<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 18, 1999
CORIXA CORPORATION
(Exact name of registrant as specified in its charter)
0-22891
(Commission File Number)
DELAWARE 91-1654387
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
1124 COLUMBIA STREET, SUITE 200
(Address of principal executive offices, with zip code)
206-754-5711
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On June 9, 1999, Corixa Corporation ("Corixa") entered into an
Agreement and Plan of Merger with Ribi ImmunoChem Research, Inc. ("Ribi"), a
Hamilton, Montana-based biopharmaceutical company founded in 1981.
Pursuant to the terms of the merger agreement, Ribi will merge with and
into Corixa and Ribi will cease to exist as a separate company. Corixa will
issue up to a maximum of 4,716,860 shares of Corixa common stock to the former
Ribi stockholders as consideration for this merger, which includes up to 720,000
shares of Corixa common stock that may be issued as a result of the redemption
or conversion of Ribi Series A preferred stock into Ribi common stock prior to
the effective date of the merger (assuming no options or warrants to purchase
Ribi common stock are exercised after August 9, 1999). All outstanding options
and warrants to purchase Ribi common stock will be assumed by Corixa pursuant to
the merger and converted into options and warrants to purchase shares of Corixa
common stock. A condition to completion of the merger is that all shares of Ribi
Series A preferred stock are redeemed or converted into shares of Ribi common
stock. The effectiveness of the merger is also subject to certain customary
closing conditions, including receipt of approval of the merger by Corixa's
stockholders and Ribi's stockholders.
(b) Ribi focuses on developing novel agents that modulate the human
immune response to prevent or treat certain diseases including cancer,
infectious diseases and cardiovascular injury.
-2-
<PAGE> 3
Item 7 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to be Acquired.
Index to Financial Statements
RIBI ImmunoChem Research, Inc.
Independent Auditors' Report............................ 1
Balance Sheets.......................................... 2
Statements of Operations................................ 3
Statements of Stockholders' Equity and Comprehensive
Income............................................... 4
Statements of Cash Flows................................ 6
Notes to Financial Statements........................... 7
RIBI IMMUNOCHEM RESEARCH, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ribi ImmunoChem Research, Inc.:
We have audited the accompanying balance sheets of Ribi ImmunoChem
Research, Inc. as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and comprehensive income and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ribi ImmunoChem Research,
Inc. at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Billings, Montana
January 22, 1999
1
<PAGE> 4
RIBI IMMUNOCHEM RESEARCH, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 95 $ 458 $ 1,224
Available-for-sale investment securities and
accrued interest................................ 10,630 12,767 12,146
Accounts receivable................................ 647 1,302 870
Inventories........................................ 1,391 1,185 1,250
Other current assets............................... 214 213 234
-------- -------- --------
Total current assets............................ 12,977 15,925 15,724
Property, plant and equipment, net................... 11,712 11,738 11,453
Deposits............................................. 1,612 1,568 --
Other assets, net.................................... 564 597 593
-------- -------- --------
Total assets.................................... $ 26,865 $ 29,828 $ 27,770
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 240 $ 275 $ 611
Accrued liabilities................................ 802 793 614
Deferred revenue................................... 3,355 3,160 1,130
-------- -------- --------
Total current liabilities....................... 4,397 4,228 2,355
-------- -------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par, 10,000,000 authorized
shares; Series A convertible; stated value
$7,240,000 (unaudited) and $8,240,000 in 1999
and 1998, respectively; 7,240 (unaudited) and
8,240 shares issued and outstanding in 1999 and
1998, respectively (aggregate liquidation
preference of $7,585,000 (unaudited) and
$8,429,000 in 1999 and 1998, respectively)...... 1 1 --
Common stock, $.001 par; 30,000,000 authorized
shares; 20,990,287 (unaudited), 20,322,873 and
20,311,623 issued and outstanding in 1999, 1998
and 1997, respectively.......................... 21 20 20
Additional paid-in capital......................... 75,654 75,446 67,485
Accumulated other comprehensive income (loss)...... (40) 7 (37)
Accumulated deficit................................ (53,168) (49,874) (42,053)
-------- -------- --------
Total stockholders' equity...................... 22,468 25,600 25,415
-------- -------- --------
Total liabilities and stockholders' equity...... $ 26,865 $ 29,828 $ 27,770
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ---------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales...................................... $ 1,306 $ 1,424 $ 2,538 $ 2,743 $ 1,559
Contracts and licenses..................... 1,550 1,427 2,841 2,834 2,042
Investment income, net..................... 324 324 746 942 1,017
Other, net................................. (12) (4) (2) 11 5
------- ------- ------- ------- -------
3,168 3,171 6,123 6,530 4,623
Costs and expenses:
Purchases and production................... 801 722 1,836 1,337 988
Research and development................... 3,447 4,056 7,872 8,184 6,203
Selling, general and administrative........ 2,016 2,111 4,048 3,426 3,021
------- ------- ------- ------- -------
6,264 6,889 13,756 12,947 10,212
------- ------- ------- ------- -------
Net loss..................................... $(3,096) $(3,718) $(7,633) $(6,417) $(5,589)
======= ======= ======= ======= =======
Basic and diluted net loss per common share.. $ (0.16) $ (0.18) $ (.38) $ (.32) $ (.30)
======= ======= ======= ======= =======
Shares used in computation of basic and
diluted net loss per share................. 20,507 20,315 20,318 20,072 18,890
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE TOTAL
PREFERRED COMMON PAID-IN INCOME ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL (LOSS) DEFICIT EQUITY
--------- ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $-- $19 $ 62,460 $ (5) $(30,047) $32,427
Comprehensive loss:
Net loss....................... -- -- -- -- (5,589) (5,589)
Other comprehensive loss:
Unrealized investment
losses.................... -- -- -- (23) -- (23)
-------
Total.......................... -- -- -- -- -- (5,612)
Issuance of 1,400 common shares
under stock grant program...... -- -- 6 -- -- 6
Issuance of 1,800 common shares
upon exercise of options....... -- -- 6 -- -- 6
Compensation relating to stock
options........................ -- -- 20 -- -- 20
--- --- ---------- ---- -------- -------
Balance at December 31, 1996..... -- 19 62,492 (28) (35,636) 26,847
Comprehensive loss:
Net loss....................... -- -- -- -- (6,417) (6,417)
Other comprehensive loss:
Realized and unrealized
investment losses......... -- -- -- (20) -- (20)
Investment losses included
in net loss............... -- -- -- 11 -- 11
---- -------
-- -- -- (9) -- (9)
---- -------
Total.......................... -- -- -- -- -- (6,426)
Issuance of 3,000 common shares
under stock grant program...... -- -- 13 -- -- 13
Issuance of 22,400 common shares
upon exercise of options....... -- -- 89 -- -- 89
Sale of 1,103,448 common shares
in a private placement, net.... -- 1 3,962 -- -- 3,963
Issuance of 291,332 common shares
upon exercise of warrants...... -- -- 874 -- -- 874
Compensation relating to stock
options........................ -- -- 55 -- -- 55
--- --- ---------- ---- -------- -------
Balance at December 31, 1997..... -- 20 67,485 (37) (42,053) 25,415
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE TOTAL
PREFERRED COMMON PAID-IN INCOME ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL (LOSS) DEFICIT EQUITY
--------- ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Comprehensive loss:
Net loss....................... -- -- -- -- (7,633) (7,633)
Other comprehensive loss:
Realized and unrealized
investment gains.......... -- -- -- 24 -- 24
Investment losses included
in net loss............... -- -- -- 20 -- 20
---- -------
-- -- -- 44 -- 44
---- -------
Total.......................... -- -- -- -- -- (7,589)
Issuance of 1,400 common shares
under stock grant program...... -- -- 5 -- -- 5
Issuance of 9,850 common shares
upon exercise of options....... -- -- 36 -- -- 36
Sale of 8,240 preferred shares in
a private placement, net....... 1 -- 7,713 -- -- 7,714
Accretion of liquidation
preference on preferred
stock.......................... -- -- 188 -- (188) --
Compensation relating to stock
options........................ -- -- 19 -- -- 19
--- --- ---------- ---- -------- -------
Balance at December 31, 1998..... $ 1 $20 $ 75,446 $ 7 $(49,874) $25,600
=== === ========== ==== ======== =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(3,096) $(3,718) $ (7,633) $(6,417) $(5,589)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization.............. 583 522 1,054 1,002 935
Common stock grants........................ 3 3 5 13 6
Compensation relating to stock options..... 8 10 19 55 20
Discount accretion, accrued interest and
investment losses, net.................. 99 70 39 (17) (415)
Abandoned patents and asset sales.......... 16 23 23 18 18
Changes in operating assets and
liabilities:
Accounts receivable..................... 654 303 (432) (818) 673
Inventories............................. (205) (67) 65 18 (285)
Other current assets.................... (1) 71 21 39 (23)
Accounts payable........................ (34) (403) (336) 293 65
Accrued liabilities..................... 9 46 179 44 (31)
Deferred revenue........................ 195 2,110 2,030 567 (67)
------- ------- -------- ------- -------
Net cash used by operating
activities......................... (1,769) (1,030) (4,966) (5,203) (4,693)
------- ------- -------- ------- -------
Cash flows from investing activities:
Capital expenditures....................... (547) (600) (1,280) (796) (924)
Payments for other assets and deposits..... (49) (1,564) (1,660) (78) (93)
Proceeds from sale of assets............... 12 5 5 1 --
Proceeds from maturities of
held-to-maturity securities............. -- -- -- -- 3,121
Proceeds from maturities and sales of
available-for-sale securities........... 4,501 6,124 15,694 8,214 4,784
Purchases of available-for-sale
securities.............................. (2,511) (3,642) (16,309) (6,272) (1,956)
Purchases of held-to-maturity securities... -- -- -- -- (97)
------- ------- -------- ------- -------
Net cash provided (used) by investing
activities......................... 1,406 323 (3,550) 1,069 4,835
------- ------- -------- ------- -------
Cash flows from financing activities:
Sale of common stock, net.................. -- -- -- 3,963 --
Sale of preferred stock, net............... -- -- 7,714 -- --
Proceeds from exercise of warrants......... -- -- -- 874 --
Proceeds from exercise of options.......... -- 30 36 89 6
------- ------- -------- ------- -------
Net cash provided by financing
activities......................... -- 30 7,750 4,926 6
------- ------- -------- ------- -------
Increase (decrease) in cash and cash
equivalents................................ (363) (677) (766) 792 148
Cash and cash equivalents at beginning of
year....................................... 458 1,224 1,224 432 284
------- ------- -------- ------- -------
Cash and cash equivalents at end of year..... $ 95 $ 547 $ 458 $ 1,224 $ 432
======= ======= ======== ======= =======
Significant noncash financing activities:
Issuance of common stock on conversion of
convertible preferred stock............. $ 1,402 $ -- $ -- $ -- $ --
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 9
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations. Ribi ImmunoChem Research, Inc. (the "Company") was
incorporated on January 9, 1981, and is principally engaged in the development
of biopharmaceutical products that stimulate the immune system to generate a
cascade of natural agents and signals to prevent and treat human disease. The
Company also engages in related activities such as the custom formulation and
sale of research products and contract research.
Interim Financial Information. The balance sheet as of June 30, 1999, the
statements of operations and the statements of cash flows for the six-month
periods ended June 30, 1999 and 1998 have been prepared by the Company without
audit. In the opinion of management all adjustments necessary to conform to
Generally Accepted Accounting Principles and the rules and regulations of the
Securities and Exchange Commission for interim financial information have been
made, all of which are normal and recurring in nature.
Revenue Recognition. Revenues from the sale of research products are
recognized when products are shipped to customers. Revenues from contract
research are recognized as related expenses are incurred. Nonrefundable license
fees received in connection with product license agreements are recognized over
the term of the contract.
Cash Equivalents. In the statement of cash flows, the Company considers
all highly liquid debt instruments with a maturity on the date of acquisition of
three months or less to be cash equivalents.
Investment Securities. Investment securities consist of marketable debt
securities and, in 1997, mutual funds that have invested in marketable debt
securities. All investment securities are available to support current
operations and are, therefore, classified as "available-for-sale." These
available-for-sale securities are recorded at fair value, which is based on
quoted market prices.
Any gains and losses from the sale of investment securities are computed
under the specific identification method. Unrealized holding gains and losses,
net of related tax effect, on available-for-sale securities are excluded from
earnings and are reported as other comprehensive income until realized.
Unrealized losses, if any, for all investment securities that are other than
temporary are charged against earnings.
Inventories. Inventories are stated at the lower of cost or market on a
specific identification basis. Cost is based on the actual costs associated with
producing the inventories, which include direct labor and materials, quality
control and manufacturing overhead.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost and depreciated on a straight-line basis over estimated useful lives of 25
to 40 years for buildings and 3 to 12 years for equipment, furniture and
fixtures. Maintenance and repairs are charged to expense as incurred.
Significant betterments are capitalized.
Basic and Diluted Net Loss Per Common Share. Net loss per common share
is based on the weighted average number of shares outstanding and takes into
consideration the liquidation preference of the preferred stock. The effects of
dilution from potential common stock is not presented, as the effect is
antidilutive.
Comprehensive Income. Statement of Financial Accounting Standard No. 130
entitled "Reporting Comprehensive Income" ("FAS 130") was issued in 1997 and
adopted by the Company in 1998 on a retroactive basis as permitted by the
standard. FAS 130 requires that changes in stockholders' equity that result from
transactions and economic events other than those with stockholders be included
with net income or loss to arrive at "comprehensive income or loss." The
7
<PAGE> 10
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company has reported comprehensive loss, net of income taxes, in the Statements
of Stockholders' Equity and Comprehensive Income.
Patents and Other Assets. Other assets consist principally of the costs of
patents filed, deferred patent application costs and patent maintenance costs.
Such costs are amortized on a straight-line basis over the estimated remaining
useful lives of the patented technology ranging from less than one year to
nearly 17 years. Unsuccessful patent application costs are expensed when the
patent is denied or abandoned. Beginning in 1999 costs of maintaining issued
patents are charged to expense as incurred. Such charges are not material to the
Company's operations.
Income Taxes. The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities and are measured by applying
enacted tax rates to taxable years in which such differences are expected to
reverse. The current and noncurrent portions of these deferred tax assets and
liabilities are classified in the balance sheet based on the respective
classification of the assets and liabilities which give rise to such deferred
income taxes. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in tax expense in the period that includes the enactment
date.
Stock-Based Employee Compensation. From time to time the Company grants to
its employees stock and/or options to purchase stock. In the case of stock
grants, compensation expense is recognized by the Company at the time of the
grant in the amount of the market value of the stock on the grant date.
Compensation expense for the grant of stock options is recognized only when the
market value of the underlying stock exceeds the exercise price of the stock
option on the grant date. Any such compensation expense is charged to expense
over the term that the options vest to the optionee.
Fair Value of Certain Financial Instruments. The carrying amounts for
cash, cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate fair value because of the short duration of those
instruments.
Estimates. Management of the Company has made certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
8
<PAGE> 11
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVESTMENT SECURITIES
The following is a summary of the Company's investment securities:
<TABLE>
<CAPTION>
FAIR
AMORTIZED MARKET UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES
---------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Securities of the U.S. Government and its
agencies................................. $ 4,644 $ 4,653 $13 $ 4
Corporate mid-term notes................... 7,373 7,372 8 9
Insured certificates of deposit............ 477 476 -- 1
------- ------- --- ---
12,494 12,501 21 14
Accrued interest........................... 266 266 -- --
------- ------- --- ---
$12,760 $12,767 $21 $14
======= ======= === ===
DECEMBER 31, 1997
Mutual funds investing primarily in short
to intermediate term securities of the
U.S. Government and its agencies......... $ 4,717 $ 4,661 $-- $56
Securities of the U.S. Government and its
agencies................................. 3,453 3,470 17 --
Corporate mid-term notes................... 3,367 3,369 3 1
Insured certificates of deposit............ 508 508 -- --
------- ------- --- ---
12,045 12,008 20 57
Accrued interest........................... 138 138 -- --
------- ------- --- ---
$12,183 $12,146 $20 $57
======= ======= === ===
</TABLE>
Substantially all debt securities at December 31, 1998 mature within two
years.
During 1998 the Company sold shares of two debt mutual funds and one
corporate mid-term note for $5.8 million. Book gains realized on the sales
totaled approximately $17,000, and book losses realized totaled approximately
$37,000. During 1997 the Company sold shares of a debt mutual fund for $500,000
and realized a book loss of approximately $11,000. During 1996 the Company sold
shares of debt mutual funds for $425,000. Book gains realized on the sales
totaled approximately $3,000, and book losses realized totaled approximately
$3,000.
9
<PAGE> 12
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1999 1998 1997
----------- ------ ------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C>
Raw materials.................................... 95 $ 112 $ 132
Work in process.................................. 1,212 1,024 1,053
Finished goods................................... 84 49 65
------ ------ ------
$1,391 $1,185 $1,250
====== ====== ======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings................................................... $ 9,737 $ 9,629
Equipment, furniture and fixtures........................... 8,008 7,149
------- -------
17,745 16,778
Less accumulated depreciation............................... 6,545 5,598
------- -------
11,200 11,180
Construction in progress.................................... 349 84
Land........................................................ 189 189
------- -------
$11,738 $11,453
======= =======
</TABLE>
(5) NET LOSS PER COMMON SHARE
Net loss per common share is computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss......................................... $(7,633) $(6,417) $(5,589)
Accretion of liquidation preference on preferred
stock.......................................... 188 -- --
------- ------- -------
Net loss applicable to common stock.............. $(7,821) $(6,417) $(5,589)
======= ======= =======
Weighted average number of common shares
outstanding.................................... 20,318 20,072 18,890
======= ======= =======
Net loss per common share........................ $ (.38) $ (.32) $ (.30)
======= ======= =======
</TABLE>
The Company has convertible preferred stock, warrants and stock options
outstanding that are described in Notes 7 and 8 of the Notes to Financial
Statements that could potentially dilute earnings per share in the future.
10
<PAGE> 13
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMPREHENSIVE LOSS (UNAUDITED)
Total comprehensive loss for the Company consists of the sum of net loss
and unrealized gains and losses on available-for-sale investment securities. For
the six months ended June 30, 1999 and 1998, total comprehensive loss was
$3,143,000 and $3,694,000, respectively.
(7) STOCKHOLDERS' EQUITY
In July 1998 RGC International Investors, LDC, ("Holder") purchased 8,240
shares of convertible preferred stock of the Company for gross proceeds of $8.2
million ("stated value"). The preferred stock's liquidation preference equals
its stated value plus an amount equal to 5% per annum. Beginning the 91st day
after the July 17 closing, the preferred stock is convertible into shares of
common stock of the Company. From the 91st day until 120 days after the closing,
the conversion price was fixed at $6.04. After 120 days the conversion price
floats at the lesser of the fixed conversion price or a market price based on
average market bid prices for a defined period prior to the conversion date. The
actual number of shares of common stock that will be issued will depend upon the
preferred stock's liquidation preference and the actual conversion price when
the preferred stock is converted. Beginning with the 91st day from the closing
date, each thirty days thereafter, on a cumulative basis, a maximum amount of
15% of the preferred stock may be converted into shares of common stock if the
conversion price is less than $4.00. The Holder may not control more than 4.9%
of the Company's outstanding common stock at any given time. In addition, except
for block trades of not less than 15,000 shares of converted common stock, there
are restrictions on the number of converted common shares that may be traded on
any given trading day. Subject to certain conditions, the Company has the right
to redeem all or a portion of the preferred stock at a premium over the purchase
price paid by the Holder. In the event the Company fails to meet certain
obligations under the agreement with the Holder, the Holder can require the
Company to redeem the preferred stock at a premium over the purchase price paid
by the Holder. The Company's obligations under this provision generally include
maintaining an adequate number of authorized but not issued common shares for
conversion purposes, maintaining a current registration statement for the
converted common stock, and maintaining a listing for the Company's common stock
on the stock market. Certain liquidation or bankruptcy procedures would also
trigger the mandatory redemption provisions. Any shares not converted or
redeemed will automatically be converted into common stock in July 2001.
During the second quarter of 1999, 1,000 shares of preferred stock were
converted into 666,214 shares of common stock. At June 30, 1999 there were 7,240
shares of preferred stock outstanding which were convertible into common stock
at the lower of $6.04 per share or a per share market price based on average
market bid prices for the three consecutive trading days during the 22 trading
days prior to the date of conversion. On July 13, 1999 RGC converted an
additional 750 shares of preferred stock into 444,483 shares of common stock,
leaving a balance of 6,490 shares of preferred stock outstanding. (The
information in this paragraph is unaudited.)
In early 1997, effective December 31, 1996, SmithKline Beecham ("SB")
purchased 1,103,448 shares of common stock for $4 million. With the stock
purchase SB acquired warrants to purchase 500,000 shares of stock at $5.00 per
share. The warrants expire if not exercised by January 1, 2000.
11
<PAGE> 14
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1997 warrants to purchase 291,332 shares of common stock at $3.00
per share were exercised for $874,000. These warrants were issued in connection
with a sale of common stock in 1991.
(8) STOCK COMPENSATION PLANS
The Company has a stock grant program under which common stock may be
issued to key employees, consultants and other persons providing services deemed
important to the Company. The program requires the employee to assign to the
Company all know-how, patents and proprietary information developed while
employed by, or developed as a result of employment with the Company and to
agree not to engage in any activity which could be considered to be in
competition with the Company's proposed business while employed by the Company.
If the employee violates any one of these conditions, the shares issued pursuant
to the program shall revert to the Company. Nonemployees receiving grants are
not subject to the conditions imposed on employees receiving grants.
Additionally, the Company grants 100 shares of stock to each employee who is not
an officer of the Company after completion of one year of employment. Such 100
share grants are not subject to the forfeiture conditions described above.
The following table sets forth the activity in the stock grant program for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Shares available at beginning of year..................... 24,968 27,968 29,368
Shares granted............................................ 1,400 3,000 1,400
------- ------- -------
Shares available at end of year........................... 23,568 24,968 27,968
======= ======= =======
Weighted average grant date fair value.................... $ 3.57 $ 4.13 $ 4.57
======= ======= =======
</TABLE>
The Company has a stock option plan called the 1996 Stock Option Plan
("Plan"). Under the Plan all full- or part-time employees are eligible to
receive incentive stock options and nonqualified stock options, and certain
directors and consultants are eligible to receive nonqualified stock options.
Any option granted under the Plan may include a stock appreciation right (SAR)
to surrender to the Company all, or a portion, of the option in exchange for
cash or stock, the sum of which is equal to the value of the excess of fair
market value of the common stock over the option price. The Plan provides for
awarding options for a maximum of 900,000 shares with an exercise price not less
than fair market value at the date of grant, except for options awarded to
certain directors. Options are nontransferable and expire if not exercised
within ten years from the date of the grant. Options can be exercised in
cumulative installments over a vesting schedule set by the Company's Board of
Directors. Through December 31, 1998 all options granted from the Plan to
employees can be exercised in cumulative installments of 20% per year beginning
on the date of the grant. Vesting of discounted stock options issued to certain
directors is discussed below.
The Company also has a stock option plan that was approved by stockholders
in 1986. The 1986 Plan expired in 1996, and no new options can be granted under
it. However, options already granted (908,000 shares, net of options that have
been exercised or forfeited) can be exercised for a period of ten years from the
date of grant. The terms of the 1986 Plan were very similar to the ones
described for the 1996 Plan. All options granted under the 1986 Plan, except for
discounted stock options issued
12
<PAGE> 15
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to certain directors as discussed below, can be exercised in cumulative
installments of 20% per year beginning on the date of the grant.
Both stock option plans provide for the issuance of nonqualified stock
options with an exercise price which is 20% below the market price of the
Company's common stock on the grant date. The discounted stock options may be
awarded to directors who are not employees of the Company who elect to receive
the discounted stock options rather than cash for all or a portion of their
director fees. The directors are required to make the voluntary election at
least six months prior to the beginning of each calendar year. The number of
options to be granted is determined by dividing the amount of the foregone cash
compensation by the amount of the per share price discount on the grant date.
Such options are granted at the end of each calendar quarter and are fully
vested on the grant date. The options, which expire if not exercised within ten
years from the grant date, are exercisable after a six month period following
the grant date.
During 1996 the Company's Board of Directors adopted the 1996 Directors'
Stock Option Plan ("Directors' Plan") for directors who are not employees of the
Company. The Directors' Plan was approved by stockholders in 1997. The
Directors' Plan provides for the grant of nonqualified options to purchase a
maximum of 210,000 shares of common stock. Each director who is not an employee
was granted options to purchase 30,000 shares on the later of the date the
Directors' Plan was adopted or on the date he first became a director. In
addition, immediately following each annual meeting of the Company's
stockholders, each director who is not an employee who continues as a director
after the meeting will be granted options to purchase 500 shares. The exercise
price of the options is the market price on the date of the grant. The options
vest and can be exercised at the rate of 50% on the date of grant and 25% on
each anniversary of the grant date. The options expire if not exercised within
ten years of the grant date. During 1996 options to purchase 150,000 shares at
$4.00 per share were granted under the Directors' Plan. During each year 1997
and 1998 options were granted to purchase 2,500 shares at prices of $3.63 and
$5.75 per share, respectively.
13
<PAGE> 16
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the activity in the 1986 and 1996 stock
option plans and the 1996 Directors' Plan for the years ended December 31, 1996,
1997 and 1998. There were no SARs outstanding under the plans during the three
year period ended December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS FOR
EMPLOYEES DISCOUNTED OPTIONS
AND DIRECTORS FOR DIRECTORS
-------------------- ------------------
AVERAGE AVERAGE TOTAL
COMMON EXERCISE COMMON EXERCISE COMMON
SHARES PRICE SHARES PRICE SHARES
--------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
SHARES UNDER OPTION:
Outstanding at December 31, 1995........... 946,050 $5.90 58,396 $4.35 1,004,446
Granted.................................... 432,779 5.26 9,568 3.34 442,347
Exercised.................................. (1,800) 3.19 -- -- (1,800)
Canceled................................... (33,100) 6.24 (7,694) 4.42 (40,794)
--------- ----- ------- ----- ---------
Outstanding at December 31, 1996........... 1,343,929 5.44 60,270 4.18 1,404,199
Granted.................................... 128,500 3.65 13,864 3.32 142,364
Exercised.................................. (22,400) 3.96 -- -- (22,400)
Canceled................................... (80,400) 7.16 -- -- (80,400)
--------- ----- ------- ----- ---------
Outstanding at December 31, 1997........... 1,369,629 5.20 74,134 4.02 1,443,763
Granted.................................... 192,750 5.04 26,250 3.22 219,000
Exercised.................................. (9,850) 3.61 -- -- (9,850)
Canceled................................... (50,650) 5.38 -- -- (50,650)
--------- ----- ------- ----- ---------
Outstanding at December 31, 1998........... 1,501,879 $5.18 100,384 $3.81 1,602,263
========= ===== ======= ===== =========
OPTIONS EXERCISABLE AT:
December 31, 1996........................ 864,506 $5.71 53,369 $4.31 917,875
December 31, 1997........................ 1,032,372 5.49 65,181 4.14 1,097,553
December 31, 1998........................ 1,159,472 5.35 83,044 4.05 1,242,516
RANGES OF EXERCISE PRICES AND AVERAGE
MONTHS (MO) TO EXPIRATION OF:
Options outstanding at December 31, 1998
$1.50-$1.85 (105 mo)....................... 2,000 $1.50 10,810 $1.85 12,810
$2.95-$4.90 (41 mo)........................ 675,850 3.93 80,940 3.78 756,790
$5.75-$7.50 (61 mo)........................ 795,779 6.15 8,634 6.49 804,413
$8.00-$8.63 (50 mo)........................ 28,250 8.32 -- -- 28,250
--------- ------- ---------
1,501,879 100,384 1,602,263
========= ======= =========
</TABLE>
14
<PAGE> 17
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS FOR
EMPLOYEES DISCOUNTED OPTIONS
AND DIRECTORS FOR DIRECTORS
-------------------- ------------------
AVERAGE AVERAGE TOTAL
COMMON EXERCISE COMMON EXERCISE COMMON
SHARES PRICE SHARES PRICE SHARES
--------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Options exercisable at December 31, 1998
$1.50 (22 mo).............................. 2,000 $1.50 -- $ -- 2,000
$2.95-$4.90 (78 mo)........................ 453,555 3.91 74,410 3.76 527,965
$5.75-$7.50 (53 mo)........................ 675,667 6.21 8,634 6.49 684,301
$8.00-$8.63 (50 mo)........................ 28,250 8.32 -- -- 28,250
--------- ------- ---------
1,159,472 83,044 1,242,516
========= ======= =========
</TABLE>
The Company has entered into a Stock Option Agreement with its Chief
Executive Officer, President and Chairman ("CEO"). Pursuant to the 1987
agreement, and later agreements, the CEO was granted options, which are
currently outstanding and exercisable, to purchase 50,000 shares of common stock
at $3.00 per share. All of the CEO's options under this agreement expire if not
exercised by June 30, 2000. The CEO did not exercise any options in 1996, 1997
or 1998. Additionally, the CEO has been granted options to purchase stock under
the Company's stock option plans described above.
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 in accounting for stock
options. As a result, no compensation expense has been recognized relative to
its employees where the exercise price of the option equaled or exceeded the
stock's market value on the grant date. Compensation expense recognized relative
to directors who receive discounted stock options rather than cash for
directors' fees totaled $19,000, $12,000 and $8,000 in 1998, 1997 and 1996,
respectively. Compensation expense recognized from grants of stock totaled
$5,000, $13,000 and $6,000 in 1998, 1997 and 1996, respectively. Compensation
expense recognized from the extension of the expiration date of the CEO's stock
options in 1997 totaled $31,000. If compensation cost for the stock option plans
would have been determined for employees and directors, other than directors
receiving discounted options, consistent with the fair value method, the
Company's net loss and basic loss per common share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Net loss (In Thousands)
As reported............................................... $7,633 6,417 5,589
Pro forma................................................. 8,116 6,818 6,018
Basic loss per common share
As reported............................................... $ .38 .32 .30
Pro forma................................................. .41 .34 .32
Weighted average fair value of options granted during the
year...................................................... $ 3.17 2.13 2.93
</TABLE>
15
<PAGE> 18
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma amounts in the preceding table only include the vested
portion of the fair value of stock options granted after December 31, 1994.
Because some of the options granted prior to December 31, 1994 vest during this
phase-in period and the value is not included, the pro forma amounts are not
likely to be representative of the effects on future reported net loss and net
loss per share. The fair value has been determined using the Black-Scholes
formula, which requires the Company to make several assumptions, some of which
are listed below.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average risk-free interest rate............................. 5.5% 6.6% 6.2%
Average expected life (years)............................... 7.0 5.6 6.5
Average annualized expected volatility...................... .557 .556 .573
Expected dividends.......................................... None None None
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with its CEO, which currently
provides for an annual salary of $275,000. The agreement may be terminated by
the Company by giving notice one year prior to expiration of the contract, which
otherwise automatically extends for one-year periods, unless there is
termination for "cause." The CEO will be paid his salary until the agreement
expires.
The Company carries $10 million in product liability insurance for its
products which are being used in clinical trials and for commercial sales, when
approved, of Melacine melanoma theraccine. The Company is self-insured for
product liability for research products being marketed. In addition, the Company
has agreed to indemnify its directors and officers for liabilities incurred as a
result of their positions with the Company.
The Company, the National Institutes of Health ("NIH") and the Bitterroot
Valley Sanitary Landfill ("Landfill") were notified by the Montana Department of
Health and Environmental Sciences (now known as the Department of Environmental
Quality ["DEQ"]) in March 1991 that they had been identified as potentially
responsible parties ("PRPs") and as such are jointly and severally liable for
groundwater contamination located at and near the site of the Landfill in
Ravalli County, Montana. The Company's involvement arises out of waste that it
deposited at the Landfill from 1982 to 1985, which the Landfill had permits to
receive. The NIH unilaterally and voluntarily initiated and completed work
pursuant to an interim remediation plan approved by the DEQ to remove and
decontaminate the believed source of contamination and treat the aquifers, which
tests have shown contain contaminants. Although decontamination of the soil at
and around the Landfill has been completed, treatment of the groundwater in the
proximity of the disposal site continues utilizing carbon filtering and air
sparging, and it is anticipated such treatment will continue through 1999 and
possibly longer. The DEQ conducted a "Risk Assessment" and issued a "Draft Final
Feasibility Study" in October 1994 that discussed possible final remediation
alternatives. In August 1995 the DEQ announced that it had approved a second
interim action in the vicinity of the Landfill being unilaterally and
voluntarily conducted by the NIH and which involved installing individual
replacement and new wells to provide both an alternate water supply for the area
residents and to develop additional information on the site hydrogeology.
Information collected from these wells through a multi-year monitoring program
will be used by the DEQ to evaluate the effectiveness of the remediation efforts
to date. The second interim action plan calls for the wells to be installed in
16
<PAGE> 19
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
three phases. Phase I included occupied properties with the highest remaining
contamination levels. Phase II included occupied properties with lesser degrees
of contamination. Phase III consisted largely of vacant properties. Preliminary
studies completed in 1994 estimated the cost of the wells to be approximately
$1.4 million. Information indicates that a total of 19 alternate water supply
wells have been installed at a cost of approximately $1.0 million. The DEQ could
require the PRPs to implement further remediation should these wells not provide
sufficient quality or quantity of water. Additionally, the NIH has indicated it
is undertaking Phase II groundwater remediation to intercept and treat
contaminated groundwater near the eastern Landfill boundary. The NIH has
projected costs for this Phase II groundwater remediation to be in excess of
$1.0 million through 1999. The NIH, which has taken the lead and incurred
substantially all of the remediation costs, has represented publicly that it
would continue to work with the DEQ toward an acceptable final remediation plan.
The DEQ initiated an action in 1997 in the state district court in Lewis
and Clark County, Montana, against the Company, the Landfill and the owners of
the Landfill seeking recovery of past alleged costs associated with its
oversight activities in the amount of $238,000, as well as a declaratory
judgment finding the parties liable for future oversight costs, plus civil
penalties in the event the parties fail to comply. Since the action was
initiated, the Company and the NIH jointly have received statements requesting
payment of an additional $27,000. In May 1998, the Company was informed that the
DEQ had entered into a settlement agreement with the Landfill and its owners,
whereby the Landfill and its owners agreed to collectively pay the DEQ
approximately $35,000. The Company believes that it has meritorious defenses to
the claim, including the amount thereof, and that there are other responsible
parties. The Company filed a response to the action, including a counter claim
and motions for a change in venue and to dismiss. The Court granted the
Company's motion for a change of venue to Ravalli County where the Company is
located. The Court did not rule on the motion to dismiss, which motion will now
be acted upon by the Court in Ravalli County. Recently the DEQ filed a Motion
for Stay of Proceedings pending the outcome of the action in Federal District
Court discussed below in which the DEQ is a plaintiff. The Court granted the
motion which the Company did not oppose.
On April 21, 1998, the Company received notice that the United States of
America (U.S.), acting on behalf of the Department of Health and Human Services,
which oversees the NIH, filed suit in United States District Court seeking
contribution from the Company of an "equitable share" of past and future
response costs incurred by the NIH in connection with the remediation at and
near the Landfill. The complaint alleges that as of September 30, 1997, the U.S.
had incurred response costs in excess of $3.4 million and that it expects to
incur more than $1.0 million in additional response costs. The Company filed a
response to the action. On or about June 4, 1998 the Company received notice
that the U.S. had entered into a settlement agreement with the Landfill and the
Landfill owners pursuant to which the settling parties agreed to make payment in
the amount of $440,000. In view of the settlement, the U.S. filed with the Court
a Joint Motion for Stay of Proceedings between the U.S., the Landfill and
Landfill owners. Assuming the settlement is completed, the action against the
Landfill and the Landfill owners would be dismissed. Although the Company
believes it has meritorious defenses to the cost recovery claim, including the
amount thereof, and that there are other responsible parties, there can be no
assurance that the Company will be successful in its defenses to claims arising
out of the Landfill, including the claims made by the
17
<PAGE> 20
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
U.S. The court issued a scheduling order. Pursuant to the order, the trial of
this matter is anticipated to begin in the fall of 2000.
On or about June 6, 1998 the DEQ filed a complaint in the United States
district court against the Company, the Landfill and the owners of the Landfill
seeking recovery of past alleged costs associated with its oversight activities
in the amount of $258,000, of which it indicated not more than $154,000 had been
reimbursed, plus interest and attorneys' fees and costs as well as a declaratory
judgment finding the parties liable for future response costs. This action
brought under the Federal Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") is similar to that filed in the state district court
under a State Comprehensive Environmental Cleanup and Responsibility Act
("CECRA") described above. The Company has filed a response to the action,
including a counterclaim against the DEQ. The DEQ has initiated discovery, and
the Company responded to a discovery request. The Company believes that is has
meritorious defenses to the claim, including the amount thereof, and that there
are other responsible parties. There can be no assurance that the Company's
defenses and counterclaim will be successful.
Depending upon the eventual outcome of the above discussed litigation and
when in time the litigation is concluded and the success of the Company in
pursuing defense and indemnity with insurance carriers, the outcome may or may
not have a material effect on the Company's financial condition. Accordingly, it
is not possible at present to accurately predict whether an adverse outcome will
have a material adverse effect on the Company's financial condition. The Company
is unable to determine its overall potential liability with respect to the
Landfill at this time. As of December 31, 1998, the Company has accrued a
reserve of approximately $290,000 to cover legal, consulting and DEQ
reimbursement costs associated with the Company as a PRP. Net costs charged
against operations in 1998, 1997 and 1996 were $104,000, $42,000 and $13,000,
respectively.
In 1999, an insurance carrier agreed to assume reasonable defense costs in
the cases discussed above but has reserved its rights to challenge its
responsibility. The insurance carrier has also agreed to reimburse the Company's
defense costs incurred to date. As of June 30, 1999 the Company has accrued a
reserve of approximately $300,000 to cover billed and potential legal,
consulting and DEQ reimbursement costs associated with the Company as a PRP. Net
costs charged against operations during the first six month periods of 1999 and
1998 were $54,000 and $47,000, respectively. (The information in this paragraph
is unaudited.)
In June 1997 a complaint was filed in district court in Ravalli County
against the Company by a former employee who was discharged for cause in June
1996. The former employee alleges discharge in violation of the Montana Wrongful
Discharge from Employment Act ("Act") and further, that discharge was for
refusal to violate public policy. The Court granted dismissal with respect to
that portion of the complaint which alleges termination for refusal to violate
public policy. The former employee filed a motion for reconsideration asking the
Court to reverse its decision with respect to the issue of termination for
refusal to violate public policy and requested the Court for permission to amend
the complaint to include additional allegations relative to the public policy
issue. On April 6, 1998 the Court allowed the former employee to amend the
complaint as requested. If the former employee should ultimately prevail on the
issue of discharge in violation of the Act, the potential liability of the
Company would be approximately $320,000, exclusive of the Company's attorneys'
fees and related costs. If the former employee prevails on the public policy
issue, the Company could be subject to punitive damages of an unknown amount in
addition to the potential liability for violation of the Act. The Company
believes that it has a meritorious defense and plans to vigorously defend the
suit. However, it is not possible to reliably assess the outcome. Depending upon
the eventual
18
<PAGE> 21
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
outcome of this litigation and the timing of its conclusion, the result of this
litigation may or may not have a material adverse effect on the Company's
financial condition. It is possible the case may go to trial during the first
half of 2000.
The Company recently filed a motion for partial summary judgement on the
violation of public policy issue. Plaintiff has filed a motion for partial
summary judgment on the issue of discharge in violation of the Wrongful
Discharge Act. It is anticipated there will be oral arguments to the court
concerning the respective motions. However, no date has been set for the oral
arguments. (The information in this paragraph is unaudited.)
The former employee has also filed a petition for Judicial Review in
district court in Missoula County naming the Company and the State of Montana
Department of Labor and Industry respondents and asking the Court to review and
overturn the Department of Labor's decision finding the former employee was
terminated for misconduct under Montana law and is, therefore, not allowed to
collect unemployment benefits. The Company filed a response arguing the
correctness of the Department of Labor's decision. The Court remanded the matter
to the Department of Labor for further testimony, which was taken. In the event
the former employee is successful, it would not have a material adverse effect
on the financial condition of the Company.
The Department of Labor in 1999 confirmed its previous findings that the
former employee willfully and purposefully failed to follow the reasonable
instructions of the Company and, therefore, was discharged for misconduct
connected with his work and directly affecting his employment. Accordingly, the
Department of Labor confirmed its previous findings that the former employee is
not eligible to receive unemployment insurance benefits. The former employee has
filed a petition for judicial review of the most recent decision of the
Department of Labor in district court in Missoula County. (The information in
this paragraph is unaudited.)
19
<PAGE> 22
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
The net operating loss carryforwards and tax credits available to reduce
future federal taxable income or related taxes and the year of expiration are
approximately as follows:
<TABLE>
<CAPTION>
RESEARCH
AND
NET OPERATING INVESTMENT ORPHAN DRUG DEVELOPMENT
LOSS CREDIT CREDIT CREDIT
------------- ---------- ----------- -----------
(IN THOUSANDS)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Expires December 31,
1998................................ $ 254 7 -- 31
1999................................ 328 3 -- 50
2000................................ 529 9 -- 58
2001................................ 251 -- -- 76
2002................................ 821 -- -- 82
2003................................ 2,272 -- -- 128
2004................................ 2,751 -- -- 106
2005................................ 2,606 -- -- 115
2006................................ 3,595 -- -- 154
2007................................ 4,488 -- -- 198
2008................................ 4,238 -- -- 243
2009................................ 4,574 -- -- 343
2010................................ 5,445 -- -- 163
2011................................ 5,391 -- 242 173
2012................................ 5,813 -- 622 406
2018................................ 7,240 -- 315 423
------- -- ----- -----
$50,596 19 1,179 2,749
======= == ===== =====
</TABLE>
20
<PAGE> 23
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to federal and
state deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards.......................... $ 20,698 $ 17,929
General business credit carryforwards..................... 3,955 3,235
Loss contingency reserve.................................. 121 79
Employee benefits......................................... 123 109
Other..................................................... 35 28
-------- --------
24,932 21,380
Valuation allowance......................................... (24,381) (20,873)
-------- --------
551 507
-------- --------
Gross deferred tax liabilities:
Depreciation.............................................. 487 422
Inventories............................................... 64 85
-------- --------
551 507
-------- --------
Net......................................................... $ -- $ --
======== ========
</TABLE>
The Company has provided a valuation allowance for deferred tax assets
which management believes are not currently assured of being realized. The
ultimate realization of deferred tax assets is dependent upon the existence of,
or generation of, taxable income in the periods in which those temporary
differences are deductible.
The net increase in the valuation allowance for the years ended December
31, 1998, 1997 and 1996 was $3,508,000, $3,593,000 and $2,108,000, respectively.
Additionally, when subsequently recognized, approximately $861,000 of the
valuation allowance will be credited to additional paid-in capital.
(11) INTERNATIONAL SALES AND MAJOR CUSTOMERS
The Company markets its research products worldwide, generally to
nonexclusive distributors. During 1998, 1997 and 1996, export sales were 83%,
82% and 77% of total sales, respectively. Export sales were primarily to Europe,
Japan and Canada.
The Company has a total of four license agreements with SmithKline Beecham
("SB") for use of defined adjuvants in various vaccines being developed by SB.
SB is developing vaccines, which include these adjuvants, for indications in
infectious diseases and cancer. The agreements generally provide for payment to
the Company of license fees and supply payments, as well as royalties upon
commercialization of SB's vaccines. The agreements grant SB exclusive rights to
these adjuvants for use in vaccines for some diseases and co-exclusive or
nonexclusive rights for others. The Company also sells adjuvants and research
products to SB. Revenues from all transactions with SB were 59% of
21
<PAGE> 24
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
total revenue in 1998, 63% in 1997 and 48% in 1996. At December 31, 1998 SB owed
the Company approximately $1,039,000 in trade accounts receivable, none of which
are delinquent.
As of December 31, 1998, SB and S.R. One Limited, a subsidiary of SB, held
1,254,056 shares, or 6.2% of the Company's outstanding common stock.
Additionally, SB has warrants to purchase 500,000 shares of common stock at
$5.00 per share. The warrants expire if not exercised by January 1, 2000.
The Company has granted Wyeth-Lederle Vaccines and Pediatrics ("WLV&P") (a
business unit of Wyeth-Ayerst Laboratories, which is a division of American Home
Products Corporation) a worldwide co-exclusive license to use the Company's
adjuvants commercially upon regulatory approval of certain vaccines being
developed by WLV&P. In addition to an annual license fee, the Company will
receive transfer payments for supplies of adjuvant and will be entitled to
royalties upon commercial sale of vaccines. Revenues received from WLV&P were
15% of the Company's total revenue in 1998, 12% in 1997 and 17% in 1996.
During 1998 the Company entered into a marketing agreement with
Schering-Plough ("SP"), which provides SP with worldwide marketing rights for
the Company's Melacine melanoma theraccine. At December 31, 1998, the Company
has $2,068,000 in deferred license revenues, the proceeds of which would be
returned to SP if certain product goals are not achieved by December 31, 1999.
SP has the option to extend the goal deadline. Of the total potential refund,
$500,000 would require the use of current investments and the balance would come
from noncurrent deposits, which are restricted from use in the Company's
operations.
(12) EMPLOYEE BENEFITS
The Company provides an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all regular employees. The
Company matches 30% of employee contributions of up to 6% of compensation. The
amount charged against income in 1998, 1997 and 1996 was $73,000, $69,000 and
$58,000, respectively.
Additionally, the Company provides other employee benefits, including
health insurance for employees who are actively employed. The Company is
self-insured for health insurance up to a predetermined amount above which third
party insurance applies. For 1998 the maximum exposure to health claims totaled
$278,000. Charges against income for health insurance, including claims and
insurance, were approximately $274,000, $207,000 and $168,000 in 1998, 1997 and
1996, respectively.
(13) FUTURE ACCOUNTING CHANGES
During 1998 the Financial Accounting Standards Board released Statement of
Financial Accounting Standards ("FAS") No. 133, which the Company will be
required to adopt in 1999. FAS No. 133 requires uniform accounting for
derivative instruments and hedging activities. While the Company is still
evaluating FAS No. 133, it does not expect the Standard to have a material
impact on the Company's financial position or results of its operations.
(14) SUBSEQUENT EVENT -- PLANNED MERGER WITH CORIXA CORPORATION (UNAUDITED)
On June 10, 1999 the Company announced that it had reached an agreement
with Corixa Corporation whereby Corixa would acquire all of the outstanding
common stock of the Company. Under terms of the proposed merger, the Company's
common shareholders will receive 0.1685 shares
22
<PAGE> 25
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of Corixa common stock for each share of Company common stock owned. Based on
the closing price of Corixa common stock on July 31, 1999, the value received
for the Company's common stock is approximately $49,210,000. In addition Corixa
will provide approximately $7,891,000 in cash attributed to the purchase of
shares currently held as preferred by RGC International Investors, LDC, stemming
from a July 1998 financing by the Company. All outstanding shares of the
Company's preferred stock will be redeemed or converted into the Company's
common stock in accordance with the terms of the agreement. The transaction is
intended to qualify as a tax-free reorganization and will be accounted for as a
purchase. Subject to shareholder approval, the merger is expected to be
completed in the fall of 1999.
23
<PAGE> 26
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the merger, the Anergen acquisition which occurred on February 10,
1999 and the GenQuest acquisition which occurred on September 15, 1998 using the
purchase method of accounting. The unaudited pro forma consolidated balance
sheet gives effect to the merger as if it had occurred on June 30, 1999. The
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1998 give effect to the merger, the Anergen acquisition and the
GenQuest acquisition as if they had occurred on January 1, 1998. The unaudited
pro forma consolidated statement of operations for the six months ended June 30,
1999 gives effect to the merger and the Anergen acquisition as if they had
occurred on January 1, 1999. The Unaudited Pro Forma Consolidated Financial
Statements do not purport to represent what Corixa's financial position or
results of operations would actually have been if the merger or acquisition had
in fact occurred on such dates or to project Corixa's financial position or
results of operations as of any future date or for any future period.
For pro forma purposes:
- Corixa's unaudited consolidated balance sheet as of June 30, 1999 has
been combined with the Ribi unaudited balance sheet as of June 30, 1999
as if the merger had occurred on June 30,1999;
- Corixa's unaudited statement of operations for the six months ended June
30, 1999 has been combined with Anergen's unaudited statement of
operations for the period from January 1, 1999 to February 10, 1999.
Corixa's audited statement of operations for the year ended December 31,
1998 has been combined with Anergen's audited statement of operations for
the year ended December 31, 1998 and GenQuest's unaudited statement of
operations for the period from January 1, 1998 to September 15, 1998 to
arrive at Corixa pro forma combined results; and
- Corixa's unaudited pro forma combined statements of operations for the
six months ended June 30, 1999 and year ended December 31, 1998 have been
combined with the Ribi unaudited statement of operations for the six
months ended June 30 1999 and the audited statement of operations for the
year ended December 31, 1998, as if the merger had occurred on January 1,
1999 and January 1, 1998, respectively.
The unaudited pro forma adjustments have been applied to the financial
information derived from the financial statements of Corixa, Ribi, Anergen and
GenQuest to account for the merger, the Anergen acquisition and the GenQuest
acquisition as purchases; accordingly, assets acquired and liabilities assumed
are reflected at their estimated fair values which are subject to further
refinement, including appraisals and other analyses.
The unaudited pro forma consolidated financial information has been
prepared based on the assumptions described in the notes thereto and includes
assumptions relating to the allocation of the consideration paid for the assets
and liabilities of Ribi based on preliminary estimates of their fair value. In
the opinion of Corixa, all adjustments necessary to present fairly such
unaudited pro forma consolidated financial information have been made based on
the proposed terms and structure of the merger.
As a result of the merger, Corixa expects to record acquired intangible
assets for adjuvant know-how and work force, acquired goodwill and a
nonrecurring charge to operations for acquired in-process research and
development. The pro forma consolidated financial statements reflect an
allocation to acquired in-process research and development and acquired
goodwill, adjuvant know-how and work force estimated to be $26.0 million and
$10.9 million, respectively. The charge for acquired in-process research and
development has been reflected in the unaudited pro forma consolidated
24
<PAGE> 27
balance sheet, but excluded from the unaudited pro forma consolidated statement
of operations, because the charge is nonrecurring.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated on June 30,
1999, January 1, 1998 or January 1, 1999, respectively, nor is it necessarily
indicative of future operating results or financial position.
These unaudited pro forma consolidated financial statements and
accompanying notes should be read in conjunction with the historical financial
statements and the related notes thereto of Corixa and Ribi, and other financial
information pertaining to Corixa and Ribi, including "Corixa Management's
Discussion and Analysis of Financial Condition and Results
of Operations" and "Ribi Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Form S-4 filed on August
12, 1999 or, in the case of Corixa, incorporated by reference from its Form
10-K filed on March 22, 1999, its Forms 10-Q's filed on May 6, 1999 and
August 9, 1999 and its two Forms 8-K's filed on August 9, 1999.
25
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CORIXA RIBI ADJUSTMENTS NOTE 2 COMBINED
-------- -------- ----------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 6,459 $ 95 $ -- $ 6,554
Securities
available-for-sale........ 49,633 10,630 60,263
Accounts receivable.......... 2,523 647 3,170
Interest receivable.......... 818 -- 818
Prepaid expenses............. 1,110 1,110
Inventory.................... -- 1,391 1,391
Other current assets......... -- 214 214
-------- -------- -------- --------
Total current
assets............ 60,543 12,977 73,520
Property and equipment, net.... 9,990 11,712 21,702
Investments.................... 3,591 -- 3,591
Goodwill and other purchased
intangibles.................. -- -- 10,950 (ii)(iii)(iv) 10,950
Other assets -- net............ -- 564 (564) (viii) --
Deferred charges and
deposits..................... 159 1,612 1,771
-------- -------- -------- --------
Total assets......... $ 74,283 $ 26,865 $ 10,386 $111,534
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
liabilities............... $ 4,664 $ 1,042 $ 2,600 (v) $ 8,306
Deferred revenue............. 10,498 3,355 13,853
Current portion of
obligations and
commitments............... 3,177 -- 3,177
-------- -------- -------- --------
Total current
liabilities....... 18,339 4,397 2,600 25,336
Long-term obligations and
commitments, less current
portion...................... 12,478 -- 12,478
Stockholders' equity:
Preferred stock.............. -- 1 (1) (vi) --
Common stock................. 15 21 (17) (vi)(vii) 19
Additional paid-in capital... 99,281 75,654 (18,816) (vi)(vii) 156,119
Deferred compensation........ (726) -- (726)
Accumulated comprehensive
income.................... (435) (40) 40 (vi) (435)
Accumulated deficit.......... (54,669) (53,168) 26,580 (i)(vi)(viii)(ix) (81,257)
-------- -------- -------- --------
Total stockholders'
equity............ 43,466 22,468 7,786 73,720
-------- -------- -------- --------
Total liabilities and
stockholders'
equity............ $ 74,283 $ 26,865 $ 10,386 $111,534
======== ======== ======== ========
Book value per share........... $ 2.95 $ 1.07 $ 3.87
======== ======== ========
</TABLE>
26
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORIXA
PRO FORMA
COMBINED
(INCLUDING CORIXA/RIBI PRO
ANERGEN) PRO FORMA FORMA
(NOTE 4) RIBI ADJUSTMENTS COMBINED
---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales................................. $ -- $ 1,306 $ -- $ 1,306
Collaborative agreements.............. 8,535 1,550 -- 10,085
Government grants..................... 751 -- -- 751
-------- ------- ------- --------
Total revenue................. 9,286 2,856 -- 12,142
Operating expenses:
Purchases and production costs........ -- 801 -- 801
Research and development.............. 19,207 3,447 -- 22,654
General and administrative............ 2,432 2,016 -- 4,448
Amortization of goodwill and other
purchased intangibles.............. -- -- 1,033(ix) 1,033
In-process research and
development(1)..................... 11,612 -- -- 11,612
-------- ------- ------- --------
Total operating expenses...... 33,251 6,264 1,033 40,548
-------- ------- ------- --------
Loss from operations.................... (23,965) (3,408) (1,033) (28,406)
Interest income......................... 1,399 324 -- 1,723
Interest expense........................ (399) -- -- (399)
Other income............................ 471 (12) -- 459
-------- ------- ------- --------
Net loss................................ (22,494) (3,096) (1,033) (26,623)
Preferred stock deemed dividend......... (5,539) -- -- (5,539)
Accretion of liquidation preference on
preferred shares...................... -- (198) -- (198)
Preferred stock dividend................ (146) -- -- (146)
-------- ------- ------- --------
Net loss applicable to common
stockholders.......................... $(28,179) $(3,294) $(1,033) $(32,506)
======== ======= ======= ========
Basic and diluted net loss per share.... $ (1.93) $ (0.16) $ (1.71)
======== ======= ========
Shares used in computation of basic and
diluted net loss per share applicable
to common stockholders................ 14,638 20,507 18,969 (Note 3)
======== ======= ========
</TABLE>
- -------------------------
(1) This amount represents the in-process research and development charge
related to the Anergen acquisition.
27
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORIXA
PRO FORMA
COMBINED
(INCLUDING
ANERGEN AND CORIXA/RIBI
GENQUEST) PRO FORMA PRO FORMA
(NOTE 4) RIBI ADJUSTMENTS COMBINED
----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales........................... $ -- $ 2,538 $ -- $ 2,538
Collaborative agreements........ 19,197 2,812 -- 22,009
Government grants............... 1,325 29 -- 1,354
-------- ------- ------- --------
Total revenue........... 20,522 5,379 -- 25,901
Operating expenses:
Purchases and production
costs........................ -- 1,836 -- 1,836
Research and development........ 36,457 7,872 -- 44,329
General and administrative...... 6,377 4,048 -- 10,425
Amortization of goodwill and
other purchased
intangibles.................. 2,066(ix) 2,066
In-process research and
development(1)............... 12,021 -- -- 12,021
-------- ------- ------- --------
Total operating
expenses............. 54,855 13,756 2,066 70,677
-------- ------- ------- --------
Loss from operations.............. (34,333) (8,377) (2,066) (44,776)
Interest income................... 3,587 746 -- 4,333
Interest expense.................. (948) -- -- (948)
Other income...................... 90 (2) -- 88
-------- ------- ------- --------
Net loss.......................... $(31,604) $(7,633) $(2,066) $(41,303)
======== ======= ======= ========
Basic and diluted net loss per
share........................... $ (2.26) $ (0.38) $ (2.26)
======== ======= ========
Shares used in computation of
basic and diluted net loss per
share........................... 13,979 20,318 18,310 (Note 3)
======== ======= ========
</TABLE>
- -------------------------
(1) This amount represents the in-process research and development charge
related to the GenQuest acquisition.
28
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give
effect to the merger, the Anergen acquisition and the GenQuest acquisition using
the purchase method of accounting. The unaudited pro forma consolidated balance
sheet gives effect to the merger as if it had occurred on June 30, 1999. The
Anergen acquisition occurred on February 10, 1999 and the GenQuest acquisition
occurred on September 15, 1998. Accordingly, the unaudited balance sheet of
Corixa reflects the acquisition of Anergen and GenQuest. The unaudited pro forma
consolidated statements of operations for the year ended December 31, 1998 give
effect to the merger, the Anergen acquisition and the GenQuest acquisition as if
they had occurred on January 1, 1998 and the unaudited pro forma consolidated
statement of operations for the six months ended June 30, 1999 give effect to
the merger and the Anergen acquisition as if they had occurred on January 1,
1999. The unaudited pro forma consolidated financial statements do not purport
to represent what Corixa's financial position or results of operations would
actually have been if the merger or acquisition had in fact occurred on such
dates or to project Corixa's financial position or results of operations as of
any future date or for any future period.
2. RIBI -- UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(a) The unaudited pro forma consolidated financial statements reflect the
conversion of all the outstanding shares of Ribi capital stock into 4,330,701
shares of Corixa common stock pursuant to the merger, which includes up to
720,000 shares of Corixa common stock that may be issued as a result of the
redemption or conversion of Ribi Series A preferred stock into Ribi common stock
prior to the effective date of the merger (assuming no options or warrants to
purchase Ribi common stock are exercised after August 5, 1999). The exchange
ratio of 0.1685 was calculated as a fraction, the numerator of which equals 1.16
multiplied by the average of the last reported sale price of a share of Ribi
common stock for the 10 trading days preceding June 9, 1999, which equals
$2.262, and the denominator of which equals the average of the last reported
sale price of a share of Corixa common stock for the 10 trading days immediately
preceding June 9, 1999, which equals $13.425. All outstanding options and
warrants to purchase Ribi common stock will be assumed by Corixa pursuant to the
merger and converted into options and warrants to purchase shares of Corixa
common stock. This calculation assumes that no options or warrants to purchase
Ribi common stock will be exercised after August 5, 1999.
(b) The total consideration of $59.4 million consists of Corixa common
stock and options valued at $56.8 million, (which includes $8.9 million for the
redemption of Ribi Series A preferred stock, of which approximately $7.9 million
will be paid by Corixa to Ribi or, the issuance of up to 720,000 shares of
Corixa common stock as a result of the conversion of Ribi Series A preferred
stock into Ribi common stock prior to the effective date of the merger) and
transaction costs of approximately $2.6 million. The purchase price will be
allocated based on the fair value of assets acquired and liabilities assumed,
netting to $22.5 million, acquired in-process research and development of $26.0
million and purchased goodwill adjuvant know how and work force of $10.9
million. In-process research and development charges resulting from the merger
have not been reflected in the pro forma consolidated statement of operations,
as they are considered non-recurring charges.
Acquired in-process research and development (IPR&D) for the merger was
evaluated utilizing the present value of the estimated after-tax cash flows
expected to be generated by the purchased technology, which, at the effective
time of the merger, had not reached technological feasibility. The cash flow
projections for revenues are based on estimates of growth rates and the
aggregate size of the respective market for each product; probability of
technical success given the stage of
29
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development at the time of acquisition; royalty rates based on prior licensing
agreements; product's sales cycles; and the estimated life of a product's
underlying technology. Estimated operating expenses and income taxes are
deducted from estimated revenue projections to arrive at estimated after-tax
cash flows. Projected operating expenses include general and administrative
expenses, and research and development costs. The rates utilized to discount
projected cash flows range from 35% to 55% depending upon the relative risk of
each in-process technology and were based primarily on venture capital rates of
return and the weighted average cost of capital for Corixa at the time of the
merger.
The unaudited pro forma consolidated financial statements reflect acquired
IPR&D of approximately $26.0 million, representing the values determined by the
Company's management to be attributable to the IPR&D assets associated with the
technology acquired in the Ribi Acquisition. Of this amount, approximately $16.1
million is related to MPL projects, approximately $7.2 million is related to
RC-529, approximately $1.3 million is related to Melacine, approximately
$880,000 is related to Detox and the remaining $570,000 is related to RC-552.
The values associated with these programs represent Corixa's management ascribed
values, based on the discounted cash flows currently expected from the
technologies acquired. If these projects are not successfully developed, the
business, operating results, and financial condition of Corixa may be adversely
affected.
The in-process research and development that Corixa will acquire from Ribi
consists of the following on-going projects: MPL; RC-529; Melacine; Detox; and
RC-552.
- MPL is an adjuvant immunostimulant that is being developed by Ribi for
potential application in vaccines. Ribi has estimated that the research
and development costs to complete individual MPL vaccine development
projects will be approximately $2.7 million. The MPL projects are in
various stages of completion, from preclinical to Phase III. The most
advanced MPL project is scheduled for completion in the year 2000.
Additional identified MPL projects in early development stages are
scheduled for completion by the year 2006. Significant risk remains in
relation to FDA approval of MPL.
- RC-529 is a next generation synthetic adjuvant. Ribi plans to jointly
develop an infectious disease vaccine utilizing RC-529 with a partner.
Ribi has estimated that RC-529 will be completed in 2004, with an
additional $2.4 million in research and development costs. As of the
acquisition date, Ribi had made progress in the areas of preclinical
work, including toxicology studies, comparative studies, and production
scale-up studies.
- Melacine is a therapeutic vaccine to treat melanoma. Ribi has estimated
costs to complete Melacine at $3.9 million, with a targeted completion
date in 2001. Although significant risks remain, Melacine has completed
one Phase III clinical trial and is currently in two other Phase III
studies.
- Detox has adjuvant properties and is currently being developed for use in
Melacine by Ribi and in Theratope by Biomira, Inc. as therapeutic
vaccines for breast, lung, gastrointestinal and colon cancers. Ribi has
estimated remaining costs to complete development of Detox at
approximately $900,000 with completion planned for the year 2002. While
significant risks remain to complete Detox, Phase III trials have been
started for its application in Theratope.
- RC-552 is a synthetic compound being developed for use in protecting
against Reperfusion Injury. Ribi has targeted completion of RC-552 for
2001 with an additional $2.4 million in costs to complete. Significant
progress related to preclinical work, including toxicology studies had
been made as of the acquisition date. The FDA has indicated that Ribi
could proceed to a Phase II/III clinical trial with appropriate
preclinical data.
30
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of the date the merger agreement was signed, Corixa concluded that once
completed, the technologies under development can only be economically used for
its specific and intended purposes and that such in-process technology has no
alternative future use after taking into consideration the overall objectives of
the project, progress toward the objectives, and uniqueness of developments to
these objectives.
(c) The unaudited pro forma consolidated balance sheet includes the
adjustments necessary to give effect to the merger as if it had occurred on June
30, 1999, and to reflect the allocation of the proposed acquisition to the fair
value of tangible and intangible assets acquired, including the charge to
operations for in-process research and development acquired and the elimination
of Ribi's equity accounts. Also included are the transaction costs, inclusive of
payments to financial advisors, independent auditors, attorneys and other
related costs, and costs associated with the elimination of redundant facilities
and assets. Approximate adjustments included in the unaudited pro forma
consolidated balance sheet are summarized as follows:
(i) Write-off of in-process research and development acquired by Corixa,
$26,024,000;
(ii) Adjuvant know-how acquired by Corixa, $3,076,000, seven-year
remaining life;
(iii) Workforce acquired by Corixa, $1,033,000, four-year remaining life;
(iv) Goodwill acquired by Corixa, $6,841,000; five-year remaining life;
(v) Transaction and other costs associated with the merger of
$2,600,000;
(vi) Elimination of Ribi equity accounts, $22,468,000;
(vii) Issuance of Corixa common stock, $0.001 par value, as discussed
above. The value of Corixa common stock is equal to the product of
up to 4,330,701 shares multiplied by approximately $13.275 per share
which includes approximately 720,000 shares of Corixa common stock
that may be issued as a result of the conversion of Ribi Series A
preferred stock into Ribi common stock prior to the effective date
of the merger. If the shares are not converted, approximately $7.9
million will be paid by Corixa to Ribi to be used for the assumed
$8.9 million redemption of Ribi Series A preferred stock;
(viii) To conform accounting policies of expensing patent costs as
incurred, $564,000;
(ix) To record amortization of $1,033,000 related to acquired goodwill,
adjuvant know-how and work force.
3. RIBI -- UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The pro forma combined share and net loss per share data was prepared using
an exchange ratio of 0.1685 Corixa common share for each share of Ribi common
stock and the assumed issuance of a maximum of 4,330,701 shares of Corixa common
stock on January 1, 1999 and 1998 as described in Note 2 to these Notes to
Unaudited Pro Forma Consolidated Financial Statements.
4. ANERGEN AND GENQUEST -- UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
ADJUSTMENTS
Corixa's unaudited statement of operations for the six months ended June
30, 1999 has been combined with Anergen's unaudited statement of operations for
the period from January 1, 1999 to February 10, 1999. Corixa's audited statement
of operations for the year ended December 31, 1998 have been combined with
Anergen's audited statement of operations for the year ended December 31, 1998
and GenQuest's unaudited statement of operations for the period from January 1,
1998 to September 15, 1998.
31
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORIXA
ANERGEN CORIXA/ANERGEN PRO FORMA
(PRIOR TO PRO FORMA COMBINED
CORIXA ACQUISITION) ADJUSTMENTS WITH ANERGEN
-------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales...................... $ -- $ -- $ -- $ --
Collaborative agreements... 8,411 124 -- 8,535
Government grants.......... 743 8 -- 751
-------- ------- -------- --------
Total revenue........... 9,154 132 -- 9,286
Operating expenses:
Purchases and production
costs................... -- -- -- --
Research and development... 18,663 544 -- 19,207
General and
administrative.......... 1,745 687 -- 2,432
In-process research and
development(1).......... 11,612 -- 11,612
-------- ------- -------- --------
Total operating
expenses.............. 32,020 1,231 -- 33,251
-------- ------- -------- --------
Loss from operations......... (22,866) (1,099) -- (23,965)
Interest income.............. 1,396 3 -- 1,399
Interest expense............. (392) (7) -- (399)
Other income................. 471 -- -- 471
-------- ------- -------- --------
Net loss..................... (21,391) (1,103) -- (22,494)
Preferred stock deemed
dividend................... (5,539) -- -- (5,539)
Preferred stock dividend..... (146) -- -- (146)
-------- ------- -------- --------
Net loss applicable to common
stockholders............... $(27,026) $(1,103) $ -- $(28,179)
======== ======= ======== ========
Basic and diluted net loss
per share.................. $ (1.88) $ (1.93)
======== ========
Shares used in computation of
basic and diluted net loss
per share applicable to
common stockholders........ 14,398 240 14,638 (Note 5)
======== ======== ========
</TABLE>
- -------------------------
(1) This amount represents the in-process research and development charge
related to the Anergen acquisition.
32
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ANERGEN -- UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(a) The unaudited pro forma consolidated financial statements reflect the
conversion of all the outstanding shares of Anergen capital stock into
1,058,031 shares of Corixa common stock as a result of the acquisition
by Corixa on February 10, 1999 which was accounted for as a purchase
transaction. Options and warrants to purchase shares of Anergen common
stock were assumed by Corixa pursuant to the merger and converted into
options and warrants to purchase shares of Corixa common stock.
(b) The total consideration of $9.6 million consisted of Corixa common
stock and options valued at $8.7 million, cash of $200,000 and
approximately $700,000 of transaction costs. The purchase price was
allocated to assets acquired of $1.7 million and liabilities assumed of
$3.7 million and acquired in-process research and development of $11.6
million.
33
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORIXA/
GENQUEST GENQUEST GENQUEST ANERGEN ANERGEN CORIXA
(PRIOR TO PRO FORMA PRO FORMA (PRIOR TO PRO FORMA PRO FORMA
CORIXA ACQUISITION) ADJUSTMENTS COMBINED ACQUISITION) ADJUSTMENTS COMBINED
-------- ------------ ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Sales................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Collaborative
agreements......... 17,003 150 (1,048)(e) 16,105 3,092 -- 19,197
Government grants.... 1,267 58 -- 1,325 -- -- 1,325
-------- ------- -------- -------- ------- ----- --------
Total revenue...... 18,270 208 (1,048) 17,430 3,092 -- 20,522
Operating expenses:
Purchases and
production costs... -- -- -- -- -- -- --
Research and
development........ 27,436 2,196 (1,700)(e) 27,932 8,525 -- 36,457
General and
administrative..... 2,672 237 (204)(e) 2,705 3,672 -- 6,377
In-process research
and
development(1)..... 12,021 -- -- 12,021 -- -- 12,021
-------- ------- -------- -------- ------- ----- --------
Total operating
expenses......... 42,129 2,433 (1,904) 42,658 12,197 -- 54,855
-------- ------- -------- -------- ------- ----- --------
Loss from operations... (23,859) (2,225) 856 (25,228) (9,105) -- (34,333)
Interest income........ 3,016 60 -- 3,076 511 -- 3,587
Interest expense....... (767) (47) -- (814) (134) -- (948)
Other income........... 294 -- (204)(e) 90 -- -- 90
-------- ------- -------- -------- ------- ----- --------
Net loss............... $(21,316) $(2,212) $ 652 $(22,876) $(8,728) $ -- $(31,604)
======== ======= ======== ======== ======= ===== ========
Basic and diluted net
loss per share....... $ (1.75) $ (1.77) $ (0.46) $ (2.26)
======== ======== ======= ========
Shares used in
computation of basic
and diluted net loss
per share............ 12,172 749 12,921(Note6) 18,890 1,058 13,979 (Note 5)
======== ======== ======== ======= ===== ========
</TABLE>
- -------------------------
(1) This amount represents the in-process research and development charge
related to the GenQuest acquisition.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GENQUEST -- UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(c) The unaudited pro forma consolidated financial statements reflect the
conversion of all the outstanding shares of GenQuest capital stock into
1,063,695 shares of Corixa common stock as a result of the acquisition by Corixa
on September 15, 1998 which was accounted for as a purchase transaction. Options
to purchase shares of GenQuest common stock were assumed by Corixa pursuant to
the merger and converted into options to purchase shares of Corixa common stock
which have an estimated value of approximately $77,000.
(d) The total consideration of $12.4 million consisted of Corixa common
stock and options valued at $7.3 million, cash of $4.5 million and approximately
$600,000 of transaction costs. The purchase price was allocated to assets
acquired and liabilities assumed, netting to $400,000 and acquired in-process
research and development of $12.0 million.
(e) Elimination of inter-company revenue and expenses including
amortization of the warrant previously issued to GenQuest.
5. ANERGEN -- UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1998 and the six months ended June 30, 1999, are
based upon the historical weighted average common shares outstanding adjusted to
reflect the issuance, as of January 1, 1998 and 1999 of 1,058,031 shares of
Corixa common stock as described in Note 4 to these Notes to Unaudited Pro Forma
Consolidated Financial Statements. Options and warrants to purchase Anergen
common stock were assumed by Corixa pursuant to the merger and converted into
options and warrants to purchase shares of Corixa common stock. The Corixa
common stock issuable upon exercise of the stock options and warrants assumed
have been excluded as the effect would be anti-dilutive.
6. GENQUEST -- UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1998 and the six months ended June 30, 1999 are
based upon the historical weighted average common shares outstanding adjusted to
reflect the issuance, as of January 1, 1998 and 1999 of 1,063,695 shares of
Corixa common stock as described in Note 6 to these Notes to Unaudited Pro Forma
Consolidated Financial Statements. Options to purchase shares of GenQuest common
stock were assumed by Corixa pursuant to the merger and converted into options
to purchase shares of Corixa common stock. The Corixa common stock issuable upon
exercise of the stock options assumed has been excluded as the effect would be
anti-dilutive.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CORIXA CORPORATION
Date: August 18, 1999 By: /s/ Mark McDade
-----------------------------
Mark McDade
President and Chief Operating
Officer
