<PAGE>
As filed with the Securities and Exchange Commission on March 2, 2000.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
RIBOZYME PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
--------------
Delaware 2834 34-1697351
(State or other (Primary standard (I.R.S. Employer
jurisdiction of industrial identification number)
incorporation or classification code
organization) number)
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
Chief Executive Officer and President
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:
HERBERT H. DAVIS III JAMES R. TANENBAUM
ROTHGERBER JOHNSON & LYONS LLP STROOCK & STROOCK & LAVAN LLP
1200 17th Street, Suite 3000 180 Maiden Lane
Denver, Colorado 80202 New York, New York 10038
(303) 623-9000 (212) 806-5400
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum Maximum Amount of
Amount to be Offering Price Aggregate Registration
Ttleiof Shares to be Registered Registered(1) Per Share(2) Offering Price Fee
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share........ 3,622,500 Shares $49.75 $180,219,375 $47,578.92
-----------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 472,500 shares of common stock issuable upon exercise of the
underwriters' over-allotment option, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the SEC, acting pursuant to said
section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 2, 2000
3,150,000 Shares
Ribozyme Pharmaceuticals, Inc.
[LOGO][LOGO]
Common Stock
------------
Ribozyme Pharmaceuticals, Inc. is offering 3,150,000 shares of its common
stock. Our common stock is quoted on the Nasdaq National Market under the
symbol "RZYM." On March 1, 2000 the last reported sale price of the common
stock on the Nasdaq National Market was $49.75 per share.
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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<TABLE>
<CAPTION>
Per Share Total
- ------------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price........................................ $ $
Underwriting Discounts and Commissions....................... $ $
Ribozyme's proceeds.......................................... $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The underwriters have an option to purchase up to an additional 472,500
shares from certain selling stockholders to cover over-allotments. If the
underwriters exercise their option, we will not receive any proceeds from the
sale of the shares by the selling stockholders. The underwriters expect to
deliver the shares to purchasers on or about , 2000.
ING Barings Chase H&Q
, 2000
<PAGE>
INSIDE FRONT COVER
[ILLUSTRATION: three figures of ANGIOZYME, an anti-angiogenic cancer compound;
Figure 1: Shows blood vessels, endothelial cells, a tumor and VEGF-1 receptor
with the text "Inception: Tumor sends chemical "signal" to VEGF-1 receptor on
nearby blood vessel (endothelial cell), stimulating blood vessel growth."
Figure 2: Shows cancer spreading via new blood vessel with the text "Growth:
Blood vessel supplies needed nutrients, tumor grows and begins to spread to
other body parts via the new blood supply."
Figure 3: Shows ANGIOZYME destroying the VEGF-1 receptor with the text
"ANGIOZYME intervenes at inception: ANGIOZYME prevents reception of the tumor's
chemical signal by "destroying" the VEGF-1 receptor in each endothelial cell,
stopping growth of new blood vessels to the tumor, thus retarding tumor growth
and metastases."]
ANGIOZYME(TM) and HERZYME(TM) are trademarks of Ribozyme Pharmaceuticals.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ...................................................... 3
Forward-Looking Statements............................................... 7
Risk Factors ............................................................ 7
Use of Proceeds ......................................................... 13
Price Range of Common Stock and Dividends................................ 14
Capitalization .......................................................... 15
Dilution ................................................................ 16
Selected Financial Data ................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 18
Business ................................................................ 24
Management .............................................................. 36
Principal and Selling Stockholders ...................................... 38
Underwriting ............................................................ 40
Legal Matters ........................................................... 42
Experts ................................................................. 42
Where You Can Find More Information ..................................... 42
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in our common stock. You should read the
entire prospectus carefully, including "Risk Factors" and the financial
statements and related notes, before making an investment decision. Except as
otherwise noted, we have assumed that the offering price will be $49.75 per
share. Unless otherwise noted, references in this prospectus to "Ribozyme
Pharmaceuticals,""we," "our" and "us" refer to Ribozyme Pharmaceuticals, Inc.,
a Delaware corporation, and its subsidiaries.
Ribozyme Pharmaceuticals, Inc.
Business overview
We are developing a new class of drugs based on engineered molecules called
"ribozymes." Ribozymes are a form of ribonucleic acid that have the ability to
cleave RNA, including messenger RNA, and thereby selectively inhibit protein
production or viral replication. Because many human diseases result from
abnormal protein production or viral replication, we believe that ribozymes
may prevent, treat or cure a broad range of human diseases.
We are currently in clinical development and preclinical testing for the
following three product candidates:
. ANGIOZYME, for which we are conducting a Phase I/II clinical trial for
the treatment of solid tumor cancers in collaboration with Chiron
Corporation;
. an anti-HCV ribozyme which is being developed for the treatment of
Hepatitis C in collaboration with Eli Lilly and Company; and
. HERZYME, which we are developing for the treatment of breast and other
cancers in collaboration with Elan Corporation plc and its affiliates.
We expect to identify and begin preclinical testing on an additional product
candidate by the end of 2000 and develop new ribozyme product candidates in
the future.
The ribozyme advantage
We believe that ribozymes offer significant advantages over other
approaches to treating human diseases. Human diseases are often the direct
result of the abnormal production of proteins. Protein production is the
result
of the "expression" of genes through an intermediary process using messenger
RNA, or mRNA. Ribozymes have the ability to act as "molecular scissors" by
cutting mRNA molecules into two ineffective strands, thereby preventing gene
function and protein production. Ribozymes can also be used to cut viral RNA,
thus preventing viral replication.
Since ribozymes can be applied (in principle) to any RNA sequence, they
have the potential to have broad applicability as an entirely new class of
therapeutic agents. Because ribozymes attach to and cut only a specific
targeted RNA, their use minimizes the risk of unwanted side effects caused by
other cellular reactions to a given therapeutic agent. Unlike traditional
therapeutic products which temporarily prevent gene function, ribozymes
permanently destroy the target RNA and stop the associated protein production
or viral replication.
Our technology, which is based on the Nobel prize-winning discoveries of
Dr. Thomas R. Cech, is supported by more than 110 issued or allowed patents
and over 100 patent applications. We believe that this patent portfolio gives
us rights to control the manufacture, use and sale of ribozymes.
3
<PAGE>
Our product programs
ANGIOZYME
We are developing ANGIOZYME in collaboration with Chiron primarily as a
treatment for solid tumors and associated metastases in cancers such as lung,
breast, prostate, colon and rectum. These cancers account for over 650,000 new
cancer cases and nearly 300,000 deaths per year in the United States alone.
Animal studies using ANGIOZYME alone and in conjunction with existing
cytotoxic cancer therapies for treatment of solid tumors have shown dramatic
reduction in tumor growth and metastases. We have completed Phase Ia and Ib
clinical trials to demonstrate safety and tolerability of single doses of
ANGIOZYME. We initiated a Phase I/II multi-dose clinical trial in cancer
patients in November 1999 to evaluate the overall safety, tolerability and
other effects and to make observations regarding disease progression. We expect
to complete the Phase I/II trial by the end of 2000. Subject to FDA approval,
we would expect to initiate a pivotal efficacy trial in 2001 which is intended
to be the basis for a New Drug Application, or NDA.
ANTI-HCV RIBOZYME
Our anti-HCV ribozyme is being developed in collaboration with Eli Lilly to
treat Hepatitis C, a viral disease of the liver. There are over four million
people in the United States chronically infected with Hepatitis C and over 170
million people worldwide. The disease infects approximately 50,000 people and
results in over 10,000 deaths per year in the United States alone. Current
treatments for Hepatitis C are effective in less than 50% of existing patients
and have serious side effects. Our research and preclinical testing have
indicated that our anti-HCV ribozyme, formerly known as HEPTAZYME(TM),
selectively cuts Hepatitis C RNA in a manner that significantly inhibits viral
replication in cell culture. In February 2000, clinical trials were initiated
for the anti-HCV ribozyme.
HERZYME
We have recently formed a joint venture with Elan to develop HERZYME, a
treatment for breast and other cancers. More than 170,000 new breast cancer
patients are diagnosed each year in the United States. Approximately 30% of
these patients overexpress the Her-2 gene, indicating that regulation of the
Her-2 gene could have a beneficial impact on the disease. HERZYME specifically
targets and downregulates Her-2 and is expected to have a more benign side
effect profile than other therapeutic drugs targeting the Her-2 gene. HERZYME
is currently in preclinical testing.
Atugen
We have also used ribozymes for target discovery and validation, the process
by which the life science industry identifies genes that cause or contribute to
human diseases. In 1998, we decided to focus on the therapeutic potential of
ribozymes and transferred our target discovery and validation technology to a
newly formed company, Atugen AG, for a significant equity stake. Currently we
own a 48.4% interest in Atugen.
Strategy
Our strategy is to use our unique and patented ribozyme technology to
identify and develop a new class of drugs to treat human diseases for which
there are large numbers of patients and insufficient treatments. The principal
elements of our strategy are to:
. develop ribozyme drugs by pursuing multiple product candidates across a
number of diseases;
. maximize value of new product candidates through expanded internal
development;
. focus on human therapeutics and license other applications of our
technology; and
. maintain and expand our patent portfolio and proprietary technology.
Our corporate headquarters are located at 2950 Wilderness Place, Boulder,
Colorado 80301, and our telephone number is (303) 449-6500. Our web site
address is www.rpi.com. Information contained on our web site does not
constitute part of this prospectus.
4
<PAGE>
The Offering
Common stock offered by us.... 3,150,000 shares
Common stock to be
outstanding after the
offering.....................
15,090,230 shares
Use of proceeds............... To fund preclinical studies and clinical trials
of our product candidates, research and
development, repayment of $6.9 million of
outstanding borrowings from Schering AG and for
working capital and other general corporate
purposes.
Nasdaq National Market RZYM
symbol.......................
- --------
This information is based on the number of shares outstanding at March 1, 2000.
It excludes:
. 1,752,951 shares reserved for issuance under our stock option plan, of which
1,694,814 shares are outstanding at a weighted average exercise price of
$4.96 per share;
. 1,337,458 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $18.00 per share;
. 138,598 shares issuable to Schering AG upon conversion of outstanding debt,
based upon the closing price of $49.75 of our common stock on March 1, 2000;
. 150,754 shares issuable to Eli Lilly upon conversion of five shares of our
Series L convertible preferred stock, based upon the closing price of $49.75
of our common stock on March 1, 2000;
. an undeterminable number of shares issuable to Elan in May 2001 for a total
purchase price of $5.0 million;
. up to 1,200,000 shares issuable to Elan upon conversion of 12,015 shares of
our Series A convertible exchangeable preferred stock;
. an undeterminable number of shares issuable to Elan upon conversion of shares
of our Series B convertible preferred stock that Elan may receive in the
future upon conversion of our convertible promissory note to Elan;
. 29,959 shares available for issuance under our 401(k) salary reduction plan
and trust; and
. 85,761 shares available for issuance under our employee stock purchase plan.
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands except per share amounts)
The selected historical financial data presented below is derived from the
financial statements of Ribozyme Pharmaceuticals. The financial statements for
each of the five years ended December 31, 1995, 1996, 1997, 1998 and 1999 have
been audited by Ernst & Young LLP, independent auditors. The pro forma balance
sheet data summarized below reflects the following transactions with Elan in
January 2000: the sale of 641,026 shares of our common stock to Elan for $5.0
million and the sale of 12,015 shares of our Series A convertible exchangeable
preferred stock to Elan for $12.0 million. The pro forma as adjusted balance
sheet data reflects the Elan transactions; the application of the net proceeds
from the sale of the 3,150,000 shares of common stock offered by Ribozyme
Pharmaceuticals after deducting the underwriting discounts and estimated
offering expenses; and the repayment of $6.9 million of our outstanding
borrowings from Schering AG.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.............. $ 1,280 $ 773 $ 1,983 $ 8,988 $ 7,664
Expenses:
Research and development.. 12,204 14,189 15,170 16,941 15,395
General and
administrative........... 1,397 1,943 1,886 1,813 2,132
-------- -------- -------- -------- --------
Total operating expenses.. 13,601 16,132 17,056 18,754 17,527
-------- -------- -------- -------- --------
Operating loss.............. (12,321) (15,359) (15,073) (9,766) (9,863)
Total other income
(expense).................. (159) 91 (49) (1,152) (798)
-------- -------- -------- -------- --------
Net loss.................... $(12,480) $(15,268) $(15,122) $(10,918) $(10,661)
======== ======== ======== ======== ========
Net loss per share (basic
and diluted)............... $ (3.86) $ (2.61) $ (2.04) $ (1.22) $ (1.05)
Shares used in computing net
loss per share (basic and
diluted) .................. 3,230 5,845 7,420 8,978 10,158
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and securities
available-for-sale........................... $ 14,000 $ 19,000 $159,159
Working capital............................... 14,086 19,086 159,245
Total assets.................................. 25,092 42,107 182,266
Capital lease obligations and long-term debt,
net of current portion....................... 6,811 6,811 --
Accumulated deficit........................... (84,083) (84,083) (84,083)
Total stockholders' equity.................... 14,881 31,896 178,996
</TABLE>
6
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed
under "Risk Factors."
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
We are a biotechnology company in the early stage of development and have only
a limited operating history for you to review in evaluating our business and
prospects.
Our ribozyme technology is in an early stage of development and represents a
new and unproven approach to therapeutic products. There can be no assurance
that our technologies will enable us or any of our collaborators to discover
and develop therapeutic products.
All of our products are in early stages of development, have never generated
any sales and require extensive testing before commercialization. We do not
expect any of our product candidates to be commercially available for at least
four years. You must consider, based on our limited history, our ability to:
. obtain the financial resources necessary to develop, test, manufacture
and market products;
. engage corporate partners to assist in developing, testing,
manufacturing and marketing our products;
. satisfy the requirements of clinical trial protocols, including patient
enrollment;
. establish and demonstrate the clinical efficacy of our products;
. obtain necessary regulatory approvals; and
. market our products to achieve acceptance and use by the medical
community in general.
We have a history of losses, expect future losses and cannot assure you that we
will ever become or remain profitable.
We have incurred significant losses and have had negative cash flows from
operations since inception. To date, we have dedicated most of our financial
resources to research and development and general and administrative expenses.
We have funded our activities primarily from sales of stock, revenues under
research and development agreements and lines of credit. As of December 31,
1999, our accumulated deficit was $84.1 million.
We expect to incur losses for at least the next several years because we
plan to spend substantial amounts on research and development of our products,
including preclinical studies and clinical trials, and, if we obtain necessary
regulatory approvals, on sales and marketing efforts.
7
<PAGE>
We depend upon our collaborative relationships and our collaborators have
rights under these agreements which if exercised could adversely affect our
ability to develop our products and our operating results.
Engaging corporate partners and other third parties to develop, test and
manufacture our initial products has been, and is expected to continue to be, a
key element of our strategy. Our current partners, Chiron, Eli Lilly and Elan,
have the right to unilaterally terminate our existing agreements or discontinue
funding their share of product development expenses. If any of them were to
terminate its funding of the development of a particular product, we may not
have the right to continue development of that product on our own.
In addition, there are many aspects of our collaborations that have been and
will continue to be outside of our control including:
. decisions by our collaborators to extend or renew our agreements and
relationships;
. the pace of development of our products including the achievement of
performance milestones;
. development by our collaborators of competing technologies or products;
. exercise by our collaborators of marketing or manufacturing rights; and
. the loss of our rights to products or the profits from our products if
we are unable to fund our share of development costs.
We have granted exclusive rights to certain of our collaborators to products
targeting specific gene sequences which could delay development of those
products and prevent us from entering into other collaborative agreements.
Under our current collaborations, up to an aggregate of 50 targets may be
reserved at any time. Development of the products subject to these exclusivity
provisions is out of our control. These products will not be available to us
during the exclusivity term either to develop internally or in collaboration
with third parties.
Some of our collaborators have the right to reserve exclusive rights to
specified products for a period of time, even if they are not developing that
product. Also, many of our collaboration agreements require us to offer our
collaborators a right of first offer for certain targets and products.
Because we must obtain regulatory approval to market our products in the United
States and foreign jurisdictions, we cannot predict whether or when we will be
permitted to commercialize our products.
The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities. We cannot predict whether regulatory clearance will be
obtained for any product we develop. A pharmaceutical product cannot be
marketed in the United States until it has completed rigorous preclinical
testing and clinical trials and an extensive regulatory clearance process
implemented by the FDA. Satisfaction of regulatory requirements typically takes
many years, is dependent upon the type, complexity and novelty of the product
and requires the expenditure of substantial resources. Of particular
significance are the requirements covering research and development, testing,
manufacturing, quality control, labeling and promotion of drugs for human use.
Before commencing clinical trials in humans, we must submit and receive
approval from the FDA of an Investigational New Drug application, or IND.
Clinical trials are subject to oversight by institutional review board and the
FDA and:
. must be conducted in conformance with the FDA's good laboratory practice
regulations;
. must meet requirements for institutional review board oversight;
. must meet requirements for informed consent;
. must meet requirements for good clinical practices;
8
<PAGE>
. are subject to continuing FDA oversight;
. may require large numbers of test subjects; and
. may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the IND or the conduct
of these trials.
Before receiving FDA clearance to market a product, we must demonstrate that
the product is safe and effective on the patient population that will be
treated. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable
FDA or other applicable regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other regulatory action
against our potential products or us. Additionally, we have limited experience
in conducting and managing the clinical trials necessary to obtain regulatory
approval.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to
be safe and efficacious in clinical trials and will meet all the applicable
regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. This foreign regulatory approval process includes all of the risks
associated with FDA clearance described above.
For additional information concerning regulatory approval of our prospective
products, see "Business--Government regulation of our drug development
activities."
We are involved in pending litigation and cannot at this time predict the
ultimate outcome or possible loss that could result from that litigation.
We, along with our chief executive officer, are defendants in several
related lawsuits which purport to be class actions on behalf of purchasers of
our common stock on November 16 and 17, 1999. The lawsuits, which are
substantially identical, allege the defendants violated certain federal
securities laws based upon an allegedly misleading announcement made on
November 15, 1999. Although we believe none of these legal proceedings have any
merit, we are unable to predict the ultimate outcome of these proceedings or
determine the total expense or possible loss, if any, that may ultimately be
incurred in the resolution of these proceedings.
If we cannot obtain additional financing, we may have to dilute your interest,
curtail our research and development, relinquish our rights to some or all of
our products or declare bankruptcy.
The net proceeds of this offering, together with our existing financial
resources and expected revenues from our collaborations, should be sufficient
to meet our operating and capital requirements through 2002; however, we may
have to raise substantial additional capital thereafter if:
. changes in our research and development plans cause unexpected large
future expenditures; or
. changes in our collaborative relationships cause a significant reduction
in our expected revenues from our collaborations.
If we raise funds by selling more stock, your ownership share in us will be
diluted. We may grant future investors rights superior to those of the common
stock that you are purchasing. In addition, we do not know if additional
funding will be available or on acceptable terms when needed.
9
<PAGE>
Our products require materials that may not be readily available or cost
effective, which may adversely affect our competitive position or
profitability.
The products we are developing are new chemical entities which are not yet
available in commercial quantities. Raw materials necessary for the manufacture
of our products may not be available in sufficient quantities or at a
reasonable cost in the future. Therefore, our products may not be available at
a reasonable cost in the future. We recently entered into an agreement with
Avecia Limited to manufacture ribozyme products for us based on technology we
licensed to them. Delays or failures in obtaining raw materials or in product
manufacturing, including deliveries from Avecia, could delay our product
submission for regulatory approval and our initiation of new development
programs which could, in turn, materially impair our competitive position and
potential profitability.
There is a significant degree of uncertainty relating to our patents that could
cause us to incur substantial costs and delays as a result of proceedings and
litigation regarding patents and other proprietary rights, possibly resulting
in additional expenses and the loss of some patent protection.
Our basic patents, the Cech patents, expire in 2008 in the United States and
in 2007 in Europe and Japan. Although our license to these patents extends
through the expiration of the Cech patents or any extensions thereof, our
licensor preserves the right to terminate our license before such time under
certain circumstances. We have received approval of some additional patent
applications covering various aspects of the ribozyme technology, and we have
filed patent applications for other improvements and modifications which have
not yet been approved.
We cannot be certain that the named inventors of subject matter claimed by
our patents and patent applications were the first to invent or the first to
file patent applications for these inventions. Furthermore, we cannot guarantee
that any patents will issue from any pending or future patent applications
owned by or licensed to us. Existing or future patents may be successfully
challenged, invalidated, found to be unenforceable, infringed upon, or
circumvented by others so that our patent rights would not create an effective
competitive barrier. We also cannot assure you that the scope of our issued
patents will be sufficiently broad to offer meaningful protection against
competitive products. We have filed documents in opposition of two patents
granted to a competitor in Europe. Competitors have filed documents in
opposition of our Cech patents in Europe and Japan. The patent opposition in
Japan has been resolved in our favor. The European opposition proceeding is in
progress. We may not have identified all United States and foreign patents that
pose a risk of infringement.
We may be forced to litigate if an intellectual property dispute arises.
This litigation could be extremely expensive. Proceedings and litigation
involving our patents or patent applications also could result in adverse
findings about:
. the patentability of our inventions and product candidates; or
. the enforceability, validity or scope of protection provided by our
patents.
As discussed above, our competitors have taken the position in patent
oppositions and elsewhere that our patents are invalid or that our activities
infringe on their patent rights. While we do not believe we are infringing on
the patent rights of our known competitors, we may have to incur substantial
costs if litigation is brought against us by these competitors.
The manufacture, use or sale of our products may infringe on the patent
rights of others. If we are unable to avoid infringing another party's patent
rights, we may be required to seek a license, defend an infringement action or
challenge the validity of the patents in court. Patent litigation is costly and
time consuming. We may
10
<PAGE>
not have sufficient resources to bring these actions to a successful
conclusion. In addition, if we do not obtain a license, do not successfully
defend an infringement action or are unable to have infringed patents declared
invalid, we may:
. incur substantial monetary damages;
. encounter significant delays in marketing our products; and
. be unable to participate in the manufacture, use or sale of products or
methods of treatment requiring licenses.
In addition, we regularly enter into agreements to in-license technologies
and patent rights. Should we fail to comply with the terms of those agreements,
including payment of any required maintenance fees or royalties, we would lose
the rights to those technologies and patents.
Disclosure of our trade secrets could hurt our competitive position.
Because trade secrets and other unpatented proprietary information are
critical to our business, we attempt to protect our trade secrets by entering
into confidentiality agreements with third parties, employees and consultants.
However, these agreements can be breached and, if they are, there may not be an
adequate remedy available to us. In addition, third parties may independently
discover trade secrets and proprietary information. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our
proprietary rights.
We lack sales and marketing experience and will rely upon third parties to
market our products which will result in a loss of control over the marketing
process.
We intend to rely on third parties with established direct sales forces to
market, distribute and sell many of our products. These third parties may have
significant control over important aspects of the commercialization of our
products, including market identification, marketing methods, pricing, sales
force recruitment and management and promotional activities. We may be unable
to control the actions of these third parties. We may be unable to make or
maintain arrangements with third parties to perform these activities on
favorable terms.
Our success may depend on third-party reimbursement of patients' costs for our
products which could result in price pressure or reduced demand for our
products.
Our ability to market products successfully will depend in part on the
extent to which various third parties are willing to reimburse patients for the
costs of our products and related treatments. These third parties include
government authorities, private health insurers and other organizations, such
as health maintenance organizations. Third-party payors are increasingly
challenging the prices charged for medical products and services. Accordingly,
if less costly drugs are available, third-party payors may not authorize or may
limit reimbursement for our products, even if our products are safer or more
effective than the alternatives. In addition, the trend toward managed
healthcare and government insurance programs could result in lower prices and
reduced demand for our products. Cost containment measures instituted by
healthcare providers and any general healthcare reform could affect our ability
to sell our products and may have a material adverse effect on us. We cannot
predict the effect of future legislation or regulation concerning the
healthcare industry and third-party coverage and reimbursement on our business.
You will experience immediate and substantial dilution.
Purchasers in this offering will pay more for their shares than existing
stockholders or individuals who acquire shares by exercising options granted
before this offering. You will experience immediate dilution of $38.14 per
share in pro forma net tangible book value. You will also experience additional
dilution upon:
. the exercise by holders of outstanding options and warrants;
. the conversion by Schering AG of outstanding debt into shares of our
common stock;
. the conversion by Eli Lilly of our Series L convertible preferred stock
into shares of our common stock; or
. the conversion by Elan of shares of our Series A convertible
exchangeable preferred stock into a maximum of 1,200,000 shares of our
common stock.
11
<PAGE>
Our common stock has limited trading volume and a history of volatility which
could impair your investment.
You may be unable to sell shares purchased in this offering at the time or
price desired. The market price of our common stock has fluctuated dramatically
in recent years. The trading price of our common stock may continue to
fluctuate substantially due to:
. quarterly variations in our operating results;
. our ability to raise additional funds;
. changes in the status of our corporate collaborative agreements;
. changes in earnings estimates by market research analysts;
. clinical trials of products;
. research activities, technological innovations or new products by us or
our competitors;
. developments or disputes concerning patents or proprietary rights;
. purchases or sales of our stock by our executive officers, directors or
substantial holders of our common stock;
. timing or denial by the FDA of clinical trial protocols or marketing
applications;
. securities class actions or other litigation; and
. changes in government regulations.
These fluctuations have sometimes been unrelated to our operating
performance. As a result, the value of your shares could vary significantly
from time to time. The historical trading volume of our common stock has been
limited. After this offering, an active public market for the common stock may
not develop or be sustained.
Both our corporate documents and Delaware law have anti-takeover provisions
that may discourage transactions involving actual or potential changes of
control at premium prices.
Our corporate documents:
. require procedures to be followed and time periods to be met for any
stockholder to propose matters to be considered at annual meetings of
stockholders, including nominating directors for election at those
meetings; and
. authorize our Board of Directors to issue up to 5,000,000 shares of
preferred stock without stockholder approval and to set the rights,
preferences and other designations, including voting rights, of those
shares as the Board of Directors may determine.
In addition, we are subject to provisions of the Delaware General
Corporation Law that may make some business combinations more difficult.
Accordingly, transactions that otherwise could involve payment of a premium
over prevailing market prices to holders of common stock may be discouraged or
more difficult for our company than for other companies organized in other
jurisdictions.
12
<PAGE>
USE OF PROCEEDS
We are offering 3,150,000 shares of our common stock. We will receive an
estimated $147,100,000 in net proceeds from the sale of these shares of common
stock after deducting the underwriting discounts and estimated offering
expenses.
We intend to use proceeds from this offering to fund preclinical studies and
clinical trials of our product candidates, research and development, repayment
of approximately $6.9 million of our outstanding borrowings from Schering AG
and for working capital and other general corporate purposes. We expect to use
a significant portion of the proceeds from the offering to fund the ANGIOZYME
clinical program and other product development activities.
The amounts we actually expend will vary significantly depending on a number
of factors, including:
. results of preclinical studies and clinical trials of products;
. progress of our research and development programs;
. cost and timing of regulatory approvals;
. terms of any collaborative arrangements into which we enter;
. commercial potential of our products;
. status of competitive products;
. technological advances; and
. hiring of additional personnel.
As a result, we will retain significant discretion in the application of
these funds.
We anticipate that the net proceeds of this offering, together with our
existing financial resources and expected revenues from our collaborations,
should be sufficient to meet our anticipated operating and capital requirements
through 2002. This estimate is based on assumptions that could be negatively
impacted by the matters discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Until we use the net proceeds as described above, we will invest them in
short-term, interest-bearing, investment-grade securities.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is traded on the Nasdaq National Market under the symbol
"RZYM." The following table sets forth, for the periods indicated, the high and
low sales prices of our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Year Ended December 31, 1997
First Quarter............................................. $16.50 $9.88
Second Quarter............................................ 12.38 8.63
Third Quarter............................................. 12.00 7.38
Fourth Quarter............................................ 11.38 7.00
Year Ended December 31, 1998
First Quarter............................................. 9.34 5.13
Second Quarter............................................ 10.50 4.88
Third Quarter............................................. 6.25 2.00
Fourth Quarter............................................ 7.63 3.31
Year Ended December 31, 1999
First Quarter............................................. 5.75 4.06
Second Quarter............................................ 6.88 3.88
Third Quarter............................................. 7.00 4.25
Fourth Quarter............................................ 22.00 4.81
Year Ended December 31, 2000
First Quarter (through March 1, 2000)..................... 66.63 9.50
</TABLE>
The last reported sale price of our common stock as reported on the Nasdaq
National Market on March 1, 2000, was $49.75. At March 1, 2000, there were
11,940,230 shares of our common stock outstanding held by approximately 157
holders of record of our common stock.
We have never declared or paid cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We are also
party to agreements restricting our ability to pay dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis, giving effect to the Elan transactions as if they
had occurred on December 31, 1999;
. on a pro forma as adjusted basis giving effect to the sale of common
stock offered by us and the estimated net proceeds from the offering of
$147,100,000; and
. on a pro forma as adjusted basis giving effect to the repayment of $6.9
million of our outstanding borrowings from Schering AG.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Capital lease obligations and long-term debt,
net of current portion........................ $ 6,811 $ 6,811 $ --
Stockholders' equity:
Preferred stock, $.01 par value per share,
5,000,000 shares authorized:
Series A convertible exchangeable preferred
stock, no shares outstanding actual, 12,015
shares outstanding pro forma and pro forma
as adjusted (preference in liquidation of
$12,015,000)............................... -- -- --
Series B convertible preferred stock, no
shares outstanding actual, pro forma and
pro forma as adjusted...................... -- -- --
Series L convertible preferred stock, 5
shares outstanding actual, pro forma and
pro forma as adjusted (preference in
liquidation of $7,500,000)................. -- -- --
Common stock, $0.01 par value per share;
20,000,000 shares authorized;
11,263,252 shares outstanding actual,
11,904,278 shares outstanding pro forma and
15,054,278 shares outstanding pro forma as
adjusted*................................... 113 119 151
Additional paid-in capital................... 98,894 115,903 262,971
Deferred compensation and other.............. (43) (43) (43)
Accumulated deficit.......................... (84,083) (84,083) (84,083)
-------- -------- --------
Total stockholders' equity................. 14,881 31,896 178,996
-------- -------- --------
Total capitalization....................... $ 21,692 $ 38,707 $178,996
======== ======== ========
</TABLE>
- -------
* This information is based on the number of shares outstanding at March 1,
2000. It excludes:
. 35,952 shares issued upon the exercise of stock options subsequent to
December 31, 1999;
. 1,752,951 shares reserved for issuance under our stock option plan, of
which 1,694,814 shares were outstanding at a weighted average exercise
price of $4.96 per share;
. 1,337,458 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $18.00 per share;
. 138,598 shares issuable to Schering AG upon conversion of outstanding
debt, based upon the closing price of $49.75 of our common stock on March
1, 2000;
. 150,754 shares issuable to Eli Lilly upon conversion of five shares of
our Series L convertible preferred stock, based upon the closing price of
$49.75 of our common stock on March 1, 2000;
. an undeterminable numbers of shares issuable to Elan in May 2001 for a
total purchase price of $5.0 million;
. up to 1,200,000 shares issuable to Elan upon conversion of 12,015 shares
of our Series A convertible exchangeable preferred stock;
. an undeterminable number of shares issuable to Elan upon conversion of
shares of our Series B convertible preferred stock that Elan may receive
in the future upon conversion of our convertible promissory note to Elan;
. 29,959 shares available for issuable under our 401(k) salary reduction
plan and trust; and
. 85,761 shares available for issuance under our employee stock purchase
plan.
15
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $10.6
million, or $0.95 per share. Giving effect to the Elan transactions in January
2000, our pro forma net tangible book value as of December 31, 1999 would have
been approximately $27.7 million, or $2.32 per share.
Giving effect to the sale of 3,150,000 shares of our common stock, after
deducting the underwriting discounts and estimated offering expenses, our pro
forma as adjusted net tangible book value per share would have been $174.8
million, or $11.61 per share. This represents an immediate increase in pro
forma net tangible book value of $9.29 per share to existing stockholders and
an immediate dilution in net tangible book value of $38.14 per share to
purchasers in this offering. Pro forma net tangible book value represents our
pro forma total tangible assets less pro forma total liabilities. Dilution
represents the difference between the amount per share paid by the purchasers
in this offering and the pro forma as adjusted net tangible book value per
share upon completion of this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share.................................. $49.75
Pro forma net tangible book value per share as of December 31,
1999.......................................................... $2.32
Increase per share attributable to new investors............... 9.29
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................... 11.61
------
Dilution per share to new investors.............................. $38.14
======
</TABLE>
To the extent outstanding options and warrants are exercised, convertible
preferred stock or convertible debt is converted, or additional shares are
issued, there will be further dilution to new investors.
16
<PAGE>
SELECTED FINANCIAL DATA
(in thousands except per share amounts)
The following yearly selected financial data are derived from our audited
financial statements. Our financial statements for 1995, 1996, 1997, 1998 and
1999 have been audited by Ernst & Young LLP, independent auditors. These
historical results do not necessarily indicate future results. When you read
this data, it is important that you also read our financial statements and
related notes, as well as the section "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Collaborative agreements.. $ 1,178 $ 759 $ 1,976 $ 8,963 $ 5,797
Collaborative agreements--
related parties.......... -- -- -- -- 1,867
Grant and other income.... 102 14 7 25 --
-------- -------- -------- -------- --------
Total revenues.......... 1,280 773 1,983 8,988 7,664
Expenses:
Research and development.. 12,204 14,189 15,170 16,941 15,395
General and
administrative........... 1,397 1,943 1,886 1,813 2,132
-------- -------- -------- -------- --------
Total operating
expenses............... 13,601 16,132 17,056 18,754 17,527
-------- -------- -------- -------- --------
Operating loss.............. (12,321) (15,359) (15,073) (9,766) (9,863)
Other income (expense):
Interest income........... 395 936 795 634 614
Interest expense.......... (554) (845) (844) (704) (552)
Equity in loss of
unconsolidated
affiliate................ -- -- -- (1,082) (860)
-------- -------- -------- -------- --------
Total other income
(expense).............. (159) 91 (49) (1,152) (798)
-------- -------- -------- -------- --------
Net loss.................... $(12,480) $(15,268) $(15,122) $(10,918) $(10,661)
======== ======== ======== ======== ========
Net loss per share (basic
and diluted)............... $ (3.86) $ (2.61) $ (2.04) $ (1.22) $ (1.05)
Shares used in computing net
loss per share
(basic and diluted)........ 3,230 5,845 7,420 8,978 10,158
<CAPTION>
December 31,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
securities
available-for-sale......... $ 6,420 $ 17,594 $ 16,102 $ 6,512 $ 14,000
Working capital............. 4,648 15,788 13,238 4,467 14,086
Total assets................ 14,223 25,292 24,850 19,224 25,092
Capital lease obligations
and long-term
debt, current portion...... 1,898 1,724 2,078 498 200
Capital lease obligations
and long-term debt, net of
current portion............ 3,179 2,430 2,752 4,545 6,811
Accumulated deficit......... (32,115) (47,383) (62,505) (73,422) (84,083)
Total stockholders' equity.. 8,478 20,362 18,870 11,034 14,881
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the financial
statements of Ribozyme Pharmaceuticals and related notes included elsewhere in
this prospectus. Our discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
under "Risk Factors," "Business" and elsewhere in this prospectus.
Overview of our Business
We are developing a new class of drugs based on engineered molecules called
"ribozymes." Ribozymes are a form of ribonucleic acid which have the ability to
cleave RNA, including mRNA, and thereby selectively inhibit protein production.
Because many human diseases result from abnormal protein production, we believe
that ribozymes are applicable to a broad range of human diseases. We are
currently in clinical development and preclinical testing for three product
candidates and expect to begin preclinical testing on one additional product
candidate by the end of 2000.
We are conducting a Phase I/II clincal trial for our lead product candidate,
ANGIOZYME, for the treatment of solid tumor cancers in collaboration with
Chiron and expect to complete this trial before the end of 2000. Also, clinical
trials for our anti-HCV ribozyme for the treatment of Hepatitis C have been
initiated with Eli Lilly. We have recently formed a joint venture with Elan to
develop HERZYME, a treatment for breast and other cancers.
To date, we have committed substantially all our resources to our research
and product development programs. We have not generated any revenues from
product sales, nor do we anticipate generating any revenues in the foreseeable
future. Revenue recorded from our collaborative agreements consists of:
. Up-front revenue. Up-front revenue is fully recognized upon signing an
agreement and is related to the value of the research at that point in
time. Up-front revenue may also include a reimbursement to us of recent
expenses related to product development which we incurred.
. Research revenue. Typically research revenue is based on the fully
burdened cost of a researcher working on a collaboration. Rates are
billed per employee, per year, pro-rated for time worked on a project.
This revenue is typically invoiced on a quarterly basis, either up front
or in arrears. Revenue is recognized ratably over the period, with the
balance reflected as deferred revenue until earned. The revenue is
typically recurring over the term of a collaboration.
. License revenue. License revenue is recognized ratably over the term of
the license. Payments received in advance are recorded as deferred
revenue until earned.
. Milestone revenue. Milestone revenue is recognized in full when the
related milestone performance goal is achieved. Milestone revenue is
typically not consistent or recurring in nature.
Our revenue has consisted primarily of research revenue payments from our
collaborators. All revenues are either deferred as a liability or recognized
upon satisfying revenue criteria. As of December 31, 1999, all revenues that
have been recognized are earned, and no further obligation exists for
recognized revenue. We depend upon funding from external financing and
corporate collaborations for our research and product development programs and
expect to do so for the foreseeable future.
We have not been profitable since inception and have an accumulated deficit
of $84.1 million as of December 31, 1999. Losses have resulted primarily from
our research and development programs. We expect to
18
<PAGE>
incur additional losses as ANGIOZYME, the anti-HCV ribozyme, HERZYME and other
potential product candidates advance through development and commercialization.
In addition, future milestone payments under some of our collaborations are
contingent upon our meeting particular research or development goals. The
amount and timing of future milestone payments are contingent upon the terms of
each collaboration agreement. Milestone performance criteria are specific to
each agreement and based upon future performance. In some instances, we may
forfeit milestone payments if we fail to accomplish a predetermined goal within
a certain time frame. Therefore, we are subject to significant variation in the
timing and amount of our revenues and results of operations from period to
period.
In 1998, we transferred our target discovery and validation technology to
Atugen in exchange for a substantial equity interest. We will continue our
existing target discovery and validation agreements with our collaborators by
subcontracting to Atugen the services to be performed. We currently own 48.4%
of Atugen and will record our share of future profits. In 1999, we completely
expensed our remaining investment in Atugen.
Our revenues are denominated in U.S. dollars, therefore, we have not been
exposed to foreign currency translation risks and have not engaged in any
hedging instruments.
Results of Operations for Twelve Months Ended December 31, 1999 and 1998
Revenues from collaborative agreements decreased $1.3 million to $7.7
million for the year ended December 31, 1999 from $9.0 million for the
corresponding period in 1998. The decrease is primarily due to approximately
$6.2 million of revenue recognized from the Chiron collaboration related to the
development of ANGIOZYME in 1998, compared to $4.0 million recognized from the
Chiron collaboration in 1999. Of the $6.2 million recognized from the Chiron
collaboration in 1998, $5.0 million was a nonrecurring up-front payment for
50.0% of past expenses we incurred for the preclinical development of
ANGIOZYME. There are no future obligations between us and Chiron for these
recognized revenues. The nonrefundable payment became due when Chiron agreed to
resume our collaboration in the development of ANGIOZYME. In addition, 1998
revenues include approximately $2.6 million related to our target discovery and
validation collaborations with Glaxo Wellcome, Parke-Davis, Roche Bioscience
and Schering AG. In 1999, we subcontracted all existing target discovery and
validation work to Atugen and therefore did not record any revenues related to
those agreements. However, in 1999, we recorded $1.9 million in revenues from
Atugen related to a service agreement in which we received payments for:
. management and administrative services we provided;
. oligonucleotides and other chemicals; and
. prosecution of relevant patents.
In addition, in 1999, we recorded approximately $1.7 million in research
revenues related to our collaboration with Eli Lilly for the development of the
anti-HCV ribozyme.
Research and development expenses decreased to $15.4 million in 1999 from
$16.9 million in 1998. Approximately $1.2 million of the decrease was primarily
attributable to the transfer of approximately 15 employees and their related
expenses to Atugen. In addition, we had decreases of approximately $750,000 in
outside services, consultants and professional fees. However, during 1999, we
had an approximately $450,000 increase in personnel expenses. The increase was
primarily due to hiring additional personnel related to the overall scale-up of
research and product development. Research and development expenses consist
primarily of:
. clinical and preclinical supplies and related costs;
. salaries and benefits for scientific, regulatory, quality control and
pilot manufacturing personnel;
. consultants;
. supplies;
19
<PAGE>
. occupancy costs; and
. depreciation for laboratory equipment and facilities.
We expect future research and development expenses to increase from current
levels as ANGIOZYME, the anti-HCV drug and HERZYME proceed through clinical and
preclinical trials. The effect of increased expenses related to HERZYME will be
absorbed by us indirectly through our equity investment in Medizyme, our
unconsolidated affiliate.
General and administrative expenses increased to $2.1 million in 1999 from
$1.8 million in 1998. The increase was primarily attributable to lower expenses
incurred in 1998 because of $480,000 of reimbursements we received from Atugen
related to the time our management devoted to Atugen operations. In 1999,
Atugen hired most of its own management; our management currently devotes
limited time to Atugen. Increases of approximately $180,000 during 1999 are
primarily attributable to increased staffing and associated expenses necessary
to manage and support our expanding product and business development efforts.
We expect general and administrative expenses to continue to increase as a
result of increasing legal and other professional fees in connection with the
overall scale-up of our operations, our business development, our patent
protection efforts and anticipated legal fees due to current litigation.
Interest income decreased slightly to $614,000 in 1999 from $635,000 in
1998. The decrease is due to lower average balances in our cash, cash
equivalents and securities available-for-sale during 1999 compared to 1998.
Interest income generally fluctuates as a result of cash available for
investment and prevailing interest rates.
Interest expense decreased to $552,000 in 1999 from $704,000 in 1998. The
decrease is due to the repayment of a loan for tenant improvements and
equipment in December 1998.
Equity in loss of unconsolidated affiliate was $860,000 for 1999 compared to
$1.1 million for 1998. This expense is a result of our equity investment in
Atugen.
Results of Operations for Twelve Months Ended December 31, 1998 and 1997
Revenues from collaborative agreements increased from $2.0 million for the
year ended December 31, 1997, to $9.0 million in 1998. The increase was
primarily due to $6.2 million of revenue recognized in 1998 from the Chiron
collaboration related to the development of ANGIOZYME. Of the $6.2 million
recognized from the Chiron collaboration in 1998, $5.0 million was a
nonrecurring payment for 50.0% of past expenses incurred by us for the
preclinical development of ANGIOZYME. In addition, we received approximately
$2.6 million in collaborative revenue in 1998 due to target discovery and
validation agreements with Glaxo Wellcome, Parke-Davis, Roche Bioscience and
Schering AG. Revenues of $2.0 million in 1997 consisted primarily of $1.5
million from Schering AG for our target validation and discovery agreement.
Research and development expenses increased from $15.2 million in 1997 to
$16.9 million in 1998. The increase was a result of the initiation of the
development of ANGIOZYME and increased target discovery and validation
activities.
General and administrative expenses decreased slightly to $1.8 million in
1998 compared to $1.9 million for in 1997. The decrease in 1998 was primarily
due to reimbursements related to the time our management devoted to Atugen
operations.
Interest income was $635,000 in 1998 compared to $795,000 in 1997. Interest
income decreased due to declining cash balances. Interest income generally
fluctuates as a result of cash available for investment and prevailing interest
rates.
Interest expense was $704,000 in 1998 compared to $844,000 in 1997. Interest
expense declined in 1998 due to lower average balances of outstanding debt.
20
<PAGE>
In 1998, we recorded our share of Atugen's 1998 net loss of $1.1 million as
equity in loss of unconsolidated affiliate. Atugen did not exist prior to 1998,
and therefore there was no recorded loss in the prior year.
Liquidity and Capital Resources
We have financed our operations since inception through sales of equity
securities in public offerings, private placements of preferred and common
stock, funds received under our collaborative agreements and financing under
equipment and tenant improvement loans. From inception through December 31,
1999, we have received approximately:
. $29.0 million in net proceeds from private placements;
. $36.4 million in net proceeds from public offerings;
. $56.4 million from our collaborations; and
. $9.8 million from equipment financing.
We had cash, cash equivalents and securities available-for-sale of $14.0
million at December 31, 1999 compared with $6.5 million at December 31, 1998.
The $7.5 million increase in cash, cash equivalents and securities available-
for-sale is primarily the result of $5.4 million used for operations, net of
revenues of $7.7 million, and $1.8 million used for investments in equipment,
patents and loans to officers, offset by:
. $1.5 million in net borrowings;
. $7.5 million received in the sale of preferred stock to a corporate
collaborator; and
. $5.3 million received, net of expenses, in a public offering of our
common stock.
We invest our cash, cash equivalents and securities available-for-sale in
interest-bearing, investment-grade securities.
Accounts receivable at December 31, 1999 were $2.0 million compared to $3.9
million at December 31, 1998. Accounts receivable at December 31, 1999 included
$485,000 due from Atugen for administrative services and patent expenses,
$525,000 due from Eli Lilly for research support for our anti-HCV ribozyme
program and $1.0 million due from Chiron for reimbursement of ANGIOZYME fourth
quarter expenses. Accounts receivable at December 31, 1998 primarily consisted
of a $2.0 million license fee from Atugen, $730,000 for start-up and operating
expenses due from Atugen and $1.1 million due from Chiron for 1998 fourth
quarter research revenue related to ANGIOZYME clinical development. All
outstanding receivables due from 1998 were received in 1999.
Total additions for property, plant and equipment for the twelve months
ending December 31, 1999 were $1.1 million, most of which were financed through
our existing equipment loan facility with Schering AG. We anticipate future
equipment needs to be financed by the Schering AG loan facility for the next
two years.
As part of our target discovery and validation program, Schering AG made a
$2.5 million equity investment in us in May 1997 in exchange for 212,766 shares
of common stock and made an additional equity investment of $2.5 million for
465,117 shares in April 1998. Separately, Schering AG provided loans of
$2.0 million in each of 1997, 1998 and 1999 and has agreed to provide loans of
up to $2.0 million annually through 2001, provided that the collaboration is
continued. If Schering AG does not continue the collaboration, we may need to
seek alternative sources of financing. Amounts not used in any calendar year
may be carried forward to future years. According to the terms of our agreement
with Schering AG, 50.0% of any borrowings on the line of credit must be
collateralized by equipment purchases. The loans, which carry an interest rate
of 8.0% per annum, are immediately convertible into equity at the option of
Schering AG. At December 31, 1999, the outstanding borrowings of $6.8 million
were convertible into approximately 649,000 shares of our common
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stock. Subject to the conversion rights referred to above, principal and
interest payments are deferred until maturity of the loans which is in April
2004. As a result of the Atugen formation in 1998, we now subcontract all of
our existing target discovery and identification programs to Atugen. We intend
to use proceeds of approximately $6.9 million from this offering to repay our
outstanding borrowings from Schering AG. However, as long as our collaboration
continues with Schering AG, we anticipate continuing to borrow funds from
Schering AG.
In July 1994, we entered into an agreement with Chiron to collaborate
exclusively on up to five specific targets selected by Chiron. Four targets are
currently subject to the exclusivity provision, including ANGIOZYME. Currently,
ANGIOZYME is being developed in collaboration with Chiron and in accordance
with the terms of agreement, we share equally all development costs and profits
with Chiron. In 1998, this agreement resulted in revenues recognized by us of
$6.2 million, which included a non-recurring payment of $5.0 million for
reimbursement for 50.0% of past expenses we incurred for the preclinical
development of ANGIOZYME. In 1999, we recorded $4.0 million in revenues due
from Chiron for reimbursement of expenses incurred for the clinical development
of ANGIOZYME. We expect 2000 expenses related to ANGIOZYME to be approximately
$11.0 million, of which Chiron is expected to reimburse us approximately $5.5
million.
In March 1999, we entered into a collaboration with Eli Lilly to conduct
research, development and commercialization of our anti-HCV ribozyme for the
treatment of Hepatitis C virus infection. We granted Eli Lilly the exclusive
worldwide right to develop and commercialize the anti-HCV ribozyme in return
for funding all research, development and commercialization costs for the drug.
Under the terms of the agreement, we received approximately $9.2 million during
1999, which included $1.7 million of funding for research and clinical trial
expenses and a $7.5 million equity investment through the purchase of five
shares of our Series L convertible preferred stock. Each share of Series L
convertible preferred stock is convertible into shares of our common stock
based upon milestones related to the development and commercialization of the
anti-HCV ribozyme. Depending on the achievement of certain milestones, each
share of convertible preferred stock will convert into either $500,000 or $1.5
million of our common stock valued at the average closing price over the 30
days prior to conversion. Including development milestones, which we will be
entitled to receive if a commercial product is developed for sale in the United
States, Europe and Japan, we could receive additional funding of up to $29
million. This includes approximately $2.9 million in 2000 for research in
addition to a $500,000 milestone payment for having filed the IND.
In January 2000, we entered into a joint venture with Elan for the
development and commercialization of HERZYME, our potential product to treat
breast and other cancers. As part of the joint venture, Medizyme
Pharmaceuticals Ltd., we contributed $12.0 million in initial funding to
Medizyme in exchange for 80.1% of Medizyme's capital stock. Our capital
contribution was funded by our sale to Elan of our Series A convertible
exchangeable preferred stock for $12.0 million. The Series A preferred stock
has a dividend rate of 6.0%. At the end of the development period, expected to
be mid-2002, Elan has the right to exchange our Series A preferred stock for
30.1% of the capital stock of Medizyme owned by us or convert it prior to
January 2006 into up to approximately 1.2 million shares of our common stock.
Elan purchased 641,026 shares of our common stock for $5.0 million and
committed to purchase an additional $5.0 million of common stock in May 2001 at
a per share price representing a premium of up to 30% of the price based on the
average closing price for the 45 trading days preceding the purchase, but not
less than such 45 trading-day average. In addition, Elan received warrants to
purchase 500,000 shares of our common stock at an average exercise price of
$18.00.
Medizyme paid a license fee of $15.0 million to Elan for the use of its
MEDIPAD(R) drug delivery technology. As a result of this licensing transaction,
it is likely that Medizyme will capitalize the entire license fee and amortize
the balance over the three-year term of the agreement. We will account for our
investment in Medizyme under the equity method. We have estimated that Medizyme
will require $15.0 million in funding through the development period to cover
future operating and development costs. Elan has provided us with a $12.0
million credit facility on a draw-down basis to fund our portion of Medizyme's
operating costs over a 30-month period. Elan may convert this debt into shares
of our Series B convertible preferred stock. The Series B
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preferred stock has a dividend rate of 12.0% and may be converted at any time
into our common stock at a 50% premium to the average price of our common stock
for the 60 trading days prior to the time of the applicable draw down on the
credit facility.
We anticipate that net proceeds of this offering, together with our existing
financial resources and expected revenues from our collaborations, should be
sufficient to meet our anticipated operating and capital requirements through
2002. We expect to incur substantial additional costs, including:
. costs related to our research, drug discovery and development programs;
. preclinical studies and clinical trials of our products, if developed;
. prosecuting and enforcing patent claims;
. general administrative and legal items; and
. manufacturing and marketing of our products, if any.
At December 31, 1999, we had available net operating loss carryforwards,
research and development credit carryforwards and state investment credit
carryforwards of $83.3 million, $2.1 million and $17,000, respectively, for
income tax purposes. Our ability to utilize our 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.
Impact of Year 2000
In the prior year, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems, and we believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$60,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
research, internal systems or the products and services of third parties. We
will continue to monitor our mission critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
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BUSINESS
An overview of our company
We are developing a new class of drugs based on "ribozymes." Ribozymes are
engineered molecules that have the ability to cleave RNA, including mRNA, and
thereby selectively inhibit protein production. Because many human diseases
result from abnormal protein production or viral replication, ribozymes are
expected to be useful in developing pharmaceutical candidates for a broad range
of human diseases.
We are conducting a Phase I/II (safety and dosage) clinical trial for our
lead product candidate, ANGIOZYME, for the treatment of solid tumor cancers in
collaboration with Chiron. We expect to complete this trial before the end of
2000. Subject to FDA approval, we would expect to initiate a pivotal efficacy
trial in 2001, which is intended to be the basis for a NDA.
We have two other ribozymes in development with collaborators, an anti-HCV
ribozyme and HERZYME. We are collaborating with Eli Lilly for the development
and commercialization of an anti-HCV ribozyme, as a treatment of Hepatitis C, a
viral liver disease. Clinical trials for our anti-HCV ribozyme were initiated
in February 2000. In January 2000, we entered into a joint venture with Elan to
develop HERZYME for the treatment of breast and other cancers. We expect to
identify and begin preclinical testing on an additional product candidate by
the end of 2000 and will continue to develop new ribozyme product candidates in
the future.
We have also used ribozymes for target discovery and validation, the process
by which the life science industry identifies genes that cause or contribute to
human diseases. In 1998, we decided to focus on the therapeutic potential of
ribozymes and transferred our target discovery and validation technology to a
newly-formed German company, Atugen AG, for a significant equity position in
Atugen. Currently, we own a 48.4% interest in Atugen. Atugen is performing
target discovery and validation for AstraZeneca, Axys, Glaxo Wellcome, Roche
Bioscience and Schering AG. We have retained rights to develop ribozymes or
other oligonucleotides against any targets validated by Atugen on its own or
for its partners.
Genetic function and human disease
The abnormal production of proteins directly causes many human diseases. The
abnormality may be due to a defective gene or to the over- or under-production
of a protein by a "normal" gene. The abnormal production of proteins may have
direct effects on cells within the body or may initiate a series of events
involving other proteins within the body, thereby producing disease. The gene
functions of infectious agents, such as viruses, allow replication and growth
of infectious agents in the human body.
Production of proteins from genes, called "protein expression," generally
involves two steps. First, the information from the DNA sequence of the gene is
"transcribed" to mRNA. The second step involves "translation" of the mRNA and
its information into a protein. The process by which genetic information is
"expressed" in the form of a protein is highly selective; production of a
particular protein generally requires its own specific DNA sequence which leads
to a corresponding specific mRNA sequence. Blocking a gene's function, and
hence the production of its associated proteins, is an increasingly vital tool
in diagnosing and treating human diseases. The process of protein expression is
depicted below.
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[Figure depicting the process of protein expression appears here.]
OUR RIBOZYME TECHNOLOGY
Our approach to drug discovery and development begins by either identifying
a gene in humans causing or contributing to disease or identifying an essential
gene in a disease-causing infectious agent. We analyze the nucleotide sequence
of the target gene and create a complementary ribozyme nucleotide sequence.
A ribozyme is a sequence of nucleotides that has binding sequences along
with a catalytic core capable of cleaving a specific RNA molecule, including
mRNA. Ribozymes act as "molecular scissors" by cutting RNA molecules into two
ineffective strands, thereby preventing protein production. Each ribozyme
destroys only a specifically targeted RNA sequence, thereby minimizing the risk
of unwanted side effects. Since ribozymes can be applied to any RNA in
principle, we have the potential to develop ribozymes as an entirely new class
of therapeutic agents having broad applicability. The process by which
ribozymes cut mRNA and other RNA molecules is depicted below.
[Figure depicting the process by which ribozymes
cut mRNA and other RNA molecules appears here.]
In addition, ribozymes can be used to identify gene function and to validate
the disease contributing function of a specific gene. In this way, ribozymes
assist in the identification of new drug candidates. Our ribozyme technology is
an important bridge between the growing knowledge regarding gene sequences,
gene function and their contribution to the treatment or prevention of human
diseases.
We initially test the effectiveness of the ribozyme in cell culture or in
animal models. If the ribozyme reduces or stops production of the protein
associated with the disease, or slows the associated growth or spread of the
disease, not only has the disease contributing function of the gene been
validated, but also a drug candidate has been identified.
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Once we identify a target gene and related ribozyme, we optimize the
ribozyme's effectiveness by varying the length of the portion of the ribozyme
which binds to the RNA to maximize the ribozyme's selectivity and by modifying
the chemical structure to increase the ribozyme's stability in the human body.
To date, we have achieved a number of significant milestones important to the
development of ribozymes and related technical issues, including the following:
Design. We have developed a proprietary computer program to design ribozymes
against sites in a target RNA sequence. This program allows us to accelerate
the identification of potential ribozyme product candidates and to design
multiple back-up candidates.
Stability. To be useful as a treatment, a ribozyme must remain stable in
human serum and cells long enough to destroy the targeted RNA and ideally long
enough for each ribozyme molecule to destroy several RNA molecules. Unmodified
ribozymes are stable and fully active in human serum for only a few seconds. We
have successfully produced chemically-modified ribozymes that are stable and
fully active in human serum for more than 10 days. We believe this level of
stability will be sufficient for ribozymes to be effective drugs.
Selectivity. Based on third-party studies and our internal work, we believe
that a ribozyme with a binding region of approximately 15 nucleotides is
optimal. A binding region of this length is expected to match, on a statistical
basis, only one specific RNA sequence in the coding region of the entire human
genome. Since the ribozyme should interact only with the target RNA, it should
not affect other genes' functions and, therefore, should not have side effects
when used as a drug. The high degree of selectivity of ribozymes has been
demonstrated both by us and by third parties, including our collaborators.
Delivery. Successful development of any drug requires that the drug be
delivered to the desired site in the body. We are exploring a number of
delivery possibilities, including local and systemic delivery of chemically
synthesized ribozymes. For example, we have demonstrated systemic delivery of
chemically synthesized ribozymes without any delivery vehicle using either
intravenous or subcutaneous delivery in several animal models and in humans. We
have also shown that ribozymes can be delivered via a single subcutaneous
injection by patients at home with extended presence of the ribozymes in the
patient's blood. This method provides increased convenience to patients and
facilitates compliance with prescribed protocols.
Safety. We have completed single and multiple dose animal safety studies
with several ribozymes that have confirmed the ribozymes' lack of toxicity. For
example, ANGIOZYME has shown a lack of toxicity in rodents and monkeys. As a
result, the FDA allowed initial human clinical trials to be carried out in
healthy volunteers. A Phase Ia trial in healthy volunteers and a Phase Ib trial
in cancer patients have now been completed and ANGIOZYME has shown an excellent
safety and tolerability profile.
Effectiveness. We have demonstrated through internal research and in
conjunction with our collaborators that our ribozymes reduce the amount of
target RNA and the level of corresponding protein produced as well as inhibit
the spread of disease. Studies showing the effectiveness of ribozymes have been
conducted in multiple animal models for cancer in both models of solid tumor
growth and metastases, and in cell cultures for viral replication.
Manufacturing. To meet our needs for preclinical studies, clinical trials
and the eventual commercialization of ribozymes, we must have the ability to
manufacture a sufficient amount of ribozymes. We and our collaborators have
developed proprietary technology allowing us to synthesize up to 2000
stabilized ribozymes in hundreds of microgram quantities per month. These
quantities are sufficient to permit us to perform direct cell-based screening
of multiple potential target sites in short periods of time. We have also
developed the capability to manufacture kilogram quantities under the FDA's
current good manufacturing practices. In addition, in January 2000, we signed
an agreement with Avecia Limited providing for the transfer of our proprietary
manufacturing processes and intellectual property to enable Avecia to
manufacture ribozyme products for us. We expect to be able to produce those
drugs currently under development in sufficient quantities at commercially
feasible cost, and of the quality required by the FDA, for anticipated clinical
trials of our current product candidates.
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The potential advantages of ribozymes in treating a disease
We believe that ribozymes offer the following significant advantages over
traditional approaches to treating diseases:
Broad Applicability. Once a gene has been identified, a ribozyme can be
designed to target and destroy the associated mRNA to inhibit the related gene
function. Therefore, all diseases for which a gene can be identified as a cause
or an essential contributing factor of diseases are potentially treatable with
a ribozyme drug. In addition, identifying the essential genes of viruses and
other infectious agents that cause human disease creates the potential to
develop ribozyme products to inhibit these genes from functioning and,
consequently, prevent the targeted infectious agent from reproducing.
High Selectivity. The mechanism by which traditional drugs act on a target
gene or protein often is not well understood. Consequently, the side effects of
such drugs are difficult to predict and characterize. Side effects may be
reduced or avoided by using ribozymes designed to attach to and cut only a
specific targeted RNA, a significant advantage over traditional drug therapies.
We have observed the selectivity of ribozymes in both animal studies and human
clinical trials. Because of this selectivity, only the function of the targeted
genetic sequence is affected; other molecules and gene functions are not
altered.
Destruction of Target. Instead of temporarily preventing gene function like
traditional drugs, ribozymes destroy the target RNA and stop the associated
protein production. By contrast, most drugs do not destroy their target. This
inherent feature of ribozymes may offer a significant advantage in the
treatment of diseases caused by infectious agents such as viruses. For example,
cleavage of target viral RNA by ribozymes will inhibit the virus's ability to
propagate, which may result in significant reduction in viral load in the
patient.
Our business strategy
Our strategy is to use our unique and patented ribozyme technology to
identify and develop a new class of drugs to treat human diseases for which
there are large numbers of patients and insufficient treatments. The primary
elements of our strategy are to:
Develop Ribozyme Drugs by Pursuing Multiple Product Candidates Across a
Number of Diseases. Our strategy is to take advantage of the broad
applicability of ribozymes by expanding the number of diseases upon which we
are focused. Our first three product candidates target large and diverse
markets including solid tumor cancers, metastatic cancers and viral diseases.
We have research underway on ribozymes which address multiple other diseases
with large and unmet markets. Additionally, we expect that our relationship
with Atugen will prove an important source of new therapeutic product
candidates. Our near-term goal is to augment our existing pipeline by
introducing one new product candidate into preclinical development before the
end of 2000.
Maximize Value of New Product Candidates through Expanded Internal
Development. We have entered into and intend to continue to collaborate with
major pharmaceutical companies to develop and commercialize many of our leading
product candidates. Prior to entering into future collaboration agreements, we
intend to demonstrate our new product candidate's commercial potential through
preclinical testing or clinical trials. We believe that by extending the period
during which we maintain complete control over new product candidates, we will
be able to negotiate more favorable terms in future collaboration agreements.
We may also pursue commercialization of certain new product candidates
independently.
Focus on Human Therapeutics and License Other Applications of Our
Technology. In 1998, we decided to concentrate our research and development
efforts on the therapeutic potential of ribozymes and transferred our target
discovery and validation technology to Atugen. We expect Atugen to continue to
build the target discovery and validation business by actively pursuing new
collaborations with major pharmaceutical and biotechnology companies. We will
look for further opportunities to license our technology for certain non-
therapeutic applications, including agricultural applications, to third
parties.
Maintain and Expand Our Patent Portfolio and Proprietary Technology. We
currently own, or have exclusive licenses to over 110 issued or allowed patents
worldwide and have more than 100 patent applications pending worldwide. In
1999, we acquired certain ribozyme intellectual property from Innovir
Laboratories, Inc.
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to further strengthen our intellectual property portfolio. We dedicate
substantial resources to the discovery of new inventions to maximize the value
of our proprietary technology. We aggressively pursue patent protection to
maintain worldwide rights to control the development and sale of ribozymes.
Our product programs
The development process for our products starts with research and
preclinical development. Research includes identification of a target protein,
synthesis of an appropriate ribozyme to block expression of the target protein,
and testing the activity of the ribozyme in a specific cell population.
Preclinical testing includes pharmacology and toxicology testing in cell
cultures and animal models, product formulation, dosage studies and
manufacturing scale-up for submission of the necessary data to comply with
regulatory requirements of the FDA and similar agencies in other countries
prior to commencement of human trials.
ANGIOZYME
We are developing ANGIOZYME primarily as a treatment for solid tumor and
associated metastases in cancers such as lung, breast, prostate, colon and
rectal. These cancers account for over 650,000 new cancer cases and nearly
300,000 deaths per year in the United States alone. In addition, ANGIOZYME
could be used in products for the treatment of other diseases in which
angiogenesis is a contributor such as macular degeneration and diabetic
retinopathy.
For a cancerous tumor to grow, the body must generate new blood vessels in
the tumor to supply the blood necessary for tumor growth, a process known as
angiogenesis. In many cases, the Vascular Endothelial Growth Factor, known as
VEGF, molecule and its receptor are essential to angiogenesis. ANGIOZYME was
developed to inhibit the production of the high affinity VEGF receptor, thereby
slowing or stopping angiogenesis and related tumor growth and metastases. We
and independent third parties have conducted animal studies which have shown
dramatic reduction in tumor growth and metastases using ribozymes alone and in
conjunction with existing cytotoxic cancer therapies.
In January 1999, we completed a Phase Ia clinical trial in healthy
volunteers. This trial, conducted on 14 healthy volunteers, demonstrated safety
and tolerability and showed no drug related side effects. In 1999, we also
completed a Phase Ib clinical trial to test for safety and tolerability in 16
cancer patients with a history of solid tumors and metastases. No clinically
significant drug related side effects were seen, and the presence of ANGIOZYME
in the blood of patients in excess of amounts needed to show efficacy in
animals was observed up to 24 hours when ANGIOZYME was administered
subcutaneously.
We initiated a Phase I/II multi-dose clinical trial in cancer patients in
November 1999. This trial is examining the effects of ANGIOZYME when given
daily to cancer patients for 28 continuous days. ANGIOZYME is given via a
subcutaneous injection once a day, at home, by the patients themselves. We
expect to complete the Phase I/II trial by the end of 2000 and evaluate overall
safety, tolerability and other effects and make observations regarding disease
progression. Subject to FDA approval, we expect to initiate a pivotal efficacy
trial in 2001 which is intended to be the basis for a NDA.
We are developing ANGIOZYME in collaboration with Chiron. While we share all
development costs and profits equally with Chiron, we have the final decision-
making authority on all development decisions and activities and we have
retained the right to manufacture ANGIOZYME. If one party discontinues funding
its share of the costs of clinical development, that party would not share
equally in the profits from product sales but would receive a royalty based on
net sales of that product. However, the non-participating party may regain its
interest in the profits of ANGIOZYME by repaying the other party one-half of
the development costs incurred solely by the other party, plus a predetermined
risk premium, at either the commencement of Phase III testing or the filing of
a NDA or Product License Application.
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ANTI-HCV RIBOZYME
Our anti-HCV ribozyme is being developed in collaboration with Eli Lilly to
treat Hepatitis C, a viral disease of the liver. There are over four million
chronically infected persons in the United States and over 170 million
worldwide. Hepatitis C infects approximately 50,000 people and has over 10,000
deaths associated with it each year in the United States. It is the most common
blood borne infection in the United States and has been identified as a "silent
epidemic" and "a daunting challenge to public health" by the United States
Congress.
Current therapies for Hepatitis C are effective in less than 50% of existing
patients and have serious side effects. Our research and preclinical testing
have indicated that the anti-HCV ribozyme selectively cuts Hepatitis C RNA in a
manner that significantly inhibits viral replication in cell culture. It is
also expected to be effective against all known Hepatitis C sub-types, which
now number over 90. Preclinical data for our anti-HCV ribozyme was published in
the February 2000 issue of Hepatology. In February 2000, clinical trials were
initiated for our anti-HCV ribozyme.
In March 1999, we entered into a collaboration with Eli Lilly pursuant to
which they were granted the exclusive worldwide right to develop and
commercialize the anti-HCV ribozyme and any other ribozyme drug for the
treatment of Hepatitis C in return for payment of all research, development and
commercialization costs of the anti-HCV ribozyme. In addition, we will be
entitled to royalties on the sale of the anti-HCV product. In 1999, Eli Lilly
paid us $9.2 million pursuant to this agreement which included a $7.5 million
equity investment and $1.7 million of research funding. Including development
milestones, which we will be entitled to receive if our product is
commercialized in the United States, Europe and Japan, we could receive
additional funding of up to $29 million. This includes approximately $2.9
million in 2000 for research in addition to a $500,000 milestone payment for
having filed the IND.
If Eli Lilly abandons or does not diligently pursue the development of the
anti-HCV ribozyme or another ribozyme drug for the treatment of Hepatitis C,
all rights to the anti-HCV ribozyme and such other ribozymes revert to us,
subject to the right of Eli Lilly to receive royalty payments, if applicable,
on the sale of products developed by us or our third-party collaborators. Eli
Lilly may terminate the collaboration at any time by giving us 90 days' notice.
HERZYME
We are developing HERZYME, a potential product to treat breast and other
cancers. More than 170,000 new breast cancer patients are diagnosed each year
in the United States. Approximately 30% of these patients overexpress the Her-2
gene indicating that regulation of the Her-2 gene could have a beneficial
impact on the disease. HERZYME specifically targets and downregulates Her-2,
and is expected to have a benign side effect profile similar to other ribozymes
in clinical development. HERZYME is currently in preclinical development.
In January 2000, we completed formation of a joint venture with Elan whereby
we have licensed HERZYME and Elan licensed its MEDIPAD(R) drug delivery
technology to the joint venture, Medizyme. The MEDIPAD(R) system is a
disposable continuous subcutaneous drug delivery system that allows a patient
to administer the drug at home over two to three days with a single MEDIPAD(R)
device, thus avoiding hospitalization, intravenous delivery and doctor visits.
Medizyme paid a license fee of $15.0 million to Elan for the use of its
MEDIPAD(R) drug delivery technology.
We contributed $12.0 million in initial funding to Medizyme in exchange for
80.1% of Medizyme's capital stock. Our capital contribution was funded by our
sale to Elan of 12,015 shares of our Series A preferred stock for
$12.0 million. The Series A preferred stock has a dividend rate of 6.0%. At the
end of the development period, expected to be mid-2002, Elan has the right to
exchange our Series A preferred stock for 30.1% of the capital stock of
Medizyme owned by us or convert it prior to January 2006 into up to
approximately 1.2 million shares of our common stock.
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Elan purchased 641,026 shares of our common stock for $5.0 million and
committed to purchase an additional $5.0 million of common stock in May 2001 at
a per share price representing a premium of up to 30% of the price based on the
average closing price for the 45 trading days preceding the purchase, but not
less than such 45 trading day average. In addition, Elan received warrants to
purchase 500,000 shares of our common stock at an average exercise price of
$18.00.
We have estimated that Medizyme will require $15.0 million in funding
through the development period to cover future operating and development costs.
Elan has provided us with a $12.0 million credit facility on a draw-down basis
for us to use, if desired, to fund our portion of Medizyme's operating costs
over a 30 month period. Elan may convert this debt into shares of our Series B
convertible preferred stock. The Series B preferred stock has a dividend rate
of 12.0% and may be converted at any time into our common stock at a 50%
premium to the average price of our common stock for the 60 trading days prior
to the time of the applicable draw down on the credit facility.
Atugen
We have also used ribozymes and other oligonucleotides for target discovery
and validation, the process by which genes that cause or contribute to human
diseases are identified. These technologies use ribozymes and other
oligonucleotides to block the function of genetic sequences. The effect of the
ribozyme or other oligonucleotides in cell cultures or animal models is then
analyzed to determine whether the protein associated with the disease or the
disease itself is reduced or eliminated. Alternatively, a genetic sequence, the
function of which is unknown, can be analyzed using ribozyme or other
oligonucleotide inhibition in a collection of cell culture assays or animal
models that represent a broad range of biological functions.
In 1998, we decided to focus on the therapeutic potential of ribozymes and
transferred our target discovery and validation technologies to Atugen in
exchange for a significant equity interest in Atugen. Financing for Atugen
consisted of a $2.0 million cash contribution by us and a venture capital
investment of $7.0 million. In addition, Atugen received commitments from the
German government for grants and loans for up to $10.0 million.
We will benefit from Atugen's activities in the future in several ways:
. we currently own 48.4% of Atugen's outstanding voting stock;
. we have the right to develop ribozymes or other oligonucleotides against
targets validated by Atugen;
. we will be paid by Atugen for ribozymes and other material manufactured
by us pursuant to our exclusive manufacturing rights;
. we will be paid by Atugen for a portion of our costs of prosecuting
patents applicable to Atugen's business;
. we will be paid by Atugen for certain administrative and other services
rendered by us to Atugen; and
. we retain the right to use the target discovery and validation technology
in non-high throughput applications for our own use and in connection
with limited research and development collaborations with third parties.
Atugen's primary goal is to accelerate discovery and validation of human
health therapeutic targets. It will provide a variety of technologies and
services to utilize information emerging from human genome sequencing efforts
to determine which genes are key factors causing human disease. The significant
technology base transferred by us to Atugen combined with the substantial
initial capitalization should allow Atugen to improve the speed and certainty
of discovering and validating new therapeutic targets both for corporate
partners and for internal use. Atugen is performing target discovery and
validation for AstraZeneca, Axys Pharmaceuticals, Glaxo Wellcome, Millennium
Pharmaceuticals, Roche Bioscience and Schering AG.
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We have the right to name two designees to Atugen's Board of Directors,
including the Chairman of the Board, as long as we own 30% of Atugen's
outstanding stock. Nonetheless, most corporate actions taken by Atugen require
a 75% vote or consent of the holders of Atugen's outstanding stock. Atugen
currently has approximately 40 employees.
As part of the formation, Atugen received exclusive royalty-free licenses to
our extensive patents and technologies for target discovery and validation. We
received a one-time $2.0 million license payment in 1999 for a portion of the
licensed technology. The initial technology base includes our entire gene
function identification and target validation technologies for both chemically
synthesized and expressed nucleic acids, including target site selection, cell
culture assays, RNA and other assays, optimized delivery vehicles and animal
pharmacology.
Our competition
We are engaged in the rapidly changing business of developing treatments for
human disease through gene modulation. Competition among entities attempting to
develop gene modulation products for disease treatment is intense and is
expected to increase. We face direct 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. In addition, we compete with large pharmaceutical companies
and established biotechnology firms, many of whom are developing new products
for the treatment of the same diseases targeted by us. 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, preclinical studies and clinical
trials, obtaining regulatory approvals and marketing than we do. Our
collaborators and licensees may be conducting research and development programs
using non-ribozyme technologies directed at the same diseases that we are
targeting. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
biotechnology companies. In addition, our competitors may complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before us, thus achieving 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 us in recruiting and
retaining highly qualified scientific and management personnel.
Our patents and proprietary technology
Protecting patents and other proprietary rights is crucial to developing our
business. In addition to patents, we rely upon trade secrets, know-how and
continuing technological innovations in the design, synthesis, and purification
of ribozymes and in nucleic acid chemistry. We also rely on licensing
opportunities to develop and maintain our competitive position. It is our
policy to file patent applications when appropriate to protect technology,
inventions, and improvements that are considered important in the development
of our business.
At the core of our technology are inventions and patents of the University
of Colorado developed by Dr. Thomas R. Cech and various of his associates.
Pursuant to the University's policies, these inventions and the related patents
became the property of the University. The Cech technology was assigned to the
University's affiliate, University Research Corporation, or URC, which in turn
assigned the rights to license parts of the Cech technology to Competitive
Technologies, Inc. United States Biochemical Corporation, or USB, licensed the
Cech technology pursuant to two sublicenses. We have entered into a license
with URC and sublicenses with USB and Competitive Technologies pursuant to
which we have obtained the exclusive (except for non-commercial academic
research) worldwide right to the Cech technology to, among other things, make,
use and sell ribozymes and ribozyme products covered by the licensed patents.
The URC license and USB sublicense are fully paid. The Competitive Technologies
license provides for the payment of a royalty on sales
31
<PAGE>
of ribozyme products covered by the licensed patents. We may grant sublicenses
to the licensed technology subject to the payment to Competitive Technologies
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, we must pay Competitive Technologies a share of
any option fee, license fee, prepaid royalty or other "front-end" fee other
than equity or research and development funding paid in connection with such
sublicense.
In August 1999, we acquired all of the non-external guide sequence ribozyme-
based intellectual property assets of Innovir Laboratories, a subsidiary of
NEXELL Therapeutics, Inc. The acquisition included 28 patents and patent
applications plus two trademarks. The intellectual property included ribozyme
motifs, uses of oligonucleotides for therapeutics, target validation and
diagnostics, chemical modifications of oligonucleotides and oligonucleotide
delivery, detection, manufacturing and purification. We acquired these assets
from Innovir in exchange for our common stock, warrants for our common stock
and a small amount of cash.
As part of our overall intellectual property strategy, we selectively enter
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.
As a result of these licenses and sublicenses, and our own internal
research, we currently have certain rights to more than 110 issued or allowed
patents, and more than 100 patent applications under consideration worldwide.
This includes exclusive worldwide rights to 89 patents issued in the United
States, 4 patents issued in Europe, 1 patent issued in Japan and 14 patents
issued in Australia. In addition, Notices of Allowance have been received for
at least 9 patents from the United States Patent and Trademark Office. Six of
the 89 United States issued patents, 1 European patent and 1 Japanese patent
cover enzymatic RNA and the use of an enzymatic RNA to cleave a single stranded
RNA (collectively the "Cech Patents"). We believe that the Cech Patents grant
us the right to exclude others from practicing ribozyme technology as it is
currently known to us 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 Cech 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. None of our other material patents expire before 2013.
In addition, we have filed or hold exclusive licenses to more than 100
pending United States and related foreign applications. Our patent portfolio
includes approximately 40 United States applications for various areas of
interest in human therapeutics and diagnostics and agricultural uses. The
portfolio also includes approximately 80 United States applications related to
the chemistry, design, optimization, manufacture and delivery of ribozyme
products. These patents collectively extend our ribozyme patent coverage well
beyond the life of the Cech Patents.
We have filed opposition documents against two patents granted to a
competitor in Europe. In one of the opposition proceedings in Europe, we were
successful in invalidating various claims relating to the hammerhead ribozyme
composition. The European patent office found that the claims of the granted
patent drawn to the so-called Non-GUX (where X is U, A, C or G) ribozymes were
not patentable. We do not believe this European-granted patent covers those
ribozymes that we have in clinical trials. Opposition proceedings against two
of our European and Japanese patents have been initiated by our competitors.
The Japanese Opposition Division has rejected competitor oppositions and has
issued a notification that it will maintain our Japanese patent without change.
The opposition proceedings against our European patent are still ongoing. In
addition, we anticipate interference proceedings against some of our patents
and patent applications in the United States.
32
<PAGE>
Government regulation of our drug development activities
The development, manufacture and potential sale of therapeutics is subject
to extensive regulation by United States and foreign governmental authorities.
In particular, pharmaceutical products undergo rigorous preclinical and
clinical testing and other approval requirements by the FDA in the United
States under the federal Food, Drug and Cosmetic Act and the Public Health
Service Act and by comparable agencies in most foreign countries.
Before testing agents with potential therapeutic value in healthy human test
subjects or patients may begin, stringent government requirements for
preclinical data must be satisfied. The data, obtained from studies in several
animal species, as well as from laboratory studies, are submitted in an IND
application or its equivalent in countries outside the United States where
clinical studies are to be conducted. Preclinical data must provide an adequate
basis for evaluating both the safety and the scientific rationale for the
initiation of clinical trials.
Clinical trials are typically conducted in three sequential phases, although
these phases may overlap. In Phase I, which frequently begins with initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse affects, dosage,
tolerance, absorption, metabolism, excretion and clinical pharmacology. Phase
II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the compound for a specific indication to
determine dose tolerance and the optimal dose range as well as to gather
additional information relating to safety and potential adverse effects. Phase
III trials are undertaken to further evaluate clinical safety and efficacy in
an expanded patient population at geographically dispersed study sites to
determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards 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.
Data from preclinical and clinical trials are submitted to the FDA as an NDA
for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug is likely to take a number of years and requires the expenditure of
substantial resources. Preparing an NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense.
There can be no assurance that FDA or any other health authority approval will
be granted on a timely basis, if at all. The approval process is affected by a
number of factors, primarily the risks and benefits demonstrated in clinical
trials as well as the severity of the disease and the availability of
alternative treatments. The FDA or other health authorities may deny an NDA or
marketing authorization application if the authority's regulatory criteria are
not satisfied or may require additional testing or information.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide additional data on safety and will be required to gain approval for the
use of a product as a treatment for clinical indications other than those for
which the product was initially tested. Also, the FDA or other regulatory
authorities may require post-marketing reporting to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the drug,
including changes in indication, manufacturing process or labeling or a change
in manufacturing facility, an application seeking approval of such changes will
be required to be submitted to the FDA or other regulatory authority.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to
commencing commercial sales of the product in such countries. The requirements
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country at
this time has its own procedures and requirements. Further, the FDA regulates
the export of products produced in the United States and may prohibit the
export of such products even if they are approved for sale in other countries.
33
<PAGE>
We are also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resources Conservation and Recovery Act and other present and potential future
federal, state and local regulations.
Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and a lengthy period of
time. Delay or failure in obtaining the required approvals, clearances or
permits by us, our corporate partners or our licensees would have a material
adverse affect on our ability to generate sales or royalty revenue. The impact
of new or changed laws or regulations cannot be predicted with any accuracy.
Our manufacturing and marketing strategies
To support our preclinical and clinical trial manufacturing requirements, we
constructed manufacturing facilities that we believe comply with applicable
regulatory requirements. We have also established operational quality assurance
and quality control procedures. We believe that our existing facilities and
those available from contract manufacturers will be satisfactory for production
of ribozymes needed through clinical trials for our products currently in
development.
We do not currently have the internal facilities or means to manufacture,
market, distribute or sell on a commercial scale any of products we may
develop. We have expanded our quality control and quality assurance program
internally, including adopting a set of standard operating procedures designed
to assure that any products manufactured by or for us are made in accordance
with cGMP and other applicable domestic and foreign regulations. In addition,
we signed an agreement with Avecia in January 2000 providing for the transfer
of our proprietary manufacturing processes and intellectual property to enable
Avecia to manufacture ribozyme products. Pursuant to this agreement, we must
purchase minimum quantities of ribozymes over the next three years.
We expect to market and sell most products developed, at least initially,
directly and through co-promotion or other licensing arrangements with third
parties, including our collaborators. In some markets, we may enter into
distribution or partnership agreements with pharmaceutical or biotechnology
companies that have large, established sales organizations.
Our employees
As of December 31, 1999, we had 84 full-time employees, including a
technical scientific staff of 61. Our future performance depends significantly
on the continued service of our key personnel. None of our employees are
covered by collective bargaining arrangements. We believe our employee
relations are good.
Legal proceedings
We, along with our chief executive officer, are defendants in several
related lawsuits which purport to be class actions on behalf of purchasers of
common stock of the Company on November 16 and 17, 1999. The lawsuits, which
are substantially identical, allege the defendants violated certain federal
securities laws based upon an allegedly misleading announcement made on
November 15, 1999. The cases have been consolidated in the United States
District Court, District of Colorado. No discovery has occurred, and only
limited discovery is expected to occur pending ruling on preliminary motions.
Based on current information, we believe the suits are without merit. We intend
to defend ourselves and our chief executive officer vigorously.
Properties
We lease approximately 30,000 square feet of laboratory, manufacturing and
office space at 2950 Wilderness Place, Boulder, Colorado, under an operating
lease that lasts through June 2007. We intend to lease approximately 2,000
square feet of additional office space during 2000. With this addition, our
facility will be sufficient to meet our needs at least through 2001.
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<PAGE>
Our Scientific Advisory Board
We are assisted in our research and development activities by our
Scientific Advisory Board composed of leading scientists to review our
research and development activities and to discuss technological advances and
our business. Our current Scientific Advisory Board members are:
Gerald Joyce, M.D., Ph.D. Professor, Department of Molecular Biology,
Scripps Research Institute
Edward Mocarski, Ph.D. Professor and Chairman, Departments of Microbiology
& Immunology, Stanford University
Bruce Sullenger, Ph.D. Vice Chairman, Department of Surgery, Duke
University Medical Center
Olke C. Uhlenbeck, Ph.D. Professor, Department of Chemistry and
Biochemistry, University of
Colorado
Each member has entered into an exclusive consulting agreement with
Ribozyme Pharmaceuticals in the field of ribozymes and signed confidentiality
and non-disclosure agreements.
We also have collaborative relationships with several board members that
further advance our product development.
35
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of Ribozyme
Pharmaceuticals are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chief Executive Officer, President
Ralph E. Christoffersen, Ph.D. (1).. 62 and Director
Lawrence E. Bullock................. 44 Vice President of Administration and
Finance, Chief
Financial Officer and Secretary
Vice President of Clinical and
J. Wayne Cowens, M.D................ 51 Regulatory Affairs
Vice President of Corporate
Alene A. Holzman.................... 43 Development
Nassim Usman, Ph.D.................. 40 Senior Vice President of Research
David T. Morgenthaler (1) (2)....... 80 Chairman of the Board
Jeremy L. Curnock Cook (1) (3)...... 50 Director
Anthony B. Evnin, Ph.D. (1) (2)..... 59 Director
David Ichikawa (3).................. 47 Director
Anders P. Wiklund (2) (3)........... 59 Director
</TABLE>
- --------
(1)Member of the Executive Committee.
(2)Member of the Compensation Committee.
(3)Member of the Audit Committee.
Ralph E. Christoffersen, Ph.D., has served as Chief Executive Officer,
President and Director of Ribozyme Pharmaceuticals since June 1992. From 1989
to June 1992, Dr. Christoffersen was Senior Vice President and Director of U.S.
Research at SmithKline Beecham Pharmaceuticals, a pharmaceutical company. From
1983 to 1989, he held senior management positions in research at The Upjohn
Company, a pharmaceutical company. 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. From
December 1990 to January 1996, Mr. Bullock was Chief Financial Officer,
Director of Finance and Administration and Secretary of La Jolla Pharmaceutical
Company, a biopharmaceutical company. Mr. Bullock received his M.B.A. from the
University of Utah.
J. Wayne Cowens, M.D., has served as Vice President of Clinical and
Regulatory Affairs since July 1999. From 1992 until July 1999, Dr. Cowens
served as Division Vice President of Product Development for Chiron
Corporation, a biotechnology company. During that time he served as Chiron's
commercial representative on the Ribozyme Pharmaceuticals/Chiron joint project
team for the development of ANGIOZYME. From 1990 until 1992, Dr. Cowens served
as Director of Clinical Oncology at Sterling-Winthrop, a pharmaceutical
company, and from 1980 until 1990 as a Cancer Research Clinician in the Grace
Cancer Drug Center at the Roswell Park Cancer Center. Dr. Cowens received his
M.D. degree from The Johns Hopkins University.
Alene A. Holzman has served as Vice President of Corporate Development since
December 1999. Ms. Holzman served as Business Development and General Manager
of Target Validation and Discovery Business from April 1997 to December 1999.
From January 1990 to March 1997, Ms. Holzman was Vice President of ChemTrak
Corporation, a medical technology firm, 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, a
biotechnology firm. Ms. Holzman received her M.B.A. from the University of
California at Berkeley.
36
<PAGE>
Nassim Usman, Ph.D., has served as Senior Vice President of Research since
December 1999. From May 1996 to December 1999, Dr. Usman served as Vice
President of Research at Ribozyme Pharmaceuticals. From April 1994 until May
1996, Dr. Usman served as Director of Chemistry and Biochemistry Research and
from September 1992 until April 1994 Dr. Usman served as Senior Scientist in
Chemistry and Biochemistry. From January 1987 to September 1992, Dr. Usman was
a Postdoctoral Fellow and Scientist in the Departments of Biology and Chemistry
at the Massachusetts Institute of Technology. Dr. Usman received his Ph.D. in
Chemistry from McGill University.
David T. Morgenthaler has served as a director 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 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 since July 1995. Mr. Cook is
a director of Rothschild Asset Management, an investment fund, 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 the International Biotechnology Trust plc, Creative BioMolecules
Inc., Targeted Genetics Inc., Cantab Pharmaceuticals plc, Cell Therapeutics,
Inc., Amrad Corporation, Vanguard Medica plc, Angiotech Pharmaceuticals, Inc.,
Inflazyme Pharmaceuticals, Inc. and Biocompatibles International plc. Mr. Cook
received an M.A. in Natural Sciences from Trinity College Dublin.
Anthony B. Evnin, Ph.D., has served as a director 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 Caliper Technologies Corp.
and Triangle Pharmaceuticals, Incorporated. Dr. Evnin received his Ph.D. from
the Massachusetts Institute of Technology.
David Ichikawa has served as a director since May 1998. Mr. Ichikawa has
been employed by Chiron Corporation, a biotechnology company, since September
1994 and is currently Vice President of Finance and Operations. He has also
held management positions at Boehringer Mannhiem Corporation and Chiron (Cetus)
Corporation. Mr. Ichikawa received his M.B.A. from the University of California
at Berkeley.
Anders P. Wiklund has served as a director since August 1994. Since January
1997, Mr. Wiklund has been the principal of Wiklund International, an advisory
firm to the biotechnology and pharmaceutical industries. 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. and InSite Vision, Inc., as well as serving on
private company boards. Mr. Wiklund received a Master of Pharmacy degree from
the Pharmaceutical Institute in Stockholm.
37
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table summarizes information regarding the beneficial
ownership of our outstanding securities as of March 1, 2000 by:
. each person or group that we know owns more than 5% of the outstanding
shares of common stock,
. each of our directors;
. each of our executive officers;
. all of our directors and executive officers as a group; and
. each selling stockholder.
<TABLE>
<CAPTION>
Percent of
Common Stock(1)
Amount and -----------------
Nature of Beneficial Before After
Name and Address Ownership(1) Offering Offering
---------------- -------------------- -------- --------
<S> <C> <C> <C>
Elan International Services, Ltd....... 2,142,276(2) 15.9% 13.0%
Chiron Corporation..................... 1,063,868(3) 8.6% 6.9%
Jeremy L. Curnock Cook................. 1,022,633(4) 8.6% 6.8%
International Biotechnology Trust plc.. 1,012,633(5) 8.5% 6.8%
Schering Berlin Venture Corporation.... 816,481(6) 6.8% 5.5%
Anthony B. Evnin, Ph.D................. 325,773(7) 2.7% 2.2%
Ralph E. Christoffersen, Ph.D.......... 209,867(8) 1.7% 1.4%
David T. Morgenthaler.................. 95,563(9) * *
Nassim Usman, Ph.D..................... 64,186(10) * *
Lawrence E. Bullock.................... 63,455(11) * *
Alene Holzman.......................... 39,778(12) * *
Anders P. Wiklund...................... 14,444(13) * *
J. Wayne Cowens........................ 10,000(14) * *
David Ichikawa......................... 5,000(15) * *
Executive officers and directors as a
group (10 persons).................... 1,850,699(16) 15.1% 12.1%
</TABLE>
- --------
*Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the SEC and
includes shares over which the indicated beneficial owner exercises voting
and/or investment power. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
the options but are not deemed outstanding for computing the percentage
ownership of any other person. Except as otherwise indicated in the
footnotes to this table, we believe that each stockholder identified in
the table has sole voting and investment power with respect to all shares
listed opposite their names. Unless otherwise indicated, the officers,
directors and stockholders can be reached at the principal offices of
Ribozyme Pharmaceuticals.
(2) Includes 1,001,250 shares convertible from our Series A preferred stock
assuming a conversion price of $12.00 per share and 500,000 shares
issuable upon exercise of warrants. Additionally, Elan has the right to
designate a director to our board. Elan's offices are located at 102 St.
James Court, Flatts, Smiths Parish, FL 04, Bermuda.
(3) Includes 444,444 shares issuable upon exercise of warrants. Chiron's
offices are located at 4560 Horton Street, Emeryville, California 94608.
(4) Includes options to purchase 10,000 shares and 1,012,633 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 these shares.
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<PAGE>
(5) International Biotechnology Trust plc's offices are located c/o Rothschild
Asset Management, Ltd. at Five Arrows House, St. Swithin's Lane, London EC
4N 8NR England.
(6) Includes 138,598 shares convertible from outstanding debt assuming a
conversion price of $49.75 per share. Schering AG's offices are located at
3400 Change Bridge Road, Monteville, New Jersey 07045.
(7) Includes options to purchase 10,000 shares, 218,022 shares held by Venrock
Associates and 97,751 shares held by Venrock Associates II, L.P. Mr. Evnin
is a general partner of both partnerships and disclaims beneficial
ownership of these shares except to the extent of his general partnership
interests.
(8) Includes options to purchase 119,583 shares.
(9) Includes options to purchase 10,000 shares, 75,563 shares held by
Morgenthaler Management Partners III and 10,000 shares held by
Morgenthaler Family Partnership. Mr. Morgenthaler is a general partner of
both partnerships and disclaims beneficial ownership of these shares
except to the extent of his general partnership interests.
(10) Includes options to purchase 62,158 shares.
(11) Includes options to purchase 47,394 shares.
(12) Includes options to purchase 33,000 shares.
(13) Includes options to purchase 14,444 shares.
(14) Includes options to purchase 10,000 shares.
(15) Excludes 1,063,868 shares held by Chiron. Mr. Ichikawa is employed by
Chiron and disclaims beneficial ownership of those shares. Includes
options to purchase 5,000 shares.
(16) Includes options to purchase 321,579 shares.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, who are represented by ING Barings LLC and Chase
Securities Inc., have severally agreed to purchase from us the following
respective number of shares of common stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
ING Barings LLC.................................................
Chase Securities Inc............................................
---------
Total......................................................... 3,150,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all shares of the common stock offered hereby if any of such shares
are purchased.
We have been advised by the underwriters that the underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the public offering price and
other selling terms may be changed by the underwriters.
The following table shows the fees to be paid to the underwriters by us and,
if the over-allotment option is exercised, the selling stockholders in
connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock:
<TABLE>
<CAPTION>
Per No Full
Share Exercise Exercise
----- -------- --------
<S> <C> <C> <C>
Payable by Ribozyme Pharmaceuticals............... $ $ $
Payable by the selling stockholders............... $ $ $
</TABLE>
Other expenses of this offering (including the registration fees and the
fees of financial printers, counsel and accountants) to be paid by us are
expected to be approximately $617,000.
The selling stockholders have granted the several underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to 472,500 additional shares of common stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus. To the extent that the underwriters exercise such
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of the additional shares that the number of
shares of common stock to be purchased by it shown in the table above bears to
3,150,000. To the extent the underwriters exercise such option, the selling
stockholders will be obligated, pursuant to the option, to sell the additional
shares to the underwriters. The underwriters may exercise such option only to
cover over-allotments, if any, made in connection with the sale of the common
stock offered hereby. If purchased, the underwriters will offer such additional
shares on the same terms as those on which the 3,150,000 shares of common stock
are being offered.
In connection with this offering, certain underwriters may engage in passive
market making transactions in the common stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during
a specified period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the
40
<PAGE>
common stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
Subject to applicable limitations, the underwriters, in connection with this
offering, may place bids for or make purchases of the common stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the common
stock, which may be higher than the price that might otherwise prevail in the
open market. We cannot assure you that the price of the common stock will be
stabilized, or that stabilizing, if commenced, will not be discontinued at any
time. Subject to applicable limitations, the underwriters may also place bids,
or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with this offering. The underwriters are not
required to engage in these activities and may end these activities at any
time.
The shares of common stock offered hereby may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about, and to observe, any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock offered hereby in any jurisdiction in
which such an offer or solicitation is unlawful.
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended.
We and each of our directors and executive officers and certain of our
security holders, who in the aggregate will beneficially own, following this
offering (assuming no exercise of the underwriters' over-allotment option),
3,289,570 shares of common stock, preferred shares convertible into 1,001,250
shares of common stock, and options or warrants to purchase 766,023 shares of
common stock exercisable within 60 days of March 1, 2000, have agreed that they
will not directly or indirectly, without the prior written consent of ING
Barings LLC, offer, sell, offer to sell, contract to sell, or otherwise dispose
of any shares of common stock or securities exchangeable for or convertible
into common stock for a period of 90 days after the date of this prospectus,
except that we may issue, and grant options to purchase, shares of common stock
under our current stock option and purchase plans and other currently
outstanding options and warrants.
Affiliates of Chase Securities Inc. own 16,666 warrants to purchase our
common stock at an exercise price of $9.00.
41
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Ribozyme Pharmaceuticals by Rothgerber Johnson & Lyons, LLP,
Denver, Colorado. Legal matters in connection with this offering will be passed
upon for the underwriters by Stroock & Stroock & Lavan LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC. Certain information in the registration statement has been
omitted from this prospectus in accordance with the rules of the SEC. We file
proxy statements and annual, quarterly and special reports and other
information with the SEC. You can inspect and copy the registration statement
as well as the reports, proxy statements and other information we have filed
with the SEC at the public reference room maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330
for further information about the public reference rooms. We are also required
to file electronic versions of these documents with the SEC, which may be
accessed from the SEC's World Wide Web site at http://www.sec.gov. Reports,
proxy and information statements and other information concerning Ribozyme
Pharmaceuticals, Inc. may be inspected at The Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006.
The SEC requires us to "incorporate by reference" certain of our publicly-
filed documents into this prospectus, which means that information included in
those documents is considered part of this prospectus. Information that we file
with the SEC after the effective date of this prospectus will automatically
update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act until we terminate the
effectiveness of this registration statement.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1999.
2. Our Form 8-K dated February 8, 2000.
3. The description of our common stock in our Registration Statement on
Form 8-A dated April 11, 1996, including any amendments or reports filed
for the purpose of updating such description.
4. All of the filings pursuant to the Exchange Act after the date of filing
the original Registration Statement and prior to the effectiveness of
the Registration Statement.
We will furnish without charge to you, on written or oral request, a copy of
any or all of the documents incorporated by reference, other than exhibits to
those documents. You should direct any requests for documents to the following
address: Ribozyme Pharmaceuticals, 2950 Wilderness Place, Boulder, CO 80301
Attention: Lawrence E. Bullock, Vice President of Administration & Finance, CFO
and Secretary.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Ribozyme Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Ribozyme Pharmaceuticals,
Inc., as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity, and cashflows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Denver, Colorado
February 9, 2000
F-2
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31 December 31
-------------------------- ------------------
1998 1999 1999
------------ ------------ -------------
(see Note 14)
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 6,511,512 $ 9,749,822
Securities available-for-
sale......................... -- 4,250,259
Accounts receivable........... 1,163,388 1,545,164
Accounts receivable--related
parties...................... 2,735,193 484,729
Notes receivable--related
parties...................... 118,466 138,903
Prepaid expenses and other.... 84,766 117,668
------------ ------------
Total current assets........ 10,613,325 16,286,545
Property, plant, and
equipment:
Machinery and equipment....... 6,478,223 7,330,368
Leasehold improvements........ 3,582,664 3,763,515
Office furniture and
equipment.................... 1,065,049 1,157,907
------------ ------------
11,125,936 12,251,790
Accumulated depreciation...... (6,903,742) (8,447,884)
------------ ------------
4,222,194 3,803,906
Notes receivable--related
parties...................... 162,466 313,750
Deferred patent costs, net of
accumulated amortization
(1998--$271,328; 1999--
$379,588).................... 2,905,575 4,231,307
Investment in Atugen AG....... 860,216 --
Other assets.................. 460,515 456,591
------------ ------------
Total assets................ $ 19,224,291 $ 25,092,099
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable--trade....... $ 750,514 $ 974,309
Accrued liabilities........... 396,143 626,153
Deferred revenue, current
portion--related parties..... 400,000 400,000
Current portion of long-term
debt......................... 498,179 200,455
------------ ------------
Total current liabilities... 2,044,836 2,200,917
Deferred revenue, long-term
portion--related parties..... 1,600,000 1,200,001
Long-term debt................ 200,455 --
Convertible debt--related
parties...................... 4,344,612 6,810,537
Commitments
Stockholders' equity:
Preferred stock, $.01 par
value; 5,000,000 shares
authorized;
Series A convertible
exchangeable, no shares
issued and outstanding at
December 31, 1999, 12,015
shares outstanding pro
forma (preference in
liquidation of $12,015,000)
........................... -- -- $120
Series L convertible, 5
shares issued and
outstanding at December 31,
1999 and proforma,
(preference in liquidation
of $7,500,000)............. -- --
Common stock, $.01 par
value; 20,000,000 shares
authorized; 9,181,455,
11,263,252 and 11,904,278
shares issued and
outstanding at December 31,
1998 and 1999, and
proforma, respectively...... 91,815 112,633 119,043
Additional paid-in capital.... 84,434,213 98,894,100 115,902,570
Accumulated deficit........... (73,422,491) (84,083,072) (84,083,072)
Unrealized loss on securities
available-for-sale........... -- (2,399) (2,399)
Deferred compensation......... (69,149) (40,618) (40,618)
------------ ------------ ------------
Total stockholders' equity.. 11,034,388 14,880,644 $ 31,895,644
------------ ------------ ============
Total liabilities and
stockholders' equity........ $ 19,224,291 $ 25,092,099
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Collaborative agreements........... $ 1,976,500 $ 8,962,813 $ 5,797,456
Collaborative agreements-related
parties........................... -- -- 1,866,942
Grant and other income............. 6,642 25,045 --
------------ ------------ ------------
Total revenues................... 1,983,14 8,987,858 7,664,398
Expenses:
Research and development........... 15,169,731 16,941,652 15,394,602
General and administrative......... 1,886,108 1,812,860 2,132,252
------------ ------------ ------------
Total expenses................... 17,055,839 18,754,512 17,526,854
Operating loss....................... (15,072,697) (9,766,654) (9,862,456)
Other income (expense):
Interest income.................... 794,968 634,569 614,045
Interest expense................... (844,365) (703,711) (551,954)
Equity in loss of unconsolidated
affiliate......................... -- (1,081,771) (860,216)
------------ ------------ ------------
Total other expense.............. (49,397) (1,150,913) (798,125)
------------ ------------ ------------
Net loss............................. $(15,122,094) $(10,917,567) $(10,660,581)
============ ============ ============
Net loss per share (basic and
diluted)............................ $ (2.04) $ (1.22) $ (1.05)
Shares used in computing net loss per
share............................... 7,419,650 8,978,355 10,158,244
</TABLE>
See accompanying notes.
F-4
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional Unrealized
-------------------- ------------- Paid-In Accumulated Loss on Deferred
Shares Amount Shares Amount Capital Deficit Securities Compensation Total
---------- -------- ------ ------ ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996.... 6,948,304 $ 69,483 -- -- $67,873,284 $(47,382,830) $(9,214) $(188,902) $20,361,821
Issuance of common
stock for cash--
public offering, net
of issuance costs of
$634,796............. 1,400,000 14,000 -- -- 10,551,204 -- -- -- 10,565,204
Issuance of common
stock for cash....... 212,766 2,128 -- -- 2,497,872 -- -- -- 2,500,000
Issuance of common
stock for cash under
stock option plan.... 30,001 300 -- -- 51,404 -- -- -- 51,704
Issuance of common
stock under employee
stock purchase plan.. 29,875 298 -- -- 310,303 -- -- -- 310,601
Issuance of common
stock under 401(k)
plan-stock match .... 19,409 194 -- -- 155,078 -- -- -- 155,272
Cancellation of common
stock relating to
license agreement ... (33,333) (333) -- -- 333 -- -- -- --
Compensation for
issuance of common
stock and options ... -- -- -- -- (15,137) -- -- 58,590 43,453
Net loss.............. -- -- -- -- -- (15,122,094) -- -- (15,122,094)
Change in unrealized
loss on securities
available-for-sale... -- -- -- -- -- -- 4,150 -- 4,150
-----------
Comprehensive
income/(loss)........ (15,117,944)
---------- -------- --- ---- ----------- ------------ ------- --------- -----------
Balance at
December 31, 1997.... 8,607,022 86,070 -- -- 81,424,341 (62,504,924) (5,064) (130,312) 18,870,111
Issuance of common
stock for cash....... 465,117 4,651 -- -- 2,495,349 -- -- -- 2,500,000
Issuance of common
stock for cash--under
stock option plan.... 21,689 217 -- -- 45,545 -- -- -- 45,762
Issuance of common
stock under employee
stock purchase plan.. 54,115 542 -- -- 307,608 -- -- -- 308,150
Issuance of common
stock under 401(k)
plan-stock match..... 33,512 335 -- -- 190,371 -- -- -- 190,706
Compensation for
issuance of common
stock and options ... -- -- -- -- (29,001) -- -- 61,163 32,162
Net loss.............. -- -- -- -- -- (10,917,567) -- -- (10,917,567)
Change in unrealized
loss on securities
available-for-sale... -- -- -- -- -- -- 5,064 -- 5,064
-----------
Comprehensive
income/(loss)........ (10,912,503)
---------- -------- --- ---- ----------- ------------ ------- --------- -----------
Balance at
December 31, 1998.... 9,181,455 91,815 -- -- 84,434,213 (73,422,491) -- (69,149) 11,034,388
Issuance of common
stock for cash--
public offering, net
of issuance costs of
$976,588............. 1,800,000 18,000 -- -- 5,305,412 -- -- -- 5,323,412
Issuance of preferred
stock for cash....... -- -- 5 -- 7,500,000 -- -- -- 7,500,000
Issuance of common
stock and warrants in
exchange for
patents.............. 160,000 1,600 -- -- 1,039,140 -- -- -- 1,040,740
Issuance of common
stock for cash under
stock option plan ... 40,270 403 -- -- 128,256 -- -- -- 128,659
Issuance of common
stock under employee
stock purchase plan.. 64,407 644 -- -- 294,159 -- -- -- 294,803
Issuance of common
stock under 401(k)
plan-stock match..... 17,120 171 -- -- 153,566 -- -- -- 153,737
Expense for repricing
warrants............. -- -- -- -- 42,222 -- -- -- 42,222
Compensation for
issuance of common
stock and options.... -- -- -- -- (2,868) -- -- 28,531 25,663
Net loss.............. -- -- -- -- -- (10,660,581) -- -- (10,660,581)
Change in unrealized
loss on securities
available-for-sale... -- -- -- -- -- -- (2,399) -- (2,399)
-----------
Comprehensive
income/(loss)........ (10,662,980)
---------- -------- --- ---- ----------- ------------ ------- --------- -----------
Balance at December
31, 1999............. 11,263,252 $112,633 5 $-- $98,894,100 $(84,083,072) $(2,399) $ (40,618) $14,880,644
========== ======== === ==== =========== ============ ======= ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net loss............................. $(15,122,094) $(10,917,567) $(10,660,581)
Adjustments to reconcile net loss to
net cash used by
operating activities:
Depreciation....................... 1,665,044 1,670,825 1,544,142
Amortization....................... 74,051 92,107 108,230
Equity in loss of unconsolidated
affiliate......................... -- 1,081,771 860,216
Write-off of deferred patent
costs............................. 93,557 11,836 50,232
Compensation related to common
stock and options 280,177 278,150 223,337
Compensation related to issuance of
affiliate's stock -- 81,000 --
Compensation for forgiveness of
notes receivable--related parties 92,466 126,466 102,466
Expense related to warrant
repricing......................... -- -- 42,222
Gain on sale of investment in
corporate partner................. -- (25,045) --
Loss (gain) on disposal of
equipment......................... (1,126) 541 --
Accrued interest included in
convertible debt-related parties.. 52,889 291,723 465,925
Recognition of deferred revenue-
related parties................... -- -- (399,999)
Changes in operating assets and
liabilities:
Accounts receivable.............. 65,978 (3,890,537) 1,868,688
Prepaid expenses and other....... 38,168 90,783 (32,902)
Other assets..................... (277,807) (18,087) 3,924
Accounts payable--trade.......... 351,777 (154,167) 223,795
Accrued liabilities.............. 29,340 150,186 230,010
Deferred revenue--related
parties......................... -- 2,000,000 --
Deferred gain.................... (5,515) -- --
------------ ------------ ------------
Net cash used by operating
activities.......................... (12,663,095) (9,130,015) (5,370,295)
Investing activities
Additions to property, plant, and
equipment........................... (2,213,311) (936,395) (1,125,854)
Additions to deferred patent costs... (660,581) (506,994) (415,254)
Purchase of Innovir patents.......... -- -- (28,200)
Sale of investment in corporate
partner............................. -- 275,045 --
Proceeds from sale of equipment...... 2,600 -- --
Net (purchases) sales of securities
available-for-sale.................. 3,748,005 804,680 (4,252,657)
Investment in unconsolidated
affiliate........................... -- (2,022,987) --
Transfer of restricted cash.......... 242,733 52,669 --
Loan repayments--related parties..... 3,000 1,875 33,000
Loan advances--related parties....... (175,000) (50,000) (307,187)
------------ ------------ ------------
Net cash (used) provided by investing
activities.......................... 947,446 (2,382,107) (6,096,152)
Financing activities
Net proceeds from sale of shares of
common stock and warrants........... 13,346,056 2,798,630 13,202,936
Payments under loan facilities....... (1,480,677) (2,077,771) (498,179)
Borrowings under loan facilities..... 2,254,460 2,000,000 2,000,000
Payments on capital lease
obligations......................... (152,093) -- --
------------ ------------ ------------
Net cash provided by financing
activities.......................... 13,967,746 2,720,859 14,704,757
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 2,252,097 (8,791,263) 3,238,310
Cash and cash equivalents at
beginning of year................... 13,050,678 15,302,775 6,511,512
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 15,302,775 $ 6,511,512 $ 9,749,822
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Summary of Significant Accounting Policies
Description of Business
Ribozyme Pharmaceuticals, Inc. (RPI or the Company) was founded in 1992 to
capitalize on the broad potential of ribozymes for use in the development of
human therapeutics and therapeutic target validation services. 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.
Capital Requirements and Management's Plans
The Company incurred a net loss of $10,660,581 for the year ended December
31, 1999 and has an accumulated deficit of $84,083,072 at December 31, 1999.
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.
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.
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.
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.
Useful lives of laboratory equipment and furniture are estimated at five years
and all computer equipment is estimated at three years. 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 term of the
lease.
F-7
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Patent Costs
The Company capitalizes legal costs directly incurred in pursuing patent
applications as deferred patent costs. When such applications result 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.
During 1999, the Company acquired certain pending and issued patents through
the issuance of common stock and warrants, valued at approximately $1.0
million. The cost of these patents has been capitalized and is being treated
consistent with the policies discussed above.
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.
Revenue Recognition and Accounts Receivable
Revenue from collaborative agreements typically consists of nonrefundable
up-front fees, ongoing research and development funding and milestone, license
fees and other payments. Revenue from nonrefundable up-front fees is recognized
upon signing of the agreement. Revenue from ongoing research and development
funding is recorded as the expenses are incurred. Revenue from milestone,
license fees and other payments will be recognized when earned. Payments
received in advance under these agreements are recorded as deferred revenue
until earned. The Company has no further research commitments from our
collaborators for any revenue recognized. The Company's accounts receivable are
predominately collaborative agreement receivables, and to date, the Company has
not experienced any losses with respect to the collection of its accounts
receivables.
In 1999 and 1998, Chiron accounted for approximately 52% and 70% of
collaborative revenues, respectively. In 1999, 1998 and 1997, Schering AG
accounted for approximately 0%, 22% and 76% of collaborative revenues,
respectively. Revenues from Schering AG and Chiron were for nonrefundable,
ongoing research and development fees.
Research and Development Expenses
Research and development costs are expensed as incurred.
Reclassifications
Certain amounts in the December 31, 1997 and 1998 financial statements were
reclassified to conform with the December 31, 1999 presentation. These
reclassifications had no impact on the reported results of operations.
2. Securities Available-for-Sale
At December 31, 1999 management determined that certain marketable
securities held by the Company at December 31, 1999 were available-for-sale.
Securities available-for-sale are carried at fair value, with
F-8
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
unrealized gains and losses reported as a 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. There were no
gross realized gains or losses on sales of securities available-for-sale in
1999 or 1998.
3. Long-Term Debt
Long-term debt as of December 31, 1998 and 1999, consists of the following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Equipment loan (I)................................ $ 698,634 $ 200,455
Convertible debt--related parties (II)............ 4,344,612 6,810,537
---------- -----------
$5,043,246 $ 7,010,992
========== ===========
</TABLE>
- --------
I. In December 1995, the Company negotiated an 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 November, 2000. The interest rate on these
borrowings was 12% at December 31, 1999 and 1998.
II. In April 1997, the Company entered into a collaboration agreement with a
corporate partner whereby, among other items, the Company may borrow from
the partner up to $2.0 million annually through 2001. The loans are
collaterallized 50% by equipment purchases. The loans carry an interest
rate of 8% per annum and under certain circumstances are convertible into
equity at the option of the corporate partner. Principal and interest
payments on the loans are deferred until maturity of the loans which is in
April 2004. The collaboration and loan facility may be terminated at the
option of the partner any time.
Cash paid for interest for the years ended December 31, 1999, 1998 and 1997
was $84,029, $411,988, and $791,476, respectively. At December 31, 1999 the
carrying amounts of the Company's long-term debt approximates the fair value as
all borrowings bear interest rates which are comparable to the current market
rate for such borrowings.
As of December 31, 1999, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
2000.......................................................... $ 200,455
2001.......................................................... --
2002.......................................................... --
2003.......................................................... --
2004.......................................................... --
Thereafter.................................................. 6,810,537
-----------
$ 7,010,992
===========
</TABLE>
4. Leases
The Company leases office space under a noncancelable operating lease which
was extended until June 2007. Total rent expense, including miscellaneous
laboratory equipment rentals, was $398,452, $493,188, and $443,796 in 1999,
1998 and 1997 respectively.
F-9
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's operating lease commitments at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000........................................................... $ 385,200
2001........................................................... 385,200
2002........................................................... 385,200
2003........................................................... 374,796
2004........................................................... 373,764
2005 and thereafter............................................ 933,120
----------
$2,837,280
==========
</TABLE>
5. Stockholders' Equity
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 was not 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.
Below is a summary of common stock reserved by the Company at December 31,
1999 for issuance upon the exercise of the various options, warrants and the
401(k) and purchase plans.
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Stock option plans.............................................. 1,788,903
Employee stock purchase plan.................................... 135,761
Employee 401(k) stock match..................................... 229,959
Warrants at $9.00 per share..................................... 16,666
Warrants at $12.00 per share.................................... 350,000
Warrants at $15.75 per share.................................... 10,793
Warrants at $22.50 per share.................................... 448,888
Warrants at $40.50 per share.................................... 11,111
---------
2,992,081
=========
</TABLE>
In connection with a loan payoff, in 1999 the Company repriced 16,666 of its
outstanding warrants. The exercise price on those warrants was reduced from
$22.50 per share to $9.00 per share. All warrants are immediately exercisable.
In 1999, expense related to this repricing of $42,222 was recognized.
The Company's ability to pay dividends is restricted by the terms of its
collaborative, convertible debt and equipment loan facility agreements.
F-10
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stock Option Plans
The Company has 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 purchase up to 1,317,154 shares of the
Company's common stock to eligible employees, consultants, and other
individuals, as defined in the Plans. In each of May 1997 and in May 1999, the
Company's shareholders approved an additional 350,000 shares of the Company's
common stock to be reserved for issuance pursuant to 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.
During the third quarter of 1998, the Company offered a repricing of
existing stock options to all of its current employees. Pursuant to the offer,
all non-executive employees were allowed to exchange each existing stock option
for a newly priced stock option one for one, with the new stock options having
an exercise price equal to the current market price of the underlying common
stock. If exchanged, the vesting term would start over beginning on the date of
exchange. A similar offer was given to all executives, except the options were
exchanged at a one for .75 ratio. As a result of the offer, 890,921 options
were canceled and 747,060 options were granted, effective September 18, 1998.
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 1999, 1998 and 1997, the Company recorded $25,663, $32,162,
and $43,453, respectively, of compensation relating to the grant of stock
options and the Antidilution Agreement, all of which relates to pre-IPO
issuances which have been deferred until vesting has been completed.
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 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 1999, 1998 and 1997, respectively: risk-free
interest rates of 6.1%, 4.7%, and 6.4%; a dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of .971,
.967, and .638; and a weighted-average expected life of the option of 6 years.
The weighted average fair value of stock options granted during 1999, 1998 and
1997 was $5.42, $4.04, and $5.88, respectively.
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-11
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss............ $(16,153,548) $(11,948,280) $(12,071,278)
Pro forma loss per share
(basic and diluted).......... $ (2.18) $ (1.33) $ (1.19)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma net loss may not be
representative of that to be expected in future years.
Changes in stock options for the years ended December 31, 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Exercise
Options Price
---------- -------------
<S> <C> <C>
Outstanding at December 31, 1996............... 679,423 $ .45--$19.00
Options granted................................ 604,300 $7.50--$13.50
Options exercised/canceled..................... (64,833) $ .45--$19.00
---------- -------------
Outstanding at December 31, 1997............... 1,218,890 $ .45--$15.25
Options granted................................ 1,174,560 $3.00--$ 8.13
Options exercised/canceled..................... (1,045,878) $ .45--$15.25
---------- -------------
Outstanding at December 31, 1998............... 1,347,572 $ .45--$12.78
Options granted................................ 598,759 $4.13--$11.31
Options exercised/canceled..................... (213,891) $ .45--$12.78
---------- -------------
Outstanding at December 31, 1999............... 1,732,440 $ .45--$12.78
========== =============
</TABLE>
The weighted average exercise price of options outstanding at December 31,
1999, 1998 and 1997 was $6.52, $4.21 and $9.31, respectively.
Stock options vest as follows:
<TABLE>
<CAPTION>
Options
---------
<S> <C>
Currently exercisable........................................... 507,963
2000............................................................ 255,797
2001............................................................ 215,420
2002............................................................ 209,036
2003............................................................ 207,573
2004 and thereafter............................................. 78,651
Contingent vesting.............................................. 258,000
---------
Total......................................................... 1,732,440
=========
</TABLE>
7. Formation of Atugen, an unconsolidated German Affiliate
In 1998, the Company transferred its gene function and target validation
business and technology to Atugen, a separately funded German affiliate.
Financing for Atugen was accomplished through an equity investment of $2.0
million in cash from RPI in 1998, a venture capital investment of $7.0 million
and a commitment by the German government to provide grants and loans of up to
$10.0 million. As a result, at December 31, 1998, RPI retained a 49.5%
ownership in Atugen. In connection with its formation, Atugen
F-12
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
received exclusive royalty-free licenses to RPI patents and technologies for
target validation and discovery in exchange for a one-time $2.0 million payment
which was received by RPI in January 1999. The entire amount of this one-time
payment was deferred at December 31, 1998 and is being amortized over the five-
year term of the license agreement and is reflected in the Company's equity in
earnings.
According to a service agreement executed by both parties, RPI will provide
management support, technologies, facilities and reagents to Atugen for
reasonable fees. RPI will retain rights to develop ribozyme therapeutic agents
against targets validated by Atugen.
In 1998, RPI gave to its officers and certain other employees stock
representing a 5.5% interest in the newly formed Atugen at no personal cost to
the individuals. Atugen is a closely held private company, and accordingly, the
fair value of the share grants was by nature an estimate. The Company estimated
the fair market value of these share grants at the date of such grants to be
$81,000. As a result, the Company's 1998 Statement of Operations includes
$81,000 of compensation related to the share grants.
8. Collaborative Agreements
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. 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 made a $10,000,000 equity
investment in the Company.
In 1998, the Company received $5.0 million from Chiron related to the joint
product development of ANGIOZYME. The non recurring payment was a reimbursement
for 50% of past expenses incurred by the Company for the preclinical
development of ANGIOZYME. In addition, the Company recorded revenue from Chiron
of $4,015,010 and $1,048,138, in 1999 and 1998, respectively, for 50% of
ANGIOZYME clinical development expenses incurred by the Company. There are no
future obligations between the Company and Chiron related to revenues which
were fully recognized in 1999 and 1998.
Schering AG, Berlin
On April 9, 1997, the Company entered into a research collaboration with
Schering AG, Berlin, (Schering AG) 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. The Company will provide its
expertise in ribozyme design, synthesis and delivery, and Berlex Laboratories,
Inc., a U.S. subsidiary of Schering AG (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 with Berlex having
the option to commercialize products from any validated targets.
Schering AG made an equity investment in the Company in May 1997 of $2.5
million in exchange for 212,766 shares of common stock, and made an additional
equity investment of $2.5 million for 465,117 shares
F-13
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
in April 1998. Separately, Schering AG provided a loan of $2.0 million in each
of years 1997, 1998 and 1999. Schering AG has agreed to provide loans of up to
$2.0 million annually for each of the next two years, provided that the
collaboration is continued in each of those years. 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 AG, 50% of any borrowings on the line of
credit must be collateralized by equipment purchases. The loans, which carry an
interest rate of 8% per annum, are convertible into equity at the option of
Schering AG under certain circumstances. At December 31, 1999, the outstanding
borrowings of $6.8 million were convertible into approximately 649,000 shares
of the Company's common stock. Subject to the conversion rights referred to
above, principal and interest payments are deferred until maturity of the loans
which is in April 2004. During 1999, the Company subcontracted the research to
Atugen and therefore all subsequent revenues for work completed has been solely
recognized by Atugen. The Company may earn success fees upon product
development milestones and has the right to 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
some restrictions, including receipt of certain third party consents. Upon
payment of termination fees paid to the Company, the research collaboration may
be terminated at Schering AG's option any time.
Eli Lilly and Company
In March 1999, the Company entered into a collaboration with Eli Lilly and
Company (Eli Lilly) to conduct research, development and commercialization of
the Company's ribozyme for the treatment of Hepatitis C virus infection (the
anti-HCV ribozyme). Under the terms of the agreement, the Company received
approximately $9.2 million in 1999, which included $1.7 million of funding for
research and clinical trial expenses and a $7.5 million equity investment
purchasing five shares of the Company's non-voting convertible Series L
preferred stock which was completed in April 1999. Each share of Series L
convertible preferred stock is convertible into shares of the Company's common
stock based upon milestones related to the development and commercialization of
the anti-HCV ribozyme. Under certain circumstances, if the Company commences
Phase II clinical trials prior to March 17, 2002, each share of Series L
preferred stock will convert into $500,000 of common stock valued at the
average closing price 30 days prior to conversion. If, however, the Company
fails to commence Phase II clinical trials prior to March 17, 2002, each share
of Series L preferred stock will convert into $1.5 million of common stock
valued at the average closing price of the Company's common stock 30 days prior
to conversion. In addition to equity and research funding, the Company may
receive success fees related to various development milestones and royalties on
future sales of products developed related to the collaboration. Eli Lilly will
receive the exclusive worldwide commercialization rights to products that
result from this collaboration, including the anti-HCV ribozyme product. The
Company has retained certain rights to manufacture anti-HCV riboyzme products
resulting from the collaboration.
9. Commitments and Contingency
At the core of the Company's technology are inventions and patents of the
University of Colorado (CU) which were developed by 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 the Company its rights under the sublicense from CTI and the
Company entered into an amended and restated license with CTI. The Company 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 the Company the exclusive (except for non-commercial academic
research) worldwide right,
F-14
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. The Company 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, the Company 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. At the Company's discretion,
the payment may be in either cash or equity.
The Company, along with one or more of its officers or directors, are
defendants in several related lawsuits which purport to be class actions on
behalf of purchasers of common stock of the Company on November 16 and 17,
1999. The lawsuits, which are substantially identical, allege the defendants
violated certain federal securities laws based upon an allegedly misleading
announcement made on November 15, 1999. The cases have been consolidated in the
United States District Court, District of Colorado. No discovery has occurred,
and only limited discovery is expected to occur pending ruling on preliminary
motions. Based on current information, the Company believes the suits to be
without merit.
10. Related Party Transactions
At December 31, 1999, 1998 and 1997, the Company had a total of $295,000,
$280,932 and $320,000, respectively, of non-interest bearing loans due from
executive officers. The balances may be forgiven by the Company under certain
employment agreement provisions. The loan balances are forgivable or payable to
the Company under various terms not to exceed 5 years. The Company forgave
$88,000, $126,466 and $80,000 of these loans during each of the years ending
December 31, 1999, 1998 and 1997, respectively.
11. 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.
F-15
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, the Company has the following net operating loss and
tax credit carryforwards for income tax purposes:
<TABLE>
<CAPTION>
Research
Net and State
Operating Development Investment
Expiration Date Losses Credits Credits
--------------- ----------- ----------- ----------
<S> <C> <C> <C>
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................................... 11,953,000 139,000 --
2011................................... 15,125,000 181,000 --
2012................................... 15,291,000 296,000 --
2018................................... 10,109,000 475,000 --
2019................................... 10,708,000 408,000 --
----------- ---------- -------
Total................................ $83,294,000 $2,101,000 $17,000
=========== ========== =======
</TABLE>
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, net of
taxes, as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 27,095,000 $ 31,069,000
Research and development and state
investment credit carryforwards......... 1,548,000 2,118,000
Depreciation............................. 639,000 592,000
Equity in loss of unconsolidated
affiliate............................... 404,000 724,000
Other.................................... 30,000 23,000
------------ -------------
29,716,000 34,526,000
Valuation allowance...................... (28,610,000) (32,716,000)
------------ -------------
Net deferred tax assets.................. 1,106,000 1,810,000
Deferred tax liabilities:
Deferred patent costs.................... 1,084,000 1,178,000
Deferred income.......................... -- 597,000
Other.................................... 22,000 35,000
------------ -------------
Total deferred tax liabilities........... 1,106,000 1,810,000
------------ -------------
$ -- $ --
============ =============
</TABLE>
F-16
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. Employee Savings Plan
The Company has a 401(k) plan which allows participants to contribute 1% to
15% of their salary, subject to eligibility requirements and annual limits. The
Board may, at its sole discretion, approve matching contributions with the
Company's common stock. In 1999, 1998 and 1997, the Board approved a 50% common
stock match equal to total participant deferrals made in each respective year.
The Company stock match is subject to vesting restrictions.
13. Subsequent Events
Joint Venture
In January 2000, the Company formed a joint venture with Elan for the
development and commercialization of HERZYME, the Company's product to treat
breast and other cancers. As part of this arrangement, the Company licensed
HERZYME and Elan licensed its MEDIPAD(R) drug delivery technology to the joint
venture, Medizyme Pharmaceuticals, Ltd. (Medizyme). The MEDIPAD(R) system is a
disposable continuous subcutaneous drug delivery system which allows a patient
to administer the drug at home.
Initial funding of Medizyme included $12.0 million from the Company and $3.0
million from Elan. The Company's $12.0 million capital contribution was funded
by the sale to Elan of (i) 12,105 shares of the Company's Series A convertible
exchangeable preferred stock (the Series A Preferred Stock), (ii) a warrant to
purchase up to 200,000 shares of the Company's common stock at an exercise
price of $15.00 per share with a term of two years, and (iii) a warrant to
purchase up to 300,000 shares of the Company's common stock at an exercise
price of $20.00 per share with a term of seven years. The Series A Preferred
Stock has a stated dividend rate of 6.0% which is payable semi-annually through
the issuance of additional shares of Series A Preferred Stock at a nominal
value of $1,000 per share.
As a result of Medizyme's initial capitalization, the Company owns 80.1% of
the outstanding capital stock of Medizyme and Elan owns 19.9%. However, Elan
can exchange, at its option, all of its shares of the Company's Series A
Preferred Stock for 30.1% of RPI's interest in Medizyme. After such redemption,
Elan would own 50% of the then outstanding capital stock of Medizyme. Elan also
has the option of converting its shares of the Company's Series A Preferred
Stock into approximately 1,200,000 shares of RPI's common stock.
Medizyme paid Elan in cash a $15.0 million non-refundable license fee for
the MEDIPAD(R) drug delivery technology. As a result of this licensing
transaction, it is likely that Medizyme will capitalize the entire license fee
and amortize the balance over the three-year term of the agreement. The Company
estimates that funding for Medizyme will require approximately $15.0 million in
additional operating and development costs. In connection with expected funding
requirements, Elan has agreed to provide the Company with a $12.0 million
credit facility to fund the Company's pro rata portion of Medizyme's operating
costs over the development period, which is expected to be 30 months. The debt
has a 12% rate and may be converted into shares of the Company's Series B
convertible preferred stock (the Series B Preferred Stock), which ultimately is
convertible into shares of the Company's common stock at a 50% premium to the
average price of its common stock for the 60 days prior to the time of the
applicable draw down on the credit facility. The Series B Preferred Stock has a
stated dividend rate of 12%, which is payable semi-annually through the
issuance of additional shares of Series A Preferred Stock at a nominal value of
$1,000 per share.
Also in connection with the Medizyme joint venture, Elan purchased 641,026
shares of the Company's common stock for a purchase price of $5.0 million. Elan
has committed to purchase an additional $5.0 million of common stock in 15
months at a share price that is at a premium to the average closing price for
the 45 trading days preceding the purchase, but not less than such 45 trading
day average. The price is also based on the achievement of certain milestones.
F-17
<PAGE>
RIBOZYME PHARMACEUTICALS, INC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The joint venture agreement provides for equal representation by the Company
and Elan in the operating and management decisions of Medizyme. The Company
will account for its investment in Medizyme under the equity method.
Purchase Commitment
In January 2000, the Company entered into a manufacturing agreement whereby
the Company transferred its proprietary manufacturing processes and
intellectual property to enable the manufacturing of its ribozyme products.
Pursuant to this agreement, the Company must purchase minimum quantities of
ribozymes over the next three years, which represents a significant majority of
the expected usage during that time.
14. Pro Forma Stockholders' Equity (Unaudited)
Pro forma stockholders' equity as of December 31, 1999 reflects the
following transactions with Elan in January 2000: (i) the sale of 641,026
shares of our common stock to Elan for $5.0 million; and (ii) the sale of
12,015 shares of our Series A Preferred Stock to Elan for $12.0 million.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely on the information contained in this document to which we
have referred you. We have not authorized anyone to provide you with
information that is different. The information in this document may only be
accurate on the date of this document. This document may be used only where it
is legal to sell these securities.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 13
Price Range of Common Stock and Dividends................................ 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 36
Principal and Selling Stockholders....................................... 38
Underwriting............................................................. 40
Legal Matters............................................................ 42
Experts.................................................................. 42
Where You Can Find More Information...................................... 42
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,150,000 Shares
[LOGO OF RPI]
Common Stock
--------------
PROSPECTUS
--------------
ING Barings
Chase H&Q
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution
The following table sets forth the various expenses in connection with the
distribution and sale of the securities being registered which will be paid by
us. All amounts are estimates except for the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 47,578
NASD Fee........................................................ $ 18,522
Printing and mailing expenses................................... $150,000
Nasdaq listing fee.............................................. $ 17,500
Legal fees and expenses......................................... $300,000
Accounting fees and expenses.................................... $ 83,400
--------
Total......................................................... $617,000
========
</TABLE>
Item 14. Indemnification Of Directors And Officers
Article XI of our Bylaws provides for indemnification of our directors to
the fullest extent permitted by law, as now in effect or later amended. Article
XI of our Bylaws also permits the indemnification to the same extent of our
officers, employees or agents if, and to the extent, authorized by the Board of
Directors. In addition, the Bylaws provide for indemnification against expenses
incurred by a director to be paid by us at reasonable intervals in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall be ultimately determined that he is not entitled to be indemnified by
us. The Bylaws further provide for a contractual cause of action on the part of
our directors for indemnification claims that have not been paid by us.
Article VI of our Certificate of Incorporation, as amended, limits under
certain circumstances the liability of our directors for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability of
a director (1) for a breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the General Corporate Law of the State of Delaware ("DGCL") (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the DGCL) or (4) for any transaction from which the director derived an
improper personal benefit.
Section 145 of the DGCL contains provisions regarding indemnification, among
others, of officers and directors. Section 145 of the DGCL provides in relevant
part:
(a) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
II-1
<PAGE>
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
Delaware law also permits a corporation to purchase and maintain insurance
on behalf of any person who is or was a director or officer against any
liability asserted against him and incurred by him in such capacity or arising
out of his status as such, whether or not the corporation has the power to
indemnify him against that liability under Section 145 of the DGCL.
We also have provided liability insurance for each director and officer for
losses arising from claims or charges made against them while acting in their
capacities as our directors or officers.
The above discussion of our corporate documents is not intended to be
exhaustive and is respectively qualified in its entirety by our corporate
documents.
II-2
<PAGE>
Item 15. Recent Sale Of Unregistered Securities
The following table sets forth Ribozyme Pharmaceuticals' sales of
unregistered securities for the past three years. All transactions listed below
involved the issuance of common stock, preferred stock convertible into shares
of common stock or options to acquire shares of common stock prior to
commencement of the offering described in the foregoing prospectus. No
underwriters were employed with respect to the sale of any of the securities
listed below. All shares were issued in reliance upon Section 4(2) and/or 3(b)
of the Securities Act.
<TABLE>
<CAPTION>
Date
Securities Issued Purchaser Acquired Consideration
- ----------------- ----------------------------------- ------------ -------------
<S> <C> <C> <C>
212,776 shares of common
stock.................. Schering AG May 1997 $ 2,500,000
465,117 shares of common
stock.................. Schering AG May 1998 $ 2,500,000
5 shares of Series L
convertible preferred
stock.................. Eli Lilly and Company April 1999 $ 7,500,000
160,000 shares of common
stock.................. Innovir Laboratories, Inc. August 1999 $ 664,000
641,026 shares of common
stock.................. Elan International Securities, Ltd. January 2000 $ 5,000,000
12,025 shares of Series
A convertible
exchangeable preferred
stock.................. Elan International Securities, Ltd. January 2000 $12,015,000
</TABLE>
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement among Ribozyme Pharmaceuticals, ING
Barings LLC and Chase Securities Inc.
3.1 Amended and Restated Certificate of Incorporation of Ribozyme
Pharmaceuticals dated April 17, 1996(5)
3.2 Bylaws of Ribozyme Pharmaceuticals, as amended(1)
4.1 Specimen Stock Certificate(1)
4.2 Certificate of Designation, Preferences and Rights of Series L
Preferred Shares (10)
4.3 Certificate of Designations, Preferences and Rights of Series A
Preferred Stock and Series B Preferred Stock (11)
5.1 Opinion of Rothgerber Johnson & Lyons LLP
10.1 Form of Indemnity Agreement entered into between Ribozyme
Pharmaceuticals and its directors and officers, with related
schedule(1)
10.2 Ribozyme Pharmaceuticals' Incentive Stock Option Plan, including form
of Incentive Stock Option Agreement(1)
10.3 Ribozyme Pharmaceuticals' Non-Qualified Stock Option Plan, including
form of Non-Qualified Stock Option Agreement(1)
10.4 Ribozyme Pharmaceuticals' 1996 Stock Option Plan, including forms of
Incentive Stock Option and Nonstatutory Stock Option Agreements(1)
10.5 Ribozyme Pharmaceuticals' 1996 Employee Stock Purchase Plan(1)
10.6 Employment Agreement dated January 1, 1997, between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen(5)
10.7 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated December 23, 1992(1)
10.8 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated September 23, 1994(1)
10.9 Warrant Purchase Agreement dated March 15, 1995, between Ribozyme
Pharmaceuticals and Hambrecht & Quist Guaranty Finance(1)
10.10 Warrant to Purchase Common Stock dated March 15, 1995, issued to
Hambrecht & Quist Guaranty Finance(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.11 Warrant to Purchase Common Stock dated February 22, 1993, issued to
LINC Scientific Leasing(1)
10.12 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Douglas E. Olson(1)
10.13 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Richard J. Warburg and Ruth P. Warburg(1)
10.14 Warrant to Purchase Common Stock dated December 28, 1994, issued to
Competitive Technologies, Inc.(1)
10.15 Warrant to Purchase Common Stock dated December 29, 1995, issued to
Silicon Valley Bank(1)
10.16 Warrant to Purchase Common Stock dated July 26, 1996, issued to
Silicon Valley Bank(1)
10.17 Warrant to Purchase Common Stock dated April 17, 1996, issued to
Chiron Corporation(1)
10.18 Collaborative Research, Development and Commercialization Agreement
dated July 15, 1994, between Ribozyme Pharmaceuticals and Chiron
Corporation(1)
10.19 Research Collaboration and Licensing Agreement dated November 1,
1995, between Ribozyme Pharmaceuticals and Pharmacia Biotech, AB(1)
10.20 Research and Development Collaboration Agreement dated April 19,
1993, between Ribozyme Pharmaceuticals and Parke-Davis Division of
Warner-Lambert Company(1)
10.21 First Amendment to the Research and Development Collaboration
Agreement dated April 17, 1995, between Ribozyme Pharmaceuticals and
Parke-Davis Division of Warner-Lambert Company(1)
10.22 Second Amendment to the Research and Development Collaboration
Agreement dated February 8, 1996, between Ribozyme Pharmaceuticals
and Parke-Davis Division of Warner-Lambert Company(1)
10.23 Financing Agreement dated March 16, 1995, among Wilderness Place
Holdings L.L.C., Hambrecht & Quist Guaranty Finance, L.P. and
Ribozyme Pharmaceuticals(1)
10.24 Negotiable Promissory Note dated October 7, 1992, between Ribozyme
Pharmaceuticals and Ralph Christoffersen and Addendum dated June 25,
1993(1)
10.25 Employment Agreement dated January 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.26 Promissory Note dated February 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.27 Lease for Real Property dated May 20, 1992, between Aero-Tech
Investments and Ribozyme Pharmaceuticals(1)
10.28 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 Ribozyme Pharmaceuticals(1)
10.29 Master Lease Agreement dated September 2, 1992, between Ribozyme
Pharmaceuticals and LINC Scientific Leasing(1)
10.30 Loan and Security Agreement dated February 28, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.31 Loan Modification Agreement dated December 21, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.32 Loan and Security Agreement dated December 29, 1995, between Ribozyme
Pharmaceuticals and Silicon Valley Bank and MMC/GATX Partnership No.
1(1)
10.33 Warrant to Purchase Common Stock dated December 29, 1995, issued to
MMC/GATX Partnership No. 1(1)
10.34 Agreement dated February 29, 1996, between Ribozyme Pharmaceuticals
and Chiron Corporation relating to research and development
funding(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.35 Amendments to original Employment Agreements between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996, November
22, 1996, and December 15, 1996(3)
10.36 Promissory Note dated June 4, 1996, between Ribozyme Pharmaceuticals
and Nassim Usman(3)
10.37 Amendment to Lease for Real Property dated March 13, 1997, between
Aero-Tech Investments and Ribozyme Pharmaceuticals(3)
10.38 Employment Agreement dated May 2, 1996, between Ribozyme
Pharmaceuticals and Nassim Usman(2)
10.39 Collaboration Agreement Regarding Use of Ribozymes to Determine Gene
Function dated May 13, 1996, between Ribozyme Pharmaceuticals and
Chiron Corporation(2)
10.40 Amended and Restated License Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals, University Research Corporation,
University of Colorado and United States Biochemical Corporation(3)*
10.41 Amended and Restated Sublicense Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and United States Biochemical
Corporation(3)*
10.42 Amended and Restated License Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and Competitive Technologies,
Incorporated(3)*
10.43 Memorandum of Understanding dated March 1, 1996, between Ribozyme
Pharmaceuticals and DowElanco(1)
10.44 Stock Subscription Agreement dated September 1996 between Ribozyme
Pharmaceuticals and University of Research Corporation(3)*
10.45 Stock Subscription Agreement dated November 20, 1996, between
Ribozyme Pharmaceuticals and United States Biochemical
Corporation(3)*
10.46 Assignment of License and Restated License Agreement dated November
20, 1996, among Ribozyme Pharmaceuticals, United States Biochemical
Corporation and Competitive Technologies(3)*
10.47 Letter Agreement dated May 22, 1996, between Ribozyme Pharmaceuticals
and ALZA Corporation(3)*
10.48 Research and Development Collaboration Agreement dated December 2,
1996, between Ribozyme Pharmaceuticals and Protogene Laboratories(3)*
10.49 License Agreement dated February 14, 1997, between Ribozyme
Pharmaceuticals and IntelliGene, Ltd.(3)*
10.50 Subscription Agreement dated April 17, 1995, between Ribozyme
Pharmaceuticals and Parke-Davis Division of Warner-Lambert Company(1)
10.51 Stock Purchase Agreement dated June 28, 1995, among Ribozyme
Pharmaceuticals and investors(1)
10.52 Agreement dated March 1, 1996, between Ribozyme Pharmaceuticals and
DowElanco Corporation relating to the conversion of preferred
stock(1)
10.53 Stock Subscription Agreement dated October 30, 1995, between Ribozyme
Pharmaceuticals and Gewestelijke Investeringsmaatschappij voor
Vlaanderon n.v.(1)
10.54 Research, License, Supply and Royalty Agreement between Schering
Aktiengesellschaft and Ribozyme Pharmaceuticals dated April 9,
1997(4)*
10.55 Purchase Agreement dated April 9, 1997, among Ribozyme
Pharmaceuticals, Schering Berlin Venture Corporation and Schering
Aktiengesellschaft(4)*
10.56 Employment Agreement dated February 27, 1997, between Ribozyme
Pharmaceuticals and Alene Holzman(5)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.57 Employment Agreement dated July 5, 1997, between Ribozyme
Pharmaceuticals and Thomas Rossing(5)
10.58 Executive Bonus Plan dated March 27, 1998(6)
10.59 Research, Collaboration and License Agreement dated May 19, 1998,
between Ribozyme Pharmaceuticals and Roche Bioscience, a division of
Syntex (U.S.A.) Inc.(7)*
10.60 Employment Agreement dated September 8, 1998, between Ribozyme
Pharmaceuticals and Nassim Usman(8)
10.61 Participation Agreement dated August 31, 1998, as amended, and
related documents between Ribozyme Pharmaceuticals and Atugen
Biotechnology GmbH(9)*
10.62 Research Collaboration and License Agreement dated March 17, 1999,
between Ribozyme Pharmaceuticals and Eli Lilly and Company* (10)
10.63 Stock Purchase Agreement dated April 30, 1999, between Ribozyme
Pharmaceuticals and Eli Lilly and and Company (10)
10.64 Employment Agreement dated May 10, 1999 between Ribozyme
Pharmaceuticals and Dr. Wayne Cowens (10)
10.65 Securities Purchase Agreement dated January 7, 2000, among Ribozyme
Pharmaceuticals, Elan International Services, Ltd. and Elan
Corporation, plc (11)
10.66** License Agreement dated January 7, 2000 among Elan Pharmaceutical
Technologies (a division of Elan Corporation, plc), Elan Pharma
International Limited and Medizyme Pharmaceuticals, Ltd. (11)
10.67 Warrant dated January 7, 2000, issued to Elan International
Services, Ltd. to purchase up to 200,000 shares of Ribozyme
Pharmaceuticals' common stock (11)
10.68 Warrant dated January 7, 2000 issued to Elan International Services
Ltd. to purchase up to 300,000 shares of Ribozyme Pharmaceuticals'
common stock (11)
10.69 Convertible Promissory Note dated January 7, 2000, from Ribozyme
Pharmaceuticals to Elan International Services, Ltd. (11)
10.70** Subscription, Joint Development and Operating Agreement dated
January 7, 2000, among Ribozyme Pharmaceuticals, Elan Corporation,
plc, Elan Pharma International Limited, Elan International Services,
Ltd. and Medizyme Pharmaceuticals, Ltd. (11)
10.71 Funding Agreement dated January 7, 2000 among Ribozyme
Pharmaceuticals, Elan Pharmaceutical Technologies (a division of
Elan Corporation, plc), Elan Pharma International Limited and Elan
International Services, Ltd. (11)
10.72** License Agreement dated January 7, 2000, among Ribozyme
Pharmaceuticals and Medizyme Pharmaceuticals, Ltd. (11)
10.73 Registration Rights Agreement dated January 7, 2000, between
Ribozyme Pharmaceuticals and Elan International Services, Ltd. (11)
10.74 Registration Rights Agreement dated January 7, 2000 among Ribozyme
Pharmaceuticals, Elan International Services, Ltd. and Medizyme
Pharmaceuticals Ltd. (11)
10.75** Agreement dated January 31, 2000, between Ribozyme Pharmaceuticals
and Avecia Limited (11)
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
</TABLE>
- --------
* Ribozyme Pharmaceuticals has applied for and received confidential
treatment with respect to portions of these exhibits.
II-6
<PAGE>
** Ribozyme Pharmaceuticals has applied for confidential treatment with
respect to portions of these exhibits.
(1) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form SB-2 Registration Statement, File No.
333-1908-D.
(2) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 10-QSB for the quarter ended June 30,
1996.
(3) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 10-KSB for the year ended December 31,
1996.
(4) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 8-K dated June 12, 1997.
(5) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form SB-2 Registration Statement, File No.
333-34981.
(6) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 10-K for the year ended December 31,
1997.
(7) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 10-Q/A for the quarter ended June 30,
1998.
(8) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 10-Q for the quarter ended September 30,
1998.
(9) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 8-K/A dated June 16, 1999.
(10) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form S-1 Registration Statement, File No.
333-75079.
(11) Documents incorporated by reference herein to certain exhibits to
Ribozyme Pharmaceuticals' Form 8-K dated February 8, 2000.
(b) Financial Statement Schedules
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements
or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provision described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Form S-3
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Boulder, Colorado, on March 2, 1999.
Ribozyme Pharmaceuticals, Inc.
/s/ Ralph E. Christoffersen
By: _________________________________
Ralph E. Christoffersen, Ph.D.
Chief Executive Officer and
President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Form S-3 Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated. Each of the
following persons hereby appoints Ralph E. Christoffersen and
Lawrence E. Bullock, and each of them, as his attorney-in-fact to (1) execute
and file amendments for this Registration Statement, (2) request acceleration
of the effective date of or withdraw from the registration process this
Registration Statement or (3) take any other action regarding this Registration
Statement as such attorneys-in-fact, or either of them, may deem appropriate.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph E. Christoffersen Chief Executive Officer and March 2, 2000
______________________________________ President (Principal Executive
Ralph E. Christoffersen, Ph.D. Officer)
/s/ Lawrence E. Bullock Vice President, Administration March 2, 2000
______________________________________ Finance, Chief Financial
Lawrence E. Bullock Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ David T. Morgenthaler Chairman of the Board of March 2, 2000
______________________________________ Directors
David T. Morgenthaler
/s/ Jeremy C. Cook Director March 2, 2000
______________________________________
Jeremy C. Cook
/s/ Anthony B. Evnin Director March 2, 2000
______________________________________
Anthony B. Evnin, Ph.D.
/s/ David Ichikawa Director March 2, 2000
______________________________________
David Ichikawa
/s/ Anders Wiklund Director March 2, 2000
______________________________________
Anders Wiklund
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement among Ribozyme Pharmaceuticals, ING
Barings LLC and Chase Securities LLC
3.1 Amended and Restated Certificate of Incorporation of Ribozyme
Pharmaceuticals dated April 17, 1996(5)
3.2 Bylaws of Ribozyme Pharmaceuticals, as amended(1)
4.1 Specimen Stock Certificate(1)
4.2 Certificate of Designation, Preferences and Rights of Series L
Preferred Shares (10)
4.3 Certificate of Designations, Preferences & Rights of Series A Preferred
Stock and Series B Preferred Stock (11)
5.1 Opinion of Rothgerber Johnson & Lyons LLP
10.1 Form of Indemnity Agreement entered into between Ribozyme
Pharmaceuticals and its directors and officers, with related
schedule(1)
10.2 Ribozyme Pharmaceuticals' Incentive Stock Option Plan, including form
of Incentive Stock Option Agreement(1)
10.3 Ribozyme Pharmaceuticals' Non-Qualified Stock Option Plan, including
form of Non-Qualified Stock Option Agreement(1)
10.4 Ribozyme Pharmaceuticals' 1996 Stock Option Plan, including forms of
Incentive Stock Option and Nonstatutory Stock Option Agreements(1)
10.5 Ribozyme Pharmaceuticals' 1996 Employee Stock Purchase Plan(1)
10.6 Employment Agreement dated January 1, 1997, between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen(5)
10.7 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated December 23, 1992(1)
10.8 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated September 23, 1994(1)
10.9 Warrant Purchase Agreement dated March 15, 1995, between Ribozyme
Pharmaceuticals and Hambrecht & Quist Guaranty Finance(1)
10.10 Warrant to Purchase Common Stock dated March 15, 1995, issued to
Hambrecht & Quist Guaranty Finance(1)
10.11 Warrant to Purchase Common Stock dated February 22, 1993, issued to
LINC Scientific Leasing(1)
10.12 Warrant to Purchase Common Stock dated July 30, 1993, issued to Douglas
E. Olson(1)
10.13 Warrant to Purchase Common Stock dated July 30, 1993, issued to Richard
J. Warburg and Ruth P. Warburg(1)
10.14 Warrant to Purchase Common Stock dated December 28, 1994, issued to
Competitive Technologies, Inc.(1)
10.15 Warrant to Purchase Common Stock dated December 29, 1995, issued to
Silicon Valley Bank(1)
10.16 Warrant to Purchase Common Stock dated July 26, 1996, issued to Silicon
Valley Bank(1)
10.17 Warrant to Purchase Common Stock dated April 17, 1996, issued to Chiron
Corporation(1)
10.18 Collaborative Research, Development and Commercialization Agreement
dated July 15, 1994, between Ribozyme Pharmaceuticals and Chiron
Corporation(1)
10.19 Research Collaboration and Licensing Agreement dated November 1, 1995,
between Ribozyme Pharmaceuticals and Pharmacia Biotech, AB(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.20 Research and Development Collaboration Agreement dated April 19, 1993,
between Ribozyme Pharmaceuticals and Parke-Davis Division of
Warner-Lambert Company(1)
10.21 First Amendment to the Research and Development Collaboration Agreement
dated April 17, 1995, between Ribozyme Pharmaceuticals and Parke-Davis
Division of Warner-Lambert Company(1)
10.22 Second Amendment to the Research and Development Collaboration
Agreement dated February 8, 1996, between Ribozyme Pharmaceuticals and
Parke-Davis Division of Warner-Lambert Company(1)
10.23 Financing Agreement dated March 16, 1995, among Wilderness Place
Holdings L.L.C., Hambrecht & Quist Guaranty Finance, L.P. and Ribozyme
Pharmaceuticals(1)
10.24 Negotiable Promissory Note dated October 7, 1992, between Ribozyme
Pharmaceuticals and Ralph Christoffersen and Addendum dated June 25,
1993(1)
10.25 Employment Agreement dated January 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.26 Promissory Note dated February 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.27 Lease for Real Property dated May 20, 1992, between Aero-Tech
Investments and Ribozyme Pharmaceuticals(1)
10.28 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 Ribozyme Pharmaceuticals(1)
10.29 Master Lease Agreement dated September 2, 1992, between Ribozyme
Pharmaceuticals and LINC Scientific Leasing(1)
10.30 Loan and Security Agreement dated February 28, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.31 Loan Modification Agreement dated December 21, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.32 Loan and Security Agreement dated December 29, 1995, between Ribozyme
Pharmaceuticals and Silicon Valley Bank and MMC/GATX Partnership No.
1(1)
10.33 Warrant to Purchase Common Stock dated December 29, 1995, issued to
MMC/GATX Partnership No. 1(1)
10.34 Agreement dated February 29, 1996, between Ribozyme Pharmaceuticals and
Chiron Corporation relating to research and development funding(1)
10.35 Amendments to original Employment Agreements between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996, November 22,
1996, and December 15, 1996(3)
10.36 Promissory Note dated June 4, 1996, between Ribozyme Pharmaceuticals
and Nassim Usman(3)
10.37 Amendment to Lease for Real Property dated March 13, 1997, between
Aero-Tech Investments and Ribozyme Pharmaceuticals(3)
10.38 Employment Agreement dated May 2, 1996, between Ribozyme
Pharmaceuticals and Nassim Usman(2)
10.39 Collaboration Agreement Regarding Use of Ribozymes to Determine Gene
Function dated May 13, 1996, between Ribozyme Pharmaceuticals and
Chiron Corporation(2)
10.40 Amended and Restated License Agreement dated November 20, 1996, between
Ribozyme Pharmaceuticals, University Research Corporation, University of
Colorado and United States Biochemical Corporation(3)*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.41 Amended and Restated Sublicense Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and United States Biochemical
Corporation(3)*
10.42 Amended and Restated License Agreement dated November 20, 1996, between
Ribozyme Pharmaceuticals and Competitive Technologies, Incorporated(3)*
10.43 Memorandum of Understanding dated March 1, 1996, between Ribozyme
Pharmaceuticals and DowElanco(1)
10.44 Stock Subscription Agreement dated September 1996 between Ribozyme
Pharmaceuticals and University of Research Corporation(3)*
10.45 Stock Subscription Agreement dated November 20, 1996, between Ribozyme
Pharmaceuticals and United States Biochemical Corporation(3)*
10.46 Assignment of License and Restated License Agreement dated November 20,
1996, among Ribozyme Pharmaceuticals, United States Biochemical
Corporation and Competitive Technologies(3)*
10.47 Letter Agreement dated May 22, 1996, between Ribozyme Pharmaceuticals
and ALZA Corporation(3)*
10.48 Research and Development Collaboration Agreement dated December 2,
1996, between Ribozyme Pharmaceuticals and Protogene Laboratories(3)*
10.49 License Agreement dated February 14, 1997, between Ribozyme
Pharmaceuticals and IntelliGene, Ltd.(3)*
10.50 Subscription Agreement dated April 17, 1995, between Ribozyme
Pharmaceuticals and Parke-Davis Division of Warner-Lambert Company(1)
10.51 Stock Purchase Agreement dated June 28, 1995, among Ribozyme
Pharmaceuticals and investors(1)
10.52 Agreement dated March 1, 1996, between Ribozyme Pharmaceuticals and
DowElanco Corporation relating to the conversion of preferred stock(1)
10.53 Stock Subscription Agreement dated October 30, 1995, between Ribozyme
Pharmaceuticals and Gewestelijke Investeringsmaatschappij voor
Vlaanderon n.v.(1)
10.54 Research, License, Supply and Royalty Agreement between Schering
Aktiengesellschaft and Ribozyme Pharmaceuticals dated April 9, 1997(4)*
10.55 Purchase Agreement dated April 9, 1997, among Ribozyme Pharmaceuticals,
Schering Berlin Venture Corporation and Schering Aktiengesellschaft(4)*
10.56 Employment Agreement dated February 27, 1997, between Ribozyme
Pharmaceuticals and Alene Holzman(5)
10.57 Employment Agreement dated July 5, 1997, between Ribozyme
Pharmaceuticals and Thomas Rossing(5)
10.58 Executive Bonus Plan dated March 27, 1998(6)
10.59 Research, Collaboration and License Agreement dated May 19, 1998,
between Ribozyme Pharmaceuticals and Roche Bioscience, a division of
Syntex (U.S.A.) Inc.(7)*
10.60 Employment Agreement dated September 8, 1998, between Ribozyme
Pharmaceuticals and Nassim Usman(8)
10.61 Participation Agreement dated August 31, 1998, as amended, and related
documents between Ribozyme Pharmaceuticals and Atugen Biotechnology
GmbH(9)*
10.62 Research Collaboration and License Agreement dated March 17, 1999,
between Ribozyme
Pharmaceuticals and Eli Lilly and Company* (10)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.63 Stock Purchase Agreement dated April 30, 1999, between Ribozyme
Pharmaceuticals and Eli Lilly and Company (10)
10.64 Employment Agreement dated May 10, 1999 between Ribozyme
Pharmaceuticals and Dr. Wayne Cowens (10)
10.65 Securities Purchase Agreement dated January 7, 2000, among Ribozyme
Pharmaceuticals, Elan International Services, Ltd. and Elan
Corporation, plc (11)
10.66** License Agreement dated January 7, 2000 among Elan Pharmaceutical
Technologies (a division of Elan Corporation, plc), Elan Pharma
International Limited and Medizyme Pharmaceuticals, Ltd. (11)
10.67 Warrant dated January 7, 2000, issued to Elan International Services,
Ltd. to purchase up to 200,000 shares of Ribozyme Pharmaceuticals'
common stock (11)
10.68 Warrant dated January 7, 2000 issued to Elan International Services
Ltd. to purchase up to 300,000 shares of Ribozyme Pharmaceuticals'
common stock (11)
10.69 Convertible Promissory Note dated January 7, 2000, from Ribozyme
Pharmaceuticals to Elan International Services, Ltd. (11)
10.70** Subscription, Joint Development and Operating Agreement dated January
7, 2000, among Ribozyme Pharmaceuticals, Elan Corporation, plc, Elan
Pharma International Limited, Elan International Services, Ltd. and
Medizyme Pharmaceuticals, Ltd. (11)
10.71 Funding Agreement dated January 7, 2000 among Ribozyme
Pharmaceuticals, Elan Pharmaceutical Technologies (a division of Elan
Corporation, plc), Elan Pharma International Limited and Elan
International Services, Ltd. (11)
10.72** License Agreement dated January 7, 2000, among Ribozyme
Pharmaceuticals and Medizyme Pharmaceuticals, Ltd. (11)
10.73 Registration Rights Agreement dated January 7, 2000, between Ribozyme
Pharmaceuticals and Elan International Services, Ltd. (11)
10.74 Registration Rights Agreement dated January 7, 2000 among Ribozyme
Pharmaceuticals, Elan International Services, Ltd. and Medizyme
Pharmaceuticals Ltd. (11)
10.75** Agreement dated January 31, 2000, between Ribozyme Pharmaceuticals and
Avecia Limited (11)
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
</TABLE>
- --------
* Ribozyme Pharmaceuticals has applied for and received confidential treatment
with respect to portions of these exhibits.
** Ribozyme Pharmaceuticals has applied for confidential treatment with respect
to portions of these exhibits.
(1) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, File No. 333-1908-D.
(2) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-QSB for the quarter ended June 30, 1996.
(3) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-KSB for the year ended December 31, 1996.
(4) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated June 12, 1997.
(5) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, File No. 333-34981.
(6) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-K for the year ended December 31, 1997.
<PAGE>
(7) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q/A for the quarter ended June 30, 1998.
(8) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q for the quarter ended September 30, 1998.
(9) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K/A dated June 16, 1999.
(10) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals', Form S-1 Registration Statement, File No. 333-75079
(11) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated February 8, 2000.
(b) Financial Statement Schedules
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
<PAGE>
Ribozyme Pharmaceuticals, Inc.
3,150,000 Shares of Common Stock*
(par value $.01 per share)
UNDERWRITING AGREEMENT
New York, New York
February __, 2000
ING Barings LLC
Chase Securities Inc.
As Representatives of the
several Underwriters
c/o ING Barings LLC
55 East 52nd Street
New York, New York 10055
Ladies and Gentlemen:
Ribozyme Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the several underwriters named in Schedule I hereto (the "Underwriters") for
whom ING Barings LLC and Chase Securities Inc. are acting as representatives
(the "Representatives") an aggregate of 3,150,000 shares (the "Firm Shares") of
its common stock, par value $0.01 per share (the "Common Stock"). The
stockholders listed in Schedule II hereto (the "Selling Stockholders") propose
to issue and sell to the several Underwriters an aggregate of not more than
472,500 additional shares of Common Stock (the "Additional Shares"), if
requested by the Underwriters in accordance with Section 3(c) hereof. The Firm
Shares and the Additional Shares are collectively referred to herein as the
"Shares". The words "you" and "your" refer to the Representatives of the
Underwriters. References herein to any document or other information
incorporated by reference in the Registration Statement shall include documents
or other information incorporated by reference in the Prospectus (or, if the
Prospectus is not in existence, in the most recent preliminary prospectus).
Reference made herein to any preliminary prospectus or the Prospectus shall be
deemed to include all documents and information incorporated by reference
therein and shall be deemed to refer to and include any documents and
information filed after the date of such preliminary prospectus or Prospectus,
as the case may be, and so incorporated by reference, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to and agrees with each of the Underwriters that:
_________________________
* Plus an option to purchase from the Company up to an additional 472,500
shares of Common Stock to cover over-allotments.
<PAGE>
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 (No.
333-_______), for the registration of the Shares under the Securities Act of
1933, as amended (the "Act"). Such registration statement, including the
prospectus, financial statements and schedules, exhibits and all other documents
filed as a part thereof, as amended through the time of effectiveness of the
registration statement, including any information deemed to be a part thereof as
of the time of effectiveness pursuant to Rule 430A or Rule 434 of the Rules and
Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement." Any registration statement filed by the
Company pursuant to Rule 462(b) under the Act is herein 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. The prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) or Rule 434 filing is required, is herein called the "Prospectus".
The term "preliminary prospectus" as used herein means a preliminary prospectus
included in the Registration Statement at the time it is declared effective as
described in Rule 430A of the Regulations; provided, however, if the Company
has, with the consent of the Representatives, elected to rely upon Rule 434
under the Act, the term "Prospectus" shall mean the Company's prospectus subject
to completion dated ________ __, 2000 (such preliminary prospectus is herein
called the "Rule 434 preliminary prospectus"), together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, 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").
(b) Each preliminary prospectus and the Prospectus, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. At the time of the effectiveness of the Registration Statement or
the effectiveness of any Rule 462(b) Registration Statement and any post-
effective amendment thereto, when the Prospectus is first filed with the
Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when any
supplement to or amendment of the Prospectus is filed with the Commission and at
the Closing Date and the Additional Closing Date, if any (as defined in Section
3), the Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied (and, in the event of any of the aforementioned
filings that may occur in the future will, at the time of such filing(s),
comply) in all material respects with the applicable provisions of the Act and
the Regulations, did not and will not contain an untrue statement of a material
fact and did not and will not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. When any related preliminary prospectus was first filed with the
Commission
2
<PAGE>
(whether filed as part of the Registration Statement for the registration of the
Shares or any amendment thereto or pursuant to Rule 424(a) of the Regulations)
and when any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus and any amendments thereof and
supplements thereto complied in all material respects with the applicable
provisions of the Act and the Regulations and did not contain an untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. No representation and warranty is made in this
subsection (b), however, with respect to the statements set forth in the [first
(including the table), third, seventh and eighth] paragraphs under the caption
"Underwriting" in, and the last paragraph on the cover page of, the Prospectus.
If Rule 434 is used, the Company will comply with the requirements of Rule 434.
The documents which are incorporated by reference in any preliminary prospectus
or the Prospectus or from which information is so incorporated by reference,
when they became effective or were filed with the Commission, as the case may
be, complied in all material respects with the requirements of the Act and the
Rules and Regulations or the Exchange Act and the rules and regulations
thereunder, as applicable, and did not, when such documents were so filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and any documents so filed and incorporated by reference subsequent
to the effective date of the Registration Statement shall, when they are filed
with the Commission, conform in all material respects with the requirements of
the Act and the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder, as applicable. The Commission has not issued any stop
order suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Prospectus or any preliminary prospectus
or, to the knowledge of the Company, instituted proceedings for that purpose.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
engage in the business in which it is engaged or in which it proposes to engage
as described in the Registration Statement, the preliminary prospectus and the
Prospectus. The Company is duly registered and qualified to do business as a
foreign corporation in good standing in each jurisdiction where the character,
location, ownership or leasing of its properties (owned, leased or licensed) or
the nature or conduct of its business requires such registration or
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, result in a material adverse effect on or
affecting the business, operations, assets, properties, condition (financial or
other), stockholders' equity, prospects or results of operations of the Company
and its subsidiaries taken as a whole (a "Material Adverse Effect").
(d) The Company has no subsidiaries (as defined in the Regulations),
other than Medizyme Pharmaceuticals Ltd., a Bermuda exempted limited liability
company (the "Subsidiary"). The Company does not own or control, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in
3
<PAGE>
any firm, partnership, joint venture, association, or other entity other than
the Subsidiary except for the Company's equity interests in Atugen AG
("Atugen"). All the outstanding shares of capital stock of the Subsidiary owned
by the Company have been duly and validly authorized and issued and are fully
paid and nonassessable and, except as described in the Registration Statement,
the preliminary prospectus and the Prospectus, are free and clear of any
security interest, pledge, claim (legal or equitable), lien, charge, equity,
mortgage, encumbrance or other restriction (each a "Lien"), stockholders'
agreements, voting trusts or defects of title. The Subsidiary has been duly
organized and is validly existing as a limited liability company in good
standing under the laws of its jurisdiction of organization, with full power and
authority to own, lease and operate its properties and conduct the business in
which it is engaged or in which it proposes to engage. The Subsidiary is duly
registered and qualified as a foreign corporation in good standing in each
jurisdiction where the character, location, ownership or leasing of its
properties or the nature or conduct of its business requires such registration
or qualification, except where the failure to be so qualified would not have a
Material Adverse Effect. Except as described in the Registration Statement, the
preliminary prospectus and the Prospectus, the Subsidiary is not currently
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on its capital stock, from repaying to the
Company any loans or advances to it from the Company or from transferring any of
its property or assets to the Company or any other subsidiary of the Company.
All the outstanding shares of capital stock of Atugen owned by the Company have
been duly and validly authorized and issued and are fully paid and nonassessable
and, except as described in the Registration Statement, the preliminary
prospectus and the Prospectus, are free and clear of any Liens, stockholders'
agreements, voting trusts or defects of title. Atugen has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of organization, with full power and authority to own, lease and
operate its properties and conduct the business in which it is engaged or in
which it proposes to engage. Atugen is duly registered and qualified as a
foreign corporation in good standing in each jurisdiction where the character,
location, ownership or leasing of its properties or the nature or conduct of its
business requires such registration or qualification, except where the failure
to be so qualified would not have a Material Adverse Effect. Except as described
in the Registration Statement, the preliminary prospectus and the Prospectus,
Atugen is not currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on its capital
stock, from repaying to the Company any loans or advances to it from the Company
or from transferring any of its property or assets to the Company or any other
subsidiary of the Company.
(e) Ernst & Young LLP, the accountants who have expressed their
opinion with respect to the financial statements (including the related notes
and supporting schedules) of the Company filed with the Commission as a part of
the Registration Statement, the preliminary prospectus and the Prospectus, are,
with respect to the Company and the Subsidiary, independent public accountants
as required by the Act and the Exchange Act.
(f) As of the date hereof, the Company has an authorized
capitalization as set forth in the Registration Statement, the preliminary
prospectus and the Prospectus and there has
4
<PAGE>
been no material change in its capitalization since that date. All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws and were not issued in violation of any
preemptive right, resale right, right of first refusal or similar right. The
authorized and outstanding capital stock of the Company conforms to the
description thereof contained in the Registration Statement, the preliminary
prospectus and the Prospectus (and such description correctly states, in all
material respects, the substance of the provisions of the instruments defining
the capital stock of the Company). Except as described in the Registration
Statement, the preliminary prospectus and the Prospectus, there are no
authorized or outstanding rights (including, without limitation, preemptive
rights, co-sale rights, resale rights, rights of first refusal or similar
rights), warrants or options to acquire, or instruments convertible into or
exercisable or exchangeable for, any share of capital stock or other equity
interest or ownership interest in the Company, the Subsidiary or Atugen or any
contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock or other equity interest or
ownership interest in the Company, the Subsidiary or Atugen or any such
convertible or exercisable or exchangeable securities or instruments or any such
rights, warrants or options, except for any such rights that have been
effectively waived in writing so as not to be exercisable in connection with the
registration, offer or sale of the Shares. The Shares to be issued pursuant to
this Agreement will not be issued in violation of any preemptive right, co-sale
right, resale right, right of first refusal or similar right. The description of
the Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Registration Statement, the preliminary prospectus and the Prospectus accurately
and fairly presents, in all material respects, the information required to be
shown with respect to such plans, arrangements, options and rights. The Shares
have been duly authorized for issuance and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, good title to the Shares will be transferred to
the Underwriters free and clear of any Liens and the certificates representing
the Shares will be in valid and sufficient form.
(g) Other than the stockholder litigation described under the caption
"Business-Legal proceedings" in the Registration Statement, there is (i) no
action, suit or proceeding or, to the knowledge of the Company, no
investigation, before or by any court, arbitrator or governmental agency, body
or official, domestic or foreign, pending or, to the knowledge of the Company,
threatened or contemplated, as to which the Company, the Subsidiary or Atugen is
(or, to the extent threatened or contemplated, will be) a party or as to which
the business, assets or property of the Company, the Subsidiary or Atugen (or,
to the extent threatened or contemplated, will be) subject, (ii) no statute,
rule, regulation or order that has been enacted, adopted or issued by any
governmental agency, body or official, and (iii) no injunction, restraining
order or order of any nature that has been issued by a federal or state court or
foreign court of competent jurisdiction to which the Company, the Subsidiary or
Atugen is or will be subject or affecting the business, assets or property of
the Company, the Subsidiary or Atugen, that could reasonably be expected to (in
the case of clauses (i), (ii) and (iii)), individually or in the aggregate,
whether or not arising from transactions in the ordinary course
5
<PAGE>
of business, have a Material Adverse Effect, be required to be disclosed in the
Registration Statement, the preliminary prospectus or the Prospectus or
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement. There are no legal or administrative
proceedings, Contracts (as defined below) or documents concerning the Company or
the Subsidiary of a character that would be required to be described in or filed
as an exhibit to a registration statement on Form S-3 under the Act that are not
described or filed, as required, in the Registration Statement, the preliminary
prospectus and the Prospectus.
(h) The financial statements of the Company, together with the related
notes thereto, which are a part of the Registration Statement, the preliminary
prospectus and the Prospectus, present fairly the financial position and the
results of operations, changes in stockholders' equity and changes in cash flows
of the Company as of the respective dates and for the respective periods
specified therein. All of such financial statements and related notes have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved and comply as to form in all
material respects with the applicable accounting requirements included in
Regulation S-X under the Act. The supporting schedules, the "Summary Financial
Data", the "Selected Financial Data" and the tables included in the Registration
Statement, the preliminary prospectus and the Prospectus fairly present the
information purported to be shown thereby at the respective dates thereof and
for the respective periods covered thereby and have been presented on a basis
consistent with that of the audited financial statements therein. No other
financial statements or supporting schedules are required by the Act or
Regulation S-X to be included therein.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement, the preliminary prospectus and the
Prospectus, there has not been (i) any loss or adverse change, or any
development which could reasonably be expected to result in a loss or adverse
change, in or affecting the business, properties, management, assets, prospects,
stockholders' equity, operations, condition (financial or other), or results of
operations of the Company and its subsidiaries taken as a whole, (ii) any
transaction entered into by the Company, Atugen or the Subsidiary, except
transactions in the ordinary course of business; (iii) any obligation, direct or
contingent, incurred by the Company or the Subsidiary which is material to the
Company and the Subsidiary taken as a whole, except for liabilities or
obligations which are reflected in the Registration Statement, the preliminary
prospectus and the Prospectus, (iv) any change in the capital stock or
outstanding indebtedness of the Company, or (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company, which in
any case described in clauses (i), (ii), (iii), (iv) or (v) above, could
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole or
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement.
(j) The Company and the Subsidiary have good and marketable title to
all properties and assets described in the Registration Statement, the
preliminary prospectus and the Prospectus as being owned by them, free and clear
of all Liens except Liens for taxes not yet due
6
<PAGE>
and payable. The Company and the Subsidiary have valid and enforceable leases
for the properties leased by them, the Company and the Subsidiary enjoy peaceful
and undisturbed possession under all such leases with such exceptions as do not
materially interfere with the use thereof made by the Company and the
Subsidiary, and such leases conform in all material respects to the descriptions
thereof, if any, set forth in the Registration Statement, the preliminary
prospectus and the Prospectus. The Company and the Subsidiary own, lease or
otherwise have rights to use all properties and assets as are important to their
respective operations as now conducted and as proposed to be conducted.
(k) The Company and the Subsidiary have all requisite corporate power
and authority, and all licenses, certificates, approvals, consents, concessions,
qualifications, orders, registrations, authorizations and permits from all
federal, state, foreign and other governmental and regulatory agencies, bodies
and authorities ("Permits") that are material to and necessary for the conduct
of the business of the Company and the Subsidiary as such business is currently
conducted. The Company reasonably believes that it will be able to obtain
Permits that are material to and necessary for the conduct of the business of
the Company and the Subsidiary as such business is proposed to be conducted as
described in the Registration Statement, the preliminary prospectus and the
Prospectus. All such Permits are valid and in full force and effect and there is
no proceeding pending or, to the best knowledge of the Company, threatened,
which could reasonably be expected to cause any such Permit to be withdrawn,
canceled, suspended or not renewed. The Company and the Subsidiary are not in
violation of, or in default under, and have fulfilled and performed all their
obligations with respect to, such Permits, except as would not have a Material
Adverse Effect. No event has occurred which allows or would allow revocation or
termination of any such Permit or result in any material impairment of the
rights of the holder of any such Permit. The Contracts to which the Company or
the Subsidiary is a party are valid and binding agreements, enforceable against
the Company and the Subsidiary in accordance with their terms and, to the best
of the Company's knowledge, the other contracting party or parties thereto are
not in breach or default under any of such Contracts, except in each case as
would not have a Material Adverse Effect.
(l) The Company and the Subsidiary are not (i) in violation of their
respective certificates of incorporation, as amended, or articles of
organization, as amended, as the case may be, or bylaws, as amended or (ii) in
breach of or default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, franchise, joint venture, deed of trust, bond, note, lease,
Permit or other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company or the Subsidiary may be bound or to which
any of the property or assets of the Company or the Subsidiary is subject (each
a "Contract"), or in violation of any law, order, rule, regulation, writ,
injunction or decree of any court or governmental agency, body or authority,
except in the case of this clause (ii) for such breaches, defaults or violations
that could not reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole
or materially and adversely affect the ability of the Company to perform its
obligations under this Agreement.
7
<PAGE>
(m) The Company and the Subsidiary own, possess, license or have
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, tradenames, inventions,
discoveries, concepts, ideas, techniques, methods, source codes, object codes,
copyrights, manufacturing processes, formulae, computer software, databases,
works of authorship, technology, trade secrets, know-how, and other unpatented
and/or unpatentable proprietary or confidential information, collaborative
research agreements, systems or procedures and material intangible property and
assets (collectively, "Intellectual Property") necessary to the conduct of their
business as currently conducted and as proposed to be conducted. The Company
reasonably believes that the Company and the Subsidiary will be able to own or
possess adequate licenses or other rights to use all Intellectual Property
necessary to the conduct of their business as proposed to be conducted as
described in the Registration Statement. The Company has no knowledge that it
lacks or will be unable to obtain any rights or licenses to use any of such
Intellectual Property. The Registration Statement, the preliminary prospectus
and the Prospectus fairly and accurately describe the Company's rights with
respect to Intellectual Property. Neither the Company nor the Subsidiary have
received any notice of, and otherwise have no knowledge of, any infringement of
or conflict with asserted rights or claims of others with respect to any
Intellectual Property and the Company is unaware of any fact which could form a
reasonable basis for any such claim.
(n) Rights that any other party may have in the Company's patent
rights will not have a Material Adverse Effect on the Company and the Subsidiary
taken as a whole or materially and adversely affect the ability of the Company
to perform its obligations under this Agreement. There are no outstanding
licenses or other agreements that relate to or restrict the Company's use of its
patent rights in a manner that could reasonably be expected to have a Material
Adverse Effect. None of the Company's patents has been or is now involved in any
interference, reissue, reexamination or opposition proceeding in the United
States Patent and Trademark Office. To the knowledge of the Company, there is no
patent or patent application of any person that conflicts in any material
respect with any patent of the Company or invalidates any claim the Company has
in any patent or patent application. With regard to its patent rights, the
Company has no knowledge of unpaid maintenance fees, patents that have lapsed,
or abandonment of applications, and knows of no reason why any patent
applications should not be allowed. Except as disclosed in the Prospectus, there
are no claims, actions, or proceedings, pending or to the Company's best
knowledge, threatened, challenging the validity of any of its claims in any of
the Intellectual Property. To the knowledge of the Company, there is no prior
art that may render any of its patent rights invalid or patent applications
unpatentable.
(o) The Software owned or purported to be owned by the Company or the
Subsidiary, was either (i) developed by employees of the Company or the
Subsidiary within the scope of their employment; (ii) developed by independent
contractors who have assigned their rights to the Company or the Subsidiary
pursuant to written agreements; or (iii) otherwise acquired by the Company or
the Subsidiary from a third party. The Software does not contain any programming
code, documentation or other materials or development environments that
8
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embody Intellectual Property rights of any person other than the Company
except for such materials or development environments obtained by the Company or
the Subsidiary from other persons who make such materials or development
environments generally available on non-discriminatory commercial terms.
"Software" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, schematics, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing, and (iv) all documentation,
including user manuals and training materials, relating to any of the foregoing.
(p) The Company and the Subsidiary have filed on a timely basis with
the appropriate taxing authorities (or have received an extension for filing
with respect to) all necessary federal, state and foreign income and franchise
tax returns, reports and other information required to be filed by them. Each
such tax return, report or other information was, when filed, accurate and
complete in all material respects. The Company and the Subsidiary have duly
paid, or have made adequate charges, accruals and reserves in the financial
statements for, all such taxes required to be paid by them and any other
assessment, fine or penalty levied against them, for all periods as to which the
tax liability of the Company or the Subsidiary has not been finally determined.
No tax deficiency has been or, to the best of the Company's knowledge, might be
asserted or contemplated against the Company or the Subsidiary.
(q) The Company and the Subsidiary are insured by recognized,
financially sound and reputable institutions with policies in such amounts and
with such deductibles and covering such risks as are generally deemed adequate
and customary for their business including, but not limited to, policies
covering real and personal property owned or leased by the Company and the
Subsidiary against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and directors and officers liability, all of
which insurance is in full force and effect. The Company has no reason to
believe that it or the Subsidiary will not be able to (i) renew its existing
insurance coverage as and when such policies expire or (ii) obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Effect on the Company and its subsidiaries taken as a whole or
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement. Neither of the Company nor the Subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
(r) Neither the Company nor the Subsidiary is involved in any labor
dispute, disturbance, lockout, slowdown or stoppage of employees, and, to the
best knowledge of the Company, no such dispute or disturbance is threatened or
imminent. The Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers or its collaborators that
could reasonably be expected to result in a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or materially and adversely affect
the ability of the Company to perform its obligations under this Agreement.
9
<PAGE>
(s) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws (as defined below) on the business,
operations and properties of the Company and the Subsidiary, in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws, or any Permit, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that the Company and the Subsidiary (i) are in compliance in all
material respects with all applicable foreign, United States federal, state and
local environmental laws, rules, regulations, treaties, statutes and codes
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all Permits required of them under
applicable Environmental Laws to conduct their business as currently conducted,
(iii) are in compliance in all material respects with all terms and conditions
of any such Permit and (iv) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants. No action,
proceeding, revocation proceeding, writ, injunction or claim is pending or, to
the knowledge of the Company, threatened, relating to the Environmental Laws or
to the Company's or the Subsidiary's activities involving Hazardous Materials.
"Hazardous Materials" means any material or substance (i) that is prohibited or
regulated by any Environmental Law or (ii) that has been designated or regulated
by any governmental body or authority as radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment. Neither the
Company nor the Subsidiary has been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended.
(t) Neither the Company nor the Subsidiary has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or the Subsidiary's properties or former
properties, except in compliance in all material respects with all applicable
Environmental Laws. No Hazardous Materials have been treated or disposed of on
any of the Company's or the Subsidiary's properties or on properties formerly
owned or leased by the Company or the Subsidiary during the time of such
ownership or lease, except in compliance in all material respects with
Environmental Laws.
(u) No payments or inducements have been made or given, directly or
indirectly, to any federal or local official or candidate for, any federal or
state office in the United States or foreign offices by the Company or the
Subsidiary, by any of their officers, directors, employees or agents or, to the
best knowledge of the Company, by any other person in connection with any
opportunity, Contract, Permit, certificate, consent, order, approval, waiver or
other authorization relating to the business of the Company or the Subsidiary,
except for such payments or inducements as were lawful under applicable written
laws, rules and regulations. Neither the Company nor the Subsidiary, nor any
director, officer, agent, employee or, to the knowledge of the Company, other
person associated with or acting on behalf of the Company or
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the Subsidiary, (i) has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political activity;
(ii) made any direct or indirect unlawful payment to any government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe,
unlawful rebate, payoff, influence payment, kickback or other unlawful payment
in connection with the business of the Company or the Subsidiary.
(v) Neither the Company nor the Subsidiary has any liability for any
prohibited transaction (within the meaning of Section 4975(c) of the Internal
Revenue Code of 1986, as amended (the "Code") or Part 4 of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (or an
accumulated funding deficiency within the meaning of Section 412 of the Code or
Section 302 of ERISA) or any complete or partial withdrawal liability (within
the meaning of Section 4201 of ERISA), with respect to any pension, profit
sharing or other plan which is subject to ERISA, to which the Company and the
Subsidiary make or ever have made a contribution and in which any employee of
the Company and Subsidiary is or has ever been a participant. With respect to
such plans, the Company and the Subsidiary are in compliance in all material
respects with all applicable provisions of ERISA.
(w) The Company and the Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are appropriately recorded to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences and (v) assets are properly accounted for and
safeguarded against loss from unauthorized use. The Company has not received
from its independent public accountants a letter describing or been informed by
them of, a substantial or material deficiency in the Company's internal
accounting controls in connection with their audit of the Company's financial
statements incorporated by reference in the Registration Statement, the
preliminary prospectus and the Prospectus.
(x) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company or the Subsidiary to or for the benefit of any of
the officers or directors or stockholders of the Company or the Subsidiary or
any of the members of the families of any of them, except as disclosed in the
Registration Statement, the preliminary prospectus and the Prospectus.
(y) No consent, approval, registration, authorization, filing,
qualification, Permit or order of or with any court or supervisory, regulatory,
administrative or governmental agency, body or authority, arbitrator or others
(including securityholders) is required in connection with the execution and
delivery of this Agreement, the issuance, sale or delivery of the Shares to be
issued, sold and delivered by the Company hereunder, or the consummation of
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<PAGE>
any other of the transactions contemplated herein or the fulfillment of the
terms hereof, except the registration under the Act of the Shares and such
consents, approvals, registrations, authorizations, filings, qualifications,
Permits or orders, as may be required under the state securities or "blue sky"
laws or the bylaws and rules of the National Association of Securities Dealers,
Inc. (the "NASD") or as have been obtained and which are in full force and
effect in connection with the offer, purchase and distribution by the
Underwriters of the Shares.
(z) The execution, delivery and performance by the Company of this
Agreement and the issuance and sale of the Shares and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action. Neither the issuance, offer, sale or delivery of the Shares,
the execution, delivery and performance by the Company of this Agreement nor the
compliance by the Company with all the provisions hereof nor the consummation of
the transactions contemplated hereby (i) conflicts with or will conflict with,
or constitutes or will constitute a breach or violation of or a default under
(or an event that, with notice or lapse of time or both, would constitute such a
breach, violation or default), or results in or will result in the imposition of
a Lien upon any property or assets of the Company or the Subsidiary, under, any
of the terms or provisions of the certificate of incorporation or by-laws or
other organizational or constitutive documents of the Company or the Subsidiary,
nor (ii) conflicts with or will conflict with or constitutes or will constitute
a breach or violation of, or a default under (or an event that with notice or
the lapse of time or both would constitute a default) or the loss of any
material benefit under, or the termination of, or results in or will result in
the creation or imposition of any Lien upon any property or assets of the
Company or the Subsidiary pursuant to, any Contract, nor (iii) violates or
conflicts with or will violate or conflict with any law, statute, rule or
regulation applicable to the Company or the Subsidiary or any judgment, decree
or order applicable to the Company or the Subsidiary of any court or
supervisory, regulatory, administrative or governmental agency, body or
authority, or arbitrator having jurisdiction over the Company or the Subsidiary
or any of their respective properties or assets.
(aa) The Company has full corporate power and authority to enter into
this Agreement and to perform the transactions contemplated hereby. This
Agreement and the transactions contemplated herein have been duly and validly
authorized, executed and delivered by the Company and this Agreement constitutes
the legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforceability thereof may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or other laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) and except
to the extent that the provisions of Section 7 hereof may be limited by
applicable federal or state securities laws or unenforceable as against public
policy.
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<PAGE>
(bb) The Company has duly and validly authorized the issuance and sale
of the Shares. The description of the Shares in the Registration Statement, the
preliminary prospectus and the Prospectus is accurate in all material respects.
(cc) The Company is not now, and as a result of the offer and sale of
the Shares in the manner contemplated in this Agreement, the Registration
Statement, the preliminary prospectus and the Prospectus and the application of
the net proceeds of such sale as described in the section entitled "Use of
Proceeds" of the Registration Statement, the preliminary prospectus and the
Prospectus, will not be, an "investment company" or an "affiliated person" of,
or "promoter" or "principal underwriter" for, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), without taking account of any exemption arising out of the number
or type of holders of the Company's securities.
(dd) The Company has not incurred any liability for a fee, commission,
or other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than the
discount contemplated hereby.
(ee) Neither the Company nor the Subsidiary nor, to the Company's best
knowledge, any of its or their officers, directors or affiliates (as defined in
Rule 501(b) of Regulation D ("Regulation D") under the Act) has taken or will
take, directly or indirectly, any action designed to cause or to result in or
that has constituted, or might reasonably be expected to cause or result in or
constitute, under the Exchange Act, or otherwise, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares.
(ff) The Company has not distributed and will not distribute prior to
the later of (A) the Additional Closing Date and (B) the completion of the
distribution of the Shares by the Underwriters and dealers, any offering
material (including, without limitation, content on its Website, if any, that
may be deemed to be offering material) in connection with the offering and sale
of the Shares other than the preliminary prospectus and the Prospectus.
(gg) There are no holders of securities of the Company which by reason
of the filing of the Registration Statement or otherwise in connection with the
sale of the Shares contemplated hereby, have the right to request or demand that
the Company register under the Act any of their securities in connection with
the Registration Statement, except for any such rights that have been
effectively waived in writing so as not to be exercisable in connection with the
registration, offer or sale of the Shares.
(hh) There is no tax, duty, levy, impost, deduction, charge or
withholding imposed by any political subdivision or taxing authority by virtue
of the execution, delivery, performance or enforcement, or to ensure the
legality, validity or admissibility into evidence, of this Agreement, and
neither is it necessary that the Shares be submitted to, or filed or recorded
13
<PAGE>
with, any court or other authority to ensure such legality, validity,
enforceability or admissibility into evidence. There are no transfer taxes or
other similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
(ii) All necessary actions, authorizations, conditions and things
reasonably required to be taken, given, fulfilled and done by the Company and
the Subsidiary on or prior to the date of this Agreement, have been, or on the
Closing Date or the Additional Closing Date, if any, will have been taken,
given, fulfilled and done in connection with (i) the issue of the Prospectus,
(ii) the execution and delivery of this Agreement, (iii) the execution, delivery
and issuance of the Shares, (iv) the compliance with all provisions of this
Agreement to be performed or complied with by such date, and (v) the right of
any holders of securities of the Company to request or demand that the Company
register under the Act any of their securities in connection with the
Registration Statement.
(jj) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is quoted 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 Nasdaq National Market is contemplating
terminating such registration or listing.
(kk) The Company has timely and properly filed with the Commission all
reports and other documents required to have been filed by it with the
Commission pursuant to the Act, the Regulations, the Exchange Act and the rules
and regulations. True and complete copies of all such reports and other
documents have been delivered to you or your counsel.
(ll) Except as described in the Registration Statement, the
preliminary prospectus and the Prospectus, and except in connection with
exercises of outstanding options and warrants, the Company has not sold or
issued any shares of capital stock within the six month period preceding the
date of the Prospectus, all of which sales and issuances were made in compliance
with the Act and the Regulations.
(mm) Each officer and director of the Company named under the heading
"Management" in the Prospectus, [and each of the following stockholders of the
Company:] [(such stockholders of the Company,] together with each officer and
director of the Company named under the heading "Management" in the Prospectus,
to be referred to collectively as the "Locked-Up Parties"), has agreed to sign
an agreement substantially in the form attached hereto as Exhibit A (the "Lock-
---------
up Agreements"). The Company also has provided to counsel for the Underwriters
true, accurate and complete copies of all of the lock-up agreements presently in
effect or effected hereby. The Company has given "no transfer" instructions to
its transfer agent and registrar with respect to such securities.
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<PAGE>
(nn) Since its inception, the Company has not incurred any material
liability arising under or as a result of the application of the provisions of
the Act.
(oo) The Company meets the requirements for use of Form S-3 under the
Regulations.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
2. Representations and Warranties of the Selling Stockholders.
----------------------------------------------------------
(a) Each Selling Stockholder, severally and not jointly, represents
and warrants to each Underwriter that:
(i) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and has,
and on the Closing Date, will have, good and clear title to such Shares,
free of all restrictions on transfer, liens, encumbrances, security
interests, equities and claims whatsoever. Upon delivery of and payment for
the Shares to be sold by such Selling Stockholder pursuant to this
Agreement on the Closing Date, good and clear title to such Shares will
pass to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(ii) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority to enter into this Agreement,
the Power of Attorney in the form heretofore furnished to you (the "Power
of Attorney") and the Custody Agreement in the form heretofore furnished to
you (the "Custody Agreement"), and to sell, assign, transfer and deliver
the Shares in the manner provided herein. Each of this Agreement, the Power
of Attorney and the Custody Agreement has been duly executed and delivered
by such Selling Stockholder, and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(iii) None of the execution, delivery and performance of this
Agreement, the Power of Attorney and the Custody Agreement by such Selling
Stockholder, the compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated
hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any
15
<PAGE>
court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a default
under, any indenture, loan agreement, mortgage, lease or other material
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder or any property of such Selling Stockholder
is bound or (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(iv) Neither such Selling Stockholder, nor any person acting on
behalf of such Selling Stockholder, has taken, directly or indirectly, any
action designed to stabilize or manipulate the price of any security of the
Company, or which has constituted or which might in the future reasonably
be 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 or otherwise.
(v) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by such
Selling Stockholder to the Underwriters as to the matters covered thereby.
(vi) At the time of the effectiveness of the Registration
Statement or the effectiveness of any Rule 462(b) Registration Statement
and any post-effective amendment thereto, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is filed
with the Commission and at the Closing Date, the Registration Statement and
the Prospectus and any amendments thereof and supplements thereto did not
and will not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. When
any related preliminary prospectus was first filed with the Commission
(whether filed as part of the Registration Statement for the registration
of the Shares or any amendment thereto or pursuant to Rule 424(a) of the
Regulations) and when any amendment thereof or supplement thereto was first
filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto did not contain an untrue statement of a
material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. No representation and warranty is made in this subsection
(vi), however, with respect to the statements set forth in the [first
(including the table), third, seventh and eighth] paragraphs under the
caption "Underwriting" in, and the last paragraph on the cover page of, the
Prospectus.
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<PAGE>
(vii) Nothing has come to the attention of such Selling
Stockholder to cause the Selling Stockholder to believe that the Company's
representations and warranties contained in this Agreement are not
accurate.
(viii) There is not pending or threatened against such Selling
Stockholder any action, suit or proceeding which (A) questions the validity
of this Agreement or of any action taken or to be taken by such Selling
Stockholder pursuant to or in connection with this Agreement or (B) is
required to be disclosed in the Registration Statement which is not so
disclosed, and such actions, suits or proceedings as are summarized in the
Registration Statement, if any, are accurately summarized.
3. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) The Company agrees to issue and sell to the several Underwriters
the Firm Shares upon the terms herein set forth. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter and each Underwriter, severally and not jointly, agrees to
purchase from the Company, at a purchase price of $ _____ per Share, the number
of Firm Shares set forth opposite the respective names of the Underwriters in
Schedule I hereto plus an additional number of Firm Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Payment of the purchase price for, and delivery of, the Firm
Shares and the Additional Shares (if the option provided for in Section 3(c)
below shall have been exercised on or before the third full business day prior
to the Closing Date) shall be made at the offices of ING Barings LLC, East 52nd
Street, New York, New York 10055, or at such other place as shall be agreed upon
by ING Barings LLC and the Company, at 10:00 A.M. on the third full business day
(as permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in
accordance with the provisions of Section 10 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Regulations, the third or fourth full business day
(as permitted under Rule 15c6-1 under the Exchange Act) after the determination
of the public offering price of the Firm Shares), or such other time not later
than five business days after such date as shall be agreed upon by you and the
Company (such time and date of payment and delivery being herein called the
"Closing Date"); provided, however, that if the Company has not made available
to the Underwriters copies of the Prospectus in such quantities and at such
places requested by the Underwriters, no later than noon on the business day
following the execution of this Agreement, ING Barings LLC may, in its sole
discretion, postpone the Closing Date until no later than two full business days
following the delivery of such copies of the Prospectus. Payment for the Firm
Shares shall be made to the Company by wire transfer in immediately available
funds to the order of the Company, against delivery to you for the respective
accounts of the Underwriters of the Firm Shares to be purchased by them.
Certificates for the Firm Shares shall be registered in such name or names and
in such authorized denominations as you may request on or before noon on the
business day
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<PAGE>
prior to the Closing Date. The Company will permit you to examine and package
such certificates at or before noon on the business day prior to the Closing
Date. "Business day" shall mean any day other than a Saturday, Sunday or a legal
holiday or a day on which banking institutions or trust companies are authorized
or obligated by law to close in New York City.
(c) In addition, the Selling Stockholders hereby grant to the
Underwriters the option to purchase, severally and not jointly, up to 472,500
Additional Shares (each Selling Stockholder granting such option with respect to
the number of shares of Common Stock which appears opposite the name of such
Selling Stockholder on Schedule II hereto), each at the same purchase price per
share to be paid by the Underwriters to the Company for the Firm Shares as set
forth in this Section 3, for the sole purpose of covering over-allotments in the
sale of Firm Shares by the Underwriters. This option may be exercised from time
to time and at any time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by notice from ING Barings LLC to the
Company and the Selling Stockholders. Such notice shall set forth the aggregate
number of Additional Shares as to which the option is being exercised and the
date and time, as reasonably determined by ING Barings LLC, when the Additional
Shares are to be delivered (such date and time being herein sometimes referred
to as the "Additional Closing Date"); provided, however, that the Additional
Closing Date shall not be earlier than the Closing Date or earlier than the
second full business day after the date on which the option shall have been
exercised nor later than the fifth full business day after the date on which the
option shall have been exercised (unless such time and date are postponed in
accordance with the provisions of Section 10 hereof). Certificates in negotiable
form (endorsed in blank or accompanied by stock powers in blank, with signatures
appropriately guaranteed, and any funds necessary for the purchase of stock
transfer stamps) representing all of the Additional Shares to be sold by the
Selling Stockholders have been placed in custody under a Custody Agreement and
each Selling Stockholder has duly executed and delivered a Power of Attorney
appointing [Ralph E. Christoffersen] and [Lawrence E. Bullock] and each of them
as such Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") with
authority to execute this Agreement and to deliver this Agreement on behalf of
such Selling Stockholder, to authorize the delivery of the Additional Shares to
be sold by such Selling Stockholder hereunder and otherwise to act on behalf of
such Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement. Each Selling Stockholder agrees that
the shares represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder and the arrangements made by such Selling Stockholder for
such custody, as well as the appointment by such Selling Stockholder of the
Attorney-in-Fact, are, to that extent, irrevocable. Each Selling Stockholder
specifically agrees that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as otherwise provided herein, by any act of such
Selling Stockholder, operation of law or otherwise, whether by the death or
incapacity of such Selling Stockholder, if an individual, or by the occurrence
of any other event. If any Selling Stockholder, if an individual, should die or
become incapacitated, or if any other such event should occur, before the
delivery of the Additional Shares hereunder, certificates representing the
shares held in custody for such Selling Stockholder shall be delivered pursuant
to the terms and conditions of this Agreement and the Custody Agreement, and the
actions taken by the Attorney-in-Fact pursuant to the Power of
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Attorney shall be as valid as if such death, incapacity or other event had not
occurred, whether or not the Custodian or the Attorneys-in-Fact shall have
received notice of such death, incapacity or other event. Payment for the
Additional Shares shall be made to the Custodian by wire transfer in immediately
available funds to the order of the Custodian, against delivery to you for the
respective accounts of the Underwriters of the Additional Shares to be purchased
by them. Certificates for the Additional Shares shall be registered in such name
or names and in such authorized denominations as you may request on or before
noon on the business day prior to the Closing Date. The Company will permit you
to examine and package such certificates at or before noon on the business day
prior to the Closing Date.
The number of Additional Shares to be sold to each Underwriter shall
be the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 10 hereof) bears to the total number of Firm Shares being purchased
from the Company, subject, however, to such adjustments to eliminate any
fractional shares as ING Barings LLC in its sole discretion shall make.
(d) Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
4. Offering. It is understood that the several Underwriters propose to
--------
offer the Shares for sale to the public upon the terms set forth in the
Prospectus.
5. Covenants of the Company; Covenants of the Selling Stockholders.
---------------------------------------------------------------
(a) The Company covenants and agrees with each Underwriter that:
(i) If the Registration Statement has not been declared effective
at the time of the execution of this Agreement, the Company will use its
best efforts to cause the Registration Statement and any amendments thereto
to become effective as promptly as possible. If Rule 430A is used or the
filing of the Prospectus is otherwise required under Rule 424(b) or Rule
434, the Company will file the Prospectus (properly completed if Rule 430A
has been used) pursuant to Rule 424(b) or Rule 434 within the prescribed
time period and will provide evidence satisfactory to you of such timely
filing. If the Company elects to rely on Rule 434, the Company will prepare
and file a term sheet that complies with the requirements of Rule 434. If
the Company elects to rely on Rule 462(b) under the Act, the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) under the Act prior to the time confirmations are sent or
given, as specified by Rule 462(b)(2) under the Act, and shall pay the
applicable fees in accordance with Rule 111 under the Act.
The Company will notify you immediately (and, if requested by
you, will confirm such notice in writing) (i) when the Registration
Statement and any amendments
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thereto become effective, (ii) of any request by the Commission for any
amendment of or supplement to the Registration Statement, any preliminary
prospectus or the Prospectus or for additional information, (iii) of the
mailing or the delivery to the Commission for filing of any amendment of or
supplement to the Registration Statement or the Prospectus, (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
the initiation, or the threatening, of any proceedings therefor, (v) of the
receipt of any comments from the Commission, and (vi) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for that purpose. If a stop order or
suspension of qualification is proposed at any time, the Company will use
its best efforts to prevent the issuance of any such stop order and, if
issued, to obtain the lifting thereof as soon as possible. The Company will
not file any amendment to the Registration Statement or any amendment of or
supplement to, any preliminary prospectus or the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that
differs from the prospectus on file at the time of the effectiveness of the
Registration Statement before or after the effective date of the
Registration Statement to which you shall reasonably object in writing
after being timely furnished in advance a copy thereof.
(ii) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act by an Underwriter or dealer any
event shall have occurred as a result of which the Prospectus as then
amended or supplemented would, in the reasonable judgment of ING Barings
LLC, counsel to the Underwriters or the Company, include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein, or necessary to make the statements therein, not
misleading, or if it shall be necessary at any time to amend or supplement
the Registration Statement, the preliminary prospectus or the Prospectus to
comply with any law, the Company promptly will notify ING Barings LLC and
prepare and file with the Commission and furnish at its own expense to the
Underwriters and dealers, an appropriate amendment or supplement (in form
and substance reasonably satisfactory to ING Barings LLC) which will
correct such untrue statement or omission or so that the Registration
Statement, any preliminary prospectus and the Prospectus will comply with
the law and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(iii) As soon as practicable, but not later than 45 days after
the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, the Company will make
generally available (within the meaning of Section 11(a) of the Act) to its
securityholders and to you an earnings statement or statements of the
Company which will satisfy the provisions of Section 11(a) of the Act and
Rule 158 of the Regulations, covering a period of at least twelve
consecutive months beginning after the effective date of the Registration
Statement; and will, during the period of five years from the date of the
Prospectus, make generally
20
<PAGE>
available (within the meaning of Section 11(a) of the Act) to its
securityholders as soon as practicable after the end of each fiscal year,
an annual report (including a balance sheet and statements of financial
condition, operations, cash flows and changes in stockholders' equity of
the Company, certified by the Company's independent public accountants)
and, as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated
summary financial information of the Company for such quarter in reasonable
detail.
(iv) The Company will furnish without charge to you and counsel
to the Underwriters three complete signed copies of the Registration
Statement (including exhibits thereto), and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so long
as, in the reasonable opinion of counsel to the Underwriters, delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each preliminary prospectus and the Prospectus and any amendment
or supplement thereto as you may request.
(v) The Company will arrange for the qualification of the Shares
for sale under the laws of such jurisdictions (both national and foreign)
as ING Barings LLC may designate and will make such applications, file such
documents and furnish such information as may be required for that purpose
and will maintain such qualifications in effect for so long as required for
the distribution of the Shares; provided, however, that in no event shall
the Company be required to qualify to do business in any such jurisdiction
in which it is not already qualified or to file a general consent to
service of process in any jurisdiction in which it is not now so required,
other than in respect of suits arising out of the offering or sale of the
Shares. The Company will, from time to time, prepare and file such
statements, reports and other documents, as are or may be required to
continue such qualifications in effect for so long a period as ING Barings
LLC may request for the distribution of the Shares. The Company will
cooperate with ING Barings LLC and counsel to the Underwriters in
connection with the filings required to be made by ING Barings LLC with the
NASD and will pay the fee of the NASD in connection with its review of the
offering of the Shares and will use its best efforts to maintain quotation
of its shares on the Nasdaq National Market System.
(vi) During the period of five years from the effective date of
the Registration Statement, the Company will furnish to you and, upon
request, to each of the several Underwriters, without charge, copies of, in
such quantities as you or the Underwriters may request from time to time,
(i) as soon as available, all reports or other communications (financial or
other) furnished generally by the Company to its securityholders, (ii) 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
21
<PAGE>
certified public accountants; and (iii) 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, any other supervisory,
regulatory, administrative or governmental agency, body or authority
whether pursuant to the Exchange Act or otherwise or any national
securities exchange or system on which any class of securities of the
Company is listed or quoted.
(vii) For a period of 90 days from the date of the Prospectus
(the "Lock-Up Period"), without the prior written consent of ING Barings
LLC, neither the Company nor any Locked-Up Party shall, directly or
indirectly: (1) issue, offer for sale, contract to sell, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement
or otherwise) by any person at any time in the future of) any shares of
Common Stock or securities convertible into, exercisable or exchangeable
for, or represent the right to receive, Common Stock or sell or grant
options, rights or warrants with respect to any shares of Common Stock or
any of the foregoing or announce the offering of or register for sale any
of the foregoing or any outstanding shares of Common Stock; provided
however, that the Company may grant options and issue and sell Common Stock
pursuant to any directors' and employees' stock plan (including any
employees' stock purchase plan), stock ownership plan, dividend
reinvestment plan or warrants of the Company in effect at the effective
date of the Registration Statement and which are described in the
Prospectus so long as none of those shares that may be issued to any
Locked-Up Party may be transferred during the Lock-Up Period and the
Company shall enter stop transfer instructions with its transfer agent and
registrar against any such transfer; or (2) enter into any swap, repurchase
agreement, pledge, transfer or other transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of ownership of
such shares of Common Stock or other securities, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise. In
addition, during such period, the Company and the Subsidiary also agree not
to file any registration statement (other than a Form S-8 registration
statement filed in connection with shares of Common Stock received under a
Company directors' and employees' stock plan, stock ownership plan,
employment agreement or dividend reinvestment plan) with respect to, and
each of the executive officers, directors and certain securityholders of
the Company has agreed not to make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of ING Barings LLC.
(viii) During the period when, in the opinion of counsel to the
Underwriters, the delivery of a Prospectus by an Underwriter or dealer may
be required by the Act, the Company will comply, at its own expense, with
all requirements imposed
22
<PAGE>
upon it by the Commission, the Act, the Regulations, the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, so far
as necessary to permit the continuance of sales of or dealing in the Shares
during such period in accordance with the provisions hereof and the
Prospectus. In addition, during such 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.
(ix) Each of the Company and the Subsidiary will conduct its
business in compliance in all material respects with all applicable laws,
rules, regulations, decisions, directives and orders. The Company will do
and perform all things required or necessary to be done and performed under
this Agreement by the Company on or prior to the Closing Date and to comply
or cause to be satisfied, to the extent such are within its control, the
conditions precedent to the several obligations of the Underwriters
specified in Section 9 hereof.
(x) Neither the Company nor any of its affiliates (as defined
in Regulation D under the Act), will take, directly or indirectly, any
action designed to cause or result in, or which constitutes or which might
reasonably be expected to cause, result in, or constitute, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of
the shares of Common Stock of the Company to facilitate the offering and
distribution of the Shares or any other action prohibited by Regulation M
under the Exchange Act.
(xi) The Company will apply the net proceeds to the Company
from the offering and sale of the Shares to be sold by the Company in the
manner set forth in the Prospectus under "Use of Proceeds."
(xii) The Company shall engage and maintain, at its expense, a
registrar and transfer agent for the Shares.
(xiii) The Company will use its best efforts to maintain listing
of its shares of Common Stock on the Nasdaq National Market.
(xiv) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the
past conducted its affairs, and will in the future conduct its affairs, in
such a manner so as to ensure that the Company was not and will not be an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(xv) The Company shall cause to be prepared and delivered, at
its expense, within one business day from the date hereof, to the
Underwriters an "electronic Prospectus" to be used by the Underwriters in
connection with the offering and sale of the Shares. As used herein, the
term "electronic Prospectus" means a form of Prospectus,
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<PAGE>
and any amendment or supplement thereto, that meets each of the following
conditions: (i) it shall be encoded in an electronic format, satisfactory
to you, that may be transmitted electronically by the Underwriters to
offerees and purchasers of the Shares for at least during the period when,
in the opinion of counsel to the Underwriters, the Prospectus is required
to be delivered under the Act or the Exchange Act; (ii) it shall disclose
the same information as the paper Prospectus and Prospectus 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 you, 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).
(b) Each Selling Stockholder covenants and agrees with each
Underwriter that:
(i) Each Selling Stockholder will not, directly or indirectly,
without the prior written consent of ING Barings LLC, offer, sell, grant
any option to purchase or otherwise dispose (or announce any offer, sale,
grant of any option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 90 days after the
date hereof, except pursuant to this Agreement, and will not take, directly
or indirectly, any action designed to, or which might in the foreseeable
future reasonably be expected to cause or result in, stabilization of
manipulation of the price of any securities of the Company.
(ii) The Selling Stockholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters and
all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for such period of time thereafter as
the Prospectus is required by law to be delivered in connection therewith.
6. Payment of Expenses.
-------------------
(a) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
ING Barings LLC, if paid by the Underwriters, all costs, fees and expenses
incident to the performance of the obligations of the Company and the Selling
Stockholders under this Agreement, including but not limited to costs, fees and
expenses of or relating to (i) the preparation by the Company, printing and
filing of the Registration Statement and exhibits to it, each preliminary
prospectus, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus (including, without limitation, the fees and
expenses of the Company's counsel,
24
<PAGE>
accountants and other advisors), (ii) the preparation and delivery of
certificates representing the Shares, (iii) the printing of this Agreement and
Underwriter's Questionnaires, Underwriter's Powers of Attorney, Blue Sky
Memoranda, Master Agreements Among Underwriters and Master Selling Agreements,
Custody Agreement and Selling Stockholders' Power of Attorney and all other
documents relating to the public offering of the Shares (including those
documents supplied to the Underwriters in quantities as hereinabove stated) and
furnishing (including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
exhibits, schedules, consents, certificates of experts, amendments and
supplements thereto, as may be requested for use in connection with the offering
and sale of the Shares by the Underwriters or by dealers to whom Shares may be
sold, (iv) the quotation of the Shares on the Nasdaq National Market, (v) any
filings required to be made with, and the review by, the NASD and the fees,
disbursements and other charges of the Underwriters' counsel in connection
therewith, (vi) the registration or qualification (or obtaining exemptions from
such registration or qualification) of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions designated pursuant to Section
5(e), including the fees, disbursements and other charges of the Underwriters'
counsel in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue Sky memoranda, (vii) the issuance,
transfer and delivery of the Shares to the Underwriters and the Selling
Stockholders, including any issue, transfer, stamp or other taxes payable
thereon, (viii) the transfer agent or registrar for the Shares, (ix) the costs
and expenses of the Underwriters incident to the preparation and undertaking of
"road show" preparations to be made to prospective investors, and (x) all other
fees, costs and expenses referred to in Part II of the Registration Statement.
Except as otherwise provided herein, the Underwriters shall pay their own
expenses, including the fees and disbursement of their counsel.
(b) If this Agreement shall be terminated by the Company otherwise
than as explicitly permitted by this Agreement, or if any condition to the
obligations of the Underwriters set forth in Section 9 hereof is not satisfied,
or if this Agreement shall be terminated by ING Barings LLC as permitted
hereunder pursuant to Section 9, Section 10 or Section 12, or if the sale to the
Underwriters of the Shares on the Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse ING Barings LLC and the other Underwriters (or such Underwriters as
have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been incurred by ING
Barings LLC and the Underwriters in connection with the proposed purchase and
the offering and sale of the Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, its directors, officers, employees, and agents and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act,
25
<PAGE>
against any and all losses, liabilities, claims, damages, actions and expenses
whatsoever, as incurred (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing, compromising
or defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement for the registration of the Shares,
as originally filed or any amendment thereof, or 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; 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 to state therein a material fact
necessary in order to make statements therein, 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 an Underwriter in
connection with, or relating in any manner to, the Shares 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), (ii), (iii) or (iv) above, provided that the Company will
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 such Underwriter through its bad faith
or willful misconduct; and provided, however, that the Company will not be
liable in any such case covered by clauses (i), (ii), (iii), (iv) or (v) above
to the extent but only to the extent that any such loss, liability, claim,
damage, action or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information relating to
an Underwriter furnished to the Company by or on behalf of any Underwriter
through you expressly for use therein; and provided, further, that with respect
to any preliminary prospectus, the foregoing indemnity in this clause 7(a) shall
not inure to the benefit of any Underwriter from whom the person asserting any
loss, claim, damage, liability or expense purchased Shares, or any of its
directors, officers or employees or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter and a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability, action or
expense. The Company acknowledges that the statements set forth in the [first
(including the table), third, seventh and eighth] paragraphs under the captain
"Underwriting" in, and in the last paragraph on the cover page of, the
Prospectus constitute the only information furnished in writing relating to an
Underwriter by or on behalf of
26
<PAGE>
any Underwriter expressly for use in the Registration Statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be. This indemnity agreement will be in addition to any
liability which the Company may otherwise have, including under this Agreement.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter, its directors, officers,
employees, and agents and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages, actions and
expenses whatsoever, as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing,
compromising or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement for the registration of the Shares,
as originally filed or any amendment thereof, or 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; 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 to state therein a material fact
necessary in order to make statements therein, not misleading; or (iii) in whole
or in part upon any inaccuracy in the representations and warranties of the
Company or such Selling Stockholder contained herein; or (iv) in whole or in
part upon any failure of the Company or such Selling Stockholder 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 an Underwriter in connection with, or relating
in any manner to, the Shares 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), (ii),
(iii) or (iv) above, provided that no Selling Stockholder will 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 such Underwriter through its bad faith or willful
misconduct; and provided, however, that no Selling Stockholder will be liable in
any such case covered by clauses (i), (ii), (iii), (iv) or (v) above to the
extent but only to the extent that any such loss, liability, claim, damage,
action or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information relating to an
Underwriter furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein; and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity in this clause 7(b) shall not
inure to the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Shares, or any
27
<PAGE>
of its directors, officers or employees or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability, action or expense. Each Selling Stockholder acknowledges that
the statements set forth in the [first (including the table), third, seventh and
eighth] paragraphs under the captain "Underwriting" in, and in the last
paragraph on the cover page of, the Prospectus constitute the only information
furnished in writing relating to an Underwriter by or on behalf of any
Underwriter expressly for use in the Registration Statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be. Notwithstanding the foregoing, (y) the aggregate liability
of any Selling Stockholder pursuant to this paragraph (b) and for any breach of
any representation or warranty contained in this Agreement by such Selling
Stockholder shall be limited to an amount equal to the proceeds (after deducting
underwriting discounts and commissions) received by such Selling Stockholder
from the Underwriters for the sale of the Shares sold by such Selling
Stockholder hereunder, and (z) to the extent the Company is also liable for
indemnification under Section 7(a) above, no Selling Stockholder shall be liable
for indemnification under this Section 7(b) until, and then only to the extent
that, the indemnified party has made demand for indemnification pursuant to
Sections 7(a) and 7(d) from the Company and the Company shall have rejected such
demand or shall not have made payment to satisfy in full such indemnification
claim within thirty days of the date of such original demand. This indemnity
agreement will be in addition to any liability which the Company and the Selling
Stockholders may otherwise have, including under this Agreement.
(c) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each Selling Stockholder, each of the directors
of the Company, each of the officers of the Company who shall have signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are 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
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the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information relating to an Underwriter furnished to the Company by
or on behalf of any Underwriter through you expressly for use therein; provided,
however, that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discounts and commissions applicable to the
Shares purchased by such Underwriter hereunder. This indemnity will be in
addition to any liability which any Underwriter may otherwise have, including
under this Agreement. The Company and each Selling Stockholder acknowledge that
the statements set forth in the [first (including the table), third, seventh and
eighth] paragraphs under the captain "Underwriting" in, and in the last
paragraph on the cover page of, the Prospectus constitute the only information
furnished in writing relating to an Underwriter by or on behalf of any
Underwriter expressly for use in the Registration Statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be.
(d) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability or
obligation which it may have under this Section 7 or otherwise (i) unless the
failure to notify shall result in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not in any event relieve the
indemnifying party from any obligations other than the indemnification
obligation provided in paragraph (a) or (b) above). In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified parties promptly after receiving the aforesaid notice from an
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified parties. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party or parties in conducting
the defense of any such action or that there may be one or more legal defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses shall be borne by the indemnifying parties, it
being understood, however, that the indemnifying party
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or parties shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (plus separate local
counsel, if retained by the indemnified party or parties) at any time for all
such indemnified parties. An indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
Notwithstanding the foregoing, 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 in this Section 7, 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 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 is for money damages only and includes (i) an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act by or on behalf of any indemnified party.
Any losses, claims, damages, liabilities, expenses or actions for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 or under Section 8 below shall be paid by the indemnifying party
to the indemnified party as such losses, claims, damages, liabilities or
expenses are incurred, but in all cases, no later than thirty (30) days of
invoice to the indemnifying party.
The indemnity and contribution agreements contained in this Section 7
and in Section 8 below and the representation and warranties of the Company and
the Selling Stockholders set forth in this Agreement shall remain operative and
in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any director, officer or employee of or person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, or any Selling Stockholder, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7 and Section 8 below.
The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 7 and Section 8 below and are fully informed
regarding said provisions. They further acknowledge that the
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provisions of this Section 7 and Section 8 below fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement, the preliminary prospectus and Prospectus as required by the Act and
the Exchange Act.
8. Contribution. In order to provide for contribution in circumstances
------------
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, each indemnifying party shall severally
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company, one or more of the Selling Stockholders and one
or more of the Underwriters may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders (relative as to each other), on the one hand, and the
Underwriters, severally, on the other hand, from the offering of the Shares or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Selling Stockholders (relative as to each other), on the one
hand, and the Underwriters, severally, on the other hand, in connection with the
statements or omissions 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 and the Selling Stockholders, on
the one hand, and the Underwriters, severally, on the other and the Company and
the Selling Stockholders relative to each other, shall be deemed to be in the
same proportion as the total proceeds from the offering of the Shares (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Stockholders bears to the underwriting discounts
and commissions received by the Underwriters, respectively. The relative fault
of the Company and the Selling Stockholders, on the one hand, and of the
Underwriters, severally, on the other and the Company and the Selling
Stockholders relative to each other, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Underwriters and the Selling Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations
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referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Further notwithstanding the provisions of this Section 8 and
the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each director, officer,
employee and agent of an Underwriter and each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company or a Selling Stockholder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties,
notify each party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent,
provided that such consent was not unreasonably withheld.
The Underwriters' obligations in this Section 8 to contribute are several
in proportion to their respective underwriting obligations and not joint. The
remedies provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity.
9. Conditions to the Obligations of the Underwriters. The several
-------------------------------------------------
obligations of the Underwriters to purchase and pay for the Firm Shares and the
Additional Shares, as provided herein, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the date hereof, the Closing Date and any
Additional Closing Date, to the absence from any certificates, opinions, written
statements or letters furnished to you or to Underwriters' counsel pursuant to
this Section 9 of any misstatement or omission, to the timely performance by the
Company and the Selling Stockholders of its covenants and other obligations
hereunder and to each of the following additional conditions:
(a) The Registration Statement shall have become effective not later
than, if pricing pursuant to Rule 430A, 5:30 P.M., New York time on the date of
this Agreement, and if
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pricing pursuant to a pricing amendment, 12:00 P.M., New York time on the date
an amendment to the Registration Statement containing the public offering price
has been filed with the Commission, or at such later time and date as shall have
been consented to in writing by ING Barings LLC; if the Company shall have
elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus
shall have been filed with the Commission in a timely fashion in accordance with
Section 5(a) hereof; and, at or prior to the Closing Date no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereof shall have been issued and no proceedings for such purpose
shall have been initiated or threatened by the Commission; no order suspending
the qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such purpose
shall be pending before or threatened or contemplated by the authorities of any
such jurisdiction; any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities and to the
satisfaction of counsel to the Underwriters; after the date hereof no amendment
or supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to you and you did not
reasonably object thereto; and the NASD, upon review of the terms of the public
offering of the Shares, shall not have raised any objection to the fairness or
reasonableness of the underwriting terms and arrangements.
(b) The Company shall have furnished to you the opinion of
Rothgerber, Johnson & Lyons, counsel for the Company, dated the Closing Date and
the Additional Closing Date, if applicable, addressed to the Underwriters and in
form and substance reasonably satisfactory to Stroock & Stroock & Lavan LLP,
Underwriters' counsel, to the effect that:
(i) The Company has been duly organized and is validly existing
and in good standing under the laws of Delaware, with the corporate power
and authority to own, lease and operate its properties and engage in the
business in which it is engaged or proposes to engage as described in the
Registration Statement and the Prospectus. To such counsel's knowledge, the
Company is duly registered and qualified to do business as a foreign
corporation in good standing in each jurisdiction where the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business requires such registration or qualification, except
where the failure to so register or qualify, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. To such counsel's knowledge, except as
described in the Registration Statement, the preliminary prospectus and the
Prospectus, the Company does not own or control, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have an equity interest in any firm, partnership,
association, joint venture or other entity.
(ii) The Company's authorized equity capitalization is as set
forth in the Registration Statement and the Prospectus; the Common Stock,
the Firm Shares, the Additional Shares and all others shares of capital
stock of the Company conform to the
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description thereof contained in the Registration Statement. The
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. The
Shares to be issued and sold to the Underwriters pursuant to the
Underwriting Agreement have been duly authorized, and when issued and
delivered to and paid for by the Underwriters pursuant to the Underwriting
Agreement, will be validly issued and fully paid and nonassessable, and to
such counsel's knowledge will be transferred to the Underwriters free and
clear of any Liens and will not have been issued in violation of or subject
to any statutory or, to such counsel's best knowledge, other preemptive
rights, resale rights, co-sale rights, rights of first refusal, or similar
rights. The certificates for the Shares are in valid and sufficient form.
The holders of outstanding shares of capital stock of the Company are not
entitled to statutory or, to such counsel's best knowledge, other
preemptive rights, co-sale rights, rights of first refusal, resale rights
or similar rights in respect of the Shares. Except as described in the
Registration Statement and the Prospectus, to such counsel's best
knowledge, there are no authorized or outstanding rights, warrants or
options to acquire, or instruments convertible into or exercisable or
exchangeable for, any share of capital stock or other equity interest or
ownership interest in the Company or the Subsidiary or any contract,
commitment, agreement, understanding or arrangement of any kind relating to
the issuance of any capital stock or other equity interest or ownership
interest in the Company or the Subsidiary or any such convertible or
exercisable or exchangeable securities or instruments or any such rights,
warrants or options. To such counsel's knowledge, all holders of securities
of the Company which have any rights to the registration of securities of
the Company because of the filing of the Registration Statement or
otherwise in connection with the sale of the Shares contemplated by the
Underwriting Agreement have waived such rights as of the date thereof.
(iii) To the best knowledge of such counsel, there are no legal
or governmental actions, suits, proceedings or investigations pending or
threatened against the Company or the Subsidiary, or as to which the
business, assets or property of the Company or the Subsidiary would be
subject or bound, that are of a character required to be disclosed in the
Registration Statement or the Prospectus which have not been disclosed
therein. The statements in the Registration Statement and the Prospectus
under the caption "Business--Legal proceedings", insofar as such statements
constitute a summary of matters of law, relating to pending litigation
fairly summarize, in all material respects, the matters referred to
therein.
(iv) The Registration Statement has become effective under the
Act; all filings required by Rule 424(b) of the Regulations have been made
in the manner and within the time period required by Rule 424(b). To the
best knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or threatened. The Registration Statement and
the Prospectus (other than the financial statements and supporting
schedules, financial data and statistical data, as to which such counsel
need not express
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any opinion) and each amendment or supplement thereto comply as to form in
all material respects with the applicable requirements of the Act and the
Regulations.
(v) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company, and is the valid and binding
agreement of the Company. The Company has the corporate power and authority
to enter into the Underwriting Agreement and to issue, sell and deliver to
the Underwriters the Shares to be issued and sold by it thereunder.
(vi) To the best knowledge of such counsel, the Company is not
in violation of its certificate of incorporation, as amended.
(vii) Neither the issuance, offer, sale or delivery of the
Shares, the execution, delivery and performance by the Company of the
Underwriting Agreement nor the compliance by the Company with all the
provisions thereof nor the consummation of the transactions contemplated
thereby (other than performance of the Company's indemnification and
contribution obligations thereunder, concerning which no opinion is
expressed), (A) constitutes or will constitute a breach or violation of or
a default (or an event that with notice or the lapse of time or both would
constitute such a breach, violation or default) under, any of the terms or
provisions of the certificate of incorporation or by-laws of the Company or
the organizational documents of the Subsidiary, (B) constitutes or will
constitute a breach or violation of, or a default (or an event that with
notice or the lapse of time or both would constitute such a breach,
violation or default), or the termination of any Contract filed as an
exhibit to any of the Company's filings with the Commission pursuant to the
1934 Act, nor (C) violates or will violate any law, statute, rule or
regulation applicable to the Company or the Subsidiary (other than state
securities or blue sky laws concerning which no opinion need be expressed)
or any judgment, decree or order known to such counsel and applicable to
the Company or the Subsidiary of any court or governmental agency, body or
authority, having jurisdiction over the Company or the Subsidiary or any of
their property or assets, the default under or the breach or violation of
which, in the case of clauses (B) and (C) above, individually or in the
aggregate, could have a Material Adverse Effect on the Company and the
Subsidiary taken as a whole.
(viii) The Company is not now, and as a result of the offer and
sale of the Shares in the manner contemplated in the Underwriting
Agreement, the Registration Statement, the preliminary prospectus and the
Prospectus and the application of the net proceeds of such sale as
described in the Registration Statement, the preliminary prospectus and the
Prospectus, will not be, an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company"
within the meaning of the Investment Company Act, without taking account of
any exemption arising out of the number or type of holders of the Company's
securities.
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(ix) No consent, approval, authorization, filing,
qualification, Permit or order of any court or governmental agency, body or
authority, or, to the knowledge of such counsel, from the Company's
securityholders is required for the Company's execution, delivery and
performance of the Underwriting Agreement, the issuance, sale or delivery
of the Shares thereunder or the consummation of any other of the
transactions contemplated in the Underwriting Agreement or the fulfillment
of the terms thereof, except such as have been obtained under the Act and
the Exchange Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares
by the Underwriters and such other approvals (specified in such opinion) as
have been obtained and which are in full force and effect.
(x) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is quoted on the Nasdaq National Market, and to the
best of such counsel's knowledge, the Company has not received any
notification that the Commission or the Nasdaq National Market is
contemplating the termination of such registration or listing.
(xi) To such counsel's knowledge, each Selling Stockholder is
the lawful owner of the Shares to be sold by such Selling Stockholder
pursuant to the Underwriting Agreement and has good and clear title to such
Shares, free of all restrictions on transfer, liens, encumbrances, security
interests, equities and claims whatsoever, and upon delivery of and payment
for the Shares sold by each Selling Stockholder pursuant to the
Underwriting Agreement on the Closing Date, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever.
(xii) Each Selling Stockholder had, at the time of entering into
the Underwriting Agreement, and on the Closing Date, has full legal right,
power and authority to enter into this Agreement and to sell, assign,
transfer and deliver the Shares in the manner provided herein. This
Agreement has been duly executed and delivered by each Selling Stockholder,
and is a valid and binding agreement of each Selling Stockholder,
enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(xiii) To such counsel's knowledge, none of the execution,
delivery and performance of the Underwriting Agreement, the Custodian
Agreement and the Power of Attorney by each Selling Stockholder, the
compliance by each Selling Stockholder with all the provisions thereof and
the consummation of the transactions contemplated thereby do not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a
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breach of any of the terms or provisions of, or a default under, any
indenture, loan agreement, mortgage, lease or other material agreement or
instrument to which any Selling Stockholder is a party or by which any
Selling Stockholder or any property of any Selling Stockholder is bound or
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over any Selling Stockholder or any property of any
Selling Stockholder.
(xiv) A Power of Attorney and the Custody Agreement have been
duly executed and delivered by each Selling Stockholder and, assuming the
due authorization, execution and delivery of the Custody Agreement by the
other parties thereto, each constitutes the valid and binding agreement of
each Selling Stockholder enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general principles of equity relating to
the availability of remedies and except as rights to indemnity or
contribution may be limited by federal or state securities laws and the
public policy underlying such laws.
In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Prospectus and related matters
were discussed and no facts have come to the attention of such counsel which
cause such counsel to believe that the Registration Statement (other than
financial statements and supporting schedules, other financial data and
statistical data, as to which such counsel need not express any opinion) at the
time it became effective (including all information deemed to be part of the
Registration Statement (other than financial statements and supporting
schedules, other financial data and statistical data, as to which such counsel
need not express any opinion) at the time of effectiveness pursuant to Rule
430A, Rule 462 or Rule 434, if applicable) contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus (other than financial statements and supporting schedules, other
financial data and statistical data, as to which such counsel need not express
any opinion) as of its date and as of the Closing Date contained or contains an
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel (A) need not opine as to laws of
any jurisdiction other than the States of Colorado and Delaware (only as to the
Delaware General Corporation Law), and the federal laws of the United States, or
as to whether the laws of any particular jurisdiction apply, and (B) may rely as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and the
Subsidiary and on certificates from
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the Selling Stockholders, provided that copies of any such statements or
certificates shall be delivered to Underwriters' counsel upon request. Moreover,
except to the extent set forth in the immediately preceding paragraph, such
counsel need not render any opinion as to compliance with any antifraud
provisions of any law, rule or regulation relating to (i) securities or (ii) the
sale or issuance thereof.
(c) The Company shall have furnished to you the opinion of
[__________], special Bermuda counsel for the Company, dated the Closing Date
and the Additional Closing Date, if applicable, addressed to the Underwriters
and in form and substance reasonably satisfactory to Stroock & Stroock & Lavan
LLP, Underwriters' counsel, to the effect that:
(i) The Subsidiary has been duly organized and is validly
existing and in good standing under the laws of Bermuda, with the corporate
power and authority to own, lease and operate its properties and engage in
the business in which it is engaged or proposes to engage as described in
the Registration Statement and the Prospectus. To such counsel's knowledge,
the Subsidiary is duly registered and qualified to do business as a foreign
corporation in good standing in each jurisdiction where the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business requires such registration or qualification, except
where the failure to so register or qualify, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
(ii) All the outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, are owned by the Company, free and clear of any Liens,
stockholders' agreements, voting trusts or defects of title, and were not
issued in violation of statutory or, to such counsel's best knowledge,
other preemptive rights, co-sale rights, resale rights, rights of first
refusal, or similar rights.
(iii) Except as described in the Registration Statement and the
Prospectus, to such counsel's best knowledge, there are no authorized or
outstanding rights, warrants or options to acquire, or instruments
convertible into or exercisable or exchangeable for, any share of capital
stock or other equity interest or ownership interest in the Subsidiary or
any contract, commitment, agreement, understanding or arrangement of any
kind relating to the issuance of any capital stock or other equity interest
or ownership interest in the Subsidiary or any such convertible or
exercisable or exchangeable securities or instruments or any such rights,
warrants or options.
(iv) To the best knowledge of such counsel, there are no legal
or governmental actions, suits, proceedings or investigations pending or
threatened against the Subsidiary, or as to which the business, assets or
property of the Subsidiary would be subject or bound that are of a
character required to be disclosed in the Registration Statement or the
Prospectus which have not been disclosed therein.
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(v) To the best knowledge of such counsel, the Subsidiary is
not in violation of its organizational documents, as each may be amended.
(d) The Company shall have furnished to you the opinion of Brobeck,
Phleger & Harrison LLP, intellectual property counsel ("IP Counsel") for the
Company, dated the Closing Date and the Additional Closing Date, if applicable,
addressed to the Underwriters and in form and substance reasonably satisfactory
to Stroock & Stroock & Lavan LLP, Underwriters' counsel, to the effect that:
(i) IP Counsel represents the Company in certain matters
relating to patents and is familiar with the worldwide patent portfolio of
the Company;
(ii) IP Counsel is familiar with the technology used by the
Company in its business and the manner of its use and has read the portions
of the Registration Statement and the Prospectus entitled "Risk Factors -
We experience a substantial degree of uncertainty relating to patents that
could cause us to incur substantial costs and delays as a result of
proceedings and litigation regarding patents and other proprietary rights,
possibly resulting in additional expenses and the loss of some patent
protection" and "Business - Our patents and proprietary technology"
(collectively, the "Intellectual Property Portion");
For the purposes of this IP Counsel opinion, to the "best
of such IP Counsel's knowledge" means the knowledge of Richard Warburg,
Robert Prince and Wesley Ames who have reviewed the contents of the
Registration Statement and Prospectus with the Company and who have been
involved with the prosecution of the Company's patent and patent
applications and who have reviewed the prosecution files identified on
schedule __ attached hereto (the "Schedule __ Patents").
(iii) with respect to the Schedule __ Patents, the Intellectual
Property Portion does not contain any inaccurate or misleading statements
and contains accurate descriptions of the Company's patent applications,
issued and allowed patents, and patents licensed to the Company and fairly
summarizes the legal matters, documents and proceedings relating thereto;
with respect to intellectual property matters other than the Schedule __
Patents, to the best of such IP Counsel's knowledge, the Intellectual
Property Portion does not contain any inaccurate or misleading statements
and contains accurate descriptions of the Company's patent applications,
issued and allowed patents, and patents licensed to the Company and fairly
summarizes the legal matters, documents and proceedings relating thereto;
(iv) to the best of such IP Counsel's knowledge, based upon a
review of the third party rights made known to IP Counsel and discussions
between IP Counsel and Company scientific and other personnel, there is no
United States or foreign patent that is or would be infringed by the
activities of the Company in the manufacture, use or sale of any presently
proposed product, the technologies employed by the Company or the method of
their use in any presently proposed product, each as described in the
Prospectus; in stating this opinion, IP Counsel is relying on the non-
infringement opinion of Lyon & Lyon with respect to eleven (11) third-party
patents listed on Schedule __, attached hereto (the "Lyon Patents") and the
following three (3) company products: (1) ANGIOZYME, (2) an anti-HCV
ribozyme and (3) HERZYME (the "Products").
(v) IP Counsel has reviewed and is familiar with the record in
the following proceedings: [1 Europe opposition, 1 Japan opposition];
(vi) IP Counsel has reviewed the Company's patent applications
filed in the United States and outside the United States as identified in
Schedule __ (the "Applications") and which Applications are described in
the Intellectual Property Portion and in the opinion of IP Counsel the
Applications identified in Schedule __ have been properly prepared and
filed on behalf of the Company, and are being diligently pursued by the
Company; the inventions described in
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the Applications are assigned or licensed to the Company; no other entity
or individual has any right or claim in any of the inventions,
Applications, or any patent to be issued therefrom, and in IP Counsel's
opinion each of the Applications discloses patentable subject matter; with
respect to intellectual property matters other than the Schedule _ Patents,
IP Counsel has reviewed the Company's patent applications filed in the
United States and outside the United States (the "Non-Schedule
Applications") and which Non-Schedule Applications are described in the
Intellectual Property Portion and to the the best of such IP Counsel's
knowledge, the Non-Schedule Applications have been properly prepared and
filed on behalf of the Company, and those of interest to the Company are
being diligently pursued by the Company; the inventions described in the
Non-Schedule Applications are assigned or licensed to the Company; no other
entity or individual has any right or claim in any of the inventions, Non-
Schedule Applications, or any patent to be issued therefrom, and to the
best of such IP Counsel's knowledge, each of the Non-Schedule Applications
discloses patentable subject matter; for purposes of this opinion point,
disclosures of "patentable subject matter" shall exclude comment on the
scope of claims which may issue, which such IP Counsel is not providing in
this IP Counsel opinion.
(vii) other than ordinary ex parte prosecution activities, there
-- -----
are no pending or to the best of such IP Counsel's knowledge, threatened
judicial or governmental proceedings relating to patents to which the
Company is a party and there is no pending or to the best of such IP
Counsel's knowledge, threatened action, suit or claim by others that the
Company is infringing or otherwise violating any patent rights of others
that are material and have not been disclosed in
---
the Prospectus;
(viii) there are no rights of third parties to any of the
Company's intellectual property, including that described in the
Applications, issued, approved or licensed patents which could reasonably
be expected to materially affect the ability of the Company to conduct its
business as described in the Registration Statement and Prospectus,
including the commercialization of the Products currently under
development; and
(ix) with respect to the Schedule _ Patents, the information
contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus at the time it became effective contained no
untrue statement of a material fact nor did it omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and that, at the Closing Date, the information
contained in the Intellectual Property Portion of the Prospectus or any
amendment or supplement to the Intellectual Property Portion of the
Prospectus contains no untrue statement of a material fact nor does it 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; with respect to intellectual property matters other than the
Schedule _ Patents, to the best of such IP Counsel's knowledge, the
information contained in the Intellectual Property Portion of the
Registration Statement or the Prospectus at the time is became effective
contained no untrue statement of a material fact nor did it omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and that, at the Closing Date, the
information contained in the Intellectual Property Portion of the
Prospectus or any amendment or supplement to the Intellectual Property
Portion of the Prospectus contains no untrue statement of a material fact
nor does it 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;
(x) the patents to which the Company has ownership or license
rights are identified on an attached "Comprehensive Schedule of Patents".
Such schedule indicates the areas of the Company's technology to which the
patent or patent application pertains, the status of the patent or
application (abandoned, pending, in force, ...) and the Company's ownership
interest in such patent or application;
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(xi) IP Counsel has made independent investigation of the
ownership interest and legal status, including the maintenance fee or
annuity status of each application or patent identified on the Schedule of
Patents and has confirmed that assignments to the Company have been
recorded with the U.S. Patent and Trademark Office for each patent or
application owned by the Company and that assignments to each licensor have
been recorded with the U.S. Patent and Trademark Office for each patent
licensed to the Company.
(xii) IP Counsel is not aware of any noticed, actual or
threatened termination of any license referred to in the Prospectus or
Registration Statement.
(e) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement, preliminary prospectus
or Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares as herein contemplated shall be satisfactory in form and substance to
you and to Underwriters' counsel in your and your counsel's reasonable
discretion. The Underwriters shall have received from Stroock & Stroock & Lavan
LLP, Underwriters' counsel, a favorable opinion, dated the Closing Date (and the
Additional Closing Date, if applicable), with respect to the issuance and sale
of the Shares, the Registration Statement, the Prospectus and other related
matters as you may reasonably require, and the Company, the Subsidiary and the
Selling Stockholders shall have furnished to Underwriters' counsel such
documents as they reasonably request for the purpose of enabling them to pass
upon the matters referred to in this Section.
(f) At the Closing Date (and the Additional Closing Date, if
applicable) you shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of the Company, dated the Closing Date (and the
Additional Closing Date, if applicable), to the effect that (i) the condition
set forth in subsection (a) of this Section 9 has been satisfied, (ii) as of the
date hereof and as of the Closing Date (and the Additional Closing Date, if
applicable) all the representations and warranties of the Company set forth in
this Agreement are accurate with the same force and effect as if made on each of
such dates, (iii) as of the Closing Date (and the Additional Closing Date, if
applicable) the agreements and obligations of the Company to be performed
hereunder on or prior thereto have been duly performed, (iv) when the
Registration Statement became effective and at all times subsequent thereto up
to the delivery of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained the information
required to be included therein by the Act and the applicable rules and
regulations of the Commission thereunder, and conformed to the requirements of
the Act and the applicable rules and regulations of the Commission thereunder;
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, did not and do not include 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; and since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth; and (v)
subsequent to the
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<PAGE>
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company and the Subsidiary have not sustained any
material loss or interference with their respective business or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a prospective material adverse change, in the business, management, properties,
operations, prospects, condition (financial or otherwise), or results of
operations of the Company and the Subsidiary taken as a whole, or any
transaction that is material to the Company and its subsidiaries taken as a
whole, except transactions entered into in the ordinary course of business, or
any obligation, direct or contingent, that is material to the Company and its
subsidiaries, taken as a whole, incurred by the Company or its subsidiaries,
except obligations incurred in the ordinary course of business, or any change in
the capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries.
(g) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on the Closing Date, and you shall have
received on the Closing Date a certificate dated the Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(h) At the time this Agreement is executed and at the Closing Date and
the Additional Closing Date, if applicable, Ernst & Young, LLP shall have
furnished to you a letter or letters, dated respectively as of the time this
Agreement is executed and as of the Closing Date (and the Additional Closing
Date, if applicable), addressed to you and based upon the procedures described
in such letter, but carried out to a date not more than five (5) days prior to
the Closing Date or the Additional Closing Date, as the case may be, and
otherwise in form and substance satisfactory to you, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Act and Regulation S-X, stating that the answer to item 10 of the
Registration Statement is correct as it relates to them and that:
(i) in their opinion the audited financial statements, the
related financial statement schedules and the audited financial statements
of the Company included in the Registration Statement and the Prospectus
and reported on by them comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and the Subsidiary; carrying out
certain specified procedures (but not an examination in accordance with
generally accepted
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<PAGE>
auditing standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such letter; a
reading of the minutes of the meetings of the stockholders and the board of
directors of the Company and the Subsidiary; and inquiries of certain
officials of the Company and the Subsidiary who have responsibility for
financial and accounting matters of the Company and the Subsidiary as to
transactions and events subsequent to December 31, 1999, nothing came to
their attention which caused them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and with the published rules and regulations of the Commission
with respect to registration statements on Form S-3; and said
unaudited financial statements are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in
the Registration Statement and the Prospectus;
(2) at December 31, 1999 there was any change in the capital
stock, stockholders' equity, long-term debt and working capital of the
Company or any decreases in current assets or net assets as compared
with amounts shown in the December 31, 1998 financial statements,
except in all instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by ING Barings LLC;
(3) the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) and Item 503(d) (Ratio of Earnings
to Fixed Charges) is not in conformity with the applicable disclosure
requirements of Regulation S-K; or
(4) there was any change at [___________], 2000 in the
capital stock, stockholders' equity, long-term debt and working
capital of the Company or any decreases in current assets, net assets
or working capital as compared with the amounts shown in the December
31, 1999 financial statements or, for the period from January 1, 2000
to a date within five days of the date of such letter, there were any
decreases as compared with the corresponding period in the preceding
year in net sales or total or per share amounts of net income, except
for changes or decreases that the registration statement discloses
have occurred or as set forth in such letter;
(iii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of Interim
financial information as
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<PAGE>
described in Statement of Auditing Standards No. 71 ("SAS 71"), Interim
Financial Information, on the unaudited financial statements included in
the Registration Statement and the Prospectus;
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company and the Subsidiary) set forth in the Registration Statement and
the Prospectus, which have been specified by you prior to the date of such
letter, agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation; and
(v) with respect to the fiscal years ended December 31, 1998 and
December 31, 1999, they have performed an SSAE 8 examination of the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Registration Statement and the Prospectus and
have determined that:
(1) the presentation includes, in all material respects, the
required elements of the applicable rules and regulations under the
Act;
(2) the historical financial amounts have been accurately
derived in all material respects from the Company's audited financial
statements; and
(3) the underlying information, determinations, estimates
and assumptions of the Company provide a reasonable basis for the
disclosures contained therein.
In addition, ING Barings LLC shall have received from Ernst & Young LLP a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1999, did not disclose any weaknesses in internal controls that
they considered to be substantial or material weaknesses.
In the event that the letters to be delivered referred to above set forth
note any changes, decreases or increases in the financial information included
in the Registration Statement and the Prospectus, it shall be a further
condition to the obligations of the Underwriters hereunder that ING Barings LLC
shall have determined in its sole judgment, that such changes, decreases or
increases as are set forth in such letters do not reflect a material adverse
change in the stockholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest balance sheet of the Company included in
the Prospectus, or a material adverse change
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<PAGE>
in total net revenues or net income of the Company, in each case as compared
with the corresponding period of the prior year.
(i) Subsequent to the date this Agreement is executed or, if earlier,
the dates as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraph (f) of this Section
9 or (ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or other), earnings, business or properties
of the Company and the Subsidiary, whether or not arising in the ordinary course
of business, the effect of which, in any case referred to in clause (i) or (ii)
above, is, in ING Barings LLC's sole judgment, material and adverse and that
makes it impracticable or inadvisable to proceed with the offering or delivery
of the Shares as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).
(j) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, prospects, properties,
management, key personnel, condition (financial or other) or results of
operations of the Company and the Subsidiary, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in the Registration Statement and the Prospectus (or, in the case of a
prospective change, other than as contemplated by the Registration Statement and
the Prospectus), and (ii) the Company shall not have sustained any material loss
or interference with its business or properties from fire, explosion, flood,
hurricane or other casualty or calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in your reasonable judgment any such development makes it
impracticable or inadvisable to consummate the sale and delivery of the Shares
at the public offering price.
(k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its officers or
directors in their capacities as such, before or by any federal, state, or local
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding could reasonably be expected to have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole.
(l) At the time of execution of this Agreement, except as may have
otherwise been consented to in writing by ING Barings LLC, the Company shall
have furnished to you a letter addressed to you from each Locked-Up Party, in
which each such person agrees not to (1) offer for sale, contract to sell, sell,
pledge or otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
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<PAGE>
any time in the future of) any shares of Common Stock or securities convertible
into, exercisable or exchangeable for, or represent the right to receive, Common
Stock or sell or grant options, rights or warrants with respect to any shares of
Common Stock or register for sale any outstanding shares of Common Stock; or (2)
enter into any swap or other derivatives transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of ownership of such
shares of Common Stock or securities, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise for a period of 90 days following the time of
execution of this Agreement without your prior written consent, other than
shares of Common Stock disposed of as gifts or transfers to immediate family
members or trusts or partnerships, the beneficiaries and sole partners of which
are immediate family members, provided that the donee or transferee agrees in
writing to be bound in the same manner.
(m) The Shares shall be qualified for sale in such jurisdictions as
you shall have requested subject to the terms hereof, each such qualification
shall be in effect and not subject to any stop order or other proceeding on the
Closing Date and the Additional Closing Date, if applicable.
(n) The Company shall have timely filed with the Nasdaq National
Market a notification form for the listing of additional shares on the Nasdaq
National Market with respect to the Firm Shares and the Additional Shares, if
any. Such Firm Shares and such Additional Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market
prior to the Effective Date.
(o) The Company and the Selling Stockholders shall have furnished to
you such certificates, in addition to those specifically mentioned herein, as
you may have reasonably requested (i) as to the accuracy and completeness (to
the extent required under applicable law) at the Closing Date and the Additional
Closing Date, if applicable, of any statement in the Registration Statement, the
preliminary prospectus or the Prospectus, (ii) as to the accuracy at the Closing
Date and the Additional Closing Date, if applicable, of the representations,
warranties and covenants of the Company and the Selling Stockholders herein,
(iii) as to the performance by the Company and the Selling Stockholders of its
obligations hereunder, or (iv) as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(p) Prior to the Closing Date and the Additional Closing Date, if
applicable, the Company and the Selling Stockholders shall have furnished to the
Underwriters such further information and documents as you may reasonably
request.
If any of the conditions specified in this Section shall not have been
fulfilled in all respects when and as required to be satisfied, or if any of the
opinions and certificates mentioned above or elsewhere in this Agreement shall
not be reasonably satisfactory in form and substance to you and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be terminated at, or at any time on or prior to, the Closing Date (and
Additional
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Closing Date, if applicable) by ING Barings LLC. Notice of such termination
shall be given to the Company promptly in writing or by telephone confirmed in
writing.
10. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligations to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, the Shares to which the default relates shall be purchased
by the non-defaulting Underwriters in proportion to the respective proportions
which the numbers of Firm Shares set forth opposite their respective names in
Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite
the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, you may in your discretion
arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 10, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 6, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder. Notwithstanding the foregoing, if
any default occurs with respect to the Additional Closing, this Agreement will
not terminate with respect to the Firm Shares purchased prior to such time.
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the case may be, for a period not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
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11. Survival of Representations and Agreements. All representations and
------------------------------------------
warranties, covenants and agreements of the Underwriters, the Company and the
Selling Stockholders contained in this Agreement, including the agreements
contained in Section 5 and Section 6, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof or by or on behalf of any Selling Stockholder or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares to and by the Underwriters. The representations contained in Sections
1 and 2 and the agreements contained in Sections 6, 7, 8 and 12(d) hereof also
shall survive the termination of this Agreement, including termination pursuant
to Section 10 or 12 hereof.
12. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective upon the later of when (i)
you and the Company shall have received notification of the effectiveness of the
Registration Statement or (ii) the execution of this Agreement. If either the
public offering price or the purchase price per Share has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company or the Underwriters except
as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company and the Selling Stockholders by
notifying you or by you notifying the Company. Notwithstanding the foregoing,
the provisions of this Section 12 and of Sections 1, 2, 6, 7 and 8 hereof shall
at all times be in full force and effect.
(b) ING Barings LLC shall have the right to terminate this Agreement
at any time on or prior to the Closing Date, or the obligations of the
Underwriters to purchase the Additional Shares at any time on or prior to the
Additional Closing Date, as the case may be (but in any event prior to delivery
of and payment for the Shares), if (A) any domestic or international event or
act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the market for the Company's securities or
securities in general; or (B) if trading on the New York or American Stock
Exchanges or Nasdaq National Market shall have been suspended, or limited,
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the New York Stock
Exchange or the Nasdaq National Market by the New York Stock Exchange or the
Nasdaq National Market or by order of the Commission or any other governmental
authority having jurisdiction; or (C) if a banking moratorium has been declared
by a state or federal authority or if any new restriction materially adversely
affecting the distribution of the Firm Shares or the Additional Shares, as the
case may be, shall have become effective; or (D)(i) there shall have occurred
any outbreak or escalation of hostilities or there is an outbreak or escalation
of national or international hostilities or there is a declaration by the United
States of a national emergency or war or (ii) if there has been any crisis or
calamity or any change or development in United
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States' or international political, financial or economic conditions, if the
effect of any such event in (D)(i) or (D)(ii), in the sole judgment of ING
Barings LLC makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the case may
be, on the terms contemplated by the Prospectus (exclusive of any supplement
thereto) or to enforce contracts for the sale of securities; or (E) in the sole
judgment of ING Barings LLC there shall have occurred any Material Adverse
Effect on the Company and its subsidiaries taken as a whole or (F) the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as in the sole judgment of ING Barings LLC 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 shall be without liability on the part of
(a) the Company to any Underwriter, except that the Company shall be obligated
to reimburse the expenses of ING Barings LLC and the underwriters to the extent
required pursuant to Sections 6, 7 and 8 hereof, (b) any Underwriter to the
Company or (c) of any party hereto to any other party except that the provisions
of Sections 6, 7 and 8 shall at all times be effective and shall survive such
termination.
(c) Any notice of termination pursuant to this Section 12 shall be by
telephone or facsimile and confirmed in writing by letter.
13. Agreements of the Selling Stockholders. Each Selling Stockholder
--------------------------------------
agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
14. Notices. Any notice or notification in any form to be given hereunder
-------
shall be in writing and shall be delivered in person or sent by telephone or
facsimile transmission (but in the case of a notification by telephone, with
subsequent confirmation by letter or facsimile transmission).
Any notice or notification to you shall be addressed to:
ING Barings LLC
55 East 52nd Street
New York, New York 10055
Attention: H. Gill Sawhney
With a copy to:
49
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Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attention: James R. Tanenbaum, Esq.
50
<PAGE>
Any notice or notification to the Company shall be addressed to the
Company at:
Ribozyme Pharmaceuticals, Inc.
2950 Wilderness Place
Boulder, Colorado 80301
Attention: Chief Executive Officer
With a copy to:
Rothgerber, Johnson & Lyons
One Tabor Center
Suite 3000
1200 Seventeenth Street
Denver, Colorado 80202-5839
Attention: Herbert Davis III, Esq.
Any notice or notification to any Selling Stockholder shall be
addressed to such Selling Stockholder, care of the Company at:
Ribozyme Pharmaceuticals, Inc.
2950 Wilderness Place
Boulder, Colorado 80301
Attention: Chief Executive Officer
With a copy to:
Rothgerber, Johnson & Lyons
One Tabor Center
Suite 3000
1200 Seventeenth Street
Denver, Colorado 80202-5839
Attention: Herbert Davis III, Esq.
Any notice or notification shall (subject to confirmation when
required) take effect at the time of receipt.
15. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, the Underwriters, the Company, the Selling Stockholders
and the controlling persons, directors, officers, employees and agents referred
to in Section 7 and 8, and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Shares from any of the Underwriters.
Notwithstanding the foregoing, this
51
<PAGE>
Agreement and the terms and provisions hereof are, unless otherwise specified
herein, for the sole benefit of only those persons, except that (a) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of each Purchaser
Indemnified Party and (b) the indemnity agreement of the Underwriters contained
in Section 7 hereof shall be deemed to be for the benefit of each Company
Indemnified Party.
16. Consent to Jurisdiction. Any legal suit, action or proceeding arising
-----------------------
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of New York or the courts of
the State of New York in each case located in the City and County of New York
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains an office
at New York, New York, United States of America, as its agent to receive service
of process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of New York.
With respect to any Related Proceeding, each party irrevocably waives, to
the fullest extent permitted by applicable law, all immunity (whether on the
basis of sovereignty or otherwise) from jurisdiction, service of process,
attachment (both before and after judgment) and execution to which it might
otherwise be entitled in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
17. Miscellaneous. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed within the State of New York. This Agreement
may be executed in one or more counterparts, and if executed in more than one
counterpart, the executed counterparts shall together constitute a single
instrument. The descriptive headings in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
Time shall be of the essence of this Agreement.
52
<PAGE>
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.
If any provision or portion of any provision of the Agreement, or the
application of any such provision or any portion thereof to any party or
circumstances, shall be held invalid or unenforceable, the remaining portion of
such provision and the remaining portion of such provision and the remaining
provisions of this agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to any parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and such remaining portion of such provision and
the remaining provisions of this Agreement shall continue to be valid and in
full force and effect.
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
53
<PAGE>
This Agreement may be signed in counterparts which together shall
constitute one and the same instrument.
Very truly yours,
RIBOZYME PHARMACEUTICALS, INC.
By: _____________________________________
Name:
Title:
[Selling Stockholders]
By: _____________________________________
Name:________________________________
Attorney-in-Fact
By: _____________________________________
Name:________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
ING BARINGS LLC
By: ING Barings LLC
Acting on its own behalf and as
one of the Representatives
of the several Underwriters
referred to in the foregoing Agreement
By: ___________________________
Title: ________________________
54
<PAGE>
CHASE SECURITIES INC.
By: Chase Securities Inc.
Acting on its own behalf and as one of the
Representatives of the several Underwriters
referred to in the foregoing Agreement
By: ___________________________
Title: ________________________
55
<PAGE>
SCHEDULES
I - Underwriters
II - Selling Stockholders
Exhibits
A - Form of Lock-Up Agreement
<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated ________, 2000
Number of Firm
Shares to be
Purchased from
the Company
--------------
Name
- ----
ING Barings LLC.................. ------------
Chase Securities Inc............. ------------
Total............................ ------------
============
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
Name and Address of
Selling Stockholder Additional Shares to be Sold
- ------------------- ----------------------------
Total..............
=========== ===========
2
<PAGE>
Exhibit A
Form of Lock-Up Agreement
ING Barings LLC
Chase Securities Inc.
c/o ING Barings LLC
55 East 52nd Street
New York, New York 10055
Re: Ribozyme Pharmaceuticals, Inc.
Dear Sirs:
The undersigned is the record owner of shares of common stock, par value
$.01 per share, and/or warrants or options to purchase shares of common stock
and/or shares of preferred stock, par value $.01 per share (such shares of
common stock, warrants and options herein referred to as the "Securities"), of
Ribozyme Pharmaceuticals, Inc., a Delaware corporation (the "Company"). The
undersigned understands that the Company currently intends to file with the
Securities and Exchange Commission a Registration Statement on Form S-3 (the
"Registration Statement"), for the registration of the Company's common stock,
which will be underwritten by a group of underwriters for whom ING Barings LLC
and Chase Securities Inc. will act as representatives.
The undersigned agrees that the undersigned will not, without the prior
consent of ING Barings LLC, directly or indirectly for a period of 90 days from
the date the Registration Statement has been declared effective: (1) offer for
sale, contract to sell, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any Securities or
securities convertible into, exercisable or exchangeable for, or represent the
right to receive, Securities or sell or grant options, rights or warrants with
respect to any Securities or register for sale any outstanding Securities; or
(2) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of ownership
of such Securities or securities, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Securities or other
securities, in cash or otherwise.
Notwithstanding the foregoing, (i) gifts or (ii) transfers to (A) the
undersigned's immediate family or (B) a trust or partnership the beneficiaries
and sole partners of which are members of the undersigned's immediate family
and/or the undersigned, shall not be prohibited by this agreement if the donee
or transferee agrees in writing to be bound by the foregoing in the same manner
as it applies to the undersigned. "Immediate family" shall mean spouse, lineal
A-1
<PAGE>
descendants, father, mother, brother or sister to the transferor. This agreement
shall not prohibit the exercise of any stock options, except that the Securities
obtained upon any such exercise shall be subject to the limitations on
disposition herein.
Very truly yours,
_______________________________________ By: _____________________________
Legal name of Stockholder as it appears Name:
on the Corporate Records Title:
A-2
<PAGE>
EXHIBIT 5.1
Ribozyme Pharmaceuticals, Inc.
Attn: Board of Directors
2950 Wilderness Place
Boulder, Colorado 80301
Dear Sirs:
You have requested our opinion in connection with the Registration Statement
on Form S-3 ("Registration Statement") which is expected to be filed by
Ribozyme Pharmaceuticals, Inc. on March 2, 2000, with respect to the offer and
sale of 3,622,500 shares of a single class of common stock. We have reviewed
such corporate documents and have made such investigation of Colorado law as we
have deemed necessary. Based upon that review and investigation, it is our
opinion that when the shares referred to above are issued in the manner
described in the Registration Statement, said shares will be authorized, fully
paid and non-assessable.
We consent to the use in the Registration Statement of our name and the
statement with respect to our firm under the heading "Legal Matters" in the
related prospectus.
Very truly yours,
ROTHGERBER JOHNSON & LYONS LLP
/s/ Rothgerber Johnson & Lyons LLP
March 2, 2000
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Financial Data", "Selected Financial Data" and "Experts" and to the use of our
report dated February 9, 2000, in the Registration Statement on Form S-3 and
related prospectus of Ribozyme Pharmaceuticals, Inc. for the registration of
3,622,500 shares of its common stock.
Denver, Colorado
March 2, 2000
