warrant to
purchase GenQuest capital stock will be terminated unless exercised, and (iv)
each outstanding option to purchase shares of the common stock of GenQuest,
$0.001 par value per share, will be deemed to constitute the right to acquire,
on the same terms and conditions, a number of shares of Corixa Common Stock at a
price based on an option exchange ratio that will be determined in the same
manner as the Exchange Ratios. For more information regarding the consideration
to be received by GenQuest stockholders in the Merger, please refer to the
accompanying Proxy Statement/Prospectus, under "Terms of the
Merger -- Conversion of Securities" and "Terms of the Merger -- Stock Options."
Upon consummation of the Merger, the separate corporate existence of GenQuest
will cease, and Chinook will survive as a wholly-owned subsidiary of Corixa.
YOUR BOARD OF DIRECTORS HAS APPROVED THE TERMS OF THE MERGER AGREEMENT AND
HAS DETERMINED BY UNANIMOUS VOTE OF THE INDEPENDENT DIRECTORS THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTEREST OF, GENQUEST AND ITS STOCKHOLDERS. AFTER
CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF THE MERGER AGREEMENT. STEVEN GILLIS AND MARK MCDADE, DIRECTORS OF BOTH
GENQUEST AND CORIXA, RECUSED THEMSELVES FROM THE BOARD OF DIRECTORS' VOTE FOR
APPROVAL OF THE MERGER.
The accompanying Proxy Statement/Prospectus provides detailed information
concerning the proposed Merger and additional information concerning Corixa and
GenQuest, which you are urged to read carefully. The complete text of the Merger
Agreement is attached as Appendix A to the Proxy Statement/Prospectus.
It is important that your shares of GenQuest capital stock be represented
at the Special Meeting, regardless of the number of shares you hold. The
required vote of GenQuest stockholders on approval of the Merger Agreement is
based on the number of outstanding shares of GenQuest capital stock and not the
number of shares which are actually voted. Accordingly, the failure to submit a
proxy card or to vote in person at the Special Meeting and the abstention from
voting by a stockholder will each have the same effect as a vote AGAINST
approval of the Merger Agreement. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY CARD AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. You may revoke your proxy at any time prior to its exercise
by filing written notice of such revocation with the Secretary of GenQuest or by
signing and delivering to the Secretary a proxy bearing a later date. In
addition, you may attend the Special Meeting and vote your shares in person if
you wish, even though you have previously returned your proxy.
On Behalf of the Board of Directors,
/s/ ALAN FRAZIER
Alan Frazier
Chairman, President and Secretary
i
<PAGE> 3
GENQUEST, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 1, 1998
To the Stockholders of GenQuest, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
GenQuest, Inc., a Delaware corporation ("GenQuest"), will be held at 2:00 p.m.
local time, on Tuesday, September 1, 1998, at The Boardroom in the Royalton
Hotel, 44 West 44th Street, New York, New York (the "Special Meeting"), to
consider and vote upon the following proposals:
1. To approve and adopt the Agreement and Plan of Merger dated as of June
22, 1998 (the "Merger Agreement") by and among Corixa Corporation, a Delaware
corporation ("Corixa"), Chinook Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Corixa ("Chinook"), and GenQuest, and to approve
the merger (the "Merger") of GenQuest with and into Chinook under the terms set
forth in the Merger Agreement. Pursuant to the Merger Agreement (i) GenQuest
will merge with and into Chinook, (ii) each outstanding share of GenQuest
capital stock, other than shares as to which appraisal rights may have been
properly exercised and shares owned by GenQuest or Corixa, will be converted
into cash and the right to receive a fraction of one share of the common stock
of Corixa, $0.001 par value per share ("Corixa Common Stock"), based upon the
series and class of GenQuest capital stock being converted, at exchange ratios
that will be determined by series and class of GenQuest capital stock based upon
the last reported closing price on the Nasdaq National Market of Corixa Common
Stock for the 30 trading days immediately preceding and the 30 trading days
including and immediately following the execution of the Merger Agreement on
June 22, 1998 (the "Exchange Ratios"), (iii) each outstanding warrant to
purchase GenQuest capital stock will be terminated unless exercised, and (iv)
each outstanding option to purchase shares of the common stock of GenQuest,
$0.001 par value per share, will be deemed to constitute the right to acquire,
on the same terms and conditions, a number of shares of Corixa Common Stock at a
price based on an option exchange ratio that will be determined in the same
manner as the Exchange Ratios. For more information regarding the consideration
to be received by GenQuest stockholders in the Merger, please refer to the
accompanying Proxy Statement/Prospectus, under "Terms of the
Merger -- Conversion of Securities" and "Terms of the Merger -- Stock Options."
Upon consummation of the Merger, the separate corporate existence of GenQuest
will cease, and Chinook will survive as a wholly-owned subsidiary of Corixa.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on August 3, 1998 as
the record date for the determination of the holders of GenQuest capital stock
entitled to notice of, and to vote at, the Special Meeting. Accordingly, only
stockholders of record at the close of business on such date are entitled to
notice of and to vote at the Special Meeting and any adjournment or postponement
thereof. Corixa has the right to terminate the Merger Agreement if, among other
reasons, the holders of at least 95% of the outstanding shares of GenQuest
capital stock have not voted for approval and adoption of Proposal 1 above by
the later of (i) August 31, 1998 and (ii) the date that is 45 days after the
Registration Statement on Form S-4 filed by Corixa in connection with the Merger
is declared effective by the Securities and Exchange Commission.
Details of the proposed Merger and other important information concerning
Corixa and GenQuest are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A
PROXY.
By Order of the Board of Directors,
/s/ ALAN FRAZIER
Alan Frazier
Chairman, President and Secretary
Seattle, Washington
August 6, 1998
ii
<PAGE> 4
GENQUEST, INC.
PROXY STATEMENT
------------------------
CORIXA CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of capital stock of GenQuest, Inc., a Delaware
corporation ("GenQuest"), in connection with the solicitation of proxies by and
on behalf of the Board of Directors of GenQuest for use at the Special Meeting
of Stockholders of GenQuest to be held at The Boardroom in the Royalton Hotel,
44 West 44th Street, New York, New York on Tuesday, September 1, 1998 commencing
at 2:00 p.m., local time, and at any and all adjournments or postponements
thereof (the "Special Meeting").
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of GenQuest with and into Chinook Acquisition Corporation, a Delaware
corporation ("Chinook") and a wholly-owned subsidiary of Corixa Corporation, a
Delaware corporation ("Corixa"), pursuant to an Agreement and Plan of Merger
dated as of June 22, 1998, by and among Corixa, Chinook and GenQuest (the
"Merger Agreement"), which is attached hereto as Appendix A and incorporated
into this Proxy Statement/Prospectus by this reference. Pursuant to the Merger
Agreement (i) GenQuest will merge with and into Chinook, (ii) each outstanding
share of GenQuest capital stock, other than shares as to which appraisal rights
may have been properly exercised and shares owned by GenQuest or Corixa, will be
converted into cash and the right to receive a fraction of one share of the
common stock of Corixa, $0.001 par value per share ("Corixa Common Stock"),
based upon the series and class of GenQuest capital stock being converted, at
exchange ratios that will be determined by series and class of GenQuest capital
stock based upon the last reported closing price on the Nasdaq National Market
("Nasdaq") of Corixa Common Stock for the 30 trading days immediately preceding
and the 30 trading days including and immediately following the execution of the
Merger Agreement on June 22, 1998 (the "Exchange Ratios"), (iii) each
outstanding warrant to purchase GenQuest capital stock will be terminated unless
exercised, and (iv) each outstanding option to purchase shares of the common
stock of GenQuest, $0.001 par value per share ("GenQuest Common Stock"), will be
deemed to constitute the right to acquire, on the same terms and conditions, a
number of shares of Corixa Common Stock at a price based on an option exchange
ratio that will be determined in the same manner as the Exchange Ratios. Upon
consummation of the Merger, the separate corporate existence of GenQuest will
cease, and Chinook will survive as a wholly-owned subsidiary of Corixa. See
"Terms of the Merger -- Conversion of Securities" and "Terms of the
Merger -- Stock Options."
Consummation of the Merger is subject to various conditions, and Corixa has
the right to terminate the Merger Agreement if, among other reasons, the holders
of at least 95% of the outstanding shares of GenQuest capital stock have not
voted in favor of adoption and approval of the Merger Agreement by the later of
(i) August 31, 1998 and (ii) the date that is 45 days after the Registration
Statement on Form S-4 filed by Corixa in connection with the Merger, of which
this Proxy Statement/Prospectus forms a part (the "Form S-4"), is declared
effective by the Securities and Exchange Commission (the "Commission").
This Proxy Statement/Prospectus also constitutes a prospectus of Corixa
with respect to 1,080,000 shares of Corixa Common Stock to be issued in
connection with the Merger. Corixa Common Stock is traded on Nasdaq under the
symbol "CRXA." On August 4, 1998, the closing sale price for Corixa Common Stock
as reported on Nasdaq was $4.375 per share.
All information contained in this Proxy Statement/Prospectus with respect
to Corixa has been provided by Corixa. All information contained in this Proxy
Statement/Prospectus with respect to GenQuest has been provided by GenQuest.
This Proxy Statement/Prospectus and the accompanying form of proxy is first
being mailed to the stockholders of GenQuest on or about August 6, 1998. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "The Special Meeting -- Record Date; Voting Rights; Proxies."
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
OF GENQUEST ARE URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO
BEGINNING ON PAGE 42 UNDER "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS AUGUST 5, 1998.
iii
<PAGE> 5
AVAILABLE INFORMATION
Corixa is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference room of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public
reference facilities in the New York Regional Office, 75 Park Place, New York,
New York 10007, and the Chicago Regional Office, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates by writing to the Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549. In addition, material filed by Corixa can be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1935 K Street, N.W., Washington, D.C. 20006.
------------------------
TRADEMARKS
Corixa has applied for trademark registration for CORIXA(TM) and the
stylized Corixa logo.
The stylized GenQuest logo is a trademark of GenQuest.
This Proxy Statement/Prospectus also includes trade names and trademarks of
companies other than Corixa or GenQuest. The use of any such third party trade
name or trademark herein is in an editorial fashion only, and to the benefit of
the owner thereof, with no intention of commercial use or infringement of such
trade name or trademark.
------------------------
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain factors, including the factors set forth in this Proxy
Statement/Prospectus under "Risk Factors." Reference is also made to the
particular discussions set forth under "Corixa Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "GenQuest
Management's Discussion and Analysis of Financial Condition and Results of
Operations." In connection with forward-looking statements which appear in these
disclosures, stockholders of GenQuest should carefully review the factors set
forth in this Proxy Statement/Prospectus under "Risk Factors" beginning on page
42.
iv
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
Surrender of Stock Certificates........................... 2
Recommendation of the GenQuest Board of Directors......... 2
Risk Factors.............................................. 3
The Merger................................................ 3
Conflicts of Interest..................................... 4
Certain Federal Income Tax Consequences................... 5
Comparative Rights of Stockholders........................ 5
SELECTED HISTORICAL FINANCIAL INFORMATION OF CORIXA......... 6
SELECTED HISTORICAL FINANCIAL INFORMATION OF GENQUEST....... 7
SUMMARY SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION............................................... 8
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....... 9
COMPARATIVE PER SHARE DATA.................................. 15
THE SPECIAL MEETING......................................... 16
Date, Time and Place of Meeting........................... 16
Purpose of the Special Meeting............................ 16
Record Date; Voting Rights; Proxies....................... 16
Quorum.................................................... 16
Required Vote; Voting Agreement........................... 16
THE MERGER.................................................. 18
Description............................................... 18
Joint Reasons for the Merger.............................. 18
Corixa's Reasons for the Merger........................... 19
Recommendation of GenQuest Board; GenQuest's Reasons for
the Merger............................................. 19
Material Contacts......................................... 20
Management and Operations Following the Merger............ 23
Conflicts of Interest..................................... 23
Certain Federal Income Tax Consequences................... 26
Accounting Treatment...................................... 28
Dissenters' Rights........................................ 28
Regulatory Matters........................................ 29
Resale Restrictions....................................... 29
TERMS OF THE MERGER......................................... 31
The Merger................................................ 31
Effective Time of the Merger.............................. 31
Conversion of Securities.................................. 31
Warrants.................................................. 33
Stock Options............................................. 33
Exchange of Shares........................................ 34
Representations and Warranties............................ 34
Certain Covenants......................................... 35
No Solicitation........................................... 37
Certain Employee Benefit Plan Matters..................... 37
Indemnification........................................... 37
Management After the Merger............................... 39
Conditions................................................ 39
Termination............................................... 39
</TABLE>
v
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Cancellation Fees; Expenses............................... 40
Amendment; Waiver......................................... 41
RISK FACTORS................................................ 42
CORIXA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 54
GENQUEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 59
INFORMATION CONCERNING CORIXA............................... 62
Scientific Background..................................... 62
Corixa's Strategy......................................... 63
Corixa's Core Technology Platforms........................ 64
Corixa's Products In Development.......................... 66
Corporate Partnerships.................................... 70
Certain Business Relationships............................ 73
Certain License Agreements................................ 73
Corixa's Vaccine Antigen Discovery Methodology............ 75
Patents and Proprietary Technology........................ 76
Government Regulation..................................... 78
Competition............................................... 81
Employees................................................. 81
Properties................................................ 81
Legal Proceedings......................................... 82
Scientific Collaborators.................................. 82
INFORMATION CONCERNING GENQUEST............................. 84
GenQuest's Strategy....................................... 84
GenQuest's Technology Platform............................ 85
GenQuest's Products in Development........................ 86
Corporate Partnerships.................................... 88
Research Collaboration.................................... 89
Agreement with Columbia University........................ 89
Patents and Intellectual Property......................... 90
Industry and Competition.................................. 92
Employees................................................. 92
Properties................................................ 92
Scientific Advisory Board................................. 93
MANAGEMENT OF CORIXA........................................ 94
COMPENSATION OF CORIXA EXECUTIVE OFFICERS................... 101
OWNERSHIP OF CORIXA CAPITAL STOCK........................... 103
OWNERSHIP OF GENQUEST CAPITAL STOCK......................... 105
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CORIXA.... 107
COMPARISON OF RIGHTS OF HOLDERS OF CORIXA CAPITAL STOCK AND
HOLDERS OF GENQUEST CAPITAL STOCK......................... 109
EXPERTS..................................................... 112
LEGAL MATTERS............................................... 112
OTHER MATTERS............................................... 113
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A: AGREEMENT AND PLAN OF MERGER.................... A-1
APPENDIX B: SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW....................................................... B-1
</TABLE>
vi
<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. This summary does not contain a complete
statement of all material information relating to the Merger Agreement, the
Merger and the other matters discussed herein and is subject to, and is
qualified in its entirety by, the more detailed information and financial
statements contained in this Proxy Statement/ Prospectus. Stockholders are urged
to read this Proxy Statement/Prospectus and the accompanying exhibits in their
entirety. Certain capitalized terms used in this summary are defined elsewhere
in this Proxy Statement/ Prospectus.
This Proxy Statement/Prospectus contains forward-looking statements about
future results that are subject to risks and uncertainties. Corixa's and
GenQuest's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
THE COMPANIES
Corixa. Corixa Corporation, located in Seattle, Washington, is a
development stage biotechnology company focused on the discovery and early
clinical development of proprietary vaccine products that induce specific and
potent pathogen- or tumor-reactive T cell responses for the treatment and
prevention of cancers and certain infectious diseases. Corixa's strategy is to
dedicate its resources to vaccine discovery and to establish corporate
partnerships early in the development process for all aspects of product
development and commercialization.
As used herein the term "Corixa" refers to Corixa Corporation. Corixa was
incorporated in Delaware in September 1994. Corixa's principal executive offices
are located at 1124 Columbia Street, Suite 200, Seattle, Washington 98104, and
its telephone number is (206) 754-5711.
GenQuest. GenQuest, Inc., a development stage biotechnology company, is
focused on applying functional genomics technology to discover novel genes
related to the transformation of normal cells into cancer cells and developing
the potential of such genes and related gene products to be used as diagnostics,
therapeutics and drug-screening targets in the field of oncology. Founded in
July 1995, GenQuest's core genomics technology is based on methodologies, genes
and reagents discovered by Dr. Paul Fisher, a member of the GenQuest Board of
Directors and a professor at Columbia University. GenQuest's genomics technology
is augmented by certain rights GenQuest possesses to certain genes, gene
products and tumor antigen gene discovery technologies discovered or in-licensed
by Corixa. From inception until December 1996, GenQuest had limited operations
and one full-time employee and since February 1996, has operated under a
collaborative arrangement with Corixa pursuant to which Corixa's employee
management team performs certain administrative and management services on
behalf of GenQuest. In December 1996, GenQuest completed a private venture
capital financing to provide capital for additional research and development
activities.
As used herein the term "GenQuest" refers to GenQuest, Inc. GenQuest was
incorporated in Delaware in July 1995. GenQuest's principal executive offices
are located at 1124 Columbia Street, Suite 200, Seattle, Washington 98104, and
its telephone number is (206) 754-5799.
Chinook. Chinook Acquisition Corporation is a Delaware corporation recently
organized by Corixa for the purpose of effecting the acquisition of GenQuest. It
has no material assets and has not engaged in any activities except in
connection with the proposed acquisition. Its executive offices are located at
1124 Columbia Street, Suite 200, Seattle, Washington 98104, and its telephone
number is (206) 754-5711.
THE SPECIAL MEETING
Time, Place and Date. The Special Meeting will be held at The Boardroom in
the Royalton Hotel, 44 West 44th Street, New York, New York on Tuesday,
September 1, 1998 at 2:00 p.m., local time.
1
<PAGE> 9
Purpose of the Special Meeting. At the Special Meeting, holders of shares
of GenQuest capital stock will be asked to consider and vote upon a proposal to
approve the Merger Agreement. See "The Special Meeting," "The Merger" and "Terms
of the Merger."
All shares of GenQuest capital stock represented by properly executed
proxies will be voted at the Special Meeting in accordance with the directions
on the proxies, unless such proxies have been previously revoked. If no
direction is indicated, the shares will be voted FOR the Merger Proposal. Any
GenQuest stockholder giving a proxy may revoke his, her or its proxy at any time
before its exercise at the Special Meeting, by (1) filing written notice of such
revocation with the Secretary of GenQuest, or (2) signing and delivering to such
Secretary a proxy bearing a later date. However, the mere presence at the
Special Meeting of a GenQuest stockholder who has delivered a valid proxy will
not of itself revoke that proxy. See "The Special Meeting."
Votes Required; Record Date. Corixa has the right to terminate the Merger
Agreement if, among other reasons, the holders of at least 95% of the
outstanding shares of GenQuest capital stock have not voted in favor of adoption
and approval of the Merger Agreement by the later of (i) August 31, 1998 and
(ii) the date that is 45 days after the Form S-4 is declared effective by the
Commission. Adoption and approval of the Merger Agreement requires, as a
condition and pursuant to its terms, the affirmative vote of the holders of at
least (i) a majority of the outstanding shares of GenQuest capital stock
entitled to vote thereon at the Special Meeting and (ii) a majority of the
outstanding shares of GenQuest Series A Preferred Stock and Series B Preferred
Stock entitled to vote thereon at the Special Meeting, voting together as a
single class. Holders of GenQuest capital stock are entitled to one vote per
share. Only holders of GenQuest capital stock at the close of business on August
3, 1998 (the "GenQuest Record Date") are entitled to notice of and to vote at
the Special Meeting. See "The Special Meeting." As of August 4, 1998, excluding
shares owned by Corixa, directors and executive officers of GenQuest and their
affiliates were beneficial owners of an aggregate of 18,150,000 shares of
GenQuest capital stock (exclusive of any shares issuable upon the exercise of
stock options remaining unexercised as of such date), or approximately 69% of
the 26,321,884 shares of GenQuest capital stock that were issued and outstanding
as of such date. In addition, Corixa owns an aggregate of 4,412,613 shares of
GenQuest capital stock, or approximately 17% of the 26,321,884 shares of
GenQuest capital stock that were issued and outstanding as of such date. Steven
Gillis and Mark McDade are directors of both Corixa and GenQuest. See "The
Special Meeting."
SURRENDER OF STOCK CERTIFICATES
Corixa has authorized The Harris Trust Company to act as Exchange Agent for
the Merger (the "Exchange Agent"). As soon as reasonably practicable after a
Certificate of Merger is filed in Delaware (the "Effective Time"), the Exchange
Agent will send a letter of transmittal to each GenQuest stockholder. The letter
of transmittal will contain instructions with respect to the surrender of
certificates representing GenQuest capital stock to be exchanged for Corixa
Common Stock. See "Terms of the Merger -- Exchange of Shares."
GENQUEST STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR GENQUEST CAPITAL
STOCK TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS.
GENQUEST STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
RECOMMENDATION OF THE GENQUEST BOARD OF DIRECTORS
THE BOARDS OF DIRECTORS OF CORIXA (THE "CORIXA BOARD") AND OF GENQUEST (THE
"GENQUEST BOARD") HAVE EACH APPROVED THE MERGER AGREEMENT. THE GENQUEST BOARD
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST
INTEREST OF, GENQUEST AND ITS STOCKHOLDERS, AND RECOMMENDS THAT HOLDERS OF
SHARES OF GENQUEST CAPITAL STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
STEVEN GILLIS AND MARK McDADE, DIRECTORS OF BOTH GENQUEST AND CORIXA, RECUSED
THEMSELVES FROM THE BOARD VOTE FOR APPROVAL OF THE MERGER. THE APPROVAL OF THE
MERGER AGREEMENT
2
<PAGE> 10
BY THE STOCKHOLDERS OF GENQUEST SHALL CONSTITUTE ADOPTION OF THE MERGER
AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, CERTAIN PROVISIONS BENEFITING DIRECTORS AND OFFICERS OF GENQUEST, AS
MORE FULLY DESCRIBED HEREIN. See "The Merger -- Material Contacts," "The
Merger -- Recommendation of GenQuest Board; GenQuest's Reasons for the Merger,"
and "The Merger -- Conflicts of Interest."
RISK FACTORS
In addition to the conditions to consummation of the Merger set forth below
under "Terms of the Merger -- Conditions," the Merger and the business of Corixa
and GenQuest after the Merger will be subject to a number of risks, including,
among others: uncertainties associated with the integration of the business of
GenQuest with Corixa; uncertainties related to the early stage of research and
development programs; unknown risks; uncertainties related to the integration of
the scientific cultures of GenQuest and Corixa; uncertainties related to the
effectiveness of technology and the development of 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; intense competition; lack of manufacturing and marketing
experience; history of operating losses; dependence on key personnel; and the
potential dilutive effect as a result of shares issued to GenQuest stockholders
as a result of the Merger. IN CONSIDERING WHETHER TO APPROVE THE MERGER
AGREEMENT, STOCKHOLDERS OF GENQUEST SHOULD CAREFULLY REVIEW AND CONSIDER THE
INFORMATION CONTAINED UNDER "RISK FACTORS" BEGINNING ON PAGE 42.
THE MERGER
Conversion of Securities. Pursuant to the Merger Agreement (i) GenQuest
will merge with and into Chinook, (ii) each outstanding share of GenQuest
capital stock, other than shares as to which appraisal rights may have been
properly exercised and shares owned by GenQuest or Corixa, will be converted
into cash and the right to receive a fraction of one share of Corixa Common
Stock, depending upon the series and class of GenQuest capital stock being
converted at the applicable Exchange Ratio, (iii) each outstanding warrant to
purchase GenQuest capital stock will be terminated unless exercised, and (iv)
each outstanding option to purchase GenQuest Common Stock will be deemed to
constitute the right to acquire, on the same terms and conditions, a number of
shares of Corixa Common Stock at a price based on an option exchange ratio. Upon
consummation of the Merger, the separate corporate existence of GenQuest will
cease, and Chinook will survive as a wholly-owned subsidiary of Corixa. See
"Terms of the Merger -- Conversion of Securities" and "Terms of the
Merger -- Stock Options."
Fractional shares of Corixa Common Stock will not be issued in connection
with the Merger. A holder of GenQuest capital stock otherwise entitled to a
fractional share of Corixa Common Stock will be paid cash in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the value of one share of Corixa Common Stock, based upon the average of the
last reported closing price on Nasdaq of Corixa Common Stock for the 30 trading
days immediately preceding and the 30 trading days including and immediately
following the execution of the Merger Agreement. See "Terms of the Merger --
Conversion of Securities" and "Terms of the Merger -- Exchange of Shares."
Conditions to the Merger; Termination. The obligations of Corixa and
GenQuest to effect the Merger are subject to the satisfaction of certain
conditions, including, among others: (i) obtaining the requisite approval of
GenQuest stockholders; (ii) the absence of any injunction prohibiting
consummation of the Merger; (iii) the filing and subsequent effectiveness of the
Form S-4; (iv) the approval of the listing on Nasdaq of shares of Corixa Common
Stock issuable to stockholders of GenQuest in connection with the Merger; (v)
the absence of any material adverse change in the condition, properties, assets,
liabilities, business, operations, results of operations or prospects of Corixa;
and (vi) the absence of certain specifically defined fundamental adverse effects
to GenQuest. See "Terms of the Merger -- Conditions."
The Merger Agreement is subject to termination by either Corixa or GenQuest
if, among other things, the Merger is not consummated by November 1, 1998. The
Merger Agreement also may be terminated by
3
<PAGE> 11
Corixa under certain circumstances, including the failure of the holders of 95%
of the outstanding shares of GenQuest capital stock to approve the Merger
Agreement by the later of (i) August 31, 1998 and (ii) the date that is 45 days
after the Form S-4 is declared effective by the Commission. Additionally, the
Merger Agreement may be terminated by GenQuest under certain circumstances,
including the withdrawal of the recommendation of approval of the Merger
Agreement by the GenQuest Board due to the existence of a competing acquisition
proposal by a third party, if such withdrawal is made in the GenQuest Board's
good faith judgment based upon the exercise of fiduciary duties to GenQuest's
stockholders. UNDER CERTAIN CIRCUMSTANCES LEADING TO TERMINATION OF THE MERGER
AGREEMENT, CORIXA OR GENQUEST, AS THE CASE MAY BE, MAY BE ENTITLED TO RECEIVE A
CANCELLATION FEE OR REIMBURSEMENT OF CERTAIN EXPENSES. See "Terms of the
Merger -- Termination" and "Terms of the Merger -- Cancellation Fees; Expenses."
Governmental Approvals Required. Certain aspects of the Merger will require
notifications to, and/or approvals from, certain United States authorities.
Corixa and GenQuest believe that all material notifications, filings and
approvals have been made or obtained, or will be made or obtained prior to the
Effective Time, as the case may be. See "The Merger -- Regulatory Matters."
Accounting Treatment. The Merger is expected to be treated by Corixa as a
purchase for accounting and financial reporting purposes. See "Terms of the
Merger -- Accounting Treatment."
Dissenters' Rights. Holders of outstanding shares of GenQuest capital stock
are entitled to relief as dissenting stockholders under Section 262 of the
Delaware General Corporation Law (the "DGCL") and may, by complying with Section
262 of the DGCL, exercise such dissenters' rights. Failure on the part of a
holder of shares of GenQuest capital stock to comply precisely with the
requirements of Section 262 of the DGCL, a copy of which is attached hereto as
Appendix B, will result in the loss of such holder's dissenters' rights. See
"The Merger -- Dissenters' Rights."
BECAUSE A PROXY CARD WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL,
UNLESS REVOKED, BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER, A GENQUEST STOCKHOLDER WHO WISHES TO EXERCISE
DISSENTERS' RIGHTS MUST EITHER REFRAIN FROM SIGNING AND RETURNING HIS, HER OR
ITS PROXY CARD OR, IF HE, SHE OR IT SIGNS AND RETURNS HIS, HER OR ITS PROXY
CARD, VOTE AGAINST OR ABSTAIN FROM VOTING ON THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER.
A GENQUEST STOCKHOLDER WHO WISHES TO PERFECT HIS, HER OR ITS RIGHTS AS A
DISSENTING STOCKHOLDER IN THE EVENT THE MERGER AGREEMENT IS ADOPTED MUST NOT
VOTE IN FAVOR OF, OR OTHERWISE CONSENT TO, THE MERGER, AND MUST, BEFORE THE
TAKING OF A VOTE ON THE MERGER, DELIVER TO GENQUEST A WRITTEN DEMAND FOR
APPRAISAL SETTING FORTH INFORMATION WHICH REASONABLY INFORMS GENQUEST OF THE
IDENTITY OF THE STOCKHOLDER (SUCH AS THE GENQUEST STOCKHOLDER'S NAME AND ADDRESS
AND THE NUMBER OF SHARES OF GENQUEST CAPITAL STOCK OWNED) AND A STATEMENT THAT
HE, SHE OR IT INTENDS TO DEMAND THE APPRAISAL OF HIS, HER OR ITS SHARES. SUCH
DEMAND MUST BE DELIVERED TO GENQUEST AT ITS PRINCIPAL EXECUTIVE OFFICES AT 1124
COLUMBIA STREET, SUITE 200, SEATTLE, WASHINGTON 98104, ATTENTION: ALAN FRAZIER,
SECRETARY. ANY FAILURE TO PROPERLY PERFECT SUCH APPRAISAL RIGHTS MAY CAUSE THE
HOLDER TO LOSE HIS, HER OR ITS DISSENTERS' RIGHTS.
CONFLICTS OF INTEREST
In considering the recommendation of the GenQuest Board with respect to the
approval by the GenQuest stockholders of the proposal to adopt the Merger
Agreement and the transactions contemplated thereby, stockholders should be
aware that certain members of GenQuest management and the GenQuest Board have
certain interests in the Merger that are in addition to the interests of
stockholders of GenQuest generally. These interests arise from, among other
things, certain indemnification arrangements and consulting
4
<PAGE> 12
agreements involving Corixa, GenQuest and directors and officers of GenQuest.
See "The Merger -- Conflicts of Interest."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the Merger will constitute a "reorganization" for
federal income tax purposes. See "The Merger -- Certain Federal Income Tax
Consequences" and "Terms of the Merger -- Conditions."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of GenQuest stockholders are currently governed by the DGCL,
GenQuest's Certificate of Incorporation and GenQuest's Bylaws. Upon consummation
of the Merger, GenQuest stockholders will become stockholders of Corixa, which
is a Delaware corporation, and their rights as Corixa stockholders will be
governed by the DGCL, Corixa's Certificate of Incorporation, and Corixa's
Bylaws. For a discussion of the various differences between the rights of
stockholders of GenQuest and stockholders of Corixa, see "Comparison of Rights
of Holders of Corixa Capital Stock and Holders of GenQuest Capital Stock."
5
<PAGE> 13
SELECTED HISTORICAL FINANCIAL INFORMATION OF CORIXA
The following selected historical financial information of Corixa should be
read in conjunction with "Corixa Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements of Corixa and related notes thereto, included elsewhere in
this Proxy Statement/Prospectus.
CORIXA CORPORATION
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS INCEPTION INCEPTION
ENDED (SEPTEMBER 8, (SEPTEMBER 8,
MARCH 31, 1994) TO YEAR ENDED DECEMBER 31, 1994) TO
---------------- MARCH 31, --------------------------- DECEMBER 31,
1998 1997 1998 1997 1996 1995 1997
------- ------ ------------- ------- ------- ------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements........ $ 2,626 $3,855 $ 22,828 $13,390 $ 4,402 $ 2,411 $ 20,202
Government grants............... 171 315 2,855 977 1,403 304 2,684
------- ------ -------- ------- ------- ------- --------
Total revenue............ 2,797 4,170 25,683 14,367 5,805 2,715 22,886
Operating expenses:
Research and development(1)..... 5,893 3,260 40,193 16,398 9,995 7,040 34,300
General and administrative...... 547 330 4,098 2,033 781 532 3,551
------- ------ -------- ------- ------- ------- --------
Total operating
expenses............... 6,440 3,590 44,291 18,431 10,776 7,572 37,851
Loss from operations.............. (3,643) 580 (18,608) (4,064) (4,971) (4,857) (14,965)
Interest income (expense), net.... 682 90 2,905 972 476 691 2,223
Other income(2)................... 124 93 904 416 348 16 780
------- ------ -------- ------- ------- ------- --------
Net income (loss)................. $(2,837) $ 763 $(14,799) $(2,676) $(4,147) $(4,150) $(11,962)
======= ====== ======== ======= ======= ======= ========
Pro forma basic and dilute net
loss per share(3)............... $ (0.24) $ 0.10 $ (0.31) $ (0.55) $ (0.58)
------- ------ ------- ------- -------
Shares used in computing pro forma
basic and diluted net loss per
share(3)........................ 11,775 7,745 8,755 7,490 7,120
======= ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------
1998 1997 1996 1995
----------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments........ $ 57,743 $ 56,317 $11,933 $10,773
Working capital........................................... 55,567 53,962 10,101 1,743
Total assets.............................................. 63,860 61,807 15,185 12,340
Long term obligations less current portion................ 10,808 6,924 1,175 816
Accumulated deficit....................................... (14,799) (11,962) (9,286) (5,126)
Total stockholders' equity................................ 49,031 51,285 11,225 10,264
</TABLE>
- ---------------
(1) Included in research and development expenses for the period from inception
(September 8, 1994) to March 31, 1998 is approximately $428,059 related to
the purchase of in-process research and development.
(2) Other income includes proceeds received for management and administrative
services, and rental income from sublet of a portion of laboratory space.
(3) See Note 1 of Notes to Corixa's Financial Statements for information
regarding the computation of pro forma net loss per share.
6
<PAGE> 14
SELECTED HISTORICAL FINANCIAL INFORMATION OF GENQUEST
The following selected historical financial information of GenQuest should
be read in conjunction with "GenQuest Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements of GenQuest and related notes thereto, included elsewhere
in this Proxy Statement/Prospectus.
GENQUEST, INC.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS INCEPTION YEAR ENDED INCEPTION
ENDED MARCH 31, (JULY 14, 1995) DECEMBER 31, (JULY 14, 1995)
---------------------- TO MARCH 31, ------------------ TO DECEMBER 31,
1998 1997 1998 1997 1996 1997
----------- ------- --------------- ------- ------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements.... $ 150 $ -- $ 175 $ 25 $ -- $ 25
Government grants........... 23 -- 56 33 -- 33
------ ------- ------- ------- ------- -------
Total revenue........ 173 -- 231 58 -- 58
Operating expenses:
Research and
development(1)............ 1,031 679 8,179 3,654 3,365 7,148
General and
administrative............ 94 142 1,866 962 526 1,772
------ ------- ------- ------- ------- -------
Total operating
expense............ 1,125 821 10,045 4,616 3,891 8,920
Loss from operations.......... (952) (821) (9,814) (4,558) (3,891) (8,862)
Interest income (expense),
net......................... 16 67 218 212 (4) 202
------ ------- ------- ------- ------- -------
Net income (loss)............. $ (936) $ (754) $(9,596) $(4,346) $(3,895) $(8,660)
------ ------- ------- ------- ------- -------
Basic and diluted net loss per
share(2).................... $(0.51) (0.41) $ (2.37) $ (2.94)
------ ------- ------- -------
Shares used in computing basic
and diluted loss per
share(2).................... 1,830 1,830 1,830 1,324
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1998 1997 1996
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,240 $3,600 $8,998
Working capital............................................. 1,769 2,804 7,631
Total assets................................................ 3,050 4,417 10,147
Long term obligations less current portion.................. 637 752 652
Accumulated deficit......................................... (9,596) (8,660) (4,314)
Total stockholders' equity.................................. 1,695 2,631 8,128
</TABLE>
- ---------------
(1) Included in research and development expenses for the year ended December
31, 1996 is approximately $2.2 million related to the purchase of in-process
research and development.
(2) See Note 1 of Notes to GenQuest's Financial Statements for information
regarding the computation of net loss per share.
7
<PAGE> 15
SUMMARY SELECTED UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The following selected unaudited pro forma financial information of Corixa
and GenQuest has been derived from the pro forma consolidated financial
statements, which give effect to the Merger as a purchase, and should be read in
conjunction with such pro forma statements and the notes thereto, which are
included in this Proxy Statement/Prospectus. See "Unaudited Pro Forma
Consolidated Financial Statements." For pro forma purposes, (i) Corixa's
unaudited balance sheet as of March 31, 1998 has been combined with GenQuest's
balance sheet as of March 31, 1998, giving effect to the Merger as if it had
occurred on March 31, 1998; (ii) Corixa's unaudited statement of operations for
the three months ended March 31, 1998 has been combined with GenQuest's
unaudited statement of operations for the three months ended March 31, 1998,
giving effect to the Merger as if it occurred on January 1, 1998; and (iii)
Corixa's audited statement of operations for the fiscal year ended December 31,
1997 has been combined with GenQuest's audited statement of operations for the
fiscal year ended December 31, 1997, giving effect to the Merger as if it had
occurred on January 1, 1997. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated on January 1, 1998 or January 1, 1997, respectively, nor is it
necessarily indicative of future operating results or financial position.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------- --------------------------------------------
PRO FORMA PRO FORMA
CORIXA GENQUEST ADJUSTMENTS PRO FORMA CORIXA GENQUEST ADJUSTMENTS PRO FORMA
------- -------- ----------- --------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements.......... $ 2,626 $ 150 $(524) $ 2,252 $13,390 $ 25 $(1,948) $11,467
Government grants................. 171 23 -- 194 977 33 -- 1,010
------- ------- ----- ------- ------- ------- ------- -------
Total revenue............... 2,797 173 (524) 2,446 14,367 58 (1,948) 12,477
Operating expenses:
Research and development.......... 5,893 1,031 (524) 6,400 16,398 3,654 (1,948) 18,104
General and administrative........ 547 94 (102) 539 2,033 962 (325) 2,670
------- ------- ----- ------- ------- ------- ------- -------
Total operating expenses.... 6,440 1,125 (626) 6,939 18,431 4,616 (2,273) 20,774
Loss from operations................ (3,643) (952) 102 (4,493) (4,064) (4,558) 325 (8,297)
Interest income (expense), net...... 682 16 -- 698 972 212 -- 1,184
Other income(1)..................... 124 -- (102) 22 416 -- (325) 91
------- ------- ----- ------- ------- ------- ------- -------
Net income (loss)................... $(2,837) $ (936) $ -- $(3,773) $(2,676) $(4,346) $ 0 $(7,022)
======= ======= ===== ======= ======= ======= ======= =======
Pro forma basic and diluted net loss
per share(2)...................... $ (0.24) $ (0.29) $ (0.31) $ (0.72)
------- ------- ------- -------
Shares used in computing pro forma
basic and diluted loss per
share(2).......................... 11,775 12,839 8,755 9,818
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------------------
PRO FORMA
CORIXA GENQUEST ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments.......... $ 57,743 $ 2,240 $(4,503) $ 55,480
Working capital............................................. 55,567 1,769 (5,703) (51,633)
Total assets................................................ 63,860 3,050 (4,576) 62,334
Long term obligations less current portion.................. 10,808 637 (570) 10,875
Accumulated deficit......................................... (14,799) (9,596) (1,039) (25,434)
Total stockholders' equity.................................. 49,031 1,695 (5,133) 45,596
</TABLE>
- ---------------
(1) Other income includes proceeds received for management and administrative
services, and rental income from sublet of a portion of laboratory space.
(2) See Note 1 of Notes to Corixa's Financial Statements for information
regarding the computation of pro forma net loss per share.
8
<PAGE> 16
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the Merger. The unaudited pro forma consolidated balance sheet gives
effect to the Merger as if the Merger had occurred on March 31, 1998. The
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1997 give effect to the Merger as if the Merger had occurred on
January 1, 1997. The unaudited pro forma consolidated statements of operations
for the three months ended March 31, 1998 give effect to the Merger as if the
Merger had occurred on January 1, 1998. The Unaudited Pro Forma Consolidated
Financial Statements do not purport to represent what Corixa's financial
position or results of operations would actually have been if the Merger had in
fact occurred on such dates or to project Corixa's financial position or results
of operations as of any future date or for any future period.
The unaudited pro forma consolidated financial statements are based on the
historical financial statements of Corixa and GenQuest, giving effect to the
Merger applying the purchase method of accounting and the assumptions and
adjustments as discussed in the accompanying notes to the unaudited pro forma
consolidated financial statements. These unaudited pro forma consolidated
financial statements have been prepared by Corixa's management based upon the
audited financial statements of Corixa for the year ended December 31, 1997; the
unaudited financial statements of Corixa as of March 31, 1998 and for the three
months then ended; the audited financial statements of GenQuest for the year
ended December 31, 1997; and the unaudited financial statements of GenQuest as
of March 31, 1998 and for the three months then ended. The unaudited pro forma
adjustments have been applied to the financial information derived from the
financial statements of Corixa and GenQuest to account for the Merger as a
purchase; accordingly, assets acquired and liabilities assumed are reflected at
their estimated fair values which are subject to further refinement, including
appraisals and other analysis.
The unaudited pro forma consolidated financial information has been
prepared based on the assumptions described in the notes thereto and includes
assumptions relating to the allocation of the consideration paid for the assets
and liabilities of GenQuest based on preliminary estimates of their fair value.
The actual allocation of such consideration may differ from that reflected in
the unaudited pro forma consolidated financial information after valuations and
other procedures to be performed after the closing of the Merger. Corixa does
not expect that the final allocation of the aggregate purchase price for the
Merger will differ materially from the preliminary allocations. In the opinion
of Corixa, all adjustments necessary to present fairly such unaudited pro forma
consolidated financial information have been made based on the proposed terms
and structure of the Merger.
As a result of the Merger, Corixa expects to record a nonrecurring charge
to operations for acquired in-process technology estimated at $10.6 million. The
amount assigned to research and development was based on preliminary valuation
of tangible and intangible assets. The charge for acquired in-process technology
has been reflected in the unaudited pro forma consolidated balance sheet, but
excluded from the unaudited pro forma consolidated statement of operations,
because the charge is nonrecurring.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had been consummated on January
1, 1998 or January 1, 1997, respectively, nor is it necessarily indicative of
future operating results or financial position.
These unaudited pro forma consolidated financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements and the related notes thereto of Corixa and
GenQuest, and other financial information pertaining to Corixa and GenQuest,
including "Corixa Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "GenQuest Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Proxy
Statement/Prospectus.
9
<PAGE> 17
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
CORIXA GENQUEST ADJUSTMENTS PRO FORMA
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............. $ 8,281,670 $2,240,256 $(4,503,371)(v) $ 6,018,555
Securities
available-for-sale...... 49,461,555 -- 49,461,555
Accounts receivable........ 570,952 25,899 596,851
Other current assets....... 1,274,298 220,485 (73,000)(iii) 1,421,783
------------ ---------- ----------- -----------
Total current
assets........... 59,588,475 2,486,640 (4,576,371) 57,498,744
Property and equipment,
net........................ 4,089,203 557,450 4,646,653
Deferred charges and
deposits................... 182,633 6,047 188,680
------------ ---------- ----------- -----------
Total assets....... $ 63,860,311 $3,050,137 $(4,576,371) $62,334,077
============ ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities..... $ 1,997,101 $ 175,687 $ 1,127,000 (ii)(iii) $ 3,299,788
Deferred revenue........... 909,165 100,000 1,009,165
Current portion of
obligations and
commitments............. 1,114,997 442,044 1,557,041
------------ ---------- ----------- -----------
Total current
liabilities...... 4,021,263 717,731 1,127,000 5,865,994
Long-term obligations and
commitments, less current
portion.................... 10,808,250 637,173 (570,119)(iii) 10,875,304
Stockholders' equity:
Preferred stock............ -- 25,122 (25,122)(iv) --
Common stock............... 11,783 1,830 (766)(iv)(vi) 12,847
Additional paid-in
capital................. 66,523,351 11,263,991 (4,637,795)(i)(ii)(iv)(vi) 73,149,547
Receivable for warrants.... (570,119) -- 570,119 (iii) --
Deferred compensation...... (2,092,507) -- (2,092,507)
Accumulated comprehensive
loss.................... (42,844) -- (42,844)
Deficit accumulated during
development stage....... (14,798,866) (9,595,710) (1,039,688)(i)(iv) (25,434,264)
------------ ---------- ----------- -----------
Total stockholders'
equity........... 49,030,798 1,695,233 (5,133,252) 45,592,779
------------ ---------- ----------- -----------
Total liabilities
and stockholders'
equity........... $ 63,860,311 $3,050,137 $(4,576,371) $62,334,076
============ ========== =========== ===========
</TABLE>
10
<PAGE> 18
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
CORIXA GENQUEST ADJUSTMENTS PRO FORMA
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Collaborative agreements............... $ 2,625,897 $ 150,000 $(523,554)(iii) $ 2,252,343
Government grants...................... 170,583 22,813 -- 193,396
----------- ----------- --------- -----------
Total revenue....................... 2,796,480 172,813 (523,554) 2,445,739
Operating expenses:
Research and development............... (5,892,749) (1,031,594) 523,554(iii) (6,400,789)
General and administrative............. (546,929) (93,532) 102,000(iii) (538,461)
----------- ----------- --------- -----------
Total operating expenses............ (6,439,678) (1,125,126) 625,554 (6,939,250)
----------- ----------- --------- -----------
Loss from operations..................... (3,643,198) (952,313) 102,000 (4,493,511)
Interest income.......................... 828,495 33,217 -- 861,712
Interest expense......................... (146,820) (16,554) -- (163,374)
Other income............................. 124,500 -- (102,000)(iii) 22,500
----------- ----------- --------- -----------
Net loss................................. $(2,837,023) $ (935,650) $ -- $(3,772,673)
=========== =========== ========= ===========
Basic and diluted net loss per share..... $ (0.24)
===========
Shares used in computation of basic and
diluted net loss per share............. 11,775,380
===========
Pro forma basic and diluted net loss per
share.................................. $ (0.24) $ (0.29)
=========== ===========
Shares used in computation of pro forma
basic and diluted net loss per share... 11,775,380 12,839,075(3)
=========== ===========
</TABLE>
11
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
CORIXA GENQUEST ADJUSTMENTS PRO FORMA
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Collaborative agreements......... $ 13,389,953 $ 25,000 $(1,948,238)(iii) $11,466,715
Government grants................ 976,739 33,328 -- 1,010,067
------------ ----------- ----------- -----------
Total revenue............ 14,366,692 58,328 (1,948,238) 12,476,782
Operating expenses:
Research and development......... (16,398,243) (3,653,876) 1,948,238(iii) (18,103,881)
General and administrative....... (2,032,943) (962,357) 325,000(iii) (2,670,300)
------------ ----------- ----------- -----------
Total operating
expenses............... (18,431,186) (4,616,233) 2,273,238 (20,774,181)
------------ ----------- ----------- -----------
Loss from operations............... (4,064,494) (4,557,905) 325,000 (8,297,399)
Interest income.................... 1,299,675 235,734 -- 1,535,409
Interest expense................... (326,814) (23,735) -- (350,549)
Other income....................... 415,776 -- (325,000)(iii) 90,776
------------ ----------- ----------- -----------
Net loss........................... $ (2,675,857) $(4,345,906) $ -- $(7,021,763)
============ =========== =========== ===========
Basic and diluted net loss per
share............................ $ (0.55) $ (2.37)
============ ===========
Shares used in computation of basic
and diluted net loss per share... 4,891,342
============
Pro forma basic and diluted net
loss per share................... $ (0.31) $ (0.72)
============ ===========
Shares used in computation of pro
forma basic and diluted net loss
per share........................ 8,754,738 9,818,433(3)
============ ===========
</TABLE>
12
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma information presented is not necessarily indicative
of future consolidated results of operations of Corixa or the consolidated
results of operations which would have resulted had the Merger taken place
during the periods presented. The Unaudited Pro Forma Statements reflect the
effects of the Merger, assuming the related events occurred as of March 31, 1998
for the purposes of the unaudited pro forma consolidated balance sheet and as of
January 1, 1998 and January 1, 1997 for the purposes of the unaudited pro forma
consolidated statement of operations.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(a) The unaudited pro forma consolidated financial statements reflect the
conversion of all the outstanding shares of GenQuest capital stock into
1,063,695 shares of Corixa Common Stock pursuant to the Merger (assuming no
options to purchase GenQuest Common Stock are exercised after August 4, 1998).
This calculation is based on GenQuest's capitalization at August 3, 1998 and is
based on the average last reported closing price per share on Nasdaq of Corixa
Common Stock for the 60-day trading period beginning May 8, 1998 and ending
August 3, 1998 equals $6.8396. Certain options to purchase approximately 190,125
shares of GenQuest Common Stock will be assumed by Corixa pursuant to the Merger
and converted into options to purchase 12,325 shares of Corixa Common Stock
which have an estimated value of approximately $77,000. This calculation assumes
that no options to purchase GenQuest Common Stock will be exercised after August
4, 1998.
(b) The total consideration of $13.1 million consists of Corixa Common
Stock and Options valued at $7.4 million, cash of $4.5 million and approximately
$1.2 million of transaction costs. Based upon a preliminary valuation of
tangible and intangible assets, the purchase price will be allocated to assets
acquired and liabilities assumed, netting to $1.7 million and acquired
in-process research and development of $10.6 million. In process research and
development charges have not been reflected in the pro forma consolidated
financial statement of operations for the three months ended March 31, 1998 and
the year ended December 31, 1997, as they are considered a non-recurring charge.
(c) The unaudited pro forma consolidated balance sheet includes the
adjustments necessary to give effect to the Merger as if it had occurred on
March 31, 1998, and to reflect the allocation of the proposed acquisition to the
fair value of tangible and intangible assets acquired, including the charge to
operations for in-process technology acquired and the elimination of GenQuest's
equity accounts. Also included are the transaction costs, inclusive of payments
to financial advisors, independent accountants, attorneys and other related
costs, including severance costs, and costs associated with the elimination of
redundant facilities and assets. Approximate adjustments included in the
unaudited pro forma consolidated balance sheet are summarized as follows:
(i) Write-off of in-process technology acquired by Corixa,
$10,635,000;
(ii) Transaction and other costs associated with the Merger of
$1,200,000;
(iii) Elimination of inter-company accounts;
(iv) Elimination of GenQuest equity accounts, $1,695,000;
(v) Cash payment of $4,500,000;
(vi) Issuance of Corixa Common Stock, $0.001 par value, as discussed
above. The value of Corixa Common Stock is equal to the product
of 1,063,695 shares multiplied by approximately $6.8396 per
share.
13
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1997 and the three months ended March 31, 1998
are based upon the historical weighted average common shares outstanding
adjusted to reflect the issuance, as of January 1, 1997 and January 1, 1998 of
1,063,695 shares of Corixa Common Stock as described in Note 2 to these Notes to
Unaudited Pro Forma Consolidated Financial Statements. Options to purchase
190,125 shares of GenQuest Common Stock will be assumed by Corixa pursuant to
the Merger and converted into options to purchase 12,325 shares of Corixa Common
Stock. The Corixa Common Stock issuable upon exercise of the stock options to be
assumed in the Merger have been excluded as the effect would be anti-dilutive.
14
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Corixa
and GenQuest and combined per share data on an unaudited pro forma basis after
giving effect to the Merger as a purchase, based on an average last reported
closing price on Nasdaq of Corixa Common Stock for the 30 trading days
immediately preceding and the 30 trading days including and immediately
following the execution of the Merger Agreement equal to $6.8396 and 1,063,695
shares of Corixa Common Stock to be issued in exchange for outstanding shares of
GenQuest capital stock in the Merger (assuming no options to purchase GenQuest
Common Stock are exercised after August 4, 1998). The historical per share data
of Corixa and GenQuest presented below is presented as of and for the three
months ended March 31, 1998 and for the fiscal year ended December 31, 1997,
respectively. The pro forma consolidated per share data presented below combines
Corixa's unaudited pro forma per share data as of and for the three months ended
March 31, 1998 and the audited pro forma per share data for the fiscal year
ended December 31, 1997, with GenQuest's unaudited per share data as of and for
the three months ended March 31, 1998 and audited per share data for the fiscal
year ended December 31, 1997, respectively. This data should be read in
conjunction with the selected historical financial information, the unaudited
pro forma consolidated financial statements and the separate historical
financial statements of Corixa and GenQuest and the notes thereto incorporated
or included elsewhere in this Proxy Statement/Prospectus. The unaudited pro
forma consolidated financial data is not necessarily indicative of the operating
results or financial position that would have been achieved had the Merger been
consummated at the beginning of the periods presented and should not be
construed as representative of future operating results of the combined company.
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS AS OF OR FOR THE
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Historical -- Corixa
Basic and diluted net loss per share............ $(0.24) $(0.55)
Pro forma basic and diluted net loss per
share........................................ (0.24) (0.31)
Book value per share(1)......................... 4.16 4.36
Historical -- GenQuest:
Basic and diluted net loss per share............ (0.51) (2.37)
Book value per share(1)......................... 0.93 1.44
Pro Forma Consolidated:
Basic and diluted net loss per share............ (0.29) (0.72)
Book value per share(1)......................... 3.55 --
Equivalent Pro Forma Consolidated -- per GenQuest
share:
Basic and diluted net loss per share(2)......... (0.01) (0.03)
Book value per share(1)......................... 0.17 --
</TABLE>
- ---------------
(1) The historical book value per share of capital stock is computed by dividing
total stockholders' equity by the number of shares of capital stock
outstanding at the end of the period. The pro forma consolidated book value
per share is computed by dividing pro forma stockholders' equity by the pro
forma number of shares of capital stock as of each of the periods presented.
(2) Represents the pro forma combined amounts multiplied by an estimated
exchange ratio of .0481 (calculated using a blended average of the
applicable Exchange Ratios) of a share of Corixa Common Stock for each share
of GenQuest capital stock. Such estimated exchange ratio is based on an
average last reported closing price per share on Nasdaq of Corixa Common
Stock for the 30 trading days immediately preceding and the 30 trading days
including and immediately following the execution of the Merger Agreement
equal to $6.8396.
15
<PAGE> 23
THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Special Meeting will be held at The Boardroom in the Royalton Hotel, 44
West 44th Street, New York, New York, on Tuesday, September 1, 1998 at 2:00
p.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of shares of GenQuest capital stock will
consider and vote upon a proposal to approve the Merger Agreement. As a result
of the Merger, GenQuest will merge with and into Chinook and Chinook will be the
surviving corporation. See "The Merger" and "Terms of the Merger."
THE GENQUEST BOARD HAS APPROVED THE TERMS OF MERGER AGREEMENT AND HAS
DETERMINED BY UNANIMOUS VOTE OF THE INDEPENDENT DIRECTORS THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTEREST OF, GENQUEST AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT HOLDERS OF SHARES OF GENQUEST CAPITAL STOCK VOTE "FOR" ADOPTION
AND APPROVAL OF THE MERGER AGREEMENT. STEVEN GILLIS AND MARK MCDADE, DIRECTORS
OF BOTH GENQUEST AND CORIXA, RECUSED THEMSELVES FROM THE BOARD VOTE FOR APPROVAL
OF THE MERGER.
RECORD DATE; VOTING RIGHTS; PROXIES
Only holders of GenQuest capital stock at the close of business on August
3, 1998, the GenQuest Record Date, are entitled to notice of and to vote at the
Special Meeting.
As of the GenQuest Record Date, there were 26,321,884 shares of GenQuest
capital stock issued and outstanding, each of which entitled the holder thereof
to one vote.
All shares of GenQuest capital stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF GENQUEST CAPITAL STOCK REPRESENTED BY SUCH PROXIES
WILL BE VOTED "FOR" ADOPTION AND APPROVAL OF THE MERGER AGREEMENT. GenQuest does
not know of any matters other than as described in the Notice of Special Meeting
that are to come before the Special Meeting. If any other matter or matters are
properly presented for action at the Special Meeting, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to vote on
such matters in accordance with their best judgment. A stockholder who has given
a proxy may revoke it at any time prior to its exercise by giving written notice
thereof to the Secretary of GenQuest, by signing and returning a later dated
proxy, or by voting in person at the Special Meeting. However, mere attendance
at the Special Meeting will not in and of itself have the effect of revoking the
proxy. Votes cast by proxy or in person at the Special Meeting will be tabulated
by the inspector of election appointed for the meeting.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of all the issued and outstanding shares of GenQuest capital stock
entitled to vote is necessary to constitute a quorum at the Special Meeting. For
purposes of determining whether a quorum is present, the inspector of election
will include shares the holders of which abstain from voting on any particular
matter ("abstentions").
REQUIRED VOTE; VOTING AGREEMENT
Corixa has the right to terminate the Merger Agreement if, among other
reasons, the holders of at least 95% of the outstanding shares of GenQuest
capital stock have not voted in favor of adoption and approval of the Merger
Agreement by the later of (i) August 31, 1998 and (ii) the date that is 45 days
after the Form S-4 is declared effective by the Commission. Adoption and
approval of the Merger Agreement requires, as a condition and pursuant to its
terms, the affirmative vote of the holders of at least (i) a majority of the
outstanding shares of GenQuest capital stock entitled to vote thereon at the
Special Meeting and (ii) a majority of the outstanding shares of GenQuest Series
A Preferred Stock and Series B Preferred Stock entitled to vote thereon at the
Special Meeting, voting together as a single class.
16
<PAGE> 24
For purposes of determining whether the Merger Agreement has been adopted
and approved, the inspector of election will include abstentions as a portion of
the number of shares deemed to have voted on such matter at the Special Meeting.
Accordingly, abstentions will have the effect of a "NO" vote on the proposal to
adopt and approve the Merger Agreement.
As of August 4, 1998, excluding shares owned by Corixa, directors and
executive officers of GenQuest and their affiliates were beneficial owners of an
aggregate of 18,150,000 shares of GenQuest capital stock (exclusive of any
shares issuable upon the exercise of stock options remaining unexercised as of
such date), or approximately 69% of the 26,321,884 shares of GenQuest capital
stock that were issued and outstanding as of such date. In addition, Corixa owns
an aggregate of 4,412,613 shares of GenQuest capital stock, or approximately 17%
of the 26,321,884 shares of GenQuest capital stock that were issued and
outstanding as of such date. Steven Gillis and Mark McDade are directors of both
Corixa and GenQuest.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF GENQUEST. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
17
<PAGE> 25
THE MERGER
DESCRIPTION
Pursuant to the Merger Agreement (i) GenQuest will merge with and into
Chinook, (ii) each outstanding share of GenQuest capital stock, other than
shares as to which appraisal rights may have been properly exercised and shares
owned by GenQuest or Corixa, will be converted into cash and the right to
receive a fraction of one share of Corixa Common Stock, based upon the series
and class of GenQuest capital stock being converted, at the applicable Exchange
Ratio, (iii) each outstanding warrant to purchase GenQuest capital stock will be
terminated unless exercised, and (iv) each outstanding option to purchase
GenQuest Common Stock will be deemed to constitute the right to acquire, on the
same terms and conditions, a number of shares of Corixa Common Stock at a price
based on an option exchange ratio that will be determined in the same manner as
the Exchange Ratios. Upon consummation of the Merger, the separate corporate
existence of GenQuest will cease, and Chinook will survive as a wholly-owned
subsidiary of Corixa. See "Terms of the Merger -- Conversion of Securities" and
"Terms of the Merger -- Stock Options."
JOINT REASONS FOR THE MERGER
The decisions of the Boards of Directors of both Corixa and GenQuest to
consummate the proposed Merger were based on potential joint benefits that
Corixa and GenQuest believe will contribute to the success of the combined
company, including the following:
- The Merger will result in unified control and decision-making authority
over all transfers of intellectual property, materials and information,
allowing the combined company to maximize the value thereof.
Additionally, various management, administrative, financial, accounting
and legal activities that are currently handled separately will be
consolidated. The Merger will also result in the integration of two
geographically separated facilities, thereby allowing a uniform
implementation of research management policies and quality control
mechanisms as well as fostering a cohesive culture among scientific
personnel. Both companies believe that the cost savings resulting from
the Merger will help increase stockholder value in the combined company.
- The Merger will reduce the complexity for the combined company's
management that is inherent in the coordination and administration of the
current collaborative relationship between Corixa and GenQuest. The
employee management of the combined company will be able to focus on a
single, unified technology portfolio and the strategic direction of one
entity rather than two.
- The pharmaceutical industry is undergoing significant change and
increased competition. In addition, the field of genomics research and
development is experiencing considerable consolidation. Examples of such
transactions include the acquisitions of ChemGenics Pharmaceuticals, Inc.
by Millennium Pharmaceuticals, Inc., Sequana Therapeutics, Inc. by Arris
Pharmaceutical Corporation, PharmaGenics Inc. by Genzyme Molecular
Oncology, and Mercator Genetics, Inc. by Progenitor, Inc. These mergers
have provided the surviving companies with additional resources,
technologies and opportunities for commercial development. The Merger
will provide synergistic benefits for Corixa and GenQuest as well,
including the ability to cross-sell technologies and combine product
offerings, and will enable the combined company to more effectively
partner its technology portfolio with third parties.
- It is becoming increasingly necessary for a company to have the critical
mass that enables it to effectively exploit its technology and attract
corporate partners, particularly larger pharmaceutical companies. The
Merger will allow the combined company to offer a broader range of
technologies to corporate partners and therefore compete more effectively
in the industry.
18
<PAGE> 26
CORIXA'S REASONS FOR THE MERGER
The Corixa Board has approved the Merger and the Merger Agreement. Steven
Gillis and Mark McDade, directors of both Corixa and GenQuest, recused
themselves from the board vote for approval of the Merger. In addition to the
anticipated joint benefits described above, Corixa believes that there are
additional reasons the Merger will be beneficial to Corixa and its stockholders:
- Corixa's vaccine development is currently centered on a commitment to
immunotherapy for the treatment of cancers and certain infectious
diseases. In addition to enhancing Corixa's antigen discovery
capabilities in connection with its immunotherapy focus, Corixa's
management believes that the Merger will provide Corixa with the ability
to develop high-throughput drug screens for corporate partners for whom
small molecule therapy approaches are important.
- Disease management has become increasingly important from the perspective
of many biotechnology and pharmaceutical companies. Corixa believes the
Merger will provide the combined company with additional diagnostic
development capabilities that may result in complementary products for
vaccine treatments, particularly as they relate to the monitoring and
management of vaccine therapy.
- The Merger will allow Corixa to reclaim the exclusive rights it licensed
to GenQuest pursuant to the collaborative relationship between the two
parties. Corixa believes there is significant value in the technology it
licensed to GenQuest, particularly when combined with the intellectual
property otherwise controlled by GenQuest.
- A pipeline of novel and important cancer gene targets is being discovered
and developed at GenQuest. The Merger provides Corixa with the
opportunity to add its technologies and resources to these discoveries
and thereby increase the likelihood of successful commercialization of
products.
- After the Merger, Corixa believes it will be able to benefit from
additional corporate partner-generated research revenues as a result of
the expanded technology platform. Corixa believes such revenues will
increase in coming years as a result of Corixa's ability to license
GenQuest's technology bundled with its own, particularly in the field of
diagnostics.
RECOMMENDATION OF GENQUEST BOARD; GENQUEST'S REASONS FOR THE MERGER
THE GENQUEST BOARD HAS APPROVED THE MERGER AND THE MERGER AGREEMENT. THE
GENQUEST BOARD BELIEVES THAT THE TERMS OF THE MERGER AND THE MERGER AGREEMENT
ARE FAIR TO, AND IN THE BEST INTEREST OF, GENQUEST AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT STOCKHOLDERS OF GENQUEST VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. STEVEN GILLIS AND MARK MCDADE, DIRECTORS OF BOTH GENQUEST AND
CORIXA, RECUSED THEMSELVES FROM THE BOARD VOTE FOR APPROVAL OF THE MERGER.
In addition to the anticipated joint benefits described above, GenQuest
believes that there are additional reasons that the Merger will be beneficial to
GenQuest and its stockholders:
- GenQuest believes that the genomics market is undergoing a fundamental
change. The focus of many functional genomics companies is shifting away
from solely the discovery of genes to respond to a demand for therapeutic
compounds and validated targets. The Merger will provide the combined
company increased access to in vivo validated targets, and potential
access to such therapeutic compounds. Additionally, significant capital
expenditures will be required to obtain the equipment and other resources
necessary to pursue GenQuest's current genomics business model, and
GenQuest believes such capital would be more effectively obtained by the
combined company as a result of the Merger.
- As a result of the current collaborative relationship between Corixa and
GenQuest, Corixa has a greater level of familiarity with GenQuest's
technology than any other company. Consequently, GenQuest believes the
technology transfer issues associated with any merger between two
separate entities will be minimized in the case of the Merger.
19
<PAGE> 27
- The Merger is likely to strengthen the perception of the value and
utility of GenQuest genomic targets in the eyes of Corixa's current and
any future corporate partners and licensors.
- The Merger will be a means by which GenQuest stockholders will be able to
obtain liquidity for their equity interests. The current financing
environment for private biotechnology companies is very uncertain. Corixa
is a publicly-traded company with a proven ability to obtain financing
and establish corporate partnerships for the development of its products.
- The Merger was considered in view of available alternatives, and the
GenQuest Board concluded that no other company could offer the benefits
available from an acquisition by Corixa. GenQuest wanted to find the
optimal arrangement under which it could secure financial resources in
the required timeframe and under which its business and technology could
be most effectively implemented and advanced. The GenQuest Board has
worked with Corixa and its employee management as a result of the
collaborative relationship between the two companies over an extended
period of time. Based on such interaction, the GenQuest Board believes
that Corixa understands GenQuest's technology in depth and is best suited
to effectively advance the development of such technology.
In evaluating the proposed Merger, the GenQuest Board considered and
discussed the details of the Merger Agreement, a description of Corixa's
business and the recent trading activity of Corixa's stock, the impact of the
Merger on current employees of GenQuest, the requirements for a tax-free
transaction and the advantages that the Merger would present to GenQuest set
forth above. The GenQuest Board also considered the feasibility and prospects of
alternative means to provide additional capital for GenQuest and/or liquidity
for GenQuest stockholders, including other potential business combinations and
private financings of GenQuest. As part of the evaluation process, the GenQuest
Board reviewed information about the business, operations and future prospects
of both GenQuest and Corixa.
After the recusal of Steven Gillis and Mark McDade, the GenQuest Board
further evaluated the proposed Merger. After such further evaluation, the
GenQuest Board, without participation of Steven Gillis and Mark McDade, approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger, and recommended that the stockholders of GenQuest approve and adopt the
Merger Agreement and approve the Merger. In view of the wide variety of factors
considered, the GenQuest Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.
MATERIAL CONTACTS
In February 1996, Corixa and GenQuest entered into a license and research
collaboration agreement under which Corixa and GenQuest each licensed to the
other rights in certain cancer technology fields. Corixa granted GenQuest an
exclusive worldwide license to certain of Corixa's existing non-vaccine
technology and technology to be 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 to be developed under the joint research program in
the field of cancer vaccines and ex vivo cellular therapy of cancer. Both Corixa
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 Corixa. In addition, Corixa has agreed to
assume remaining royalty obligations of GenQuest to Columbia University on
products incorporating the licensed technology. Under the license agreement,
there are limitations on Corixa's ability to enter into certain relationships
outside its core business of vaccine technologies. In December 1996, Corixa and
GenQuest entered into a series of collaborative agreements amending the original
license and research collaboration agreement, and GenQuest raised approximately
$9.0 million in a private venture capital financing. Under the amended license
and collaboration agreement, GenQuest agreed to provide an aggregate of $5.7
million in research funding to Corixa over a three-year period to support
Corixa's program to discover cancer genes, related antigens and cancer-related
gene products.
In connection with the amended license and collaboration agreement with
GenQuest entered into in December 1996, Corixa entered into a management
services agreement under which Corixa provides financial, legal, administrative,
management and related services to GenQuest. In exchange for such services,
GenQuest
20
<PAGE> 28
pays Corixa a nominal management fee and reimburses Corixa for direct expenses
associated with providing such services. Corixa's Chief Executive Officer, Chief
Scientific Officer, Chief Operating Officer and Chief Financial Officer are
required to provide specific services to GenQuest under the management services
agreement, and other members of Corixa's employee 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 Corixa's right to
purchase all of the outstanding shares of GenQuest's capital stock pursuant to a
call option agreement, (ii) 90 days following the date Corixa 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 and
collaboration agreement. See "-- Conflicts of Interests" and "Certain
Relationships and Related Transactions of Corixa."
Additionally, Corixa, GenQuest and the stockholders of GenQuest have
entered into a call option agreement (the "Call Option Agreement") under which
Corixa has the right to purchase all of the outstanding shares of GenQuest's
capital stock in exchange for shares of Corixa'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 Corixa's initial public
offering during which the average closing sale price of a share of Corixa 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 Corixa 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 and collaboration
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. If Corixa were to exercise its right under the Call Option
Agreement, assuming a fair market value of Corixa Common Stock of $6.8396 per
share, Corixa would be required to pay a higher purchase price for the shares of
GenQuest than will be paid in the Merger. However, the Call Option Agreement
does not obligate Corixa to purchase any shares of GenQuest, nor does it
preclude Corixa from purchasing shares of GenQuest or the assets of GenQuest at
a price different from that set forth in the Call Option Agreement. Corixa is
not exercising its rights under the Call Option Agreement in connection with the
Merger.
As a result of the amended license and collaboration agreement and the
management services agreement, Corixa and GenQuest, while under the independent
direction of their respective boards of directors, have been managed by
essentially the same employee management team, and there has been constant
contact between the employees managing Corixa and the GenQuest Board with
respect to the valuation of GenQuest's technology. Additionally, the possibility
that Corixa may acquire GenQuest has existed for some time, as evidenced by the
Call Option Agreement. Given developments in GenQuest's technology, the
existence of the Call Option Agreement and the belief of the Boards of Directors
of both Corixa and GenQuest that there are synergies that would result from
combining the two companies, there have been informal discussions regarding an
acquisition of GenQuest by Corixa since late 1997.
At GenQuest's November 4, 1997 Board of Directors meeting, the GenQuest
Board discussed GenQuest's financial status and the likelihood that GenQuest
would face serious cash flow constraints by the end of the 1998. The GenQuest
Board then discussed several financing alternatives and the possibility of being
acquired.
Around this same time, Alan Frazier, Richard Schneider and Russell Hirsch,
each of whom is a member of the GenQuest Board, initiated discussions with
Corixa, as representatives of the majority of holders of shares of GenQuest
Series B Preferred Stock, concerning the possibility of Corixa acquiring
GenQuest. Throughout the negotiations of the Merger and the Merger Agreement,
Mr. Frazier, Mr. Schneider and Dr. Hirsch have participated in such negotiations
both as representatives of the holders of GenQuest Series B Preferred Stock and
as members of the GenQuest Board.
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At GenQuest's February 4, 1998 Board meeting, Mr. Frazier requested on
behalf of the GenQuest Series B Preferred stockholders and as Chairman of the
GenQuest Board that Steven Gillis convey GenQuest's interest in being acquired
by Corixa to the Corixa Board.
During February 1998, there was a series of discussions between Mr.
Frazier, as Chairman of the GenQuest Board, and members of Corixa senior
employee management regarding possible terms and conditions of such an
acquisition. On February 25, 1998, Dr. Gillis reported GenQuest's request to the
Corixa Board. The Corixa Board discussed possible valuation and terms and
conditions of such an acquisition, and authorized Dr. Gillis to continue
discussions with GenQuest regarding a possible acquisition.
During March and the beginning of April 1998, Mr. Frazier, as Chairman of
the GenQuest Board, had further discussions with Corixa senior employee
management regarding terms and conditions of such an acquisition.
On April 13, 1998, Mr. Frazier presented proposed terms and conditions for
the acquisition to the GenQuest Board. The GenQuest Board considered the
proposed terms and conditions, including valuation and transaction structure.
The GenQuest Board, with the recusal of Dr. Gillis and Mark McDade, approved the
terms and conditions as presented and authorized Mr. Frazier to proceed with
negotiations on a definitive agreement.
During the period from April 13 - June 22, 1998, the counsels for the
GenQuest stockholders and counsel for Corixa assisted in negotiating the form
and terms of a proposed transaction and discussed various legal issues,
including indemnification, payment of a $7,000,000 cancellation or break-up fee,
representations and warranties, conditions to closing and covenants. In
telephonic meetings during this period, Mr. Frazier, as Chairman of the GenQuest
Board, certain members of Corixa's senior employee management, the counsels for
the GenQuest stockholders and counsel for Corixa negotiated the terms and
conditions of a definitive agreement.
On May 14, 1998, Mr. Frazier presented the Merger Agreement to all of the
members of the GenQuest Board. The GenQuest Board discussed the proposed
agreement at length. With the recusal of Dr. Gillis and Mr. McDade, the
independent directors of the GenQuest Board unanimously approved the Merger
Agreement substantially as presented.
On May 19, 1998, Dr. Gillis presented the proposed Merger Agreement to the
Corixa Board. The Corixa Board discussed the proposed Merger and Merger
Agreement at length. The Corixa Board, with the recusal of Dr. Gillis and Mr.
McDade, approved the Merger Agreement substantially as presented.
On May 31, 1998, Corixa and Dr. Paul Fisher, a Director of GenQuest,
entered into a consulting agreement. See "-- Conflicts of Interest."
At a telephonic meeting of the GenQuest Board on June 17, 1998, Dr. Gillis
presented proposed terms regarding integration of the operations of Corixa and
GenQuest in light of the Merger, including the payment of certain severance
benefits to GenQuest employees. The GenQuest Board considered the proposed terms
and, with the recusal of Dr. Gillis and Mr. McDade, the independent directors of
the GenQuest Board unanimously approved such terms.
On June 22, 1998, the Merger Agreement was executed by Corixa, GenQuest,
Chinook and certain stockholders of GenQuest.
On June 23, 1998, Dr. Gillis met with the employees of GenQuest to inform
them that the Merger Agreement had been executed, that their employment with
GenQuest will be terminated in connection with the integration of the operations
of Corixa and GenQuest and that certain severance benefits will be provided to
them. See "-- Conflicts of Interest."
On July 9, 1998, Corixa and Dr. Neil Goldstein, GenQuest's Vice President
Immunology, entered into a consulting agreement. See "-- Conflicts of Interest."
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MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
GenQuest will be merged with and into Chinook, and Chinook will survive as
a wholly-owned subsidiary of Corixa as a result of the Merger. Following the
Merger, Corixa plans to integrate the operations, facilities and personnel of
Corixa and Chinook. Mark McDade and Michelle Burris will serve as the initial
officers and directors of Chinook following consummation of the Merger.
CONFLICTS OF INTEREST
In considering the approvals of the Corixa Board and the GenQuest Board and
the recommendation of the GenQuest Board with respect to the Merger Agreement
and the transactions contemplated thereby, GenQuest stockholders should be aware
that certain members of GenQuest management and the GenQuest Board have certain
interests in the Merger that are in addition to the interests of GenQuest
stockholders generally.
Corixa has received licenses in the field of cancer vaccines and ex vivo
cellular therapy of cancer from GenQuest, and GenQuest has received licenses in
the field of cancer diagnostics and non-vaccine cancer therapeutics from Corixa.
Corixa also provides financial, legal, administrative, management and related
services to GenQuest. These relationships will be terminated as a result of the
Merger, as GenQuest merges with and into Chinook, a wholly-owned subsidiary of
Corixa. Additionally, Corixa has the right to purchase all of the outstanding
shares of GenQuest capital stock pursuant to the Call Option Agreement. Corixa
is not exercising its rights under the Call Option Agreement in connection with
the Merger. See "-- Material Contacts" and "Information Concerning GenQuest."
Steven Gillis, President, Chief Executive Officer and a Director of Corixa,
is also Acting Chief Executive Officer and a Director of GenQuest. Dr. Gillis
owns 272,727 shares of Corixa Common Stock and options to purchase 106,435
shares of Corixa Common Stock, of which 49,737 are exercisable within 60 days of
August 4, 1998. Dr. Gillis does not own shares of GenQuest capital stock. Mark
McDade, Executive Vice President, Chief Operating Officer and a Director of
Corixa, is also Acting Vice President and a Director of GenQuest. Mr. McDade
owns 90,909 shares of Corixa Common Stock and options to purchase 151,133 shares
of Corixa Common Stock, of which 119,751 are exercisable within 60 days of
August 4, 1998. Mr. McDade does not own shares of GenQuest capital stock.
In connection with the collaborative relationship between Corixa and
GenQuest, Corixa issued warrants to the GenQuest stockholders 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, none of which have been exercised as of
August 4, 1998. 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 Note 9 of Notes to Corixa's Financial Statements. A certain fund
affiliated with Frazier & Company holds warrants to purchase up to 120,818 of
such shares of Corixa Common Stock. Alan Frazier, Chairman, President and
Secretary of GenQuest, is Managing Partner of Frazier & Company, and as such,
may be deemed to share voting and investment power with respect to such shares.
Mr. Frazier disclaims beneficial ownership of such shares, except to the extent
of his pecuniary interest therein. Funds affiliated with Mayfield Fund hold
warrants to purchase up to 120,817 of such shares of Corixa Common Stock.
Russell Hirsch, a Director of GenQuest, is a general partner of Mayfield Fund,
and as such, may be deemed to share voting and investment power with respect to
such shares. Dr. Hirsch disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest therein. Funds affiliated with Domain
Associates hold warrants to purchase up to 120,816 of such shares of Corixa
Common Stock. Richard Schneider, a Director of GenQuest, is a general partner of
Domain Associates, and as such, may be deemed to share voting and investment
power with respect to such shares. Mr. Schneider disclaims beneficial ownership
of such shares, except to the extent of his pecuniary interest therein.
Additionally, funds and individuals affiliated with Forward Ventures hold
warrants to purchase up to 64,098 shares of Corixa Common Stock. Max Link, a
Director of GenQuest, holds a warrant to purchase up to 3,020 shares of Corixa
Common Stock. Paul Fisher, a Director of GenQuest, holds a warrant to purchase
up to 13,088 shares of Corixa Common Stock.
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Frazier & Company owns 6,060 shares of Corixa Common Stock. Alan Frazier,
Director, President and Secretary of GenQuest, is Managing Partner of Frazier &
Company, and as such, may be deemed to share voting and investment power with
respect to such shares. Mr. Frazier disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein. Funds and
individuals affiliated with Forward Ventures own 581,600 shares of Corixa Common
Stock.
In February 1996, Corixa acquired an aggregate of 4,412,613 shares of
GenQuest Series A Preferred Stock, representing approximately 17% of GenQuest's
outstanding capital stock as of August 4, 1998. GenQuest has granted Corixa
certain demand and piggyback registration rights pertaining to GenQuest Common
Stock issuable upon conversion of the GenQuest Series A Preferred Stock and a
right to participate in future issuances of stock to maintain Corixa's pro-rata
ownership interest in GenQuest. Pursuant to a voting agreement entered into in
connection with Corixa's purchase of GenQuest Series A Preferred Stock, Corixa
is entitled to designate two of the seven nominees to the GenQuest Board.
The Merger Agreement provides for different consideration to be paid to
GenQuest stockholders based on the series and class of GenQuest capital stock
held by such GenQuest stockholder. Certain directors of GenQuest hold different
classes and series of GenQuest capital stock. Pursuant to the Merger Agreement,
the holders of shares of GenQuest Series B Preferred Stock will receive a higher
price per share than the holders of GenQuest Series A Preferred Stock or
GenQuest Common Stock will receive, and the consideration to be paid in the
Merger will be distributed differently to the holders of different classes and
series of GenQuest capital stock than it would be under the liquidation
preferences set forth in GenQuest's Second Amended and Restated Certificate of
Incorporation or pursuant to the Call Option Agreement. See "-- Material
Contacts" and "Terms of the Merger -- Conversion of Securities."
Certain severance arrangements have been made for all GenQuest employees.
Each GenQuest employee other than Neil Goldstein will receive the equivalent of
two months of their base salary and coverage for health, dental and life
insurance benefits under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA"), including the continuation of premium contributions by GenQuest
through October 31, 1998. In addition, all outstanding options to purchase
GenQuest Common Stock under the 1996 GenQuest Stock Option Plan held by GenQuest
employees will be vested and exercisable at the Effective Time as follows: if an
option was granted less than one year before the Effective Time, such option
will be treated as if one full year of vesting had occurred, and if such option
was granted on or prior to one year before the Effective Time, such option
continued to vest until July 31, 1998.
Corixa and Neil Goldstein, GenQuest's Vice President Immunology, have
entered into a fourteen-month consulting agreement pursuant to which Dr.
Goldstein will receive payment in exchange for his services in an amount equal
to approximately $10,800 per month. Dr. Goldstein will also be eligible to
receive a bonus of up to $30,000 upon the achievement of certain milestones. In
addition, Corixa will grant Dr. Goldstein an option to purchase 10,000 shares of
Corixa Common Stock and has agreed to waive GenQuest's right to repurchase
certain shares of GenQuest Common Stock currently held by Dr. Goldstein. Upon
his request, Dr. Goldstein will receive coverage for health, dental and life
insurance benefits under COBRA, including the continuation of premium
contributions by GenQuest, through the shorter of the term of his consulting
agreement with Corixa and the maximum period provided by applicable law. In
addition, options to purchase GenQuest Common Stock currently held by Dr.
Goldstein continued to vest through July 31, 1998 or his termination with
GenQuest, whichever results in a greater number of shares vested.
Severance arrangements have also been made for GenQuest's Scientific
Advisory Board (the "GenQuest SAB"). Each member of the GenQuest SAB will be
deemed to have served on the GenQuest SAB for the greater of one full year or
the time actually served. Consequently, in exchange for their services, each
such member of the GenQuest SAB will receive an aggregate payment of $10,000 if
deemed to have served for one year, or at a rate of $10,000 per year if such
member of the GenQuest SAB actually served for more than one year (including in
each case any amounts previously paid to such member by GenQuest). In addition,
all options to purchase GenQuest Common Stock under the 1996 GenQuest Stock
Option Plan held by any member of the GenQuest SAB will be vested and
exercisable at the Effective Time as follows: if an option was granted less than
one year before the Effective Time, such option will be treated as if one full
year of vesting
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had occurred, and if such option was granted on or prior to year before the
Effective Time, such option continued to vest until July 31, 1998.
Paul Fisher, a Director of GenQuest, currently acts as a consultant to
Corixa and previously has been granted options to purchase 6,060 shares of
Corixa Common Stock pursuant to such consulting relationship. Corixa and Dr.
Fisher have entered into a new, three-year consulting agreement pursuant to
which Dr. Fisher will receive a payment of $325,000 upon the Effective Time and
four additional installments of $81,250 each over the 30 months following the
Effective Time, as well as quarterly and site visit payments in the aggregate
amount of at least $105,000 per year. Dr. Fisher will also be eligible to
receive a bonus of up to $75,000 upon the achievement of certain milestones. In
addition, at the first meeting of the Corixa Board following the Effective Time
and following each of the first- and second-year anniversaries of the Effective
Time, provided that the consulting agreement has not been terminated, Corixa
will grant to Dr. Fisher an option to purchase 12,000 shares of Corixa Common
Stock. In addition, Dr. Fisher has disclaimed any ownership interest in the
650,000 shares of Common Stock of GenQuest originally issued in Dr. Fisher's
name and held in escrow pursuant to a Stock Issuance Agreement dated February 2,
1996 between GenQuest and Dr. Fisher.
Each of the options to acquire GenQuest Common Stock (each, a "GenQuest
Stock Option") outstanding as of the Effective Time will be converted into an
option to purchase the number of shares of Corixa Common Stock (rounded down to
the nearest whole share) equal to the number of shares of GenQuest Common Stock
subject to such option multiplied by an option exchange fraction, at an exercise
price per share of Corixa Common Stock (rounded up to the nearest whole cent)
equal to the former exercise price per share of the GenQuest Stock Option
immediately prior to the Effective Time divided by such option exchange
fraction. Except as provided above, the converted or substituted GenQuest Stock
Options will be subject to the same terms and conditions as were applicable to
GenQuest Stock Options immediately prior to the Effective Time. See "Terms of
the Merger -- Stock Options."
Venture Law Group, A Professional Corporation ("VLG"), is Corixa's counsel
in connection with the Merger. VLG also has acted as corporate counsel to
GenQuest in the past. VLG is not representing GenQuest or any stockholders of
GenQuest other than Corixa in connection with the Merger. William W. Ericson, a
director of VLG, has acted as Secretary of Corixa in the past. Wilson Sonsini
Goodrich & Rosati is acting as counsel to holders of GenQuest Series B Preferred
Stock (except for Forward Ventures II, L.P. ) in connection with the Merger, and
has acted as intellectual property counsel to GenQuest in the past. Brobeck
Phleger & Harrison LLP is acting as counsel to Forward Ventures II, L.P. in
connection with the Merger. Rosner, Bresler, Goodman & Unterman, LLP is acting
as counsel to certain holders of GenQuest Common Stock in connection with the
Merger. GenQuest has not retained counsel in connection with the Merger. Seed &
Berry LLP acts as patent counsel to both Corixa and GenQuest. Ernst & Young LLP
acts as independent auditors for both Corixa and GenQuest.
Pursuant to the Merger Agreement, Corixa, GenQuest and certain stockholders
of GenQuest agreed to provide certain indemnification benefits to certain
indemnified parties, including directors and executive officers of GenQuest and
Corixa and certain stockholders of GenQuest. See "Terms of the Merger --
Indemnification."
Corixa has entered into separate indemnification agreements with each of
its directors and officers. These agreements require Corixa, 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 Corixa (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 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 Corixa. In addition, Corixa has obtained an insurance policy
providing coverage for certain liabilities of its officers and directors. See
"Management of Corixa -- Limitation of Liability and Indemnification Matters."
GenQuest is in the process of entering into separate indemnification
agreements with each of its directors and officers. These agreements require
GenQuest, among other things, to indemnify such director or officer
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against certain 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 GenQuest (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
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 GenQuest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the federal income tax
considerations of the Merger that are generally applicable to holders of
GenQuest capital stock upon an exchange of such shares in the Merger. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986 (the "Code"), existing and proposed Treasury Regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be retroactive, could alter the
tax consequences to Corixa, GenQuest, or the GenQuest stockholders as described
herein. Neither GenQuest, Corixa nor Corixa's counsel undertakes to advise
GenQuest stockholders of any such changes in the application or interpretation
of such federal income tax law.
The following discussion does not deal with all federal income tax
considerations that may be relevant to GenQuest stockholders in light of their
particular circumstances, such as GenQuest stockholders who are dealers in
securities, subject to the alternative minimum tax provisions of the Code,
foreign persons, persons who do not hold their shares of GenQuest Common Stock
or GenQuest Preferred Stock as capital assets, or who acquired their shares of
GenQuest Common Stock or GenQuest Preferred Stock in connection with stock
option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address (i) the tax consequences of
transactions effectuated prior or subsequent to or concurrently with the Merger
(whether or not such transactions are in connection with the Merger), including
without limitation, transactions in which shares of GenQuest capital stock are
acquired or shares of Corixa Common Stock are disposed of, or (ii) the tax
consequences to holders of options or convertible securities issued by GenQuest
which are assumed, exercised or converted, as the case may be, in connection
with the Merger. Furthermore, no foreign, state or local tax considerations are
addressed herein. Accordingly, GENQUEST STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER.
The Merger is intended to constitute a "Merger" within the meaning of
Section 368(a) of the Code, in which case, subject to the limitations and
qualifications referred to herein, the following tax consequences will generally
result:
(a) No gain or loss should be recognized by holders of shares of
GenQuest Common Stock or GenQuest Preferred Stock solely upon their receipt
in the Merger of shares of Corixa Common Stock (except to the extent of
cash received as consideration for the Merger or in lieu of a fractional
share of Corixa Common Stock) in exchange therefor;
(b) The aggregate tax basis of the shares of Corixa Common Stock
received in the Merger (including any fractional share not actually
received) should be the same as the aggregate tax basis of shares of
GenQuest capital stock surrendered in exchange therefor, decreased by the
amount of cash and fair market value of any other payment received and
increased by the amount of gain (and any amount treated as a dividend)
recognized in the Merger;
(c) The tax holding period of the shares of Corixa Common Stock
received in the Merger should include the period for which the shares of
GenQuest capital stock surrendered in exchange therefor were held, provided
that the shares of GenQuest capital stock are held as a capital asset at
the time of the Merger;
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(d) A GenQuest stockholder who receives cash or other property in the
Merger in addition to shares of Corixa Common Stock will recognize gain in
an amount not in excess of the amount of such cash (and the fair market
value of any such other property).
(e) A GenQuest stockholder who exercises appraisal rights with respect
to a share of GenQuest capital stock and receives payment for such share in
cash should generally recognize gain or loss for federal income tax
purposes, measured by the difference between such stockholder's basis in
such share and the amount of cash received. Such gain or loss (and gain
recognized under paragraph (d) above) shall be capital gain or loss if such
GenQuest capital stock was held as a capital asset at the time of the
Merger, provided that the payment is neither essentially equivalent to a
dividend within the meaning of Section 302 of the Code nor has the effect
of a distribution of a dividend within the meaning of Section 356(a)(2) of
the Code; and
(f) Cash payments in lieu of a fractional share should be treated as
if a fractional share of Corixa Common Stock had been issued in the Merger
and then redeemed by Corixa. A GenQuest stockholder receiving such cash
should generally recognize gain or loss upon such payment equal to the
difference (if any) between such stockholder's basis in the fractional
share and the amount of cash received.
Neither Corixa nor GenQuest is requesting a ruling from the Internal
Revenue Service ("IRS") or a tax opinion of counsel in connection with the
Merger.
Even if the Merger qualifies as a "reorganization," a recipient of shares
of Corixa Common Stock will recognize gain to the extent that such shares are
received or considered to be received in exchange for services or property
(other than solely shares of GenQuest capital stock). All or a portion of such
gain may be taxable as ordinary income. As mentioned above, gain would also be
recognized to the extent a GenQuest stockholder receives or is treated as
receiving cash or other consideration (other than shares of Corixa Common Stock)
in exchange for his, her or its GenQuest capital stock or to the extent the
GenQuest capital stock surrendered in the Merger was not equal in value to the
shares of Corixa Common Stock received in exchange therefor. This discussion
assumes such equal value.
A successful IRS challenge to the status of the Merger as a reorganization
(as a result of failure to satisfy the continuity of interest requirement or for
any other reason) would result in a GenQuest stockholder recognizing gain or
loss with respect to each share of GenQuest capital stock surrendered equal to
the difference between the stockholder's basis in such share and the fair market
value, as of the time of the Merger, of the shares of Corixa Common Stock
received in exchange therefor (including any cash received in lieu of a
fractional share). In such event, a GenQuest stockholder's aggregate basis in
the shares of Corixa Common Stock received in the exchange would equal such fair
market value and his, her or its holding period for such shares would begin the
day after the closing date of the Merger.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN
ADDITION, IT DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE
RELEVANT TO CERTAIN PERSONS, INCLUDING HOLDERS OF OPTIONS OR WARRANTS, AND MAY
NOT APPLY TO CERTAIN HOLDERS SUBJECT TO SPECIAL TAX RULES, INCLUDING HOLDERS WHO
ACQUIRED GENQUEST COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR RIGHTS OR OTHERWISE RECEIVED SUCH STOCK AS COMPENSATION, DEALERS IN
SECURITIES AND FOREIGN HOLDERS.
EACH GENQUEST STOCKHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, HER OR IT,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
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ACCOUNTING TREATMENT
Corixa intends to account for the Merger under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on their estimated fair values at the
Effective Time. Corixa's results of operations will not include the results of
GenQuest prior to the Effective Time.
DISSENTERS' RIGHTS
Holders of GenQuest capital stock who dissent and do not vote in favor of
the Merger are entitled to certain dissenters' appraisal rights under Delaware
law in connection with the Merger.
The following summary of dissenters' rights under the DGCL is qualified in
its entirety by reference to Section 262 of the DGCL, the complete text of which
is attached hereto as Appendix B and incorporated herein by reference.
If the Merger is approved by the required vote of the GenQuest stockholders
and is not abandoned or terminated, any holder of GenQuest capital stock (a
"GenQuest Dissenting Stockholder") may, by complying with the provisions of
Section 262 of the DGCL, be entitled to have his, her or its shares of GenQuest
capital stock appraised by the Delaware Court of Chancery (the "Court") and to
receive payment in the amount of the "fair value" of such shares as of the
Effective Time. The shares of GenQuest capital stock with respect to which
holders have perfected their demand for appraisal rights in accordance with
Section 262 of the DGCL and have not effectively withdrawn or lost such rights
are referred to in this Proxy Statement/Prospectus as the "GenQuest Dissenting
Shares."
This Proxy Statement/Prospectus is being sent by personal delivery or by
mail to all holders of record of shares of GenQuest capital stock as of the
Record Date and constitutes notice of the appraisal rights available to such
holders under Section 262 of the DGCL.
A stockholder of GenQuest electing to exercise appraisal rights must, prior
to the vote concerning the Merger at the Special Meeting, demand in writing from
GenQuest the appraisal of his, her or its shares of GenQuest capital stock.
Accordingly, such written demand must be received by GenQuest on or prior to
August 31, 1998. A holder who elects to exercise appraisal rights should mail or
deliver his, her or its written demand to GenQuest, Inc., 1124 Columbia Street,
Suite 200, Seattle, Washington 98104, Attention: Alan Frazier, Secretary. The
demand should specify the holder's name and mailing address, the number of
shares of GenQuest capital stock owned and that such holder is demanding
appraisal of his, her or its shares. A vote against the Merger will not
constitute a demand for appraisal. A stockholder electing to exercise his, her
or its appraisal rights must do so by a separate written demand as provided in
Section 262 of the DGCL. Only a holder of record of shares of GenQuest capital
stock at the Record Date (or his, her or its duly appointed representative) is
entitled to assert appraisal rights for the shares registered in that holder's
name. Within ten days after the Effective Time, GenQuest must provide notice of
the Effective Time to all stockholders who have complied with Section 262 of the
DGCL and have not voted for approval of the Merger.
Within 120 days after the Effective Time, any stockholder who has made a
valid written demand and who has not voted for approval of the Merger may (i)
file a petition in the Court demanding a determination of the fair value of the
shares of GenQuest capital stock and (ii) upon written request, receive from
GenQuest a statement setting forth the aggregate number of shares of GenQuest
capital stock not voted for approval and adoption of the Merger and with respect
to which demands for appraisal have been received and the aggregate number of
holders of such shares of GenQuest capital stock. Such statement must be mailed
within ten days after the written request therefor has been received by
GenQuest.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Court is required to determine the holders of GenQuest Dissenting
Shares who are entitled to appraisal rights and to determine the "fair value"
thereof exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the value of the GenQuest Dissenting Shares. In determining such "fair
value," the Court is required to take into account all relevant factors,
including the market value of GenQuest capital stock and the net asset and
earnings value of GenQuest, and
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in determining the fair value of interest, the Court may consider all relevant
factors, including the rate of interest which GenQuest would have had to pay to
borrow money during the pendency of the proceeding. Upon application by a
stockholder, the Court may also order that all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the shares of GenQuest capital stock entitled to
appraisal. Accordingly, pursuant to Section 262 of the DGCL, any stockholder or
the combined company may file a petition with the Court to initiate the
appraisal proceeding. The value of the stock so determined is binding upon all
stockholders entitled to appraisal.
Any holder of GenQuest Dissenting Shares who has duly demanded an appraisal
under Section 262 of the DGCL will not, after the Effective Time, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on such GenQuest Dissenting Shares
(except dividends or other distributions payable to stockholders of record as of
a date prior to the Effective Time).
A holder will fail to perfect, or will effectively lose, his, her or its
right to appraisal if (i) he, she or it fails to make a written demand for
appraisal before the taking of the vote on the Merger, (ii) he, she or it votes
for approval of the Merger, (iii) if no petition for appraisal is filed within
120 days after the Effective Time or (iv) if the holder delivers to GenQuest a
written withdrawal of such holder's demand for an appraisal, except that any
such attempt to withdraw made more than 60 days after the Effective Time
requires the written approval of GenQuest.
Any stockholder who wishes to exercise appraisal rights or who wishes to
preserve his, her or its rights to do so should review Appendix B carefully, as
failure to comply with the procedures set forth therein will result in loss of
such rights.
REGULATORY MATTERS
The obligations of Corixa and GenQuest to consummate the Merger are subject
to the condition that there be no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition that prevents
consummation of the Merger. See "Terms of the Merger -- Conditions." Either
Corixa or GenQuest may terminate the Merger Agreement if, without fault of the
terminating party, there shall be any applicable federal or state law that makes
consummation of the Merger illegal or otherwise prohibited or if any court of
competent jurisdiction or other governmental body shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or any other action shall
have become final and nonappealable. See "Terms of the Merger -- Termination."
RESALE RESTRICTIONS
The Merger Agreement and certain lock-up agreements provide that certain
GenQuest stockholders may not sell or dispose of Corixa Common Stock for a
period of 120 days after the closing date of the Merger. After the expiration of
the 120-day lock-up period, the Merger Agreement and certain lock-up agreements
provide that certain GenQuest stockholders must provide Corixa with at least 15
days prior written notice of any sale, transfer or other disposition by such
stockholder of any shares of Corixa Common Stock issued to such stockholder in
the Merger. Such notification requirement does not apply to the sale, transfer
or other disposition of (i) less than 5,000 shares of Corixa Common Stock by
holders who hold less than 5,000 shares of such Corixa Common Stock or (ii)
shares of Corixa Common Stock held by Dr. Max Link. Otherwise, all shares of
Corixa Common Stock received by GenQuest stockholders in the Merger will be
freely transferable, except that shares of Corixa Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of GenQuest may be resold by them only in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such
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persons who become affiliates of Corixa) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of GenQuest or Corixa
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. The
Merger Agreement requires that GenQuest use its best efforts to cause each of
its stockholders to execute a lock-up agreement restricting the disposition by
such person of the shares of Corixa Common Stock to be received by such person
in the Merger as set forth above, and Corixa is not obligated to consummate the
Merger if the holders of at least 95% of the outstanding shares of GenQuest
capital stock (not including any shares issued upon the exercise of any GenQuest
Stock Options after the Execution Date) have not executed such lock-up
agreement.
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TERMS OF THE MERGER
The following is a brief summary of certain provisions of the Merger
Agreement, a copy which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement, and subject to the terms and conditions
thereof, at the Effective Time GenQuest will be merged with and into Chinook,
GenQuest will cease to exist as a corporation, and Chinook will remain as the
surviving corporation. Chinook's Certificate of Incorporation and Chinook's
Bylaws will be the surviving corporation's Certificate of Incorporation and
Bylaws. See "Comparison of Rights of Holders of Corixa Capital Stock and Holders
of GenQuest Capital Stock." Mark McDade and Michelle Burris will be the initial
directors and officers of Chinook. See "Management of Corixa."
EFFECTIVE TIME OF THE MERGER
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will take place as soon as practicable (the "Closing Date") following
the later of (i) the date on which the Special Meeting approving the Merger has
occurred, and (ii) the date on which all of the conditions to the Merger are
satisfied or waived, or at such other date as Corixa and GenQuest agree. See
"-- Conditions."
As soon as practicable after the Closing, a Certificate of Merger (the
"Certificate of Merger") will be filed with the Secretary of State of Delaware
in accordance with the relevant provisions of Delaware law. The time at which
the Certificate of Merger is filed in Delaware is referred to as the Effective
Time.
CONVERSION OF SECURITIES
GenQuest Series A Preferred Stock and GenQuest Common Stock. As a result of
the Merger, each share of GenQuest Series A Preferred Stock and GenQuest Common
Stock issued and outstanding immediately prior to the Effective Time, other than
shares, if any, for which appraisal rights have been or will be perfected in
compliance with applicable law and shares owned by GenQuest and Corixa (the
"Non-Exchanged Shares"), will by virtue of the Merger and at the Effective Time,
and without further action on the part of any holder thereof, be converted into
the right to receive (A) the Series A/Common Exchange Fraction (as defined
below) of a fully paid and nonassessable share of Corixa Common Stock and (B)
the right to receive cash in the amount of $0.16844.
The total number of shares of Corixa Common Stock issuable to the holders
of shares of GenQuest Series A Preferred Stock and GenQuest Common Stock (other
than any applicable Non-Exchanged Shares) (the "Total Corixa Series A/Common
Shares") will be determined by dividing $991,066 (the "Series A/Common Stock
Consideration") by the average of the Nasdaq last reported closing prices of
Corixa Common Stock on all of the following days: (A) the 30 trading days prior
to the date of execution of the Merger Agreement (the "Execution Date") and (B)
the 30 trading days including and immediately following the Execution Date (the
"Series A/Common Per Share Market Value"). The Series A/Common Per Share Market
Value is equal to $6.8396. The Series A/Common Exchange Fraction will be
determined by dividing (A) the Total Corixa Series A/Common Shares by (B) the
"Total GenQuest Series A/Common Shares," which shall equal the sum of: (1) the
total number of shares of GenQuest Common Stock outstanding immediately prior to
the Effective Date (other than any applicable Non-Exchanged Shares), including
shares of GenQuest Common Stock issued upon exercise of GenQuest Stock Options
occurring prior to the Effective Time, and (2) the total number of shares of
GenQuest Series A Preferred Stock outstanding immediately prior to the Execution
Date (other than any applicable Non-Exchanged Shares) (the "Series A/Common
Exchange Fraction").
Each holder of shares of GenQuest Series A Preferred Stock and GenQuest
Common Stock (other than any applicable Non-Exchanged Shares) will receive that
number of shares of Corixa Common Stock equal to the Series A/Common Exchange
Fraction multiplied by the number of shares of GenQuest Series A
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Preferred Stock and GenQuest Common Stock held by such stockholder as of the
Execution Date. Assuming that no applicable appraisal rights are perfected and
no GenQuest Stock Options are exercised after August 4, 1998, and based on a
Series A/Common Per Share Market Value equal to $6.8396, the Series A/Common
Exchange Fraction will equal .040248 and Corixa will issue an aggregate of
approximately 144,892 shares of Corixa Common Stock to holders of GenQuest
Series A Preferred Stock and GenQuest Common Stock other than GenQuest and
Corixa.
GenQuest Series B Preferred Stock. As a result of the Merger, each share of
GenQuest Series B Preferred Stock issued and outstanding immediately prior to
the Effective Time, other than shares, if any, for which appraisal rights have
been or will be perfected in compliance with applicable law and shares owned by
GenQuest, will by virtue of the Merger and at the Effective Time, and without
further action on the part of any holder thereof, be converted into the right to
receive (A) the Series B Exchange Fraction (as defined below) of a fully paid
and nonassessable share of Corixa Common Stock and (B) the right to receive cash
in the amount of $0.2128.
The total shares of Corixa Common Stock issuable to the holders of shares
of GenQuest Series B Preferred Stock (the "Total Corixa Series B Shares") will
be determined by dividing $6,369,280 by the average of the Nasdaq last reported
closing prices of Corixa Common Stock on all of the following days: (A) the 30
trading days prior to the Execution Date and (B) the 30 trading days including
and immediately following the Execution Date (the "Series B Per Share Market
Value"). The Series B Per Share Market Value is equal to $6.8396. The Series B
Exchange Fraction shall be determined by dividing (A) the Total Corixa Series B
Shares by (B) the sum of: (i) the total number of shares of GenQuest Series B
Preferred Stock outstanding immediately prior to the Execution Date and (ii) the
total number of shares of GenQuest Series B Preferred Stock to be issued upon
the net exercise of a warrant held by Forward Ventures II, L.P. (the "Series B
Exchange Fraction").
Each holder of shares of GenQuest Series B Preferred Stock will receive
that number of shares of Corixa Common Stock equal to the Series B Exchange
Fraction multiplied by the number of shares of GenQuest Series B Preferred Stock
held by such stockholder as of the Execution Date; provided, however, that
notwithstanding the foregoing, with respect to (A) a fund affiliated with
Frazier & Company, ("Frazier") (B) certain funds affiliated with the Mayfield
Fund (collectively, "Mayfield") and (C) certain funds affiliated with Domain
Associates (collectively, "Domain"), the number of shares of Corixa Common Stock
to be received by each of Frazier, Mayfield and Domain will be reduced by that
number of shares equal to the quotient obtained by dividing (x) $28,333.33 by
(y) the Series B Per Share Market Value. Assuming that no applicable appraisal
rights are perfected, and based on a Series B Per Share Market Value equal to
$6.8396, the Series B Exchange Fraction will equal .050851 and Corixa will issue
an aggregate of approximately 918,803 shares of Corixa Common Stock to holders
of GenQuest Series B Preferred Stock other than GenQuest.
Change in Composition of Consideration. If, as a result of a decrease in
the fair market value of Corixa Common Stock subsequent to the determination of
the Series A/Common Exchange Fraction and Series B Exchange Fraction but prior
to the Effective Time, the value at the Closing of the Corixa Common Stock
issuable pursuant to the Merger Agreement is less than 50% of the sum of the
cash and the Corixa Common Stock (valued at the Closing) to be received by the
stockholders of GenQuest, then the Total Corixa Series A/Common Shares and Total
Corixa Series B Shares will each be increased proportionately (and the total
amount of consideration payable in cash to the holders of shares of GenQuest
Common Stock, Series A Preferred Stock and Series B Preferred Stock will be
decreased) so that the value at the Closing of the Corixa Common Stock is at
least 50% of the sum of the cash and the Corixa Common Stock (valued at the
Closing) to be received by the stockholders of GenQuest.
Each holder of a certificate representing any such shares of GenQuest
capital stock (a "Certificate") will upon consummation of the Merger cease to
have any rights with respect to such GenQuest capital stock, except the right to
receive, without interest, shares of Corixa Common Stock and cash upon the
surrender of such Certificate (as described in "-- Exchange of Shares"). If
prior to the Effective Time, Corixa should split or combine the shares of Corixa
Common Stock, or pay a stock dividend or other stock distribution in, or in
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exchange of shares of Corixa Common Stock, or engage in any similar transaction,
then the applicable Exchange Fractions will be appropriately adjusted to reflect
such split, combination, dividend, exchange or other distribution or similar
transaction.
Each share of GenQuest capital stock held by GenQuest or Corixa immediately
prior to the Effective Time will be canceled and extinguished without any
conversion thereof, and no cash, Corixa Common Stock or other consideration will
be delivered in exchange therefor.
WARRANTS
Effective immediately prior to the Effective Time and contingent upon the
Closing of the Merger, all outstanding and unexercised warrants to purchase
GenQuest capital stock will terminate by virtue of the Merger and without any
action on the part of the holder thereof.
Forward Ventures II, L.P., as holder of the only outstanding warrant to
purchase shares of GenQuest capital stock, has indicated an intention to net
exercise such warrant to purchase shares of GenQuest Series B Preferred Stock
immediately prior to the Effective Time.
STOCK OPTIONS
As of the Effective Time, each GenQuest Stock Option outstanding as of the
Effective Time will be converted into an option to purchase the number of shares
of Corixa Common Stock (rounded down to the nearest whole share) equal to the
number of shares of GenQuest Common Stock subject to such option multiplied by
the Option Exchange Fraction (as defined below), at an exercise price per share
of Corixa Common Stock (rounded up to the nearest whole cent) equal to the
former exercise price per share of such GenQuest Stock Option immediately prior
to the Effective Time divided by the Option Exchange Fraction; provided that in
the case of any GenQuest Stock Option to which Section 421 of the Code applies
by reason of its qualification under Section 422 of the Code, the conversion
formula shall be adjusted, if necessary, to comply with Section 424(a) of the
Code. The total number of shares of Corixa Common Stock issuable to the holders
of GenQuest Stock Options (the "Total Corixa Option Shares") will be determined
by dividing $84,365 (as such amount may be decreased to account for the exercise
of any GenQuest Stock Options) (the "Option Consideration") by the average of
the Nasdaq last reported closing prices of Corixa Common Stock on all of the
following days: (A) the 30 trading days prior to the Execution Date and (B) the
30 trading days including and immediately following the Execution Date (the
"Option Per Share Market Value"). The Option Per Share Market Value is equal to
$6.8396. The Option Exchange Fraction will be determined by dividing (x) the
Total Corixa Option Shares by (y) the total number of GenQuest Stock Options
vested but unexercised as of the Effective Time (including any vesting as a
result of acceleration determined by the GenQuest Board and approved by Corixa).
Except as provided above, the converted or substituted GenQuest Stock Options
will be subject to the same terms and conditions as were applicable to GenQuest
Stock Options immediately prior to the Effective Time.
In the event any vested GenQuest Stock Option (including vesting as a
result of acceleration determined by the GenQuest Board and approved by Corixa)
is exercised prior to the Effective Time, then (i) the shares issued upon
exercise of such GenQuest Stock Option will be GenQuest Common Stock and will be
included in the calculation of the Total GenQuest Series A/Common Shares rather
than the calculation of total number of GenQuest Stock Options, (ii) the Option
Consideration shall be reduced by an amount equal to the product of 0.44373
multiplied by the number of shares of GenQuest Common Stock issued upon exercise
of such GenQuest Stock Option, and (iii) the Series A/Common Stock Consideration
shall be increased by an amount equal to the product of 0.27529 multiplied by
the number of shares of GenQuest Common Stock issued upon exercise of such
GenQuest Stock Option.
As soon as practicable after the Effective Time, Corixa will file one or
more registration statements on Form S-8 under the Securities Act, or amendments
to its existing registration statements on Form S-8 or amendments to such other
registration statements as may be available, in order to register the shares of
Corixa Common Stock issuable upon exercise of the assumed GenQuest Stock
Options.
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EXCHANGE OF SHARES
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each holder of record of GenQuest capital stock (i) a letter
of transmittal and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for cash and certificates representing shares of Corixa
Common Stock. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed, the holder of such Certificate
will be entitled to receive in exchange therefor (i) a certificate representing
that number of whole shares of Corixa Common Stock, and (ii) a check
representing (A) the amount of cash in lieu of fractional shares, if any, which
such holder has the right to receive in respect of the Certificate so
surrendered and (B) the applicable cash consideration. GENQUEST STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
No fractional shares of Corixa Common Stock will be issued pursuant to the
Merger. In lieu thereof, cash adjustments will be paid in an amount equal to the
product of the fraction of a share of Corixa Common Stock that would otherwise
be issuable multiplied by the Series A/Common Per Share Market Value or Series B
Per Share Market Value, as applicable.
No dividends on shares of Corixa Common Stock will be paid to persons
entitled to receive certificates representing shares of Corixa Common Stock
until such persons surrender their Certificates. Upon such surrender, the person
in whose name the certificates representing such shares of Corixa Common Stock
will be issued will also receive any dividends that have become payable with
respect to such shares of Corixa Common Stock between the Effective Time and the
time of such surrender. In no event will the person entitled to receive such
dividends be entitled to receive interest on such dividends.
If any certificates for shares of Corixa Common Stock are to be issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, the person requesting such exchange must (i) pay to the Exchange
Agent any transfer or other taxes required by reason thereof, or (ii) establish
that such tax has been paid or is not applicable.
At the Effective Time, the stock transfer books of GenQuest will be closed
and no further transfers of shares of GenQuest capital stock will be made.
Neither the Exchange Agent nor any party to the Merger Agreement is liable
to a holder of shares of GenQuest capital stock for any applicable cash
consideration or any shares of Corixa Common Stock or dividends thereon or the
cash payment for fractional interests delivered to a public official pursuant to
applicable escheat laws.
In the event that any Certificate has been lost, stolen or destroyed, upon
(i) the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, and (ii) if required by Corixa, in
its discretion, the posting by such person of a bond in such sum as Corixa may
direct as indemnity, or such other form of indemnity as Corixa may reasonably
direct, against any claim that may be made against Corixa with respect to such
Certificate, Corixa will issue or cause to be issued in exchange for such
Certificate the applicable cash consideration; the number of whole shares of
Corixa Common Stock and cash in lieu of fractional shares into which the shares
of GenQuest capital stock represented by the Certificate are converted in the
Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties by
GenQuest relating to, among other things: (a) due organization, power and
standing; (b) GenQuest's Certificate of Incorporation and Bylaws; (c) GenQuest's
capital structure; (d) the authorization, execution, delivery and enforceability
of the Merger Agreement; (e) required consents and approvals and the absence of
breaches or violations of GenQuest's Certificate of Incorporation and Bylaws,
agreements and instruments, and law; (f) GenQuest's financial statements; (g)
the absence of certain undisclosed liabilities and certain changes or events;
(h) litigation; (i) no restrictions on GenQuest's business activities; (j) real
and personal property; (k) intellectual property rights; (l) taxes; (m) certain
contracts and agreements; (n) employee matters; (o) material contracts; (p)
interested party transactions; (q) compliance with applicable laws; (r) brokers'
and
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finders' fees; (s) the accuracy of information in this Proxy
Statement/Prospectus; (t) affiliate and stockholders agreements; (u) vote
required; (v) GenQuest board approval; and (w) tax matters.
The Merger Agreement also contains certain representations and warranties
by Corixa and Chinook relating to, among other things: (a) due organization,
power and standing; (b) the capital structure of Corixa and Chinook; (c) the
authorization, execution, delivery and enforceability of the Merger Agreement;
(d) required consents and approvals and the absence of breaches or violations of
Corixa's and Chinook's Certificate of Incorporation and Bylaws, agreements and
instruments, and law; (e) the filing of required reports with the Commission;
(f) the accuracy of information in this Proxy Statement/Prospectus; (g) the
absence of certain undisclosed liabilities and certain changes; (h) litigation;
(i) governmental authorization; (j) compliance with laws; (k) brokers' and
finders' fees; and (l) tax matters.
CERTAIN COVENANTS
Corixa and GenQuest agreed that prior to the Effective Time they will,
among other things: (i) use their best efforts to consummate the Merger; (ii)
provide each other reasonable access to certain information; (iii) consult with
each other before issuing any press release or making any public disclosure
regarding the Merger; and (iv) use their best efforts after the Execution Date
to prepare and file this Proxy Statement/ Prospectus.
GenQuest agreed that, prior to the Effective Time, it will, among other
things: (i) act only in the ordinary course of business; (ii) use its best
efforts to cause each GenQuest stockholder to execute and deliver to Corixa a
lock-up agreement which imposes certain restrictions regarding the resale of
Corixa Common Stock received in the Merger; (iii) take all action necessary
after the Execution Date to convene the Special Meeting; and (iv) use its best
efforts to obtain the approval of the Merger Agreement by holders of shares of
GenQuest capital stock and to obtain stockholder agreements and irrevocable
proxies from the holders of (i) up to 450,000 shares of GenQuest Common Stock
outstanding as of the Execution Date, (ii) up to 2,200,000 shares of GenQuest
Series A Preferred Stock outstanding as of the Execution Date, and (iii) up to
6,309,271 shares of GenQuest Series B Preferred Stock outstanding as of the
Execution Date.
GenQuest also agreed that, without the prior written consent of Corixa,
prior to the Effective Time, it will not, among other things: (i) enter into any
material contract or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts; (ii) issue, deliver or sell
or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares of
GenQuest Common Stock or GenQuest Preferred Stock pursuant to the exercise of
stock options, warrants or other rights therefor outstanding as of the Execution
Date; (iii) other than corporate partnering transactions in the ordinary course
of business, transfer to any person or entity any rights to its intellectual
property; (iv) enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing or other exclusive rights of any type or
scope with respect to any of its products or technology; (v) sell, lease,
license or otherwise dispose of or encumber any of its properties or assets
which are material, individually or in the aggregate, to its business, taken as
a whole; (vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others; (vii) enter into any operating lease in excess of $10,000;
(viii) pay, discharge or satisfy in an amount in excess of $5,000 in any one
case or $15,000 in the aggregate, any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise) arising other than in
the ordinary course of business, other than the payment, discharge or
satisfaction of liabilities reflected or reserved against in GenQuest's
financial statements; (ix) make any capital expenditures, capital additions or
capital improvements except consistent with GenQuest's past practice; (x)
materially reduce the amount of any material insurance coverage provided by
existing insurance policies; (xi) terminate or waive any right of substantial
value; (xii) adopt or amend any employee benefit or stock purchase or option
plan, or hire any new director level or officer level employee (except that it
may hire a replacement for any current director level or officer level employee
if it first provides Corixa advance notice regarding such hiring decision), pay
any special bonus or special remuneration to any employee or director, or
increase the salaries or wage rates of its employees
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except consistent with past practice; (xiii) grant any severance or termination
pay (A) to any director or officer or (B) to any other employee except payments
made pursuant to standard written agreements outstanding on the Execution Date
or grants which are made in the ordinary course of business in accordance with
GenQuest's standard past practice; (xiv) commence a lawsuit other than (A) for
the routine collection of bills, (B) in such cases where GenQuest in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Corixa
prior to the filing of such a suit, or (C) for a breach of the Merger Agreement;
(xv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to GenQuest's
business, taken as a whole; (xvi) other than in the ordinary course of business,
make or change any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, file any material tax return or any
amendment to a material tax return, enter into any closing agreement, settle any
claim or assessment in respect of taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
taxes; (xvii) GenQuest shall give all notices and other information required to
be given to the employees of GenQuest, any collective bargaining unit
representing any group of employees of GenQuest, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the Code, COBRA,
and other applicable law in connection with the transactions provided for in the
Merger Agreement; (xviii) revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or (xix) take or agree
in writing or otherwise to take, any of the actions described in this paragraph,
or any action which would make any of GenQuest's representations or warranties
contained in the Merger Agreement untrue or incorrect or prevent GenQuest from
performing or cause GenQuest not to perform its covenants thereunder.
Corixa and GenQuest also agreed that neither Corixa nor GenQuest will take
any action that could reasonably be expected to jeopardize qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
Corixa and GenQuest also agreed that each will use all reasonable efforts
(i) to take all actions necessary to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and the
consummation of the transactions contemplated by the Merger Agreement, subject
to the appropriate vote or consent of stockholders and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity or any other public or
private third party which is required to be obtained or made by such party or
any of its subsidiaries in connection with the Merger and the transactions
contemplated by the Merger Agreement.
Corixa and GenQuest agreed that Corixa will use reasonable efforts to take
any action required by state securities or blue sky laws in connection with the
issuance of the shares of Corixa Common Stock pursuant to the Merger Agreement,
and that GenQuest will furnish Corixa with all information concerning GenQuest
and the holders of its capital stock and take such other action as Corixa may
reasonably request in connection with the Form S-4 and such issuance of shares
of Corixa Common Stock.
GenQuest has identified all persons who are "affiliates" of GenQuest for
purposes of Rule 145 under the Securities Act. GenQuest will use its best
efforts to cause each person identified as an affiliate of GenQuest to deliver
to Corixa a written "affiliates" agreement, in customary form, restricting the
disposition by such person of the shares of Corixa Common Stock held by such
person or to be received by such person in the Merger. Certificates surrendered
for exchange by any person constituting an "affiliate" of GenQuest within the
meaning of Rule 145 under the Securities Act will not be exchanged by the
Exchange Agent for shares of Corixa Common Stock until the parties have received
such agreement described in the preceding sentence.
Corixa has agreed to notify Nasdaq of the listing of the shares of Corixa
Common Stock to be issued pursuant to the Merger and to cause such additional
shares to be approved for listing, and as soon as practicable following the
Effective Time to file one or more registration statements on Form S-8 under the
Securities Act, or amendments to its existing registration statements on Form
S-8 or amendments to such
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other registration statements as may be available, in order to register the
shares of Corixa Common Stock issuable upon exercise of the assumed GenQuest
Stock Options.
NO SOLICITATION
Under the terms of the Merger Agreement, GenQuest and its officers,
directors, employees and other agents of GenQuest agreed not to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any Takeover
Proposal (as defined below) or (ii) engage in negotiations with, or disclose any
nonpublic information relating to GenQuest to, or afford access to the
properties, books or records of GenQuest to, any person that has advised
GenQuest that it may be considering making, or that has made, a Takeover
Proposal; provided, however, that if, at any time prior to receipt of the
requisite GenQuest stockholder approval at the Special Meeting, the GenQuest
Board determines, in its good faith judgment based upon the exercise of
fiduciary obligations to GenQuest's stockholders, to withdraw its recommendation
of the Merger Agreement or the Merger as the result of an unsolicited Takeover
Proposal, or to recommend such unsolicited Takeover Proposal to GenQuest's
stockholders, then GenQuest may in response to such unsolicited Takeover
Proposal (x) participate in negotiations regarding such Takeover Proposal and
(y) disclose information regarding GenQuest, including nonpublic information
solely to the extent that such information has been disclosed previously to
Corixa, to the potential new acquiror pursuant to a customary and reasonable
confidentiality agreement; provided further, however, that GenQuest shall (A)
provide Corixa at least 24 hours prior notice of any meeting of the GenQuest
Board at which it is reasonably expected to contemplate a Takeover Proposal and
(B) not accept or recommend to the GenQuest stockholders a Takeover Proposal for
a period of not less than ten business days after Corixa's receipt of a copy of
such Takeover Proposal (or a written description of the significant terms and
conditions thereof if not in writing). Additionally, unless the Merger Agreement
has been terminated, GenQuest shall remain obligated to hold and convene the
Special Meeting (regardless of whether the recommendation of the Merger by the
GenQuest Board shall have been withdrawn, modified or not yet made) and to
provide the stockholders of GenQuest with material information relating to the
Special Meeting. GenQuest will promptly notify Corixa after receipt of any
Takeover Proposal or any notice that any person is considering making a Takeover
Proposal or any request for nonpublic information relating to GenQuest or for
access to the properties, books or records of GenQuest by any person that has
advised GenQuest that it may be considering making, or that has made, a Takeover
Proposal and will keep Corixa fully informed of the status and details of any
such Takeover Proposal notice or request, including the identity of any
potential new acquiror. "Takeover Proposal" means any offer or proposal for, or
any indication of interest in, a merger of other business combination involving
GenQuest or the acquisition of any significant equity interest in GenQuest, or
the acquisition or licensing of a significant portion of the assets of GenQuest,
other than the transactions contemplated by the Merger Agreement.
CERTAIN EMPLOYEE BENEFIT PLAN MATTERS
GenQuest has agreed that it will not, except as required by law (i) adopt
or amend any employee benefit or stock purchase or option plan, (ii) hire any
new director level or officer level employee (except that it may hire a
replacement for any current director level or officer level employee if it first
provides Corixa advance notice regarding such hiring decision), (iii) pay any
special bonus or special remuneration to any employee or director, (iv) increase
the salaries or wage rates of its employees except consistent with past
practice, or (v) grant any severance or termination pay (A) to any director or
officer or (B) to any other employee except (x) payments made pursuant to
standard written agreements outstanding on the Execution Date or (y) grants
which are made in the ordinary course of business in accordance with GenQuest's
standard past practice.
INDEMNIFICATION
Corixa and GenQuest have agreed that all covenants to be performed prior to
the Effective Time, and all representations and warranties in the Merger
Agreement or in any instrument delivered pursuant to the Merger Agreement, will
survive the consummation of the Merger and continue until the first anniversary
of the Closing Date (the "Representation Termination Date"); provided that if
any claims for indemnification have been asserted with respect to any such
representations and warranties prior to the Representation
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Termination Date, the representations and warranties on which any such claims
are based will continue in effect until final resolution of any claims. All
covenants to be performed after the Effective Time will continue until they
expire by their terms.
Subject to certain limitations, from and after the Effective Time and until
the Representation Termination Date, the GenQuest stockholders who executed the
Merger Agreement have agreed, severally but not jointly, to indemnify Corixa and
Chinook and their respective affiliates, officers, directors, employees,
representatives and agents (each a "Corixa Indemnified Person" and collectively
the "Corixa Indemnified Persons") from and against any and all losses, costs,
damages, liabilities, fees (including without limitation attorneys' fees) and
expenses (collectively, the "Damages"), that any of the Corixa Indemnified
Persons incurs or reasonably anticipates incurring by reason of or in connection
with any claim, demand, action or cause of action (A) resulting from any breach
by GenQuest or such GenQuest stockholder of any representation, warranty,
covenant or agreement of GenQuest or such GenQuest stockholder contained in the
Merger Agreement, including any exhibits or schedules attached thereto, either
as of the Execution Date or as of the Closing Date, or in any certificate or
other document delivered to Corixa pursuant to the Merger Agreement; provided,
however, that (i) GenQuest stockholders will not indemnify any of the Corixa
Indemnified Persons for Damages resulting from the actions or failure to act of
(a) any officer (acting or otherwise) or director of GenQuest who is at such
time an officer or director of Corixa or Chinook or (b) any current employee or
agent of Corixa who at the direction of Corixa or otherwise provides or has
provided services to GenQuest pursuant to the management services agreement
between Corixa and GenQuest, and (ii) no GenQuest stockholder has any obligation
to indemnify any of the Corixa Indemnified Persons unless such GenQuest
stockholder had knowledge as of the Closing that the representation or warranty
was untrue in any material respect, or (B) arising out of or in connection with
any prospective liabilities associated with GenQuest (which liabilities, alone
or in the aggregate, exceed $5,000) that become known to Corixa within one year
of the Closing Date and that arise from facts actually known to such GenQuest
stockholder and not known to Corixa at or prior to the Closing; provided,
however, that if any claims for indemnification have been asserted prior to the
Representation Termination Date, any such indemnification obligation will
continue in effect until final resolution of any such claim.
The maximum liability of any holder of GenQuest capital stock who executes
the Merger Agreement for any breach of a representation, warranty or covenant of
the GenQuest is limited to 10% of the total aggregate amount of the total
consideration paid in connection with the Merger and in no event shall exceed
the total aggregate consideration received by such GenQuest stockholder in
connection with the Merger; provided, however, that nothing limits the
liability: (i) of any GenQuest stockholder in connection with any breach by such
stockholder of such stockholder's affiliate agreement or stockholders agreement,
as applicable, and (ii) of any officer, director or stockholder of GenQuest for
such person's or entity's fraud or intentional misrepresentation. The holders of
shares of GenQuest Series A Preferred Stock are not obligated to indemnify any
Corixa Indemnified Person for any matters that arise out of or are related to
actions or failures to act occurring subsequent to the consummation of
GenQuest's Series B Preferred Stock financing on December 23, 1996.
From the Effective Time and for a period of one year after the Closing
Date, Corixa has agreed, subject to certain exceptions, to indemnify and hold
harmless the members of the GenQuest Board and the GenQuest stockholders who
executed the Merger Agreement (each a "GenQuest Indemnified Person" and
collectively the "GenQuest Indemnified Persons") from and against any Damages:
(i) that are based upon, arising out of or otherwise in respect of all actions
taken by Corixa subsequent to the Closing Date with respect to the business,
operations and assets formerly belonging to GenQuest, up to a collective maximum
aggregate amount of $2,000,000, or (ii) that are based upon or arising from
actions or inactions taken by Corixa or such indemnified GenQuest Board members
or stockholders relating to the Merger and any transactions contemplated by the
Merger, up to a collective maximum aggregate amount of $4,000,000, provided that
such indemnification obligations of Corixa will apply only in the event the
Merger is consummated. Corixa will make any advances of reasonable expenses to
the GenQuest Indemnified Person that would be available under the Bylaws or
certificate of incorporation of GenQuest (in each case as in effect as of the
Execution Date) with regard to the advancement of indemnifiable expenses,
subject to the undertaking of such GenQuest Indemnified Person to repay such
advances in the event that it is ultimately determined that such GenQuest
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Indemnified Person is not entitled to indemnification. The indemnification
obligations of Corixa set forth herein shall not apply to any Damages (A) with
respect to a particular GenQuest Indemnified Person for (1) any breach of a
representation or warranty by such GenQuest Indemnified Person or (2) any
prospective liability associated with GenQuest that becomes known to Corixa
within one year of the Closing Date and that arise from facts actually known to
such GenQuest Indemnified Person and not known to Corixa at or prior to the
Closing Date, or (B) with respect to a particular GenQuest Indemnified Person
for which indemnification of the Corixa Indemnified Persons by such GenQuest
Indemnified Person is already provided pursuant to the Merger Agreement. The
indemnification obligations of Corixa set forth in the Merger Agreement will
continue with respect to any claim for indemnification made prior to one year
after the Closing Date until final resolution of such claim, and with respect to
the stockholders of GenQuest, shall be applicable only to such stockholders of
GenQuest who have executed the Merger Agreement.
MANAGEMENT AFTER THE MERGER
At the Effective Time, GenQuest will cease its corporate existence and
Chinook will remain as the surviving corporation and a wholly-owned subsidiary
of Corixa. Mark McDade and Michelle Burris will be the initial officers and
directors of Chinook following consummation of the Merger. See "The
Merger -- Conflicts of Interest" and "Management of Corixa."
CONDITIONS
The obligations of Corixa and GenQuest to effect the Merger are subject to
the satisfaction of certain conditions including, among others: (i) obtaining
the requisite GenQuest stockholder approvals; (ii) the absence of any injunction
prohibiting consummation of the Merger; (iii) the filing and subsequent
effectiveness of the Form S-4; (iv) the receipt of certain officer's
certificates and bring-down officer's certificates from each other certifying
the accuracy and satisfaction of certain matters; (v) the receipt of
certificates of good standing from the Secretary of the State of Delaware for
each party; (vi) Corixa shall have received an executed affiliate agreement from
affiliates of GenQuest holding at least 99% of the aggregate number of shares of
GenQuest capital stock held by GenQuest's affiliates; (vii) Corixa shall have
received stockholders agreements from the holders of up to (A) 450,000 shares of
GenQuest Common Stock, (B) 2,200,000 shares of GenQuest Series A Preferred Stock
and (C) 6,309,271 shares of GenQuest Series B Preferred Stock; (viii) Corixa
shall have received lock-up agreements from the holders of at least 95% of the
shares of GenQuest capital stock outstanding immediately prior to the Effective
Time (not including any shares issued upon the exercise of any GenQuest Stock
Options after the Execution Date); (ix) Corixa shall have received letters of
resignation from each of the officers and directors of GenQuest in office
immediately prior to the Effective Time; (x) the absence of any material adverse
change in the condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects of Corixa;
and (xi) the absence of certain specifically defined fundamental adverse effect
to GenQuest.
The obligation of each of Corixa and GenQuest to effect the Merger is also
subject to the satisfaction of certain other conditions including, among other
things, that the other party has performed its obligations under the Merger
Agreement prior to the Effective Time and that the representations and
warranties of the other party contained in the Merger Agreement are true and
correct in all material respects at and as of the Effective Time as if made at
and as of such time, except as contemplated by the Merger Agreement. In
addition, GenQuest's obligation to effect the Merger is subject to the approval
of listing on Nasdaq of the Corixa Common Stock to be issued in Merger. Corixa's
obligation to effect the Merger is subject to GenQuest having obtained the
consent or approval of each person or third party whose consent or approval
shall be required in connection with the transactions contemplated by the Merger
Agreement.
TERMINATION
At any time prior to the Effective Time, whether before or after approval
of the matters presented in connection with the Merger by the GenQuest
stockholders, the Merger Agreement may be terminated and the Merger may be
abandoned: (i) by mutual consent if duly authorized by the Boards of Directors
of each of GenQuest, Corixa and Chinook; (ii) by either Corixa or GenQuest, if,
without fault of the terminating party,
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(A) the Effective Time has not occurred on or before November 1, 1998, or such
later date as may be agreed upon in writing by the parties to the Merger
Agreement; or (B) there shall be any applicable federal or state law that makes
consummation of the Merger illegal or otherwise prohibited or if any court of
competent jurisdiction or governmental entity shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; (iii) by Corixa, if (A) there occurs any
specified fundamental adverse effect to GenQuest's business that GenQuest has
not cured within 15 calendar business days of receipt by Corixa of written
notice of such fundamental adverse effect, provided that no cure period shall be
allowed for a fundamental adverse effect which by its nature cannot be cured;
(B) because of a Takeover Proposal from any third party GenQuest fails to call
and hold the Special Meeting by the later of July 31, 1998 and the date that is
45 days after the Commission declares the Form S-4 effective; (C) holders of 95%
of the capital stock of GenQuest outstanding as of the time of the vote
(excluding any GenQuest Stock Options exercised after the Execution Date) have
not voted in favor of the Merger by the later of August 31, 1998 and the date
that is 45 days after the Commission declares the Form S-4 effective; or (D)
whether or not a Takeover Proposal exists, if (1) the GenQuest Board fails to
authorize, and is not legally prevented from authorizing, a distribution to the
stockholders of GenQuest, to occur within ten days after the date the Form S-4
is declared effective by the Commission, of the Proxy Statement in which the
GenQuest Board recommends approval of the Merger Agreement and the Merger and
calls the Special Meeting, or (2) the Special Meeting is not held within 30 days
after the date the Proxy Statement is distributed to the stockholders of
GenQuest; or (iv) by GenQuest, if (A) Corixa shall materially breach any of its
representations, warranties or obligations under the Merger Agreement and such
breach shall not have been cured within 15 calendar days following receipt by
Corixa of written notice of such breach, provided that GenQuest is not in
material breach of any of its representations, warranties or obligations under
the Merger Agreement, or (B) the GenQuest Board determines in its good faith
judgment based upon its fiduciary obligations to GenQuest's stockholders to
withdraw its recommendation of the Merger or Merger Agreement due to a Takeover
Proposal.
In the event of termination, the Merger Agreement will be of no further
effect and, except for a termination resulting from a breach by a party of the
Merger Agreement, there will be no liability or obligation on the part of either
Corixa, Chinook or GenQuest or their respective officers or directors, except as
specifically provided in the Merger Agreement.
CANCELLATION FEES; EXPENSES
Subject to the following exceptions, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby including, without
limitation, filing fees and the fees and expenses of advisors, accountants,
legal counsel and financial printers, shall be paid by the party incurring such
expense, except that Corixa will reimburse up to $5,000 to the holders of shares
of GenQuest Common Stock, up to $5,000 to the holders of shares of GenQuest
Series A Preferred Stock and up to $75,000 to the holders of shares of GenQuest
Series B Preferred Stock, in each case on a pro rata basis and for reasonable
transaction expenses incurred in connection with the Merger and Merger
Agreement.
In the event that the Merger Agreement is terminated by Corixa or GenQuest
in accordance with its terms and in connection with a Takeover Proposal, or in
the event that the Merger Agreement is terminated by Corixa in accordance with
its terms in connection with certain other occurrences set forth in the Merger
Agreement, then GenQuest shall, within ten days of such termination, reimburse
Corixa for all out-of-pocket costs and expenses incurred by Corixa in connection
with the Merger Agreement and the transactions contemplated by the Merger
Agreement (including, without limitation, filing fees and the fees and expenses
of its advisors, accountants, legal counsel and financial printers). In
addition, in the event that the Merger Agreement is terminated by Corixa in
accordance with the Merger Agreement and in connection with a Takeover Proposal,
then GenQuest shall within ten days of such termination place in escrow the sum
of $7,000,000, to be paid to Corixa conditioned upon the closing of the
transaction that is the subject of the applicable Takeover Proposal.
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AMENDMENT; WAIVER
The Merger Agreement may be amended by written action taken by Corixa,
Chinook, GenQuest and the GenQuest stockholders that executed the Merger
Agreement at any time before or after approval thereof by the stockholders of
GenQuest, but, after any such approval, no amendment may be made which alters an
Exchange Ratio or Chinook's Certificate of Incorporation or which in any way
adversely affects the rights of such stockholders without the further approval
of such stockholders.
At any time prior to the Effective Time, Corixa and GenQuest may, by
written instrument (i) extend the time for the performance of any of the
obligations or other acts of the other parties to the Merger Agreement, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant to the Merger Agreement,
and (iii) waive compliance with any of the agreements or conditions contained in
the Merger Agreement.
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RISK FACTORS
The following risk factors should be considered by stockholders of Corixa
and GenQuest in evaluating whether to approve the Merger Agreement. The risks
associated with the combined company in the Merger will be additional risks
faced by both the Corixa stockholders and the GenQuest stockholders following
the Merger. The risks described that are currently specific to GenQuest will be
additional risks faced by the Corixa stockholders, and the risks currently
specific to Corixa will be additional risks faced by the GenQuest stockholders
following the Merger. These factors should be considered in conjunction with the
other information included in this Proxy Statement/Prospectus.
ENHANCED RISKS TO THE COMBINED COMPANY AS A RESULT OF THE MERGER
Uncertainties Associated with the Integration of GenQuest. The Merger
involves the integration of GenQuest and Corixa. Among the factors considered by
the Corixa Board and GenQuest Board in connection with their respective approval
of the Merger Agreement were the opportunities for operating efficiencies that
they believe will ultimately result from the Merger. The successful integration
of the operations of GenQuest and Corixa following the Merger will require
substantial effort from both companies, and no assurance can be given that the
benefits expected from such integration will be realized. The difficulties of
combining such operations may be exacerbated by the necessity of consolidating
geographically separated facilities and combining different scientific cultures.
The process of integrating operations will cause a strain on Corixa's
management, and could cause an interruption of, or loss of momentum in, the
activities of Corixa's business, including the business acquired in the Merger.
Difficulties encountered in connection with the Merger and the integration of
the operations of GenQuest could have a material adverse effect on the business,
financial condition and results of operations of Corixa and the combined
company. Subsequent to the Merger, Corixa expects to incur a charge in the
quarter ending September 30, 1998, currently estimated to be $10.6 million, to
reflect the write-off of in-process technology. This amount is a preliminary
estimate only and is therefore subject to change. In addition, there can be no
assurance that Corixa will not incur additional charges in subsequent quarters
to reflect costs associated with the Merger.
Unknown Risks. To date, a significant portion of the research and
development programs of GenQuest have been conducted primarily at Columbia
University under the direction of Dr. Paul Fisher and colleagues rather than
under Corixa's scientific management. A laboratory in an academic setting has
different and possibly less stringent research management policies and
intellectual property controls than a laboratory in a commercial environment.
Although Corixa has conducted scientific due diligence with respect to GenQuest,
Corixa did not perform many of the research and development activities itself.
Consequently, it is not possible for Corixa or the combined company to be aware
of all of the risks associated with the Merger or the research and development
activities of GenQuest. Additionally, currently patents are being filed in the
field of functional genomics at a rapid pace, and there can be no assurance that
GenQuest has been able to timely file patent applications covering genes or gene
sequences it has discovered or to obtain adequate patent protection for any of
its proprietary rights. There can be no assurance that Corixa or the combined
company will not discover adverse information concerning GenQuest subsequent to
the Effective Time, including, among other things, information with respect to
research management policies and intellectual property controls, such as the
possible inadequacy of GenQuest's current patent protection and potential patent
infringement by GenQuest. Any such discovery could have a material adverse
effect on the business, financial condition and results of operations of Corixa
and the combined company. See "-- Dependence on Proprietary Technology and
Uncertainty of Patent Protection."
Uncertainties Related to Early Stage of Technology. GenQuest is at an early
stage in both its discovery and identification of genes related to the
transformation of normal cells into cancer cells and its research concerning
novel genes that are uniquely expressed with cancer cells. The use of GenQuest's
technology in the development of diagnostics, therapeutics and drug-screening
targets is currently unproven. Additionally, GenQuest has entered into few
corporate partnerships and license agreements to date, and the programs covered
by such corporate partnerships and license agreements are in the early stages.
There can be no assurance that any of GenQuest's programs will move beyond its
current stage of development, that any of its
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corporate partnerships or licenses will successfully develop products using
GenQuest's technology, or that such technology will be incorporated in a
commercialized product in a reasonable time frame, if ever.
Potential Dilutive Effect to Stockholders. Although Corixa and GenQuest
believe that beneficial synergies will result from the Merger, there can be no
assurance that the combining of the two companies' businesses, even if achieved
in an efficient, effective and timely manner, will result in combined results of
operations and financial condition superior to what would have been achieved by
each company independently, or as to the period of time required to achieve such
result. The issuance of Corixa Common Stock in connection with the Merger may
have the effect of reducing Corixa's net income per share from levels otherwise
expected and could reduce the market price of the Corixa Common Stock unless
revenue growth or cost savings and other business synergies sufficient to offset
the effect of such issuance can be achieved. As a consequence of the Merger,
GenQuest stockholders will lose the chance to invest in the development and
exploitation of GenQuest's technologies on a stand-alone basis. The management
of the combined company may make strategic and operational decisions that differ
from those that would be made by GenQuest as an independent company.
Consequently, there can be no assurance that stockholders of GenQuest would not
achieve greater returns on investment if GenQuest were to remain an independent
company.
Lack of Reagent Manufacturing Experience. GenQuest does not have
significant manufacturing facilities. Although GenQuest currently manufactures
small quantities of certain reagents to conduct research and to supply corporate
partners and licensees, GenQuest has very limited experience in manufacturing
and implementing quality assurance controls for such reagents. There can be no
assurance that the combined company will be able to manufacture such reagents in
either the quantity or quality required by corporate partners or licensees.
Additionally, there can be no assurance that the combined company will be able
to enter into an agreement with a third party contract manufacturer to provide
such reagents on acceptable terms, or at all. Difficulties encountered in
manufacturing reagents or establishing appropriate quality assurance controls
could have a material adverse effect on the business, financial condition and
results of operations of the combined company. See "-- Lack of Manufacturing
Experience; Reliance on Contract Manufacturers."
Uncertainties Related to Integration of Scientific Cultures. The scientific
personnel at GenQuest currently operate in close connection with an academic
environment while the scientific personnel at Corixa operate in a commercial
environment, and the two entities have different scientific management
approaches. See "-- Enhanced Risks to the Combined Company as a Result of the
Merger -- Unknown Risks." Consequently, there may be some difficulties
encountered by the combined company that are associated with the integration of
the two different scientific cultures and the coordination of the research and
development programs of Corixa and GenQuest in light of such scientific
cultures. There can be no assurance that the combined company will be able to
successfully and effectively integrate such scientific cultures, and the failure
to do so could have a material adverse effect on the combined company's
business, financial condition and results of operations.
Additional Shares to Be Issued by Corixa; Shares Eligible for Future
Sale. As a result of the Merger, Corixa will issue shares of its Common Stock to
holders of GenQuest capital stock and will assume all outstanding GenQuest Stock
Options. Based on an average last reported closing price on Nasdaq of Corixa
Common Stock for the 30 trading days immediately preceding the Execution Date
and the 30 trading days including and immediately following the Execution Date
equal to $6.8396, and assuming that no appraisal rights are perfected and no
GenQuest Stock Options are exercised after August 4, 1998, it is anticipated
that Corixa will issue 1,063,695 shares of Corixa Common Stock, and
12,325 shares of Corixa Common Stock will be issuable upon the exercise of
options to purchase GenQuest Common Stock assumed pursuant to the Merger. In
general, shares of Corixa Common Stock issued to holders of shares of GenQuest
capital stock in connection with the Merger will be subject to a contractual
lock-up period of 120 days following the Effective Time. These shares will be
freely tradable following the expiration of the lock-up period, subject to
certain resale restrictions for affiliates of GenQuest or Corixa pursuant to
Rules 144 and/or 145 under the Securities Act, and certain notification
requirements. See "The Merger -- Resale Restrictions." In addition, taking into
account the assumptions set forth above, an aggregate of 1,041,159 of the shares
of Corixa Common Stock issued in the Merger will be beneficially owned by
affiliates of GenQuest and, therefore, subject to resale restrictions. At the
time of the Merger, substantially all shares of existing Corixa Common Stock
will be
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eligible for sale in the public market subject in certain cases to volume and
other limitations. The sale of a significant number of the foregoing shares may
cause substantial fluctuations in the price of Corixa Common Stock over short
time periods.
Management of Growth; Integration of Potential Acquisitions. The combined
company's future growth may cause a significant strain on its management,
operational, financial, scientific and other resources, which strain is expected
to increase as a result of the Merger. The combined company's ability to manage
growth effectively will require it to implement and improve Corixa's current
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new scientific and management personnel and the development of
additional expertise by management. Additionally, any increase in resources
devoted to product development and marketing and sales efforts without a
corresponding increase in operational, financial, manufacturing and management
information systems could have an adverse effect on combined company's
performance. There can be no assurance that the combined company will be able to
perform such actions successfully. In the future, the combined company may make
additional acquisitions of complementary companies, products or technologies.
Managing acquired businesses entails numerous operational and financial risks
and strains, including difficulties in assimilating acquired operations and
scientific cultures, diversion of management's attention to other business
concerns, amortization of acquired intangible assets and potential loss of key
employees or strategic relationships of acquired entities. There can be no
assurance that the combined company will be able to effectively manage growth,
and failure to do so could have a material adverse effect on the combined
company's operating results.
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 Corixa's revenues
have resulted from payments made under agreements with its corporate partners,
and Corixa expects that most of its revenues for the foreseeable future will
continue to result from existing and future corporate partnerships, if any.
Corixa has generated only minimal revenues from diagnostic product sales and no
revenues from therapeutic product sales since inception. Vaccine products that
may result from Corixa'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 Corixa
will receive anticipated revenues under existing corporate partnerships, that
Corixa will be able to enter into any additional corporate partnerships or that
Corixa will ever achieve consistent profitability.
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT
Corixa's technological approach to the development of therapeutic and
prophylactic vaccines for cancers and certain infectious diseases is unproven in
humans. Products based on Corixa's technologies are currently in the discovery,
preclinical or early clinical investigation stages, and to date, neither Corixa
nor any of its corporate partners have conducted any clinical trials that
incorporate Corixa's proprietary microsphere delivery systems or its proprietary
adjuvants. In addition, no therapeutic vaccines for cancer or infectious
diseases targeted by Corixa have been successfully commercialized by Corixa or
others. There can be no assurance that Corixa 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, Corixa in-licenses and acquires
technologies to enhance its product pipeline. There can be no assurance that any
in-licensed technologies or technologies acquired as a result of the Merger or
otherwise will prove to be effective or will result in the successful
development of commercial products.
A majority of Corixa's programs are currently in the discovery stage or in
preclinical development, and only two of Corixa's therapeutic vaccine products
have advanced to Phase I clinical trials. Corixa's vaccines have not been
demonstrated to be safe and effective in clinical settings. There can be no
assurance that any of Corixa's programs will move beyond its current stage of
development. Assuming Corixa'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 Corixa's existing corporate
partnerships, the respective corporate partner
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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 studies to determine
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, Corixa or
its applicable corporate partner will submit an application to the FDA and
appropriate regulatory bodies in other countries 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 Corixa'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
Corixa'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.
POTENTIAL DILUTION
Corixa's stockholders will experience immediate and substantial dilution as
a result of the shares of Corixa Common Stock issued to GenQuest stockholders in
the Merger. Dilution will also occur upon exercise of outstanding options and
warrants to purchase Corixa Common Stock. Additionally, if SmithKline Beecham
Biologicals S.A. ("SmithKline Beecham") elects to exercise either one of its
options to license Corixa's early-stage antigen discovery programs in cancer,
Corixa may be required to issue shares of its Common Stock to SmithKline
Beecham, which issuance will result in additional dilution to Corixa's
stockholders. See "Information Concerning Corixa -- Corporate
Partnership -- Vaccines."
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 various corporate partners as of
July 31, 1998. For example, Corixa 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. Corixa derived 94% and 93%
of its revenues during the three months ended March 31, 1998 and the year ended
December 31, 1997, respectively, from research and development and other funding
under its existing corporate partnerships. The termination of any of these
corporate partnerships would have a material adverse effect on Corixa's
business, financial condition and results of operations. Several of Corixa's
corporate partners have entered into agreements granting them options to license
certain aspects of Corixa's technology. There can be no assurance that any such
corporate partner will exercise its option to license such technology. Corixa
has also entered into corporate partnerships with several companies for the
development, commercialization and sale of diagnostic products incorporating
Corixa'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 Corixa's technologies.
However, due in part to the early stage of Corixa's technologies, the process of
establishing corporate partnerships 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 Corixa'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, Corixa's success is
highly reliant upon the performance of its corporate partners. Under existing
corporate partnership arrangements, Corixa's corporate partners are generally
required to undertake and fund certain research and development activities with
Corixa, make payments upon
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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 Corixa, and there can be
no assurance that any of Corixa'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, Corixa's preclinical or clinical
development related to such corporate partnership could be delayed or
terminated. There can be no assurance that Corixa's corporate partners will
perform their obligations as expected. There can also be no assurance that
Corixa'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
Corixa, 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 Corixa's current corporate partnerships will not be
terminated by its corporate partners or that Corixa will be able to negotiate
additional corporate partnerships in the future on acceptable terms, or at all.
Because the success of Corixa'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 Corixa'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 Corixa's
business, financial condition and results of operations.
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. Corixa 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 Corixa and its
licensors or scientific collaborators. Additionally, many of Corixa's
in-licensing agreements contain milestone-based termination provisions. Corixa'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 Corixa
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 Corixa is unable to obtain or maintain licenses
to technology advantageous or necessary to Corixa'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
Corixa and its corporate partners will be successful in this regard. If Corixa
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 Corixa's business, financial condition and results of
operations.
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,
1998, Corixa owned or had licensed 20 issued United States patents that expire
at various times between December 2008 and August 2016, 99 corresponding issued
foreign patents, 136 pending United States patent applications, as well as 16
corresponding international filings under the Patent Cooperation Treaty and 269
pending foreign national patent applications. The above numbers reflect Corixa's
license from GenQuest of 3 issued United States patents that expire at various
times between July 2014 and August 2016
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and 37 pending United States patent applications, as well as 5 corresponding
international filings under the Patent Cooperation Treaty and 33 pending foreign
national patent applications. Corixa also holds an option to exclusively license
cancer vaccine antigens discovered by GenQuest through December 2001. There can
be no assurance that Corixa, 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
Corixa 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 Corixa or its corporate partners. Corixa has licensed certain patent
applications from Southern Research Institute ("SRI") related to Corixa'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 Corixa'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, Corixa 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 Corixa, are highly
uncertain and involve complex legal and technical questions for which legal
principles are not firmly established. For example, there is substantial
uncertainty regarding the potential for patent protection for gene fragments or
genes without known function or correlation with specific diseases. The degree
of future protection for Corixa's proprietary rights, therefore, is highly
uncertain. In this regard, there can be no assurance that independent patents
will issue from each of the 133 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
Corixa'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 Corixa'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 Corixa or its corporate partners. In addition,
Corixa is unable to determine the patents or patent applications that may
materially affect Corixa'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 Corixa or its corporate partners and limit the ability of Corixa or
its corporate partners to obtain meaningful patent protection. If patents
containing competitive or conflicting claims are issued to third parties, Corixa
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
Corixa 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 Corixa 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,
Corixa or such corporate partner may be delayed or prevented from
commercializing its products, which would have a material adverse effect on
Corixa's business, financial condition and results of operations.
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There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of Corixa, duplicate any of the
technologies of Corixa, its corporate partners or its licensors, or design
around the patented technologies developed by Corixa, its corporate partners or
its licensors. The occurrence of any of these events would have a material
adverse effect on Corixa's business, financial condition and results of
operations.
Litigation may also be necessary to enforce patents issued or licensed to
Corixa 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 Corixa in the event of
any such litigation. Additionally, there can be no assurance that Corixa 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 Corixa to significant liabilities, require
disputed rights to be licensed from other parties or require Corixa or its
corporate partners to cease using certain technology, any of which may have a
material adverse effect on Corixa's business, financial condition and results of
operations.
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 Corixa 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 Corixa shall be the exclusive property of Corixa. There
can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for any breach, or that Corixa'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 Corixa'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 March 31, 1998, Corixa's accumulated
deficit was approximately $14.8 million. Corixa 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
Corixa's discovery, research and development programs, preclinical studies and
clinical activities. Substantially all of Corixa's revenues to date have
resulted from corporate partnerships, other research, development and licensing
arrangements, research grants and interest income. Corixa'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 Corixa 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
Corixa. Therefore, Corixa's results of operations for any period may fluctuate
and may not be comparable to the results of operations for any other period.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The combined company will require substantial capital resources in order to
conduct its operations. The combined 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 combined 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
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technologies and products; and other factors not within the combined company's
control. The combined company 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. If sufficient capital is
not available, the combined 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 combined
company's business, financial condition and results of operations. Corixa
believes that following the Merger, the combined company's existing capital
resources, committed payments under existing corporate partnerships and
licensing arrangements, bank credit arrangements, equipment financing and
interest income will be sufficient to fund the combined company's current and
planned operations over at least the next 18 months. However, there can be no
assurance that such funds will be sufficient to meet the capital needs of the
combined 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 Corixa of development and regulatory milestones. Failure to
achieve such milestones would have a material adverse effect on the combined
company's future capital needs. In addition, Corixa 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
additional cancer targets. In January 1998, the corporate partner exercised the
contract extension provisions for one of the early stage cancer targets. If this
option is not exercised by September 1, 1999, Corixa will be required to refund
the consideration attributable to such option over a three-year period beginning
March 2000. If the option to pursue the other additional cancer target is not
exercised or extended before September 1, 1998 or if extended, is not exercised
by September 1, 1999, Corixa will also be required to refund the consideration
attributable to such option according to the same repayment schedule. See Note 7
and Note 8 of Notes to Corixa's Financial Statements for further discussion of
this contractual arrangement.
DEPENDENCE ON KEY PERSONNEL
Corixa is highly dependent on the principal members of its scientific and
management staff, the loss of whose services might significantly delay or
prevent Corixa'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 Corixa's success. There can be no assurance that
Corixa 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 Corixa's business, financial condition and results of
operations. In addition, Corixa does not maintain "key person" life insurance on
any officer, employee or consultant of Corixa.
Corixa also has relationships with scientific collaborators at academic and
other institutions, some of whom conduct research at Corixa's request or assist
Corixa in formulating its research and development strategy. These scientific
collaborators are not employees of Corixa and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to Corixa. Corixa 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 Corixa's activities by such individuals. Failure of any
such persons to devote sufficient time and resources to Corixa's programs could
have a material adverse effect on Corixa'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.
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 cancers 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 cancers and infectious diseases and, in this regard, are competitive with
Corixa. Moreover, technology controlled by third parties that may be
advantageous to Corixa's business may be acquired or licensed by competitors of
Corixa, thereby preventing Corixa 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 Corixa. These companies and
institutions compete with Corixa in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to Corixa'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 Corixa and its corporate partners, or that such
competitive products will not render Corixa's products obsolete.
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
Corixa does not have significant manufacturing facilities. Although Corixa
currently manufactures limited quantities of certain antigens and adjuvants,
including Corixa's novel Leishmania elongation Initiating Factor adjuvant, to
conduct preclinical studies and to supply corporate partners, Corixa intends to
rely on third party contract manufacturers to produce large quantities of such
substances for clinical trials and product commercialization. Additionally,
Corixa 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 Corixa's needs with respect to timing,
quantity or quality. If Corixa 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, Corixa'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 Corixa's business, financial condition and results of operations.
Moreover, contract manufacturers that Corixa 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 Corixa's products will not be granted.
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
Corixa currently has no sales, marketing or distribution capability. Corixa
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 Corixa is unable to
maintain or establish such relationships and is required to market any of its
products directly, Corixa will have to develop a marketing and sales force with
technical expertise and with supporting distribution capabilities. There can be
no assurance that Corixa will be able to maintain or establish such
relationships with third parties or develop in-house sales and distribution
capabilities. To the extent that Corixa depends on its corporate partners or
third parties for marketing and distribution, any revenues received by Corixa
will depend upon the efforts of such corporate partners or third parties, and
there can be no assurance that such efforts will be successful.
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GOVERNMENT REGULATION
The preclinical testing and clinical trials of any products developed by
Corixa 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
Corixa 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 Corixa or its corporate
partners, impose significant additional costs on Corixa and its corporate
partners, diminish any competitive advantages that Corixa or its corporate
partners may attain and adversely affect Corixa's ability to receive royalties
and generate revenues and profits. There can be no assurance that, even after
such time and expenditures, any required approvals or clearances will be
obtained for any products developed by or in collaboration with Corixa.
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. The FDA has recently revised the GMP
regulations. The new Quality System Regulation imposes design controls and makes
other significant changes in the requirements applicable to manufacturers.
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.
Corixa 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
Corixa's discovery, research and development work, including radioactive
compounds and infectious disease agents. In addition, Corixa 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 Corixa's products, and there can be no assurance that Corixa will
not be required to incur significant costs to comply with current or future laws
or regulations or that Corixa will not be adversely affected by the cost of such
compliance.
PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE
Inherent in the use of Corixa'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
Corixa 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 Corixa will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing. A product
liability claim, product recalls or other claim, as well as any claims for
uninsured liabilities or in excess of insured liabilities, may have a material
adverse effect on Corixa'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
Corixa or its corporate partners, if approved for marketing, will ever achieve
market acceptance. Corixa'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 Corixa 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 Corixa or its corporate partners, and the lack
of such market acceptance would have a material adverse effect on Corixa'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 Corixa'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 Corixa's or its corporate partners'
products are approved for marketing. Cost control initiatives could decrease the
price that Corixa receives for any product it or any of its corporate partners
may develop in the future and may have a material adverse effect on Corixa'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 Corixa'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, Corixa's business, financial condition and
results of operations may be materially adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICE
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 Corixa'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, announcements regarding
the acquisition of technologies or companies, including the Merger,
technological innovations or new commercial products developed by Corixa or its
competitors, changes in government regulations, changes in Corixa'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 changed stock market analyst
reports and/or recommendations, and economic and other external factors, as well
as operating losses by Corixa, fluctuations in Corixa's financial results and
the degree of trading liquidity in its Common Stock. These factors could have a
material adverse effect on Corixa's business, financial condition and results of
operations and the price of its Common Stock in the public market.
CONTROL BY EXISTING STOCKHOLDERS
As of August 4, 1998, executive officers and directors of Corixa, together
with entities affiliated with them, beneficially own approximately 54% of the
outstanding Corixa Common Stock. These stockholders, acting as a group, are able
to control the election of all members of the Corixa Board and to determine all
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corporate actions. The voting power of these stockholders could also have the
effect of delaying or preventing a change in control of Corixa.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus, including
without limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Corixa, Chinook, GenQuest, the combined company or their
corporate partners, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to: enhanced risks as a result of the
Merger; uncertainties associated with the integration of GenQuest and Corixa;
uncertainties related to the early stage of research and development programs;
uncertainties related to the effectiveness of technology and the development of
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; history of operating losses;
future capital needs and uncertainty of additional funding; 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, as well as other factors referenced in
this Proxy Statement/Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Proxy Statement/Prospectus, including, without
limitation, under the captions "Summary," "The Merger," "Terms of the Merger,"
"Risk Factors," "Corixa Management's Discussion and Analysis of Financial
Condition and Results of Operations," "GenQuest Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Information
Concerning Corixa" and "Information Concerning GenQuest." In addition, other
factors may be listed from time to time in Corixa's public disclosure filings
with the Commission, including Corixa's Final Prospectus for its initial public
offering filed with the Commission on October 2, 1997, Corixa's Annual Report on
Form 10-K filed with the Commission on March 10, 1998 and Corixa's Quarterly
Report on Form 10-Q filed with the Commission on May 15, 1998. Given these
uncertainties, stockholders of GenQuest voting for or against approval of the
Merger and the Merger Agreement, prospective investors in Corixa and any other
parties reviewing this Proxy Statement/ Prospectus 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.
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CORIXA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations contains "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including,
without limitation, statements regarding regulatory approvals, operating results
and capital requirements. Except for historical information, the matters
discussed herein are forward-looking statements that are subject to certain
risks and uncertainties that could 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. See "Risk Factors --
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
cancer and certain infectious diseases. Corixa'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 Corixa and accelerates the commercial
development of new therapeutic and prophylactic T cell vaccines. To date,
approximately 89% of Corixa's revenue has resulted from payments from such
collaborative agreements. In particular, Corixa has entered into significant
corporate partnerships with SmithKline Beecham with respect to tuberculosis and
cancer vaccine products pursuant to which Corixa will receive up to an aggregate
of $78.8 million, of which up to $29.8 million is payable under the breast
cancer collaboration, up to $29.8 million is payable under the prostate cancer
collaboration and up to $19.2 million is payable under the tuberculosis
collaboration. A substantial amount of such funding is required to be used for
research and development activities pursuant to the terms of such
collaborations. SmithKline Beecham may terminate either or both of the breast
and prostate cancer programs in the event Corixa does not meet certain
scientific milestones after the second anniversary of the effective date of the
respective agreements and may terminate the tuberculosis research program by
failing to exercise the extension thereunder. See "Information Concerning
Corixa -- Corporate Partnerships." Additionally, approximately 11% of Corixa's
revenue has resulted from funds awarded through government grants. As of March
31, 1998, Corixa had total stockholders' equity of $49 million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements early in the development process. Corixa 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 Corixa's financing requirements.
When entering into such corporate partnering relationships, 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. Revenues recognized from inception
through March 31, 1998 under Corixa's collaborative agreements total
approximately $22.8 million.
Corixa has experienced operating losses in each year since its inception.
As of March 31, 1998, Corixa's accumulated deficit was approximately $14.8
million. Corixa 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 Corixa's discovery, research and
development programs, preclinical and clinical activities. Substantially all of
Corixa's revenue to date has resulted from corporate partnerships, other
research, development and licensing arrangements, research grants and interest
income. Corixa'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 Corixa will be able to achieve consistent profitability. In
addition,
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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 Corixa. Therefore, Corixa's
results of operations for any period may fluctuate and may not be comparable to
the results of operations for any other period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Total Revenue
Revenue for the first quarter of 1998 decreased to $2.8 million from $4.2
million for the same period in 1997. Results for the first quarter of 1998
include revenue from collaborative agreements. Results for 1997 also include a
technology access fee recognized upon the commencement of a research project.
Revenue of $524,000 and $315,000 was recognized during the three months ended
March 31, 1998 and 1997, respectively, in conjunction with the amended license
and collaboration agreement with GenQuest.
Research and Development Expenses
Research and development expenses increased to $5.9 million for the three
months ended March 31, 1998 from $3.3 million for the same period in 1997. The
increase was primarily attributable to increased payroll and personnel expenses
incurred as Corixa hired additional research and development personnel, the
inclusion of the research and development portion of amortized deferred
compensation expense associated with the grant of certain stock options,
increased purchases of laboratory supplies, increased equipment depreciation and
facilities expenses in connection with the expansion of Corixa's research
efforts. The non-cash compensation expense associated with the grant of certain
stock options will continue to be recognized over the remaining vesting period
of such options, approximately three years. Research and development expenses of
approximately $524,000 and $315,000 were incurred during the three months ended
March 31, 1998 and 1997, respectively, in conjunction with the amended license
and collaboration agreement with GenQuest. See Note 9 of Notes to Corixa's
Financial Statements. Corixa expects research and development expenses to
increase in the future to support the expansion of its research and development
activities.
General and Administrative Expenses
General and administrative expenses increased to $547,000 for the three
months ended March 31, 1998, from $330,000 for the same period in 1997. The
increase was primarily due to increased expenses related to business
development, increased legal fees and other costs associated with being a public
company, and the general and administrative portions of the amortized deferred
compensation expense associated with the grant of certain stock options. Corixa
expects general and administrative expenses to increase in the future to support
the expansion of its business.
Interest Income
Interest income increased to $828,000 for the three months ended March 31,
1998, up from $162,000 for the same period in 1997. This increase resulted from
higher average cash balances in 1998 as a result of the proceeds of Corixa's
initial public offering.
Interest Expense
Interest expense increased to $147,000 for the three months ended March 31,
1998, up from $72,000 for the same period in 1997. The increase in interest
expense in 1998 resulted from the increased utilization of the capital lease
line and a loan to finance tenant improvements and the purchase of property and
equipment.
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Other Income
Other income increased to $125,000 for the three months ended March 31,
1998, from $93,000 for the same period in 1997. The balance through March 31,
1998 consists of proceeds from management and administrative services agreements
with GenQuest and the Infectious Disease Research Institute, a not-for-profit,
grant-funded private research institute, pursuant to which Corixa provides
services with respect to corporate management, record keeping, personnel
administration and human resources, and treasury services as required by such
agreements.
Deferred Compensation
Deferred compensation of approximately $3.9 million was recorded in fiscal
year 1997, representing the difference between the exercise prices of 645,000
shares of Corixa Common Stock subject to options granted during the first half
of 1997 and the deemed fair value of Corixa Common Stock on the grant dates.
Deferred compensation expense of approximately $482,000 and $89,000 was
amortized for the three months ended March 31, 1998 and 1997, respectively.
FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Total Revenue
Revenue increased to $14.4 million for the year ended December 31, 1997,
from $5.8 million for the same period in 1996 and from $2.7 million for the same
period in 1995. This increase was attributable primarily to license revenue
resulting from the breast and prostate cancer collaboration and license
agreements with SmithKline Beecham. Revenue of approximately $1.9 million was
recognized during the year ended December 31, 1997 in conjunction with the
amended license and collaboration agreement with GenQuest. Revenue under
government grants received in 1997 was $977,000, which amount was less than the
$1.4 million received in 1996 and up $673,000 from $304,000 in 1995.
Research and Development Expenses
Research and development expenses increased to $16.4 million for the year
ended December 31, 1997, up from $10.0 million for the same period in 1996 and
from $7.0 million for the same period in 1995. The increase was primarily
attributable to increased payroll and personnel expenses incurred as Corixa
hired additional research and development personnel, the inclusion of the
research and development portion of amortized deferred compensation expense
associated with the grant of certain stock options, increased purchases of
laboratory supplies, increased equipment depreciation and facilities expenses in
connection with the expansion of Corixa's research efforts, and increased
preclinical collaboration costs. Expenses associated with amortization of
deferred compensation, a non-cash compensation expense, will continue to be
recognized over the vesting period of such options, approximately three years.
Research and development expenses of approximately $2.4 million were incurred
during the year ended December 31, 1997 in conjunction with the amended license
and collaboration agreement with GenQuest. See Note 9 of Notes to Corixa's
Financial Statements for further discussion of the GenQuest relationship. Corixa
expects research and development expenses to increase in the future to support
the expansion of its research and development activities, including the current
development efforts of GenQuest.
General and Administrative Expenses
General and administrative expenses increased to $2.0 million for the year
ended December 31, 1997, up from $780,000 for the same period in 1996 and from
$532,000 for the same period in 1995. 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. Corixa expects general and
administrative expenses to increase in the future to support the expansion of
its business development activities, and as a result of additional expenses
associated with being a public company.
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Interest Income
Interest income increased to $1.3 million for the year ended December 31,
1997, up from $642,000 for the same period in 1996 and from $772,000 for the
same period in 1995. This increase resulted from higher average cash balances in
1997 as a result of the proceeds of Corixa's initial public offering. Interest
income for fiscal year 1996 decreased from 1995 as Corixa utilized proceeds from
the private equity offerings.
Interest Expense
Interest expense increased to $327,000 for the year ended December 31,
1997, up from $166,000 for the same period in 1996 and from $82,000 for the same
period in 1995. Increases in 1997 and 1996 interest expense resulted from the
increased utilization of the capital lease line to finance the purchase of
property and equipment.
Other Income
Other income increased to $416,000 for the year ended December 31, 1997, up
from $348,000 for the same period in 1996 and from $16,000 for the same period
in 1995. The balance for 1997 includes $325,000 and $90,000 in proceeds from
management and administrative services agreements with GenQuest and the
Infectious Disease Research Institute, respectively. For 1996, other income
consists of $300,000 and $48,000 in proceeds from such agreements with GenQuest
and the Infectious Disease Research Institute, respectively.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. While uncertainty exists
concerning the potential effects associated with such compliance, Corixa
currently does not believe that year 2000 compliance will result in a material
adverse effect on its business, financial condition or results of operations.
However, there can be no assurance that Corixa or its corporate partners will
not be materially adversely affected as a result of the year 2000 compliance
measures or the failure of any such measures.
LIQUIDITY AND CAPITAL RESOURCES
Corixa has financed its operations since inception through collaborative
agreements, government grants, private placements of equity securities, capital
leases and an initial public offering of its Common Stock. From inception
through March 31, 1998, Corixa's operations have used cash of $9.3 million. In
October 1997, Corixa completed an initial public offering of Common Stock
resulting in proceeds, net of underwriting discounts and offering costs, of
$40.8 million. Through March 31, 1998, Corixa recognized approximately $25.7
million of revenue under corporate partnerships and grants. Private placements
of equity securities have provided Corixa with aggregate gross proceeds of
approximately $20.1 million. Corixa has obtained $5.0 million from an advance
under a collaborative agreement, $4.6 million through capital lease financing
and $4.0 million in long-term debt. As of March 31, 1998, Corixa had
approximately $57.7 million in cash, cash equivalents and securities
available-for-sale.
Corixa has invested $6.4 million in property and equipment since inception,
including equipment acquired under capital lease financing. Corixa 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 March 31, 1998, Corixa had net operating loss carryforwards of
approximately $12.2 million and research and experimentation credit
carryforwards of approximately $1.0 million to offset future federal taxable
income and income taxes, respectively, if any, through 2009. Due to the degree
of uncertainty related to the ultimate realization of such prior losses, no
benefit has been recognized as of March 31, 1998. Additionally, utilization of
such losses in future years will be limited under the change of stock ownership
rules of the IRS. See Note 5 of Notes to Corixa's Financial Statements.
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In December 1997, Corixa entered into a loan agreement with Sumitomo Bank,
Limited. Pursuant to the loan agreement, Corixa has an unsecured note under
which Corixa may borrow up to an aggregate of $7.0 million. Borrowings under the
note bear interest at a rate that is a function of either the prime rate of a
major bank or federal fund rates. Under the terms of the note, Corixa is
required to meet certain financial requirements. As of March 31, 1998, Corixa
had borrowed $4.0 million under the loan agreement. See Note 7 of Notes to
Corixa's Financial Statements.
Corixa believes that the proceeds from its initial public offering, its
existing capital resources, committed payments under its existing collaborative
agreements and licensing arrangements, bank credit arrangements, equipment
financing and interest income will be sufficient to fund the current and planned
operations over at least the next 18 months. There is, however, no assurance
such sources of capital will be sufficient for such period of time. Corixa
intends to enter into additional corporate collaborations which will provide
funding for all or a part of its research and development activities. Corixa'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 Corixa 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 Corixa's control.
Corixa 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, Corixa 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 Corixa's business, financial
condition and results of operations. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding."
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GENQUEST MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations contains "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including,
without limitation, statements regarding regulatory approvals, operating results
and capital requirements. Except for historical information, the matters
discussed herein are forward-looking statements that are subject to certain
risks and uncertainties that could cause the actual results, performance or
achievements of GenQuest, its corporate partners or successor entities, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. See "Risk Factors -- Special Note Regarding Forward-Looking
Statements."
OVERVIEW
GenQuest is focused on applying functional genomics technology to discover
novel genes related to the transformation of normal cells into cancer cells and
developing the potential of such genes and related gene products to be used as
diagnostics, therapeutics and drug-screening targets in the field of oncology.
GenQuest's business strategy is to discover novel genes, initiate diagnostic,
therapeutic or drug-screening applications of such genes and establish corporate
partnerships with diagnostic, pharmaceutical and biopharmaceutical companies for
the development and commercialization of such genes and applications. In
addition, GenQuest intends to develop and acquire additional discovery
methodologies, novel genes and assays that enhance the identification of cancer
genes and molecules related to such genes that may have diagnostic, therapeutic
or drug-screening applications. To date, approximately 76% of GenQuest's revenue
has resulted from payments from collaborative agreements and licensing
arrangements. Additionally, approximately 24% of GenQuest's revenue has resulted
from funds awarded through government grants. As of March 31, 1998, GenQuest had
total stockholders' equity of $1.7 million.
When entering into corporate partnering relationships, GenQuest intends to
seek upfront fees, research funding, milestone fees and royalties or a share of
net profits associated with the sales of products containing or developed using
GenQuest's proprietary genes, gene products and/or assay technologies. Revenue
recognized from inception through March 31, 1998 under GenQuest's collaborative
agreements total approximately $175,000.
GenQuest has experienced operating losses in each year since its inception.
As of March 31, 1998, GenQuest's accumulated deficit was approximately $9.6
million. GenQuest 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 GenQuest's
discovery, research and development activities. Substantially all of GenQuest's
revenue to date has resulted from corporate partnerships, research grants and
interest income. GenQuest's ability to achieve a 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 GenQuest will be able to achieve profitability. In addition,
payments under collaborative agreements and licensing arrangements will be
subject to significant fluctuations in both timing and amounts. Therefore,
GenQuest's results of operations for any period may fluctuate and may not be
comparable to the results of operations for any other period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Total Revenue
Revenue increased to $173,000 for the three months ended March 31, 1998,
from $0 for the same period in 1997. This increase was attributable primarily to
revenue resulting from collaboration agreements. Revenue under government grants
received in 1998 was $23,000.
Research and Development Expenses
Research and development expenses increased to $1.0 million for the three
months ended March 31, 1998, up from $679,000 for the same period in 1997. The
increase was primarily attributable to increased
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preclinical costs, increased payroll and personnel expenses incurred as GenQuest
hired additional research and development personnel, increased purchases of
laboratory supplies, and increased equipment depreciation and facilities
expenses in connection with the expansion of GenQuest's research efforts.
GenQuest expects research and development expenses to increase in the future to
support the expansion of its research and development activities.
GenQuest, stockholders of GenQuest and Corixa, have entered into the Call
Option Agreement under which Corixa has the right to purchase all of the
outstanding shares of GenQuest's capital stock in exchange for shares of
Corixa's Common Stock at a purchase price determined in accordance with the
formula specified in the Call Option Agreement. See "The Merger -- Material
Contacts." The Call Option Agreement does not obligate Corixa to purchase any
shares of GenQuest, nor does it preclude Corixa from purchasing shares of
GenQuest or the assets of GenQuest at a price different from that set forth in
the Call Option Agreement.
General and Administrative Expenses
General and administrative expenses decreased to $94,000 for the three
months ended March 31, 1998, from $142,000 for the same period in 1997. The
decrease was primarily due to an expense reimbursement related to business
development made to GenQuest in 1998. GenQuest expects general and
administrative expenses to increase in the future to support the expansion of
its business development activities.
Interest Income
Interest income decreased to $33,000 for the three months ended March 31,
1998, from $68,000 for the same period in 1997. Interest income decreased,
reflecting the decrease in cash balances, from 1997 to 1998 as GenQuest utilized
proceeds from private equity offerings.
Interest Expense
Interest expense increased to $17,000 for the three months ended March 31,
1998, up from $1,000 for the same period in 1997. This increase in interest
expense in 1998 resulted from the increased utilization of the capital lease
line to finance the purchase of property and equipment.
FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
Total Revenue
Revenue increased to $58,000 for the year ended December 31, 1997, from $0
for the same period in 1996. Revenue of approximately $25,000 was recognized
during the year ended December 31, 1997. Revenue under government grants
received in 1997 was $33,000.
Research and Development Expenses
Research and development expenses increased to $3.7 million for the year
ended December 31, 1997, up from $1.1 million for the same period in 1996. The
increase was primarily attributable to increased payroll and personnel expenses
incurred as GenQuest hired additional research and development personnel,
increased preclinical costs and increased purchases of laboratory supplies.
GenQuest expects research and development expenses to increase in the future to
support the expansion of its research and development activities.
General and Administrative Expenses
General and administrative expenses increased to $962,000 for the year
ended December 31, 1997, up from $526,000 for the same period in 1996. The
increase was primarily due to increased expenses related to business
development. GenQuest expects general and administrative expenses to increase in
the future to support the expansion of its business development activities.
Interest Income
Interest income increased to $236,000 for the year ended December 31, 1997,
up from $10,000 for the same period in 1996. This increase resulted from higher
average cash balances in 1997 as a result of the proceeds from GenQuest's
private equity offering of Series B Preferred Stock.
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Interest Expense
Interest expense increased to $24,000 for the year ended December 31, 1997,
up from $13,000 for the same period in 1996. Growth in 1997 interest expense
resulted from the increased utilization of the capital lease line to finance the
purchase of property and equipment.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. While uncertainty exists
concerning the potential effects associated with such compliance, GenQuest
currently does not believe that year 2000 compliance will result in a material
adverse effect on its business, financial condition or results of operations.
However, there can be no assurance that GenQuest or its corporate partners will
not be materially adversely affected as a result of the year 2000 compliance
measures or the failure of any such measures.
LIQUIDITY AND CAPITAL RESOURCES
GenQuest has financed its operations since inception through private
placements of equity securities, capital leases, collaborative agreements and
government grants. From inception through March 31, 1998, GenQuest's operations
have used cash of $7.1 million. Through March 31, 1998, GenQuest recognized
approximately $231,000 of revenue under corporate partnerships and grants.
Private placements of equity securities have provided GenQuest with net proceeds
of approximately $10.2 million. GenQuest has obtained $582,000 through capital
lease financing. As of March 31, 1998, GenQuest had approximately $2.2 million
in cash and cash equivalents.
GenQuest has invested $634,000 in property and equipment since inception,
including equipment acquired under capital lease financing. GenQuest expects
capital expenditures to increase as it expands and acquires scientific equipment
to support the planned expansion of research and development efforts.
As of March 31, 1998, GenQuest had net operating loss carryforwards of
approximately $7.4 million and research and experimentation credit carryforwards
of approximately $228,000 to offset future federal taxable income and income
taxes, respectively, if any, through 2010. Due to the degree of uncertainty
related to the ultimate realization of such prior losses, no benefit has been
recognized as of March 31, 1998. Additionally, utilization of such losses in
future years will be limited under the change of stock ownership rules of the
IRS. See Note 4 of Notes to GenQuest's Financial Statements.
GenQuest believes that the proceeds from its private equity offering of
Series B Preferred Stock, its existing capital resources, committed payments
under its collaborative agreements and licensing arrangements, and equipment
financing and interest income will be sufficient to fund its current and planned
operations at least through December 1998. There is, however, no assurance such
sources of capital will be sufficient for such period of time. GenQuest intends
to enter into additional collaborative agreements that will provide funding for
all or a part of its research and development activities. GenQuest'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 GenQuest 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 GenQuest's control.
GenQuest intends to seek additional funding through public or private equity or
debt financings, corporate collaborations, licensing arrangements 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, GenQuest 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 GenQuest's business, financial
condition and results of operations. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding."
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INFORMATION CONCERNING CORIXA
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. 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") -- which are
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 and create certain serious adverse side effects.
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. Corixa's vaccines consist of proprietary antigens
which may be encapsulated in biodegradable and biocompatible microspheres and
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 protein-based products of specialized immune system cells called
B lymphocytes 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. Typically 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 that 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.
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 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 that 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. Corixa 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
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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.
Corixa 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. Corixa has incorporated recent
advances in the understanding of the molecular mechanism controlling how
antigens are normally presented to T cells and has designed vaccine formulations
which incorporate disease-specific antigens into biodegradable and biocompatible
microspheres that give rise to potent CTL responses. Corixa'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, Corixa 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.
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. Corixa's strategy is to dedicate its
resources to vaccine discovery and to establish corporate partnerships early in
the development process 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 Corixa and accelerates the commercial
development of new therapeutic and prophylactic T cell vaccines. Principal
elements of Corixa's strategy are as follows:
Integrate Corixa's Core Technologies. Corixa 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 that it 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 technologies may improve such companies' existing or
developmental-stage vaccine products.
Establish Corporate Partnerships at an Early Stage. Corixa intends to enter
into corporate partnerships early in the development process. For those products
that show promise in the preclinical or clinical stage, Corixa will seek a
corporate partner no later than prior to the initiation of Phase II clinical
trials. Corixa 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, 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.
Partner Discrete Core Technologies and Non-Vaccine Products. Because Corixa
believes that certain other companies' vaccine products may be enhanced by
components available from Corixa, Corixa seeks to establish corporate
partnerships with major commercial entities for each of its proprietary core
technologies. For example, Corixa may partner its proprietary antigens with
companies that have developed their own delivery and adjuvant technologies.
Similarly, Corixa believes that it can partner Corixa's novel Leishmania
elongation Initiating Factor ("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 suffer from sub-optimal T
cell immune stimulation in vivo. Corixa further believes that certain of the
antigens it discovers may lead to the
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development of useful non-vaccine products, particularly diagnostics, and Corixa
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 Corixa's proprietary
microsphere antigen delivery system. Corixa has determined that CTL generated as
a result of microsphere-mediated antigen presentation are capable of 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 neither activated CTL responses nor resulted 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 that
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 Corixa 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. Corixa uses
microspheres that are produced from synthetic co-polymers approved by the FDA.
In addition, 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 the 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
multi-year shelf-life.
Corixa 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, Corixa
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. Corixa 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 that 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 sand
flies and causes both a skin and visceral disease known as Leishmaniasis. In
cell culture studies conducted by Corixa, 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.
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Preclinical studies conducted by Corixa indicate that LeIF is a unique
protein stimulator of the Th1 response. Additional research conducted by Corixa
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 preclinical 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-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 may greatly enhance the
efficacy of its T cell vaccines. Corixa 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 Corixa'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, Pasteur Merieux Connaught, a subsidiary
of Rhone-Poulenc Group ("PMC") and Heska Corporation ("Heska"). See
"-- Corporate Partnerships -- Adjuvants" and "-- Other Products in Development."
Antigen Discovery
Corixa's ability to discover and patent multiple antigens allows it to
select those that 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, approximately half of Corixa's
scientific personnel are devoted to antigen discovery. Discovery approaches and
technologies used by Corixa in both tumor and infectious disease vaccine
development include: (i) tumor tissue procurement and human tumor propagation in
severe combined immune deficient ("SCID") mice; (ii) differential gene
expression; (iii) cDNA subtraction; (iv) expression cloning; (v) pathogen
protein purification; (vi) antigenic peptide stripping; and (vii) immunological
characterization of candidate tumor vaccine antigens. Corixa's discovery
approaches map patient immune responses to ensure that discoveries focus on
identification of pathogen and tumor proteins that are recognized by the human
immune system and are therefore antigenic. See "-- Corixa's Vaccine Antigen
Discovery Methodologies."
The culmination of Corixa's antigen discovery research is the isolation of
pathogen or tumor 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 Corixa. As of June 30, 1998, Corixa had filed
numerous patent applications seeking both composition of matter and/or vaccine
and diagnostic method of use claims to: (i) approximately 270 gene sequences
based on the pattern of their expression in breast cancer cells and normal
breast tissue; (ii) approximately 195 based on the pattern of their expression
in prostate cancer cells or normal prostate tissue; (iii) approximately 180 gene
sequences expressed by Mycobacterium tuberculosis; and (iv) approximately 140
based on the pattern of their expression in lung cancer cells or normal living
tissue.
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 Corixa. Corixa'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 that may result from Corixa'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 "Risk
Factors -- 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 Corixa's corporate partner, if any, for such product
application.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CORIXA'S PRODUCTS IN DEVELOPMENT
- -------------------------------------------------------------------------------------------
PRODUCTS APPLICATION DEVELOPMENT PHASE(1) PARTNER
- ---------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
VACCINES Breast/Prostate Cancer Research SmithKline Beecham
Antigen Discovery Biologicals S.A.
Two Additional Cancer Research SmithKline Beecham
Targets Biologicals S.A
Her-2/neu Peptide Phase I Clinical Trials Not Currently Partnered
Vaccine for Breast and
Ovarian Cancer
Lung Cancer, Leukemia, Research Not Currently Partnered
and Other Cancer
Targets, Antigen
Discovery
Tuberculosis Antigen Preclinical Studies SmithKline Beecham
Discovery Biologicals S.A.
ADJUVANTS LeIF as an Adjuvant for Preclinical Studies Pasteur Merieux
Certain Infectious Connaught
Disease Vaccines
LeIF as an Adjuvant in Preclinical Studies SmithKline Beecham
Breast and Prostate Biologicals S.A.
Cancer
DIAGNOSTICS Trypanosoma cruzi Development DiaMed S.A.
Trypanosoma cruzi Development Trinity Biotech UK
Limited (formerly
Centocor, U.K. Limited)
Tuberculosis Development Abbott Laboratories
Tuberculosis Early Stage AMRAD-ICT, a division
Commercialization of AMRAD Corporation
PTY LTD
Leishmaniasis Early Stage Various diagnostic
Commercialization Companies
Tick-Borne Diseases Development Imugen, Inc.
OTHER PRODUCTS Adoptive Preclinical Studies Not Currently Partnered
Immunotherapy -- Cancer
Certain Technologies Development and Early Heska Corporation
for Companion Animal Stage Commercialization
Health
- -------------------------------------------------------------------------------------------
</TABLE>
(1) "Research" indicates the discovery or creation of prototype products and
includes antigen 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.
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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 such therapies.
Corixa has identified over 500 gene sequences having tumor cell and normal
tissue expression patterns indicating that they may be 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 450 tumor gene
sequences. Corixa is continuing to make progress toward the immunological
characterization of these gene sequences with the goal of selecting several
antigens for use in vaccines for each of 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, a
significant percentage 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,
Corixa is currently developing a "cocktail" approach to vaccine formulation,
combining multiple peptides in a single vaccine. Corixa 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 and is currently being conducted at the
University of Washington. Safety is the primary endpoint of this clinical trial,
which currently consists of over 50 patients who are each receiving 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. This clinical trial currently uses "naked" Her-2/neu peptides
together with granulocyte macrophage colony stimulating factor ("GM-CSF") as an
adjuvant. Corixa 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 believes that results to date from such
clinical trials demonstrate the safety of Her-2/neu peptides as a vaccine.
Corixa has an exclusive worldwide license to Her-2/neu peptide vaccine
technology from the University of Washington. Corixa is also providing funding
for a Phase I clinical trial currently being conducted at the University of
Texas M.D. Anderson Cancer Center. This clinical trial involves vaccination with
a single Her-2/neu peptide that Corixa has exclusively licensed from the
University of Texas M.D. Anderson Cancer Center, which peptide is also used in
the University of Washington trial. See "-- Certain License Agreements."
Lung Cancer, Leukemia and Other Vaccines. Building on Corixa'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 leukemia. 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. 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
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"-- 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 and other potential 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
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.
From over 130 novel candidate Tb gene products, Corixa has identified
several that specifically trigger appropriate helper T cell responses in vitro.
These gene products are the subject of multiple patent applications filed by
Corixa 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, Corixa entered into a corporate partnership with
SmithKline Beecham for the development of Tb vaccines. Based on Corixa's
progress, the research phase of this corporate partnership has been extended for
two additional one-year periods, ending May 31, 1999. 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.
Corixa 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. Corixa
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 Corixa's cancer and infectious disease targets. In December 1996, Corixa
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
Corixa believes that many of the antigens it has discovered in the fields
of cancer and infectious disease also have applications in disease diagnosis.
Antigens are used in diagnostic tests to determine whether an individual
possesses antibodies against the antigen. The presence of such antibodies can
indicate 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, Mexico and parts of
the United States, which 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
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other infectious agents. Corixa 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 point-of-care
diagnostic tests to several diagnostic companies, including DiaMed S.A.
("DiaMed") and Trinity Biotech UK Limited ("Trinity Biotech" formerly Centocor
U.K. Limited). See "-- Corporate Partnerships -- Diagnostic Products."
Tuberculosis. Corixa believes that many antigens currently under
investigation by Corixa 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. 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. Corixa is developing a combination of
proprietary antigens that may be used in detecting the presence and degree of
Mtb infection. Corixa has granted Abbott Laboratories ("Abbott") and AMRAD-ICT,
a division of AMRAD Corporation PTY LTD, non-exclusive licenses 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, which 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 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. Corixa is currently negotiating with other
diagnostic companies who have expressed interest in using Corixa's patented
technology. There can be no assurance, however, that such negotiations will lead
to the establishment of any new corporate partnerships on terms favorable to
Corixa, if at all. 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, infection by which can lead to Lyme disease-like symptoms and
which can also cause death. No diagnostic tests currently exist for these
pathogens. Corixa has identified multiple genes from these pathogens that Corixa
believes may form the basis of novel diagnostic products and has begun
discussions with diagnostic companies that have expressed interest in this
field. In April 1998, Corixa granted Imugen, Inc. ("Imugen") an exclusive
license to certain of its tick-borne antigen technologies for use in clinical
reference laboratory testing, and Corixa intends to pursue additional
outlicensing opportunities for these technologies. See "-- Corporate
Partnerships -- Diagnostic Products."
Other Products In Development
Adoptive Immunotherapy Products. Because T cells, particularly CTL, 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 Corixa has identified multiple tumor
antigens that can be used to
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stimulate in vitro growth of tumor-reactive CTL. In addition, Corixa's
microsphere and adjuvant technologies have been demonstrated to enhance the in
vitro generation and growth of tumor antigen reactive CTL. Corixa intends to
pursue corporate partnership opportunities in the field of adoptive
immunotherapy of cancer. See "-- Corporate Partnerships -- Other Products."
Animal Health Products. Corixa 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. Corixa 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. Corixa 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."
Corixa'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
Corixa's programs will move beyond their current stages of development. In
addition, even if Corixa 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 Corixa'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. Corixa 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 Corixa's focus.
Vaccines
Breast and Prostate Cancer Vaccines
SmithKline Beecham. In March 1997, Corixa entered into breast and prostate
cancer collaboration and license agreements and an option agreement with
SmithKline Beecham. Corixa granted SmithKline Beecham an exclusive worldwide
license to develop, manufacture and sell vaccine products resulting from this
corporate partnership. Corixa 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 Corixa'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, Corixa is entitled to
receive future payments upon the achievement of certain development-related
milestones relating to drug development and regulatory progress, as well as
royalty payments on any product sales. Effective February 1998, Corixa and
SmithKline Beecham amended the breast and prostate cancer collaboration and
license agreements to grant SmithKline Beecham a co-exclusive license to
develop, manufacture and sell dendritic cell vaccines incorporating breast or
prostate cancer antigens that are proprietary to Corixa or discovered under the
research program. In exchange for this co-exclusive license, Corixa is entitled
to receive additional future milestone and royalty payments related to such
dendritic cell vaccines. SmithKline Beecham may elect to extend the research
program beyond its initial two-year term
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based upon mutually agreed terms. In the event SmithKline 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 $59.5 million, which
amounts are payable over time based on extension of the research program and
achievement of contractual milestones. SmithKline Beecham may terminate either
or both of the breast and prostate cancer programs in the event Corixa 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 additional 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 provided that the aggregate market value of Corixa's outstanding
shares exceeds a certain threshold. If SmithKline Beecham elects to exercise
both such options and convert such consideration into Common Stock, the number
of such shares that Corixa is obligated to issue, if any, will be dependent upon
the then current fair market value of such Common Stock. As of July 31, 1998,
Corixa's aggregate market value was below such threshold, and therefore
SmithKline Beecham would be unable to convert the consideration attributable to
such option into Common Stock.
In January 1998, SmithKline Beecham elected to extend the option to pursue
one of the two additional cancer targets. If this foregoing option is not
exercised by September 1, 1999, Corixa will be required to refund the
consideration attributable to such option over a three-year period beginning
March 2000. If the option to pursue the other additional cancer target is not
exercised or extended before September 1, 1998 or if extended, is not exercised
by September 1, 1999, Corixa will also be required to refund the consideration
attributable to such option according to the same repayment schedule. See Note 8
of Notes to Corixa's Financial Statements.
Tuberculosis Vaccines
SmithKline Beecham. In October 1995, Corixa entered into an option and
collaborative research agreement with SmithKline Beecham. Under the option and
collaborative research agreement, Corixa granted SmithKline Beecham an option to
receive an exclusive worldwide license to Corixa'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 Corixa's program to discover Mtb
antigens. In addition, if SmithKline Beecham exercises its option, Corixa 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, which
amounts are payable over time based on further extension of the research program
and achievement of contractual milestones. In July 1998, Corixa and SmithKline
Beecham agreed to renew the Mtb research program through May 1999, and extended
SmithKline Beecham's option to license Mtb antigens through August 1999.
Adjuvants
Pasteur Merieux Connaught. In December 1996, Corixa entered into an option
and license agreement with PMC whereby Corixa 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, Corixa 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 Corixa's preclinical development efforts related to
LeIF. In July 1998, Corixa and PMC agreed to extend PMC's option, and as a
result
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such option will terminate in the event PMC has not exercised its right in at
least one disease field before the earlier of (i) five months following the date
that Corixa receives sufficient amounts of PMC's influenza vaccine to allow
Corixa to perform certain additional analysis of LeIF and (ii) December 31,
1998.
Diagnostic Products
Corixa 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. Corixa has established corporate partnerships for the development of
diagnostics for infectious diseases with Abbott, DiaMed, Trinity Biotech,
AMRAD-ICT, and other small diagnostic companies. Under these arrangements,
Corixa 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. Corixa has also
established a corporate partnership with Imugen pursuant to which Corixa granted
Imugen an exclusive license to certain Corixa antigens for use in Imugen's
clinical reference laboratory services to detect and diagnose certain infectious
diseases related to the presence of certain tick-borne pathogens. In exchange
for this license, Imugen will pay Corixa certain annual minimum payments as well
as a percentage of revenues received in connection with the clinical reference
laboratory services. In addition, Corixa has collaborated exclusively with
GenQuest for the development of diagnostics for cancer. See "-- Relationship
with GenQuest," "The Merger -- Material Contacts," "The Merger -- Conflicts of
Interest" and "Information Concerning GenQuest."
Other Products
Adoptive Immunotherapy Products
In April 1998, Corixa and CellPro, Incorporated ("CellPro") agreed to
terminate the license and collaborative research agreement originally entered
into by such parties in November 1995. The license and collaborative research
agreement covered the ex vivo use of Corixa's cancer antigens, microsphere
delivery system and adjuvant technologies for the purpose of activating and
propagating tumor reactive cells outside the body in the field of adoptive
immunotherapy of cancer. All rights to Corixa's technology in the field of
adoptive immunotherapy of cancer granted to CellPro pursuant to the license and
collaborative research agreement reverted to Corixa, and Corixa intends to
pursue additional corporate partnerships in this field.
Animal Health Products
Heska. In March 1996, Corixa entered into a license and research agreement
with Heska. Under the license and research agreement, Corixa 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, Corixa 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 Corixa
based on achievement of a development milestone for Corixa's K39 diagnostic
product. Heska has begun commercial sales of two different diagnostic products
for canine leishmania in Italy. In December 1997, Heska announced commercial
availability of the first product, a diagnostic test for use in clinical
laboratories, and paid a corresponding milestone payment to Corixa. In June
1998, Heska announced commercial availability of the second product, a
point-of-care diagnostic test, but has not yet paid a corresponding milestone
payment to Corixa.
Corixa's corporate partnership agreements generally provide recourse for
Corixa 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
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partnerships, the success of Corixa is substantially dependent on its ability to
enter into and maintain such arrangements on terms favorable to Corixa, 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 Corixa 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
Corixa's business, financial condition and results of operations. See "Risk
Factors -- Dependence on and Management of Existing and Future Corporate
Partnerships."
CERTAIN BUSINESS RELATIONSHIPS
Relationship With GenQuest
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from, GenQuest to exploit certain functional genomics
technology developed by Dr. Paul Fisher and Columbia University. GenQuest is
focused on applying functional genomics technology to discover novel genes
related to the transformation of normal cells into cancer cells and developing
the potential of such genes and related gene products to be used as diagnostics,
therapeutics and drug-screening targets in the field of oncology. Corixa
believes that its historical relationship with GenQuest and the Merger will lead
to the identification of additional genes uniquely expressed by cancer cells
that are useful in Corixa's research programs. See "The Merger -- Material
Contacts," "The Merger -- Conflicts of Interest" and "Information Concerning
GenQuest."
Relationship With Infectious Disease Research Institute
In September 1994, Corixa entered into a research services and intellectual
property agreement with Infectious Disease Research Institute, a not-for-profit,
grant-funded private research institute ("IDRI"). Under this agreement, as
amended and restated effective January 1997, Corixa has agreed to provide IDRI
with research funding and certain administrative and facilities support,
including use of Corixa's research laboratory space. IDRI pays a services fee
for the administrative and facilities support provided by Corixa. Corixa's
funded research performed by IDRI is in the area of infectious disease. Under
the agreement, IDRI is obligated to disclose to Corixa all significant
developments relating to information or inventions discovered at IDRI, and
Corixa 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, Corixa 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 Corixa, and Corixa 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 Corixa. However, Corixa's Chief Scientific
Officer is co-founder and a member of the board of directors of IDRI. Corixa's
Chief Operating Officer is also a member of the board of directors of IDRI and
Corixa's Vice President, Chief Financial Officer 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 Corixa. If IDRI terminates the agreement as a result of Corixa's
failure to make required payments, Corixa would be obligated to pay royalties on
any product sales.
CERTAIN LICENSE AGREEMENTS
Corixa seeks to obtain technologies that complement and expand its existing
technology base. Where consistent with its strategy, Corixa 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, Corixa
generally seeks to obtain
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unrestricted sublicense rights consistent with its partner-driven strategy.
Corixa is generally obligated under these agreements to diligently pursue
product development, make development milestone payments and pay royalties on
any product sales.
Agreements With Southern Research Institute
In May 1996, Corixa entered into a license agreement with SRI. Under the
license agreement, SRI granted Corixa 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 Corixa options to exclusive,
worldwide, sublicensable licenses in certain autoimmune and viral disease
fields. Corixa paid up-front license fees upon execution of the license
agreement. Corixa 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, Corixa 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 Corixa's license in
the field of cancer to include products that incorporate third-party antigens or
cytokines. Corixa is obligated to share revenues from such third-party
sublicense agreements with SRI. Corixa issued SRI 4,545 shares of Common Stock
upon the first anniversary of the effective date of the license agreement, and
issued an additional 4,545 shares of Common Stock on June 30, 1998. SRI may
terminate the license agreement in the event Corixa fails to perform certain
obligations under such agreement.
Additionally, in January 1995, Corixa entered into a research agreement
with SRI. Under the research agreement, Corixa agreed to fund certain research
at SRI directed at the incorporation of Corixa'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. Corixa is obligated to provide funding to SRI under the
research agreement through December 31, 1998.
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 Corixa 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. Corixa paid up-front
license fees upon execution of the licensing agreement. Corixa 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, Corixa 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. Corixa must continue to meet certain
research-based obligations in order to retain its rights under the licensing
agreement. Dana-Farber may terminate the licensing agreement in the event Corixa
does not make required royalty payments or fails to perform certain obligations
under such agreement.
Other License Agreements
Additionally, Corixa 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. Corixa 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 and an option for
diagnostic use, (ii) Health Research, Inc. for the use of a proprietary mouse
model for human cancer, (iii) Mayo Foundation for Medical Education and Research
for use of tick-borne disease antigens, (iv) University of Texas M.D. Anderson
Cancer Research
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Center for certain Her-2/neu peptides, (v) Massachusetts Institute of Technology
for the use of a specified tumor gene in therapeutic applications, and (vi)
University of Pittsburgh for Muc-1 peptide vaccine for use in the diagnosis and
therapy of cancer. Certain of these agreements require Corixa or other parties
to meet certain performance obligations in order to retain their rights under
such agreements or require Corixa to make certain payments in order to obtain or
maintain rights to the subject technology.
CORIXA'S VACCINE ANTIGEN DISCOVERY METHODOLOGY
Tumor Tissue Procurement and SCID Mouse Tumor Propagation. Corixa has
developed a variety of unique and proprietary resources that provide Corixa with
sufficient tumor tissue to enable it to conduct the types of immunological and
molecular biological research it believes are necessary for antigen discovery.
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,
Corixa 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 (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 Expression. Corixa has used differential expression 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"). 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 different tumor types. cDNA
subtraction is another molecular biology technique that allows investigators to
identify genes that are expressed in one type of tissue and not expressed, or
expressed at significantly lower levels, 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.
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Expression Cloning. Corixa also uses expression cloning methods to identify
potential tumor antigens for incorporation into candidate tumor vaccines. Corixa
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 and T-helper cells are felt to
be extremely important in mounting an effective immune response against tumors,
tumor antigen expression cloning studies focus on the use of CTL and T-helper
cells for discovery of antigens by direct expression cloning. Corixa has
developed multiple tumor reactive CTL and T-helper cell 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. Corixa'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
Corixa's success will depend in large part on the ability of Corixa and its
licensors to obtain patent and other proprietary protection for Corixa'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, Corixa intends to seek patent protection for its
vaccine, discovery, screening, diagnostic and other proprietary technologies by
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filing patent applications in the United States and certain other countries. As
of June 30, 1998, Corixa owned or had licensed 20 issued United States patents
that expire at various times between December 2008 and August 2016, 99
corresponding issued foreign patents, 136 pending United States patent
applications, as well as 16 corresponding international filings under the Patent
Cooperation Treaty and 269 pending foreign national patent applications. The
above numbers reflect Corixa's license from GenQuest of 3 issued United States
patents that expire at various times between July 2014 and August 2016 and 37
pending United States patent applications, as well as 5 corresponding
international filings under the Patent Cooperation Treaty and 33 pending foreign
national patent applications. Corixa also holds an option to exclusively license
cancer vaccine antigens discovered by GenQuest through December 2001.
While Corixa 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
Corixa, are highly uncertain and involve complex legal and factual questions for
which important legal principles are unresolved. For example there is
substantial uncertainty regarding the potential for patent protection for gene
fragments or genes without known function or correlation with specific diseases.
There can be no assurance that Corixa, 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 Corixa 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 Corixa or its corporate partners. Corixa has licensed
certain patent applications from SRI related to Corixa'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 Corixa'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, Corixa 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 Corixa depends significantly on its ability to
operate without infringing patents and proprietary rights of third parties, and
there can be no assurance that Corixa'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 Corixa or its corporate partners. In addition, Corixa
is unable to determine the patents or patent applications that may materially
affect Corixa'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 Corixa or its corporate partners and limit the ability of Corixa or its
corporate partners to obtain meaningful patent protection. If patents containing
competitive or conflicting claims are issued to third parties, Corixa 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
Corixa 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 Corixa or any of its corporate partners is enjoined from
pursuing its research, development or commercialization activities or if any
such license is not obtained, or alternative technologies are not obtained or
developed, Corixa or such corporate partner may be delayed or prevented from
commercializing its products, which would have a material adverse effect on
Corixa's business, financial condition and results of operations.
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There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of Corixa, duplicate any of the
technologies of Corixa, its corporate partners or its licensors, or design
around the patented technologies developed by Corixa, its corporate partners or
its licensors. The occurrence of any of these events would have a material
adverse effect on Corixa's business, financial condition and results of
operations.
Litigation may also be necessary to enforce patents issued or licensed to
Corixa 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 Corixa in the event of
any such litigation. Additionally, there can be no assurance that Corixa 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 Corixa to significant liabilities, require
disputed rights to be licensed from other parties or require Corixa or its
corporate partners to cease using certain technology, any of which may have a
material adverse effect on Corixa'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. Corixa'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 Corixa. 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 Corixa shall be the exclusive
property of Corixa. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for any breach, or that
Corixa'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 Corixa's business, financial condition and results of operations.
Corixa 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 Corixa and its corporate partners, licensors,
scientific collaborators and consultants. There can be no assurance that Corixa
will be able to maintain its proprietary position or that third parties will not
circumvent any proprietary protection Corixa does have. The failure of Corixa to
maintain exclusive or other rights to such technologies could have a material
adverse effect on Corixa'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 Corixa 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 Corixa or its
corporate partners, Corixa'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 Corixa's products will vary, depending on the
regulatory categorization of particular products. Corixa 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
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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 biologics license application ("BLA"); and (v) FDA review and approval
of the BLA prior to any commercial sale or shipment of the product. The FDA's
Modernization Act of 1997 (the "Modernization Act") eliminated the requirement
that both a product license application and an establishment license application
be filed with respect to certain categories of biotechnology products after
February 19, 1998. It is impossible to predict what impact, if any, the
Modernization Act will have upon the regulatory review of Corixa'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 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 in comparison to standard therapies, 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 Corixa'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 BLA 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 BLA 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 Corixa 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
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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 Good Manufacturing Practices ("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 Corixa 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 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 must 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 market
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. Corixa 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 revised
the GMP regulations. The new Quality System Regulation imposes design controls
and makes other significant changes in the requirements applicable to
manufacturers. These and future changes in regulatory regulations could have a
material adverse effect on Corixa'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
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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, Corixa 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.
Corixa's research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. Corixa 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 Corixa 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, Corixa's use of these materials could be curtailed by state or federal
authorities, Corixa could be held liable for any damages that result and any
liability could exceed the resources of Corixa. 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 Corixa is seeking to develop. Many companies are
also developing alternative therapies to treat cancer and infectious disease
and, in this regard, are competitive with Corixa. 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 Corixa in recruiting
and retaining qualified scientific and management personnel, as well as in
acquiring technologies complementary to Corixa's programs. Corixa'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 Corixa and its corporate partners to
develop effective products that can be manufactured cost-effectively and
marketed successfully. Corixa 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 Corixa or that such products
will not render Corixa's products obsolete. See "Risk Factors -- Intense
Competition."
EMPLOYEES
As of July 31, 1998, Corixa employed 135 personnel, including 114 in
research and development and 21 in administration. Each of Corixa's employees
has signed a confidentiality agreement and none are covered by a collective
bargaining agreement. Corixa 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. As
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of July 31, 1998, Corixa's monthly rent for this space, including amortization
of tenant improvements, was approximately $132,000. The lease for this facility
expires in January 2005, with an option to renew the lease for two additional
periods of five years each. Corixa 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. Corixa is
currently in the process of building out additional contiguous laboratory and
office space which will add approximately 41,000 square feet by the end of 1998.
LEGAL PROCEEDINGS
As of the date of this Prospectus, Corixa is not a party to any material
legal proceedings.
SCIENTIFIC COLLABORATORS
Corixa has established a network of medical, clinical and scientific
advisors and collaborators to consult with Corixa's scientists and to advise
Corixa on its research and development programs, the design of its clinical
trials and on other medical and scientific matters relating to Corixa's
business. Corixa'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 Corixa in a tuberculosis skin testing
program and a cancer-related tissue procurement program, each of which is
conducted in Brazil.
Nora Disis, M.D. is an Assistant Professor of Medicine at the University of
Washington in Seattle, Washington. Dr. Disis collaborates with Corixa 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 Corixa 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 Corixa. Dr. Finn collaborates with Corixa 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 will be partly funded by Corixa
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 Corixa 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 Corixa in its vaccine development program
and supplies Corixa with cancer cell lines and other materials used in Corixa'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 Corixa in its tick-borne disease
programs.
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 Corixa. Dr. Rock collaborates with Corixa 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 Corixa 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 Corixa in its tuberculosis antigen discovery program and animal testing.
Corixa has entered into consulting or sponsored research agreements with
its principal advisors and collaborators. Each of Corixa's advisors and
collaborators has also entered into a confidentiality and non-disclosure
agreement with Corixa. These advisors and collaborators are generally employed
by employers other than Corixa and may have commitments to or consulting or
advisory contracts with other entities that may limit their availability to
Corixa. 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 Corixa, there can be no assurance that such
conflict will not arise.
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INFORMATION CONCERNING GENQUEST
GenQuest is focused on applying functional genomics technology to discover
novel genes related to the transformation of normal cells into cancer cells and
developing the potential of such genes and related gene products to be used as
diagnostics, therapeutics and drug-screening targets in the field of oncology.
Founded in July 1995, GenQuest's core genomics technology is based on
methodologies, genes and reagents discovered by Dr. Paul Fisher, a member of the
GenQuest Board of Directors and a professor at Columbia University. GenQuest's
genomics technology is augmented by certain rights GenQuest possesses to certain
genes, gene products and tumor antigen gene discovery technologies discovered or
in-licensed by Corixa. From inception until December 1996, GenQuest had limited
operations and one full-time employee and since February 1996, has operated
under a collaborative arrangement with Corixa pursuant to which Corixa's
employee management team performs certain administrative and management services
on behalf of GenQuest. In December 1996, GenQuest completed a private venture
capital financing to provide capital for additional research and development
activities. See "The Merger -- Material Contacts" and "The Merger -- Conflicts
of Interest."
GENQUEST'S STRATEGY
GenQuest's business strategy is to discover novel genes, initiate
diagnostic, therapeutic or drug-screening applications of such genes and
establish corporate partnerships with diagnostic, pharmaceutical and
biopharmaceutical companies for the development and commercialization of such
genes and applications. In addition, GenQuest intends to develop and acquire
additional discovery methodologies, novel genes and assays that enhance the
identification of cancer genes and molecules related to such genes that may have
diagnostic, therapeutic or drug-screening applications.
GenQuest believes that it has several product development opportunities,
broadly categorized as therapeutics and diagnostics, which are summarized below:
Therapeutics
Small molecule drug-screening and the resulting small molecule
therapeutics. GenQuest and its prospective corporate partners may use GenQuest
methodologies or genes to search for low molecular weight compounds that inhibit
tumor cell growth or metastasis. These compounds may prove useful as orally
bioavailable cancer therapeutics.
Therapeutic monoclonal antibodies. GenQuest believes that its antibody
products may, when administered to patients, promote tumor elimination or
shrinkage, resulting in improved cancer patient response or survival rates. For
example, GenQuest believes that monoclonal antibodies directed against surface
protein targets may be used either directly to destroy these targets or as
carriers of other therapeutic compounds for the destruction of tumor cells.
Gene therapy. GenQuest believes that it or its prospective corporate
partners may be able to introduce specific GenQuest genes into tumor cells to
potentially kill such tumor cells or slow their growth. GenQuest believes that
gene therapy may be a viable alternative to traditional cancer therapies.
Therapeutic vaccines. GenQuest believes that its genes and gene products
may be useful in vaccines that promote immune system destruction of tumor cells.
Ex vivo adoptive cell therapy. GenQuest believes that it may be possible to
harvest immune system cells from a cancer patient, activate them in vitro using
genes or gene products discovered by GenQuest researchers, and return them to
the patient to attack tumor cells.
Diagnostics
Diagnostic monoclonal antibodies. GenQuest's specific antibody products may
be used to attach in vitro to proteins or other antigens that are preferentially
produced by tumor cells, thereby providing a useful diagnostic tool. These
antibodies may also be used for in vivo detection of tumor cells in patients,
reducing the need for multiple organ biopsies. Through the identification of
genes, their products and the development of
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specifically reactive antibodies, GenQuest believes it may bring valuable cancer
diagnostic reagents to its corporate partners' cancer diagnostics programs.
Nucleic acid probes. Using chemical- or isotope-labeled fragments of
GenQuest's proprietary cancer genes that have been demonstrated to be markedly
overexpressed in tumor cells, hybridization analysis may lead to determining
whether biopsy specimens are contaminated with infiltrating tumor cells.
Peptide and polypeptide probes. GenQuest believes that gene product
fragments known as peptides and multiple peptides known as polypeptides can be
used as the basis of diagnostic tests for cancer. Sera taken from cancer
patients can be tested for their ability to interact with these peptides and
polypeptides, confirming the presence of a given malignancy in the patient whose
serum is being analyzed.
Vaccine and ex vivo adoptive cell therapy applications of GenQuest's
proprietary genes, as well as the use of these genes in therapy for the purposes
of eliciting an immune response, are currently exclusively licensed to Corixa
pursuant to a license and research collaboration agreement between GenQuest and
Corixa. Other GenQuest technologies with potential therapeutic or diagnostic
applications, including small molecule drug screening, therapeutic monoclonal
antibodies and cancer gene therapy, are under active evaluation by existing
corporate partners and/or are available for future collaborations. See
"-- Corporate Research Partnerships" and "-- Research Collaboration."
GenQuest intends to seek corporate partnering arrangements that include
upfront fees, research funding, milestone fees, and royalties on net sales of,
or profit-sharing revenue from, products containing or developed using
GenQuest's proprietary genes, gene products and/or assay technologies. GenQuest
expects the amount of any such payments to vary depending on the particular
product as well as the size of the potential market.
GENQUEST'S TECHNOLOGY PLATFORM
GenQuest's technology platform currently consists of the following
proprietary technologies: (i) methodologies for the discovery of genes
associated with cancer; (ii) methodologies used to elucidate cellular responses
to DNA damage; (iii) genes and cellular processes associated with senescence and
apoptosis; (iv) technologies that enhance or inhibit cellular proliferation; and
(v) genes and cellular processes associated with terminal cell differentiation.
These proprietary technologies represent two general approaches -- functional
cancer gene discovery technologies and tumor antigen gene discovery
technologies.
Functional Cancer Gene Discovery Technologies
RExCS: Rapid Expression Cloning System. GenQuest employs a proprietary cell
line developed by researchers at Columbia University called Cloned Rat Embryo
Fibroblast-Trans 6 ("CREF-Trans 6"), to detect and clone novel oncogenes. In
practicing this technology, GenQuest isolates DNA from human tumor cells and
inserts it into CREF-Trans 6 cells which are then allowed to form tumors in
athymic mice. GenQuest scientists then remove these tumors and isolate the human
tumor-inducing genes using techniques such as cDNA subtraction and differential
display. cDNA subtraction is a molecular biology technique that allows
investigators to identify genes that are expressed in one type of tissue and not
expressed, or expressed at significantly lower levels, in another type of
tissue. 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. Differential display allows investigators to compare genes that are
expressed in different cell types simultaneously. Cells are obtained from both
tumor and normal tissue from individual cancer patients. Messenger RNA is
prepared from both cell types and converted into cDNA. 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.
DISH: Differentiation Induction Subtraction Hybridization. Using a method
developed at Columbia University, GenQuest identifies and clones genes involved
in normal cell growth by inducing cancerous, metastatic human melanoma cells to
terminally, or irreversibly, differentiate into noncancerous cells. After
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this "differentiation induction" process, GenQuest scientists isolate melanoma
differentiation-associated genes by hybridizing the DNA of the differentiated
cells with nondifferentiated melanoma cell-line DNA and then removing all
resulting hybridized DNA. By this method, GenQuest identifies genes expressed at
above-normal levels in growth-arrested, differentiated human melanoma cells.
GenQuest believes that such genes may function as tumor suppressor genes. After
an initial screening of a small percentage of these genes, scientists at
Columbia University identified and cloned several novel, and one known, tumor
suppressor genes, all of which are exclusively licensed to GenQuest. Specific
melanoma differentiation-associated ("mda") genes appear to be involved in
important physiological processes, including control of normal cell growth,
response to DNA damage, cell differentiation and cell senescence, or cell death.
Scientists at Columbia University and GenQuest have found that a majority of the
mda genes are expressed in healthy melanocytes, and believe these genes may be
involved in maintaining normal cell growth. Such scientists have observed that
when normal cells evolve into cancer cells, expression of certain mda genes
declines. Preclinical results generated by scientists at Columbia University
also indicate that mda genes may be important elements contributing to growth
regulation and differentiation in other types of cancers in addition to
melanoma.
Progression Elevation Gene Isolation. Genes associated with enhanced tumor
growth, or progression, can be identified through the use of cDNA subtraction.
Using a specialized application of cDNA subtraction developed by Dr. Fisher,
scientists at Columbia University and GenQuest have identified genes and
fragments of genes that are expressed at elevated levels in rapidly growing
tumor tissue. Expression of one of these genes, known as PEG-3, correlates with
a marked increase in tumor growth rate and the development of blood vessels in
the tumor. GenQuest is currently evaluating other genes that have been
identified using this method for their role in tumor progression.
Tumor Antigen Gene Discovery Technologies
Differential Gene Expression. Corixa uses microarray cDNA expression
technology to identify and analyze genes expressed in tumor cells that are not
expressed, or are only expressed at low levels, in normal tissue. Corixa
scientists first construct cDNA libraries that are enriched for cancer-related
genes by subtracting from a library of total tumor cDNA those cDNAs that
hybridize with cDNAs derived from multiple normal tissues. Certain of Corixa's
collaborators then spot these subtracted libraries onto microchips which are
then probed with labeled cDNAs from multiple tumor types and normal tissues.
Analysis of hybridization patterns can reveal those genes that are
differentially expressed in tumors compared to normal tissue. Corixa then
applies the results of these analyses to identify genes that may be attractive
candidates as vaccine antigens. In accordance with the amended license and
collaboration agreement between GenQuest and Corixa, GenQuest has rights to
cancer genes discovered by Corixa in the field of diagnostics and non-vaccine
non-ex vivo therapeutics.
Corixa SCID Mice. Corixa, together with certain of its collaborative
partners, has developed technology for propagating primary human prostate,
breast and other adenocarcinomas from biopsy specimens in SCID mice. GenQuest
has rights to such SCID mice technology pursuant to its amended license and
research collaboration agreement with Corixa. GenQuest scientists use the SCID
mouse technology to passage tumors through successive generations of SCID mice,
thus providing a supply of human tumor tissue for gene discovery efforts and an
in vivo setting for evaluating potential therapeutic anti-tumor agents. See
"Information Concerning Corixa -- Corixa's Vaccine Antigen Discovery Methodology
- -- Tumor Tissue Procurement and SCID Mouse Tumor Propagation."
GENQUEST'S PRODUCTS IN DEVELOPMENT
GenQuest's discovery efforts are aimed at identifying genes associated with
the development of human tumors. Once GenQuest identifies these genes, GenQuest
intends to focus on the initial development of therapeutic and diagnostic
products (i.e. therapeutic antibodies, diagnostic antibodies and nucleic acid
probes and high-throughput drug-screening assays related to such genes). These
initial development programs are also the primary focus of GenQuest's corporate
partnering efforts.
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Therapeutics
To date, a majority of GenQuest's product development activities have
focused on three genes: PTI-1, mda-7 and PEG-3.
Prostate Tumor Inducing Gene 1 ("PTI-1"). GenQuest believes that PTI-1 is a
novel, dominant-acting prostate oncogene. Scientists at Columbia University and
GenQuest have observed that expression of this gene leads to transformation in
vitro of heterologous, noncancerous cells into cells having a cancerous
phenotype and also leads to tumorigenicity of normal cells in vivo in animal
models. On the basis of this data, screening for compounds that inhibit the
gene's function or that interfere with either gene transcript expression or
stability could represent important drug discovery strategies. GenQuest has
developed several high-throughput drug screens to search for small molecules
that are capable of interfering with PTI-1 gene expression to identify a subset
of such compounds that may be novel anti-neoplastic drugs. Scientists at
Columbia University have also observed that expression of an antisense, or
reverse-sequence, version of PTI-1 conversely leads to reversal of the
transformed phenotype in tumor cells in vitro and elimination of tumorigenicity
in vivo. Based on this observation, GenQuest believes that gene therapy with
antisense constructs also may represent an area of therapeutic potential.
Melanoma Differentiation Associated Gene 7 ("mda-7"). GenQuest believes
that mda-7 may be a universal tumor suppressor gene. Scientists at Columbia
University and GenQuest have observed that expression of this gene in
heterologous tumor cells results in loss or suppression of the transformed
phenotype in vitro and loss of tumorigenicity in vivo in animal models. These
scientists have also observed that expression of the mda-7 gene product
correlates with the induction of senescence and apoptosis, or cell death, in
certain tumor cells. In addition to suppressing tumorigenicity in various cell
lines, Columbia University and GenQuest scientists have observed that expression
of mda-7 reverses the malignant phenotype in certain oncogene-transformed
tumors. Based on these observations, GenQuest believes that screening for
compounds that "turn on" mda-7 gene expression represents an approach to
discovering therapeutic products that control tumor transformation and growth.
To pursue the discovery of such therapeutic products, GenQuest has
developed a high-throughput, whole cell assay for the detection of mda-7 gene
expression after exposure to small molecule libraries. Using this approach,
GenQuest scientists expose melanoma cells to diverse chemical libraries,
identify those cells that undergo terminal differentiation into noncancerous
cells and examine these cells for expression of genes involved in the
differentiation process. GenQuest's current screening format is configured to
rapidly examine expression of mda-7 as well as other proprietary GenQuest tumor
suppressor and senescence-related genes.
Progression Elevated Gene 3 ("PEG-3"). GenQuest believes that PEG-3 is a
tumor-progression gene. Scientists at Columbia University and GenQuest have
observed that expression of this gene confers upon a tumor an enhanced tumor
growth rate both in vitro and in vivo. Enhanced tumor growth in vivo correlates
with a PEG-3 gene dependent increase in tumor vascularization, or angiogenesis.
Research results indicate that the PEG-3 gene is expressed only at low levels in
normal cells and that such expression is at above-normal levels following gamma
irradiation, chemically-induced DNA damage, or activation of a cellular
oncogene. In addition, scientists have observed that expression of PEG-3 in a
variety of tumor types correlates with more rapid tumor growth and significantly
reduced survival in animal models of malignancy.
As a part of its development of PEG-3, GenQuest has developed a series of
assays for screening small molecules for their ability to affect PEG-3
expression. The assays involve cells that are transfected with a specific
oncogene capable of activating PEG-3 expression. These cells also contain the
promoter for the PEG-3 gene linked to a luciferase reporter gene rather than to
the PEG-3 coding region. The PEG-3 promoter is "on" in such cells due to
oncogene expression, and as a result these cells constitutively, or constantly,
express luciferase, which can be measured as a luminescent signal. The cells are
screened against small molecule libraries and measured for inhibition of the
luciferase signal. GenQuest believes that agents that reduce the luminescent
signal could potentially be involved in the inhibition of the expression or
activity of the oncogene, or the function of the PEG-3 promoter, or both. Agents
that inhibit the PEG-3 promoter or oncogene expression or activity may be
candidates for further evaluation as anti-neoplastic drugs.
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Diagnostics
Through its efforts to identify genes that are "differentially expressed"
in tumor and not in normal tissue, GenQuest believes it may be able to isolate
tumor genes that are amenable to development as cancer diagnostics. In addition,
GenQuest has sublicensed tumor genes through its amended license and
collaboration agreement with Corixa and is continuing to evaluate promising gene
and protein-based tumor markers for acquisition and commercial development.
GenQuest currently anticipates that its diagnostic products will be used both in
vitro and in vivo and will consist of (i) monoclonal antibodies used to detect
the presence of the products of such genes, (ii) nucleic acid probes to detect
the presence of DNA or RNA related to such genes and (iii) polypeptide and
peptide probes used to detect the presence of antibodies to the products of such
genes.
Mammaglobin. As a result of its amended license and collaboration agreement
with Corixa, GenQuest has certain option rights to a differentially-expressed
gene associated with breast cancer known as mammaglobin. GenQuest believes that
mammaglobin is potentially useful as a diagnostic for metastasized, or
disseminated, breast carcinoma. Isolated from primary human breast carcinoma by
scientists at Washington University at St. Louis, mammaglobin appears to be a
novel gene expressed only in the adult mammary gland. To date, scientists at
Corixa and Washington University have shown that mammaglobin appears to be over-
expressed in numerous breast carcinoma cell lines and in primary human breast
tumors. GenQuest believes the breast-specific expression of mammaglobin in the
adult mammary gland and its overexpression in breast carcinoma suggest its use
as a novel marker for the clinical management of disseminated breast cancer.
GenQuest is currently investigating certain antibody, protein/peptide and
nucleic acid diagnostic products involving mammaglobin.
Nucleic Acid Probes to Differentially Expressed Genes. After novel,
differentially-expressed genes are identified, GenQuest assesses them for
potential use as nucleic acid-based diagnostics. Such diagnostic products would
involve, for example, the use of a nucleic acid probe such as a DNA clone of all
or a portion of a cancer-related gene to determine the presence of such gene in
patient samples. A number of candidate diagnostic markers have been identified
in the settings of prostate, breast, and lung cancer. GenQuest believes nucleic
acid probe diagnostic markers have potential commercial application in
serological diagnostic tests and in immunohistochemical analyses using in situ
hybridization. GenQuest intends to seek corporate partners who have a strategic
interest in developing such tests.
CORPORATE PARTNERSHIPS
GenQuest's strategy is to establish corporate partnerships for the
development and commercialization of novel genes and diagnostic, therapeutic and
drug-screening applications of such genes in the field of cancer. In such
corporate partnerships, GenQuest intends to seek upfront fees, research funding,
milestone fees, and royalties or a share of net profits associated with the
sales of products containing or developed using GenQuest's proprietary genes,
gene products and/or assay technologies.
GenQuest has corporate partnerships with the following companies:
Corixa. In February 1996, Corixa and GenQuest entered into a license and
research collaboration agreement under which Corixa and GenQuest each licensed
to the other rights in certain cancer technology fields. Corixa granted GenQuest
an exclusive worldwide license to certain of Corixa's existing non-vaccine
technology and technology to be 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 to be developed under the joint research program in
the field of cancer vaccines and ex vivo cellular therapy of cancer. Both Corixa
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 Corixa. In addition, Corixa has agreed to
assume remaining royalty obligations of GenQuest to Columbia University on
products incorporating the licensed technology. Under the license agreement with
Corixa, there are limitations on Corixa's ability to enter into certain
relationships outside its core business of vaccine technologies. In December
1996, Corixa and GenQuest entered into a series of collaborative agreements
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amending the original license and research collaboration agreement. Under the
amended license and collaboration agreement, GenQuest agreed to provide an
aggregate of $5.7 million in research funding to Corixa over a three-year period
to support Corixa's program to discover cancer genes, related antigens and
cancer-related gene products.
In connection with the amended license and collaboration agreement with
GenQuest entered into in December 1996, Corixa entered into a management
services agreement under which Corixa provides financial, legal, administrative,
management and related services to GenQuest. In exchange for such services,
GenQuest pays Corixa a nominal management fee and reimburses Corixa for direct
expenses associated with providing such services. Corixa's Chief Executive
Officer, Chief Scientific Officer, Chief Operating Officer and Chief Financial
Officer are required to provide specific services to GenQuest under the
management services agreement, and other members of Corixa's employee 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
Corixa's right to purchase all of the outstanding shares of GenQuest's capital
stock pursuant to the Call Option Agreement, (ii) 90 days following the date
Corixa 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 and collaboration agreement. See "The Merger -- Material Contacts," "The
Merger -- Conflicts of Interests," "Information Concerning
Corixa -- Relationship with GenQuest" and "Certain Relationships and Related
Transactions of Corixa."
Introgen Therapeutics, Inc. In February 1998, GenQuest and Introgen
Therapeutics, Inc. ("Introgen") entered into a collaboration agreement pursuant
to which GenQuest transferred certain biological materials to Introgen, and
Introgen was granted an option to license the mda-7 gene for use in human gene
therapy for cancer. Terms of a license agreement to be entered into in the event
such option is exercised have been negotiated between the two companies.
GenQuest has received an upfront payment, and will also receive certain research
funding, milestone payments, and royalties on potential product sales under the
terms of the license agreement. If such option is exercised, Introgen will have
exclusive worldwide rights to the mda-7 gene in the field of gene therapy. In
the event Introgen exercises its option to license mda-7, Introgen and GenQuest
will work together to develop the appropriate gene therapy constructs and
perform preclinical testing of potential products. Additionally, in the event
the option to license is exercised, Introgen will be responsible for the
clinical testing of mda-7 for use in gene therapy.
RESEARCH COLLABORATION
Arqule, Inc. In August 1997, Arqule, Inc. ("Arqule") and GenQuest entered
into an agreement to identify and develop novel, small molecule drug candidates
for the treatment of human cancers. Under the terms of the agreement, Arqule
provides GenQuest with proprietary chemical arrays for screening against
GenQuest's gene targets. Promising compounds identified through this initial in
vitro screening will then be chemically modified by Arqule for secondary
screening at GenQuest. Compounds that are successful at the stage of secondary
screening may become candidates for preclinical and animal testing. GenQuest and
Arqule would divide ownership rights to any active compounds discovered and
share any revenues associated with the successful corporate partnering and
commercialization of such compounds.
AGREEMENT WITH COLUMBIA UNIVERSITY
In July 1997, GenQuest and Columbia University entered into a research and
license agreement amending an agreement originally entered into in June 1996.
Under the amended research and license agreement, GenQuest agreed to provide
certain research funding to Dr. Fisher's laboratory at Columbia University
through October 1999, and Columbia University granted GenQuest an exclusive
worldwide license to certain technology that either arises from such funded
research or that has resulted from previous research conducted by Dr. Fisher at
Columbia University. Such licensed technology includes certain patents and
patent applications covering the PTI-1, mda-7 and PEG-3 genes. GenQuest must
achieve certain milestones in the development of such licensed technology with
respect to diagnostic and therapeutic applications in order to maintain
exclusivity of the license for such application. In the event GenQuest fails to
achieve any milestone for a particular application, Columbia University may
convert the grant with respect to such application from
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an exclusive license to a non-exclusive license or may terminate such license
entirely. In addition to the research funding, GenQuest agreed to pay Columbia
University certain non-refundable license fees, sublicense fees and royalty
payments on any product sales, and has issued Columbia University 250,000 shares
of GenQuest Common Stock. Columbia University is entitled to receive up to an
additional 75,000 shares of GenQuest Common Stock upon the achievement of
certain milestones. See "The Merger -- Material Contacts," "The
Merger -- Conflicts of Interest" and "Information Concerning
Corixa -- Relationship with GenQuest."
PATENTS AND INTELLECTUAL PROPERTY
Where appropriate, GenQuest intends to actively file patents on new genes
and methodologies developed both at its laboratory in New York and, under its
collaborative relationship with Corixa, at Corixa's laboratory in Seattle. Under
the terms of its amended license and collaboration agreement with Corixa,
GenQuest has an exclusive option to license all cancer diagnostic and
non-vaccine therapeutic rights to over 500 tumor-associated gene sequences
discovered by Corixa, as well as selected technologies, all of which could be
made available to corporate partners for further development.
As of June 30, 1998, GenQuest owned or had licensed 7 issued United States
patents that expire at various times between June 2011 and August 2016, 14
corresponding issued foreign patents, 64 pending United States patent
applications, as well as 7 corresponding international filings under the Patent
Cooperation Treaty and 60 pending foreign national patent applications. The
above numbers reflect GenQuest's license from Corixa of 4 issued United States
patents that expire between June 2011 and April 2015, 14 corresponding issued
foreign patents, 27 pending United States patent applications, as well as 2
corresponding international filings under the Patent Cooperation Treaty and 27
pending foreign national patent applications.
The patent positions of biotechnology companies, including those of
GenQuest, are highly uncertain and involve complex legal and factual questions
for which important legal principles are unresolved. Several academic and
corporate entities currently are attempting to identify and patent gene
fragments and full-length genes, the functions of many of which have not been
well characterized, as well as fully-characterized genes. There is substantial
uncertainty regarding the potential for patent protection for gene fragments or
genes without known function or correlation with specific diseases. To the
extent that any patents issue to other parties on such partial or full-length
genes, there is increased risk that the products and processes of GenQuest and
its corporate partners may give rise to claims of patent infringement. The
public availability of partial or full sequence information or the existence of
patent applications related thereto, even if not accompanied by relevant
function or disease association, prior to the time GenQuest applies for patent
protection on a corresponding gene could adversely affect GenQuest's ability to
obtain patent protection for its genes or gene fragments. There can be no
assurance that GenQuest, 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
GenQuest 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 GenQuest or its corporate partners. There can also be no assurance
that GenQuest'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 GenQuest. 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, GenQuest 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 GenQuest depends significantly on its ability to
operate without infringing patents and proprietary rights of third parties, and
there can be no assurance that GenQuest'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
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owned, optioned by or licensed to GenQuest or its corporate partners. In
addition, GenQuest is unable to determine the patents or patent applications
that may materially affect GenQuest'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 GenQuest or its corporate partners and limit the
ability of GenQuest or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, GenQuest 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 GenQuest 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 GenQuest or any of its corporate
partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is not obtained, or
alternative technologies are not obtained or developed, GenQuest or such
corporate partner may be delayed or prevented from commercializing its products,
which would have a material adverse effect on GenQuest'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 GenQuest, duplicate any of the
technologies of GenQuest, its corporate partners or its licensors, or design
around the patented technologies developed by GenQuest, its corporate partners
or its licensors. The occurrence of any of these events would have a material
adverse effect on GenQuest's business, financial condition and results of
operations.
Litigation may also be necessary to enforce patents issued or licensed to
GenQuest or its corporate partners or to determine the scope or validity of a
third party's proprietary rights. GenQuest could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if GenQuest participates in patent suits brought against or initiated
by its corporate partners or if GenQuest initiates such suits, and there can be
no assurance that funds or resources would be available to GenQuest in the event
of any such litigation. Additionally, there can be no assurance that GenQuest 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 GenQuest to significant liabilities,
require disputed rights to be licensed from other parties or require GenQuest or
its corporate partners to cease using certain technology, any of which may have
a material adverse effect on GenQuest's business, financial condition and
results of operations.
GenQuest also relies on trade secrets and proprietary know-how, especially
in circumstances where patent protection is not believed to be appropriate or
obtainable. GenQuest'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 GenQuest. 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 GenQuest shall be the
exclusive property of GenQuest. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for any
breach, or that GenQuest'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 GenQuest's business, financial condition and results of
operations.
GenQuest is a party to certain 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 GenQuest and its corporate partners, licensors,
scientific collaborators and consultants. There can be no assurance that
GenQuest will be able to maintain its proprietary position or that third parties
will not circumvent any proprietary protection GenQuest does have. The failure
of GenQuest to maintain exclusive or other rights to such technologies could
have a material adverse effect on GenQuest's business, financial condition and
results of operations.
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INDUSTRY AND 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 GenQuest is seeking to develop.
The field of genomics research has expanded rapidly. Thousands of genes
that may play a role in the development of cancer have been discovered and the
determination of various applications of such genes, including diagnostic,
therapeutic and drug-screening applications targeted by GenQuest, is proceeding
quickly. GenQuest believes the rapid expansion of genomics research is largely
due to a growing recognition that many major diseases and other health problems
have some genetic basis and technological advances that have led to increasingly
rapid nucleic acid sequencing and mapping capabilities. These technological
approaches are also being applied to understanding, diagnosing and treating
cardiovascular diseases, psychiatric disorders, obesity and metabolic and
autoimmune diseases. Early high-throughput sequencing approaches have been
replaced by functional and gene expression analyses that better determine
genetic targets that are both related to a particular disease and amenable to
therapeutic and diagnostic development. A number of biotechnology companies are
currently engaged in gene discovery and early stage drug development in the
field of cancer, including Genzyme Molecular Oncology, Millenium
Pharmaceuticals, Inc. ("Millenium"), Onyx Pharmaceuticals, Inc. and Geron
Corporation.
Increasingly, genomics companies are seeking to extend the breadth of their
technologies to better attract and serve corporate partners, particularly large
pharmaceutical companies. This trend has led to consolidation by certain
companies in the industry in an attempt to access a broad array of gene
discovery and drug development expertise and to gain improved economies of
scale. In the period from 1996 to early 1998, examples of such consolidation can
be seen in Millenium's acquisition of ChemGenics Pharmaceuticals, Inc. in order
to gain access to drug screening and chemistry expertise, Progenitor, Inc.'s
acquisition of Mercator Genetics, Inc. in an effort to strengthen Progenitor's
genomics capability, and Incyte Pharmaceuticals, Inc.'s acquisition of Synteni,
Inc. in an attempt to advance Incyte's strategy of accessing a broad spectrum of
gene discovery platforms.
EMPLOYEES
In connection with the Merger, GenQuest entered into severance agreements
with all of its employees. See "The Merger -- Conflicts of Interest." Under the
terms of their respective severance agreements, the GenQuest employees may
continue to work at GenQuest's New York laboratory facility until September 30,
1998. As of July 31, 1998, 8 GenQuest personnel remained employed at the
GenQuest New York laboratory facility. Corixa provides financial, legal,
administrative and business development services under the terms of a management
services agreement, which agreement will terminate upon the Effective Date. See
"The Merger -- Material Contacts" and "The Merger -- Conflicts of Interest."
PROPERTIES
GenQuest maintains its headquarters in Seattle, Washington and a separate
laboratory facility in New York City where it leases approximately 3,000 square
feet of laboratory, discovery, research and development and general
administrative space. As of July 31, 1998, GenQuest's monthly rent for its New
York laboratory, including amortization of tenant improvements, was
approximately $13,000. The lease for this facility expires in May 2000. In
connection with the Merger, GenQuest has sent its landlord a notice of
termination of the lease, which termination will be effective September 30,
1998.
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SCIENTIFIC ADVISORY BOARD
In 1997, GenQuest established a scientific advisory board, consisting of a
number of researchers in the field of molecular genomics, molecular oncology and
experimental cancer therapy, to consult with GenQuest's scientists and to advise
GenQuest on its research and development programs. GenQuest's scientific
advisory board included the following individuals:
Carlo M. Croce, M.D., is Director of Kimmel Cancer Institute, Director of
Kimmel Cancer Center, and Professor and Chairman, Department of Microbiology and
Immunology, Jefferson Medical College of Thomas Jefferson University,
Philadelphia, Pennsylvania.
Hal Edward Broxmeyer, Ph.D., is the Chairman and Mary Margaret Walther
Professor of Microbiology and Immunology, Professor of Medicine, Scientific
Director of the Walther Oncology Center at Indiana University, School of
Medicine in Indianapolis, Indiana.
Webster K. Cavenee, Ph.D., is the Director of the Ludwig Institute for
Cancer Research and Professor of Medicine at the University of California in San
Diego, California.
Ronald DePinho, M.D., is a Professor of Medicine and Genetics at the
Dana-Farber Cancer Institute of Harvard Medical School in Boston, Massachusetts
and was previously the Feinberg Senior Faculty Scholar in Cancer Research at
Albert Einstein College of Medicine in New York City, New York.
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.
Stephen Friend, M.D., Ph.D., is a Professor of Pathology at the University
of Washington. Dr. Friend is also a Member and Head of the Program of Molecular
Pharmacology, Fred Hutchinson Cancer Research Center, Director of the Seattle
Project, and Founder and Chief Scientific Officer of Rosetta Inpharmatics, Inc.
of Kirkland, Washington.
Arthur Pardee, Ph.D., is a Professor of Biological Chemistry and Molecular
Biology at the Dana-Farber Cancer Institute of Harvard Medical School in Boston,
Massachusetts.
Jerry W. Shay, Ph.D., is a Professor of Cell Biology and Neuroscience at
the University of Texas Southwestern Medical Center in Dallas, Texas.
Samuel Waxman, M.D., is the Zena and Michael A. Wiener Professor of
Medicine and Director of Rochelle Belfer Chemotherapy Foundation Laboratory,
Division of Neoplastic Diseases, Department of Medicine, Mount Sinai School of
Medicine. Dr. Waxman is also Honorary Professor and Co-Director of the Joint
Center for Clinical and Experimental Research in Differentiation Therapy of
Cancer at the Shanghai Second Medical University.
In connection with the Merger, GenQuest has provided certain severance
arrangements for the members of GenQuest's scientific advisory board. See "The
Merger -- Conflicts of Interest."
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MANAGEMENT OF CORIXA
At the Effective Time, GenQuest will cease its corporate existence and
Chinook will remain as the surviving corporation and a wholly-owned subsidiary
of Corixa. The existing officers and directors of Corixa shall remain in such
positions for Corixa following consummation of the Merger. Mark McDade and
Michelle Burris will be the initial officers and directors of Chinook following
consummation of the Merger. The officers, directors and key employees of Corixa,
and their ages as of August 4, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven Gillis, Ph. D................. 45 President, Chief Executive Officer and Director
Mark McDade.......................... 43 Executive Vice President, Chief Operating Officer and
Director
Steven Reed, Ph.D.................... 48 Executive Vice President and Chief Scientific Officer
Kenneth Grabstein, Ph.D.............. 47 Vice President and Director of Immunology
Michelle Burris...................... 32 Vice President and Chief Financial Officer
Syamal Raychaudhuri, Ph.D............ 44 Vice President and Director of Vaccine Research
Martin Cheever, M.D.................. 54 Vice President and Director of Medical Affairs
Joseph S. Lacob(2)................... 42 Chairman of the Board of Directors
Arnold L. Oronsky, Ph.D.(1)(2)....... 57 Director
Andrew E. Senyei, M.D.(1)(2)......... 48 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation 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 both
Micrologix Biotech, Inc. and Genesis Research and Development Corporation
Limited. 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 form 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
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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 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 and Chief Financial Officer of
Corixa since January 1998. From February 1997 to January 1998, she was Vice
President of Finance and Administration of Corixa. 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 for the Commercial Airplane Group. Ms. Burris is a
Certified Public Accountant, and she 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 has served as Vice President of Corixa since February
1997 and has served as Director of Vaccine Research since 1994. From 1993 to
1994, he was Director of Immunology for Actigen, Inc., a biotechnology company,
which 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.
Martin Cheever, M.D., Ph.D. has served as Vice President and Director of
Medical Affairs of Corixa since December 1997. During that time he also served
as an Affiliate Investigator for the Clinical Research Division for Fred
Hutchinson Cancer Research Center and as Clinical Professor of Medicine,
Division of Oncology for the University of Washington. From 1987 to December
1997, Dr. Cheever was a Professor of Medicine and a Member of the Division of
Oncology, University of Washington School of Medicine. From 1981 to 1987, Dr.
Cheever served as an Associate Professor of Medicine, Division of Oncology,
University of Washington and a Assistant Member, Fred Hutchinson Cancer Research
Center. Dr. Cheever graduated from the University of Michigan, Ann Arbor in
1966, and received his M.D. from the University of Michigan School of Medicine,
Ann Arbor, Michigan in 1970.
Joseph S. Lacob has served as Chairman of the Board of Corixa since 1994.
Mr. Lacob has been a partner of Kleiner Perkins Caufield & Byers, a venture
capital firm, since May 1987. Mr. Lacob is currently the Chairman of the Board
of CellPro, Incorporated, Microcide Pharmaceuticals, Inc., Corixa and Cardima,
Inc. He also serves on the Board of Directors of Heartport, Inc., IsoStent and
several other privately-held biotechnology, medical device and health care
service companies. 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 and a director of Signal Pharmaceutical
Inc. 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
serves on the board of directors of several private technology companies. Prior
to joining Enterprise Partners, Dr. Senyei was a practicing clinician and
Adjunct Associate Professor of Obstetrics,
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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.
BOARD OF DIRECTORS COMMITTEES, COMPENSATION OF DIRECTORS AND OTHER INFORMATION
All directors hold office until the next annual meeting of stockholders of
Corixa and until their successors have been elected and qualified. The officers
of Corixa are appointed annually and serve at the discretion of the Corixa
Board.
The Corixa Board held a total of four meetings during the year ended
December 31, 1997. Corixa has an Audit Committee and a Compensation Committee of
the Corixa Board. Each incumbent director attended at least 75% of the aggregate
number of meetings of the Corixa Board and meetings of the committees of the
Corixa Board on which he serves. There are no family relationships among any of
the directors or executive officers of Corixa.
During 1997, the Compensation Committee consisted of Mr. Lacob and Dr.
Senyei, two of Corixa's non-employee directors, and acted one time by written
consent during the last fiscal year. Its functions are to review and approve the
compensation and benefits for Corixa's executive officers, administer Corixa's
stock purchase and stock option plans and make recommendations to the Corixa
Board regarding such matters. In February 1998, Dr. Oronsky, a non-employee
director, was appointed to the Compensation Committee, which has met once to
date during the current year.
The Audit Committee currently consists of Dr. Oronsky and Dr. Senyei, two
of Corixa's non-employee directors, and met once during the year ended December
31, 1997. Its functions are to review the scope and results of financial audits
and other services performed by Corixa's independent accountants and to make
recommendations to the Corixa Board regarding such matters.
Non-employee directors currently receive no cash fees for services provided
in that capacity. Corixa has adopted the 1997 Directors' Stock Option Plan under
which current and future non-employee directors will be eligible to receive
stock options in consideration of their services. See "-- Stock Option and
Incentive Plans -- 1997 Directors' Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except as set forth below and in "Certain Relationships and Related
Transactions of Corixa," no interlocking relationship exists between the Corixa
Board 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.
Steven Gillis is Acting Chief Executive Officer and a director of GenQuest
and Mark McDade is Acting Vice President and a director of GenQuest. Steven Reed
and Mr. McDade are directors of IDRI. Dr. Gillis is a director of Micrologix
Biotech, Inc. and Genesis Research and Development Corporation Limited. 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, Corixa estimates
that at the present time Dr. Gillis and Mr. McDade each devote less than 20% of
their respective time to such duties. Neither Dr. Gillis nor Mr. McDade receive
compensation from GenQuest in connection with the services they perform for
GenQuest. See "Certain Relationships and Related Transactions of Corixa."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Corixa's Fifth Amended and 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 DGCL, or (iv) for any transaction
from which a director derives an improper personal
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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, Corixa has obtained an insurance policy providing coverage for certain
liabilities of its officers and directors.
Corixa's Bylaws provide that Corixa shall indemnify its directors and may
indemnify its officers, employees and other agents to the fullest extent
permitted by law. Corixa believes that indemnification under its Bylaws covers
at least negligence and gross negligence on the part of an indemnified party and
permits Corixa 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
Corixa upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.
Corixa has entered into separate indemnification agreements with each of
its directors and officers. These agreements require Corixa, 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 Corixa (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 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 Corixa. Corixa believes that its Fifth Amended and Restated
Certificate of Incorporation, Bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers.
Corixa is not aware of any pending litigation or proceeding involving any
director, officer, employee or agent of Corixa where indemnification will be
required or permitted. Corixa is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
STOCK OPTION AND INCENTIVE PLANS
Amended and Restated 1994 Stock Option Plan
Corixa's Amended and Restated 1994 Stock Option Plan (the "1994 Plan") was
originally adopted by the Corixa Board 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, which amendment and restatement was
approved by the stockholders in September 1997. The 1994 Plan provides for the
grant to employees of Corixa (including officers and employee directors) of
incentive stock options ("ISOs") within the meaning of Section 422 of the Code
and for the grant of nonstatutory stock options ("NSOs") and to employees,
directors and consultants of Corixa. The 1994 Plan is administered by the Corixa
Board or the Compensation Committee (the "Administrator"). The maximum number of
shares that 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 Corixa
and to grant NSOs to employees, directors and consultants of Corixa. 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 that would not otherwise be exercisable. The exercise price of
each ISO granted under the 1994 Plan must be at least equal to the fair market
value of Corixa Common Stock on the date of grant. The exercise price of each
NSO granted under the 1994 Plan must equal at least 85% of the fair market value
of Corixa 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 Corixa's outstanding capital stock (a "10% Stockholder") must
equal at least 110% of the fair market value of Corixa Common Stock on the date
of grant. Payment of the exercise price may be made in
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cash, by check, in the Administrator's discretion, by promissory note (for
optionees other than non-employee directors), in shares of properly registered
Corixa 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 Corixa-designated brokerage firm whereby Corixa is paid
sufficient funds to cover the aggregate exercise price of the purchased shares
as well as all taxes that Corixa 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 an 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 Corixa plans 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 Corixa, 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 Corixa or the merger of Corixa 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 Corixa 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
Corixa, 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 Corixa Common Stock and, to the extent that
an optionee holds options for such unvested shares of Corixa Common Stock upon
termination, Corixa 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.
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 3% of the number of shares of Corixa 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 Corixa Board 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 Corixa'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.
As of August 4, 1998, options to purchase a total of 219,508 shares of
Corixa Common Stock had been exercised, options to purchase a total of 1,434,496
shares at a weighted average exercise price of $3.17 per share were outstanding
and an aggregate of 710,204 shares remained available for future option grants
under the 1994 Plan.
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1997 Directors' Stock Option Plan
The Directors' Plan was adopted by the Corixa Board in July 1997. A total
of 250,000 shares of Corixa 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 Corixa Common
Stock or such lesser amount as the Corixa Board may establish. The Directors'
Plan provides for the grant of NSOs to non-employee directors of Corixa. The
Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Corixa Board. The Directors' Plan provides that each person who becomes a
non-employee director of Corixa after October 2, 1997, the date of Corixa's
initial public offering, shall be granted NSOs to purchase 15,000 shares of
Corixa Common Stock (the "First Option"). Thereafter, on the first day of each
fiscal year of Corixa on or after 1997, each non-employee director shall be
automatically granted an additional option to purchase 5,000 shares of Corixa
Common Stock (a "Subsequent Option"), provided that, on such date, he or she
shall have served on the Corixa Board 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 1/12th 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 Corixa 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
Corixa, a sale of all or substantially all of the assets of Corixa, the merger
of Corixa with or into another corporation in which Corixa is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of Corixa 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 Corixa or acquiring its business by reason of such
liquidation, dissolution, sale, merger, consolidation or reorganization. The
Corixa Board 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 terminate on October 2, 2007.
As of August 4, 1998, options to purchase a total of 60,000 shares at a
weighted average exercise price of $12.36 per share were outstanding and an
aggregate of 190,000 shares remained available for future option grants under
the Directors' Plan.
1997 Employee Stock Purchase Plan
The 1997 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Corixa Board in July 1997. A total of 125,000 shares of Corixa 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 began on October 2,
1997, the date of Corixa's initial public offering, and continued 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 Corixa 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 Corixa Common Stock at
the beginning of the offering period and on the purchase date. If the fair
market value of the Corixa Common Stock on a purchase date is less than the fair
market value at the beginning of the offering period, a
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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 Corixa 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 Corixa. The Purchase Plan provides that in the
event of a merger of Corixa with or into another corporation or a sale of
substantially all of Corixa'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 Corixa Board 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 Corixa
Board. The Corixa Board 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.
As of August 4, 1998, 5,887 shares of Corixa Common Stock had been
purchased and 119,113 shares remained available for future purchase under the
Purchase Plan.
401(k) Plan
Corixa has a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering all of Corixa's employees. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1998) and to have the amount of
such reduction contributed to the 401(k) Plan. Corixa did not match
contributions before the fiscal year 1998. Effective January 1, 1998, Corixa
implemented a 401(k) matching program whereby Corixa contributes twenty-five
cents for each dollar a participant contributes, with a maximum contribution of
25% of the first 8% of a participant's earnings, not to exceed 25% of the
prescribed annual limit. The 401(k) Plan is intended to qualify under Section
401 of the Code so that contributions by employees or by Corixa to the 401(k)
Plan, and income earned on 401(k) Plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that contributions by
Corixa, if any, will be deductible by Corixa when made. At the direction of each
participant, Corixa invests the assets of the 401(k) Plan in any of seven
investment options.
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COMPENSATION OF CORIXA EXECUTIVE OFFICERS
The following table shows the compensation received by (a) the individual
who served as Corixa's Chief Executive Officer during the fiscal year ended
December 31, 1997; (b) the four other most highly compensated individuals who
served as executive officers of Corixa during the fiscal year ended December 31,
1997 (together with the Chief Executive Officer, the "Named Executive
Officers"); and (c) the compensation received by each such individual for
Corixa's two preceding fiscal years if such individual was employed by Corixa
during such period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
FISCAL SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)
--------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Steven Gillis....................... 1997 $289,000 $47,000 $6,700 17,171
President and 1996 250,000 20,000 6,800 --
Chief Executive Officer 1995 250,000 0 6,800 36,363
Mark McDade......................... 1997 254,000 40,500 6,700 17,171
Executive Vice President 1996 200,000 14,000 6,800 --
and Chief Operating Officer 1995 200,000 0 4,300 30,303
Steven Reed......................... 1997 181,300 28,700 6,500 17,171
Executive Vice President 1996 147,000 7,000 6,700 --
and Chief Scientific Officer 1995 140,000 0 6,700 7,575
Kenneth Grabstein................... 1997 142,000 16,100 6,500 17,171
Vice President and 1996 126,000 8,400 6,700 --
Director of Immunology 1995 120,000 0 6,700 --
Syamal Raychaudhuri................. 1997 112,400 12,100 6,500 17,171
Vice President and Director of
Vaccine Research
</TABLE>
- ---------------
(1) Includes amounts deferred under Corixa's 401(k) plan.
(2) Include bonuses paid in the indicated year.
(3) Amounts reported for fiscal years 1997, 1996 and 1995 consist of: (i)
amounts paid by Corixa to assist with relocations including $3,900 for Mr.
McDade in fiscal year 1995) and (ii) premiums paid on life and accidental
death and dismemberment and health insurance policies for the officer's
benefit.
Dr. Gillis, Mr. McDade, Dr. Reed and Dr. Grabstein each entered into an
agreement with Corixa dated September 30, 1994 which provides that such
officer's employment is terminable at any time for any reason, with or without
cause, by either such officer or Corixa. In the event that Corixa involuntarily
terminates any of such officer's employment, other than for "good cause," then
such officer will immediately resign from all his positions with Corixa and
enter into a consulting arrangement for a one-year period commencing immediately
after the termination of his employment. In consideration for this consulting
arrangement, such officer will continue to be paid his salary and benefits for
one year and will become vested over such one-year period in the lesser of (i)
an additional one year period of vesting for shares covered by such officer's
Stock Purchase Agreement and Stock Option Agreements and (ii) the remaining
unvested shares pursuant to such Stock Purchase Agreement and Stock Option
Agreements; provided, however, if such officer obtains new employment during the
one-year consulting period, any salary paid pursuant to such new employment will
be offset from amounts due under such consulting arrangement and vesting of
shares covered by such officer's Stock Purchase Agreement and Stock Option
Agreements will cease as of the date he accepts such new employment. For
purposes of the consulting agreement, "good cause" means gross misconduct or
acts or omissions that involve fraud or embezzlement or misappropriation of any
property or proprietary information of Corixa.
101
<PAGE> 109
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the last fiscal year. In
addition, as required by Commission rules, the table sets forth the hypothetical
gains that would exist for the options based on assumed rates of annual compound
stock price appreciation during the option term.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED EXERCISE PRICE APPRECIATION
UNDERLYING TO EMPLOYEES OF BASE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED(#) YEAR(%)(3) ($/SH)(4) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven Gillis.............. 17,171 2.4% $0.99 2/07 $10,700 $27,100
Mark McDade................ 17,171 2.4 0.99 2/07 10,700 27,100
Steven Reed................ 17,171 2.4 0.99 2/07 10,700 27,100
Kenneth Grabstein.......... 17,171 2.4 0.99 2/07 10,700 27,100
Syamal Raychaudhuri........ 17,171 2.4 0.99 2/07 10,700 27,100
</TABLE>
- ---------------
(1) No stock appreciation rights were granted to the Named Executive Officers in
the last fiscal year. Options vest over a four-year period on a monthly
basis after the first year.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Commission. There is no assurance provided to any
executive officer or any other holder of Corixa's securities that the actual
stock price appreciation over the 10-year option term will be at the assumed
5% and 10% levels or at any other defined level.
(3) Corixa granted stock options representing 710,004 shares in the last fiscal
year.
(4) The exercise price may be paid in cash, in shares of Corixa Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. Corixa
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information for the Named Executive Officers
with respect to exercises of options to purchase Corixa Common Stock in the
fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT
ACQUIRED ON VALUE YEAR END(#) FISCAL YEAR END($)
NAME EXERCISE(#) REALIZED($) VESTED/UNVESTED(1) VESTED/UNVESTED(2)
---- ----------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Steven Gillis........................ -0- n/a 34,110/34,575 $291,000/$288,900
Mark McDade.......................... -0- n/a 91,055/47,328 781,200/ 398,600
Steven Reed.......................... -0- n/a 7,722/17,024 63,900/ 137,800
Kenneth Grabstein.................... -0- n/a 3,934/13,237 31,300/ 105,200
Syamal Raychaudhuri.................. -0- n/a 18,834/21,064 159,500/ 172,600
</TABLE>
- ---------------
(1) No stock appreciation rights (SARs) were outstanding during fiscal year
1997.
(2) Based on the $8.9375 per share closing price of Corixa Common Stock on
Nasdaq on December 31, 1997, less the exercise price of the options.
102
<PAGE> 110
OWNERSHIP OF CORIXA CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of Corixa Common Stock as of August 4, 1998, by (i) each person who is
known by Corixa to own beneficially more than five percent of the Corixa Common
Stock, (ii) each director of Corixa, (iii) each of the Named Executive Officers,
and (iv) by all of Corixa's directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) COMMON STOCK
---------------- ----------------------- ------------
<S> <C> <C>
Entities affiliated with Kleiner Perkins Caufield &
Byers(2)................................................ 2,464,843 20.9%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Enterprise Partners(3)........... 1,475,416 12.5
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Entities affiliated with InterWest Investors(4)........... 1,390,797 11.8
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Entities affiliated with Forward Ventures(5).............. 645,698 5.4
9255 Towne Center Drive, Suite 300
San Diego, CA 92121
Steven Gillis(6).......................................... 379,162 3.2
Steven Reed(7)............................................ 253,857 2.1
Mark McDade(8)............................................ 242,042 2.0
Kenneth Grabstein(9)...................................... 219,311 1.9
Syamal Raychaudhuri(10)................................... 166,284 1.4
Joseph S. Lacob(11)....................................... 2,434,049 20.6
Andrew E. Senyei(12)...................................... 1,482,500 12.6
Arnold L. Oronsky(13)..................................... 1,397,881 11.8
All directors and executive officers as a group (9
persons)(14)............................................ 6,654,701 54.1%
</TABLE>
- ---------------
(1) Applicable percentage of beneficial ownership is based on 11,817,542 shares
of Corixa Common Stock outstanding as of August 4, 1998, together with
applicable options and warrants for such stockholder. Beneficial ownership
is determined in accordance with the rules of the Commission. The number of
shares beneficially owned by a person includes shares of Corixa Common
Stock subject to options held by that person that are currently exercisable
or exercisable within 60 days of August 4, 1998. Such shares issuable
pursuant to such options are deemed outstanding for computing the
percentage ownership of the person holding such options but are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. To Corixa's knowledge, the persons named in this table have
sole voting and investment power with respect to all shares of Corixa
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. Unless otherwise indicated, the address of each of the individuals
named above is Corixa Corporation, 1124 Columbia Street, Suite 200,
Seattle, Washington 98104.
(2) 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.
(3) Includes 1,357,384 shares held by Enterprise Partners III, L.P. and 118,032
shares held by Enterprise Partners III Associates, L.P. 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. Dr. Senyei
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest in such shares.
103
<PAGE> 111
(4) Includes 1,382,107 shares held by InterWest Partners V, L.P. and 8,690
shares held by InterWest Investors V, L.P. 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.
(5) Includes 511,958 shares held by Forward Ventures II, L.P., 34,821 shares
held by the Royston Family Trust UTA DTD 2/12/82, whose co-trustee is Ivor
Royston, a general partner of Forward Ventures, 34,821 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
August 4, 1998.
(6) Includes 106,435 shares issuable upon the exercise of outstanding options
held by Dr. Gillis exercisable within 60 days of August 4, 1998, at which
date 49,737 shares were fully vested.
(7) Includes 37,496 shares issuable upon the exercise of outstanding options
held by Dr. Reed exercisable within 60 days of August 4, 1998, at which
date 15,111 shares were fully vested, 15,151 shares were held in the name
of Steven James N. Reed, UGMA WA Merrill Lynch and 15,151 shares were held
in the name of Sarah Mariko Reed, UGMA WA Merrill Lynch, both of which
accounts name Dr. Reed as custodian. Dr. Reed disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest in
such shares.
(8) Includes 151,133 shares issuable upon the exercise of outstanding options
held by Mr. McDade exercisable within 60 days of August 4, 1998, at which
date 119,751 shares were fully vested.
(9) Includes 29,921 shares issuable upon the exercise of outstanding options
held by Dr. Grabstein exercisable within 60 days of August 4, 1998, at
which date 9,903 shares were fully vested, and 9,090 shares held in the
name of the Benjamin H. Grabstein Irrevocable Trust, 9,090 shares were held
in the name of the Daniel J. Grabstein Irrevocable Trust, 9,090 shares were
held in the name of the Naomi K. Grabstein Irrevocable Trust. Dr. Grabstein
is the Trustee for each of his childrens' trusts and he disclaims
beneficial ownership of the shares held in such trusts, except to the
extent of his pecuniary interest therein.
(10) Includes 52,648 shares issuable upon the exercise of outstanding options
held by Dr. Raychaudhuri exercisable within 60 days of August 4, 1998, at
which date 29,316 shares were fully vested.
(11) Includes 8,750 shares issuable upon the exercise of outstanding options
held by Joseph S. Lacob exercisable within 60 days of August 4, 1998,
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 Corixa Board, 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.
(12) Includes 8,750 shares issuable upon the exercise of outstanding options
held by Andrew E. Senyei exercisable within 60 days of August 4, 1998,
1,357,384 shares held by Enterprise Partners III, L.P. and 118,032 shares
held by Enterprise Partners III Associates, L.P. Dr. 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. Dr. Senyei disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest in
such shares.
(13) Includes 8,750 shares issuable upon the exercise of outstanding options
held by Arnold L. Oronsky exercisable within 60 days of August 4, 1998,
1,382,107 shares held by InterWest Partners V, L.P. and 8,690 shares held
by InterWest Investors V, L.P. Dr. 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.
(14) Includes shares referred to in footnotes (6) - (13). Includes 74,617 shares
issuable upon the exercise of outstanding options held by Michelle Burris,
an executive officer of Corixa, exercisable within 60 days of August 4,
1998, at which date 33,370 shares were fully vested.
104
<PAGE> 112
OWNERSHIP OF GENQUEST CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of GenQuest capital stock as of August 4, 1998, by (i) each person who
is known by GenQuest to own beneficially more than five percent of the
outstanding shares of GenQuest capital stock, (ii) each director of GenQuest,
(iii) each of the executive officers of GenQuest, and (iv) by all of GenQuest's
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) COMMON STOCK
---------------- ----------------------- ------------
<S> <C> <C>
Entities affiliated with Domain Partners(2)............... 6,000,000 22.8%
One Palmer Square
Princeton, NJ 08542
Frazier Healthcare II, L.P. .............................. 6,000,000 22.8%
601 Union Street, Suite 2110
Seattle, WA 98101
Entities affiliated with Mayfield Fund(3)................. 6,000,000 22.8%
2800 Sand Hill Road
Menlo Park, CA 94025
Corixa Corporation(4)..................................... 4,412,613 16.8%
1124 Columbia Street, Suite 200
Seattle, WA 98104
Forward Ventures II, L.P.(5).............................. 3,183,290 12.1%
9255 Towne Centre Drive, Suite 300
San Diego, CA 92121-3036
Alan Frazier(6)........................................... 6,000,000 22.8%
Russell Hirsch(7)......................................... 6,000,000 22.8%
Richard Schneider(8)...................................... 6,000,000 22.8%
Max Link.................................................. 150,000 **
Steven Gillis(4).......................................... * *
Mark McDade(4)............................................ * *
Paul Fisher............................................... * *
All directors and officers as a group (9 persons)......... 18,150,000 68.9%
</TABLE>
- ---------------
* Indicates no ownership.
** Less than 1 percent.
(1) Applicable percentage of beneficial ownership is based on 26,321,884 shares
of capital stock outstanding as of August 4, 1998, together with applicable
options and warrants for such stockholder. Beneficial ownership is
determined in accordance with the rules of the Commission. The number of
shares beneficially owned by a person includes shares of GenQuest Common
Stock subject to options held by that person that are currently exercisable
or exercisable within 60 days of August 4, 1998. Such shares issuable
pursuant to such options are deemed outstanding for computing the percentage
ownership of the person holding such options but are not deemed outstanding
for the purposes of computing the percentage ownership of each other person.
To GenQuest's knowledge, the persons named in this table have sole voting
and investment power with respect to all shares of capital stock shown as
owned by them, subject to community property laws where applicable and
except as indicated in the other footnotes to this table. Unless otherwise
indicated, the address of each of the individuals named above is: GenQuest,
Inc., 1124 Columbia Street, Suite 200, Seattle, Washington 98104.
(2) Includes 3,479,620 shares held by Domain Partners III, L.P., 120,380 shares
held by DP III Associates, L.P. and 2,400,000 shares held by Biotechnology
Investments, Limited, registered in the name of Old Court Limited. Richard
Schneider, a Director, is a general partner of Domain Partners III, L.P., DP
III Associates, L.P. and Biotechnology Investments, Limited, registered in
the name of Old Court Limited,
105
<PAGE> 113
and as such, may be deemed to share voting and investment power with respect
to such shares. Mr. Schneider disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein.
(3) Includes 300,000 shares held by Mayfield Associates Fund III, L.P. and
5,700,000 shares held by Mayfield VIII, L.P. Russell Hirsch, a Director, is
a general partner of Mayfield Associates Fund III, L.P. and Mayfield VIII,
L.P., and as such, may be deemed to share voting and investment power with
respect to such shares. Dr. Hirsch disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein.
(4) Steven Gillis is a Director and Acting Chief Executive Officer of GenQuest,
and President, Chief Executive Officer and Director of Corixa. Mark McDade
is a Director and Acting Vice President of GenQuest, and Executive Vice
President, Chief Operating Officer and a Director of Corixa. Both Dr. Gillis
and Mr. McDade disclaim beneficial ownership of the 4,412,613 shares held by
Corixa, except to the extent of any pecuniary interest therein. Neither Dr.
Gillis nor Mr. McDade hold the power to vote or to direct the voting of such
shares, or the power to dispose or to direct the disposition of such shares.
(5) Includes 2,959,271 shares held by Forward Ventures II, L.P., 75,000 shares
held by Ivor and Colette Carson Royston, Trustees of the Royston Family
Grantor Trust, whose co-trustee is Ivor Royston, a general partner of
Forward Ventures II, L.P., 75,000 shares held by Standish Fleming, a general
partner of Forward Ventures II, L.P., 40,000 shares held by Jeff Sollender,
a venture partner of Forward Ventures II, L.P. and 34,019 shares issuable
upon exercise of warrants held by Forward Ventures II, L.P. Forward Ventures
II, L.P. has indicated its interest to net exercise such warrants to
purchase 3,677 shares of GenQuest's Series B Preferred Stock immediately
prior to the Effective Time.
(6) Includes 6,000,000 shares held by Frazier Healthcare II, L.P. Alan Frazier,
the Chairman, President and Secretary of GenQuest, is a general partner of
Frazier Healthcare II, L.P., and as such, may be deemed to share voting and
investment power with respect to such shares. Mr. Frazier disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest therein.
(7) Includes 300,000 shares held by Mayfield Associates Fund III, L.P. and
5,700,000 shares held by Mayfield VIII, L.P. Russell Hirsch, a Director, is
a general partner of Mayfield Associates Fund III, L.P. and Mayfield VIII,
L.P., and as such, may be deemed to share voting and investment power with
respect to such shares. Dr. Hirsch disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein.
(8) Includes 3,479,620 shares held by Domain Partners III, L.P., 120,380 shares
held by DP III Associates, L.P. and 2,400,000 shares held by Biotechnology
Investments, Limited, registered in the name of Old Court Limited. Richard
Schneider, a Director, is a general partner of Domain Partners III, L.P., DP
III Associates, L.P. and Biotechnology Investments, Limited, registered in
the name of Old Court Limited, and as such, may be deemed to share voting
and investment power with respect to such shares. Mr. Schneider disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest therein.
106
<PAGE> 114
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CORIXA
GenQuest. In connection with the amended license and collaboration
agreement with GenQuest entered into in December 1996, Corixa entered into a
management services agreement under which Corixa provides financial, legal,
administrative, management and related services to GenQuest. In exchange for
such services, GenQuest pays Corixa a nominal management fee and reimburses
Corixa for direct expenses associated with providing such services. Corixa's
Chief Executive Officer, Chief Scientific Officer, Chief Operating Officer and
Chief Financial Officer are required to provide specific services to GenQuest
under the management services agreement, and other members of Corixa's employee
management team are required to provide general support. The management services
agreement terminates upon the earlier of (i) 90 days following the expiration of
Corixa's right to purchase all of the outstanding shares of GenQuest's capital
stock pursuant to the Call Option Agreement, (ii) 90 days following the date
Corixa 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 and collaboration agreement.
Corixa, GenQuest and the stockholders of GenQuest have also entered into
the Call Option Agreement under which Corixa has the right to purchase all of
the outstanding shares of GenQuest's capital stock in exchange for shares of
Corixa 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 Corixa's initial public offering during which the average closing sale
price of a share of Corixa'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 Corixa 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 and collaboration 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
Corixa 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 Corixa Common Stock and the
capitalization of GenQuest as well as the date of exercise. If Corixa were to
exercise its right under the Call Option Agreement, assuming a fair market value
of Corixa Common Stock of $6.8396 per share, Corixa would be required to pay a
higher purchase price for the shares of GenQuest than will be paid in the
Merger. However, the Call Option Agreement does not obligate Corixa to purchase
any shares of GenQuest, nor does it preclude Corixa from purchasing shares of
GenQuest or the assets of GenQuest at a price different from that set forth in
the Call Option Agreement. Corixa is not exercising its rights under the Call
Option Agreement in connection with the Merger.
Additionally, in connection with the relationship between Corixa and
GenQuest, Corixa issued warrants to the GenQuest stockholders 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, none of which have been exercised as of
August 4, 1998. 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 Corixa Common Stock issuable upon exercise of such
warrants. See "The Merger -- Conflicts of Interest" and Note 9 of Notes to
Corixa's Financial Statements.
Infectious Disease Research Institute. In September 1994, Corixa entered
into a research services and intellectual property agreement with IDRI. Under
this agreement, as amended and restated effective January 1997, Corixa has
agreed to provide IDRI with research funding and certain administrative and
facilities support, including use of Corixa's research laboratory space. IDRI
pays a services fee for the administrative and facilities support provided by
Corixa. Corixa's funded research performed by IDRI is in the area of infectious
disease. Under the agreement, IDRI is obligated to disclose to Corixa all
significant developments relating to information or inventions discovered at
IDRI, and Corixa 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, Corixa has been granted a
royalty-bearing, worldwide, perpetual license, exclusive except as to rights
held by such governmental or not-for-profit organizations.
107
<PAGE> 115
IDRI is independent of Corixa, and Corixa 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 Corixa. However, Corixa'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 Corixa's Vice President, Chief Financial Officer 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 Corixa. If IDRI terminates the agreement as a result of Corixa's
failure to make required payments, Corixa would be obligated to pay royalties on
any product sales.
Genesis Ltd. On April 1, 1995, Corixa entered into a research collaboration
and license agreement with Genesis Research and Development Corporation Limited,
a corporation organized and existing pursuant to the laws of New Zealand
("Genesis") whereby Genesis will provide to Corixa research and preclinical
testing related to the discovery of new antigens and vaccine adjuvants. The
agreement was amended and restated effective November 1, 1996 and terminated in
accordance with its terms on December 31, 1997. Corixa and Genesis are currently
renegotiating the research collaboration and license agreement, which
renegotiated agreement will, upon execution, be effective as of January 1, 1998.
Corixa currently intends to continue to pay Genesis usual and customary fees for
the nature of the collaboration. Dr. Gillis, President, Chief Executive Officer
and a Director of Corixa, is a member of the Board of Directors of Genesis.
INDEMNIFICATION AGREEMENTS
Corixa has entered into an indemnification agreement with each of its
officers and directors. See "The Merger -- Conflicts of Interest."
Corixa believes that all of the transactions set forth above were made on
terms no less favorable to Corixa than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
Corixa and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Corixa Board, including a majority of the
independent and disinterested directors and will continue to be on terms no less
favorable to Corixa than could be obtained from unaffiliated third parties and
will be made only for bona fide business purposes.
108
<PAGE> 116
COMPARISON OF RIGHTS OF HOLDERS OF CORIXA CAPITAL STOCK AND HOLDERS OF GENQUEST
CAPITAL STOCK
The following summary of certain characteristics of capital stock of Corixa
and GenQuest does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the DGCL and by the bylaws and certificates
of incorporation of GenQuest and Corixa, as applicable.
Description of Corixa Capital Stock
The authorized capital stock of Corixa consists of 40,000,000 shares of
Common Stock, $0.001 par value per share, and 10,000,000 shares of Preferred
Stock, $0.001 par value per share.
Corixa Common Stock. As of August 4, 1998, there were approximately
11,817,542 shares of Corixa Common Stock outstanding. Pursuant to Corixa's Fifth
Amended and Restated Certificate of Incorporation (the "Corixa Certificate"),
the holders of Corixa Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. No Corixa stockholder will be
entitled to cumulate votes at any election of directors. Subject to preferences
that may be applicable to any outstanding Corixa Preferred Stock, the holders of
Corixa Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Corixa Board out of legally available funds.
In the event of a liquidation, dissolution or winding up of Corixa, the holders
of Corixa Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of Corixa Preferred Stock,
if any, then outstanding. Holders of Corixa 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 Corixa Common Stock. All
outstanding shares of Corixa Common Stock are fully paid and non-assessable, and
the shares of Corixa Common Stock to be issued upon completion of the Merger,
when issued in accordance with the Merger Agreement, will be fully paid and
non-assessable.
Corixa Preferred Stock. Pursuant to the Corixa Certificate, the Corixa
Board has the authority, without further action by the Corixa stockholders, to
issue up to 10,000,000 shares of Corixa Preferred Stock in one or more series.
The Corixa Board has the authority to issue such undesignated Corixa 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 Corixa 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 Corixa stockholders. The issuance of
Corixa Preferred Stock may have the effect of delaying, deferring or preventing
a change in control of Corixa without further action by the Corixa stockholders
and may adversely affect the voting and other rights of the holders of Corixa
Common Stock. As of August 4, 1998, there are no shares of Corixa Preferred
Stock outstanding and Corixa currently has no plans to issue any shares of
Corixa Preferred Stock.
Corixa Registration Rights of Certain Holders. Certain holders of shares of
Corixa Common Stock and warrants exercisable for Corixa Common Stock
(collectively, the "Registrable Securities") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. The
registration rights are provided for under the terms of an amended and restated
investors' rights agreement (the "Corixa Investors' Rights Agreement") between
Corixa and the holders of Registrable Securities. Pursuant to the Corixa
Investors' Rights Agreement, and under certain conditions, holders of
Registrable Securities have the right to request that Corixa pay the expenses of
and file for the registration of shares of Corixa Common Stock under the
Securities Act, as well as the right to request secondary registrations on Form
S-3 under the Securities Act and the right to participate in Corixa-initiated
registrations of Corixa Common Stock.
Transfer Agent and Registrar. The Transfer Agent and Registrar for Corixa
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.
109
<PAGE> 117
Description of GenQuest Capital Stock
The authorized capital stock of GenQuest consists of 39,260,903 shares of
Common Stock, $0.001 par value per share, 6,812,613 shares of Series A Preferred
Stock, $0.001 par value per share and 18,543,290 shares of Series B Preferred
Stock, $0.001 par value per share. There is no established trading market for
GenQuest Common Stock.
GenQuest Common Stock. As of August 4, 1998, there were approximately
1,200,000 shares of GenQuest Common Stock outstanding, held by 14 stockholders
of record. Pursuant to GenQuest's Second Amended and Restated Certificate of
Incorporation (the "GenQuest Certificate"), the holders of GenQuest 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
GenQuest Preferred Stock, the holders of GenQuest Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
GenQuest Board out of legally available funds. In the event of a liquidation,
dissolution or winding up of GenQuest, the holders of GenQuest Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior rights of GenQuest Preferred Stock, if any, then outstanding.
Holders of GenQuest 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 GenQuest Common Stock. All outstanding shares of
GenQuest Common Stock are fully paid and non-assessable.
GenQuest Preferred Stock. As of August 4, 1998, there were 6,812,613 shares
of GenQuest Series A Preferred Stock outstanding, held by 3 stockholders of
record, including Corixa, and 18,309,271 shares of GenQuest Series B Preferred
Stock outstanding, held by 7 stockholders of record. The holders of GenQuest
Preferred Stock are entitled to one vote for each share of GenQuest Common Stock
into which such GenQuest Preferred Stock could then be converted with respect to
all matters to be voted upon by the stockholders. The holders of GenQuest Series
B Preferred Stock are entitled to receive dividends, out of any assets legally
available, at the rate of $0.04 per share per annum prior and in preference to
holders of GenQuest Series A Preferred Stock and GenQuest Common Stock. Such
dividends are payable only when, as and if declared by the GenQuest Board and
are noncumulative. The holders of GenQuest Series A Preferred Stock are entitled
to receive dividends, out of any assets legally available, at the rate of $0.04
per share per annum prior and in preference to holders of GenQuest Common Stock.
Such dividends are payable only when, as and if declared by the GenQuest Board
and are noncumulative. In the event of a liquidation, dissolution or winding up
of GenQuest: (A) the holders of GenQuest Series B Preferred Stock are entitled
to receive, prior and in preference to holders of GenQuest Series A Preferred
Stock and GenQuest Common Stock, an amount per share equal to the sum of (i)
$0.50 for each outstanding share of GenQuest Series B Preferred Stock (subject
to adjustments for stock splits, stock dividends and the like) and (ii) an
amount equal to declared but unpaid dividends on such share; (B) the holders of
GenQuest Series A Preferred Stock are entitled to receive, prior and in
preference to holders of GenQuest Common Stock, an amount per share equal to the
sum of (i) $0.50 for each outstanding share of GenQuest Series A Preferred Stock
(subject to adjustments for stock splits, stock dividends and the like) and (ii)
an amount equal to declared but unpaid dividends on such share; and (C) upon the
completion of such initial distribution to the holders of GenQuest Preferred
Stock, the remaining assets of GenQuest available for distribution to GenQuest
stockholders shall be distributed among all GenQuest stockholders pro rata based
on the number of shares of GenQuest Common Stock held by each (assuming
conversion of all GenQuest Preferred Stock into shares of GenQuest Common
Stock). The holders of GenQuest Preferred Stock are entitled at any time to
convert such shares into GenQuest Common Stock at the then-applicable conversion
price. The conversion price is subject to certain protective anti-dilution
adjustments for later issuances of GenQuest Common Stock or other dilutive
events. All outstanding shares of GenQuest Preferred Stock will be automatically
converted to GenQuest Common Stock upon (i) a public offering of GenQuest Common
Stock with certain minimum amount and price requirements or (ii) the vote of a
majority of the outstanding GenQuest Preferred Stock, voting together as a
class. All outstanding shares of GenQuest Preferred Stock are fully paid and
non-assessable.
GenQuest Stockholders Agreements. GenQuest is a party to that certain
Amended and Restated Investors' Rights Agreement, dated December 23, 1996,
between GenQuest and certain investors listed on the signature pages thereto
(the "GenQuest Investors' Rights Agreement"). Pursuant to the GenQuest
Investors'
110
<PAGE> 118
Rights Agreement, and under certain conditions, GenQuest stockholders have the
right to request that GenQuest pay the expenses of and file for the registration
of shares of GenQuest capital stock under the Securities Act, as well as the
right to request secondary registrations on Form S-3 under the Securities Act
and the right to participate in GenQuest-initiated registrations of GenQuest
capital stock. The GenQuest Investors' Right Agreement also contains certain
covenants of GenQuest, including the delivery of financial statements, a right
of first offer with respect to certain future sales of shares of GenQuest
capital stock by GenQuest, and provisions for certain information, inspection
and observer rights.
GenQuest is also a party to that certain Amended and Restated Voting
Agreement, dated December 23, 1996, between GenQuest and certain investors
listed on the signature pages thereto (the "Voting Agreement," and, collectively
with the GenQuest Investors' Rights Agreement, the "GenQuest Stockholders
Agreements"). The Voting Agreement provides that the parties thereto are
obligated to vote for the election of certain GenQuest directors as well as
other matters relating to the GenQuest Board.
Comparison of Certificates of Incorporation, Bylaws and Governing Law
Because both GenQuest and Corixa are incorporated under the laws of the
State of Delaware, the rights and privileges of stockholders of GenQuest and
Corixa, respectively, which rights and privileges are governed by the DGCL, are
identical, except (i) to the extent that their respective certificates of
incorporation and bylaws differ, (ii) for the rights and privileges of the
holders of Corixa Common Stock under the Corixa Rights Agreement, and (iii) for
the rights and privileges of the holders of GenQuest capital stock under the
GenQuest Stockholders Agreements. Upon consummation of the Merger, the holders
of GenQuest capital stock who receive Corixa Common Stock under the terms of the
Merger Agreement will become stockholders of Corixa. Although it is not
practical to compare all the differences among the Corixa Certificate, the
bylaws of Corixa (the "Corixa Bylaws"), the GenQuest Certificate and the bylaws
of GenQuest (the "GenQuest Bylaws"), the following is a summary of certain
material differences of the rights of holders of GenQuest capital stock and
Corixa Common Stock that may significantly affect the rights of GenQuest
stockholders. This summary does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the DGCL and by the bylaws
and certificates of incorporation of GenQuest and Corixa, as applicable.
Size of the Board of Directors. The GenQuest Certificate and the GenQuest
Bylaws provide that the authorized number of directors is seven, which number
may not be changed without (i) the approval of the holders of a majority of the
outstanding GenQuest capital stock and (ii) the approval of the holders of at
least a majority of the then outstanding shares of Series A and Series B
preferred stock of GenQuest, voting together as a single class. The election of
GenQuest directors need not be by written ballot. The Corixa Certificate and the
Corixa Bylaws provide that the authorized number of directors is five, and may
be fixed from time to time by a bylaw or amendment thereof duly adopted by at
least 66 2/3% of the Corixa Board. The election of Corixa directors need not be
by written ballot.
Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A stockholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the stockholder may choose. Under the DGCL, cumulative voting in the election
of directors is not available unless specifically provided for in the
certificate of incorporation. The Corixa Certificate specifically provides that
cumulative voting is not available to Corixa stockholders. The GenQuest
Certificate does not specifically provide for cumulative voting, and
accordingly, under the DGCL, cumulative voting is not available to GenQuest
stockholders.
Actions by Written Consent of Stockholders. Under the DGCL, stockholders
may take action by written consent in lieu of voting at a stockholders' meeting
unless a corporation eliminates stockholder ability to act by written consent in
its certificate of incorporation. Elimination of the ability of stockholders to
act by written consent potentially lengthens the amount of time required to take
stockholder actions because certain actions by written consent are not subject
to the minimum notice requirements of a stockholders' meeting, and could deter
hostile takeover attempts. If the ability of stockholders to act by written
consent is eliminated, a holder or group of holders controlling a majority in
interest of a corporation's capital stock, for example, would not be
111
<PAGE> 119
able to amend such corporation's bylaws or remove its directors pursuant to a
stockholders' written consent. The GenQuest Bylaws provide for action by written
consent of its stockholders. The Corixa Certificate specifically prohibits the
ability of its stockholders to act by written consent.
Amendment of Bylaws. The GenQuest Certificate provides that the GenQuest
Board may make, amend, supplement or repeal the GenQuest Bylaws; provided that
the GenQuest stockholders may change or repeal any bylaw adopted by the GenQuest
Board by the affirmative vote of (i) the holders of a majority of GenQuest
capital stock then outstanding and (ii) the holders of a majority of GenQuest
Preferred Stock then outstanding, voting together as a single class. The Corixa
Certificate provides that the Corixa Board may make, amend, supplement or repeal
the Corixa Bylaws; provided that the affirmative vote of the holders of 66 2/3%
of Corixa capital stock then outstanding, voting together as a single class, is
required to amend, alter, repeal or adopt certain bylaw provisions, including
any bylaw provision changing the number of authorized directors of Corixa.
Dissenters' Rights. Under Delaware law, a stockholder of a corporation
participating in certain major corporate transactions may be entitled, under
varying circumstances, to dissenters' or appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Such rights are not available with respect to a merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders.
See "The Merger -- Dissenters' Rights." Appraisal rights are available to
GenQuest stockholders in connection with the Merger. Because Corixa Common Stock
is listed on Nasdaq, appraisal rights would not be available to Corixa
stockholders in the event Corixa is acquired by another corporation.
Stockholder Agreements. The Corixa Investors' Rights Agreement and the
rights thereunder are described above under "-- Description of Corixa Capital
Stock." The GenQuest Stockholders Agreements and the rights thereunder are
described above under "-- Description of GenQuest Capital Stock."
Rights of Preferred Stock. Certain rights of holders of GenQuest Preferred
Stock, including liquidation preferences, dividend rights and anti-dilution
protections, are described above under "-- Description of GenQuest Capital
Stock." Except as described above under "-- Description of Corixa Capital
Stock", holders of Corixa Common Stock currently have no such rights.
EXPERTS
The financial statements of Corixa, as of December 31, 1997, 1996, and
1995, and for each of the three years in the period ended December 31, 1997, and
for the period from September 8, 1994 (date of inception) to December 31, 1997,
and the financial statements of GenQuest as of December 31, 1997 and 1996 and
for each of the two years in the period ending December 31, 1997 and for the
period from July 14, 1995 (date of inception) to December 31, 1997 appearing in
this Proxy Statement/Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports 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.
LEGAL MATTERS
The validity of the Corixa Common Stock issuable pursuant to the Merger and
certain other legal matters relating thereto will be passed upon for Corixa by
Venture Law Group, A Professional Corporation, Kirkland, Washington. Wilson
Sonsini Goodrich & Rosati is acting as counsel to holders of GenQuest Series B
Preferred Stock (except Forward Ventures II, L.P.) in connection with the
Merger. Brobeck Phleger & Harrison LLP is acting as counsel to Forward Ventures
II, L.P. in connection with the Merger. Rosner, Breslser, Goodman & Unterman,
LLP is acting as counsel to certain holders of GenQuest Common Stock in
connection with the Merger. GenQuest has not retained counsel in connection with
the Merger.
112
<PAGE> 120
OTHER MATTERS
The GenQuest Board currently does not intend to bring any matters before
the Special Meeting other than those specifically set forth in the notices of
such Special Meeting, and the GenQuest Board does not know of any matters to be
brought before the Special Meeting by others. If any other matters properly come
before the Special Meeting, it is the intention of the persons named in the
accompanying proxies to vote such proxies in accordance with the judgment of the
GenQuest Board.
113
<PAGE> 121
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CORIXA CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-2
Financial Statements
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
GENQUEST, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-21
Financial Statements
Balance Sheets.............................................. F-22
Statements of Operations.................................... F-23
Statements of Stockholders' Equity.......................... F-24
Statements of Cash Flows.................................... F-25
Notes to Financial Statements............................... F-26
</TABLE>
F-1
<PAGE> 122
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, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997 and for the period from
September 8, 1994 (date of inception) through December 31, 1997. These financial
statements are the responsibility of Corixa's management. Our responsibility is
to express an opinion on these financial statements based on our audit. The
financial statements 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, 1997, 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 and for the
period from September 8, 1994 (date of inception) through December 31, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
January 28, 1998
F-2
<PAGE> 123
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 8,281,670 $16,457,641 $ 2,088,226
Securities available-for-sale..................... 49,461,555 39,859,649 9,845,180
Accounts receivable (including $221,378, $79,348
and $210,530 receivable from affiliated
companies at March 31, 1998, December 31, 1997
and December 31, 1996, respectively)........... 570,952 601,940 681,897
Interest receivable............................... 673,116 134,035 5,151
Prepaid expenses.................................. 601,182 506,578 264,859
------------ ----------- -----------
Total current assets...................... 59,588,475 57,559,843 12,885,313
Property and equipment, net......................... 4,089,203 4,046,484 2,237,196
Deferred charges and deposits....................... 182,633 200,632 62,402
------------ ----------- -----------
Total assets.............................. $ 63,860,311 $61,806,959 $15,184,911
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 1,997,101 $ 1,571,023 $ 978,738
Deferred revenue.................................. 909,165 1,096,665 1,318,130
Current portion of obligations and commitments.... 1,114,997 930,429 487,758
------------ ----------- -----------
Total current liabilities................. 4,021,263 3,598,117 2,784,626
Long-term obligations and commitments, less current
portion........................................... 10,808,250 6,923,786 1,175,354
Stockholders' equity:
Convertible preferred stock, $0001 par value:
Authorized shares -- 10,000,000 (1998 and
1997) and 23,100,000 (1996 -- 16,100,000
designated as Series A and 1,666,667
designated as Series B);
Issued and outstanding Series A shares:
4,646,131 in 1996............................ -- -- 4,646
Issued and outstanding Series B shares:
505,050 in 1996.............................. -- -- 505
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 11,783,304 in
1998, 11,774,214 in 1997 and 2,594,137 in
1996......................................... 11,783 11,774 2,594
Additional paid-in capital........................ 66,523,351 66,466,994 21,655,080
Receivable for warrants........................... (570,119) (651,565) (1,140,000)
Deferred compensation............................. (2,092,507) (2,574,949) --
Accumulated comprehensive loss.................... (42,844) (5,355) (11,908)
Deficit accumulated during development stage...... (14,798,866) (11,961,843) (9,285,986)
------------ ----------- -----------
Total stockholders' equity................ 49,030,798 51,285,056 11,224,931
------------ ----------- -----------
Total liabilities and stockholders'
equity.................................. $ 63,860,311 $61,806,959 $15,184,911
============ =========== ===========
</TABLE>
F-3
<PAGE> 124
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER 8, SEPTEMBER 8,
1994 1994
THREE MONTHS ENDED (DATE OF (DATE OF
MARCH 31, INCEPTION) TO YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------------- MARCH 31, ----------------------------------------- DECEMBER 31,
1998 1997 1998 1997 1996 1995 1997
----------- ----------- ------------- ------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Collaborative
agreements.......... $ 2,625,897 $ 3,854,985 $ 22,828,244 $ 13,389,953 $ 4,401,560 $ 2,410,834 $ 20,202,347
Government grants..... 170,583 315,432 2,854,330 976,739 1,402,979 304,029 2,683,747
----------- ----------- ------------ ------------ ------------ ----------- ------------
Total revenue....... 2,796,480 4,170,417 25,682,574 14,366,692 5,804,539 2,714,863 22,886,094
Operating expenses:
Research and
development......... (5,892,749) (3,260,000) (39,764,328) (16,398,243) (9,994,796) (7,039,757) (33,871,579)
General and
administrative...... (546,929) (329,748) (4,098,189) (2,032,943) (780,904) (531,880) (3,551,260)
In-process research
and development..... -- -- (428,059) -- -- -- (428,059)
----------- ----------- ------------ ------------ ------------ ----------- ------------
Total operating
expenses.......... (6,439,678) (3,589,748) (44,290,576) (18,431,186) (10,775,700) (7,571,637) (37,850,898)
----------- ----------- ------------ ------------ ------------ ----------- ------------
Loss from operations.... (3,643,198) 580,669 (18,608,002) (4,064,494) (4,971,161) (4,856,774) (14,964,804)
Interest income......... 828,495 161,602 3,625,732 1,299,675 642,011 772,426 2,797,237
Interest expense........ (146,820) (71,837) (721,271) (326,814) (165,613) (82,024) (574,451)
Other income............ 124,500 92,830 904,675 415,776 348,000 16,399 780,175
----------- ----------- ------------ ------------ ------------ ----------- ------------
Net income (loss)....... $(2,837,023) $ 763,264 $(14,798,866) $ (2,675,857) $ (4,146,763) $(4,149,973) $(11,961,843)
=========== =========== ============ ============ ============ =========== ============
Basic and diluted net
income (loss) per
share................. $ (0.24) $ 0.29 $ (0.55) $ (1.65) $ (1.67)
=========== =========== ============ ============ ===========
Shares used in
computation of basic
and diluted net income
(loss) per share...... 11,775,380 2,594,189 4,891,342 2,520,668 2,486,746
=========== =========== ============ ============ ===========
Pro forma basic and
diluted net income
(loss) per share...... $ (0.24) $ 0.10 $ (0.31) $ (0.55) $ (0.58)
=========== =========== ============ ============ ===========
Shares used in
computation of pro
forma basic and
diluted net income
(loss) per share...... 11,775,380 7,745,385 8,754,738 7,490,101 7,119,821
=========== =========== ============ ============ ===========
</TABLE>
F-4
<PAGE> 125
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- -------------------- PAID-IN FOR
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS
---------- ------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to original
employee and founders for cash, at $0.017
per share................................ -- $ -- 2,338,048 $ 2,338 $ 38,257 $ --
Issuance of common stock, valued at $0.017
per share, in business combination....... -- -- 115,863 116 1,796 --
Issuance of Series A convertible preferred
stock for cash, at $3.30 per share....... 4,480,427 4,480 -- -- 14,780,975 --
Issuance of Series A convertible preferred
stock, valued at $3.30 per share, in
business combination..................... 62,674 63 -- -- 206,761 --
Issuance of warrants, for cash, to purchase
common stock............................. -- -- -- -- 1,354 --
Net unrealized loss on securities
available-for-sale....................... -- -- -- -- -- --
Net loss for the period from Inception
through December 31, 1994................ -- -- -- -- -- --
---------- ------- ---------- ------- ----------- -----------
Balance at December 31, 1994................ 4,543,101 4,543 2,453,911 2,454 15,029,143 --
Issuance of Series A convertible preferred
stock at $3.30 per share, for cash....... 103,030 103 -- -- 339,897 --
Issuance of common stock, valued at $0.33
per share, for services.................. -- -- 42,233 42 13,895 --
Repurchase of common stock at $0.017 per
share.................................... -- -- (3,333) (3) (52) --
Issuance of warrants, for cash to purchase
common stock............................. -- -- -- -- 10 --
Net unrealized gain on securities
available-for-sale....................... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- -----------
Balance at December 31, 1995................ 4,646,131 4,646 2,492,811 2,493 15,382,893 --
Issuance of common stock, valued at $0.33
per share for services................... -- -- 33,328 33 12,967 --
Stock options exercised.................... -- -- 67,998 68 22,372 --
Issuance of Series B convertible preferred
stock for cash, at $9.90 per share....... 505,050 505 -- -- 4,999,496 --
Issuance of Series A convertible preferred
stock and common stock warrants for
acquired technology...................... -- -- -- -- 97,352 --
Net unrealized loss on securities
available-for-sale....................... -- -- -- -- -- --
Warrants issued in exchange for
receivable............................... -- -- -- -- 1,140,000 (1,140,000)
Net loss................................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- -----------
Balance at December 31, 1996................ 5,151,181 5,151 2,594,137 2,594 21,655,080 (1,140,000)
Warrants payment received.................. -- -- -- -- -- 488,435
Stock options exercised.................... -- -- 126,183 126 68,931 --
Issuance of common stock, valued at $8.25
and $9.08 per share for services......... -- -- 7,574 8 64,987 --
Deferred compensation related to stock
option grants............................ -- -- -- -- 3,903,795 --
Amortization of deferred compensation...... -- -- -- -- -- --
Proceeds from initial public offering (IPO)
(net of offering costs of $932,404 and
commissions of $3,139,500)............... -- -- 3,450,000 3,450 40,774,646 --
Preferred stock conversion upon IPO........ (5,151,181) (5,151) 5,151,181 5,151 -- --
Stock warrants net exercised............... -- -- 445,139 445 (445) --
Net unrealized gain on securities
available-for-sale....................... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- -----------
Balance at December 31, 1997................ -- -- 11,774,214 11,774 66,466,994 (651,565)
Warrants payment received (unaudited)...... -- -- -- -- -- 81,446
Stock options exercised (unaudited)........ -- -- 1,515 1 499 --
Issuance of common stock, valued at $7.38
per share for services (unaudited)....... -- -- 7,575 8 55,858 --
Amortization of deferred compensation
(unaudited).............................. -- -- -- -- -- --
Net unrealized gain on securities
available-for-sale (unaudited)........... -- -- -- -- -- --
Net loss (unaudited)....................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- -----------
Balance at March 31, 1998 (unaudited)....... -- -- 11,783,304 $11,783 $66,523,351 $ (570,119)
========== ======= ========== ======= =========== ===========
<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEFERRED DEVELOPMENT
COMPENSATION STAGE TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Issuance of common stock to original
employee and founders for cash, at $0.017
per share................................ $ -- $ -- $ 40,595
Issuance of common stock, valued at $0.017
per share, in business combination....... -- -- 1,912
Issuance of Series A convertible preferred
stock for cash, at $3.30 per share....... -- -- 14,785,455
Issuance of Series A convertible preferred
stock, valued at $3.30 per share, in
business combination..................... -- -- 206,824
Issuance of warrants, for cash, to purchase
common stock............................. -- -- 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................ -- (998,458) 14,037,682
Issuance of Series A convertible preferred
stock at $3.30 per share, for cash....... -- -- 340,000
Issuance of common stock, valued at $0.33
per share, for services.................. -- -- 13,937
Repurchase of common stock at $0.017 per
share.................................... -- -- (55)
Issuance of warrants, for cash to purchase
common stock............................. -- -- 10
Net unrealized gain on securities
available-for-sale....................... -- 22,437 22,437
Net loss................................... -- (4,149,973) (4,149,973)
----------- ------------ -----------
Balance at December 31, 1995................ -- (5,125,994) 10,264,038
Issuance of common stock, valued at $0.33
per share for services................... -- -- 13,000
Stock options exercised.................... -- -- 22,440
Issuance of Series B convertible preferred
stock for cash, at $9.90 per share....... -- -- 5,000,001
Issuance of Series A convertible preferred
stock and common stock warrants for
acquired technology...................... -- -- 97,352
Net unrealized loss on securities
available-for-sale....................... -- (25,137) (25,137)
Warrants issued in exchange for
receivable............................... -- -- --
Net loss................................... -- (4,146,763) (4,146,763)
----------- ------------ -----------
Balance at December 31, 1996................ -- (9,297,894) 11,224,931
Warrants payment received.................. -- -- 488,435
Stock options exercised.................... -- -- 69,057
Issuance of common stock, valued at $8.25
and $9.08 per share for services......... -- -- 64,995
Deferred compensation related to stock
option grants............................ (3,903,795) -- --
Amortization of deferred compensation...... 1,328,846 -- 1,328,846
Proceeds from initial public offering (IPO)
(net of offering costs of $932,404 and
commissions of $3,139,500)............... -- -- 40,778,096
Preferred stock conversion upon IPO........ -- -- --
Stock warrants net exercised............... -- -- --
Net unrealized gain on securities
available-for-sale....................... -- 6,553 6,553
Net loss................................... -- (2,675,857) (2,675,857)
----------- ------------ -----------
Balance at December 31, 1997................ (2,574,949) (11,967,198) 51,285,056
Warrants payment received (unaudited)...... -- -- 81,446
Stock options exercised (unaudited)........ -- -- 500
Issuance of common stock, valued at $7.38
per share for services (unaudited)....... -- -- 55,866
Amortization of deferred compensation
(unaudited).............................. 482,442 -- 482,442
Net unrealized gain on securities
available-for-sale (unaudited)........... -- (37,489) (37,489)
Net loss (unaudited)....................... -- (2,837,023) (2,837,023)
----------- ------------ -----------
Balance at March 31, 1998 (unaudited)....... $(2,092,507) $(14,841,710) $49,030,798
=========== ============ ===========
</TABLE>
F-5
<PAGE> 126
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
MARCH 31, SEPTEMBER 8, 1994 YEAR ENDED DECEMBER 31,
------------------------- (DATE OF INCEPTION) -----------------------------------------
1998 1997 TO MARCH 31, 1998 1997 1996 1995
----------- ----------- ------------------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................... $(2,837,023) $ 763,264 $ (14,798,866) $ (2,675,857) $ (4,146,763) $(4,149,973)
Adjustments to reconcile net
income (loss) to net cash
used in operating
activities:
Amortization of deferred
compensation............. 482,442 88,703 1,811,288 1,328,846 -- --
Depreciation and
amortization............. 343,366 205,163 2,302,043 1,090,681 571,106 293,241
Equity instruments issued
in exchange for
technology and
services................. 55,858 -- 232,142 64,995 97,352 13,937
In-process research and
development.............. -- -- 428,059 -- -- --
Changes in certain assets and
liabilities:
Accounts payable and
accrued expenses......... 426,078 (292,050) 1,773,298 592,285 408,629 414,356
Prepaid expenses........... (94,604) (197,516) (599,617) (241,719) (87,124) (165,262)
Deferred revenue........... (187,500) 17,805 909,165 (221,465) 905,213 412,917
Other assets............... 17,999 (120,569) (93,115) (138,230) 5,899 76,184
Interest receivable........ (539,081) -- (667,965) (128,884) 50,347 108,576
Accounts receivable........ 30,988 309,747 (576,103) 79,957 (634,929) (52,119)
----------- ----------- ------------- ------------ ------------ -----------
Net cash provided by (used
in) operating activities... (2,301,477) 774,547 (9,279,671) (249,391) (2,830,270) (3,048,143)
INVESTING ACTIVITIES
Purchases of securities
available-for-sale......... (38,514,821) (1,646,263) (102,741,973) (35,802,313) (11,269,688) (5,222,538)
Proceeds from maturities of
securities
available-for-sale......... 19,323,264 1,500,000 43,685,414 5,794,399 9,117,751 9,450,000
Proceeds from sale of
securities................. 9,552,162 -- 9,552,162 -- -- --
Purchases of property and
equipment.................. (77,926) (501,654) (1,807,945) (888,558) (543,619) (270,475)
Cash acquired in
acquisitions............... -- -- 29,939 -- -- --
----------- ----------- ------------- ------------ ------------ -----------
Net cash provided by (used
in) investing activities... (9,717,321) (647,917) (51,282,403) (30,896,472) (2,695,556) 3,956,987
FINANCING ACTIVITIES
Net proceeds from issuance of
common stock............... 508 1,360 61,049,152 40,847,153 5,035,441 340,000
Borrowings from collaborative
agreement.................. 2,000,000 -- 5,000,000 3,000,000 -- --
Proceeds from long term
debt....................... 2,000,000 3,000,000 4,000,000 2,000,000 -- --
Principal payments on capital
leases..................... (239,127) (162,979) (1,636,119) (820,310) (425,327) (151,355)
Payments on receivables for
warrants................... 81,446 79,012 569,881 488,435 -- --
Other........................ -- -- (139,170) -- -- (140,524)
----------- ----------- ------------- ------------ ------------ -----------
Net cash provided by
financing activities....... 3,842,827 2,917,393 68,843,744 45,515,278 4,610,114 48,121
Net increase (decrease) in
cash and cash
equivalents................ (8,175,971) 3,044,023 8,281,670 14,369,415 (915,712) 956,965
Cash and cash equivalents at
beginning of period........ 16,457,641 2,088,226 -- 2,088,226 3,003,938 2,046,973
----------- ----------- ------------- ------------ ------------ -----------
Cash and cash equivalents at
end of period.............. $ 8,281,670 $ 5,132,249 $ 8,281,670 $ 16,457,641 $ 2,088,226 $ 3,003,938
=========== =========== ============= ============ ============ ===========
SUPPLEMENTAL DISCLOSURES
Interest paid................ $ 106,215 $ 71,837 $ 680,666 $ 326,814 $ 165,613 $ 82,024
SUPPLEMENTAL SCHEDULE OF
NONCASH OPERATING,
INVESTING, AND FINANCING
ACTIVITIES
Assets acquired pursuant to
capital leases............. $ 308,159 $ 815,737 $ 4,615,451 $ 2,067,498 $ 995,615 $ 1,244,179
Equity instruments issued in
exchange for technology and
services................... 55,858 -- 232,142 64,995 97,352 13,937
<CAPTION>
PERIOD FROM
SEPTEMBER 8, 1994
(DATE OF INCEPTION)
TO DECEMBER 31, 1997
--------------------
<S> <C>
OPERATING ACTIVITIES
Net loss..................... $(11,961,843)
Adjustments to reconcile net
income (loss) to net cash
used in operating
activities:
Amortization of deferred
compensation............. 1,328,846
Depreciation and
amortization............. 1,958,677
Equity instruments issued
in exchange for
technology and
services................. 176,284
In-process research and
development.............. 428,059
Changes in certain assets and
liabilities:
Accounts payable and
accrued expenses......... 1,347,220
Prepaid expenses........... (505,013)
Deferred revenue........... 1,096,665
Other assets............... (111,114)
Interest receivable........ (128,884)
Accounts receivable........ (607,091)
------------
Net cash provided by (used
in) operating activities... (6,978,194)
INVESTING ACTIVITIES
Purchases of securities
available-for-sale......... (64,227,152)
Proceeds from maturities of
securities
available-for-sale......... 24,362,150
Proceeds from sale of
securities................. --
Purchases of property and
equipment.................. (1,730,019)
Cash acquired in
acquisitions............... 29,939
------------
Net cash provided by (used
in) investing activities... (41,565,082)
FINANCING ACTIVITIES
Net proceeds from issuance of
common stock............... 61,048,644
Borrowings from collaborative
agreement.................. 3,000,000
Proceeds from long term
debt....................... 2,000,000
Principal payments on capital
leases..................... (1,396,992)
Payments on receivables for
warrants................... 488,435
Other........................ (139,170)
------------
Net cash provided by
financing activities....... 65,000,917
Net increase (decrease) in
cash and cash
equivalents................ 16,457,641
Cash and cash equivalents at
beginning of period........ --
------------
Cash and cash equivalents at
end of period.............. $ 16,457,641
============
SUPPLEMENTAL DISCLOSURES
Interest paid................ $ 574,451
SUPPLEMENTAL SCHEDULE OF
NONCASH OPERATING,
INVESTING, AND FINANCING
ACTIVITIES
Assets acquired pursuant to
capital leases............. $ 4,307,292
Equity instruments issued in
exchange for technology and
services................... 176,284
</TABLE>
F-6
<PAGE> 127
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ACTIVITIES
Corixa Corporation ("Corixa"), 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.
Corixa employs the following three proprietary core technology platforms, which
together comprise the elements Corixa 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 March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that Corixa 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 three months ended
March 31, 1998 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
Corixa'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
Corixa 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-7
<PAGE> 128
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board ("FASB") 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, Corixa's employee stock-based compensation expense is
recognized based on the intrinsic value of the option on the date of grant.
Non-employee stock-based compensation expense is recognized based on the
Black-Scholes valuation methodology. Pro forma disclosure of net loss and loss
per share under Statement 123 is provided in Note 4 of these Corixa financial
statements.
Corixa 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 March 31, 1998 and December 31, 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
Corixa's preferred stock investment in GenQuest, Inc. ("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 of these Corixa financial statements).
REVENUE
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
Corixa believes such payments 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. Corixa recognized 85%, 74%, 41% and 59% of its
revenue for the three months ending March 31, 1998 and in fiscal years 1997,
1996 and 1995, respectively, from two collaborative partners.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
F-8
<PAGE> 129
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Corixa accounts for income taxes using the liability method under Statement
of Accounting Standards No. 109, "Accounting for Income Taxes."
NET EARNING PER SHARE CALCULATIONS
Corixa adopted the FASB issued Statement No. 128, "Earnings per Share."
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
based on the weighted average number of common shares outstanding for the
period, and excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share assumes the conversion of all dilutive
securities, such as options, warrants and convertible preferred stock.
As all preferred stock converted to common stock at the closing of Corixa's
initial public offering, (the "Offering") pro forma basic and diluted loss per
share is computed on the basis of the average number of common shares
outstanding plus the effect of preferred shares using the "if-converted' method.
All pro forma losses per share amounts for all periods have been presented to
conform to the Statement 128 requirements.
COMPREHENSIVE INCOME (LOSS)
In 1998, Corixa adopted the FASB Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components, as defined in Statement
130, for all periods presented. Statement 130 requires unrealized gains or
losses on Corixa's available-for-sale securities, which are reported separately
in shareholders' equity, to be included in other comprehensive income. The
adoption of this Statement had no impact on Corixa's net income (loss) or
stockholders' equity. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130. Comprehensive income (loss) is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)......... $(2,874,512) $732,269 $(2,669,304) $(4,171,900) $(4,127,536)
</TABLE>
SEGMENT REPORTING
In 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is required to be adopted for the
fiscal years beginning after December 15, 1997. The new Statement supersedes
FASB Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." Companies will be required to report each segment and related
information, as defined in Statement 131, in Corixa's notes to the financial
statements. Corixa will be required to report its results according to Statement
131 for its year end 1998 results. As Corixa does not operate in more than one
segment, as defined by the statement, as of March 31, 1998 this statement is not
applicable.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
F-9
<PAGE> 130
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. 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>
March 31, 1998 (Unaudited)
U.S. Treasury obligations................ $ 766,287 $ -- $ (1,354) $ 767,641
U.S. Corporate obligations............... 48,695,268 6,963 (48,453) 48,736,758
----------- ------- -------- -----------
$49,461,555 $ 6,963 $(49,807) $49,504,399
=========== ======= ======== ===========
December 31, 1997
U.S. Treasury obligations................ $13,978,189 $10,474 $ (7,969) $13,975,685
U.S. Corporate obligations............... 25,881,460 1,927 (9,787) 25,889,320
----------- ------- -------- -----------
$39,859,649 $12,401 $(17,756) $39,865,005
=========== ======= ======== ===========
December 31, 1996
U.S. Treasury obligations................ $ 9,845,180 $ 842 $(12,750) $ 9,857,088
=========== ======= ======== ===========
</TABLE>
Corixa had no gross realized gains or losses on sales of available-for-sale
securities for the fiscal years 1997, 1996 and 1995. The contractual maturities
of Corixa's available-for-sale securities are shown below:
<TABLE>
<CAPTION>
ESTIMATED
FAIR MARKET AMORTIZED
VALUE COST
----------- -----------
<S> <C> <C>
March 31, 1998 (Unaudited)
Due in one year or less................................. $32,303,309 $32,315,261
Due in one year through three years..................... 17,158,246 17,189,139
----------- -----------
$49,461,555 $49,504,399
=========== ===========
December 31, 1997
Due in one year or less................................. $25,914,319 $25,915,022
Due after one year through three years.................. 13,945,330 13,949,983
----------- -----------
$39,859,649 $39,865,005
=========== ===========
December 31, 1996
Due in one year or less................................. $ 9,854,180 $ 9,857,088
=========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment......................... $ 3,808,034 $ 3,577,341 $2,088,170
Computers and office equipment............... 1,252,972 1,151,114 370,471
Leasehold improvements....................... 1,309,536 1,256,002 628,940
----------- ----------- ----------
6,370,542 5,984,457 3,087,581
Accumulated depreciation and amortization.... (2,281,339) (1,937,973) (850,385)
----------- ----------- ----------
$ 4,089,203 $ 4,046,484 $2,237,196
=========== =========== ==========
</TABLE>
F-10
<PAGE> 131
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At March 31, 1998 and December 31, 1997, Corixa held equipment under
capitalized leases with an original cost of $4,615,451 and $4,307,292,
respectively, and a net book value of $2,877,322 and $2,850,409, respectively,
these leases are secured by the underlying assets.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
On July 25, 1997, Corixa's Board of Directors authorized Corixa to file a
Registration Statement with the Securities and Exchange Commission to permit
Corixa to proceed with the Offering of its common stock. In connection with the
Offering, Corixa's Board of Directors and stockholders authorized a class of
10,000,000 shares of Preferred Stock (the "New Preferred Stock") and approved a
reverse stock split of the outstanding shares of common stock and Series A and
Series B convertible preferred stock on the basis of one new share of stock for
every 3.3 outstanding shares of stock. The reverse stock split became effective
September 24, 1997 concurrent with the filing of an Amended and Restated
Certificate of Incorporation 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 October 1997, Corixa completed the
Offering of its common stock by selling 3,450,000 shares at $13 per share,
resulting in proceeds to Corixa of $40,778,096 net of underwriting discounts,
commissions and offering expenses incurred by Corixa.
PREFERRED STOCK
In connection with the Offering, Corixa's Series A Preferred Stock and
Series B Preferred Stock were converted, after obtaining the consent of a
majority of the holders of each class of such shares, into 5,151,181 shares of
common stock based upon the then-effective (one for one) respective conversion
prices of the Series A and Series B shares.
1994 STOCK OPTION PLAN
Corixa has a stock option plan, the Amended and Restated 1994 Stock Option
Plan (the "1994 Plan") under which an aggregate of 2,364,208 shares of common
stock were reserved for grants to employees, members of the Board of Directors,
and consultants as of March 31, 1998. Options granted under the 1994 Plan may be
designated as incentive or nonqualified at the discretion of the Plan
Administrator (as defined in the 1994 Plan). On July 25, 1997, Corixa 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.
Generally, the options vest over a four-year period with 25% vesting upon
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 Administrator has the
discretion to grant options that are exercisable for unvested shares of Corixa
Common Stock and, to the extent that an optionee holds options for such unvested
shares of Corixa Common Stock upon termination, Corixa 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.
F-11
<PAGE> 132
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1997 EMPLOYEE STOCK PURCHASE PLAN
On July 25, 1997, Corixa adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan"). As of March 31, 1998, a total of 125,000 shares of common
stock were reserved for issuance under the Purchase Plan. The Purchase Plan
permits eligible employees to purchase shares of Corixa's common stock through
payroll deductions at a price equal to 85% of the fair market value of Corixa's
common stock on the first day or the last day of the applicable six-month
offering period, whichever is lower. The Purchase Plan began on the effective
date of Corixa's 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 Corixa on July 25, 1997. As of March 31,
1998, a total of 250,000 shares of Corixa's common stock were 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 to
non-employee directors of Corixa. The Directors' Plan provides that each person
who first became a non-employee director of Corixa shall be granted nonqualified
stock options to purchase 15,000 shares of common stock (the "First Option").
Thereafter, on the first day of each fiscal year, commencing fiscal year 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 Corixa'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 Corixa's common stock on
the date of grant of the option. The Plan has a 10-year term unless terminated
earlier.
F-12
<PAGE> 133
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of Corixa'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>
Balance at January 1, 1995................................ 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......................................... 710,004 0.99 - 13.50 2.08
Options exercised....................................... (126,188) 0.33 - 0.99 0.55
Options canceled........................................ (19,852) 0.33 - 0.99 0.67
--------- ------------ ----
Balance at December 31, 1997.............................. 1,169,089 0.33 - 13.50 1.40
Options granted (Unaudited)............................. 277,515 8.25 - 9.50 9.13
Options exercised (Unaudited)........................... (1,515) 0.33 0.33
Options canceled (Unaudited)............................ (6,940) 0.99 - 9.50 2.47
--------- ------------ ----
Balance at March 31, 1998 (Unaudited)..................... 1,438,149 0.33 - 13.50 2.89
========= ============ ====
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ (WITHOUT RESTRICTION)
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES 12/31/97 LIFE PRICE VESTED PRICE
--------------- ----------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.33 - 0.99 1,104,089 8.5 years $ 0.72 508,373 $0.47
$ 11.50 - 13.50 65,000 9.8 years $12.88 -- --
--------- -------
$ 0.33 - 13.50 1,169,089 8.6 years $ 1.40 508,373 $0.47
========= =======
</TABLE>
Deferred compensation of approximately $3.9 million was recorded during
1997 representing the difference between the exercise prices of options granted
during that period and the deemed fair market value.
Options of 77,097 and 96,845 shares had been exercised as of March 31, 1998
and December 31, 1997 respectively for which the underlying stock continues to
be restricted. At March 31, 1998 and December 31, 1997, 930,357 and 847,706,
respectively, shares remain available for grant.
Pro forma information regarding net loss and loss per share required by
Statement 123 has been determined as if Corixa 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 for 1997, 1996 and 1995, respectively: risk-free interest rates of
6.4%, 6.5% and 6.3%, expected volatility of 57%, 0% and 0%, and expected option
lives of four years and dividend yields of 0.0%.
The weighted average fair value of options granted during 1997, 1996 and
1995 was $6.60, $0.17 and $0.11 per option, respectively.
F-13
<PAGE> 134
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Under Statement 123, if Corixa had elected to recognize the compensation
cost based upon the fair value of the options granted at the grant date, net
loss would have been increased 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,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported............................... $(2,675,857) $(4,146,763) $(4,149,973)
Pro forma................................. (2,914,188) (4,170,558) (4,158,556)
Pro forma net loss per share:
As reported............................... $ (0.31) $ (0.55) $ (0.58)
Pro forma................................. (0.33) (0.56) (0.58)
</TABLE>
The Statement 123 pro forma disclosures above are not necessarily
indicative of future pro forma disclosures because of the manner in which the
pro forma impact of Statement 123 calculations is phased in over time.
STOCK WARRANTS
In connection with sales of Series A shares in 1995 and 1994, Corixa issued
stock warrants to certain stockholders at an aggregate purchase price of $0.003
per share to purchase 413,191 shares of Corixa's common stock at an exercise
price of $0.33 per share.
During 1996, Corixa 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. Vesting of the warrants to purchase 75,757
shares of common stock and warrants to purchase 163,636 shares of Series A stock
is contingent upon the achievement of certain milestones. The weighted average
grant-date fair value ranges from $0.99 to negligible per share, and negligible
per share for common stock and Series A shares, respectively. Warrants to
purchase 31,818 shares of Series A Preferred Stock were issued in 1994. (See
Note 7 of these Corixa financial statements.) Additional warrants to purchase
454,533 shares of Series B stock were issued in 1996. (See Note 9 of these
Corixa financial statements.)
Corixa recognizes research and development expense for the calculated fair
value of milestone specific warrants, for which milestone achievement has been
deemed probable by management. No warrant-related milestones were reached during
the three months ended March 31, 1998 or in 1997. Final valuation of the warrant
costs is calculated at the actual achievement of these milestones based on the
fair value of the underlying stock at that date.
In connection with the Offering, all Series A and Series B share warrants
were converted to warrants to purchase common shares on a share-for-share basis.
445,139 shares of common stock were issued upon the net exercise of 483,008
stock warrants during 1997. The number of common shares purchased reflect the
difference between the aggregate exercise price of the warrants and the market
price per share of the common stock of the aggregate number of shares
purchasable under the warrant.
Corixa had 694,512 common stock warrants outstanding as of March 31, 1998
and December 31, 1997 at a weighted average exercise price of $8.04 and expire
between 2001 and 2008. Corixa had no Series A or Series B share warrants
outstanding as of March 31, 1998. Common stock, Series A share and Series B
share warrants outstanding at December 31, 1996 were 527,533, 195,454, and
454,533, respectively, at weighted average exercise prices of $.075, $6.07, and
$9.90 per share, respectively.
F-14
<PAGE> 135
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK REPURCHASE AGREEMENTS
Since its inception, Corixa has sold approximately 945,185 shares of common
stock at a price of $0.017 per share to employees and scientific founders of
Corixa under agreements which allow Corixa, at its option, to repurchase the
shares at the original purchase price if the employment or consulting
relationship with Corixa 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 March
31, 1998 and December 31, 1997, 118,148 shares and 177,223 shares, respectively,
were subject to repurchase.
Under the terms of all of the repurchase agreements, if Corixa 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>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Stock options............................................... 2,418,506 2,016,795
Warrants to purchase common stock........................... 694,512 694,512
Employee Stock Purchase Plan................................ 125,000 125,000
License, technology, and patent rights agreements........... 27,263 34,838
--------- ---------
3,265,281 2,871,145
========= =========
</TABLE>
NET LOSS PER SHARE
Basic and diluted loss per share are calculated using the average number of
common shares outstanding (see Note 1 of these Corixa financial statements). Pro
forma basic and diluted loss per share are computed on the basis of the average
number of common shares outstanding plus the effect of convertible preferred
shares using the "if-converted" method as follows:
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss (A)..................... $(2,837,023) $ 763,264 $(2,675,857) $(4,146,763) $(4,149,973)
Weighted average outstanding:
Common stock (B)............... 11,775,380 2,594,189 4,891,342 2,520,668 2,486,746
Convertible preferred stock.... 0 5,151,196 3,863,396 4,969,433 4,633,075
----------- ----------- ----------- ----------- -----------
Proforma weighted average
outstanding (C)........... 11,775,380 7,745,385 8,754,738 7,490,101 7,119,821
=========== =========== =========== =========== ===========
Loss per share:
Basic and diluted (A/B)........ $ (0.24) $ 0.29 $ (0.55) $ (1.65) $ (1.67)
=========== =========== =========== =========== ===========
Pro forma basic and diluted
(A/C)....................... $ (0.24) $ 0.10 $ (0.31) $ (0.55) $ (0.58)
=========== =========== =========== =========== ===========
</TABLE>
5. INCOME TAXES
At March 31, 1998 and December 31, 1997, Corixa had net operating loss
carryforwards of approximately $12.2 million and $9.9 million, respectively, and
research and experimentation credit carryforwards of approximately $1.0 million
and $0.8 million, respectively, which begin to expire in 2009. Utilization of
net
F-15
<PAGE> 136
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
operating losses and research and development tax credit carryforwards is
subject to change of certain limitations under Section 382 of the Internal
Revenue Code. During the period 1995 through 1997, Corixa experienced ownership
changes as defined by the Internal Revenue Code. Accordingly, Corixa's use of
losses incurred through the date of any ownership changes will 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. Corixa has recognized a
valuation allowance equal to the deferred tax assets due to the uncertainty of
realizing the benefits of the assets. The valuation allowance for deferred tax
assets increased $976,000, $1,291,000 and $1,475,000 during the three months
ended March 31, 1998 and during the years ended December 31, 1997 and 1996,
respectively. The effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 4,157,000 $ 3,361,000 $ 2,547,000
Research and experimentation credit and foreign tax
credit carryforwards.............................. 1,042,000 861,000 339,000
Deferred revenue.................................... 309,000 373,000 448,000
Financial statement expenses not deducted on tax
return............................................ 166,000 162,000 33,000
----------- ----------- -----------
5,674,000 4,757,000 3,367,000
----------- ----------- -----------
Deferred tax liabilities:
Depreciation........................................ 17,000 37,000 34,000
Tax return expenses not charged against financial
statements........................................ 57,000 96,000 0
----------- ----------- -----------
74,000 133,000 34,000
----------- ----------- -----------
Net deferred tax asset.............................. 5,600,000 4,624,000 3,333,000
Less valuation allowance............................ (5,600,000) (4,624,000) (3,333,000)
----------- ----------- -----------
Net deferred tax assets............................. $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
6. 401(k) PLAN
Corixa has a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering all of Corixa's employees. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1998) and to have the amount of
such reduction contributed to the 401(k) Plan. Corixa did not match
contributions before fiscal 1998. Effective January 1, 1998, Corixa implemented
a 401(k) matching program whereby Corixa contributes twenty-five cents for each
dollar a participant contributes, with a maximum contribution of 25% of the
first 8% of a participants earnings not to exceed 25% of the prescribed annual
limit. The 401(k) Plan is intended to qualify under Section 401 of the Internal
Revenue Code so that contributions by employees or by Corixa 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 Corixa, if
any, will be deductible by Corixa when made. At the direction of each
participant, Corixa invests the assets of the 401(k) Plan in any of five
investment options.
F-16
<PAGE> 137
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM OBLIGATIONS AND COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations................................. $ 2,923,247 $2,854,215 $1,663,112
Advance from corporate partner............................ 5,000,000 3,000,000 -0-
Bank loan................................................. 4,000,000 2,000,000 -0-
----------- ---------- ----------
11,923,247 7,854,215 1,663,112
Less current portion of capital lease Obligations......... 1,114,997 930,429 487,758
----------- ---------- ----------
$10,808,250 $6,923,786 $1,175,354
=========== ========== ==========
</TABLE>
A $1,500,000 lease line was obtained in 1996, and in 1997 Corixa
renegotiated the remaining lease line (of approximately $384,000) to $1,450,000.
As of March 31, 1998, Corixa had fully utilized the lease line. Both leases are
secured by the underlying equipment.
The $5 million advance from a corporate partner at March 31, 1998
represents payments received in exchange for options to license two of Corixa's
early-stage cancer targets. Refer to Note 8 to these Corixa financial statements
with regard to the terms and conditions of the advance and Note 10 to these
Corixa financial statements with regard to subsequent events related to an
extension of a license relating to one of the two early-stage cancer targets.
As of December 31, 1997, Corixa has an unsecured note that includes a
commitment expiring December 31, 1998 for up to $7 million of borrowings.
Borrowings under the terms of the note bear interest a rate that is a function
of either the prime rate of a major bank or federal fund rates. Under the terms
of the note, Corixa is required to meet minimum (i) tangible net worth, (ii) net
cash calculated based upon the sum of the principal balance under the note and
the greater of a multiple of Corixa's net cash burn or $10,000,000, (iii) total
debt to net worth ratios and (iv) current ratio. As of March 31, 1998 Corixa had
borrowed $4 million against the facility. The note includes provisions for
quarterly interest-only payments based upon the outstanding loan balance until
December 1998 followed by 48 payments of interest and principal beginning
January 1999 based upon the outstanding amount on the note as of December 31,
1998. No additional amounts may be drawn against the note after December 31,
1998. As of March 31, 1998, Corixa was in compliance with the note covenants.
Corixa rents office and research facilities under noncancelable operating
leases which expire in January 2005. Corixa has issued an irrevocable standby
letter of credit in the amount of $750,000 as a security deposit on the lease.
Corixa has options to renew the lease for two additional terms of five years
each.
F-17
<PAGE> 138
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Minimum future rental payments under all lease agreements at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ---------- -----------
<S> <C> <C>
1998....................................................... $1,226,229 $ 1,322,200
1999....................................................... 1,010,732 2,447,508
2000....................................................... 809,315 2,466,114
2001....................................................... 403,054 2,540,097
2002....................................................... -0- 2,616,300
Thereafter................................................. -0- 5,589,543
---------- -----------
Total minimum payments..................................... $3,449,330 $16,981,762
===========
Less interest.............................................. 595,115
----------
Present value of minimum lease payments.................... 2,854,215
Less current portion....................................... 930,429
----------
Capital lease obligations, less current portion............ $1,923,786
==========
</TABLE>
Rent expense was $388,820, $1,532,282, $638,037 and $364,240, for the three
months ended March 31, 1998 and for the years ended December 31, 1997, 1996 and
1995, respectively.
8. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
Corixa has various collaborative research agreements with academic
universities and research institutions, which expire at various intervals
through 1999. Certain agreements stipulate the reimbursement by Corixa of
research costs incurred by these universities and institutions on behalf of
Corixa. Included in research and development expenses for the three months ended
March 31, 1998 and years ended December 31, 1997, 1996 and 1995 are
reimbursements approximating $503,000, $1,400,000 and $900,000, respectively.
Certain 1997 collaborative agreements extend into fiscal years 1998 and 1999. As
of March 31, 1998, Corixa is committed to reimburse these universities and
institutions approximately $960,000 and $300,000 in 1998 and 1999, respectively.
Corixa has entered into certain license agreements and obtained options to
negotiate license agreements under the terms of which Corixa received license,
technology, and patent rights. During the three months ended March 31, 1998 and
the years ended December 31, 1997, 1996 and 1995, Corixa paid initial license
and/or option fees approximating $195,000, $480,000, $185,000 and $80,000,
respectively. Corixa issued 33,328 and 36,363 shares of common stock during 1996
and 1995, (plus a commitment to issue an additional 21,212 shares, upon the
achievement of certain events of which 19,697 were issued in 1997) for such
rights. No shares of common stock issued during 1997 were attributable to
license agreements. In conjunction with certain 1996 collaboration agreements,
Corixa 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 4 of these Corixa financial statements.
Certain agreements call for royalty and milestone payments to be paid by
Corixa. 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, Corixa has entered into research and license agreements and
granted options to other parties to negotiate license agreements under the terms
of which Corixa provides license, technology, and patent rights. Under the terms
of the agreements, Corixa will receive additional license fees, option fees
and/or reimbursement of certain research and development costs through 1998. The
agreements provide for
F-18
<PAGE> 139
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
one-time payments upon the achievement of certain milestones and the payment of
royalties based on product sales.
Corixa entered into an exclusive option agreement ("Exclusive Option")
during 1997 with a third party ("Option Partner") pursuant to which the third
party agreed to advance consideration in exchange for exclusive options to
license two of Corixa's early-stage programs in two cancer targets (see Note 7
of these Corixa financial statements). 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. In January 1998, the
Option Partner advanced $2 million to Corixa to extend the first option
expiration from March 1, 1998 to September 1, 1999. If such options are not
exercised or extended before September 1, 1999 in the case of one cancer target
option or before September 1, 1998 in the case of the second cancer target
option, Corixa will be required to refund the consideration for the option(s)
over a three-year period beginning March 2000.
9. INVESTMENTS IN AND AGREEMENTS WITH GENQUEST, INC.
In February 1996, Corixa entered a license and research collaboration
agreement with 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, Corixa 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. These Series
A preferred shares represent approximately 16% of GenQuest's outstanding capital
stock at December 31, 1997. As a result of its ownership of Series A preferred
stock of GenQuest, Corixa has certain registration rights with respect to public
offerings of GenQuest and rights of first offer that allow Corixa to participate
ratably in future issuances of stock to maintain its ownership percentage of
GenQuest.
Additionally, Corixa 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, Corixa 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.
Corixa's right to designate such nominees will terminate when Corixa owns less
than 10% of the voting capital stock of GenQuest.
In December 1996, Corixa 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 an aggregate of $5.7 million in funding in support of certain
research and development projects conducted by Corixa and GenQuest on a
collaborative basis during a three year research term. Under the license
agreement, Corixa 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. Corixa 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 Corixa, when product sales commence, certain royalties on the sale of
products that use technology licensed from Corixa. In addition, sales of certain
products developed by GenQuest using technology developed by Corixa in the
collaborative research program would be royalty-free.
Additionally, Corixa has agreed that certain administrative and management
services will be provided to GenQuest by certain Corixa employees, including
Corixa's Chief Executive Officer, Chief Scientific Officer, Chief Operating
Officer, and Chief Financial Officer, and GenQuest has agreed to reimburse
Corixa for such services. The management services agreement terminates upon the
earlier of (i) 90 days following the expiration of Corixa's right to purchase
substantially all of the outstanding shares of GenQuest's capital stock,
F-19
<PAGE> 140
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
as described below, (ii) 90 days following the date Corixa 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 December 1996, in connection with the modification of the collaboration
between Corixa and GenQuest and the issuance of Series B preferred stock of
GenQuest to additional investors (18,309,271 shares at $0.50 per share), Corixa,
GenQuest and the stockholders of GenQuest entered into a call option agreement.
Under the terms of this agreement, Corixa 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
Corixa's Offering during which the average closing sale price of a share of
Corixa's common stock meets the minimum requirement stipulated in the agreement,
and a merger of Corixa with another entity or a sale of substantially all of
Corixa's assets, and terminates on the earlier of January 23, 2000, the date
that Corixa notifies GenQuest that it will not exercise this right, the closing
of the Offering of GenQuest, and 10 days following a merger of or sale of assets
by Corixa.
In conjunction with the relationship between Corixa and GenQuest, Corixa
issued warrants to purchase 454,533 shares of Corixa'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
$652,000 from GenQuest, which represents the outstanding amount due for the
warrants, is included in equity at December 31, 1997. This receivable will be
paid over the two remaining years of the three-year funding life of the current
collaborative agreement out of the proceeds therefrom. Amounts expected to be
applied against the receivable in 1998 and 1999 approximate $326,000 per year.
Approximately $488,000 was applied against the receivable in the year ended
December 31, 1997.
Corixa'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 Corixa. Corixa 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.
For the three months ended March 31, 1998 and during the years ended
December 31, 1997 and 1996, Corixa recognized other income of $102,000, $325,000
and $300,000, respectively, as a result of administrative services provided to
GenQuest.
In conjunction with its collaborative agreement with GenQuest, Corixa's
March 31, 1998 and December 31, 1997 results include collaborative revenue and
research and development expenses of approximately $524,000 and $605,000 and
$1,932,000 and $2,420,000, respectively. Additionally, Corixa recognized $81,000
and $488,000 in warrant amortization during the three months ended March 31,
1998 and during the year ended December 31, 1997, respectively. Corixa did not
recognize collaborative revenue or research and development expenses relating to
GenQuest in 1996.
10. SUBSEQUENT EVENTS
In April 1998, Corixa announced that it had agreed to terminate its ex-vivo
adoptive immunotherapy collaboration agreement with CellPro, Incorporated
("CellPro"). The agreement, which covered the ex-vivo use of Corixa's cancer
antigens, microsphere delivery system and adjuvant technologies for the purpose
of activating and propagating tumor reactive cells outside the body, was entered
into in November, 1995 and provided less than 10% of Corixa's fiscal year 1997
revenue. Under the terms of the termination agreement, all rights previously
granted to CellPro in respect to Corixa technology in the field of adoptive
immunotherapy reverted to Corixa.
On May 19, 1998, Corixa's Board of Directors approved the merger of
GenQuest with and into a wholly-owned subsidiary of Corixa.
F-20
<PAGE> 141
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GenQuest, Inc.
We have audited the accompanying balance sheets of GenQuest, Inc. (a
development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997 and 1996 and the period from July 14, 1995 (date of
inception) through December 31, 1997. These financial statements are the
responsibility of GenQuest's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of
GenQuest, Inc. (a development stage company) at December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years ended December
31, 1997 and 1996 and the period from July 14, 1995 (date of inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
January 28, 1998,
except Note 9, as to which the date is
February 28, 1998
F-21
<PAGE> 142
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,240,256 $ 3,599,632 $ 8,997,647
Accounts receivable ($0 and $25,000 receivable from
affiliated company at March 31, 1998 and December
31, 1997, respectively)............................ 25,899 58,329 --
Prepaid expenses...................................... 220,485 179,350 --
----------- ----------- -----------
Total current assets.......................... 2,486,640 3,837,311 8,997,647
Property and equipment, net............................. 557,450 573,155 8,900
Warrants................................................ -- -- 1,140,000
Other assets............................................ 6,047 6,047 --
----------- ----------- -----------
Total assets.................................. 3,050,137 4,416,513 $10,146,547
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............. $ 175,687 $ 495,491 $ 828,119
Deferred revenue...................................... 100,000 100,000 50,000
Current portion of obligations and commitments........ 442,044 437,982 488,432
----------- ----------- -----------
Total current liabilities..................... 717,731 1,033,473 1,366,551
Long-term obligations and commitments, less current
portion............................................... 637,173 752,157 651,568
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized shares -- 25,355,903 designated as
Series A and 18,543,290 designated as Series B;
Issued and outstanding Series A shares:
6,812,613........................................ 6,813 6,813 6,813
Issued and outstanding Series B shares:
18,309,271....................................... 18,309 18,309 18,309
Common stock, $0.001 par value:
Authorized shares -- 39,260,903
Issued and outstanding shares: 1,830,000........... 1,830 1,830 1,830
Additional paid-in capital............................ 11,263,991 11,263,991 12,415,630
Deficit accumulated during development stage.......... (9,595,710) (8,660,060) (4,314,154)
----------- ----------- -----------
Total stockholders' equity.................... 1,695,233 2,630,883 8,128,428
----------- ----------- -----------
Total liabilities and stockholders' equity.... $ 3,050,137 $ 4,416,513 $10,146,547
=========== =========== ===========
</TABLE>
F-22
<PAGE> 143
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 14, 1995 JULY 14, 1995
(DATE OF (DATE OF
THREE MONTHS ENDED MARCH 31, INCEPTION) TO YEAR ENDED DECEMBER 31, INCEPTION) TO
----------------------------- MARCH 31, -------------------------- DECEMBER 31,
1998 1997 1998 1997 1996 1997
------------ ------------ ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Collaborative agreements........ $ 150,000 $ -- $ 175,000 $ 25,000 $ 25,000
Government grants............... 22,813 -- 56,141 33,328 33,328
----------- ----------- ------------ ----------- ----------- -----------
Total revenue............. 172,813 -- 231,141 58,328 -- 58,328
Operating expenses:
Research and development........ (1,031,594) (678,959) (5,960,033) (3,653,876) (1,146,121) (4,928,439)
In-process research and
development................... -- -- (2,219,307) -- (2,219,307) (2,219,307)
General and administrative...... (93,532) (142,434) (1,865,878) (962,357) (525,907) (1,772,346)
----------- ----------- ------------ ----------- ----------- -----------
Total operating
expenses................ (1,125,126) (821,393) (10,045,218) (4,616,233) (3,891,335) (8,920,092)
----------- ----------- ------------ ----------- ----------- -----------
Loss from operations.............. (952,313) (821,393) (9,814,077) (4,557,905) (3,891,335) (8,861,764)
Interest income................... 33,217 67,626 279,406 235,734 9,779 246,189
Interest expense.................. (16,554) (427) (61,039) (23,735) (13,205) (44,485)
----------- ----------- ------------ ----------- ----------- -----------
Net loss.......................... $ (935,650) $ (754,194) $ (9,595,710) $(4,345,906) $(3,894,761) $(8,660,060)
=========== =========== ============ =========== =========== ===========
Basic and diluted net loss per
share........................... $ (0.51) $ (0.41) $ (2.37) $ (2.94)
=========== =========== =========== ===========
Shares used in computation of
basic and diluted net loss per
share........................... 1,830,000 1,830,000 1,830,000 1,323,796
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 144
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
--------------------- ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- ------- --------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss for the period from inception
through December 31, 1995........... -- $ -- -- $ -- $ -- $ (419,393) (419,393)
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1995.......... -- -- -- -- -- (419,393) (419,393)
Issuance of common stock for cash... -- -- 1,570,000 1,570 6,280 -- 7,850
Issuance of Series A convertible
preferred stock for acquired
technology, valued at $0.50 per
share............................. 4,412,613 4,413 -- -- 2,201,894 -- 2,206,307
Issuance of common stock, valued
at $0.05 per share, for
technology and services......... -- -- 260,000 260 12,740 -- 13,000
Issuance of Series A convertible
preferred stock at $0.50 per share
for cash ($525,000) and note
payable ($675,000)................ 2,400,000 2,400 -- -- 1,197,600 -- 1,200,000
Issuance of Series B convertible
preferred stock at $0.50 per share
for cash and note payable
($154,635), net of issuance costs
of $139,211....................... 18,309,271 18,309 -- -- 8,997,116 -- 9,015,425
Net loss.......................... -- -- -- -- -- (3,894,761) (3,894,761)
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1996.......... 25,121,884 25,122 1,830,000 1,830 12,415,630 (4,314,154) 8,128,428
Additional issuance costs of Series
B................................. -- -- -- -- (11,639) -- (11,639)
Corixa warrants distributed to
investors......................... -- -- -- -- (1,140,000) -- (1,140,000)
Net loss............................ -- -- -- -- -- (4,345,906) (4,345,906)
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1997.......... 25,121,884 25,122 1,830,000 1,830 11,263,991 (8,660,060) 2,630,883
Net loss (unaudited)................ -- -- -- -- -- (935,650) (935,650)
---------- ------- --------- ------ ----------- ----------- -----------
Balance at March 31, 1998
(unaudited)......................... 25,121,884 $25,122 1,830,000 $1,830 $11,263,991 $(9,595,710) $ 1,695,233
========== ======= ========= ====== =========== =========== ===========
</TABLE>
F-24
<PAGE> 145
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
MARCH 31, JULY 14, 1998 YEAR ENDED DECEMBER 31,
------------------------- (DATE OF INCEPTION) -------------------------
1998 1997 TO MARCH 31, 1998 1997 1996
----------- ----------- ------------------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $ (935,650) (754,194) $(9,595,710) $(4,345,906) (3,894,761)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 22,309 879 76,545 50,895 1,969
Equity instruments issued in exchange for
technology and services.................... -- -- 2,219,307 -- 2,219,307
Changes in certain assets and liabilities:
Accounts payable and accrued expenses...... (319,804) (240,062) 330,870 (182,625) 756,352
Prepaid expenses........................... (41,135) (95,862) (220,485) (179,350) --
Deferred revenue........................... -- -- 100,000 50,000 50,000
Other assets............................... -- -- (6,047) (6,047) 6,701
Accounts receivable........................ 32,429 (445) (25,900) (58,327) 8,322
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities........ (1,241,851) (1,089,684) (7,121,419) (4,671,362) (852,110)
INVESTING ACTIVITIES -- purchases of property
and equipment -- net......................... (6,606) -- (52,772) (33,379) 636
FINANCING ACTIVITIES
Net proceeds from issuance of convertible
preferred stock.............................. -- -- 9,385,790 -- 9,385,790
Payment on warrant obligation.................. (81,446) -- (569,880) (488,435) --
Payment on notes payable....................... -- (150,000) (150,000) (150,000) --
Proceeds from issuance of notes payable........ -- -- 825,000 -- 150,000
Principal payments on capital leases........... (29,474) -- (72,674) (43,200) --
Other.......................................... -- -- (11,640) (11,639) --
Proceeds from issuance of common stock......... -- -- 7,850 -- 7,850
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities...... (110,920) (150,000) 9,414,446 (693,274) 9,543,640
Net increase (decrease) in cash and cash
equivalents.................................. (1,359,376) (1,239,684) 2,240,256 (5,398,015) 8,692,166
Cash and cash equivalents at beginning of
period....................................... 3,599,632 8,997,647 -- 8,997,647 305,481
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period..... $ 2,240,256 $ 7,757,963 $ 2,240,256 $ 3,599,632 $ 8,997,647
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid................................ $ 16,554 $ 427 61,039 $ 23,735 $ 11,540
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING,
INVESTING, AND FINANCING ACTIVITIES
Assets acquired pursuant to capital leases... $ -- $ -- $ 581,772 $ 581,772 $ --
Notes payable converted to preferred stock... -- -- 829,635 -- 829,635
Warrants distributed to investors............ -- -- (1,140,000) (1,140,000) --
Warrants acquired in exchange for warrant
obligation................................. -- -- 1,140,000 -- 1,140,000
Equity instruments issued in exchange for
technology and services.................... -- -- 2,219,307 -- 2,219,307
<CAPTION>
PERIOD FROM
JULY 14, 1995
(DATE OF INCEPTION)
TO DECEMBER 31, 1997
--------------------
<S> <C>
OPERATING ACTIVITIES
Net loss....................................... $(8,660,060)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 54,236
Equity instruments issued in exchange for
technology and services.................... 2,219,307
Changes in certain assets and liabilities:
Accounts payable and accrued expenses...... 650,674
Prepaid expenses........................... (179,350)
Deferred revenue........................... 100,000
Other assets............................... (6,047)
Accounts receivable........................ (58,327)
-----------
Net cash used in operating activities........ (5,879,569)
INVESTING ACTIVITIES -- purchases of property
and equipment -- net......................... (46,164)
FINANCING ACTIVITIES
Net proceeds from issuance of convertible
preferred stock.............................. 9,385,790
Payment on warrant obligation.................. (488,435)
Payment on notes payable....................... (150,000)
Proceeds from issuance of notes payable........ 825,000
Principal payments on capital leases........... (43,200)
Other.......................................... (11,639)
Proceeds from issuance of common stock......... 7,850
-----------
Net cash provided by financing activities...... 9,525,366
Net increase (decrease) in cash and cash
equivalents.................................. 3,599,632
Cash and cash equivalents at beginning of
period....................................... --
-----------
Cash and cash equivalents at end of period..... $ 3,599,632
===========
SUPPLEMENTAL DISCLOSURES
Interest paid................................ $ 44,485
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING,
INVESTING, AND FINANCING ACTIVITIES
Assets acquired pursuant to capital leases... $ 581,772
Notes payable converted to preferred stock... 829,635
Warrants distributed to investors............ (1,140,000)
Warrants acquired in exchange for warrant
obligation................................. 1,140,000
Equity instruments issued in exchange for
technology and services.................... 2,219,307
</TABLE>
F-25
<PAGE> 146
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ACTIVITIES
GenQuest, Inc. ("GenQuest"), a development stage company, is focused on
applying functional genomics technology to discover novel genes related to the
transformation of normal cells into cancer cells and developing the potential of
such genes and related gene products to be used as diagnostics, therapeutics and
drug-screening targets in the field of oncology. GenQuest's technology platform
consists of the following proprietary technologies: (i) methodologies for the
discovery of genes associated with cancer; (ii) methodologies used to elucidate
cellular responses to DNA damage; (iii) genes and cellular processes associated
with senescence and apoptosis; (iv) technologies that enhance or inhibit
cellular proliferation; and (v) genes and cellular processes associated with
terminal cell differentiation. 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 March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that GenQuest 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 three months
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the entire year.
LIQUIDITY
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. Further development of
GenQuest's business will require additional equity financing and/or
collaboration funding. GenQuest is actively seeking to expand its funding from
current and new investors, as well as enter into additional collaborative
relationships. In the event GenQuest is not able to obtain additional financing
or sufficient operating revenues, GenQuest will take steps to reduce its
expenditures, as necessary, to enable it to continue its operations through
December 1998. To that end, GenQuest would propose amending the terms of its
agreements to materially reduce GenQuest's payment obligations.
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. 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 a
straight-line basis over the assets' estimated useful lives, which range from
three to four years. Leasehold improvements are amortized over the
F-26
<PAGE> 147
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
lesser of their estimated useful lives or the term of the lease. Amortization of
assets recorded under capital leases is included in depreciation.
STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). GenQuest 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, GenQuest's stock-based compensation expense is recognized
based on the intrinsic value of the option on the date of grant. Recognition of
stock-based compensation expense under Statement 123 requires the use of a fair
value method to value stock options using option valuation models that were
developed for purposes other than valuing employee stock options. Pro forma
disclosures of net loss under Statement 123 are provided in Note 3 of these
GenQuest financial statements.
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, 1997 and 1996, the carrying value of financial instruments,
such as accounts 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 underlying
interest rates reflect market rates at the balance sheet dates.
REVENUES FROM COLLABORATIVE AGREEMENTS
Revenues under collaborative agreements will typically consists of
nonrefundable up-front fees, ongoing research, co-development payments, and
milestone and royalty payments. Revenue from nonrefundable technology access
fees will be recognized upon satisfaction of any obligation. Revenue from
ongoing research and co-development payments will be recognized ratably over the
term of the agreement, as GenQuest 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 classified 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
GenQuest accounts for income taxes using the liability method under
Statement of Accounting Standards No. 109, "Accounting for Income Taxes."
NET EARNING PER SHARE CALCULATIONS
GenQuest adopted the FASB issued Statement No. 128, "Earnings per Share."
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic
F-27
<PAGE> 148
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
earnings per share is based on the weighted average number of common shares
outstanding for the period, and excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share assumes the
conversion of all dilutive securities, such as options, warrants and convertible
preferred stock.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, GenQuest adopted the FASB Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on GenQuest's net income or
shareholders' equity. Statement 130 did not impact GenQuest, as it had no
supplemental comprehensive income components.
SEGMENT REPORTING
In 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is required to be adopted for the
fiscal years beginning after December 15, 1997. The new Statement supersedes
FASB Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." Companies will be required to report each segment and related
information, as defined in Statement 131, in GenQuest's notes to the financial
statements. GenQuest will be required to report its results according to
Statement 131 for its year end 1998 results. As GenQuest does not operate in
more than one segment, as defined by the statement, as of March 31, 1998 this
statement is not applicable.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform to the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment.................................... $446,822 $446,822 $ --
Computers and office equipment.......................... 167,777 161,172 12,241
Leasehold improvements.................................. 19,398 19,398 --
-------- -------- -------
633,997 627,392 12,241
Accumulated depreciation and amortization............... (76,547) (54,237) (3,341)
-------- -------- -------
$557,450 $573,155 $ 8,900
======== ======== =======
</TABLE>
At March 31, 1998 and December 31, 1997, GenQuest held equipment under
capitalized leases with an original cost of $581,772 and an approximate net book
value of $521,000 and $550,000, respectively. These leases are secured by the
underlying assets.
F-28
<PAGE> 149
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM OBLIGATIONS AND COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Warrant obligation................................. $ 570,121 $ 651,567 $1,140,000
Capital lease obligation........................... 509,096 538,572 --
---------- ---------- ----------
1,079,217 1,190,139 1,140,000
Less current portion of obligations................ 442,044 437,982 488,432
---------- ---------- ----------
$ 637,173 $ 752,157 $ 651,568
========== ========== ==========
</TABLE>
Minimum future rental payments under the capital lease agreement at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
<S> <C>
1998...................................................... $168,773
1999...................................................... 184,116
2000...................................................... 184,116
2001...................................................... 137,631
--------
Total minimum lease payments.............................. 674,636
Less interest............................................. 136,064
--------
Present value of minimum lease payments................... 538,572
Less current portion...................................... 112,198
--------
Capital lease obligations, less current portion........... $426,374
========
</TABLE>
A $687,500 lease line was obtained in 1997, of which approximately $106,000
remained available at March 31, 1998. The lease is secured by the underlying
equipment.
GenQuest rents a research facility under an operating lease, which expires
on the earlier of September 2000 or upon a 60-day notice of vacancy. In
connection with the operating lease, GenQuest is required to make monthly
payments of approximately $13,000.
Rent expense was $20,000 and $0 for the years ended December 31, 1997 and
1996, respectively.
In February 1998, GenQuest and its stockholders reached a settlement
agreement and mutual release of claims (the "Agreement") with a third party in
relation to a business dispute related to the financing of GenQuest. Under the
terms of the Agreement, the third party agreed to release GenQuest and its
stockholders from any obligation prior to or thereafter owed to such third party
by any or all of GenQuest and its stockholders. The amount payable by GenQuest
under the Agreement of $250,000 was accrued as of December 31, 1997.
4. INCOME TAXES
At March 31, 1998 and December 31, 1997, GenQuest had a net operating loss
carryforward of approximately $7.4 million and $6.4 million, respectively, and
research and experimentation credit carryforwards of approximately $228,000 and
$185,000, respectively, which begin to expire in 2010. Utilization of net
operating losses and research and development tax credit carryforwards is
subject to certain limitations under Section 382 of the Internal Revenue Code.
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. GenQuest has recognized a
valuation allowance equal to the deferred tax assets due to the uncertainty of
F-29
<PAGE> 150
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
realizing the benefits of the assets. The valuation allowance for deferred tax
assets increased $358,000, $1,639,000 and $592,000 during the three months ended
March 31, 1998 and the years ended December 31, 1997 and 1996, respectively. The
effects of temporary differences and carryforwards that give rise to deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward................... $2,502,000 $2,183,000 $697,000
Research and experimentation credit
carryforward................................... 228,000 185,000 26,000
Deferred revenue.................................. 34,000 34,000 16,000
---------- ---------- --------
2,764,000 2,402,000 739,000
Deferred tax liabilities:
Depreciation...................................... 28,000 24,000 -
---------- ---------- --------
Net deferred tax asset.............................. 2,736,000 2,378,000 739,000
Less valuation allowance.......................... (2,736,000) (2,378,000) (739,000)
---------- ---------- --------
Net deferred tax assets............................. $ 0 $ 0 $ 0
========== ========== ========
</TABLE>
5. STOCKHOLDERS' EQUITY
COMMON STOCK
At March 31, 1998 and December 31, 1997, 650,000 shares of common stock
outstanding are subject to certain contractual voting restrictions (see Note 8
of these GenQuest financial statements).
CONVERTIBLE PREFERRED STOCK
During 1996, GenQuest issued approximately 6.8 million shares of "Series A"
convertible preferred stock ("Series A") in exchange for technology, a note
payable of $675,000 and cash of $525,000. During 1997, GenQuest also received
net proceeds approximating $9 million from the sale of approximately 18.3
million shares of Series B convertible preferred stock ("Series B"). Series B
shares have preferential dividend rights over the Series A and common stock. In
the event of a dividend declared by the Board of Directors (the Board), Series B
stockholders shall be entitled to be paid out of the legally available assets of
GenQuest an amount per share equal to $0.04 per share. After the payment of the
full dividend preference of the Series B, the holders of Series A shall be
entitled to be paid out of the legally available assets of GenQuest; therefore,
an amount per share equal to $0.04 per share. After payment of the full dividend
amount set forth above, the remaining amounts of dividends declared by the Board
available for distribution to stockholders, if any, shall be distributed ratably
to the holders of the common stock, Series A, and Series B on an "as if
converted to common stock basis." Such dividends shall be payable only when, as,
and if declared by the Board and shall be noncumulative. As of December 31,
1997, the Board has not declared any dividends.
Series A and B shares have registration rights and vote equally with the
shares of the common stock and, at the option of the holder, may be converted at
any time into common shares. The conversion ratios at December 31, 1997 were 1
for 1. The conversion rate may be adjusted from time to time, based on
provisions included in the Certificate of Incorporation.
Each share of Series A and Series B shall automatically be converted into
shares of common stock, based on the then-effective respective Series A and
Series B conversion prices, immediately upon (1) the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
common stock for the account of GenQuest in which the per
F-30
<PAGE> 151
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
share price is at least $2.50 and the gross cash proceeds to GenQuest are at
least $10,000,000, or (2) the date specified by written consent of the holders
of a majority of the outstanding shares of Series A and B shares voting as a
class.
Series A and B shares also have preferential liquidation rights over the
common stock. In the event of liquidation, Series B stockholders shall be
entitled to be paid out of the assets of GenQuest an amount per share equal to
the sum of $0.50 per share, plus all declared and unpaid dividends on such
share, if any. After the payment of the full liquidation preference of Series B
shares, the holders of Series A shares shall be entitled to be paid out of the
assets of GenQuest legally available for distribution, an amount per share equal
to the sum of $0.50 per share, plus all declared and unpaid dividends on such
share. Any remaining assets of GenQuest shall be distributed ratably to the
holders of the common stock, Series A, and Series B.
STOCK OPTION PLAN
GenQuest has a stock option plan under which 2,000,000 shares of common
stock are reserved for grants to employees, members of the Board of Directors,
and consultants. Options granted under this plan may be designated as qualified
or nonqualified at the discretion of the Plan Administrator (as defined in such
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
not later than ten years from the date of grant. Qualified 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.
A summary of GenQuest's stock option activity and related information
follows:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED
OUTSTANDING PRICE PER AVERAGE
OPTION SHARE EXERCISE PRICE
------------ --------- --------------
<S> <C> <C> <C>
Balance at January 1, 1997.......................... -- $ -- $ --
Options granted................................... 448,000 0.05 0.05
------- ----- -----
Balance at December 31, 1997........................ 448,000 0.05 0.05
Options granted (Unaudited)....................... 75,000 0.05 0.05
Options canceled (Unaudited)...................... (25,000) 0.05 0.05
------- ----- -----
Balance at March 31, 1998 (Unaudited)............... 498,000 $0.05 $0.05
======= ===== =====
</TABLE>
The weighted average fair value of options granted during 1997 was $0.02
per option and the weighted average remaining contractual life of the
outstanding options at December 31, 1997 was 9.6 years. At March 31, 1998 and
December 31, 1997, 1,522,000 and 1,552,000 shares remain available for grant and
78,749 and 26,083 options were considered fully vested, respectfully.
Pro forma information regarding net loss and loss per share required by
Statement 123 has been determined as if GenQuest 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 for 1997: risk-free interest rate of 6.32%, expected volatility of
0%, expected option lives of five years, and dividend yield of 0.0%.
Under Statement 123, if GenQuest had elected to recognize the compensation
cost based upon the fair value of the options granted at the grant date, net
loss would have been increased as follows (the estimated fair
F-31
<PAGE> 152
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
1997
------------
<S> <C>
Net loss:
As reported................................... $(4,345,906)
Pro forma..................................... (4,348,283)
Net loss per share:
As reported................................... $ (2.37)
Pro forma..................................... (2.38)
</TABLE>
The Statement 123 pro forma disclosures above are not necessarily
indicative of future pro forma disclosures because of the manner in which the
pro forma impact of Statement 123 calculations is phased in over time.
STOCK WARRANTS
In connection with sales of convertible Series A, GenQuest issued stock
warrants to a certain stockholder to purchase 34,019 shares of Series B at an
exercise price of $0.50 per share. These warrants expire on the earlier of 2004
or on the occurrence of certain events, as defined in the agreement.
STOCK REPURCHASE AGREEMENTS
Since its inception, GenQuest has sold approximately 125,000 shares of
common stock for $.005 to employees and scientific founders of GenQuest under
agreements that allow GenQuest, at its option, to repurchase the shares at the
original purchase price if the employment or consulting relationship with
GenQuest ceases for any reason. Under the repurchase agreements, the shares
subject to repurchase are generally reduced in specific increments over a two-
to four-year period beginning at the issuance date. As of March 31, 1998 and
December 31, 1997, 22,917 and 63,542 shares remained subject to repurchase,
respectfully.
Under the terms of all of the repurchase agreements, if GenQuest is
acquired by merger, consolidation, or sale of assets, the repurchase agreements
will lapse in their entirety, except to the extent the repurchase rights are to
be assigned to the successor corporation, in connection with such transaction.
SHARES RESERVED
At March 31, 1998 (unaudited) and December 31, 1997, common stock was
reserved for the following purposes:
<TABLE>
<S> <C>
Conversion of preferred stock............................ 25,121,884
Stock options............................................ 2,000,000
Scientific agreement..................................... 75,000
Warrants for preferred stock, convertible to common
stock.................................................. 34,019
----------
27,230,903
==========
</TABLE>
F-32
<PAGE> 153
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NET LOSS
Basic and diluted loss per share are calculated using the average number of
common shares outstanding (see Note 1 to these GenQuest financial statements).
Pro forma basic and diluted loss per share are computed on the basis of the
average number of common shares outstanding plus the effect of convertible
preferred shares using the "if-converted" method as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net loss(A)......................................... $ (935,650) $(4,345,906) $(3,894,761)
Weighted average outstanding:
Common stock(B)................................... 1,830,000 1,830,000 1,323,796
=========== =========== ===========
Loss per share:
Basic and diluted (A/B)........................... $ (0.51) $ (2.37) $ (2.94)
=========== =========== ===========
</TABLE>
6. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
GenQuest has various collaborative research agreements with collaborative
partners, academic universities, and research institutions, which expire on the
earlier of the expiration of patents or the occurrence of certain events, as
stipulated in the agreements. Certain agreements stipulate the reimbursement by
GenQuest of research costs incurred by these universities and institutions on
behalf of GenQuest. Included in research and development expenses for the three
months ended March 31, 1998 and the years ending December 31, 1997 and 1996 are
reimbursements approximating $639,000, $2.4 million and $365,000, respectively.
Refer to Note 7 of these GenQuest financial statements with regards to amounts
paid to Corixa.
Certain collaborative agreements that were in effect in 1997 extend into
fiscal years 1998 and 1999. As of March 31, 1998, GenQuest is committed to
reimburse the collaborative partners, universities, and institutions amounts
aggregating $2.1 million and $1.7 million in 1998 and 1999, respectively.
GenQuest is also committed to pay annual fees of $25,000 to a university until
expiration of underlying patents, which are creditable against future royalties
which may be owed.
GenQuest has entered into certain research agreements, license agreements,
and obtained options to negotiate license agreements under the terms of which
GenQuest received license, technology, and patent rights. During the three
months ended March 31, 1998 and in 1997 and 1996, GenQuest paid initial license
and/or option fees approximating $0, $62,000 and $40,000, respectively, and in
1996 issued 260,000 shares of common stock valued at $13,000 (plus a commitment
to issue an additional 75,000 shares, respectively, upon the achievement of
certain events) for such rights. Expense was recorded based on the fair market
value of GenQuest's common stock at the date of issuance.
Certain agreements call for royalty and milestone payments. The agreements
are for terms from one year 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, GenQuest has entered into research, license agreements, and
granted options to other parties to negotiate license agreements under the terms
of which GenQuest provides license, technology, and patent rights. During 1997
and 1996, GenQuest received and deferred initial option fees aggregating
$100,000 related to these agreements. Under the terms of the option, GenQuest
will receive additional license fees and/or reimbursement of certain research
and development costs through the end of the agreement, as defined in the
respective agreement. The agreements provide for one-time payments upon the
achievement of certain milestones and the payment of royalties based on product
sales.
F-33
<PAGE> 154
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. AGREEMENTS WITH CORIXA CORPORATION
In February 1996, GenQuest entered a license and research collaboration
agreement with Corixa 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.
During 1996, GenQuest issued 4,412,613 of Series A to Corixa valued at
$0.50 per share, in exchange for certain intellectual property rights in
connection with the collaboration, representing approximately 16% of GenQuest's
outstanding capital stock at December 31, 1997. GenQuest expensed the value of
the issued shares in 1996 as acquired in-process research and development.
In December 1996, GenQuest and Corixa amended this 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 GenQuest and Corixa on a collaborative basis.
Additionally, GenQuest has agreed that certain administrative services will be
provided to GenQuest by certain Corixa employees, including Corixa's Chief
Executive Officer, Chief Scientific Officer, Chief Financial Officer, and Chief
Operating Officer, and GenQuest has agreed to reimburse Corixa for such
services. Either GenQuest or Corixa 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.
Under the license agreement, GenQuest and Corixa 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. Corixa 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 Corixa, when product sales commence,
certain royalties on the sale of products that use technology licensed from
Corixa. In addition, sales of certain products developed by GenQuest using
technology developed by Corixa in the collaborative research program would be
royalty-free.
As a result of its ownership of Series A of GenQuest, Corixa has certain
registration rights with respect to public offerings of GenQuest and rights of
first offer that allow Corixa to participate ratably in future issuances of
stock to maintain its original ownership percentage of GenQuest. Additionally,
Corixa is entitled to voting rights equivalent to the number of shares of common
stock of GenQuest into which such shares of Series A can be converted and is a
party to a voting agreement among GenQuest and its stockholders. Under the terms
of the voting agreement, Corixa 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. Corixa's right to designate such nominees will terminate when
Corixa owns less than 10% of the voting capital stock of GenQuest.
In December 1996, in connection with the modification of the collaboration
between GenQuest and Corixa and the issuance of Series B of GenQuest to
additional investors (18,309,271 shares at $0.50 per share), Corixa, GenQuest,
and the stockholders of GenQuest entered into a call option agreement. Under the
terms of this agreement, Corixa has the right to purchase all 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 Corixa's initial public offering
during which the average closing sale price of a share of Corixa's common stock
meets the minimum requirement stipulated in the agreement, and a merger of
Corixa with another entity or a sale of substantially all of Corixa's assets,
and terminates on the earlier of January 23, 2000, the date that Corixa notifies
GenQuest that it will not exercise this right, the closing of the initial public
offering of GenQuest, and ten days following a merger of or sale of assets by
Corixa.
F-34
<PAGE> 155
GENQUEST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the relationship between GenQuest and Corixa, GenQuest
purchased warrants to purchase 454,533 shares of Corixa's Series B preferred
stock at a price of $9.90 per share. The warrants expire on the earlier of
December 23, 2001 or upon certain events as specified in the warrant agreement.
In accordance with the terms of GenQuest's own Series B preferred stock
agreement, GenQuest distributed the warrants to its stockholders during 1997.
The $1,140,000 purchase price of the warrants was recorded as an obligation at
December 31, 1996 and is payable over the three-year collaborative agreement.
The remaining obligation of $651,567 at December 31, 1997 is payable in 1998 and
1999 in the amount of $325,784 and $325,783, respectively.
In the three months ended March 31, 1998 and during the years ended
December 31, 1997 and 1996, GenQuest paid Corixa $102,000, $325,000 and
$300,000, respectively, for administrative services provided to GenQuest.
GenQuest's three months ended March 31, 1998 and 1997 results include
collaborative research and development expenses paid to Corixa of approximately
$524,000 and $1,932,000, respectfully. GenQuest did not pay any collaborative
research and development expenses to Corixa in 1996.
8. SUBSEQUENT EVENTS
On May 14, 1998, GenQuest's Board of Directors approved the merger and
terms of such merger of GenQuest with and into a wholly-owned subsidiary of
Corixa.
On May 31, 1998, a director of GenQuest agreed to relinquish and discharge
all rights, title and interest in and to 650,000 restricted shares of GenQuest's
Common Stock (See Note 5 of these GenQuest financial statements.) However, in
the event the approved merger of GenQuest and Corixa is not consummated (see
above), such relinquishment and discharge shall be null and void.
F-35
<PAGE> 156
APPENDIX A:
AGREEMENT AND PLAN OF MERGER
<PAGE> 157
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION ONE................................................. A-1
1. The Merger............................................ A-1
1.1 The Merger......................................... A-1
1.2 Closing; Effective Time............................ A-1
1.3 Effect of the Merger............................... A-1
1.4 Certificate of Incorporation; Bylaws............... A-2
1.5 Directors and Officers............................. A-2
1.6 Effect on Capital Stock............................ A-2
1.7 Closing of Target's Transfer Books................. A-5
1.8 Exchange of Certificates........................... A-5
1.9 Dissenting Shares.................................. A-6
1.10 Tax Consequences.................................. A-6
1.11 Accounting Treatment.............................. A-6
1.12 Further Action.................................... A-6
1.13 Withholding....................................... A-6
1.14 Subsequent Sale................................... A-7
1.15 Market Standoff Agreement; Notice of Transfer..... A-7
SECTION TWO................................................. A-8
2. Representations and Warranties of Target.............. A-8
2.1 Organization; Subsidiaries......................... A-8
2.2 Certificate of Incorporation and Bylaws............ A-8
2.3 Capital Structure.................................. A-8
2.4 Authority.......................................... A-9
2.5 No Conflicts; Required Filings and Consents........ A-9
2.6 Financial Statements............................... A-9
2.7 Absence of Undisclosed Liabilities................. A-9
2.8 Absence of Certain Changes......................... A-10
2.9 Litigation......................................... A-10
2.10 Restrictions on Business Activities............... A-10
2.11 Title to Property................................. A-10
2.12 Intellectual Property............................. A-11
2.13 Taxes............................................. A-11
2.14 Certain Agreements Affected by the Merger......... A-12
2.15 Employee Matters.................................. A-12
2.16 Material Contracts................................ A-12
2.17 Interested Party Transactions..................... A-13
2.18 Compliance With Laws.............................. A-13
2.19 Brokers' and Finders' Fees........................ A-13
2.20 Proxy Statement................................... A-13
2.21 Affiliate and Stockholders Agreement.............. A-13
2.22 Vote Required..................................... A-13
2.23 Board Approval.................................... A-14
2.24 Tax Matters....................................... A-14
</TABLE>
i
<PAGE> 158
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION THREE............................................... A-14
3. Representations and Warranties of Acquiror and Merger
Sub.................................................... A-14
3.1 Organization, Standing and Power................... A-14
3.2 Capital Structure.................................. A-14
3.3 Authority.......................................... A-15
3.4 No Conflict; Required Filings and Consents......... A-15
3.5 SEC Documents; Financial Statements................ A-15
3.6 Proxy Statement.................................... A-16
3.7 Absence of Undisclosed Liabilities................. A-16
3.8 Absence of Certain Changes......................... A-16
3.9 Litigation......................................... A-16
3.10 Governmental Authorization........................ A-17
3.11 Compliance With Laws.............................. A-17
3.12 Brokers' and Finders' Fees........................ A-17
3.13 Tax Matters....................................... A-17
SECTION FOUR................................................ A-17
4. Conduct Prior to the Effective Time................... A-17
4.1 Conduct of Business of Target...................... A-17
4.2 No Solicitation.................................... A-19
4.3 Delay of Payments.................................. A-19
SECTION FIVE................................................ A-19
5. Additional Agreements................................. A-19
5.1 Best Efforts and Further Assurances................ A-19
5.2 Consents; Cooperation.............................. A-20
5.3 Access to Information.............................. A-21
5.4 Public Disclosure.................................. A-21
5.5 State Statutes..................................... A-21
5.6 Lock-Up Agreements................................. A-21
5.7 Listing of Additional Shares....................... A-22
5.8 Affiliate Agreements............................... A-22
5.9 Stockholder Approval............................... A-22
5.10 Special Meeting of Stockholders................... A-23
5.11 Stockholders Agreements; Irrevocable Proxies...... A-23
5.12 Maintenance of Target Indemnification
Obligations........................................... A-23
5.13 Filing of Form S-8................................ A-24
5.14 Reorganization Treatment.......................... A-24
SECTION SIX................................................. A-24
6. Conditions to the Merger.............................. A-24
6.1 Conditions to Obligations of Each Party to Effect
the Merger............................................ A-24
6.2 Additional Conditions to Obligations of Target..... A-24
6.3 Additional Conditions to the Obligations of
Acquiror and Merger Sub............................... A-25
</TABLE>
ii
<PAGE> 159
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION SEVEN............................................... A-27
7. Termination, Amendment and Waiver..................... A-27
7.1 Termination........................................ A-27
7.2 Effect of Termination.............................. A-28
7.3 Expenses and Termination Fees...................... A-28
7.4 Amendment.......................................... A-29
7.5 Extension; Waiver.................................. A-29
SECTION EIGHT............................................... A-29
8. Indemnification........................................ A-29
8.1 Survival of Representations and Warranties......... A-29
8.2 Indemnification by Target Stockholders............. A-30
8.3 Representative of the Stockholders; Power of
Attorney.............................................. A-30
8.4 Indemnity by Acquiror.............................. A-31
SECTION NINE................................................ A-31
9. General Provisions.................................... A-31
9.1 Survival of Warranties............................. A-31
9.2 Notices............................................ A-31
9.3 Interpretation..................................... A-33
9.4 Counterparts....................................... A-33
9.5 Entire Agreement; Nonassignability; Parties in
Interest.............................................. A-33
9.6 Severability....................................... A-34
9.7 Remedies Cumulative................................ A-34
9.8 Governing Law...................................... A-34
9.9 Rules of Construction.............................. A-34
9.10 Amendments and Waivers............................ A-34
9.11 Waiver of Conflicts............................... A-34
</TABLE>
iii
<PAGE> 160
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of June 22, 1998 (the "Execution Date"), by and among Corixa
Corporation, a Delaware corporation ("Acquiror"), Chinook Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of Acquiror
("Merger Sub"), GenQuest, Inc., a Delaware corporation ("Target"), and, with
respect to Sections 2 and 8 hereof, the undersigned stockholders of Target (the
"Target Capital Stockholders").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it is
in the best interests of their respective companies and the stockholders of
their respective companies that Target and Merger Sub combine into a single
corporation through the merger of Merger Sub and Target (the "Merger") and, in
furtherance thereof, have approved the Merger. Pursuant to the Merger, among
other things, the outstanding shares of capital stock of Target (the "Target
Capital Stock") shall be converted into a combination of shares of the Common
Stock of Acquiror (the "Acquiror Common Stock"), at the rates set forth herein,
and the right to receive cash at the rates set forth herein.
B. Target, Acquiror and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
AGREEMENT
The parties hereby agree as follows:
SECTION ONE
1. THE MERGER.
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit A (the "Certificate of Merger") and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Target shall be merged with and into Merger Sub, the separate corporate
existence of Target shall cease and Merger Sub shall continue as the surviving
corporation of the Merger. Merger Sub, as the surviving corporation after the
Merger, is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place as soon as practicable, (and
in no event later than 5 business days after the satisfaction or waiver of each
of the conditions set forth in Section 6 below) or at such other time as the
parties agree (the "Closing Date"). In connection with the Closing, the parties
shall cause the Merger to be consummated by filing the Certificate of Merger,
together with the required officers' certificates, with the Secretary of State
of the State of Delaware, in accordance with the relevant provisions of Delaware
Law (the time of such filing being the "Effective Time"). The Closing shall take
place at the offices of Venture Law Group, 4750 Carillon Point, Kirkland,
Washington, or at such other location as the parties agree.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. At the Effective Time, all the property,
rights, privileges, powers and franchises of Target and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
A-1
<PAGE> 161
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation.
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.5 Directors and Officers. At the Effective Time, the directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time, shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. Subject to Sections 1.8(b) and 1.9, at the
Effective Time, by virtue of the Merger and without any further action on the
part of Acquiror, Merger Sub, Target or any holder of Target Capital Stock the
holders of Target Capital Stock shall receive the following (collectively, the
"Merger Consideration"):
(a) Target Series A Preferred and Target Common Stock.
(i) Each share of Target Series A Preferred Stock (other than
shares of Target Series A Preferred Stock held by Corixa) (the "Target
Series A Preferred") and each share of Target Common Stock (the "Target
Common Stock") issued and outstanding immediately prior to the Effective
Time, other than shares, if any, for which dissenters rights have been
or will be perfected in compliance with applicable law, shall by virtue
of the Merger and at the Effective Time, and without further action on
the part of any holder thereof, be converted into the right to receive
(A) the Series A/Common Exchange Fraction (as defined below) of a fully
paid and nonassessable share of Acquiror Common Stock and (B) the right
to receive cash in the amount of $0.16844.
(ii) The Total Acquiror/Series A/Common Shares. The total number of
shares of Acquiror Common Stock issuable to the holders of Target Series
A Preferred and Target Common Stock hereunder (the "Total
Acquiror/Series A/Common Shares") shall be determined by dividing Nine
Hundred Eighty-Five Thousand Five Hundred Sixty One Dollars ($985,561)
(as such amount may be increased to account for the exercise of any
Target Option (as defined in Section 1.6(d)(i)(A) below) prior to the
Effective Time, as set forth in Section 1.6(d)(i)(B)(IV) below) (the
"Series A/Common Stock Consideration") by the average of the NASDAQ
closing prices of Acquiror's Common Stock on all of the following days:
(A) the thirty (30) trading days prior to the Execution Date and (B) the
ensuing thirty (30) trading days including the Execution Date (the
"Series A/Common Per Share Market Value").
(iii) The Series A/Common Exchange Fraction. The Series A/Common
Exchange Fraction shall be determined by dividing (A) the Total
Acquiror/Series A/Common Shares by (B) the "Total Target Series A/Common
Shares", which shall equal the sum of: (1) the total number of shares of
Target Common Stock outstanding immediately prior to the Effective Date
(including shares of Target Common Stock issued upon the exercise of
Target Options occurring prior to the Effective Time) and (2) the total
number of shares of Target Series A Preferred outstanding immediately
prior to the Execution Date. The Total Target Series A/Common Shares is
equal to 3,580,000; provided, however, the Total Target Series A/Common
Shares is subject to increase in the event any vested, outstanding
Target Option is exercised prior to the Effective Time.
(iv) Application of the Series A/Common Exchange Fraction. Each
holder of Target Series A Preferred and Target Common Stock shall
receive that number of shares of Acquiror Common Stock equal to the
Series A/Common Exchange Fraction multiplied by the number of shares of
Target Series A Preferred and Target Common Stock held by such
stockholder as of the Execution
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Date with respect to the Target Series A Preferred and as of the
Effective Date with respect to the Target Common Stock.
(b) Target Series B Preferred.
(i) Each share of Target Series B Preferred Stock (the "Target
Series B Preferred") issued and outstanding immediately prior to the
Effective Time, other than shares, if any, for which dissenters rights
have been or will be perfected in compliance with applicable law, shall
by virtue of the Merger and at the Effective Time, and without further
action on the part of any holder thereof, be converted into the right to
receive (A) the Series B Exchange Fraction (as defined below) of a fully
paid and nonassessable share of Acquiror Common Stock and (B) the right
to receive cash in the amount of $0.21280.
(ii) The Total Acquiror/Series B Shares. The total number of shares
of Acquiror Common Stock issuable to the holders of Target Series B
Preferred hereunder (the "Total Acquiror/Series B Shares") shall be
determined by dividing Six Million Three Hundred Sixty-Nine Thousand Two
Hundred Eighty Dollars ($6,369,280) by the average of the NASDAQ closing
prices of Acquiror's Common Stock on all of the following days: (A) the
thirty (30) trading days prior to the Execution Date and (B) the ensuing
thirty (30) trading days including the Execution Date (the "Series B Per
Share Market Value").
(iii) The Series B Exchange Fraction. The Series B Exchange
Fraction shall be determined by dividing (A) the Total Acquiror/Series B
Shares by (B) the "Total Target Series B Shares", which shall equal the
sum of: (1) the total number of shares of Target Series B Preferred
outstanding immediately prior to the Execution Date and (2) the total
number of shares of Target Series B Preferred to be issued upon the net
exercise of a warrant held by Forward Ventures II, L.P. The Total Target
Series B Shares is equal to 18,312,948.
(iv) Application of The Series B Exchange Fraction. Each holder of
Target Series B Preferred shall receive that number of shares of
Acquiror Common Stock equal to the Series B Exchange Fraction multiplied
by the number of shares of Target Series B Preferred held by such
stockholder as of the Execution Date; provided, however, that
notwithstanding the foregoing, with respect to (A) Frazier Healthcare
II, L.P., ("Frazier") (B) Mayfield VIII and Mayfield Associates Fund III
(collectively, "Mayfield") and (C) Domain Partners III, L.P.,
Biotechnology Investments Limited and DP III Associates, L.P.
(collectively, "Domain"), the number of shares of Acquiror Common Stock
to be received by each of Frazier, Mayfield and Domain shall be reduced
by that number of shares equal to the quotient obtained by dividing (x)
$28,333.33 by (y) the Series B Per Share Market Value.
(c) Change in Composition of Consideration. If, as a result of a
decrease in the fair market value of Acquiror's Common Stock subsequent to
the determination of the Series A/Common Per Share Market Value and the
Series B Per Share Market Value but prior to the Effective Time, the value
at the Closing of the Acquiror Common Stock issuable pursuant to Section
1.6 is less than 50% of the sum of the cash and the Acquiror Common Stock
(valued at the Closing) to be received by the stockholders of Target, then
the Total Acquiror/Series A/Common Shares and Total Acquiror/Series B
Shares shall each be increased proportionately (and the total amount of
consideration payable in cash to the holders of Target Series A Preferred,
Target Common Stock, and Target Series B Preferred under subsections
1.6(a)(i) and 1.6(b)(i), respectively, shall be decreased) so that the
value at the Closing of the Acquiror Common Stock is at least 50% of the
sum of the cash and the Acquiror Common Stock (valued at the Closing) to be
received by the stockholders of Target.
(d) Target Stock Options and Warrants.
(i)(A) All options to purchase Target Common Stock (the "Target
Options") issued and outstanding under the Target 1996 Stock Option
Plan, as amended (the "Target Stock Option Plan") (whether or not
exercisable, whether or not vested, and whether or not
performance-based) shall remain outstanding following the Effective
Time. Schedule 1.6(d) hereto sets forth a true and
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complete list as of the date of this Agreement of all holders of
outstanding options under the Target Stock Option Plan, including the
number of shares of Target Capital Stock subject to each such option,
the exercise or vesting schedule, the exercise price per share and the
term of each such option. On the Closing Date, Target shall deliver to
Acquiror an updated Schedule 1.6(d) hereto current as of such date.
(B)(I) At the Effective Time, the Target Options shall, by virtue
of the Merger and without any further action on the part of the Company
or the holder thereof, be assumed by Acquiror in accordance with this
Section 1.6(d). Each such Target Option so assumed by Acquiror under
this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the Target Stock Option Plan immediately
prior to the Effective Time, except that (i) such Target Option will be
exercisable for that number of whole shares of Acquiror Common Stock
equal to the product of the number of shares of Target Common Stock that
were issuable upon exercise of such Target Option immediately prior to
the Effective Time multiplied by the Option Exchange Fraction (as
defined below) and rounded down to the nearest whole number of shares of
Acquiror Common Stock, and (ii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise
price per share of Target Common Stock at which such Target Option was
exercisable immediately prior to the Effective Time by the Option
Exchange Fraction, rounded up to the nearest whole cent.
(II) The total number of shares of Acquiror Common Stock issuable
to the holders of Target Options hereunder (the "Total Acquiror Option
Shares") shall be determined by dividing Ninety-Three Thousand Two
Hundred Forty Dollars ($93,240) (as such amount may be decreased to
account for the exercise of any Target Option prior to the Effective
Time as set forth in Section 1.6(d)(i)(B)(IV) below) (the "Option
Consideration") by the average of the NASDAQ closing prices of
Acquiror's Common Stock on all of the following days: (A) the thirty
(30) trading days prior to the Execution Date and (B) the ensuing thirty
(30) trading days including the Execution Date (the "Option Per Share
Market Value").
(III) The "Option Exchange Fraction" shall be determined by
dividing (A) the Total Acquiror Option Shares by (B) the total number of
Target Options vested but unexercised as of the Effective Date
(including any vesting that has occurred as a result of acceleration
determined by the Target Board of Directors and approved by Acquiror).
(IV) In the event any vested Target Option (including vesting that
has occurred as a result of acceleration determined by the Target Board
of Directors and approved by Acquiror) is exercised prior to the
Effective Time, then (a) the shares issued upon such exercise shall be
Target Common Stock and shall be included in the calculation of the
Total Target Series A/Common Shares under Section 1.6(a)(iii) rather
than the calculation of total number of Target Options under Section
1.6(d)(i)(B)(III), (b) the Option Consideration shall be reduced by an
amount equal to the product of 0.44373 multiplied by the number of
shares of Target Common Stock issued upon exercise of such Target
Option, and (c) the Series A/Common Stock Consideration shall be
increased by an amount equal to the product of 0.27529 multiplied by the
number of shares of Target Common Stock issued upon exercise of such
Target Option.
(C) Target has not taken, and shall not take, any action that would
result in the accelerated vesting, exercisability or payment of Target
Options as a consequence of the execution of, or consummation of the
transactions contemplated by, this Agreement. Consistent with the terms
of the Target Stock Option Plan and the documents governing the
outstanding options under such Plan, the Merger will not terminate any
of the outstanding Target Options or accelerate the vesting,
exercisability or payment of such Target Options or the shares of
Acquiror Common Stock which will be subject to those options upon the
Acquiror's assumption of the Target Options in the Merger.
(D) It is the intention of the parties that the Target Options
assumed by Acquiror qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent such
Target Options qualified as incentive stock options prior to the
Effective Time. As soon
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as practicable after the Effective Time, Acquiror will issue to each
person who, immediately prior to the Effective Time was a holder of a
Target Option under the Target Stock Option Plan, a written document
evidencing the foregoing assumption of such option by Acquiror.
(ii) Target Warrants. Effective immediately prior to the Effective
Time and contingent upon consummation of the Merger, all outstanding and
unexercised warrants to purchase Target Capital Stock (the "Target
Warrants") shall terminate unexercised by virtue of the Merger and
without any action on the part of the holder thereof.
(e) Cancellation of Target Capital Stock Owned by Acquiror or
Target. At the Effective Time, all shares of Target Capital Stock that are
owned by Target as treasury stock and each share of Target Capital Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of
Acquiror or of Target immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(f) Unvested Shares. If any shares of Target Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other agreement with
Target, then the shares of Acquiror Common Stock issued in exchange for
such shares of Target Common Stock will also be unvested and subject to the
same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of Acquiror Common Stock may
accordingly be marked with appropriate legends.
1.7 Closing of Target's Transfer Books. At the Effective Time, holders of
certificates representing shares of Target Capital Stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
stockholders of Target, and the stock transfer books of Target shall be closed
with respect to all shares of such Target Capital Stock outstanding immediately
prior to the Effective Time. No further transfer of any such shares of Target
Capital Stock shall be made on such stock transfer books after the Effective
Time. If, after the Effective Time, a valid certificate previously representing
any of such shares of Target Capital Stock (a "Target Capital Stock
Certificate") is presented to the Surviving Corporation or Acquiror, such Target
Capital Stock Certificate shall be canceled and shall be exchanged as provided
in Section 1.8.
1.8 Exchange of Certificates.
(a) At or as soon as practicable after the Effective Time, Acquiror
will send to the holders of Target Capital Stock Certificates (i) a letter
of transmittal in customary form and containing such provisions as Acquiror
may reasonably specify, and (ii) instructions for use in effecting the
surrender of Target Capital Stock Certificates in exchange for certificates
representing Acquiror Common Stock and cash. Subject to Section 1.8(b),
upon surrender of a Target Capital Stock Certificate to Acquiror for
exchange, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by Acquiror, the holder of
such Target Capital Stock Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of shares of
Acquiror Common Stock and the amount of cash that such holder has the right
to receive pursuant to the provisions of Section 1.6. Until surrendered as
contemplated by this Section 1.8, each Target Capital Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the
right to receive shares of Acquiror Common Stock, (and cash in lieu of any
fractional share of Acquiror Common Stock) and cash as contemplated by this
Section 1.8. If any Target Capital Stock Certificate shall have been lost,
stolen or destroyed, Acquiror may, in its discretion and as a condition
precedent to the issuance of any certificate representing Acquiror Common
Stock, require the owner of such lost, stolen, or destroyed Target Capital
Stock Certificate to provide an appropriate affidavit and (except with
respect to Target Capital Stock Certificates representing 75,000 or fewer
shares of Target Common Stock) to deliver a bond (in such sum as is
customary) as indemnity against any claim that may be made against Acquiror
or the Surviving Corporation with respect to such Target Capital Stock
Certificate.
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(b) No fractional shares of Acquiror Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional
shares shall be issued. Any holder of Target Capital Stock who would
otherwise be entitled to receive a fraction of a share of Acquiror Common
Stock (after aggregating all fractional shares of Acquiror Common Stock
issuable to such holder) shall, upon surrender of such holder's Target
Capital Stock Certificate(s), receive payment for any such fractional share
of Acquiror Common Stock in the amount of such fractional share multiplied
by either the Series A/Common Per Share Market Value or Series B Per Share
Market Value, as applicable.
(c) Neither Acquiror nor the Surviving Corporation shall be liable to
any holder or former holder of Target Capital Stock for any shares of
Acquiror Common Stock (or dividends or distributions with respect thereto),
or for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of Target Capital Stock that are outstanding
immediately prior to the Effective Time that were not voted in favor of the
Merger and are held by stockholders who have complied with the applicable
provisions of Section 262 of the DGCL ("Dissenting Shares") shall not be
converted into or represent the right to receive Acquiror Common Stock and
cash in accordance with Section 1.6(a), and each holder of Dissenting
Shares shall be entitled only to such rights as may be granted to such
holder in Section 262 of the DGCL. From and after the Effective Time, a
holder of Dissenting Shares shall not have and shall not be entitled to
exercise any of the voting rights or other rights of a stockholder of the
Surviving Corporation. If any holder of Dissenting Shares shall fail to
perfect or shall waive, rescind, withdraw or otherwise lose such holder's
right of appraisal under Section 262 of the DGCL, then such shares shall
automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates representing
such shares) Acquiror Common Stock and cash in accordance with Section
1.6(a).
(b) Target (i) shall give Acquiror prompt written notice of any notice
received by Target of a stockholder's intent to demand payment for such
stockholder's shares of Target Capital Stock pursuant to Section 262 of the
DGCL and of any other notice, demand or instrument delivered to Target
pursuant to Section 262 of the DGCL, and (ii) shall give Acquiror the
opportunity to participate in all negotiations and proceedings with respect
to any such notice, demand or instrument. Target shall not make any payment
or settlement offer with respect to any such notice or demand unless
Acquiror shall have consented in writing to such payment or settlement
offer.
1.10 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations. Each party has consulted with his, her or
its own tax advisors with regard to the tax consequences of the Merger.
1.11 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "purchase."
1.12 Further Action. If, at any time after the Effective Time, any further
action is determined by Acquiror to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Acquiror with
full right, title and possession of and to all rights and property of Merger Sub
and Target, the officers and directors of the Surviving Corporation and Acquiror
shall be fully authorized (in the name of Merger Sub, in the name of Target and
otherwise) to take such action.
1.13 Withholding. Each of the Surviving Corporation and Acquiror shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Target Capital Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code or any provision of applicable state, local or
foreign tax laws. To the extent that amounts are so withheld by the Surviving
Corporation or Acquiror, as the case may be, such withheld amounts
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shall be treated for all purposes of this Agreement as having been paid to such
holder in respect of which such deduction and withholding was made by the
Surviving Corporation or Acquiror, as the case may be.
1.14 Subsequent Sale.
(a) In the event that Acquiror executes a definitive agreement to sell
Target by way of a merger, sale of equity, or sale or licensing of all or
substantially all of the assets controlled by or belonging to Target prior
to the Merger ("Target's Assets") in a single transaction or group of
related transactions to a single unaffiliated third party or group of such
third parties acting in concert within twelve (12) months after the Closing
Date and such sale transaction is subsequently consummated, (a "Target
Subsequent Sale"), the holders of Target Capital Stock shall receive an
additional payment (the "Target Sale Payment") equal to thirty percent
(30%) of the amount by which the aggregate consideration received by
Acquiror in a Target Subsequent Sale (the "Target Selling Price") exceeds
the Merger Consideration; provided, however, that any licensing of Target's
Assets as the subject of a corporate partnering transaction involving the
related receipt of upfront license fees, research and development or
funding, milestone payments, technology access fees and/or profit-sharing
revenues or any sale of all or substantially all of the assets or equity of
Acquiror to a third party shall not constitute a Target Subsequent Sale.
The Target Sale Payment shall be made on a basis consistent with Section
1.6 hereof to all holders of Target Capital Stock within thirty (30) days
of Acquiror's receipt of the Target Selling Price.
(b) The Target Sale Payment shall be payable, at Acquiror's sole
option, (A) in cash, or (B) in Acquiror Common Stock having a value equal
to the average of the NASDAQ closing prices of Acquiror's Common Stock for
the thirty (30) trading days immediately preceding and the ensuing thirty
(30) trading days including the date of execution of definitive
agreement(s) for such Target Subsequent Sale, or (C) a combination of cash
and Acquiror Common Stock; provided however, that Acquiror shall limit the
issuance of cash in a Target Sale Payment to at least the extent necessary
to maintain the status of the Merger as a reorganization under Section
368(a) of the Code.
(c) To the extent the Target Sale Payment is made in Acquiror Common
Stock, within ninety (90) days of the Target Subsequent Sale, Acquiror
shall cause to be filed with the U.S. Securities and Exchange Commission
(the "SEC") a registration statement on Form S-3 (the "S-3") (or, if
Acquiror is unable to use a Form S-3, a registration statement on Form S-1
(the "S-1")) covering the resale of all Acquiror Common Stock issued as
part of the Target Sale Payment. Acquiror shall use its reasonable efforts
to cause the S-3 (or, if applicable, the S-1) to become effective promptly
after filing and to maintain the effectiveness of the S-3 (or, if
applicable, the S-1) until such time as the recipients of the Acquiror
Common Stock may be eligible to sell all of the shares of Acquiror Common
Stock issued as part of the Target Sale Payment in a three month period
under Rule 144. The Acquiror Common Stock covered by the S-3 (or, if
applicable, the S-1) shall be subject to reasonable lockup resale
restrictions upon the written request of the managing underwriters in the
event that Acquiror initiates an underwritten offering of newly issued
shares of Acquiror Common Stock while the S-3 (or, if applicable, the S-1)
is effective.
1.15 "Market Standoff" Agreement; Notice of Transfer. Each stockholder of
Target agrees that for a period of 120 days following the Closing of the Merger,
such stockholder shall not sell, offer to sell, contract to sell (including
without limitation any short sale) grant any option to purchase or otherwise
transfer or dispose of the shares of Acquiror Common Stock issued to such
stockholder in the Merger. Additionally, each stockholder of Target agrees to
provide Acquiror with at least 15 days prior written notice of any sale,
transfer, distribution, encumbrance or other disposition by such stockholder of
any shares of Acquiror Common Stock issued to such stockholder in the Merger;
provided, however, that such notification requirement shall not apply to the
sale, transfer, distribution, encumbrance or other disposition of (i) less than
5,000 shares of Acquiror Common Stock by holders who hold less than 5,000 shares
of such Acquiror Common Stock or (ii) shares of Acquiror Common Stock by Dr. Max
Link. In order to enforce the foregoing covenants, Acquiror shall have the right
to place restrictive legends on the certificates of Acquiror Common Stock issued
in the Merger, indicating that such shares are subject to such lock-up and
transfer restrictions. At the request of Acquiror following approval of the
Merger by the stockholders of Target, each stockholder of Target shall promptly
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execute and deliver to Acquiror a Lock-Up and Waiver Agreement ("Lock-Up
Agreement") substantially in the form attached hereto as Exhibit B.
SECTION TWO
2. REPRESENTATIONS AND WARRANTIES OF TARGET.
In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that, when taken individually or together with all other adverse changes and
effects, is or is reasonably likely to be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects of such entity and its subsidiaries, taken as
a whole, or to prevent or materially delay consummation of the Merger or
otherwise to prevent such entity and its subsidiaries from performing their
obligations under this Agreement.
For purposes of this Agreement, (i) as it relates to Target, "knowledge"
means with respect to any matter in question, that any director or officer of
Target, who has never been a director or officer of Acquiror or Merger Sub, has
actual knowledge of such matter and Acquiror has no knowledge of such matter,
(ii) as it relates to the Target Capital Stockholders, "knowledge" means that
any Target Capital Stockholder has actual knowledge of such matter and Acquiror
has no knowledge of such matter, and (iii) as it relates to Acquiror,
"knowledge" means the Acquiror's actual knowledge after due and diligent inquiry
of its officers, directors and other employees reasonably believed or likely to
have knowledge of the matter in question.
As of the Execution Date, except as disclosed in a document dated as of the
date of this Agreement and delivered by Target to Acquiror prior to the
execution and delivery of this Agreement and referring to the representations
and warranties in this Agreement (the "Target Disclosure Schedule"), (a) Target
represents and warrants to Acquiror and Merger Sub that to Target's knowledge,
each of the statements contained in Sections 2.1 through 2.24 that is expressly
qualified by a reference to materiality is true in all respects as so qualified
and each statement that is not so qualified is true and correct in all material
respects, and (b) the Target Capital Stockholders each individually represent
and warrant to Acquiror and Merger Sub that to such Target Capital Stockholder's
knowledge, each of the statements contained in Sections 2.1 through 2.24 that is
expressly qualified by a reference to materiality is true in all respects as so
qualified and each statement that is not so qualified is true and correct in all
material respects.
2.1 Organization; Subsidiaries. Target is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Target has no subsidiaries. Target has the requisite corporate
power and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted, except where the failure to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Target. Target is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on Target. Except as set forth in the Target Disclosure
Schedule, Target does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity.
2.2 Certificate of Incorporation and Bylaws. Target has delivered a true
and correct copy of the Certificate of Incorporation and Bylaws of Target, each
as amended to date, to Acquiror. Target is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws.
2.3 Capital Structure. The authorized capital stock of Target consists of
39,260,903 shares of Common Stock and 25,355,903 shares of Preferred Stock, of
which there were issued and outstanding as of the close of business on June 22,
1998, 1,180,000 shares of Common Stock, 6,812,613 shares of Series A Preferred
Stock (the "Series A Preferred") and 18,309,271 shares of Series B Preferred
Stock (the "Series B Preferred").
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There are no other outstanding shares of capital stock or voting securities and
no outstanding commitments to issue any shares of capital stock or voting
securities after June 22, 1998 other than pursuant to the exercise of options
outstanding as of such date under the Target 1996 Stock Option Plan. All
outstanding shares of Target Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of Target or any agreement
to which Target is a party or by which it is bound. As of the close of business
on June 22, 1998, Target has reserved (i) sufficient shares of Common Stock for
issuance upon conversion of the Series A Preferred and the Series B Preferred,
(ii) 2,000,000 shares of Common Stock for issuance to employees and consultants
pursuant to the Target 1996 Stock Option Plan, of which no shares have been
issued pursuant to option exercises or direct stock purchases and 498,000 shares
are subject to outstanding, unexercised options and (iii) 34,019 shares of
Series B Preferred for issuance upon exercise of an outstanding warrant. There
are no contracts, commitments or agreements relating to voting, purchase or sale
of Target Capital Stock (i) between or among Target and any of the holders of
Target Capital Stock or (ii) between or among any of holders of Target Capital
Stock, except for the stockholders delivering Irrevocable Proxies (as defined
below). The terms of the Target 1996 Stock Option Plan permit assumption or
substitution of options to purchase Acquiror Common Stock as provided in this
Agreement, without the consent or approval of the holders of such securities,
the holders of Target Capital Stock, or otherwise and without any acceleration
of the exercise schedule or vesting provisions in effect for those options.
2.4 Authority. Target has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's stockholders as contemplated by Section 6.1(a). Target's
Board of Directors has approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by Target and assuming due authorization,
execution and delivery by Acquiror and Merger Sub, constitutes the valid and
binding obligation of Target enforceable against Target in accordance with its
terms except as enforceability may be limited by applicable bankruptcy and other
laws of general application affecting enforcement of creditor's rights generally
and laws relating to the availability of equitable remedies.
2.5 No Conflicts; Required Filings and Consents. The execution and delivery
of this Agreement by Target does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Certificate of Incorporation
or Bylaws of Target, as amended, except for such conflicts, violations, defaults
and rights that individually or in the aggregate would not have a Material
Adverse Effect on Target, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Target or any of its properties or assets.
2.6 Financial Statements. The Target Disclosure Schedule includes a true,
correct and complete copy of Target's audited financial statements for each of
the fiscal years ended December 31, 1996 and 1997, respectively, and its
unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) as at, and for the three-month period ended March 31,
1998 (collectively, the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") (except that the unaudited financial statements do not have notes
thereto) applied on a consistent basis throughout the periods indicated and with
each other. The Financial Statements accurately set out and describe the
financial condition and operating results of Target as of the dates, and for the
periods, indicated therein, subject in the case of unaudited financial
statements to normal year-end audit adjustments and the absence of footnotes.
Target maintains a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.7 Absence of Undisclosed Liabilities. Target has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the
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Balance Sheet for the period ended March 31, 1998 (the "Target Balance Sheet"),
(ii) those incurred in the ordinary course of business and not required to be
set forth in the Target Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the date of the Target Balance Sheet and
consistent with past practice, and (iv) those incurred in connection with the
execution of this Agreement.
2.8 Absence of Certain Changes. Except as set forth in the Target
Disclosure Schedule, since March 31, 1998 ( the "Target Balance Sheet Date") and
until the Execution Date, there has not been, occurred or arisen any:
(a) transaction by Target except in the ordinary course of business as
conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of Target;
(c) termination or material amendment of any material contract,
agreement or license (including any distribution agreement) to which Target
is a party or by which it is bound;
(d) the commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of Target or its affairs;
(e) event or condition of any character that has or could reasonably
be expected to have a Material Adverse Effect on Target; or
(f) agreement by Target or any officer, director or employee of Target
on behalf of such entity to do any of the things described in the preceding
clauses (a) through (e) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
2.9 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending or threatened before any
agency, court or tribunal, foreign or domestic, against Target or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against Target or any of its directors or
officers (in their capacities as such), that would prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that would reasonably be expected to have a Material Adverse
Effect on Target. All litigation to which Target is a party or threatened to
become a party is disclosed in the Target Disclosure Schedule.
2.10 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any current
or future business practice of Target, any acquisition of property by Target or
the overall conduct of business by Target as currently conducted or as proposed
to be conducted by Target. Except as disclosed in the Target Disclosure
Schedule, Target has not entered into any agreement under which Target is
restricted from selling, licensing or otherwise distributing any of its products
to any class of customers, in any geographic area, during any period of time or
in any segment of the market.
2.11 Title to Property. Target has good and marketable title to all of its
respective properties, interests in properties and assets, real and personal,
reflected in the Target Balance Sheet or acquired after the Target Balance Sheet
Date (except properties, interests in properties and assets sold or otherwise
disposed of since the Target Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, and (iii) liens securing debt
which is reflected on the Target Balance Sheet. The plants, property and
equipment of Target that are used in the operations of their businesses are in
good operating condition and repair. All properties used in the operations of
Target are reflected in the Target Balance Sheet to the extent GAAP requires the
same to be reflected. All leases are in good standing, are valid and effective
in accordance with their respective terms, and there is not under any such lease
any existing default or event of default (or any event which with notice or
lapse of time, or both, would constitute a default).
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2.12 Intellectual Property.
(a) Target owns, or has licensed or otherwise possesses legally
enforceable rights to use all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, copyrights, and any
applications for any of the foregoing, industrial models, inventions,
technology, know-how, trade secrets, reagents, analytical tools, inventory,
ideas, algorithms, processes, computer software programs or applications
(in both source code and object code form), and tangible or intangible
proprietary information or material ("Intellectual Property") that are used
or proposed to be used in the business of Target as currently conducted or
as proposed to be conducted by Target, except to the extent that the
failure to have such rights have not had and could not reasonably be
expected to have a Material Adverse Effect on Target.
(b) Target is not in violation of any license, sublicense or agreement
to which it is a party. The execution and delivery of this Agreement by
Target and the consummation of the transactions contemplated hereby, will
neither cause Target to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Target is the sole and exclusive owner or licensee of, with all
right, title and interest in and to (free and clear of any liens), the
Intellectual Property, and has sole and exclusive rights (and, except as
disclosed in the Target Disclosure Schedule, is not contractually obligated
to pay any compensation to any third party in respect thereof) to the use
thereof or the material covered thereby in connection with the services or
products in respect of which Intellectual Property is being used.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Target, any trade
secret material to Target or any Intellectual Property right of any third
party to the extent licensed by or through Target, by any third party,
including any employee or former employee of Target.
2.13 Taxes.
(a) For purposes of this Section 2.13 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, (A) imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or profits
taxes (including but not limited to, federal, state and foreign income
taxes), payroll and employee withholding taxes, unemployment insurance
contributions, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp
taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other governmental
charges, and other obligations of the same or of a similar nature to any
of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a
result of being a member of any affiliated, consolidated, combined or
unitary group, or (C) any liability for amounts referred to in (A) or
(B) as a result of any obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
required to be filed in connection with any Taxes, including information
returns with respect to backup withholding and other payments to third
parties.
(b) All Returns required to be filed by or on behalf of Target have
been duly filed on a timely basis and such Returns are true and correct in
all material respects. All Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of Target under Section 6655 of
the Code or comparable provisions of state, local or foreign law, have been
paid in full on a timely basis, and no other Taxes are payable by Target
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with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns). Target has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other
third party. There are no liens on any of the assets of Target with respect
to Taxes, other than liens for Taxes not yet due and payable or for Taxes
that Target is contesting in good faith through appropriate proceedings.
Target has not been at any time a member of an affiliated group of
corporations filing consolidated, combined or unitary income or franchise
tax returns for a period for which the statute of limitations for any Tax
potentially applicable as a result of such membership has not expired.
(c) The amount of Target's liabilities for unpaid Taxes for all
periods through the date of the Financial Statements do not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
reflected on the Financial Statements, and the Financial Statements
properly accrue in accordance with GAAP all liabilities for Taxes of Target
payable after the date of the Financial Statements attributable to
transactions and events occurring prior to such date. No liability for
Taxes of Target has been incurred since such date other than in the
ordinary course of business.
(d) Acquiror has been furnished by Target true and complete copies of
(i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of
Target relating to Taxes, and (ii) all federal, state and foreign income or
franchise tax returns and state sales and use tax Returns for or including
Target for all periods since Target's inception.
(e) No audit of the Returns of or including Target by a government or
taxing authority is in process, threatened or, pending (either in writing
or verbally, formally or informally). No deficiencies exist or have been
asserted (either in writing or verbally, formally or informally) or are
expected to be asserted with respect to Taxes of Target, and Target has not
received notice (either in writing or verbally, formally or informally) nor
does it expect to receive notice that it has not filed a Return or paid
Taxes required to be filed or paid. Target is not a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally, formally or
informally) against Target or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of
Target. Target has disclosed on their federal and state income and
franchise tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Code Section 6662
or comparable provisions of applicable state tax laws.
(f) Target is not (nor has it ever been) a party to any tax sharing
agreement.
2.14 Certain Agreements Affected By the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Target, (ii) materially increase any benefits
otherwise payable by Target, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.15 Employee Matters. Target is in compliance in all material respects
with all currently applicable federal, state, local and foreign laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. There are
no pending claims against Target under any workers compensation plan or policy
or for long term disability. Target does not have any material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or threatened between Target and
any of its employees, which controversies have or could reasonably be expected
to have a Material Adverse Effect on Target.
2.16 Material Contracts.
(a) The Target Disclosure Schedule contains a list of all contracts
and agreements to which Target is a party and that are material to the
business, results of operations, or condition (financial or otherwise), of
Target taken as a whole (such contracts, agreements and arrangements as are
required to be set forth in the Target Disclosure Schedule being referred
to herein collectively as the "Material Contracts").
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(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on Target, none of the Material Contracts is in
default by its terms or has been canceled by the other party; Target is not
in receipt of any claim of default under any such agreement; and Target
does not anticipate any termination or change to, or receipt of a proposal
with respect to, any such agreement as a result of the Merger or otherwise.
Target has furnished Acquiror with true and complete copies of all such
agreements together with all amendments, waivers or other changes thereto.
2.17 Interested Party Transactions. Target is not indebted to any director,
officer, employee or agent of Target (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Target.
2.18 Compliance With Laws. Target has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not reasonably be expected to have a
Material Adverse Effect on Target.
2.19 Brokers' and Finders' Fees. Neither Target nor any of its stockholders
has incurred, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated.
2.20 Proxy Statement. None of the information (including financial data)
relating to Target or its Affiliates (as defined in Section 2.21) supplied by
Target to Acquiror to be included in (a) the Proxy Statement (as defined in
Section 5.9(a)) at the time the Proxy Statement is mailed to stockholders of
Target in connection with the special meeting of the Target stockholders to be
held with respect to the Merger and the other transactions contemplated hereby,
and at all times subsequent to such dates up to and including the date of the
Target stockholders meeting (the "Target Stockholders Meeting") and the date of
the Effective Time, or (b) the registration statement on Form S-4 (the "S-4") at
the time it becomes effective or at the Effective Time of the Merger, will
(except to the extent revised or superseded by amendments or supplements
contemplated hereby) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If at any time prior to the
Effective Time any event or information should be discovered by Target which
should be set forth in an amendment to the S-4 or a supplement to the Proxy
Statement, Target shall promptly inform Acquiror and Merger Sub. The Proxy
Statement as it relates to Target will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder in effect at the time the Proxy Statement is mailed except that no
representation is made by Target with respect to statements made therein based
on information supplied by Acquiror or Merger Sub for inclusion in the Proxy
Statement.
2.21 Affiliate and Stockholders Agreement. All of the persons and/or
entities deemed "Affiliates" of Target within the meaning of Rule 145
promulgated under the Securities Act have executed and delivered to Acquiror an
Affiliate Agreement substantially in the form attached hereto as Exhibit C (an
"Affiliate Agreement"). Target shall use its best efforts to obtain such a
written agreement from any other person as soon as practicable after the date on
which such person attains such status as an Affiliate of Target. Additionally,
the holders of (i) up to 450,000 shares of Target Common Stock issued and
outstanding as of the Execution Date, (ii) up to 2,200,000 shares of Target
Series A Preferred issued and outstanding as of the Execution Date and (iii) up
to 6,309,271 shares of Target Series B Preferred issued and outstanding as of
the Execution Date (collectively, the "Selected Target Stockholders") have
executed and delivered to Acquiror Stockholders Agreements substantially in the
form attached hereto as Exhibit D (each a "Stockholders Agreement").
2.22 Vote Required. The affirmative vote of the holders of a majority of
each of (i) the shares of Target Capital Stock outstanding on the record date
set for the Target Stockholders Meeting and (ii) a majority of the shares of
Series A Preferred and Series B Preferred outstanding on the record date set for
the Target Stockholders Meeting, voting together as a single class, are the only
votes of the holders of any Target Capital Stock necessary to approve this
Agreement and the transactions contemplated hereby.
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2.23 Board Approval. The Board of Directors of Target has (i) approved this
Agreement and the Merger, (ii) determined that the Merger is in the best
interests of the stockholders of Target and is on terms that are fair to such
stockholders and (iii) recommended that the stockholders of Target approve this
Agreement and the Merger.
2.24 Tax Matters. Neither Target nor any of its respective Affiliates or
agents is aware of any agreement, plan or other circumstance that would prevent
the Merger from constituting a reorganization under Section 368(a) of the Code.
SECTION THREE
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.
Except as disclosed in a document dated as of the date of this Agreement
and delivered by Acquiror to Target prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub hereby jointly and
severally represent and warrant to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Acquiror and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Acquiror.
Acquiror and Merger Sub have each delivered a true and correct copy of the
Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of Acquiror and Merger Sub, each as amended to date, to Target.
Neither Acquiror nor any of its subsidiaries is in violation of any material
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
3.2 Capital Structure.
(a) The authorized capital stock of Acquiror consists of 40,000,000
shares of Common Stock, $0.001 par value, of which 11,799,608 shares were
issued and outstanding as of the close of business on June 22, 1998, and
10,000,000 shares of Preferred Stock, $0.001 par value, none of which were
issued and outstanding as of the close of business on June 22, 1998. As of
the close of business on June 22, 1998, Acquiror has reserved 2,152,202
shares of Common Stock for issuance to employees, directors and independent
contractors pursuant to the Acquiror Stock Option Plan (as defined below),
of which 212,006 shares have been issued pursuant to option exercises, and
1,442,014 shares are subject to outstanding, unexercised options. As of the
close of business on June 22, 1998, Acquiror has reserved 250,000 shares of
Acquiror Common Stock for issuance to directors pursuant to the Acquiror's
1997 Directors' Stock Option Plan (the "Acquiror Directors' Stock Option
Plan"), of which 60,000 shares are subject to outstanding, unexercised
options. As of the close of business on June 22, 1998, Acquiror has
reserved 125,000 shares of Acquiror Common Stock for issuance to employees
pursuant to the Acquiror's 1997 Employee Stock Purchase Plan, of which
1,099 shares have been issued to employees. There are no other outstanding
shares of capital stock or voting securities of Acquiror other than shares
of Acquiror Common Stock issued after June 22, 1998 upon the exercise of
options issued under the Acquiror's 1994 Amended and Restated Stock Option
Plan (the "Acquiror Stock Option Plan") or under the Acquiror Directors'
Stock Option Plan. Other than as set forth in the Acquiror Disclosure
Schedule or as contemplated under this Agreement, there are no other
options, warrants, calls, rights, commitments or agreements of any
character to which Acquiror or Merger Sub is a party or by which either of
them is bound obligating Acquiror or Merger Sub to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of Acquiror or obligating
Acquiror or Merger Sub to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. The shares of Acquiror
Common Stock to be issued pursuant to the Merger will be duly authorized,
validly issued, fully paid, and non-assessable.
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(b) The authorized capital stock of Merger Sub consists of 2,000,000
shares of Common Stock, 1,000 which are issued and outstanding and are held
by Acquiror. All outstanding shares of Acquiror and Merger Sub have been
duly authorized, validly issued, fully paid and are nonassessable and free
of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof. There are no options, warrants,
calls, rights, commitments or agreements of any character to which Acquiror
or Merger Sub is a party or by which either of them is bound obligating
Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of Merger Sub or obligating Acquiror or Merger Sub to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
3.3 Authority. Acquiror and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror and Merger Sub (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by Delaware law). This Agreement has been duly
executed and delivered by Acquiror and Merger Sub and constitutes the valid and
binding obligations of Acquiror and Merger Sub.
3.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under
(i) any provision of the Certificate of Incorporation or Bylaws of Acquiror
or Merger Sub, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Acquiror or Merger Sub or their properties or
assets.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality ("Governmental Entity")
is required by or with respect to Acquiror or Merger Sub in connection with
the execution and delivery of this Agreement by Acquiror and Merger Sub or
the consummation by Acquiror and Merger Sub of the transactions
contemplated hereby, except for (i) the filing of appropriate merger
documents as required by Delaware Law, (ii) the filing of the S-4 with the
SEC; (iii) the filing of a Form 8-K with the SEC and National Association
of Securities Dealers ("NASD") within 15 days after the Closing Date, (iv)
any filings as may be required under applicable state securities laws and
the securities laws of any foreign country, (v) such filings as may be
required under HSR, (vi) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the
shares of Acquiror Common Stock issuable upon conversion of the Target
Capital Stock in the Merger and upon exercise of the options under the
Target Capital Stock Option Plan assumed by Acquiror, and (vii) such other
consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror
and would not prevent, materially alter or delay any the transactions
contemplated by this Agreement.
3.5 SEC Documents; Financial Statements.
(a) Acquiror has filed all forms, reports and documents required to be
filed by Acquiror with the SEC since December 31, 1997, and previously has
made available to the Target copies, in the form filed with the SEC, of (i)
its Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(ii) its Quarterly Reports on Form 10-Q for the periods ended September 30,
1997 and March 31, 1998, and (iii) all other forms, reports and
registration statements (other than Quarterly Reports on Form 10-Q not
referred to in clause (ii) above and excluding exhibits to registration
statements and materials relating to stock option and compensation plans)
filed with the SEC by Acquiror since September 30, 1997 and prior to the
Execution Date, and Acquiror will have made available to Target true and
complete copies of any additional documents filed with the SEC by Acquiror
after the Execution Date and prior to the Effective Time (collectively, the
"Acquiror SEC Documents"). As of their respective filing dates, the
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Acquiror SEC Documents complied in all material respects with the
requirements of the Exchange Act and the Securities Act (including the
requirement to timely file such Acquiror SEC Documents) and none of the
Acquiror SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which
they were made, not misleading, except to the extent corrected by a
subsequently filed Acquiror SEC Document.
(b) The financial statements of Acquiror, including the notes thereto,
included in the Acquiror SEC Documents (the "Acquiror Financial
Statements") were complete and correct in all material respects as of their
respective filing dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with United States generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements, included in
Quarterly Reports on Forms 10-Q). The Acquiror Financial Statements fairly
present the financial condition and operating results of Acquiror at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has
been no change in Acquiror accounting policies except as described in the
notes to the Acquiror Financial Statements.
3.6 Proxy Statement. None of the information (including financial data)
relating to Acquiror or its Affiliates supplied by Acquiror to Target to be
included in (a) the Proxy Statement at the time the Proxy Statement is mailed to
stockholders of Target in connection with the Target Stockholders Meeting, and
at all times subsequent to such dates up to and including the date of the Target
Stockholders Meeting and the date of the Effective Time, or (b) the S-4 at the
time it becomes effective or at the Effective Time of the Merger, will (except
to the extent revised or superseded by amendments or supplements contemplated
hereby) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Effective Time
any event or information should be discovered by Acquiror which should be set
forth in an amendment to the S-4 or a supplement to the Proxy Statement,
Acquiror shall promptly inform Target. The Proxy Statement as it relates to
Acquiror will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder in effect at the
time the Proxy Statement is mailed.
3.7 Absence of Undisclosed Liabilities. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Acquiror's Annual Report on Form 10-K for the period
ended December 31, 1997 (the "Acquiror Balance Sheet"), (ii) those incurred in
the ordinary course of business and not required to be set forth in the Acquiror
Balance Sheet under GAAP, and (iii) those incurred in the ordinary course of
business since the Acquiror Balance Sheet Date and consistent with past
practice.
3.8 Absence of Certain Changes. Since December 31, 1997 (the "Acquiror
Balance Sheet Date"), Acquiror has conducted its business in the ordinary course
in a manner consistent with past practice and there has not occurred: (i) any
change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to Acquiror; (ii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Acquiror, or any
direct or indirect redemption, purchase or other acquisition by Acquiror of any
of its shares of capital stock; (iii) any material amendment or change to
Acquiror's Certificate of Incorporation or Bylaws; or (iv) any negotiation or
agreement by Acquiror to do any of the things described in the preceding clauses
(i) through (iii) (other than negotiations with Target and its representatives
regarding the transactions contemplated by this Agreement).
3.9 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or Merger
Sub, threatened against Acquiror or Merger Sub or any of their respective
properties or any of their respective officers or directors (in their capacities
as such) that, individually or in the aggregate,
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could reasonably be expected to have a Material Adverse Effect on Acquiror.
There is no judgment, decree or order against Acquiror or Merger Sub or, to the
knowledge of Acquiror or Merger Sub, any of their respective directors or
officers (in their capacities as such) that could prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Material Adverse Effect on Acquiror.
3.10 Governmental Authorization. Each of Acquiror and its subsidiaries has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of Acquiror's or Merger Sub's business ("Acquiror
Authorizations"), and all of such Acquiror Authorizations are in full force and
effect, except where the failure to obtain or have any of such Acquiror
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Acquiror.
3.11 Compliance with Laws. Each of Acquiror and Merger Sub has complied
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its business, except for such violations or failures to comply as could not
reasonably be expected to have a Material Adverse Effect on Acquiror.
3.12 Brokers' and Finders' Fees. Acquiror has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.13 Tax Matters. Neither Acquiror nor Merger Sub nor, to the knowledge of
Acquiror, any of their respective affiliates or agents is aware of any
agreement, plan or other circumstance that would prevent the Merger from
constituting a reorganization under Section 368(a) of the Code.
SECTION FOUR
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement and
except for actions taken by any officer (acting or otherwise) or director of
Target who is at such time an officer or director of Acquiror or Merger Sub or
any employee or agent of Acquiror who at the direction of Acquiror provides
services to Target pursuant to that certain Amended and Restated Administrative
Services and Management Agreement dated as of December 23, 1996 by and between
Target and Acquiror (the "Services Agreement"), Target shall act only in the
ordinary course of business and shall not do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of Acquiror:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its Material Contracts;
(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares
of its Common Stock or Preferred Stock pursuant to the exercise of stock
options, warrants or other rights therefor outstanding as of the date of
this Agreement;
(c) Intellectual Property. Other than corporate partnering
transactions in the ordinary course of business, transfer to any person or
entity any rights to its Intellectual Property;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
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(e) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its business, taken as a whole;
(f) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) Leases. Enter into any operating lease in excess of $10,000;
(h) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $5,000 in any one case or $15,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Target Financial Statements;
(i) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except consistent with past practice;
(j) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of substantial
value;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit or stock purchase or option plan, or hire any new
director level or officer level employee (except that it may hire a
replacement for any current director level or officer level employee if it
first provides Acquiror advance notice regarding such hiring decision), pay
any special bonus or special remuneration to any employee or director, or
increase the salaries or wage rates of its employees except consistent with
past practice;
(m) Severance Arrangement. Grant any severance or termination pay (i)
to any director or officer or (ii) to any other employee except (A)
payments made pursuant to standard written agreements outstanding on the
date of this Agreement or (B) grants which are made in the ordinary course
of business in accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business, taken as a whole;
(p) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining
unit representing any group of employees of Target, and any applicable
government authority under the WARN Act, the National Labor Relations Act,
the Internal Revenue Code, COBRA, and other applicable law in connection
with the transactions provided for in this Agreement;
(r) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
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(s) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (r) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.2 No Solicitation. Target and its officers, directors, employees and
other agents of Target will not, directly or indirectly, (i) take any action to
solicit, initiate or encourage any Takeover Proposal (as defined below) or (ii)
engage in negotiations with, or disclose any nonpublic information relating to
Target to, or afford access to the properties, books or records of Target to,
any person that has advised Target that it may be considering making, or that
has made, a Takeover Proposal; provided, however, that if, at any time prior to
receipt of the requisite Target stockholder approval at the Target Stockholders
Meeting, the Board of Directors of Target determines, in its good faith judgment
based upon the exercise of fiduciary obligations to Target's stockholders, to
withdraw its recommendation of this Agreement or the Merger as the result of an
unsolicited Takeover Proposal, or to recommend such unsolicited Takeover
Proposal to Target's stockholders, then Target may in response to such
unsolicited Takeover Proposal (x) participate in negotiations regarding such
Takeover Proposal and (y) disclose information regarding Target, including
nonpublic information solely to the extent that such information has been
disclosed previously to Acquiror, to the potential New Acquiror (as defined in
Section 7.1(c)(iii)) pursuant to a customary and reasonable confidentiality
agreement; provided, further, however, that Target shall (A) provide Acquiror at
least 24 hours prior notice of any meeting of the Target Board of Directors at
which it is reasonably expected to contemplate a Takeover Proposal and (B) not
accept or recommend to the Target stockholders a Takeover Proposal for a period
of not less than 10 business days after Acquiror's receipt of a copy of such
Takeover Proposal (or a written description of the significant terms and
conditions thereof if not in writing); and provided further, that, unless this
Agreement has been terminated, Target shall remain obligated to hold and convene
the Target Stockholders Meeting (regardless of whether the recommendation of the
Merger by the Board of Directors of Target shall have been withdrawn, modified
or not yet made) and to provide the stockholders of Target with material
information relating to the Target Stockholders Meeting. Target will promptly
notify Acquiror after receipt of any Takeover Proposal or any notice that any
person is considering making a Takeover Proposal or any request for nonpublic
information relating to Target or for access to the properties, books or records
of Target by any person that has advised Target that it may be considering
making, or that has made, a Takeover Proposal and will keep Acquiror fully
informed of the status and details of any such Takeover Proposal notice or
request, including the identity of any potential New Acquiror. For purposes of
this Agreement, "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Target or the acquisition of any significant equity interest in Target, or the
acquisition or licensing of a significant portion of the assets of Target, other
than the transactions contemplated by this Agreement.
4.3 Delay of Payments. In the event a Fundamental Adverse Effect (as
defined in Section 6.3(b) below) occurs prior to the Effective Time, any
payments owed to Acquiror by Target, whether pursuant to this Agreement, the
Services Agreement or any other agreement between Acquiror and Target, shall be
postponed and shall be due on the date that is six (6) months after the original
payment due date.
SECTION FIVE
5. ADDITIONAL AGREEMENTS.
5.1 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
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5.2 Consents; Cooperation.
(a) Each of Acquiror and Target shall use its reasonable best efforts
to promptly (i) obtain from any Governmental Entity any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be
obtained by Acquiror or Target or any of their subsidiaries in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder, and (ii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under the Securities Act
and the Exchange Act and any other applicable federal, state or foreign
securities laws.
(b) Each of Acquiror and Target shall use all reasonable efforts to
resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement
under the HSR, the Sherman Act, as amended, the Clayton Act, as amended,
the Federal Trade Commission Act, as amended, and any other Federal, state
or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade (collectively, "Antitrust
Laws"). In connection therewith, if any administrative or judicial action
or proceeding is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any
Antitrust Law, each of Acquiror and Target shall cooperate and use all
reasonable efforts vigorously to contest and resist any such action or
proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent (each an "Order"), that is in effect and that prohibits,
prevents, or restricts consummation of the Merger or any such other
transactions, unless by mutual agreement Acquiror and Target decide that
litigation is not in their respective best interests. The parties hereto
will consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with
proceedings under or relating to any Antitrust Laws. Notwithstanding the
provisions of the immediately preceding sentence, it is expressly
understood and agreed that Acquiror shall have no obligation to litigate or
contest any administrative or judicial action or proceeding or any Order
beyond November 1, 1998. Each of Acquiror and Target shall use all
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR or other Antitrust Laws with
respect to such transactions as promptly as possible after the execution of
this Agreement.
(c) Notwithstanding anything to the contrary in Section 5.2(a) or (b),
(i) neither Acquiror nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or
agree to take any other action or agree to any limitation that could
reasonably be expected to have a Material Adverse Effect on Acquiror or of
Acquiror combined with the Surviving Corporation after the Effective Time
or (ii) Target shall not be required to divest any of its businesses,
product lines or assets, or to take or agree to take any other action or
agree to any limitation that could reasonably be expected to have a
Material Adverse Effect on Target.
(d) From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement, each party shall promptly notify
the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental
Entity or any other person (i) challenging or seeking material damages in
connection with this Agreement or the transactions contemplated hereunder
or (ii) seeking to restrain or prohibit the consummation of the Merger or
the transactions contemplated hereunder or otherwise limit the right of
Acquiror or its subsidiaries to own or operate all or any portion of the
businesses or assets of Target or its subsidiaries.
(e) Each of Acquiror and Target shall give or cause to be given any
required notices to third parties, and use its reasonable best efforts to
obtain all consents, waivers and approvals from third parties (i)
necessary, proper or advisable to consummate the transactions contemplated
hereunder, (ii) disclosed or required to be disclosed in the Target
Disclosure Schedule or the Acquiror Disclosure Schedule, or (iii) required
to prevent a Material Adverse Effect on Target or Acquiror from occurring
prior to or after the Effective Time. In the event that Acquiror or Target
shall fail to obtain any third party consent,
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waiver or approval described in this Section 5.2(e), it shall use its
reasonable best efforts, and shall take any such actions reasonably
requested by the other party, to minimize any adverse effect upon Acquiror
and Target, their respective subsidiaries and their respective businesses
resulting (or which could reasonably be expected to result after the
Effective Time) from the failure to obtain such consent, waiver or
approval.
(f) Each of Acquiror and Target will, and will cause their respective
subsidiaries to, take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on them with respect to
the consummation of the transactions contemplated by this Agreement and
will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other
party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain
(and will cooperate with the other parties hereto in obtaining) any
consent, approval, order or authorization of, or any registration,
declaration or filing with, any Governmental Entity or other person,
required to be obtained or made in connection with the taking of any action
contemplated by this Agreement.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and
other representatives, reasonable access during normal business hours
during the period prior to the Effective Time to (i) all of Target's
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Target as
Acquiror may reasonably request. Target agrees to provide to Acquiror
accountants, counsel and other representatives copies of internal financial
statements promptly upon request. Acquiror shall afford Target and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (i)
all of Acquiror's and its subsidiaries' properties, books, contracts,
commitments and records, and (ii) all other information concerning the
business, properties and personnel of Acquiror and its subsidiaries as
Target may reasonably request. Acquiror agrees to provide to Target and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the Execution Date
until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status
of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant
to this Section 5.3 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.4 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law.
5.5 State Statutes. If any state takeover law shall become applicable to
the transactions contemplated by this Agreement, Acquiror and its Board of
Directors or Target and its Board of Directors, as the case may be, shall use
their reasonable best efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such state takeover law on
the transactions contemplated by this Agreement.
5.6 Lock-Up Agreements. Target will use its best efforts to cause each
stockholder of Target who has not executed and delivered a Stockholders
Agreement to execute and deliver to Acquiror a Lock-Up Agreement substantially
in the form attached hereto as Exhibit B, which imposes certain restrictions
regarding
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the resale of Acquiror Common Stock received in the Merger, promptly after
approval of the Merger by the stockholders of Target.
5.7 Listing of Additional Shares. Prior to the Effective Time, Acquiror
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares of Acquiror Common Stock issuable
upon conversion of the Target Capital Stock in the Merger and upon exercise of
the Target Options assumed by Acquiror.
5.8 Affiliate Agreements. Schedule 5.8 sets forth those persons who may be
deemed "Affiliates" of Target within the meaning of Rule 145 promulgated under
the Securities Act ("Rule 145"). Target shall provide Acquiror such information
and documents as Acquiror shall reasonably request for purposes of reviewing
such list. Target shall use its best efforts to deliver or cause to be delivered
to Acquiror, prior to or concurrently with the execution of this Agreement (and
in each case prior to the Effective Time) from each of the Affiliates of Target,
an executed Affiliate Agreement substantially in the form attached hereto as
Exhibit C. Acquiror and Merger Sub shall be entitled to place appropriate
legends on the certificates evidencing any Acquiror Common Stock to be received
by such Affiliates of Target pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for Acquiror
Common Stock, consistent with the terms of such Affiliate Agreement.
5.9 Stockholder Approval.
(a) Proxy Statement. As soon as practicable after the execution of
this Agreement, Target and Acquiror shall prepare, and Acquiror shall file
with the SEC preliminary proxy materials relating to the meeting of
Target's stockholders to be held in connection with the approval of this
Agreement, the Agreement of Merger and the transactions contemplated hereby
and thereby (collectively with any amendments or supplements thereto, the
"Proxy Statement"). The Proxy Statement shall constitute a disclosure
document for the offer and issuance of the shares of Acquiror Common Stock
to be received by the holders of the capital stock of Target in the Merger.
As promptly as practicable, Target and Acquiror shall prepare and Acquiror
shall file the S-4 with the SEC, in which the Proxy Statement shall be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Acquiror Common Stock to be issued to the
holders of the capital stock of Target pursuant to the Merger. Acquiror and
Target shall use all reasonable efforts to have or cause the S-4 to become
effective as promptly as practicable, and shall take all or any action
required under any applicable federal or state securities laws in
connection with the issuance of Acquiror Common Stock pursuant to the
Merger. As promptly as practicable after the S-4 shall have become
effective, Target shall mail or cause to be mailed the Proxy Statement to
its stockholders.
(b) Acquiror and Target shall each use its best efforts to cause the
Proxy Statement to comply with applicable federal and state securities laws
requirements. Each of Acquiror and Target agrees to provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its
counsel, may be required or appropriate for inclusion in the Proxy
Statement, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other's counsel and auditors in
the preparation of the Proxy Statement. The information supplied by each of
Acquiror and Target for inclusion in the Proxy Statement and S-4 shall not,
at (i) the time the S-4 is declared effective, (ii) the time the Proxy
Statement is first mailed to the holders of capital stock of Target, (iii)
the time of the Target Stockholders Meeting, and (iv) the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading, except that no representation is
made by Target with respect to statements made in the Proxy Statement or
the S-4 regarding Target based on information supplied by an officer or
director of Acquiror or Merger Sub who is at such time an officer or
director of Target. Target will promptly advise Acquiror, and Acquiror will
promptly advise Target, in writing if at any time prior to the Effective
Time either Target or Acquiror shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Proxy
Statement in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law.
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(c) Subject to Section 5.10 below, the Proxy Statement shall contain
the recommendation of the Board of Directors of Target that the
stockholders of Target approve the Merger and this Agreement and the
conclusion of the Board of Directors that the terms and conditions of the
Merger are fair and reasonable to the stockholders of Target. Anything to
the contrary contained herein notwithstanding, Target shall not include in
the Proxy Statement any information with respect to Acquiror or its
affiliates or associates, the form and content of which information shall
not have been approved by Acquiror prior to such inclusion.
5.10 Special Meeting of Stockholders. As promptly as practicable after the
Execution Date and in compliance with SEC rules and regulations, Target shall
take all action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene a Target Stockholders Meeting for the
purposes of voting upon the adoption of this Agreement, the Agreement of Merger
and the transactions contemplated hereby and thereby. Target shall consult with
Acquiror regarding the date of the Target Stockholders Meeting and shall not
postpone or adjourn (other than for the absence of a quorum) the Target
Stockholders Meeting without the consent of Acquiror. Target shall use its best
efforts to solicit from the stockholders of Target proxies in favor of the
Merger and shall take all other action necessary or advisable to secure the vote
or consent of stockholders required under Delaware Law and its Certificate of
Incorporation and Bylaws to effect the Merger.
5.11 Stockholders Agreements; Irrevocable Proxies. Target shall use its
best efforts, on behalf of Acquiror and pursuant to the request of Acquiror, to
cause the Selected Target Stockholders to execute and deliver to Acquiror (i) a
Stockholders Agreement substantially in the form attached hereto as Exhibit D
and (ii) an Irrevocable Proxy substantially in the form attached as Exhibit A to
the Stockholders Agreement prior to or concurrently with the execution of this
Agreement and in any event prior to the time that the Proxy Statement is mailed
to the stockholders of Target.
5.12 Maintenance of Target Indemnification Obligations.
(a) Subject to and following the Effective Time, the Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation to,
indemnify and hold harmless the Indemnified Target Parties (as defined
below) to the extent provided (i) in any indemnification agreement
currently in effect between the Target and each person who is or was a
director or officer of Target at or prior to the Effective Time, or (ii) in
the Bylaws or Certificate of Incorporation of Target, in each case as in
effect as of the date of this Agreement; provided, however, notwithstanding
the foregoing or anything to the contrary in such indemnification
agreements, the indemnification obligations of Acquiror set forth in this
Section 5.12 with respect to a particular Indemnified Target Party shall
not apply to any losses, costs, damages, liabilities, fees (including
without limitation attorneys' fees) and expenses for which such Indemnified
Target Party is obligated to indemnify Acquiror and the Surviving
Corporation pursuant to Section 8.2 hereof. The Certificate of
Incorporation and Bylaws of Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation from liability
set forth in Target's Certificate of Incorporation and Bylaws on the date
of this Agreement, which provisions shall not be amended except as required
by applicable law or to make changes permitted by Delaware Law that would
enlarge the rights to indemnification available to the Indemnified Target
Parties and changes to provide for exculpation of director and officer
liability to the fullest extent permitted by Delaware Law. For purposes of
this Section 5.12, "Indemnified Target Parties" shall mean the individuals
who were officers, directors, employees and agents of Target on or prior to
the Effective Time.
(b) Subject to and following the Effective Time, Acquiror and the
Surviving Corporation shall be jointly and severally obligated to pay the
reasonable expenses, including reasonable attorney's fees, that may be
incurred by any Indemnified Target Party in enforcing the rights provided
in this Section 5.12 and shall make any advances of such expenses to the
Indemnified Target Party that would be available under the Bylaws or
Certificate of Incorporation of Target (in each case as in effect as of the
Execution Date) with regard to the advancement of indemnifiable expenses,
subject to the undertaking of such party to repay such advances in the
event that it is ultimately determined that such party is not entitled to
indemnification.
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(c) The provisions of this Section 5.12 shall be in addition to any
other rights available to the Indemnified Target Parties, shall survive the
Effective Time of the Merger, and are expressly intended for the benefit of
the Target, Acquiror, the Surviving Corporation and Indemnified Target
Parties and shall be binding on all successors and assigns of Acquiror and
the Surviving Corporation.
5.13 Filing of Form S-8. As soon as practicable following the Effective
Time, Acquiror shall file a registration statement on Form S-8 (the "S-8") (or
any successor or other appropriate form) with respect to the shares of Acquiror
Common Stock subject to Target Options assumed by Acquiror pursuant to Section
1.6(d) and shall use its reasonable efforts to maintain the effectiveness of
such registration statement (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as such Target Options remain
outstanding. The parties specifically contemplate that the S-8 may be either a
new Form S-8 or an amendment to an existing Form S-8, at Acquiror's sole
discretion.
5.14 Reorganization Treatment. Neither Target nor Acquiror shall take any
action (either before or after the Closing) that could reasonably be expected to
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368 of the Code. Target and Acquiror agree to file their federal and
applicable state income tax returns consistent with treatment of the Merger as a
reorganization.
SECTION SIX
6. CONDITIONS TO THE MERGER.
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction on or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been duly approved and adopted by the holders of each of (i) a majority of
the shares of Target Capital Stock outstanding on the record date set for
the Target Stockholders Meeting and (ii) a majority of the shares of Series
A Preferred and Series B Preferred outstanding on the record date set for
the Target Stockholders Meeting, voting together as a single class.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect
which makes the consummation of the Merger illegal.
(c) Filing of the S-4. The S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(d) Listing of Additional Shares. The shares of Acquiror Common Stock
issuable to the stockholders of Target shall have been approved for listing
on the Nasdaq National Market, subject to official notice of issuance.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. (i) Each of the
representations and warranties of Acquiror and Merger Sub in this Agreement
that is expressly qualified by a reference to materiality shall be true in
all respects as so qualified, and each of the representations and
warranties of Acquiror and Merger Sub in this Agreement that is not so
qualified shall be true and correct in all material respects, on and as of
the Effective Time as though such representation or warranty had been made
on and as of such time (except that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date), and (ii) Acquiror and Merger Sub shall have
performed
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and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by
them as of the Effective Time.
(b) Certificates of Acquiror.
(i) Compliance Certificate of Acquiror. Target shall have been
provided with a certificate executed on behalf of Acquiror by its
President or its Chief Financial Officer to the effect that (A) as of
the Effective Time, each of the conditions set forth in Section 6.2(a)
and (e) has been satisfied with respect to Acquiror, and (B) each of the
representations and warranties made by Acquiror in that certain
Management Certificate shall be true and correct in all material
respects on and as of the Effective Time as though such representation
or warranty had been made on and as of such time (except that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date).
(ii) Certificate of Secretary of Acquiror. Target shall have been
provided with a certificate executed by the Secretary or Assistant
Secretary of Acquiror certifying:
(A) Resolutions duly adopted by the Board of Directors of
Acquiror authorizing the execution of this Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated hereby; and
(B) the incumbency of the officers of Acquiror executing this
Agreement and all agreements and documents contemplated hereby.
(c) Certificates of Merger Sub.
(i) Compliance Certificate of Merger Sub. Target shall have been
provided with a certificate executed on behalf of Merger Sub by its
President or its Chief Financial Officer to the effect that, as of the
Effective Time, each of the conditions set forth in Section 6.2(a) and
(e) has been satisfied with respect to Merger Sub.
(ii) Certificate of Secretary of Merger Sub. Target shall have been
provided with a certificate executed by the Secretary or Assistant
Secretary of Merger Sub certifying:
(A) Resolutions duly adopted by the Board of Directors and the
sole stockholder of Merger Sub authorizing the execution of this
Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby; and
(B) the incumbency of the officers of Merger Sub executing this
Agreement and all agreements and documents contemplated hereby.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its
subsidiaries, taken as a whole.
(f) Good Standing. Target shall have received a certificate or
certificates of the Secretary of State of the State of Delaware and any
applicable franchise tax authority of such state, certifying as of a date
no more than 3 business days prior to the Effective Time that each of
Acquiror and Merger Sub has filed all required reports, paid all required
fees and taxes and is, as of such date, in good standing and authorized to
transact business as a domestic corporation.
6.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Performance by Target. Target shall have performed and complied in
all material respects with all covenants, obligations and conditions of
this Agreement required to be performed and complied with by it as of the
Effective Time; provided, however, that any failure to perform or comply
that results from the actions or failures to act of (i) any officer (acting
or otherwise) or director of Target who is at such
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time an officer or director of Acquiror or Merger Sub or (ii) any employee
or agent of Acquiror who at the direction of Acquiror provides services to
Target pursuant to the Services Agreement, shall not be taken into account
in determining whether Target has performed or complied with such
covenants, obligations and conditions.
(b) No Fundamental Adverse Effect. There shall not have occurred any
Fundamental Adverse Effect. "Fundamental Adverse Effect" means the
occurrence of any of the following events:
(A) the termination by the Trustees of Columbia University in the
City of New York ("Columbia") of that certain Amended and Restated
Research and License Agreement dated July 18, 1997 between Target and
Columbia;
(B) any legal proceeding or action involving a claim(s) against
Target in an amount equal to or in excess of ten percent (10%) of the
consideration for the Merger to be paid by Acquiror pursuant to Section
1.6 hereof which is brought or threatened in writing prior to the
Effective Time;
(C)(1) the receipt by Target or any licensor of Target of a written
claim of infringement from a third party that is not then a party to,
and who is not in negotiation with Target with respect to, a license
agreement or corporate partnering agreement with Target (an "Independent
Party"), which claim, if true, would prevent Target from practicing one
or more of the four technologies set forth in subsections (I) - (IV) of
this Section 6.3(b)(C); or (2) any adversarial proceeding brought by an
Independent Party against Target or any licensor, licensee or
sublicensee of Target for the purpose of invalidating in substantial
part Target's patent position with respect to one or more of such four
technologies set forth in subsections (I) - (IV) of this Section
6.3(b)(C): (I) the composition or substantially all use of Cloned Rat
Embryo Fibroblast Trans-6 cell line ("CREF"); (II) the composition or
substantially all use of Progression Elevated Gene-3 ("PEG-3"); (III)
substantially all of the genes discovered prior to the Effective Time
through the use of Differentiation Induction Subtraction Hybridization
("DISH") or substantially all use of DISH to discover additional genes;
and (IV) substantially all of the genes discovered prior to the
Effective Time through the use of Rapid expression Cloning System
("RexCS") or substantially all use of RexCS to discover additional
genes; or
(D) Either Target or Acquiror is prevented from operating or is
unable to operate its business, (other than a payment obligation), due
to any Act of God, fire, casualty, flood, earthquake, war, strike,
lockout, epidemic, destruction of production facilities, riot,
insurrection, or any other cause beyond the reasonable control of
Target.
Notwithstanding the foregoing, Fundamental Adverse Effect shall not
include any occurrence or event resulting from the actions or failure to
act of (i) any officer (acting or otherwise) or director of Target who is
at such time an officer or director of Acquiror or Merger Sub or (ii) any
current employee or agent of Acquiror who at the direction of Acquiror
provides services to Target pursuant to the Services Agreement; provided,
however, that such exclusion from the definition of Fundamental Adverse
Effect shall not include any occurrence or event resulting from any action
or failure to act of any such officer, director, employee or agent that is
in the normal course of operating Target's business under the normal
direction of Target's Board of Directors, consistent with reasonable past
practices.
(c) Certificates of Target.
(i) Compliance Certificate of Target. Acquiror and Merger Sub shall
have been provided with a certificate executed on behalf of Target by
its President to the effect that, as of the Effective Time, each of the
conditions set forth in Section 6.3(a) and (b) above has been satisfied.
(ii) Certificate of Secretary of Target. Acquiror and Merger Sub
shall have been provided with a certificate executed by the Secretary of
Target certifying:
(A) Resolutions duly adopted by the Board of Directors and the
stockholders of Target authorizing the execution of this Agreement
and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
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(B) The Certificate of Incorporation and Bylaws of Target, as in
effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) the incumbency of the officers of Target executing this
Agreement and all agreements and documents contemplated hereby.
(e) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it that Target has obtained those consents,
waivers, approvals or authorizations of those Governmental Entities and
third parties whose consent or approval are required in connection with the
Merger as set forth in Sections 5.2(a) and (f).
(f) Injunctions or Restraints on Merger and Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or
regulatory restraint provision limiting or restricting Acquiror's conduct
or operation of the business of Target and its subsidiaries, following the
Merger shall be in effect.
(g) Affiliate Agreements. Acquiror shall have received from the
Affiliates of Target set forth on Schedule 5.8 holding at least 99% of the
aggregate number of shares of Target Capital Stock held by such Affiliates,
an executed Affiliate Agreement in substantially the form attached hereto
as Exhibit C.
(h) Stockholders Agreements. Acquiror shall have received from the
Selected Target Stockholders duly executed and delivered Stockholders
Agreements, including Irrevocable Proxies, in substantially the form
attached hereto as Exhibit D.
(i) Lock-Up Agreements. Acquiror shall have received from the holders
of 95% of the Target Capital Stock outstanding immediately prior to the
Effective Time (excluding Target Options exercised after the Execution
Date) duly executed and delivered Lock-Up Agreements in substantially the
form attached hereto as Exhibit B; provided, however, that the shares of
Target Capital Stock held by the Selected Target Stockholders who have
executed and delivered a Stockholders Agreement containing provisions
substantially identical to the provisions in the Lock-Up Agreement shall be
included in calculating such percentage, and such Selected Target
Stockholder shall not be required to execute and deliver a Lock-Up
Agreement as well.
(j) Resignation of Directors and Officers. Acquiror shall have
received letters of resignation from each of the directors and officers of
Target in office immediately prior to the Effective Time, which
resignations in each case shall be effective as of the Effective Time.
SECTION SEVEN
7. TERMINATION, AMENDMENT AND WAIVER.
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Target, this Agreement may be terminated and the Merger may be
abandoned:
(a) by mutual consent, duly authorized by the Boards of Directors of
each of Acquiror, Merger Sub and Target;
(b) by either Acquiror or Target, if, without fault of the terminating
party,
(i) the Effective Time shall not have occurred on or before
November 1, 1998 or such later date as may be agreed upon in writing by
the parties.
(ii) there shall be any applicable federal or state law that makes
consummation of the Merger illegal or otherwise prohibited or if any
court of competent jurisdiction or Governmental Entity shall have issued
an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable; or
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(c) by Acquiror,
(i) upon the occurrence of a Fundamental Adverse Effect; provided,
however, that if such Fundamental Adverse Effect is curable by Target
through the exercise of its reasonable efforts, then (A) Acquiror may
not terminate this Agreement under this Section 7.1(c) with respect to
such Fundamental Adverse Effect during the 15 day period commencing upon
delivery by Acquiror of written notice to Target describing such
Fundamental Adverse Effect and (B) Acquiror may not terminate this
Agreement under this Section 7.1(c) if such Fundamental Adverse Effect
shall have been cured in all material respects during such 15 day
period; and provided further that Acquiror may not terminate this
Agreement pursuant to this Section 7.1(c) if it shall willfully and
materially breach this Agreement;
(ii) if the holders of 95% of the Target Capital Stock outstanding
as of the time of the vote (excluding any Target Options exercised after
the Execution Date) have not voted in favor of the Merger by the later
of (A) August 31, 1998 and (B) the date that is 45 days after the S-4 is
declared effective by the SEC; or
(iii) if the Target Stockholders Meeting shall not have been held
due to the existence of a Takeover Proposal from any third party (a "New
Acquiror"), by the later of (A) July 31, 1998 and (B) the date that is
45 days after the S-4 is declared effective by the SEC; or
(iv) whether or not a Takeover Proposal exists, if (A) the Board of
Directors of Target fails to authorize, and is not legally prevented
from authorizing, a distribution to the stockholders of Target, to occur
within 10 days after the date the S-4 is declared effective by the SEC,
of the Proxy Statement in which the Target Board recommends approval of
this Agreement and the Merger and calls the Target Stockholders Meeting,
or (B) the Target Stockholders Meeting to approve this Agreement and the
Merger is not held within 30 days after the date the Proxy Statement is
distributed to the stockholders of Target.
(d) by Target, if
(i) Acquiror shall materially breach any of its representations,
warranties or obligations hereunder and such breach shall not have been
cured within 15 calendar days following receipt by Acquiror of written
notice of such breach, provided that Target is not in material breach of
any of its representations, warranties or obligations hereunder; or
(ii) there exists a Takeover Proposal and the Board of Directors of
Target determines, in its good faith judgment based upon the exercise of
fiduciary obligations to Target's stockholders, to withdraw its
recommendation of this Agreement or the Merger, or to recommend such
Takeover Proposal to Target's stockholders; provided, however,
notwithstanding the foregoing, Target may not terminate this Agreement
pursuant to this Section 7.1(d)(ii) until the conditions set forth in
Section 7.3(b)(ii) have been satisfied.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror, Merger Sub or
Target or their respective officers, directors, stockholders or Affiliates,
except to the extent that such termination results from the breach by a party
hereto of any of its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of Section 7.3 (Expenses and
Termination Fees) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to subsection (b) of this Section 7.3, whether or not the
Merger is consummated, Acquiror shall reimburse: (i) the holders of Target
Common Stock, on a pro rata basis, for up to Five Thousand Dollars ($5,000)
in costs and expenses incurred directly in connection with this Agreement
and the transactions contemplated hereby, including, without limitation,
filing fees and the fees and expenses of advisors, accountants, legal
counsel and financial printers (the "Transaction Expenses"); (ii) the
holders of Target Series A Preferred, on a pro rata basis, for up to Five
Thousand Dollars
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($5,000) in Transaction Expenses; and (iii) the holders of Target Series B
Preferred, on a pro rata basis, for up to Seventy-Five Thousand Dollars
($75,000) in Transaction Expenses. Any Transaction Expenses in excess of
the limits set forth in this Section 7.3.(a) will be borne by the party or
parties incurring such costs and expenses.
(b)(i) In the event that this Agreement is terminated pursuant to
Section 7.1(c)(iii), Section 7.1(c)(iv) or Section 7.1(d)(ii), then within
10 days of such termination Target shall reimburse Acquiror for all
out-of-pocket costs and expenses incurred by Acquiror in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, filing fees and the fees and expenses of its advisors,
accountants, legal counsel and financial printers) ("Acquiror's Costs").
The obligation to pay the Acquiror's Costs shall survive any termination of
this Agreement.
(ii) In addition, in the event that Acquiror desires to terminate
this Agreement pursuant to Section 7.1(c)(iii) or Target desires to
terminate this Agreement pursuant to Section 7.1(d)(ii), within 10 days
after the other party has been notified of such intent to terminate, the
sum of Seven Million Dollars ($7,000,000) (the "Break-up Fee") shall be
placed in an escrow account on reasonable terms mutually acceptable to
Acquiror and Target; provided, however; that the sole condition to the
payment of such Break-up Fee to Acquiror shall be the closing of the
transaction that is the subject of the applicable Takeover Proposal. The
obligation to pay the Break-up Fee shall survive any termination of this
Agreement.
(c) Notwithstanding anything to the contrary in Section 7.3(b), in the
event there exists a Takeover Proposal from a New Acquiror, then Acquiror
shall have the right to match such Takeover Proposal within thirty (30)
days of notice thereof and, if Acquiror elects to so match such Takeover
Proposal, Target shall accept Acquiror's matching proposal and shall
decline the New Acquiror's Takeover Proposal.
7.4 Amendment. The boards of directors of the parties may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties; provided that an amendment made
subsequent to adoption of the Agreement by the stockholders of Target or Merger
Sub shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the
stockholders of Target or Merger Sub.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
SECTION EIGHT
8. INDEMNIFICATION.
8.1 Survival of Representations and Warranties. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger and continue until the first anniversary
of the Closing Date (the "Representation Termination Date"); provided that if
any claims for indemnification have been asserted with respect to any such
representations and warranties prior to the Representation Termination Date, the
representations and warranties on which any such claims are based shall continue
in effect until final resolution of any claims. All covenants to be performed
after the Effective Time shall continue until they expire by their terms.
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8.2 Indemnification by Target Stockholders.
(a) Indemnified Damages. Subject to the limitations set forth in this
Section 8, from and after the Effective Time and until the Representation
Termination Date, each Target Capital Stockholder who has executed this
Agreement, severally but not jointly, shall protect, defend, indemnify and
hold harmless Acquiror and the Surviving Corporation and their respective
affiliates, officers, directors, employees, representatives and agents
(Acquiror, Surviving Corporation and each of the foregoing persons or
entities is hereinafter referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against any and all
losses, costs, damages, liabilities, fees (including without limitation
attorneys' fees) and expenses (collectively, the "Damages"), that any of
the Indemnified Persons incurs or reasonably anticipates incurring by
reason of or in connection with any claim, demand, action or cause of
action (A) resulting from any breach by Target or such Target Capital
Stockholder of any representation, warranty, covenant or agreement of
Target or such Target Capital Stockholder contained in this Agreement
including any exhibits or schedules attached hereto, either as of the
Execution Date or as of the Closing Date, or in any certificate or other
document delivered to Acquiror pursuant to the provisions of this
Agreement; provided, however, that (i) the Target Capital Stockholders
shall not indemnify any of the Indemnified Persons for Damages resulting
from the actions or failure to act of (a) any officer (acting or otherwise)
or director of Target who is at such time an officer or director of
Acquiror or Merger Sub or (b) any current employee or agent of Acquiror who
at the direction of Acquiror or otherwise provides or has provided services
to Target pursuant to the Services Agreement and (ii) no Target Capital
Stockholder shall have any obligation to indemnify any of the Indemnified
Persons under this Section 8.2(a) unless such Target Capital Stockholder
had knowledge at the time of the Closing that the representation or
warranty was untrue in any material respect, or (B) arising out of or in
connection with any prospective liabilities associated with Target (which
liabilities, alone or in the aggregate, exceed $5,000) that become known to
Acquiror within one (1) year of the Closing and that arise from facts
actually known to such Target Capital Stockholder and not known to Acquiror
at or prior to the Closing (a "Known Prospective Liability"); provided,
however, that if any claims for indemnification have been asserted prior to
the Representation Termination Date, the indemnification obligations
specifically set forth in this Section 8.2 shall continue in effect until
final resolution of such claim(s). Anything in this agreement or elsewhere
to the contrary notwithstanding, with respect to the stockholders of
Target, the indemnification obligations set forth in this Section 8.2 shall
not be applicable to any stockholder of Target existing as of the Effective
Time who has not executed this Agreement (even if such stockholder may have
executed an Affiliate Agreement, Lock-Up Agreement or any other documents
relating to the transactions contemplated hereby, or may have received
benefits or consideration in connection with the Merger).
(b) Exclusive Contractual Remedy and Limitations. The maximum
liability of any Target Capital Stockholder shall be limited to ten percent
(10%) of the total aggregate amount of the Merger Consideration and any
Target Sale Payment, and in no event shall exceed the total aggregate
amount of Merger Consideration and any Target Sale Payment received by such
Target Capital Stockholder under this Section 8; provided, however, that
nothing herein shall limit the liability: (i) of any Target Capital
Stockholder in connection with any breach by such Target Capital
Stockholder of the Affiliate Agreement or the Stockholders Agreement, as
applicable, and (ii) of any officer, director or stockholder of Target for
such person's or entity's fraud or intentional misrepresentation.
(c) Notwithstanding anything to the contrary in this Section 8.2, the
holders of Target Series A Preferred shall not be obligated to indemnify
any Indemnified Person for any matters that arise out of or are related to
actions or failures to act occurring subsequent to the consummation of the
Series B Preferred Stock Financing of Target on December 23, 1996.
8.3 Representative of the Stockholders; Power of Attorney. In the event
that the Merger is approved by the requisite stockholders, effective upon such
vote, and without further act of any stockholder, a committee (the "Committee")
of Alan Frazier and Rose Ann Ignell shall be appointed as agents and
attorneys-in-fact (collectively, the "Stockholders' Representative") for each
stockholder of Target (except such stockholders, if any, as shall have perfected
their appraisal rights under Delaware Law), for and on behalf of stockholders of
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Target, to give and receive notices and communications on behalf of Target
Capital Stockholders, to object to such deliveries, to agree to, negotiate,
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of Stockholders'
Representative for the accomplishment of the foregoing. The Stockholders'
Representative shall act by vote or written action or consent of a majority of
the members of the Committee.
8.4 Indemnification by Acquiror. From the Effective Time and for a period
of one (1) year after the Closing Date (the "Indemnification Termination Date"),
Acquiror agrees to indemnify and hold harmless the members of the Board of
Directors of Target and the Target Capital Stockholders (the "Indemnified Target
Parties") from and against any Damages, up to a collective maximum aggregate
amount of Two Million Dollars ($2,000,000) in the case of Section 8.4(i) and
Four Million Dollars ($4,000,000) in the case of Section 8.4(ii), that are (i)
based upon, arising out of or otherwise in respect of all actions taken by
Acquiror subsequent to the Closing Date with respect to the business, operations
and assets formerly belonging to Target, or (ii) based upon or arising from
actions or inactions taken by Acquiror or the Indemnified Target Parties
relating to the Merger and any transactions contemplated by the Merger;
provided, however, the indemnification obligations of Acquiror in this Section
8.4(ii) shall apply only in the event the Merger is consummated. Acquiror shall
make any advances of reasonable expenses to the Indemnified Target Party that
would be available under the Bylaws or Certificate of Incorporation of Target
(in each case as in effect as of the Execution Date) with regard to the
advancement of indemnifiable expenses, subject to the undertaking of such party
to repay such advances in the event that it is ultimately determined that such
party is not entitled to indemnification. Notwithstanding anything to the
contrary in this Section 8.4, the indemnification obligations of Acquiror set
forth in this Section 8.4 shall not apply to any Damages (A) with respect to a
particular Indemnified Target Party for (1) any breach of a representation or
warranty by such Indemnified Target Party or (2) any Known Prospective Liability
known by such Indemnified Target Party, or (B) with respect to a particular
Indemnified Target Party for which indemnification of the Indemnified Persons by
such Indemnified Target Party is already provided pursuant to Section 8.2
hereof. The indemnification obligations of Acquiror set forth in this Section
8.4 (y) shall continue with respect to any claim(s) for indemnification made
prior to the Indemnification Termination Date until final resolution of such
claim(s), and (z) with respect to the stockholders of Target, shall be
applicable only to such stockholders of Target who have executed this Agreement.
SECTION NINE
9. GENERAL PROVISIONS.
9.1 Survival of Warranties. The representations, warranties, covenants and
agreements set forth in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Effective Time of the Merger and (except to
the extent that survival is necessary to effectuate the intent of such
provisions) shall terminate on the first anniversary of the Closing Date.
9.2 Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or 48 hours
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address or facsimile
number as set forth below, or as subsequently modified by written notice, for
the
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thirty (30) trading days immediately preceding and the thirty (30) trading days
including and immediately following the execution of this Agreement.
(a) if to Acquiror or Merger Sub, to:
Corixa Corporation
1124 Columbia Street
Suite 200
Seattle, WA 98104
Attention: Steven Gillis, Ph.D.
Telephone No.: (206) 754-5713
Facsimile No.: (206) 754-5762
with a copy to:
Venture Law Group, counsel to Acquiror and Merger Sub
4750 Carillon Point
Kirkland, WA 98033
Attention: William W. Ericson
Facsimile No.: (425) 739-8750
Telephone No.: (425) 739-8700
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<PAGE> 192
(b) if to Target, to:
Frazier & Company
Two Union Square
601 Union Street
Suite 2110
Seattle, WA 98101
Attention: Alan Frazier
Telephone No.: (206) 621-7200
Facsimile No.: (206) 621-1848
with copies to:
Wilson Sonsini Goodrich & Rosati, counsel to the
holders of Target Series B Preferred (except Forward
Ventures II, L.P.)
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Kenneth Clark
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
Brobeck, Phleger & Harrison LLP, counsel to Forward
Ventures II, L.P.
550 West C Street
Suite 1200
San Diego, CA 92101
Attention: John Denniston
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
Rosner Bresler Goodman & Unterman, LLP, counsel to
Max Link, Neil Goldstein, Andrew Goodman,
Jonathan Rosner, Seymour Bucholz, Marianne Murray
and The Millwood Company
521 5th Avenue, 28th Floor
New York, NY 10175
Attention: Andrew J. Goodman
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
9.3 Interpretation. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.5 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject
A-33
<PAGE> 193
matter hereof, except for the Confidentiality Agreement, which shall continue in
full force and effect, and shall survive any termination of this Agreement or
the Closing, in accordance with its terms; (b) are not intended to confer upon
any other person any rights or remedies hereunder, except as set forth in
Section 1.6, and (c) shall not be assigned by operation of law or otherwise
except as otherwise specifically provided.
9.6 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such unenforceable
provision shall be enforced to the fullest extent possible under applicable law,
(ii) the balance of the Agreement shall be interpreted as if such provision were
so excluded and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law. Each of the
parties to this Agreement consents to the exclusive jurisdiction and venue of
the courts of the state and federal courts of King County, Washington.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 Amendments and Waivers. Any term of this Agreement may be amended or
waived only with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with this
Section 9.10 shall be binding upon the parties and their respective successors
and assigns.
9.11 Waiver of Conflicts. Each party to this Agreement acknowledges that
Venture Law Group, counsel for the Acquiror and Merger Sub, has in the past
performed legal services for the Target. Accordingly, each party to this
Agreement hereby (a) acknowledges that they have had an opportunity to ask for
information relevant to this disclosure; and (b) gives its informed consent to
Venture Law Group's representation of the Acquiror in connection with this
Agreement and the transactions contemplated hereby. Each party to this Agreement
further acknowledges that it has had the opportunity to confer with legal
counsel of its choice in connection with the transactions contemplated hereby.
[Signature Page Follows]
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<PAGE> 194
Target, Acquiror, Merger Sub and the Target Capital Stockholders have
executed this Agreement as of the date first written above.
TARGET:
GENQUEST, INC.
By:
--------------------------------------
Name:
--------------------------------------
(Print)
Title:
--------------------------------------
Address:
--------------------------------------
ACQUIROR:
CORIXA CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
(Print)
Title:
--------------------------------------
Address:
--------------------------------------
MERGER SUB:
CHINOOK ACQUISITION CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
(Print)
Title:
--------------------------------------
Address:
--------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
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<PAGE> 195
TARGET CAPITAL STOCKHOLDERS:
FRAZIER HEALTHCARE II, L.P.
By:
------------------------------------
Alan D. Frazier
General Partner
Address: 601 Union Street
Two Union Square, Suite 2110
Seattle, WA 98101
MAYFIELD VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY,
Its General Partner
By:
------------------------------------
Managing Partner
MAYFIELD ASSOCIATES FUND III,
A CALIFORNIA LIMITED
PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY,
Its General Partner
By:
------------------------------------
Managing Partner
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
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<PAGE> 196
DP III ASSOCIATES, L.P.
By: One Palmer Square Associates III,
L.P.
By:
--------------------------------------
General Partner
Address: One Palmer Square
Suite 515
Princeton, NJ 08542
BIOTECHNOLOGY INVESTMENTS LIMITED
By: Old Court Limited
By:
--------------------------------------
Attorney-in-Fact
Registered Address: St. Peter Port
House, Saumarez
Street
St. Peter Port, Guernsey
GY1 3PH
Address: c/o Domain Associates
One Palmer Square
Suite 515
Princeton, NJ 08542
DOMAIN PARTNERS III, L.P.
By: One Palmer Square Associates III,
L.P.
By:
--------------------------------------
General Partner
Address: One Palmer Square
Suite 515
Princeton, NJ 08542
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
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<PAGE> 197
FORWARD VENTURES II, L.P.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address: 10975 Torreyana Road, Suite
230
San Diego, CA 92121
A-38
<PAGE> 198
APPENDIX B:
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsection (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in 1 subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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<PAGE> 199
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Sections
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
B-2
<PAGE> 200
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the heating, in a newspaper of genera/circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder who's name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f') of this section and who has submitted
his certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall also be made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The cost of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a
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<PAGE> 201
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
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
Registrant 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 Registrant's Bylaws or any statute or law. Under the
agreements, the Registrant is not obligated to indemnify the indemnified party
(i) for any expenses incurred by 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 Registrant consents to such settlement; (iii) with
respect to any proceeding brought by the Registrant 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 Registrant 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 Registrant or its stockholders; (vii)
on account of conduct that constituted a breach of the indemnified party's duty
of loyalty to the Registrant 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.
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<PAGE> 203
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<C> <S>
2.01 Agreement and Plan of Merger dated June 22, 1998 by and
among the Registrant, Chinook Acquisition Corporation and
GenQuest, Inc. (incorporated by reference to Appendix A of
the Proxy Statement/Prospectus included in this Registration
Statement). Registrant agrees to furnish supplementally to
the Commission upon request a copy of any omitted schedule.
2.02***** Form of Certificate of Merger between Chinook Acquisition
Corporation and GenQuest, Inc.
3.01** Certificate of Incorporation of the Registrant.
3.02** Bylaws of the Registrant.
10.01** Registrant's 1994 Amended and Restated Stock Option Plan and
Restricted Stock Plan and forms of stock purchase and stock
option agreement.
10.02** 1997 Directors' Stock Option Plan and form of stock option
agreement.
10.03** 1997 Employee Stock Purchase Plan and form of subscription
agreement.
10.04** Corixa Corporation 401(k) Savings & Retirement Plan.
10.05** Form of Indemnification Agreement.
10.06** Amended and Restated Investors' Rights Agreement dated as of
May 10, 1996 between Registrant and certain holders of its
capital stock.
10.07** Lease Agreement dated October 28, 1994 and amended December
29, 1995 between Registrant and Fred Hutchinson Cancer
Research Center.
10.08** Lease Agreement dated May 31, 1996 between Registrant and
Health Science Properties, Inc.
10.09+** 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.
</TABLE>
II-2
<PAGE> 204
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<C> <S>
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.
10.31*** Loan Agreement dated December 29, 1997 between Registrant
and the Sumitomo Bank, Limited.
10.32++*** Letter Agreement dated December 31, 1997 between Registrant
and Pasteur Merieux Connaught.
10.33++*** Letter Agreement dated December 23, 1997 between Registrant
and SmithKline Beecham, Biologicals S.A.
10.34+++**** Amendment No. 1 to the Breast Cancer Collaboration and
License Agreement dated March 1, 1997 by and between Corixa
Corporation and SmithKline Beecham Biologicals S.A.
10.35+++**** Amendment No. 1 to the Prostate Cancer Collaboration and
License Agreement dated March 1, 1997 by and between Corixa
Corporation and SmithKline Beecham Biologicals S.A.
10.36+++**** Amendment No. 1 to the Option Agreement dated March 1, 1997
by and between Corixa Corporation and SmithKline Beecham
Biologicals S.A.
21.01***** List of Subsidiaries of the Registrant.
23.01* Consent of Ernst & Young LLP, Independent Auditors, with
respect to financial statements of Registrant.
23.02* Consent of Ernst & Young LLP, Independent Auditors, with
respect to financial statements of GenQuest, Inc.
</TABLE>
II-3
<PAGE> 205
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<C> <S>
24.01***** Power of Attorney.
99.01***** Form of Irrevocable Proxy dated as of June 22, 1998, entered
into among Registrant and certain affiliates of GenQuest,
Inc.
99.02***** Form of Proxy Card for Special Meeting of GenQuest, Inc.
Stockholders.
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Filed herewith.
** Incorporated by reference to the Registrant's Registration
Statement on Form S-1 and Amendments thereto (File No.
333-32147), declared effective by the Commission on October
2, 1997).
*** Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No.
0-22891).
**** Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1998 (File No. 0-22891).
***** Previously filed.
(+) Confidential treatment granted by order effective October 2,
1997.
(++) Confidential treatment granted by order effective March 10,
1998.
(+++) Confidential treatment granted by order effective May 15,
1998.
</TABLE>
(b) Financial Statement Schedules
None.
(c) Report, Opinion or Appraisal
None.
ITEM 22. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
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.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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, 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
II-4
<PAGE> 206
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
D. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington, on August 5, 1998.
CORIXA CORPORATION
By: /s/ STEVEN GILLIS
------------------------------------
Steven Gillis, Ph.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN GILLIS President, Chief Executive August 5, 1998
- ----------------------------------------------------- Officer and Director (Principal
Steven Gillis Executive Officer)
* Vice President, Chief Financial August 5, 1998
- ----------------------------------------------------- Officer (Principal Financial
Michelle Burris Officer)
* Executive Vice President, Chief August 5 1998
- ----------------------------------------------------- Operating Officer and Director
Mark McDade
* Director August 5, 1998
- -----------------------------------------------------
Joseph S. Lacob
* Director August 5, 1998
- -----------------------------------------------------
Arnold L. Oronsky
/s/ ANDREW E. SENYEI Director August 5, 1998
- -----------------------------------------------------
Andrew E. Senyei
*By: /s/ STEVEN GILLIS
---------------------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement on Form S-4 and Prospectus of
Corixa Corporation for the registration of additional shares of its Common
Stock and to the use of our report dated January 28, 1998, with respect to the
financial statements of Corixa Corporation.
/s/ ERNST & YOUNG LLP
Seattle, Washington
August 5, 1998
<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
the use of our report dated January 28, 1998 (except for Note 9, as to which
the date is February 28, 1998), included in the Proxy Statement of GenQuest,
Inc. that is made a part of Amendment No. 1 to the Registration Statement on
Form S-4 and Prospectus of Corixa Corporation for the registration of
additional shares of its Common Stock.
/s/ ERNST & YOUNG LLP
Seattle, Washington
August 5, 1998
