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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999
REGISTRATION NO. 333-71911
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ISIS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 33-0336973
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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2292 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 931-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
B. LYNNE PARSHALL, ESQ.
EXECUTIVE VICE PRESIDENT
ISIS PHARMACEUTICALS, INC.
2292 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 931-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
D. BRADLEY PECK, ESQ.
SCOTT R. CUTLER, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
(619) 550-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD TO YOU UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 31, 1999
PROSPECTUS
4,000,000 Shares
ISIS PHARMACEUTICALS, INC.
Common Stock
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Isis is selling 4,000,000 shares of common stock. Isis' common stock is
traded on the Nasdaq National Market under the symbol "ISIP". On March 29, 1999,
the last reported sale price for our common stock on the Nasdaq National Market
was $10.5625 per share.
Isis plans to enter into a common stock purchase agreement with Ridgeway
Investment Limited. Under the purchase agreement, Isis may issue and sell, from
time to time, shares of its common stock for cash consideration up to an
aggregate of $42 million.
For a period of 28 months following the effective date of the registration
statement of which this prospectus forms a part, Isis may, from time to time and
at its sole discretion, present Ridgeway with draw down requests to sell up to
$3,000,000 worth of shares of its common stock. Upon each draw down request,
Isis will set the minimum price at which Isis will sell its shares of common
stock to Ridgeway. The price of those shares will equal to 94.5% of the average
price of the common stock over a period specified in the purchase agreement.
Isis may present Ridgeway with up to 24 draw down notices during the term of the
purchase agreement.
Upon receipt of a draw down request, Ridgeway may exercise a call option to
purchase up to an additional $3,000,000 worth of shares of common stock for a
purchase price equal to 95.5% of the average price of the common stock over a
period specified in the purchase agreement.
As of the date of this prospectus, we have not issued any shares of common
stock under the purchase agreement.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 1999
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
or incorporated by reference in this prospectus.
THE COMPANY
Isis was incorporated in California in January 1989 and in April 1991
changed its state of incorporation to Delaware. Our executive offices are
located at 2292 Faraday Avenue, Carlsbad, California 92008, and our telephone
number is (760) 931-9200. Isis' world wide web address is http://www.isip.com.
Information contained in our world wide web site should not be considered to be
part of this prospectus.
In February 1999, Dr. Daniel Kisner, President, Chief Operating Officer and
a director of Isis, resigned all positions to assume the position of Chief
Executive Officer of Caliper Technologies, a privately held company. Dr. Debby
Jo Blank joined the Company as Executive Vice President overseeing corporate
development, business development, strategic planning and marketing, human
resources and operations, and investor relations. B. Lynne Parshall, Executive
Vice President and Chief Financial Officer assumed responsibility for the
Company's manufacturing and regulatory affairs activities in addition to her
previous responsibilities.
Isis Pharmaceuticals is a trademark of Isis. Vitravene(TM) is a trademark
of CIBA Vision Corporation. All other brand names or trademarks appearing in
this prospectus are the property of their respective holders.
THE OFFERING
Common stock offered in this
prospectus...................... 4,000,000 shares
Common stock outstanding after
the offering.................... 31,147,000 shares(1)
Use of proceeds................. For research, drug discovery and development
activities, including preclinical and
clinical studies, production of compounds
for such studies and capital expenditures,
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol... ISIP
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(1) Based on shares outstanding as of January 31, 1999. Does not include
7,606,730 shares of common stock issuable upon exercise of outstanding
options or 1,248,001 shares of common stock issuable upon exercise of
outstanding warrants as of January 31, 1999.
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RISK FACTORS
Please consider the following risk factors carefully in addition to the
other information contained in this prospectus and in any other documents
incorporated by reference into this prospectus from our other SEC filings.
UNCERTAINTY ASSOCIATED WITH OUR CLINICAL TRIALS
We must conduct time-consuming, extensive and costly clinical trials, in
compliance with U.S. Food and Drug Administration regulations, to show the
safety and efficacy of each of our drug candidates, as well as its optimum
dosage, before the FDA can approve a drug candidate for sale.
To begin the process, preclinical studies are conducted, first in the
research laboratory and then in animals, to identify potential safety problems.
If the research and preclinical development support further development, we must
then submit an Investigational New Drug application to the FDA to obtain
authorization for human clinical testing. However, our IND application may not
be granted by the FDA.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which typically involves giving the
drug to healthy human subjects before giving it to patients, the drug candidate
is tested for safety and tolerance. Phase II typically involves studies in a
somewhat larger population of diseased patients to identify possible negative
effects and safety risks, to begin gathering preliminary efficacy data and to
investigate possible dose sizes and schedules. Phase III trials further evaluate
the drug's efficacy and further test for safety within an expanded patient
population. Once the clinical trials are completed, data from preclinical
testing and clinical trials are submitted to the FDA in a New Drug Application
in order to obtain approval to sell the drug.
While limited trials of our products have to date produced favorable
results, significant additional trials are required, and we may not be able to
demonstrate that our drug candidates will be safe or effective. We have only
introduced one commercial product, Vitravene; however, we cannot guarantee that
any of our product candidates will obtain required government approvals or that
we can successfully commercialize any products. We expect to have ongoing
discussions with the FDA with respect to all of our drugs in clinical
development.
OUR DRUG CANDIDATES ARE SUBJECT TO GOVERNMENT REGULATION AND PRODUCT APPROVALS
Our drug candidates under development are subject to regulation by the
federal government, including the FDA, and by state and local governments. If
our products are marketed abroad, they will also need to comply with export
requirements and regulation by foreign governments. The applicable regulatory
approval process is lengthy and expensive and must be completed prior to the
commercialization of a product. We cannot guarantee that we will be able to
obtain necessary regulatory approvals on a timely basis, if at all, for any of
our products under development. Delays in receiving such approvals, failure to
receive such approvals at all or failure to comply with existing or future
regulatory requirements could have a material adverse effect on our business,
financial condition and results of operations.
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Product development and approval to meet FDA regulatory requirements takes
a number of years, involves the expenditure of substantial resources and is
uncertain. Many products that initially appear promising ultimately do not reach
the market because they are not found to be safe or effective. In addition, the
current regulatory framework could change and additional regulations may arise
at any stage of product development that may affect approval, delay the
submission or review of an application or require additional expenditures.
WE CANNOT GUARANTEE MARKET ACCEPTANCE OF OUR PRODUCTS
We currently have one product, Vitravene, a treatment for CMV retinitis in
AIDS patients, which has achieved limited market acceptance in a small
commercial market with significant competition. We delivered our first
commercial shipment of Vitravene in 1998, earning product revenue of $560,000.
We cannot guarantee that any of our products in development, if approved for
marketing, will achieve market acceptance. The degree of market acceptance
depends upon a number of factors, including:
- the receipt and scope of regulatory approvals,
- the establishment and demonstration in the medical and patient advocacy
community of the clinical efficacy and safety of our product candidates
and their potential advantages over competitive products, and
- reimbursement policies of government and third-party payors.
In addition, we cannot guarantee that physicians, patients, patient
advocates, payors or the medical community in general will accept and utilize
any products that may be developed by us.
WE DEPEND ON OUR COLLABORATIVE PARTNERS
We currently have agreements with Novartis Pharma, Boehringer Ingelheim,
CIBA Vision, Merck & Co., Zeneca Pharmaceuticals, Abbot Laboratories as
collaborative partners. These collaborative partners have agreed to pay for a
portion of our research and development expenses. We have entered into research,
development or distribution agreements pursuant to which the collaborative
partners provide money in exchange for research services, product rights or
marketing rights related to the products or targets involved. In addition, all
of these agreements provide for us to receive royalties or other revenues based
on sales of products developed or marketed by these collaborative partners.
If any collaborative partner fails to develop or sell any product in which
we have rights, our business may be negatively affected. While we believe that
our collaborative partners will have sufficient motivation to continue their
funding, development and commercialization activities, we cannot be sure that
any of these collaborations will be continued or result in commercialized
products. The failure of a corporate partner to continue funding any particular
program could delay or stop the development or commercialization of any products
resulting from such program. Collaborative partners may be pursuing other
technologies or developing other drug candidates either on their own or in
collaboration with others, including our competitors, to develop treatments for
the same diseases targeted by our own collaborative programs. We also may wish
to rely on additional collaborative arrangements to develop and commercialize
our products in the future. However, we may not be able to negotiate acceptable
collaborative arrangements in
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the future, and, even if successfully negotiated, the collaborative arrangements
themselves may not be successful.
WE ARE IN THE EARLY STAGE OF DEVELOPMENT AND OUR PRODUCTS ARE SUBJECT TO
TECHNOLOGICAL UNCERTAINTY
We are still at an early stage of development. Most of our resources are
dedicated to applying molecular biology and medicinal chemistry to the discovery
and development of drug candidates based upon antisense technology, a novel drug
discovery tool in designing drugs that work at the genetic level to block the
production of disease-causing proteins. Drug discovery and development involves
inherent risks including the risk that genetic targets that are identified prove
unsuccessful and the risk that compounds that demonstrate attractive development
characteristics in preclinical studies have undesirable side-effects, including
toxicity. Laboratory results obtained in preclinical studies do not necessarily
indicate the results that will be obtained in later stages of preclinical
development or in human clinical testing. For example, we are attempting to
develop products for diseases for which no appropriate animal model that might
predict efficacy currently exists. As a result, drug candidates for these
diseases must advance at least to Phase II human clinical trials before we will
have evidence of efficacy outside of the laboratory. Drugs discovered by us may
not effectively combat the targeted disease and, even if they work, may not be
commercially successful.
WE HAVE A HISTORY OF OPERATING LOSSES
Because of the nature of the business of drug discovery and development,
our expenses have exceeded our revenues since Isis was founded in January 1989.
As of December 31, 1998, our accumulated losses were approximately $197 million.
Most of the losses have resulted from costs incurred in connection with our
research and development programs and from general and administrative costs
associated with our growth and operations. These costs have exceeded our
revenues, most of which have come from collaborative arrangements, interest
income and research grants. Our current product revenues are derived solely from
sales of Vitravene. This product has limited sales potential relative to most
pharmaceutical products. We expect to incur additional operating losses over the
next several years and we expect losses to increase as our preclinical testing
and clinical trial efforts continue to expand. We cannot guarantee that we will
successfully develop, receive regulatory approval for, commercialize,
manufacture, market or sell any additional products, or achieve or sustain
future profitability.
WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE
Based on our current operating plan, we believe that our available cash and
existing sources of revenue and credit, together with the proceeds of this
offering and interest earned thereon, will be adequate to satisfy our capital
needs until at least the end of 2000. Our future capital requirements will
depend on many factors, such as the following:
- continued scientific progress in our research, drug discovery and
development programs;
- the size of these programs and progress with preclinical and clinical
trials;
- the time and costs involved in obtaining regulatory approvals;
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- the market acceptance of Vitravene;
- the costs involved in filing, prosecuting and enforcing patent claims;
- competing technological and market developments, including the
introduction of new therapies that address our markets; and
- changes in existing collaborative relationships and our ability to
establish and maintain additional collaborative arrangements.
Our need for additional funding will also depend upon the cost of
manufacturing products on a larger scale and our ability to establish and
maintain effective marketing and sales activities and arrangements. If we find
that we do not have enough money, additional funds may be raised, including
through public or private financing. Additional financing may not be available,
or, if available, may not be on acceptable terms. If additional funds are raised
by issuing equity securities, the shares of existing stockholders will be
subject to further dilution and share prices may decline. If adequate funds are
not available, we may be required to cut back on one or more of our research,
drug discovery or development programs or obtain funds through arrangements with
collaborative partners or others. These arrangements may require us to give up
rights to certain of our technologies, product candidates or products.
WE HAVE LIMITED LARGE-SCALE MANUFACTURING EXPERIENCE
Our ability to operate profitably will depend in part on our ability to
manufacture our drug products, or to have another company manufacture our
products, at a cost low enough to enable us to charge a competitive price to
buyers. To establish additional commercial manufacturing capability on a large
scale, we must improve our manufacturing processes and reduce our product costs.
The manufacture of sufficient quantities of new drugs is typically a
time-consuming and complex process. Pharmaceutical products based on chemically
modified oligonucleotides have never been manufactured on a large commercial
scale. There are a limited number of suppliers for certain capital equipment and
raw materials that we use to manufacture our drugs, and some of these suppliers
will need to increase their scale of production to meet our projected needs for
commercial manufacturing. We may not be able to manufacture at a cost or in
quantities necessary to make commercially successful products.
In 1998, we entered into an antisense oligonucleotide manufacturing
collaboration with Zeneca Life Science Molecules of Manchester, England pursuant
to which Zeneca LSM will supply a portion of our requirements of drugs for
clinical trials. As of the date of this prospectus, we have not received any
supply of drugs under this arrangement, and we cannot guarantee that Zeneca LSM
will be able to meet our supply needs for clinical trials.
NEW DRUG CANDIDATES AND COMPETITION MAY HURT OUR BUSINESS
Our competitors are engaged in all areas of drug discovery in the United
States and other countries, are numerous, and include, among others, major
pharmaceutical and chemical companies, specialized biopharmaceutical firms,
universities and other research institutions. Our competitors may succeed in
developing other new therapeutic drug candidates that are more effective than
any drug candidates that we have been developing. These competitive developments
could make our technology and products obsolete or non-
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competitive before we have had enough time to recover our research, development
or commercialization expenses.
Many of our competitors have substantially greater financial, technical and
human resources than we do. In addition, many of these competitors have
significantly greater experience than we do in conducting preclinical testing
and human clinical trials of new pharmaceutical products and in obtaining FDA
and other regulatory approvals of products for use in health care. Accordingly,
our competitors may succeed in obtaining regulatory approval for products
earlier than we do. We will also compete with respect to manufacturing
efficiency and marketing capabilities, areas in which we have limited or no
experience.
OUR PATENTS AND PROPRIETARY RIGHTS COULD AFFECT OUR ABILITY TO COMPETE
Our success depends to a significant degree upon our ability to develop
proprietary products. However, we cannot assure you that patents will be granted
on any of our patent applications in the United States or in other countries. We
also cannot assure you that the scope of any of our issued patents will be
sufficiently broad to offer meaningful protection. In addition, our issued
patents or patents licensed to us could be successfully challenged, invalidated
or circumvented so that our patent rights would not create an effective
competitive barrier.
INTELLECTUAL PROPERTY LITIGATION COULD HARM OUR BUSINESS
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for and in some cases issued to others claiming technologies which are
closely related to ours. As a result, and in part due to the ambiguities and
evolving nature of intellectual property law, we periodically receive notices
from others that they are seeking patent rights that could, if obtained,
negatively impact our business. However, to date, none of these notices has
resulted in a negative impact on our business.
In the event of an intellectual property dispute, we may be forced to
litigate. Such litigation could involve proceedings declared by the U.S. Patent
and Trademark Office or the International Trade Commission, as well as affected
third parties. Intellectual property litigation can be extremely expensive, and
such expense, as well as the consequences should we not prevail, could seriously
harm our business.
If a third party claimed an intellectual property right to technology we
use, we might be forced to discontinue an important product or product line,
alter our products and processes, pay license fees or cease certain activities.
Although we might under these circumstances attempt to obtain a license to such
intellectual property, we may not be able to do so on favorable terms, if at
all.
WE HAVE NO EXPERIENCE IN SALES AND MARKETING
We have no experience in sales, marketing or distribution of drug products.
We currently do not sell any products directly. Instead, we sell Vitravene
through our partner CibaVision which is responsible for all sales and marketing
of that product. To market any of our products directly, we must develop an
expert marketing and sales force capable of supporting product distribution. We
may not be able to build such a sales force at all, or at a reasonable cost, and
if we do, our direct sales and marketing efforts may not be
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successful. As with any new product, our products may not achieve market
acceptance in place of existing treatments.
WE DEPEND ON OUR KEY EMPLOYEES
We are dependent on the principal members of our management and scientific
staff. We do not have employment agreements with any of our management. The loss
of our management and key scientific employees might slow the achievement of
important research and development goals. Recently, Dr. Daniel Kisner, our
President and Chief Operating Officer and director resigned all positions to
assume the position of Chief Executive Officer of Caliper Technologies, a
privately held company. Dr. Kisner's resignation is not expected to have a
material adverse effect on our business. It is also critical to our success to
recruit and retain qualified scientific personnel to perform research and
development work. Although we believe we will be successful in attracting and
keeping skilled and experienced scientific personnel, we may not be able to do
so on acceptable terms, because of stiff competition for experienced scientists
among many pharmaceutical and health care companies, universities and non-profit
research institutions.
OUR STOCK PRICE IS VOLATILE
The market price of our common stock, like that of the securities of many
other biopharmaceutical companies, has been and is likely to continue to be
highly volatile. During the last twelve months, the market price of our common
stock has ranged from $7 to $16. The market price can be affected by many
factors, including, for example, fluctuation in our operating results,
announcements of technological innovations or new drug products being developed
by us or our competitors, governmental regulation, regulatory approval,
developments in patent or other proprietary rights, public concern regarding the
safety of our drugs and general market conditions.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation provides for classified terms for the
members of the board of directors. Our certificate also includes a provision
that requires at least 66 2/3% of our voting stockholders to approve a merger or
certain other business transactions with, or proposed by, 15% or more of our
voting stockholders, except in cases where certain directors approve the
transaction or certain minimum price criteria and other procedural requirements
are met.
Our certificate of incorporation also requires that any action required or
permitted to be taken by our stockholders must be taken at a duly called annual
or special meeting of stockholders and may not be taken by written consent. In
addition, special meetings of our stockholders may be called only by the board
of directors, the chairman of the board or the president, or by any holder of
10% or more of our outstanding common stock. The classified board, stockholder
vote requirements and other charter provisions protect us in two ways. First,
these provisions may discourage certain types of transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they think may be in their best interests. Second, the board
of directors has the authority to fix the rights and preferences of and issue
shares of preferred stock, which may have the effect of delaying or preventing a
change in control of Isis without action by the stockholders.
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WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC's public reference
rooms in Washington, D.C., New York, NY and Chicago, IL. You can request copies
of these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
Web site at "http://www.sec.gov". In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
- Proxy Statement for the 1998 Annual Meeting of Stockholders; and
- Isis' registration statement on Form 8-A filed on April 2, 1991, which
includes a description of our common stock.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone number:
Isis Pharmaceuticals, Inc.
Attn: Vice President of Finance
2292 Faraday Avenue
Carlsbad, CA 92008
Telephone Number (760) 931-9200
This prospectus is part of a larger registration statement we filed with
the SEC. You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
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USE OF PROCEEDS
We cannot guarantee that we will receive any proceeds in connection with
this offering.
Companies in the biopharmaceutical industry generally expend significant
capital resources in product research and development. We anticipate that we
will be required to raise substantial additional capital over a period of
several years in order to finance our research and development programs.
Additional capital may be raised through additional public or private
financings, as well as collaborative relationships, borrowings and other
available sources.
We intend to use the net proceeds of this offering, if any, for our
research, drug discovery and development programs and for other general
corporate purposes. Expenses to be funded with the offering proceeds include
costs of preclinical and clinical studies, the production of compounds for such
studies and capital expenditures. We have not identified precisely the amounts
we plan to spend on each research, drug discovery and development program or the
timing of such expenditures. Isis, however, currently plans that the proceeds,
if any, will be used for product development, including clinical trials,
preclinical studies, manufacturing scale-up and facilities and equipment
acquisition. The remaining proceeds, if any, will be used to expand selected
research activities and for general and administrative purposes. The amounts
actually expended for each purpose may vary significantly depending upon
numerous factors, including the amount of the proceeds from this offering,
progress of our research, drug discovery and development programs, the results
of preclinical and clinical studies, the timing of regulatory approvals,
technological advances, determinations as to commercial potential of our
compounds and the status of competitive products. In addition, expenditures will
also depend upon the establishment of collaborative research arrangements with
other companies, the availability of other financing and other factors.
Other methods of financing our operations, including the acquisition of
tenant improvements and capital equipment, such as mortgage or lease financing,
may be used by us if available on attractive terms. In the past, Isis has made a
practice of using lease financing for equipment purchases and intends to
continue to do so in the future to the extent the terms of such financing remain
commercially attractive. To the extent such financing is used, proceeds of this
offering will be reallocated to working capital.
Based upon our current operating plan, we believe that our available cash
and existing sources of revenue and credit, together with the proceeds of this
offering and interest earned thereon, will be adequate to satisfy our capital
needs until at least the end of 2000.
Proceeds of this offering, if any, may also be used to acquire companies or
products that complement the business of Isis. No such transactions are being
planned or negotiated as of the date of this prospectus.
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DILUTION
The net tangible deficit of Isis at December 31, 1998 was $14,296,000 or
approximately $0.53 per share of common stock. Net tangible deficit per share
represents the amount of our tangible assets less total liabilities, divided by
27,053,000 shares of common stock.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock in the
offering made hereby and the pro forma net tangible book value per share of
common stock immediately after completion of the offering. After giving effect
to the sale of 4,000,000 shares of common stock in this offering at an assumed
offering price of $12.75 per share and the application of the estimated net
proceeds therefrom (after deducting estimated offering expenses) the pro forma
net tangible book value of Isis as of December 31, 1998 would have been
$36,604,000 or $1.18 per share, an immediate increase in net tangible book value
of $1.71 per share to existing stockholders and an immediate dilution in net
tangible book value of $11.57 per share to purchasers of common stock in the
offering, as illustrated in the following table:
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Assumed public offering price per share..................... $12.75
Net tangible book value per share at December 31, 1998...... $ (.53)
Increase per share attributable to new investors............ $ 1.71
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Pro forma net tangible book value per share after
offering.................................................. $ 1.18
------
Net tangible book value dilution per share to new
investors................................................. $11.57
------
</TABLE>
To the extent that outstanding options and warrants are exercised, there
will be further dilution to new investors.
11
<PAGE> 13
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operation for the years ended December 31, 1996, 1997, and 1998,
and with respect to the balance sheet data at December 31, 1996, 1997, and 1998,
are derived from the audited financial statements of Isis Pharmaceuticals, Inc.
The data should be read in conjunction with the financial statements, related
notes and other financial information incorporated by reference herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Research and development revenues........ $ 38,611 $ 32,722 $ 22,663
Product revenues......................... 560 -- --
-------- -------- --------
39,171 32,722 22,663
-------- -------- --------
Expenses:
Research and development................. 62,200 55,940 45,653
Write-off of acquired patents............ 5,238 -- --
General and administrative............... 9,511 8,078 6,246
-------- -------- --------
Total operating expenses............ 76,949 64,018 51,899
-------- -------- --------
Loss from operations........................ (37,778) (31,296) (29,236)
Interest income.......................... 4,150 3,815 3,921
Interest expense......................... 9,355 3,585 1,206
======== ======== ========
Net loss.................................... $(42,983) $(31,066) $(26,521)
======== ======== ========
Basic and diluted net loss per share........ $ (1.60) $ (1.17) $ (1.04)
======== ======== ========
Shares used in computing basic and diluted
net loss per share....................... 26,873 26,456 25,585
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................. $ 58,848 $ 86,786 $ 77,624
Working capital................................ 40,651 62,573 56,300
Total assets......................... 96,074 117,881 101,305
Long-term obligations, less current portion.... 77,724 56,452 19,864
Accumulated deficit............................ (197,116) (154,133) (123,067)
Total stockholders' equity
(deficit)......................... (4,186) 34,852 58,385
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information contained in this prospectus, this
prospectus contains forward-looking statements regarding our business and
products and their projected prospects and qualities, and our relationships with
our corporate partners. Such statements are subject to risks and uncertainties,
particularly those inherent in the process of discovering, developing and
commercializing safe and effective drugs, and the endeavor of building a
business around such potential products. Actual results could differ materially
from those projected in this prospectus. As a result, the reader is cautioned
not to place undue reliance on these forward-looking statements. Factors that
could cause or contribute to these differences include, but are not limited to,
those discussed in the section of this prospectus entitled "Risk Factors" and
are described in additional detail in Isis' Annual Report on Form 10-K for the
year-ended December 31, 1997, and in our most recent quarterly report on Form
10-Q, which are on file with the U.S. Securities and Exchange Commission, a copy
of which is available from the Company.
Since our inception in January 1989, almost all of our resources have been
devoted to our research, drug discovery and drug development programs. We are
not yet profitable and expect to continue to have operating losses for the next
several years. Isis' revenue comes from collaborative research and development
agreements with pharmaceutical companies, research grants and interest income.
The revenue from the collaboration agreements increases the amount of research
and development activity that we are able to fund and offsets a portion of our
research and development costs. See Item 1, "Business -- Collaborative
Agreements." In 1998, Isis received approval from the FDA to begin marketing our
first product, Vitravene, a drug used to treat CMV retinitis.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Our revenue from collaborative research and development agreements was
$38.6 million for the year ended December 31, 1998 compared with $32.7 million
in 1997, an increase of 18%. The receipt of $5 million from CpG
ImmunoPharmaceuticals, Inc. for a license to certain issued patents together
with $1.8 million from a research collaboration with Merck contributed to this
revenue increase. Isis delivered its first commercial shipment of Vitravene in
1998, earning product revenue of $0.6 million.
Research and development expenses rose 11% to $62.2 million in 1998 from
$55.9 million in 1997. The increase in research and development expenses
occurred because compounds in preclinical and clinical development are
continuing to advance into more expensive stages of development. We expect that
research and development expenses will continue to increase as compounds
continue to advance in clinical development.
Operating expenses in 1998 included $5.2 million for acquired patents. This
expense arises from the 1998 acquisition of the antisense patent estate from
Gilead Sciences, Inc. which was written off in accordance with our accounting
policies. No similar expenses were incurred in 1997.
General and administrative expenses were $9.5 million for 1998 compared
with $8.1 million in 1997. This increase is primarily because of expanded
business development and investor relations activities and support of our
increasing research and development
13
<PAGE> 15
efforts. We expect that general and administrative expenses will continue to
increase in the future to support our growing research and development
activities.
Interest expense increased to $9.4 million in 1998 compared with $3.6
million in 1997. This increase in interest expense is due to borrowing $25
million in a private debt financing completed in the fourth quarter of 1997 with
an additional $15 million follow-on private debt financing in the second quarter
of 1998. Under the terms of these financing arrangements, payment of both
principal and interest is deferred for the first five years. Therefore, of the
$9.4 million interest expense in 1998, $6.1 million was accrued under the
long-term debt agreements and will not require current cash payment.
Our net loss for 1998 was $43.0 million, or $1.60 per share, compared to
$31.1 million, or $1.17 per share, for 1997. We expect that operating losses
will increase for several more years as research and development activities
grow. Operating losses may fluctuate from quarter to quarter because of
differences in the timing of revenue and expense recognition.
At December 31, 1998, our net operating loss carryforward for federal
income tax purposes was approximately $193.5 million. The net operating loss and
research credit carryforwards make up a majority of our deferred tax assets. We
will only be able to use the net operating loss and research credits, and
realize the benefit of these deferred tax assets, if we become profitable. We
have fully reserved all of our deferred tax assets as their realization is
uncertain. Our research credit carryforward for federal income tax purposes was
approximately $8.4 million. Our net operating loss and tax credit carryforwards
will be subject to an annual limitation regarding utilization against taxable
income in future periods, due to "change of ownership" provisions of the Tax
Reform Act of 1986. We believe that this limitation will not have a material
adverse impact on the benefits that may arise from the Company's net operating
loss and tax credit carryforwards. However, there may or may not be additional
limitations arising from any future changes in ownership that may have a
material adverse impact on us.
We believe that inflation and changing prices have not had a material
effect on our operations to date.
YEARS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996
Our revenue from collaborative research and development agreements was
$32.7 in 1997 and $22.7 million in 1996, an increase of 44%. The receipt of a $5
million pre-commercial fee from CIBA Vision together with $4 million in
milestone payments from Novartis in addition to ongoing revenue from research
and development collaborations caused this revenue increase.
Research and development expenses amounted to $55.9 million in 1997 and
$45.7 million in 1996. This increase in research and development expenses
resulted from our growing preclinical and clinical development activities.
General and administrative expenses were $8.1 million in 1997 compared with
$6.2 million in 1996. This increase was due to expanded business development and
investor relations activities and support of our increasing research and
development efforts.
Our net loss was $31.1 million, or $1.17 per share, in 1997 and $26.5
million, or $1.04 per share, in 1996.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations with revenue from contract research and
development, by selling equity securities and by issuing long-term debt. From
our inception through December 31, 1998, we have earned approximately $145
million in revenue from contract research and development. We have also raised
net proceeds of approximately $185 million from the sale of equity securities
since we were founded. We have borrowed approximately $60 million under
long-term debt arrangements to finance a portion of our operations.
As of December 31, 1998, we had cash, cash equivalents and short-term
investments of $58.8 million and working capital of $40.7 million. In
comparison, we had cash, cash equivalents and short-term investments of $86.8
million and working capital of $62.6 million as of December 31, 1997. This
decrease in cash and short-term investments resulted from the funding of
operating losses, investments in capital equipment and building improvements and
principal payments on debt and capital lease obligations. This decrease was
offset in part by the receipt of $15 million from a private debt financing and
$12.5 million in milestone payments and licensing fees from CIBA Vision and CpG
ImmunoPharmaceuticals, Inc.
The agreement with Boehringer Ingelheim International GmbH provides us with
a $40 million line of credit. This line of credit is available to be used to
support the collaboration cell adhesion programs. Restrictions on the
availability of the line of credit are based on the anticipated collaboration
costs, the amount of funds available to us, and our average stock price over
specified periods. As of December 31, 1998 the line of credit was not available.
As of December 31, 1998, the outstanding balance under this line of credit was
$22.6 million. See Note 3 to the Financial Statements, "Long-term obligations
and commitments".
In October 1997, we borrowed $25 million in a private transaction. The loan
must be repaid on November 1, 2007, and bears interest at 14% per annum. No
payments of either principal or interest are required during the first 5 years
of the loan. After the first 5 years, interest must be paid quarterly until the
end of the loan. No principal payments are required until November 1, 2007. In
conjunction with this transaction, Isis issued warrants to purchase 500,000
shares of common stock at a price of $25 per share. On May 1, 1998, we completed
a follow-on $15 million private debt financing. This financing was a follow-on
to the Company's $25 million private debt financing in October 1997 and bears
the same terms and conditions. In conjunction with this follow-on transaction,
we issued warrants to purchase 300,000 shares of common stock at a price of $25
per share. The warrants issued in connection with both of these financings
expire on November 1, 2004. The warrants have been valued at combined total of
$5.4 million. This amount has been credited to stockholders' equity. Because
interest is deferred during the first 5 years, the combined principal balance of
both borrowings will accrue to a total of $78 million on November 1, 2002. The
debt under these arrangements is carried on the balance sheet net of the
unamortized amount allocated to the warrants and including accrued interest. The
combined carrying amount of these notes at December 31, 1998 was $41,321,000.
See Note 3 to the Financial Statements, "Long-term obligations and commitments".
As of December 31, 1998, our long-term obligations totaled $81.3 million
compared to $58.7 million at December 31, 1997. This increase was due to the $15
million follow-on debt financing together with the accrual of interest on the
ten-year notes described above. Additional capital lease financing to fund
equipment acquisitions also contributed to the
15
<PAGE> 17
increase. We expect that capital lease obligations will increase over time to
fund capital equipment acquisitions required for our growing business. We will
continue to use lease lines as long as the terms continue to remain commercially
attractive. We believe that our existing cash, cash equivalents, short-term
investments, combined with interest income and contract revenue and the proceeds
of this offering and interest earned thereon will be sufficient to meet our
capital needs until at least the end of 2000.
YEAR 2000 COMPUTER ISSUES
Until recently many computer programs were written to store only two digits
of date-related information. Thus the programs were unable to distinguish
between the year 1900 and the year 2000. As a result, many computer experts have
significant concerns regarding how those programs will function after December
31, 1999. This is frequently referred to as the "Year 2000 Problem." Because
Isis was founded in 1989, our computer systems and equipment are relatively new
and generally not subject to most of the date and time issues that create the
Year 2000 problems.
A team of Isis employees is conducting our Year 2000 initiative. The team's
activities are designed to ensure that there is no adverse effect on our core
business operations and that transactions with customers, suppliers, corporate
partners and financial institutions are fully supported. Our Year 2000 plan
includes the following phases: inventorying critical business systems and
vendors, assessment of the probability of Year 2000 non-compliance, remediation
activities including repairing or replacing identified systems, testing, and
developing contingency plans.
An inventory of all computer equipment, operating systems and applications
including other equipment that uses embedded microprocessors has been completed.
Compliance assessment has been completed for all critical or important systems
and equipment. Remediation activities have been completed for all but five
systems or pieces of equipment. We estimate that all required remediation and
validation will be completed by the third quarter of 1999. Testing of our
critical and important systems and applications is ongoing and is scheduled to
be completed by the third quarter of 1999. Contingency planning will begin in
the second quarter of 1999. Based on the work completed to date, we believe that
with the completed remediation work, the Year 2000 issue will not pose
significant operational problems for our computer systems and equipment.
We have also requested information from our significant suppliers,
corporate partners and financial institutions to ensure that those parties are
addressing Year 2000 issues where their systems could impact our operations. We
are assessing the extent to which our operations are vulnerable should those
organizations fail to properly modify their computer systems. The failure of
systems maintained by our vendors, corporate partners or financial institutions
could affect our ability to process transactions, conduct research and
development projects, manufacture products, or engage in other normal business
activities. We have received responses from all but one of the critical or
important third parties and are in the process of evaluating those responses to
identify areas of exposure. We are also in the process of identifying alternate
sources for products or services in the event that any of our present primary or
secondary vendors are not successful in resolving their Year 2000 issues. We
will continue to monitor the progress of critical and important third parties
throughout 1999 to ascertain that they achieve their Year 2000 objectives.
Our most likely exposure to Year 2000 problems is related to our high
dependence on commercial utilities such as water and power. If the providers of
these utilities are not able
16
<PAGE> 18
to maintain service due to Year 2000 noncompliance it could result in
temporarily halting research and development activities until the service is
restored or until suitable alternate facilities in a different geographic area
could be obtained. It is not possible to precisely estimate the length of delays
in research and development projects in those circumstances, but it could range
from three to six months.
While we believe our planning and preparations will be adequate to address
our internal Year 2000 concerns, we cannot guarantee that the systems of other
companies, on which our systems and operations rely, will be converted on a
timely basis and will not have a material effect on us. The total cost of the
Year 2000 risk assessment and remediation is funded through operating cash
flows, and we are expensing these costs as they are incurred. Based on
information obtained to date, the cost of identifying and remediating exposures
to the Year 2000 Problem is not expected to be material to our results of
operations or financial position. The estimated total cost of our Year 2000
assessment and remediation is not expected to exceed $500,000.
\
17
<PAGE> 19
PLAN OF DISTRIBUTION
We plan to enter into a common stock purchase agreement with Ridgeway.
Ridgeway and its pledgees, donees, transferees and other subsequent owners, may
offer their shares at various times in one or more of the following
transactions:
- in the over-the-counter market; or
- in privately negotiated transactions
at prevailing market prices at the time of sale, at prices related to those
prevailing market prices, at negotiated prices or at fixed prices.
Ridgeway may also sell its shares under Rule 144 instead of under this
prospectus, if Rule 144 is available for those sales.
The transactions in the shares may be effected by one or more of the
following methods:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- purchases by a broker or dealer as principal, and the resale by that
broker or dealer for its account under this prospectus, including resale
to another broker or dealer;
- block trades in which the broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal in order to facilitate the transaction; or
- negotiated transactions between selling stockholders and purchasers
without a broker or dealer.
Ridgeway is an "underwriter" within the meaning of the Securities Act in
connection with its sale of the shares purchased under the purchase agreement
with Isis. Broker-dealers or other persons acting on the behalf of parties that
participate in the distribution of the shares may also be deemed to be
underwriters. Any commissions or profits they receive on the resale of the
shares may be deemed to be underwriting discounts and commissions under the
Securities Act.
During the time Ridgeway is engaged in distributing shares covered by this
prospectus, Ridgeway will comply with the requirements of the Securities Act and
Rule 10b-5 and Regulation M under the Exchange Act. Under those rules and
regulations, they:
- may not engage in any stabilization activity in connection with our
securities;
- must furnish each broker which offers shares of common stock covered by
this prospectus with the number of copies of this prospectus which are
required by each broker; and
- may not bid for or purchase any of our securities or attempt to induce
any person to purchase any of our securities other than as permitted
under the Exchange Act.
In the purchase agreement with Ridgeway, we will agree to indemnify and
hold harmless Ridgeway and each person who controls Ridgeway against certain
liabilities, including liabilities under the Securities Act, which may be based
upon, among other things, any untrue statement or alleged untrue statement of a
material fact or any omission
18
<PAGE> 20
or alleged omission of a material fact, unless made or omitted in reliance upon
written information provided to us by Ridgeway.
We have agreed to bear the expenses incident to the registration of the
shares, other than selling discounts and commissions. These expenses are
estimated to be $100,000.
LEGAL MATTERS
The validity of the issuance of the common stock offered in this prospectus
will be passed upon for Isis by Grantland E. Bryce, Vice President and General
Counsel of Isis. Mr. Bryce does not beneficially own any shares of common stock
as of the date of this prospectus.
EXPERTS
The financial statements of Isis Pharmaceuticals, Inc., appearing in Isis
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report. We incorporate by reference their report as a part of
this prospectus. Such financial statements are incorporated into this prospectus
in reliance upon the reports of Ernst & Young LLP given upon the authority of
Ernst & Young LLP as experts in accounting and auditing.
19
<PAGE> 21
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 22
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Isis Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Isis Pharmaceuticals,
Inc. as of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the 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 Isis Pharmaceuticals, Inc.
at December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 30, 1999
F-2
<PAGE> 23
ISIS PHARMACEUTICALS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 27,618 $ 38,102
Short-term investments.................................. 31,230 48,684
Contracts receivable.................................... 3,466 289
Prepaids and other current assets....................... 873 2,075
--------- --------
Total current assets................................. 63,187 89,150
Property, plant and equipment, net........................ 21,542 18,785
Patent costs, net......................................... 9,113 7,485
Deposits and other assets................................. 2,232 2,461
--------- --------
$ 96,074 $117,881
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 2,977 $ 2,843
Accrued payroll and related expenses.................... 3,088 2,242
Accrued liabilities..................................... 2,714 4,347
Deferred contract revenues.............................. 10,176 14,893
Current portion of long-term obligations................ 3,581 2,252
--------- --------
Total current liabilities....................... 22,536 26,577
Long-term obligations, less current portion............... 77,724 56,452
Commitments (See Note 3)
Stockholders' equity (deficit):
Common stock, $.001 par value; 50,000,000 shares
authorized, 27,053,000 shares and 26,655,000 shares
issued and outstanding at December 31, 1998 and 1997,
respectively......................................... 27 27
Additional paid-in capital.............................. 192,737 188,793
Accumulated Other Comprehensive Income.................. 166 165
Accumulated deficit..................................... (197,116) (154,133)
--------- --------
Total stockholders' equity (deficit)............ (4,186) 34,852
--------- --------
$ 96,074 $117,881
========= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 24
ISIS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Research and development revenues under
collaborative agreements................. $ 38,611 $ 32,722 $ 22,663
Product revenues............................ 560 -- --
-------- -------- --------
39,171 32,722 22,663
-------- -------- --------
Expenses:
Research and development.................... 62,200 55,940 45,653
Write-off of acquired patents............... 5,238 -- --
General and administrative.................. 9,511 8,078 6,246
-------- -------- --------
Total operating expenses............... 76,949 64,018 51,899
-------- -------- --------
Loss from operations........................ (37,778) (31,296) (29,236)
Interest income............................. 4,150 3,815 3,921
Interest expense............................ 9,355 3,585 1,206
-------- -------- --------
Net loss...................................... $(42,983) $(31,066) $(26,521)
======== ======== ========
Basic and diluted net loss per share.......... $ (1.60) $ (1.17) $ (1.04)
======== ======== ========
Shares used in computing basic and diluted net
loss per share.............................. 26,873 26,456 25,585
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 25
ISIS PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- PAID IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
DESCRIPTION SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
----------- ------ ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995....................... 25,249 $25 $172,253 $118 $ (96,546) $ 75,850
Comprehensive Income
Net loss................... -- -- -- -- (26,521) (26,521)
Changes in unrealized gains
and (losses), net of
income taxes............. -- -- -- 60 -- 60
------ --- -------- ---- --------- --------
Comprehensive Income......... -- -- -- -- -- (26,461)
------ --- -------- ---- --------- --------
Options exercised and
employee stock purchase
plan....................... 543 1 3,164 -- -- 3,165
Issuances of common stock net
of repurchases and offering
costs...................... 409 -- 5,822 -- -- 5,822
Compensation relating to the
granting of options........ -- -- 9 -- -- 9
------ --- -------- ---- --------- --------
Balance at December 31,
1996....................... 26,201 26 181,248 178 (123,067) 58,385
------ --- -------- ---- --------- --------
Comprehensive Income
Net loss................... -- -- -- -- (31,066) (31,066)
Change in unrealized gains
and (losses), net of
income taxes............. -- -- -- (13) -- (13)
------ --- -------- ---- --------- --------
Comprehensive Income......... (31,079)
------ --- -------- ---- --------- --------
Options exercised and
employee stock purchase
plan....................... 454 1 3,306 -- -- 3,307
Issuances of warrants to
purchase common stock...... -- -- 3,780 -- -- 3,780
Compensation relating to the
granting of options........ -- -- 459 -- -- 459
------ --- -------- ---- --------- --------
Balance at December 31,
1997....................... 26,655 27 188,793 165 (154,133) 34,852
------ --- -------- ---- --------- --------
Comprehensive Income
Net loss................... -- -- -- -- (42,983) (42,983)
Change in unrealized gains
and (losses), net of
income taxes............. -- -- -- 1 -- 1
------ --- -------- ---- --------- --------
Comprehensive Income......... (42,982)
------ --- -------- ---- --------- --------
Options exercised and
employee stock purchase
plan....................... 398 -- 2,298 -- -- 2,298
Issuances of warrants to
purchase common stock...... -- -- 1,646 -- -- 1,646
------ --- -------- ---- --------- --------
Balance at December 31,
1998....................... 27,053 $27 $192,737 $166 $(197,116) $ (4,186)
====== === ======== ==== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 26
ISIS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss........................................ $(42,983) $(31,066) $(26,521)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 4,258 3,178 2,633
Deferred interest on long term debt.......... 6,112 654 --
Write-off of acquired patents................ 5,238 -- --
Compensation related to grant of options..... -- 459 9
Changes in operating assets and liabilities:
Contracts receivable....................... (3,177) (289)
Prepaids and other current assets.......... 1,202 (343) (94)
Accounts payable........................... 134 481 1,365
Accrued payroll and related expenses....... 846 753 240
Accrued liabilities........................ (1,633) 1,584 (75)
Deferred contract revenues................. (4,717) 4,689 1,291
-------- -------- --------
Net cash used in operating activities...... (34,720) (19,900) (21,152)
-------- -------- --------
Investing activities:
Short-term investments.......................... 17,454 (8,142) (9,598)
Unrealized gain on investments.................. 1 (13) 60
Property, plant and equipment................... (4,434) (3,454) (862)
Patent costs.................................... (3,882) (1,455) (1,439)
Deposits and other assets....................... (30) (2,098) 568
-------- -------- --------
Net cash provided from (used in) investing
activities.............................. 9,109 (15,162) (11,271)
-------- -------- --------
Financing activities:
Net proceeds from issuance of equity............ 3,944 7,087 8,987
Proceeds from long-term borrowing............... 13,354 32,666 16,200
Principal payments on debt and capital lease
obligations.................................. (2,171) (3,671) (2,145)
-------- -------- --------
Net cash provided from financing
activities.............................. 15,127 36,082 23,042
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (10,484) 1,020 (9,381)
Cash and cash equivalents at beginning of year.... 38,102 37,082 46,463
-------- -------- --------
Cash and cash equivalents at end of year.......... $ 27,618 $ 38,102 $ 37,082
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid................................... $ 3,191 $ 2,644 $ 1,150
Supplemental disclosures of non-cash investing and
financing activities:
Additions to debt and capital lease obligations
for acquisitions of property, plant and
equipment.................................... $ 2,068 $ 2,953 $ 2,325
Additions to debt for patent acquisitions....... $ 3,238
</TABLE>
See accompanying notes.
F-6
<PAGE> 27
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and business activity -- Isis Pharmaceuticals was incorporated
in California on January 10, 1989. In conjunction with its initial public
offering, Isis was reorganized as a Delaware corporation, as Isis
Pharmaceuticals, Inc., in April 1991. Isis was organized principally to develop
human therapeutic drugs using antisense and combinatorial technology.
Basic net loss per share -- In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share." Statement No. 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share includes the dilutive effects of options, warrants and convertible
securities. Options and warrants to purchase common stock were not included in
the computation of diluted net loss per share because the effect would be
antidilutive. All net losses per share have been presented to conform to
Statement No. 128 requirements.
Contract revenues and expenses -- Contract revenues consist of
non-refundable research and development funding and are recorded as earned based
on the performance requirements of the collaborative research and development
contracts. Contract fees for which no further performance obligations exist are
recognized when the payments are received or when the collection is assured.
Payments received in excess of amounts earned are recorded as deferred contract
revenues. Research and development costs are expensed as incurred. For the years
ended December 31, 1998, 1997 and 1996, costs and expenses of approximately
$35,000,000, $31,000,000, and $29,000,000 respectively, were related to
collaborative research and development arrangements.
Revenue recognition -- Isis recognizes revenue from product sales at the
time of shipment. An estimate is made of the amount of the product that may be
returned and current period sales are reduced accordingly. License fees consist
of non-refundable fees from the sale of license rights to our proprietary
technologies. Revenue from these fees is recorded when no further performance
obligations exist.
Cash equivalents and short-term investments -- Cash equivalents and
short-term investments consist of highly liquid debt instruments. Isis considers
instruments with original maturities of less than 90 days to be cash
equivalents. Isis has recorded its cash equivalents and short-term investments
at fair market value as of December 31, 1998, and has classified all of its
investments as available-for-sale. This category includes all securities which
Isis does not have the positive intent and ability to hold to maturity. The
measurement basis for available-for-sale securities is fair market value.
Unrealized gains and losses, net of the related tax effect, are included in
Accumulated Other Comprehensive Income, a separate component of stockholders'
equity. See Note 2 -- Investments.
F-7
<PAGE> 28
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Property, plant and equipment -- Property, plant and equipment is stated at
cost and consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Land..................................................... $ 1,163 $ 1,163
Buildings and improvements............................... 16,084 13,607
Equipment................................................ 25,324 21,599
Furniture and fixtures................................... 1,227 927
-------- --------
43,798 37,296
Less accumulated depreciation............................ (22,256) (18,511)
-------- --------
$ 21,542 $ 18,785
======== ========
</TABLE>
Depreciation of property, plant and equipment is provided on the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Building........................................ 31.5 years
Improvements.................................... 15 years
Equipment....................................... 2.5 - 5 years
Furniture and fixtures.......................... 5 years
</TABLE>
Patent costs -- Isis capitalizes certain costs related to patent
applications, principally consisting of legal and filing fees. These costs are
regularly reviewed to determine that they include costs for patent applications
Isis is pursuing. Costs related to applications that are not being actively
pursued are evaluated under Accounting Principles Board Statement 17: Intangible
Assets and are adjusted to an appropriate amortization period which generally
results in an immediate write-off. Accumulated patent costs are amortized on a
straight-line basis over their estimated economic lives of approximately 10
years, beginning with the date the patents are issued. The weighted average
remaining life of issued patents is 8.2 years. Accumulated amortization was
$493,000 at December 31, 1998 and $240,000 at December 31, 1997.
Long-lived assets -- Impairment of long-lived assets is reviewed annually
or when events and circumstances warrant an earlier review. When an evaluation
is required, we compare the estimated future undiscounted cash flows associated
with the asset to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value is required.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Comprehensive income -- Isis adopted Statement of Financial Accounting
Standards (FAS) 130, "Reporting Comprehensive Income", at December 31, 1998.
Under FAS 130, Isis is required to display comprehensive income and its
components as part of Isis' full set
F-8
<PAGE> 29
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
of financial statements. The measurement and presentation of net income did not
change. Comprehensive income is comprised of net income and certain changes in
equity that are excluded from net income. Specifically, FAS 130 requires
unrealized holding gains and losses on Isis' available-for-sale securities,
which were reported separately in stockholders' equity, to be included in
accumulated other comprehensive income. Comprehensive income for the years ended
December 31, 1998, 1997 and 1996 have been reflected in the Consolidated
Statement of Stockholders' Equity.
Reclassification -- Certain prior period amounts have been reclassified to
conform to current presentation.
2. INVESTMENTS
Isis invests its excess cash in U.S. Government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. Isis has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
Isis has not experienced any losses on its short-term investments. As of
December 31, 1998, 79% of the debt securities held by Isis had a contractual
maturity of one year or less, and the remaining 21% of the portfolio was due
within 2 years.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------
GROSS
UNREALIZED ESTIMATED
COST GAINS FAIR VALUE
------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury securities and obligations of
U.S. Government agencies.................... $20,700 $ 86 $20,786
U.S. corporate debt securities................ 10,364 80 10,444
------- ---- -------
Total debt securities.................... $31,064 $166 $31,230
======= ==== =======
DECEMBER 31, 1997
U.S. Treasury securities and obligations of
U.S. Government agencies.................... $32,980 $105 $33,085
U.S. corporate debt securities................ 15,539 60 15,599
------- ---- -------
Total debt securities.................... $48,519 $165 $48,684
======= ==== =======
</TABLE>
3. LONG-TERM OBLIGATIONS AND COMMITMENTS
Isis obtained $25,060,000 in private debt financing during 1997 and an
additional $15,000,000 in 1998. The terms of the financing provide for a 10 year
maturity on the debt, interest of 14% per annum and deferred interest payments
for the first 5 years of the loan. After the first 5 years, interest must be
paid quarterly until the end of the loan,
F-9
<PAGE> 30
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
November 1, 2007. No principal repayments are required until the end of the
loan. Because interest is deferred during the first 5 years, the principal
balance will be $78 million on November 1, 2002. In conjunction with the debt
financing, Isis issued warrants to the lender to purchase shares of common
stock, exercisable at $25 per share. Isis issued warrants for 500,000 common
shares in 1997 and 300,000 shares in 1998. The fair value of the warrants was
estimated using the Black-Scholes option pricing model, with the following
assumptions: expected life of 4.5 years, expected dividend yield of zero percent
and expected volatility of 60 percent. The assumed risk free interest rate was
5.9 percent. The warrants were valued at $3,780,000 and $1,646,000 respectively,
and were credited to equity. The allocation of value to the warrants creates an
effective debt discount which is amortized using the effective interest method.
The effective interest rate of this debt is approximately 16 percent, including
the effect of the discount amortization. The debt is carried on the balance
sheet net of the unamortized amount allocated to the warrants, and including
accrued interest. The carrying amount at December 31, 1998 was $41,321,000. The
fair value of this debt at December 31, 1998 approximated $45,000,000. The fair
value of the long-term debt is estimated using discounted cash flow analyses,
based on current borrowing rates for similar types of borrowing arrangements.
In 1997, Isis obtained 2 new term loans from a bank to refinance existing
notes secured by real property and to fund facilities expansion. Both notes are
secured by Isis' real property and bear interest at the prime interest rate plus
0.5%. The first note in the amount of $3,707,000 requires monthly principal
repayments of $12,433 plus interest with the remaining principal balance due in
April 2002. The balance of the note at December 31, 1998 was $3,451,000. The
second note in the amount of $6,000,000 requires monthly principal repayments of
$50,000 plus related interest with the remaining principal balance due in July
2002. The balance at December 31, 1998 was $5,150,000. As of December 31, 1998,
the carrying value of these variable rate long-term notes approximated fair
value.
In 1996 and 1997, Isis borrowed a total of $22,576,000 under a $40,000,000
line of credit made available under the terms of its collaborative agreement
with Boehringer Ingelheim International GmbH. The borrowed funds are being used
to fund research and development costs associated with the collaboration.
Borrowings under the line of credit bear interest at the 7 year U.S.
interbanking rate plus 2.0%, determined at the time each advance is made.
Interest payments are due twice each year with principal repayment due 7 years
after the advance date. The principal may be repaid in cash or stock, at Isis'
option. If Isis elects to repay the loan in shares of Isis common stock,
repayment will be made at a share price equal to 90% of the average market value
over the 20 trading days preceding the maturity date. The balance under this
line of credit as of December 31, 1998 was $22,576,000, which approximated fair
value.
In December 1998, Isis purchased from Gilead Sciences, Inc. ("Gilead"), the
holdings of its antisense patent estate. This acquisition includes patents and
patent applications covering a broad proprietary suite of antisense chemistry
and antisense drug delivery systems. The purchase price was $6,000,000 payable
in four installments over the next three years. Isis made the initial $2,000,000
payment in December 1998. Isis has recorded the net present value of the future
payments, using an interest rate of 10%, as a
F-10
<PAGE> 31
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
long-term obligation on the balance sheet. The balance of this obligation at
December 31, 1998 was $3,238,000, which approximated fair value.
Isis leases equipment and certain office and lab space under non-cancelable
operating and capital leases with terms through February 2007. Annual future
minimum payments under operating leases and other long-term obligations as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL CONTRACT LONG-TERM
LEASES LEASES OBLIGATIONS DEBT
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
1999.................................... $1,150 $ 2,426 $1,000 $ 3,388
2000.................................... 859 1,797 1,000 3,321
2001.................................... 856 1,610 2,000 3,253
2002.................................... 797 645 8,574
2003.................................... 778 9 28,955
Thereafter.............................. 2,238 1 128,156
------ ------- ------ ---------
Total minimum payments........... $6,678 $ 6,488 $4,000 175,647
====== ======= ====== =========
Less amount representing interest....... (919) (762) (103,149)
------- ------ ---------
Present value of future minimum
payments.............................. 5,569 3,238 72,498
Less current portion.................... (1,923) (909) (749)
------- ------ ---------
Total............................ $ 3,646 $2,329 $ 71,749
======= ====== =========
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996 was
$1,328,000, $1,030,000 and $520,000, respectively. Cost of equipment under
capital leases at December 31, 1998 and 1997 was $17,227,000 and $14,133,000,
respectively. Accumulated depreciation of equipment under capital leases at
December 31, 1998 and 1997 was $13,266,000 and $11,177,000, respectively.
4. STOCKHOLDERS' EQUITY
Stock Option Plans and Other Employee Option Grants -- In June 1989, Isis
adopted a stock option plan which provides for the issuance of incentive and
non-qualified stock options for the purchase of up to 10,200,000 shares of
common stock to its employees and certain other individuals. In addition to the
options issued under the terms of the 1989 plan, non-qualified options to
purchase 319,000 shares of common stock have been granted to certain employees.
The plan also includes provisions for the issuance of stock pursuant to
restricted stock purchases and bonuses. Typically options expire 10 years from
the date of grant. Options granted after December 31, 1995 vest over a 4 year
period, with 25% exercisable at the end of 1 year from the date of the grant and
the balance vesting ratably thereafter. Options granted before January 1, 1996
generally vest over a 5 year period. At December 31, 1998, a total of 4,347,000
shares were exercisable, and 1,903,000 were available for future grant.
In July 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option
Plan which provides for the issuance of non-qualified stock options for the
purchase of up to
F-11
<PAGE> 32
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
300,000 shares of common stock to its non-employee directors. Options under this
plan expire 10 years from the date of grant. Options granted after December 31,
1995 become exercisable in 4 equal annual installments beginning 1 year after
the date of grant. Options granted before January 1, 1996 vest over a 5 year
period. At December 31, 1998, 139,000 shares issued under this plan were
exercisable and 58,000 Shares were available for future grant.
The following table summarizes stock option activity for the years ended
December 31, 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE PRICE/SHARE
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1995..... 5,446 $ .14 to $19.75
Granted............................ 1,337 11.38 to 20.00
Exercised.......................... (468) .14 to 17.88
Terminated......................... (222) 4.00 to 18.63
-----
Outstanding at December 31, 1996..... 6,093 $ .14 to $20.00 $ 8.48
Granted............................ 1,071 13.19 to 19.88
Exercised.......................... (395) .14 to 16.00
Terminated......................... (327) 3.75 to 18.25
-----
Outstanding at December 31, 1997..... 6,442 $ .14 to $20.00 $ 9.80
Granted............................ 1,168 7.06 to 15.44
Exercised.......................... (320) .14 to 14.50
Terminated......................... (304) 3.75 to 20.00
-----
Outstanding at December 31, 1998..... 6,986 $ .14 to $19.88 $10.27
=====
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options (in thousands, except contractual life and exercise
price data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF REMAINING EXERCISE AS OF EXERCISE
EXERCISE PRICE 12/31/98 CONTRACTUAL LIFE PRICE 12/31/98 PRICE
- -------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.14 - $ 4.00 900 4.51 $ 3.32 649 $ 3.09
$ 4.13 - $ 6.38 825 4.71 $ 5.68 772 $ 5.70
$ 6.46 - $ 7.75 896 4.90 $ 6.88 864 $ 6.87
$ 7.88 - $11.88 1,052 5.68 $ 9.91 769 $ 9.66
$12.00 - $12.31 851 8.64 $12.29 88 $12.22
$12.31 - $13.13 891 7.02 $13.02 621 $13.03
$13.18 - $16.19 831 7.82 $14.54 333 $14.61
$16.25 - $19.88 740 7.69 $17.99 390 $17.94
----- -----
$ 0.14 - $19.88 6,986 6.46 $10.27 4,486 $ 9.10
----- -----
</TABLE>
Employee Stock Purchase Plan -- In 1991, the Board of Directors adopted the
Employee Stock Purchase Plan and reserved 500,000 shares of common stock for
issuance
F-12
<PAGE> 33
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
thereunder. The plan permits full-time employees to purchase common stock
through payroll deductions (which cannot exceed 10% of each employee's
compensation) at the lower of 85% of fair market value at the beginning of the
offer or the end of each six-month purchase period. During 1998, 78,000 shares
were issued to employees at prices ranging from $10.47 to $10.73 per share. In
1997, 58,000 shares were issued at prices ranging from $10.73 to $15.30 per
share. At December 31, 1998, 141,000 shares were available for purchase under
this plan.
Stock-Based Employee Compensation -- Isis has adopted the disclosure-only
provision of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation expense been determined
consistent with Statement No. 123, Isis' net loss and basic net loss per share
would have been changed to the following pro forma amounts (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net loss -- as reported....................... $(42,983) $(31,066) $(26,521)
Net loss -- pro forma......................... (49,761) (38,004) (32,200)
Basic net loss per share -- as reported....... $ (1.60) $ (1.17) $ (1.04)
Basic net loss per share -- pro forma......... (1.85) (1.44) (1.26)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998: expected life of 1 year from vesting date
for regular employees, 2 years from vesting date for Directors and Vice
Presidents, and 4 years from vesting date for Executive Officers; expected
dividend yield of zero percent and expected volatility of 60 percent. The
risk-free interest rate was based on the Treasury Bill rate at the end of each
year during 1996, 1997 and 1998. The weighted average risk free interest rates
for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options
granted during the year were valued using the same risk-free rate for the year.
The weighted average fair value of options granted was $7.20 for 1996, $8.50 for
1997 and $5.98 for 1998.
Warrants -- In 1993, Isis issued Class A warrants in connection with a
strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998,
448,001 of the warrants remain outstanding at an exercise price of $7.75 per
share. The warrants expire March 15, 1999.
In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively,
in conjunction with a private debt financing agreement. As of December 31, 1998,
all of the warrants remain outstanding at an exercise price of $25 per share.
The warrants expire November 1, 2004. See Note 3.
As of December 31, 1998, total common shares reserved for future issuance
was 10,429,000.
F-13
<PAGE> 34
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. INCOME TAXES
Significant components of Isis' deferred tax assets as of December 31, 1998
and 1997 are shown below. Valuation allowances of $90,931,000 and $71,400,000
have been recognized for 1998 and 1997, respectively, to offset the net deferred
tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Capitalized research expense.................... $ 8,320,000 $ 7,741,000
Net operating loss carryforwards................ 69,661,000 57,959,000
Research and development credits................ 10,849,000 7,258,000
Other, net...................................... 5,314,000 889,000
------------ ------------
Total deferred tax assets.................... 94,144,000 73,847,000
Deferred tax liabilities:
Patent expense.................................. (3,213,000) (2,447,000)
------------ ------------
Total deferred tax liabilities............... (3,213,000) (2,447,000)
Total net deferred tax assets................ 90,931,000 71,400,000
Valuation allowance for deferred tax assets..... (90,931,000) (71,400,000)
------------ ------------
Net deferred tax assets......................... $ 0 $ 0
============ ============
</TABLE>
At December 31, 1998, approximately $3,627,000 of the valuation allowance
for deferred tax assets relates to stock option deductions which, when
recognized, will be allocated directly to additional paid-in capital.
At December 31, 1998, Isis had federal and California tax net operating
loss carryforwards of approximately $193,526,000 and $33,507,000, respectively.
Isis also had federal and California research credit carryforwards of
approximately $8,402,000 and $3,765,000, respectively. The difference between
the tax loss carryforwards for federal and California purposes was attributable
to the capitalization of research and development expenses for California tax
purposes and a required 50% limitation in the utilization of California loss
carryforwards. The federal tax loss carryforward and the research credit
carryforwards will begin expiring in 2004 unless previously utilized.
Approximately $3,100,000 of the California tax loss carryforward expired
during 1998 and the related deferred tax asset and tax loss carryforward amounts
have been reduced accordingly. The remaining California tax loss carryforward
will begin expiring in 1999, unless utilized.
Annual use of Isis' net operating loss and credit carryforwards will be
limited under the Internal Revenue Code as a result of cumulative changes in
ownership of more than 50% during the periods ended December 31, 1989 and 1991.
However, Isis believes that such limitations will not have a material impact
upon the utilization of the carryforwards.
F-14
<PAGE> 35
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. RESEARCH AND DEVELOPMENT COLLABORATIVE ARRANGEMENTS AND LICENSING AGREEMENTS
In 1990, Isis entered into a collaborative agreement with Novartis to
discover and investigate oligonucleotide compounds active against 4 specific
targets. In 1996, Isis and Novartis signed a definitive agreement broadening the
companies' antisense research and development collaboration to include the
development of ISIS 3521 and ISIS 5132, anticancer compounds that were
discovered through the research collaboration. The broadened collaboration also
includes research to discover additional therapeutic compounds. Under the terms
of the expanded collaboration, Novartis is funding the development of both ISIS
3521 and ISIS 5132. Isis receives certain milestone payments from Novartis as
these compounds and subsequent compounds arising out of the expanded research
program progress through development. Novartis will market these compounds
worldwide and will pay Isis a royalty based on sales. Included in the statement
of operations for the years ended December 31, 1998, 1997 and 1996 are contract
revenues arising from this collaboration totaling $15,641,000, $21,106,000 and
$14,003,000, respectively. As of December 31, 1998, Novartis owned approximately
8% of Isis' outstanding common stock.
In July 1997, Isis and CIBA Vision Corporation entered into an agreement
granting CIBA Vision exclusive worldwide distribution rights for Vitravene
(fomivirsen). Under the terms of the agreement, Isis will manufacture and sell
Vitravene to CIBA Vision at a price that will allow Isis and CIBA Vision to
share the commercial value of the product. CIBA Vision will market and sell
Vitravene worldwide and will be responsible for regulatory approvals outside of
the United States and Europe. Additionally, CIBA Vision received the option to
acquire the exclusive license to market and distribute a second generation
antisense compound to treat CMV retinitis (ISIS 13312) which is currently in
development by Isis. At the inception of the agreement, CIBA Vision paid us a $5
million non-refundable pre-commercial fee to partially reimburse us for the
costs incurred in discovering and developing Vitravene to that point. That
payment was recognized as revenue in 1997 and included in the statement of
operations as contract revenue. In August 1998, the FDA approved Vitravene for
marketing, and in the fourth quarter of the year CIBA Vision began selling
Vitravene commercially. Isis delivered its first commercial shipment of
Vitravene to CIBA Vision in the fourth quarter of 1998 and recorded $560,000 in
net product revenues. For the years ended December 31, 1998 and December 31,
1997, Isis also earned contract revenue of $7,500,000 and $5,000,000,
respectively, under the CIBA Vision agreement.
In July 1995, Isis and Boehringer Ingelheim International GmbH signed
definitive agreements and completed the formation of a major collaboration in
cell adhesion drug design, discovery, development and commercialization.
Boehringer Ingelheim purchased 2,000,000 shares of common stock for $28,500,000
in cash plus certain license rights. Of the $28,500,000, $21,300,000 was
accounted for as equity and $7,200,000 was accounted for as deferred revenue,
representing Boehringer Ingelheim's advance payment of research and development
costs under the collaboration. In December 1996, coinciding with the achievement
of a milestone, Boehringer Ingelheim purchased 409,000 shares for $10,000,000.
Of that total, $6,000,000 was accounted for as equity and $4,000,000 as
F-15
<PAGE> 36
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
deferred revenue. The agreement also provides that Boehringer Ingelheim is
entitled to designate 1 person for election to Isis' Board of Directors. As of
December 31, 1998 Boehringer Ingelheim owned approximately 9% of Isis'
outstanding common stock. Boehringer Ingelheim and Isis are providing equal
funding for the combined research and development program and will share equally
in the profits from all products of the collaboration. Boehringer Ingelheim has
also provided Isis with a $40,000,000 line of credit, available under certain
circumstances to be used in support of the combined programs. As of December 31,
1998, the outstanding balance under this line of credit was $22,576,000. The
statement of operations for the years ended December 31, 1998, 1997 and 1996
reflects contract revenues of $6,544,000, $5,603,000 and $4,024,000,
respectively, from this collaboration.
In June 1998, Isis entered into a research collaboration with Merck & Co.
to discover small molecule drug candidates to treat patients infected with
Hepatitis C virus ("HCV"). Isis and Merck will design, synthesize, and evaluate
novel compounds that Merck will screen in its proprietary assays for identifying
HCV replication inhibitors. Merck will commercialize drugs arising from the
collaboration, and Isis retains the right to use technology developed in
collaboration in our antisense program. The three year collaboration provides us
with annual research support plus technology access fees, and milestone payments
and royalties upon commercialization. In 1998, Isis received a total of
$3,875,000 from Merck under the terms of this agreement.
In August 1998, we granted an exclusive license to our patents covering
immune stimulation by phosphorothioate oligonucleotides to CpG
ImmunoPharmaceuticals, Inc. The agreement grants exclusive worldwide rights to
the methods and applications covered by issued U.S. Patents No. 5,663,153; No.
5,723,335; and related patent applications, not including claims for antisense
therapeutics. Under the terms of the agreement, we received $5 million in 1998
and a 5% equity position in CpG ImmunoPharmaceuticals, Inc. We will also receive
a portion of any sublicensing revenue relating to the technology. In 1998, we
recorded revenue for the $5 million licensing fee, as there are no further
performance obligations. We did not record revenue for the value of the 5%
equity position, since realization of this asset uncertain.
In November 1998, we sublicensed to Pantheco A/S, a Danish biotechnology
company, our Peptide Nucleic Acid technology for the creation of anti-infective
drugs. As the exclusive licensee, we will retain the rights for all other areas
of human therapeutics. As part of this transaction, we received a 24.9% equity
position in Pantheco A/S. We did not record any revenue related to this
transaction, since realization of the value of our equity interest in Pantheco
is uncertain.
In December 1998, we purchased from Gilead Sciences, Inc. the holdings of
its antisense patent estate. This acquisition includes patents and patent
applications covering a broad proprietary suite of antisense chemistry and
antisense drug delivery systems. The purchase price was $6,000,000 payable in
four installments over the next three years. Isis made the initial $2,000,000
payment in December 1998. Isis has recorded the net present value of the future
payments as a long-term obligation on the balance sheet. The balance
F-16
<PAGE> 37
ISIS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
of this obligation at December 31, 1998 was $3,238,000. The cost of these
acquired patents was written off in 1998 in accordance with our accounting
policies.
In December 1998, Isis entered into a collaborative research agreement with
Zeneca Pharmaceuticals to discover, develop and commercialize novel
antisense-based cancer drugs. Under the terms of this collaboration, Isis will
create and, with Zeneca, screen antisense-based candidates for certain cancer
targets. Isis will receive from Zeneca a technology access fee, annual research
funding, milestone payments for any drugs progressing into clinical development
and royalties on the sales of any marketed drug arising out of the
collaboration. The initial term of the research collaboration is three years. In
December 1998, Zeneca paid $2,000,000 in technology access fees which was
accounted for as deferred revenue.
Also in December 1998, Isis entered into a research collaboration with
Abbott Laboratories, Inc. ("Abbott") to prioritize drug development targets
using Isis' Antisense Target Validation Technology. The collaboration will
enable Abbott to validate numerous gene targets, identify the function of these
genes and prioritize the targets. Isis will receive from Abbott an upfront fee,
quarterly research fees, milestone payments and royalties on net sales of any
Abbott non-antisense product arising from the collaboration. Isis will receive
rights to Abbott genes to develop antisense drugs. The initial term of the
research collaboration is two years. In December 1998, Isis received an initial
payment of $250,000 which was accounted for as deferred revenue.
7. EARNINGS PER SHARE
In July 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share." Isis has adopted the provisions of the new standard.
In accordance with the statement, prior periods have not been restated as the
effect of the change is not material.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Numerator for basic net loss per share -- net
loss......................................... $(42,983) $(31,066) $(26,521)
Numerator for diluted net loss per share -- net
loss......................................... $(42,983) $(31,066) $(26,521)
Denominator:
Denominator for basic net loss per
share -- weighted average shares............. 26,873 26,456 25,585
Denominator for diluted net loss per share --
weighted average shares.................... 26,873 26,456 25,585
Basic net loss per share.......................... $ (1.60) $ (1.17) $ (1.04)
======== ======== ========
Diluted net loss per share........................ $ (1.60) $ (1.17) $ (1.04)
======== ======== ========
</TABLE>
Options and warrants to purchase common stock were not included in the
computation of diluted net loss per share because the effect would be
antidilutive. For additional disclosures regarding outstanding stock options and
warrants, see Note 4 -- Stockholders' equity.
F-17
<PAGE> 38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
ISIS PHARMACEUTICALS, INC.
COMMON STOCK
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 2
The Company................................................. 2
The Offering................................................ 2
Risk Factors................................................ 3
Where You Can Get More Information.......................... 9
Use of Proceeds............................................. 10
Dilution.................................................... 11
Selected Financial Data..................................... 12
Management Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Plan of Distribution........................................ 18
Legal Matters............................................... 19
Experts..................................................... 19
Index to Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by Isis in connection
with the sale of the 4,000,000 shares of common stock being registered. All the
amounts shown are estimates except for the registration fee.
<TABLE>
<S> <C>
SEC registration fee................................. $ 14,734
Legal fees and expenses.............................. $ 40,000
Accounting fees and expenses......................... $ 10,000
Nasdaq fees for newly issued shares.................. $ 17,500
Miscellaneous........................................ $ 17,766
--------
Total.............................................. $100,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, Isis has broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act of
1933.
Isis' certificate of incorporation and by-laws include provisions to (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by Section
102(b)(7) of the General Corporation Law of Delaware and (ii) require Isis to
indemnify its directors and officers to the fullest extent permitted by Section
145 of the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are, or are threatened to be made, a
party by reason of their serving in such positions so long as they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interest of the corporation, and with respect to any criminal action, they
had no reasonable cause to believe their conduct was unlawful. Isis believes
that these provisions are necessary to attract and retain qualified persons as
directors and officers. These provisions do not eliminate the directors' duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the directors' duty of loyalty to Isis, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the director believes to be contrary to the best
interests of Isis or its stockholders, for any transaction from which the
director derived an improper personal benefit, for acts or omissions involving a
reckless disregard for the directors' duty to Isis or its stockholders when the
director was aware or should have been aware of a risk of serious injury to Isis
or its stockholders, for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to Isis or
its stockholders, for improper transactions between the director and Isis and
for improper distributions to stockholders and loans to directors and officers.
The provision also does not affect a director's responsibilities under any other
law, such as the federal securities law or state or federal environmental laws.
II-1
<PAGE> 40
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require Isis to indemnify such persons
against expenses, judgments, fines, settlements and other amounts incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or an executive officer
of Isis or any of its affiliated enterprises, provided such person acted in good
faith and in a manner such persons reasonably believed to be in, or not opposed
to, the best interests of Isis and, with respect to any criminal proceeding, has
no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
Director or officer of Isis as to which indemnification is being sought, nor is
Isis aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
Isis has an insurance policy covering the officers and directors of Isis
with respect to certain liabilities, including liabilities arising under the
Securities Act or otherwise.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
4.1 Amended and Restated Certificate of Incorporation.(1)
4.2 By-laws.(1)
5.1 Opinion of Grantland E. Bryce.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grantland E. Bryce. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
99.1 Form of Common Stock Purchase Agreement to be entered
into between Isis and Ridgeway Investment Limited.
</TABLE>
- -------------------------
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 41
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to this registration statement, a post-effective amendment to this
registration statement to include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) of Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant undertakes that; (1) for purpose of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the city of Carlsbad, County of San Diego, State of
California, on the 31st day of March, 1999.
ISIS PHARMACEUTICALS, INC.
By: /s/ STANLEY T. CROOKE
-----------------------------------
Stanley T. Crooke, M.D., Ph.D.
Chairman of the Board
and Chief Executive Officer
(Principal executive officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints STANLEY T. CROOKE and B. LYNNE PARSHALL,
and each of them, as his or her true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, for the undersigned and in
his or her name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange commission, granting unto said
attorneys-in-fact and agents, and each of them, full power of authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <C> <S>
/s/ STANLEY T. CROOKE Chairman of the Board March 31, 1999
- ------------------------------------------------ and Chief Executive
Stanley T. Crooke, M.D., Ph.D. Officer (Principal
executive officer)
* Executive Vice President March 31, 1999
- ------------------------------------------------ and Chief Financial
B. Lynne Parshall Officer (Principal
financial and accounting
officer)
</TABLE>
II-4
<PAGE> 43
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <C> <S>
* Director March 31, 1999
- ------------------------------------------------
Alan C. Mendelson
* Director March 31, 1999
- ------------------------------------------------
Christopher F.O. Gabrieli
* Director March 31, 1999
- ------------------------------------------------
William R. Miller
* Director March 31, 1999
- ------------------------------------------------
Mark B. Skaletsky
* Director March 31, 1999
- ------------------------------------------------
Larry Soll, Ph.D.
* Director March 31, 1999
- ------------------------------------------------
Joseph H. Wender
Director March 31, 1999
- ------------------------------------------------
Burkhard Blank
By: /s/ STANLEY T. CROOKE
-------------------------------------------
Stanley T. Crooke, M.D., Ph.D.
Attorney In Fact
</TABLE>
II-5
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------
<C> <S> <C>
4.1 Amended and Restated Certificate of Incorporation(1).......
4.2 By-laws(1).................................................
5.1 Opinion of Grantland E. Bryce..............................
23.1 Consent of Ernst & Young LLP...............................
23.2 Consent of Grantland E. Bryce. Reference is made to Exhibit
5.1........................................................
24.1 Power of Attorney. Reference is made to page II-5..........
27.1 Financial Data Schedule....................................
99.1 Form of Common Stock Purchase Agreement to be entered into
between Isis and Ridgeway Investment Limited.
</TABLE>
- -------------------------
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
OPINION OF GRANTLAND E. BRYCE
March 30, 1999
Isis Pharmaceuticals, Inc.
2292 Faraday Avenue
Carlsbad, CA 92008
Ladies and Gentlemen:
You have requested my opinion with respect to certain matters in connection with
the filing by Isis Pharmaceuticals, Inc. (the "Company") of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering the offering of 4,000,000 shares
of the Company's Common Stock, as described in the Registration Statement (the
"Common Stock").
In connection with this opinion, I have examined and relied upon the
Registration Statement, the Company's Amended and Restated Certificate of
Incorporation and Bylaws and the originals or copies certified to my
satisfaction, of such records, documents, certificates, memoranda and other
instruments as in my judgment are necessary or appropriate to enable me to
render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, I am of the opinion that
the Common Stock, when sold in accordance with the Registration Statement, will
be validly issued, fully paid and nonassessable.
I consent to the reference to me under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Grantland E. Bryce
- -------------------------------
Grantland E. Bryce
Vice President, General Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Amendment No. 2 to Form S-3 No. 333-71911), and related
Prospectus of Isis Pharmaceuticals, Inc for the registration of 4,000,000 shares
of its common stock to be filed with the Securities and Exchange Commission on
March 31, 1999, and to the incorporation by reference therein of our report
dated January 23, 1998, with respect to the financial statements and schedule of
Isis Pharmaceuticals, Inc. included in its Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the Securities and Exchange Commission.
We also consent to the use of our report dated January 30, 1999 with respect to
the financial statements of Isis Pharmaceuticals, Inc. for the year ended
December 31, 1998 in the above mentioned registration statement and prospectus.
ERNST & YOUNG LLP
San Diego, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE COMPANY'S
BALANCE SHEET AS OF DECEMBER 31, 1998 AND STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 27,618
<SECURITIES> 31,230
<RECEIVABLES> 3,466
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,187
<PP&E> 21,542
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,074
<CURRENT-LIABILITIES> 22,536
<BONDS> 77,724
0
0
<COMMON> 27
<OTHER-SE> (4,213)
<TOTAL-LIABILITY-AND-EQUITY> 96,074
<SALES> 560
<TOTAL-REVENUES> 43,321
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,355
<INCOME-PRETAX> (42,983)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,983)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,983)
<EPS-PRIMARY> (1.60)
<EPS-DILUTED> (1.60)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
COMMON STOCK PURCHASE AGREEMENT
DATED AS OF ___________________, 1999
BY AND BETWEEN
ISIS PHARMACEUTICALS, INC.
AND
RIDGEWAY INVESTMENT LIMITED
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE I - Definitions
Section 1.1 Definitions............................................................1
ARTICLE II - Purchase and Sale of Common Stock
Section 2.1 Purchase and Sale of Stock.............................................3
Section 2.2 The Shares.............................................................3
Section 2.3 Registration Statement and Prospectus..................................3
Section 2.4 Purchase Price and Closing.............................................3
ARTICLE III - Representations and Warranties
Section 3.1 Representation and Warranties of the Company...........................3
Section 3.2 Representations and Warranties of the Purchaser.......................11
ARTICLE IV - Covenants
Section 4.1 Securities Compliance.................................................13
Section 4.2 Registration and Listing..............................................13
Section 4.3 Registration Statement................................................13
Section 4.4 Distribution of Common Stock..........................................13
Section 4.5 Compliance with Laws..................................................13
Section 4.6 Keeping of Records and Books of Account...............................13
Section 4.7 Reporting Requirements................................................14
Section 4.8 Intentionally Omitted.................................................14
Section 4.9 Other Agreements......................................................14
Section 4.10 Effective Registration Statement......................................14
Section 4.11 No Stop Orders........................................................14
Section 4.12 Intentionally Omitted.................................................15
Section 4.13 Amendments to the Registration Statement..............................15
Section 4.14 Prospectus Delivery...................................................15
Section 4.15 No Shorting. ........................................................15
ARTICLE V - Conditions to Closing and Draw Downs
Section 5.1 Conditions Precedent to the Obligation of the Company
to Sell the Shares..................................................16
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
Close...............................................................17
Section 5.3 Conditions Precedent to the Obligation of the Purchaser
to Accept a Draw Down and Purchase the Shares.......................18
Section 5.4 Conditions Precedent to the Obligation of the Company
to Issue Shares Upon Exercise of a Call Option......................18
ARTICLE VI - Draw Down Terms; Call Option
Section 6.1 Draw Down Terms.......................................................19
Section 6.2 Purchaser's Call Option...............................................21
ARTICLE VII - Termination
Section 7.1 Termination by Mutual Consent.........................................22
Section 7.2 Other Termination.....................................................22
Section 7.3 Effect of Termination.................................................22
ARTICLE VIII - Indemnification
Section 8.1 General Indemnity.....................................................22
Section 8.2 Indemnification Procedures............................................23
ARTICLE IX - Miscellaneous
Section 9.1 Fees and Expenses.....................................................24
Section 9.2 Specific Enforcement, Consent to Jurisdiction.........................25
Section 9.3 Entire Agreement; Amendment...........................................25
-i-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 9.4 Notices...............................................................26
Section 9.5 Waivers...............................................................27
Section 9.6 Headings..............................................................27
Section 9.7 Successors and Assigns................................................27
Section 9.8 Governing Law.........................................................27
Section 9.9 Survival..............................................................27
Section 9.10 Counterparts..........................................................27
Section 9.11 Publicity.............................................................27
Section 9.12 Severability..........................................................28
Section 9.13 Further Assurances....................................................28
-ii-
</TABLE>
<PAGE> 4
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
__________________, 1999 by and among between Isis Pharmaceuticals, Inc., a
Delaware corporation (the "Company") and Ridgeway Investment Limited, a
corporation incorporated in the Commonwealth of The Bahamas as an International
Business Company (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section I.1 Definitions.
(a) "Call Option" shall have the meaning assigned to such term
in Section 6.2 hereof.
(b) "Call Option Notice" shall mean a notice sent to the Company
on the trading day the Purchaser elects to exercise a Call Option.
(c) "Commission Documents" shall have the meaning assigned to
such term in Section 3.1(f) hereof.
(d) "Commission Filings" means the Company's Form 10-K for the
fiscal year ended December 31, 1998, Registration Statement on Form S-3 No.
333-71911, and all other filings made by the Company after the date hereof
pursuant to the Securities Exchange Act of 1934.
(e) "Draw Down Amount" means the actual amount of a Draw Down up
to $3,000,000.
(f) "Draw Down Notice" shall have the meaning assigned to such
term in Section 6.1(k) hereof.
(g) "Draw Down Pricing Period" shall mean a period of eighteen
(18) consecutive trading days following a Draw Down Notice.
(h) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby is
declared effective.
(i) "Material Adverse Effect" shall mean any effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries, taken as a whole
and/or any condition, circumstance, or situation that would prohibit the Company
from entering into and performing any of its obligations under this Agreement in
any material respect.
<PAGE> 5
(j) "Material Change in Ownership" shall mean that the officers
and directors of the Company shall beneficially own in the aggregate less than
2% of the outstanding Common Stock of the Company that the officers and
directors beneficially own as of the date hereof.
(k) "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Securities Act of 1933, as amended, and the rules and regulations
of the Commission thereunder (collectively, the "Securities Act"), and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b).
(l) "Registration Statement" shall mean the registration
statement on Form S-3, Commission File Number 333-71911 under the Securities
Act, filed with the Securities and Exchange Commission for the registration of
the Shares, as such Registration Statement may be amended from time to time.
(m) "Settlement Date" shall have the meaning assigned to such
term in Section 6.1(b) hereof.
(n) "Shares" shall mean, collectively, the shares of Common Stock
of the Company being subscribed for hereunder and those shares of Common Stock
issuable to the Purchaser upon exercise of the Call Option.
(o) "Threshold Price" is the lowest VWAP at which the Company
will sell Shares during each Draw Down Pricing Period.
(p) "Total Value" shall mean the product of the VWAP and the
total volume of the shares of Common Stock traded on NASDAQ on the day the Call
Option Notice is issued as reported by Bloomberg Financial LP using the AQR
function.
(q) "VWAP" shall mean the daily volume weighted average price
(based on a trading day from 9:30 a.m. to 4:00 p.m.) of the Company on NASDAQ
(or any successor thereto) as reported by Bloomberg Financial LP using the AQR
function.
-2-
<PAGE> 6
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section II.1 Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company shall issue and sell to the Purchaser
and the Purchaser shall purchase from the Company up to $144,000,000 of the
Company's common stock, $.001 par value per share (the "Common Stock"), based on
up to twenty-four (24) Draw Downs of up to $3,000,000 per Draw Down, and Call
Options which may be exercised during any Draw Down Pricing Period of up to
$3,000,000 per Call Option. In no event shall the amount of Common Stock
purchased by the Purchaser exceed $3,000,000 per Draw Down or $3,000,000 per
Call Option.
Section II.2 The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, subject to Section 4.5(b) hereof, free of
preemptive rights and other similar contractual rights of stockholders, a
sufficient number of its authorized but unissued shares of its Common Stock to
cover the Shares to be issued in connection with all Draw Downs and Call Options
requested under this Agreement.
Section II.3 Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act, the
Registration Statement, including a prospectus subject to completion relating to
the Shares.
Section II.4 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser, agrees to purchase that number of the Shares to be issued in
connection with each Draw Down and exercise of each Call Option. The closing
under this Agreement shall take place at the offices of Parker Chapin Flattau &
Klimpl, LLP 1211 Avenue of the Americas, New York, NY 10036 (the "Closing") at
10:00 a.m. E.S.T. on (i) March __, 1999, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Closing Date").
Each party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section III.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. As of the date hereof, the Company does not have any subsidiaries (as
defined in Section 3.1(g)) except as set forth in the Registration Statement and
in the Company's most recent Form 10-K, including the accompanying financial
statements (the "Form 10-K"), or in the Company's most recent Form 10-Q (the
"Form 10-Q"), or on Schedule 3.1(a) attached hereto. The Company and each such
subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction in which the failure to be so qualified will not have a
material adverse effect on the Company's financial condition.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue and sell the Shares in accordance with the terms hereof. The execution,
delivery and performance of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and, except as contemplated by
Section 4.5(b), no further consent or authorization of the Company or its Board
of Directors or stockholders is required. This Agreement has been duly executed
and delivered by the Company. This Agreement constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
and the shares thereof issued and outstanding as of the date hereof are set
forth in the Registration Statement or on Schedule 3.1(c) attached hereto. All
of the outstanding shares of the Company's Common Stock have been duly and
validly authorized, and are fully paid and nonassessable. Except as set forth in
this Agreement or as set forth in the Registration Statement, the Commission
Documents or the Commission Filings or on Schedule 3.1(c) attached hereto, as of
the date hereof, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company.
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Furthermore, except as set forth in this Agreement, the Registration Statement,
the Commission Documents or the Commission Filings or on Schedule 3.1(c)
attached hereto, as of the date hereof, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as described in the
Registration Statement, the Commission Documents or the Commission Filings, or
on Schedule 3.1(c) attached hereto, as of the date hereof, the Company is not a
party to any agreement granting registration rights to any person with respect
to any of its equity or debt securities. Except as set forth in the Registration
Statement, the Commission Documents or the Commission Filings or on Schedule
3.1(c) attached hereto, as of the date hereof, the Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. Except as set forth in the
Registration Statement, the Commission Documents or the Commission Filings or on
Schedule 3.1(c) attached hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect thereto
which would have a Material Adverse Effect on the Company's financial condition
or operating results. The Company has furnished or made available to the
Purchaser true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Articles"), and the Company's Bylaws as in
effect on the date hereof (the "Bylaws").
(d) Issuance of Shares. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and nonassessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. Except as disclosed on Schedule 3.1(e) attached
hereto, the execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated therein do
not (i) violate any provision of the Company's Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The Company is
not required under federal, state or local law, rule or
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<PAGE> 9
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the Securities and
Exchange Commission (the "Commission"), or Nasdaq subsequent to the Closing,
and, any registration statement which may be filed pursuant hereto); provided
that, for purpose of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchaser herein.
(f) Commission Documents, Financial Statements. The Common Stock
of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed in the Registration Statement, or the Commission Documents or the
Commission Filings or on Schedule 3.1(f) attached hereto, as of the date hereof,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to the
Purchaser true and complete copies of the Commission Documents filed with the
Commission since December 31, 1998 and prior to the Closing Date. The Company
has not provided to the Purchaser any information which, according to applicable
law, rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the Form 10-K for
the year ended December 31, 1998 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
such Form 10-K did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The Commission Documents or Schedule 3.1(g)
attached hereto set forth each subsidiary of the Company as of the date hereof,
showing the jurisdiction of its incorporation or organization and showing the
percentage of each person's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement,
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"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. Except as set
forth in the Commission Documents or the Commission Filings, none of such
subsidiaries is a "significant subsidiary" as defined in Regulation S-X.
(h) No Material Adverse Change. Since December 31, 1998, the
Company has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Except as disclosed in the
Commission Documents or the Commission Filings or on Schedule 3.1(i) attached
hereto, neither the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a balance sheet of the Company or any subsidiary (including the
notes thereto) in conformity with GAAP not disclosed in the Commission
Documents, other than those incurred in the ordinary course of the Company's or
its subsidiaries respective businesses since December 31, 1998 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
(k) Indebtedness. The Form 10-K sets forth as of December 31,
1998 all outstanding secured and unsecured Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $100,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any subsidiary is in default with respect to
any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected in
the Commission Documents, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Commission Documents or the Commission Filings or on Schedule 3.1(l) attached
hereto or such that could not reasonably be expected to cause a Material Adverse
Effect on the
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Company's financial condition or operating results. All said leases of the
Company and each of its subsidiaries are valid and subsisting and in full force
and effect in all material respects.
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or the Commission Filings or on Schedule 3.1(m) attached hereto, there
is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets and which, if
adversely determined, is reasonably likely to result in a Material Adverse
Effect.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or the Commission
Filings or on Schedule 3.1(n) attached hereto or such that do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Certain Fees. Except as set forth on Schedule 3.1(o) attached
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(p) Disclosure. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(q) Operation of Business. The Company or one of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Commission Documents
or the Commission Filings or on Schedule 3.1(q) attached hereto and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others, except
to the extent set forth in the Commission Documents or that a Material Adverse
Effect could not reasonably be expected to result from such conflict.
(r) Environmental Compliance. Except as disclosed in the
Commission Filings or on Schedule 3.1(r) attached hereto, the Company and each
of its subsidiaries have obtained all
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material approvals, authorization, certificates, consents, licenses, orders and
permits or other similar authorizations of all governmental authorities, or from
any other person, that are required under any Environmental Laws. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, to the best of the Company's knowledge, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or could
reasonably be expected to violate any Environmental Law after the Closing or
that could reasonably be expected to give rise to any environmental liability,
or otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii) based
on or related to the manufacture, processing, distribution, use, treatment,
storage (including without limitation underground storage tanks), disposal,
transport or handling, or the emission, discharge, release or threatened release
of any hazardous substance.
(s) Material Agreements. Except as set forth in the Commission
Documents or on Schedule 3.1(s) attached hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-3 or applicable form (collectively, "Material Agreements") if the Company
or any subsidiary were registering securities under the Securities Act. The
Company and each of its subsidiaries has in all material respects performed all
the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could reasonably be expected to cause a Material Adverse Effect.
(t) Transactions with Affiliates. Except as set forth in the
Commission Documents or the Commission Filings or on Schedule 3.1(t) attached
hereto, there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions exceeding
$100,000 between (a) the Company, any subsidiary or any of their respective
customers (excluding agreements related to the purchase or lease of the
Company's products) or suppliers on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person who would be covered by Item 404(a) of Regulation
S-K or any corporation or other entity controlled by such officer, employee,
consultant, director or person.
(u) Securities Act of 1933. The Company has complied in all
material respects with all applicable federal and state securities laws in
connection with the offer, issuance and sale
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of the Shares hereunder.
(i) Each Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the provisions of
the Securities Act. The Commission has not issued any order preventing
or suspending the use of any Prospectus.
(ii) The Company meets the requirements for the use of
Form S-3 under the Securities Act. The Registration Statement in the
form in which it became effective and also in such form as it may be
when any post-effective amendment thereto became effective and the
Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Securities Act, complied in all
material respects with the provisions of the Securities Act and did not
at any such times contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in the light
of the circumstances under which they made) not misleading, except that
this representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to the
Purchaser furnished to the Company in writing by or on behalf of the
Purchaser through you expressly for use therein.
(iii) The Company has not distributed and, prior to the
completion of the distribution of the Shares, will not distribute any
offering material in connection with the offering and sale of the Shares
other than the Registration Statement, the Prospectus or other
materials, if any, permitted by the Securities Act.
(v) Employees. As of the date hereof, neither the Company nor any
subsidiary has any collective bargaining arrangements or agreements covering any
of its employees, except as set forth in the Commission Documents or the
Commission Filings or on Schedule 3.1(v) attached hereto. As of the date hereof,
except as set forth in the Commission Documents or the Commission Filings or on
Schedule 3.1(v) attached hereto, neither the Company nor any subsidiary has any
employment contract, agreement regarding proprietary information, noncompetition
agreement, nonsolicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. As of the date hereof, since December 31, 1998, except as disclosed
in the Registration Statement, the Commission Documents or the Commission
Filings or Schedule 3.1(v), no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.
(w) Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
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(x) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(y) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would have a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Shares will not
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided that, if any of
the Purchaser, or any person or entity that owns a beneficial interest in any of
the Purchaser, is an "employee pension benefit plan" (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a "party in
interest" (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(ac), the term "Plan" shall mean an "employee pension benefit plan"
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(z) Acknowledgment Regarding Purchaser's Purchase of Shares. The
Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser's purchase of the
Shares.
Section III.2 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser is
a corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of the Bahamas.
(b) Authorization and Power. The Purchaser has the requisite
corporate power and authority to enter into and perform this Agreement and to
purchase the Shares in accordance with the terms hereof. The execution, delivery
and performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by
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<PAGE> 15
all necessary corporate action, and no further consent or authorization of the
Purchaser, its Board of Directors or stockholders is required. This Agreement
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a
violation of such Purchaser's charter documents or bylaws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Purchaser is a party, (iii) create or impose or lien,
charge or encumrance on any property of the Purchaser under any agreement or any
commitment to which the Purchaser is party or by which the Purchaser is on or by
which any of its respective properties or assets are bound or (iv) result in a
violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to the Purchaser or its properties,
except for such conflicts, defaults and violations as would not, individually or
in the aggregate, prohibit or otherwise interfere with the ability of the
Purchaser to enter into and perform its obligations under this Agreement in any
material respect. The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares in accordance with
the terms hereof, provided that for purposes of the representation made in this
sentence, the Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Information. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares which have been requested by the Purchaser. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. The Purchaser has sought such accounting, legal and tax advice as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Shares. Investor understands that it (and not the
Company) shall be responsible for its own tax liabilities that may arise as a
result of this investment or the transactions contemplated by this Agreement.
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ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its permitted assignees (as defined
herein).
Section IV.1 Securities Compliance. The Company shall notify the
Commission and NASD, if applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares to the Purchaser or subsequent holders.
Section IV.2 Registration and Listing. The Company will take all action
necessary to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock and the
listing of the Shares purchased by Purchaser hereunder on the NASDAQ or any
relevant market or system, if applicable, and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD or any relevant market or system.
Section IV.3 Registration Statement. Before the Purchaser shall be
obligated to accept a Draw Down request from the Company, the Company shall have
caused a sufficient number of shares of Common Stock to be registered to cover
the Shares to be issued in connection with this Agreement.
Section IV.4 Distribution of Common Stock. The Company and the Purchaser
agree that the Purchaser shall sell the shares of Common Stock purchased
hereunder only to institutional investors.
Section IV.5 Compliance with Laws.
(a) The Company shall comply, and cause each subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a Material Adverse Effect.
(b) The Company will not be obligated to issue and the Purchaser
will not be obligated to purchase any shares of the Company's Common Stock which
would result in the issuance under this Agreement of more than nineteen and
nine-tenths percent (19.9%) of the issued
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and outstanding shares of the Company's Common Stock.
Section IV.6 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section IV.7 Reporting Requirements. Upon request, the Company shall
furnish the following to the Purchaser so long as such Purchaser shall be
obligated hereunder to purchase Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as available, and in any event within 47 days after the end of each of the
first three fiscal quarters of the Company; and
(b) Annual Reports filed with the Commission on Form 10-K as soon
as available, and in any event within 92 days after the end of each fiscal year
of the Company.
Section IV.8 Intentionally Omitted.
Section IV.9 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would (i) restrict or impair the
right to perform of the Company or any subsidiary under this Agreement or the
Articles of the Company, or (ii) cause the Company to issue any Common Stock or
securities convertible into Common Stock during a Draw Down Pricing Period under
this Agreement. If, the Company enters into any equity financing facility which
will result in the issuance of the Company's Common Stock, excluding any equity
financing facility (including securities convertible into common stock) in
conjunction with a strategic corporate partnering transaction, without the
Purchaser's prior written consent, which consent shall not be unreasonably
withheld, the Purchaser may, at its option, terminate this Agreement or abstain
from accepting a Draw Down Request under this Agreement for a period of three
consecutive months.
Section IV.10 Effective Registration Statement. If, at the time this
Agreement is executed and delivered, it is necessary for the Registration
Statement or a post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment to become effective as
soon as reasonably practicable and will advise you promptly and, if requested by
the Purchaser, will confirm such advice in writing, when it receives notice that
the Registration Statement or such post-effective amendment has become
effective.
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Section IV.11 No Stop Orders. The Company will advise the Purchaser
promptly and, if requested by the Purchaser, will confirm such advice in
writing: (i) of its receipt of notice of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prospectus or
for additional information; (ii) of its receipt of notice of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction or the initiation of any proceeding for such purpose;
and (iii) of its becoming aware of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Securities Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Securities Act or any other law. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make commercially reasonable efforts to
obtain the withdrawal of such order at the earliest possible time.
Section IV.12 Intentionally Omitted.
Section IV.13 Amendments to the Registration Statement. The Company will
not (i) file any amendment to the Registration Statement or make any amendment
or supplement to the Prospectus of which the Purchaser shall not previously have
been advised or to which the Purchaser shall reasonably object after being so
advised or (ii) so long as, in the reasonable opinion of counsel for the
Purchaser, a Prospectus is required to be delivered in connection with sales by
any Purchaser or dealer, file any information, documents or reports pursuant to
the Exchange Act without delivering a copy of such information, documents or
reports to the Purchaser, promptly following such filing.
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Section IV.14 Prospectus Delivery. Prior to the execution and delivery
of this Agreement, the Company will deliver to the Purchaser, without charge, in
such quantities as reasonably requested by the Purchaser, copies of each form of
Prospectus. As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Purchasers a prospectus is required by the Securities Act to be
delivered in connection with sales by the Purchaser, the Company will
expeditiously deliver to the Purchaser, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as the Purchaser may
reasonably request. The Company consents to the use of the Prospectus (and of
any amendment or supplement thereto) in accordance with the provisions of the
Securities Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares may be sold by the Purchaser, in connection with the offering
and sale of the Shares and for such period of time thereafter as the Prospectus
is required by the Securities Act to be delivered in connection with sales of
the Shares. If during such period of time any event shall occur that in the
judgment of the Company or in the opinion of counsel for the Purchasers is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with the Securities
Act or any other law, the Company will forthwith prepare and, subject to the
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the Purchaser
a reasonable number of copies thereof.
Section IV.15 No Shorting. During the term of this Agreement, neither
the Purchaser nor any affiliates of the Purchaser will ever be in a net short
position with regard to shares of the Company's Common Stock in any account
directly or indirectly managed by the Purchaser or by any affiliate of the
Purchaser.
ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS
Section V.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Closing and with respect to each Draw Down and Call Option, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that are expressly
made as of a particular date.
(b) Effective Registration Statement. The Registration Statement
registering the
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<PAGE> 20
Shares shall have been declared effective by the Commission and shall have been
amended or supplemented, as required, to disclose the sale of the Shares prior
to the Closing Date or each Settlement Date, as applicable.
(c) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing.
(d) No Injunction. No statute, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the NASD (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to Closing), and, at any time prior to the
Closing, trading in securities generally as reported on NASDAQ shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by American Stock Exchange, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Company, makes it impracticable or inadvisable to issue the
Shares.
(f) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
Section V.2 Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to enter this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
as though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the
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<PAGE> 21
Shares shall have been declared effective by the Commission and shall have been
amended or supplemented, as required, to disclose the sale of the Shares prior
to the Closing Date or each Settlement Date, as applicable.
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(d) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the NASD (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to Closing), and, at any time prior to the
Closing, trading in securities generally as reported on NASDAQ shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by the American Stock Exchange, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Purchaser, makes it impracticable or inadvisable to purchase the
Shares.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(f) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(g) Opinion of Counsel, Etc. At the Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated the date of Closing,
in the form of Exhibit B hereto, and such other certificates and documents as
the Purchaser or its counsel shall reasonably require incident to the Closing.
Section V.3 Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
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(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Draw
Down Exercise Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to the Closing Date or each Settlement Date, as applicable.
(c) No Suspension. Trading in the Company's Common Stock shall
not have been suspended by the Commission or the NASD (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to each Draw Down request), and, at any time prior to such
request, trading in securities generally as reported by the American Stock
Exchange shall not have been suspended or limited, or minimum prices shall not
have been established on securities whose trades are reported by the American
Stock Exchange.
(d) Material Adverse Effect; Material Change in Ownership. No
Material Adverse Effect and no Material Change in Ownership shall have occurred.
Section V.4 Conditions Precedent to the Obligation of the Company to
Issue Shares Upon Exercise of a Call Option. The obligation hereunder of the
Company to issue Shares upon the exercise of a Call Option by the Purchaser is
subject to the satisfaction or waiver, at or before each Settlement Date, of
each of the conditions set forth below. The conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
Each of the representations and warranties of the Purchaser shall be true and
correct in all material respects as of the date when made and as of the Draw
Down Exercise Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to each Settlement Date.
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ARTICLE VI
DRAW DOWN TERMS; CALL OPTION
Section VI.1 Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and exercise
a draw down of up to $3,000,000 (a "Draw Down") during each Draw Down Pricing
Period, which Draw Down the Purchaser will be obligated to accept.
(b) The number of Shares to be issued in connection with each
Draw Down shall be equal to the sum of the quotients (for each trading day of
the Draw Down Pricing Period for which the VWAP equals or exceeds the Threshold
Price) of (x) 1/18th of the Draw Down Amount divided by (y) 94.50% of the VWAP
(the "Draw Down Discount Price") of the Common Stock.
(c) Only one Draw Down shall be allowed in each Draw Down Pricing
Period.
(d) The number of Shares purchased by the Purchaser with respect
to each Draw Down shall be determined on a daily basis during each Draw Down
Pricing Period and settled on a weekly basis (the "Settlement Date"). If the
VWAP is less than $5.00 per share on any Settlement Date, the Purchaser shall
not be obligated to fund its Draw Down obligation for the preceding week.
(e) There shall be a minimum of five (5) trading days between
Draw Downs.
(f) There shall be a maximum of twenty-four (24) monthly Draw
Downs during the term of this Agreement.
(g) At the end of each Draw Down Pricing Period, the Purchaser's
total Draw Down commitment shall be reduced by $3,000,000 regardless of the Draw
Down Amount requested by the Company.
(h) Each Draw Down will expire on the last trading day of each
Draw Down Pricing Period.
(i) If the VWAP on a given trading day is less than the Threshold
Price, then the total amount of the Draw Down will be reduced by 1/18th and no
Shares will be purchased or sold with respect to such trading day. At no time
shall the Threshold Price be set below $5.00 unless agreed upon by the Company
and the Purchaser. If trading in the Company's Common Stock is suspended for any
reason for more than three (3) hours in any trading day, the price of the Common
Stock shall be deemed to be below the Threshold Price for that trading day.
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<PAGE> 24
(j) The Company must inform the Purchaser via facsimile
transmission as to the Draw Down Amount the Company wishes to exercise before
commencement of trading on the first trading day of the Draw Down Pricing Period
(the "Draw Down Notice"). In addition to the Draw Down Amount, the Company shall
set the Threshold Price with each Draw Down Notice and shall designate the first
trading day of the Draw Down Pricing Period. At no time shall the Purchaser be
required to purchase more than $3,000,000 of the Company's Common Stock for a
given Draw Down Pricing Period (excluding the Company's Common Stock purchased
pursuant to a Call Option) so that if the Company chooses not to exercise the
Draw Down in a given Draw Down Pricing Period the Purchaser is not obligated to
purchase more than $3,000,000 in a subsequent Draw Down Pricing Period.
(k) With respect to any Draw Down, if the Threshold Price is set
below $9.50, the Draw Down Discount Price shall be reduced to 94.125% of the
VWAP and the Call Option Discount Price (as defined in Section 6.2) shall be
reduced to 95.125% of the VWAP. With respect to any Draw Down, if the Threshold
Price is set below $7.50, the maximum Draw Down Amount shall be reduced to
$2,000,000, the Draw Down Discount Price shall be 94.125% and the Call Option
Discount Price shall be reduced to 94.25%.
(l) The Purchaser shall not sell on any trading day during a Draw
Down Period shares of Common Stock in excess of the quotient of (A) the sum of
(x) 1/18 of the applicable Draw Down Amount and (y) the amount of any Call
Option exercised by the Purchaser for such trading day divided by (B) the VWAP
on such trading day.
(m) On each Settlement Date, the Company shall deliver the Shares
purchased by the Purchaser to the Purchaser or to The Depositary Trust Company
("DTC") on the Purchaser's behalf. The Company and the Purchaser shall cause
such Shares to be credited to the DTC account designated by the Purchaser upon
receipt by the Company of payment for the Draw Down into an account designated
by the Company. The delivery of the shares of Common Stock into the Purchaser's
DTC account in exchange for payment therefor shall be referred to herein as
"Settlement". The Purchaser shall coordinate Settlement with the Company through
DTC.
Section VI.2 Purchaser's Call Option.
(a) The Purchaser shall have the right to exercise multiple call
options during each Draw Down Pricing Period (a "Call Option"); provided, that
each Call Option shall be for a minimum of $50,000 and all Call Options
exercised during a Draw Down Pricing Period may not exceed $3,000,000; provided,
further, that in no event shall the Purchaser exercise a Call Option for an
amount which will exceed twenty percent (20%) of the Total Value on the day the
applicable Call Option Notice is issued.
(b) The number of shares of Common Stock to be issued in
connection each Call Option shall be based on a price of 95.50% of the VWAP (the
"Call Option Discount Price") for the Common Stock on the day the Purchaser
issues its Call Option Notice and shall be
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determined in accordance with Section 6.1 (b) and shall not be less than the
Threshold Price.
(c) Each Call Option exercised shall be settled on a weekly basis
on the next Settlement Date. If the VWAP is less than $5.00 per share on any
Settlement Date, the Purchaser shall not be obligated to fund its Call Option
obligation for such preceding week.
(d) The Threshold Price designated by the Company in its Draw
Down Notice shall apply to each Call Option.
(e) For each Call Option that the Purchaser exercises pursuant to
this Section, the Purchaser must issue a Call Option Notice to the Company no
later than 5:00 p.m. (New York time) on the day such Call Option is exercised.
If the Purchaser does not exercise a Call Option by 5:00 p.m. (New York time) on
the last day of the applicable Draw Down Pricing Period, the Purchaser's Call
Options with respect to that Draw Down Pricing Period shall terminate.
(f) During the period from the Effective Date and the date which
is the fourteenth (14th) month anniversary of the Effective Date (the "First
Call Option Period"), the Purchaser will exercise Call Options for an aggregate
amount equal to at least the product of (i) $10,000,000 multiplied by (ii) the
fraction, the numerator of which is the total of all Draw Down Amounts during
the First Call Option Period and the denominator of which is $36,000,000. During
the period commencing after the end of the First Call Option Period and ending
on the date which is the twenty-eighth (28th) month anniversary of the Effective
Date (the "Second Call Option Period"), the Purchaser will exercise Call Options
for an aggregate amount equal to at least the product of (A) $8,000,000
multiplied by (B) the fraction, the numerator of which is the total of all Draw
Down Amounts during the Second Call Option Period and the denominator of which
is $36,000,000.
ARTICLE VII
TERMINATION
Section VII.1 Termination by Mutual Consent. The term of this Agreement
shall be twenty eight (28) months from the Effective Date. This Agreement may be
terminated at any time by mutual consent of the parties.
Section VII.2 Other Termination. The Purchaser may terminate this
Agreement upon (x) one (1) day's notice if the Company issues convertible
debentures or enters an equity financing facility as set forth in Section 4.9
without the Purchaser's prior written consent, or (y) ten (10) days' notice if
an event resulting in a Material Adverse Effect or a Material Change of Control
in Ownership has occurred. In addition, the Company may terminate this Agreement
on one (1) day's notice (which notice may not be given during a Draw Down
Pricing Period); provided, that the Company pays any fee which is otherwise
payable pursuant to Section 9.1(b) upon such termination if such termination
occurs prior to the eighth month anniversary of the Closing.
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Section VII.3 Effect of Termination. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except as provided in Section 9.10.
Nothing in this Section 7.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company and the Purchaser to compel specific performance by
the other party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section VIII.1General Indemnity
(a) Indemnification by the Company. The Company will indemnify
and hold harmless the Purchaser and each person, if any, who controls the
Purchaser within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act from and against any losses, claims, damages,
liabilities and expenses (including reasonable costs of defense and
investigation and all attorney's fees) to which the Purchaser and each person,
if any, who controls the Purchaser may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages, liabilities and expenses
(or actions in respect thereof) arise out of or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained, or
incorporated by reference, in the Registration Statement relating to Common
Stock being sold to the Purchaser (including the Prospectus dated
____________________, 1999, the Prospectus Supplement dated _________________
(the "Prospectus Supplement") which are a part of it), or any amendment or
supplement to it, or (ii) the omission or alleged omission to state in that
Registration Statement or any document incorporated by reference in the
Registration Statement, a material fact required to be stated therein or
necessary to make the statements therein not misleading.
The Company will reimburse the Purchaser and each such
controlling person promptly upon demand for any legal or other costs or expenses
reasonably incurred by or the controlling person in investigating, defending
against, or preparing to defend against any such claim, action, suit or
proceeding, except that the Company will not be liable to the extent a claim or
action which results in a loss, claim, damage, liability or expense arises out
of, or is based upon, an untrue statement, alleged untrue statement, omission or
alleged omission, included in any Prospectus or Prospectus Supplement or any
amendment or supplement to the Prospectus or Prospectus Supplement in reliance
upon, and in conformity with, written information furnished by the Purchase to
the Company for inclusion in the Prospectus or Prospectus Supplement.
(b) Indemnification by the Purchaser. The Purchaser will
indemnify and hold harmless the Company, each of its directors and officers, and
each person, if any, who controls the
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Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act from and against any expenses (including reasonable costs of
defense and investigation and all attorneys fees) to which the Purchaser and
each person, if any, who controls the Purchaser may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus or Prospectus Supplement or any amendment or
supplement to it or (ii) the omission or alleged omission to state in any
Prospectus or Prospectus Supplement or any amendment or supplement to it a
material fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent, the untrue
statement, alleged untrue statement, omission or alleged omission was made in
reliance upon, and in conformity with, written information furnished by the
Purchaser to the Company for inclusion in the Prospectus or Prospectus
Supplement or an amendment or supplement to it, and the Purchaser will reimburse
the Company and each such director, officer or controlling person promptly upon
demand for any legal or other costs or expenses reasonably incurred by the
Company or the other person in investigating, defending against, or preparing to
defend against any such claim, action, suit or proceeding.
Section VIII.2Indemnification Procedures. Promptly after a person
receives notice of a claim or the commencement of an action for which the person
intends to seek indemnification under paragraph (a) or (b) of Section 8.1, the
person will notify the indemnifying party in writing of the claim or
commencement of the action, suit or proceeding, but failure to notify the
indemnifying party will not relieve the indemnifying party from liability under
paragraph (a) or (b) of Section 8.1, except to the extent it has been materially
prejudiced by the failure to give notice. The indemnifying party will be
entitled to participate in the defense of any claim, action, suit or proceeding
as to which indemnification is being sought, and if the indemnifying party
acknowledges in writing the obligation to indemnify the party against whom the
claim or action is brought, the indemnifying party may (but will not be required
to) assume the defense against the claim, action, suit or proceeding with
counsel satisfactory to it. After an indemnifying party notifies an indemnified
party that the indemnifying party wishes to assume the defense of a claim,
action, suit or proceeding the indemnifying party will not be liable for any
legal or other expenses incurred by the indemnified party in connection with the
defense against the claim, action, suit or proceeding except that if, in the
opinion of counsel to the indemnifying party, one or more of the indemnified
parties should be separately represented in connection with a claim, action,
suit or proceeding the indemnifying party will pay the reasonable fees and
expenses of one separate counsel for the indemnified parties. Each indemnified
party, as a condition to receiving indemnification as provided in Paragraph (a)
or (b) or Section 8.1, will cooperate in all reasonable respects with the
indemnifying party in the defense of any action or claim as to which
indemnification is sought. No indemnifying party will be liable for any
settlement of any action effected without its prior written consent. No
indemnifying party will, without the prior written consent of the indemnified
party, effect any settlement of a pending or threatened action with respect
which an indemnified party is, or is informed that it may be, made a party and
for which it would be entitled to indemnification, unless the settlement
includes an unconditional release of the indemnified party from all liability
and claims which are the subject matter of the pending or threatened action.
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If for any reason the indemnification provided for in this
Agreement is not available to, or is not sufficient to hold harmless, an
indemnified party in respect of any loss or liability referred to in paragraph
(a) or (b) of Section 8.1, each indemnifying party will, in lieu of indemnifying
the indemnified party, contribute to the amount paid or payable by the
indemnified party, contribute to the amount paid or payable by the indemnified
party as a result of the loss or liability, (i) in the proportion which is
appropriate to reflect the relative benefits received by the indemnifying party
on the one hand and by the indemnified party on the other from the sale of stock
which is the subject of the claim, action, suit or proceeding which resulted in
the loss or liability or (ii) if that allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits of the sale of stock, but also the relative fault of the indemnifying
party and the indemnified party with respect to the statements or omissions
which are the subject of the claim, action, suit or proceeding that resulted in
the loss or liability, as well as any other relevant equitable considerations.
ARTICLE IX
MISCELLANEOUS
Section IX.1 Fees and Expenses.
(a) The Company shall pay the Purchaser a fee equal to
one-quarter of one percent (0.25%) of each Draw Down Amount and the amount of
each Call Option, which fee shall be paid on each Settlement Date.
(b) The Company shall pay all reasonable fees and expenses
related to the transactions contemplated by this Agreement; provided, that the
Company shall pay, at the Closing, all reasonable attorneys fees and expenses
(exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchaser up to $50,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Purchaser in connection with any
amendments, modifications or waivers of this Agreement or incurred in connection
with the enforcement of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses. The Company shall pay all stamp or other
similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
(c) If on the twelve (12) month anniversary of the Closing Date,
the Company has not requested Draw Downs in an aggregate amount of at least
$24,000,000, the Company, at its option, shall pay the Purchaser a fee (the
"Fee") equal to either (x) $300,000, in cash, or (y) issue three-year warrants
to purchase 300,000 shares of the Company's Common Stock at an exercise price of
110% of the VWAP of the Common Stock on the date of issuance. However, if the
Purchaser has terminated this Agreement prior to the twelve (12) month
anniversary of the Closing Date, the Company will not be required to pay any
portion of this Fee.
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Section IX.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in the State of Delaware for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
Section IX.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representations, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section IX.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
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If to the Company: Isis Pharmaceuticals, Inc.
2292 Faraday Avenue
Carlsbad, CA 92008
Telephone Number: (760) 603-2460
Fax: (760) 603-3861
Attention: B. Lynne Parshall
Executive Vice President
With copies to: Cooley Godward LLP
4365 Executive Drive Suite 1100
San Diego, California 92121
Telephone Number: (619) 550-6012
Fax: (619) 453-3555
Attention: D.B. Peck
If to the Purchaser: Ridgeway Investment Limited
Charlotte House, Charlotte Street
P.O. Box N 9204
Nassau, Bahamas
Telephone Number:
Fax: (242) 323-7918
Attention: Mr. Anthony L. M. Inder Rieden
Director and President
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section IX.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
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Section IX.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section IX.7 Successors and Assigns. The Purchaser may not assign this
Agreement to any person without the prior consent of the Company, which consent
will not be unreasonably withheld. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section IX.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the choice of law provisions.
Section IX.9 Survival. The representations and warranties of the Company
and the Purchaser contained in Article III and the covenants contained in
Article IV shall survive the execution and delivery hereof and the Closing until
the termination of this Agreement, and the agreements and covenants set forth in
Article VIII of this Agreement shall survive the execution and delivery hereof
and the Closing hereunder.
Section IX.10 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section IX.11 Publicity. Prior to the Closing, neither the Company nor
the Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. In the event the Company
is required by law, based upon an opinion of the Company's counsel, that the
Company must issue a press release or otherwise make a public statement or
announcement with respect to this Agreement prior to the Closing, the Company
shall consult with the Purchaser on the form and substance of such press
release. After the Closing, the Company may issue a press release or otherwise
make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided,
that prior to issuing any such press release, making any such public statement
or announcement, the Company obtains the prior consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed.
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Section IX.12 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section IX.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
ISIS PHARMACEUTICALS, INC.
By:
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Name:
Title
RIDGEWAY INVESTMENT LIMITED
By:
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Name:
Title
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