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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 000-22891
CORIXA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 91-1654387
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
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1124 COLUMBIA ST., SUITE 200
SEATTLE, WA 98104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 667-5711
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $46 million as of March 2, 1998, based upon the
closing sale price on the Nasdaq National Market reported for such date. Shares
of Common Stock held by each officer and director and by each person who owns 5%
of more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
There were 11,774,214 shares of the registrant's Common Stock issued and
outstanding as of March 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
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PART II
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Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 23
Item 6. Selected Financial Data..................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 26
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 38
Item 8. Financial Statements and Supplementary Data................. 38
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 58
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PART III
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Item 10. Directors and Executive Officers of the Registrant.......... 58
Item 11. Executive Compensation...................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 58
Item 13. Certain Relationships and Related Transactions.............. 58
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 59
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INTRODUCTORY STATEMENT
Except for the historical information contained in this Annual Report on
Form 10-K, the matters discussed herein, including management's discussion and
analysis of financial condition and results of operations in Item 7 of Part II
hereof, are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
regarding regulatory approvals, operating results and capital requirements, that
are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include, but are not limited to,
uncertainties related to the early stage of the Company's research and
development programs; uncertainties related to the effectiveness of the
Company's technology and the development of its products; dependence on and
management of existing and future corporate partnerships; dependence on
in-licensed technology; dependence on proprietary technology and uncertainty of
patent protection; management of growth; history of operating losses; future
capital needs and uncertainty of additional funding; dependence on key
personnel; intense competition; the Company's lack of manufacturing and
marketing experience and reliance on third parties to perform such functions;
existing government regulations and changes in, or the failure to comply with,
government regulations, and other risks detailed below, including those in Item
7 of Part II "Factors Affecting Future Results," and those included from time to
time in the Company's other reports with the Securities Exchange Commission and
press releases, copies of which are available from the Company upon request. The
Company assumes no obligation to update any forward-looking statements contained
herein.
References made in this Annual Report on Form 10-K to "Corixa Corporation"
the "Company" or the "Registrant" refer to Corixa Corporation. Corixa has
applied for trademark registration for Corixa(TM) the stylized Corixa logo.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Corixa focuses on the discovery and early clinical development of a novel
class of therapeutic and prophylactic vaccines. Although commercially available
vaccines can prevent infection by a variety of pathogens such as bacteria,
viruses and parasites through antibody-based immune responses, these responses
are not sufficient to eliminate cancers or certain infectious diseases,
including tuberculosis and Acquired Immune Deficiency Syndrome ("AIDS"). To
induce an effective immune response against these diseases, pathogen- or
tumor-reactive T lymphocytes ("T cells") must be stimulated. In particular,
cytotoxic T lymphocytes ("CTL") -- 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 cancer and certain infectious diseases. The markets
for such vaccine products are extensive, particularly in oncology, given that
current treatments such as chemotherapy and radiation therapy may not lead to
lasting cure or prevention. Immunologists and molecular biologists recently have
identified certain previously unknown molecular signals that are responsible for
T cell recognition of pathogen and/or tumor-associated proteins referred to as
antigens. Corixa's vaccine products are designed to exploit these recent
developments by using each of the three components of its core technology
platform -- proprietary microsphere delivery systems, adjuvants and
antigens -- to force the immune system to recognize antigens in such a manner
that potent T cell, particularly CTL, responses are induced. The Company's
vaccines consist of proprietary antigens which may be encapsulated in
biodegradable and biocompatible microspheres and combined with a proprietary
adjuvant, which is a molecule or substance capable of non-specifically enhancing
or boosting an immune response.
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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 ("B cells") that recognize and attach to antigens and trigger the
non-specific elimination of the pathogen. Antigens are components of the
invading pathogen that are recognized by cells of the immune system. Current
vaccines are made up of whole organisms that contain antigens or antigens
themselves, which can be peptides, proteins or carbohydrates. 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 which are then presented on the
surface of an APC via major histocompatibility ("MHC") Class II proteins.
Antigen presentation via MHC Class II proteins results in activation of
CD4-positive helper T cells. These cells produce immune system hormones called
cytokines that serve to "help" with the generation of various components of both
cellular and antibody-based immune responses. Depending on the specific
cytokines that helper T cells produce, the helper T cell response is classified
as either Th1 or Th2. Th1 responses help generate and activate CTL and lead to
antibody production by B cells and possible pathogen elimination.
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. The Company believes that
CTL are necessary to eliminate tumors and various pathogens that antibodies
alone cannot destroy.
Corixa has shown in preclinical studies that CTL are capable of eliminating
either tumors or certain pathogens in settings where antibody responses fail.
Such CTL are not only capable of preventing disease when they are activated
prior to pathogen infection but are also able to eliminate disease or a tumor
once the infection has taken place or, in the case of cancer, once a tumor has
developed.
The Company believes vaccines that can activate specific T cell responses
form the basis for a new class of products that may be used either in the
treatment or prevention of disease. Until recently, scientists lacked sufficient
understanding to design vaccine formulations capable of promoting T cell immune
reactivity against tumors or certain pathogens. The Company has incorporated
recent advances in the understanding of the molecular mechanism controlling how
antigens are normally presented to T cells and has designed vaccine formulations
which incorporate disease-specific antigens into biodegradable and biocompatible
microspheres that give rise to potent CTL responses. The Company's antigen
discovery program has resulted in isolation of antigens from a variety of tumor
types and from infectious disease pathogens for which no vaccines currently
exist. Furthermore, the Company has discovered a novel adjuvant that has been
shown in preclinical studies to significantly enhance the efficacy of
microsphere formulated vaccines through the stimulation and activation of Th1
helper T cells and CTL. Corixa believes that its three proprietary core
technologies -- microsphere-mediated antigen delivery, novel adjuvants and
proprietary antigen discovery -- form the basis for the successful development
of such products.
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
cancer and certain infectious diseases. The Company's strategy is to dedicate
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its resources to vaccine discovery and to establish corporate partnerships as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research-and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines.
Principal elements of the Company's strategy are as follows:
Integrate the Company's Core Technologies. The Company believes that the
integration of its three proprietary core technologies may be essential to
providing effective vaccines for cancer 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 as early in the vaccine development process as
possible. For those products that show promise in the preclinical or clinical
stage, the Company will seek a corporate partner no later than prior to the
initiation of Phase II clinical trials. The Company believes that this active
corporate partnering strategy provides three distinct advantages: (i) it permits
Corixa to focus on its fundamental strengths in vaccine discovery and research;
(ii) it capitalizes on the corporate partner's strengths in product development,
manufacturing and commercialization; and (iii) it significantly reduces Corixa's
financing requirements. When entering into such corporate partnering
relationships, the Company seeks to cover its research and development expenses
through research funding, milestone payments and option, technology or license
fees, while retaining significant downstream participation in product sales
through either profit-sharing or product royalties paid on annual net sales.
Partner Discrete Core Technologies and Non-Vaccine Products. Because the
Company believes that certain other companies' vaccine products may be enhanced
by components available from Corixa, the Company seeks to establish corporate
partnerships with major commercial entities for each of its proprietary core
technologies. For example, the Company may partner its proprietary antigens with
companies that have developed their own delivery and adjuvant technologies.
Similarly, Corixa believes that it can partner the Company'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 development of useful non-vaccine
products, particularly diagnostics, and the Company intends to establish
non-exclusive collaborations with a variety of diagnostic companies to generate
near-term royalty or other revenues.
CORIXA'S CORE TECHNOLOGY PLATFORMS
Corixa seeks to discover and develop products that consist in whole or in
part of its three proprietary core technologies: (i) microsphere antigen
delivery systems that specifically activate helper T cells and CTL; (ii)
adjuvants that specifically enhance helper T cell and CTL responses; and (iii)
disease specific antigens that are essential to elicit appropriate T cell
responses.
MICROSPHERE ANTIGEN DELIVERY SYSTEMS
Corixa has demonstrated in preclinical studies that potent antibody and CTL
responses can be generated against antigens using the Company's proprietary
microsphere antigen delivery system. The Company has determined that CTL
generated as a result of microsphere-mediated antigen presentation are capable
of 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
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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 which
circumvent the antigen presentation pathways, including the use of various gene
therapies as well as liposome or recombinant-protein lipid formulations.
Microspheres of the particular size range used by the Company are taken up only
by APCs. This is not true for formulations containing genes or lipids, where
significant amounts of the delivered product are taken up by non-APCs or lost in
the blood stream or elsewhere in the body. Microsphere delivery of antigens may
also avoid certain safety issues associated with gene therapy. Corixa uses
microspheres that are produced from synthetic co-polymers approved by the U.S.
Food and Drug Administration ("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.
The Company has an exclusive worldwide license to a number of patents and
pending patent applications from the Southern Research Institute ("SRI")
covering the composition, use and production of microspheres for augmenting
immune responses. In addition, the Company has an exclusive worldwide license to
antigen delivery technology from the Dana-Farber Cancer Institute
("Dana-Farber") comprising patent applications claiming the composition and use
of microspheres of a particular size range for the purpose of activating CTL.
The Company is also internally developing certain microsphere technology. See
"Certain License Agreements" and "Patents and Proprietary Technology."
ADJUVANTS
Adjuvants are formulations and/or additives that are routinely combined
with vaccines to boost immune responses directed against the antigens in such
vaccines. Because current vaccines depend upon the generation of antibody
responses to injected antigens, commercially available adjuvants have been
developed largely to enhance such antibody responses. To date, there are no
adjuvants that have been approved for use in humans 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 the Company, LeIF has been found to have
potent immune system stimulatory effects, both for cells from individuals who
have been exposed to the parasite and from individuals who have not been so
exposed.
Preclinical studies conducted by Corixa indicate that LeIF is a unique
protein stimulator of the Th1 response. Additional research conducted by the
Company has confirmed that the cell within the immune system that responds to
LeIF is an APC. APCs stimulated with LeIF produce large quantities of a certain
cytokine and a certain cell surface protein, both of which are molecular signals
required for the generation of potent CTL responses. Corixa has conducted
further research to determine whether LeIF functions as an adjuvant for T cell
vaccines. In 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.
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Corixa believes that the use of LeIF as an adjuvant will greatly enhance
the efficacy of its T cell vaccines. The Company also believes that LeIF,
together with microsphere-encapsulation technology, may be useful in developing
therapeutic products from current prophylactic vaccines due to the ability of
the Company's technologies to promote potent Th1 and CTL responses. Corixa has
granted licenses to or options to license its LeIF technology to several
corporate partners, including SmithKline Beecham Biologicals S.A. ("SmithKline
Beecham"), Pasteur Merieux Connaught, a subsidiary of Rhone-Poulanc 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 the Company in both tumor and infectious disease vaccine
development include: (i) tumor tissue procurement and in 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. The Company'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 the Company. As of December 31, 1997, the
Company had filed numerous patent applications seeking both composition of
matter and/or vaccine and diagnostic method of use claims to: (i) approximately
240 gene sequences based on the pattern of their expression in breast cancer
cells and normal breast tissue; (ii) approximately 95 based on the pattern of
their expression in prostate cancer cells or normal prostate tissue; and (iii)
approximately 95 gene sequences expressed by Mycobacterium tuberculosis.
There can be no assurance that patents will issue from any of the pending
applications, or that if issued, such patents will not be challenged,
invalidated or circumvented by third parties, or that the rights granted under
any issued patents will provide adequate proprietary protection or competitive
advantages to the Company. The Company's three core technologies are at an early
stage of development. There can be no assurance that any of such technologies
will prove to be safe and effective, and products that may result from the
Company's research and development programs are not expected to be commercially
available for a number of years, if at all. See "Patents and Proprietary
Technology," Item 7 of Part II "Factors Affecting Future
Results -- Uncertainties Related to Early Stage of Development" and Item 7 of
Part II "Factors Affecting Future Results -- Uncertainties Related to Technology
and Product Development."
CORIXA'S PRODUCTS IN DEVELOPMENT
Corixa has a number of products in various stages of development, many of
which are the subject of collaborations with corporate partners. The following
table sets forth the type of product currently in development, the
application(s) for the particular product, its present stage of development and
the identity of the Company's corporate partner, if any, for such product
application.
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CORIXA'S PRODUCTS IN DEVELOPMENT
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PRODUCT APPLICATION DEVELOPMENT PHASE(1) PARTNER
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VACCINES Breast/Prostate Cancer Research SmithKline Beecham
Antigen Discovery Biologicals S.A.
Two Undisclosed Cancer Research SmithKline Beecham
Targets, Antigen Discovery Biologicals S.A.
Her-2/neu Peptide Vaccine Phase I Clinical Trials Not Currently Partnered
for Breast and Ovarian
Cancer
Lung Cancer, Leukemia, and Research Not Currently Partnered
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 Connaught
Certain Infectious Disease
Vaccines
LeIF as an Adjuvant in Preclinical Studies SmithKline Beecham
Breast and Prostate Cancer Biologicals S.A.
DIAGNOSTICS Trypanosoma cruzi Development DiaMed S.A.
Trypanosoma cruzi -- Development Development Trinity Biotech UK Limited
Diagnostic (formerly Centocor, U.K.)
Tuberculosis Development Abbott Laboratories
Tuberculosis Early Stage ICT Diagnostics
Commercialization
Leishmaniasis Early Stage Various diagnostic
Commercialization Companies
Tick-Borne Diseases Preclinical Studies Not Currently Partnered
OTHER PRODUCTS Adoptive Immunotherapy -- Preclinical Studies CellPro, Incorporated
Cancer
Certain Technologies for Development and Early Heska Corporation
Companion Animal Health Stage Commercialization
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(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.
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
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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.
The Company has identified over 400 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
335 tumor gene sequences. The Company 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,
the Company is currently developing a "cocktail" approach to vaccine
formulation, combining multiple peptides in a single vaccine. The Company
believes that a "cocktail" of peptides may be useful as a therapeutic vaccine
for breast and ovarian cancer patients whose tumors over-express Her-2/neu.
In July 1996, pursuant to certain contractual obligations, Corixa, together
with the University of Washington, filed an investigational new drug application
to begin a clinical trial of three different Her-2/neu peptide vaccines in
breast and ovarian carcinoma patients. This Phase I clinical trial began
accruing patients in September 1996. Safety is the primary endpoint of this
clinical trial, which currently consists of over 30 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. The Company is also conducting preclinical
studies with microsphere-encapsulated formulations of Her-2/neu peptides and
LeIF as an adjuvant as a prelude to adding these components of its proprietary
core technology to either the current clinical trial or, if required by the FDA,
a separate Phase I clinical trial. The Company 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. See "Certain License Agreements."
Lung Cancer, Leukemia and Other Vaccines. Building on the Company's initial
progress in cancer antigen discovery aimed at the development of breast and
prostate tumor vaccines, Corixa has initiated additional discovery programs in
several other tumor types, including lung cancer and 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 "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 Item 7 of
Part II "-- Factors Affecting Future Results -- 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
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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 75 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 the
Company covering compositions of matter and vaccine and diagnostic methods of
use. The in vitro tests have led to the selection of several candidate vaccine
antigens. Some of these antigens have been skin-tested in both infected-healthy
and infected-diseased individuals in South America to determine which antigens
are recognized by both patient populations. Results from such tests, together
with continued analysis of patient T cell responses, has led to the commencement
by Corixa of preclinical studies for both therapeutic and prophylactic vaccine
use. In October 1995, the Company entered into a corporate partnership with
SmithKline Beecham for the development of Tb vaccines. Based on the Company's
progress, the research phase of this corporate partnership was recently extended
for an additional one year period ending May 30, 1998. See "Corporate
Partnerships -- Tuberculosis Vaccines."
ADJUVANTS
Corixa has discovered a gene from the parasite Leishmania that codes for
the protein LeIF, which is capable of stimulating Th1 helper and CTL responses.
The Company has demonstrated in preclinical studies that when combined with
certain target antigens, LeIF induces a stronger antibody response directed
against the target antigen than was induced by such antigen alone.
Co-administration of LeIF with various T cell vaccines in preclinical studies
for both infectious disease and tumors results in enhanced generation of anti-
vaccine reactive CTL.
Corixa currently produces LeIF as a recombinant protein in bacteria. The
Company anticipates that it will use LeIF in its proprietary vaccine
formulations and will also out-license LeIF for incorporation as an adjuvant in
vaccines outside of the Company's cancer and infectious disease targets. In
December 1996, the Company entered into a corporate partnership with PMC. This
corporate partnership provides PMC with the option to license LeIF for use with
vaccines in five different infectious disease indications. See "Corporate
Partnerships -- Adjuvants."
DIAGNOSTIC PRODUCTS
The Company believes that many of the antigens it has discovered in the
fields of cancer and infectious disease also have applications in 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 that is most commonly transmitted by blood transfusion. T.
cruzi is responsible for the development of Chagas' disease, which can develop
into fatal infectious heart disease. Current diagnostic procedures to determine
blood exposure to T. cruzi infection are based on the detection of patient
antibodies that react with crude extracts of this parasite. These tests often
produce false results due to their inability to distinguish antibodies against
T. cruzi from antibodies against other infectious agents. The Company has
discovered and evaluated in vitro a number of peptides encoded by genes of the
T. cruzi parasite for their ability to serve as highly specific and sensitive
reagents for detection of T. cruzi. Corixa has licensed its T. cruzi antigen
technology for the development of both blood screen and point-of-care diagnostic
tests to several diagnostic companies, including DiaMed S.A. ("DiaMed") and
Trinity Biotech U.K. Limited ("Trinity Biotech" formerly Centocor, U.K.). See
"Corporate Partnerships -- Diagnostic Products."
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Tuberculosis. Corixa believes that many antigens currently under
investigation by the Company could be useful in the development of novel
diagnostics to determine whether patients have been infected with Mtb. Current
diagnostic assays to determine Mtb infection are expensive and labor intensive.
The majority of patients exposed to Mtb receive chest x-rays, and attempts are
made to culture the bacterium in vitro from sputum samples. Mtb grows poorly and
slowly outside the body, which can produce false negative test results. In
addition, standard skin tests are not ideal in detecting infection and cannot be
used in areas of the world where patients receive childhood vaccination with
bacterial strains related to Mtb. The Company is developing a combination of
proprietary antigens that may be used in detecting the presence and degree of
Mtb infection. The Company has granted Abbott Laboratories ("Abbott") and ICT
Diagnostics 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. The Company is currently negotiating with
other diagnostic companies who have expressed interest in using the Company'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 the Company. See "Corporate Partnerships -- Diagnostic Products."
Tick-Borne Diseases. There are multiple diseases, such as Lyme disease,
caused by pathogens harbored by several tick species in North America. Recent
scientific investigation has identified two tick-borne pathogens, Ehrlichia and
Babesia microti, which can lead to Lyme disease-like infections and which can
also cause death. No diagnostic tests currently exist for these pathogens.
Corixa has identified multiple genes from these pathogens that the Company
believes may form the basis of novel diagnostic products and has begun
discussions with diagnostic companies that have expressed interest in this
field.
OTHER PRODUCTS IN DEVELOPMENT
Adoptive Immunotherapy Products. Because T cells, 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 the Company has identified multiple tumor
antigens that can be used to stimulate in vitro growth of tumor-reactive CTL. In
addition, the Company's microsphere and adjuvant technologies have been
demonstrated to enhance the in vitro generation and growth of tumor antigen
reactive CTL. In November 1995, Corixa entered into a license and collaborative
research agreement with CellPro which provides CellPro with exclusive access to
Corixa's microsphere antigen delivery, adjuvant and antigen discovery technology
for CellPro's use in the discovery and development of products for the adoptive
immunotherapy of cancer, and CellPro's rights to such technology are exclusive
even as to the Company with respect to adoptive T cell immunotherapy of cancer.
See "Corporate Partnerships -- Other Products."
Animal Health Products. The Company believes that certain of its vaccine
and diagnostic products also may have applications in the detection of infection
and treatment of disease in animals. One such disease is
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Leishmaniasis, which can be carried by dogs. Europe is the primary market for
these products. The Company is currently collaborating with Heska, a developer
and marketer of companion animal diagnostics and therapeutic products, including
vaccines for certain parasitological diseases, to develop both diagnostics and
vaccines for the treatment of Leishmaniasis in dogs. Heska began commercial
sales of diagnostic for canine leishmania in Italy in December 1997. The Company
has also granted Heska a license to use LeIF in combination with other types of
vaccines in the companion animal field. Corixa intends to explore further
opportunities to out-license its technology for use in animal health markets.
See "Corporate Partnerships -- Other Products."
The Company's products are in an early stage of development and have not
been demonstrated to be safe or effective. There can be no assurance that any of
the Company's programs will move beyond their current stages of development. In
addition, even if the Company is able to successfully complete its development
efforts with respect to a particular product, there can be no assurance that
regulatory approvals will be obtained or that any such product can be
successfully manufactured and commercialized. See Item 7 of Part II "Factors
Affecting Future Results -- Uncertainties Related to Technology and Product
Development."
CORPORATE PARTNERSHIPS
Corixa's strategy is to establish multiple corporate partnerships with
pharmaceutical, biopharmaceutical and diagnostic companies that have the
expertise and capability to develop, manufacture, obtain regulatory approval of
and commercialize the Company's products. In such corporate partnerships, Corixa
seeks to cover its research and development expenses through research funding,
milestone payments and option, technology or license fees, while retaining
significant downstream participation in product sales through either profit-
sharing or product royalties paid on annual net sales. The Company has focused
initially on three areas of collaboration, including vaccine discovery programs,
diagnostic technology and out-licensing its three proprietary core technologies
for applications outside the Company's focus.
VACCINES
BREAST AND PROSTATE CANCER VACCINES
SmithKline Beecham. In March 1997, the Company entered into breast and
prostate cancer collaboration and license agreements and an option agreement
with SmithKline Beecham. The Company granted SmithKline Beecham an exclusive
worldwide license to develop, manufacture and sell vaccine products resulting
from this corporate partnership. The Company also granted SmithKline Beecham an
option to license certain other related technology for use in these cancer
vaccines. Under the collaboration and license agreements, SmithKline Beecham
agreed to provide annual research funding to support the Company's current
program to discover breast and prostate cancer antigens. To the extent breast or
prostate cancer antigens are discovered and selected for further development,
the Company is entitled to receive future payments upon the achievement of
certain development-related milestones relating to drug development and
regulatory progress, as well as royalty payments on any product sales.
SmithKline Beecham may elect to extend the research program beyond its initial
two-year term based upon mutually agreed terms. In the event SmithKline Beecham
elects to extend the research program, payments by SmithKline Beecham under the
collaboration and license agreements for such extension, research funding and
achievement of contractual milestones may total up to $46.0 million, 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 the Company does
not meet certain scientific milestones after the second anniversary of the
effective date of the respective agreements.
Under the option agreement, SmithKline Beecham paid certain consideration
in exchange for exclusive options to license two of Corixa's early-stage antigen
discovery programs in two undisclosed 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
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elects to exercise both such options and convert such consideration into Common
Stock, the number of such shares that the Company is obligated to issue, if any,
will be dependent upon the then current fair market value of such Common Stock.
As of March 2, 1998, the Company's aggregate market value was below such
threshold, 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 undisclosed cancer targets. If this foregoing option is not
exercised by September 1, 1999, the Company 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 undisclosed cancer target is not
exercised or extended before September 1, 1998 or if extended, is not exercised
by September 1, 1999, the Company will also be required to refund the
consideration attributable to such option according to the same repayment
schedule. See Note 8 of Notes to Financial Statements.
TUBERCULOSIS VACCINES
SmithKline Beecham. In October 1995, the Company entered into an option and
collaborative research agreement with SmithKline Beecham. Under the option and
collaborative research agreement, the Company granted SmithKline Beecham an
option to receive an exclusive worldwide license to the Company's vaccine
antigens discovered under Corixa's Mtb antigen discovery program. If SmithKline
Beecham exercises its option, it will receive an exclusive worldwide license to
use any or all such antigens, provided that such rights shall be co-exclusive
with Corixa in Japan. SmithKline Beecham paid an up-front technology access fee
and agreed to provide annual research funding to support the Company's program
to discover Mtb antigens. In addition, if SmithKline Beecham exercises its
option, the Company is entitled to receive an option exercise fee and future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales. Under the option and collaborative research agreement, payments by
SmithKline Beecham to Corixa for research funding, the option exercise fee and
achievement of contractual milestones may total up to approximately $19.3
million, which amounts are payable over time based on extension of the research
program and achievement of contractual milestones. In February 1997, the Company
and SmithKline Beecham agreed to renew the Mtb research program through May
1998, and extended SmithKline Beecham's option to license Mtb antigens through
August 1998.
ADJUVANTS
Pasteur Merieux Connaught. In December 1996, the Company entered into an
option and license agreement with PMC whereby the Company granted PMC an option
to license its novel adjuvant LeIF for exclusive use in influenza and
respiratory syncytial virus and non-exclusive use in HIV, Tb and malaria. Under
the option and license agreement, PMC paid an up-front option fee and, in the
event and to the extent PMC exercises its option, PMC has agreed to pay exercise
fees for each disease indication. In addition, in the event PMC exercises its
option for one or more disease fields, the Company is entitled to receive future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales and annual research funding to support the Company's preclinical
development efforts related to LeIF. In December 1997, the Company and PMC
agreed to extend PMC's option, and as a result such option will terminate in the
event PMC has not exercised its right in at least one disease field before June
30, 1998.
DIAGNOSTICS
The Company has entered into and intends to continue to pursue corporate
partnerships in the fields of cancer and infectious disease diagnostics to
complement its therapeutic research efforts and to expand its scientific
platform. The Company has established corporate partnerships for the development
of diagnostics for infectious diseases with Abbott, DiaMed, Trinity Biotech
(formerly Centocor, U.K.) and other small diagnostic companies. Under these
arrangements, the Company generally grants a non-exclusive license to Corixa's
antigens for use in specified infectious disease indications in exchange for the
respective corporate partner's agreement to make certain payments upon
achievement of development milestones, a commitment
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to purchase a minimum number of reagents and an agreement to pay royalties on
any product sales. In addition, the Company has collaborated exclusively with
GenQuest, Inc. ("GenQuest") for the development of diagnostics for cancer. See
"Relationship with GenQuest, Inc."
OTHER PRODUCTS
ADOPTIVE IMMUNOTHERAPY PRODUCTS
CellPro. Effective as of November 1995, the Company entered into a license
and collaborative research agreement with CellPro. Under the license and
collaborative research agreement, the Company granted CellPro an exclusive
worldwide license to Corixa's proprietary vaccine technologies -- microsphere
antigen delivery, the LeIF adjuvant and novel cancer antigens -- in the field of
adoptive immunotherapy of cancer, and CellPro's rights to such technology are
exclusive even as to the Company with respect to adoptive T cell immunotherapy
of cancer. As consideration for the license, CellPro paid the Company up-front
license fees and agreed to make future payments upon the achievement of certain
contractual milestones relating to drug development and regulatory progress, as
well as royalty payments on any product sales. In addition, the Company is
entitled to receive annual research funding to support the corporate
partnership's scientific objectives. CellPro may terminate funding for the
adoptive immunotherapy research program in the event the Company fails to
perform certain obligations under such research program. Effective January 1997,
the Company and CellPro amended the license and collaborative research agreement
to provide for a co-exclusive license to dendritic cell vaccines incorporating
the Company's cancer vaccine technology and a sharing of any license fees or
royalty payments arising under the co-exclusive license.
ANIMAL HEALTH PRODUCTS
Heska. In March 1996, the Company entered into a license and research
agreement with Heska. Under the license and research agreement, the Company
granted Heska an exclusive worldwide license to Corixa's LeIF adjuvant for use
in certain of Heska's vaccines and for use as a stand-alone vaccine against
canine leishmaniasis. In addition, the Company granted Heska a license to its
diagnostic antigen, K39, for use in detecting canine leishmaniasis. The license
is exclusive worldwide, except that it is non-exclusive in Central and South
America. Heska paid an up-front license fee and agreed to make future payments
upon the achievement of certain development milestones, as well as royalty
payments on any product sales. In December 1996, Heska made a payment to the
Company based on achievement of a development milestone for the Company's K39
diagnostic product. In December 1997, Heska began commercial sales of the canine
leishmania diagnostic in Italy and paid a corresponding milestone payment to
Corixa.
The Company's corporate partnership agreements generally provide recourse
for the Company with respect to its existing product and technology rights in
the event of an uncured material breach of such an agreement by a corporate
partner. In such event, Corixa generally may elect to terminate the licenses
granted to such corporate partner under such agreement. However, because
Corixa's strategy for the discovery, research, development, clinical testing and
commercialization of its products is to enter into multiple corporate
partnerships, the success of the Company is substantially dependent on its
ability to enter into and maintain such arrangements on terms favorable to the
Company, its ability to successfully manage current or future corporate
partnerships, if any, and the ability of its corporate partners to perform their
respective obligations under such arrangements. There can be no assurance that
the Company will be able to negotiate any additional corporate partnerships on
favorable terms, or at all, that its current corporate partnerships will be
successful or that its corporate partners will perform their obligations under
such arrangements in a timely manner or at all, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See Item 7 of Part II "-- Factors Affecting Future
Results -- Dependence on and Management of Existing and Future Corporate
Partnerships."
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CERTAIN BUSINESS RELATIONSHIPS
RELATIONSHIP WITH GENQUEST, INC.
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from GenQuest, a privately-held company formed in 1995,
to exploit functional genomics technology developed by Dr. Paul Fisher and
Columbia University. GenQuest is engaged in discovery of new genes related to
the transformation of normal cells into cancer cells and research of novel genes
that are uniquely expressed by cancer cells. The Company believes that its
relationship with GenQuest will lead to the identification of additional genes
uniquely expressed by cancer cells that are useful in the Company's research
programs.
Genomics refers to the organization, structure and regulation of genes.
Recent advances in genomics technology have allowed the isolation of genes that
are associated with specific diseases. Expression of these genes may pre-dispose
individuals to develop certain diseases or may be responsible for initiating the
disease process. Development of techniques useful in determining gene structure
has led to an increased focus on determining a specific gene's function, known
as "functional genomics." Functional genomics refers to a set of gene discovery
techniques that allow identification of function at the time a specific gene is
discovered. GenQuest's technology includes three major discovery approaches: (i)
rapid expression cloning systems that identify genes that are only expressed
when normal cells become malignant cells; (ii) surface epitope masking that
identifies genes that are uniquely expressed on the surface of cancer cells; and
(iii) differentiation induction and subtractive hybridization -- a technique
that identifies genes that are expressed when cancer cells are forced to revert
to normal cells. The Company has rights to these and other technologies for the
purpose of discovering additional cancer vaccine antigens.
In December 1996, the Company and GenQuest entered into a series of
collaborative agreements amending the original license and research
collaboration agreement entered into in February 1996. Under the amended license
and collaboration agreement, GenQuest agreed to provide an aggregate of $5.7
million in research funding over a three-year period to support the Company's
program to discover cancer genes, related antigens and cancer-related gene
products. The Company granted GenQuest an exclusive worldwide license to certain
of Corixa's existing non-vaccine technology and technology developed by Corixa
under the joint research program in the field of cancer diagnostics and
non-vaccine cancer therapeutics. GenQuest granted Corixa an exclusive worldwide
license to GenQuest's existing technology and technology developed under the
joint research program in the field of cancer vaccines and ex vivo cell therapy
of cancer. Both the Company and GenQuest agreed to pay royalties on any sales of
products incorporating licensed technology, except that with respect to genes
and gene products developed by GenQuest during the funded research program,
GenQuest is not obligated to pay any royalties to the Company. In addition, the
Company has agreed to assume remaining royalty obligations of GenQuest to its
licensor on products incorporating the licensed technology. Under the license
agreement, there are limitations on the Company's ability to enter into certain
relationships outside its core business of vaccine technologies. However, the
Company does not believe such limitations are material. See Note 9 of Notes to
Financial Statements.
The Company, GenQuest and certain stockholders of GenQuest have also
entered into a call option agreement (the "Call Option Agreement") under which
the Company has the right to purchase a significant majority of the outstanding
shares of GenQuest's capital stock in exchange for shares of the Company's
Common Stock at a purchase price determined in accordance with the formula
specified in the Call Option Agreement. The right becomes effective on the
earlier of (i) June 23, 1998, (ii) the completion of a 30-day trading period
following the Company's initial public offering during which the average closing
sale price of a share of the Company's Common Stock is at least $19.80, or (iii)
a merger of Corixa with another entity or a sale of substantially all of
Corixa's assets. Corixa's right to purchase the shares of GenQuest capital stock
terminates on the earlier of (i) January 23, 2000, (ii) the date that the
Company notifies GenQuest that it will not exercise its right, (iii) the closing
of the initial public offering of GenQuest, (iv) ten days following the
termination of the amended license agreement, or (v) ten days following a merger
of, a sale of assets by, or a change in control of Corixa. The number of shares
of Common Stock that Corixa is required to issue in order to exercise the right
is variable as the formula specified in the Call Option Agreement takes into
account the then-current fair market value of the Common Stock and the
capitalization of GenQuest as well as the date of
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exercise. Under this formula, the value allocated to a share of Common Stock for
the purpose of determining the number of shares issuable upon exercise of this
right is equal to the greater of (i) the sum of $9.90 plus the quotient obtained
by dividing the difference between (a) the average closing sale price of a share
of Common Stock during the 30 trading days immediately prior to such exercise
and (b) $9.90 by 2, and (ii) the product of the average closing sale price of a
share of Common Stock during the 30 trading days immediately prior to such
exercise multiplied by 0.7. The value allocated to the shares of the capital
stock of GenQuest for the purpose of determining the purchase price of such
capital stock increases ratably on a monthly basis, up to a maximum allocated
price per share, based on the length of time the right remains outstanding. The
purchase price initially allocated to the GenQuest Series B preferred stock is
$1.00 per share and increases by approximately $0.04 per month until the right
is exercised, up to a maximum of $2.00 per share. The purchase price allocated
to the GenQuest Series A preferred stock and common stock is equal to 66 2/3% of
the purchase price of the GenQuest Series B preferred stock. For example, if the
Company were to exercise such right on June 23, 1998, assuming the then-current
fair market value of the Common Stock is $8.25 per share and assuming no changes
to GenQuest's capitalization in the interim, the Company would be obligated to
issue an aggregate of approximately 3,991,088 shares of Common Stock in exchange
for such significant majority shares of GenQuest's capital stock, which amount
would represent beneficial ownership of approximately 25% of the Common Stock of
the Company (based upon 11,774,214 shares of Common Stock to be outstanding as
of March 2, 1998). Because the actual number of shares of Common Stock that the
Company is obligated to issue upon exercise of the right is dependent upon the
variables described above, the number of shares of Common Stock that Corixa
would be obligated to issue and the resulting dilution to existing stockholders
of Corixa may be substantially greater or less than that set forth in the
example above. As of the date hereof, Corixa has not made a decision as to
whether it will exercise this right. The Call Option Agreement does not obligate
the Company to purchase any shares of GenQuest, nor does it preclude the Company
from purchasing shares of GenQuest or the assets of GenQuest at a price
different from that set forth in the Call Option Agreement. Additionally, in
connection with the relationship between Corixa and GenQuest, Corixa issued
warrants to purchase up to 454,533 shares in the aggregate of Corixa's Series B
Preferred Stock at an exercise price of $9.90 per share none of which have been
exercised as of March 2, 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 Financial Statements.
RELATIONSHIP WITH INFECTIOUS DISEASE RESEARCH INSTITUTE
In September 1994, the Company 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, the Company has
agreed to provide IDRI with research funding and certain administrative and
facilities support, including use of the Company's research laboratory space.
IDRI pays a services fee for the administrative and facilities support provided
by the Company. The Company's funded research performed by IDRI is in the area
of infectious disease. Under the agreement, IDRI is obligated to disclose to the
Company all significant developments relating to information or inventions
discovered at IDRI, and the Company will own, on a royalty-free basis, all of
IDRI's interest in inventions and patent rights arising out of IDRI's research
during the term of the agreement (other than inventions and patent rights
arising out of research that is or in the future may be funded by certain
governmental or not-for-profit organizations). With respect to such rights
arising out of research funded by governmental and not-for-profit organizations,
the Company has been granted a royalty-bearing, worldwide, perpetual license,
exclusive except as to rights held by such governmental or not-for-profit
organizations.
IDRI is independent of the Company, and the Company does not have the right
to control or direct IDRI's activities. A majority of the members of IDRI's
board of directors are not affiliated with the Company. However, the Company's
Chief Scientific Officer is co-founder and a member of the board of directors of
IDRI. The Company's Chief Operating Officer is also a member of the board of
directors of IDRI and the Company's Vice President, Chief Financial Officer is
treasurer of IDRI.
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The research services and intellectual property agreement terminates on
December 31, 1999, subject to renewal for one or more three year terms at the
option of the Company. If IDRI terminates the agreement as a result of the
Company's failure to make required payments, the Company would be obligated to
pay royalties on any product sales.
CERTAIN LICENSE AGREEMENTS
The Company seeks to obtain technologies that complement and expand its
existing technology base. Where consistent with its strategy, the Company has
licensed and intends to continue to license product and marketing rights from
selected research and academic institutions in order to capitalize on the
capabilities and technology bases of these entities. Under these license
agreements, the Company generally seeks to obtain unrestricted sublicense rights
consistent with its partner-driven strategy. The Company is generally obligated
under these agreements to diligently pursue product development, make
development milestone payments and pay royalties on any product sales.
AGREEMENTS WITH SOUTHERN RESEARCH INSTITUTE
In May 1996, the Company entered into a license agreement with SRI. Under
the license agreement, SRI granted the Company an exclusive, worldwide,
sublicensable license (subject to the rights of certain United States
governmental agencies and a grant-back to SRI for non-commercial research
purposes) to certain polymer microsphere technology for use in the fields of
cancer and infectious disease, to the extent a product incorporates an antigen,
cytokine or adjuvant owned or controlled by Corixa. In addition, SRI granted the
Company options to exclusive, worldwide, sublicensable licenses in certain
autoimmune and viral disease fields. The Company paid up-front license fees upon
execution of the license agreement. The Company is also obligated to make future
payments upon the achievement of certain development milestones, as well as
royalty payments on any product sales, subject to an annual minimum royalty. In
addition, the Company issued SRI 15,151 shares of Common Stock upon execution of
the license agreement and a warrant exercisable for 7,575 shares for each grant
of sublicense rights to a third party, up to a maximum of 37,875 shares, and
7,575 shares for initiation of each Phase III clinical trial, up to a maximum of
37,875 shares. In April 1997, the parties amended the license agreement to
extend the Company's license in the field of cancer to include products that
incorporate third-party antigens or cytokines. The Company is obligated to share
revenues from such third-party sublicense agreements with SRI. The Company
issued SRI 4,545 shares of Common Stock upon the first anniversary of the
effective date of the license agreement. SRI may terminate the license agreement
in the event the Company fails to perform certain obligations under such
agreement.
Additionally, in January 1995, the Company entered into a research
agreement with SRI. Under the research agreement, the Company agreed to fund
certain research at SRI directed at the incorporation of the Company's
proprietary antigens and/or adjuvants with SRI's microsphere technology. Rights
to any related discoveries made or obtained during the funded research are
subject to the license agreement between SRI and Corixa. The Company was
obligated to provide funding to SRI under the research agreement through 1997.
Effective January 1998, the Company and SRI entered into an agreement to extend
this research agreement and the company's related funding obligations to
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 the Company an
exclusive, worldwide, sublicensable license (subject to the rights of certain
United States governmental agencies and a grant-back to Dana-Farber for
non-commercial research purposes) to certain microsphere technology related to
the induction of a CTL response for use in all fields. The Company paid up-front
license fees upon execution of the licensing agreement. The Company is also
obligated to make future payments upon the achievement of certain development
milestones, as well as royalty payments on any product sales, subject to an
annual minimum royalty. In addition, the Company issued Dana-Farber 15,151
shares of Common Stock upon execution of the licensing agreement and agreed to
issue an additional 15,151 shares of Common Stock upon issuance of the first
patent containing claims covering the licensed technology. The Company must
continue to meet certain research-based obligations in
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order to retain their rights under the licensing agreement. Dana-Farber may
terminate the licensing agreement in the event the Company does not make
required royalty payments or fails to perform certain obligations under such
agreement.
OTHER LICENSE AGREEMENTS
Additionally, the Company is a party to certain other option or license
agreements useful in vaccine formulation and delivery with academic
institutions, including an exclusive license agreement with the University of
Washington for the use of Her-2/neu technology in all fields. The Company is
also a party to option or license agreements useful in its antigen discovery
program, including agreements with (i) Washington University in St. Louis,
Missouri for the use of mammaglobin, a breast cancer-related protein and genes
for prophylactic and therapeutic treatment of adenocarcinoma, (ii) Health
Research, Inc. for the use of a proprietary mouse model for all cancer fields,
(iii) Mayo Foundation for Medical Education and Research for use of tick-borne
disease antigens, (iv) M.D. Anderson Cancer Research Center for certain
Her-2/neu peptides and (v) University of Pittsburgh for Muc-1 peptide vaccine
for use in the diagnosis and therapy of cancer. Certain of these agreements
require the Company or other parties to meet certain performance obligations in
order to retain their rights under such agreements or require the Company to
make certain payments in order to obtain or maintain rights to the subject
technology.
CORIXA'S VACCINE ANTIGEN DISCOVERY METHODOLOGIES
Tumor Tissue Procurement and SCID Mouse Tumor Propagation. Corixa has
developed a variety of unique and proprietary resources that provide the Company
with sufficient tumor tissue to enable it to conduct the types of immunological
and molecular biological research it believes are necessary for antigen
discovery. Many scientific organizations, universities and pharmaceutical and
biotechnology companies are actively pursuing the identification of gene
products that are uniquely expressed in tumor tissue. Such gene products can
form the basis not only of vaccines, but also diagnostic and therapeutic product
development. Access to large amounts of tumor tissue is therefore one of the
keys to success in this area of research. Although many people in the United
States suffer from cancer, large quantities of tumor tissue are not readily
available due to increasing early detection. In order to gain access to
sufficient tumor tissue, the Company uses (i) agreements with multiple clinical
and academic centers in the United States and South America for provision of
tumor tissue, sera and lymphocytes obtained from cancer patients; and (ii) a
proprietary system for growing tumors of multiple types from primary biopsy
specimens in mice that are genetically pre-disposed to lack an immune system
(severe combined immune deficient ("SCID") mice). SCID mice lack an immune
response and therefore are incapable of rejecting transplanted human tumor
tissues. Tumors can be transplanted and grown in multiple numbers of SCID mice,
thereby providing a stable source of tumor tissue for use in antigen discovery.
In addition, small numbers of lymphocytes present in primary biopsy specimens
continue to grow within SCID mice transplanted with biopsy tumors, serving as a
reservoir for generation of tumor reactive T cell lines and clones as well as
antibody-producing B cells.
Differential 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
16
<PAGE> 19
investigators to identify genes that are expressed in one type of tissue and not
expressed in another type of tissue. The technique takes advantage of the
ability of single strands of cDNA from identical or closely related genes to
bind to each other and form a complex. In tumor antigen discovery, cDNA(s)
(representing populations of expressed genes) obtained from normal tissue are
mixed with cDNA populations harvested from tumor tissue. cDNAs from genes that
are shared between both tissues form complexes and can be eliminated from
further analysis. Remaining cDNA(s) representing genes expressed only in tumor
tissue or only in normal tissue then can be separated and further analyzed. The
goal of such experimentation is to identify those genes that are expressed only
in tumor cells. The protein products of such genes then can be tested in
laboratory experiments to determine whether they can function as stimulators of
immune responses in cancer patients. Positive results from such studies indicate
that such proteins are good candidates for inclusion in tumor vaccines.
Expression Cloning. Corixa also uses expression cloning methods to identify
potential tumor antigens for incorporation into candidate tumor vaccines. The
Company has developed a number of proprietary improvements in expression cloning
technology. This mode of experimentation requires use of either antibodies or
immune T cells harvested from cancer or infectious disease patients. In
antibody-mediated expression cloning, genes from pathogenic organisms or tumors
are transferred into clones of bacteria in a system that will promote expression
of all transferred genes into corresponding proteins. Because of the bacteria's
rapid growth rate and capacity for protein production, pathogen or tumor
proteins are produced in significant quantity together with bacterial proteins.
These proteins are screened for their ability to react with antibody from either
pathogen-infected or cancer patients. The development of a positive
protein-antibody reaction indicates that the gene that encodes the antigen is
present in a single bacterial clone. Because CTL 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. The Company 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. The Company's
discovery techniques result in the cloning and characterization of multiple
genes for possible inclusion in tumor vaccines. A key component of Corixa's
antigen discovery technology is the ability to determine which of these gene
products can function as potent antigens for generating anti-tumor immune
responses. Once candidate antigen genes are identified, Corixa systematically
determines: (i) expression of the gene product by multiple tumors from different
individuals; (ii) expression of the gene product by primary as well as
metastatic tumor tissue; (iii) absence of expression of the gene product in
normal tissue; (iv) ability of the candidate tumor antigen to generate in vitro
immune responses from T cell populations harvested from tumor and normal
patients;
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<PAGE> 20
(v) ability of the candidate tumor antigen to generate immune responses in
specially designed tumor models; and (vi) ability of T cells stimulated by such
antigens to mediate tumor regression in specially designed tumor models. By such
systematic evaluation of candidate antigens, Corixa is able to determine and
select which antigens are appropriate for microsphere formulation and vaccine
development.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent and other proprietary protection for
the Company's vaccine and diagnostic products, antigens and adjuvants, defend
patents once obtained, preserve its trade secrets and operate without infringing
the patents and proprietary rights of third parties both in the United States
and in foreign countries. Where appropriate, the Company intends to seek patent
protection for its vaccine, discovery, screening, diagnostic and other
proprietary technologies by filing patent applications in the United States and
certain other countries. As of December 31, 1997, the Company owned or had
licensed 11 issued United States patents that expire at various times between
December 2008 and October 2014, 72 corresponding issued foreign patents, 94
pending United States patent applications, as well as 17 corresponding
international filings under the Patent Cooperation Treaty and 176 pending
foreign national patent applications. The Company also holds an option to
exclusively license cancer vaccine antigens discovered by GenQuest through
December 2001.
While the Company believes its patents and patent applications provide a
competitive advantage in its efforts to discover, develop and commercialize
useful vaccine and diagnostic products, antigens and adjuvants, the patent
positions of pharmaceutical and biopharmaceutical companies, including those of
the Company, are highly uncertain and involve complex legal and factual
questions for which important legal principles are unresolved. There can be no
assurance that the Company, its corporate partners or its licensors have or will
develop or obtain rights to products or processes that are patentable, that
patents will issue from any of the pending applications owned or licensed by the
Company or its corporate partners, that any claims allowed will issue, or in the
event of issuance, will be sufficient to protect the technology owned by or
licensed to the Company or its corporate partners. The Company has licensed
certain patent applications from SRI related to the Company's microsphere
encapsulation technology, one of which is currently the subject of an opposition
proceeding before the European Patent Office. There can be no assurance that SRI
will prevail in this opposition proceeding or that any patents will issue in
Europe related to such technology. There can also be no assurance that the
Company's or its corporate partners' current patents, or patents that issue on
pending applications, will not be challenged, invalidated, infringed or
circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to Corixa. Patent applications in the
United States are maintained in secrecy until patents issue, patent applications
in certain foreign countries are not generally published until many months or
years after they are filed, and publication of technological developments in the
scientific and patent literature often occur long after the date of such
developments. Accordingly, the Company cannot be certain that it or one of its
corporate partners was the first to invent the subject matter covered by any
patent application or that it or one of its corporate partners was the first to
file a patent application for any such invention.
The commercial success of the Company depends significantly on its ability
to operate without infringing patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third-party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, the Company or its corporate partners may be enjoined from
pursuing research, development or commercialization of products or be required
to obtain licenses to these patents or to develop or obtain
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<PAGE> 21
alternative technology. There can be no assurance that the Company or its
corporate partners will not be so enjoined or will be able to obtain any license
to the patents and technologies of third parties on acceptable terms, if at all,
or will be able to obtain or develop alternative technologies. If the Company or
any of its corporate partners is enjoined from pursuing its research,
development or commercialization activities or if any such license is not
obtained, or alternative technologies are not obtained or developed, the Company
or such corporate partner may be delayed or prevented from commercializing its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope or validity of a
third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances where patent protection is not believed to be appropriate or
obtainable. The Company's policy is to require each of its employees,
consultants and advisors to execute a confidentiality agreement upon the
commencement of any employment, consulting or advisory relationship with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual during the course of such relationship
will be kept confidential and not disclosed to third parties except in specified
circumstances. These agreements also generally provide that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by its competitors, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is a party to various license agreements that give it rights to
use certain technologies in its research, development and commercialization
activities. Disputes may arise as to the inventorship and corresponding rights
in know-how and inventions resulting from the joint creation or use of
intellectual property by the Company and its corporate partners, licensors,
scientific collaborators and consultants. There can be no assurance that the
Company will be able to maintain its proprietary position or that third parties
will not circumvent any proprietary protection the Company does have. The
failure of the Company to maintain exclusive or other rights to such
technologies could have a material adverse effect on the Company's business,
financial condition and results of operations. See Item 7 of Part II "Factors
Affecting Future Results -- Dependence on Proprietary Technology and Uncertainty
of Patent Protection."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the development, production and
marketing of any products developed by the Company or its corporate partners.
Pharmaceutical products and medical devices are subject to rigorous regulation
by the FDA in the United States and similar health authorities in foreign
countries under laws and regulations that govern, among other things, testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, export and
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<PAGE> 22
promotion, marketing and distribution of such products. Product development and
approval within this regulatory framework is uncertain, can take a number of
years and requires the expenditure of substantial resources. Any failure to
obtain regulatory approval, or any delay in obtaining such approvals, could
adversely affect the marketing of products under development by the Company or
its corporate partners, the Company's ability to receive product or royalty
revenues, and its liquidity and capital resources. The nature and extent of the
governmental premarket review process for the Company's products will vary,
depending on the regulatory categorization of particular products. The Company
believes that its vaccine and related pharmaceutical products will be regulated
as biologics by the FDA and comparable regulatory bodies in other countries. The
necessary steps before a new biological product may be marketed in the United
States ordinarily include: (i) preclinical laboratory tests and in vivo
preclinical studies; (ii) the submission to the FDA of an investigational new
drug application ("IND"), which must become effective before clinical trials may
commence; (iii) adequate and well-controlled clinical trials to establish the
safety and efficacy of the product; (iv) the submission to the FDA of a product
license application and establishment license application ("PLA/ELA"); and (v)
FDA review and approval of the PLA/ELA prior to any commercial sale or shipment
of the product. Recently, the FDA has eliminated the separate ELA requirement
for certain categories of biotechnology products and has indicated that it
intends to adopt regulations permitting the premarket review of all biologics
under a single biologics license application. However, it is impossible predict
when this new procedure will become effective or its impact upon the regulatory
review of the Company's biological products.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product.
Preclinical tests must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of preclinical
tests, together with 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 the Company's products subject to such testing. In addition, after marketing
approval is granted, the FDA may require post-
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<PAGE> 23
marketing clinical studies, which typically entail extensive patient monitoring
and may result in restricted marketing of an approved product for an extended
period of time.
The results of pharmaceutical development, preclinical studies and clinical
trials are submitted to the FDA in the form of a PLA/ELA for approval of the
manufacture, marketing and commercial shipment of the biological product. The
testing and approval process is likely to require substantial time, effort and
resources, and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny the PLA/ELA if applicable regulatory
criteria are not satisfied, require additional testing or information, or
require postmarket testing and surveillance to monitor the safety or efficacy of
the product.
Any diagnostic products developed by the Company or its corporate partners
are likely to be regulated as medical devices. In the United States, medical
devices are classified into one of three classes on the basis of the controls
deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness: Class I (general controls -- e.g., labeling, premarket
notification and adherence to 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 the Company
believes that any diagnostic device developed by it or its corporate partners
would be classified as a Class III device, such product would be subject to the
PMA approval requirement. A 510(k) clearance typically will be granted if a
company establishes that its device is "substantially equivalent" to a legally
marketed Class I or II medical device or to a Class III device for which the FDA
has not yet required the submission of PMAs. A 510(k) clearance must contain
information to support the claim of substantial equivalence, which may include
laboratory test results or the results of clinical studies. Commercial
distribution of a device subject to the 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 marketed introduction of products that fall into this
category. Furthermore, for any devices cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
If a device does not qualify for the premarket notification procedure, a
company must file a PMA. The PMA requires more extensive pre-filing testing than
required for a 510(k) premarket notification and usually involves a
significantly longer review process. A PMA application must be supported by
valid scientific evidence that typically includes extensive data, including
preclinical and clinical trial data, to demonstrate that safety and efficacy of
the device. If clinical trials are required, and the device presents a
"significant risk," an investigation device exemption ("IDE") application must
be filed with the FDA and become effective prior to the commencement of clinical
trials. If the device presents a "nonsignificant risk" to trial subjects,
clinical trials may begin on the basis of appropriate IRB approval. Clinical
investigation of medical devices may involve risks similar to those involved in
the clinical investigation of pharmaceutical products.
The PMA application must contain the results of clinical trials and
nonclinical tests, a complete description of the device, and a detailed
description of the methods, facilities and controls used to manufacture the
device. The PMA review and approval process can be expensive, uncertain and
lengthy, and there can be no assurance that any approval will be granted on a
timely basis, if at all. A PMA application may be denied if applicable
regulatory criteria are not satisfied, and the FDA may impose certain conditions
upon the applicant, such as postmarket testing and surveillance.
Regulatory approval, if granted for any biopharmaceutical or medical device
product, may entail limitations on the indicated uses for which it may be
marketed, and product approvals, once granted, may be
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withdrawn if problems occur after initial marketing. Manufacturers of
FDA-regulated products are subject to pervasive and continuing governmental
regulation, including record keeping requirements and reporting of adverse
experiences associated with product use. The Company and its corporate partners
will be required to adhere to applicable regulations setting forth detailed GMP
requirements, which include testing, control and documentation requirements. The
FDA has recently issued significant revisions to its medical device GMP
regulations, and future changes in regulatory regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. Manufacturing facilities in the United States are subject to
periodic inspection by the FDA Failure to comply with GMP and other applicable
regulatory requirements may result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to review pending
marketing approval applications, withdrawal of marketing approvals and criminal
prosecution.
For clinical investigation and marketing of products outside the United
States, the Company and its corporate partners may be subject to regulation by
regulatory authorities in other countries. The requirements governing the
conduct of clinical trials, marketing authorization and pricing and
reimbursement vary widely from country to country. The regulatory approval
process in other countries entails risks similar to those associated with FDA
approval.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standard
prescribed by state and federal laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company's use of these materials could be
curtailed by state or federal authorities, the Company could be held liable for
any damages that result and any liability could exceed the resources of the
Company. See Item 7 of Part II "Factors Affecting Future Results -- Government
Regulation."
COMPETITION
The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery, research and development of products that could
compete directly with products the Company is seeking to develop. Many companies
are also developing alternative therapies to treat cancer and infectious disease
and, in this regard, are competitive with the Company. Many of the entities
developing and marketing such competing products have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining regulatory approvals
and marketing than Corixa. In addition, many of these competitors have become
more active in seeking patent protection and licensing arrangements in
anticipation of collecting royalties for use of technology that they have
developed. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. These companies and institutions compete with the Company in
recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to the Company's programs. The
Company's ability to compete effectively will depend on its ability to advance
its core technologies, license additional technology, maintain a proprietary
position in its technologies and products, obtain required government and other
public and private approvals on a timely basis, attract and retain key personnel
and enter into corporate partnerships that enable the Company and its corporate
partners to develop effective products that can be manufactured cost-
effectively and marketed successfully. The Company expects that competition
among products approved for sale will be based, among other things, on efficacy,
reliability, product safety, price and patent position. There can be no
assurance that competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization than
the Company or that such products will not render the Company's products
obsolete. See Item 7 of Part II "Factors Affecting Future Results -- Intense
Competition."
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EMPLOYEES
As of December 31, 1997, the Company employed 104 personnel, including 87
in research and development (41 in antigen discovery, 25 in immunology, 13 in
vaccine research and 8 in research and development support) and 17 in
administration. Each of the Company's employees has signed a confidentiality
agreement and none are covered by a collective bargaining agreement. The Company
has never experienced employment-related work stoppages and considers its
employee relations to be good.
ITEM 2. 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 of December 31,
1997 the Company's monthly rent for this space, including amortization of tenant
improvements, was approximately $129,000. The lease for this facility expires in
January 2005, with an option to renew the lease for two additional periods of
five years each. The Company believes that its existing facilities are adequate
to meet its immediate needs and that suitable additional space will be available
in the future on commercially reasonable terms as needed. The Company is
currently in the process of building out additional contiguous laboratory and
office space which will add approximately 21,000 square feet by year-end 1998.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any material pending
legal proceedings. No such proceedings were terminated during the fourth quarter
of the 1997 fiscal year.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the 1997 fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
In connection with its initial public offering of Common Stock (the
"Offering") in 1997, the Company filed a Registration Statement on Form S-1, SEC
File No. 333-32147, which was declared effective by the Commission on October 2,
1997.
The Company incurred the following expenses in connection with the Offering
during the quarter ended December 31, 1997.
<TABLE>
<S> <C>
Underwriting discounts and commissions......... $3,139,500
Other expenses................................. 932,404
----------
Total Expenses................................. $4,071,904
==========
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total expenses
above were $40,778,100. The Company is using these proceeds for research and
development expenses, working capital and general corporate purposes.
Corixa's Common Stock trades under the symbol "CRXA" on the Nasdaq National
Market. As of March 2, 1998, there were 102 holders of record of the Company's
Common Stock.
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The following table shows the Company high and low selling prices of the
Common Stock as quoted on the Nasdaq National Market for the fiscal quarter
indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fourth Quarter............................... $14 1/8 $8 3/4
(from October 2, 1997)
</TABLE>
Future stock prices may be subject to volatility particularly on a
quarterly basis. Any shortfall in revenues or net income from amounts expected
by securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
present plans to do so in the foreseeable future.
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<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information has been derived from the
audited financial statements. The information set forth below is not necessarily
indicative of results of future operations, and should be read in conjunction
with Item 7 of Part II " -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes thereto included elsewhere in this Form 10-K.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 8,
YEAR ENDED DECEMBER 31, 1994) TO
---------------------------- DECEMBER 31,
1997 1996 1995 1994
-------- ------- ------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Corporate partnerships............................. $ 13,390 $ 4,402 $ 2,411 $ --
Government grants.................................. 977 1,403 304 --
-------- ------- ------- -------
Total revenues............................. 14,367 5,805 2,715 --
Operating expenses:
Research and development(1)........................ 16,398 9,995 7,040 867
General and administrative......................... 2,033 781 532 205
-------- ------- ------- -------
Total operating expenses................... 18,431 10,776 7,572 1,072
Loss from operations................................. (4,064) (4,971) (4,857) (1,072)
Interest income (expense), net....................... 972 476 691 83
Other income(2)...................................... 416 348 16 0
-------- ------- ------- -------
Net loss............................................. $ (2,676) $(4,147) $(4,150) $ (989)
-------- ------- ------- -------
Pro forma basic and diluted net loss per share(3).... (0.31) (0.55) (0.58) (0.27)
-------- ------- ------- -------
Shares used in computing pro forma basic and diluted
loss per share(3).................................. 8,755 7,490 7,120 3,648
-------- ------- ------- -------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $ 56,317 $11,933 $10,773 $11,064
Working capital...................................... 53,962 10,100 9,743 10,939
Total assets......................................... 61,807 15,185 12,340 14,334
Long term obligations less current portion........... 6,924 1,175 816 --
Accumulated deficit.................................. (11,967) (9,298) (5,126) (989)
Total stockholders' equity........................... 51,285 11,225 10,264 14,038
</TABLE>
- ---------------
(1) Included in research and development expenses for the period from inception
(September 8, 1994) to December 31, 1994 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 and Note 4 of Notes to Financial Statements for information
regarding the computation of pro forma basic and diluted net loss per share.
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<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate collaborations as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research-and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines. To
date, approximately 88% of the Company's revenue has resulted from payments from
such collaborative agreements. In particular, the Company has entered into
significant corporate partnerships with SmithKline Beecham with respect to
tuberculosis and cancer vaccine products pursuant to which the Company will
receive up to an aggregate of $65.3 million, of which up to $23 million is
payable under the breast cancer collaboration, up to $23 million is payable
under the prostate cancer collaboration and up to $19.3 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 the Company 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. Additionally, approximately 12% of
the Company's revenue has resulted from funds awarded through government grants.
As of December 31, 1997, the Company had total stockholders' equity of $51.3
million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements as early in the vaccine development stage as possible. The Company
believes that this active corporate partnering strategy enables Corixa to
maintain its focus on its fundamental strengths in vaccine discovery and
research, capitalizes on its corporate partners' strengths in product
development, manufacturing and commercialization, and significantly diminishes
the Company's financing requirements. When entering into such corporate
partnering relationships, the Company seeks to cover its research and
development expenses through research funding, milestone payments and option,
technology or license fees, while retaining significant downstream participation
in product sales through either profit-sharing or product royalties paid on
annual net sales. Revenues recognized from inception through December 31, 1997
under the Company's collaborative agreements total approximately $20.2 million.
The Company has experienced operating losses in each year since its
inception. As of December 31, 1997, the Company's accumulated deficit was
approximately $12.0 million. The Company may incur substantial additional
operating losses over at least the next several years. Such losses have been and
may continue to be principally the result of the various costs associated with
the Company's discovery, research and development programs, preclinical and
clinical activities. Substantially all of the Company's revenues to date have
resulted from corporate partnerships, other research, development and licensing
arrangements, research grants and interest income. The Company's ability to
achieve a consistent, profitable level of operations is dependent in large part
upon entering into collaborative agreements with corporate partners for product
discovery, research, development and commercialization, obtaining regulatory
approvals for its products and successfully manufacturing and marketing
commercial products. There can be no assurance that the Company will be able to
achieve consistent profitability. In addition, payments under collaborative
agreements and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of losses by the Company. Therefore, the Company's results of
operations for any period may fluctuate and may not be comparable to the results
of operations for any other period.
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<PAGE> 29
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Total Revenues
Revenues 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 1995.
This increase was attributable primarily to license revenues 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 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 the Company
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 the Company'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 four years.
Research and development expenses of approximately $2.4 million were incurred
during the year ended December 31, 1997 in conjunction with the GenQuest license
and collaboration agreement (see Note 9 of Notes to Financial Statements for
further discussion of the GenQuest relationship). The Company expects research
and development expenses to increase in the future to support the expansion of
its research and development activities.
The Company, GenQuest and certain stockholders of GenQuest have entered
into a Call Option Agreement under which the Company has the right to purchase a
significant majority of the outstanding capital stock of GenQuest in exchange
for shares of the Company's Common Stock at a purchase price determined in
accordance with a formula specified in the Call Option Agreement. The Company
has not made a decision as to whether it will exercise the option. Additionally,
the Call Option Agreement does not obligate the Company to purchase any shares
of GenQuest, nor does it preclude the Company from purchasing shares of GenQuest
or the assets of GenQuest at a price different from that set forth in the Call
Option Agreement. If the Company were to exercise the option or otherwise
acquire all or substantially all of the assets or capital stock of GenQuest, the
Company would be required to fund any future development efforts of GenQuest
which might result in the Company incurring research and development expenses
without the corresponding revenue currently provided by GenQuest.
General and Administrative Expenses
General and administrative expenses increased to $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. The Company 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.
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
27
<PAGE> 30
average cash balances in 1997 as a result of the proceeds of the Offering.
Interest income for fiscal year 1996 decreased from 1995 as the Company 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 and $90,000 for the same periods in 1996 and 1995,
respectively. Growth 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 IDRI,
respectively. For 1996, other income consists of $300,000 and $48,000 in
proceeds from GenQuest and IDRI, respectively.
The Company provides services to each organization with respect to
corporate management, accounting and financial matters, 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 the
year ended December 31, 1997, representing the difference between the exercise
prices of options for 645,000 shares of Common Stock granted during the year
ended December 31, 1997 and the deemed fair value of the Company's Common Stock
on the grant dates. Deferred compensation expense of approximately $1.3 million
was amortized for the year ended December 31, 1997. The remaining balance will
be amortized over fiscal years 1998 through 2001 as the subject options vest.
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, the Company
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 the Company 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
The Company 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 December 31, 1997, the Company's operations have used
cash of $7.0 million. In October 1997, the Company completed an Offering of
Common Stock resulting in proceeds, net of underwriting discounts and offering
costs, of $40.8 million. Through December 31, 1997, the Company recognized
approximately $22.9 million of revenue under strategic partnerships and grants.
Private placements of equity securities have provided the Company with aggregate
gross proceeds of approximately $20.1 million. The Company has obtained $4.3
million through capital lease financing, $3.0 million from an advance under a
collaborative agreement and $2.0 million in long-term debt. As of December 31,
1997, the Company had approximately $56.3 million in cash, cash equivalents and
securities available-for-sale.
The Company has invested $6.0 million in property and equipment since
inception, including equipment acquired under capital lease financing. The
Company expects capital expenditures to increase over the next
28
<PAGE> 31
several years as it expands its facilities and acquires scientific equipment to
support the planned expansion of research and development efforts.
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $9.9 million and research and experimentation credit
carryforwards of approximately $836,000 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 December 31, 1997. Additionally, utilization of such
losses in future years will be limited under the change of stock ownership rules
of the Internal Revenue Service. See Note 5 of Notes to Financial Statements.
In December 1997, the Company entered into a Loan Agreement (the "Loan
Agreement") with Sumitomo Bank, Limited. Pursuant to the Loan Agreement, the
Company has an unsecured note under which the Company 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, the Company is required to meet certain
financial requirements. As of December 31, 1997, the Company had borrowed $2.0
million under the Loan Agreement. See Note 7 of Notes to Financial Statements.
The Company believes that the proceeds from the 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 its 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. The Company
intends to enter into additional corporate collaborations that will provide
funding for all or a part of the Company's research and development activities.
The Company's future capital requirements will depend on many factors,
including, among others, the following: continued scientific progress in its
discovery, research and development programs; the magnitude and scope of these
activities; the ability of the Company to maintain existing, and enter into
additional, corporate collaborations and licensing arrangements; progress with
preclinical studies and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs involved in preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims; and the
potential need to develop, acquire or license new technologies and products and
other factors not within the Company's control. The Company intends to seek
additional funding through corporate collaborations, licensing arrangements,
public or private equity or debt financings and capital lease transactions;
however, there can be no assurance that additional financing will be available
on acceptable terms, if at all. If sufficient capital is not available, the
Company may be required to delay, reduce the scope of, eliminate, or divest one
or more of its discovery, research or development programs, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Factors Affecting Future Results -- Future
Capital Needs; -- Uncertainty of Additional Funding."
FACTORS AFFECTING FUTURE 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 the Company's
revenues have resulted from payments made under agreements with its corporate
partners, and the Company expects that most of its revenues for the foreseeable
future will continue to result from existing and future corporate partnerships,
if any. The Company has generated only minimal revenues from diagnostic product
sales and no revenues from therapeutic product sales since inception. Vaccine
products that may result from the Company's research and development programs
are not expected to be commercially available for a number of years, if at all,
and it will be a number of years, if ever, before Corixa will receive any
significant revenues from commercial sales of such products. There can be no
assurance that the Company will receive anticipated revenues under existing
corporate partnerships, that the Company will be able to enter into any
additional corporate partnerships or that the Company will ever achieve
consistent profitability.
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<PAGE> 32
Uncertainties Related to Technology and Product Development
The Company's technological approach to the development of therapeutic and
prophylactic vaccines for cancers and certain infectious diseases is unproven in
humans. Products based on the Company's technologies are currently in the
discovery, preclinical or early clinical investigation stages, and to date,
neither the Company nor any of its corporate partners have conducted any
clinical trials that incorporate the Company's proprietary microsphere delivery
systems or its proprietary adjuvants. In addition, no therapeutic vaccines for
cancer or infectious diseases targeted by the Company have been successfully
commercialized by the Company or others. There can be no assurance that the
Company will be able to successfully develop effective vaccines for such
diseases in a reasonable time frame, if ever, or that such vaccines will be
capable of being commercialized. In addition to its internal development
programs, the Company in-licenses and acquires technologies to enhance its
product pipeline. There can be no assurance that any in-licensed technologies
will prove to be effective or will result in the successful development of
commercial products.
A majority of Corixa's programs are currently in the discovery stage or in
preclinical development, and only two of the Company's therapeutic vaccine
products have advanced to Phase I clinical trials. The Company's vaccines have
not been demonstrated to be safe or effective in clinical settings. There can be
no assurance that any of the Company's programs will move beyond its current
stage of development. Assuming the Company's research does advance, certain
preclinical development efforts will be necessary to determine whether any
product is safe to enter clinical trials. Under certain of the Company's
existing corporate partnerships, the respective corporate partner has primary
responsibility for the clinical development of a product. There can be no
assurance that any such corporate partner will pursue clinical development in a
timely or effective manner, if at all. If such a product receives authorization
from the 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, the Company 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 the
Company's or its corporate partner's application or will not require additional
clinical trials or other data prior to approval. Furthermore, even if regulatory
approval is ultimately obtained, delays in the approval process could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that any product
can be produced in commercial quantities at a reasonable cost or that such
product will be successfully marketed.
Dependence on and Management of Existing and Future Corporate Partnerships
The success of Corixa's business strategy is largely dependent on its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous relationships that may exist as a result of this strategy. Corixa
has established significant relationships with several corporate partners as of
December 31, 1997. For example, the Company has entered into three collaboration
and license agreements with SmithKline Beecham for the research, development and
commercialization of vaccine products aimed at the prevention and/or treatment
of tuberculosis, breast cancer and prostate cancer. In addition, Corixa has
established corporate partnerships with GenQuest and CellPro among others. The
Company derived 93% of its revenues during the year ended December 31, 1997 from
research and development and other funding under such corporate partnerships.
The termination of any of these corporate partnerships would have a material
adverse effect on the Company's business, financial condition and results of
operations. Several of the Company's corporate partners have entered into
agreements granting them options to license certain aspects of the Company's
technology. There can be no assurance that any such corporate partner will
exercise its option to license such technology. The Company has also entered
into corporate partnerships with several companies for the development,
commercialization and sale of diagnostic products incorporating the Company's
proprietary antigen technology. There can be no assurance that any such
diagnostic corporate partnership will ever generate significant revenues.
Furthermore, Corixa is currently engaged in discussions with a number of
pharmaceutical and diagnostic companies with respect to potential corporate
partnering arrangements
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<PAGE> 33
covering various aspects of the Company's technologies. However, due in part to
the early stage of Corixa's technologies, the process of establishing corporate
partnerships is difficult, time-consuming and involves significant uncertainty,
and there can be no assurance that such discussions will lead to the
establishment of any new corporate partnership on favorable terms, or at all, or
that if established, any such corporate partnership will result in the
successful development of the Company's products or the generation of
significant revenues.
Because Corixa enters into research and development collaborations with
corporate partners at an early stage of product development, the Company's
success is highly reliant upon the performance of its corporate partners. Under
existing corporate partnership arrangements, the Company's corporate partners
are generally required to undertake and fund certain research and development
activities with the Company, make payments upon achievement of certain
scientific milestones and pay royalties or make profit-sharing payments when and
if a product is commercialized. The amount and timing of resources to be devoted
to activities by its existing or future corporate partners are not within the
direct control of the Company, and there can be no assurance that any of the
Company's existing or future corporate partners will commit sufficient resources
to Corixa's research and development programs or the commercialization of its
products. If any corporate partner fails to conduct its activities in a timely
manner, or at all, the Company's preclinical or clinical development related to
such corporate partnership could be delayed or terminated. There can be no
assurance that the Company's corporate partners will perform their obligations
as expected. There can also be no assurance that the Company's current corporate
partners or future corporate partners, if any, will not pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with the Company, or that disputes will not
arise with respect to ownership of technology developed under any such corporate
partnership. Finally, there can be no assurance that any of the Company's
current corporate partnerships will not be terminated by its corporate partners
or that the Company will be able to negotiate additional corporate partnerships
in the future on acceptable terms, or at all.
Because the success of the Company's business is largely dependent upon its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous issues that arise from such partnerships, management of these
relationships will require, at a minimum, significant time and effort from
Corixa's management team and effective allocation of the Company's resources to
multiple projects, as well as an ability to obtain and retain management,
scientific and other personnel sufficient to accomplish the foregoing. There can
be no assurance that Corixa's need to simultaneously manage a number of
corporate partnerships will be successful, and the failure to effectively manage
such corporate partnerships would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on In-Licensed Technology
In addition to its dependence on existing and future corporate
partnerships, Corixa's success is also dependent on its ability to enter into
licensing arrangements with commercial or academic entities to obtain technology
that is advantageous or necessary to the development and commercialization of
Corixa's products. The Company is party to various license agreements that give
it rights to use certain technologies in its and its corporate partners'
discovery, research, development and commercialization activities. Disputes may
arise as to the inventorship and corresponding rights in inventions and know-how
resulting from the joint creation or use of intellectual property by the Company
and its licensors or scientific collaborators. Additionally, many of the
Company's in-licensing agreements contain milestone-based termination
provisions. The Company's failure to meet any significant milestones in a
particular agreement could allow the licensor to terminate such agreement. There
can be no assurance that the Company will be able to negotiate additional
license agreements in the future on acceptable terms, if at all, that any of its
current license agreements will not be terminated or that it will be able to
maintain the exclusivity of its exclusive licenses. In the event the Company is
unable to obtain or maintain licenses to technology advantageous or necessary to
the Company's business, Corixa and its corporate partners may be required to
expend significant time and resources to develop or in-license similar
technology, and there can be no assurance that the Company and its corporate
partners will be successful in this regard. If the Company cannot acquire or
develop necessary technology, it may be prevented
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<PAGE> 34
from commercializing certain of its products. Any such event would have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 December
31, 1997, the Company owned or had licensed 11 issued United States patents that
expire at various times between December 2008 and October 2014, 72 corresponding
issued foreign patents, 94 pending United States patent applications, as well as
17 corresponding international filings under the Patent Cooperation Treaty and
176 pending foreign national patent applications. The Company also holds an
option to exclusively license cancer vaccine antigens discovered by GenQuest
through December 2001. There can be no assurance that the Company, its corporate
partners or its licensors have or will develop or obtain rights to products or
processes that are patentable, that patents will issue from any of the pending
applications owned or licensed by the Company or its corporate partners, that
any claims allowed will issue, or in the event of issuance, will be sufficient
to protect the technology owned by or licensed to the Company or its corporate
partners. The Company has licensed certain patent applications from SRI related
to the Company's microsphere encapsulation technology, one of which is currently
the subject of an opposition proceeding before the European Patent Office. There
can be no assurance that SRI will prevail in this opposition proceeding or that
any patents will issue in Europe related to such technology. There can also be
no assurance that the Company's or its corporate partners' current patents, or
patents that issue on pending applications, will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to Corixa. Patent applications
in the United States are maintained in secrecy until patents issue, patent
applications in certain foreign countries are not generally published until many
months or years after they are filed, and publication of technological
developments in the scientific and patent literature often occurs long after the
date of such developments. Accordingly, the Company cannot be certain that it or
one of its corporate partners was the first to invent the subject matter covered
by any patent application or that it or one of its corporate partners was the
first to file a patent application for any such invention.
Patent law relating to the scope and enforceability of claims in the fields
in which Corixa operates is still evolving. The patent positions of
biotechnology and biopharmaceutical companies, including the Company, are highly
uncertain and involve complex legal and technical questions for which legal
principles are not firmly established. The degree of future protection for the
Company's proprietary rights, therefore, is highly uncertain. In this regard,
there can be no assurance that independent patents will issue from each of the
94 pending United States patent applications referenced above, which include
many interrelated applications directed to common or related subject matter. In
addition, there may be issued patents and pending applications owned by others
directed to technologies relevant to the Company's or its corporate partners'
research, development and commercialization efforts. There can be no assurance
that Corixa's or its corporate partners' technology can be developed and
commercialized without a license to such patents or that such patent
applications will not be granted priority over patent applications filed by
Corixa or one of its corporate partners.
The commercial success of Corixa depends significantly on its ability to
operate without infringing the patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third
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<PAGE> 35
parties, the Company or its corporate partners may be enjoined from pursuing
research, development or commercialization of products or be required to obtain
licenses to these patents or to develop or obtain alternative technology. There
can be no assurance that the Company or its corporate partners will not be so
enjoined or will be able to obtain any license to the patents and technologies
of third parties on acceptable terms, if at all, or will be able to obtain or
develop alternative technologies. If the Company or any of its corporate
partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such corporate
partner may be delayed or prevented from commercializing its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope and validity of
a third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances in which patent protection is not believed to be appropriate or
obtainable. Corixa attempts to protect its proprietary technology in part by
confidentiality agreements with its employees, consultants and advisors. These
agreements generally provide that all confidential information developed or made
known to the individual by Corixa during the course of the individual's
relationship with the Company will be kept confidential and not disclosed to
third parties except in specific circumstances. These agreements also generally
provide that all inventions conceived by the individual in the course of
rendering services to the Company shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known or be independently discovered by
its competitors, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Management of Growth
The Company's future growth may cause a significant strain on its
management, operational, financial and other resources. The Company's ability to
manage its growth effectively will require it to implement and improve its
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new management personnel and the development of additional expertise
by management. Any increase in resources devoted to product development and
marketing and sales efforts without a corresponding increase in the Company's
operational, financial, manufacturing and management information systems could
have an adverse effect on the Company's performance. The failure of the
Company's management team to effectively manage growth could have a material
adverse effect on the Company's business, financial condition and results of
operations.
33
<PAGE> 36
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 December 31, 1997, the Company's
accumulated deficit was approximately $12.0 million. The Company may incur
substantial additional operating losses over at least the next several years.
Such losses have been and may continue to be principally the result of the
various costs associated with the Company's discovery, research and development
programs, preclinical studies and clinical activities. Substantially all of the
Company's revenues to date have resulted from corporate partnerships, other
research, development and licensing arrangements, research grants and interest
income. The Company's ability to achieve a consistent, profitable level of
operations is dependent in large part upon entering into agreements with
corporate partners for product discovery, research, development and
commercialization, obtaining regulatory approvals for its products and
successfully manufacturing and marketing commercial products. There can be no
assurance that the Company will be able to achieve consistent profitability. In
addition, payments under corporate partnerships and licensing arrangements will
be subject to significant fluctuations in both timing and amounts, resulting in
quarters of profitability and quarters of losses by the Company. Therefore, the
Company's results of operations for any period may fluctuate and may not be
comparable to the results of operations for any other period.
Future Capital Needs; Uncertainty of Additional Funding
The Company will require substantial capital resources in order to conduct
its operations. The Company's future capital requirements will depend on many
factors, including, among others, the following: continued scientific progress
in its discovery, research and development programs; the magnitude and scope of
these activities; the ability of the Company to maintain existing and establish
additional corporate partnerships and licensing arrangements; progress with
preclinical studies and clinical trials; the time and costs involved in
obtaining regulatory approvals; the costs involved in preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims; the potential
need to develop, acquire or license new technologies and products; and other
factors not within the Company's control. The Company 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 Company may be
required to delay, reduce the scope of, eliminate or divest one or more of its
discovery, research or development programs, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that its existing capital resources, committed
payments under its existing corporate partnerships and licensing arrangements,
bank credit arrangements, equipment financing and interest income will be
sufficient to fund its 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 Company. In addition, a substantial number of the
payments to be made by Corixa's corporate partners and other licensors are
dependent upon the achievement by the Company of development and regulatory
milestones. Failure to achieve such milestones would have a material adverse
effect on the Company's future capital needs. In addition, the Company has
entered into an option agreement with one of its corporate partners pursuant to
which such corporate partner has agreed to pay certain consideration in exchange
for exclusive options to license two of Corixa's early-stage antigen discovery
programs in two undisclosed 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, the
Company will be required to refund the consideration attributable to such option
over a three year period of time, beginning March, 2000. See Note 8 and Note 10
of Notes to Financial Statements for further discussion of this contractual
arrangement.
Potential Dilution Related to Corporate Partnerships
The Company, GenQuest, and certain stockholders of GenQuest have entered
into the Call Option Agreement under which the Company has the right to purchase
a significant majority of the outstanding shares of GenQuest's capital stock in
exchange for shares of the Company's Common Stock at a purchase
34
<PAGE> 37
price determined in accordance with the formula specified in the Call Option
Agreement. The mechanics of the Call Option Agreement are described in further
detail in Item 1 "Business -- Relationship with GenQuest." As of the date
hereof, Corixa has not made a decision as to whether it will exercise this
right. Additionally, the Call Option Agreement does not obligate the Company to
purchase any shares of GenQuest, nor does it preclude the Company from
purchasing shares of GenQuest or the assets of GenQuest at a price different
from that set forth in the Call Option Agreement. If Corixa were to exercise
this right or otherwise issue shares of its capital stock in an acquisition of
GenQuest or any other entity, the stockholders of Corixa would face immediate
and potentially significant dilution. Additionally, if SmithKline Beecham elects
to exercise either one of its options to license the Company's early-stage
antigen discovery programs in cancer, the Company may be required to issue
shares of its Common Stock to SmithKline Beecham, which will result in
additional dilution as a result of such issuance.
Dependence on Key Personnel
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might significantly delay or
prevent the Company's achievement of its scientific or business objectives.
Competition among biotechnology and biopharmaceutical companies for qualified
employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract and retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company does not maintain "key person"
life insurance on any officer, employee or consultant of the Company.
Corixa also has relationships with scientific collaborators at academic and
other institutions, some of whom conduct research at the Company's request or
assist the Company in formulating its research and development strategy. These
scientific collaborators are not employees of the Company and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. The Company has limited control
over the activities of these scientific collaborators and, except as otherwise
required by its license, consulting and sponsored research agreements, can
expect only limited amounts of time to be dedicated to the Company's activities
by such individuals. Failure of any such persons to devote sufficient time and
resources to the Company's programs could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
these collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to those of
Corixa.
Intense Competition
The biotechnology and biopharmaceutical industries are intensely
competitive. Several biotechnology and biopharmaceutical companies, as well as
certain research organizations, currently engage in or have in the past engaged
in efforts related to the development of vaccines for the treatment and
prevention of cancer and various infectious diseases, as well as the development
of diagnostic products for infectious disease indications.
Many companies, including Corixa's corporate partners, as well as academic
and other research organizations, are also developing alternative therapies to
treat cancer and infectious diseases and, in this regard, are competitive with
the Company. Moreover, technology controlled by third parties that may be
advantageous to the Company's business may be acquired or licensed by
competitors of the Company, thereby preventing the Company from obtaining such
technology on favorable terms, or at all.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in discovery, research
and development, manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than Corixa or its corporate partners. Other
smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for discovery, research, clinical development and
marketing of products similar to those of the
35
<PAGE> 38
Company. These companies and institutions compete with the Company in recruiting
and retaining qualified scientific and management personnel as well as in
acquiring technologies complementary to the Company's programs. Corixa and its
corporate partners will face competition with respect to product efficacy and
safety, the timing and scope of regulatory approvals, availability of resources,
reimbursement coverage, price and patent position, including potentially
dominant patent positions of others. There can be no assurance that competitors
will not develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization than the Company and its
corporate partners, or that such competitive products will not render the
Company's products obsolete.
Lack of Manufacturing Experience; Reliance on Contract Manufacturers
Corixa does not have significant manufacturing facilities. Although the
Company currently manufactures limited quantities of certain antigens and
adjuvants, including LeIF, to conduct preclinical studies and to supply
corporate partners, the Company intends to rely on third party contract
manufacturers to produce large quantities of such substances for clinical trials
and product commercialization. Additionally, the Company may be required to rely
on contract manufacturers to produce antigens, adjuvants and other components of
its products for research and development, preclinical and clinical purposes.
Corixa's vaccines and other products have never been manufactured on a
commercial scale, and there can be no assurance that such products can be
manufactured at a cost or in quantities necessary to make them commercially
viable. There can be no assurance that third party manufacturers will be able to
meet the Company's needs with respect to timing, quantity or quality. If the
Company is unable to contract for a sufficient supply of required products and
substances on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical and clinical
testing would be delayed, thereby delaying the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products. Any such delay may have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, contract
manufacturers that the Company may use must continually adhere to current GMP
regulations enforced by the FDA through its facilities inspection program. If
the facilities of such manufacturers cannot pass a pre-approval plant
inspection, the FDA premarket approval of the Company's products will not be
granted.
Lack of Marketing Experience; Dependence on Third Parties
The Company currently has no sales, marketing or distribution capability.
The Company intends to rely on its current and future corporate partners, if
any, to market its products; however, there can be no assurance that such
corporate partners have effective sales forces and distribution systems. If the
Company is unable to maintain or establish such relationships and is required to
market any of its products directly, the Company will have to develop a
marketing and sales force with technical expertise and with supporting
distribution capabilities. There can be no assurance that the Company will be
able to maintain or establish such relationships with third parties or develop
in-house sales and distribution capabilities. To the extent that the Company
depends on its corporate partners or third parties for marketing and
distribution, any revenues received by the Company will depend upon the efforts
of such corporate partners or third parties, and there can be no assurance that
such efforts will be successful.
Government Regulation
The preclinical testing and clinical trials of any products developed by
the Company or its corporate partners and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to regulation by federal, state and
local governmental authorities in the United States, the principal one of which
is the FDA, and by similar agencies in other countries. Any product developed by
the Company or its corporate partners must receive all relevant regulatory
approvals or clearances before it may be marketed in a particular country. The
regulatory process, which includes extensive preclinical studies and clinical
trials of each product in order to establish its safety and efficacy, is
uncertain, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay,
36
<PAGE> 39
limit or prevent regulatory approval or clearance. In addition, delays or
rejections may be encountered based upon changes in regulatory policy during the
period of product development and/or the period of review of any application for
regulatory approval or clearance for a product. Delays in obtaining regulatory
approvals or clearances would adversely affect the marketing of any products
developed by the Company or its corporate partners, impose significant
additional costs on the Company and its corporate partners, diminish any
competitive advantages that the Company or its corporate partners may attain and
adversely affect the Company's ability to receive royalties and generate
revenues and profits. There can be no assurance that, even after such time and
expenditures, any required approvals or clearances will be obtained for any
products developed by or in collaboration with the Company.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the new product may be marketed that could limit the potential
market for such product, and product approvals, once granted, may be withdrawn
if problems occur after initial marketing. Furthermore, manufacturers of
approved products are subject to pervasive review, including compliance with
detailed regulations governing GMP. Failure to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to renew marketing
applications and criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Company's discovery, research and development work, including radioactive
compounds and infectious disease agents. In addition, the Company cannot predict
the extent of government regulations or the impact of new governmental
regulations which might have an adverse effect on the discovery, development,
production and marketing of the Company's products, and there can be no
assurance that the Company will not be required to incur significant costs to
comply with current or future laws or regulations or that the Company will not
be adversely affected by the cost of such compliance.
Product Liability Exposure and Potential Unavailability of Insurance
Inherent in the use of the Company's product candidates in clinical trials,
as well as in the manufacturing and distribution of any approved products, is
the risk of financial exposure to product liability claims in the event that the
use of such products results in personal injury. There can be no assurance that
the Company will not experience losses due to product liability claims in the
future. Corixa has obtained limited product liability insurance coverage;
however, there can be no assurance that such coverage is adequate or will
continue to be available in sufficient amounts or at an acceptable cost, or at
all. There can also be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing. A product liability claim, product recall or other claim, as well as
any claims for uninsured liabilities or in excess of insured liabilities, may
have a material adverse effect on the Company's business, financial condition
and results of operations.
No Assurance of Market Acceptance
There can be no assurance that any products successfully developed by the
Company or its corporate partners, if approved for marketing, will ever achieve
market acceptance. The Company's products, if successfully developed, will
compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical and other biotechnology companies, as well as
new products currently under development by such companies and others. The
degree of market acceptance of any products developed by the Company or its
corporate partners will depend on a number of factors, including the
establishment and demonstration of the clinical efficacy and safety of the
product candidates, their potential advantage over alternative treatment methods
and reimbursement policies of government and third-party payors. There can be no
assurance that physicians, patients or the medical community in general will
accept and utilize any products that may be developed by the Company or its
corporate partners, and the lack of such market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
37
<PAGE> 40
Uncertainty Related to Pricing and Reimbursement; Uncertainty Related to
Health Care Reform
In both domestic and foreign markets, sales of the Company's or its
corporate partners' products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers, health maintenance organizations, pharmacy
benefit management companies and other organizations. Both the federal and state
governments in the United States and foreign governments continue to propose and
pass legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of the Company's or its corporate partners'
products are approved for marketing. Cost control initiatives could decrease the
price that the Company receives for any product it or any of its corporate
partners may develop in the future and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, including
pharmaceuticals. There can be no assurance that the Company's or its corporate
partners' products, if any, will be considered cost effective or that adequate
third-party reimbursement will be available to enable Corixa or its corporate
partners to maintain price levels sufficient to realize a return on their
investment. In any such event, the Company may be materially adversely affected.
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 the Company's Common Stock may be subject to substantial
volatility depending upon many factors, including announcements regarding the
results of discovery efforts, preclinical and clinical activities, technological
innovations or new commercial products developed by the Company or its
competitors, changes in government regulations, changes in the Company's patent
portfolio, developments or disputes concerning proprietary rights, changes in
existing corporate partnerships or licensing arrangements, the establishment of
additional corporate partnerships or licensing arrangements, the progress of
regulatory approvals, the issuance of new or changed stock market analyst
reports and/or recommendations, and economic and other external factors, as well
as operating losses by the Company, fluctuations in the Company's financial
results and the degree of trading liquidity in the Common Stock. These factors
could have a material adverse effect on the Company's business, financial
condition and results of operations and the price of the Common Stock in the
public market.
Control by Existing Stockholders
As of March 2, 1997, executive officers and directors of the Company,
together with entities affiliated with them, beneficially own approximately 57%
of the Common Stock of the Company. These stockholders, acting as a group, are
able to control the election of all members of the Company's Board of Directors
and to determine all corporate actions. The voting power of these stockholders
could also have the effect of delaying or preventing a change in control of the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
38
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Corixa Corporation (a development stage company) for
the period from September 8, 1994 (date of inception) to December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the cash flows of Corixa
Corporation for the period from September 8, 1994 (date of inception) to
December 31, 1994, in conformity with generally accepted accounting principles.
KMPG Peat Marwick LLP
Seattle, Washington
April 28, 1995
39
<PAGE> 42
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 the Company'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
40
<PAGE> 43
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $16,457,641 $ 2,088,226
Securities available-for-sale............................. 39,859,649 9,845,180
Accounts receivable (including $61,706 and $166,640
receivable from an affiliated company at December 31,
1997 and December 31, 1996, respectively).............. 601,940 681,897
Interest receivable....................................... 134,035 5,151
Prepaid expenses.......................................... 506,578 264,859
----------- -----------
Total current assets.............................. 57,559,843 12,885,313
Property and equipment, net................................. 4,046,484 2,237,196
Deferred charges and deposits............................... 200,632 62,402
----------- -----------
Total assets...................................... 61,806,959 $15,184,911
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 1,571,023 $ 978,738
Deferred revenue.......................................... 1,096,665 1,318,130
Current portion of obligations and commitments............ 930,429 487,758
----------- -----------
Total current liabilities......................... 3,598,117 2,784,626
Long-term obligations and commitments, less current
portion................................................... 6,923,786 1,175,354
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized shares -- 10,000,000 (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 -- 11,774,214 in 1997 and
2,594,137 in 1996..................................... 11,774 2,594
Additional paid-in capital................................ 66,466,994 21,655,080
Receivable for warrants................................... (651,565) (1,140,000)
Deferred compensation..................................... (2,574,949) --
Deficit accumulated during development stage.............. (11,967,198) (9,297,894)
----------- -----------
Total stockholders' equity........................ 51,285,056 11,224,931
----------- -----------
Total liabilities and stockholders' equity........ $61,806,959 $15,184,911
=========== ===========
</TABLE>
41
<PAGE> 44
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 8,
1994
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION TO
----------------------------------------- DECEMBER 31,
1997 1996 1995 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative agreements............ $ 13,389,953 $ 4,401,560 $ 2,410,834 $ 20,202,347
Government grants................... 976,739 1,402,979 304,029 2,683,747
------------ ------------ ----------- ------------
Total revenues.............. 14,366,692 5,804,539 2,714,863 22,886,094
Operating expenses:
Research and development............ (16,398,243) (9,994,796) (7,039,757) (33,871,579)
General and administrative.......... (2,032,943) (780,904) (531,880) (3,551,260)
In-process research and
development...................... -- -- -- (428,059)
------------ ------------ ----------- ------------
Total operating expenses.... (18,431,186) (10,775,700) (7,571,637) (37,850,898)
------------ ------------ ----------- ------------
Loss from operations.................. (4,064,494) (4,971,161) (4,856,774) (14,964,804)
Interest income....................... 1,299,675 642,011 772,426 2,797,237
Interest expense...................... (326,814) (165,613) (82,024) (574,451)
Other income.......................... 415,776 348,000 16,399 780,175
------------ ------------ ----------- ------------
Net loss.............................. $ (2,675,857) $ (4,146,763) $(4,149,973) $(11,961,843)
============ ============ =========== ============
Basic and diluted net loss per
share............................... $ (0.55) $ (1.65) $ (1.67)
============ ============ ===========
Shares used in computation of basic
and diluted net loss per share...... 4,891,342 2,520,668 2,486,746
============ ============ ===========
Pro forma basic and diluted net loss
per share........................... $ (0.31) $ (0.55) $ (0.58)
============ ============ ===========
Shares used in computation of pro
forma basic and diluted net loss per
share............................... 8,754,738 7,490,101 7,119,821
============ ============ ===========
</TABLE>
42
<PAGE> 45
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------- PAID-IN RECEIVABLE DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL FOR WARRANTS COMPENSATION
---------- ------- --------- ------- ----------- ------------ ------------
<S> <C> <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 -- (3,903,795)
Amortization of deferred
compensation.................. -- -- -- -- -- -- 1,328,846
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) (2,574,949)
========== ======= ========= ======= =========== =========== ===========
<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
------------ -----------
<S> <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........... -- --
Amortization of deferred
compensation.................. -- 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..... (11,967,198) 51,285,056
============ ===========
</TABLE>
43
<PAGE> 46
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, SEPTEMBER 8, 1994
----------------------------------------- (DATE OF INCEPTION)
1997 1996 1995 TO DECEMBER 31, 1997
------------ ------------ ----------- --------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................................... $ (2,675,857) (4,146,763) (4,149,973) $(11,961,843)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred compensation...... 1,328,846 -- -- 1,328,846
Depreciation and amortization.............. 1,090,681 571,106 293,241 1,958,677
Equity instruments issued in exchange for
technology and services.................. 64,995 97,352 13,937 176,284
In-process research and development........ -- -- -- 428,059
Changes in certain assets and liabilities:
Accounts payable and accrued expenses...... 592,285 408,629 414,356 1,347,220
Prepaid expenses........................... (241,719) (87,124) (165,262) (505,013)
Deferred revenue........................... (221,465) 905,213 412,917 1,096,665
Other assets............................... (138,230) 5,899 76,184 (111,114)
Interest receivable........................ (128,884) 50,347 108,576 (128,884)
Accounts receivable........................ 79,957 (634,929) (52,119) (607,091)
------------ ------------ ----------- ------------
Net cash provided by (used in) operating
activities................................. (249,391) (2,830,270) (3,048,143) (6,978,194)
INVESTING ACTIVITIES
Purchases of securities available-for-sale... (35,802,313) (11,269,688) (5,222,538) (64,227,152)
Proceeds from maturities of securities
available-for-sale......................... 5,794,399 9,117,751 9,450,000 24,362,150
Purchases of property and equipment.......... (888,558) (543,619) (270,475) (1,730,019)
Cash acquired in acquisitions................ -- -- -- 29,939
------------ ------------ ----------- ------------
Net cash provided by (used in) investing
activities................................. (30,896,472) (2,695,556) 3,956,987 (41,565,082)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock
due to IPO................................. 40,778,096 -- -- 40,778,096
Borrowings from collaborative agreement...... 3,000,000 -- -- 3,000,000
Proceeds from long term debt................. 2,000,000 -- -- 2,000,000
Proceeds from issuance of convertible
preferred stock............................ -- 5,000,001 340,000 20,125,456
Principal payments on capital leases......... (820,310) (425,327) (151,355) (1,396,992)
Payments on receivables for warrants......... 488,435 -- -- 488,435
Proceeds from issuance of common stock....... 69,057 35,440 -- 145,092
Other........................................ -- -- (140,524) (139,170)
------------ ------------ ----------- ------------
Net cash provided by financing activities.... 45,515,278 4,610,114 48,121 65,000,917
Net increase (decrease) in cash and cash
equivalents................................ 14,369,415 (915,712) 956,965 16,457,641
Cash and cash equivalents at beginning of
period..................................... 2,088,226 3,003,938 2,046,973 --
------------ ------------ ----------- ------------
Cash and cash equivalents at end of period... $ 16,457,641 $ 2,088,226 $ 3,003,938 $ 16,457,641
============ ============ =========== ============
SUPPLEMENTAL DISCLOSURES
Interest paid.............................. 326,814 165,613 82,024 574,451
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING,
INVESTING, AND FINANCING ACTIVITIES
Assets acquired pursuant to capital
leases................................... $ 2,067,498 $ 995,615 $ 1,244,179 $ 4,307,292
Equity instruments issued in exchange for
technology and services.................. 64,995 97,352 13,937 176,284
</TABLE>
44
<PAGE> 47
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
Corixa Corporation (the "Company"), a development stage company, is focused
on the discovery and early clinical development of vaccine products that induce
specific and potent pathogen- or tumor-reactive T lymphocyte (T cell) responses
for the treatment and prevention of cancers and certain infectious diseases. The
Company employs the following three proprietary core technology platforms, which
together comprise the elements the Company believes are necessary for effective
T cell vaccines: (i) microsphere delivery systems that specifically activate
appropriate T cell responses; (ii) adjuvants that specifically enhance
appropriate T cell responses; and (iii) disease-specific antigens that are
essential to elicit appropriate T cell responses. Principal activities to date
include conducting research and development, pursuing intellectual property
protection, entering into collaborative in- and out-licensing agreements,
raising capital, recruiting scientific and management personnel, and
establishing a research facility.
Cash and Cash Equivalents
All short-term investments, which consist primarily of bankers' acceptances
and certificates of deposit, with maturities of three months or less at date of
purchase are considered to be cash equivalents. The amounts are recorded at
cost, which approximates fair market value.
Securities Available-for-Sale
The Company's investment portfolio is classified as available-for-sale, and
such securities are stated at fair value, with the unrealized gains and losses
reflected in stockholders' equity. Interest earned on securities is included in
interest income. The amortized cost of investments is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization and
accretions are included in interest income. The cost of securities sold is
calculated using the specific identification method.
Management of Credit Risk
The Company is subject to concentration of credit risk, primarily from its
cash investments. Credit risk for cash investments is managed by purchase of
investment grade securities and diversification of the investment portfolio
among issuers and maturities.
Property and Equipment
Property and equipment are stated at cost and are 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.
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, the Company'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 to the financial statements.
45
<PAGE> 48
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company records deferred compensation for the difference between the
exercise price and the deemed fair value for financial reporting purposes of
stock options granted. The compensation expense related to such grants is
amortized over the vesting period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Other Financial Instruments
At December 31, 1997 and 1996, the carrying value of financial instruments
such as receivables and payables approximated their fair values, based on the
short-term maturities of these instruments. Additionally, the carrying value of
long-term liabilities approximated fair values because the underlying interest
rates reflect market rates at the balance sheet dates.
Investment in GenQuest
The Company's preferred stock investment in GenQuest, which constitutes
less than 20% of the voting stock of GenQuest, is accounted for using the cost
method. The carrying value of this investment is zero. (See Note 9).
Revenues
Revenue under collaborative agreements typically consists of nonrefundable
up-front fees, ongoing research and development payments, and milestone and
royalty payments. Revenue from nonrefundable up-front fees is recognized upon
satisfaction of related obligations. Revenue from ongoing research and co-
development payments is recognized ratably over the term of the agreement, as
the Company believes such payments 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. The Company recognized 74%, 41% and 59% of its
revenue in fiscal years 1997, 1996 and 1995, respectively, from two
collaborative partners.
Research and Development Expenses
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the liability method under
Statement of Accounting Standards No. 109, "Accounting for Income Taxes."
New Accounting Pronouncements
In 1997, 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.
46
<PAGE> 49
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As all preferred stock converted to common stock at the closing of the
Company'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.
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which is required to be adopted for the fiscal years beginning after
December 15, 1997. The new Statement requires that companies report and display
comprehensive income and its components, as defined in Statement 130, for all
periods presented. Under the new requirements, comprehensive income must be
displayed with the same prominence as other financial statements. The Company
plans to adopt the new statement in 1998.
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 the Company's notes to the
financial statements. The Company plans to adopt the new Statement in 1998.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
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>
December 31, 1997
U.S. Treasury obligations........ $13,978,189 $10,474 $ (7,969) $13,975,685
U.S. Corporate securities........ 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>
The Company 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 the Company's available-for-sale securities are shown
below:
<TABLE>
<CAPTION>
ESTIMATED
FAIR AMORTIZED
VALUE COST
----------- -----------
<S> <C> <C>
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>
47
<PAGE> 50
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Laboratory equipment................................ $3,577,341 $2,088,170
Computers and office equipment...................... 1,151,114 370,471
Leasehold improvements.............................. 1,256,002 628,940
---------- ----------
5,984,457 3,087,581
Accumulated depreciation and amortization........... (1,937,973) (850,385)
---------- ----------
$4,046,484 $2,237,196
========== ==========
</TABLE>
At December 31, 1997 and 1996, the Company held equipment under capitalized
leases with an original cost of $4,307,292 and $2,295,831, respectively, and a
net book value of $2,850,409 and $1,595,970, respectively. These leases are
secured by the underlying assets.
4. STOCKHOLDERS' EQUITY
Common Stock
On July 25, 1997, the Company's Board of Directors authorized the Company
to file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with the Offering of its common stock. In
connection with the Offering, the Company'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, the Company
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 the Company.
Preferred Stock
In connection with the Offering, the Company'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
The Company has a stock option plan, the Amended and Restated 1994 Stock
Option Plan (the "1994 Plan"), as of December 31, 1997, under which an aggregate
of 1,310,981 shares of common stock were reserved for grants to employees,
members of the Board of Directors, and consultants. Options granted under this
plan may be designated as incentive or nonqualified at the discretion of the
Plan Administrator. On July 25, 1997, the Company amended and restated the 1994
Plan, whereby the number of shares authorized under the 1994 Plan was increased
by 700,000 shares and is subject to automatic increase on the first trading
48
<PAGE> 51
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Plan allows option holders
to exercise options prior to vesting, but the stock received is subject to
repurchase by the Company at the original purchase price in the event of
termination. The repurchase rights expire according to the original option
vesting terms.
1997 Employee Stock Purchase Plan
On July 25, 1997, the Company adopted the 1997 Employee Stock Purchase Plan
(the "Purchase Plan"). As of December 31, 1997, 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 common stock through payroll
deductions at a price equal to 85% of the fair market value of the Company's
common stock on the first day or the last day of the applicable six-month
offering period, whichever is lower. The Purchase Plan began on the effective
date of the Company's initial public offering.
The number of authorized shares is subject to automatic increase on the
first trading day of each of the 20 calendar years beginning in 1998 and ending
in 2017. If the number of shares reserved for issuance is less than 1% of the
outstanding common stock, the number of shares reserved for issuance shall be
increased until it equals 1% of the outstanding common stock (up to a maximum of
125,000 in any calendar year), or such lower amount as determined by the Board
of Directors. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder. If not terminated earlier, the Purchase
Plan will have a term of 20 years.
1997 Directors' Stock Option Plan
The Directors' Stock Option Plan (the "Directors' Plan") was adopted by the
Company on July 25, 1997. As of December 31, 1997, a total of 200,000 shares of
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 (NSOs) to non-employee directors of the Company. The
Directors' Plan provides that each person who is a non-employee director on the
date of the offering and each person who first becomes a non-employee director
of the Company after the date of the offering shall be granted NSOs to purchase
15,000 shares of common stock (the "First Option"). Thereafter, on the 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 the Company's Board of Directors for at least six months. The First
Options and Subsequent Options generally vest over 36 and 12 months,
respectively, and have 10-year terms. The exercise price of such options shall
be equal to the fair market value of the Company's common stock on the date of
grant of the
49
<PAGE> 52
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
option. The Plan has a 10-year term unless terminated earlier. A summary of the
Company's stock option activity and related information follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER AVERAGE
OUTSTANDING PRICE PER EXERCISE
OPTIONS SHARE PRICE
------------ ----------- --------
<S> <C> <C> <C>
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
========= =========== ====
</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 12/31/1997 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 96,845 shares had been exercised as of December 31, 1997 for
which the underlying stock continues to be restricted. At December 31, 1997
847,706 shares remain available for grant.
Pro forma information regarding net loss and loss per share required by
Statement 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions on the
option grant date 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.
Under Statement 123, if the Company had elected to recognize the
compensation cost based upon the fair value of the options granted at the grant
date, net loss would have been increased as follows (the estimated
50
<PAGE> 53
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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)
Basic and diluted net loss per share:
As reported........................... (0.55) (1.65) (1.67)
Pro forma............................. (0.60) (1.65) (1.67)
Pro forma basic and diluted 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, the Company
issued stock warrants to certain shareholders at an aggregate purchase price of
$0.003 per share to purchase 413,191 shares of common stock at an exercise price
of $0.33 per share.
During 1996, the Company issued warrants to purchase 114,342 shares of
common stock at exercise prices ranging from $0.003 to $6.60 per share and
163,636 Series A shares at an exercise price of $6.60 per share. These warrants
were issued in connection with certain collaborative agreements and the leasing
of office and research facilities. 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.) Additional warrants to purchase 454,533 shares of Series B Preferred
Stock were issued in 1996. (See Note 9.)
The Company 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
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.
The Company had 694,512 common stock warrants outstanding as of December
31, 1997 at a weighted average exercise price of $8.04 which expire between 2001
and 2008.The Company had no Series A or Series B share warrants outstanding as
of December 31, 1997. Common stock, Series A share and Series B
51
<PAGE> 54
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Stock Repurchase Agreements
Since its inception, the Company has sold approximately 945,185 shares of
common stock at a price of $0.017 per share to employees and scientific founders
of the Company under agreements which allow the Company, at its option, to
repurchase the shares at the original purchase price if the employment or
consulting relationship with the Company ceases for any reason. Under the
repurchase agreements, the shares subject to repurchase are generally reduced in
cumulative pro rata increments over a four-year period beginning at the issuance
date. As of December 31, 1997 and 1996, 177,223 shares and 413,516 shares,
respectively, were subject to repurchase.
Under the terms of all of the repurchase agreements, if the Company is
acquired by merger, consolidation, or sale of assets, the repurchase agreements
will cease to apply.
Shares Reserved
Common stock was reserved for the following purposes:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Stock options........................................... 2,016,795
Warrants to purchase common stock....................... 694,512
Employee Stock Purchase Plan............................ 125,000
License, technology, and patent rights agreements....... 34,838
Conversion of preferred stock........................... -0-
Warrants to purchase preferred stock which are
Convertible to common................................. -0-
---------
3,871,145
=========
</TABLE>
Net Loss
Basic and diluted loss per share is calculated using the average number of
common shares outstanding (see Note 1). Pro forma and basic as diluted loss per
share is 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,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss (A)............................ $(2,675,857) $(4,146,763) $(4,149,973)
=========== =========== ===========
Weighted average outstanding:
Common stock (B)...................... 4,891,342 2,520,668 2,486,746
Convertible preferred stock........... 3,863,396 4,969,433 4,633,075
----------- ----------- -----------
Total weighted average outstanding
(C)................................... 8,754,738 7,490,101 7,119,821
=========== =========== ===========
Loss per share:
Basic and diluted (A/B)............... $ (0.55) $ (1.65) $ (1.67)
=========== =========== ===========
Pro forma basic and diluted (A/C)..... $ (0.31) $ (0.55) $ (0.58)
</TABLE>
52
<PAGE> 55
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
At December 31, 1997 and December 31, 1996, the Company had net operating
loss carryforwards of approximately $9,887,000 and $7,490,000, respectively, and
research and experimentation credit carryforwards of approximately $836,000 and
$314,000, respectively, which begin to expire in 2009. Utilization of net
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, the Company experienced
ownership changes as defined by the Revenue Code. Accordingly, the Company'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. The Company 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 $1,104,000 and $1,475,000 during 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,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $3,361,000 $2,547,000
Research and experimentation credit and foreign tax
credit carryforwards................................ 861,000 339,000
Deferred revenue...................................... 373,000 448,000
Financial statement expenses not deducted on tax
return.............................................. 162,000 33,000
---------- ----------
4,757,000 3,367,000
---------- ----------
Deferred tax liabilities:
Depreciation.......................................... 37,000 34,000
Tax return expenses not charged against financial
statements.......................................... 96,000 -0-
---------- ----------
133,000 34,000
---------- ----------
Net deferred tax asset................................ 4,624,000 3,333,000
Less valuation allowance.............................. (4,624,000) (3,333,000)
---------- ----------
Net deferred tax assets............................... $ -0- $ -0-
</TABLE>
6. 401(K) PLAN
The Company has a 401(k) defined contribution plan (the Plan), as defined
by the Internal Revenue Code. The Plan is for the benefit of all qualifying
employees and permits voluntary contributions (by the employees) of up to 15% of
their base salary (as defined by the Plan). The Company did not match
contributions before fiscal 1998. Effective January 1, 1998, the Company
implemented a 401(k) matching program whereby the Company contributes
twenty-five cents for each dollar a participant contributes, with a maximum
contribution of 2% of a participant's earnings.
53
<PAGE> 56
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM OBLIGATIONS AND COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Capital lease obligations............................. $2,854,215 $1,663,112
Advance from corporate partner........................ 3,000,000 -0-
Bank loan............................................. 2,000,000 -0-
---------- ----------
7,854,215 1,663,112
Less current portion of capital lease obligations..... 930,429 487,758
---------- ----------
$6,923,786 $1,175,354
========== ==========
</TABLE>
A $1,500,000 lease line was obtained in 1996 and in 1997 the Company
renegotiated the remaining lease line (of approximately $384,000) to $1,450,000,
of which approximately $303,000 remained available at December 31, 1997. Both
leases are secured by the underlying equipment.
The $3 million advance from a corporate partner at December 31, 1997
represents payments received in exchange for options to license two of Corixa's
early-stage cancer targets. Refer to Note 8 with regard to the terms and
conditions of the advance and Note 10 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, the Company 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 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, the Company 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 the Company's net cash burn or
$10,000,000, (iii) total debt to net worth ratios and (iv) current ratio. As of
December 31, 1997 the Company had borrowed $2 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 December 31, 1997 the Company was in
compliance with the note covenants.
The Company rents office and research facilities under noncancelable
operating leases which expire in January 2005. The Company has issued an
irrevocable standby letter of credit in the amount of $750,000 as a security
deposit on the lease. The Company has options to renew the lease for two
additional terms of five years each.
54
<PAGE> 57
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 $1,532,282, $638,037 and 364,240, for the years ended
December 31, 1997, 1996 and 1995, respectively.
8. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
The Company has various collaborative research agreements with academic
universities and research institutions, which expire at various intervals
through 1999. Certain agreements stipulate the reimbursement by the Company of
research costs incurred by these universities and institutions on behalf of the
Company. Included in research and development expenses for the years ended
December 31, 1997, 1996 and 1995 are reimbursements approximating $1,800,000,
$1,400,000 and $900,000, respectively. Certain 1997 collaborative agreements
extend into fiscal years 1998 and 1999, as of December 31, 1997 the Company is
committed to reimburse these universities and institutions approximately
$600,000 and $130,000 in 1998 and 1999, respectively.
The Company has entered into certain license agreements and obtained
options to negotiate license agreements under the terms of which the Company
received license, technology, and patent rights. During 1997, 1996 and 1995, the
Company paid initial license and/or option fees approximating $480,000, $185,000
and $80,000, respectively. The Company 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, the Company also issued options to purchase 129,393
shares of common stock and warrants to purchase 75,757 and 163,636 shares of
common stock and Series A Preferred Stock, respectively. See Note 4.
Certain agreements call for royalty and milestone payments to be paid by
the Company. The agreements are for terms from 10 to 17 years or the expiration
of the last issued patent within the licensed technology, unless terminated
earlier for certain specified events, as defined in the respective agreements.
Additionally, the Company has entered into research and license agreements
and granted options to other parties to negotiate license agreements under the
terms of which the Company provides license, technology, and patent rights.
Under the terms of the agreements, the Company will receive additional license
fees, option fees and/or reimbursement of certain research and development costs
through 1998. The agreements provide for one-time payments upon the achievement
of certain milestones and the payment of royalties based on product sales.
55
<PAGE> 58
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company 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 undisclosed cancer targets
(see Note 7). In the event such options are exercised, the consideration will be
credited against future milestone payments or converted to common stock of
Corixa, as per the agreement. If such options are not exercised or extended
before March 1, 1998 in the case of one cancer target option or before September
1, 1998 in the case of the second cancer target option, the Company will be
required to refund the consideration for the option(s) over a three-year period
beginning March 2000. See Note 10 regarding a subsequent event affecting this
agreement.
9. INVESTMENTS IN AND AGREEMENTS WITH GENQUEST
In February 1996, the Company entered a license and research collaboration
agreement with GenQuest, Inc., a Delaware corporation ("GenQuest") for the
purpose of discovering, characterizing, developing, and commercializing novel
genes for use in the treatment, prevention, or diagnosis of cancer or
pre-neoplastic cell proliferation disease.
In February 1996, the Company acquired an aggregate of 4,412,613 shares of
Series A preferred stock of GenQuest in exchange for the transfer of certain
intellectual property rights in connection with the collaboration. 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, the Company has certain registration rights with respect to
public offerings of GenQuest and rights of first offer which allow the Company
to participate ratably in future issuances of stock to maintain its ownership
percentage of GenQuest.
Additionally, the Company is entitled to voting rights equivalent to the
number of shares of common stock of GenQuest into which such shares of Series A
preferred stock can be converted and is a party to a voting agreement among
GenQuest and all but two of its stockholders. Under the terms of the voting
agreement, the Company has a right to designate two of seven nominees to the
Board of Directors of GenQuest and the stockholders of GenQuest who are parties
to the voting agreement have agreed to vote their shares in favor of such
nominees. The Company's right to designate such nominees will terminate when the
Company owns less than 10% of the voting capital stock of GenQuest.
In December 1996, the Company and GenQuest amended the license and
collaboration agreement and, in connection with this amendment, entered into an
administrative services and management agreement. As part of the collaboration,
GenQuest has agreed to provide an aggregate of $5.7 million in funding in
support of certain research and development projects conducted by the Company
and GenQuest on a collaborative basis during a three year research term. Under
the license agreement, the Company and GenQuest agreed to cross-license certain
technologies and products owned or controlled by them as of February 1996 and
technologies and products developed under the collaborative research program.
The Company is required to pay GenQuest, when product sales commence, certain
royalties on sales of products that use technology licensed from GenQuest, and
GenQuest is required to pay the Company, when product sales commence, certain
royalties on the sale of products that use technology licensed from the Company.
In addition, sales of certain products developed by GenQuest using technology
developed by the Company in the collaborative research program would be
royalty-free.
Additionally, the Company has agreed that certain administrative and
management services will be provided to GenQuest by certain Company employees,
including the Company's Chief Executive Officer, Chief Scientific Officer, Chief
Operating Officer, and Chief Financial Officer, and GenQuest has agreed to
reimburse the Company for such services. The management services agreement
terminates upon the earlier of (i) 90 days following the expiration of the
Company's right to purchase substantially all of the outstanding
56
<PAGE> 59
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
shares of GenQuest's capital stock, as described below, (ii) 90 days following
the date the Company purchases GenQuest's capital stock pursuant to such right,
or (iii) at the option of either Corixa or GenQuest, upon the termination of the
amended license agreement.
In December 1996, in connection with the modification of the collaboration
between the Company and GenQuest and the issuance of Series B preferred stock of
GenQuest to additional investors (18,309,271 shares at $0.50 per share), the
Company, GenQuest and certain stockholders of GenQuest entered into a call
option agreement. Under the terms of this agreement, the Company has the right
to purchase a significant majority of the outstanding shares of GenQuest's
capital stock held by the stockholders of GenQuest at a purchase price
determined in accordance with a formula stipulated in the agreement. This right
becomes effective on the earlier of June 23, 1998, the completion of a 30-day
trading period following the Company's initial public offering during which the
average closing sale price of a share of the Company's common stock meets the
minimum requirement stipulated in the agreement, and a merger of the Company
with another entity or a sale of substantially all of the Company's assets, and
terminates on the earlier of January 23, 2000, the date that the Company
notifies GenQuest that it will not exercise this right, the closing of the
initial public offering of GenQuest, and 10 days following a merger of or sale
of assets by the Company.
In conjunction with the relationship between the Company and GenQuest, the
Company issued warrants to purchase 454,533 shares of the Company's Series B
shares at a price of $9.90 per share. The warrants expire on the earlier of
December 23, 2001 or certain events as specified in the warrant agreements. A
receivable of $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.
The Company's investment in GenQuest is recorded in the balance sheet at
$-0-, which was the historical cost of the technology exchanged for the
preferred stock of GenQuest issued to the Company. The Company did not recognize
the increased value of its equity investment resulting from the GenQuest
issuance of Series B preferred stock due to uncertainty regarding its ultimate
realization.
In 1997 and 1996, the Company recognized other income of $325,000 and
$300,000, respectively, as a result of administrative services provided to
GenQuest.
In conjunction with its collaborative agreement with GenQuest, the
Company's 1997 results include collaborative revenue and research and
development expenses of approximately $1,932,000 and $2,420,000, respectively.
Additionally, the Company recognized $488,000 in warrant amortization during
1997. The Company did not recognize collaborative revenue or research and
development expenses relating to GenQuest in 1996.
10. SUBSEQUENT EVENTS
Pursuant to the Exclusive Option discussed in Note 8, the subject Option
Partner for an early-stage cancer target advanced $2 million to the Company in
January 1998 to extend the first option expiration from March 1, 1998 to
September 1, 1999. In the event the option is exercised, this additional
consideration will be creditable against future milestone payments or converted
to common stock of Corixa, as per the agreement. Pursuant to the Exclusive
Option, if the subject early-stage cancer target option expires unexercised, the
Company will be required to refund this consideration in equal annual
installments over a three-year period beginning March 2000.
57
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Executive
Officers" in the Company's 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Compensation of
Executive Officers" in the Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Common Stock
Ownership of Certain Beneficial Owners and Management" in the Company's 1998
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Certain
Relationships and Related Transactions" in the Company's 1998 Proxy Statement.
58
<PAGE> 61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Report of Ernst & Young, L.L.P., independent auditors
Balance Sheet as of December 31, 1997, 1996 and 1995.
Statement of Operations -- Years Ended December 31, 1997, 1996 and 1995.
Statement of Stockholders' Equity -- Years Ended December 31, 1997, 1996
and 1995.
Statement of Cash Flows -- Years Ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(2) Report of KPMG Peat Marwick, L.L.P., independent auditors
Statement of Operations -- From September 8, 1994 (inception to date) to
December 31, 1994.
Statement of Stockholders' Equity -- Year Ended December 31, 1994.
Statement of Cash Flows -- Year Ended December 31, 1994.
(3) Financial Statement Schedules
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(4) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.2* Amended and Restated Certificate of Incorporation of
Registrant
4.3* Bylaws of Registrant
5.1* Specimen Common Stock Certificate
10.1* 1994 Amended and Restated Stock Option and Restricted Stock
Plan and forms of stock purchase and stock option agreement
10.2* 1997 Directors' Stock Option Plan and form of stock option
agreement
10.3* 1997 Employee Stock Purchase Plan and form of subscription
agreement
10.4* Corixa Corporation 401(k) Savings & Retirement Plan
10.5* Form of Indemnification Agreement
10.6* Amended and Restated Investors' Rights Agreement dated as of
May 10, 1996 between Registrant and certain holders of its
capital stock
10.7* Lease Agreement dated October 28, 1994 and amended December
29, 1995 between Registrant and Fred Hutchinson Cancer
Research Center
10.8* Lease Agreement dated May 31, 1996 between Registrant and
Health Science Properties, Inc.
10.9+* Tuberculosis Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
October 6, 1995
10.10+* Tuberculosis Collaboration and License Agreement Extension
between Registrant and SmithKline Beecham Biologicals S.A.
dated February 25, 1997
10.11+* Option Agreement between Registrant and SmithKline Beecham
Biologicals S.A. dated March 1, 1997
10.12+* Special Biologicals and Material Transfer Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997
10.13+* Breast Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.14+* Prostate Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997
10.15+* Research Collaboration and License Agreement between
Registrant and CellPro, Incorporated dated November 1, 1995
10.16+* First Amendment to Research Collaboration and License
Agreement between Registrant and CellPro, Incorporated dated
January 1, 1997
10.17+* Research Agreement between Registrant and ZymoGenetics, Inc.
dated September 30, 1996
10.18+* Licensing Agreement between Registrant and Dana-Farber
Cancer Institute, Inc. dated January 1, 1995
10.19+* License, Development and Supply Agreement between Registrant
and Abbott Laboratories dated July 24, 1997
10.20+* Option and License Agreement between Registrant and Pasteur
Merieux Connaught dated December 23, 1996
10.21* Amendment to Option and License Agreement between Registrant
and Pasteur Merieux Connaught dated March 28, 1997
10.22+* Amended and Restated License and Research Collaboration
Agreement dated December 23, 1996 between Registrant and
GenQuest, Inc.
10.23+* Amendment No. 1 to the Amended and Restated License and
Research Collaboration Agreement dated January 1, 1997 by
and between Registrant and GenQuest, Inc.
10.24* Form of Amended and Restated Call Option Agreement dated
December 23, 1996 by and among Registrant, GenQuest, Inc.
and investors of GenQuest listed on Exhibit A thereto
10.25+* Amended and Restated Administrative Services and Management
Agreement dated December 23, 1996 by and between Registrant
and GenQuest, Inc.
10.26+* Amended and Restated Research Services and Intellectual
Property Agreement effective as of January 1, 1997 by and
between Registrant and the Infectious Disease Research
Institute
10.27+* License Agreement dated November 20, 1995 by and between
Registrant and Health Research, Inc.
10.28* Amendment No. 1 to License Agreement dated January 1, 1997
by and between Registrant and Health Research, Inc.
10.29+* License Agreement dated May 22, 1996 by and among
Registrant, Southern Research Institute and University of
Alabama at Birmingham Research Foundation
10.30+* Amendment No. 1 to License Agreement dated April 30, 1997 by
and among Registrant, Southern Research Institute and
University of Alabama at Birmingham Research Foundation
10.31 Loan Agreement dated December 29, 1997 between Registrant
and the Sumitomo Bank, Limited
10.32(1) Letter Agreement dated December 31, 1997 between Registrant
and Pasteur Merieux Connaught.
10.33(1) Letter Agreement dated December 23, 1997 between Registrant
and SmithKline Beecham, Biologicals S.A.
</TABLE>
60
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ---------------
(*) Incorporated by reference from identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendments thereto (File No. 333-32147), declared
effective by the Securities and Exchange Commission on October 2, 1997.
(+) Confidential treatment granted by order effective October 2, 1997.
(1) Confidential treatment requested.
(b) REPORTS ON FORM 8-K
None.
61
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CORIXA CORPORATION
By: /s/ MICHELLE BURRIS
------------------------------------
Michelle Burris
Vice President and Chief Financial
Officer
Date: March 6, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steve Gillis and Michelle Burris, jointly
and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN GILLIS President and Chief March 6, 1998
- -------------------------------------------------------- Executive Officer (Principal
Steven Gillis Executive Officer)
/s/ MICHELLE BURRIS Vice President and Chief March 6, 1998
- -------------------------------------------------------- Financial Officer (Principal
Michelle Burris Financial and Accounting
Officer)
/s/ MARK MCDADE Director March 6, 1998
- --------------------------------------------------------
Mark McDade
/s/ JOSEPH LACOB Director March 6, 1998
- --------------------------------------------------------
Joseph Lacob
/s/ ARNOLD ORONSKY Director March 6, 1998
- --------------------------------------------------------
Arnold Oronsky
/s/ ANDREW SENYEI Director March 6, 1998
- --------------------------------------------------------
Andrew Senyei
</TABLE>
62
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
4.2* Amended and Restated Certificate of Incorporation of
Registrant..................................................
4.3* Bylaws of Registrant........................................
5.1* Specimen Common Stock Certificate...........................
10.1* 1994 Amended and Restated Stock Option and Restricted Stock
Plan and forms of stock purchase and stock option
agreement...................................................
10.2* 1997 Directors' Stock Option Plan and form of stock option
agreement...................................................
10.3* 1997 Employee Stock Purchase Plan and form of subscription
agreement...................................................
10.4* Corixa Corporation 401(k) Savings & Retirement Plan.........
10.5* Form of Indemnification Agreement...........................
10.6* Amended and Restated Investors' Rights Agreement dated as of
May 10, 1996 between Registrant and certain holders of its
capital stock...............................................
10.7* Lease Agreement dated October 28, 1994 and amended December
29, 1995 between Registrant and Fred Hutchinson Cancer
Research Center.............................................
10.8* Lease Agreement dated May 31, 1996 between Registrant and
Health Science Properties, Inc..............................
10.9+* Tuberculosis Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
October 6, 1995.............................................
10.10+* Tuberculosis Collaboration and License Agreement Extension
between Registrant and SmithKline Beecham Biologicals S.A.
dated February 25, 1997.....................................
10.11+* Option Agreement between Registrant and SmithKline Beecham
Biologicals S.A. dated March 1, 1997........................
10.12+* Special Biologicals and Material Transfer Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997...............................................
10.13+* Breast Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997...............................................
10.14+* Prostate Cancer Collaboration and License Agreement between
Registrant and SmithKline Beecham Biologicals S.A. dated
March 1, 1997...............................................
10.15+* Research Collaboration and License Agreement between
Registrant and CellPro, Incorporated dated November 1,
1995........................................................
10.16+* First Amendment to Research Collaboration and License
Agreement between Registrant and CellPro, Incorporated dated
January 1, 1997.............................................
10.17+* Research Agreement between Registrant and ZymoGenetics, Inc.
dated September 30, 1996....................................
10.18+* Licensing Agreement between Registrant and Dana-Farber
Cancer Institute, Inc. dated January 1, 1995................
10.19+* License, Development and Supply Agreement between Registrant
and Abbott Laboratories dated July 24, 1997.................
10.20+* Option and License Agreement between Registrant and Pasteur
Merieux Connaught dated December 23, 1996...................
10.21* Amendment to Option and License Agreement between Registrant
and Pasteur Merieux Connaught dated March 28, 1997..........
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
10.22+* Amended and Restated License and Research Collaboration
Agreement dated December 23, 1996 between Registrant and
GenQuest, Inc...............................................
10.23+* Amendment No. 1 to the Amended and Restated License and
Research Collaboration Agreement dated January 1, 1997 by
and between Registrant and GenQuest, Inc....................
10.24* Form of Amended and Restated Call Option Agreement dated
December 23, 1996 by and among Registrant, GenQuest, Inc.
and investors of GenQuest listed on Exhibit A thereto.......
10.25+* Amended and Restated Administrative Services and Management
Agreement dated December 23, 1996 by and between Registrant
and GenQuest, Inc...........................................
10.26+* Amended and Restated Research Services and Intellectual
Property Agreement effective as of January 1, 1997 by and
between Registrant and the Infectious Disease Research
Institute...................................................
10.27+* License Agreement dated November 20, 1995 by and between
Registrant and Health Research, Inc.........................
10.28* Amendment No. 1 to License Agreement dated January 1, 1997
by and between Registrant and Health Research, Inc..........
10.29+* License Agreement dated May 22, 1996 by and among
Registrant, Southern Research Institute and University of
Alabama at Birmingham Research Foundation...................
10.30+* Amendment No. 1 to License Agreement dated April 30, 1997 by
and among Registrant, Southern Research Institute and
University of Alabama at Birmingham Research Foundation.....
10.31 Loan Agreement dated December 29, 1997 between Registrant
and the Sumitomo Bank, Limited..............................
10.32(1) Letter Agreement dated December 31, 1997 between Registrant
and Pasteur Merieux Connaught...............................
10.33(1) Letter Agreement dated December 23, 1997 between Registrant
and SmithKline Beecham, Biologicals S.A.....................
23.1 Consent of Ernst & Young LLP, Independent Auditors..........
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors......
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
(*) Incorporated by reference from identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendments thereto (File No. 333-32147), declared
effective by the Securities and Exchange Commission on October 2, 1997.
(+) Confidential treatment granted by order effective October 2, 1997.
(1) Confidential treatment requested.
<PAGE> 1
EXHIBIT 10.31
LOAN AGREEMENT
BETWEEN
CORIXA CORPORATION
AND
THE SUMITOMO BANK, LIMITED
DECEMBER 29, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS.............................................................. 1
Section 1.1. Definitional Provisions................................................. 1
ARTICLE II. LOAN..................................................................... 1
Section 2.1. Term Notes........................................................... 1
Section 2.2. Use of Proceeds...................................................... 4
Section 2.3. Payments............................................................. 4
Section 2.4. Prepayments.......................................................... 5
Section 2.5. Indemnification; Increased Costs..................................... 6
Section 2.6. Investment Account and Custodian Account............................. 7
Section 2.7. Change In Legality................................................... 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES........................................... 9
Section 3.1. Organization......................................................... 9
Section 3.2. Power, Authority, Consents........................................... 9
Section 3.3. No Violation of Law or Agreements.................................... 9
Section 3.4. Due Execution, Validity, Enforceability.............................. 10
Section 3.5. Judgments, Actions, Proceedings...................................... 10
Section 3.6. No Defaults, Compliance With Laws.................................... 10
Section 3.7. No Materially Adverse Contracts, Etc................................. 10
Section 3.8. Financial Statements................................................. 10
Section 3.9. Title to Properties; Leases.......................................... 11
Section 3.10. Priority of Liens.................................................... 11
Section 3.11. Patents, Copyrights, Licenses, Etc................................... 11
Section 3.12. Tax Returns.......................................................... 11
Section 3.13. Regulation U; Margin Stock........................................... 12
Section 3.14. Full Disclosure...................................................... 12
Section 3.15. ERISA................................................................ 12
Section 3.16. Environmental Compliance............................................. 13
Section 3.17. Other Regulations.................................................... 14
Section 3.18. Compliance with Securities Laws...................................... 14
Section 3.19. Solvency............................................................. 14
Section 3.20. Subsidiaries or Affiliates........................................... 14
Section 3.21. Pending Litigation................................................... 14
Section 3.22. Compliance with Investment Policy.................................... 14
</TABLE>
i
<PAGE> 3
(continuation) TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV. CONDITIONS PRECEDENT..................................................... 15
Section 4.1. Conditions Precedent to the Effectiveness of this Agreement.......... 15
Section 4.2. Conditions Precedent to Additional Disbursement...................... 16
ARTICLE V. AFFIRMATIVE COVENANTS.................................................... 16
Section 5.1. Books and Records.................................................... 17
Section 5.2. Inspections and Audits............................................... 17
Section 5.3. Perform Obligations.................................................. 17
Section 5.4. Fees and Expenses.................................................... 17
Section 5.5. Maintenance of Existence; Conduct of Business........................ 18
Section 5.6. Insurance............................................................ 18
Section 5.7. Certain Taxes........................................................ 18
Section 5.8. Use of Proceeds...................................................... 19
Section 5.9. Further Assurances With Respect To Accounts.......................... 19
Section 5.10. Financial Covenants.................................................. 19
Section 5.11. Deposits Into Custodian Account...................................... 20
Section 5.12. Investment Policy.................................................... 20
ARTICLE VI. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION.......................................... 20
Section 6.1. Annual Financial Statements.......................................... 20
Section 6.2. Quarterly Financial Statements....................................... 20
Section 6.3. 10Q and 10K Filings.................................................. 20
Section 6.4. Cash and Covenant Reports............................................ 21
Section 6.5. Other Information.................................................... 21
Section 6.6. No Trigger Event/Default Certificate................................. 21
Section 6.7. Notices.............................................................. 21
ARTICLE VII. NEGATIVE COVENANTS....................................................... 22
Section 7.1. Liens................................................................ 22
Section 7.2. Changes in Business; Merger or Consolidation;
Disposition of Assets................................................ 23
Section 7.3. Change of Office Address............................................. 24
Section 7.4. Violation of Agreement............................................... 24
</TABLE>
ii
<PAGE> 4
(continuation) TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII. EVENTS OF DEFAULT........................................................ 24
Section 8.1. Events of Default.................................................... 24
ARTICLE IX. MISCELLANEOUS PROVISIONS................................................. 26
Section 9.1. Indemnity; Additional Fees........................................... 26
Section 9.2. Survival of Agreements and Representations........................... 27
Section 9.3. Modifications, Consents and Waivers.................................. 27
Section 9.4. Entire Agreement..................................................... 27
Section 9.5. Remedies Cumulative.................................................. 27
Section 9.6. Further Assurances................................................... 27
Section 9.7. Notices.............................................................. 27
Section 9.8. Construction; Governing Law.......................................... 28
Section 9.9. Waiver of Jury Trial................................................. 29
Section 9.10. Jurisdiction......................................................... 29
Section 9.11. Relationship of the Borrower and the Bank............................ 29
Section 9.12. Severability......................................................... 30
Section 9.13. Binding Effect; Assignment........................................... 30
Section 9.14. Counterparts......................................................... 30
Section 9.15. Re-Establishment of Investment Account............................... 30
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS................................................ 1
</TABLE>
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of December 29, 1997 by
and between CORIXA CORPORATION, a Delaware corporation (the "Borrower"), and THE
SUMITOMO BANK, LIMITED, a Japanese banking corporation (the "Bank").
The Borrower and the Bank hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONAL PROVISIONS.
(a) Capitalized terms used in this Agreement and defined in Appendix
A hereto, which Appendix A is attached to this Agreement and by this
reference made a part hereof, shall have the respective meanings specified
in such Appendix A.
(b) All terms defined in Appendix A shall have such defined meanings
when used in any certificate or any other document made or delivered
pursuant to this Agreement unless otherwise defined in such other document
or certificate.
(c) All accounting terms not specifically defined in this Agreement
or in Appendix A hereto shall be construed in accordance with generally
accepted accounting principles as in effect in the United States of
America.
ARTICLE II.
LOAN
SECTION 2.1. TERM NOTES.
(a) The Bank hereby agrees, on the terms and subject to the
conditions of this Agreement, to loan to the Borrower an aggregate
principal amount of Seven Million Dollars ($7,000,000) (the "Loan"). The
Bank will make an initial Disbursement to the Borrower on the Closing Date
in the amount of Two Million Dollars ($2,000,000). During the Availability
Period, the Bank will make subsequent Disbursements to the Borrower
1
<PAGE> 6
subject to the conditions set forth in Subsection 2.1(b) and Section 4.2.
The obligation of the Borrower to repay the Loan and to pay interest and
all other costs and charges payable hereunder will be evidenced by
promissory notes in the form of Exhibit 2.1 (individually a "Note"and
collectively the "Notes") dated as of the date of each Disbursement and
payable to the order of the Bank in the original principal amount of each
Disbursement.
(b) The Borrower shall submit a written request or a telephonic
request to the Bank (provided that such telephonic request is confirmed in
a written notice by Borrower to the Bank on the same Business Day in the
form attached hereto as Schedule 2.1(b) or such other form provided from
time to time by the Bank to the Borrower) for each Disbursement at least
three (3) Business Days prior to the desired funding date in the case of
any borrowing consisting of a Eurodollar Rate Loan Portion, and not later
than 12:00 noon (Chicago time) on the desired funding date in the case of
any borrowing consisting of a Prime Rate Loan Portion. The minimum amount
for any Disbursement shall be Five Hundred Thousand Dollars ($500,000). No
Disbursement shall be made after the occurrence of a Default or an Event
of Default. No Disbursement shall be made after the expiration of the
Availability Period. No Disbursement shall be made unless and until the
Borrower has timely complied with the provisions of this Subsection 2.1(b)
and Section 4.2 hereinbelow.
(c) The Loan shall bear interest, and the Borrower shall pay
interest on, the outstanding principal balance of the Loan from the date
of each Disbursement to the Borrower until the Maturity Date at the
following rates per annum:
(i) with respect to any portion of such Loan which is a
Eurodollar Rate Loan Portion, interest at a rate per annum on such
Eurodollar Rate Loan Portion equal (at all times during each
applicable Interest Period) to the Reserve Adjusted Eurodollar Rate
for the applicable Interest Period plus the Applicable Margin; and
(ii) with respect to each portion of such Loan which is not a
Eurodollar Rate Loan Portion, interest at a rate per annum on each
such Loan Portion equal to the Prime Rate.
Not later than 12:00 noon (Chicago time) on the third Business
Day prior to the initial funding of the Loan, the Borrower may provide
written notice ("Initial Notice") to the Bank of the dollar amount of the
initial Disbursement which will be a Eurodollar Rate Loan Portion for the
initial Interest Period. In the event that the Borrower fails to provide
the Initial Notice in accordance with the preceding sentence, then the
outstanding principal balance of the Loan shall bear interest at the Prime
Rate until such time as Borrower has given an Election Notice in
accordance with Section 2.1(d) below. Computations of interest on the
Eurodollar Rate Loan Portion will be on the basis of a 360 day year, for
actual days elapsed with respect to interest accruing. Computations of all
other interest will
2
<PAGE> 7
be on the basis of a 365 day or 366 day year, as the case may be, for
actual days elapsed with respect to interest accruing.
(d) The Borrower may elect by written notice (the "Election Notice")
given to the Bank:
(i) by not later than 12:00 noon (Chicago time) on the third
Business Day prior to the expiration of the Interest Period for any
Eurodollar Rate Loan Portion, to continue such Loan Portion or any
part thereof as a Eurodollar Rate Loan Portion for the next
succeeding Interest Period. In the absence of a timely effective
Election Notice to continue the applicable Loan Portion as a
Eurodollar Rate Loan Portion, the Borrower shall be deemed to have
elected to convert such Eurodollar Rate Loan Portion to a Prime Rate
Loan Portion, effective as of the last day of the preceding Interest
Period.
(ii) by not later than 12:00 noon (Chicago time) on the third
Business Day prior to the proposed date for the conversion of a
Prime Rate Loan Portion or any part thereof to a Eurodollar Rate
Loan Portion, to convert such Prime Rate Loan Portion or any part
thereof to a Eurodollar Rate Loan Portion.
If the Borrower fails to draw down, to continue or to
convert to, a Eurodollar Rate Loan Portion after giving an Initial Notice or
Election Notice with respect thereto, the Borrower agrees to reimburse each
Lender for its expenses, funding losses and loss of anticipated profits due to
such failure. The Borrower and the Lenders hereby agree that such expenses,
funding losses and loss of anticipated profits shall equal the sum of:
(1) The principal amount of each such Eurodollar
Rate Loan Portion times (([number of days between the date of
failure to draw down, continue or convert and the last day in
the applicable Interest Period] divided by 360), times the
applicable Interest Differential); plus
(2) All reasonable actual out-of-pocket expenses
(other than those taken into account in the calculation of the
Interest Differential) incurred by the Bank (excluding
allocations of any expense internal to the Bank) and
reasonably attributable to such failure to continue or
convert.
Notwithstanding the foregoing, no reimbursement shall be payable (and no credit
or rebate shall be required) if the sum of the foregoing clauses (1) and (2) is
not a positive number.
Notwithstanding anything herein to the contrary, if a
Default or an Event of Default has occurred and is continuing, then the Borrower
shall have no right to give an Election Notice, and the Bank may ignore any
attempt by the Borrower to give an Election Notice.
3
<PAGE> 8
(e) An Election Notice with respect to any Eurodollar Rate Loan
Portion shall contain the following information:
(i) the dollar amount which is to be continued as, or
converted to, a Eurodollar Rate Loan Portion; and
(ii) the duration of new Interest Period.
Notwithstanding anything herein to the contrary, the
outstanding Loan balance may not at any time be comprised of more
than five (5) Eurodollar Rate Loan Portions at the same time without
the Bank's consent, which shall be in the Bank's sole and absolute
discretion. Once received by the Bank, any Initial Notice or
Election Notice will be irrevocable for the applicable Eurodollar
Rate Loan Portion for the applicable Interest Period.
(f) In the event that on the date for determining the Reserve
Adjusted Eurodollar Rate to be paid by the Borrower in respect of any
Interest Period, the Bank determines in good faith (which determination
will be conclusive and binding on the Borrower) that by reason of
circumstances affecting the London interbank Eurodollar market, either
Eurodollar rates are not offered in the London interbank Eurodollar market
or adequate and fair means do not exist for ascertaining the Reserve
Adjusted Eurodollar Rate for such Interest Period, the Bank shall promptly
give to the Borrower telephonic notice (confirmed as soon as practicable
in writing) of such determination. During the existence of such
circumstances, any existing Eurodollar Rate Loan Portion in respect of
which such circumstances exist will convert to a Prime Rate Loan Portion
at the end of the applicable Interest Period.
SECTION 2.2. USE OF PROCEEDS. The proceeds of the Loan shall be used by
the Borrower for the purpose of funding, or replenishing working capital
reserves used to fund, capital expenditures for enhancement and development of
research and development facilities, manufacturing facilities, acquisition of
laboratory equipment or other equipment and for general corporate purposes.
4
<PAGE> 9
SECTION 2.3. PAYMENTS.
(a) Interest only shall be payable on each Interest Payment Date
during the period commencing on the date of the initial Disbursement and
continuing through and including December 31, 1998. Thereafter, the
Borrower will repay the principal amount of the Loan in forty-eight (48)
equal consecutive monthly installments of principal (each installment
being in an amount sufficient to amortize the outstanding principal
balance of the Loan over a period of forty-eight (48) months); i.e., each
installment of principal shall be equal to 2.0833% of the principal
balance of the Loan on December 31, 1998, payable on the last Business Day
of each calendar month commencing with the first such payment due on the
last Business Day of January 1999 and continuing until the Maturity Date,
on which date the Borrower shall make a final payment in an amount equal
to all the then unpaid principal of the Loan and all unpaid interest
thereon. With each installment of principal payable in accordance
herewith, the Borrower shall pay interest which has accrued at the Prime
Rate. Interest which has accrued at the Reserve Adjusted Eurodollar Rate
shall be payable on the last day of each Interest Payment Date applicable
to each Eurodollar Rate Loan Portion. Notwithstanding the foregoing,
repayment of the Loan and all accrued and unpaid interest thereon may be
accelerated upon the occurrence and during the continuance of an Event of
Default.
(b) The Borrower shall make all payments hereunder in U.S. Dollars
and in immediately available funds at the Bank's office at 233 South
Wacker Drive, Suite 5400, Chicago, Illinois 60606 (or at such other office
as the Bank may notify the Borrower in writing) via wire transfer to The
Sumitomo Bank, Limited, Chicago Branch, ABA 071001850, through the Federal
Reserve Bank of Chicago, Reference: Corixa. Payments not made prior to
12:00 noon (Chicago time) on the date of payment will be deemed paid on
the next Business Day. Payments which fall due on a day which is not a
Business Day will be payable on the next Business Day, with interest to
accrue to such date of payment, provided that, with respect to any payment
of principal or interest relating to a Eurodollar Rate Loan Portion, if
the next succeeding Business Day is in the next calendar month, such
payment shall be made on the next preceding Business Day. All payments
hereunder and under the Note shall be made without set-off or counterclaim
and in such amounts as may be necessary in order that all such payments
shall not be less than the amounts otherwise specified to be paid under
this Agreement or the Note, as the case may be.
(c) Any installment of interest only or of principal and interest
paid more than five (5) days late or any other amount payable hereunder
which is not paid when due, will bear (and the Borrower shall pay)
interest (to the extent permitted by law) from such due date until such
unpaid amount has been paid in full (whether before or after judgment) at
a rate per annum equal to three and one-half percent (3.5%) in excess of
the rate then applicable to each Loan Portion until the end of any
Interest Period then applicable to such Loan
5
<PAGE> 10
Portion and thereafter at a rate per annum equal to three and one-half
percent (3.5%) in excess of the Prime Rate ("Default Rate").
(d) In partial consideration for the Bank making the Loan to the
Borrower, the Borrower shall pay to Bank: (i) a loan initiation fee
("Initiation Fee") in the aggregate amount of Seventy-Eight Thousand Seven
Hundred Fifty Dollars ($78,750) with such Initiation Fee to be due and
payable on the Closing Date; and (ii) during the period that the Bank has
any lending commitment hereunder, a commitment fee ("Commitment Fee")
computed for each day at a rate equal to 0.125% per annum on the actual
daily amount of the undisbursed portion of the Loan, with such Commitment
Fee to be due and payable, in arrears, on the last Business Day of each
calendar quarter. On the Closing Date, Borrower hereby authorizes Bank to
deduct and pay the Initiation Fee which is due on the Closing Date and all
other reasonable fees and expenses of the Bank identified in Section
4.1(h) below, from the available proceeds of the Loan.
SECTION 2.4. PREPAYMENTS. Subject to this Section 2.4, the Borrower may,
upon three (3) Business Days' prior notice to the Bank, prepay the outstanding
amount of the Loan in whole or in part. In the event that the Borrower prepays
or is required to prepay any Eurodollar Rate Loan Portion, the Borrower agrees
to reimburse the Bank for its expenses, funding losses and loss of anticipated
profits due to such prepayment or failure to draw. The Borrower and the Bank
hereby agree that such expenses, funding losses and loss of anticipated profits
shall equal the sum of:
(a) The principal amount of each such Eurodollar Rate Loan Portion
times (([number of days between the date of prepayment and the last day in
the applicable Interest Period] divided by 360), times the applicable
Interest Differential); plus
(b) All reasonable actual out-of-pocket expenses (other than those
taken into account in the calculation of the Interest Differential)
incurred by the Bank (excluding allocations of any expense internal to the
Bank) and reasonably attributable to such payment or prepayment.
Notwithstanding the foregoing, no prepayment fee shall be payable (and no credit
or rebate shall be required) if the sum of the foregoing subparagraphs (a) and
(b) is not a positive number. The Loan is not in a nature of a revolving loan;
therefore, amounts prepaid or repaid under the Note may not be reborrowed.
SECTION 2.5. INDEMNIFICATION; INCREASED COSTS. If after the date of this
Agreement the Bank reasonably determines that any Regulatory Change, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any governmental authority, central bank or comparable agency
charged with the interpretation or administration of any applicable law, rule or
regulation which is effective or issued after the date hereof:
6
<PAGE> 11
(a) Subjects the Bank to any tax, duty or other charge with respect
to the Loan or the Note, or changes the basis of taxation of payments to
the Bank of the principal of or interest on the Loan or any other amounts
due under this Agreement in respect of the Loan except for changes in the
rate of tax on the overall net income of the Bank or its lending office
imposed by the State of California or the jurisdictions in which the
Bank's principal executive office or applicable lending office is located)
(such non-excluded amounts, "Taxes"); or
(b) Imposes, modifies or deems applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System), special deposit, liquidity, capital maintenance,
capital adequacy, capital ratio (including, but without limitation
thereto, any request by or requirement of any regulatory body or official
which affects the manner in which the Bank allocates capital resources to
its obligations hereunder), for the account of, or credit extended by, the
Bank or imposes on the Bank any other condition affecting the Loan, or the
Note;
and the result of any of the foregoing is to (A) impose a cost on or increase
the cost to the Bank of making or maintaining the Loan, or (B) cause an increase
in any capital requirement arising out of the making or maintenance of the Loan
or any obligation to the Borrower hereunder or (C) reduce the amount of any sum
received or receivable by the Bank under this Agreement or under the Note, by an
amount deemed by the Bank to be material, then, within fifteen (15) days after
demand by the Bank, the Borrower shall pay for the account of the Bank such
additional amount or amounts as will compensate the Bank for such increased cost
or reduction as such cost or reduction is incurred by the Bank. If the Bank
makes any claim for compensation under this Section 2.5, the Borrower may
immediately elect by written notice (or telephonic notice confirmed as soon as
practicable in writing) to the Bank to prepay the Loan (but subject to payment
of any other amounts due under Section 2.4 and this Section 2.5, including any
increased cost or reduction incurred through the date of such prepayment or
conversion). The Bank shall promptly notify the Borrower in writing of any event
of which it has knowledge, occurring after the date hereof, which will entitle
the Bank to compensation pursuant to this Section 2.5. The Bank shall provide to
the Borrower a certificate claiming compensation under this Section 2.5, setting
forth the additional amount or amounts to be paid to it hereunder and showing in
reasonable detail the Bank's calculation thereof which shall be presumed to be
correct. In determining such amount, the Bank may use any reasonable averaging
and attribution methods. The Bank shall exercise reasonable efforts to promptly
provide the Borrower with notice of the imposition, or overtly threatened
exercise of, any Regulatory Change set forth in this Section 2.5 of which the
Bank has actual knowledge, provided, however, that the failure by the Bank to so
provide such notice will not relieve the Borrower of any of its obligations
hereunder.
The Bank agrees that it will use reasonable efforts to reduce or
eliminate any claim for compensation pursuant to this Section 2.5, including
designating a different lending office for the Loans, if such designation will
avoid the need for or reduce the amount of any such
7
<PAGE> 12
compensation, provided that the Bank will not be obligated to take any actions
that would, in the sole opinion of the Bank, be disadvantageous to the Bank in
any material respect (it being understood that the incurrence of any
unreimbursed cost or expense by the Bank that would not have been incurred but
for such action is material).
SECTION 2.6. INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT.
(a) Prior to the occurrence of a Trigger Event, the Borrower shall
hold at all times Cash and Cash Equivalents, which are not subject to any
Lien (other than General Tax Liens) or claim of any Person, in an amount
not less than the sum of (i) the then outstanding principal balance of the
Loan plus (ii) the Interest Reserve plus (iii) restricted cash and amounts
which may be restricted in the future pursuant to agreements between the
Borrower and third parties, in an investment account (the "Investment
Account") with an institution approved by the Bank (such institution being
referred to herein as the "Account Holder"). The initial Account Holder
will be Wells Fargo Bank, N.A. The amounts held in the Investment Account
shall be subject to the investment control of the Borrower. The Account
Holder in respect of the Investment Account cannot be changed or a new
Investment Account opened without the Bank's prior written approval, which
approval shall not be unreasonably withheld. The Borrower shall deliver to
the Account Holder the Irrevocable Instructions and Power of Attorney in
the form of Exhibit 2.6.B (the "Irrevocable Instructions and Power of
Attorney).
(b) On or before the Closing Date, the Borrower, for the benefit and
on behalf of the Bank, shall establish and maintain or cause to be
established and maintained in the name of the Borrower an account (the
"Custodian Account") with Sumitomo Bank of New York Trust Company (the
"Bailee") under the Custodian Agreement and the Collateral Bailment
Agreement. Pursuant to the Restricted Account and Security Agreement by
and among the Bailee, the Bank and the Borrower, the Borrower has granted
to the Bank a security interest in all of its right, title and interest in
the Custodian Account, all deposits or investments held therein and all
proceeds thereof to secure payment and performance of the Borrower's
obligations hereunder. On or before the Closing Date, the Borrower shall
cause to be deposited in the Custodian Account the sum of One Thousand
Dollars ($1,000). So long as the Borrower is indebted to the Bank
hereunder and until payment in full of the Note and the Borrower's full
and complete performance of its obligations hereunder, the Custodian
Account shall at all times have a Restricted Account Balance of not less
than One Thousand Dollars ($1,000). The terms and conditions of the
Restricted Account and Security Agreement, the Collateral Bailment
Agreement, and the Custodian Agreement are incorporated herein by
reference.
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SECTION 2.7. CHANGE IN LEGALITY.
(a) In the event that at any time the Bank shall have reasonably
determined (which determination shall be presumed to be correct until the
contrary shall have been established) that by reason of a change in any
law or regulation or in the interpretation thereof by any governmental
authority charged with the interpretation thereof affecting the Bank or
the Eurodollar market and applicable to any Eurodollar Rate Loan Portion,
the making or continuation of a loan at the applicable Reserve Adjusted
Eurodollar Rate plus the Applicable Margin has become unlawful, the Bank
shall forthwith give written notice (or telephonic notice, confirmed as
soon as practicable in writing) to the Borrower and the obligation of the
Bank to make or maintain such Eurodollar Rate Portion at the applicable
Reserve Adjusted Eurodollar Rate plus the Applicable Margin shall
terminate and the Borrower shall forthwith upon receipt of notice of such
determination prepay such Eurodollar Rate Loan Portion without premium or
penalty (subject to Section 2.4), together with all interest accrued on
the amount prepaid to the date of prepayment. A certificate, setting forth
(X) each event which the Bank shall have determined makes the continuation
of such Eurodollar Rate Loan Portion unlawful and (Y) any additional
amounts payable by the Borrower under Sections 2.4 (and the basis therefor
and the Bank's computation thereof) upon prepayment of such Eurodollar
Rate Loan Portion, shall be furnished to the Borrower by the Bank and
shall be presumed correct absent manifest error.
(b) In the event that the Borrower is obligated to prepay a
Eurodollar Rate Loan Portion pursuant to clause (a) of this Section 2.7,
the Borrower shall have the right, upon written notice (or telephonic
notice confirmed as soon as practicable in writing) to the Bank, in lieu
of such prepayment, to elect to convert such Eurodollar Rate Portion to a
Prime Rate Loan Portion, effective on the date on which such prepayment
would otherwise be required to have been made, provided that on the
effective date of conversion the Borrower also shall pay all interest
accrued on the amount converted to the date of conversion and such
additional amounts, if any, payable by the Borrower under Section 2.4, as
specified in the certificate furnished the Borrower pursuant to said
clause (a).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
SECTION 3.1. ORGANIZATION. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
Borrower has the power to own its assets, to transact the business in which it
is presently engaged and in which it proposes to be engaged and is duly
qualified and in good standing in each jurisdiction in which the failure to
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qualify to do business would materially adversely affect its financial condition
and business operations.
SECTION 3.2. POWER, AUTHORITY, CONSENTS.
(a) Borrower has the requisite corporate power to execute, deliver
and to perform its obligations under the Loan Documents.
(b) Borrower has the requisite corporate power to borrow hereunder
and has taken all necessary corporate action to authorize the borrowing
hereunder on the terms and conditions of this Agreement.
(c) Borrower has taken all necessary corporate action to authorize
the execution, delivery and performance of the Loan Documents.
(d) No consent or approval of any Person, no waiver of any Lien or
right of distraint or other similar right and no consent, license,
approval, authorization or declaration of any governmental authority,
bureau or agency is or will be required in connection with the execution
and delivery of the Loan Documents by Borrower, or the performance by
Borrower of its obligations thereunder or the validity, enforcement or
priority of the Loan Documents, or any Lien created and granted
thereunder, except such consents as have been obtained and copies of which
have been delivered to the Bank.
SECTION 3.3. NO VIOLATION OF LAW OR AGREEMENTS. The execution and delivery
of the Loan Documents and the performance by Borrower of its obligations
thereunder, will not violate any provision of law and will not conflict with or
result in a breach of any order, writ, injunction, ordinance, resolution,
decree, or other similar document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, Borrower's charter or bylaws
or create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which
Borrower is a party, or by which it is bound or any of its properties or assets
is affected, or result in the imposition of any Lien of any nature whatsoever
upon any of the properties or assets owned by or used in connection with the
business of Borrower.
SECTION 3.4. DUE EXECUTION, VALIDITY, ENFORCEABILITY. This Agreement and
each of the other Loan Documents has been, or upon the execution and delivery
thereof, will be, duly executed and delivered by Borrower, and each constitutes,
or, upon the execution and delivery thereof, will constitute, the valid and
legally binding obligation of Borrower, enforceable in accordance with its
terms, except to the extent that the enforcement thereof may be limited by
applicable bankruptcy, moratorium, insolvency, reorganization, or other similar
laws or equitable principles relating to the enforcement of creditors' rights
generally.
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SECTION 3.5. JUDGMENTS, ACTIONS, PROCEEDINGS. Except as set forth in
Schedule 3.5, there are no outstanding judgments, actions (including, without
limitation, derivative actions), suits or proceedings pending before any court
or governmental authority, bureau or agency, having a claim or amount in
controversy that exceeds $10,000 in any one instance or $50,000 in the aggregate
at any one time with respect to or, to the best of the Borrower's knowledge,
threatened against or affecting Borrower.
SECTION 3.6. NO DEFAULTS, COMPLIANCE WITH LAWS. Borrower is not in
material default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
its charter documents or bylaws, or any other agreement or other instrument by
which any of the properties or assets owned by it or used in the conduct of its
business is affected or evidencing, guaranteeing or relating to any outstanding
indebtedness, liability or obligation for borrowed money or lease obligations,
which default could have a material adverse effect on the business, operations,
financial condition or properties of Borrower, or on Borrower's ability to
perform its obligations under the Loan Documents. Borrower has complied and is
in compliance in all material respects with all applicable laws, ordinances and
regulations, the non-compliance with which could have a material adverse effect
on the business, operations, financial condition or properties of Borrower, or
on the ability of Borrower to perform its obligations under the Loan Documents.
SECTION 3.7. NO MATERIALLY ADVERSE CONTRACTS, ETC. Borrower is not subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has, or is expected in the judgment of the
Borrower to have, a materially adverse effect on the business, assets or
financial condition of the Borrower. Borrower is not a party to any contract or
agreement that has or is expected, in the judgment of the Borrower, to have any
materially adverse effect on the business of the Borrower.
SECTION 3.8. FINANCIAL STATEMENTS.
(a) Borrower has furnished to the Bank its most recent audited
Financial Statements and all subsequent unaudited Financial Statements
which are available to the public. Each of the Financial Statements is
correct and complete in all material respects and presents fairly the
financial condition of the Borrower, at its date or for the respective
period, and has been prepared in accordance with generally accepted
accounting principles.
(b) The Borrower has no material obligation, liability or
commitment, direct or contingent, which is not reflected in the Financial
Statements or in any notes thereto in accordance with generally accepted
accounting principles.
(c) There has been no material adverse change in the financial
position or operations of the Borrower since the date of the Financial
Statement for the fiscal quarter ending September 30, 1997.
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(d) The Borrower's fiscal year is the twelve (12) month period
ending on December 31 in each year.
SECTION 3.9. TITLE TO PROPERTIES; LEASES. Except as disclosed in the
footnotes to the Financial Statements, Borrower owns all of the assets reflected
in the most recent balance sheet or acquired since that date (except property
and assets leased, sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, ordinary or capital leases, conditional sales agreements, title
retention agreements, liens or other encumbrances other than Permitted Liens.
SECTION 3.10. PRIORITY OF LIENS. The Liens which have been or will be
created and granted by the Loan Documents upon the execution and delivery
thereof constitute, or will constitute upon such execution and delivery, valid
first priority Liens on the properties and assets covered by the Loan Documents,
subject to no other liens.
SECTION 3.11. PATENTS, COPYRIGHTS, LICENSES, ETC. Borrower owns or has a
valid right to use all patents, copyrights, trademarks, trade names, licenses,
franchises, and rights in respect of the foregoing (collectively the
"Intellectual Property Rights") adequate for the conduct of its business
substantially as now conducted without conflict with any rights of others, and
there are no suits or claims for infringement with respect to the Intellectual
Property Rights except as set forth in Schedule 3.11. Schedule 3.11 lists all
pending suits or claims for infringement with respect to Intellectual Property
Rights.
SECTION 3.12. TAX RETURNS.
(a) The Borrower has filed all federal and state income tax returns
and all other tax returns, reports, and declarations required to be filed
by it and has not failed to pay any taxes, or interest and penalties
relating thereto, on or before the due dates thereof except for returns,
taxes, interest or penalties with respect to which it has duly filed
extensions or is contesting the validity thereof by appropriate legal
proceedings diligently conducted in good faith. Borrower has not received
any notice of any audits of the federal income tax returns of the Borrower
and has no knowledge of any pending audits.
(b) Except to the extent that reserves therefor are reflected in the
Financial Statements, (i) there are no material federal, state or local
tax liabilities of the Borrower due or to become due for any tax year
ended on or prior to the date of the most recent balance sheet included in
the Financial Statements, whether incurred in respect of or measured by
the income of such entity, which are not properly reflected in such
balance sheet, and (ii) there are no material claims pending or, to the
knowledge of the Borrower proposed or threatened against the Borrower for
past federal, state or local taxes.
SECTION 3.13. REGULATION U; MARGIN STOCK. No part of the proceeds received
by the Borrower from the Loan will be used directly or indirectly for the
purpose of purchasing or
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carrying, or for payment in full or in part of indebtedness which was incurred
for the purposes of purchasing or carrying, any margin stock as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve System,
12 C.F.R., Chapter II, Part 221. The Borrower does not own margin stock which
would, in the aggregate, constitute a substantial part of the assets of the
Borrower.
SECTION 3.14. FULL DISCLOSURE. Neither the Financial Statements nor any
certificate, opinion, or any other statement made or furnished in writing to
Bank by or on behalf of the Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.15. ERISA.
(a) Except as set forth in Schedule 3.15, none of the Borrower or
any of its Affiliates has pension or other employee benefit plans which
are subject to the provisions of Title IV of ERISA (any such plans which
have been or may hereafter be adopted or assumed by the Borrower are
hereinafter referred to individually as a "Plan" and, collectively, as the
"Plans"). In connection with the Plans, Borrower does not have, or know of
any likely event which will give rise to, any direct or contingent
material liabilities of the Borrower to the Pension Benefit Guaranty
Corporation ("PBGC"), the Department of Labor or the Internal Revenue
Service ("IRS").
(b) None of the Borrower or any of its Affiliates is a participating
employer in any Plan under which more than one employer makes
contributions as described in Sections 4063 and 4064 of ERISA.
(c) None of the Borrower or any of its Affiliates is a participating
employer in a multiemployer plan as defined in Section 4001(a) of ERISA,
which participation could give rise to material withdrawal liability on
the part of the Borrower, as the case may be under Subtitle E of Title IV
of ERISA.
For purposes of this Agreement, all references to "ERISA" shall be deemed
to refer to the Employee Retirement Income Security Act of 1974 (including any
sections of the Code) as heretofore amended and as it may hereafter be amended
or modified, and all regulations promulgated thereunder, and all references to
the Borrower in this Section 3.15, or in any other Section of this Agreement
relating to ERISA, shall be deemed to refer to the Borrower and all other
entities which are part of a Controlled Group with respect to the Borrower.
SECTION 3.16. ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule
3.16, the Borrower has taken all necessary steps to comply in all material
respects with Environmental Laws (as hereinafter defined) and has determined
that:
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(a) To Borrower's knowledge, after diligent inquiry, Borrower is not
in violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, each as amended as of the date hereof, or any other federal, state or
local statute, regulation, ordinance, order or decree relating to health,
safety or the environment (hereinafter "Environmental Laws");
(b) The Borrower has not received notice from any third party
including, without limitation, any federal, state or local governmental
authority, (i) that it has been identified by the United States
Environmental Protection Agency ("EPA") as a potentially responsible party
under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste,
as defined by 42 U.S.C. Section 9601(5), any hazardous substances as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. Section 9601(33) and any toxic substances, oil or
hazardous materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which it has generated,
transported or disposed of has been found at any site at which a federal,
state or local agency or other third party has conducted or has ordered
that it conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that it is or shall be a named
party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising
out of any third party's incurrence of costs, expenses, losses or damages
of any kind whatsoever in connection with the release of Hazardous
Substances;
(c) To the Borrower's knowledge: (i) the properties on which the
Borrower conducts its business have not been used by the Borrower for the
handling, processing, storage or Disposal of Hazardous Substances except
in accordance with applicable Environmental Laws; (ii) in the course of
any activities conducted by the Borrower, no Hazardous Substances have
been generated or are being used on property leased by the Borrower on
which the Borrower conducts its business except in accordance with
applicable Environmental Laws; (iii) there has been no Release or
threatened Release of Hazardous Substances by the Borrower on, upon, into
or from the properties on which the Borrower operates its business, which
Release would have a material adverse effect on the Borrower's business;
(iv) there have been no Releases on, upon, from or into any real property
in the vicinity of any of the properties on which the Borrower conducts
its business, through soil or groundwater contamination, which may have
come to be located on, and which would have a material adverse effect on
the Borrower's business; and (v) in addition, any Hazardous Substances
that have been generated by the Borrower on the
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properties on which the Borrower conducts its business have been
transported off-site only by carriers having an identification number
issued by the EPA, treated or Disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities have been and are,
to the best of the Borrower's knowledge, operating in compliance with such
permits and applicable Environmental Laws; and
(d) none of the properties on which the Borrower conducts its
business is or is expected to be in violation of any applicable
environmental clean-up responsibility law or regulation or environmental
restrictive transfer law or regulation, in regard to which failure to
comply would have a material adverse effect on the environment or the
business, assets or financial condition of the Borrower.
SECTION 3.17. OTHER REGULATIONS. The Borrower is not subject to regulation
under the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code or any federal or state statute or regulations limiting its
ability to incur Indebtedness.
SECTION 3.18. COMPLIANCE WITH SECURITIES LAWS. All offers and sales of
securities of the Borrower have been made in material compliance with all
applicable federal and state securities laws, including without limitation the
Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended.
SECTION 3.19. SOLVENCY. The Borrower is solvent and is not the subject of
bankruptcy or insolvency proceedings.
SECTION 3.20. SUBSIDIARIES OR AFFILIATES. The Borrower does not have any
Subsidiary or Affiliate (other than as set forth in Schedule 3.20).
SECTION 3.21. PENDING LITIGATION. Except as set forth in Schedule 3.21,
there are no lawsuits or claims pending against Borrower which could have a
material adverse affect on the Borrower's financial condition.
SECTION 3.22. COMPLIANCE WITH INVESTMENT POLICY. The Borrower is in
compliance with its Investment Policy for investment of Cash and Cash
Equivalents. A true and correct copy of such Investment Policy is attached as
Schedule 5.12.
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ARTICLE IV.
CONDITIONS PRECEDENT
SECTION 4.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT.
The effectiveness of this Agreement and the obligations of the Bank hereunder
shall be subject to the following conditions precedent:
(a) The Borrower will have executed and delivered to the Bank a Note
in the amount of the initial Disbursement, the Collateral Bailment
Agreement, the Restricted Account and Security Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement, the Financing
Statement and an original counterpart of this Agreement.
(b) The Bailee will have executed and delivered the Collateral
Bailment Agreement, the Custodian Agreement and the Restricted Account and
Security Agreement;
(c) The initial Account Holder will have executed and delivered its
consent to the Irrevocable Instructions and Power of Attorney to the Bank;
(d) The Borrower shall have deposited One Thousand Dollars ($1,000)
into the Custodian Account;
(e) The Borrower will have otherwise fully complied with all of the
terms and conditions of the Loan Documents;
(f) The Borrower will have delivered to the Bank the following, in
form and substance acceptable to the Bank:
(i) a copy of the Certificate of Incorporation of Borrower
certified by the Secretary of State of Delaware;
(ii) a copy of the by-laws of the Borrower certified by its
Secretary;
(iii) a copy of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance by the
Borrower of this Agreement, the Note, the Loan Documents and all
instruments and documents provided for herein or therein, certified
by the Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated as of
a date not more than ten (10) days prior to the Closing Date from
the Secretary of State of the State of Delaware;
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(v) an incumbency certificate with respect to the officers of
the Borrower, certified by its Secretary; and
(vi) evidence that Borrower is qualified to do business in the
State of Washington and is in good standing as a foreign corporation
in such state.
(g) The legal counsel of the Borrower will have delivered to the
Bank such legal counsel's favorable legal opinion as to the due
organization, existence, qualification to do business, and good standing
of the Borrower, the due authorization, execution and enforceability of
this Agreement and the other Loan Documents, the absence of pending and
threatened litigation, the non-contravention of other documents,
instruments, laws, and regulations, and such other matters as the Bank may
reasonably require, in form and substance reasonably satisfactory to the
Bank;
(h) The Bank shall have received the Initiation Fee which is due on
the Closing Date and all other fees and expenses (including, without
limitation, Bank's legal fees and expenses incurred in the negotiation and
preparation of the Loan Documents and any other fees and expenses of the
Bank for UCC searches or filing fees) required to be paid to Bank on or
before the Closing Date; and
(i) All representations and warranties of the Borrower contained
herein are true and correct as of the Closing Date and Borrower will have
executed and delivered to Bank such certificates with respect thereto as
Bank may reasonably require.
SECTION 4.2. CONDITIONS PRECEDENT TO ADDITIONAL DISBURSEMENTS. The
obligation of the Bank to make Disbursements after the initial Disbursement
shall be subject to the following conditions precedent:
(a) The Borrower shall have executed and delivered to the Bank a
Note in the amount of the proposed Disbursement;
(b) All representations and warranties of the Borrower contained
herein shall be true and correct in all material respects as of the
proposed date of Disbursement and the Borrower shall have executed and
delivered to the Bank such certificates with respect thereto as the Bank
may reasonably require; and
(c) The Borrower shall have complied with each and every condition
and covenant set forth in this Agreement, including, without limitation,
those set forth in Section 2.1(b).
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ARTICLE V.
AFFIRMATIVE COVENANTS
So long as the Borrower is indebted to the Bank hereunder, and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder (except for the Borrower's obligations under
Section 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall in all material respects:
SECTION 5.1. BOOKS AND RECORDS. Keep proper books of record and account in
a manner reasonably satisfactory to the Bank in which entries (which shall be
true and correct in all material respects) shall be made of all dealings or
transactions in relation to its business and activities.
SECTION 5.2. INSPECTIONS AND AUDITS. Permit the Bank to make or cause to
be made reasonable inspections and audits of any books, records and papers of
the Borrower and to make extracts therefrom and copies thereof at all such
reasonable times and upon reasonable written notice, provided, however, that
certain areas of the Borrower's facilities may be restricted for reasons of
health and safety and as necessary for business security for Borrower's
Intellectual Property Rights and the Bank will not be permitted access to such
restricted areas.
SECTION 5.3. PERFORM OBLIGATIONS. Pay and discharge all of its obligations
and liabilities including, without limitation, all taxes, assessments and
governmental charges upon its income and properties, when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges are contested in good faith and by appropriate proceedings
and that, to the extent required by GAAP then in effect, proper and adequate
book reserves relating thereto are established by the Borrower, and provided
that the Bank is reasonably satisfied that the Accounts are not in danger of
being the subject of a Lien (except to the extent permitted by Section 7.1) or
sold, forfeited or lost as a result thereof and the Borrower has provided such
security or other assurances as Bank reasonably requests.
SECTION 5.4. FEES AND EXPENSES. Pay on demand: (i) all costs and expenses
(including, without limitation, reasonable legal fees, filing fees and UCC
search fees) of the Bank in connection with the preparation, execution and
delivery of this Agreement, and the other Loan Documents; (ii) all reasonable
costs and expenses of the Bank in enforcing the Borrower's performance of and
compliance with all agreements and conditions contained in the Loan Documents on
its part to be performed or complied with or in connection with the negotiation,
preparation and execution and delivery of any amendment, modification or
supplement of or to, or any consent or waiver under, any such document (or any
such instrument which is proposed but not executed and delivered) or relating to
any claim or action threatened, made or brought against the Bank arising out of
or relating to any extent to the Loan Documents, or the
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<PAGE> 23
transactions contemplated hereby or thereby; (iii) all reasonable costs and
expenses (including, without limitation, reasonable fees and disbursements of
counsel) suffered or incurred by the Bank in connection with the enforcement or
the payment of the Note or any other sum due to it under any of the other Loan
Documents or any of its other rights hereunder or thereunder; and (iv) any and
all reasonable costs and expenses incurred by Bank in conducting lien searches,
UCC searches or other due diligence investigations which the Bank determines are
necessary to monitor the Borrower's performance hereunder and which are incurred
after the Closing Date; notwithstanding the foregoing, Borrower shall not be
liable for lost profits or consequential damages solely by virtue of the
provisions of this Section 5.4.
SECTION 5.5. MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Preserve
and maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
for transfers (including, without limitation, transfers in the form of paid-up
licenses) for reasonably equivalent value in the normal course of its business.
The Borrower shall comply in all material respects with all applicable laws,
rules, regulations, orders, writs, decrees and judgments and its charter and
bylaws, and with the material terms of all mortgages, indentures, leases,
contracts and other agreements and instruments binding upon the Borrower. The
Borrower will continue to engage in business of the same general type as now
conducted by the Borrower or proposed to be conducted by the Borrower as set
forth in the Borrower's prospectus relating to its initial public offering dated
October 2, 1997 (the "Prospectus").
SECTION 5.6. INSURANCE. Maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
liabilities, casualties and contingencies and of such types and in such amounts
as shall be customary for businesses engaged in similar activities in similar
geographic areas. Without limiting the foregoing, the Borrower will (i) keep all
of its physical property insured against fire and extended coverage risks in
amounts and with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, (ii) maintain all
such workers' compensation or similar insurance as may be required by law, and
(iii) maintain, in amounts and with deductibles equal to those generally
maintained by businesses engaged in similar activities in similar geographic
areas, general public liability insurance against claims for bodily injury,
death or property damage occurring on, in or about the properties of the
Borrower, business interruption insurance and product liability insurance.
Schedule 5.6 lists insurance of the Borrower currently in effect. The Borrower
shall furnish to the Bank, from time to time upon the Bank's request,
certificates or other evidence satisfactory to the Bank of compliance with the
foregoing.
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SECTION 5.7. CERTAIN TAXES.
(a) If, under any law in effect on the date hereof, or under any law
subsequently enacted which law is applicable during the term of this
Agreement, it is determined that any U.S. federal, state or local tax is
payable in respect of the issuance of the Note, or in connection with the
filing or recording of any assignments, mortgages, financing statements,
or other documents (whether measured by the amount of indebtedness secured
or otherwise) as contemplated by this Agreement, then the Borrower shall
pay any such tax and all interest and penalties thereon, if any, and shall
indemnify the Bank against and save it harmless from any loss or damage
resulting from or arising out of the nonpayment or delay in payment of any
such tax.
(b) If any such tax or taxes shall be assessed or levied against the
Bank or any other holder of the Note, the Bank, or such other holder, as
the case may be, may notify the Borrower and make immediate payment
thereof, together with interest or penalties in connection therewith, and
will thereupon be entitled to and shall receive immediate reimbursement
therefor from the Borrower.
(c) Notwithstanding any other provision contained in this Agreement,
the covenants and agreements of the Borrower in this Section 5.7 will
survive for two (2) years following the payment of the Note and the
termination of this Agreement.
SECTION 5.8. USE OF PROCEEDS. Use the proceeds of all Disbursements made
by the Bank hereunder only for the purpose specified in Section 2.2 -- "Use of
Proceeds." The Borrower will not use any of the proceeds of such Loans, directly
or indirectly, for the purpose of purchasing or carrying any margin stock or for
the purpose of purchasing or carrying or trading in any securities under such
circumstances as to involve the Borrower or the Bank in a violation of
Regulation G, T, U or X issued by the Federal Reserve Board.
SECTION 5.9. FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS. Promptly supply
the Bank with such information concerning the Investment Account as the Bank may
reasonably request from time to time hereafter, including, without limitation,
account statements which shall be delivered not less frequently than quarterly
(or more frequently if required pursuant to Section 6.4), which account
statements will summarize the value of deposits and investments in the Accounts.
SECTION 5.10. FINANCIAL COVENANTS. The Borrower on a consolidated basis
shall at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as calculated
on a quarterly basis, of 0.5:1;
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(ii) A minimum Current Ratio, as calculated on a quarterly
basis, of 1.5:1.0;
(iii) A minimum Net Cash Level equal to the then outstanding
principal balance due under the Note plus the greater of (x)
Ten Million Dollars ($10,000,000) or (y) an amount equal to
two times the sum of the previous six months of Actual Cash
Burn;
(iv) Cash and Cash Equivalents, which are not subject to any
Lien or claim of any Person (other than General Tax Liens), on
hand in the Investment Account in an amount not less than the
sum of (x) the then outstanding principal balance of the Loan
plus (y) the Interest Reserve plus (z) restricted cash and
amounts which may be restricted in the future pursuant to
agreements between the Borrower and third parties; and
(v) A minimum Net Worth of Twenty Million Dollars
($20,000,000).
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(v) and/or the occurrence of an Event of Default under Section
8.1 of this Agreement shall be a "Trigger Event."
SECTION 5.11. DEPOSITS INTO CUSTODIAN ACCOUNT. Upon the occurrence of a
Trigger Event, the Borrower will make, or, through the Account Holder pursuant
to the Irrevocable Instructions and Power of Attorney make, payments or deposits
to the Custodian Account such that after giving effect to such payments or
deposits the Restricted Account Balance equals or exceeds the Required
Restricted Account Balance. At the time of each such payment, the Borrower will
submit to the Bank a statement setting forth the market values of marketable
securities and the Restricted Account Balance as of the date of deposit (after
giving effect to any deposits made on or before such day).
SECTION 5.12. INVESTMENT POLICY. The Borrower shall at all times comply
with its investment policy which is attached hereto as Schedule 5.12 (the
"Investment Policy") with respect to the investment of all Cash and Cash
Equivalents.
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ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION
So long as the Borrower is indebted to the Bank hereunder and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder, the Borrower shall deliver to the Bank:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. Annually, as soon as available,
but in any event within one hundred (100) days after the last day of the fiscal
year, the balance sheet of the Borrower as of such last day of the fiscal year
and statements of operations, stockholders' equity and cash flows, for such
fiscal year, on a consolidated basis, prepared in accordance with generally
accepted accounting principles consistently applied, in reasonable detail,
audited and opined on by independent public accountants reasonably satisfactory
to the Bank (which audit opinion shall contain no qualification unsatisfactory
to the Bank), to present fairly the financial position and the results of
operations of the Borrower as of the end of such fiscal year and to have been
prepared in accordance with generally accepted accounting principles.
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as available, but in
any event within fifty (50) days after the end of each fiscal quarter ended on
the last day of each March, June and September, balance sheets for the Borrower
as of the last day of each such quarter and statements of operations, and cash
flows, for such quarter, all in reasonable detail and on a consolidated basis.
Each such statement shall be certified on behalf of the Borrower by the
Borrower's controller, director of finance or chief financial officer as fairly
presenting the financial position and the results of operations of the Borrower
as of the end of such fiscal quarter and as having been prepared in accordance
with generally accepted accounting principles consistently applied (subject to
normal adjustments).
SECTION 6.3. 10Q AND 10K FILINGS. Promptly after its Form 10-Q is released
to the public (which in all events shall be within forty-five (45) days after
the end of the fiscal quarters ended March, June and September or, if later, the
date of the filing of the Form 10-Q with the Securities and Exchange
Commission), a copy of each Form 10-Q; and, each year promptly after its Form
10K is released to the public (which in all events shall be within one hundred
twenty (120) days after the end of the Borrower's fiscal year), a copy of its
Annual Report to Stockholders along with its Form 10K.
SECTION 6.4. CASH AND COVENANT REPORTS. The following reports, statements
or certificates: (i) at the same time as it delivers the Financial Statements
required under the provisions of Sections 6.1 -- "Annual Financial Statements"
and 6.2 -- "Quarterly Financial Statements", a report as to the calculations
with respect to, and compliance with, the financial covenants set forth in
Section 5.10(i) through 5.10(v); and (ii) within fifteen (15) days of the end of
each calendar quarter, a statement listing (A) the Borrower's Net Cash Level at
the end of
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such calendar quarter and the domicile of such cash and investments and (B) the
cash balances and Cash Equivalent Balances of the Investment Account as of the
end of such calendar quarter, provided that during any period when the
Borrower's Net Cash Level is less than an amount equal to the sum of Ten Million
Dollars ($10,000,000) plus an amount equal to the then outstanding principal
balance of the Note, the Borrower shall submit to the Bank, within ten (10) days
of the end of each calendar month, a compliance statement indicating the
Borrower's actual Net Cash Level and listing all of the Borrower's cash balances
and Cash Equivalent Balances as of month end wherever domiciled, accompanied by
confirming statements of the custodians of such cash balances and Cash
Equivalent Balances; and (iii) within twenty (20) days of the end of each
calendar month, in order for the Bank to monitor Borrower's compliance with the
financial covenants set forth in Section 5.10(iii), a certificate of the Actual
Cash Burn for the preceding six (6) month period.
SECTION 6.5. OTHER INFORMATION. Promptly after a written request therefor,
such other financial data or information evidencing compliance with the
requirements of this Agreement and the other Loan Documents as the Bank may
reasonably request from time to time.
SECTION 6.6. NO TRIGGER EVENT/DEFAULT CERTIFICATE. At the same time as it
delivers the Financial Statements required under the provisions of Sections 6.1
- -- "Annual Financial Statements" and 6.2 -- "Quarterly Financial Statements," a
certificate of the Borrower signed on its behalf by an Authorized Signatory or
its director of finance, to the effect that, to the best of the Borrower's
knowledge, no Trigger Event or Default hereunder has occurred or, if such cannot
be so certified, specifying in reasonable detail the exceptions, if any, to such
statement.
SECTION 6.7. NOTICES.
(a) DEFAULTS. As soon as possible and in any event within seven (7)
days after the Borrower has knowledge of the occurrence or existence of a
Trigger Event or any event which with the giving of notice or passage of
time or both, would constitute either an Event of Default or Trigger
Event, the statement of the Borrower setting forth details of such Trigger
Event or event and the action which the Borrower proposes to take with
respect thereto.
(b) LITIGATION AND JUDGMENTS. Promptly after obtaining knowledge
thereof, written notification of any litigation or legal proceedings
instituted against the Borrower, regardless of the subject matter thereof,
having claims or amounts in controversy of more than $50,000 in any one
instance or $50,000 in the aggregate at any one time, or of one or more
judgment(s) not covered by insurance, final or otherwise, in an aggregate
amount of $50,000 or more.
(c) ENVIRONMENTAL EVENTS. Promptly after obtaining knowledge or
receipt thereof, written notice of any of the following which has the
potential to materially adversely affect the assets, liabilities,
financial condition or operations of the Borrower: (i)
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any violation of any Environmental Laws regarding the Borrower's
operations; (ii) any potential or known Release, or threat of Release, of
any Hazardous Substances at, from or into the Borrower's place of business
which the Borrower reports in writing or is reportable in writing (or for
which any written report supplemental to any oral report is made) to any
federal, state, or local environmental agency; (iii) any notice of
violation of any Environmental Laws or of any release or threatened
release of Hazardous Substances, including a notice or claim of liability
or potential responsibility from any third party (including without
limitation any federal, state or local governmental officials) and
including notice of any formal inquiry, proceeding, demand, investigation
or other action with regard to the Borrower's business operation; or (iv)
any expense or loss that has been identified by such governmental
authority in connection with the assessment, containment, removal or
remediation of any Hazardous Substances with respect to which the Borrower
may be liable.
ARTICLE VII.
NEGATIVE COVENANTS
So long as the Borrower is indebted to the Bank hereunder, and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder (except for the Borrower's obligations under
Sections 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall not do, or permit to be
done, any of the following:
SECTION 7.1. LIENS. Without the Bank's consent, create or assume or permit
to exist, any Lien upon or with respect to any of its assets, or assign or
otherwise convey any right to receive income except the following Liens
("Permitted Liens"):
(a) Liens in favor of the Bank;
(b) Liens for taxes, assessments or governmental charges or levies
on property of the Borrower if the same shall not at the time be
delinquent or thereafter can be paid without interest or penalty or are
being contested in good faith and by appropriate proceedings which serve
as a matter of law to stay the enforcement thereof and as to which
adequate reserves have been made ("General Tax Liens");
(c) Liens imposed by law, such as carrier's, warehousemen's and
mechanic's liens and other similar Liens arising in the ordinary course of
business for sums not yet due or which are being contested in good faith
and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
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(d) Liens arising out of pledgor deposits under workers'
compensation laws, unemployment insurance, social security, retirement
benefits or similar legislation;
(e) Permitted Purchase Money Liens (including, without limitation,
Liens arising in connection with equipment leases);
(f) Rights of other parties under technology licenses from the
Borrower granted in connection with the development, manufacture or
marketing of pharmaceutical or other products, or otherwise in the
ordinary course of business;
(g) Rights of the United States government in certain technology,
the development of which is or was funded in whole or in part by the
United States government; and
(h) Security deposits under leases of the Borrower's premises set
forth on Schedule 7.1 hereto.
SECTION 7.2. CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION OF
ASSETS. Without the Bank's consent which shall be granted or denied within a
commercially reasonable period:
(a) Consolidate with, merge into or convey or transfer its
properties substantially as an entirety to, any Person, except that the
Borrower may participate in any merger in which the Borrower is the
surviving entity so long as after giving effect to such merger the
Borrower remains in compliance with all covenants and conditions of this
Agreement.
(b) Make any material change in the nature of its business (as
presently conducted or as proposed to be conducted as set forth in the
Prospectus), or in the nature of its operations (as presently conducted or
as proposed to be conducted as set forth in the Prospectus), or liquidate
or dissolve itself (or suffer any liquidation or dissolution).
(c) Effect any disposition of all or a material portion of its
assets (whether in one or more transactions) except that (i) the Borrower
may dispose of obsolete or worn out equipment, (ii) the Borrower may
replace equipment with upgraded equipment and may thereafter dispose of
the equipment so upgraded and replaced, (iii) the Borrower may engage in
research and development transactions (each, an "R&D Transaction")
involving the licensing of the Borrower's rights in certain technology to
other persons, provided that Borrower receives fair market consideration
for such licensing and, provided that after giving effect to each such R&D
Transaction, the Borrower remains in compliance with all covenants and
conditions of this Agreement; and (iv) dispose of other assets in the
ordinary course of Borrower's business provided that Borrower receives
equivalent value on such disposition of assets.
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SECTION 7.3. CHANGE OF OFFICE ADDRESS. Except upon five (5) days' prior
written notice to the Bank, change the address of its principal office or place
of business or the place where it maintains its records with respect to the
Accounts.
SECTION 7.4. VIOLATION OF AGREEMENT. Take any action the effect of which
would constitute a breach or violation of any provision of this Agreement.
ARTICLE VIII.
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. If any one or more of the following events
("Event of Default") shall occur and be continuing, the entire unpaid balance of
the principal of and interest on the Note and all other obligations and
Indebtedness of the Borrower to the Bank arising hereunder and under the other
Loan Documents will (i) in the case of any Event of Default of the types
referred to in subparagraph (e) hereinbelow, immediately become due and payable
without notice and (ii) in the case of any other Event of Default, immediately
become due and payable upon written notice to that effect given to the Borrower
by the Bank, without presentment or demand for payment, notice of non-payment,
protest or further notice or demand of any kind, all of which are expressly
waived by the Borrower. Upon an Event of Default, the Bank shall have the rights
and remedies provided for herein and in the other Loan Documents and under
applicable law and in equity, and the rights and remedies provided for herein
shall be cumulative and in addition to the rights and remedies provided for
therein. Each of the following shall constitute an Event of Default:
(a) Failure by the Borrower to make any payment when due of any
amount payable under the Loan Documents, which failure is not cured within
five (5) days of the occurrence thereof.
(b) Failure by the Borrower to make any mandatory payments under any
borrowing agreement (other than the Loan Documents) to which the Borrower
is a party within any applicable grace period provided in such agreement
or any other default by the Borrower under any such borrowing agreement
and the failure of the Borrower to cure such default within any applicable
grace period, provided that no Event of Default will be deemed to have
occurred under this paragraph (b) with respect to any indebtedness under
any borrowing agreement if payment of such indebtedness, after notice
thereof having been given to the Bank, is being contested by the Borrower
in good faith and by appropriate proceedings and such contest operates to
prevent the other party to such agreement from exercising its remedies
against the Borrower or any of its properties and the amount in dispute is
in the aggregate less than $50,000.
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(c) Failure by the Borrower to perform or observe any material term,
condition or covenant of this Agreement or of any of the Loan Documents
(other than the covenants set forth in Section 5.10(i) through 5.10(v)
which shall constitute a Trigger Event instead) which failure (other than
a failure which by its nature is not capable of cure and other than a
failure to perform or observe any term, condition or covenant referred to
or set forth in Subparagraphs (a), (b) and (c) hereinabove) is not cured
within thirty (30) days of the occurrence thereof.
(d) Any representation or warranty made in writing to the Bank in
any of the Loan Documents or in connection with the making of the Loan or
a certificate, statement or report made or delivered pursuant to this
Agreement, will have been false or misleading in any material respect when
made or delivered.
(e) The Borrower makes an assignment for the benefit of creditors,
files a petition for bankruptcy, petitions or applies to any tribunal for
the appointment of a receiver, custodian, or any trustee for it or a
substantial part of its assets, or commences any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or there will have been filed any such petition or
application, or any such proceeding has been commenced against it, which
remains undismissed for a period of sixty (60) days or more; or any order
for relief is entered in any such proceeding; or the Borrower by any act
or omission indicates its consent to, approval of or acquiescence in any
such petition, application or proceeding or the appointment of a
custodian, receiver or any trustee for it or any substantial part of any
of its properties; or the Borrower suffers any custodianship, receivership
or trusteeship to continue undischarged for a period of sixty (60) days or
more.
(f) Any single judgment of $50,000 or more or a combination of
unsecured judgments aggregating $50,000 or more against the Borrower not
covered by insurance or any attachment or levy of execution against any
substantial part of the Borrower's properties for any amount (not covered
by insurance) remains unpaid, unstayed on appeal, undischarged, unbonded
or undismissed for a period of thirty (30) days or more.
(g) Any Loan Document ceases to be in full force and effect in all
material respects for any reason (other than due to the payment in full of
all amounts secured or evidenced thereby or due to discharge in writing by
the Bank).
(h) After the occurrence of a Trigger Event under Section 5.10, the
failure of the Borrower and/or the Account Holder to make the requisite
transfer to the Custodian Account as provided in Section 5.11 such that,
not later than 5:00 P.M. in New York, New York on the first Business Day
following the occurrence of the Trigger Event, the Restricted Account
Balance equals or exceeds the Required Restricted Account Balance.
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(i) Upon the occurrence of a Trigger Event under Section 5.10, the
failure of the Borrower to execute and deliver, or cause to be executed
and delivered, any additional documents reasonably requested by the Bank
in connection with the transfer by the Borrower and/or Account Holder to
the Custodian Account as provided in Section 5.11 (including without
limitation any additional documents requested by the Bank in order to
further implement or perfect the pledge of assets held in the Custodian
Account and any additional opinion of the Borrower's counsel on such
matters the Bank may require, in a form and substance satisfactory to
Bank).
(j) Failure by the Borrower to comply with the Investment Policy for
investment of all Cash and Cash Equivalents, or the Borrower's making a
material change to such Investment Policy without the Bank's prior written
approval, which approval shall not be unreasonably withheld.
(k) After the occurrence of a Trigger Event and the initial transfer
to the Custodian Account as provided in Section 5.11, the failure of the
Borrower and/or the Account Holder to make, within one Business Day
following the request of the Bank, such additional transfers to the
Custodian Account as may be necessary, from time to time, to increase the
Restricted Account Balance so that it equals the Required Restricted
Account Balance.
(l) The failure by the Borrower, at any time, to maintain a Net Cash
Level equal to the sum of the then outstanding principal balance under the
Note plus the greater of (i) Six Million Dollars ($6,000,000) or (ii) an
amount equal to two times the sum of the previous four months of Actual
Cash Burn.
(m) After the Closing Date, a material adverse change in the
business or financial condition of the Borrower occurs.
(n) Failure by the Borrower to perform or observe any term,
condition or covenant set forth in Section 2.6.
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ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.1. INDEMNITY; ADDITIONAL FEES. The Borrower shall indemnify Bank
against, and hold it harmless from, any loss, liabilities, damages, claims, and
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) suffered or incurred by the Bank arising out of, resulting from
or in any manner connected with, the Loan Documents, or any transaction related
hereto or thereto, except an indemnified party shall not be entitled to
indemnification for any such loss arising solely from the indemnified party's
own gross negligence or willful misconduct. The provisions of this Section 9.1
will survive for a period of three (3) years following the repayment of the Note
and the termination of this Agreement.
SECTION 9.2. SURVIVAL OF AGREEMENTS AND REPRESENTATIONS. All agreements,
representations and warranties made herein will survive the delivery of the Loan
Documents and shall be in full force and effect during the term of this
Agreement.
SECTION 9.3. MODIFICATIONS, CONSENTS AND WAIVERS. No modification,
amendment or waiver of or with respect to any provision of the Loan Documents,
nor consent to any departure by a party from any of the terms or conditions
thereof shall in any event be effective unless it is in writing and signed by
the party against whom such modification, amendment, waiver or consent is sought
to be enforced. Any such waiver or consent will be effective only in the
specific instance and for the purpose for which given. No consent to or demand
on the Borrower in any case will, of itself, entitle it to any other or further
notice or demand in similar or other circumstances.
SECTION 9.4. ENTIRE AGREEMENT. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Bank and the Borrower
and supersede all prior agreements and understandings relating to the subject
matter hereof.
SECTION 9.5. REMEDIES CUMULATIVE. Each and every right granted to the Bank
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, is cumulative and may be exercised
from time to time. No failure on the part of the Bank or the holder of the Note
to exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor will any single or partial exercise of any right preclude any other
or future exercise thereof or the exercise of any other right.
SECTION 9.6. FURTHER ASSURANCES. At any time and from time to time, upon
the request of the Bank, the Borrower shall execute, deliver and acknowledge or
cause to be executed, delivered and acknowledged such further documents and
instruments and do such other acts and things as the Bank may reasonably request
to fully effect the purposes of the Loan Documents
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and any other agreements, instruments and documents delivered pursuant to the
Loan Documents or in connection with the Loan.
SECTION 9.7. NOTICES. All notices, requests, reports and other
communications pursuant to this Agreement must be in writing, either by letter
(delivered by hand or commercial delivery service or sent by certified mail,
return receipt requested, except for routine reports which may be by ordinary
first class mail) or facsimile or telecopier, addressed as follows:
If to Borrower: Corixa Corporation
1124 Columbia Street, Suite 464
Seattle, WA 98104
Attn: Ms. Michelle Burris
Telephone: (206) 667-5720
Facsimile: (206) 667-5715
If to Borrower's counsel: Venture Law Group
4750 Carillon Point
Kirkland, Washington 98033
Attn: William Ericson
Telephone: (425) 739-8700
Facsimile: (425) 739-8750
If to Bank: The Sumitomo Bank, Limited
Pine Street Representative Office
100 Pine Street, Suite 3300
San Francisco, CA 94111-5219
Attn: Carole A. Daley, Vice President
Telephone: (415) 394-0868
Facsimile: (415) 394-9797
If to Bank's Counsel: Freed & Heinemann LLP
One Jackson Place
633 Battery Street, Suite 620
San Francisco, CA 94111
Attn: Peter M. Heinemann, Esq.
Telephone: (415) 986-0707
Facsimile: (415) 986-0999
Any notice, request or communication hereunder will be deemed to have been given
(i) on the day on which it is delivered by hand to such party at its address
specified above, (ii) if sent by mail, on the third (3rd) Business Day following
the day it was deposited in the mail, postage prepaid, or (iii) if sent by
telecopy, when transmitted addressed as aforesaid on a Business Day
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during normal business hours and receipt is confirmed, on such Business Day. Any
party may change the person or address to whom or which notices are to be given
hereunder, by notice duly given hereunder, provided, however, that any such
notice will be deemed to have been given hereunder only when actually received
by the party to which it is addressed.
SECTION 9.8. CONSTRUCTION; GOVERNING LAW.
(a) The headings used in this Agreement and the table of contents
are for convenience only and will not be deemed to constitute a part
hereof. All uses herein of the masculine gender or of singular or plural
terms will be deemed to include uses of the feminine or neuter gender or
plural or singular terms, as the context may require. All references
herein (including the definitions set out in Appendix A hereto) to any
agreements shall be to such agreement as amended or modified to the date
of reference. All references to a particular entity shall include a
reference to such entity's successors and permitted assigns. The words
"herein," "hereof" and "hereunder" refer to this Agreement as a whole and
not to any particular section or subsection of this Agreement. "Including"
means "including, without limitation".
(b) THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO ITS CONFLICT OF LAWS RULES.
SECTION 9.9. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF THE BORROWER OR THE BANK. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE BANK PROVIDING THE LOAN DESCRIBED HEREIN.
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SECTION 9.10. JURISDICTION.
(a) Each of the Borrower and the Bank hereby irrevocably and
unconditionally submits, for itself and its property, to service of
process (directly or on an agent) in California to the nonexclusive
jurisdiction of any California state court or Federal court of the United
States of America in each case sitting in San Francisco, and any appellate
court handling an appeal from any thereof, in any action or proceeding
arising out of or relating to this Agreement or any other Loan Agreement,
or for recognition or enforcement of any judgment, and the Borrower and
the Bank hereby irrevocably and unconditionally agree that all claims in
respect of any such action or proceeding may be heard and determined in
such California state or, to the extent permitted by law, in such Federal
court. Each of the Borrower and the Bank agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that a
party may otherwise have to bring any action or proceeding relating to
this Agreement or any other Loan Agreement against any other party or its
respective properties in the court of any jurisdiction.
(b) Each of the Borrower and the Bank hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any such California state or Federal court.
Each of the Borrower and the Bank hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
SECTION 9.11. RELATIONSHIP OF THE BORROWER AND THE BANK. The Borrower and
the Bank agree that nothing contained in this Agreement or any other document
executed in connection with the Loan is intended or shall be construed to
establish the Borrower and the Bank as joint venturers or partners; and the
Borrower hereby indemnifies and agrees to hold the Bank, its officers,
directors, agents and employees harmless from any and all damages resulting from
such a construction of the relationship of the parties hereto, except any such
damage arising solely from the Bank's own gross negligence or willful
misconduct.
SECTION 9.12. SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability will affect only such clause or provision, or part thereof, in
such jurisdiction and will not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Agreement in
any jurisdiction. Each of the covenants, agreements and conditions contained in
this Agreement is independent and compliance by the Borrower with any of them
will not excuse noncompliance by the Borrower with any other.
32
<PAGE> 37
SECTION 9.13. BINDING EFFECT; ASSIGNMENT.
(a) This Agreement will be binding upon and inure to the benefit of
the Borrower and its successors and its assigns as permitted herein and to
the benefit of Bank and its successors and assigns.
(b) The rights and obligations of the Borrower under this Agreement
may not be assigned or delegated without the prior written consent of the
Bank, and any purported assignment or delegation without such consent
shall be void.
(c) Bank, without the consent of the Borrower, may at any time
assign or grant participations to any other Person in all or part of its
rights and obligations under the Loan Documents; provided, however, that
no such assignment or participation may be made or shall be effective
unless the Bank shall have delivered prior written notice thereof to the
Borrower of the proposed effective date and amount of such assignment or
participation and the identity of the proposed assignee or participant.
The Bank shall be the agent of any participants for the purpose of the
receipt and delivery of funds and notices under the Loan Documents.
SECTION 9.14. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same document.
SECTION 9.15. RE-ESTABLISHMENT OF INVESTMENT ACCOUNT. If, after the
occurrence of a Trigger Event and after the deposits to the Custodian Account
required under Section 5.11 have been made, the Borrower's Net Cash Level is
restored to a level which equals or exceeds the sum of the then outstanding
principal balance due under the Note plus the greater of (i) Ten Million Dollars
($10,000,000) or (ii) an amount equal to two times the sum of the previous six
months of Actual Cash Burn, then Borrower may request that the Investment
Account be re-established by delivering a written notice to Bank (the
"Investment Account Re-Establishment Notice"). After Borrower's delivery to Bank
of the Investment Account Re-Establishment Notice, the Bank may, in the Bank's
sole and absolute discretion, allow for the Investment Account to be
re-established and all amounts held in the Custodian Account less the Required
Restricted Account Balance of One Thousand Dollars ($1,000) to be transferred to
the Investment Account on the date that all of the following conditions have
been satisfied ("Transfer Date"):
(a) the Borrower has delivered to the Bank a written statement,
accompanied by confirming statements of the custodians of such cash
balances and Cash Equivalent Balances, which is certified as to accuracy
by the Chief Financial Officer or director of finance of Borrower, which
evidences that the Borrower's Net Cash Level has been restored to a level
which equals or exceeds the sum of the then outstanding principal balance
due under the Note plus the greater of (i) Ten Million Dollars
($10,000,000) or (ii) an amount equal to two times the sum of the previous
six months of Actual Cash Burn;
33
<PAGE> 38
(b) a Trigger Event shall not be continuing as of either the date of
the Investment Account Re-Establishment Notice or the Transfer Date;
(c) the Borrower shall have otherwise fully complied with, performed
or observed all material terms, conditions and covenants in the Loan
Documents as of the date of the Investment Account Re-Establishment Notice
and the Transfer Date;
(d) the Borrower, the Bank and the Account Holder shall have
executed and delivered such additional documents, reasonably required by
the Bank, necessary to re-establish the Investment Account in accordance
with the provisions of this Agreement and with Cash and Cash Equivalents,
which are not subject to any Lien or claim of any person (other than
General Tax Liens), on hand in the Investment Account (upon
re-establishment thereof) in an amount not less than the sum of (i) the
then outstanding principal balance of the Loan plus (ii) the Interest
Reserve plus (iii) plus restricted cash and amounts which may be
restricted in the future pursuant to agreements between the Borrower and
third parties, including without limitation, a re-affirmation of the
Irrevocable Instructions and Power of Attorney, or execution of new
irrevocable instructions providing substantially the same terms and
conditions as the Irrevocable Instructions and Power of Attorney;
(e) the Borrower, the Bank and the Bailee (where necessary) shall
have executed and delivered such additional documents necessary to release
funds from the Custodian Account and transfer such funds to the Investment
Account and such additional documents, reasonably required by the Bank,
necessary to re-affirm and continue in full force and effect the Custodian
Agreement, the Collateral Bailment Agreement, the Restricted Account and
Security Agreement and the other Loan Documents;
34
<PAGE> 39
(f) the Borrower shall have delivered to Bank an additional opinion
of Borrower's counsel on such matters as the Bank may reasonably require
with respect to the re-establishment of the Investment Account and
re-affirmation of the Loan Documents, in a form and substance satisfactory
to Bank; and
(g) such other conditions as the Bank, in its sole and absolute
discretion, may require as a condition to the re-establishment of the
Investment Account.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORIXA CORPORATION
By: /s/ Michelle Burris
Name: Michelle Burris
Title: VP, Finance and Administration
THE SUMITOMO BANK, LIMITED
By: /s/ Carole A. Daley
Name: Carole A. Daley
Title: Vice President and Manager
By: /s/ J. William Bloore
Name: J. William Bloore
Title: Vice President
35
<PAGE> 40
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS
The following words shall have the meanings specified below in the Section
of the Agreement referred to below.
"ACCOUNT HOLDER" -- is defined in Subsection 2.6(a).
"ACCOUNTS" -- the Investment Account and the Custodian Account.
"ACTUAL CASH BURN" -- the amount of the actual change in Borrower's Cash
and Cash Equivalents (including short-term and long-term investments) as
calculated on the last day of each calendar month for the preceding one month
period and as set forth in a written certificate prepared by Borrower and
delivered to Bank not later than the 20th day of each month for the preceding
month.
"AFFILIATE" -- as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean possession
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise). The term "Affiliate" shall not
include any Person who controls another Person solely by virtue of such Person's
position as a corporate officer or director of such other Person.
"AGREEMENT" -- is defined in the Preamble.
"APPLICABLE MARGIN" -- means one and one-half percent (1.5%).
"AUTHORIZED SIGNATORY" -- with respect to a corporation, any officer of
such corporation.
"AVAILABILITY PERIOD" -- the period commencing on the Closing Date and
ending on December 31, 1998.
"BAILEE" -- is defined in Subsection 2.6(b).
"BANK" -- is defined in the Preamble.
"BORROWER" -- is defined in the Preamble.
"BUSINESS DAY" -- a day when commercial banks in both San Francisco,
California and Chicago, Illinois and, in the case of setting the Reserve
Adjusted Eurodollar Rate, London,
A-1
<PAGE> 41
England, are open for business with respect to transactions of the kind
contemplated in this Agreement.
"CERCLA" -- is defined in Subsection 3.16(a).
"CASH AND CASH EQUIVALENTS" -- liquid investments, consisting of cash and
cash equivalents and other investments in investment grade securities, that are
classified on the Borrower's consolidated balance sheet as current, noncurrent,
long-term or restricted.
"CASH EQUIVALENT BALANCES" -- the aggregate amount of Cash and Cash
Equivalents, as reported in the Financial Statements, which Financial Statements
shall be prepared in accordance with GAAP.
"CLOSING DATE" -- December 29, 1997.
"CODE" -- the Internal Revenue Code of 1986, as amended.
"COLLATERAL BAILMENT AGREEMENT" -- the Collateral Bailment Agreement of
even date herewith by and among the Borrower, the Bailee and the Bank.
"COMMITMENT FEE" -- is defined in Subsection 2.3(d)
"CONTROLLED GROUP" -- all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA.
"CURRENT RATIO" -- the ratio of total current assets to total current
liabilities.
"CUSTODIAN ACCOUNT" -- is defined in Subsection 2.6(b).
"CUSTODIAN AGREEMENT" -- Custodian Agreement of even date herewith by and
between the Borrower and Sumitomo Bank of New York Trust Company.
"DEFAULT" -- means an event which with the passage of time or the giving
notice or both would constitute an Event of Default.
"DEFAULT RATE" -- is defined in Subsection 2.3(c).
"DISBURSEMENT" -- a disbursement of available proceeds of the Loan.
A-2
<PAGE> 42
"DISPOSAL," "DISPOSE(D)" -- as specified in RCRA and in the regulations
promulgated thereunder.
"ELECTION NOTICE" -- is defined in Subsection 2.1(d).
"EPA" -- is defined in Subsection 3.16(a).
"ENVIRONMENTAL LAWS" -- is defined in Subsection 3.16(a).
"ERISA" -- is defined in Section 3.15.
"EUROCURRENCY RESERVE PERCENTAGE" -- with respect to each Interest Period,
a percentage (expressed as a decimal) equal to the percentage (if any) in effect
two Business Days prior to the first day of such Interest Period, as prescribed
by the F.R.S. Board, for determining reserve requirements applicable to
"Eurocurrency liabilities" pursuant to Regulation D or any other then applicable
regulation of the F.R.S. Board which prescribes reserve requirements applicable
to "Eurocurrency liabilities," as presently defined in said Regulation D. For
purposes of this definition, Eurodollar Rate Loan Portions hereunder shall be
deemed to be "Eurocurrency liabilities" as defined in said Regulation D.
"EURODOLLAR RATE" -- for any Eurodollar Rate Loan Portion, with respect to
the applicable Interest Period relating to such Eurodollar Rate Loan Portion,
the rate per annum (rounded up to the next whole multiple of 1/16 of 1% if the
rate per annum is not a whole multiple of 1/16 of 1%) equal to the rate at which
United States dollar deposits are offered to the Bank in the London interbank
Eurodollar market as of approximately 11:00 a.m., London, England time, on the
second Business Day prior to the first day of such Interest Period for delivery
in immediately available funds on the first day of such Interest Period for the
number of days in such Interest Period and in an amount equal to the amount of
the Eurodollar Rate Loan Portion.
"EURODOLLAR RATE LOAN PORTION -- any portion of the Loan which bears
interest at the Reserve Adjusted Eurodollar Rate plus the Applicable Margin for
the applicable Interest Period.
"EVENT OF DEFAULT" -- is defined in Section 8.1.
"FEDERAL FUNDS RATE" -- means, for any day, the weighted average of the
rates on overnight Federal funds transactions between members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such transactions on such day obtained by the Bank from three
Federal funds brokers of recognized standing selected by it.
A-3
<PAGE> 43
"FINANCIAL STATEMENTS" -- (a) the audited consolidated balance sheet and
consolidated statements of operations, shareholders' equity and cash flows of
Borrower for the fiscal year then ended, together with the unqualified opinion
of the independent public accountants preparing such statements; and (b) the
quarterly unaudited consolidated balance sheet and unaudited consolidated
statements of operations, and cash flows for Borrower for the fiscal quarters
ended March, June, September and December, certified as to accuracy by the Chief
Financial Officer or director of finance of Borrower.
"FINANCING STATEMENT" -- a financing statement or statements on form
UCC-1, signed by the Borrower and describing the property in which the Bank has
a security interest under the Restricted Account and Security Agreement, all in
form and substance suitable for filing as a financing statement under Article 9
of the Uniform Commercial Code as enacted in California and/or New York.
"GAAP" -- generally accepted accounting principles.
"GENERAL TAX LIENS" -- is defined in Subsection 7.1(b).
"HAZARDOUS SUBSTANCES" -- is defined in Subsection 3.16(b).
"INDEBTEDNESS" -- with respect to any Person, all:
(a) indebtedness, liabilities or other obligations of such Person
for borrowed money or for the deferred purchase price of property or
services (excluding all operating lease obligations and trade accounts
payable and accrued obligations incurred in the ordinary course of
business) as determined in accordance with generally accepted accounting
principles consistently applied and any other contingent liabilities of
such Person;
(b) indebtedness, liabilities or obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses;
(c) reimbursement and other obligations of such Person in respect of
letters of credit and bankers acceptance and all net obligations in
respect of interest rate swaps, caps, floors and collars, currency swaps,
and other similar financial products;
(d) indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person;
(e) obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases; and
A-4
<PAGE> 44
(f) indebtedness of another Person of the types referred to in
clauses (a) through (e) guaranteed directly or indirectly in any manner by
the Person for whom Indebtedness is being determined, or in effect
guaranteed directly or indirectly by such Person through an agreement to
purchase or acquire such indebtedness, to advance or supply funds for the
payment or purchase of such indebtedness or otherwise assure a creditor
against loss, or secured by any Lien upon or in property owned by the
Person for whom Indebtedness is being determined, whether or not such
Person has assumed or become liable for the payment of such indebtedness
of such other Person.
"INITIATION FEE" -- is defined in Subsection 2.3(d).
"INITIAL NOTICE" -- is defined in Subsection 2.1(c).
"INTELLECTUAL PROPERTY RIGHTS" -- is defined in Section 3.11.
"INTEREST DIFFERENTIAL" -- with respect to (i) any prepayment of a
Eurodollar Rate Loan Portion on a day other than the last day of the applicable
Interest Period or (ii) the failure to draw down, continue or convert to a
Eurodollar Rate Loan Portion on the first day of the applicable Interest Period
identified in an Initial Notice or Election Notice, the difference between: (a)
the per annum interest rate payable with respect to such Eurodollar Rate Loan
Portion as of the date of such prepayment or failure and (b) the Reserve
Adjusted Eurodollar Rate plus the Applicable Margin which the Bank determines
would be payable with respect to such Eurodollar Rate Loan Portion on, or as
near as practicable to, the date of such prepayment or failure. The
determination of the Interest Differential by the Bank shall be conclusive in
the absence of manifest error.
"INTEREST PAYMENT DATE" -- (a) with respect to any Prime Rate Loan
Portion, the last Business Day of each calendar month; (b) with respect to any
Eurodollar Rate Loan Portion, the last day of each applicable Interest Period
and, if such Interest Period is longer than three (3) months, also on the last
day of each three (3) month period during such Interest Period (with the first
such three month period commencing on the first day of the applicable Interest
Period); and (c) for any Loan Portion, the date that the Loan Portion is due by
either the occurrence of Maturity Date or an Event of Default having occurred
and the maturity of the Loan having been accelerated pursuant to the terms of
the Loan Documents.
"INTEREST PERIOD" -- as to any Eurodollar Rate Loan Portion, the period
commencing on the date of the initial funding of such Eurodollar Rate Loan
Portion or the last day of the immediately preceding Interest Period for any
Eurodollar Rate Loan Portion that is to be continued as a Eurodollar Rate Loan
Portion and ending, with respect to such Eurodollar Rate Loan Portion, on the
numerically corresponding day (or if there is no numerically corresponding day,
on the last day), in the calendar month that is one, two, three, six or, if
available, twelve
A-5
<PAGE> 45
months thereafter, in each case as the Borrower may elect in the Election
Notice; provided however, that (a) no Interest Period with respect to any
Eurodollar Rate Loan Portion shall end later than the Maturity Date, (b) if an
Interest Period would end on a day that it is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding day would fall in the next calendar month, in which case, such
Interest Period shall end on the immediately preceding Business Day, and (c)
interest shall accrue from and including the first day of an Interest Period to
but excluding the last Business Day of such Interest Period.
"INTEREST RESERVE" -- on any date of determination means an amount equal
to the interest that would accrue over the next three months on an amount equal
to the principal balance of the Loan outstanding on such date of determination.
"INVESTMENT ACCOUNT" -- is defined in Subsection 2.6(a).
"INVESTMENT ACCOUNT RE-ESTABLISHMENT NOTICE" -- is defined in Section
9.15.
"INVESTMENT POLICY" -- is defined in Section 5.12.
"IRREVOCABLE INSTRUCTIONS AND POWER OF ATTORNEY" -- is defined in
Subsection 2.6(a).
"IRS" -- is defined in Subsection 3.15(a).
"LIEN" -- any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement and any
lease in the nature of a security interest or lien).
"LOAN" -- is defined in Section 2.1.
"LOAN DOCUMENTS" -- this Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement, and all other
documents executed and delivered in connection herewith or therewith, including
all amendments, modifications and supplements of or all such documents.
"LOAN PORTION" -- as the circumstances or context warrants, the portion of
the Loan which is a Eurodollar Rate Loan Portion, or Prime Rate Loan Portion.
"MATURITY DATE" -- December 30, 2002.
"NET CASH LEVEL" -- the aggregate amount of the market value of Cash and
Cash Equivalents less (i) restricted cash (but not including any amounts in the
Custodian Account which are restricted or pledged for the benefit of the Bank),
(ii) amounts which may be restricted
A-6
<PAGE> 46
in the future pursuant to existing or future agreements between the Borrower and
third parties and (iii) and amounts pledged pursuant to agreements between the
Borrower and third parties.
"NET WORTH" -- an amount equal to the Total Assets minus Total
Liabilities.
"NOTE" -- is defined in Section 2.1.
"PBGC" -- is defined in Subsection 3.15(a).
"PERMITTED LIENS" -- is defined in Section 7.1.
"PERMITTED PURCHASE MONEY LIENS" -- purchase money security interests in
personal property acquired after the date hereof to secure purchase money
Indebtedness, to the extent that the amount of money borrowed does not exceed
the value of the personal property purchased, and the security interest granted
does not extend beyond the personal property purchased.
"PERSON" -- an individual, a corporation, a partnership, a joint venture,
a limited liability company, a trust or unincorporated organization, a joint
stock company or other similar organization, a government or any political
subdivision thereof, a court, or any other legal entity, whether acting in an
individual, fiduciary or other capacity.
"PLAN(S)" -- is defined in Subsection 3.15(a) hereof.
"PRIME RATE" -- means the higher of (i) the sum of the Federal funds Rate
plus .50% and (ii) the prime rate of the Bank as announced by the Bank, from
time to time, such prime rate being the rate of interest used as a reference
point from which the cost of credit to customers may be calculated and which is
subject to change from time to time, with the Bank making loans bearing interest
below, at or above its prime rate. The Prime Rate may change from time to time,
and the interest payable on the Loan when calculated with reference to the Prime
Rate shall fluctuate with changes in the Prime Rate. Any changes in the Prime
Rate shall become effective, without prior notice, on the date on which the
Prime Rate changes.
"PRIME RATE LOAN PORTION" -- any portion of the Loan which bears interest
calculated on the basis of the Prime Rate.
"PROSPECTUS" -- is defined in Section 5.5.
"RCRA" -- is defined in Subsection 3.16(a).
"R&D TRANSACTION" -- is defined in Subsection 7.2(c).
"REGULATORY CHANGE" -- any change after the date of this Agreement in
United States federal, state or local laws or regulations or the adoption or
making after such date of any
A-7
<PAGE> 47
interpretations, directives or requests applying to a class of banks including
the Bank of or under any United States federal, state, or local laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" -- as specified in CERCLA.
"REPORTING PERIOD" -- a fiscal quarter of the Borrower.
"REQUIRED RESTRICTED ACCOUNT BALANCE" -- (a) on and after a Trigger Event
has occurred, the sum of the Borrower's then outstanding principal balance of
the Loan plus the Interest Reserve and (b) prior to the occurrence of a Trigger
Event, the sum of One Thousand Dollars ($1,000).
"RESERVE ADJUSTED EURODOLLAR RATE" -- with respect to any Eurodollar Rate
Loan Portion for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Reserve Adjusted = Eurodollar Rate
Eurodollar Rate 1 - Eurocurrency Reserve Percentage
"RESTRICTED ACCOUNT AND SECURITY AGREEMENT" -- the Restricted Account and
Security Agreement of even date herewith by and among the Bank, the Bailee and
the Borrower.
"RESTRICTED ACCOUNT BALANCE" -- the sum of all Cash and Cash Equivalents
and any other investments on deposit in the Custodian Account, the amount of
such Cash Equivalents or investments to be calculated at the lower of cost or
market value.
"SARA" -- is defined in Subsection 3.16(a).
"SUBSIDIARY" -- any person of which the Borrower owns directly or
indirectly: (i) sufficient capital stock to enable it to elect at least a
majority of the board of directors or similar managing body of such person, or
(ii) capital stock with rights under the charter documents of such Person to
elect a director or similar managing official with the power to veto material
business decisions and organizational changes.
"TAXES" -- is defined in Subsection 2.5(a).
"TOTAL ASSETS" -- total assets as determined in accordance with generally
accepted accounting principles, consistently applied; provided, however, that
Total Assets shall be reduced by the amount (if any) of intangible assets.
A-8
<PAGE> 48
"TOTAL DEBT" -- the aggregate amount of the Borrower's Indebtedness.
"TOTAL LIABILITIES" -- the sum of (a) Borrower's Indebtedness and (b) all
operating lease obligations and trade accounts payable and accrued obligations
incurred in the ordinary course of business.
"TRANSFER DATE" -- is defined in Section 9.15.
"TRIGGER EVENT" -- is defined in Section 5.10.
"UCC" -- the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
A-9
<PAGE> 49
SCHEDULE 3.5
None.
<PAGE> 50
SCHEDULE 3.11
None.
-2-
<PAGE> 51
SCHEDULE 3.15
Corixa Corporation 401(k) Savings & Retirement Plan
-3-
<PAGE> 52
SCHEDULE 3.16
None.
-4-
<PAGE> 53
SCHEDULE 3.20
None.
-5-
<PAGE> 54
SCHEDULE 3.21
None.
-6-
<PAGE> 55
SCHEDULE 5.6
INSURANCE
<TABLE>
<CAPTION>
COVERAGE PERIOD INSURANCE CO. POLICY NO. NOTES
<S> <C> <C> <C> <C>
Products Liability 7/15/97-7/15/98 Lexington Ins. Co. 5632477
Umbrella 10/28/97-10/28/98 Federal Ins. Co. (Chubb) 7966-44-38
General Liability 10/28/97-10/27/98 Federal Ins. Co. (Chubb) 3532-45-78
Property 10/28/97-10/28/98 Federal Ins. Co. (Chubb) 3532-45-78
Foreign Package 10/28/97-10/28/98 Great Northern Ins. Co. (Chubb) 7323-64-12
Commercial Auto 10/28/97-10/28/98 Federal Ins. Co. (Chubb) 7321-39-60
Crime 10/28/97-10/28/98 Federal Ins. Co. (Chubb) 3532-45-78
Boiler & Machinery 10/28/97-10/28/98 Federal Ins. Co. (Chubb) 3532-45-78
Directors & Officers 10/2/97-10/2/00 Genesis Ins. Co. YXB001526 Open Market Securities
10/2/97-10/2/00 Genesis Ins. Co. YXB1525 Prospectus
</TABLE>
-7-
<PAGE> 56
SCHEDULE 5.12
INVESTMENT POLICY
See attached.
-8-
<PAGE> 57
SCHEDULE 7.1
SECURITY DEPOSITS UNDER REAL PROPERTY LEASES
Lease dated May 31, 1996 by and between Health Science Properties, Inc. and the
Company. No security deposit.
Columbia Building Lease dated October 28, 1994 by and between Fred Hutchinson
Cancer Research Center and the Company. Security deposit paid the amount of
$28/square foot (14,000 square feet rented) plus pro rata portion of operating
expenses. The Columbia Building Lease was amended on December 29, 1995 and, as
additional security to FHCRC for the Company's obligations under the lease in
the event the building is sold, an unconditional, irrevocable standby letter of
credit in the amount of $750,000.
-9-
<PAGE> 1
Exhibit 10.32
December 17, 1997
M. Charles de Taisne
Secretary General, External Research
Pasteur Merieux Connaught
1541 Av. Marcel Merieux
69280 Marcy L'Etoile
FRANCE
RE: EXTENDED OPTION TO LEIF
Dear Charles:
In accordance with our Letter Agreement dated October 21, 1997, PMC's option to
LeIF (the "Initial Option"), pursuant to the Option and License Agreement
between Corixa and PMC, (the "Initial Option Agreement"), will expire on
December 24, 1997. Based on our discussions, Corixa agrees that, in the event
PMC does not exercise the Initial Option in any of PMC's disease fields on or
before December 24, 1997, Corixa is willing to grant PMC an additional six (6)
month option to LeIF (the "Extended Option"), effective January 1, 1998 through
June 30, 1998. The Extended Option will be granted by Corixa in order to allow
PMC the opportunity for additional analysis of LeIF in accordance with the
Research Plan (the "Plan"), attached hereto as Exhibit A. Under the Plan, PMC
will provide certain research reagents to Corixa for use by Corixa in the LeIF
evaluation to be performed by Corixa under the Plan.
PMC will have the right to exercise the Extended Option in one or more of the
disease fields available to PMC under the Initial Option Agreement by providing
Corixa written notice of exercise on or before June 30, 1998. In the event PMC
exercises the Extended Option, Corixa and PMC shall then enter into a license
agreement on the terms and conditions of the Initial Option Agreement.
<PAGE> 2
If the foregoing is acceptable, please sign as indicated below and return a copy
of this letter to my attention.
Best regards,
For CORIXA CORPORATION
/s/ Mark McDade
- --------------------------------------
Mark McDade
Chief Operating Officer
Agreed and Accepted by
PASTEUR MERIEUX Serums & Vaccins S.A.
/s/ Charles de Taisne
- --------------------------------------
Charles de Taisne
Secretary General, External Research
-2-
<PAGE> 3
LeIF Rresearch Plan
1998
[xxx]
<PAGE> 1
Exhibit 10.33
SmithKline Beecham Pharmaceuticals
Jean Stephenne
Senior Vice President and General Manager
December 23, 1997
Dr. Steven Gillis
President, Chief Executive Officer
Corixa Corporation
1124 Columbia Street
Suite 200
Seattle, WA 98104
OPTION AGREEMENT DATED MARCH 1, 1997
Dear Steve:
This is to inform you of SB's intention to extend the [xxx] Option
Period for one additional eighteen month period pursuant to Section 3(c) of the
Option Agreement dated March 1, 1997.
The Option Extension Fee of $2,000,000 defined in Section 3(d) of said
Option Agreement will be transferred to you by wire transfer.
Yours Sincerely,
/s/ Jean Stephenne
- -----------------------
Jean Stephenne
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP. INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8), pertaining to the 1997 Employee Stock Purchase Plan, the Amended
and Restated 1994 Stock Option Plan, and the 1997 Directors' Stock Option Plan
of Corixa Corporation, of our report dated January 28, 1998 included in the Form
10K for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Seattle, Washington
March 9, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Corixa Corporation:
We consent to the incorporation by reference in the registration statement (No.
333-45375) on Form S-8 of Corixa Corporation, of our report dated April 28,
1995, relating to the statements of operations, stockholders' equity, and cash
flows of Corixa Corporation (a development stage company) for the period
from September 8, 1994 (date of inception) through December 31, 1994 which
report appears in the December 31, 1997 annual report on Form 10K of Corixa
Corporation.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 9, 1998
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