<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997
REGISTRATION NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
RIBOZYME PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2834 34-1697351
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2950 WILDERNESS PLACE
BOULDER, COLORADO 80301
(303) 449-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RALPH E. CHRISTOFFERSEN, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RIBOZYME PHARMACEUTICALS, INC.
2950 WILDERNESS PLACE
BOULDER, COLORADO 80301
(303) 449-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
HERBERT H. DAVIS III, ESQ. STANTON D. WONG, ESQ.
ROTHGERBER, APPEL, PILLSBURY MADISON
POWERS & JOHNSON LLP & SUTRO LLP
1200 17TH STREET P.O. BOX 7880
DENVER, COLORADO 80202 SAN FRANCISCO, CALIFORNIA 94120-7880
(303) 623-9000 (415) 983-1000
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
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 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. [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Share (1) Offering Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value 1,400,000 Shares $8.25 $11,550,000 $3,500.00
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act
of 1933 based upon the average of the high and low prices of the Common
Stock on the Nasdaq National Market on August 28, 1997.
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.
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1997
1,400,000 SHARES
[RPI LOGO]
COMMON STOCK
All of the 1,400,000 shares of Common Stock offered hereby are being sold
on a "best efforts" basis by Ribozyme Pharmaceuticals, Inc. ("RPI" or the
"Company"). The Common Stock of the Company is listed on the Nasdaq National
Market under the symbol "RZYM." On September 3, 1997, the last reported sale
price of the Common Stock on the Nasdaq National Market was $9.25. See "Price
Range of Common Stock."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================
Price to Placement Proceeds to
Public Fees(1) Company(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . $ $ $
Total Maximum(3). . . . . . . . . . . . . . $ $ $
==========================================================================================================
</TABLE>
(1) The shares are being offered by the Company principally to selected
institutional investors. Montgomery Securities (the "Placement Agent")
has been retained to act, on a best efforts basis, as exclusive agent for
the Company in connection with the arrangement of this transaction. The
Company has agreed, among other things, (i) to pay the Placement Agent a
fee in connection with the arrangement of this financing (which fee will
be reduced by one-half with respect to the sale of shares to certain
investors identified by the Company) and (ii) to indemnify the Placement
Agent against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Plan of Distribution."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) There can be no assurance that any of the shares of Common Stock offered
hereby will be sold. Since the offering is made on a best efforts basis,
there is no firm commitment by the Placement Agent to purchase or sell any
of the shares of Common Stock. There is no minimum number of shares of
Common Stock required to be sold by the Company, and no arrangements have
been made to escrow any proceeds of the offering. Therefore, the Company
may sell less than all of the shares of Common Stock offered hereby, which
may significantly reduce the amount of proceeds received by the Company.
The shares of Common Stock offered hereby are being issued and sold
directly by the Company. It is expected that delivery of the certificates
representing the shares of Common Stock sold hereby will be made against
payment therefor at the office of Montgomery Securities.
--------------------------
MONTGOMERY SECURITIES
, 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements, and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C., as
well as the regional offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, and 7 World Trade Center,
Suite 1300, New York, New York. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street., N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements, and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission described above.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Certain statements in this Prospectus constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: general economic and business conditions;
competition; technological advances; ability to obtain rights to technology;
ability to obtain and enforce patents; ability to commercialize and manufacture
products; ability to obtain collaborators for its target validation programs;
ability to manufacture ribozymes in adequate amounts for its collaborations;
results of clinical studies; results of research and development activities;
business abilities and judgment of personnel; availability of qualified
personnel; changes in, or failure to comply with, governmental regulations;
ability to obtain adequate financing in the future; and other factors referenced
in this Prospectus. The shares of Common Stock offered hereby involve a high
degree of risk. See "Risk Factors."
THE COMPANY
Ribozyme Pharmaceuticals, Inc. ("RPI" or the "Company") was founded to
capitalize on the broad potential of ribozymes for use in the development of
human therapeutics and therapeutic target validation services. The Company's
technology is based on Professor Thomas R. Cech's discovery of "ribozymes," for
which he shared a Nobel Prize in 1989. Ribozymes are a form of ribonucleic
acid ("RNA") that have the ability to selectively inhibit protein production.
Because many disease states are the result of abnormal protein production,
ribozymes are potentially applicable to a wide range of human diseases. RPI
believes that its ribozyme technology may provide a new paradigm for drug
design and disease treatment and may be a significant tool for the
identification of gene function and target validation. The Company has entered
into a collaboration with Chiron Corporation ("Chiron") to develop ribozyme
products for specific therapeutic targets in human health, a second
collaboration with Chiron in the target validation area, and a collaboration
with Schering AG, Germany ("Schering") to validate new therapeutic targets from
gene sequence data using the Company's functional genomics technology. The
Company has also licensed its technology to DowElanco for certain agricultural
applications and IntelliGene, Ltd. ("IntelliGene") for certain diagnostic
applications.
The Company believes that its proprietary ribozyme technology platform
has the potential to address many of the issues associated with traditional
pharmaceuticals and drug discovery. Ribozymes perform functions that are
different from those performed by ordinary RNA in that, after binding
selectively to their specific messenger RNA ("mRNA") target, ribozymes act
catalytically to cut, or cleave, the target mRNA molecule whereupon the mRNA is
destroyed. Once the mRNA target is destroyed, the particular protein for which
the mRNA molecule carries information will not be produced, indicating that
ribozymes may be broadly applicable in the control of protein production or
gene expression. In general, the vast majority of diseases involve either
inappropriate expression of proteins or RNA viruses. In addition, ribozymes
can be designed to select for a single specific target genetic sequence. The
Company believes this highly selective mechanism of action has the potential to
minimize the side effects of its therapeutic products. Also, because ribozymes
are not consumed in the act of cleaving the target mRNA, a single ribozyme may
cleave multiple targets, thus potentially leading to lower ribozyme dosing
requirements.
RPI's business strategy is to utilize its ribozyme technology to
develop a new and novel class of human therapeutic products and a service
business for therapeutic target validation. Additionally, RPI will continue to
seek partners to license the technology in areas such as agriculture, animal
health and diagnostics. The Company plans to develop therapeutic products
through both internal programs and collaborations. In addition to using
ribozymes to develop therapeutic products, RPI believes that its ribozyme
technology may be used as a drug discovery technology to characterize the
function of potential target genes. Since ribozymes can be designed to select
for a single target genetic sequence, ribozymes may be used to identify the
function of that sequence. As a result, links between gene dysfunction and
disease can be validated. The Company has entered into collaborations with
Chiron and Schering to use the Company's ribozyme technology to determine the
function of selected genes and gene sequences, and plans to enter into
additional partnerships in this area in the future.
3
<PAGE> 5
The Company is working with Chiron on the development of a number of
products targeted at viral diseases, cancer, restenosis and ocular diseases.
In April 1996, RPI was granted National Institute of Health ("NIH") Recombinant
DNA Advisory Committee exemption for its proposed clinical trial of a
retroviral vector containing two ribozymes to treat blood progenitor cells from
HIV-infected individuals. In January 1997, RPI and Chiron received approval of
their Investigational New Drug Application with the U.S. Food and Drug
Administration, and a Phase I/IIa clinical trial was initiated in March 1997.
The physician-sponsored study seeks first to demonstrate the safety of
reinfusion of the ribozyme containing cells and second to measure the ability
of ribozyme-expressing cells to engraft and survive after reinfusion into
HIV-infected patients. This study is part of a collaboration between RPI,
Chiron, the City of Hope, and Childrens Hospital in Los Angeles. See
"Business--Product Development Programs" and "--Collaborative Relationships and
License Agreements."
RPI believes that its patents and proprietary technology provide a
significant competitive advantage in the field of ribozymes. At the core of
RPI's technology are inventions and patents of Dr. Cech and various of his
associates. RPI believes that licenses to these patents and those filed by RPI
grant the Company the exclusive right to control the manufacture, use and sale
of ribozymes and any products that incorporate ribozymes.
Ribozyme Pharmaceuticals, Inc. was incorporated in Delaware in 1992.
The Company's executive offices are located at 2950 Wilderness Place, Boulder,
Colorado, 80301, and its telephone number is (303) 449-6500.
4
<PAGE> 6
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
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<CAPTION>
<S> <C>
THE OFFERING
Common Stock to be offered...................................................... 1,400,000 shares
Common Stock to be outstanding
after the offering............................................................ 8,602,392 shares(1)
Use of proceeds ............................................................... For research and development, working capital
and other general corporate purposes
Nasdaq National Market symbol................................................... RZYM
</TABLE>
- ----------------
(1) Based upon shares outstanding as of August 22, 1997. Does not include
(i) 910,462 shares of Common Stock issuable upon exercise of stock
options outstanding as of August 22, 1997, or (ii) 487,458 shares of
Common Stock issuable upon exercise of warrants outstanding as of
August 22, 1997. See "Capitalization," "Management--Stock Option
Plan," "Certain Transactions" and "Description of Capital
Stock--Warrants."
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 27,
1992 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, JUNE 30,
TO --------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
---- ------- ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............... $ 358 $ 1,191 $ 1,587 $ 1,675 $ 1,709 $ 1,111 $ 1,279
Costs and expenses:
Research and development.... 3,091 6,990 9,212 12,204 14,189 7,666 6,154
General and administrative.. 591 1,047 1,291 1,397 1,943 1,152 822
Interest expense............ 28 187 334 554 845 449 437
-------- --------- ------- -------- --------- -------- -------
Total costs and 3,710 8,224 10,837 14,155 16,977 9,267 7,413
-------- --------- ------- -------- --------- -------- -------
Net loss...................... $ (3,352) $ (7,033) $(9,250) $(12,480) $ (15,268) $ (8,156) $(6,134)
Pro forma net loss per
share(1)..................... $ (2.13) $ (2.87) $ (3.52) $ (3.86) $ (2.61) $ (1.72) $ (0.87)
Shares used in computing
pro forma net loss per
share(1)..................... 1,574 2,453 2,627 3,230 5,845 4,731 7,038
JUNE 30, 1997
----------------------------
ACTUAL AS ADJUSTED (2)
------- ------------
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale................................ $ 13,269 $ 25,269
Working capital......................................................................... 11,678 23,678
Total assets............................................................................ 21,165 31,565
Accumulated deficit..................................................................... (53,518) (53,518)
Total stockholders' equity.............................................................. 16,948 28,948
</TABLE>
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(1) See Note 1 of Notes to Financial Statements for information concerning
the computation of pro forma net loss per share.
(2) Adjusted to reflect the sale of 1,400,000 shares of Common Stock by
the Company offered hereby at an assumed public offering price at
$9.25 and receipt of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. Prospective investors should carefully consider, in
addition to the information set forth elsewhere in this Prospectus, the
following risk factors in evaluating the Company and the Common Stock offered
hereby.
Except for the historical information contained herein, the discussion
in this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the sections
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this Prospectus.
EARLY STAGE OF DEVELOPMENT
RPI is at a very early stage of development and must be evaluated in
light of the uncertainties and complications present in an early stage
biotechnology company. Since the Company's inception in 1992, substantially
all of the Company's resources have been dedicated to the research and
development of potential products and services based on ribozyme technology.
Therapeutic products, if any, resulting from the Company's research and
development programs are not expected to be commercially available for a
substantial number of years. No revenues have been generated from product
sales to date. There can be no assurance that any therapeutic products will be
successfully developed and proven to be safe and effective. The development of
new products and services is highly uncertain and subject to a number of
significant risks. There can be no assurance that any of the Company's product
development efforts or those of its collaborators and licensees will be
successfully completed, that regulatory approvals will be obtained or will be
as broad as sought, that any of the Company's potential products will be
capable of being produced in commercial quantities at reasonable cost or that
any products or services, if introduced, will achieve market acceptance.
TECHNOLOGICAL UNCERTAINTY
Drug discovery and development methods based upon ribozymes are
relatively new, and there can be no assurance that these methods will lead to
the discovery or development of commercial pharmaceutical products, that the
Company will be able to employ these methods of drug development successfully,
or that ribozyme products will be deliverable, safe or efficacious in humans.
While the Company has demonstrated the utility of ribozyme technology in model
systems in vitro and in animals, and has identified a number of ribozymes
worthy of additional testing, none of these potential products nor, to the
Company's knowledge, any other ribozyme-based compound has been shown to be
efficacious in humans. A significant amount of additional research and
development, requiring many years and substantial resources, will be required
to determine the potential of the Company's ribozyme technology for therapeutic
products. The Company's technology may, during the course of further research,
prove to be ineffective in the treatment of human disease or in other areas.
The Company must conduct significant additional research and development on
determining safe and effective methods of delivering ribozymes into the human
body for each indication for the Company's potential therapeutic products, and
must overcome a number of other technological challenges, such as enhancing the
delivery activity and stability of ribozymes and manufacturing ribozyme-based
therapeutic products on a commercial scale. In particular, a significant
amount of additional research and development is required to determine whether
ribozymes can be delivered effectively in vivo, including research and
development directed toward improving the delivery of ribozymes to specific
tissues and improving cellular uptake. There can be no assurance that
effective delivery of ribozyme-based products can be achieved. In addition,
the Company's use of vector delivery of ribozymes will require that the Company
overcome concerns relating to potential serious side effects associated with
vector delivery, such as mutagenicity (permanent DNA alteration). Many of
these technological and developmental challenges may be significantly greater
than those typically associated with traditional drug development, and may
never be overcome. The use of ribozymes in animal health, agricultural
applications and therapeutic target validation is subject to similar
developmental and technological uncertainties which may never be overcome.
There can be no assurance that even if the Company's potential products are
found to be safe and effective, or otherwise have utility, that the Company
will be able to manufacture them on a large commercial scale or market them in
an economical way. Further, it is possible that the
6
<PAGE> 8
proprietary rights of third parties will preclude the Company or its
collaborators and licensees from marketing products or that third parties will
market superior or equivalent products. As a result, there can be no assurance
that the Company's research and development activities will result in any
commercially viable products.
UNCERTAINTY OF PRODUCT DEVELOPMENT
Before obtaining regulatory approval for the commercial sale of any of
its potential products the Company must demonstrate, through pre-clinical
studies and clinical trials or corresponding animal health or agricultural
studies, that a potential product is safe and efficacious for use in each
target indication. There can be no assurance that results generated by
pre-clinical animal testing will be indicative of results of clinical testing
in humans when, and if, those tests are conducted. There can be no assurance
that potential products will be demonstrated to be safe and efficacious or will
receive necessary regulatory approvals. The Company may also experience delays
from its anticipated commencement dates for human clinical trials due to a
variety of factors including pre-clinical study results, delays or difficulties
in patient enrollment, delays in regulatory approvals and other factors. The
Company's potential products may prove to have undesirable and unintended side
effects or other characteristics that may prevent or limit their commercial
use. In addition, there can be no assurance that any of the Company's
potential products will ultimately obtain United States Food and Drug
Administration ("FDA"), other regulatory or foreign marketing approval for any
indication, that an approved product will be capable of being produced in
commercial quantities at reasonable cost or that any approved product will
achieve market acceptance.
HISTORY OF OPERATING LOSSES
RPI has experienced significant operating losses since its inception
in 1992. As of June 30, 1997, the Company had an accumulated deficit of
approximately $53.5 million. The Company expects to incur additional operating
losses over the next several years and expects cumulative losses to increase
substantially as the Company's research and development efforts and
pre-clinical and clinical testing expand. The Company's revenues to date have
been derived primarily from payments under collaborative arrangements. The
Company's ability to achieve profitability is dependent on its ability, alone
or with others, successfully to complete the development of products, conduct
clinical trials, obtain the required regulatory approvals and manufacture and
market products. There can be no assurance as to if or when the Company will
achieve profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
RPI's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and other countries. Patent matters in
biotechnology are highly uncertain and involve complex legal and factual
questions. Accordingly, the breadth of claims allowed in biotechnology and
pharmaceutical patents cannot be predicted. As of June 30, 1997, RPI held
exclusive rights to at least 25 issued United States patents and 7 issued
foreign patents. In addition, as of June 30, 1997, RPI had on file
approximately 100 United States and related foreign applications. There can be
no assurance that the Company will develop products or processes that are
patentable, that patents will issue from any of these applications or that
claims allowed on issued patents will be sufficient to protect the Company's
technology. There can be no assurance that the Company's issued patents or
patent applications, if issued, are enabled, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to the Company. Competitors
have filed applications, have been issued patents and may obtain additional
patents and proprietary rights relating to products or processes competitive
with those of the Company or which could affect the Company's issued patents or
efforts to obtain issued patents. Although the Company has filed patent
applications covering, among other things, a number of improvements and
modifications to ribozymes, the basic patents exclusively licensed to the
Company that cover the use of an enzymatic RNA to cleave a single stranded RNA
unless extended expire in 2008 in the United States and in 2007 in Europe.
There can be no assurance that any product developed by the Company or its
collaborators and licensees will be commercially available by the expiration
date of such patents. Furthermore, changes in United States patent laws
resulted from the General Agreement on Tariffs and Trade (the "GATT
Agreement"). Most notably, the GATT Agreement resulted in United States law
being amended to change the term of patent protection, for certain patent
applications
7
<PAGE> 9
filed after June 7, 1995, from 17 years from patent issuance to 20 years from
the earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology applications is often more than three
years, a 20-year patent term from the date of filing may result in a
substantially shortened term of patent protection, which may adversely affect
the Company's patent position.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received issued patents relating to ribozymes. The commercial success of the
Company will depend in part on RPI not infringing patents issued to competitors
and not breaching the technology licenses upon which any potential products are
based. It is uncertain whether the issuance of any third-party patents would
require the Company to alter its products or processes, obtain licenses or
cease certain activities. Some of these applications or patents may conflict
with the Company's issued patents or pending applications. Further, RPI is
aware that other companies have filed patent applications and have been granted
patents in the United States and other countries claiming subject matter that
may be useful to the Company for some of its potential products. Such conflict
could result in a significant reduction of the coverage of the Company's issued
or licensed patents. In addition, if patents exist or are issued to other
companies which contain competitive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If
any licenses are required, there can be no assurance that the Company will be
able to obtain any such license on commercially favorable terms, if at all. If
such licenses are not obtained, the Company might be prevented from pursuing
the development of certain of its potential products. The Company's breach of
an existing license or failure to obtain a license to any technology that it
may require to commercialize its products may have a material adverse impact on
the Company. Litigation, interference proceedings in the United States Patent
and Trademark Office, oppositions in non-United States countries or
reexaminations, which could result in substantial costs to and diversion of
efforts by the Company, may also be necessary to enforce or defend any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. If competitors of the Company prepare and file
patent applications in the United States that claim technology also claimed by
the Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
of invention, which could result in substantial cost to the Company, even if
the eventual outcome is favorable to the Company. The Company has filed
opposition documents against two patents granted to a competitor in Europe.
Opposition proceedings against certain European and Japanese patents of the
Company have been initiated by its competitors. In addition, interference
proceedings against certain of the Company's other patents and patent
applications are anticipated in the U.S. There can be no assurance that the
Company's issued or licensed patents would be held valid by a court of
competent jurisdiction. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using such
technology.
RPI relies on trade secrets to protect its technology in addition to
patent protection, especially where patent protection is not believed to be
appropriate or obtainable. RPI attempts to protect its proprietary technology
and processes in part by confidentiality agreements and assignment of invention
agreements with its employees and confidentiality agreements with its
consultants, collaborators and licensees. There can be no assurance that these
agreements will provide meaningful protection, that these agreements will not
be breached, that the Company would have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. To the extent that the Company or its
consultants, collaborators or licensees use intellectual property owned by
others in their work for the Company, disputes may also arise as to the rights
in related or resulting know-how and inventions. See "Business--Patents and
Proprietary Technology."
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company's strategy for the development, clinical testing,
manufacturing and commercialization of its potential products includes
collaborating with corporate partners, licensors, licensees and others and is
dependent upon the performance of responsibilities by these outside parties.
The Company is currently engaged in a number of corporate collaborations,
including product development and target validation service agreements and
technology licenses. Although the Company believes its collaborators and
licensees and any future collaborators and licensees have or will have a
motivation to perform their contractual responsibilities, the amount and timing
of resources to be devoted to collaborative activities by the Company's
collaborators and licensees are not within the control of the Company. There
can be no assurance that any collaborative relationship will be extended or
renewed, that the
8
<PAGE> 10
Company's collaborators and licensees will perform their obligations as
expected or that the Company will derive any additional revenue or other
benefits from such arrangements. There can be no assurance that the Company's
current or future collaborators and licensees will not pursue existing or
alternative technologies in preference to those being developed in
collaboration with the Company. In particular, the Company is aware that Chiron
is conducting product development programs that may be competitive with certain
of the RPI/Chiron collaborative programs. In addition, there can be no
assurance that the Company's collaborators and licensees will pay any
additional option or license fees to the Company or that they will develop and
market any products under the agreements. The Company's collaboration with
Chiron provides that the parties will share equally in the development costs
and profits of any jointly developed product. The Company will be required to
provide substantial funds to pay for its share of any such development costs,
and to the extent the Company is unwilling or unable to fund its share and
Chiron chooses to fund the entire development costs, the Company will forfeit
its interest in such product except for the right manufacture and receive a
predetermined royalty. There can be no assurance that Chiron will commit to
fund product development costs if the Company declines to participate.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such collaborative arrangements will be successful.
To the extent that the Company chooses not to or is unable to establish such
arrangements, it would require substantially greater capital to undertake
research, development and marketing of its proposed products at its own
expense. In addition, the Company may encounter significant delays in
introducing its proposed products into certain markets or find that the
development, manufacture or sale of its proposed products in such markets is
adversely affected by the absence of such collaborative agreements. See
"Business--Product Development Programs," "--Collaborative Relationships and
License Agreements," "--Manufacturing and Marketing Strategy" and "Certain
Transactions."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
RPI is engaged in a rapidly changing, highly competitive field. Other
products and therapies that may compete directly with the products that the
Company is seeking to develop and market currently exist or are being
developed. Many other companies are actively seeking to develop products,
including ribozymes and other products designed to modulate gene expression,
such as antisense oligonucleotides, that have disease targets similar to those
being pursued by the Company. Some of these competitive products are in
clinical trials. There can be no assurance that the Company's competitors will
not succeed in developing products based on ribozyme or other technologies,
existing or new, that are more effective than any that are being developed by
the Company or that would render the Company's ribozyme technologies obsolete
and noncompetitive. Moreover, there currently are commercially available
products for the treatment of certain disease targets being pursued by the
Company.
Competition from fully integrated pharmaceutical and biotechnology
companies and more established biotechnology companies is intense and is
expected to increase. Most of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
pre-clinical studies and clinical trials, obtaining regulatory approvals and
marketing than the Company. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and biotechnology companies. Many of these competitors have
products that have been approved or are in development and operate large, well
funded research and development programs. Academic institutions, governmental
agencies and other public and private research organizations also conduct
research, seek patent protection and establish collaborative arrangements for
products and clinical development and marketing. These companies and
institutions compete with the Company in recruiting and retaining highly
qualified scientific and management personnel. In addition to the above
factors, RPI faces competition based on product efficacy, safety, the timing
and scope of regulatory approvals, availability of supply, marketing and sales
capability, reimbursement coverage, price and patent position. There can be no
assurance that the Company's competitors will not develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than the Company. See "Business--Competition."
9
<PAGE> 11
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Development of the Company's products will require a commitment of
substantial additional funds to conduct the costly and time consuming research,
pre-clinical and clinical testing necessary to bring its potential products to
market and to establish manufacturing and marketing capabilities. The
Company's future capital requirements will depend on many factors, including,
among others, the progress of the Company's research, development and drug
discovery efforts, the ability of the Company to establish collaborative
arrangements for clinical testing, progress with pre-clinical studies and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims, competing technological and market developments,
changes in the Company's collaborative relationships, costs associated with the
acquisition of technology, if any, evaluation of the commercial viability of
the potential products, effective commercialization activities and
arrangements, and the cost and availability of third-party financing for
capital expenditures. Based on current projections, the Company estimates that
its existing capital resources and the net proceeds from this offering,
together with facility and equipment financing and expected revenues from its
collaborations, will be sufficient to fund the Company's requirements until
mid-1999 (assuming that the Company exercises its option to defer paying the
costs of any Phase II or subsequent clinical trials conducted under its
collaboration with Chiron until after such date). There can be no assurance
that the underlying assumed levels of revenue and expense will prove to be
accurate. Whether or not these assumptions prove to be accurate, the Company
will need to raise substantial additional capital to fund its operations. The
Company intends to seek such additional funding through collaborative
arrangements, public or private equity or debt financing, capital lease
transactions or other financing sources that may be available. However, there
can be no assurance that additional financing will be available on acceptable
terms or at all. If additional funds are raised through the sale of equity or
convertible debt securities, substantial dilution to existing stockholders may
result. In the event that additional funds are obtained through arrangements
with collaborators and licensees, such arrangements may require the Company to
relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop or commercialize
itself. If adequate funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its research or
development programs. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Collaborative Relationships and License Agreements."
UNCERTAINTY OF GOVERNMENTAL REGULATION
The FDA and comparable agencies in federal, state and local
jurisdictions and in foreign countries impose substantial requirements upon the
manufacturing and marketing of products such as those proposed to be developed
by the Company or its collaborators and licensees. The process of obtaining
FDA and other required regulatory approvals is lengthy and expensive. The time
required for FDA and other regulatory approvals is uncertain and typically
takes a number of years, depending on the type, complexity and novelty of the
product. The Company or its collaborators and licensees may encounter
significant delays or excessive costs in their efforts to secure necessary
approvals or licenses. Because certain of the products that may result from
the Company's research and development programs involve the application of new
technologies and will be based on a new therapeutic approach, such products may
be subject to substantial additional review by various governmental regulatory
authorities and as a result, regulatory approvals may be obtained more slowly
than for products using more conventional technologies. There can be no
assurance that FDA and other regulatory approvals will be obtained in a timely
manner, if at all. Any delay in obtaining, or the failure to obtain, such
approvals would adversely affect the Company's ability to generate product or
royalty revenues. Even if FDA and other regulatory approvals are obtained, the
marketing and manufacturing of products are subject to continuing FDA and other
regulatory review, and later discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market. Additional
governmental regulations may be promulgated that could delay regulatory
approval of the Company's or a corporate partner's potential products. The
Company cannot predict the impact of adverse governmental regulation which
might arise from future legislative or administrative action. See
"Business--Government Regulation."
10
<PAGE> 12
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on its corporate officers and other
principal members of its scientific and management staff, the loss of any of
whose services might significantly delay or prevent the achievement of the
Company's research, development or business objectives. In addition, the
Company relies on consultants and advisors, including the members of its
Scientific Advisory Board, to assist the Company in formulating its research
and development strategy. Retaining and attracting qualified personnel,
consultants and advisors is critical to the Company's success. In order to
pursue its product development and marketing plans, the Company may be required
to hire additional qualified scientific personnel to perform research and
development, as well as personnel with expertise in clinical testing,
government regulation, manufacturing, and marketing. These requirements are
also expected to demand the addition of management personnel and the
development of additional expertise by existing management personnel. The
Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to
attract and retain such individuals on acceptable terms, if at all, and the
failure to do so could have a material adverse effect on the Company, including
its ability to conclude collaborations with additional collaborators and
licensees. See "Management."
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
The Company currently has manufacturing facilities to produce limited
quantities of some of its compounds for research and development, pre-clinical
and some clinical purposes. The potential pharmaceutical products under
development by the Company and its collaborators and licensees have never been
manufactured on a commercial scale and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable. If the Company or its collaborators or licensees is
unable to manufacture or contract for a sufficient supply of its potential
products on acceptable terms, or if it or they should encounter delays or
difficulties in its relationships with manufacturers, the Company and its
collaborators and licensees' pre-clinical and human clinical testing schedule
would be delayed, resulting in a delay in the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products, which would have a material adverse effect on the Company. Moreover,
if a vector delivery approach is required, a viral or non-viral vector that
contains the ribozyme must be obtained. There can be no assurance that the
Company or its collaborators or licensees will be able to obtain licenses to,
or the appropriate manufacturing of, such a vector with sufficient quality and
quantity, and such potential difficulty would have a material adverse effect on
the Company. Furthermore, RPI or contract manufacturers must adhere to current
Good Laboratory Practices and current Good Manufacturing Practices ("cGMP")
regulations enforced by the FDA through its facilities inspection program. If
these facilities cannot pass a pre-approval plant inspection, the FDA
pre-market approval of the products will not be granted. See
"Business--Manufacturing and Marketing Strategy."
LACK OF SALES AND MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution
capability. The Company intends to rely on relationships with pharmaceutical
and biotechnology companies with established distribution systems and direct
sales forces to market certain of its products and may decide to market other
products directly. To market any of its products directly, the Company must
develop a marketing and sales force with technical expertise and with
supporting distribution capability. There can be no assurance that the Company
will be able to establish in-house sales, marketing and distribution
capabilities or relationships with third parties, or that it will be successful
in gaining market acceptance for its products. To the extent that the Company
enters into co-promotion or other licensing arrangements, any revenues received
by the Company will depend upon the efforts of third parties, and there can be
no assurance that such efforts will be successful. See
"Business--Manufacturing and Marketing Strategy."
UNCERTAINTY OF PHARMACEUTICAL PRICING, THIRD-PARTY REIMBURSEMENT AND HEALTH
CARE REFORM MEASURES
The business and financial condition of pharmaceutical and
biotechnology companies will continue to be affected by the efforts of
governmental and third party payors to contain or reduce the costs of health
care. In the United States and in certain foreign jurisdictions there have
been, and the Company expects that there will continue to be, a number of
legislative and regulatory proposals aimed at changing the health care system.
While the
11
<PAGE> 13
Company cannot predict whether any such legislative or regulatory proposals
will be adopted or the effect that such proposals may have on its business, the
pendency or approval of such proposals could have a material adverse effect on
the Company's ability to raise capital or to obtain additional collaborators or
licensees, and the adoption of such proposals could have a material adverse
effect on the Company.
In both domestic and foreign markets, sales of the Company's potential
products will depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. Future legislation and regulations
affecting the pricing of pharmaceuticals could further limit reimbursement for
medical products and services. There can be no assurance that any of the
Company's potential products will be considered cost effective or that adequate
third-party reimbursement would be available to enable RPI to maintain price
levels sufficient to realize an appropriate return on its investment in product
development. In addition, the trend toward managed health care in the United
States and the concurrent growth of organizations, such as health maintenance
organizations, which could control or significantly influence the purchase of
health care services and products, as well as legislative proposals to reduce
government insurance programs, may all result in pricing pressure for any
products that might be developed by the Company. See "Business--Government
Regulation."
RISK OF PRODUCT LIABILITY; POSSIBLE INABILITY TO OBTAIN INSURANCE
The Company's business will expose it to potential product liability
risks that are inherent in the testing, manufacturing and marketing of human
therapeutic products. The Company currently has no clinical trial liability
insurance and there can be no assurance that it will be able to obtain and
maintain such insurance for any of its clinical trials. In addition, there can
be no assurance that the Company will be able to obtain or maintain product
liability insurance in the future on acceptable terms or with adequate coverage
against potential liabilities. An inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of
pharmaceutical products developed by the Company or its collaborators and
licensees. Further, the Company's collaborative agreement with Chiron requires
that the Company obtain certain insurance coverage in the future. Failure to
obtain such coverage could result in a breach by the Company of such agreement,
which could give rise to rights of termination on the part of Chiron. A
product liability claim or recall would have a material adverse effect on the
business and financial condition of the Company.
HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. The Company may incur
substantial costs to comply with environmental regulations if the Company
develops manufacturing capacity. See "Business--Government Regulation."
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market price of the shares of Common Stock, like that of the
common stock of many other early-stage biopharmaceutical companies, is highly
volatile. Factors such as announcements of technological innovations or new
commercial products by the Company or its competitors, progress with clinical
trials, governmental regulation, changes in reimbursement policies,
developments in patent or other proprietary rights of the Company or its
competitors, including litigation, developments in the Company's relationships
with current or future collaborators and licensees, if any, public concern as
to the safety and efficacy of drugs developed by the Company and its
competitors, changes in estimates of the Company's performance by securities
analysts, fluctuations in the Company's operating results and general market
conditions may have a significant effect on the market price of the
12
<PAGE> 14
Common Stock. The Company has never paid any cash dividends and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy," and "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
following the offering made hereby could have an adverse effect on the price of
the Company's Common Stock. Upon the closing of this offering approximately
5,996,801 shares (including the 1,400,000 shares sold in this offering) will be
eligible for immediate resale in the public market. Additionally, upon
expiration or early termination of 90 day lockup agreements with Montgomery
Securities, 2,392,825 shares of Common Stock will be eligible for sale in the
public market, subject to the volume limitations of Rule 144 under the
Securities Act. On May 9, 1998, 212,766 additional shares will be eligible for
sale pursuant to the provisions of Rule 144 under the Securities Act. Certain
existing stockholders have rights under certain circumstances to require the
Company to register their shares for future sale. See "Description of Capital
Stock--Registration Rights," and "Plan of Distribution."
DILUTION
The public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will therefore incur immediate and substantial
dilution. Additional dilution will occur upon the exercise of outstanding
options with exercise prices below the public offering price. See "Dilution."
ANTI-TAKEOVER CONSIDERATIONS
The Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock and to fix the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of and the voting and
other rights of the holders of the Common Stock. The Company has no present
plans to issue shares of preferred stock. In addition, certain provisions of
the Company's Bylaws and of Delaware law applicable to the Company could have
the effect of discouraging certain attempts to acquire the Company which could
deprive the Company's stockholders of the opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices. See "Description
of Capital Stock."
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Following completion of this offering, directors, executive officers
and principal stockholders of the Company, and certain of their affiliates,
will beneficially own approximately 27.8% of the outstanding shares of Common
Stock. Accordingly, these persons, individually and as a group, may be able to
effectively control the Company and direct its affairs and business, including
any determination with respect to the acquisition or disposition of assets by
the Company, future issuance's of Common Stock or other securities by the
Company, declaration of dividends on the Common Stock and the election of
directors. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Principal Stockholders."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,400,000 shares
of Common Stock offered by the Company hereby are estimated to be $12,000,000
after deducting the estimated placement fee and offering expenses.
There can be no assurance that the Company will be successful in
selling any or all of the shares of Common Stock offered hereby. The Company
has not fixed a minimum number of shares of Common Stock to be sold pursuant to
this offering. Therefore, the Company may sell less than all of the shares of
Common Stock offered hereby, which may significantly reduce the amount of
proceeds received by the Company.
The Company expects that approximately $10,600,000 of the aggregate
net proceeds of this offering will be used to fund the Company's research and
development efforts, including ongoing development of the Company's
technologies, pre-clinical and clinical testing and other costs associated with
the Company's pharmaceutical discovery and development programs. The remainder
of the aggregate net proceeds will be used for working capital and general
corporate purposes. The amounts actually expended for each purpose may vary
significantly depending upon a number of factors, including: the progress of
the Company's research, development and drug discovery efforts; the ability of
the Company to establish collaborative arrangements; progress with pre-clinical
studies and clinical trials; the time and costs involved in obtaining
regulatory approvals; the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims; competing technological and
market developments; changes in the Company's collaborative relationships;
costs associated with the acquisition of technology, if any; evaluation of the
commercial viability of potential products; effective commercialization
activities and arrangements; and the cost and availability of third-party
financing for capital expenditures. Based on current projections, the Company
estimates that its existing capital resources, the net proceeds from this
offering, together with facility and equipment financing and expected revenues
from its collaborations, will be sufficient to fund the Company's requirements
until mid-1999 (assuming that the Company exercises its option to defer paying
the costs of any Phase II or subsequent clinical trials conducted under its
collaboration with Chiron until after such date). Pending such uses, the
Company intends to invest the aggregate net proceeds from this offering and
from Chiron in short-term, investment-grade, interest-bearing securities. The
Company may also use a portion of such net proceeds to acquire or invest in
businesses, products and technologies that are complementary to those of the
Company, although no agreements have been entered into as of the date of this
Prospectus with respect to any such acquisition or investment. See
"Management's Discussions and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources" and "Business--Collaborative
Relationships and License Agreements."
14
<PAGE> 16
DIVIDEND POLICY
The Company has never declared or paid cash dividends and currently
intends to retain any future earnings to finance the growth and development of
its business. The Company's ability to pay dividends is restricted by the
terms of its tenant improvement, equipment loan facility agreements and its
line of credit with Schering.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National
Market under the symbol RZYM, since April 11, 1996. The Company's initial
public offering price was $10.00 per share. The following table sets forth,
for the fiscal periods indicated, the range of high and low sale prices per
share of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
Second Quarter...................................... $21.25 $10.00
Third Quarter....................................... 14.75 8.81
Fourth Quarter...................................... 13.13 8.38
1997
----
First Quarter....................................... $16.50 $9.88
Second Quarter...................................... 12.38 8.63
Third Quarter (to September 3, 1997)................ 9.25 7.38
</TABLE>
As of August 22, 1997, there were 169 stockholders of record. On
September 3, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $9.25 per share.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997 and such capitalization as adjusted to reflect the sale of
1,400,000 shares of Common Stock offered hereby, at an assumed offering price
of $9.25 per share and receipt of the estimated net proceeds therefrom. See
"Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, net of
current portion................................................................ $ 2,149 $ 2,149
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized and no shares outstanding
actual and pro forma as adjusted............................................. -- --
Common Stock, $.01 par value; 20,000,000 shares authorized
and 7,193,819 shares outstanding actual and 8,593,819 shares
outstanding pro forma as adjusted(1)......................................... 72 86
Additional paid-in capital..................................................... 70,591 82,577
Deferred compensation and other................................................ (197) (197)
Accumulated deficit............................................................ (53,518) (53,518)
-------- --------
Total stockholders' equity................................................... 16,948 28,948
-------- --------
Total capitalization.................................................... $ 19,097 $ 31,097
======== ========
</TABLE>
- -----------------------
(1) Excludes as of June 30, 1997: (i) 910,462 shares of Common Stock
issuable upon exercise of stock options outstanding as of August 22,
1997 at a weighted average exercise price of approximately $9.36 per
share, (ii) 487,458 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $22.76,
and (iii) 603,314 shares of Common Stock available for future grants
under the Company's stock option plan. See "Management--Stock Option
Plan," "Certain Transactions" and "Description of Capital Stock--
Warrants."
16
<PAGE> 18
DILUTION
At June 30, 1997, the net tangible book value of the Company was $14.6
million or $2.03 per share. Net tangible book value per share is equal to the
Company's total tangible assets less its total liabilities, divided by the
number of shares of Common Stock outstanding. Net tangible book value dilution
per share represents the difference between the amount per share paid by the
purchasers of shares in the offering and the pro forma net tangible book value
per share of Common Stock immediately after completion of this offering. After
giving effect to the sale by the Company of 1,400,000 shares of Common Stock
offered hereby (at an assumed offering price of $9.25 per share and after
deducting the estimated placement fee and offering expenses) the pro forma net
tangible book value of the Company at June 30, 1997 would have been
approximately $26.6 million, or $3.09 per share, representing an immediate
increase in such pro forma net tangible book value of $1.06 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $6.16 per share to purchasers of Common Stock in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed price per share to public $ 9.25
Net tangible book value per share at June 30, 1997 $ 2.03
Increase per share attributable to new investors 1.06
-----
Pro forma net tangible book value per share after offering 3.09
------
Dilution per share to new investors $ 6.16
======
</TABLE>
The foregoing computations assume no exercise of outstanding options
or warrants. See Footnote (1) under "Capitalization." To the extent that
outstanding options or warrants are exercised, there may be further dilution to
new investors.
17
<PAGE> 19
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected financial data for the years ended December 31,
1995 and 1996 are derived from the financial statements of the Company that
have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus and are qualified by reference to such
financial statements and related notes thereto. The statement of operations
data for the years ended December 31, 1993 and 1994 and the period from January
27, 1992 (inception) to December 31, 1992 and the balance sheet data at
December 31, 1992, 1993 and 1994 have been derived from audited financial
statements of the Company audited by Ernst & Young LLP that are not included or
incorporated by reference herein. The statement of operations data for the six
months ended June 30, 1996 and 1997 and balance sheet data at June 30, 1997 are
derived from unaudited financial statements included elsewhere in this
Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair statement of the information set forth therein. Operating
results for the six months ended June 30, 1997 are not necessarily indicative
of the results that may be expected for any future period. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and related Notes included herein.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 27,
1992 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
STATEMENT OF OPERATIONS DATA: DECEMBER 31, ---------------------------------------- -----------------
Revenues 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Collaborative agreements..... $ -- $ 542 $ 1,145 $ 1,178 $ 759 $ 759 $ 894
Grant and other income....... 190 198 172 102 14 4 3
Interest income.............. 168 451 270 395 936 348 382
------- ------- ------- -------- -------- ------- -------
Total revenues............ 358 1,191 1,587 1,675 1,709 $ 1,111 $ 1,279
Costs and expenses:
Research and development..... 3,091 6,990 9,212 12,204 14,189 7,666 6,154
General and administrative... 591 1,047 1,291 1,397 1,943 1,152 822
Interest expense............. 28 187 334 554 845 449 437
------- ------- ------- -------- -------- ------- -------
Total costs and
expenses............... 3,710 8,224 10,837 14,155 16,977 9,267 7,413
Net loss.......................... $(3,352) $(7,033) $(9,250) $(12,480) $(15,268) $(8,156) $(6,134)
======= ======= ======= ======== ======== ======= =======
Pro forma net loss per share(1)... $ (2.13) $ (2.87) $ (3.52) $ (3.86) $ (2.61) $ (1.72) $ (0.87)
======= ======= ======= ======== ======== ======= =======
Shares used in computing
pro forma net loss per
share(1) ....................... 1,574 2,453 2,627 3,230 5,845 4,731 7,038
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AS OF JUNE
---------------------------------------------------- 30,
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and
securities available-for-sale...... $ 13,364 $ 9,426 $ 7,734 $ 6,420 $17,594 $ 13,269
Working capital..................... 13,245 8,332 5,640 4,648 15,788 11,678
Total assets........................ 15,872 13,399 12,392 14,223 25,292 21,165
Capital lease obligations and long-
term debt net of current portion... 821 1,611 1,853 3,179 2,430 2,151
Accumulated deficit................. (3,352) (10,385) (19,635) (32,115) (47,383) (53,518)
Total stockholders' equity.......... 14,601 10,536 8,247 8,478 20,362 16,948
</TABLE>
- --------------------
(1) See Note 1 of Notes to Financial Statements for information concerning
the computation of pro forma net loss per share.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
RPI was founded to capitalize on the broad potential of ribozymes for
use in the development of human therapeutics and therapeutic target validation
services. The Company's technology is based on Professor Thomas R. Cech's
discovery of "ribozymes," for which he shared a Nobel Prize in 1989. Ribozymes
are a form of ribonucleic acid that have the ability to selectively inhibit
protein production. Because many disease states are the result of abnormal
protein production, ribozymes are potentially applicable to a wide range of
human diseases. RPI believes that its ribozyme technology may provide a new
paradigm for drug design and disease treatment and may be a significant tool
for the identification of gene function and target validation. The Company has
entered into a collaboration with Chiron to develop ribozyme products for
specific therapeutic targets in human health, a second collaboration with
Chiron in the target validation area, and a collaboration with Schering to
validate new therapeutic targets from gene sequence data using the Company's
functional genomics technology. The Company has also licensed its technology to
DowElanco for certain agricultural applications and IntelliGene for certain
diagnostic applications.
The Company completed its initial public offering in April 1996
resulting in net proceeds of approximately $20.6 million. Concurrent with the
closing of the offering, Chiron purchased common stock at an aggregate purchase
price of $3.6 million and paid the Company an additional $1.8 million to
complete the purchase of a warrant issued to Chiron upon the closing.
The Company does not anticipate revenues from product sales in the
foreseeable future. The Company has incurred losses since inception and, as of
June 30, 1997, had an accumulated deficit of $53.5 million. The Company
anticipates incurring additional losses over at least the next several years as
it expands its research and development programs, including pre-clinical
studies and clinical trials. Such expansion will result in increases in both
research and development and general and administrative expenses. The Company's
sources of funds for the next several years will be payments from strategic
collaborations and licensing arrangements, if any, sale of equity and interest
income. Certain payments under strategic collaborations are contingent upon
the Company meeting certain milestones. Payments under strategic
collaborations and licensing arrangements will be subject to significant
fluctuation in both timing and amount and therefore the Company's results of
operations for any period may not be comparable to the results of operations
for any other period.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1997
Collaborative revenues increased 18% to $894,000 for the six months
ended June 30, 1997, from $759,000 for the corresponding period in 1996. The
increase is primarily due to a $500,000 quarterly research payment made by
Schering in April 1997. The April payment was the first in the Schering
collaboration which includes $2.0 million in annual research funding over the
five year term of the collaboration. Generally, collaborative agreement and
contract revenue fluctuations are the result of changes in the number of funded
research projects as well as the timing and completion of contract milestones.
Interest income increased to $382,000 for the six month period ended
June 30, 1997 compared to $348,000 for the corresponding period in 1996. The
increase is due to the receipt of net proceeds from the Company's public
offering in April 1996 resulting in higher average invested cash balances for
the first six months in 1997 compared to the same period in 1996. Interest
income generally fluctuates as a result of the average amount of cash available
for investment and prevailing interest rates.
Research and development expenses decreased 25% to $6.2 million for
the six months ended June 30, 1997, compared to $7.7 million for the
corresponding period in 1996. The decrease is due to a one-time $1.8 million
research funding expense relating to a collaboration agreement with Chiron
regarding gene function
19
<PAGE> 21
determination, which was recorded in May 1996. The Company expects research
and development expenses to increase as it expands its research and development
programs, including pre-clinical studies and clinical trials.
General and administrative expenses decreased 40% to $822,000 for the
six months ended June 30, 1997, compared to $1.2 million for the corresponding
period in 1996. The decrease in general and administrative expense is
primarily due to one-time cash and stock bonus payments made to the Company's
executive officers in connection with the initial public offering in April
1996. The Company expects general and administrative expenses to increase as a
result of hiring additional management and administrative personnel and the
incurring of legal and other professional fees in connection with the overall
scale-up of the Company's operations and business development efforts.
Interest expense decreased to $437,000 for the six months ended June
30, 1997, compared to $449,000 for the corresponding period in 1996. The
decrease is attributable to the buy out of capital leases that terminated in
the last half of 1996 and during the first six months of 1997.
Years Ended December 31, 1995 and December 31, 1996
Revenues from collaborative agreements and grants decreased $527,000
to $773,000 for the year ended December 31, 1996, compared to $1.3 million for
the year ended December 31, 1995. Collaborative revenues for 1996 include a
one-time payment in the first quarter from Pharmacia Biotech AB ("Pharmacia
Biotech") under an agreement related to the development of improved synthesis
and purification methods for the preparation of modified amidites and chimeric
oligonucleotides. Collaborative agreements and contract revenue fluctuations
are generally the result of changes in the number of funded research projects
as well as the timing and completion of contract milestones.
Interest income for the year ended December 31, 1996 increased
$541,000 to $936,000 from $395,000 for the year ended December 31, 1995, due to
increased average invested cash balances resulting from the investment of the
proceeds from the Company's initial public offering completed in April 1996.
Interest income generally fluctuates as a result of cash available for
investment and prevailing interest rates.
Research and development expenses for the year ended December 31, 1996
increased $2.0 million to $14.2 million from $12.2 million for the year ended
December 31, 1995. The increase was primarily due to a one-time $1.8 million
payment to Chiron pursuant to a collaborative agreement. In addition, a
$540,000 charge was recognized in 1996 for the issuance of 45,000 shares of
Common Stock in exchange for the elimination of future commercial product
royalty payments. Research and development expenses consist primarily of
salaries and benefits for scientific, regulatory, quality control and pilot
manufacturing personnel, consultants, supplies, occupancy costs and
depreciation for laboratory equipment and facilities.
General and administrative expenses increased $500,000 to $1.9 million
for the year ended December 31, 1996 compared to $1.4 million for the year
ended December 31, 1995. The increase in general and administrative expenses is
primarily due to one time cash and stock bonus payments made to the Company's
executive officers in connection with the public offering, as well as the
hiring of additional management and administrative personnel and the increased
legal and other professional fees in connection with the overall scale-up of
the Company's operations and business development efforts following the initial
public offering.
Interest expense increased $291,000 to $845,000 for the year ended
December 31, 1996 compared to $554,000 for the year ended December 31, 1995.
The increase is primarily attributable to increased borrowings on long-term
debt during late 1995 which were used to fund the Company's expansion of its
laboratory and office space.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed it operations since inception through a
public offering in April 1996, private placements of preferred stock, and funds
received under the Company's collaborative agreements with Schering,
20
<PAGE> 22
Chiron, the Parke-Davis Division of Warner-Lambert Company ("Parke-Davis") and
DowElanco. As of June 30, 1997 the collaborations with Parke-Davis and
DowElanco have been completed. From inception through June 30, 1997, the
Company has received approximately $29.0 million in net proceeds from private
placements, $20.6 million in net proceeds from the initial public offering and
$22.3 million from its collaborations.
The Company's cash, cash equivalents and securities available-for-sale
were $13.3 million at June 30, 1997, compared to $17.6 million on December 31,
1996. The $4.3 million decrease in cash, cash equivalents and securities
available-for-sale is primarily the result of cash used for research and
development, investment in equipment, payments under loan facilities and for
general corporate purposes, offset by net proceeds from the sale of Common
Stock.
The Company invests its cash, cash equivalents and securities
available-for-sale in interest-bearing investment grade securities.
Total additions for property, plant and equipment for the six months
ended June 30, 1997, were $880,000, including $254,000 of additions financed
through the Company's existing equipment loan facilities.
As of June 30, 1997, up to $2.0 million in loans are available to the
Company in each calendar year through the year 2001, from Schering. The loans
are related to the Schering research collaboration entered into in April 1997.
Amounts not used in any calendar year may be carried forward to future years.
According to the terms of the Company's agreement with Schering, 50% of any
borrowings on the line of credit must be collateralized by equipment purchases.
In addition to the line of credit, Schering has agreed to provide $2.0 million
in annual research funding for each year through April 2001 and will make an
additional equity investment of $2.5 million in May 1998. All such payments
are subject to certain restrictions, including receipt of certain third party
consents, and are subject to the termination of the research collaboration at
Schering's option at any time after April 9, 1998. See
"Business--Collaborative Relationships and License Agreements" and Note 7 of
Notes to Financial Statements.
The Company estimates that its existing capital resources, together
with facility and equipment financing and expected revenues from its
collaborative agreements, will be sufficient to fund its current and planned
operations at least until late 1998. There can be no assurance, however, that
changes in the Company's research and development plans, funding of technology
development, or other changes affecting the Company's operating expenses will
not result in the expenditure of such resources before such time and, in any
event, the Company will need to raise substantial additional capital to fund
its operations in future periods. Such additional capital may be raised
through public or private financing, as well as collaborative relationships,
borrowing and other available sources. See "Risk Factors--Future Capital
Needs; Uncertainty of Additional Funding."
At December 31, 1996, the Company had available net operating loss
carryforwards, research and development credit carryforwards and state
investment credit carryforwards of $47 million, $922,000 and $31,000,
respectively, for income tax purposes. The Company's ability to utilize its
net operating loss carryforwards is subject to an annual limitation in future
periods pursuant to the "change in ownership" rules under Section 382 of the
Internal Revenue Code of 1986 . See Note 10 of Notes to Financial Statements.
21
<PAGE> 23
BUSINESS
OVERVIEW
RPI was founded to capitalize on the broad potential of ribozymes for
use in the development of human therapeutics and therapeutic target validation
services. The Company's technology is based on Professor Thomas R. Cech's
discovery of "ribozymes," for which he shared a Nobel Prize in 1989. Ribozymes
are a form of ribonucleic acid that have the ability to selectively inhibit
protein production. Because many disease states are the result of abnormal
protein production, ribozymes are potentially applicable to a wide range of
human diseases. RPI believes that its ribozyme technology may provide a new
paradigm for drug design and disease treatment and may be a significant tool for
the identification of gene function and target validation. The Company has
entered into a collaboration with Chiron to develop ribozyme products for
specific therapeutic targets in human health, a second collaboration with Chiron
in the target validation area, and a collaboration with Schering to validate new
therapeutic targets from gene sequence data using the Company's functional
genomics technology. The Company has also licensed its technology to DowElanco
for certain agricultural applications and IntelliGene for certain diagnostic
applications.
The Company believes that its proprietary ribozyme technology platform
has the potential to address many of the issues associated with traditional
pharmaceuticals and drug discovery. Ribozymes perform functions that are
different from those performed by ordinary RNA in that, after binding
selectively to their specific messenger RNA target, ribozymes act
catalytically to cut, or cleave, the target mRNA molecule whereupon the mRNA is
destroyed. Once the mRNA target is destroyed, the particular protein for which
the mRNA molecule carries information will not be produced, indicating that
ribozymes may be broadly applicable in the control of protein production or
gene expression. In general, the vast majority of diseases involve either
inappropriate expression of proteins or RNA viruses. In addition, ribozymes
can be designed to select for a single specific target genetic sequence. The
Company believes this highly selective mechanism of action has the potential to
minimize the side effects of its therapeutic products. Also, because ribozymes
are not consumed in the act of cleaving the target mRNA, a single ribozyme may
cleave multiple targets, thus potentially leading to lower ribozyme dosing
requirements.
RPI's business strategy is to utilize its ribozyme technology to
develop a new and novel class of human therapeutic products and a service
business for therapeutic target validation. Additionally, RPI will continue to
seek partners to license the technology in areas such as agriculture, animal
health and diagnostics. The Company plans to develop therapeutic products
through both internal programs and collaborations. In addition to using
ribozymes to develop therapeutic products, RPI believes that its ribozyme
technology may be used as a drug discovery technology to characterize the
function of potential target genes. Since ribozymes can be designed to select
for a single target genetic sequence, ribozymes may be used to identify the
function of that sequence. As a result, links between gene dysfunction and
disease can be validated. The Company has entered into collaborations with
Chiron and Schering to use the Company's ribozyme technology to determine the
function of selected genes and gene sequences, and plans to enter into
additional partnerships in this area in the future.
22
<PAGE> 24
The Company is working with Chiron on the development of a number of
products targeted at viral diseases, cancer, restenosis and ocular diseases.
In April 1996, RPI was granted NIH Recombinant DNA Advisory Committee exemption
for its proposed clinical trial of a retroviral vector containing two ribozymes
to treat blood progenitor cells from HIV-infected individuals. In January 1997,
RPI and Chiron received approval of their Investigational New Drug Application
with the U.S. Food and Drug Administration, and a Phase I/IIa clinical trial
was initiated in March 1997. The physician-sponsored study seeks first to
demonstrate the safety of reinfusion of the ribozyme containing cells and
second to measure the ability of ribozyme-expressing cells to engraft and
survive after reinfusion into HIV-infected patients. This study is part of a
collaboration between RPI, Chiron, the City of Hope, and Childrens Hospital in
Los Angeles. See "Business--Product Development Programs" and "--Collaborative
Relationships and License Agreements."
RPI believes that its patents and proprietary technology provide a
significant competitive advantage in the field of ribozymes. At the core of
RPI's technology are inventions and patents of Dr. Cech and various of his
associates. RPI believes that licenses to these patents and those filed by RPI
grant the Company the exclusive right to control the manufacture, use and sale
of ribozymes and any products that incorporate ribozymes.
BACKGROUND
Many disease states are characterized by abnormal production of gene
products such as proteins. The abnormality may be due to a defective gene or
to over-production of a protein by a "normal" gene. Such abnormal or excessive
production of protein may have direct effects on cells within the body or may
initiate a cascade of events involving other proteins within the body, thereby
producing disease.
Production of proteins from genes, called protein "expression,"
involves two steps. First, the information from the DNA of the gene is
"transcribed" to mRNA. The second step involves "translation" of the mRNA and
its information into a protein. This process by which genetic information is
"expressed" in the form of a protein is highly selective; production of a
particular protein requires its own specific DNA which leads to a specific mRNA
molecule.
DRUG DISCOVERY
Traditional drug discovery and development is difficult, time
consuming and extremely costly. Historically, diseases have been treated using
therapeutic agents, or drugs, based on clinical observation of symptoms which
were correlated with abnormal physiological processes and, where possible,
biochemical changes. Most drugs are chemicals designed to inhibit or induce
the function of the target molecule with as few unwanted side effects as
possible. These drugs generally have been discovered through a complex,
lengthy and expensive process of elimination. The process begins by selecting
a possible target (usually a protein), developing a screening assay, chemically
synthesizing large numbers of different molecules which are tested in cell
cultures and in animal models for their effect on the target, using those
results to narrow the number of molecules down to a few possible lead
molecules, and then refining the lead molecules through additional chemical
synthesis and testing, including testing in humans. Unfortunately, drugs
produced from this process are typically molecules whose desired effect on the
target is accompanied by undesirable side effects on non-targeted molecules,
also referred to as a "toxicity" or "lack of selectivity," which can limit
effective use of the drug.
Pharmaceutical companies are under intense pressure to find
alternatives to traditional drug discovery and development in an effort to
identify and commercialize novel drugs more quickly and cost effectively and
with fewer side effects. The Company also believes that pricing pressures from
managed care organizations, governmental agencies and third party payers,
coupled with the proliferation of technologies that offer revolutionary
approaches to drug design and development, are causing major shifts in the
paradigms of drug discovery and development.
23
<PAGE> 25
ADVANTAGES OF RIBOZYMES
The Company believes that ribozymes may offer certain advantages over
other therapeutic approaches for the treatment of diseases.
Potential Broad Applicability. Some genes and their corresponding RNA
or proteins have already been identified as having causative roles in human
disease pathology, animal health, and agriculture. In addition, identification
of new genes is rapidly increasing in both the public and private sector, and
it is expected that all of the genes which comprise the human genome will be
identified within the current decade. Once a gene has been sequenced,
ribozymes can be designed to inhibit the production of a protein from the
associated mRNA. Therefore, all diseases for which a causative protein or gene
target can be identified present a potential application for the Company's
ribozyme technology. The Company believes that its ribozyme technology is an
important bridge between the growing body of knowledge of the human genome and
the development of human therapeutics.
High Selectivity. The mechanism by which traditional drugs act on a
target gene or protein often is not well understood. Consequently, side effect
profiles of such drugs are difficult to predict and characterize. Other
therapeutic approaches may result in interactions with non-targeted molecules
that cause unintended side effects. The Company believes these side effects
may be reduced or avoided with ribozymes because of their selectivity in
binding and cleaving the target mRNA. The Company believes that ribozymes may
be constructed with a nucleotide binding sequence that will match only one
corresponding target mRNA, and the target mRNA sequence is expected to appear,
on a statistical basis, only once in the entire human genome.
Catalytic Action. Since ribozymes act catalytically, they are not
consumed in the act of cleaving the target mRNA. Therefore, a single ribozyme
may cleave multiple target mRNA molecules. The Company believes that dosage
requirements for ribozymes may be lower than traditional pharmaceuticals due to
their catalytic activity.
Target is Destroyed. Instead of temporarily preventing expression of
a target gene, ribozymes cut the target mRNA into fragments, which are
subsequently degraded by cellular nucleases. Since the target mRNA is
destroyed in the process, expression of the disease-causing protein can be
controlled. By contrast, most other therapeutics do not destroy their target
molecule.
RPI'S BUSINESS STRATEGY
RPI's objectives are to develop human therapeutics, to exploit its
ribozyme technology platform as a functional genomic tool for target validation
and gene function identification and to license animal health products and
agricultural products. The Company's strategy for achieving these objectives
includes the following elements:
Develop Human Therapeutic Products. RPI plans to exploit its ribozyme
technology to develop a broad range of human therapeutic products through
alliances with collaborators and licensees directed at target-specific products
and internal product development programs. The Company has established a
collaboration with Chiron to pursue the development of ribozyme based products
which are targeted at specific mRNA molecules, and is also conducting an
internal drug development program.
Pursue Additional Collaborations in Therapeutic Target Validation. The
Company believes that application of its ribozyme technology can accelerate
identification of gene function and validate gene "targets" leading to highly
selective therapeutic compounds. The Company has entered into collaborative
agreements with Chiron and Schering to determine the validity of selected genes
and gene sequences as therapeutic targets. The Company will continue to pursue
additional partners in the pharmaceutical and biotechnology industries for the
purpose of further exploiting this commercial opportunity with its ribozyme
technology.
License Non-Human Health Applications. RPI plans to exploit
additional opportunities in diagnostics, agriculture and animal health by
licensing the ribozyme technology to partners. The Company has completed a
feasibility study for certain agricultural applications with DowElanco and has
licensed its technology to DowElanco for certain agricultural applications.
Additionally, the Company has licensed its technology to IntelliGene for
certain diagnostic applications.
24
<PAGE> 26
Maintain and Expand Patent Portfolio and Proprietary Technology. RPI
has sought and will continue to seek to strengthen its proprietary position for
its ribozyme technology by aggressively pursuing patent protection and
defending its patents and proprietary technology.
RPI'S RIBOZYME TECHNOLOGY
The RPI approach to drug discovery and development begins by
identifying a target gene. Ribozymes are designed by analyzing the nucleotide
sequences of the target gene and creating complementary ribozyme nucleotide
sequences. The next step is to synthesize ribozymes that are targeted
specifically to sites in the target gene. Next, the ribozymes are delivered to
the target cell either as a synthesized chemical or by encoding the ribozymes
into a DNA sequence for delivery by a "vector."
Upon delivery, the cell or animal is analyzed to determine whether
ribozyme inhibition of the potential target gene has affected the progression
of the disease (i.e., expression of the disease-causing gene or protein has
been inhibited). If the action of the ribozyme stops progression of the
disease, then not only has the causative role of the gene been validated, but a
drug candidate has also been identified. If not, the potential target gene may
be eliminated as a target for therapeutic intervention.
Once a target gene and ribozyme lead are identified, the delivery
method and the delivery vehicle are chosen. In addition, the ribozyme is
optimized by techniques such as variation of binding arm length and additional
serum stabilization. The Company believes that these techniques can be used to
accelerate the drug discovery process. The Company's successful
commercialization of ribozyme technology for therapeutic applications will
require that a number of technical issues be satisfactorily addressed,
including ribozyme design, stability, selectivity, synthesis and scale-up, drug
delivery and cell uptake, safety and efficacy. To date, RPI has achieved a
number of significant milestones related to the development of ribozymes,
including the following:
Stability. In order to be useful as a therapeutic, a ribozyme must
remain stable in human serum long enough to have the desired effect. While
unmodified RNA is stable in human serum for only a few seconds, the Company has
successfully produced chemically-modified ribozymes that are stable in human
serum for more than 10 days and fully active in vitro. The Company believes
that this level of stability may be sufficient to achieve therapeutic effects.
Design. The Company has developed a proprietary computer program that
can design ribozymes against sites in a target mRNA sequence. This gives the
Company the ability to accelerate the identification of both lead ribozymes and
multiple back-ups.
Selectivity. Based on third party studies and internal work performed
by RPI, the Company believes that a ribozyme with a binding region of
approximately 15 nucleotides will be optimal. A binding region of this length
is expected to match, on a statistical basis, only one corresponding target
mRNA nucleotide sequence in the entire human genome. Since the ribozyme should
only interact with the target mRNA, it should not impact non-targeted
molecules. The high degree of selectivity of ribozymes has been demonstrated
through the use of inactive ribozyme controls in both cell culture and animal
studies.
Synthesis and Scale-Up. To meet the Company's needs for pre-clinical
and clinical trials and the eventual commercialization of ribozymes, the
Company needs large scale ribozyme synthesis capabilities. The Company has
developed proprietary technology that allows it to routinely synthesize several
hundred stabilized ribozymes on a monthly basis in milligram quantities,
permitting RPI to perform direct cell-based screening of multiple potential
target sites in several weeks. The Company also has the capability of
synthesizing gram quantities of ribozymes, as it has done for in vivo studies.
In that regard, RPI has designed and constructed its facilities to meet cGMP
standards. RPI has implemented quality assurance and quality control
procedures that are used for large scale synthesis. RPI synthesizes ribozymes
using commercially available synthesizers. In addition, the Company has
established a collaboration with Pharmacia Biotech to develop technology for
reducing the cost of synthesizing the modified amidites that are used to
manufacture chemically synthesized ribozymes, and with Protogene Laboratories,
Inc. ("Protogene") for parallel, automated synthesis of large numbers of
different ribozymes. See "Business--Collaborative Relationships and License
Agreements."
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<PAGE> 27
Drug Delivery and Cellular Uptake. Successful development of any
therapeutic requires that it be delivered to the desired site in the body and
remain active long enough to have a therapeutic effect. The Company is
exploring local and systemic delivery of chemically synthesized ribozymes as
well as vector delivery. For example, the Company has shown that local
delivery of a chemically stabilized ribozyme to a rat cornea can significantly
inhibit angiogenesis. In addition, the Company is exploring the use of lipids
and other carriers to enhance cellular uptake and for systemic delivery. The
Company has identified several different formulations of carriers which, when
complexed to chemically synthesized ribozymes, have shown significant increases
in the delivery of ribozymes (relative to ribozymes without a carrier) to a
variety of different cell types. The Company also is working on chemically
modifying ribozymes to be preferentially taken up by certain tissues and/or by
specific intracellular compartments.
The Company has demonstrated that the formulation of ribozymes with
various lipid based carriers increases the in vivo circulation time of the
formulated ribozyme in plasma to days. The Company has demonstrated similar
formulations of ribozymes also result in significantly longer tissue exposure
when administered locally. The Company believes that the use of such
technologies will allow for a significant dose reduction of ribozymes that have
currently shown efficacy when unformulated.
The Company has also developed proprietary retroviral vector
constructs containing ribozymes that produce high ribozyme accumulation in
cells compared to standard vector constructs. The expression of fully-active
ribozymes utilizing these constructs has been demonstrated in vitro for periods
greater than 90 days. The Company has also demonstrated transduction of
multiple cell types (e.g., T-cells, CD34+ cells and others). RPI is pursuing
ribozyme vector development internally and manufacturing through its
collaboration with Chiron. The Company believes that vector delivery of
ribozymes may have several potential therapeutic advantages, including high
target specificity, lack of activity against other genes, long term, high
expression levels of ribozymes and infrequent dosing. Vector delivery of
ribozymes may be particularly useful for the chronic treatment of diseases,
where the therapy is needed over long periods of time and frequent dosing is
not desirable or feasible.
Efficacy and Ribozyme Mechanism. In collaboration with its strategic
partners, the Company has demonstrated that its ribozymes can inhibit gene
expression and affect cellular function in vitro and in vivo. Ribozymes
targeting several specific mRNAs have demonstrated specific reduction of the
levels of their corresponding mRNAs. This inhibition of gene expression
requires target binding and ribozyme catalysis: inactive and irrelevant
ribozyme controls have no specific effect. Ribozyme-mediated reductions in
mRNA correlate with reductions in protein expression and changes in cellular
function. In addition, the Company has shown efficacy of a ribozyme in an
animal model of angiogenesis, while inactive ribozymes showed essentially no
effect. Similar studies have been performed by the Company and others that
have demonstrated inhibition of gene expression in vitro and in vivo by
ribozymes expressed from vectors.
Safety. The Company has completed an initial animal safety study to
test the toxicity of chemically stabilized ribozymes. This study was a
five-day, intravenous single dose, acute toxicology study in rats and monkeys.
The Company's study included extensive follow up procedures, including body
weight, ECG/BP, haemolysis, complement activation, clinical chemistry and
urinalysis. In the study, while there was significant systemic exposure of
serum and tissues to the ribozyme, no drug-related toxicities were found at any
dose. In particular, there were no deaths, no blood clotting abnormalities, no
activation of complement and no evidence of hypotension.
Continuing Technology Development. The Company is continuing to
improve its ribozyme technology for its potential products, including increased
stability and catalytic activity, synthesis and scale-up, drug delivery and
cellular uptake. For systemic applications, the Company may need to refine the
ribozyme technology to improve the delivery of ribozymes to specific tissues
and improve cellular uptake. See "Risk Factors--Technological Uncertainty."
PRODUCT DEVELOPMENT PROGRAMS
The Company is developing products through a combination of
collaborative research and development relationships. The current product
development programs for human therapeutic applications apply chemically
26
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synthesized and vector delivered ribozymes to both acute and chronic diseases
in areas of significant medical need and market opportunity. The following
table summarizes the current status of the Company's human therapeutic and
agricultural product development programs.
PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
RPI-PARTNER PRODUCT AREA DEVELOPMENT STATUS(1)
- ----------- ------------ ---------------------
<S> <C> <C>
Chiron HIV Phase I/IIa clinical trials
Retinopathy Pre-clinical development
Macular degeneration Pre-clinical development
Tumor angiogenesis Pre-clinical development
Oncogenes Research
</TABLE>
- -------------------
(1) "Pre-clinical development" includes pharmacology and toxicology
testing in animal and in vitro models, product formulation, dosage
studies and manufacturing scale-up for submission of the necessary
data to comply with applicable regulations prior to commencement of
human testing. "Research" includes the identification of target
proteins, synthesis of an appropriate ribozyme to block expression of
such protein, and testing the activity of such ribozyme in a
specific cell population.
CHIRON
The Company is working with Chiron on the development of a number of
products targeted at viral diseases, cancer, restenosis and ocular diseases.
Chiron is a public biotechnology company located in Emeryville, California,
that develops and commercializes products for human diagnostic, prophylactic
and therapeutic use. Under their collaboration, the Company and Chiron are
pursuing research and development of drugs for the following indications:
Human Immunodeficiency Virus (HIV). The Company believes that
ribozymes may provide a new approach to the treatment and prevention of HIV
infection and replication. The Company has sought to identify target sites
that are present throughout the replication life cycle of HIV and are conserved
in known clinical strains of HIV. The Company is directing ribozymes at
several sites in HIV that are being incorporated into a single vector, so that
the ribozyme therapy may avoid emergence of resistance due to viral mutations.
In collaboration with Chiron, the City of Hope and Children's Hospital
(Los Angeles), the Company initiated a physician-sponsored Phase I/IIa clinical
trial for HIV in March 1997. This study uses a retroviral vector containing
two ribozymes, one against a site in the tat region and the other against a
site in the tat/rev region of the HIV virus. This construct has demonstrated
protection against HIV challenge in monocyte cells derived from "stem cells"
(CD34+ cells) transduced with the retroviral construct. This demonstrates a
number of important results, including successful retroviral transduction of
CD34+ cells, transmission of the ribozyme into cell progeny derived from CD34+
cells (i.e., monocytes), and protection of the monocytes against HIV challenge.
An IND with the FDA was filed in December 1996 and approved in January 1997
for a physician-sponsored clinical trial including five HIV-infected subjects.
Chiron Technologies Center for Gene Therapy was responsible for master cell
bank development and production of the ribozyme construct. The primary
clinical endpoint for this study is general safety and tolerance, although
re-engraftment efficiency and selected survival data of ribozyme expressing
cells may be obtained. Enrollment for this trial is complete and to date four
patients have been treated.
Tumor Angiogenesis and Oncogenes. Angiogenesis and the abnormal
production of oncogenes have been linked to the formation, growth and
maintenance of cancerous tumors. The Company has initiated several research
programs in collaboration with Chiron in both oncogene and angiogenesis
inhibition. In studies performed in collaboration with Chiron, lead ribozymes
targeting VEGF receptors have demonstrated dose dependent cell culture efficacy
in the inhibition in human endothelial cell proliferation. In a mouse model
using Lewis Lung Carcinoma implants in vivo efficacy has been shown in a dose
dependent manner using continuous intravenous administration of a ribozyme.
Further animal studies are currently under way to test the effectiveness of
these anti-VEGF
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ribozymes in other cancer models and using formulated ribozymes in various
cancer models. Additional animal studies are being carried out to test the
efficacy of ribozymes for the treatment of restenosis.
In studies performed in collaboration with Chiron, lead ribozymes
demonstrated dose-dependent cell culture efficacy in the inhibition of human
endothelial cell proliferation, while inactive and irrelevant ribozyme controls
showed essentially no effect. In addition, the Company's animal efficacy
studies in a rat corneal model of angiogenesis demonstrated significant
inhibition of Vascular Endothelial Growth Factor (VEGF)-induced angiogenesis
when free ribozymes were delivered, while inactive ribozyme controls showed
essentially no effect. The Company is conducting pre-clinical studies in
collaboration with Chiron and believes its VEGF ribozymes may be applicable in
several ocular indications such as retinopathy and age-related macular
degeneration.
Retinopathy. Diabetic retinopathy is a degenerative ocular disease
resulting in blindness and, according to The New England Journal of Medicine,
is the most common cause of blindness in adults aged 25 to 74 in the United
States. Proliferative diabetic retinopathy is characterized by the
proliferation of blood vessels, known as angiogenesis, in the retina resulting
in blindness. According to the Incidence and Prevalence Database (the "IPD"),
as of 1994, this disorder affected approximately one million people in the
United States. According to The American Academy of Ophthalmology, there are
65,000 new cases of proliferative diabetic retinopathy every year in the United
States. Current proliferative diabetic retinopathy treatments, including
surgery and laser photocoagulation, are not believed to be optimum long-term
solutions.
Age-Related Macular Degeneration. Age-related macular degeneration
(ARMD) is the leading cause of blindness in people over 60 years of age. It is
caused when the choroid vessels invade the macula through disruptions in
Bruch's membrane. This is referred to as choroidal neovascularization and
accounts for the vast majority of legal blindness, according to the Survey of
Ophthalmology journal. Thirteen million persons over the age of 40 are
afflicted with ARMD, and 1.2 million are in the later, vision-threatening stage
of the disease. The British Journal of Ophthalmology reported that ARMD is the
most common cause of blindness in most Western communities. Despite some
efficacy of laser photocoagulation in the treatment of ARMD, only a small
percentage of all patients with the disease are eligible for laser treatment.
There can be no assurance that the Company will be permitted to
undertake additional human clinical testing of the Company's potential products
or, if permitted, that such products will be demonstrated to be safe and
efficacious or will be determined to be marketable. See "Risk
Factors--Uncertainty of Product Development."
COLLABORATIVE RELATIONSHIPS AND LICENSE AGREEMENTS
An element of the Company's strategy is to enter into collaborative
research and development agreements, joint ventures, licensing agreements or
other arrangements to exploit its technology as broadly as possible. The
Company seeks partners whose interests, development and marketing capabilities
are complementary to those of the Company or partners who wish to pursue areas
which otherwise would not be developed by the Company. See "Risk
Factors--Dependence on Collaborative Relationships."
The Company's current collaborations are described below.
SCHERING
In April 1997 the Company entered into a research collaboration with
Schering focusing on the use of ribozymes for therapeutic target validation, as
well as the development of ribozymes as therapeutic agents.
The collaboration will utilize the special selectivity of ribozymes to
validate new molecular therapeutic targets, and to discover new therapeutic
agents based on those targets. RPI will provide its expertise in ribozyme
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design, synthesis and delivery, and Berlex Laboratories, Inc., a U.S.
subsidiary of Schering ("Berlex"), will provide candidate targets, cell culture
screens, animal models and development and commercialization expertise to the
collaboration. The Company anticipates that hundreds of potential targets may
be examined over a five year period, and Berlex will have options to
commercialize products from any validated targets.
Schering will make an equity investment of up to $5 million over the
next year and will separately provide loans of up to $2 million annually for
each of the next five years. The first equity investment was completed in May
1997, resulting in proceeds of $2.5 million to the Company in exchange for
212,766 shares of common stock. The loans, which are to carry an interest rate
of 8% per annum, are convertible into equity at the option of Schering under
certain circumstances. Principal and interest payments on the loans are
deferred until maturity of the loans which is in April 2004. In addition,
Schering will make research payments of $2 million a year for the next five
years and RPI may earn success fees upon product development milestones, and
will manufacture synthetic ribozyme products and receive royalties on sales of
both ribozyme and non-ribozyme products resulting from the collaboration. All
such payments are subject to certain restrictions, including receipt of certain
third party consents and the termination of the research collaboration at
Schering's option at any time after April 9, 1998.
CHIRON
In July 1994, RPI entered into a collaborative agreement with Chiron
under which RPI and Chiron have agreed to collaborate in the research,
development and marketing of ribozyme products directed toward certain genetic
targets. In connection with the collaboration, the Company and Chiron will each
contribute intellectual property and other resources to the development of the
targeted ribozyme products. As of the date of this filing, the designated
genetic targets and their associated clinical indications are HIV, VEGF
receptors (retinopathy/corneal transplant rejection/cancer), ras and c-myb
(proliferative diseases) and another viral disease. The field of the agreement
includes diagnostic, prophylactic and therapeutic applications of ribozymes
directed toward these genetic targets. The parties are concentrating their
initial collaborative research efforts on the VEGF receptor for diseases
associated with angiogenesis and HIV targets. The term of the research program
is five years, renewable with the consent of both parties. RPI and Chiron have
agreed to exclusively collaborate on up to five specific targets and to reserve
up to four other potential targets at any one time during the term of the
agreement. Chiron may reject any new targets suggested by RPI; however, RPI
may reject new targets suggested by Chiron only in certain circumstances.
The agreement provides that each party must pay its own pre-clinical
research costs. The parties generally will share equally in the development
costs and net profits of any jointly developed products. However, either RPI
or Chiron may elect not to participate in the clinical development of any
particular product. If both parties elect not to continue development, then a
third party may be sought to develop the product under license to both parties.
In the event either RPI or Chiron elects to continue funding clinical
development alone, then the non-developing party would not share in the profits
derived from the sale of that product but would receive a royalty based on net
sales. However, the non-developing party may elect to retain its interest in
the profits of a particular product in which it has shared funding through
Phase I clinical trials, but has declined to fund Phase II or Phase III
clinical trials, at either the commencement of Phase III testing or the filing
of a New Drug Application ("NDA") or Product License Application ("PLA"). Upon
such an election, the non-developing party must pay its share of the
development costs to date, plus a predetermined risk premium. Under certain
circumstances, RPI may pay up to 50% of such payment in shares of its Common
Stock. See "Risk Factors--Future Capital Needs; Uncertainty of Additional
Funding."
If either party declines to fund clinical development for a product
which subsequently fails to receive regulatory approval or is otherwise
abandoned, then the developing party may offset its development costs for one
such failed product with the profits otherwise allocable to the other party
from successful products.
RPI retains the right to manufacture chemically synthesized ribozyme
products resulting from the collaboration, whether jointly developed, or
developed by Chiron or RPI individually. Chiron and RPI will collaborate for
the manufacture of retroviral vector applications (gene therapy).
Chiron holds exclusive marketing rights for all jointly developed
products, subject to a co-promotion agreement for sales in North America and
Europe. In the Far East, Chiron has exclusive marketing rights with the right
to sublicense, although RPI retains the right to share in 50% of the profits.
The collaborative term for jointly
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developed products is 30 years. The license for solely developed products is
15 years after first commercial sale or the duration of patent protection,
whichever is longer.
As part of the collaboration, Chiron made an equity investment of
$4.36 million in the Company. In addition, Chiron purchased from the Company
377,202 shares of Common Stock with an aggregate purchase price of $3.64
million in 1996 at the time of the Company's initial public offering. Also at
the time of the Company's initial public offering, the Company issued Chiron a
warrant to purchase 444,444 shares of the Company's Common Stock which is
exercisable at a price of $22.50 per share, for an aggregate purchase price of
$4.50 per warrant share. In 1994, Chiron paid the Company $0.45 per warrant
share, or $200,000 and the balance of the warrant purchase price, $4.05 per
warrant share, or $1.8 million, was paid to the Company upon completion of its
initial public offering.
In May 1996, the Company entered into a target validation
collaboration with Chiron for the use of ribozymes to characterize gene
function. The collaboration gives Chiron the right to develop and
commercialize products that result from the collaboration, and would entitle
RPI to receive product development milestone payments and royalties on sales of
any such commercial products. Chiron and RPI each pay a portion of the
research and development expenses of the collaboration and the Company agreed
to pay Chiron $1.8 million, which was paid in 1996, for research funding
related to the collaboration.
DOWELANCO
In September 1993, RPI entered into a two-year collaborative research
feasibility study with DowElanco. The parties extended the study through April
1, 1996. The goal of the feasibility study was to demonstrate the ability of
ribozymes to alter corn. Under the agreement, DowElanco provided support of
research for the feasibility study conducted at RPI. The feasibility study has
been completed, and in April 1997 the Company entered into a long term
commercialization agreement with DowElanco. The agreement provides DowElanco
with a world-wide, non-exclusive license to commercialize oil, meal and starch
products in corn and several other crops. RPI will receive royalties on
products sold. The Company does not expect to receive royalties, if any, from
such license for a substantial period of time.
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INTELLIGENE
In March 1997, the Company granted a worldwide exclusive license to
IntelliGene to develop and sell diagnostics for several target diseases using
ribozymes in amplified nucleic acid formats. IntelliGene is a private,
venture-backed biotechnology company located primarily in Jerusalem, Israel
with an office in Sudbury, Massachusetts. IntelliGene is developing diagnostic
products using ribozymes created using a process called in vitro evolution.
The agreement provides for IntelliGene to develop diagnostic tests initially
against six infectious diseases in their laboratories in Jerusalem and
elsewhere, and to develop, make and sell diagnostic products based on these
tests, either alone or through sublicenses. RPI received a license fee and will
receive royalties on product sales as part of this agreement, and may assist in
the research and development efforts.
MANUFACTURING AND MARKETING STRATEGY
In order to support its pre-clinical and clinical trial manufacturing
requirements, the Company has constructed manufacturing facilities that it
believes comply with applicable regulatory requirements and has established
operational Quality Assurance and Quality Control procedures. The Company
believes that its existing facilities will be satisfactory for production of
ribozymes needed through Phase II clinical trials for the Company's current
product portfolio.
The Company currently does not have the facilities or means to
manufacture on a commercial scale, market, distribute or sell any of its
potential products, including its drug development candidates. RPI will need
to develop its own facilities or contract with third parties for the
manufacture of products for Phase III clinical trials and commercial quantities
for any products that it may develop for its own account or in connection with
collaborative arrangements in which it has retained manufacturing rights.
The Company has expanded its quality control and quality assurance
program internally, including a set of standard operating procedures designed
to assure that the Company's products manufactured by or for it are conducted
in accordance with cGMP and other applicable domestic and foreign regulations.
See "Risk Factors--Uncertainty of Governmental Regulation" and "--Lack of
Manufacturing Experience; Reliance on Contract Manufacturers."
The Company has entered into strategic partnerships with Chiron and
Schering that include the right for RPI to manufacture chemically synthesized
ribozyme products.
The Company expects to market and sell certain of its products, if
successfully developed, directly and through co-promotion or other licensing
arrangements with third parties, including its collaborators and licensees. In
certain markets, the Company may enter into distribution or partnership
agreements with pharmaceutical or biotechnology companies that have large,
established sales organizations. See "Risk Factors--Lack of Sales and
Marketing Experience; Dependence on Third Parties."
In connection with the establishment of its manufacturing
capabilities, the Company has entered into collaborations with Pharmacia
Biotech and Protogene. In November 1995, the Company and Pharmacia Biotech
agreed to collaborate on the development of better synthesis and purification
methods for the preparation of modified amidites and chimeric oligonucleotides.
The goal of the collaboration is to reduce the cost of manufacturing ribozymes
and other oligonucleotide products that use amidites. Pharmacia Biotech, which
is a subsidiary of Pharmacia & Upjohn, Inc., has expertise in the manufacture
of oligonucleotide synthesis and purification instrumentation and software.
Under the terms of the collaboration, Pharmacia Biotech is providing RPI with
synthesis instrumentation and software, research funding and milestone
payments, a portion of which may be set-off against future royalties payable to
RPI.
In December 1996, the Company entered into an agreement with
Protogene, a private biotechnology company, to develop an instrument which
allows high throughput synthesis of non-DNA oligonucleotides. Under the terms
of the collaboration, RPI is supporting research and development, has made an
equity investment in Protogene and will have the option to buy the instrument.
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COMPETITION
RPI is engaged in the rapidly developing field of gene modulation.
Competition among entities attempting to develop gene modulation products for
the treatment of diseases is intense and is expected to increase. The Company
faces specific competition from other companies engaged in the research,
development and commercialization of ribozyme-based technology as well as
competition from companies attempting other methods of gene expression control,
such as antisense and triplex. In addition, the Company competes with large
pharmaceutical companies and established biotechnology firms, many of whom are
developing new products for the treatment of the same diseases targeted by the
Company. In some cases, those companies have already commenced clinical trials
for their products. Many of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
pre-clinical studies and clinical trials, obtaining regulatory approvals and
marketing than the Company. The Company's collaborators and licensees may be
conducting research and development programs directed at the same diseases that
the Company is targeting. In particular, the Company is aware that Chiron is
conducting product development programs that may be competitive with certain of
the RPI/Chiron collaborative programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. In addition, companies that
complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their products before their competitors may achieve a
significant competitive advantage. Academic institutions, governmental
agencies and other public and private research organizations also conduct
research, seek patent protection and establish collaborative arrangements for
products and clinical development and marketing. These companies and
institutions compete with the Company in recruiting and retaining highly
qualified scientific and management personnel. In addition to the above
factors, RPI faces competition based on product efficacy, safety, the timing
and scope of regulatory approvals, availability of supply, marketing and sales
capability, reimbursement coverage, price and patent position. See "Risk
Factors--Dependence on Collaborative Relationships" and "--Intense Competition;
Rapid Technological Change."
PATENTS AND PROPRIETARY TECHNOLOGY
RPI believes that patents and other proprietary rights are crucial to
the development of its business. In addition to patents, the Company relies
upon trade secrets, know-how and continuing technological innovations in the
design, synthesis, and purification of ribozymes and in nucleic acid chemistry.
The Company also relies on licensing opportunities to develop and maintain its
competitive position. It is the Company's policy to file patent applications
when appropriate to protect technology, inventions, and improvements that are
considered important in the development of its business.
At the core of RPI's technology are inventions and patents of
University of Colorado ("CU") Dr. Thomas R. Cech and various associates of
Dr. Cech. Pursuant to the policies of CU, these inventions and the patents
issued thereon (the "Cech Technology") became the property of CU. The Cech
Technology was assigned to CU's affiliate, University Research Corporation
("URC"), which in turn assigned the rights to license certain of the Cech
Technology to Competitive Technologies, Inc. ("CTI"), formerly known as
University Patents, Inc. United States Biochemical Corporation ("USB") licensed
the Cech Technology pursuant to two sublicenses. One of these sublicenses was
for the Cech Technology held by CTI. In November 1996 USB assigned to RPI its
rights under the sublicense from CTI and RPI entered into an amended and
restated license with CTI. RPI also has obtained a license from URC and a
sublicense from USB for other Cech Technology held by URC. The CTI license,
URC license and USB sublicense together grant RPI the exclusive (except for
non-commercial academic research) worldwide right, among other things, to make,
use and sell RNA enzymes covered by licensed patents and products incorporating
them. The URC license and USB sublicense are fully paid. The CTI license
provides for the payment of a royalty on sales of products incorporating RNA
enzymes, covered by licensed patents, and for certain minimum annual royalties.
RPI may grant sublicenses to the licensed technology subject to the payment to
CTI of a share of royalty income from such sublicenses or a royalty on sales
from sublicensed products, methods or services, depending on the particular
licensed patents involved. In addition, RPI must pay CTI a share of any option
fee, license fee, prepaid royalty or other "front-end" fee other than research
and development funding paid in connection with such sublicense.
In September 1993, RPI was granted a right of first refusal to license
any new inventions, improvements and patents related to ribozyme technology
developed by Dr. Cech or others at CU, in exchange for certain
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payments. In order to maintain this right, RPI has agreed to fund research at
CU through an unrestricted grant of $750,000 payable in various installments
over a five year period commencing in September 1993. As of December 31, 1996,
$375,000 of the unrestricted grant is still payable. In addition, RPI has
agreed to pay CU a fee for each invention disclosure accepted by RPI under the
license.
As part of the Company's overall intellectual property strategy, it
enters selectively into agreements with academic institutions either to license
pre-existing technology or to support the development of new technologies and
gain the commercial rights to such new technologies. The Company has a number
of these agreements in place with institutions such as Duke University,
Garching Innovation GMBH, Georgetown University, Massachusetts Institute of
Technology, Stanford University, University of Florida, University of Toronto,
University of Vermont, and Yale University.
In January 1996, the Company entered into a License Agreement with the
City of Hope for an HIV therapeutic based upon ribozyme technology. Under the
agreement, the Company has the exclusive right to, among other things, develop
and commercialize a particular combination of ribozymes using a retroviral
vector for an HIV/AIDS therapeutic. The Company must pay certain minimum
royalties prior to commercialization, and other royalties upon sales of
product.
As a result of these licenses and sublicenses, and RPI's own internal
research, RPI has exclusive worldwide rights to at least 25 issued patents in
the United States, 3 patents granted in Europe, 1 patent granted in Japan and 3
issued patents in Australia. In addition, Notices of Allowance have been
received for at least 16 patents from the United States Patent and Trademark
Office, for a total of at least 48 patents issued or allowed in the United
States and abroad. Six of the 25 United States issued patents, 1 European
patent and 1 Japanese patent cover the use of an enzymatic RNA to cleave a
single stranded RNA (the "Cech Patents"). The Company believes that the Cech
Patents grant the right to exclude others from practicing ribozyme technology
as it is currently known to the Company in the United States, Europe and Japan
irrespective of the application, the method of production, the method of
purification, or the ribozyme motif used. Unless extended, the Ribozyme
Patents will expire in December 2008 in the United States and December 2007 in
Europe and in Japan. The additional issued patents cover both ribozyme
technology (e.g., ribozyme design, synthesis, chemical modifications, delivery,
ribozyme motifs, vector production, target site selection) as well as
application to specific therapeutic targets.
In addition, RPI has filed or holds exclusive licenses to more than
100 pending United States and related foreign applications. The Company's
patent portfolio includes approximately 40 United States applications for
various areas of interest in human therapeutics and diagnostics and certain
agricultural uses. The portfolio also includes approximately 80 United States
applications related to the chemistry, design, optimization, manufacture, and
delivery of ribozyme products.
The Company has filed opposition documents against two patents granted
to a competitor in Europe. Opposition proceedings against certain European and
Japanese patents of the Company have been initiated by its competitors. In
addition, interference proceedings against certain of the Company's other
patents and patent applications are anticipated in the U.S. The Company
believes that its patents and applications are soundly based, but the extent of
protection may vary in different countries and no assurance can be given that
any patent will provide commercially significant protection or will not be
challenged, invalidated, or circumvented. However, litigation could be
necessary to protect the Company's patent position, which would result in
substantial cost to, and diversion of efforts by, the Company.
Competitors or other patent holders could bring legal actions against
the Company involving the Company's patents, patent applications or rights to
use proprietary technology. If any actions are successful, in addition to any
potential liability for damages, the Company could be enjoined from selling the
affected product, or be required to obtain a license in order to continue to
manufacture or market the product. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, if at all. There has been,
and the Company believes that there will continue to be, significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights. Any additional litigation could consume a substantial portion of the
Company's resources regardless of the outcome.
It is the Company's policy to require its employees, consultants,
members of its Scientific Advisory Board and parties to collaborative
agreements to execute confidentiality agreements upon the commencement of
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employment or consulting relationships or a collaboration with the Company.
These agreements provide that all confidential information developed or made
known during the course of the relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions resulting from work performed for the Company, utilizing property of
the Company or relating to the Company's business and conceived or completed by
the individual during employment shall be the exclusive property of the Company
to the extent permitted by applicable law. There can be no assurance, however,
that these agreements will provide meaningful protection of the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information. See "Risk Factors--Uncertainty of Protection of Patents and
Proprietary Rights."
GOVERNMENT REGULATION
The production and marketing of the Company's products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous government authorities in the United States
and other countries. In the United States, drugs are subject to rigorous FDA
regulation. The Federal Food, Drug and Cosmetic Act, as amended and the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and
promotion of the Company's human therapeutic products. Product development and
approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in
the United States include (i) pre-clinical laboratory tests, in vivo
pre-clinical trials and formulation studies, (ii) the submission to the FDA of
an IND, which must become effective before human clinical trials commence,
(iii) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug, (iv) the submission of an NDA to the FDA and
(v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug. In addition to obtaining FDA approval for each product, each drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by
the FDA and must comply with cGMP for both drugs and devices. To supply
products for use in the US, foreign manufacturing establishments must comply
with cGMP and are subject to periodic inspection by the FDA or by regulatory
authorities in such countries under reciprocal agreements with the FDA.
In addition to FDA requirements, the National Institutes of Health
("NIH") has established guidelines for research involving recombinant DNA
molecules, which are utilized by the Company and certain of its collaborators
and licensees in their research. These guidelines apply to all recombinant DNA
research within the United States or its territories which is conducted at or
supported by the NIH. Under current guidelines, proposals to conduct clinical
research involving gene therapy which is supported by the NIH must be reviewed
by the NIH Recombinant DNA Advisory Committee. The Company's vector delivery
of ribozymes will need to be reviewed by this Committee.
The FDA has also initiated procedures designed to provide broader
access to certain investigational drugs prior to marketing approval. In 1987,
the FDA adopted regulations authorizing "treatment INDs" for investigational
drugs designed to treat serious and life-threatening diseases where no
satisfactory alternate therapies exist. The sponsor of a treatment IND is
required to comply with the regular IND requirements, including institutional
review board approval and patient informed consent. In addition, the sponsor
must be actively pursuing marketing approval for the investigational drug, and
may not promote the drug prior to marketing approval.
Pre-clinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Compounds must be formulated according to cGMP and
pre-clinical safety tests must be conducted by laboratories that comply with
FDA regulations regarding Good Laboratory Practices ("GLP"). The results of
the pre-clinical tests are submitted to the FDA as part of an IND and are
reviewed by the FDA prior to the commencement of human clinical trials.
Additional pharmacology and toxicology studies are generally conducted
concurrently with human clinical trials.
Clinical trials involve the administration of the investigational new
drug to healthy volunteers or to patients, under the supervision of qualified
principal investigators. Initial clinical trials are conducted in accordance
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with Good Clinical Practices under protocols that detail the objectives of the
study, the parameters to be used to monitor safety and the efficacy criteria to
be evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases,
but the phases may overlap. In Phase I, the initial introduction of the drug
into healthy human subjects, the drug is tested for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and pharmacokinetics
(clinical pharmacokinetics and pharmacology). Phase II involves studies in a
limited patient population to (i) determine the efficacy of the drug for
specific, targeted indications, (ii) determine optimal dosage and (iii)
identify possible adverse effects and safety risks. When a compound appears to
be effective and to have an acceptable safety profile in Phase II clinical
trials, Phase III clinical trials are undertaken to further evaluate and
confirm clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical study sites. There can
be no assurance that Phase I, Phase II or Phase III clinical trials will be
completed successfully within any specified time period, if at all, with
respect to any of the Company's products subject to such testing. Furthermore,
the Company or the FDA may delay or suspend clinical trials at any time if it
is felt that the subjects or patients are being exposed to an unacceptable
health risk.
The results of the pharmaceutical development, pre-clinical trials and
clinical trials are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied,
require additional testing or information, or require extensive post marketing
testing and surveillance to monitor the safety or efficacy of the Company's
products if they do not view the NDA as containing adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of such data,
the FDA may ultimately decide that the application does not satisfy its
regulatory criteria for approval. Moreover, if regulatory approval of a drug
is granted, such approval may entail limitations on the indicated uses for
which it may be marketed. Finally, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP, which must be followed at all times. In complying with standards set
forth in these regulations, manufacturers (including a drug sponsor's third
party contract manufacturers) must continue to expend time, money and effort in
the area of production and quality control to ensure full technical compliance.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves
the controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company.
For marketing outside the United States, the Company will be subject
to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs and devices. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company does not currently have any
facilities or personnel outside the United States. See "Risk
Factors--Uncertainty of Governmental Regulation" and "--Hazardous Materials."
35
<PAGE> 37
SCIENTIFIC ADVISORY BOARD ("SAB")
The Company is assisted in its research and development activities by
its SAB, composed of leading scientists who meet several times each year to
review the Company's research and development activities, discuss technological
advances relevant to the Company and its business and otherwise assist the
Company as appropriate. In addition, the Company has collaborative
relationships with several SAB scientists that further advance the ribozyme
technology. The members of the SAB are listed below:
Thomas Cech, Ph.D. Distinguished Professor, Department
of Chemistry & Biochemistry,
University of Colorado; Chairman,
SAB
Edward Mocarski, Ph.D. Professor and Chairman, Departments
of Microbiology & Immunology,
Stanford University
Gary Nabel, M.D., Ph.D. Professor, Departments of Internal
Medicine and Biological Chemistry,
University of Michigan
Joan Steitz, Ph.D. Henry Ford II Professor of Molecular
Biophysics and Biochemistry,
Department of Biophysics and
Biochemistry, Yale University
Bruce Sullenger, Ph.D. Assistant Professor, Departments of
Experimental Surgery and Genetics,
Duke University
Olke Uhlenbeck, Ph.D. Professor, Department of Chemistry
and Biochemistry, University of
Colorado
Each member of the Scientific Advisory Board has entered into an
exclusive consulting agreement with RPI in the field of ribozymes, whereby the
member agrees to provide research, investigation and consultation services to
the Company in exchange for an honorarium for meetings attended and the award
of stock options. The scientific advisors are employed by employers other than
the Company and may have commitments to or consulting advisory contracts with
other entities that may limit their availability to the Company. Although
generally each scientific advisor agrees not to perform services for another
person or entity which would create a conflict of interest with the scientific
advisor's services for the Company, there can be no assurance that such a
conflict will not arise. Inventions or processes discovered by a scientific
advisor will not, unless otherwise agreed, become the property of the Company,
but will remain the property of the scientific advisor or his or her employers.
The Company has entered into confidentiality and non-disclosure agreements with
each SAB member.
EMPLOYEES
As of June 30, 1997, the Company had 79 full-time employees, including
a technical scientific staff of 60. There can be no assurance that the Company
will be able to continue to attract and retain qualified personnel in
sufficient numbers to meet its needs. None of the Company's employees is
covered by collective bargaining arrangements and management considers
relations with its employees to be good.
36
<PAGE> 38
FACILITIES
RPI currently leases approximately 30,000 square feet of laboratory
and office space at 2950 Wilderness Place, Boulder, Colorado. The Company
leases this space under an operating lease that lasts through 2007. The Company
believes that the existing facility will be sufficient to meet its needs
through 1998.
LEGAL PROCEEDINGS
Other than the proceedings described under "Business--Patents and
Proprietary Technology," RPI is not a party to any legal proceedings.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as
of August 22, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ralph E. Christoffersen, Ph.D.(1)....................... 59 Chief Executive Officer, President and Director
Lawrence E. Bullock..................................... 41 Vice President of Administration and Finance, Chief
Financial Officer and Secretary
Thomas H. Rossing, M.D................................... 47 Vice President of Product Development
Alene A. Holzman......................................... 40 Vice President of Business Development and General
Manager of Target Validation and Discovery Business
Nassim Usman, Ph.D....................................... 38 Vice President of Research
David T. Morgenthaler (1),(3)............................ 78 Chairman of the Board
Jeremy L. Curnock Cook (2)............................... 47 Director
Anthony B. Evnin, Ph.D. (1),(2).......................... 56 Director
Charles M. Hartman (3)................................... 55 Director
Anders P. Wiklund (2),(3)................................ 57 Director
Lewis T. Williams, M.D., Ph.D............................ 48 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
RALPH E. CHRISTOFFERSEN, PH.D. has served as Chief Executive Officer,
President and Director of RPI since June 1992. Prior to joining the Company,
Dr. Christoffersen was Senior Vice President and Director of U.S. Research at
SmithKline Beecham Pharmaceuticals from 1989 to June 1992, and prior to that,
held senior management positions in research at The Upjohn Company from 1983 to
1989. Prior to joining The Upjohn Company, Dr. Christoffersen served as a
Professor of Chemistry and Vice Chancellor for Academic Affairs at the
University of Kansas, and as President of Colorado State University. He
received his Ph.D. in physical chemistry from Indiana University.
LAWRENCE E. BULLOCK has served as Vice President of Administration and
Finance, Chief Financial Officer and Secretary since January 1996. Prior to
joining RPI, Mr. Bullock was Chief Financial Officer, Director of Finance and
Administration and Secretary of La Jolla Pharmaceutical Company, a
biopharmaceutical company, from December 1990 to January 1996. Mr. Bullock
received his M.B.A. from the University of Utah in 1980.
THOMAS H. ROSSING, M.D. has served as Vice President of Product
Development since July 1997. Prior to joining the Company, Dr. Rossing was
Vice President of Clinical Development and Regulatory Affairs at Gene Medicine,
Inc. from July 1996 to July 1997. Prior to that, Dr. Rossing was Director of
International Respiratory Clinical Research at Glaxo Wellcome from March 1993
to July 1996, Director of Clinical Pharmacology and Worldwide Regulatory
Liaison at Merck Research Laboratories and a staff physician at Brigham and
Women's Hospital in Boston, Massachusetts. He received his M.D. degree from
Harvard University.
ALENE A. HOLZMAN has served as General Manager of Target Validation
and Discovery Business and Vice President of Business Development since April
1997. Prior to joining the Company, Ms. Holzman was Vice President of ChemTrak
Corporation, a medical technology firm, from January 1990 to March 1997 where
she was responsible for Finance, Business Development and Marketing and Sales.
From 1987 to 1990, she was Vice President of CytoSciences, Inc., a biomedical
company and from 1981 to 1987 she was Vice President of Marketing and Sales for
Hana Biologics, Inc. (now Cell Genesys Corporation), a publicly held
biotechnology firm. Ms. Holzman received her M.B.A from the University of
California at Berkeley.
38
<PAGE> 40
NASSIM USMAN, PH.D. has served as Vice President of Research of RPI
since May 1996. From April 1994 until May 1996 Dr. Usman served as Director of
Chemistry and Biochemistry Research at the Company and from September 1992
until April 1994, Dr. Usman served as Senior Scientist in Chemistry and
Biochemistry of RPI. Prior to joining RPI, Dr. Usman was a Postdoctoral Fellow
and Scientist in the Departments of Biology and Chemistry at the Massachusetts
Institute of Technology from January 1987 to September 1992. Dr. Usman
received his Ph.D. in chemistry from McGill University.
DAVID T. MORGENTHALER has served as a director of RPI since February
1992 and was elected Chairman of the Board in December 1995. Mr. Morgenthaler
was a founder of, and has been Managing Partner of Morgenthaler Ventures, a
private venture capital firm, since 1968. He has been a director of a
substantial number of public and private companies. Mr. Morgenthaler received
his M.S. degree from the Massachusetts Institute of Technology.
JEREMY L. CURNOCK COOK has served as a Director of RPI since July
1995. Mr. Cook is a Director of Rothschild Asset Management and has been
responsible for the Rothschild Bioscience Unit since 1987. Mr. Cook founded
the International Biochemicals Group in 1975 which he subsequently sold to
Royal Dutch Shell in 1985, remaining as Managing Director until 1987. He is
also a director of Creative BioMolecules Inc., Targeted Genetics Inc., Cantab
Pharmaceuticals plc, and Biocompatibles International plc. Mr. Cook holds an
M.A. in Natural Sciences from Trinity College Dublin.
ANTHONY B. EVNIN, PH.D. has served as a Director of RPI since
February 1992. Dr. Evnin has been a General Partner of Venrock Associates, a
venture capital partnership, since 1975. He is also a director of Arris
Pharmaceutical Corporation, Centocor, Inc., SUGEN, Inc., Opta Food Ingredients,
Inc., Kopin Corporation and Triangle Pharmaceuticals, Incorporated. Dr. Evnin
received his Ph.D. from the Massachusetts Institute of Technology.
CHARLES M. HARTMAN has served as a Director of RPI since February
1992. He has been a General Partner of CW Group, a venture capital
partnership, since 1983. From 1965 to 1983 Mr. Hartman held a number of
positions with Johnson & Johnson. He is a director of SUGEN, Inc.
ANDERS P. WIKLUND has served as a Director of RPI since August 1994.
Mr. Wiklund has been with Biacore Holdings Inc., since January 1997, where he
is Senior Vice President. Previously, from 1967 through 1996, Mr. Wiklund
served in numerous executive positions for the Kabi and Pharmacia group of
companies, including President and CEO of Kabi Vitrum Inc., and Kabi Pharmacia,
Incorporated. Mr. Wiklund is also a director of Trega Bioscience, Inc.,
Medivir, A.B., InSite Vision, Inc., and Vascular Therapeutics, Incorporated.
Mr. Wiklund graduated from the Pharmaceutical Institute in Stockholm, where he
received a Master of Pharmacy degree.
LEWIS T. WILLIAMS, M.D., PH.D. has served as a Director of RPI since
February 1996. He has been a Senior Vice President of Research and Development
at Chiron Corporation and President of Chiron Technologies since August 1994.
Dr. Williams has also been a professor of medicine at the University of
California, San Francisco since 1988, and served as an Investigator, Howard
Hughes Medical Institute from 1985 to 1993. Dr. Williams was elected as a
Member of the National Academy of Sciences in 1997.
COMMITTEES
The Executive Committee consists of Drs. Evnin and Christoffersen and
Mr. Morgenthaler. The Board of Directors has delegated its power and authority
to manage and operate the Company in the ordinary course of business to the
Executive Committee. The Board retains its power to issue shares of stock,
oversee secured debt financing and lease transactions, declare dividends and
adopt certificates of ownership and merger.
The Audit Committee consists of Dr. Evnin and Messrs. Cook and
Wiklund. The Audit Committee makes recommendations to the Board regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
The Compensation Committee consists of Messrs. Hartman, Morgenthaler
and Wiklund. The Compensation Committee reviews and recommends for Board
approval the Company's option plans and makes
39
<PAGE> 41
policy decisions concerning salaries and incentive compensation for employees
and consultants of the Company, and reviews and recommends for Board approval
compensation for executive officers.
DIRECTORS' COMPENSATION
Effective March 1997, Directors of the Company who are not salaried
officers or employees receive a fee of $1,000 per day for each Board or
committee meeting attended and $500 per day for participation in a telephonic
meeting of the Board or a Board committee. Effective May 1997 nonemployee
directors also receive stock options to purchase 5,000 shares of Common Stock
annually under the Company's 1996 Stock Option Plan. In 1996, Board members
received no compensation for service on the Board or Board committees, except
that Mr. Wiklund received $1,000 for each Board meeting attended and stock
options to purchase 4,444 shares of Common Stock. Directors may also be
reimbursed for certain expenses in connection with attendance at Board and
committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all compensation
received for services rendered in all capacities to the Company for the three
years ended December 31, 1996, by Dr. Christoffersen, the Company's CEO and
President, and by the two other executive officers of the Company, Mr. Bullock
and Dr. Usman, whose total annual salary and bonus exceeded $100,000 for the
year ended December 31, 1996 (the "Named Executive Officers"). No restricted
stock awards or stock appreciation rights were granted to the named executives
in such years.
40
<PAGE> 42
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- -----------------------
SHARES
UNDER-
LYING
OTHER RESTRICTED OPTIONS
ANNUAL STOCK GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMP ($) AWARDS ($) (#) COMP ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph E. Christoffersen, Ph.D. 1996 247,248 -- 70,000(1) 188,100(2) 97,770 153,910(2)
Chief Executive Officer and 1995 244,614 50,000 50,000(1) -- -- --
President 1994 234,886 25,000 25,000(1) -- -- --
Lawrence E. Bullock 1996 118,433 15,000 24,993(3) -- 66,000 --
Vice President of
Administration and Finance,
CFO and Secretary
Nassim Usman, Ph.D. 1996 132,919 25,000 20,499(4) -- 53,892 --
Vice President of Research 1995 101,652 8,650 -- 8,332 --
1994 93,304 8,550 -- 5,332 --
</TABLE>
- ---------------------
(1) Amounts include: $50,000, $50,000 and $25,000 in 1996, 1995 and 1994,
respectively, of forgiveness of a loan made by the Company to Dr.
Christoffersen in 1992 related to relocation expenses. In addition, the
Company compensated Dr. Christoffersen $20,000 in 1996 to assist him with
the tax liability relating to the loan forgiveness. See
"Management--Employment Agreements."
(2) Amounts relate to a bonus of $342,010 payable $153,910 in cash and $188,100
in shares of Common Stock at the Company's initial public offering price
(18,810 shares at an initial public offering price of $10.00 per share)
upon closing of the Company's initial public offering in April 1996. See
"Management--Employment Agreements."
(3) Amount includes $9,058 representing imputed interest related to a loan of
$75,000 made by the Company to Mr. Bullock in 1996 relating to relocation
expenses. Amount also includes $15,935 to reimburse Mr. Bullock for his
costs in connection with his relocation from California. See
"Management--Employment Agreements."
(4) Amount represents implied interest, grossed-up for tax purposes, related to
an interest-free loan of $75,000 made to Dr. Usman in 1996. See
"Management--Employment Agreements."
41
<PAGE> 43
EMPLOYMENT AGREEMENTS
In May 1992 the Company entered into an Employment Agreement (the
"Christoffersen Agreement") with Ralph E. Christoffersen, Ph.D., the Company's
President and Chief Executive Officer, which, as amended, currently provides
for (i) an annual salary of $269,500, (ii) an annual performance-based cash
bonus of up to $80,000, (iii) a performance based cash bonus of $25,000,
received in 1997, (iv) an interest-free loan of $250,000 given in 1992,
which currently has an outstanding balance of $25,000 as of June 30, 1997,
which will be forgiven if Dr. Christoffersen remains an employee of the Company
through December 31, 1997, and if such is the case, Dr. Christoffersen will be
paid an amount equal to the taxes payable by him on such loan forgiveness, (v)
repayment of certain relocation expenses, (vi) the grant of options to acquire
74,444 shares of Common Stock at an exercise price of $0.45 per share, which
option vests ratably over five years, (vii) the grant of options to acquire
31,446 shares of Common Stock at an exercise price of $0.45 per share, which
options vested upon the Company's completion of certain performance milestones,
(viii) the grant of options in January 1996 to acquire 18,887 shares of Common
Stock at an exercise price of $2.70, which options vest upon the completion of
certain performance milestones, (ix) the grant of options in September 1996
to acquire 20,000 shares of Common Stock at an exercise price of $11.85, which
options vest upon the completion of certain performance milestones, (x) the
grant of options in September 1996 to acquire 55,550 shares of Common Stock at
an exercise price of $11.85 per share, which options vest ratably over five
years, (xi) the grant of options in January 1997 to acquire 24,450 shares of
Common Stock at an exercise price of $11.06 per share, which options vest
ratably over five years, (xii) the grant of options in March 1997 to acquire
60,000 shares of Common Stock at an exercise price of $10.75 per share, which
options vest upon the completion of certain performance milestones, and (xiii) a
bonus of $342,010, which was paid in cash and Common Stock upon the completion
of the Company's initial public offering in April 1996. The Christoffersen
Agreement is subject to termination upon Dr. Christoffersen's death, disability
or for cause (as defined in the Christoffersen Agreement). In the event of the
termination of Dr. Christoffersen's employment with the Company, he is
entitled to receive all accrued salary and benefits up to the time of his
termination and, unless he has been terminated for cause, nine months of
severance pay at the same monthly rate as in effect at the time of his
termination. If termination occurs after January 1, 2000, Dr. Christoffersen
shall be paid a lump sum cash payment of up to $27,500.
In January 1996 the Company entered into an employment agreement with
Lawrence E. Bullock, the Company's Vice President of Administration and
Finance, Chief Financial Officer and Secretary, which, as amended, currently
provides for (i) an annual salary of $136,250, (ii) an annual performance-based
cash bonus of up to $25,000, (iii) a signing bonus of $15,000, (iv) the grant
of options to acquire 16,666 shares of Common Stock at an exercise price of
$2.70 per share, which options vest ratably over five years or upon a change of
control of the Company, (v) the grant of options to acquire 5,555 shares of
the Common Stock at an exercise price of $2.70 per share which option vests
subject to Mr. Bullock remaining with the Company for at least two years (vi)
the grant of options in September 1996 to acquire 33,779 shares of Common Stock
at an exercise price of $11.85 per share, which options vest ratably over five
years, (vii) the grant of options in December 1996 to acquire 10,000 shares of
Common Stock at an exercise price $11.25, which options vest ratably over five
years, (viii) the grant of options in March 1997 to acquire 20,000 shares of
Common Stock at an exercise price of $10.75 per share, which options vest upon
the completion of certain performance milestones and (ix) repayment of certain
relocation expenses including an interest-free loan of $75,000, given in 1996,
which is forgivable in five equal installments, grossed-up for taxes, as long
as Mr. Bullock remains employed by the Company. In the event of Mr. Bullock's
termination without cause, he will be entitled to six months' severance pay at
his then current salary.
In May 1996 the Company entered into an employment agreement with
Nassim Usman, Ph.D., the Vice President of Research, which, as amended,
currently provides for (i) an annual salary of $158,000, (ii) an annual
performance-based cash bonus of up to $25,000, (iii) the grant of options to
acquire 17,000 shares of Common Stock at an exercise price of $15.25, of which
7,000 shares vest upon the completion of certain performance milestones and
options for 10,000 shares vest ratably over five years, (iv) payment by the
Company of the exercise price of certain vested options on each year's
anniversary of Dr. Usman's appointment, up to $15,000 per year for a total of
five years, as long as Dr. Usman is employed by the Company, satisfactory
performance is maintained and shares acquired are not sold until one year after
the five year period has ended, (v) the grant of options in September 1996 to
acquire 26,892 shares of the Common Stock at an exercise price of $11.85 per
share, which options vest ratably over five years, (vi) the grant of options in
December 1996 to acquire 10,000 shares of the Common Stock at an exercise price
of $11.25 per share, which options vest ratably over five years, (vii) the grant
of options in March 1997 to acquire 20,000 shares of Common Stock at an exercise
price of $10.75, which options vest upon the completion of certain performance
milestones, and (viii) an interest-free loan of $75,000, given in May 1996,
which
42
<PAGE> 44
is forgivable in five equal installments, grossed-up for taxes, as long as Dr.
Usman remains employed by the Company. In the event of Dr. Usman's termination
of employment by the Company without cause, he will be entitled to six months'
severance pay at his then current salary.
In February 1997 the Company entered into an employment agreement with
Alene A. Holzman, the Company's Vice President of Business Development and
General Manager of Target Validation and Discovery Business, which provides for
(i) an annual salary of $150,000, (ii) an annual performance-based cash bonus
of up to $30,000, (iii) the grant of options to acquire 60,000 shares of Common
Stock at an exercise price of $10.50, of which the options for 30,000 shares
vest upon the completion of certain performance milestones and the options for
30,000 shares vest ratably over five years, and (iv) an interest-free loan of
$75,000, given in June 1997, of which 33% will be forgiven annually, beginning
on the first anniversary of Ms. Holzman's employment by the Company, as long as
she is employed by the Company. In the event of Ms. Holzman's termination of
employment by the Company without cause, she will be entitled to six months'
severance pay at her then current salary.
In July 1997 the Company entered into an employment agreement with
Thomas H. Rossing, M.D., the Company's Vice President of Product Development,
which provides for (i) an annual salary of $245,000, (ii) an annual
performance-based cash bonus of up to $45,000, of which $20,000 is guaranteed
as long as employment continues past December 31, 1997, (iii) the grant of
options to acquire 100,000 shares of Common Stock at an exercise price of
$8.50, of which the options for 50,000 shares vest upon the completion of
certain performance milestones and the options for 50,000 shares vest ratably
over five years, and (iv) an interest-free loan of $100,000, available upon
request, of which 33% will be forgiven annually, beginning on the first
anniversary of Dr. Rossing's employment by the Company, as long as he is
employed by the Company. In the event of Dr. Rossing's termination of
employment by the Company without cause, he will be entitled to six months'
severance pay at his then current salary.
STOCK OPTION PLAN
The Company's Incentive Stock Option Plan and the Non-Qualified Stock
Option Plan were adopted by the Board of Directors in December 1992
(collectively the "1992 Plans"). In March 1996 the Company amended, restated
and merged the 1992 Plans and named the resulting plan the 1996 Stock Option
Plan (the "Plan"). Under the Plan, 1,667,154 shares of Common Stock are
currently reserved for issuance upon exercise of options granted to employees,
officers and consultants of the Company. The Plan will terminate in January
2006, unless sooner terminated by the Board of Directors. The purpose of the
Plan is to attract and retain qualified personnel, to provide additional
incentives to employees, officers, directors and consultants of the Company; and
to promote the success of the Company's business. Pursuant to the Plan, the
Company may grant or issue incentive stock options and supplemental
(non-qualified) stock options to consultants, employees, officers and directors.
The Plan provides for the grant of both incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended, and non-statutory stock options. The Board has delegated
administration of the Plan to a Compensation Committee comprised of three
independent directors. See "Management--Committees." Subject to the
limitations set forth in the Plan, the Board or the Compensation Committee has
the authority to select the persons to whom grants are to be made, to designate
the number of shares to be covered by each option, to determine whether an
option is to be an incentive stock option or a non-statutory stock option, to
establish vesting schedules, and, subject to certain restrictions, to specify
the type of consideration to be paid upon exercise and to specify other terms
of the options.
The maximum term of options granted under the Plan is ten years (five
years for an incentive option granted to a person who at that time owns 10
percent of the total combined voting power of all classes of stock). The
aggregate fair market value of the stock with respect to which incentive stock
options are first exercisable in any calendar year may not exceed $100,000 per
optionee; portions in excess of such amount shall be treated as nonstatutory
stock options. Options granted under the Plan are non-transferable and
generally expire upon the earlier of the stated expiration date or three months
after the termination of an optionee's service to the Company (18 months in the
event the optionee's employment terminates by reason of death and 12 months in
the event the optionee's employment terminates due to disability, or such
longer or shorter period specified in the option agreement).
43
<PAGE> 45
The Board has discretion in connection with a merger, consolidation,
reorganization or similar corporate event where the Company is the surviving
corporation to prescribe the terms and conditions for the modifications of the
options granted under the Plan. In the event of a dissolution or liquidation
of the Company, or a merger or consolidation in which the Company is not the
surviving corporation, all outstanding options will terminate unless assumed by
another corporation.
No specific vesting schedule is required under the Plan. The exercise
price of incentive stock options must equal at least the fair market value of
the Common Stock on the date of grant, except that the exercise price of
incentive stock options granted to any person who at the time of grant owns
stock possessing more than 10 percent of the combined voting power of all
classes of stock must be at least 110 percent of the fair market value of such
stock on the date of grant. The exercise price on non-statutory stock options
under the Plan may be no less than 85 percent of the fair market value of the
Common Stock on the date of grant.
The following table presents certain information concerning individual
grants of stock options that were made under the Plan during 1996 to each of
the named executives. The table also sets forth the potential realizable
values for the stock options based on future appreciation assumptions. There
can be no assurance that the values shown in this table will be achieved. No
stock appreciation rights were granted in 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL OPTION ANNUAL RATE OF STOCK
SECURITIES OPTIONS DATE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE MARKET FOR OPTION TERM (3)
OPTIONS EMPLOYEES OR BASE VALUE EXPIRATION -------------------
NAME GRANTED (#) IN 1996(1) PRICE ($) ($)(2) DATE 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph E. Christoffersen, Ph.D. *22,220 4.6 2.70 10.00 01/03/06 306,949 532,239
*20,000 4.1 11.85 11.88 09/20/06 150,024 379,272
55,550 11.4 11.85 11.88 09/20/06 416,695 1,053,431
------- ----
97,770 20.1
======= ====
Lawrence E. Bullock 16,666 3.4 2.70 10.00 01/23/06 28,299 71,716
*5,555 1.1 2.70 10.00 01/23/06 9,432 23,903
33,779 6.9 11.85 11.88 09/20/06 253,385 640,573
10,000 2.1 11.25 11.25 12/06/06 70,751 179,296
------- ---
66,000 13.5
======= ====
Nassim Usman, Ph.D. *7,000 1.4 15.25 15.25 05/10/06 67,135 170,132
10,000 2.1 15.25 15.25 05/10/06 95,906 243,045
26,892 5.5 11.85 11.88 09/20/06 201,724 509,970
10,000 2.1 11.25 11.25 12/06/06 70,751 179,296
------- ---
53,892 11.1
======= ====
</TABLE>
- ----------------------------
* The options were granted under the 1996 Stock Option Plan, as amended,
and become 100% vested upon the completion of certain performance
milestones. All other options granted vest in increments of 20% over
a five year period. The term of option grants are ten years from the
date of grant.
(1) The Company granted options representing an aggregate of 487,208
shares to employees of the Company in 1996 under the Plan.
(2) Options granted prior to the Company's initial public offering in
April 1996 (exercise price: $2.70) are valued at $10.00 per share for
stock price appreciation purposes. Options granted at $11.85 per
share are valued based on a ten-day average prior to grant date.
(3) In accordance with Securities and Exchange Commission rules, these
columns show gains that might exist for the respective options,
assuming the market price of Common Stock appreciates from the date
of grant over a period of ten years at the annual rate of five and ten
percent, respectively. Actual gains realized, if any, are dependent
on the future performance of Common Stock and overall market
conditions.
44
<PAGE> 46
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock in 1996 and the unexercised
options held at December 31, 1996, and the value thereof, by the named
executive officers.
AGGREGATED OPTIONS EXERCISED IN 1996 AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
NAME EXERCISE REALIZE(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ralph E. Christoffersen, Ph.D. 76,112 $ 802,982 30,443 / 93,772 $ 286,177 / $ 184,743
Lawrence E. Bullock -- -- 0 / 66,000 $ 0 / $ 184,434
Nassim Usman, Ph.D. -- -- 6,446 / 63,554 $ 57,259 / $ 78,136
</TABLE>
- ---------------
(1) Represents the market value based upon the closing price per share of
Common Stock as quoted on the Nasdaq National Market on December 31,
1996 ($11.00 per share), less the option exercise price.
401(k) PLAN
As part of its effort to attract and maintain high quality staff, the
Company adopted a 401(k) Salary Reduction Plan and Trust (the "401(k) Plan") on
June 1, 1992, pursuant to which participating employees may quarterly
contribute up to a maximum of 20 percent of their salary. All funds withheld
from employees are paid to a trustee who invests for the benefit of members of
the 401(k) Plan. The 401(k) Plan provides that the Company may match the
employee's contributions with Common Stock.
EMPLOYEE STOCK PURCHASE PLAN
In March 1996 the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"), authorizing the issuance of 300,000 shares of Common Stock
pursuant to purchase rights granted to employees of the Company. The Purchase
Plan provides a means by which employees purchase Common Stock of the Company
through payroll deductions. The Purchase Plan is implemented by offerings of
rights to eligible employees. Generally, each offering is twenty-four months'
duration with purchases occurring on each October 31 and April 30 during each
offering (except that April 30, 1996, was not a purchase date). The initial
offering began on April 11, 1996, and will terminate April 30, 1998. Common
Stock is purchased for accounts of employees participating in the Purchase Plan
at a price per share equal to the lower of (i) 85 percent of the fair market
value of a share of Common Stock on the date of commencement of participation in
the offering or (ii) 85 percent of the fair market value of a share of Common
Stock on the date of purchase. Generally, all regular employees, including
executive officers, may participate in the Purchase Plan and may authorize
payroll deduction of up to 15 percent of their base compensation for the
purchase of stock under the Plan. The Company's Board of Directors has the
authority to terminate the Purchase Plan at its discretion.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers,
employees and other agents to the fullest extent permitted by Delaware law.
The Company is also empowered under its Bylaws to enter into indemnification
contracts with its directors and officers and to purchase insurance on behalf
of any person it is required or permitted to indemnify.
In addition, the Company's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms
45
<PAGE> 47
of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, for
improper transactions between the director and the Company and for improper
distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
CERTAIN TRANSACTIONS
As of June 30, 1997 and in connection with the hiring of Dr.
Christoffersen, Mr. Bullock, Ms. Holzman and Dr. Usman, the Company has made
the following interest-free loans to each individual. See "Management--
Employment Agreements."
<TABLE>
<CAPTION>
NAME LOAN AMOUNT REMAINING BALANCE(1)
---- ----------- --------------------
<S> <C> <C>
Ralph E. Christoffersen, Ph.D.... $250,000(2) $25,000
Lawrence E. Bullock.............. 75,000(3) 60,000
Alene Holzman.................... 75,000 75,000
Nassim Usman, Ph.D............... 75,000(3) 60,000
</TABLE>
- ---------------
(1) As of June 30, 1997.
(2) The Company forgave (i) $50,000 of the outstanding principal amount in
June 1993, (ii) $25,000 of the outstanding principal amount in January
1994, (iii) $50,000 of the outstanding principal amount in January
1995, (iv) $50,000 of the outstanding principal amount in January
1996, and (v) $50,000 of the outstanding principal amount in January
1997.
(3) The Company forgave $15,000 of the outstanding principal amount in
April 1997 and June 1997, respectively, for Dr. Usman and Mr. Bullock.
BioHoldings, Inc., an Ohio corporation ("BioHoldings"), purchased
748,433 shares of Common Stock for $0.214 per share on February 7, 1992.
Thomas A. Mann, one of the founders and a former director of the Company, held
a controlling interest in BioHoldings. At the time of the Company's initial
public offering in April 1996, pursuant to certain rights granted in the
Stockholders Agreement dated February 7, 1992, between the Company, BioHoldings
and certain investors, BioHoldings merged with the Company and the shareholders
of BioHoldings received 778,002 shares of Common Stock in exchange for their
shares of BioHoldings stock. H. Axel Schupf, one of the Company's former
directors, and Mr. Mann received 19,450 and 420,510 shares, respectively, in
exchange for their BioHoldings stock. Mr. Schupf and Robert A. Paul, also a
former director of the Company, were directors of BioHoldings.
Chiron and the Company granted each other licenses to certain
technologies and agreed to undertake research activities pursuant to the
Collaborative Research, Development and Commercialization Agreement dated as of
July 15, 1994, Chiron (i) purchased 100,000 shares of Common Stock for a
purchase price of $3.60 per share, (ii) purchased 107,095 shares of the
Company's Series E Preferred Stock for a purchase price of $37.35 per share,
and (iii) purchased a warrant at a price of $4.50 per warrant share (for which
Chiron has paid $0.45 per warrant share), exercisable for 444,444 shares of
Common Stock for an exercise price of $40.50 per share. In February 1996, the
Company amended the warrant issuable to Chiron to reduce the exercise price
from $40.50 per share to $22.50 per share. At the time of the closing of the
Company's initial public offering in April 1996, Chiron (i) purchased 377,202
shares of Common Stock for $3,640,000 at the initial public offering price
less one-half of the underwriting discount, (ii) paid the Company $1,800,000 to
complete the purchase of its warrant, and (iii) received 35,127 additional
shares of Common Stock pursuant to antidilutive provisions.
46
<PAGE> 48
In May 1996, the Company entered into a collaboration with Chiron for
the use of ribozymes to characterize gene function. The collaboration gives
Chiron the right to develop and commercialize products that result from the
collaboration, and entitle the Company to receive product development milestone
payments and royalties on sales of any such commercial products. Chiron and the
Company each pay a portion of the research and development expenses of the
collaboration, and the Company agreed to provide Chiron $1.8 million, which was
paid in 1996, for research funding related to the collaboration.
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy, these transactions were, and all future
transactions between the Company and any of its officers, directors or
principal stockholders will be, approved by a majority of the independent
members of the Board of Directors, will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties and will be in
connection with bona fide business purposes of the Company.
47
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of Common Stock as of August 22, 1997, and as adjusted to
reflect the sale by the Company of the 1,400,000 shares offered hereby (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock, (ii) each current director of the Company, (iii) each of the
Named Executive Officers and (iv) all executive officers and directors of the
Company as a group. Except as otherwise indicated, each of the persons named
below has sole voting and investment power with respect to the Common Stock
owned by them. Shares of Common Stock subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days of August 22, 1997, are deemed outstanding for
computing the percentage of the person or entity holding such securities but
are not outstanding for computing the percentage of any other person or entity.
<TABLE>
<CAPTION>
Percentage Beneficially
Owned
----------------------
Name and Address of Shares Beneficially Before After
Shareholder Owned Offering Offering
----------- -------------------- -------- --------
<S> <C> <C> <C>
Chiron Corporation(1)................... 1,063,868 13.9% 11.8%
4560 Horton Street
Emeryville, California 94608
International Biotechnology Trust plc... 737,633 10.2 8.6
c/o Rothschild Asset Management, Ltd.
Five Arrows House
St. Swithin's Lane
London EC4N 8NR England
Morgenthaler Venture Partners III(2).... 362,874 5.0 4.2
700 National Bank Building
Cleveland, Ohio 44114
Ralph E. Christoffersen, Ph.D.(3)....... 158,031 2.2 1.8
Jeremy L. Curnock Cook(4)............... 737,633 10.2 8.6
Anthony B. Evnin, Ph.D.(5).............. 315,773 4.4 3.7
Charles M. Hartman(6)................... 251,917 3.5 2.9
David T. Morgenthaler(2)................ 372,874 5.2 4.3
Anders P. Wiklund(7).................... 4,444 * *
Lewis T. Williams, M.D., Ph.D.(1)....... -- -- --
Lawrence E. Bullock(8).................. 13,058 * *
Nassim Usman, Ph.D.(9).................. 16,036 * *
Executive officers and directors 2,933,634 37.9% 32.1%
as a group (11 persons)(10).............
</TABLE>
- ----------------------------
* Less than 1 percent.
(1) Includes 444,444 shares of Common Stock issuable upon exercise of
warrants outstanding as of August 22, 1997. See "Description of
Capital Stock--Warrants." Lewis T. Williams, M.D., Ph.D., a Director
of the
48
<PAGE> 50
Company, is Senior Vice President of Chiron. Dr. Williams disclaims
beneficial ownership of the shares held by Chiron.
(2) Includes 362,874 shares held by Morgenthaler Venture Partners III and
10,000 shares held by Morgenthaler Family Partnership, both
partnerships of which Mr. Morgenthaler is a general partner. Mr.
Morgenthaler disclaims beneficial ownership of such shares except to
the extent of his general partnership interests therein.
(3) Includes 3,333 shares of Common Stock owned by Dr. Christoffersen's
daughter in which Dr. Christoffersen disclaims beneficial ownership.
Amount also includes options to purchase 66,442 shares of Common
Stock exercisable within 60 days of August 22, 1997.
(4) Includes 737,633 shares held by The International Biotechnology Trust
plc, for which Rothschild Asset Management, Ltd. ("Rothschild") acts
as investment advisor. Mr. Cook is a director of Rothschild but
disclaims beneficial ownership of such shares.
(5) Includes 218,022 shares held by Venrock Associates and 97,751 shares
held by Venrock Associates II, L.P. (together "Venrock"). Mr. Evnin
is a general partner of Venrock and disclaims beneficial ownership of
such shares except to the extent of his general partnership interests
therein.
(6) Includes 206,732 shares held by CW R&D Fund II, L.P. and 45,185 shares
held by CW Ventures II, L.P. Mr. Hartman is a general partner of CW
Partners II, L.P. and CW Partners III, L.P., the general partners,
respectively, of these entities. Mr. Hartman disclaims beneficial
ownership of the shares held by these partnerships except to the
extent of his general partnership interests therein.
(7) Includes options to purchase 4,444 shares of Common Stock exercisable
within 60 days of August 22, 1997.
(8) Includes options to purchase 10,090 shares of Common Stock
exercisable within 60 days of August 22, 1997.
(9) Includes 170 shares of Common Stock and options to purchase 986
shares of Common Stock within 60 days of August 22, 1997 by Dr.
Usman's spouse in which Dr. Usman disclaims beneficial ownership.
The amount shown also includes options to purchase 14,403 shares of
Common Stock exercisable within 60 days of August 22, 1997.
(10) Includes options to purchase 96,365 shares of Common Stock
exercisable within 60 days of August 22, 1997. Amount also includes
444,444 shares of Common Stock issuable upon exercise of warrants
outstanding as of August 22, 1997.
49
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and
certain provisions of the Company's Certificate of Incorporation and Bylaws is
a summary and is qualified in its entirety by the provisions of the Certificate
of Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement, of which this Prospectus is a part.
The Company's authorized capital stock consists of 20,000,000 shares
of Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
holders of Common Stock are not entitled to cumulative voting rights with
respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone. Subject to preferences that may be applicable to any then outstanding
shares of preferred stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
WARRANTS
As of June 30, 1997, there were warrants outstanding to purchase an
aggregate of 487,458 shares (subject to adjustment) of Common Stock as follows:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE EXPIRATION DATE
------ -------------- ---------------
<S> <C> <C>
9,523 $15.75 October 1, 2000
1,270 $15.75 N/A
11,111 $40.50 December 28, 2001
16,666 $22.50 September 1, 2003
2,222 $22.50 December 29, 2005
444,444 $22.50 April 17, 2006
2,222 $22.50 April 17, 2006
</TABLE>
The warrants to purchase 1,270 shares of Common Stock are redeemable
at the option of the Company at any time after the effective date, upon 15
days' notice to the holders thereof, for an aggregate of $200.
PREFERRED STOCK
The Board of Directors has the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by stockholders. The issuance of preferred stock could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
preferred stock.
50
<PAGE> 52
The Company has granted the holders of warrants that are exercisable
for, in the aggregate, 487,458 shares of Common Stock the same registration
rights for the shares issuable upon the exercise of the warrants as those
possessed by Holders of Registrable Shares.
REGISTRATION RIGHTS
As of August 22, 1997, the holders ("Holders") of aggregate of
approximately 4,902,400 shares of Common Stock (the "Registrable Shares") are
entitled to certain rights with respect to the registration of such shares for
offer and sale to the public under the Securities Act. Under these provisions.
Holders of Registrable Shares may request that the Company file up to two
registration statements under the Securities Act with respect to such shares.
Upon receipt of such a request, the Company is required to notify all other
Holders and to use all reasonable efforts to effect such registration, subject
to certain conditions. In addition, upon the request of Holders Registrable
Shares, the Company may be required to effect an unlimited number of
registrations on Form S-3. Further, whenever the Company proposes to register
any of its securities under the Securities Act for its own account or for the
account of other security holders, the Company is required to notify Holder's
of the proposed registration and include all Registrable Shares which such
Holder may request to be included in such registration, subject to certain
limitations. Generally, the Company is required to bear all expenses (except
underwriting discounts, selling commissions and stock transfer taxes) of all
registrations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law.
In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
The Company's Amended and Restated Certificate of Incorporation and
Bylaws also requires that, effective upon the closing of this offering, any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer. The Company's Amended
and Restated Certificate of Incorporation also provides that the authorized
number of directors may be changed only by resolution of the Board of
Directors. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
51
<PAGE> 53
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby are being offered by the
Company through Montgomery Securities (the "Placement Agent") on a best efforts
basis, which means that the Placement Agent is not obligated to purchase any
Common Stock and is required only to use all reasonable efforts to sell Common
Stock on behalf of the Company. The Placement Agent will offer the Common
Stock principally to selected institutional investors, including current
institutional holders of the Company's Common Stock. The Placement Agent has
been retained to act as the exclusive agent for the Company in connection with
the offering of the shares of Common Stock offered hereby. The offering is
subject to the terms and conditions set forth in the Placement Agency Agreement
between the Company and the Placement Agent.
The Placement Agent is not obligated to and does not intend to take
(or purchase) any of the common stock shares for itself. It is anticipated
that the Placement Agent will obtain indications of interest from potential
investors for the amount of the offering and that effectiveness of the
Registration Statement will not be requested and no investor funds will be
accepted until indications of interest have been received for the amount of the
offering. Confirmation and definitive prospectuses will be distributed to all
investors at the time of pricing, informing investors of the closing date,
which will be scheduled for three business days after pricing. No investor
funds will be accepted prior to effectiveness of the Registration Statement.
The Company may sell less than all of the shares of Common Stock offered
hereby. There is no required minimum number of shares that must be sold as a
condition to completion of the offering. Upon closing, (i) the Company will
deliver to each investor the number of shares purchased by such investor in
accordance with instructions previously delivered by the Placement Agent on
behalf of the investors, (ii) each investor will deliver to the Company
immediately available funds in an amount equal to the aggregate purchase price
of the shares of Common Stock being sold to such investor and (iii) the Company
will pay the Placement Agents their fee. The offering will not continue after
the closing.
The Company has agreed to pay the Placement Agent a placement fee of
5.0% of the proceeds of the offering (2.5% of the proceeds from sales of shares
to investors identified by the Company) and to reimburse the Placement Agent
for its out-of-pocket expenses. The Placement Agency Agreement provides that
the Company will indemnify the Placement Agent against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Placement Agent may be required to make in respect thereof.
Orders to purchase Common Stock will be effective only upon acceptance
by the Company, which reserves the right to reject any order in whole or in
part.
The Company's officers and directors and certain other stockholders of
the Company, who collectively hold in the aggregate of approximately 2,392,825
shares of Common Stock, have agreed that for a period of 90 days after the date
of this Prospectus they will not, without the prior written consent of
Montgomery Securities, directly or indirectly sell, offer to sell or otherwise
dispose of any such shares of Common Stock or any right to acquire such shares.
The Company has agreed that for a period of 90 days after the date of this
Prospectus it will not, without the prior written consent of Montgomery
Securities, issue, offer, sell, grant options to purchase or otherwise dispose
of any of the Company's equity securities or any other securities convertible
into or exchangeable for the Common Stock or other equity security, except that
the Company may grant options under the Option Plans, or issue shares upon the
exercise of options or warrants previously granted.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Rothgerber, Appel, Powers & Johnson LLP, Denver,
Colorado. Pillsbury Madison & Sutro LLP, San Francisco, California, is acting
as counsel for the Placement Agent in connection with certain legal matters
relating to the shares of Common Stock offered hereby.
52
<PAGE> 54
EXPERTS
The financial statements of Ribozyme Pharmaceuticals, Inc. at December
31, 1996 and 1995 and for the years then ended appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
Portions of this Prospectus entitled "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights" and "Business--Patents and
Proprietary Technology" (6th-8th paragraphs thereof) have been reviewed by Lyon
& Lyon and are subject to an opinion to be rendered to the Placement Agent. As
of the date of this Prospectus, attorneys at Lyon & Lyon beneficially hold
warrants to purchase 1,270 shares of Common Stock of the Company at an exercise
price of $15.75 per share. The warrants have no expiration date. In addition,
a partner of Lyon & Lyon holds options to purchase 20,000 shares of Common
Stock See "Description of Capital Stock--Warrants."
53
<PAGE> 55
RIBOZYME PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors ................... F-2
Balance Sheets ................................... F-3
Statements of Operations ......................... F-4
Statements of Stockholders' Equity ............... F-5
Statements of Cash Flows ......................... F-7
Notes to Financial Statements .................... F-8
</TABLE>
F-1
<PAGE> 56
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Ribozyme Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Ribozyme
Pharmaceuticals, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. 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 Ribozyme
Pharmaceuticals, Inc. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Denver, Colorado
February 6, 1997
F-2
<PAGE> 57
RIBOZYME PHARMACEUTICALS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31
----------------------------- June 30
1995 1996 1997
------------ ------------ ------------
Assets (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 2,913,008 $ 13,050,678 $ 12,473,927
Securities available-for-sale ............................ 3,507,234 4,543,470 795,536
Restricted cash .......................................... 530,034 242,733 150,129
Accounts receivable ...................................... 18,060 74,022 -
Notes receivable--related parties......................... 55,000 157,341 95,841
Prepaid expenses and other ............................... 157,835 213,717 227,534
------------ ------------ ------------
Total current assets ........................................ 7,181,171 18,281,961 13,742,967
Property, plant, and equipment:
Machinery and equipment .................................. 3,294,157 3,652,794 4,464,492
Leasehold improvements ................................... 3,353,886 3,539,437 3,539,436
Office furniture and equipment ........................... 817,183 857,920 926,192
------------ ------------ ------------
7,465,226 8,050,151 8,930,120
Accumulated depreciation ................................. (2,947,831) (3,639,779) (4,452,824)
------------ ------------ ------------
4,517,395 4,410,372 4,477,296
Restricted cash ............................................. 679,896 52,669 -
Notes receivable--related parties ........................... 217,330 122,398 164,932
Deferred patent costs, net of accumulated
amortization (1996--$105,916; 1995--$65,169} ............. 1,490,656 2,008,804 2,350,784
Other assets ................................................ 136,106 415,366 428,706
------------ ------------ ------------
Total assets ................................................ $ 14,222,554 $ 25,291,570 $ 21,164,685
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade .................................. $ 549,038 $ 552,904 $ 548,275
Accrued liabilities ...................................... 86,390 216,616 96,409
Current portion of long-term debt ........................ 1,129,854 1,572,189 1,366,717
Current portion of capital lease obligations ............. 768,014 152,093 53,815
------------ ------------ ------------
Total current liabilities ................................... 2,533,296 2,493,802 2,065,216
Long-term debt .............................................. 3,026,552 2,430,432 2,148,640
Capital lease obligations ................................... 152,093 - -
Deferred gain ............................................... 32,645 5,515 2,543
Commitments
Stockholders' equity:
Voting convertible preferred stock, $.01 par value;
5,000,000 shares authorized; 0, 0 and 2,231,960 shares
issued and outstanding at June 30, 1997, December 31,
1996 and 1995, respectively ............................ 22,321 - -
Common stock, $.01 par value; 20,000,000
shares authorized; 7,193,819, 6,948,304 and
982,501 shares issued and outstanding at
June 30, 1997, December 31, 1996 and 1995,
respectively............................................ 9,825 69,483 71,938
Additional paid-in capital ............................... 40,725,061 67,873,284 70,590,744
Accumulated deficit ...................................... (32,115,250) (47,382,830) (53,517,506)
Unrealized loss on securities available-for-sale ......... - (9,214) (7,988)
Deferred compensation .................................... (163,989) (188,902) (188,902)
------------ ------------ ------------
Total stockholders' equity .................................. 8,477,968 20,361,821 16,948,286
------------ ------------ ------------
Total liabilities and stockholders' equity .................. $ 14,222,554 $ 25,291,570 $ 21,164,685
============ ============ ============
</TABLE>
See accompanying notes
F-3
<PAGE> 58
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended December 31 June 30
------------------------------ ----------------------------
1995 1996 1996 1997
------------ ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Collaborative agreements ............... $ 1,178,248 $ 759,122 $ 759,122 $ 894,000
Grant and other income ................. 101,976 13,981 3,380 2,971
Interest income ........................ 394,656 936,397 348,072 381,620
------------ ------------ ----------- -----------
Total revenues ............................ 1,674,880 1,709,500 1,110,574 1,278,591
Expenses:
Research and development ............... 12,204,232 14,188,836 7,665,998 6,154,454
General and administrative ............. 1,396,635 1,943,583 1,151,477 822,109
Interest expense ....................... 554,160 844,661 449,196 436,704
------------ ------------ ----------- -----------
Total expenses ............................ 14,155,027 16,977,080 9,266,671 7,413,267
============ ============ =========== ===========
Net loss .................................. $(12,480,147) $(15,267,580) $(8,156,097) $(6,134,676)
============ ============ =========== ===========
Net loss per share ........................ $ (3.86) $ (2.61) $ (1.72) $ (0.87)
============ ============ =========== ===========
Shares used in computing net loss per
share................................... 3,230,341 5,844,987 4,730,750 7,038,128
============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 59
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 981,177 $ 9,812 666,664 $ 6,667 761,897 $ 7,619
Issuance of common stock for cash 1,324 13 -- -- -- --
Payment on warrants -- -- -- -- -- --
Issuance of Series F preferred
stock for cash, net of issuance
costs of $5,909 -- -- -- -- -- --
Issuance of Series G preferred
stock for cash, net of issuance
costs of $103,139 -- -- -- -- -- --
Net loss -- -- -- -- -- --
Compensation for issuance of
common stock and options -- -- -- -- -- --
Unrealized gain on securities
available-for-sale -- -- -- -- -- --
------------------------------------------------------------------------
Balance at December 31, 1995 982,501 9,825 666,664 6,667 761,897 7,619
Conversion of preferred stock in
connection with initial public
offering 2,231,960 22,321 (666,664) (6,667) (761,897) (7,619)
Issuance of common stock relating
to certain antidilution rights
in connection with initial public
offering 841,279 8,412 -- -- -- --
Issuance of common stock for cash
--initial public offering, net of
issuance costs of $816,990 2,300,000 23,000 -- -- -- --
Issuance of common stock for cash
-- other 510,829 5,108 -- -- -- --
Payment on warrants -- -- -- -- -- --
Issuance of common stock for
employee bonus 18,810 188 -- -- -- --
Issuance of common stock under
employee stock purchase plan 15,842 158 -- -- -- --
Compensation for issuance of
common stock and options -- -- -- -- -- --
Issuance of common stock
for services 2,083 21 -- -- -- --
Issuance of common stock relating
to certain royalty agreements 45,000 450 -- -- -- --
Net loss -- -- -- -- -- --
Unrealized loss on securities
available-for-sale -- -- -- -- -- --
------------------------------------------------------------------------
Balance at December 31, 1996 6,948,304 69,483 -- -- -- --
Issuance of common stock
for cash (unaudited) 229,853 2,298 -- -- -- --
Issuance of common stock under
employee stock purchase plan
(unaudited) 15,662 157 -- -- -- --
Net loss (unaudited) -- -- -- -- -- --
Unrealized loss on securities
available-for-sale (unaudited) -- -- -- -- -- --
------------------------------------------------------------------------
Balance at June 30, 1997 (unaudited) 7,193,819 $ 71,938 -- $ -- -- $ --
========================================================================
<CAPTION>
SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
-------- --------- ------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 127,877 $ 1,279 41,666 $ 417
Issuance of common stock for cash -- -- -- --
Payment on warrants -- -- -- --
Issuance of Series F preferred
stock for cash, net of issuance
costs of $5,909 -- -- -- --
Issuance of Series G preferred
stock for cash, net of issuance
costs of $103,139 -- -- -- --
Net loss -- -- -- --
Compensation for issuance of
common stock and options -- -- -- --
Unrealized gain on securities
available-for-sale -- -- -- --
-----------------------------------------------
Balance at December 31, 1995 127,877 1,279 41,666 417
Conversion of preferred stock in
connection with initial public
offering (127,877) (1,279) (41,666) (417)
Issuance of common stock relating
to certain antidilution rights
in connection with initial public
offering -- -- -- --
Issuance of common stock for cash
--initial public offering, net of
issuance costs of $816,990 -- -- -- --
Issuance of common stock for cash
-- other -- -- -- --
Payment on warrants -- -- -- --
Issuance of common stock for
employee bonus -- -- -- --
Issuance of common stock under
employee stock purchase plan -- -- -- --
Compensation for issuance of
common stock and options -- -- -- --
Issuance of common stock
for services -- -- -- --
Issuance of common stock relating
to certain royalty agreements -- -- -- --
Net loss -- -- -- --
Unrealized loss on securities
available-for-sale -- -- -- --
-----------------------------------------------
Balance at December 31, 1996 -- -- -- --
Issuance of common stock
for cash (unaudited) -- -- -- --
Issuance of common stock under
employee stock purchase plan
(unaudited) -- -- -- --
Net loss (unaudited) -- -- -- --
Unrealized loss on securities
available-for-sale (unaudited) -- -- -- --
-----------------------------------------------
Balance at June 30, 1997 (unaudited) -- $ -- -- $ --
===============================================
</TABLE>
F-5
<PAGE> 60
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Series E Series F Series G Additional
Preferred Stock Preferred Stock Preferred Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
-------- ------- -------- ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 107,095 $ 1,071 -- $ -- -- $ -- $ 27,926,345
Issuance of common stock for cash -- -- -- -- -- -- 1,005
Payment on warrants -- -- -- -- -- -- 1,600
Issuance of Series F preferred
stock for cash, net of issuance
costs of $5,909 -- -- 40,160 402 -- -- 1,493,689
Issuance of Series G preferred
stock for cash, net of issuance
costs of $103,139 -- -- -- -- 486,601 4,866 10,840,724
Net loss -- -- -- -- -- -- --
Compensation for issuance of
common stock and options -- -- -- -- -- -- 461,698
Unrealized gain on securities
available-for-sale -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Balance at December 31, 1995 107,095 1,071 40,160 402 486,601 4,866 40,725,061
Conversion of preferred stock in
connection with initial
public offering (107,095) (1,071) (40,160) (402) (486,601) (4,866) --
Issuance of common stock relating
to certain antidilution rights in
connection with initial public
offering -- -- -- -- -- -- (8,412)
Issuance of common stock for cash
--initial public offering, net of
issuance costs of $816,990 -- -- -- -- -- -- 20,550,010
Issuance of common stock for cash
-- other -- -- -- -- -- -- 3,762,048
Payment on warrants -- -- -- -- -- -- 1,800,000
Issuance of common stock for
employee bonus -- -- -- -- -- -- 187,912
Issuance of common stock under
employee stock purchase plan -- -- -- -- -- -- 131,172
Compensation for issuance of
common stock and options -- -- -- -- -- -- 162,530
Issuance of common stock
for services -- -- -- -- -- -- 23,413
Issuance of common stock relating
to certain royalty agreements -- -- -- -- -- -- 539,550
Net loss -- -- -- -- -- -- --
Unrealized loss on securities
available-for-sale -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Balance at December 31, 1996 -- -- -- -- -- -- 67,873,284
Issuance of common stock
for cash (unaudited) -- -- -- -- -- -- 2,529,673
Issuance of common stock under
employee stock purchase plan -- -- -- -- -- -- 187,787
(unaudited)
Net loss (unaudited) -- -- -- -- -- -- --
Unrealized loss on securities
available-for-sale (unaudited) -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Balance at June 30, 1997
(unaudited) -- $ -- $ -- $ -- -- $ -- $ 70,590,744
======================================================================================
<CAPTION>
Unrealized
Accumulated Loss on Deferred
Deficit Securities Compensation Total
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $(19,635,103) $ (70,755) $ -- $ 8,247,352
Issuance of common stock for cash -- -- -- 1,018
Payment on warrants -- -- -- 1,600
Issuance of Series F preferred
stock for cash, net of issuance
costs of $5,909 -- -- -- 1,494,091
Issuance of Series G preferred
stock for cash, net of issuance
costs of $103,139 -- -- -- 10,845,590
Net loss (12,480,147) -- -- (12,480,147)
Compensation for issuance of
common stock and options -- -- (163,989) 297,709
Unrealized gain on securities
available-for-sale -- 70,755 -- 70,755
------------------------------------------------------------
Balance at December 31, 1995 (32,115,250) -- (163,989) 8,477,968
Conversion of preferred stock in
connection with initial public
offering -- -- -- --
Issuance of common stock relating
to certain antidilution rights in
connection with initial public
offering -- -- -- --
Issuance of common stock for cash
--initial public offering, net of
issuance costs of $816,990 -- -- -- 20,573,010
Issuance of common stock for cash
-- other -- -- -- 3,767,156
Payment on warrants -- -- -- 1,800,000
Issuance of common stock for
employee bonus -- -- -- 188,100
Issuance of common stock under
employee stock purchase plan -- -- -- 131,330
Compensation for issuance of
common stock and options -- -- (24,913) 137,617
Issuance of common stock
for services -- -- -- 23,434
Issuance of common stock relating
to certain royalty agreements -- -- -- 540,000
Net loss (15,267,580) -- -- (15,267,580)
Unrealized loss on securities
available-for-sale -- (9,214) -- (9,214)
------------------------------------------------------------
Balance at December 31, 1996 (47,382,830) (9,214) (188,902) 20,361,821
Issuance of common stock
for cash (unaudited) -- -- -- 2,531,971
Issuance of common stock under
employee stock purchase plan (unaudited) -- -- -- 187,944
Net loss (unaudited) (6,134,676) -- -- (6,134,676)
Unrealized loss on securities
available-for-sale (unaudited) -- 1,226 -- 1,226
------------------------------------------------------------
Balance at June 30, 1997
(unaudited) $(53,517,506) $ (7,988) $ (188,902) 16,948,286
============================================================
</TABLE>
F-6
<PAGE> 61
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 Six months ended June 30
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
OPERATING ACTIVITIES (Unaudited)
<S> <C> <C> <C> <C>
Net loss ................................................. $(12,480,147) $(15,267,580) $ (8,156,097) $ (6,134,676)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation ........................................ 1,245,024 1,648,435 832,345 813,045
Amortization ........................................ 66,300 40,747 22,555 26,737
Write-off of deferred patent costs .................. 357,782 - - -
Compensation related to common stock and
options ........................................... 297,709 889,151 188,100 63,118
Compensation for forgiveness of notes
receivable--related parties ....................... 50,000 92,466 92,466 92,466
Loss on sale of securities available-for-sale ....... 1,693 13,140 13,140 -
Loss on sale of equipment ........................... 16,215 - - -
Changes in operating assets and liabilities:
Accounts receivable ............................... 62,954 (55,962) 12,669 74,022
Prepaid expenses and other ........................ (110,764) (55,882) (130,159) (13,816)
Other assets ...................................... (111,258) (29,260) (22,685) (17,802)
Accounts payable--trade ........................... 183,799 3,866 (92,946) (4,630)
Accrued liabilities ............................... (274,538) 130,226 1,739,798 (120,208)
Deferred contract revenue ......................... (117,743) - - -
Deferred gain ..................................... (36,824) (27,130) (16,530) (2,971)
------------ ------------ ------------ ------------
Net cash used by operating activities .................... (10,849,798) (12,617,783) (5,517,344) (5,224,715)
INVESTING ACTIVITIES
Additions to property, plant, and equipment .............. (3,342,954) (1,541,412) (1,044,510) (879,970)
Additions to deferred patent costs ....................... (616,092) (558,895) (284,315) (364,255)
Investment in corporate partner .......................... - (250,000) - -
Proceeds from sale of equipment .......................... 2,800 - - -
Net sales (purchases) of securities available-for-sale ... (1,430,996) (1,058,590) (1,065,865) 3,749,153
Transfer of restricted cash .............................. (709,930) 914,528 764,405 145,273
Loan repayments--related parties ......................... - 56,625 - 1,500
Loan advances--related parties ........................... (55,000) (156,500) (155,417) (75,000)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities ...... (6,152,172) (2,594,244) (1,785,702) 2,576,701
FINANCING ACTIVITIES
Net proceeds from sale of shares of preferred and
common stock and of warrants .......................... 12,342,299 26,271,496 26,104,605 2,656,802
Payments under loan facilities ........................... (455,752) (1,316,027) (596,348) (741,721)
Borrowings under loan facilities ......................... 3,341,283 1,162,242 411,238 254,460
Payments on capital lease obligations .................... (1,039,974) (768,014) (440,512) (98,278)
------------ ------------ ------------ ------------
Net cash provided by financing activities ................ 14,187,856 25,349,697 25,478,983 2,071,263
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ..... (2,814,114) 10,137,670 18,175,937 (576,751)
Cash and cash equivalents at beginning of year ........... 5,727,122 2,913,008 2,913,008 13,050,678
------------ ------------ ------------ ------------
Cash and cash equivalents at end of year ................. $ 2,913,008 $ 13,050,678 $ 21,088,945 $ 12,473,927
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 62
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTH
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Ribozyme Pharmaceuticals, Inc. ("RPI" or the "Company") was
incorporated on January 27, 1992 for the purpose of research, development and
commercialization of its ribozyme technology. To date, the Company has engaged
in the research and development of its ribozyme technology and has experienced
significant operating losses in each fiscal year since inception. The Company
has not generated any revenue from the commercialization of its ribozyme
technology and it expects to continue to incur significant operating losses
over at least the next several years.
Basis of Presentation
The Company incurred a net loss of $15,267,580 for the year ended
December 31, 1996 and has an accumulated deficit of $47,382,830 at December 31,
1996.
Development of the Company's products will require a commitment of
substantial additional funds to conduct the costly and time-consuming research,
preclinical and clinical testing necessary to bring its proposed products to
market and to establish manufacturing and marketing capabilities. The Company's
future capital requirements will depend on many factors, including, among
others, the progress of the Company's research, development and drug discovery
efforts, the ability of the Company to establish collaborative arrangements for
clinical testing, progress with preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved
in preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, competing technological and market developments, changes in the
Company's existing research relationships, determination as to the commercial
potential of the Company's potential products, effective commercialization
activities and arrangements, and the cost and availability of third-party
financing for capital expenditures.
Interim Financial Statements
The financial statements as of June 30, 1997 and for the six month
periods ended June 30, 1997 and 1996 are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair statement of the financial position as of such date and
the operating results and cash flows for such periods. Results for interim
periods are not necessarily indicative of results of the entire year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 63
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Reverse Stock Split
During 1996, the Company's Board of Directors and stockholders approved
a 1-for-9 reverse stock split of its outstanding common stock and preferred
stock, to be effected on April 11, 1996, and approved the amendment of the
Company's Restated Certificate of Incorporation to adjust the Company's
authorized capital stock to 20,000,000 shares of $.01 par value common stock,
and 5,000,000 shares of $.01 par value preferred stock. All references in the
accompanying financial statements to the number of common and preferred shares
and to per share amounts, stock options and warrants, have been retroactively
restated to reflect the reverse stock split.
Net Loss Per Share
Beginning January 1, 1996, net loss per share is computed using the
weighted average number of shares of common stock outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive. Prior to April 11, 1996, pursuant
to Securities and Exchange Commission Staff Accounting Bulletins and Staff
Policy, common and common equivalent shares issued during the 12-month period
prior to the proposed initial public offering at prices below the public
offering price are presumed to have been issued in contemplation of the public
offering, even if antidilutive, and have been included in the calculation as if
they were outstanding (using the treasury stock method and the initial public
offering price for common stock, stock options and warrants and the as
converted method for convertible preferred stock).
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on these statements is not expected to be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The Company's cash
equivalents are comprised of certificates of deposit, money market funds, and
investment securities with maturities of three months or less.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets. Leasehold improvements and equipment subject to financing obligations
are amortized on a straight-line basis over the shorter of their estimated
useful lives or the lease term.
Deferred Patent Costs
The Company capitalizes legal costs directly incurred in pursuing
patent applications as deferred patent costs. When such application results in
an issued patent, the related costs are amortized over the remaining legal life
of the patents, using the straight-line method. On a quarterly basis, the
Company reviews its issued patents and pending patent applications, and if it
determines to abandon a patent application or that an issued patent no longer
has economic value, the unamortized balance in deferred patent costs relating
to that patent is immediately expensed.
F-9
<PAGE> 64
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
It is possible the above estimates of future economic life of the
Company's commercialization revenues, the amount of anticipated future
commercialization revenues, or both, will be reduced significantly in the near
term due to alternative technologies developed by other biotechnology or
pharmaceutical companies. As a result, the carrying amount of deferred patent
costs may be reduced in the future.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121), which requires impairment losses to be recorded on long-lived
assets used in operations when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted the
provisions of SFAS 121 in the first quarter of 1996 with no material effect to
its financial statements.
Revenue Recognition
Revenues recognized under the Company's collaborative research
agreements and grants are recorded as earned ratably over the term of the
agreements. Payments received in advance under these agreements are recorded as
deferred revenue until earned.
Research and Development Expenses
Research and development costs are expensed as incurred.
Certain Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 financial statement presentation.
2. SECURITIES AVAILABLE-FOR-SALE
Management has determined that all marketable securities held by the
Company at June 30, 1997, December 31, 1996 and 1995 were available-for-sale.
Securities available-for-sale are carried at fair value, with unrealized gains
and losses reported as a separate component of stockholders' equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on securities available-for-sale are included
in investment income. Interest and dividends on securities available-for-sale
are included in investment income. The cost of securities sold is based on the
specific identification method.
F-10
<PAGE> 65
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The following is a summary of securities available-for-sale:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Basis Gains Losses Fair Value
---------- ------ ------- ----------
<S> <C> <C> <C> <C>
At June 30, 1997:
Backed by government securities
(maturing in 1999) ............. $ 803,524 $ - $(7,988) $ 795,536
========== ====== ======= ==========
At December 31, 1996:
Backed by government securities
(maturing in 1999 and 2025) .... $4,552,684 $ - $(9,214) $4,543,470
========== ====== ======= ==========
At December 31, 1995:
U.S. corporate securities
(maturing in 1996) ............. $3,507,234 $ - $ - $3,507,234
========== ====== ======= ==========
</TABLE>
The gross realized losses on sales of securities available-for-sale
totaled $13,140 and $1,693 in 1996 and 1995, respectively.
3. LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1996 and June 30, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- ----------
1995 1996 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Tenant improvement loan (I) .............. $ 693,077 $ 304,951 $ --
Equipment loan (I) ....................... 1,128,617 714,728 37,616
Tenant interest loan (II) ................ 878,955 710,800 421,620
Tenant improvement and equipment
loan (II)............................... 1,455,757 1,240,191 810,678
Equipment loan (III) ..................... -- 1,031,951 878,726
---------- ---------- ----------
$4,156,406 $4,002,621 $2,148,640
========== ========== ==========
</TABLE>
I. During 1994, the Company obtained a tenant improvement loan of
$1,000,000 for leasehold improvements and an equipment loan to purchase
up to $1,500,000 of equipment. The interest rate on borrowings under
these loan facilities is the lender's prime rate plus 1.75% (10.00%
(8.25% prime) at December 31, 1996). The agreement requires monthly
principal and interest payments through August 1998.
II. In April 1995, the Company obtained a loan of $1,000,000 collateralized
by its tenant interest and certain existing leasehold improvements, and
an additional loan to purchase up to $1,500,000 of leasehold
improvements and equipment. The terms of the agreement call for fixed
monthly principal and interest payments through October 1998, assuming
the Company exercises a prepayment option. If the Company does not
exercise the option, reduced fixed payments will continue through June
2002.
F-11
<PAGE> 66
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
III. In December 1995, the Company negotiated an additional equipment credit
facility of $2,000,000 with a financial institution. The facility
commitment was terminated on June 30, 1997. The agreement requires
monthly principal and interest payments through October 2000, at which
time a final payment of $283,328 is due in full.
Interest expense for the years ended December 31, 1996 and 1995
relating to the Company's long-term debt approximates the interest paid during
the respective periods.
All assets acquired under the above loan facilities represent
collateral for the amounts outstanding. In addition, the Company is required to
maintain minimum cash balances in the form of certificates of deposit with a
financial institution, in the amount of $295,402 and $1,209,930 at December 31,
1996 and 1995, respectively. These amounts are presented as restricted cash in
the accompanying balance sheets.
As of December 31, 1996, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1997.................... $1,572,189
1998.................... 2,087,993
1999.................... 316,090
Thereafter.............. 26,349
----------
$4,002,621
==========
</TABLE>
4. LEASES AND COMMITMENTS
During 1992 and 1993, the Company sold and simultaneously leased back
certain property and equipment in connection with various lease agreements. All
assets under such leases consisted of general laboratory and scientific
equipment, office equipment, furniture, fixtures, and certain leasehold
improvements. The interest rate on borrowings under these leases is
approximately 11%.
Assets and the related accumulated amortization included in the above
leases are as follows as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Machinery and equipment .................... $2,262,782 $ 926,297
Office furniture and equipment ............. 487,218 205,256
---------- ----------
2,750,000 1,131,553
Less accumulated amortization .............. 2,045,584 1,019,680
========== ==========
$ 704,416 $ 111,873
========== ==========
</TABLE>
The Company leases office space under a noncancelable operating lease
which was due to expire in June 1997; however, in March 1997 the Company
extended the term of the operating lease until June 2002. Total rent expense
was $265,732 and $259,901 in 1996 and 1995, respectively.
F-12
<PAGE> 67
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Company's lease commitments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASE OPERATING
OBLIGATIONS LEASE
----------- ---------
<S> <C> <C>
1997 ............................ $ 159,272 $ 290,940
1998 ............................ - 49,965
1999 ............................ - 13,560
2000 ............................ - 930
--------- ---------
159,272 $ 355,395
=========
Executory costs ................. -
Amounts representing interest ... (7,179)
---------
$ 152,093
=========
</TABLE>
5. STOCKHOLDERS' EQUITY
In April 1996, the Company completed an initial public offering of its
common stock, whereby 2,300,000 shares of the Company's common stock were sold
at $10.00 per share, resulting in net proceeds of approximately $20.6 million.
As a result of the Company's initial public offering, all preferred shares
outstanding were converted into an aggregate of 2,231,960 shares of common
stock.
Upon consummation of the initial public offering the Company sold 377,202
shares of common stock to Chiron Corporation ("Chiron") for $3,640,000.
Additionally, the Company received $1,800,000 from Chiron to complete the
purchase of warrants to purchase 444,444 shares of common stock, issued
concurrently with the IPO.
In March 1996, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"), authorizing the issuance of 300,000 shares pursuant to
purchase rights granted to employees of the Company. The Purchase Plan provides
a means by which employees purchase common stock of the Company through payroll
deductions. The Purchase Plan is implemented by offerings of rights to eligible
employees. Generally, each offering is twenty-four months' duration with
purchases occurring on each October 31 and April 30 during each offering
(except that April 30, 1996 will not be a purchase date). Common stock is
purchased for accounts of employees participating in the Purchase Plan at a
price per share equal to the lower of (i) 85% of the fair market value of a
share of common stock on the date of commencement of participation in the
offering or (ii) 85% of the fair market value of a share of common stock on the
date of purchase. Generally all regular employees, including executive
officers, may participate in the Purchase Plan and may authorize payroll
deduction of up to 15% of their base compensation for the purchase of stock
under the plan. The Company's Board of Directors has the authority to terminate
the Purchase Plan at its discretion. Shares are deemed issued for accounting
purposes in the year the shares are purchased.
Pursuant to an antidilution agreement (the "Antidilution Agreement") with
a founder of the Company, the Company agreed to issue additional shares to this
individual so that he will maintain a 5% interest in the fully diluted equity
of the Company until the occurrence of one of several events, including the
Company's initial public offering. Accordingly, effective April 11, 1996,
115,506 shares were issued related to the Antidilution Agreement which
represented the founder's 5% interest in the Company. No additional rights
under the Antidilution Agreement exist.
F-13
<PAGE> 68
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Below is a summary of common stock reserved by the Company at December
31, 1996 for issuance upon the exercise of the various options, warrants and
the purchase plan.
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Stock option plans ............. 1,180,863
Employee stock purchase plan ... 284,158
Warrants at $15.75 per share ... 10,793
Warrants at $40.50 per share ... 11,111
Warrants at $22.50 per share ... 465,554
---------
1,952,479
=========
</TABLE>
The Company's ability to pay dividends is restricted by the terms of its
tenant improvement and equipment loan facility agreements.
6. STOCK OPTION PLANS
The Company established a Non-Qualified Stock Option Plan and an
Incentive Stock Option Plan (collectively, the "Plans"), under which it is
authorized to grant stock options to eligible employees, consultants, and other
individuals, as defined in the Plans. Options to purchase the Company's common
stock are exercisable at a price as determined by the Board of Directors at the
time the option is granted, which shall not be less than 100% of the fair
market value (110% in the case of 10 percent shareholders) at the date of
grant. Vesting rights are determined by the Board of Directors at the time the
option is granted and generally the options become exercisable at twenty
percent at the end of each of years one through five. If not exercised, the
options expire after ten years. The Board of Directors has also granted certain
employees options vesting upon achievement of certain contingent milestone
events.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, if the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. During 1996 and 1995, the Company recorded $137,617 and $297,709,
respectively, of compensation relating to the grant of milestone-vested stock
options and the Antidilution Agreement.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 6.3% and 5.9%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .566 and .566; and a weighted-average expected life of the
option of 6 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-14
<PAGE> 69
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Pro forma net loss ......... $ (12,492,739) $ (15,554,890)
Pro forma loss per share ... (3.87) (2.66)
</TABLE>
Changes in stock options for the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE
-------------- -------------
<S> <C> <C>
Outstanding at December 31, 1994 ..... 353,195 $ .45-$ 4.50
Options granted ...................... 44,495 $ 2.70-$ 5.40
Options exercised/canceled ........... (29,852) $ .45-$ 4.50
-------------- -------------
Outstanding at December 31, 1995 ..... 367,838 $ .45-$ 5.40
Options granted ...................... 508,652 $ 2.70-$19.00
Options exercised/canceled ........... (197,067) $ .45-$ 5.40
-------------- -------------
Outstanding at December 31, 1996 ..... 679,423 $ .45-$19.00
============== =============
</TABLE>
Stock options vest as follows:
<TABLE>
<CAPTION>
OPTIONS
-------
<S> <C>
Currently exercisable ..................... 109,568
1997 ...................................... 132,893
1998 ...................................... 108,001
1999 ...................................... 105,288
2000 ...................................... 95,226
2001 and thereafter ....................... 89,382
Contingent vesting ........................ 39,065
-------
Total .............................. 679,423
=======
</TABLE>
During the six month period ending June 30, 1997 the Company granted
246,100 stock options to its employees and Directors at exercise prices ranging
from $9.13 to $13.50.
F-15
<PAGE> 70
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
7. COLLABORATIVE AGREEMENTS
Parke-Davis
In April 1993, the Company entered into a research and development
collaboration agreement with the Parke-Davis division of the Warner-Lambert
Corporation ("Parke-Davis"), whereby Parke-Davis was to partially fund the
research and development costs incurred by the Company in developing and
commercializing ribozyme-based products for application to the treatment of
osteoarthritis and other diseases. Pursuant to the Parke-Davis agreement,
Parke-Davis purchased 100,100 shares of Series C preferred stock at a price of
$29.97 per share in 1993, 27,777 shares of Series C preferred stock at a price
of $36.00 per share in 1994, and 40,160 shares of Series F preferred stock at
$37.35 per share in 1995, for a total equity investment of $5,500,000. All
preferred shares were converted into 168,037 shares of common stock upon the
Company's initial public offering.
Also pursuant to the collaboration agreement, through December 31, 1996,
Parke-Davis provided $1,700,000 research and development funding to the
Company. As of June 30, 1997, the collaboration agreement has been completed.
Dow Elanco
In September 1993, the Company entered into a research and development
study with DowElanco (the "Feasibility Study") to demonstrate the stable
integration and the effective use of ribozymes to alter corn composition. The
Feasibility Study has been completed and the parties entered into a long-term
license agreement for the development and commercialization of ribozymes to the
targets of interest. Pursuant to the terms of the Feasibility Study, DowElanco
agreed to reimburse the Company for all of its expenses related to the
Feasibility Study and, in 1994, purchased 41,666 shares of Series D preferred
stock at a price of $36.00 per share, for a total equity investment of
$1,500,000. All preferred shares were converted into 41,666 shares of common
stock upon completion of the Company's initial public offering, and were
returned and canceled in consideration of the license described above.
Chiron
In July 1994, the Company entered into a research and development
collaboration agreement with Chiron to research, develop and market products
directed towards five genetic targets, and all human clinical indications
associated with those targets. The Company and Chiron will share equally in the
costs and profits of any jointly developed products.
F-16
<PAGE> 71
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
In addition, Chiron may, at its option, finance the Company's portion of
its Phase II and Phase III drug development costs for mutually approved
programs. The Company retains the option to reacquire its rights by reimbursing
Chiron for such development costs plus a predetermined risk premium. The term
of the research program is five years, with the terms of the agreement to be
extended if products are jointly developed. As part of this agreement, Chiron
committed to make a $10,000,000 equity investment in the Company. The
components of this investment are:
In 1994, Chiron purchased 100,000 shares of the Company's common
stock at a price of $3.60 per share, or $360,000; also in 1994 Chiron
purchased 107,095 shares of Series E preferred stock at a price of $37.35
per share, or $4,000,000. In 1996, the Company issued Chiron immediately
upon the closing of the Company's initial public offering a warrant to
purchase 444,444 shares of the Company's common stock which is
exercisable at a price of $22.50 per share, for an aggregate purchase
price of $4.50 per warrant share. In 1994, Chiron paid the Company $0.45
per warrant share, or $200,000. The balance of the warrant purchase
price, $1,800,000, or $4.05 per warrant share, was paid to the Company
upon completion of its initial public offering. Further, Chiron purchased
377,202 common shares with an aggregate value of $3,640,000 upon
completion of the Company's initial public offering, at the initial
public offering price less one-half of the underwriting discount. Chiron
also has a designated Board member on the Company's Board of Directors.
All preferred shares were converted into 142,222 shares of common stock
upon completion of the Company's initial public offering.
In May 1996, the Company entered into a collaboration with Chiron for the
use of ribozymes to characterize gene function. The collaboration gives Chiron
the right to develop and commercialize products that result from the
collaboration, and would entitle RPI to receive product development milestone
payments and royalties on sales of any such commercial products. Chiron and RPI
each pay a portion of the research and development expenses of the
collaboration, and the Company has provided Chiron $1,800,000 for research
funding related to the collaboration.
Pharmacia Biotech AB
In November 1995, the Company and Pharmacia Biotech AB entered into a
collaboration and license agreement for the improvement of production scale
synthesis of RNA and chimeric oligonucleotides. The goal of the collaboration
is to reduce the cost of manufacturing ribozymes and other oligonucleotide
products. Pharmacia Biotech AB will provide research funding, synthesis support
and instrumentation, while RPI will receive royalties on the sales of modified
RNA oligonucleotides and non-DNA primer support. As of December 31, 1996, the
Company received $512,500 in funding pursuant to the agreement and an
additional $219,000 in January 1997.
Schering AG, Germany
On April 9, 1997, the Company entered into a research collaboration with
Schering AG, Germany, ("Schering") focusing on the use of ribozymes for
therapeutic target validation, as well as the development of ribozymes as
therapeutic agents.
F-17
<PAGE> 72
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The collaboration will utilize the special selectivity of ribozymes to
validate new molecular therapeutic targets, and to discover new therapeutic
agents based on those targets. The Company will provide its expertise in
ribozyme design, synthesis and delivery, and Berlex Laboratories, Inc., a U.S.
subsidiary of Schering, will provide candidate targets, cell culture screens,
animal models and development and commercialization expertise to the
collaboration. It is anticipated that hundreds of potential targets will be
examined over a five year period, and Berlex will have options to commercialize
products from validated targets.
Schering will make an equity investment of $5 million over the next year
and will separately provide loans of up to $2 million annually for each of the
next five years. The first equity investment was completed in May 1997
resulting in proceeds of $2.5 million to the Company in exchange for 212,766
shares of common stock. The loans, which are to carry an interest rate of 8%
per annum, are convertible into equity at the option of Schering under certain
circumstances. Principal and interest payments on the loans are deferred until
maturity of the loans which is in April 2004. In addition, Schering will make
research payments of $2 million a year for the next five years and the Company
may earn success fees upon product development milestones, and will manufacture
synthetic ribozyme products and receive royalties on sales of both ribozyme and
non-ribozyme products resulting from the collaboration. All such payments are
subject to certain restrictions, including receipt of certain third party
consents and the termination of the research collaboration at Schering AG,
Germany's option upon one year's notice. Under certain circumstances, total
payments to the Company during the collaboration and prior to product sales
could exceed $60 million over the term of the collaboration.
8. COMMITMENT AND CONTINGENCY
During 1993, the Company entered into a sponsored research and license
agreement with an affiliate of the University of Colorado (the "Affiliate")
whereby, in order to maintain an annual right of first refusal on any ribozyme
invention by the Affiliate, the Company agreed to provide an unrestricted grant
for a total amount of $750,000. The agreement also provided for royalty
payments on future commercial product revenues by the Company to the Affiliate.
The Affiliate made an investment of approximately $41,000 for 46,188 shares of
the Company's common stock upon entering into the agreement.
During 1996, the Company eliminated the royalty arrangement in exchange
for 45,000 shares of its common stock. The Company has recognized expense
related to the exchange of $540,000 during 1996. The Company's remaining
commitments under the above unrestricted grant are as follows:
<TABLE>
<S> <C>
1997 ................................. $262,500
1998 ................................. 112,500
--------
$375,000
========
</TABLE>
The Company is involved in legal proceedings which have arisen in the
ordinary course of business. In the opinion of management the outcome of these
legal proceedings will not have a material adverse impact on the Company's
financial position or operations.
F-18
<PAGE> 73
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
9. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, the Company has a total of $225,000 and
$155,000, respectively, of non-interest bearing loans due primarily from three
officers. Of this balance, $125,000 can be forgiven by the Company under
certain employment agreement provisions. The remaining loan balances are
payable to the Company under various terms not to exceed 5 years. The Company
forgave $85,000 and $50,000 of these loans during each of the years ending
December 31, 1996 and 1995, respectively.
10. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes (SFAS 109).
Under the provisions of SFAS 109, a deferred tax liability or asset (net of a
valuation allowance) is provided in the financial statements by applying the
provisions of applicable tax laws to measure the deferred tax consequences of
temporary differences that will result in net taxable or deductible amounts in
future years as a result of events recognized in the financial statements in
the current or preceding years.
At December 31, 1996, the Company has the following net operating loss
and tax credit carryforwards for income tax purposes:
<TABLE>
<CAPTION>
NET RESEARCH AND STATE
OPERATING DEVELOPMENT INVESTMENT
EXPIRATION DATE LOSSES CREDITS CREDITS
--------------- ----------- ----------- -----------
<S> <C> <C> <C>
1999 .......... $ - $ - $ 14,000
2000 .......... - - 11,000
2001 .......... - - 6,000
2007 .......... 3,506,000 101,000 -
2008 .......... 7,363,000 185,000 -
2009 .......... 9,239,000 316,000 -
2010 .......... 11,923,000 139,000
2011 .......... 15,015,000 181,000 -
----------- ----------- -----------
Total .... $47,046,000 $ 922,000 $ 31,000
=========== =========== ===========
</TABLE>
F-19
<PAGE> 74
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been a "change
of ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could have been triggered by the
Company's initial public offering or by subsequent sales of securities by the
Company or its shareholders.
The components of the Company's deferred tax assets and liabilities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ........ $ 11,979,000 $ 17,548,000
Research and development and state
investment credit carryforwards ....... 893,000 953,000
Depreciation ............................ 352,000 619,000
Other ................................... 26,000 6,000
------------ ------------
13,250,000 19,126,000
Valuation allowance ..................... (12,686,000) (18,348,000)
------------ ------------
Net deferred tax assets ................. 564,000 778,000
Deferred tax liabilities:
Deferred patent costs ................... $ 555,000 $ 749,000
Other ................................... 9,000 29,000
------------ ------------
Total deferred tax liabilities ............. 564,000 778,000
------------ ------------
$ - $ -
============ ============
</TABLE>
F-20
<PAGE> 75
===========================================================
No dealer, sales representative or any other
person has been authorized to give any information
or to make any representations in connection with
this offering other than those contained in this
Prospectus, and, if given or made, such information
or representations must not be relied upon as having
been authorized by the Company or the Placement Agent.
This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person
in any jurisdiction where such an offer or solicitation
would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the
affairs of the Company since the date hereof or that the
information contained herein is correct as of any time
subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
Available Information............................... 2
Prospectus Summary.................................. 3
Risk Factors........................................ 6
Use of Proceeds..................................... 14
Dividend Policy..................................... 15
Price Range of Common Stock......................... 15
Capitalization...................................... 16
Dilution............................................ 17
Selected Financial Data............................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 19
Business............................................ 22
Management.......................................... 38
Certain Transactions................................ 46
Principal Stockholders.............................. 48
Description of Capital Stock........................ 50
Plan of Distribution................................ 52
Legal Matters....................................... 52
Experts............................................. 53
Index to Financial Statements....................... F-1
===========================================================
===========================================================
1,400,000 Shares
[RPI LOGO]
Common Stock
----------------
Prospectus
----------------
MONTGOMERY SECURITIES
, 1997
===========================================================
<PAGE> 76
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the
Registrant 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, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation provides for the
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its stockholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such an 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 director's duty of
loyalty to the Registrant, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, and for payment of
dividends or approval of stock repurchases or redemption's that are unlawful
under Delaware law. The provision does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
The Placement Agency Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Placement Agent of
the Registrant and its officers and directors for certain liabilities arising
under the Securities Act or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the placement
fees, payable by the Registration in connection with the sale of the Common
Stock being registered. All the amounts shown are estimates except for the
registration fee and the NASD filing fee and the Nasdaq National Market
Listing.
<TABLE>
<S> <C>
Registration fee .............................. $ 3,500
NASD filing fee ............................... 1,655
Nasdaq listing fee ............................ 17,500
Blue sky qualification fee and expenses ....... 5,000
Printing and engraving expenses ............... 100,000
Legal fees and expenses ....................... 150,000
Accounting fees and expenses .................. 50,000
Transfer agent and registrar fees ............. 5,000
Miscellaneous ................................. 17,345
--------
Total ................................ 350,000
========
</TABLE>
II-1
<PAGE> 77
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1, 1994, the Registrant has issued and/or sold
unregistered securities as set forth below.
(1) During the period, stock options to purchase shares of Common Stock
were exercised as follows:
<TABLE>
<CAPTION>
Date Shares Price/Share
---- ------ -----------
<S> <C> <C>
September 1994 66 0.90
September 1994 866 0.45
September 1994 166 1.80
September 1994 444 0.45
October 1994 333 0.90
October 1994 888 0.45
April 1995 86 1.80
April 1995 33 1.80
August 1995 315 1.26
December 1995 888 1.80
January 1996 1,666 4.50
January 1996 76,113 0.45
May 1996 233 0.45
May 1996 22 1.80
May 1996 88 3.60
May 1996 47 5.40
June 1996 200 0.45
June 1996 17 1.80
June 1996 75 3.60
June 1996 33 5.40
June 1996 24,444 0.90
</TABLE>
(2) In December 1994, the Registrant sold a warrant to purchase 11,111
shares of Common Stock at an exercise price of $40.50 per share for
cash at a price of $100 and in partial consideration for the
modification of certain license terms to an Accredited Investor.
(3) In March 1995, the Registrant sold a warrant to purchase 16,666
shares of Common Stock at an exercise price of $22.50 per share for
cash at a price of $1,500 to an Accredited Investor.
(4) In April 1995, the Registrant sold 40,162 shares of Series F
preferred stock for cash at a price of $37.35 per share to an
Accredited Investor.
(5) In December 1994, the Registrant sold (i) 100,000 shares of Common
Stock for cash at a price of $3.60 per share and (ii) 107,095 shares of
Series E preferred stock for cash at a price of $37.35 per share to an
Accredited Investor.
(6) In August 1995, the Registrant sold 442,165 shares of Series G
preferred stock for cash at a price of $22.50 per share to 22
Accredited Investors.
(7) In December 1995, the Registrant sold 44,444 shares of Series G
preferred stock for cash at a price of $22.50 per share to an
Accredited Investor.
(8) In December 1995, the Registrant issued a warrant to purchase 2,222
shares of Common Stock at an exercise price of $22.50 per share to an
Accredited Investor as partial consideration for a lease.
II-2
<PAGE> 78
(9) In April 1996, the Registrant issued 18,810 shares of Common Stock to
the President of the Registrant pursuant to his employment agreement.
(10) In April 1996, the Registrant sold for cash 377,202 shares of Common
Stock at a price of $9.65 per share and warrants to purchase 444,444 at
a price of $4.50 per warrant to an Accredited Investor.
(11) In September 1996, the Registrant issued 22,500 shares of Common Stock
to an Accredited Investor in consideration for modification of
certain license terms.
(12) In November 1996, the Registrant issued 22,500 shares of Common Stock
to an Accredited Investor in consideration for modification of
certain license terms.
(13) In December 1996, the Registrant issued 2,083 shares of Common Stock
to a consultant for partial consideration for services rendered.
(14) In May 1997, the Registrant sold 212,766 shares of Common Stock for
cash at a price of $11.75 per share to an Accredited Investor.
The sales and issuances of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (2) through (14) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Rule 506 promulgated
under the Securities Act. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships to such information.
II-3
<PAGE> 79
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
1.1 Form of Placement Agency Agreement.
3.1* Amended and Restated Certificate of Incorporation dated
April 17, 1996.
3.2(1) By-laws of the Company, as amended.
4.1(1) Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen Stock Certificate.
5.1* Opinion of Rothgerber, Appel, Powers and Johnson LLP
10.1(1) Form of Indemnity Agreement entered into between the Company
and its directors and officers, with related schedule.
10.2(1) Company's Incentive Stock Option Plan(the "ISO Plan"),
including form of Incentive Stock Option Agreement under the
ISO Plan.
10.3(1) Company's Non-Qualified Stock Option Plan(the "NQSO Plan"),
including form of Non-Qualified Stock Option under the NQSO
Plan.
10.4(1) Company's 1996 Stock Option Plan(the "Option Plan"),
including forms of Incentive Stock Option and Nonstatutory
Stock Option under the Option Plan.
10.5(1) Company's 1996 Employee Stock Purchase Plan.
10.6 Employment Agreement, dated January 1, 1997 between the
Company and Ralph Christoffersen.
10.7(1) Incentive Stock Option Agreement between the Company and
Ralph E. Christoffersen, dated as of December 23, 1992.
10.8(1) Incentive Stock Option Agreement between the Company and
Ralph E. Christoffersen, dated as of September 23, 1994.
10.9(1) Warrant Purchase Agreement, dated as of March 15, 1995
between the Company and Hambrecht & Quist Guaranty Finance,
L.P.
10.10(1) Warrant to Purchase Common Stock, dated as of March 15, 1995
issued to Hambrecht & Quist Guaranty Finance, L.P.
10.11(1) Warrant to Purchase Common Stock, dated as of February 22,
1993 issued to LINC Scientific Leasing.
10.12(1) Warrant to Purchase Common Stock, dated as of July 30, 1993
issued to Douglas E. Olson.
10.13(1) Warrant to Purchase Common Stock, dated as of July 30, 1993
issued to Richard J. Warburg and Ruth P. Warburg.
II-4
<PAGE> 80
10.14(1) Warrant to Purchase Common Stock, dated as of December 28,
1994 issued to Competitive Technologies, Inc.
10.15(1) Warrant to Purchase Common Stock, dated as of December 29,
1995 issued to Silicon Valley Bank.
10.16(1) Warrant to Purchase Common Stock, dated July 26, 1996 issued
to Silicon Valley Bank.
10.17(1) Warrant to Purchase Common Stock, dated April 17, 1996,
issued to Chiron Corporation.
10.18(1) Collaborative Research, Development and Commercialization
Agreement, dated July 15, 1994 between the Company and Chiron
Corporation.
10.19(1) Research Collaboration and Licensing Agreement, dated as of
November 1, 1995 between the Company and Pharmacia Biotech,
AB
10.20(1) Research and Development Collaboration Agreement, dated as of
April 19, 1993 between the Company and Parke-Davis Division
of Warner-Lambert Company.
10.21(1) First Amendment to the Research and Development Collaboration
Agreement, dated April 19, 1993, dated as of April 17, 1995
between the Company and Parke-Davis Division of
Warner-Lambert Company.
10.22(1) Second Amendment to the Research and Development
Collaboration Agreement, dated April 19, 1993, dated as of
February 8, 1996 between the Company and Parke-Davis Division
of Warner-Lambert Company.
10.23(1) Financing Agreement, dated March 16, 1995 among Wilderness
Place Holdings L.L.C., Hambrecht & Quist Guaranty Finance,
L.P. and the Company.
10.24(1) Negotiable Promissory Note, dated October 7, 1992 between the
Company and Ralph Christoffersen and Addendum dated June 25,
1993.
10.25(1) Employment Agreement, dated January 8, 1996 between the
Company and Lawrence E. Bullock.
10.26(1) Promissory Note, dated February 8, 1996 between the Company
and Lawrence E. Bullock.
10.27(1) Lease for Real Property, dated May 20, 1992 between Aero-Tech
Investments and the Company.
10.28(1) Non-Disturbance and Attornment Agreement, dated March 31,
1995 among General American Life Insurance Company, Aero-Tech
Investments, Wilderness Place Holdings L.L.C. and the
Company.
10.29(1) Master Lease Agreement, dated September 2, 1992 between the
Company and LINC Scientific Leasing.
10.30(1) Loan and Security Agreement, dated February 28, 1994 between
the Company and Silicon Valley Bank.
10.31(1) Loan Modification Agreement, dated December 21, 1994 between
the Company and Silicon Valley Bank.
10.32(1) Loan and Security Agreement, dated December 29, 1995 between
the Company and Silicon Valley Bank and MMC/GATX Partnership
No. 1.
II-5
<PAGE> 81
10.33(1) Warrant to Purchase Common Stock, dated as of December 29,
1995 issued to MMC/GATX Partnership No. 1
10.34(1) Agreement, dated February 29, 1996 between the Company and
Chiron Corporation relating to research and development
funding.
10.35(3) Amendments to original Employment Agreements between the
Company and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996,
November 22, 1996 and December 15, 1996.
10.36(3) Promissory Note, dated June 4, 1996 between the Company and
Nassim Usman.
10.37(3) Amendment to Lease for Real Property, dated March 13, 1997
between Aero-Tech Investments and the Company.
10.38(2) Employment Agreement, dated May 2, 1996 between the Company
and Nassim Usman.
10.39(2) Collaboration Agreement Regarding Use of Ribozymes to
Determine Gene Function, dated May 13, 1996 between the
Company and Chiron Corporation.
10.40(3)! Amended and Restated License Agreement, dated November 20,
1996, between the Company, University Research Corporation,
University of Colorado and United States Biochemical
Corporation.
10.41(3)! Amended and Restated Sublicense Agreement, dated November 20,
1996, between the Company and United States Biochemical
Corporation.
10.42(3)! Amended and Restated License Agreement, dated November 20,
1996, between the Company and Competitive Technologies,
Incorporated.
10.43(1) Memorandum of Understanding, dated March 1, 1996 between the
Company and DowElanco.
10.44(3)! Stock Subscription Agreement, dated September 1996, between
the Company and University of Research Corporation.
10.45(3)! Stock Subscription Agreement, dated November 20, 1996,
between the Company and United States Biochemical
Corporation.
10.46(3)! Assignment of License and Restated License Agreement, dated
November 20, 1996, among the Company, United States
Biochemical Corporation and Competitive Technologies.
10.47(3)! Letter Agreement dated May 22, 1996, between the Company and
ALZA Corporation.
10.48(3)! Research and Development Collaboration Agreement dated
December 2, 1996, between the Company and Protogene
Laboratories.
10.49(3)! License Agreement dated February 14, 1997, between the
Company and IntelliGene, Ltd.
10.50(1) Subscription Agreement, dated as of April 17, 1995, between
the Company and Parke- Davis Division of Warner-Lambert
Company.
10.51(1) Stock Purchase Agreement, dated as of June 28, 1995, among
the Company and certain investors.
10.52(1) Agreement dated March 1, 1996, between the Company and
DowElanco Corporation relating to the conversion of preferred
stock.
II-6
<PAGE> 82
10.53(1) Stock Subscription Agreement dated as of October 30, 1995,
between the Company and Gewestelijke Investeringsmaatschappij
voor Vlaanderon n.v.
10.54(4)! Research, License, Supply and Royalty Agreement between
Schering Aktiengesellschaft and the Company, dated April 9,
1997.
10.55(4)! Purchase Agreement dated as of April 9, 1997 among the
Company, Schering Berlin Venture Corporation and Schering
Aktiengesellschaft.
10.56 Employment agreement dated February 27, 1997 between the
Company and Alene Holzman.
10.57 Employment agreement dated July 5, 1997 between the Company
and Thomas Rossing.
11.1(3)(5) Statement regarding calculation of net loss per share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Rothgerber, Appel, Powers & Johnson LLP, refer to
Exhibit 5.1.
23.3 Consent of Lyon & Lyon.
24.1 Power of Attorney. Reference is made to page II-10.
* To be filed by amendment.
! The Company has applied for confidential treatment with respect to
portions of these Exhibits.
(1) Incorporated by reference to the Company's Form SB-2 Registration
Statement, File No. 333-1908-D.
(2) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended June 30, 1996.
(3) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1996.
(4) Incorporated by reference to the Company's Form 8-K dated June 12,
1997.
(5) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended June 30, 1997.
II-7
<PAGE> 83
ITEM 28. 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 14 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.
The undersigned Registrant undertakes that (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus as 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, 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 bonafide offering thereof.
II-8
<PAGE> 84
SIGNATURES
In accordance with 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 SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the
City of Boulder, State of Colorado, on the 3rd day of September, 1997.
RIBOZYME PHARMACEUTICALS, INC.
By: /s/ Ralph E. Christoffersen
-----------------------------------
Ralph E. Christoffersen, Ph.D.
Chief Executive Officer and President
II-9
<PAGE> 85
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Ralph E. Christoffersen and Lawrence E. Bullock as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form SB-2 (including post-effective amendments or any abbreviated
registration statement, and any amendments thereto, filed pursuant to Rule 462
(b) increasing the amount of securities for which registration is being
sought), 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, full power and 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 might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph E. Christoffersen Chief Executive Officer and September 3, 1997
- --------------------------- President (Principal ------------------
Ralph E. Christoffersen Executive Officer)
/s/ Lawrence E. Bullock Vice President, Administration September 3, 1997
- --------------------------- and Finance, Chief ------------------
Lawrence E. Bullock Financial Officer and
Secretary (Principal
Financial and Accounting
Officer)
/s/ David T. Morgenthaler Chairman of the Board of September 3, 1997
- --------------------------- Directors ------------------
David T. Morgenthaler
Director
- --------------------------- ------------------
Jeremy C. Cook
/s/ Anthony B. Evnin, Ph.D. Director September 3, 1997
- --------------------------- ------------------
Anthony B. Evnin, Ph.D.
/s/ Charles M. Hartman Director September 3, 1997
- --------------------------- ------------------
Charles M. Hartman
/s/ Anders Wiklund Director September 3, 1997
- --------------------------- ------------------
Anders Wiklund
/s/ Lewis T. Williams Director September 3, 1997
- --------------------------- ------------------
Lewis T. Williams
</TABLE>
II-10
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1 Form of Placement Agency Agreement.
3.1* Amended and Restated Certificate of Incorporation dated
April 17, 1996.
3.2(1) By-laws of the Company, as amended.
4.1(1) Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen Stock Certificate.
5.1* Opinion of Rothgerber, Appel, Powers and Johnson LLP
10.1(1) Form of Indemnity Agreement entered into between the Company
and its directors and officers, with related schedule.
10.2(1) Company's Incentive Stock Option Plan(the "ISO Plan"),
including form of Incentive Stock Option Agreement under the
ISO Plan.
10.3(1) Company's Non-Qualified Stock Option Plan(the "NQSO Plan"),
including form of Non-Qualified Stock Option under the NQSO
Plan.
10.4(1) Company's 1996 Stock Option Plan(the "Option Plan"),
including forms of Incentive Stock Option and Nonstatutory
Stock Option under the Option Plan.
10.5(1) Company's 1996 Employee Stock Purchase Plan.
10.6 Employment Agreement, dated January 1, 1997 between the
Company and Ralph Christoffersen.
10.7(1) Incentive Stock Option Agreement between the Company and
Ralph E. Christoffersen, dated as of December 23, 1992.
10.8(1) Incentive Stock Option Agreement between the Company and
Ralph E. Christoffersen, dated as of September 23, 1994.
10.9(1) Warrant Purchase Agreement, dated as of March 15, 1995
between the Company and Hambrecht & Quist Guaranty Finance,
L.P.
10.10(1) Warrant to Purchase Common Stock, dated as of March 15, 1995
issued to Hambrecht & Quist Guaranty Finance, L.P.
10.11(1) Warrant to Purchase Common Stock, dated as of February 22,
1993 issued to LINC Scientific Leasing.
10.12(1) Warrant to Purchase Common Stock, dated as of July 30, 1993
issued to Douglas E. Olson.
10.13(1) Warrant to Purchase Common Stock, dated as of July 30, 1993
issued to Richard J. Warburg and Ruth P. Warburg.
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
10.14(1) Warrant to Purchase Common Stock, dated as of December 28,
1994 issued to Competitive Technologies, Inc.
10.15(1) Warrant to Purchase Common Stock, dated as of December 29,
1995 issued to Silicon Valley Bank.
10.16(1) Warrant to Purchase Common Stock, dated July 26, 1996 issued
to Silicon Valley Bank.
10.17(1) Warrant to Purchase Common Stock, dated April 17, 1996,
issued to Chiron Corporation.
10.18(1) Collaborative Research, Development and Commercialization
Agreement, dated July 15, 1994 between the Company and Chiron
Corporation.
10.19(1) Research Collaboration and Licensing Agreement, dated as of
November 1, 1995 between the Company and Pharmacia Biotech,
AB
10.20(1) Research and Development Collaboration Agreement, dated as of
April 19, 1993 between the Company and Parke-Davis Division
of Warner-Lambert Company.
10.21(1) First Amendment to the Research and Development Collaboration
Agreement, dated April 19, 1993, dated as of April 17, 1995
between the Company and Parke-Davis Division of
Warner-Lambert Company.
10.22(1) Second Amendment to the Research and Development
Collaboration Agreement, dated April 19, 1993, dated as of
February 8, 1996 between the Company and Parke-Davis Division
of Warner-Lambert Company.
10.23(1) Financing Agreement, dated March 16, 1995 among Wilderness
Place Holdings L.L.C., Hambrecht & Quist Guaranty Finance,
L.P. and the Company.
10.24(1) Negotiable Promissory Note, dated October 7, 1992 between the
Company and Ralph Christoffersen and Addendum dated June 25,
1993.
10.25(1) Employment Agreement, dated January 8, 1996 between the
Company and Lawrence E. Bullock.
10.26(1) Promissory Note, dated February 8, 1996 between the Company
and Lawrence E. Bullock.
10.27(1) Lease for Real Property, dated May 20, 1992 between Aero-Tech
Investments and the Company.
10.28(1) Non-Disturbance and Attornment Agreement, dated March 31,
1995 among General American Life Insurance Company, Aero-Tech
Investments, Wilderness Place Holdings L.L.C. and the
Company.
10.29(1) Master Lease Agreement, dated September 2, 1992 between the
Company and LINC Scientific Leasing.
10.30(1) Loan and Security Agreement, dated February 28, 1994 between
the Company and Silicon Valley Bank.
10.31(1) Loan Modification Agreement, dated December 21, 1994 between
the Company and Silicon Valley Bank.
10.32(1) Loan and Security Agreement, dated December 29, 1995 between
the Company and Silicon Valley Bank and MMC/GATX Partnership
No. 1.
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
10.33(1) Warrant to Purchase Common Stock, dated as of December 29,
1995 issued to MMC/GATX Partnership No. 1
10.34(1) Agreement, dated February 29, 1996 between the Company and
Chiron Corporation relating to research and development
funding.
10.35(3) Amendments to original Employment Agreements between the
Company and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996,
November 22, 1996 and December 15, 1996.
10.36(3) Promissory Note, dated June 4, 1996 between the Company and
Nassim Usman.
10.37(3) Amendment to Lease for Real Property, dated March 13, 1997
between Aero-Tech Investments and the Company.
10.38(2) Employment Agreement, dated May 2, 1996 between the Company
and Nassim Usman.
10.39(2) Collaboration Agreement Regarding Use of Ribozymes to
Determine Gene Function, dated May 13, 1996 between the
Company and Chiron Corporation.
10.40(3)! Amended and Restated License Agreement, dated November 20,
1996, between the Company, University Research Corporation,
University of Colorado and United States Biochemical
Corporation.
10.41(3)! Amended and Restated Sublicense Agreement, dated November 20,
1996, between the Company and United States Biochemical
Corporation.
10.42(3)! Amended and Restated License Agreement, dated November 20,
1996, between the Company and Competitive Technologies,
Incorporated.
10.43(1) Memorandum of Understanding, dated March 1, 1996 between the
Company and DowElanco.
10.44(3)! Stock Subscription Agreement, dated September 1996, between
the Company and University of Research Corporation.
10.45(3)! Stock Subscription Agreement, dated November 20, 1996,
between the Company and United States Biochemical
Corporation.
10.46(3)! Assignment of License and Restated License Agreement, dated
November 20, 1996, among the Company, United States
Biochemical Corporation and Competitive Technologies.
10.47(3)! Letter Agreement dated May 22, 1996, between the Company and
ALZA Corporation.
10.48(3)! Research and Development Collaboration Agreement dated
December 2, 1996, between the Company and Protogene
Laboratories.
10.49(3)! License Agreement dated February 14, 1997, between the
Company and IntelliGene, Ltd.
10.50(1) Subscription Agreement, dated as of April 17, 1995, between
the Company and Parke- Davis Division of Warner-Lambert
Company.
10.51(1) Stock Purchase Agreement, dated as of June 28, 1995, among
the Company and certain investors.
10.52(1) Agreement dated March 1, 1996, between the Company and
DowElanco Corporation relating to the conversion of preferred
stock.
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
10.53(1) Stock Subscription Agreement dated as of October 30, 1995,
between the Company and Gewestelijke Investeringsmaatschappij
voor Vlaanderon n.v.
10.54(4)! Research, License, Supply and Royalty Agreement between
Schering Aktiengesellschaft and the Company, dated April 9,
1997.
10.55(4)! Purchase Agreement dated as of April 9, 1997 among the
Company, Schering Berlin Venture Corporation and Schering
Aktiengesellschaft.
10.56 Employment agreement dated February 27, 1997 between the
Company and Alene Holzman.
10.57 Employment agreement dated July 5, 1997 between the Company
and Thomas Rossing.
11.1(3)(5) Statement regarding calculation of net loss per share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Rothgerber, Appel, Powers & Johnson LLP, refer to
Exhibit 5.1.
23.3 Consent of Lyon & Lyon.
24.1 Power of Attorney. Reference is made to page II-10.
</TABLE>
* To be filed by amendment.
! The Company has applied for confidential treatment with respect to
portions of these Exhibits.
(1) Incorporated by reference to the Company's Form SB-2 Registration
Statement, File No. 333-1908-D.
(2) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended June 30, 1996.
(3) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1996.
(4) Incorporated by reference to the Company's Form 8-K dated June 12,
1997.
(5) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended June 30, 1997.
<PAGE> 1
Draft of September 3, 1997
1,400,000 SHARES
RIBOZYME PHARMACEUTICALS, INC.
COMMON STOCK
PLACEMENT AGENCY AGREEMENT
DATED SEPTEMBER , 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. AGREEMENT TO ACT AS PLACEMENT AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. DELIVERY AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Review of Proposed Amendments and Supplements . . . . . . . . . . . . . . . . . . . . . . . 7
Securities Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Amendments and Supplements to the Prospectus and Other Securities Act Matters . . . . . . . 7
Copies of Any Amendments and Supplements to the Prospectus . . . . . . . . . . . . . . . . . 8
Blue Sky Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Periodic Reporting Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Company to Provide Copy of the Prospectus in Form That May Be Downloaded from the Internet . 8
Agreement Not To Offer or Sell Additional Securities . . . . . . . . . . . . . . . . . . . . 9
Future Reports to the Placement Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE PLACEMENT AGENT . . . . . . . . . . . . . . . . . . . . . . 10
Accountants' Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Compliance with Registration Requirements; No Stop Order; No Objection from NASD . . . . . . 10
No Material Adverse Change or Ratings Agency Change . . . . . . . . . . . . . . . . . . . . 11
Opinion of Counsel for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Opinion of Counsel for the Placement Agent . . . . . . . . . . . . . . . . . . . . . . . . . 11
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Opinion of Patent Counsel for the Company . . . . . . . . . . . . . . . . . . . . . . . . . 12
Lock-Up Agreement from Certain Stockholders of the Company . . . . . . . . . . . . . . . . . 12
Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Indemnification of the Placement Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Indemnification of the Company, its Directors and Officers . . . . . . . . . . . . . . . . . 13
Notifications and Other Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . 14
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 9. CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 10. TERMINATION OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY . . . . . . . . . . . . . . . . . . . 16
SECTION 12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 13. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 14. PARTIAL UNENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 15. GOVERNING LAW PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 16. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-ii-
<PAGE> 4
PLACEMENT AGENCY AGREEMENT
September , 1997
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Ribozyme Pharmaceuticals, Inc., a Delaware corporation
(the "Company), proposes to issue and sell an aggregate of up to 1,400,000
shares (the "Shares") of its Common Stock, par value $.01 per share (the "Common
Stock") to certain investors (collectively, the "Investors"). The Company
desires to engage you as its exclusive placement agent (the "Placement Agent")
in connection with such issuance and sale.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2 (File No.
333-_____), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A under the
Securities Act, is called the "Registration Statement". Any registration
statement filed by the Company pursuant to Rule 462(b) under the Securities Act
is called the "Rule 462(b) Registration Statement", and from and after the date
and time of filing of the Rule 462(b) Registration Statement the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
Such prospectus, in the form first used by the Placement Agent to confirm sales
of the Shares, is called the "Prospectus"; and each prospectus subject to
completion used in connection with the solicitation of offers pursuant to this
Agreement is called a "preliminary prospectus". All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, or the Prospectus, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Placement Agent as
follows:
SECTION 1. AGREEMENT TO ACT AS PLACEMENT AGENT.
On the basis of the representations, warranties and agreements of the
Company herein contained, but subject to all the terms and conditions of this
Agreement, the Placement Agents agrees to act as the Company's exclusive
placement agent and thereby to use all reasonable efforts to solicit offers to
purchase Shares upon the terms and conditions set forth in the Prospectus. As
compensation for services rendered, on the first business day following the
Closing Date (as defined below), the Company shall pay to the Placement Agent,
in the manner specified in Section 2, a placement fee in the amount equal to
5.0% of the gross proceeds received by the Company from the sale of the Shares
at a price of $____ per share; provided, that such placement fee shall be
reduced to 2.5% of the gross proceeds of the sale of Shares to
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Investors identified by the Company and set forth on a list agreed to in
writing by the Placement Agent and the Company.
The Company shall have the sole right to accept offers to purchase the
Shares and may reject any such offer in whole or in part.
SECTION 2. DELIVERY AND PAYMENT.
(a) On or before the third business day following the date on which
the Registration Statement (as defined below) is declared effective (the
"Closing Date") (as defined below), the Placement Agent shall notify the
Company of the total number of Shares for which it has received offers to
purchase, and the Company will within one business day shall notify the
Placement Agent whether it will accept any such offer. On and after the date
the Registration Statement becomes effective the Placement Agent will send out,
on behalf of the Company, confirmations to the purchasers whose offers are
accepted.
(b) On the Closing Date, the Company shall cause its transfer agent,
through The Depository Trust Corporation ("DTC"), to credit "free of payment"
the total number of Shares to be purchased by the Investors to the account of
the Placement Agent to be held in the name and for the benefit of the Company
(the "Nominee Account"). The Placement Agent will, in turn, cause DTC to
credit the account of each Investor through DTC with the number of Shares
purchased by such Investor against receipt of the full purchase price for such
Shares in the Nominee Account. On the first business day following the Closing
Date, the Placement Agent shall cause to be paid to the Company, by wire
transfer of immediately available funds to a bank account or accounts
designated by the Company, the gross proceeds from the sale of the Shares
purchased in the offering which have been credited to the Nominee Account, less
the fee payable to the Placement Agent pursuant to Section 1 with respect to
such Shares. The Company hereby agrees that such fee shall be deducted by the
Placement Agent from the gross proceeds received from the sale of the Shares.
With respect to any Shares for which an Investor or Investors has not credited
payment in full to the Nominee Account by the Closing Date (or such later date
as the Company and the Placement Agent may agree), the Placement Agent shall,
through DTC, cause such Shares to be returned to the Company's transfer agent.
The Placement Agent shall have no liability to the Company for any Shares
credited to the Nominee Account for which payment of the purchase price for
such Shares is not, in turn, credited to the Nominee Account as long as such
Shares are returned to the Company's transfer agent through DTC.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents, warrants and covenants to the Placement
Agent as follows:
(a) The Registration Statement and any Rule 462(b)
Registration Statement have been declared effective by the Commission
under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge
of the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if
filed by electronic transmission pursuant to EDGAR
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(except as may be permitted by Regulation S-T under the Securities
Act), was identical to the copy thereof delivered to the Placement
Agent for use in connection with the offer and sale of the Shares.
Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, complied and will comply
in all material respects with the Securities Act and did not and will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The representations and warranties set forth in the
two immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus,
or any amendments or supplements thereto, made in reliance upon and in
conformity with information furnished to the Company in writing by the
Placement Agent expressly for use therein.
(b) The Company has delivered to the Placement Agent one
complete manually signed copy of the Registration Statement and of
each consent and certificate of experts filed as a part thereof, and
conformed copies of the Registration Statement (without exhibits) and
preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Placement
Agent has reasonably requested for each of the Placement Agent.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity. The Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation,
with full power and authority (corporate and other) to own and lease
its properties and conduct its business as described in the
Prospectus; the Company is in possession of and operating in
compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of its business, all
of which are valid and in full force and effect; the Company is duly
qualified to do business and in good standing as a foreign corporation
in each jurisdiction in which the ownership or leasing of properties
or the conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect upon the Company; and no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) The Company has authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus; the issued and outstanding shares of the Company's Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the
Prospectus. Except as disclosed in or contemplated by the Prospectus
and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company does not have
outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in
the Prospectus accurately and fairly presents the information required
to be shown with respect to such plans, arrangements, options and
rights.
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(e) The Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable, and will conform to the description
thereof contained in the Prospectus. No preemptive rights or other
rights to subscribe for or purchase exist with respect to the issuance
and sale of the Shares by the Company pursuant to this Agreement. No
stockholder of the Company has any right which has not been waived to
require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the stockholders or
the Board of Directors of the Company will be required for the
issuance and sale of the Shares to be sold by the Company as
contemplated herein.
(f) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company in accordance with its terms. The making
and performance of this Agreement by the Company and the consummation
of the transactions herein contemplated will not violate any
provisions of the certificate of incorporation or bylaws, or other
organizational documents, of the Company, and will not conflict with,
result in the breach or violation of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company is a party
or by which the Company or any of its properties may be bound or
affected, any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company or any of
its properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws
applicable to the public offering of the Shares by the Placement Agent
and the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD").
(g) Ernst & Young LLP, who have expressed their opinion
with respect to the financial statements filed with the Commission as
a part of the Registration Statement and included in the Prospectus
and in the Registration Statement, are independent accountants as
required by the Act and the Rules and Regulations.
(h) The financial statements of the Company and the
related notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of
the respective dates of such financial statements, and the results of
operations and changes in financial position of the Company for the
respective periods covered thereby. Such statements and related notes
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis as certified by the
independent accountants named in subsection 3(h). No other financial
statements or schedules are required to be included in the
Registration Statement. The selected financial and statistical data
set forth in the Prospectus under the captions "Capitalization" and
"Selected Financial Data" fairly present the information set forth
therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as
to defaults which individually or in the aggregate would not be
material to the Company, the Company is not in violation or default of
any provision of its certificate of incorporation or bylaws, or other
organizational documents, or in breach of or default with respect to
any provision of any agreement, judgment,
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decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist
any state of facts which constitutes an event of default on the part
of the Company as defined in such documents or which, with notice or
lapse of time or both, would constitute such an event of default.
(j) There are no contracts or other documents required to
be described in the Registration Statement or to be filed as exhibits
to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required. The
contracts so described in the Prospectus are in full force and effect
on the date hereof; and neither the Company nor, to the best of the
Company's knowledge, any other party is in breach of or default under
any of such contracts.
(k) Except as disclosed in the Prospectus, there are no
legal or governmental actions, suits or proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company is or
may be a party or of which property owned or leased by the Company is
or may be the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings might, individually or in
the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change
in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company; and no labor
disturbance by the employees of the Company exists or is imminent
which might be expected to affect adversely such condition,
properties, business, results of operations or prospects. The Company
is not a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in
the Prospectus), or (ii) those which are not material in amount and do
not adversely affect the use made and proposed to be made of such
property by the Company. The Company holds its leased properties
under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or
as proposed to be conducted.
(m) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the
Company has not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company; (ii) the Company has not sustained
any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not
covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and
the Company is not in default in the payment of principal or interest
on any outstanding debt obligations; (iv) there has not been any
change in the capital stock (other than upon the sale of the Shares
hereunder and upon the exercise of options described in the
Registration Statement) or indebtedness material to the Company (other
than in the ordinary course of business); and (v) there has not been
any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the
Company.
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(n) Except as disclosed in or specifically contemplated
by the Prospectus, the Company has sufficient trademarks, trade names,
patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct their businesses as now conducted; the
expiration of any trademarks, trade names, patent rights, copyrights,
licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company; and the
Company has no knowledge of any material infringement by it of
trademark, trade name rights, patent rights, copyrights, licenses,
trade secret or other similar rights of others, and there is no claim
being made against the Company regarding trademark, trade name,
patent, copyright, license, trade secret or other infringement which
could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the
Company.
(o) The Company has not been advised, and has no reason
to believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which
it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(p) The Company has filed all necessary federal, state
and foreign income and franchise tax returns and have paid or accrued
all taxes shown as due thereon; and the Company has no knowledge of
any tax deficiency which has been or might be asserted or threatened
against the Company which could materially and adversely affect the
business, operations or properties of the Company.
(q) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the later of the Closing Date hereinafter
mentioned and the completion of the distribution of the Shares any
offering material in connection with the offering and sale of the
Shares other than the Prospectus, the Registration Statement and the
other materials permitted by the Act.
(s) The Company maintains insurance of the types and in
the amounts generally deemed adequate for its business, including, but
not limited to, insurance covering all real and personal property
owned or leased by the Company against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all
of which insurance is in full force and effect.
(t) The Company has not, directly or indirectly, at any
time during the last five years (i) made any unlawful contribution to
any candidate for public office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(u) The Company has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or
which might be reasonably expected to cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
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(v) The Common Stock (including the Shares) is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") and is listed on the Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration
or listing.
Any certificate signed by an officer of the Company and delivered to
the Placement Agent or to counsel for the Placement Agent shall be deemed to be
a representation and warranty by the Company to the Placement Agent as to the
matters set forth therein.
SECTION 4. ADDITIONAL COVENANTS.
The Company further covenants and agrees with the Placement Agent as
follows:
(a) Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the
later of the Closing Date or such date, as in the opinion of counsel
for the Placement Agent, the Prospectus is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer
(the "Prospectus Delivery Period"), prior to amending or supplementing
the Registration Statement (including any registration statement filed
under Rule 462(b) under the Securities Act) or the Prospectus
(including any amendment or supplement through incorporation by
reference of any report filed under the Exchange Act), the Company
shall furnish to the Placement Agent for review a copy of each such
proposed amendment or supplement, and the Company shall not file any
such proposed amendment or supplement to which the Placement Agent
reasonably objects.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Placement Agent in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post- effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from any securities exchange upon which the
it is listed for trading or included or designated for quotation, or
of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and
Other Securities Act Matters. If, during the Prospectus Delivery
Period, any event shall occur or condition exist as a result of which
it is necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Placement Agent or counsel for the Placement Agent it
is otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company
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agrees to promptly prepare (subject to subsection 3(a) hereof), file
with the Commission and furnish at its own expense to the Placement
Agent and to dealers, amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented
will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) Copies of Any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Placement Agent,
without charge, during the Prospectus Delivery Period, as many copies
of the Prospectus and any amendments and supplements thereto as the
Placement Agent may request.
(e) Blue Sky Compliance. The Company shall cooperate
with the Placement Agent and counsel for the Placement Agent to
qualify or register the Shares for sale under (or obtain exemptions
from the application of) the or state securities or blue sky laws or
Canadian provincial securities laws of those jurisdictions designated
by the Placement Agent, shall comply with such laws and shall continue
such qualifications, registrations and exemptions in effect so long as
required for the distribution of the Shares. The Company shall not be
required to qualify as a foreign corporation or to take any action
that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
the Placement Agent promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Shares for
offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Shares sold by it in the manner
described under the caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and
maintain, at its expense, a registrar and transfer agent for the
Common Stock.
(h) Earnings Statement. As soon as practicable, the
Company will make generally available to its security holders and to
the Placement Agent an earnings statement (which need not be audited)
covering a period of 12 consecutive months beginning after the
effective date of the Registration Statement that satisfies the
provisions of Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the
Prospectus Delivery Period the Company shall file, on a timely basis,
with the Commission and the Nasdaq National Market all reports and
documents required to be filed under the Exchange Act.
(j) Company to Provide Copy of the Prospectus in Form
That May Be Downloaded from the Internet. The Company shall cause to
be prepared and delivered, at its expense, within one business day
from the effective date of this Agreement, to Montgomery Securities an
"electronic Prospectus" to be used in connection with the offering and
sale of the Shares. As used herein, the term "electronic Prospectus"
means a form of Prospectus, and any amendment or supplement thereto,
that meets each of the following conditions: (i) it shall be encoded
in an electronic format, satisfactory to Montgomery Securities, that
may be transmitted electronically by Montgomery Securities to offerees
and purchasers of the Shares for at least the Prospectus Delivery
Period; (ii) it shall disclose the same information as the paper
Prospectus and Prospectus
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filed pursuant to EDGAR, except to the extent that graphic and image
material cannot be disseminated electronically, in which case such
graphic and image material shall be replaced in the electronic
Prospectus with a fair and accurate narrative description or tabular
representation of such material, as appropriate; and (iii) it shall be
in or convertible into a paper format or an electronic format,
satisfactory to Montgomery Securities, that will allow investors to
store and have continuously ready access to the Prospectus at any
future time, without charge to investors (other than any fee charged
for subscription to the system as a whole and for on-line time). The
Company hereby confirms that it has included or will include in the
Prospectus filed pursuant to EDGAR or otherwise with the Commission
and in the Registration Statement at the time it was declared
effective an undertaking that, upon receipt of a request by an
investor or his or her representative within the Prospectus Delivery
Period, the Company shall transmit or cause to be transmitted
promptly, without charge, a paper copy of the Prospectus.
(k) Agreement Not To Offer or Sell Additional Securities.
During the period of 90 days following the date of the Prospectus, the
Company will not, without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), directly or indirectly, sell, offer, contract
or grant any option to sell, pledge, transfer or establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under
the Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Shares);
provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or
other stock plan or arrangement described in the Prospectus, but only
if the holders of such shares, options, or shares issued upon exercise
of such options, agree in writing not to sell, offer, dispose of or
otherwise transfer any such shares or options during such 90-day
period without the prior written consent of Montgomery Securities
(which consent may be withheld at the sole discretion of the
Montgomery Securities).
(l) Future Reports to the Placement Agent. During the
period of five years hereafter the Company will furnish to the
Placement Agent at 600 Montgomery Street, San Francisco, CA 94111,
Attention: Stuart Duty, (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
SECTION 5. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company agrees to pay all costs, fees and expenses incurred in connection
with the performance of its obligations hereunder and in connection with the
transactions contemplated hereby, including without limitation (i) all expenses
incident to the issuance and delivery of the Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Common Stock, (iii) all necessary issue, transfer and other stamp
taxes in connection with the issuance and sale of the Shares to the Placement
Agent, (iv) all fees and expenses of the Company's counsel, independent public
or certified public accountants and other advisors,
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(v) all costs and expenses incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Placement Agent in connection
with qualifying or registering (or obtaining exemptions from the qualification
or registration of) all or any part of the Shares for offer and sale under the
state securities or blue sky laws or the provincial securities laws of Canada,
and, if requested by the Placement Agent, preparing and printing a "Blue Sky
Survey" or memorandum, and any supplements thereto, advising the Placement
Agent of such qualifications, registrations and exemptions, (vii) the filing
fees incident to, and the reasonable fees and expenses of counsel for the
Placement Agent in connection with, the NASD's review and approval of the
Placement Agent's participation in the offering and distribution of the Shares,
(viii) the fees and expenses associated with including the Shares on the Nasdaq
National Market, (ix) the fees and expenses of any Escrow Agent, and (x) all
other fees, costs and expenses referred to in Item 25 of Part II of the
Registration Statement. The Company shall reimburse the Placement Agent for
all its travel, legal and other out-of-pocket expenses incurred in connection
with the engagement hereunder.
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE PLACEMENT AGENT. The
obligations of the Placement Agent shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section
3 hereof as of the date hereof and as of the Closing Date as though then made,
to the timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Placement Agent shall have received from Ernst & Young LLP,
independent public or certified public accountants for the Company, a
letter dated the date hereof addressed to the Placement Agent, in form
and substance satisfactory to the Placement Agent, containing
statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to
Statement of Auditing Standards No. 72 (or any successor bulletin),
with respect to the audited and unaudited financial statements and
certain financial information contained in the Registration Statement
and the Prospectus.
(b) Compliance with Registration Requirements; No Stop
Order; No Objection from NASD. For the period from and after
effectiveness of this Agreement and prior to the Closing Date:
(i) the Company shall have filed the Prospectus
with the Commission (including the information required by
Rule 430A under the Securities Act) in the manner and within
the time period required by Rule 424(b) under the Securities
Act; or the Company shall have filed a post-effective
amendment to the Registration Statement containing the
information required by such Rule 430A, and such
post-effective amendment shall have become effective;
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to
the fairness and reasonableness of the underwriting terms and
arrangements.
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<PAGE> 14
(c) No Material Adverse Change or Ratings Agency Change.
For the period from and after the date of this Agreement and prior to
the Closing Date:
(i) in the judgment of the Placement Agent there
shall not have occurred any material adverse change, or any
development that could reasonably be expected to result in a
material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the
ordinary course of business, of the Company (any such change
is called a "Material Adverse Change"); and
(ii) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the
Company or any of its subsidiaries by any "nationally
recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities
Act.
(d) Opinion of Counsel for the Company. On the Closing
Date, the Placement Agent shall have received the favorable opinion of
Rothgerber, Appel, Powers & Johnson LLP, counsel for the Company,
dated as of such Closing Date, the form of which is attached as
Exhibit A.
(e) Opinion of Counsel for the Placement Agent. On the
Closing Date the Placement Agent shall have received the favorable
opinion of Pillsbury Madison & Sutro LLP, counsel for the Placement
Agent, dated as of such Closing Date, with respect to the
incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement, the
validity of the Shares, the Registration Statement and the Prospectus
and other related matters as you may reasonably require.
(f) Officers' Certificate. On the Closing Date the
Placement Agent shall have received a written certificate executed by
the Chairman of the Board, Chief Executive Officer or President of the
Company and the Chief Financial Officer or Chief Accounting Officer of
the Company, dated as of such Closing Date, to the effect set forth in
subsections (b)(ii) and (c)(ii) of this Section 6, and further to the
effect that:
(i) or the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants
of the Company set forth in Section 3 of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On the Closing Date the
Placement Agent shall have received from Ernst & Young LLP,
independent public or certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Placement Agent, to the effect that they reaffirm the statements made
in the letter furnished by them pursuant to
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<PAGE> 15
subsection (a) of this Section 6, except that the specified date
referred to therein for the carrying out of procedures shall be no
more than three business days prior to the Closing Date.
(h) Opinion of Patent Counsel for the Company. On the
Closing Date the Placement Agent shall have received the favorable
opinion of Lyon & Lyon, patent counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit B.
(i) Lock-Up Agreement from Certain Stockholders of the
Company. On the date hereof, the Company shall have furnished to the
Placement Agent an agreement in the form of Exhibit C hereto from each
director, officer and entity affiliated with a director or officer,
and such agreement shall be in full force and effect on the Closing
Date.
(j) Additional Documents. On or before the Closing Date,
the Placement Agent and counsel for the Placement Agent shall have
received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein
contained.
If any condition specified in this Section 6 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the Placement
Agent by notice to the Company at any time on or prior to the Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 5, Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Placement Agent of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to the Placement
Agent, except that the Company shall be obligated to reimburse the expenses of
the Placement Agent pursuant to Section 5 hereof, (b) of the Placement Agent to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Placement Agent. The Company
agrees to indemnify and hold harmless the Placement Agent, its
officers and employees, and each person, if any, who controls the
Placement Agent within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which the Placement Agent or such controlling person may
become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company),
insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based
(i) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any
amendment thereto,
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<PAGE> 16
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy
in the representations and warranties of the Company contained herein;
or (iv) in whole or in part upon any failure of the Company to perform
its obligations hereunder or under law; or (v) any act or failure to
act or any alleged act or failure to act by the Placement Agent in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon any matter covered by clause (i) or (ii) above,
provided that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined
by a final judgment that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by the Placement Agent through its bad faith or
willful misconduct; and to reimburse the Placement Agent and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such
expenses are reasonably incurred by the Placement Agent or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the Placement
Agent expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
The indemnity agreement set forth in this Section 8(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. The Placement Agent agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed
the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer or controlling person
may become subject, under the Securities Act, the Exchange Act, or
other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Placement
Agent), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is
based upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or arises out
of or is based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity
with written information furnished to the Company by the Placement
Agent expressly for use therein; and to reimburse the Company, or any
such director, officer, or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director,
officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The Company
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<PAGE> 17
hereby acknowledges that the only information that the Placement Agent
have furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth as the
third paragraph under the caption "Plan of Distribution" in the
Prospectus; and the Placement Agent confirms that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall
be in addition to any liabilities that the Placement Agent may
otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent
it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include
both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval
by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party
shall have employed separate counsel in accordance with the proviso to
the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than
one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section 8(b)
and Section 9), representing the indemnified parties who are parties
to such action) or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this
Section 8 shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying
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<PAGE> 18
party of the aforesaid request and (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement, compromise or consent to the entry of judgment
in any pending or threatened action, suit or proceeding in respect of
which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified
party, unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agent, on
the other hand, from the offering of the Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company, on the one hand, and the Placement Agent, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one
hand, and the Placement Agent, on the other hand, in connection with the
offering of the Shares pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total fee received by the Placement Agent pursuant to Section
1, bear to the aggregate initial public offering price of the Shares as set
forth on such cover. The relative fault of the Company, on the one hand, and
the Placement Agent, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Placement Agent,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this Section 9; provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under Section 8(c) for purposes of
indemnification.
The Company and the Placement Agent agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Placement Agent were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, the Placement Agent
shall not be required to contribute any amount in excess of the fee received by
the Placement Agent pursuant to Section 1. No
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<PAGE> 19
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 9, each officer and employee of the Placement Agent and each person, if
any, who controls the Placement Agent within the meaning of the Securities Act
and the Exchange Act shall have the same rights to contribution as the
Placement Agent, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls
the Company with the meaning of the Securities Act and the Exchange Act shall
have the same rights to contribution as the Company.
SECTION 10. TERMINATION OF THIS AGREEMENT.
Prior to the Closing Date this Agreement maybe terminated by the
Placement Agent by notice given to the Company if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by The Nasdaq Stock Market or trading in
securities generally on either The Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the
United States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment
of the Placement Agent is material and adverse and makes it impracticable to
market the Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the judgment of the
Placement Agent there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Placement Agent may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 10 shall be without
liability on the part of (a) the Company to the Placement Agent, except that
the Company shall be obligated to reimburse the expenses of the Placement Agent
pursuant to Section 5 hereof, (b) the Placement Agent to the Company, or (c) of
any party hereto to any other party except that the provisions of Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
SECTION 11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of the Placement Agent
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Placement
Agent or the Company or any of its or their partners, officers or directors or
any controlling person, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder and any termination of this Agreement.
SECTION 12. NOTICES.
All communications hereunder shall be in writing and shall be mailed,
hand delivered or telecopied and confirmed to the parties hereto as follows:
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<PAGE> 20
If to the Placement Agent:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Ribozyme Pharmaceuticals, Inc.
2950 Wilderness Place
Boulder, CO 80301
Facsimile: (303) 449-6995
Attention: Ralph E. Christoffersen
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 13. SUCCESSORS.
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the employees, officers and directors and
controlling persons referred to in Section 8 and Section 9, and in each case
their respective successors, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any Investor
merely by reason of its purchase of Shares hereunder.
SECTION 14. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 15. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 16. GENERAL PROVISIONS.
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<PAGE> 21
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement may not be
amended or modified unless in writing by all of the parties hereto, and no
condition herein (express or implied) may be waived unless waived in writing by
each party whom the condition is meant to benefit. The Table of Contents and
the Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the
parties hereto further acknowledges that the provisions of Sections 8 and 9
hereto fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any
preliminary prospectus and the Prospectus (and any amendments and supplements
thereto), as required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
RIBOZYME PHARMACEUTICALS, INC.
By
--------------------------------------
Its
-------------------------------------
The foregoing Placement Agency Agreement is hereby confirmed and
accepted by the Placement Agent in San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES
By
-----------------------------
Richard A. Smith
Authorized Signatory
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<PAGE> 22
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
6(e) of the Placement Agency Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business as a
foreign corporation and is in good standing in all other jurisdictions
where the ownership or leasing of properties or the conduct of its
business requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company, and has full corporate power and authority to
own its properties and conduct its business as described in the
Registration Statement;
(ii) The authorized, issued and outstanding capital stock
of the Company is as set forth under the caption "Capitalization" in
the Prospectus; all necessary and proper corporate proceedings have
been taken in order to authorize validly such authorized Common Stock;
all outstanding shares of Common Stock (including the Shares) have
been duly and validly issued, are fully paid and nonassessable, have
been issued in compliance with federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase any securities and conform
to the description thereof contained in the Prospectus; without
limiting the foregoing, there are no preemptive or other rights to
subscribe for or purchase any of the Shares to be sold by the Company
hereunder;
(iii) The certificates evidencing the Shares to be
delivered hereunder are in due and proper form under Delaware law, and
when duly countersigned by the Company's transfer agent and registrar,
and delivered to or upon the order of the Investors against payment of
the agreed consideration therefor in accordance with the provisions of
this Agreement, the Shares represented thereby will be duly authorized
and validly issued, fully paid and nonassessable, will not have been
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities and will conform in all
respects to the description thereof contained in the Prospectus;
(iv) Except as disclosed in or specifically contemplated
by the Prospectus, to the best of such counsel's knowledge, there are
no outstanding options, warrants or other rights calling for the
issuance of, and no commitments, plans or arrangements to issue, any
shares of capital stock of the Company or any security convertible
into or exchangeable for capital stock of the Company;
(v) (a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated by the Commission; any required filing of the Prospectus
and any supplement thereto
A-1
<PAGE> 23
pursuant to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements
and schedules included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(c) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a character
required to be disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not
disclosed or filed, as required;
(d) To the best of such counsel's knowledge, there are no
legal or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described in
the Prospectus which are not described as required;
(vi) The Company has full right, power and authority to
enter into this Agreement and to sell and deliver the Shares to be
sold by it to the Investors; this Agreement has been duly and validly
authorized by all necessary corporate action by the Company, has been
duly and validly executed and delivered by and on behalf of the
Company, and is a valid and binding agreement of the Company
enforceable in accordance with its terms, except as enforceability may
be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no
opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other governmental body
is required for the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under applicable Blue
Sky laws in connection with the purchase and distribution of the
Shares and the clearance of such offering with the NASD;
(vii) The execution and performance of this Agreement and
the consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default under,
any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument known to such counsel to which
the Company is a party or by which the Company or any of its property
may be bound or affected which is material to the Company, or violate
any of the provisions of the certificate of incorporation or bylaws,
of the Company or, so far as is known to such counsel, violate any
statute, judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any of its
or property (except any conflicts with or violations of foreign or
Blue Sky laws that arise in connection with the purchase and
distribution of the Shares and the clearance of such offering with the
NASD, as to which such counsel need not render any opinion);
(viii) The Company is not in violation of its certificate of
incorporation or bylaws or, to the best of such counsel's knowledge,
in breach of or default with respect
A-2
<PAGE> 24
to any provision of any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument known to
such counsel to which the Company is a party or by which it or its
properties may be bound or affected, except where such default would
not materially and adversely affect the Company; and, to the best of
such counsel's knowledge, the Company are in compliance with all laws,
rules, regulations, judgments, decrees, orders and statutes of any
court or jurisdiction to which it is subject, except where
noncompliance would not materially adversely affect the Company;
(ix) To the best of such counsel's knowledge, no holders
of securities of the Company have rights which have not been waived to
the registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company or
the offering contemplated hereby.
Such counsel shall also include a statement to the effect that
nothing has come to such counsel's attention that would lead such
counsel to believe that at the effective date of the Registration
Statement, the Registration Statement or any amendment or supplement
thereto, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or as of its date or as of
the Closing Date the Prospectus, or any amendment or supplement
thereto, contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the General Corporation Law
of the State of Colorado or the federal law of the United States, to the extent
they deem proper and specified in such opinion, upon the opinion (which shall
be dated the Closing Date, shall be satisfactory in form and substance to the
Placement Agent, shall expressly state that the Placement Agent may rely on
such opinion as if it were addressed to them and shall be furnished to the
Placement Agent) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Placement Agent; provided,
however, that such counsel shall further state that they believe that they and
the Placement Agent are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
A-3
<PAGE> 25
EXHIBIT B
The opinion of such counsel pursuant to Section 6(h) shall be
rendered to the Placement Agent at the request of the Company and shall so
state therein. References to the Prospectus in this Exhibit B include any
supplements thereto at the Closing Date.
(i) Such counsel have no reason to believe that the
Registration Statement, as of the Effective Date, and the Prospectus
as of its date and as of the applicable Closing Date: (A) contained
or contain any untrue statements of material fact with respect to
patents, trade secrets or other proprietary information of the Company,
or with respect to any allegation that the Company is infringing any
patents, trade secrets or proprietary information of any other person;
or (B) omitted or omit to state any material fact that relates to
patents, trade secrets or other proprietary information of the Company
and, in the opinion of such counsel, is required to be stated in the
Registration Statement or the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) The statements in the Prospectus under the caption
"Risk Factors--Uncertainty of Protection of Patents and Proprietary
Rights" and in the sixth through eighth paragraphs under the caption
"Business--Patents and Proprietary Technology" contain accurate
descriptions of the Company's patents and patent applications and,
insofar as such statements constitute matters of United States patent
law or legal conclusions thereunder, are accurate and fairly present
such matters of law and legal conclusions;
(iii) Such counsel have reviewed the Company's patent
applications filed in the U.S., Europe, Japan and other jurisdictions
in which Company has filed patent applications ("Applications"), which
Applications are listed on Schedule I to such opinion, and nothing has
come to the attention of such counsel which has caused them to believe
that the Applications were not properly prepared and filed, not being
diligently pursued by the Company, or are not held by or licensed to
the Company, and such counsel are not aware of others who have asserted
any ownership rights in such Applications other than as described in
the Registration Statement and Prospectus;
(iv) Such counsel are not aware that any issued patent held
or licensed by the Company ("Patents"), all of which are listed on
Schedule I, are invalid or that any patent issued in respect of an
Application would be invalid, and are not aware of others who have
asserted ownership rights in such Patents other than as described in
the Registration Statement and Prospectus;
(v) To the best of such counsel's knowledge and except as
set forth in the Prospectus under the caption
"Risk Factors--Uncertainty of Protection of Patents and Proprietary
Rights" and in the sixth through eighth paragraphs under the caption
"Business--Patents and Proprietary Technology," there are no legal or
governmental proceedings (other than the patent application proceedings
themselves) pending or threatened against the Company relating to
patent rights, trade secrets or other proprietary information owned
or licensed by the Company; and
B-1
<PAGE> 26
(vi) Except as set forth in the Prospectus, such counsel
are not aware that the Company has received any notice of infringement
with respect to any Patent or any notice challenging the validity,
scope or enforceability of any of the Patents licensed to the Company,
and to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets or other
proprietary information; and to the best of such counsel's knowledge,
counsel is unaware of any infringements by others of the Company's
patents, trade secrets or other proprietary information which, in the
judgment of such counsel, could materially and adversely affect the
Company's rights to use such patents, trade secrets or other
proprietary information.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, on certificates of responsible
officers of the Company and public officials
B-2
<PAGE> 27
EXHIBIT C
September _, 1997
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Ribozyme Pharmaceuticals, Inc. (the "Company")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act
as placement agent. The undersigned recognizes that the Offering will be of
benefit to the undersigned and will benefit the Company by, among other things,
raising additional capital for its operations. The undersigned acknowledges
that you are relying on the representations and agreements of the undersigned
contained in this letter in carrying out the Offering and in entering into
placement agency arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery
Securities (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through
the close of trading on the date 90 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the
foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
C-1
<PAGE> 28
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ---------------------------------------------------
Printed Name of Holder
By:
------------------------------------------------
Signature
- ---------------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into at Denver, Colorado this 29th
day of August, 1997, to be effective as of January 1, 1997, between RIBOZYME
PHARMACEUTICALS, INC., a Delaware corporation (hereinafter referred to as the
"Company"), and RALPH E. CHRISTOFFERSEN, Ph.D., (hereinafter referred to as
"Christoffersen");
WITNESSETH: THAT:
IN CONSIDERATION of the mutual agreements contained herein, the
parties hereby agree as follows:
1. Employment. The Company agrees to continue to employ
Christoffersen, and Christoffersen agrees to remain employed with the Company,
on the terms and conditions set forth hereinafter.
2. Position and Duties. Christoffersen shall continue to serve as
President and Chief Executive Officer of the Company reporting directly to the
Company's Board of Directors (the "Board") and as a Director of the Company as
elected from time to time by the Company's shareholders. Christoffersen shall
devote all of his working time and energies to the business of the Company,
except that Christoffersen may accept up to two board director positions with
other companies judged by the Board of Directors not to be in competition with
the Company.
3. Place of Employment. Christoffersen's place of employment shall be
in the vicinity of Boulder, Colorado.
4. Term. The term of this Agreement shall be until December 31, 1999,
unless sooner terminated in accordance with the terms and conditions herein set
forth.
5. Compensation and Benefits.
5.1 Salary. The Company shall pay Christoffersen an annual salary of
$269,500 for 1997, payable in substantially equal installments in accordance
with the Company's payroll policies. The Company agrees to conduct a yearly
merit review of Christoffersen's performance and may increase, but not
decrease, Christoffersen's salary based upon his performance, for calendar
years 1998 and 1999.
5.2 Bonus. In addition to the foregoing salary, Christoffersen shall
be entitled to a $25,000 bonus for 1997 due to the achievement of certain
performance criteria in 1997 prior to the execution of this Agreement.
Additional performance bonuses
- 1 -
<PAGE> 2
of up to $80,000 per year will be payable upon achievement by Christoffersen of
performance criteria mutually agreed to by the Board and Christoffersen.
5.3 Expenses. The Company shall promptly reimburse Christoffersen
for all ordinary, customary and necessary expenses incurred by him in the
performance of his duties, provided such expenses are incurred and accounted
for in accordance with policies and procedures established by the Company.
5.4 Insurance. During the term of his employment with the
Company, Christoffersen will be entitled to participate in all health,
insurance, stock, pension and profit sharing plans made available to RPI
executives including the following:
(a) Health and major medical insurance covering Christoffersen,
his spouse and dependents (as defined under the policies of such insurance)
under the plan maintained by the Company for its senior management employees
with coverage for Christoffersen's spouse and dependents paid in accordance
with Company policies;
(b) Long-term disability insurance coverage under the plan
maintained by the Company for its senior management employees;
(c) Short-term disability coverage under the plan maintained by
the Company for its senior management employees; and
5.5 Vacation. Each year during the term of his employment with the
Company, Christoffersen shall be entitled to one month's vacation, or as
otherwise mutually agreed, at full salary. Vacation shall be taken by
Christoffersen at such time or times as shall be compatible with the Company's
best interests and the conduct of its business.
5.6 Interest Free Loan. The Company has made an interest free loan
to Christoffersen with a principal balance of $25,000. Such amount shall be
forgiven if Christoffersen remains an employee of the Company until at least
December 31, 1997. In addition Christoffersen shall be paid an amount equal to
the taxes payable by him due to such loan forgiveness and this payment for such
taxes.
6. Stock Options. Effective March 25, 1997, Christoffersen shall be
awarded stock options for 60,000 shares with an exercise price of $10.75 per
share, the fair market value of a share of the Company's stock on that date.
Options for 15,000 shares will vest on attainment of each of the following
performance goals.
(a) The Company entering into two or more target validation
research collaborations (not including the existing collaborations with Chiron
Corporation
- 2 -
<PAGE> 3
at its current terms and Schering Aktiengesellschaft) which taken together
provide guaranteed funding to the Company of $15,000,000.
(b) Achieving guaranteed funding to the Company from all
collaborations in an amount exceeding $100,000,000 on a cumulative basis.
(c) The market capitalization for the Company (i.e., its closing
market price per share times the total number of shares outstanding) being on
average over any thirty day period during the Term greater than at least
one-half of those companies listed in Exhibit A hereto or $225,000, 000.
(d) The Company having cash, cash equivalents and guaranteed
funding at anytime during the Term equal to at least its cash needs for four
years based on current expenditure rates plus projected additional cash needs
due to collaborations and other projects then in effect.
Christoffersen may be entitled to additional performance-based stock option
awards in 1997, 1998 and 1999 based upon performance criteria established by
the Board.
7. Covenants.
7.1 Confidentiality. Christoffersen acknowledges that non-public
information concerning the business and activities of the Company is a
valuable, special and unique asset and that he will obtain access thereto as a
result of his employment by the Company. In recognition of the foregoing,
during the continuance of his employment and thereafter for a period of five
years, Christoffersen agrees that he will not, directly or indirectly, reveal
or disclose to any person, firm, association, corporation or partnership
whatsoever, or use for his own benefit or the benefit of any other person,
firm, association, corporation or partnership, any non-public or confidential
knowledge or information concerning the Company, its business, finances,
research, or activities, including, without limitation, its business plans,
technology, manufacturing processes, research and development programs and
plans, formulas, formulations, discoveries, patents, patent applications,
licenses, contracts, marketing plans, systems, sources of supply of materials
used or sold by the Company, pricing information, the identities of former or
existing customers of the Company, and any other trade or business secrets and
confidential information of the Company. For purposes of this paragraph,
confidential information shall also include any confidential information of any
third party revealed to Christoffersen during his employment by the Company.
For purposes of this paragraph confidential information shall not include
information that is publically available or otherwise known to the party to
whom such information is disclosed from sources other than Christoffersen. Upon
termination of his employment with the Company, Christoffersen will immediately
surrender to the Company all documents, records,
- 3 -
<PAGE> 4
computer tapes and disks containing confidential information of the Company and
all other property belonging to the Company.
7.2 Non-Competition. Christoffersen agrees that he will not, during
the continuance of his employment, directly or indirectly, engage in any
business or activity which may or would compete with any aspect of the business
of the Company; except that nothing herein shall prevent Christoffersen from
owning stock in any publicly held corporation, if Christoffersen (together with
his immediate family) owns, directly or indirectly, less than 1% of the
outstanding stock of such corporation.
7.3 Severability. Christoffersen and the Company agree that the
restrictions contained in this Paragraph 7 are reasonable as to their operative
periods of time and geographic scope and are necessary for the purpose of
preserving the Company's good will, proprietary rights and going concern value.
However, each and every restriction is independent and severable from the
other. Therefore, no such restriction shall be affected or rendered
unenforceable in toto or with respect to any period of time or area by reason
of the fact that, for any reason, any other restriction may be determined
unenforceable in whole or in part. Thus, if a final judicial determination is
made by a court of competent jurisdiction that the period of time or territory
or any other restriction contained in this Agreement is unenforceable, the
provisions of this Agreement shall not be rendered void but shall be enforced
as to such maximum period of time and territory and to such other maximum
extent as such court may judicially determine or indicate to be enforceable.
7.4 Survival. Christoffersen's obligations contained in Paragraph
7.1 shall survive the expiration or termination of this Agreement and the
provisions of Paragraph 7.1 shall continue thereafter in full force and effect
for the time period stated therein.
8. Termination. Christoffersen's employment shall be subject to
termination as follows:
8.1 Death. Christoffersen's employment hereunder shall terminate
upon his death.
8.2 Disability. Christoffersen's employment may be terminated by
the Company by written notice to him upon the determination in good faith by
the Board that he is physically or mentally incapacitated and has been unable
for a period of three (3) consecutive months, or for a total of ninety (90)
days within any period of six (6) consecutive months, to perform his duties as
they were constituted at the outset of such period. Termination in the event of
disability shall be effective as of the last business day of the month in which
notice thereof is given by the Company.
- 4 -
<PAGE> 5
8.3 For Cause by Company. Christoffersen's employment hereunder may
be terminated by the Company for cause upon written notice delivered to
Christoffersen, which notice shall set forth the reasons for termination. For
purposes of this Agreement, the term "cause" shall include (i) a material
breach by Christoffersen of his obligations hereunder or a material breach of
his fiduciary duties to the Company; (ii) theft, dishonesty or criminal conduct
by Christoffersen; or (iii) an act by Christoffersen involving moral turpitude.
Termination shall be effective forthwith in the case of termination pursuant to
clause (ii) or (iii) and upon the expiration of ten (10) days after the date of
notice from the Company in the case of termination pursuant to clause (i)
above.
8.4 Christoffersen's Rights Upon Termination of Employment. In the
event of the termination of Christoffersen's employment, without regard to the
reason for such termination, Christoffersen shall be entitled to receive only
the following amounts:
(a) Salary and bonuses payable under Paragraphs 5.1 and 5.2
accrued and owing prior to the date of termination which has not previously
been paid;
(b) Benefits under any fringe benefit plan to the extent not
paid for the then current annual period, if any, applicable to such benefit
plan (unless otherwise provided by such plan), including accrued vacation, with
the amount thereof being prorated to reflect the number of days of such annual
period during which Christoffersen was employed by the Company;
(c) Nine (9) months of severance pay at the same monthly rate
as his salary then in effect under Paragraph 5.1; provided, however, that
notwithstanding the foregoing or any other provision of this Agreement,
Christoffersen shall not be entitled to severance pay in the event that his
employment with the Company terminates pursuant to Paragraph 8.3;
(d) Reimbursements under Paragraph 5.3 accrued and owing
through the date of termination.
(e) If Christoffersen remains an employee until at least
January 1, 2000, upon his termination of employment Christoffersen shall be
paid a lump sum severance payment of $27,500 reduced by $600.00 per full month
for each full month Christoffersen's employment continues past January 1, 2000.
8.5 Resignation as a Director. In the event Christoffersen's
employment is terminated voluntarily or involuntarily for cause, at a time that
Christoffersen is serving as a Director of the Company, Christoffersen agrees
to tender his resignation as a Director if requested to do so by the Board of
Directors.
- 5 -
<PAGE> 6
9. Conflicting Agreements. Christoffersen represents and warrants that
the execution of this Agreement, and the performance of his duties and
obligations hereunder, will not breach or conflict with any other agreement to
which he is a party or by which he is bound, including any non-competition,
employment, confidentiality, non-disclosure or similar agreement.
Christoffersen represents and warrants that he has provided the Company with
complete copies of any such agreements which are presently in effect.
Christoffersen agrees to indemnify the Company, its officers, directors and
shareholders, from and against any liabilities, damages, claims and expenses,
including attorneys' fees, to which they may be subject as a consequence of any
breach or alleged breach of any such agreement or as a result of any action
relating thereto brought against any of them.
10. Assignment. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and shall be binding upon
and inure to the benefit of Christoffersen. This Agreement shall be assigned to
and assumed by any person, firm or corporation which shall acquire or succeed
to the Company's business by merger, consolidation or otherwise.
11. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
12. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing and if sent by certified mail, by
overnight mail or delivery service, or by facsimile transmission (i) to his
residence in the case of Christoffersen or (ii) to its principal office in the
case of the Company (attention Chairman of the Board).
13. Entire Agreement. This Agreement embodies the entire and exclusive
agreement of the parties. There are no promises, understandings, agreements,
obligations, terms or conditions other than those contained herein. This
Agreement shall supersede and nullify all previous agreements, representations
and communications of any type, whether verbal or written between the parties.
This Agreement cannot be changed or modified in any respect except by a writing
signed by both parties.
14. Gender: Text. Whenever the context permits, words in the singular
or plural herein shall include both singular and plural and words in any gender
shall include the masculine, feminine and neuter. The references herein to the
Company and its rights and obligations shall be deemed references to and rights
and obligations of an assignee of this Agreement. The marginal headings are
inserted for convenience only and shall not form part of this Agreement.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
- 6 -
<PAGE> 7
16. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, the Company and Christoffersen have executed this
Agreement on the respective dates set forth below.
RIBOZYME PHARMACEUTICALS, INC.
By: /s/ David T. Morgenthaler
-----------------------------------
David T. Morgenthaler,
Chairman of the Board
Date: August 29, 1997
----------------------------------
By: /s/ Charles M. Hartman
-----------------------------------
Charles M. Hartman
Date: August 29, 1997
----------------------------------
By: /s/ Anders Wiklund
-----------------------------------
Anders Wiklund
Date: August 29, 1997
----------------------------------
/s/ RALPH E. CHRISTOFFERSEN, Ph.D.
---------------------------------------
Ralph E. Christoffersen, Ph.D.
Date: August 29, 1997
----------------------------------
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<PAGE> 8
EXHIBIT A
Human Genome Sciences
Gilead
Vertex
Isis
Incyte Pharmaceuticals
Millenium Pharmaceuticals
NeXstar
Ligand
Affymetrix
Protein Design Labs
Genset Corporation
Myriad Genetics
Pharmacopeia, Inc.
Arris Pharmaceutical
Hybridon
Sequana Therapeutics
Genome Therapeutics
Sugen
Argule, Inc.
Onyx
Synaptic Pharmaceutical
Cadus Pharmaceutical
Geron
Tularik
RPI (11/30/96)
- 8 -
<PAGE> 1
EXHIBIT 10.56
February 25, 1997
Ms. Alene Holzman
1241 Stanyan Street CONFIDENTIAL
San Francisco, CA 94117
Dear Alene,
This letter is intended to confirm the terms of employment offered to you
by Ribozyme Pharmaceuticals, Inc. ("RPI"), and acknowledge your acceptance of
employment on the terms detailed below.
The key terms are as follows:
Start Date: To be mutually agreed upon.
Scientific Title: Vice President Business Development and
General Manager of GF/TV Business (and
Corporate Officer; to be nominated at the
March 14 Board Meeting)
Annual Base Salary: $150,000 through the period ending December
31, 1997.
Incentive Bonus: Up to $30,000 based on mutually agreed upon
goals, payable at the end of 1997.
Equity Participation: Grant of options on 60,000 of RPI common
stock from the shares reserved under a
stock option pool; exercise price at market
price per share on Start Date; 30,000 of
such options will vest over 5 years at 20%
a year; (these options will vest
immediately on change of control) 30,000
are performance-based, (performance
milestones to be mutually agreed).
Employee Stock
Purchase Plan: Option to participate in RPIGs Stock
Purchase Plan when eligible (within 6
months of Start Date). The Plan allows the
purchase of RPI stock for a period of 2
years at a 15% discount to the market price
on the date of enrollment in the plan.
Medical Insurance: Health and major medical insurance covering
the employee, spouse and dependents (as
defined under the policies of such
insurance) under a plan maintained by RPI.
Section 125 Flex Plan: Participation in RPIGs Flexible Spending
Account which allows employees to pay for
out of pocket medical and dependent care
with pre-tax dollars. RPI currently funds
a portion of dependent care and medical
each month for each employee.
<PAGE> 2
Ms. Alene Holzman
February 25, 1997
Page 2
Employee Fitness: RPI pays a portion towards monthly fees
related to employee's fitness, e.g.
health club membership.
Life Insurance: 200% of annual earnings, with $110,000
maximum.
Long-Term Disability: 60% of predisability earnings to annual
maximum of $72,000, with 90-day
elimination period.
Short-Term Disability: 60% of predisability earnings, with
14-day elimination period.
Retirement Program: Participation in a non-matching 401K
plan. (Two months of service required,
July 1 and January 1 enrollment dates.)
Vacation/Sick Days/Holidays: Vacation policy of 2 weeks per calendar
year for 1-5 years employment; 3 weeks
for 5-10 years; 4 weeks for 10 or more
years. Normal legal holidays observed.
5 personal/sick days per calendar year,
with no carry-over.
Moving Expenses: All reasonable out-of-pocket moving
expenses related to relocation to
Boulder, Colorado will be paid by RPI.
Interest-Free Loan: An interest-free loan of $75,000 will
be provided upon request; 33% will be
forgiven annually, beginning on the
first anniversary of the Start Date,
as long as RPI employment is continued.
If RPI employment is terminated prior
to the end of three years, the
remaining loan balance will be due in
full.
Non-Disclosure Agreement: Attached as Exhibit A, for execution.
Assignment of Inventions: Attached as Exhibit B, for execution.
Terms of Employment: Your employment is at-will, that is you
are free to resign and RPI is free to
terminate your employment, at any time,
without notice, procedure, or
formality, and for any reason or for
no reason. No promises whatsoever have
been made to you concerning any term,
condition, or aspect of your employment
with RPI, and no representative of the
Company has any authority to make any
agreement to the contrary.
Severance: Six months severance pay if terminated
without cause, and if not otherwise
employed.
Please sign this agreement, the attached Exhibits A & B, and return the
Exhibits and one signed original offer letter to me, acknowledging your
acceptance of these terms of employment. This offer will expire unless signed
and accepted by you within fifteen days of the date of this letter.
<PAGE> 3
Ms. Alene Holzman
February 25, 1997
Page 3
We are excited about the prospect of your joining RPI and look forward to
a very rewarding relationship.
Sincerely,
/s/ Ralph E. Christoffersen
-----------------------------------
Ralph E. Christoffersen
CEO and President
Agreed and accepted to this day of:
Date: February 27, 1997
Signature: /s/ Alene Holzman
--------------------
Name: Alene Holzman
<PAGE> 1
EXHIBIT 10.57
CONFIDENTIAL
July 1, 1997
Dr. Thomas H. Rossing
3 Adoue Road
Montgomery, TX 77356
Dear Tom,
This letter is intended to confirm the terms of employment offered to you
by Ribozyme Pharmaceuticals, Inc. ("RPI"), and acknowledge your acceptance of
employment on the terms detailed below.
The key terms are as follows:
Start Date: To be mutually agreed upon.
Scientific Title: Vice President Product Development (and Corporate
Officer; to be nominated at the
September Board Meeting)
Annual Base Salary: $20,416.66 per month, which calculates to $245,000
annually.
Benefits: You will be eligible for the following benefits,
among others, offered by RPI at this time in
accordance with eligibility periods reflected in
the policies covering each benefit. The Company
reserves the right to revise, add, or rescind any
benefits at any time.
Incentive Bonus: Up to $45,000, based on mutually agreed upon
goals, payable at the end of 1997, of which
$20,000 is guaranteed as long as employment
continues past 12/31/97.
Equity Participation: Grant of options on 100,000 shares of RPI common
stock from the shares reserved under a stock
option pool; exercisable at market price per share
on Start Date; 50,000 of such options will vest
over 5 years at 20% a year (RPIGs policy on
vesting of 5 year options provides for 2 years
acceleration of vesting upon and change of
control), 50,000 are performance-based,
(performance milestones to be mutually agreed).
Employee Stock
Purchase Plan: Option to participate in RPIGs Stock Purchase Plan
when eligible (within 6 months of Start Date). The
Plan allows the purchase of RPI stock for a period
of 2 years at a 15% discount to the market price
on the date of enrollment in the plan.
Medical Insurance: Health and major medical insurance covering the
employee, spouse and dependents (as defined under
the policies of such insurance) under a plan
maintained by RPI.
Section 125 Flex Plan: Participation in RPIGs Flexible Spending Account
which allows employees to pay for out of pocket
medical and dependent care with pre-tax dollars.
RPI
<PAGE> 2
currently funds a portion of dependent care
and medical each month for each employee.
Employee Fitness: RPI pays a portion towards monthly fees related
to employee's fitness, e.g. health club
membership.
Life Insurance: 200% of annual earnings, with $110,000 maximum.
Long-Term Disability: 60% of predisability earnings to annual maximum
of $72,000, with 90-day elimination period.
Short-Term Disability: 60% of predisability earnings, with 14-day
elimination period.
Retirement Program: Participation in RPIGs 401K plan, which provides
for a 50% employer match as determined by RPIGs
Board of Directors. (Two months of service
required, July 1 and January 1 enrollment dates.)
Vacation/Sick Days/
Holidays: Vacation policy of 2 weeks (10 working days) per
calendar year for 1-5 years employment or as
negotiated; 3 weeks for 5-10 years; 4 weeks for
10 or more years. Normal legal holidays observed
(13 holidays observed in 1997). 5 personal/sick
days per calendar year, with no carry-over.
Moving Expenses: All reasonable out-of-pocket moving expenses
related to relocation of household and personal
belongings to Boulder, Colorado will be paid by
RPI, including real estate commissions and closing
costs(RPI will not pay for interest rate buy-down)
at both ends, reasonable house-hunting trips, and
temporary housing.
Interest-Free Loan: An interest-free loan of $100,000 will be provided
upon request; forgivable at 33% per year over
three years, beginning on the first anniversary of
the Start Date, as long as RPI employment and
satisfactory performance are continued. If RPI
employment is terminated prior to the end of three
years, the remaining loan balance will be due in
full.
Non-Disclosure
Agreement: Attached as Exhibit A, for execution.
Assignment of Inventions: Attached as Exhibit B, for execution.
Terms of Employment: Your employment is at will, that is you are free
to terminate your employment, at any time, without
notice, procedure, or formality, and for any
reason or for no reason. No promises whatsoever
have been made to you concerning any term,
condition, or aspect of your employment with RPI,
and no representative of the Company has any
authority to make any agreement to the contrary.
Severance: Six months severance pay if terminated without
cause, and if not otherwise employed.
<PAGE> 3
Please sign this agreement, the attached Exhibits A & B, and return the
Exhibits and one signed original offer letter to me, acknowledging your
acceptance of these terms of employment. This offer will expire unless signed
and accepted by you within fifteen days of the date of this letter.
We are excited about the prospect of your joining RPI and look forward to
a very rewarding relationship.
Sincerely,
/s/ Ralph E. Christoffersen
------------------------------------
Ralph E. Christoffersen
CEO and President
Agreed and accepted to this day of:
Date: July 5, 1997
Signature: /s/ Thomas H. Rossing
---------------------
Name: Thomas H. Rossing
cc: L. Bullock
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 6, 1997, in the
Registration Statement on Form SB-2 and related Prospectus of Ribozyme
Pharmaceuticals, Inc. for the registration of 1,400,000 shares of its Common
Stock.
Denver, Colorado
September 4, 1997 ERNST & YOUNG LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF LYON & LYON
We hereby consent to the following language in reference to our firm
under the caption "Experts" in the Registration Statement on Form SB-2 of
Ribozyme Pharmaceuticals, Inc. and related prospectus in connection with
statements under the captions "Risk Factors -- Uncertainty of Protection of
Patents and Proprietary Rights," and "Business -- Patents and Proprietary
Technology."
Portions of this Prospectus entitled "Risk Factors -- Uncertainty of
Protection of Patents and Proprietary Rights" and "Business -- Patents and
Proprietary Technology" (6th-8th paragraphs thereof) have been reviewed by
Lyon & Lyon and are subject to an opinion to be rendered to the Placement Agent.
As of the date of this Prospectus, attorneys at Lyon & Lyon beneficially hold
warrants to purchase 1,270 shares of Common Stock of the Company at an exercise
price of $15.75 per share. The warrants have no expiration date. In addition, a
partner of Lyon & Lyon holds options to purchase 20,000 shares of Common Stock.
See "Description of Capital Stock -- Warrants."
No other consent is given or implied.
LYON & LYON
By: /s/ Richard J. Warburg
------------------------------------
Richard J. Warburg
La Jolla, California
September 4, 1997
