<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-38781
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RIBOGENE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 8731 94-3095154
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
26118 RESEARCH ROAD
HAYWARD, CA 94545
(510) 732-5551
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES J. CASAMENTO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
26118 RESEARCH ROAD
HAYWARD, CA 94545
(510) 732-5551
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROBERT J. BRIGHAM, ESQ.
LANA K. HAWKINS, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CA 94306-2155
(415) 843-5000
RODD M. SCHREIBER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
SUITE 2100
CHICAGO, IL 60606
(312) 407-0700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, 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. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 8, 1998
PROSPECTUS
2,700,000 SHARES
RIBOGENE LOGO
COMMON STOCK
All of the 2,700,000 shares of Common Stock offered hereby are being issued
and sold by RiboGene, Inc., a Delaware corporation ("RiboGene" or the
"Company"). Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be $7.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company's Common Stock has been approved for listing on the
Nasdaq National Market under the symbol "RIBO." See "Risk Factors -- No
Assurance of Nasdaq National Market Listing."
---------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=============================================================================================================
UNDERWRITING
PRICE DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
Per Share $7.00 $0.56 $6.44
- -------------------------------------------------------------------------------------------------------------
Total(3) $18,900,000 $1,512,000 $17,388,000
=============================================================================================================
</TABLE>
(1) Excludes additional compensation payable to Gruntal & Co., L.L.C., the
representative of the several Underwriters (the "Representative"), in the
form of (i) a non-accountable expense allowance of 3% of the gross proceeds
of the Offering and (ii) warrants to purchase an aggregate of 270,000 shares
of Common Stock, exercisable at any time following the first anniversary of
the date of this Prospectus, each warrant having an exercise price equal to
165% of the initial public offering price of the Common Stock and expiring
five years from the date of this Prospectus. Holders of such warrants have
been granted certain registration rights under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the securities issuable
upon exercise of such warrants. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $2,000,000, including the non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an additional 405,000 shares of Common Stock, on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will total $21,735,000,
$1,738,800 and $19,996,200, respectively. See "Underwriting."
---------------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares of Common Stock will be
made by Gruntal & Co., L.L.C. through the facilities of the Depository Trust
Company, New York, New York on or about , 1998.
---------------------------------
GRUNTAL & CO., L.L.C.
---------------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those described in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company's drug discovery efforts target bacterial,
fungal and viral infections, for which the efficacy of existing therapies is
being threatened by the emergence of drug resistance or for which existing
therapies have had limited effectiveness. The Company's drug discovery
technology is based on the translational control of gene expression. Translation
is the process used by cells to make proteins and is an essential cellular
process for all living organisms, including infectious pathogens. The Company is
using its platform technology to discover compounds that inhibit or interfere
with pathogen specific translation mechanisms ("PSTMs"). RiboGene's extensive
knowledge of translation allows the Company to identify components of the
translation process unique to a particular pathogen and essential to its
existence. The Company believes that targeting PSTMs may lead to the discovery
of drugs that are effective against either drug-resistant pathogens or pathogens
for which current therapies are not effective. In addition, the Company believes
that any such drugs discovered using its PSTM approach may have better safety
profiles than existing drug therapies.
Infectious diseases have increased significantly during the past 20 years
and are now the third most common cause of death in the United States. Worldwide
sales of antiinfective drugs were approximately $33.0 billion in 1996 and
constituted the second largest pharmaceutical sales category. The antibacterial,
antifungal and antiviral markets are estimated to be approximately $26.0
billion, $4.0 billion and $3.0 billion, respectively, based on 1996 sales. There
are currently three antibacterial drugs that have each generated in excess of
$1.0 billion in worldwide sales annually and one antifungal drug that generated
nearly $1.0 billion. Of the 100 best selling brand name drugs worldwide, 20 are
antiinfectives addressing bacterial, fungal and viral infections. The clinical
efficacy of many bacterial and fungal antiinfectives is being threatened by
emerging strains of drug-resistant pathogens. In the antiviral area, there are
only a limited number of effective therapeutics currently marketed.
The Company believes that its target-based approach is different from, and
provides advantages over, traditional drug discovery techniques. Antiinfective
drug discovery has historically used a limited number of biological targets
which has restricted the ability to discover new drugs effective against drug
resistant pathogens. RiboGene's PSTMs represent a new class of targets for drug
discovery. By focusing discovery efforts on drugs which are effective inhibitors
of PSTMs, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, such compounds may in certain applications have better safety and
efficacy profiles than existing therapies, or may provide a therapy where no
other therapy currently exists. The Company's scientists and Scientific Advisory
Board use their knowledge and expertise in the field of translation to identify
unique targets specific to
3
<PAGE> 5
pathogens and to design and implement assays in order to identify selective
compounds which demonstrate activity at the pathogen specific translation
targets. By developing assays to discover compounds with identified mechanisms
of action against desired targets, the Company believes that the compounds which
demonstrate activity at these targets will be better characterized and more
likely to result in lead candidates for optimization and further development.
RiboGene has established antibacterial, antifungal and antiviral drug
discovery programs. Within each program, the Company's drug discovery process
consists of four phases: (i) target identification -- the selection and
characterization of PSTM targets; (ii) assay development -- the design and
implementation of screening systems to identify small-molecule compounds active
against the PSTM targets; (iii) lead discovery -- the screening of compound
libraries to identify small-molecule lead compounds; and (iv) lead
optimization -- the refinement of lead compounds in order to develop drug
candidates. In its antibacterial program, the Company has two principal targets
in the lead discovery phase, deformylase and ppGpp degradase, for which it
conducts research in collaboration with Dainippon Pharmaceutical Co., Ltd.
("Dainippon"), a major Japanese pharmaceutical company located in Osaka, Japan.
The Company has several additional antibacterial targets, to which it has
retained its rights, that are in the assay development phase. In its antifungal
program, compounds directed toward two targets, EF3 and GCN4, are in the lead
optimization phase and several others are in various phases of early research
and development. In its antiviral program, which is currently focused
exclusively on the hepatitis C virus ("HCV"), the Company has one target, HCV
IRES, in the lead discovery phase and one target, HCV NS5A/PKR, in the assay
development phase.
In order to accelerate the discovery, development and commercialization of
antiinfective drugs, the Company seeks to enter into collaborations with major
pharmaceutical companies and, additionally, into research and licensing
agreements with biotechnology companies, combinatorial chemistry companies and
universities. These relationships are intended to provide the Company with
funding, research and development support, access to additional compound
libraries and targets, as well as to provide the Company with preclinical and
clinical trial, manufacturing and marketing capabilities.
In January 1998, the Company entered into a collaboration with Dainippon
(the "Dainippon Collaboration") for the two principal targets in the Company's
antibacterial program. As part of the Dainippon Collaboration, Dainippon agreed
to provide the Company with up to $6.0 million in research support payments
($2.0 million of which has been received), and to provide additional research
and development support at Dainippon, over the three-year term of the research
program. The Company may also be entitled to receive milestone payments upon the
achievement of mostly late-stage regulatory milestones in the amount of up to
$10.0 million for each product developed through the collaboration, consisting
of up to $5.0 million through approval in Japan and up to $5.0 million through
approval in one additional major market territory. RiboGene also has retained
certain co-promotion rights for any products resulting from the collaboration.
In connection with the Dainippon Collaboration, Dainippon made a $2.0 million
equity investment in the Company by purchasing 756,144 shares of the Company's
Series G Preferred Stock (the "Dainippon Shares"), which will automatically
convert into 53,988 shares of Common Stock upon the closing of the Offering. The
Company has also entered into agreements with ArQule, Inc., Pharmacopeia, Inc.
and Trega Biosciences, Inc. to provide the Company with access to additional
compound libraries for its drug discovery programs and with the University of
Washington to acquire the rights to the HCV NS5A/PKR target for its antiviral
program.
4
<PAGE> 6
RiboGene is a development stage company that has experienced operating
losses every year since its inception. At December 31, 1997, the Company had an
accumulated deficit of approximately $35.7 million. To date, the Company has not
selected any compounds for further development, has not initiated any
preclinical or clinical studies with any compounds and has not developed or
commercialized any products that have generated revenues. Relatively few
products based on genetic discoveries, and no drugs discovered using a
translation-based discovery approach, have been developed and commercialized by
others to date. The Company's PSTM technology is still in early stages and will
require significant further research, development and preclinical and clinical
testing in order to validate translation generally, and PSTM targets
specifically, as an effective method to discover new antiinfectives. An
investment in the shares of Common Stock offered hereby involves a high degree
of risk. In addition to the other information contained in this Prospectus, the
discussion of risk factors on pages 8 to 20 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. See "Risk
Factors -- History of Losses; Uncertainty of Future Profitability; Going Concern
Explanatory Paragraph in Auditors Report," "-- Early Stage of Development;
Uncertainty of Product Development" and "-- Dependence on a Single Technological
Approach."
STATUS OF RIBOGENE DRUG DISCOVERY PROGRAMS
LOGO
The Company was incorporated in California in May 1989 as TransGene, Inc.
and changed its name to RiboGene, Inc. in May 1990. The Company intends to
reincorporate in Delaware prior to or concurrently with the closing of the
Offering. The principal executive offices of the Company are located at 26118
Research Road, Hayward, California 94545 and its telephone number is (510)
732-5551.
5
<PAGE> 7
THE OFFERING
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Common Stock offered...................... 2,700,000 shares
Common Stock to be outstanding after the
Offering................................ 5,764,055 shares(1)(2)
Use of proceeds........................... Expansion of chemistry capabilities, expansion and
advancement of drug discovery programs, repayment of a
portion of a secured note and related obligations and
working capital and general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............. RIBO
</TABLE>
- ---------------
(1) Based upon shares outstanding at March 31, 1998. Includes: (i) an aggregate
of 2,385,039 shares of Common Stock issuable upon the automatic conversion
of all outstanding shares of the Company's Series A through Series G
Preferred Stock concurrently with the closing of the Offering and (ii)
571,429 shares of Common Stock (assuming an initial public offering price of
$7.00 and gross proceeds to the Company of at least $16.0 million) to be
sold by the Company to Abbott Laboratories ("Abbott") for $4.0 million
pursuant to a stock purchase agreement, dated as of April 26, 1996, as
amended (the "Abbott Purchase Agreement"), concurrently with the closing of
the Offering. The number of shares of Common Stock to be issued upon
conversion of the Company's Series F Preferred Stock and to Abbott will
depend upon the initial public offering price. See
"Business -- Collaborative and Research Agreements," "Certain Transactions"
and "Description of Capital Stock."
(2) Excludes as of March 31, 1998: (i) an aggregate of 182,433 shares of Common
Stock reserved for issuance under the Company's stock plans upon exercise of
options outstanding at a weighted average exercise price of $3.57 per share;
(ii) an aggregate of 1,506,552 shares of Common Stock reserved for future
grants or purchases under the Company's equity incentive plans; (iii)
162,967 shares of Common Stock reserved for issuance upon exercise of the
warrants (the "Class A Warrants") issued in connection with the private
placement of the Series F Preferred Stock (the "Series F Private
Placement"), with an exercise price equal to the initial public offering
price; (iv) 166,319 shares of Common Stock reserved for issuance upon the
exercise of warrants (other than Class A Warrants) outstanding at a weighted
average exercise price of $16.75 per share; (v) 733,755 shares of Common
Stock reserved for issuance upon exercise of options (the "Placement Agent
Unit Options") to purchase 570,665 units (the "Placement Agent Units"), at
an exercise price of $1.24 per unit, issued to the placement agent in
connection with the Series F Private Placement and a financial advisory
agreement, each Placement Agent Unit consisting of two shares of Series F
Preferred Stock and one Class A Warrant (the "Placement Agent Class A
Warrants"); (vi) 40,739 shares of Common Stock reserved for issuance upon
the exercise of the Placement Agent Class A Warrants; and (vii) an aggregate
of 270,000 shares of Common Stock reserved for issuance upon the exercise of
warrants issued to the Representative at an exercise price equal to 165% of
the initial public offering price of the Common Stock (the "Representative's
Warrants"). The number of shares of Common Stock to be issued upon
conversion of the Series F Preferred Stock and exercise of the Placement
Agent Unit Options and the exercise price of the Placement Agent Unit
Options will depend upon the initial public offering price. See
"Management -- Stock and Related Employee Benefit Plans," "Certain
Transactions," "Description of Capital Stock" and "Underwriting."
------------------------
Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data: (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) reflects a 1-for-14 reverse split of
the Company's Common Stock to be effected prior to or concurrently with the
closing of the Offering; (iii) reflects reincorporation of the Company in
Delaware prior to the closing of the Offering; and (iv) assumes the automatic
conversion of all outstanding shares of the Company's Series A through Series G
Preferred Stock into an aggregate of 2,385,039 shares of Common Stock, assuming
an initial public offering price of $7.00 per share, which will occur
concurrently with the closing of the Offering. The number of shares of Common
Stock to be issued upon conversion of the Series F Preferred Stock and upon the
exercise of the Placement Agent Unit Options will depend upon the initial public
offering price. See "Certain Transactions" and "Description of Capital Stock."
6
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
PERIOD FROM
INCEPTION
(MAY 5, 1989)
YEAR ENDED DECEMBER 31, TO
---------------------------- DECEMBER 31,
1995 1996 1997 1997
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STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 407 $ 2,087 $ 2,971 $ 5,703
Operating expenses:
Research and development.......................... 4,663 4,077 4,130 22,698
General and administrative........................ 2,758 1,372 1,551 11,639
Financial advisory costs.......................... -- -- 1,396 1,396
Restructuring costs............................... -- 219 -- 219
Acquired in-process research and development...... -- -- -- 5,000
-------- ------- ------- --------
Total operating expenses....................... 7,421 5,668 7,077 40,952
-------- ------- ------- --------
Loss from operations................................ (7,014) (3,581) (4,106) (35,249)
Interest expense, net............................... (240) (282) (7) (448)
-------- ------- ------- --------
Net loss............................................ $ (7,254) $(3,863) $(4,113) $(35,697)
======== ======= ======= ========
Basic net loss per share(1)......................... $(164.86) $(52.92) $(41.13)
======== ======= =======
Shares used in computing basic net loss per
share(1).......................................... 44 73 100
======== ======= =======
Pro forma net loss per share(1)..................... $ (1.95)
=======
Shares used in computing pro forma net loss per
share(1).......................................... 2,109
=======
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<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(2) ADJUSTED(2)(3)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 2,045 $ 5,545 $ 24,008
Working capital (deficit)................................... (1,745) 255 20,785
Total assets................................................ 4,312 7,812 25,133
Deficit accumulated during development stage................ (35,697) (35,697) (35,697)
Total stockholders' equity (deficit)........................ (162) 1,838 21,226
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
(2) Pro forma as if the following had occurred on December 31, 1997: (i) a
$500,000 principal payment pursuant to a promissory note evidencing secured
indebtedness of the Company, which was paid in January 1998; (ii) the
receipt and application of $2.0 million from the sale of the Dainippon
Shares; and (iii) the receipt of the initial $2.0 million research support
payment from Dainippon under the Dainippon Collaboration. See "Use of
Proceeds," "Capitalization" and "Business -- Collaborative and Research
Agreements."
(3) Pro forma as adjusted to reflect (i) the issuance and sale of the 2,700,000
shares of Common Stock offered hereby (after deducting estimated
underwriting discounts and commissions and estimated expenses of the
Offering payable by the Company), assuming an initial public offering price
of $7.00 per share, and the receipt and application of the estimated net
proceeds therefrom; and (ii) the issuance and sale of 571,429 shares of
Common Stock, assuming an initial public offering price of $7.00 per share,
to Abbott, concurrently with the closing of the Offering. See "Use of
Proceeds," "Capitalization" and "Business -- Collaboration and Research
Agreements."
7
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RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; GOING CONCERN
EXPLANATORY PARAGRAPH IN AUDITORS REPORT. The Company is a development stage
company that has experienced operating losses every year since its inception. At
December 31, 1997, the Company had an accumulated deficit of approximately $35.7
million. The Company expects to continue to incur substantial and increasing
operating losses for at least the next several years as it expands its research
and development activities. The report of the Company's independent auditors for
the year-ended December 31, 1997 includes an explanatory paragraph that
describes the conditions that raise substantial doubt as to the Company's
ability to continue as a going concern.
Neither the Company nor its collaborative partner has developed products
that have generated any revenues to the Company or entered clinical trials with
any potential products developed with the Company that may lead to revenues to
the Company, if successful. To date, substantially all of the Company's revenues
have resulted from payments under the research agreement and license agreements
with Abbott (the "Abbott Agreements"), which were terminated by Abbott effective
April 8, 1998, and grants from a governmental agency. Payments from
collaborators, payments under governmental grants and investment income are
expected to be the only sources of revenue for the foreseeable future. Royalties
or other revenues from commercial sales of products, if any, are not expected
for a significant number of years, if ever. To achieve profitable operations,
the Company, alone or with others, must successfully discover and identify drug
candidates suitable for testing in humans and use these discoveries to develop
products, conduct preclinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
products. There can be no assurance that any of these requirements to achieve
profitability will be met.
The aggregate amount of future net losses and the time required by the
Company to reach or sustain profitability are highly uncertain. There can be no
assurance that the Company will ever be able to generate product revenue or
achieve profitability on a sustained basis or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT. RiboGene is
at an early stage of development and does not expect that any drugs resulting
from its research and development efforts will be commercially available for a
significant number of years, if at all. Although the Company was organized in
1989, the Company only began in January 1993 to focus its research and
development efforts on the identification of novel leads for antiinfective
drugs, initially focused on the identification of antifungal and antiviral
drugs. The Company's research efforts were expanded in 1996 to include the
identification of novel leads for antibacterial drugs. To date, the Company has
conducted only limited research and development activities and has not completed
the selection of any lead compounds for drug development. None of the Company's
potential lead compounds has advanced to the stage of preclinical or clinical
trials. The Company's leads for potential drug candidates will be subject to the
risks and failures inherent in the development of pharmaceutical products based
on new technologies. These risks include, but are not limited to, unanticipated
problems relating to product development, testing, regulatory compliance,
manufacturing, marketing and competition, and additional costs and expenses that
may exceed current estimates. Products, if any, resulting from the Company's
research and development programs will require significant additional research
and development efforts, and extensive preclinical studies and clinical trials
will be required prior to submission of any regulatory application for
commercial use. There can be no assurance that the Company, or its current or
any future collaborative partners, will be permitted to undertake clinical
trials of any potential products, if developed, that sufficient numbers of
patients can be enrolled for such trials or that such clinical trials will
demonstrate that the products tested are safe and efficacious. Any or all of the
Company's proposed products may prove to have undesirable and unintended side
effects or other characteristics that may limit or prevent their commercial use.
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Even if clinical trials are successful, there can be no assurance that the
Company or any collaborative partner will obtain regulatory approval for any
product, that any approved product can be produced and distributed in commercial
quantities at reasonable costs or gain acceptance for use by physicians and
other health care providers, or that any potential products will be marketed
successfully at prices that would permit the Company to operate profitably. The
failure of any of these events to occur would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- The RiboGene Approach," "-- The RiboGene Programs" and
"-- Government Regulation."
NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
expects negative cash flow from operations to continue for the foreseeable
future. The Company will require substantial additional funds to continue and
expand its research and development activities, conduct preclinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents, together with the net
proceeds from the Offering and the proceeds from the sale of the Abbott Shares
and the interest income earned on such proceeds, will be sufficient for the
purposes specified herein and to allow the Company to maintain its current and
planned operations through the first quarter of 2000. There can be no assurance,
however, that the Company's assumptions regarding its future level of
expenditures and operating losses will prove to be accurate. The Company's
future funding requirements will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition or licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors.
The Company will need to raise substantial additional capital to fund its
operations. Initially, the Company intends to seek such additional funding
through collaborative arrangements and through public or private financings,
including equity or debt financings. Any additional equity financing will be
dilutive to existing stockholders, and any debt financing, if available, may
involve restrictions on the Company's ability to pay dividends on its capital
stock or the manner in which the Company conducts its business. In addition, in
the event that additional funds are obtained through arrangements with
collaborative partners, such arrangements may require the Company to relinquish
rights to technologies, product candidates or potential products that the
Company would not otherwise relinquish. The Company has no commitments for any
additional collaborations or financings, and there can be no assurance that any
such collaborations or financings will be available to the Company when needed
or, if available, on terms acceptable to the Company. The inability to obtain
sufficient funds when needed may require the Company to delay, scale back or
eliminate some or all of its research and development programs or cease
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; FUNDING OF PROGRAMS. The
Company's strategy for the development, preclinical and clinical testing,
manufacturing and commercialization of new drugs based on its research and
development activities depends upon corporate partners, licensors, licensees and
others. The Company expects to rely upon the performance of these outside
parties to provide funding for its research programs, further develop lead
compounds or potential product candidates, provide access to additional compound
libraries, conduct preclinical studies and clinical trials, obtain regulatory
approvals and manufacture and market any resulting products.
In April 1996, RiboGene established a collaboration with Abbott (the
"Abbott Collaboration") to discover and develop antifungal drugs. On February 6,
1998, Abbott notified the Company of its termination of the Abbott Collaboration
effective April 8, 1998. Pursuant to the Abbott Agreements, Abbott was granted
exclusive worldwide rights to develop and market any and all antifungal products
discovered through the Abbott-sponsored collaborative research program. Since
May 1996, Abbott has funded a significant portion of the costs associated with
the Company's antifungal program. Pursuant to the Abbott Agreements, Abbott was
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committed, subject to rights of early termination, to pay up to $5.0 million in
research support payments over the three-year term of the research program. As
of December 31, 1997, the Company has realized $2.8 million in research support
revenues from Abbott and expects to realize the $556,000 of revenue deferred at
December 31, 1997. As a result of Abbott's termination of the Abbott
Collaboration, Abbott is obligated to reimburse the Company for all irrevocably
committed research costs for the project prior to termination that were not
covered by previous research support payments. In addition, each party to the
Abbott Agreements is obligated to return to the other proprietary and
confidential information and know-how of such other party in its possession, and
each party is entitled to retain copies of any technical or other information
which was solely or jointly generated as a direct result of the Abbott
Collaboration. The Company is seeking to establish a corporate collaboration for
its antifungal program to replace the Abbott Collaboration; however, there can
be no assurance that the Company will be successful in such efforts. If the
Company is not able to establish a corporate collaboration for its antifungal
program, it currently intends to fund the antifungal program from its own
resources.
On January 27, 1998, RiboGene entered into a collaboration with Dainippon
(the "Dainippon Collaboration") to discover and develop antibacterial drugs
based on the two principal targets in the Company's anti-bacterial program.
Pursuant to the Dainippon Agreements, Dainippon was granted exclusive, worldwide
rights to develop and market any and all antibacterial products which have
activity against either of these two specific bacterial targets, discovered
during the Dainippon-sponsored collaborative research program. Pursuant to the
Dainippon Agreements, Dainippon has agreed to provide the Company with up to
$6.0 million in research support payments over the three-year term of the
research program and to provide related antibacterial research support at
Dainippon. Dainippon has the right to terminate the research agreement at any
time after January 27, 1999 upon 180 days written notice to the Company. There
can be no assurance that Dainippon will not terminate the research agreement
prior to the expiration of its full three-year term.
The Company's revenues will be dependent on the success of the lead
compounds and potential drug candidates developed through the Dainippon
Collaboration and on the Company's ability to establish additional
collaborations for its other programs. The failure of the Company to maintain
the Dainippon Collaboration or to enter into agreements with additional
collaborators to provide research support, both financial and technical, and to
develop, obtain regulatory approval for, and market products incorporating, the
Company's discoveries would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that any such collaborators will commit sufficient development
resources, technology, regulatory expertise, manufacturing, marketing and other
resources towards developing, promoting and commercializing products
incorporating the Company's discoveries. Further, competitive conflicts may
arise among these third parties that could prevent them from working
cooperatively with the Company. The amount and timing of resources devoted to
these activities by such parties could depend on the achievement of milestones
by the Company and otherwise generally will be controlled by such parties. In
addition, the Company expects that its agreements with future collaborators will
provide such collaborators with the right to terminate their agreements with the
Company upon written notice to the Company. Any such termination would
substantially reduce the likelihood that the applicable research program or any
lead candidate or candidates would be developed into a drug candidate, would
obtain regulatory approvals and would be manufactured and successfully
commercialized. Therefore, any such termination could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Dainippon Collaboration or any future
collaborations will be successful in developing and commercializing products or
that the Company will receive milestone payments or generate revenues from
royalties sufficient to offset the Company's significant investment in research
and development and other costs. There also can be no assurance that disputes
will not arise in the future with the Company's collaborators, including with
respect to the ownership of rights to any technology developed pursuant to the
collaboration. These and other possible disagreements between collaborators and
the Company could lead to delays or interruptions in, or termination of,
collaborative research, development and commercialization of certain potential
products or could require or result in litigation or arbitration, which could be
time-consuming and expensive and could have a material adverse effect on the
Company's business, financial condition and results of operations. See "-- Need
for Additional Capital; Uncertainty of Additional Funding" and
"Business -- Collaborative and Research Agreements."
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DEPENDENCE ON A SINGLE TECHNOLOGICAL APPROACH. The Company's research and
development efforts are based solely on its pathogen specific translation
mechanism ("PSTM") targeted approach. The Company began to focus its research
and development efforts on its PSTM approach to drug discovery in 1993. In March
1996, the Company restructured its operations to focus all efforts on the PSTM
approach. To date, the Company has not developed or commercialized any product
or product candidates. While the Company has demonstrated that certain compounds
have the ability to inhibit the activity of certain of the Company's PSTM
targets, the Company has not proven that this activity can be utilized
clinically as a therapeutic. There can be no assurance that the inhibitory
activity demonstrated in existing screening will continue to be shown in further
screening or drug discovery studies. There can be no assurance that the
Company's technology platform will enable it to discover compounds that will
lead to the development of drugs relevant to the treatment of infectious
diseases. There is limited scientific understanding relating to the role of
genes or translation in diseases. Relatively few products based on genetic
discoveries and no drugs discovered using a translation-based discovery approach
have been developed and commercialized to date. The Company's PSTM technology is
still in early stages and will require significant further research, development
and testing in order to validate translation generally, or PSTM targets
specifically, as an effective method to discover new antiinfectives. In the
event that the Company's PSTM approach is unsuccessful, the Company will be
required to identify and license or acquire alternative technologies or
compounds in order to develop leads or product candidates. To date, the Company
has not identified, licensed or acquired alternative technologies or compounds
that would allow it to develop leads or product candidates, and there can be no
assurance that the Company would be able to do so in the future. Even if the
Company is successful in identifying and developing lead compounds associated
with specific diseases, there can be no assurance that the Company will be
successful in marketing its discoveries to biopharmaceutical companies for use
in the development of therapeutic products or that any such resulting products
will receive regulatory approval or be manufactured or marketed successfully or
that the Company will not be precluded from commercialization of drug
discoveries by proprietary rights of third parties. See "-- Dependence on
Patents and Proprietary Rights," "-- Need for Chemistry Capabilities" and
"Business -- Collaborative and Research Agreements."
DEPENDENCE ON SCIENTIFIC ADVISORS. The Company is highly dependent on the
members of its Scientific Advisory Board ("SAB") who conduct research in
cooperation with the Company and provide the Company with access to technology
developed by them. The potential success of the Company's drug discovery
programs depends in part on continued collaborations with these advisors. The
Company and various members of its management and research staff rely heavily on
members of the SAB for new translation-based targets for its drug discovery
programs and for continued consulting and expertise in translation research. The
Company's scientific advisors are employed by employers other than the Company
and may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to the Company. As a result, the
Company has limited control over their activities and, except as otherwise
required by its consulting agreements, can expect only limited amounts of their
time to be dedicated to the Company's activities. Most members of the SAB have
entered into scientific advisor agreements with the Company. These agreements
provide for indefinite terms of service on the SAB and are terminable at any
time by written notice of either the Company or the advisor. Certain members of
the SAB also have entered into separate consulting agreements with the Company.
These agreements have an initial one-year term, typically have been renewed by
the parties for successive one-year periods and provide for earlier termination
by either party upon 30 days' written notice. There can be no assurance that the
Company will be able to maintain such consulting agreements or that such
scientific advisors will not enter into consulting arrangements, exclusive or
otherwise, with competing pharmaceutical or biotechnology companies, any of
which would have a detrimental impact on the Company's research objectives and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The scientific advisor agreements and the consulting agreements provide for
confidentiality of the Company's proprietary information. These agreements also
provide that any confidential information that results from work performed for
the Company by such advisors is the sole and exclusive property of the Company.
In certain instances, such provisions are subject to the patent and other
policies now in effect or adopted in the future by the advisor's employer or
primary affiliation. To the extent any confidential information is also the
product of work performed for the advisor's affiliates, such affiliates'
policies may
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provide such affiliate with proprietary rights to such information. Accordingly,
the Company may not have rights to developments, publications or the results of
any research conducted by these advisors, which may adversely affect the
Company. There can be no assurance that the Company will be able to maintain the
confidentiality of its technology and other confidential information, and any
unauthorized dissemination of the Company's confidential information could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Scientific Advisors."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's commercial
success will depend, in part, on its ability, and the ability of any
licensor(s), to obtain patent protection for its products and technologies, both
in the United States and in other countries. The patent positions of
pharmaceutical and biotechnology firms can be highly uncertain and often involve
complex legal and technical questions for which important legal principles are
largely unresolved, thus making it difficult to predict the breadth of claims
which would be allowable in any particular case. This uncertain situation is
also affected by revisions to the United States patent law adopted in recent
years to give effect to international accords to which the United States has
become a party. The extent to which such changes in law will affect the
obligations of the Company cannot be ascertained. The Company owns a pending
patent application and certain corresponding foreign applications relating to
its antibacterial drug discovery program; an issued United States patent, a
pending United States patent application and certain corresponding foreign
applications relating to its antifungal drug discovery program; and two pending
United States patent applications, one of which has been allowed by the United
States Patent and Trademark Office, and certain corresponding foreign
applications relating to its antiviral drug discovery program. One of the
coinventors of the Company-owned patent applications relating to the antivirual
drug discovery program is Michael Katze, Ph.D.. Dr. Katze presently is a member
of the Company's Scientific Advisory Board and, at the time these applications
were filed, was a consultant to the Company and a faculty member at the
University of Washington. The Company has received inquiries from, and has been
in discussions with, the University of Washington regarding a potential, partial
ownership interest in these patent applications that Dr. Katze and the
coinventors assigned to the Company. Such discussions are ongoing and may result
in a determination that the University of Washington is a joint owner of the
patent applications, though the Company believes, after a review of the
information available to date, that Dr. Katze, in his capacity as a consultant
to the Company, properly assigned his rights in these applications to the
Company. Nevertheless, in connection with these ongoing discussions, the Company
has obtained an option for an exclusive, worldwide license under the University
of Washington's potential ownership interest. The option is exercisable upon
payment of a $25,000 fee, at which time the Company will have an exclusive
license under terms that will include payments of $250,000 for each new drug
application approval, royalty payments on future sales of products developed
under the licensed patent rights and a percentage payment of sublicensing fees
received by the Company, and certain other terms to be negotiated in good faith.
The Company is an assignee, along with McGill University, of an allowed United
States patent application generally relating to the PSTM program. The Company is
an exclusive licensee under a University of Washington pending United States
application and certain corresponding foreign applications directed to HCV
NS5A/PKR. In addition, the Company has an option, from the University of
Washington and McGill University, to license a recently-issued United States
patent and a pending United States patent application relating to translational
technology. There can be no assurance that any of these patent applications, or
any patent applications which the Company may acquire in the future, will be
issued as patents, that any such issued patents will afford adequate protection
to the Company and will not be challenged, invalidated, circumvented or
infringed, or that any rights granted under such patents will afford competitive
advantages to the Company. To protect its rights to its patent applications
and/or patents, the Company may be required to participate in interference
proceedings before the United States Patent and Trademark Office to determine
priority of invention and the rights to a patent. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to obtain a license to such patents on
terms acceptable to the Company, if at all. The Company also could incur
substantial costs in any litigation against third parties, in which the Company
asserts patents to which the Company has rights. There can be no assurance that
the Company's patents or those of its licensors, if issued would not be held
invalid by a court or that a competitor's technology or product would be found
to infringe such patents.
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The Company's success will further depend, in part, on its ability to
operate without infringing the proprietary rights of others. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use and sale of the Company's products could be enjoined, and the
Company could be required to pay substantial damages. In addition, the Company,
in connection with the development and use of its products and technologies, may
be required to obtain licenses to patents or other proprietary rights of third
parties. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made available on terms acceptable to the
Company, if at all. Failure to obtain such licenses could have a material
adverse effect on the Company.
In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, RiboGene has required its employees, consultants, SAB members and
parties to collaboration and licensing agreements to execute confidentiality
agreements upon the commencement of employment, the consulting relationship or
the collaboration or licensing arrangement, as the case may be, with RiboGene.
In the case of employees, the agreements also provide that all inventions
resulting from work performed by them while employed by RiboGene will be the
exclusive property of RiboGene. In the case of SAB members, the agreements also
provide that any confidential information that results from work performed for
RiboGene will be the exclusive property of RiboGene. The Company will continue
to require its employees, consultants, SAB members and collaborators and
licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection of the Company's trade secrets or adequate remedies in the
event of unauthorized use or disclosure of such information, or that the
Company's trade secrets will not otherwise become known or be independently
discovered by its competitors, that the Company can meaningfully protect its
rights in such unpatented proprietary technology through other means, that any
obligation to maintain the confidentiality of such proprietary technology will
not be breached by employees, consultants, advisors, collaborators, licensees or
others or that others will not independently develop the same or substantially
equivalent technology. The loss of trade secret protection of any of the
Company's key discovery technologies would materially and adversely affect the
Company's competitive position and could have a material adverse effect on the
Company's business, financial condition and results of operations. Finally,
disputes may arise as to the ownership of proprietary rights to the extent that
outside consultants, collaborators or licensees apply technological information
developed independently by them or others to Company projects or apply Company
technology to other projects and, if adversely determined, such disputes could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Dependence on Scientific Advisors,"
"-- Dependence on and Need for Additional Key Personnel" and
"Business -- Patents and Proprietary Rights."
In 1994, the Company acquired intellectual property that falls outside the
field of infectious diseases and translational control. The Company does not
intend to develop any products associated with such intellectual property
itself. Such potential products include Emitasol, for emesis associated with
chemotherapy, Migrastat, for migraine, and intranasal benzodiazepines for
various conditions such as anxiety, seizures, panic attacks and sleep disorders.
The Company has received notice that Peptech (Europe A/S) is opposing the grant
of a European patent with claims directed to the nasal administration of
benzodiazepines. As one of the grounds for the opposition, Peptech has submitted
a published abstract describing the nasal administration, to children, of the
benzodiazepine midazolam. This abstract has an apparent publication date of
February 1988, several months prior to the earliest filing date in the United
States from which the Company's European patent application could have claimed
priority. While the Company intends to respond vigorously to the opposition, no
assurance can be given as to the scope of the claims, if any, which the European
Patent Office ultimately will find patentable. Failure of the Company to prevail
in the opposition before the European Patent Office could impede the Company's
ability to outlicense the technology portfolio.
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The issued United States patent relating to the nasal administration of
benzodiazepines is the subject of a reissue proceeding before the United States
Patent and Trademark Office. In the course of negotiations with a potential
licensee of the technology portfolio containing this patent, the Company became
aware that the issued United States patent for which reissue is being sought had
expired for failure to pay the required maintenance fees. The Company's petition
to revive this patent recently was granted by the Patent and Trademark Office,
effectively resulting in the reinstatement of the patent, as if it had not
expired. However, should the Company choose to enforce this patent by
instituting an infringement action, the patent statute would provide certain
protection to those infringers who first began practicing, or first made
substantial preparation to practice, the patented invention during the
approximately three-year and four month period that the patent had lapsed. The
Company presently is not aware of any potential infringers who may be entitled
to such so-called "intervening rights."
NEED FOR CHEMISTRY CAPABILITIES. One of the Company's strategies is to
acquire substantial additional capabilities in chemistry in order to enhance the
Company's lead discovery and optimization capabilities. The Company currently
has three employees with degrees, experience and training in chemistry who
conduct the Company's chemistry activities on a limited basis. The Company has
joint responsibility with Dainippon to provide chemistry support for the
discovery and optimization of potential antibacterials resulting from the
Dainippon Collaboration. The Company plans to add medicinal, combinatorial,
analytical and computational chemistry capabilities internally and through
external collaborations to support its other programs. The Company intends to
use a significant portion of the net proceeds of the Offering to build its
chemistry capabilities by recruiting additional chemistry expertise in-house,
acquiring and implementing the capital equipment necessary to support these
activities, acquiring additional compounds and supplies and entering into
additional collaborative agreements. There can be no assurance that the Company
will be successful in developing these capabilities. Qualified medicinal,
combinatorial, analytical and computational chemists and the corresponding
support personnel are in high demand. The Company may experience difficulty in
attracting, recruiting or hiring the personnel necessary to implement its
strategy. Failure by the Company to successfully complete or implement any part
of the strategy described above could prevent the Company from implementing its
overall business strategy, require the Company to rely to a greater extent on
collaborative agreements for the optimization of leads for drug candidates and
enter into such arrangements at an earlier stage of development, and could have
a material adverse impact on the Company's business, financial condition and
results of operations.
COMPETITION. The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change. Many of
the drugs which the Company is developing will be competing with existing
therapies. In addition, a number of companies are pursuing the development of
pharmaceuticals which target the same diseases and conditions the Company is
targeting, using technology similar to the RiboGene technology, as well as
alternative discovery technologies, including antisense, gene therapy and
genomics. The Company faces competition from pharmaceutical and biotechnology
companies both in the United States and abroad. Many of the Company's
competitors, particularly large pharmaceutical companies, have substantially
greater financial, technical and human resources than the Company. In addition,
unlike the Company, many of these competitors have experience in undertaking
preclinical studies and clinical trials of new pharmaceutical products and
obtaining the necessary regulatory approvals and manufacturing and marketing
products. In addition, academic institutions, government agencies, and other
public and private organizations conducting research may seek patent protection
with respect to potentially competing products or technologies and may establish
exclusive collaborative or licensing relationships with competitors of the
Company.
The Company believes that its ability to compete is dependent, in part,
upon its abilities to create and maintain scientifically advanced technology and
to develop and commercialize pharmaceutical products based on this technology,
as well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon the
Company's technology.
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There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining the approval of the United States
Food and Drug Administration (the "FDA") or other regulatory approvals for drug
candidates more rapidly than the Company. Companies that complete clinical
trials, obtain required regulatory agency approvals and commence commercial sale
of their drugs before their competitors may achieve a significant competitive
advantage, including certain patent and FDA marketing exclusivity rights that
would delay the Company's ability to market certain products. There can be no
assurance that drugs resulting from the Company's research and development
efforts, or from the joint efforts of the Company and its existing or future
collaborative partners, will be able to compete successfully with competitors'
existing products or products under development or that they will obtain
regulatory approval in the United States or elsewhere.
DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL. The Company is highly
dependent on the principal members of its management and scientific staff,
including the services of Charles J. Casamento, President, Chief Executive
Officer and Chairman of the Board, and Drs. Lehman, Gluchowski, and Moehle, the
Company's Vice President of Research, Director of Drug Discovery and Associate
Director of Translational Control Research, respectively, as well as the project
leaders for each of its core projects and the leader of its screening group. The
Company maintains key person life insurance in the amount of $1.0 million on
Charles J. Casamento. There can be no assurance that these persons will continue
to be employed by the Company in the future. The loss of any of these persons
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's potential growth and
expansion into areas and activities requiring additional expertise, such as
chemistry, are expected to place increased demands on the Company's management
skills and resources. These demands are expected to require a substantial
increase in management and scientific personnel and the development of
additional expertise by existing management personnel. Accordingly, recruiting
and retaining management and operational personnel and qualified scientific
personnel to perform research and development work in the future will also be
critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain skilled and experienced management,
operational and scientific personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel. The failure to attract and
retain such personnel or to develop such expertise could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Employees" and "Management."
UNCERTAINTIES RELATED TO CLINICAL TRIALS. The Company believes it will be
several years, if ever, before any potential product candidates discovered using
its technology would be ready to begin the regulatory approval process. Before
seeking such approval, the Company or its collaborative partners must
demonstrate in extensive preclinical studies and clinical trials that any such
product candidate is safe and effective for use in each target indication. The
results of preclinical studies and early clinical trials may not be predictive
of results that will be obtained in large-scale testing or use, and there can be
no assurance that any such preclinical studies and clinical trials will
demonstrate the safety and efficacy of any product candidate, if successfully
developed, or that, regardless of preclinical and clinical trial results, FDA
approval will be obtained or that marketable products will result. A number of
companies in the pharmaceutical industry have suffered significant setbacks in
advanced clinical trials or have not received FDA approval, even after promising
results in earlier trials. Clinical trials for any product candidates developed
by the Company and its collaborators may be delayed by many factors.
Furthermore, the FDA may suspend clinical trials at any time if it decides that
patients are being exposed to an unreasonable and significant health risk. In
addition, clinical trials are often conducted with patients having the most
advanced stages of disease. During the course of treatment, these patients can
die or suffer other adverse medical effects for reasons that may not be related
to the pharmaceutical agent being tested, but which can nevertheless affect
clinical trial results. Any delays in, or termination of, the clinical trials of
any of the Company's product candidates, if successfully developed, or the
failure of any clinical trials to meet applicable regulatory standards, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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GOVERNMENT REGULATION AND NEED FOR PRODUCT APPROVALS. The manufacture and
marketing of any products developed by the Company and its ongoing research and
development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. Prior to marketing, any
drug developed by the Company must undergo rigorous preclinical and clinical
testing and an extensive regulatory approval process mandated by the FDA and
equivalent authorities in other countries. These processes can take a number of
years and require the expenditure of substantial resources. The time required
for completing such testing and obtaining such approvals is uncertain, and there
can be no assurance that such approvals will be obtained or that marketable
products will result. The safety and efficacy of a therapeutic product under
development by the Company must be supported by extensive data from clinical
trials. The results from preclinical studies and early clinical trials may not
be indicative of results that will be obtained in large-scale testing. In
addition, delays or rejections may be encountered in the regulatory review
process or in the event there are changes in FDA policy or the Company decides
to replace the compounds in testing with modified or optimized compounds. There
can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any products developed by the Company. Failure by
the Company to obtain regulatory approval of any products resulting from its
discovery programs could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that if clinical trials are completed, the Company will submit a new
drug application (an "NDA") with respect to any potential products or that such
applications will be reviewed and approved by the FDA in a timely manner, if at
all.
If regulatory approval of a product is granted, such approval will entail
limitations on the indicated uses for which the product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer, and its manufacturing facilities are subject to continual review
and periodic inspections, and later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product, manufacturer or facility, including withdrawal of the product from the
market. Failure to comply with ongoing relevant regulatory requirements may
result in, among other things, warning letters, fines, product recalls or
seizures, suspension or termination of production, injunctions, delays in
obtaining marketing authorization or refusal of the government to grant such
approvals, withdrawals of previously granted approvals, civil penalties and
criminal prosecution, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company and its collaborative partners may also be subject to
regulation under state and federal laws, including requirements regarding
occupational safety and laboratory practices, and may be subject to other
present and possible future local, state, federal and foreign regulation. The
impact of such regulation upon the Company cannot be predicted and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
CONVERSION OF SERIES F PREFERRED STOCK INTO COMMON STOCK. The terms of the
Series F Preferred Stock provide for the automatic conversion of such stock into
Common Stock upon the closing of the first underwritten public offering of
Common Stock resulting in aggregate gross proceeds to the Company in excess of
$7.5 million. The number of shares of Common Stock issuable upon the automatic
conversion of the Series F Preferred Stock will depend upon the initial public
offering price. Assuming an initial public offering price of $7.00 per share,
each share of the outstanding 2,282,663 shares of Series F Preferred Stock will
convert into 0.6429 of a share of Common Stock, for a total of 1,467,510 shares
of Common Stock. If the initial public offering price is less than $7.00 per
share, the conversion ratio of the Series F Preferred Stock will be adjusted,
resulting in additional shares of Common Stock being issued to the holders of
Series F Preferred Stock. If the initial public offering price is less than
$7.00 per share, investors purchasing in the Offering will own a lesser
percentage of the total shares of Common Stock outstanding following the
Offering as a result of the issuance of additional shares of Common Stock to
holders of the Series F Preferred Stock upon conversion into Common Stock of
such preferred stock upon the closing of the Offering. For example, assuming an
initial public offering price of $6.00 per share, an additional 244,487 shares
of Common Stock would be issued upon the conversion of the outstanding shares of
Series F Preferred Stock. If the conversion ratio of the Series F Preferred
Stock is adjusted, additional shares of Common Stock will also be issued upon
the exercise of the Placement Agent Unit Options. For instance assuming an
initial public offering price of $6.00, an additional
16
<PAGE> 18
122,242 shares of Common Stock would be issued upon the exercise of the
Placement Agent Unit Options. See "Dilution," "Certain Transactions" and
"Description of Capital Stock -- Preferred Stock."
DILUTION. Purchasers of the Common Stock offered hereby will incur
immediate and substantial dilution equal to $3.31 per share, based upon an
assumed initial public offering price of $7.00 per share. The dilution will be
increased to the extent that the holders of outstanding options or warrants to
purchase Common Stock with exercise prices below the initial public offering
price exercise such options or warrants. If the initial public offering price is
less than $7.00 per share, the per share amount of dilution will be lower;
however, investors purchasing in the Offering will own a lesser percentage of
the total shares of Common Stock outstanding as a result of the issuance of
additional shares of Common Stock to holders of the Series F Preferred Stock
upon conversion into Common Stock of such preferred stock upon the closing of
the Offering and to the holders of the Placement Agent Unit Options upon the
exercise thereof. See "Dilution," "Certain Transactions" and "Description of
Capital Stock -- Preferred Stock."
LACK OF MANUFACTURING, MARKETING AND SALES CAPABILITY AND
EXPERIENCE. RiboGene does not expect to invest in the development of
manufacturing, marketing or sales capabilities in the foreseeable future. If the
Company is unable to contract for manufacturing capabilities on acceptable
terms, the Company's ability to conduct preclinical and clinical trials with any
potential drug candidates would be adversely affected, resulting in delays in
the submission of any drug candidate for regulatory approval and in the
initiation of new development programs, which in turn could materially impair
RiboGene's competitive position and the possibility of achieving profitability.
The Company has no experience in marketing drugs. The Company has granted
marketing rights to Dainippon and under certain circumstances has retained
copromotion rights with respect to antibacterial drugs developed through the
Dainippon Collaboration. The Company intends to collaborate with additional
third parties to market any drugs that may result from its other areas of focus.
There can be no assurance that any such collaborative agreement can be reached
on acceptable terms, if at all. There can be no assurance that the Company will
be able to establish third party relationships to provide any or all of these
capabilities.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE. The Company's business
will expose it to potential liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. The use of any drug
candidates ultimately developed by the Company or its collaborators in clinical
trials may expose the Company to product liability claims and possible adverse
publicity. These risks will expand with respect to the Company's drug
candidates, if any, that receive regulatory approval for commercial sale.
Product liability insurance for the biotechnology industry is generally
expensive, if available at all. The Company does not have product liability
insurance but intends to obtain such coverage if and when any drug candidates
are tested in clinical trials. However, such coverage is becoming increasingly
expensive and there can be no assurance that the Company will be able to obtain
insurance coverage at acceptable costs or in a sufficient amount, if at all, or
that a product liability claim would not adversely affect the Company's
business, operating results or financial condition.
UNCERTAINTY RELATED TO HEALTH CARE INDUSTRY. The successful
commercialization of any drug candidates developed by the Company and its
current and future collaborators will depend substantially on reimbursement of
the costs of the resulting drugs from government authorities, private health
insurers and other organizations at levels acceptable to the Company. There can
be no assurance that adequate reimbursement will be available or, if available,
will not be decreased in the future, or that reimbursement amounts will not
reduce the demand for, or the price of, any such drugs. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations. If such reimbursement is not available or
is available on a limited basis, the Company may not be able to retain any
collaborative partners to manufacture and commercialize any drugs and may not be
able to obtain a financial return on the manufacture and commercialization of
any future drugs.
Third-party payors are increasingly focusing on the cost-effectiveness
profile of prescription drugs and challenging the prices charged for such
products and services. Also, the trend towards managed health care in the United
States and the concurrent growth of organizations such as health maintenance
organizations, which could control or significantly influence the purchase of
health care services and products, as well as legislative
17
<PAGE> 19
proposals to reform health care or government medical assistance programs, may
all result in lower prices or reduced markets for any products developed by the
Company or its current and future collaborators. The cost containment measures
that health care providers and payors are instituting could adversely affect the
Company's or its current and future collaborators' ability to sell future
products and may have a material adverse effect on the Company. To date, the
Company has not conducted any marketing studies on any of its potential product
candidates and has not undertaken any pharmacoeconomic analysis with respect to
any potential products. The cost containment measures and reforms that
government institutions and third-party payors are considering could result in
significant and unpredictable changes to the marketing and pricing and
reimbursement practices of biopharmaceutical and pharmaceutical companies such
as the Company and its current and future collaborators. The adoption of any
such measures or reforms could have a material adverse effect on the business,
financial condition and results of operations of the Company.
HAZARDOUS MATERIALS. The Company is subject to federal, state and local
laws and regulations governing the use, generation, manufacture, storage,
discharge, handling and disposal of certain materials and wastes used in its
operations. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations as its
research activities are increased, or that the operations, business and future
profitability of the Company will not be adversely affected by current or future
environmental laws and regulations. See "Business -- Government Regulation."
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The Company intends to use
approximately $1.1 million of the net proceeds from the Offering and the
proceeds from the sale of the Abbott Shares to repay certain secured
indebtedness and related liabilities incurred in connection with an acquisition
of certain intellectual property in 1994. The Company will use the remainder of
such proceeds for expansion of internal chemistry capabilities, expansion and
advancement of drug discovery programs and for working capital and other general
corporate purposes. Accordingly, the Company's management will retain broad
discretion as to the allocation of the balance of the net proceeds from the
Offering and the proceeds from the sale of the Abbott Shares. As a result of
such discretion, the Company's management could allocate such proceeds to uses
which the stockholders may not deem desirable. There can be no assurance as to
the timing or application of such proceeds, or that the application thereof will
not have a material adverse effect on the Company's future business, financial
condition or results of operations. See "Use of Proceeds."
CONTROL BY EXISTING STOCKHOLDERS. Immediately following the Offering,
officers, directors and existing stockholders of the Company will beneficially
own approximately 61% of the outstanding shares of Common Stock of the Company
(based on shares, warrants and options outstanding as of March 31, 1998). These
stockholders, if acting in concert, will continue to be able to control the
election of all members of the Company's Board of Directors and to determine all
corporate actions after the sale of the shares offered hereby. See "Principal
Stockholders."
ABSENCE OF DIVIDENDS. The Company has never declared or paid cash dividends
on its capital stock and does not anticipate paying cash dividends in the
foreseeable future, but intends instead to retain future earnings, if any, for
reinvestment in its business. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
the Company's financial condition, results of operations, capital requirements
and such other factors as the Board of Directors deems relevant. See "Dividend
Policy."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock. Accordingly,
there can be no assurance that an active trading market for the Common Stock
will develop or be sustained upon completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price of the shares of Common Stock offered
hereby will be determined by negotiations between the Company and the
Representatives. The market prices for securities of biopharmaceutical companies
have been highly volatile. Announcements regarding the results of regulatory
approval filings, preclinical or clinical studies or other testing,
technological innovations or new commercial products by the Company or its
competitors, government regulations, developments concerning proprietary rights
or public concern as to safety of technology have historically had, and are
expected to continue to have, a significant impact on the market prices of the
stocks
18
<PAGE> 20
of biopharmaceutical companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in operating
results.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS. Under
the Company's Certificate of Incorporation, the Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the powers, rights, preferences and privileges of those shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. While the Company has no present intention to issue shares of Preferred
Stock, such issuance would dilute the voting power of holders of Common Stock
and, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "Description of Capital Stock -- Delaware Anti-Takeover Law
and Certain Charter and By-law Provisions."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock (including shares issued upon the exercise of outstanding options
and warrants) in the public market after the Offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon
completion of the Offerings the Company will have outstanding an aggregate of
5,764,055 shares of Common Stock (6,169,055 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,700,000
shares offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares held by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining 3,064,055 shares of Common Stock held
by existing stockholders of the Company (including the Abbott Shares) are
"restricted securities" as that term is defined in Rule 144 (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under the Securities Act,
including an exemption under Rule 144 or 701 under the Securities Act. For a
summary description of the requirements of Rules 144 and 701, see "Shares
Eligible for Future Sale." Pursuant to "lock-up" agreements, all of the
Company's executive officers and directors and certain stockholders holding in
the aggregate substantially all of the Restricted Shares, have agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any such shares for a period of 180 days from the date of this Prospectus
without the prior written consent of the Representative.
As of March 31, 1998, options to purchase an aggregate of 182,433 shares of
Common Stock were outstanding under the Company's stock plans and an aggregate
of 1,506,552 shares of Common Stock were reserved for future grants or purchases
under the Company's equity incentive plans. The holders of all such outstanding
options have agreed not to offer, sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock issuable upon
exercise of such options for a period 180 days from the date of this Prospectus
without the prior written consent of the Company, and the Company has agreed in
the Underwriting Agreement that it will not grant any such consent without the
prior written consent of the Representative. The Company intends to file after
the closing of the Offering a registration statement on Form S-8 to register an
aggregate of 1,506,552 shares of Common Stock reserved for issuance under the
Company's equity incentive plans.
In addition, as of March 31, 1998, 166,319 shares of Common Stock were
reserved for issuance upon the exercise of warrants (other than Class A
Warrants); 162,967 shares of Common Stock were reserved for issuance upon
exercise of the Class A Warrants; 733,755 shares of Common Stock were reserved
for issuance upon exercise of the Placement Agent Units, each Placement Agent
Unit consisting of two shares of Series F
19
<PAGE> 21
Preferred Stock and one Class A Warrant (the "Placement Agent Class A
Warrants"); 40,739 shares of Common Stock were reserved for issuance upon the
exercise of the Placement Agent Class A Warrants; and 270,000 shares of Common
Stock were reserved for issuance upon exercise of warrants issued to the
Representatives, at an exercise price equal to 165% of the initial public
offering price of the Common Stock (the "Representative's Warrants").
Holders of warrants to purchase an aggregate of 370,025 shares of Common
Stock will enter into lock-up agreements with the Representative agreeing not to
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any of their shares of Common Stock or any securities convertible into or
exercisable for shares of Common Stock, for a period of 180 days from the date
of this Prospectus without the prior written consent of the Representative.
The Company also has agreed that it will not offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of Common Stock for a period
of 180 days from the date of this Prospectus, other than pursuant to existing
stock option plans, without the prior written consent of the Representative.
Following completion of the Offering, holders of 2,385,039 Restricted
Shares and 370,025 shares issuable upon exercise of outstanding warrants will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act for resale, at the expense of the Company. See "Description
of Capital Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
NO ASSURANCE OF NASDAQ NATIONAL MARKET LISTING. Although the Company's
Common Stock has been approved for listing on the Nasdaq National Market, such
approval is subject to the Company meeting all of the listing requirements. In
order to meet the tangible net worth listing requirement, the gross proceeds
from the Offering must be at least $18,900,000. If the gross proceeds from the
Offering are less than $18,900,000, the Company's Common Stock will not be
listed on the Nasdaq National Market. There can be no assurance that the Company
will meet the listing requirements of the Nasdaq National Market or, if met,
that it will be able to meet any applicable maintenance requirements.
If the Company's Common Stock is not listed on the Nasdaq National Market,
the Company will apply for listing of the Common Stock on the Nasdaq SmallCap
Market. There can be no assurance that the Company will meet the listing
requirements of the Nasdaq SmallCap Market. Any failure to obtain or maintain
listing of the Common Stock on the Nasdaq SmallCap Market could result in any
trading of the Common Stock being conducted on the OTC Bulletin Board or in the
over-the-counter market in what is commonly referred to as the "pink sheets." If
this occurs, a stockholder will find it more difficult to dispose of the
securities or to obtain accurate quotations regarding the price of the
securities. In addition, the Company's common stock could become subject to the
"penny stock" regulations of the Securities and Exchange Commission, which
impose additional restrictions on broker-dealers who trade in such stock, and
could severely limit the liquidity of the Company's securities.
FORWARD-LOOKING STATEMENTS. Certain statements under the captions
"Prospectus Summary," "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" and elsewhere
in this Prospectus constitute "forward-looking statements." Such forward-looking
statements may be identified by the use of terminology such as "may," "will,"
"expect," "anticipate," "intend," "designed," "estimate," "should" or "continue"
or the negatives thereof or other variations thereon or comparable terminology.
Such forward-looking statements involve known or unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include those described above and
in the sections entitled "Prospectus Summary," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $15.4 million ($17.9 million if
the Underwriters' over-allotment option is exercised in full), after deducting
the estimated underwriting discounts and commissions and estimated Offering
expenses. The Company also will receive approximately $4.0 million from the sale
of the Abbott Shares.
The Company anticipates that it will use the net proceeds of the Offering,
together with the proceeds from the sale of the Abbott Shares, over the next two
years to expand internal chemistry capabilities, including acquiring necessary
equipment and recruiting qualified personnel, to expand and advance the
Company's antibacterial, antifungal and HCV programs, to establish new drug
discovery programs and for working capital and general corporate purposes. The
Company will also use approximately $1.1 million of such net proceeds to repay
certain secured indebtedness (the "Secured Indebtedness") and to satisfy the
Company's obligations under related agreements. The Company may use a portion of
such proceeds to acquire or license technology rights or compounds. No such
transactions involving a material amount of consideration are being negotiated
as of the date of this Prospectus. Pending such uses, the Company intends to
invest such funds in short-term, interest-bearing obligations of investment
grade. The Secured Indebtedness is evidenced by a promissory note in the
principal amount of $909,000, which originally bore interest at a rate of 5.32%
per annum and became due in January 1998. The promissory note was amended and a
principal payment of $500,000 was made on January 5, 1998. The remaining
principal amount of $409,000, plus accrued interest, is due in May 1998. The
principal balance of $409,000 began to accrue interest at 7% per annum on
January 5, 1998. This note was issued and the related agreements were entered
into in connection with the acquisition of in-process research and development
relating to products no longer under development by the Company. See "Certain
Transactions." The Company's management will have broad discretion as to the use
of a substantial portion of the net proceeds of the Offering. See "Risk
Factors -- Management Discretion as to Use of Proceeds."
The Company anticipates that the net proceeds of the Offering, together
with the proceeds from the sale of the Abbott Shares, and the interest income
earned on such proceeds, together with existing cash, cash equivalents and
short-term investments, will be sufficient for the purposes specified herein and
to allow the Company to maintain its current and planned operations through the
first quarter of 2000. However, there can be no assurance that the Company's
assumptions regarding future operating losses and operating expenses will be
accurate. The Company's future funding requirements and use of proceeds will
depend on many factors, including: any expansion or acceleration and the breadth
of the Company's research and development programs; the results of research and
development, preclinical studies and clinical trials conducted by the Company or
its collaborative partners or licensees, if any; the acquisition or licensing of
technologies or compounds, if any; the Company's ability to maintain existing
and establish new corporate relationships and research collaborations; the
Company's ability to manage growth; competing technological and market
developments; the time and costs involved in filing, prosecuting, defending and
enforcing patent and intellectual property claims; the receipt of licensing or
milestone fees from its current or future collaborative and license
arrangements, if established; the continued funding of governmental research
grants; the timing of regulatory approvals; and other factors. The Company will
need to raise substantial additional capital to fund its operations. Initially,
the Company intends to seek such additional funding through collaborative
arrangements and through public or private financings, including equity or debt
financings. See "Risk Factors -- Need for Additional Capital; Uncertainty of
Additional Funding" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company intends to retain future earnings, if any, for reinvestment in its
business. Any future determination to pay cash dividends would be at the
discretion of the Board of Directors and would be dependent upon the Company's
financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deems relevant.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth as of December 31, 1997: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company,
giving effect to (a) the receipt and application of $2.0 million from the sale
of the Dainippon Shares; (b) the automatic conversion of each outstanding share
of Series A through Series E and Series G Preferred Stock into 0.0714 shares of
Common Stock and each outstanding share of Series F Preferred Stock into 0.6429
shares of Common Stock concurrently with the closing of the Offering (assuming
an initial public offering price of $7.00 per share); and (c) the
reincorporation of the Company in Delaware prior to the effective date of the
Offering; and (iii) the pro forma as adjusted capitalization of the Company
adjusted to reflect the issuance and sale of the 2,700,000 shares of Common
Stock offered hereby (after deducting estimated underwriting discounts and
commissions and estimated expenses of the Offering), and the sale of 571,429
shares of Common Stock (assuming an initial public offering price of $7.00 per
share) to Abbott concurrently with the closing of the Offering, and the receipt
and application of the estimated net proceeds therefrom. The number of shares of
Common Stock to be issued upon conversion of RiboGene's Series F Preferred Stock
and to Abbott will depend upon the initial public offering price. See "Use of
Proceeds," "Business -- Collaborative and Research Agreements," "Certain
Transactions" and "Description of Capital Stock."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS:
Capital lease obligations less current portion and
other noncurrent liabilities..................... $ 289 $ 289 $ 289
-------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value: 18,932,344 shares
authorized (actual); 5,000,000 shares, $0.001 par
value authorized; (pro forma and pro forma as
adjusted); 14,377,595 shares issued and
outstanding (actual); none issued and outstanding
(pro forma and pro forma as adjusted)............ 33,533 -- --
Common Stock, no par value: 50,000,000 shares
authorized (actual), (30,000,000 shares
authorized, $0.001 par value pro forma and pro
forma as adjusted); 103,845 shares issued and
outstanding (actual); 2,488,884 shares issued and
outstanding (pro forma); 5,760,313 shares issued
and outstanding (pro forma as adjusted)(1)....... 1,839 2 6
Additional paid in capital............................ 1,672 39,042 58,426
Notes receivable from stockholders.................... (147) (147) (147)
Deferred compensation................................. (1,362) (1,362) (1,362)
Deficit accumulated during development stage.......... (35,697) (35,697) (35,697)
-------- -------- --------
Total stockholders' equity (deficit)................ (162) 1,838 21,226
-------- -------- --------
Total capitalization........................ $ 127 $ 2,127 $ 21,515
======== ======== ========
</TABLE>
- ---------------
(1) Excludes as of March 31, 1998: (i) an aggregate of 182,433 shares of Common
Stock reserved for issuance under the Company's stock plans upon exercise of
options outstanding at a weighted average exercise price of $3.57 per share;
(ii) an aggregate of 1,506,552 shares of Common Stock reserved for future
grants or purchases under the Company's equity incentive plans; (iii)
162,967 shares of Common Stock reserved for issuance upon exercise of the
Class A Warrants; (iv) 166,319 shares of Common Stock reserved for issuance
upon the exercise of warrants (other than Class A Warrants) outstanding at a
weighted average exercise price of $16.75 per share; (v) 733,755 shares of
Common Stock reserved for issuance upon exercise of the Placement Agent Unit
Options; (vi) 40,739 shares of Common Stock reserved for issuance upon the
exercise of the Placement Agent Class A Warrants; and (vii) an aggregate of
270,000 shares of Common Stock reserved for issuance upon the exercise of
the Representative's Warrants. The number of shares of Common Stock to be
issued upon conversion of the Series F Preferred Stock and exercise of the
Placement Agent Unit Options and the exercise price of the Placement Agent
Unit Options will depend upon the initial public offering price. See
"Management -- Stock and Related Employee Benefit Plans," "Certain
Transactions," "Description of Capital Stock" and "Underwriting."
22
<PAGE> 24
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1997, was approximately $1,838,000 or $0.74 per share of Common Stock. Pro forma
net tangible book value per share is equal to the Company's pro forma net
tangible assets (pro forma tangible assets less pro forma total liabilities)
divided by the pro forma number of shares of Common Stock outstanding at that
date, assuming the sale of the Dainippon Shares, which took place on February
23, 1998, and the automatic conversion of all outstanding shares of Series A
through Series G Preferred Stock of the Company into an aggregate of 2,385,039
shares of Common Stock (assuming an initial public offering price of $7.00 per
share) concurrently with the closing of the Offering. Without taking into
account any other changes in pro forma net tangible book value other than to
give effect to the receipt and application of the estimated net proceeds from
the sale of the 2,700,000 shares of Common Stock offered hereby, at an assumed
initial public offering price of $7.00 per share, and the sale of 571,429 shares
of Common Stock to Abbott (assuming an initial public offering price of $7.00
per share), the pro forma net tangible book value of the Company as of December
31, 1997 would have been $21,226,000 or $3.69 per share. This represents an
immediate increase in such pro forma net tangible book value of $2.95 per share
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $3.31 per share to new investors. The number of shares of Common
Stock to be issued upon conversion of RiboGene's Series F Preferred Stock and to
Abbott will depend upon the initial public offering price. See "Certain
Transactions" and "Description of Capital Stock." The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $7.00
Pro forma net tangible deficit per share as of December
31, 1997............................................... $ 0.74
Increase in net tangible book value per share attributable
to new investors....................................... 2.95
------
Pro forma net tangible book value per share after the
Offering and the sale of the Abbott Shares................ 3.69
-----
Dilution per share to new investors......................... $3.31
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by existing stockholders (excluding Abbott), by Abbott and by new investors
(at an assumed offering price of $7.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 2,377,818 41% $31,756,000 55% $13.36
Abbott.................................... 682,495 12 7,500,000 13 10.99
New investors............................. 2,700,000 47 18,900,000 32 7.00
--------- --- ----------- ---
Total........................... 5,760,313 100% $58,156,000 100%
========= === =========== ===
</TABLE>
The foregoing discussion and table assumes no exercise of outstanding
options or warrants subsequent to December 31, 1997, and excludes as of March
31, 1998: (i) an aggregate of 182,433 shares of Common Stock reserved for
issuance under the Company's stock plans upon exercise of options outstanding at
a weighted average exercise price of $3.57 per share; (ii) an aggregate of
1,506,552 shares of Common Stock reserved for future grants or purchases under
the Company's equity incentive plans; (iii) 162,967 shares of Common Stock
reserved for issuance upon exercise of the Class A Warrants; (iv) 166,319 shares
of Common Stock reserved for issuance upon the exercise of warrants (other than
Class A Warrants) outstanding at a weighted average exercise price of $16.75 per
share; (v) 733,755 shares of Common Stock reserved for issuance upon the
exercise of the Placement Agent Unit Options; (vi) 40,739 shares of Common Stock
reserved for issuance upon exercise of the Placement Agent Class A Warrants; and
(vii) 270,000 shares of Common Stock reserved for issuance upon the exercise of
Representatives' Warrants. The number of shares of Common Stock to be issued
upon conversion of the Series F Preferred Stock and exercise of the Placement
Agent Unit Options and the exercise price of the Placement Agent Unit Options
will depend upon the initial public offering price. See "Business --
Collaborative and Research Agreements," "Management -- Stock Plans and Related
Employee Benefits Plans," "Certain Transactions," "Description of Capital Stock"
and "Underwriting."
23
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial data set forth below at December 31, 1993, 1994,
1995, 1996, 1997 and for each of the years then ended have been derived from the
audited financial statements of the Company. The audited financial statements of
the Company as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997, together with the notes thereto and the
related report of Ernst & Young LLP, independent auditors, are included
elsewhere herein. The report of Ernst & Young LLP contains an explanatory
paragraph that describes the uncertainty as to the ability of the Company to
continue as a going concern as described in Note 1 of Notes to Financial
Statements. The selected financial data set forth below should be read in
conjunction with the Financial Statements of the Company and related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company has not declared or paid cash dividends on
its Common Stock since inception and does not intend to pay any cash dividends
in the foreseeable future.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED DECEMBER 31, (MAY 5, 1989)
--------------------------------------------------- TO DECEMBER 31,
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- ------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research.......................... $ -- $ -- $ -- $ 1,112 $ 1,668 $ 2,780
Grants..................................... -- 238 407 975 1,303 2,923
-------- -------- -------- -------- ------- --------
-- 238 407 2,087 2,971 5,703
Operating expenses:
Research and development................... 1,970 4,209 4,663 4,077 4,130 22,698
General and administrative................. 1,924 2,424 2,758 1,372 1,551 11,639
Financial advisory costs................... -- -- -- -- 1,396 1,396
Restructuring costs........................ -- -- -- 219 -- 219
Acquired in-process research and
development.............................. -- 5,000 -- -- -- 5,000
-------- -------- -------- -------- ------- --------
Total operating expenses..................... 3,894 11,633 7,421 5,668 7,077 40,952
-------- -------- -------- -------- ------- --------
Loss from operations......................... (3,894) (11,395) (7,014) (3,581) (4,106) (35,249)
Interest income (expense), net............... 55 (42) (240) (282) (7) (448)
-------- -------- -------- -------- ------- --------
Net loss..................................... $ (3,839) $(11,437) $ (7,254) $ (3,863) $(4,113) $(35,697)
======== ======== ======== ======== ======= ========
Basic net loss per share(1).................. $(239.94) $(300.97) $(164.86) $ (52.92) $(41.13)
======== ======== ======== ======== =======
Shares used in computing basic net loss per
share(1)................................... 16 38 44 73 100
======== ======== ======== ======== =======
Pro forma net loss per share(1).............. $ (1.95)
=======
Shares used in computing pro forma net loss
per share(1)............................... 2,109
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $ 2,105 $ 4,416 $ 1,897 $ 1,981 $ 2,045
Working capital (deficit)................................ 1,708 2,133 (1,762) (954) (1,745)
Total assets............................................. 2,892 5,105 2,404 2,657 4,312
Long-term obligations.................................... 249 3,192 2,656 1,494 477
Deficit accumulated during the development stage......... (9,030) (20,467) (27,721) (31,584) (35,697)
Total stockholders' equity (deficit)..................... 1,980 (504) (4,029) (1,956) (162)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include the factors discussed below as well as the factors discussed
in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company was founded in May 1989 to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research efforts initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. Simultaneously with the shift in focus to
infectious disease drug discovery, in 1993 and later in 1994, the Company
in-licensed certain technology not directly related to its drug discovery
efforts. In September 1993, the Company acquired the rights to a compound known
as RG-201. In January 1994, the Company acquired from Hyline Laboratories, Inc.
("Hyline") certain in-process research and development (the "Intranasal Product
Acquisition"), including certain patents and other intellectual property, for an
aggregate purchase price of $5.0 million, of which $800,000 was paid in cash and
$4.2 million was paid in the form of promissory notes ($909,000 of which
remained outstanding as of December 31, 1997), and warrants to purchase 92,820
shares of Common Stock, with an exercise price of $15.87. The promissory note
outstanding was amended and a principal payment of $500,000 was made on January
5, 1998, with the remaining principal balance of $409,000, plus accrued interest
due in May 1998. The $409,000 principal balance began to accrue interest at the
rate of 7.0% per annum on January 5, 1998. As consideration for this amendment,
the Company issued a warrant to purchase 13,923 shares of Common Stock at $15.87
per share. The warrant expires in January 1999. The patents and other
intellectual property acquired in connection with the Intranasal Product
Acquisition relate to intranasal formulations and the corresponding
administration of metoclopramide, propranolol and certain benzodiazepines.
Potential products incorporating this technology were under development by
Hyline at the time of acquisition. In connection with the Intranasal Product
Acquisition, the Company also entered into an agreement with the sole
stockholder of Hyline pursuant to which the Company is obligated to pay such
stockholder $50,000 per quarter through December 1999. Such obligation was fully
recognized in the Company's Statement of Operations in 1994 and 1995. One of the
potential products acquired by the Company was Emitasol, an intranasal
formulation of metoclopramide for the treatment of emesis following
chemotherapy. In 1996, the Company discontinued development of RG-201 and all
the potential intranasal products, including Emitasol. See "Business -- Patents
and Proprietary Rights" and "Certain Transactions."
On January 27, 1998, the Company entered into a collaboration with
Dainippon encompassing the two principal targets in the Company's antibacterial
program. As part of the Dainippon Collaboration, Dainippon agreed to provide the
Company with up to $6.0 million in research support payments ($2.0 million of
which has been received), and to provide additional research and development at
Dainippon, over the three-year term of the research program. The Company may
also be entitled to receive milestone payments upon the achievement of mostly
late-stage regulatory milestones in an amount of up to $10.0 million for each
product developed through the collaboration, consisting of up to $5.0 million in
milestones through approval in Japan and up to $5.0 million in milestones
through approval in one additional major market territory. In connection with
the Dainippon Collaboration, Dainippon purchased $2.0 million of the Company's
Series G Preferred Stock, which will automatically convert into 53,988 shares of
Common Stock concurrently with the closing of the Offering. In April 1996, the
Company entered into a collaboration with Abbott for the Company's antifungal
program. On February 6, 1998, Abbott notified the Company of its termination of
the Abbott Collaboration effective April 8, 1998. As of December 31, 1997, the
Company has realized $2.8 million in research support revenues from Abbott and
expects to realize the $556,000 of revenue deferred at December 31, 1997. In
connection with the Abbott Collaboration, Abbott made a $3.5 million equity
25
<PAGE> 27
investment in the Company and agreed to purchase an additional $4.0 million of
Common Stock in a private placement at a price equal to the initial public
offering price concurrently with the closing of the Offering, assuming the
offering results in gross proceeds to the Company of $20.0 million including the
$4.0 million purchase of the Abbott Shares. See "Business -- Collaborative and
Research Agreements."
The Company is a development stage company, has generated no revenue from
the sales of products and, through December 31, 1997, has incurred cumulative
net losses of approximately $35.7 million and, at December 31, 1997, had a net
stockholders' deficit of $162,000. The Company expects to incur significant
operating losses over the next several years due primarily to expanded research
and development efforts, preclinical and clinical testing of its product
candidates and commercialization activities. The Company does not anticipate
revenues from product sales for a significant number of years, if ever. The
Company's sources of revenues for the next several years will be payments from
strategic collaborations if any, and interest income. Certain payments under
collaborations are or will be contingent upon the Company or its collaborators
achieving certain milestones as to which there can be no assurance. Results of
operations may vary significantly from quarter to quarter depending on, among
other factors, the progress of the Company's research and development efforts,
results of clinical testing, the timing of certain expenses, the establishment
of collaborative research agreements and the receipt of grants or milestone
payments, if any. See "Risk Factors -- Need for Additional Capital; Uncertainty
of Additional Funding."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
For the year ended December 31, 1997, the Company's revenues consisted of
revenues from the Abbott Agreements and SBIR grants from the National Institutes
of Health. Revenues earned under the Abbott Agreements were $1.7 million for the
year ended December 31, 1997, as compared to $1.1 million for the year ended
December 31, 1996. The increase is attributable to the Company's research
support payments beginning in May 1996 and, as a result, the 1996 period
includes only eight months of support revenue as compared to 12 months of
support revenue during 1997. Revenues from the SBIR grants for the year ended
December 31, 1997 were $1.3 million as compared to $975,000 for the year ended
December 31, 1996. The increase in grant revenue results from the funding of two
grants that were awarded in the fourth quarter of 1996. Revenues earned under
research grants are determined by the timing of the award from the issuing
agency. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.
Research and development expenses were $4.1 million in 1997. Although the
Company discontinued the external activities involving Emitasol and RG-201 in
1996, research and development expenses in 1997 remained the same as compared to
1996 due to an increase in the Company's scientific staff to support its PSTM
drug discovery programs. Research and development expenses represented
approximately 58% of total operating expenses of $7.1 million in 1997 as
compared to 72% of total operating expenses of $5.7 million in 1996.
General and administrative expenses increased $179,000, or 13%, to $1.6
million in 1997, from $1.4 million in 1996. This increase was the result of
additional administrative costs associated with a 1997 increase in the Company's
scientific staff.
Financial advisory costs consist of a one-time, non-cash charge of $1.3
million, and $96,000 of accrued expenses, which were recognized as an expense
upon the signing of a financial advisory agreement in June 1997 with a placement
agent who assisted the Company with the issuance of Series F Preferred Stock
("the Placement Agent"). The $1.3 million one-time, non-cash charge for
financial advisory costs represents the fair value of options issued to the
Placement Agent pursuant to the financial advisory agreement.
In March 1996, the Company restructured its operations to focus on its PSTM
technology and the search for novel leads for antiinfective drugs. As a result,
certain employees associated with discontinued programs (Emitasol, RG-201) were
terminated. Severance compensation and other associated costs were recognized as
a charge to operations of $219,000 in 1996.
26
<PAGE> 28
Net interest expense decreased $275,000, or 98%, to $7,000 in 1997, from
$282,000 in 1996. This decrease resulted from the repayment of debt and
conversion of promissory notes issued to certain of the Company's investors in
1996.
The net loss for the year ended December 31, 1997 was $4.1 million, an
increase of $250,000 or 6%, from the net loss of $3.9 million for 1996, due to
the changes in revenue and operating expenses discussed above. The net loss of
$4.1 million included the $1.4 million one-time charge ($1.3 million of which is
non-cash) described above for expense associated with the signing of the
financial advisory agreement. Exclusive of the $1.4 million charge, the net loss
would have decreased by $1.1 million or 30% from $3.9 million to $2.7 million.
As of December 31, 1997, the Company had a federal net operating loss
carryforward of approximately $28.4 million available to offset future taxable
income, if any. The Company also had federal and state research and development
tax credit carryforwards of approximately $575,000 and $375,000, respectively.
The net operating loss carryforward will begin to expire incrementally at
various dates beginning from 2004 through 2012, if not utilized. Utilization of
the net operating losses and credits may be subject to substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986, as amended, and similar state provisions. The annual limitation
may result in the expiration of net operating losses and credits before
utilization. See Note 8 of Notes to Financial Statements.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the year ended December 31, 1996 were $2.1 million compared to
$407,000 in the prior year. The Company's 1995 revenues consisted solely of SBIR
grants. Revenues in 1996 included $1.1 million in research payments from Abbott.
The increase in grant revenue in 1996 was attributed to the funding of SBIR
grants in the second quarter of 1995 and the fourth quarter of 1996. Revenues
earned under research grants are determined by the timing of the award from the
issuing agency. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.
Research and development expenses decreased $586,000, or 13%, to $4.1
million in 1996, from $4.7 million in 1995 due primarily to the discontinuance
of outside consulting and contract research services related to preclinical
studies of RG-201 and various activities associated with Emitasol. Research and
development expenses represented approximately 72% of total operating expenses
of $5.7 million in 1996 and 63% of total operating expenses of $7.4 million in
1995.
General and administrative expenses decreased $1.4 million, or 50%, to $1.4
million in 1996, from $2.8 million in 1995. The decrease was due to a one-time
charge in 1995, of $646,000 related to a consulting services agreement with an
executive of the selling party in the Intranasal Product Acquisition in 1994.
The remainder of the decrease was attributable to personnel and administrative
costs savings associated with the reorganization of the business development
function in the first quarter of 1996 and a reduction in the use of external
consulting during 1996.
Net interest expense increased from $240,000 in 1995 to $282,000 in 1996.
The increase of $42,000, or 18%, was due primarily to interest on notes payable
to a bank and convertible promissory notes issued to certain of the Company's
investors.
The net loss decreased from $7.3 million in 1995 to $3.9 million in 1996.
The decrease of $3.4 million, or 47%, was due primarily to revenue and operating
expense differences discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since incorporation primarily
through private sales of Common Stock and preferred stock, warrants, SBIR
grants, the Abbott Collaboration, the issuance of short-term convertible notes
and equipment financing arrangements. Through December 31, 1997, the Company has
raised approximately $31.8 million from the sale of Common Stock and Preferred
Stock, warrants and short-term convertible notes, $2.9 million from SBIR grants
and $2.8 million from the Abbott Collaboration. The Company's capital
expenditures and payments under capital lease obligations aggregate
approximately
27
<PAGE> 29
$1.1 million through December 31, 1997, and cash used to fund operating
activities since incorporation $25.8 million.
At December 31, 1997, the Company had cash and cash equivalents of
approximately $2.0 million and working capital deficit of $1.7 million.
On March 7, 1997, the Company entered into a 15-year lease with the right
of sublease for a new facility located in Hayward, California. The lease
provides for an initial annual rent of $531,000, with scheduled increases. The
lease also provides that the Company will issue to the landlord a six-year
warrant to purchase 17,850 shares of Common Stock at $31.51 per share. The
Company relocated to the new facility in November 1997. In September 1997, the
Company amended the lease to include additional square footage in the new
facility. The Company intends to sublet the additional space for a period of
time until it is needed by the Company. See "Business -- Facilities."
The Company will require substantial additional funds to continue and
expand its research and development activities, conduct preclinical studies and
expand administrative capabilities. The Company estimates that at its planned
rate of spending, existing cash and cash equivalents, together with the net
proceeds from the Offering and the proceeds from the sale of the Abbott Shares
and the interest income earned on such proceeds, will be sufficient for the
purposes specified herein and to allow the Company to maintain its current and
planned operations through the first quarter of 2000. There can be no assurance,
however, that the Company's assumptions regarding its future level of
expenditures and operating losses will prove to be accurate. The Company's
future funding requirements will depend on many factors, including: any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition and licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors. See "Risk Factors -- Need for Additional Capital;
Uncertainty of Additional Funding."
IMPACT OF YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's suppliers
or service providers, working either alone or in conjunction with other software
or systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or thereafter without error or interruption (commonly known as
the "Year 2000" problem). The Company does not have a comprehensive or formal
Year 2000 plan for its operations. However, the Company has assessed its
computer systems and at this time, believes that such systems will function
properly with respect to dates in the years 1999, 2000 and thereafter. Some
risks associated with the Year 2000 problem are beyond the ability of the
Company to control, for example, the extent to which the Company's suppliers and
service providers, including providers of telephone services, address the Year
2000 problem. The failure by a third party to adequately address the Year 2000
issue could have a material adverse impact on such third party, and could result
in a material adverse impact on the Company. The Company is assessing the
possible effects on the Company's operations of the possible failure of the
Company's key suppliers and providers, contractors and collaborators to identify
and remedy Year 2000 problems.
28
<PAGE> 30
BUSINESS
OVERVIEW
RiboGene is a drug discovery company focused on the identification of novel
leads and the development of potential drug candidates for the treatment of
infectious diseases. The Company's drug discovery efforts target bacterial,
fungal and viral infections for which the efficacy of existing therapies is
being threatened by the emergence of drug resistance or for which existing
therapies have had limited effectiveness. The Company's drug discovery
technology is based on the translational control of gene expression. Translation
is the process used by cells to make proteins and is an essential cellular
process for all living organisms, including infectious pathogens. The Company is
using its platform technology to discover compounds that inhibit or interfere
with PSTMs. RiboGene's extensive knowledge of translation allows the Company to
identify components of the translation process unique to a particular pathogen
and essential to its existence. The Company believes that targeting PSTMs may
lead to the discovery of drugs that are effective against either drug-resistant
pathogens or pathogens for which current therapies are not effective. In
addition, the Company believes that any such drugs discovered using its PSTM
approach may have little or no harmful effect on humans.
Infectious diseases have increased significantly during the past 20 years
and are now the third most common cause of death in the United States. Worldwide
sales of antiinfective drugs were approximately $33.0 billion in 1996 and
constituted the second largest pharmaceutical sales category. The antibacterial,
antifungal and antiviral markets are estimated to be approximately $26.0
billion, $4.0 billion and $3.0 billion, respectively, based on 1996 sales. There
are currently three antibacterial drugs that each generate in excess of $1.0
billion in worldwide sales annually and one antifungal drug that generates
nearly $1.0 billion. Of the 100 best selling brand name drugs worldwide, 20 are
antiinfectives addressing bacterial, fungal and viral infections. The clinical
efficacy of many bacterial and fungal antiinfectives is being threatened by
emerging strains of drug-resistant pathogens. In the antiviral area, there are
only a limited number of effective therapeutics currently marketed.
The Company believes that its target-based approach is different from, and
provides advantages over, traditional drug discovery techniques. Antiinfective
drug discovery has historically used a limited number of biological targets
which has restricted the ability to discover new drugs effective against drug
resistant pathogens. RiboGene's PSTMs represent a new class of targets for drug
discovery. By focusing discovery efforts on drugs which are effective inhibitors
of PSTMs, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, such compounds may in certain applications have better safety and
efficacy profiles than existing therapies, or may provide a therapy where no
other therapy currently exists. The Company's scientists and SAB use their
knowledge and expertise in the field of translation to identify unique targets
specific to pathogens and to design and implement assays in order to identify
selective compounds which demonstrate activity at the pathogen specific
translation targets. By developing assays to discover compounds with identified
mechanisms of action against desired targets, the Company believes that the
compounds which demonstrate activity at these targets will be better
characterized and more likely to result in lead candidates for optimization and
further development.
RiboGene has established antibacterial, antifungal and antiviral drug
discovery programs. Within each program, the Company's drug discovery process
consists of four phases: (i) target identification -- the selection and
characterization of PSTM targets; (ii) assay development -- the design and
implementation of screening systems to identify compounds active against the
PSTM targets; (iii) lead discovery -- the screening of compound libraries to
identify small-molecule lead compounds; and (iv) lead optimization -- the
refinement of lead compounds in order to develop drug candidates. In its
antibacterial program, the Company has two principal targets in the lead
discovery phase, deformylase and ppGpp degradase, for which it conducts research
in collaboration with Dainippon. The Company has several additional
antibacterial targets, to which it has retained its rights, that are in the
assay development phase. In its antifungal program, two targets, EF3 and GCN4,
are in the lead optimization phase and several others that are in various phases
of early research and development. In its antiviral program, which is currently
focused exclusively on the hepatitis C virus ("HCV"), the Company has one
target, HCV IRES, in the lead discovery phase and one target, HCV NS5A/PKR, in
the assay development phase.
29
<PAGE> 31
In order to accelerate the discovery, development and commercialization of
antiinfective drugs, the Company seeks to enter into collaborations with major
pharmaceutical companies and, additionally, into research and licensing
agreements with biotechnology companies, combinatorial chemistry companies and
universities. These relationships are intended to provide the Company with
funding, research and development support, access to additional compound
libraries and targets, as well as to provide the Company with preclinical and
clinical trial, manufacturing and marketing capabilities. On January 27, 1998,
the Company entered into a collaboration with Dainippon encompassing the two
principal targets in the Company's antibacterial program. As part of the
Dainippon Collaboration, Dainippon agreed to provide the Company with up to $6.0
million in research support payments ($2.0 million of which has been received),
and to provide additional research and development support at Dainippon, over
the three-year term of the research program. The Company may be entitled to
receive milestone payments upon the achievement of mostly late-stage regulatory
milestones in the amount of up to $10.0 million consisting of up to $5.0 million
in milestones for approval in Japan and an additional $5.0 million in milestones
through approval in one other major market territory for each product developed
through the collaboration. RiboGene also has the right to co-promote, on a
country-by-country basis, any products resulting from the collaboration. In
connection with the Dainippon Collaboration, Dainippon made a $2.0 million
equity investment in the Company on February 23, 1998, by purchasing the
Dainippon Shares, which will automatically convert into 53,988 shares of Common
Stock upon the closing of the Offering. In April 1996, the Company entered into
a collaboration with Abbott for its anti-fungal program. In connection with the
Abbott Collaboration, Abbott made a $3.5 million equity investment in the
Company. Abbott also agreed to purchase an additional $4.0 million of Common
Stock in a private placement at a purchase price equal to the initial public
offering price assuming the offering results in gross proceeds to the Company of
$20.0 million including the $4.0 million investment from Abbott. Through
December 31, 1997, the Company recognized $2.8 million of contract research
revenue from Abbott and expects to recognize $556,000 of deferred revenue at
December 31, 1997. On February 6, 1998, Abbott notified the Company of the
termination of the Research Agreement entered into as part of the Abbott
Collaboration effective April 8, 1998. The Company has also entered into
agreements with ArQule, Inc. ("ArQule"), Pharmacopeia, Inc. ("Pharmacopeia") and
Trega Biosciences, Inc. ("Trega") to provide the Company with access to
additional compound libraries for its drug discovery programs and with the
University of Washington to acquire the rights to the HCV NS5A/PKR target for
its antiviral program.
STRATEGY
The Company's objective is to discover and develop novel antiinfective
drugs. To achieve this objective, the key elements of the Company's strategy are
to:
Exploit expertise in pathogen specific translation mechanisms. The Company
intends to use its accumulated expertise and know-how in pathogen specific
translation mechanisms to identify novel targets critical for the survival of
bacteria, fungi or viruses. With these targets, the Company develops unique
assays which are used to identify compounds with desired mechanisms of action.
By using targets which are specific to pathogens, the Company believes it may be
able to develop small-molecule lead compounds which inhibit pathogen function
and thereby kill or attenuate pathogen growth with minimal effects on humans. In
certain applications these small-molecule lead compounds may have better safety
and efficacy profiles than those of existing drugs.
Develop novel antiinfectives which target drug resistant pathogens. The
Company directs its drug discovery programs toward the development of drugs that
target pathogens which have developed resistance to currently marketed
antiinfectives. Because new drugs which inhibit PSTMs will have different
molecular targets than those of existing classes of antiinfectives, the Company
believes that any potential drug candidates resulting from its drug discovery
programs may be effective against existing drug resistant pathogens.
Leverage platform technology over multiple indications and multiple
targets. The Company will continue to leverage its platform technology over
multiple targets and across multiple disease states, including its current focus
on antibacterials, antifungals and antivirals, which the Company believes may
increase the likelihood of successful development of leads for potential drug
candidates.
30
<PAGE> 32
Establish collaborative relationships. The Company employs a two-pronged
collaborative strategy to accelerate the discovery, development and
commercialization of novel antiinfective drugs. The Company seeks to enter into
collaborations with (i) major pharmaceutical companies, on entire programs or on
specific targets, to provide the Company with funds, research and development
resources, including chemistry capabilities, access to compound libraries and
preclinical and clinical trials, regulatory, manufacturing and commercialization
capabilities and (ii) biotechnology and combinatorial chemistry companies and
universities to provide the Company with access to drug discovery and
development technologies, compound libraries and targets. The Company has
entered into the Dainippon Collaboration in order to enhance its antibacterial
programs. The Company has also entered into agreements with ArQule, Pharmacopeia
and Trega to provide RiboGene with access to additional compound libraries for
certain of RiboGene's drug discovery programs.
Maintain and enhance proprietary position. RiboGene will continue to seek
protection for its discoveries and proprietary technology through the
maintenance of trade secrets, the filing of patent applications and the
in-licensing of issued patents and pending patent applications. The Company has
an issued patent and a pending application relating to its antifungal program,
two patent applications, one of which has been allowed, relating to its
antiviral program and a pending application relating to its antibacterial
program.
BACKGROUND
Infectious Disease Resistance
The increase in prevalence of infectious diseases caused by bacteria, fungi
and viruses that have developed resistance to existing antiinfective drugs is
well documented in the medical literature. This current situation results in
part from the overuse or incorrect use of antiinfective drugs. Administering
antiinfectives in the presence of resistant pathogens creates a growth advantage
for such pathogens and allows them to multiply preferentially over those that
have not developed resistance. These resistant pathogens can then spread quickly
from infected patients to healthy individuals.
Resistant pathogens have developed multiple mechanisms against certain
approved antiinfective drugs. Mechanisms of resistance include altering the
pathogen target, altering the drug itself or preventing the drug from
interacting with the target. Because traditional antiinfective drug discovery
approaches have used a limited number of biological targets, they have not
adequately addressed this resistance problem. As a result, new generations of
antiinfectives resulting from traditional approaches have been susceptible to
the same resistance mechanisms.
Traditional Approaches to Antiinfective Drug Discovery
There are two traditional approaches to antiinfective drug discovery.
Biological approaches rely on the use of whole organism based assays to screen
for compounds which kill pathogens. Although antiinfectives have been discovered
using this approach, information on the molecular target or the mechanism of
action of the drug resulting from this approach is minimal. The lack of
information on the target or mechanism of action makes it difficult to
understand the cause of subsequent drug resistance. Chemistry driven approaches
focus on chemical modifications of known antiinfective compounds. This approach
has led to the identification of new drugs which have chemical structures that
are closely related to existing drugs. As a result, these newer drugs are active
at the same molecular targets and eventually encounter the same resistance
problems that were observed for earlier drugs.
RiboGene's target-based approach involves the identification and
characterization of translation mechanisms that are specific to pathogens and
essential to their survival. This approach stands in contrast to traditional
methods for antiinfective drug discovery (particularly for antibacterial agents)
which have produced the drugs that are in clinical use today. Although a number
of existing antibacterials kill pathogens by inhibiting bacteria translation,
these drugs were discovered through traditional approaches. The Company's
approach is one of several modern drug discovery methods, including antisense,
gene therapy and genomics, that have emerged as alternatives to traditional
methods. The Company believes that its targeted approach, which is based on
PSTMs, and assays incorporating those PSTM-based targets combined with
contemporary
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medicinal and combinatorial chemistry techniques, could increase the possibility
of identifying unique drug candidates.
THE RIBOGENE APPROACH
The Company's scientists, in combination with its collaborative partners
and SAB, use their extensive knowledge and expertise in the field of translation
to identify targets specific to pathogens and to design and implement assays to
identify selective compounds which demonstrate activity at the specific
translation targets. By developing assays which identify compounds with
mechanisms of action against the desired target, the Company believes that the
compounds which demonstrate activity at the target will be better characterized
and more likely to result in lead candidates for optimization and further
development. Because RiboGene's PSTMs represent new drug targets, the Company
believes that antiinfective drugs which result from its drug discovery programs
may also be effective against current drug resistant pathogens.
Translation and protein synthesis are synonymous terms for the process used
by cells to make proteins from a template known as messenger RNA ("mRNA").
Proteins participate in virtually all cellular functions. All proteins are
assembled from a defined set of building blocks known as amino acids, and it is
the sequence in which the amino acids are assembled which distinguishes one
protein from another. The instructions that determine this sequence are encoded
within the genes of the organism. Typically, each gene contains coded
information for the synthesis of one particular protein. For this protein to be
synthesized, the information in the gene must be decoded. The decoding process
has two primary stages known as transcription and translation. (See Figure 1).
During the first stage, which is known as transcription, the genetic information
is "transcribed," or copied, and the copies produced are known as mRNA
molecules. During the second stage of gene expression, which is known as
translation, the information is "translated," or utilized, to assemble amino
acids into proteins. During this stage, these mRNA molecules direct the
synthesis of the protein by intracellular structures known as ribosomes. Each
ribosome moves along the mRNA and reads it like a tape, which tells the ribosome
which amino acid to add next as it synthesizes the protein.
FIGURE 1 -- THE NATURAL GENE EXPRESSION PROCESS
LOGO
Genetic information is stored archivally as DNA, transcribed into a working copy
as mRNA, and translated into functional units as proteins.
RIBOGENE'S DRUG DISCOVERY PROCESS
RiboGene's drug discovery process consists of four phases: (i) target
identification; (ii) assay development; (iii) lead discovery; and (iv) lead
optimization. The Company currently has the capability internally for the first
three phases and intends to use a portion of the proceeds of the Offering to
enhance its internal lead optimization capabilities.
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The following diagram illustrates RiboGene's four-phase integrated drug
discovery process.
FIGURE 2 -- RIBOGENE'S DRUG DISCOVERY PROCESS
LOGO
Target Identification
In the first phase of the process, the Company uses its accumulated
translation specific expertise and know-how in combination with functional
genetics and microbial genomics to identify and select the PSTM targets for use
in its drug discovery programs. Only PSTM targets which are essential for the
life of the pathogen and appear to bear little or no resemblance to their human
counterpart are selected for RiboGene's programs. The Company validates PSTM
targets by demonstrating their essential nature through the examination of the
effects on pathogens upon disruption or deletion of the gene which encodes the
PSTM target. The Company believes that the expertise of its staff and SAB
provides it with an important advantage in identifying PSTM targets. To date,
the Company has identified several PSTM targets utilizing its assembled
knowledge of pathogen and human translation.
Assay Development
When PSTM targets have been identified and validated, RiboGene scientists
use a variety of techniques to design and implement translation-based assays.
RiboGene has considerable expertise in the design and implementation of
translation-based assays incorporating conventional, automated and
high-throughput screening technology. The Company believes that its internal
translation-based assay development and implementation capabilities represent a
core competence of RiboGene and an advantage over more traditional drug
discovery screens. To date, the Company has applied its assay development
capabilities to create 40 unique PSTM assays, including those currently utilized
in its antibacterial collaboration with Dainippon.
Several types of assays have been developed internally for use in the
Company's drug discovery programs, including primary and secondary in vitro
biochemical assays and secondary whole cell assays. Primary assays incorporate
PSTM targets in a high-throughput format and are used to indicate the biological
activity of a compound against the specific PSTM target. This biological
activity is then reconfirmed in separate assays to eliminate compounds that are
not selectively acting against the specific PSTM target. Secondary assays are
used to characterize further the activity of screened compounds.
The basic constructs in many of the Company's assays are similar throughout
all of its drug discovery programs. It is this similarity and the Company's
internal expertise in assay development that allow for advances made in the
design and development of screens for one particular program to be applied to
all of its other programs as well. This advantage can be demonstrated by a
review of the total assay development time for certain of its antifungal and
antibacterial assays. Advances made in the Company's antifungal program allowed
certain antibacterial screens to be developed in half the time required to
develop their fungal counterparts.
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Lead Discovery
Once a PSTM target has been incorporated into a high-throughput assay,
RiboGene scientists use these assays to screen compound libraries to identify
potential lead compounds suitable for lead optimization. Compounds with
demonstrated activity in the primary screen are considered "hits." Secondary
assays designed to characterize further the activity of hits consist of separate
analyses of the compound against (i) the specific PSTM target in an environment
that more closely resembles its natural state, (ii) the specific pathogens in
cell culture and (iii) an appropriate human cell line. The data generated from
screening compounds in these assays is used to identify compounds that have
activity against a given PSTM target. This information is then used to select
compounds that serve as the starting point for lead optimization.
Currently, the Company has the capacity to screen approximately 1.25
million samples per year. The Company believes that with currently planned
improvements, this capacity can be increased to over 2.4 million samples per
year. The Company intends to use a portion of the proceeds from the Offering to
increase its screening capacity.
In order to increase the probability of identifying compounds that are
active against selected PSTMs, the Company has acquired and will continue to
acquire access to diverse and biased compound libraries. Diverse libraries
contain compounds with a wide variety of chemical structures and structural
features or motifs. Biased libraries contain a narrower selection of chemical
structures and structural motifs that are selected based on their propensity to
bind selected targets. Currently, RiboGene's compound library consists of over
100,000 diverse small-molecule compounds and natural product extracts. The
Company's library has been assembled through acquisitions from commercial and
academic sources as well as through custom syntheses. The RiboGene library also
contains a small number of compounds that are biased toward certain PSTM
targets. Through the Dainippon Collaboration, the Company will gain access to
the Dainippon compound library for use in connection with development activities
under the collaboration. In addition, the Company has obtained access to certain
compound libraries of Trega, ArQule and Pharmacopeia through research agreements
for use in its antiinfective PSTM assays. See "-- Collaborative and Research
Agreements."
Lead Optimization
Lead optimization involves the use of contemporary medicinal and
combinatorial chemistry techniques to enhance the potency, selectivity,
pharmacokinetic and other properties of potential leads identified using the
Company's assays. Lead optimization begins with the generation of compounds
which are structurally related to the potential lead compounds ("analogs"). The
analogs are generated by methodically altering specific components of a
potential lead compound. The effects of these alterations on the activity of the
analogs are studied in order to determine the function of the altered
components. Once the key components of a given core structure are known,
undesirable or unimportant components may be eliminated, leading to improved
potential lead compounds. Lead optimization is an iterative process involving
the systematic refinement and retesting of potential lead compounds. The Company
currently has limited internal lead optimization capabilities. RiboGene intends
to use a significant portion of the net proceeds from the Offering to further
develop the chemistry capabilities necessary to support its drug discovery
programs. The Company believes that developing these capabilities internally may
allow it to retain control over its discovery programs until a later stage and,
therefore, increase the value of its discovery programs. See "Risk
Factors -- Need for Chemistry Capabilities."
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THE RIBOGENE PROGRAMS
The status of RiboGene's primary drug discovery programs is shown below.
FIGURE 3 -- STATUS OF RIBOGENE DRUG DISCOVERY PROGRAMS
LOGO
ANTIBACTERIAL PROGRAM
Bacterial Infections
Bacterial infections are a significant and growing medical problem. These
infections may either be confined to a single organ or tissue, or disseminated
throughout the body by bloodstream infections, and can cause many serious
diseases, including pneumonia, meningitis and complicated urinary-tract
infections. Antibiotics are administered both to prevent bacterial infections
and to treat established bacterial disease. When administered to prevent an
infection, antibiotics are given before any clinical signs or symptoms of an
infection are present. When administered to treat an established infection,
antibiotics are often chosen and administered empirically before diagnostic
testing has established the causative bacterium and its susceptibility to
specific antibiotics.
Antibacterial Resistance and Market Opportunity
Annual worldwide sales of all antibacterial drugs in 1996 were
approximately $26.0 billion. At least three drugs have individually reached
worldwide sales of over $1.0 billion annually: Augmentin
(amoxicillin/clavulanate potassium), Biaxin (clarithromycin) and Cipro
(ciprofloxacin). Each of these drugs replaced previously prescribed drugs (such
as penicillin, tetracycline and erythromycin) whose effectiveness has diminished
as a consequence of bacterial drug resistance which developed after years of
administration. The clinical efficacy of these new drugs, however, is similarly
being threatened by emerging strains of drug-resistant pathogens.
The increasing prevalence of drug-resistant pathogens has contributed to
higher mortality rates from infectious diseases, particularly those caused by
Staphylococcus aureus, Streptococcus pneumoniae and Enterococcus
faecium/faecalis. S. aureus is the most common pathogen to cause
life-threatening infections. This organism is an aggressive pathogen that has
developed resistance to most antibiotics, except vancomycin (frequently called
"the drug of last resort"). Recent reports of vancomycin-resistant S. aureus
infections in the
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United States and Japan suggest that S. aureus has begun to show, and the
Company believes will continue to show, resistance to "the drug of last resort."
S. pneumoniae is a frequent cause of death among the elderly and is the most
frequently isolated pathogen in children with otitis media (middle ear
infections) and adults with sinusitis (sinus infection). Studies have shown that
patients with pneumonia caused by drug-resistant strains of S. pneumoniae have a
higher mortality rate than those with drug-sensitive strains. Enterococci are
commonly found living within the human intestinal tract, but can cause serious
bloodstream infections in weakened individuals. Vancomycin-resistant
enterococci, or "VRE" in the medical literature, are extremely difficult to
treat and are increasingly common in clinical settings. It is also feared that
these organisms will be able to pass their vancomycin resistance trait onto the
more serious pathogen S. aureus.
The Company believes that these examples demonstrate the importance of
identifying new molecular targets which will lead to antibacterial agents with
new mechanisms of action. RiboGene's PSTM technology is designed to identify
novel classes of antibiotics that act against new molecular targets.
RiboGene's Antibacterial Projects
RiboGene is focusing its antibacterial drug discovery programs on those
pathogens that have a high annual incidence rate worldwide and that have become
resistant to all but a few available antibacterial drugs. The Center for Disease
Control ("CDC") has reported that 47% of the two million hospital-acquired
infections in the United States are caused by four bacteria: staphylococci,
enterococci, pneumococci and pseudomoni. The Company's antibacterial projects
target infections caused by these and other bacteria.
Translation in bacterial cells differs from translation in human cells. In
particular, the translation initiation factors used by bacterial cells are fewer
in number and have little homology with functional counterparts in human cell
types. In addition, bacteria use translational control processes not found in
human cells. RiboGene is exploiting its knowledge of these bacterial PSTMs and
is designing and implementing antibacterial drug discovery systems incorporating
these PSTM targets. The Company's bacterial PSTM targets are in various stages
of research and development. The Company has developed assays incorporating
certain of these targets and intends to continue assay development incorporating
previously identified and future bacterial PSTM targets. Several of the assays
utilize proprietary strains of bacteria that may allow identification of
inhibitors of the target. Other assays utilize in vitro enzymatic reactions
designed to identify enzyme inhibitors of the target.
The Company has identified several bacterial PSTM targets that are in
various stages of research and development. Two of these targets, deformylase
and ppGpp degradase, are the focus of the Company's most advanced antibacterial
projects. The Company believes that bacterial PSTMs such as deformylase and
ppGpp degradase may be excellent selective targets for drug intervention and has
therefore established drug discovery projects based on these targets. The
Company entered into a collaboration with Dainippon in January 1998 to continue
the research and development of antibacterials that have activity against
deformylase or ppGpp. As part of the Dainippon Collaboration, RiboGene is
screening both the RiboGene and Dainippon compound libraries. RiboGene has
responsibility for assay development and lead discovery. Both parties have joint
responsibility for in vitro testing and lead optimization. Dainippon has
responsibility for any preclinical and clinical development, regulatory
submission, manufacturing and marketing.
Deformylase Inhibitor Project. Bacteria initiate translation using an amino
acid building block called formyl-methionine. The enzyme deformylase, common to
all bacteria, removes the formyl group from methionine releasing the protein for
use by the bacteria. This formylation-deformylation process is essential for
growth of all pathogenic bacteria. Because there is no mammalian counterpart,
the Company believes that the deformylase enzyme inhibition is a useful target
to identify selective inhibitors of bacterial translation. In addition, the
Company believes that all pathogenic bacteria utilize this translation process,
and therefore deformylase inhibitors have the potential to be broad spectrum
antibacterial agents. RiboGene scientists have designed and implemented assays
that target the identification of inhibitors of the deformylase enzyme.
The deformylase inhibitor project is currently in the lead discovery phase.
Through its assay system, the Company has discovered small-molecule deformylase
inhibitors that have activity against bacterial pathogens.
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The Company, in collaboration with Dainippon, will continue to screen compounds
in the deformylase assays to identify additional novel lead compounds suitable
for lead optimization.
ppGpp Degradase Inhibitor Project. ppGpp (guanosine tetraphosphate) is an
unusual nucleotide, synthesized during the translation process and regulated by
the essential enzyme, ppGpp degradase. Bacteria carefully regulate ppGpp levels
because accumulation of this nucleotide is toxic to the organism. Therefore, the
Company believes that inhibitors of the ppGpp degradase enzyme should kill
bacteria. Since this process is not part of the human translation process, yet
all bacteria appear to utilize this process, RiboGene scientists believe that
ppGpp degradase inhibitors have the potential to be antibacterial agents with
selective broad spectrum activity against pathogens and potentially low toxicity
to humans. The Company has developed a high-throughput primary assay around the
ppGpp degradase enzyme. Secondary assays developed by the Company include an
assay which comprises the isolated ppGpp enzyme and an assay which
quantitatively measures the accumulation of ppGpp. These assays are used to
confirm the mechanism of action of the inhibitors identified in the primary
assay.
The ppGpp degradase inhibitor project is in the lead discovery phase. The
ppGpp assays have identified several potential small-molecule lead compounds
with antibacterial activity in vitro against pathogenic bacteria. The Company,
in collaboration with Dainippon, will continue to screen compounds in the ppGpp
assays to identify novel lead compounds suitable for lead optimization. The
Company has recently received a Phase I SBIR grant in the amount of $100,000 to
support this project.
ANTIFUNGAL PROGRAM
Fungal Infections
Systemic fungal infections are a serious and growing problem. Infections by
fungi or yeasts are frequently caused by Candida albicans, a yeast which is
commonly found in the intestinal tract and on mucosal linings of healthy
individuals. This yeast also causes thrush (sore throat), vaginitis, and
life-threatening infections, particularly in individuals with weakened immune
systems. Another frequent source of serious fungal infections is the Aspergillus
genus, which the average person is exposed to on a regular basis. Healthy
individuals resist Aspergillus infections, but after a severe illness or injury,
this fungus can cause lung infections which can then spread throughout the body
resulting in death. Many diseases and disease states (e.g., organ transplants,
diabetes, cancer) of an aging and increasingly affluent population correlate
with an increased susceptibility to systemic fungal infections, as do
increasingly common medical practices such as use of broad-spectrum antibiotics,
cancer chemotherapy and intensive-care unit support. C. albicans, the most
common fungal pathogen, now accounts for 8-15% of all hospital-acquired
infections, which represents a 480% increase over the last decade. Infections
caused by C. albicans are a significant cause of morbidity and mortality, with
median increased hospital stays of 30 days and estimates of death rates ranging
from 30 to 80%. Aspergillus, a less common cause of fungal infection, results in
a mortality rate estimated at greater than 50%.
Fungal Resistance and Market Opportunity
Worldwide sales of all antifungal drugs in 1996 were approximately $4.0
billion. The largest selling antifungal, Diflucan (fluconazole) had sales in
1996 of approximately $910 million. Diflucan is fungistatic in that it only
stops the growth of the fungus but does not kill it. The Company believes that a
fungicidal drug (i.e., a drug that kills fungi) would be a more effective
antifungal. Relatively few therapeutics have been approved for fungal infections
and almost all inhibit a common biochemical pathway. Because the differences
between fungal and mammalian cells are less than those between bacterial and
mammalian cells, agents that damage or kill fungal cells are more likely to have
toxic effects on mammalian cells. As a result, progress in antifungal therapy
has been slow. By attacking only one pathway, current antifungals are vulnerable
to increased resistance. Although resistance to antifungal therapeutics is not
yet as serious as for antibacterials, it is increasing and is expected to become
worse if present trends continue.
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RiboGene's Antifungal Projects
Certain fungal translational mechanisms differ from those found in human
cells and therefore provide opportunities for RiboGene scientists to identify
translation targets specific to fungal pathogens. RiboGene believes that it may
be possible to identify substances that interfere in fungal translation without
significantly affecting human translation. The Company has identified several
fungal PSTM targets and developed fungal-specific in vitro and whole cell
assays. As part of the Abbott Collaboration, RiboGene screened both Abbott's and
RiboGene's compound libraries. The hits identified in the primary
high-throughput assays are then analyzed using secondary in vitro translational
assays to confirm that the compounds interfere specifically with fungal
translation without significantly affecting mammalian translation. Compounds
with the desired potency and selectivity are then assayed for their effects
against pathogenic fungi in cell culture.
The Company has identified several fungal PSTM targets that are in various
stages of development. Two examples of antifungal PSTMs are the third soluble
elongation factor ("EF3") and another system focused more broadly on fungal
translation ("GCN4"). The Company believes that antifungal PSTMs, such as EF3
and GCN4, are excellent selective targets for drug intervention and has
therefore established drug discovery projects based on these targets.
Elongation Factor 3 (EF3) Project. EF3 is a translation factor unique to
fungi and essential for fungal translation and growth. Although EF3 is common to
all known fungi, the Company believes that no known human counterpart exists,
which increases the probability of identifying selective drugs. At the
elongation stage of translation, fungi utilize three soluble elongation factors
whereas human cells utilize only two. Based upon such differing factors,
RiboGene believes that it may be possible to identify substances that interfere
in fungal translation without significantly affecting human translation.
Since April 1996, RiboGene has been working with Abbott to discover novel
lead compounds that inhibit this factor. The Company, in conjunction with
Abbott, has developed multiple approaches to identify substances that interfere
selectively with EF3 function. Certain potential lead compounds have been
identified. Several compounds identified using the primary assay appear to be
fungicidal. In addition, the Company has recently received a Phase I SBIR grant
in the amount of $100,000 to fund the development of one EF3 assay system.
GCN4 Project. GCN4 is used as a biological signal which can provide
information on fungal translation by responding to inhibition of several steps
within the translation pathway. The Company uses whole living fungal cells with
genetic mutations to screen for inhibitors of these translational components.
RiboGene has developed and patented this drug screening system.
Since April 1996, through the Abbott Collaboration, the Company has been
working towards the development of novel antifungal drugs identified with this
assay. The RiboGene and Abbott compound libraries have been examined in this
assay system. Potential lead compounds identified using the primary screen at
RiboGene have progressed to the lead optimization stage. The Company received
one Phase I and one Phase II SBIR grant in the aggregate amount of $830,000 to
fund early work on the GCN4 project.
On February 6, 1998, Abbott notified the Company of its termination of the
Abbott Collaboration effective April 8, 1998. See "-- Collaborative and Research
Agreements -- The Abbott Agreements."
ANTIVIRAL PROGRAM
Viral Infections and Hepatitis C
Viruses are intracellular parasites that can only reproduce and proliferate
within a living host cell. Viruses are composed of RNA or DNA genetic material
enclosed in a protective viral coat. A virus reproduces by entering a host cell
and releasing the genetic material which utilizes the host cell machinery to
recreate itself. Unlike bacteria and fungi, viruses do not have their own
cellular machinery to reproduce. The Company currently is focusing all of its
antiviral efforts on HCV.
HCV is recognized as a major cause of chronic hepatitis worldwide.
According to the CDC, there are approximately four million HCV infected
individuals in the United States, with up to 180,000 new cases
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occurring each year. The World Health Organization estimates that an additional
10 million individuals are infected with HCV in Europe and a total of 100
million people are infected worldwide. Hepatitis C accounts for 20% of all cases
of acute hepatitis. Approximately 85% of HCV infected persons will develop
chronic hepatitis, of which 20% will progress to liver cirrhosis. Chronic HCV
infection can also lead to the development of hepatocellular carcinoma and liver
failure. Currently, hepatitis C is responsible for an estimated 8,000 deaths
annually, and without effective intervention that number is estimated to triple
in the next 10 to 20 years. Hepatitis C is also a leading cause for liver
transplantation in the United States.
HCV and Market Opportunity
Interferon alpha and its derivatives are the only approved therapeutics for
HCV infections. Interferon alpha is estimated to be only 20% effective while
resistance to interferon occurs in the other 80% of HCV patients. Based on
published studies conducted by a team of researchers led by a member of the
Company's SAB, the Company believes that hepatitis C virus is intrinsically
resistant to interferon and that the clinical efficacy observed is due to the
occurrence of virus strains which are partially defective. As interferon alpha
is also administered for other indications, including cancer, it is difficult to
determine the precise amount used specifically for HCV treatment. However, total
worldwide sales of all brands of interferon in 1996 were approximately $1.2
billion.
RiboGene's HCV Projects
RiboGene's antiviral drug discovery program focuses on interfering with
viral translation mechanisms important for viral replication. The Company is
currently focusing its HCV efforts on two HCV PSTM targets, the HCV Internal
Ribosome Entry Site ("HCV IRES"), and the interaction between a viral protein
NS5A and a human protein kinase, RNA-activated enzyme ("PKR"), together known as
HCV NS5A/PKR. The Company has considerable expertise in the area of HCV
translation. Two members of the Company's SAB, Dr. Nahum Sonenberg and Dr.
Michael Katze, are responsible for certain important discoveries that have
significantly aided the Company's HCV efforts. Dr. Sonenberg was a co-discoverer
of the IRES mechanisms, and Dr. Katze recently published his findings on the
interaction of interferon-induced PKR and NS5A. Based in part on discoveries
made by Dr. Sonenberg, Company scientists have developed translation-based
assays incorporating certain viral IRES elements including the HCV IRES. The
Company has screened and will continue to screen compounds in these assays. In
April 1997, the Company licensed the rights to the HCV discovery made by Dr.
Katze from the University of Washington. The Company is currently incorporating
the findings of Dr. Katze and is developing an assay designed to identify
inhibitors of the interaction between NS5A and interferon-induced PKR.
HCV Internal Ribosome Entry Site (HCV IRES) Project. An IRES is a special
structure within HCV that enables the virus to manipulate a human cell's
translation process. Viruses with defective IRES elements replicate poorly
which, the Company believes, demonstrates that a loss of IRES function is
damaging to virus replication. RiboGene believes that drugs which affect IRES
function may have similarly damaging effects on viruses with minimal side
effects on human protein synthesis because humans do not utilize IRESs to
initiate translation.
The HCV-IRES project is in the lead discovery phase. The Company has
identified potential small-molecule lead compounds that have demonstrated
activity against HCV surrogates in cell culture. The Company has been awarded
Phase I and Phase II SBIR grants in an aggregate amount of $850,000 to fund the
HCV-IRES project.
HCV NS5A/PKR Project. PKR plays an important role in defending cells
against many kinds of viral infections. PKR regulates protein synthesis in
infected cells, thereby preventing the production of new viruses. Many viruses,
including HCV, have evolved certain defense mechanisms against PKR. RiboGene
believes that if a drug protects PKR against the HCV defense mechanisms it may
be an effective HCV therapeutic because it will enable the human enzyme to exert
its natural anti-HCV effect. The recent work published by Dr. Katze suggests
that the HCV protein NS5A confers interferon resistance by blocking the action
of PKR.
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The Company is working to discover novel therapeutics that protect PKR from
this viral protein in the belief that such therapeutics could increase the
efficacy of interferon treatment. The Company also believes that it may be
possible that a compound with this activity might even allow the efficacious use
of lower doses of interferon, thereby reducing the side effects of high-dose
interferon therapy or increase patient compliance to interferon therapy. The
target has undergone validation and is in the assay development stage. RiboGene
scientists are determining the optimal translational assay system to identify
inhibitors of the HCV NS5A/PKR interaction.
COLLABORATIVE AND RESEARCH AGREEMENTS
The Dainippon Agreements
On January 27, 1998, the Company entered into a research agreement with
Dainippon in connection with the Company's two principal antibacterial targets,
deformylase and ppGpp degradase. Pursuant to the research agreement, Dainippon
and the Company agreed to collaborate in a research program directed at
accelerating the discovery of antibacterial drugs that have activity against
either of these two bacterial specific targets. Dainippon has agreed to provide
certain antibacterial research and development support internally at Dainippon
and up to $6.0 million ($2.0 million of which has been received) to support
related research at RiboGene over a three-year period, subject to extension upon
mutual agreement by both parties. Pursuant to the terms of the research
agreement, the duties and responsibilities of Dainippon and RiboGene are
determined by a research committee comprised of representatives from both
companies. RiboGene's initial responsibilities include assay development and
lead discovery. Both parties are responsible for in vitro testing against
pathogens and lead optimization. Dainippon is responsible for in vivo evaluation
and preclinical development. Dainippon may terminate the research agreement at
any time after January 27, 1999 upon 180 days' written notice to the Company.
Also in January 1998, the Company entered into a license agreement with
Dainippon. Pursuant to the license agreement, the Company granted Dainippon
exclusive, worldwide rights to develop and market any and all antibacterial
products discovered by the parties during the joint research collaboration to
have activity against deformylase or ppGpp degradase. Under the terms of the
license agreement, Dainippon has responsibility for all development activities
necessary to commercialize potential lead compounds resulting from the Dainippon
Collaboration, including preclinical testing, clinical development, submission
for regulatory approval, manufacturing and marketing. The Company is entitled to
receive milestone payments of up to $10.0 million for each product developed
upon the achievement of mostly late-stage regulatory milestones, consisting of
up to $5.0 million through commercialization in Japan and up to $5.0 million
through commercialization in a major market other than Japan, and royalties on
worldwide sales of any products that may result from such collaboration. The
Company also has an option on a country-by-country basis to co-promote any
products resulting from the Dainippon Collaboration. If the Company elects to
co-promote, it will receive a co-promotion fee, in addition to royalties on
product sales, equal to at least the fully-burdened cost of each of the
Company's sales representatives that promote the products, plus an additional
co-promotion fee.
In connection with the Dainippon Collaboration, the Company and Dainippon
entered into the Series G Preferred Stock Purchase Agreement, pursuant to which
Dainippon made an initial equity investment in the Company of $2.0 million by
purchasing 756,144 shares of the Company's Series G Preferred Stock, which will
automatically convert into 53,988 shares of Common Stock upon the closing of the
Offering. Dainippon also will receive certain registration rights with respect
to the Dainippon Shares. See "Description of Capital Stock -- Registration
Rights."
There can be no assurance that the Company or Dainippon will be successful
in developing or commercializing any drugs or products under the Dainippon
Agreements. As such, there can be no assurance that any milestones will be
achieved or that any royalties contemplated by the Dainippon Agreements will
ever be made. There can be no assurance that the Dainippon Agreements will not
be terminated by Dainippon prior to their expiration. See "Risk
Factors -- Dependence on Collaborative Relationships; Funding of Programs."
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Research Agreements
Trega Biosciences, Inc. In April 1995, RiboGene entered into an agreement
with Trega (formerly Houghten Pharmaceuticals, Inc.), which was amended in April
1997 and again in March 1998, pursuant to which the two companies agreed to
collaborate to screen combinatorial chemistry libraries developed by Trega using
assays developed by RiboGene. Core antifungals and certain antiviral assays were
the initial therapeutic targets. The Company has completed screening the Trega
compounds in the antifungal assays, but continues to screen compounds in its HCV
assays. Pursuant to this agreement, once a compound is selected for further
development the parties will jointly agree on a development plan which will
further specify each party's obligations. Each party has the right but not the
obligation to participate in the development of the compound. In no case is the
Company obligated to expend additional funds for development. The agreement
provides for proportionate ownership of compounds resulting from the
collaboration, based on each party's contribution to development of the
compound. Each party's contribution will be calculated based on actual internal
and external expenditures.
Pharmacopeia, Inc. In September 1997, the Company entered into a Library
Sample Evaluation Agreement with Pharmacopeia, a combinatorial chemistry company
(the "Pharmacopeia Agreement"). The Pharmacopeia Agreement grants the Company
sequential access to up to three of Pharmacopeia's proprietary compound
libraries (the "Pharmacopeia Compounds"). The Company intends to screen the
Pharmacopeia Compounds in certain of its assays. Upon receipt of the
Pharmacopeia Compounds, the Company will have four months (subject to extension)
during which it will have the exclusive right to screen the compounds against
specified targets. If the Company determines that a Pharmacopeia Compound has
demonstrated biological activity, the Company has the right, within 180 days, to
negotiate a subsequent development agreement with respect to the use and
development of such compound. At this point, the Company is not obligated to
expend additional funds for development of compounds under this agreement.
ArQule, Inc. In September 1997, the Company entered into a Material
Transfer and Screening Agreement with ArQule, a combinatorial chemistry company
(the "ArQule Agreement"), which grants the Company access to ArQule's
proprietary combinatorial chemistry libraries (the "ArQule Compounds"). The
Company intends to screen the ArQule Compounds in certain of its assays. If the
Company detects activity in one or more of the ArQule Compounds and such
compounds have not already been licensed to a third-party, the Company will have
the opportunity to negotiate a collaboration agreement for such compounds. The
ArQule Agreement has an initial six-month term with automatic six-month renewal
periods, unless earlier terminated by either party. At this point, the Company
is not obligated to expend additional funds for development of compounds under
this agreement.
Georgia State University. In March 1995, the Company entered into an
assignment agreement with Georgia State University Research Foundation ("GSU")
for the transfer of rights to certain compounds synthesized at GSU that have
shown activity in certain of the Company's antiviral assays. The agreement
transfers to RiboGene all right, title and ownership to such compounds. In
consideration for these rights, the Company paid to GSU a one-time fee of
$10,000 and agreed to the payment of royalties to GSU from any sales of products
which incorporate the assigned compounds.
License Agreements
University of Washington. In April 1997, the Company entered into an
agreement with the University of Washington, which was amended in October 1997,
pursuant to which RiboGene received an exclusive worldwide license to certain
patent rights and technology relating to the interaction of the hepatitis C
virus NS5A protein and PKR. Under the agreement, the Company paid an upfront
license fee and has agreed to pay a quarterly license maintenance fee and a
milestone payment of $250,000 due upon the approval of an NDA for a compound
developed using the licensed patent rights.
University of Washington and McGill University. In April 1993, RiboGene
entered into an agreement with the University of Washington and McGill
University, under which RiboGene received an option to acquire an exclusive,
worldwide license to certain patent rights and technology relating to the tumor-
suppressing properties of the enzyme PKR. This agreement was amended in April
1996 to extend the term of
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the option through April 1998, in exchange for a minimal payment and a
commitment by the Company to screen specified compounds in assays incorporating
this technology, which has been completed, and to conduct preclinical studies on
future lead compounds selected. The Company is currently in negotiations with
the parties with respect to obtaining a worldwide license to such patent rights
and technology. There can be no assurance, however, that the Company will be
able to obtain such rights, or that any license agreement negotiated by the
Company would be as favorable to the Company as are the terms contained in the
option. No lead compounds have been selected for development to date. The
funding for this research is being provided by an SBIR grant that awarded the
Company up to $640,000 over a two-year period.
The Abbott Agreements
In April 1996, RiboGene established a collaboration with Abbott (the
"Abbott Collaboration") to discover and develop antifungal drugs. On February 6,
1998, Abbott notified the Company of its termination of the Abbott Collaboration
effective April 8, 1998. Pursuant to the Abbott Agreements, Abbott was granted
exclusive worldwide rights to develop and market any and all antifungal products
discovered through the Abbott-sponsored collaborative research program. Since
May 1996, Abbott has funded a significant portion of the costs associated with
the Company's antifungal program. Pursuant to the Abbott Agreements, Abbott was
committed, subject to rights of early termination, to pay up to $5.0 million in
research support payments over the three-year term of the research program. As
of December 31, 1997, the Company has realized $2.8 million in research support
revenues from Abbott and expects to realize the $556,000 of revenue deferred at
December 31, 1997. As a result of Abbott's termination of the Abbott
Collaboration, the Company will be reimbursed for all irrevocably committed
research costs for the project prior to termination that were not covered by
previous research support payments. In addition, each party to the Abbott
Agreements will return to the other proprietary and any confidential information
and know-how of such other party in its possession, and retain copies of any
technical or other information which was solely or jointly generated as a direct
result of the Abbott Collaboration. The Company is seeking to establish a
corporate collaboration for its antifungal program to replace the Abbott
Collaboration, however, there can be no assurance that the Company will be
successful in such efforts. If the Company is not able to establish a corporate
collaboration for its antifungal program it will continue to fund the antifungal
program from its own resources. See "Risk Factors -- Dependence on Collaborative
Relationships; Funding of Programs."
In connection with the Abbott Agreements, the Company and Abbott entered
into the Abbott Purchase Agreement, pursuant to which Abbott made an initial
equity investment in the Company of $3.5 million in 1996 and agreed to purchase
the Abbott Shares concurrently with the closing of the Company's initial public
offering, if such initial public offering resulted in gross proceeds to the
Company of $16.0 million (in addition to the $4.0 million purchase of the Abbott
Shares). Pursuant to the Abbott Purchase Agreement, Abbott also will receive
certain registration rights with respect to the Abbott Shares. See "Description
of Capital Stock -- Registration Rights."
PATENTS AND PROPRIETARY RIGHTS
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The Company's
commercial success will depend, in part, on its ability, and the ability of any
licensors, to obtain patent protection for its products and technologies, both
in the United States and in other countries. The patent positions of
pharmaceutical and biotechnology firms can be highly uncertain and involve
complex legal and technical questions for which important legal principles are
largely unresolved issues; thus making it difficult to predict the breadth of
claims which would be found allowable in any particular case. This uncertain
situation is also affected by revisions to the United States patent law adopted
in recent years to give effect to international accords to which the United
States has become a party. The extent to which such changes in laws will affect
the obligations of the Company cannot be ascertained.
The Company owns a pending patent application and certain corresponding
foreign applications relating to its antibacterial drug discovery program; an
issued U.S. patent, a pending U.S. patent application and
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certain corresponding foreign applications, relating to its antifungal drug
discovery program; and two pending United States patent applications, one of
which has been allowed by the United States Patent and Trademark Office, and
certain corresponding foreign applications relating to its antiviral drug
discovery program. One of the coinventors of the Company-owned patent
applications relating to the antiviral drug discovery program is Michael Katze,
Ph.D. Dr. Katze presently is a member of the SAB and, at the time these
applications were filed, was a consultant to the Company and a faculty member at
the University of Washington. The Company has received inquiries from, and has
been in discussions with, University of Washington regarding a potential,
partial ownership interest in these patent applications that Dr. Katze and the
coinventors assigned to the Company. Such discussions are ongoing and may result
in a determination that University of Washington is a joint owner of the patent
applications, though the Company believes, after a review of the information
available to date, that Dr. Katze, in his capacity as a consultant to the
Company, properly assigned his rights in these applications to the Company.
Nevertheless, in connection with these ongoing discussions, the Company decided
to obtain an option for an exclusive, worldwide license under the University's
potential ownership interest. The option is exercisable upon payment of a
$25,000 fee, at which time the Company will have an exclusive license under
terms that will include payments of $250,000 for each new drug application
approval, royalty payments on future sales of products developed under the
licensed patent rights and a percentage payment of sublicensing fees received by
the Company, and certain other terms to be negotiated in good faith.
The Company is an assignee, along with McGill University, of a allowed U.S.
patent application generally relating to the PSTM program. The Company is an
exclusive licensee under a University of Washington pending United States
application and certain corresponding foreign applications directed to HCV
NS5A/PKR. In addition, the Company has an option, from the University of
Washington and McGill University, to license a recently-issued U.S. patent and a
pending U.S. patent application relating to translational technology. There can
be no assurance that any of these patent applications, or any patent
applications which the Company may acquire in the future, will issue as patents,
that any such issued patents will afford adequate protection to the Company or
not be challenged, invalidated, circumvented or infringed, or that any rights
granted under such patents will afford competitive advantages to the Company. To
protect its rights to its patent applications and/or patents, the Company may be
required to participate in interference proceedings before the United States
Patent and Trademark Office to determine priority of invention. In addition, if
patents that cover the Company's activities are issued to other companies, there
can be no assurance that the Company would be able to obtain licenses to such
patents at a reasonable cost if at all or be able to develop alternative
technology. The Company also could incur substantial costs should suits be
brought against third parties, in which the Company asserts patents to which the
Company has rights. There can be no assurance that the Company's patents or
those of its licensors if issued, would not be held invalid by a court or that a
competitor's technology or product would be found to infringe such patents.
The Company's success further will depend, in part, on its ability to
operate without infringing the proprietary rights of others without breaching
agreements that cover technology used in the Company's products. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use, and sale of any of the Company's products could be enjoined
and the Company could be required to pay substantial damages. In addition, the
Company, in connection with the development and use of its products and
technologies, may be required to obtain licenses to patents or other proprietary
rights of third parties. No assurance can be given that any licenses required
under any such patents or proprietary rights would be made available on terms
acceptable to the Company, if at all. Failure to obtain such licenses may have a
material adverse effect on the Company.
In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the Company's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology. To protect its trade
secrets, it is RiboGene's policy to require its employees, consultants,
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SAB members and parties to collaboration and licensing agreements to execute
confidentiality agreements upon the commencement of employment, the consulting
relationship or the collaboration or licensing arrangement, as the case may be,
with RiboGene. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while employed by RiboGene will
be the exclusive property of RiboGene. In the case of SAB members, the
agreements also provide that any confidential information that results from work
performed for RiboGene will be the exclusive property of RiboGene. The Company
will continue to require its employees, consultants, SAB members, collaborators
and licensees to execute confidentiality agreements and inventions assignment
agreements (in the case of its employees) upon the commencement of employment,
the consulting relationship or the collaboration or license with the Company.
There can be no assurance, however, that these agreements will not be breached
or that they will provide meaningful protection of the Company's trade secrets
or adequate remedies in the event of unauthorized use or disclosure of such
information, that the Company can meaningfully protect its rights in such
unpatented proprietary technology through other means, that any obligation to
maintain the confidentiality of such proprietary technology will not be breached
by employees, consultants, advisors, collaborators, licensees or others, or that
others will not independently develop the same or substantially equivalent
technology. The loss of trade secret protection of any of the Company's key
discovery technologies would materially and adversely affect the Company's
competitive position and could have a material adverse effect on the Company's
business, financial condition and results of operations. Finally, disputes may
arise as to the ownership of proprietary rights to the extent that outside
collaborators, licensees or consultants apply technology information developed
independently by them or others to Company projects or apply Company technology
to other projects and, if adversely determined, such disputes would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company had acquired intellectual property that falls outside the field
of infectious diseases and translational control. The Company does not intend to
develop these products itself. These acquired products include Emitasol, for
emesis associated with chemotherapy, Migrastat, for migraine, and intranasal
benzodiazepines for various conditions such as anxiety, seizures, panic attacks
and sleep disorders. The Company has ongoing debt obligations relating to the
purchase of these products. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company discontinued the development of Emitasol, Migrastat and the
intranasal benzodiazepines in 1996. The Company has decided to discontinue the
patent prosecution for Migrastat. The Company has licensed rights to Emitasol in
Italy, Spain, Austria and certain former Soviet block countries. The Italian
licensee for Emitasol applied to the Italian regulatory authorities in 1993 for
registration of the product. There can be no assurance that the foreign
licensees will obtain the necessary regulatory approvals to market Emitasol, or
that, in the event such approvals are obtained, that Emitasol will achieve
market acceptance in such countries, or that the Company will ever realize
royalties on sales of Emitasol in such countries.
The Company has received notice that Peptech (Europe A/S) is opposing the
grant of a European patent with claims directed to the nasal administration of
benzodiazepines. As one of the grounds for the opposition, Peptech has submitted
a published abstract describing the nasal administration, to children, of the
benzodiazepine midazolam. This abstract has an apparent publication date of
February 1988, several months prior to the earliest filing date in the United
States from which the Company's European patent application could have claimed
priority. While the Company intends to respond vigorously to the opposition, no
assurance can be given as to the scope of the claims, if any, which the European
Patent Office ultimately will find patentable. Failure of the Company to prevail
in the opposition before the European Patent Office could impede the Company's
ability to outlicense the technology portfolio containing this patent.
The issued United States patent relating to the nasal administration of
benzodiazepines is the subject of a reissue proceeding before the United States
Patent and Trademark Office. In the course of negotiations with a potential
licensee of the technology portfolio containing this patent, the Company became
aware that the issued United States patent for which reissue is being sought had
expired for failure to pay the required maintenance fees. The Company's petition
to revive this patent recently was granted by the Patent and Trademark Office,
effectively resulting in the reinstatement of the patent, as if it had not
expired. However, should the Company choose to enforce this patent by
instituting an infringement action, the patent statute
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would provide certain protection to those infringers who first began practicing,
or first made substantial preparation to practice, the patented invention during
the approximately three-year and four month period that the patent had lapsed.
The Company presently is not aware of any potential infringers who may be
entitled to such so-called "intervening rights."
In April 1997, the Company entered into an agreement with CSC
Pharmaceuticals Ltd. ("CSC") of Vienna, Austria for the sale and distribution of
Emitasol in Austria, Eastern Europe and the Russian Federation. Under the terms
of the agreement, CSC is obligated to file for regulatory approval in Austria on
its behalf and three other European Union countries (as directed by and for the
benefit of the Company) for the purpose of obtaining European Union approval to
market the product via the Mutual Recognition process. CSC is obligated to file
for approval in Austria by April 1998. In the event the Company licenses a third
party in a European Union country other than Austria, and the third party
obtains marketing approval through substantial reliance on the marketing
approval obtained by CSC, on behalf of the Company, in any of the three
designated countries, the Company will pay CSC 10% of all up-front consideration
received from the third party, other than payment for equity, up to a maximum of
200% of CSC's expenses for obtaining such marketing approval. In a separate
agreement, the Company's Italian Licensee, Crinos, has agreed to manufacture
Emitasol for CSC and any other licensees. There can be no assurance that CSC
will obtain approval in Austria or that if approval is obtained, CSC will file
for and obtain approval in the other EU countries.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
which the Company is developing will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
which target the same diseases and conditions the Company is targeting, using
technology similar to the RiboGene technology, as well as alternative discovery
technologies, including antisense, gene therapy and genomics. The Company faces
competition from pharmaceutical and biotechnology companies both in the United
States and abroad. Many of the Company's competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than the Company. In addition, unlike the Company, many of these
competitors have experience in undertaking preclinical studies and clinical
trials of new pharmaceutical products, obtaining the necessary regulatory
approvals and manufacturing and marketing products. In addition, academic
institutions, government agencies, and other public and private organizations
conducting research may seek patent protection with respect to potentially
competing products or technologies and may establish exclusive collaborative or
licensing relationships with competitors of the Company.
The Company believes that its ability to compete is dependent, in part,
upon its abilities to create and maintain scientifically advanced technology and
to develop and commercialize pharmaceutical products based on this technology,
as well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon the
Company's technology.
There can be no assurance that the Company's competitors will not succeed
in developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and future drugs obsolete and noncompetitive. In addition, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for drug candidates more rapidly than the Company. Companies that complete
clinical trials, obtain required regulatory agency approvals and commence
commercial sale of their drugs before their competitors may achieve a
significant competitive advantage, including certain patent and FDA marketing
exclusivity rights that would delay the Company's ability to market certain
products. There can be no assurance that drugs resulting from the Company's
research and development efforts, or from the joint efforts of the Company and
its existing or future collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.
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GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that ultimately may be developed by the Company. All of
the Company's products will require regulatory approval by governmental agencies
prior to commercialization. Therapeutic drug products intended for human use are
subject to rigorous preclinical and clinical testing requirements and extensive
review and approval procedures by the FDA in the United States and similar
health authorities in other countries. Various statutes and regulations also
govern or affect, among other things, the clinical testing, safety, efficacy,
manufacturing, labeling, storage, record keeping, advertising and marketing and
distribution of such products. Failure to comply with such regulations could
result in, among other things, delays in obtaining required marketing
authorizations, warning letters, recalls, suspension or termination of
production, product seizures, injunctions, civil penalties and criminal
prosecution.
The Company currently is engaged in the preliminary stages of drug
development and does not expect to submit an application for FDA marketing
approval of any therapeutic product drug for a number of years, if ever. Once
the Company identifies a pharmaceutical candidate for potential commercial
development, it will be subject to a lengthy and uncertain regulatory review
process. The steps ordinarily required before a new biopharmaceutical product
may be marketed in the United States include: (i) drug discovery and screening
activities; (ii) preclinical testing; (iii) the submission to the FDA of an
investigational new drug application (an "IND") which must become effective
before clinical trials may commence; (iv) adequate and well-controlled clinical
trials to establish the safety and effectiveness of the drug for its intended
use; (v) the submission of an NDA to the FDA; and (vi) FDA review and approval
of the NDA prior to any commercial sale or distribution.
Preclinical testing includes laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical tests must be conducted in compliance with good laboratory
practice regulations. The results of preclinical tests are submitted to the FDA
as part of an IND. Unless the FDA objects to an IND, the IND will become
effective 30 days following its receipt by the FDA. In addition, the FDA may, at
any time, impose a clinical hold on an ongoing trial, requiring the suspension
of the trial until the agency authorizes its re-commencement. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials or that such authorization will lead to ultimate FDA approval of
a marketing application for the product.
Clinical trials involve the administration of the investigational product
to human subjects under the supervision of qualified principal investigators.
Clinical trials must be conducted in accordance with good clinical practices
under protocols submitted to the FDA as part of the IND. In addition, each
clinical trial must be approved and conducted under the auspices of an
Institutional Review Board ("IRB"), which will consider, among other things,
ethical factors, the safety of the human subjects and the potential liability of
the institution conducting the investigation.
Clinical trials ordinarily are conducted in three sequential phases and
generally take an average of five years, but may take longer. In certain cases
the phases may overlap. Phase I represents the initial introduction of the drug
to a small group of healthy subjects to test for safety, dosage tolerance, and
the essential characteristics of the drug. Phase II involves studies in a
limited number of patients to test the safety and efficacy of the drug at
different dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with a placebo or
an existing treatment. The results of the preclinical and clinical testing are
submitted to the FDA in the NDA. In some cases, the FDA may require additional
trials to be conducted following marketing approval to confirm safety and/or
effectiveness. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any potential products that may be developed by the
Company. Furthermore, the FDA may suspend clinical trials at any time if it
decides that patients are being exposed to a significant health risk.
All data obtained from a comprehensive development program are submitted as
an NDA to the FDA. Although the FDA is required by law to review applications
within 180 days of their filing, in practice longer times are typically
required. Review generally takes an average of at least 15 months but may take
longer. The FDA frequently requests that additional information be submitted
requiring significant additional review time.
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Any potential products of the Company will be subject to demanding and
time-consuming NDA or similar approval procedures in countries where the Company
intends to market its products. Such regulations vary country by country.
The process of obtaining required FDA marketing approvals, including a
review of manufacturing process and facilities used to produce such products,
can be costly, time consuming and subject to unanticipated delays. The FDA may
refuse to approve an application if it believes that applicable regulatory
criteria are not satisfied. The FDA may also require additional testing of a
drug product as a condition of marketing approval. There can be no assurance
that approvals of any potential products that may be developed by the Company
will be granted on a timely basis, if at all. Even if granted, marketing
approval will be limited to specific therapeutic indications, and the Company
will be subject to periodic inspection for compliance with good manufacturing
practices and other applicable regulatory requirements relating to labeling,
advertising, record keeping, and reporting to FDA of adverse experiences and
other information.
For marketing outside of the United States before FDA approval to market,
the Company must submit an export permit application to the FDA. Whether or not
FDA approval is obtained, approval of a potential product by comparable
regulatory authorities may be necessary in other countries prior to marketing
such product in such countries. The review and approval procedures vary from
country to country, can involve additional testing and the time required may
differ from that required for FDA approval. In addition, product licensing,
pricing and reimbursement requirements vary widely from country to country.
There can be no assurance that the Company will meet and sustain any such
requirements.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal laws and regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
liability could exceed the resources of the Company. See "Risk
Factors -- Government Regulation and Need for Product Approvals."
SCIENTIFIC ADVISORS
The Company has established an SAB consisting of individuals with expertise
in translational biochemistry, particularly as it relates to bacteria, fungi,
and viruses. The Company is highly dependent on its SAB members, who conduct
research in cooperation with the Company and provide the Company with access to
technology developed by them. The potential success of the Company's drug
discovery programs depends in part on continued collaborations with these
advisors. The Company and various members of its management and research staff
rely heavily on the SAB for new translation-based targets and for expertise in
translation research. The Company has entered into agreements with its SAB
members which provide for confidentiality of the Company's proprietary
information. The agreements also provide that any confidential information that
results from work performed for the Company is the exclusive property of the
Company. However, the Company may not have rights to developments, publications
or the results of any research conducted by these advisors, which may adversely
affect the Company. See "Risk Factors -- Dependence on Scientific Advisors."
The SAB holds meetings at least twice a year, and SAB members consult with
and meet informally with the Company and with each other on a more frequent
basis. The Company also has entered into independent consulting agreements with
certain of its SAB members pursuant to which such SAB members provide additional
services in the discovery and development of PSTM-targeted therapeutics on a per
project basis. In consideration for services provided to the Company, each
independent consultant is paid a retainer and may receive stock options pursuant
to the consulting agreements. The members of the SAB are as follows:
JOE B. HARFORD, PH.D., Chairman of the SAB, has served on the SAB since
July 1997. Dr. Harford serves as Associate Director of the National Cancer
Institute ("NCI"). In his current position Dr. Harford plays a role in shaping
the course of the NIH in several areas. He is an editor of several books related
to Molecular Biology and has over 100 scientific publications. Prior to joining
the NCI, Dr. Harford was the Director of New Drug Discovery at RiboGene from
1993 to 1996. Prior to that, Dr. Harford held various research and managerial
positions at the NIH from 1979 to 1993. Dr. Harford holds a B.S. degree in
Chemistry from Ohio
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University, and a Ph.D. degree in Biochemistry from the University of Maryland
School of Medicine. Dr. Harford has been active in the translation field for
over 10 years.
JOHN HERSHEY, PH.D., has served on the SAB since November 1992. Dr.
Hershey, Professor and Chairman, Department of Biological Chemistry, University
of California, Davis. Dr. Hershey has conducted extensive research relating to
translation factors and mechanisms in many species, including humans, bacteria,
fungi, plants and sea urchins. He has 168 scientific publications (30 in the
last five years) and has served on the editorial board of several journals, with
current positions at BioChemie and Gene Expression. Dr. Hershey also is a
co-editor of the book Translational Control (1996), which is a definitive text
in the field. He received his B.S. degree from Haverford College and his Ph.D.
degree from Harvard University. Dr. Hershey has been active in the translation
field for over 35 years.
ALAN HINNEBUSCH, PH.D., has served on the SAB since January 1993. Dr.
Hinnebusch is Chief, Laboratory of Eukaryotic Gene Regulation, National
Institute of Child Health and Human Development. Dr. Hinnebusch's research
interests include translational control mechanisms in fungi and mammals. He has
devised methods for cloning many translation factor genes from fungi and mammals
and this work has led to a much greater understanding of how the translation
initiation process works. Dr. Hinnebusch has 76 scientific publications (28 in
the last five years) and has served on the editorial board of several journals,
with current positions at Molecular & Cellular Biology, Microbiological Reviews
and Genetics. He received his B.S. degree from the University of Dayton and his
Ph.D. degree from Harvard University. Dr. Hinnebusch has been active in the
translation field for over 10 years.
ADAM GEBALLE, M.D., has served on the SAB since December 1992. Dr. Geballe
is an Associate Member in Molecular Medicine and Clinical Research, Fred
Hutchinson Cancer Research Center and Associate Professor of Medicine. Dr.
Geballe's research interests include translational control of viral gene
expression and translation termination in eukaryotes. He has 26 scientific
publications (nine in the last five years) and serves as Associate Editor on the
Journal of Infectious Diseases. Dr. Geballe is certified by the American Board
of Internal Medicine with a Subspecialty of Infectious Disease. He received his
B.A. degree from Stanford University and his M.D. degree from Duke University.
Dr. Geballe has been active in the translation field for over 10 years.
MICHAEL KATZE, PH.D., has served on the SAB since October 1992. Dr. Katze,
Professor, Department of Microbiology, University of Washington and Associate
Director for Scientific Affairs at the Regional Primate Research Center, has
conducted extensive research relating to translational control by several
viruses, including HCV, influenza, and HIV, and regulation of cellular
translation and growth by PKR. Dr. Katze devised the Company's current model of
interferon resistance in HCV. He also was involved in the development of an
alternative animal model for HIV infection. He has 83 scientific publications
(38 in the last five years) and serves on the editorial boards of Interferon and
Cytokine Research. He received his B.A. in Biology from Boston University and
his M.S. degree and Ph.D. degree from Hahnemann Medical College and Hospital.
Dr. Katze has been active in the translation field for over 15 years.
DAVID MORRIS, PH.D., has served on the SAB since October 1992. Dr. Morris,
Professor, Department of Biochemistry, University of Washington, has conducted
extensive research relating to polyamine biochemistry, translational control
mechanisms and growth control regulation of translation in mammalian cells. He
has 113 scientific publications (14 in the last five years). He received his
B.A. degree from the University of California at Los Angeles and his Ph.D.
degree from the University of Illinois. Dr. Morris has been active in the
translation field for over 25 years.
MICHAEL MATHEWS, PH.D., has served on the SAB since April 1993. Dr.
Mathews, Professor and Chairman of the Department of Biochemistry and Molecular
Biology at the New Jersey Medical School, has conducted extensive research
relating to translational control mechanisms by viruses, including HIV,
adenovirus and hepatitis D virus, and regulation of cellular translation and
growth by PKR. He has 152 scientific publications (47 in the last five years),
and has served on the editorial board of several journals, with current
positions at Genes & Development and Journal of Virology. He also is a co-editor
of the book Translational Control (1996), which is a definitive text in the
field. He received his B.A. degree and Ph.D. degree from Cambridge University.
Dr. Mathews has been active in the translation field for 30 years.
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<PAGE> 50
NAHUM SONENBERG, PH.D., has served on the SAB since October 1992. Dr.
Sonenberg, Professor, Department of Biochemistry and McGill Cancer Center,
McGill University, has conducted extensive research relating to translation
factors and mechanisms in many species, including humans, fungi and viruses.
Most of his work has been focused on translational control of mammalian cell
growth, translational control by viruses, including HCV, HIV and rhinovirus and
the initiation phase of translation. Dr. Sonenberg was one of the co-discoverers
of viral IRES elements. He has 193 scientific publications (68 in the last five
years) and has served on the editorial board of several journals, with current
positions at Molecular & Cellular Biology, Gene Expression, Journal of Virology
and RNA. He is also a co-editor of the book Translational Control (1996), which
is a definitive text in the field. He received his B.Sc. degree and M.Sc. degree
from Tel-Aviv University and his Ph.D. degree from the Weitzman Institute of
Science. Dr. Sonenberg has been active in the translation field for almost 25
years.
There can be no assurance that the Company will be able to maintain its
consulting arrangements with its SAB members or that such advisors will not
enter into consulting arrangements with competing pharmaceutical or
biotechnology companies, any of which would have a detrimental impact on the
Company's research objectives and could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Scientific Advisors."
EMPLOYEES
At March 31, 1998, the Company had 26 full-time employees. Twenty of the
Company's employees are engaged in, or directly support, the Company's research
and development activities. Of the employees engaged in research and development
activities, ten hold Ph.D. degrees. The Company considers relations with its
employees to be good. None of the Company's employees is covered by a collective
bargaining agreement.
The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. The Company's potential growth
and expansion into areas and activities requiring additional expertise, such as
chemistry, are expected to place increased demands on the Company's management
skills and resources. These demands are expected to require a substantial
increase in management and scientific personnel and the development of
additional expertise by existing management personnel. Accordingly, recruiting
and retaining management and operational personnel and qualified scientific
personnel to perform research and development work in the future will also be
critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain skilled and experienced management,
operational and scientific personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel. The failure to attract and
retain such personnel or to develop such expertise could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Dependence on and Need for Additional Key Personnel" and
"Management."
FACILITIES
RiboGene currently leases approximately 30,000 square feet of laboratory
and office space in Hayward, California under a lease expiring in November 2012,
that provides for annual rent of approximately $531,000, which includes
amortization of $2.0 million of tenant improvements paid by the landlord. The
Company intends to sublease 5,000 square feet of this facility until such space
is needed by the Company. In connection with the lease, the Company has agreed
to issue the landlord a six-year warrant to purchase 17,850 shares of Common
Stock at $31.51 per share. See "Description of Capital Stock."
LEGAL PROCEEDINGS
The Company is not subject to any material legal proceedings.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information as of March 31, 1998
with respect to the current executive officers, directors and key employees of
the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles J. Casamento(1)................... 52 President, Chief Executive
Officer and Chairman of the
Board of Directors
Laura S. Lehman, Ph.D..................... 40 Vice President of Research
Timothy E. Morris......................... 36 Vice President, Finance &
Administration, Chief Financial
Officer and Assistant Secretary
Charles Gluchowski, Ph.D.................. 42 Director of Drug Discovery
Charles M. Moehle, Ph.D................... 39 Associate Director of
Translational Control Research
Digby W. Barrios(2)....................... 60 Director
Frank J. Sasinowski....................... 45 Director
Jon S. Saxe(1)(2)(3)...................... 61 Director
Jesse I. Treu, Ph.D.(2)(3)................ 50 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
MR. CASAMENTO joined the Company as President, Chief Executive Officer and
Chairman of the Board in June 1993. Prior to joining the Company, he was
co-founder, President and Chief Executive Officer of Interneuron
Pharmaceuticals, Inc., a biopharmaceutical company, from March 1989 until May
1993. Mr. Casamento has also held management positions at Genzyme Corporation,
American Hospital Supply, Johnson & Johnson, Hoffman-LaRoche, Inc. and Sandoz
Inc. Mr. Casamento is also a director of CORTEX Pharmaceuticals, a
biopharmaceutical company. Mr. Casamento holds a bachelor's degree in Pharmacy
from Fordham University and an M.B.A. degree from Iona College.
DR. LEHMAN has served as the Company's Vice President of Research since
January 1996, and before that she was Vice President of Drug Discovery and Drug
Development, since June 1994. Prior to joining the Company, she served as Senior
Director, Medicinal Chemistry, at Amylin Pharmaceuticals, Inc., a pharmaceutical
discovery and development company, from June 1989 to June 1994, and worked as a
Senior Scientist at Schering-Plough Research from 1983 to 1989. Dr. Lehman holds
a B.S. degree in Chemistry from Bucknell University, an M.S. degree in Organic
Chemistry from Bucknell University and a Ph.D. degree in Organic Chemistry from
Duke University.
MR. MORRIS joined the Company as Vice President, Finance & Administration
and Chief Financial Officer in June 1995 and was appointed Assistant Secretary
in October 1997. Prior to joining the Company, he served as Chief Accounting
Officer and Senior Director, Finance at Glycomed Incorporated, a biotechnology
company, from May 1992 until May 1995, and with Ernst & Young from July 1984 to
May 1992. Mr. Morris is a certified public accountant and holds a B.S. degree in
Accounting from California State University, Chico.
DR. GLUCHOWSKI joined the Company as Director of Drug Discovery in January
1997. Prior to joining the Company, he was the Director, Department of Chemistry
at Synaptic Pharmaceutical Corporation, a biotechnology company, from September
1990 until January 1997 and worked as a medicinal chemist with Allergan, Inc.
from 1984 to 1990. Dr. Gluchowski received a B.S. degree in Chemistry from the
Stevens Institute of Technology and a Ph.D. degree in Organic Chemistry from
Texas A&M University.
50
<PAGE> 52
DR. MOEHLE joined the Company in May 1993 and currently serves as the
Associate Director of Translational Control Research. Prior to joining the
Company, he was at the National Institute of Child Health and Human Development
from 1988 to 1993, most recently as a Senior Staff Fellow in the Laboratory of
Molecular Genetics. Dr. Moehle holds a B.A. degree in Biochemistry and Molecular
Biology from Northwestern University and a Ph.D. degree in Biology from Carnegie
Mellon University.
MR. BARRIOS joined the Company's Board of Directors in August 1996. He is
currently a consultant to the pharmaceutical and biotechnology industries. From
1982 to 1992, Mr. Barrios served in various positions with Boehringer Ingelheim
Corporation, a pharmaceutical manufacturer, most recently as the President and
Chief Executive Officer. Mr. Barrios also serves as a director of Allelix
Biopharmaceuticals, a biopharmaceutical company, Cypros, Inc., a
biopharmaceutical company, Drug Royalty Corporation, a technology investment
company, Roberts Pharmaceutical Corporation, a pharmaceutical company, Sepracor,
Inc., a pharmaceutical company, and several private organizations.
MR. SASINOWSKI joined the Company's Board of Directors in March 1998. Since
1987, he has been a partner with Hyman, Phelps & McNamara, P.C., a food and drug
law firm. From December 1983 to June 1987, Mr. Sasinowski served in various
positions with the United States Food and Drug Administration.
MR. SAXE joined the Company's Board of Directors in April 1994. He has been
a director since 1989 and President since January 1995 of Protein Design Labs,
Inc., a biotechnology company. From August 1960 to September 1989, Mr. Saxe held
a number of executive positions at Hoffmann-La Roche Inc., including Vice
President, Licensing and Corporate Development. From October 1989 to May 1993,
he served as President and Chief Executive Officer of Synergen, Inc., a
biopharmaceutical company, and from May 1993 to May 1995, as President of Saxe
Associates, a biotechnology consulting firm. Mr. Saxe also serves as a director
of ID Biomedical Corporation, a diagnostics and vaccine development company, and
Incyte Pharmaceuticals, Inc., a genomics company.
DR. TREU joined the Company's Board of Directors in 1992. Since 1986, he
has been a general partner of Domain Associates, a venture capital management
firm. He serves on the board of Focal, Inc., a medical device company, GelTex
Pharmaceuticals, Inc., a pharmaceutical company, Trimeris, Inc., a biotechnology
company, and several private companies.
The Company's by-laws authorize and the Company currently has a board of
directors consisting of five members. Following the Offering, the Company's
certificate of incorporation and by-laws will provide that the Board of
Directors be divided into three classes. Each class will consist of one or two
directors. The terms of office of Class I, Class II and Class III directors will
expire at the Company's 1998, 1999 and 2000 annual meetings of stockholders,
respectively. At each annual meeting of stockholders at which the term of office
of a particular class of directors first expires, the person(s) elected to the
board positions represented by such class of directors will be elected to serve
from the time of election until the third annual meeting following election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes of directors so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company. Officers serve at
the discretion of the Board of Directors. There are no family relationships
among any of the directors or executive officers of the Company.
BOARD COMMITTEES
The Nominating Committee of the Board of Directors was formed in October
1997 to interview, evaluate, nominate and recommend individuals for membership
on the Company's Board of Directors and committees thereof. The Compensation
Committee of the Board of Directors was formed in March 1997 to establish
salaries, incentives and other forms of compensation paid to officers and
employees of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's stock plans. The
Audit Committee of the Board of Directors was formed in October 1997 to review
the internal accounting procedures of the Company and consult with and review
the services provided by the Company's independent auditors.
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<PAGE> 53
DIRECTOR COMPENSATION
Directors who are employees of the Company currently do not receive any
cash compensation from the Company for their services as members of the Board of
Directors, although they are reimbursed for certain expenses in connection with
attendance at Board and committee meetings. Non-employee directors who are not
affiliated with a significant stockholder (the "Independent Directors") receive
$2,000 per meeting plus reimbursement of certain expenses. The Independent
Directors were paid an aggregate of $20,000 in director fees during the last
fiscal year. In 1997, Dr. Barkas (a former director) and Dr. Treu were each
granted options to purchase 2,834 shares of the Company's Common Stock under the
1993 Stock Option Plan. Upon completion of the Offering, all non-employee
directors will be eligible to receive stock options pursuant to the Company's
1997 Non-Employee Directors' Stock Option Plan. See "-- Stock Plans and Related
Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in March 1997, the
Board of Directors made all determinations with respect to executive officer
compensation. Of the directors who participated in deliberations concerning
executive officer compensation, either prior to the formation of the
Compensation Committee or in their capacity as a member of the Compensation
Committee, none have served as officers of the Company other than Mr. Casamento,
who has served as President and Chief Executive Officer of the Company since
June 1993. Certain of the Company's directors have purchased securities of the
Company individually or through an affiliated entity. See "Certain Transactions"
and "Principal Stockholders."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned in 1997 by the
Company's Chief Executive Officer and the other executive officers who earned in
excess of $100,000 during the fiscal year ended December 31, 1997 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
--------------------- COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Charles J. Casamento..................................... 325,000 50,000 66,407(1)
President, Chief Executive Officer and Chairman of the
Board of Directors
Laura S. Lehman, Ph.D.................................... 160,000 -- --
Vice President of Research
Timothy E. Morris........................................ 162,100 40,525 --
Vice President, Finance & Administration, Chief
Financial Officer and Assistant Secretary
</TABLE>
- ---------------
(1) Represents $47,613 of principal and interest on a note forgiven by the
Company and $18,794 in life and disability insurance premiums paid by the
Company. See "Certain Transactions."
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<PAGE> 54
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE
% VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE OPTION TERM(3)
OPTIONS FISCAL PER EXPIRATION ---------------------
NAME GRANTED YEAR(1) SHARE(2) DATE 5% 10%
---- ----------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Casamento................. 17,136 26% $3.15 07/24/07 $33,947 $86,028
Laura S. Lehman, Ph.D................ 14,280 22% $3.15 07/24/07 28,289 71,690
Timothy E. Morris.................... 6,069 9% $3.15 07/24/07 12,023 30,468
</TABLE>
- ---------------
(1) Based on options to purchase 64,940 shares of Common Stock granted to
employees in fiscal 1997.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock at the date of grant, as determined by the Board of Directors.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of five percent
and ten percent is assumed pursuant to rules promulgated by the Securities
and Exchange Commission and does not represent the Company's prediction of
the stock price performance. The potential realizable value is calculated by
assuming that the assumed initial public offering price appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
In 1997, 10,710, 2,142 and 2,142 shares were purchased by Mr. Casamento,
Dr. Lehman and Mr. Morris, respectively, pursuant to purchase rights granted
under the 1993 Stock Plan. Such shares are subject to the Company's right of
repurchase upon termination of employment, which lapses over four years. Such
shares were purchased at fair value as determined by the Company's Board of
Directors.
FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options held by the Named
Executive Officers at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles J. Casamento................................. 24,331 33,409 93,678 128,626
Laura S. Lehman...................................... 8,666 17,723 33,365 68,235
Timothy E. Morris.................................... 4,730 9,193 18,211 35,392
</TABLE>
- ---------------
(1) Based on the initial public offering price of $7.00 per share, less the
option exercise price.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS
In May 1993, the Company entered into an employment agreement with Charles
J. Casamento, President, Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement provides for an annual base salary of
$200,000, subject to annual review. In addition, the Board of Directors approved
a bonus of up to $150,000 to be paid to Mr. Casamento in the event of a Merger
(as defined in the employment agreement) or an initial public offering of the
Company's Common Stock, and up to an additional $150,000 for the achievement of
specific goals ($50,000 per goal) in 1997, of which $50,000 was
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<PAGE> 55
paid in connection with the Series F Private Placement. On the first day of
employment and on the first and second anniversary of employment, the Company
loaned Mr. Casamento $40,000 (for a total of $120,000) in the form of three-year
notes with interest rates of 3.62%, 5.63% and 5.97% per annum, respectively. The
loans due in June of 1996 and 1997 have been forgiven. These loans were made in
connection with cost-of-living adjustments and may be forgiven, at the election
of the Board of Directors, for so long as Mr. Casamento remains employed by the
Company. In addition, in October 1993, the Company provided Mr. Casamento with a
bridge loan in the aggregate amount of $250,000, which loan subsequently was
repaid by Mr. Casamento in October 1994.
In July 1995, the Company entered into a Change of Control agreement with
Mr. Casamento that provides for certain severance benefits in the event his
employment is involuntarily terminated other than for "cause" at any time within
12 months after, or in contemplation of, a Change of Control (defined as a
reorganization in which the current shareholders hold less than a 50% ownership
interest in the surviving entity consummated without the approval of the Board
of Directors, a sale of all or substantially all of the Company's assets, a
liquidation of the Company or a transaction in which more than half of the
Company's Board of Directors is replaced). Severance benefits include a lump-sum
payment equal to 12 months' salary and the continued payment of medical benefits
during the 12 months following termination. In addition, all loans issued by the
Company to Mr. Casamento will be forgiven automatically upon a Change of
Control. The Change of Control agreement also provides that all options held by
Mr. Casamento will immediately vest, and the exercise period of such options
will be extended to a date one year from the earlier of the termination date or
the date upon which any relevant lock-up agreements expire.
In July 1995, the Company also entered into Change of Control agreements
with Dr. Lehman and Mr. Morris that provide for certain severance benefits in
the event their employment is terminated, other than for cause, at any time
within 12 months after, or in contemplation of, a Change of Control. Severance
benefits payable to Dr. Lehman and Mr. Morris include a lump-sum payment equal
to six months' salary and continuation of certain medical benefits for the
six-month period following termination. Dr. Lehman and Mr. Morris will receive
an additional six months of vesting on their stock options, and the exercise
term of such options will extend to 12 months from the earlier of the
termination date or the expiration of any relevant lock-up agreements.
Pursuant to an agreement between the Company and Mr. Morris, dated June 30,
1995, in the event that Mr. Morris's employment with the Company is
involuntarily terminated, he is entitled to continue to receive his then current
salary for a period of six months after the termination date.
The Company also has entered into letter agreements with Dr. Lehman and Mr.
Morris, providing each with a bonus payment of 25% of their annual salary upon
the achievement of certain objectives.
STOCK PLANS AND RELATED EMPLOYEE BENEFIT PLANS
1993 Stock Plan
The Company's 1993 Stock Plan, as amended (the "1993 Plan"), was adopted by
the Board of Directors and approved by the Company's stockholders in March 1993.
The 1993 Plan has been amended to increase the number of shares of Common Stock
reserved for issuance under the 1993 Plan to a total of 295,239 shares. As of
March 31, 1998, 86,284 shares had been issued under the 1993 Plan pursuant to
the exercise of stock options or purchase rights, options to purchase a total of
182,433 were outstanding and 26,522 shares remained available for future option
or purchase grants.
The 1993 Plan provides for the grant to employees of the Company (including
officers and employee directors) of "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
for the grant of nonstatutory stock options, to employees and consultants of the
Company, and for the direct issuance of shares of Common Stock pursuant to
Restricted Stock Purchase Agreements. To the extent an optionee would have the
right in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value (under all plans
of the
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<PAGE> 56
Company and determined for each share as of the date the option to purchase the
share was granted) in excess of $100,000, any such excess options shall be
treated as nonstatutory stock options.
The 1993 Plan is administered by the Compensation Committee of the Board of
Directors (the "Administrator"). The Administrator determines the terms of
options granted under the 1993 Plan, including the number of shares subject to
the option, exercise price, term and exercisability. The exercise price of all
incentive stock options granted under the 1993 Plan must be at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of all nonstatutory stock options must equal at least 85% of the fair
market value of the Common Stock on the date of grant. The exercise price of any
incentive stock option granted to an optionee who owns stock representing more
than 10% of the voting power of the Company's outstanding capital stock (a "10%
Stockholder") must equal at least 110% of the fair market value of the Common
Stock on the date of grant. Payment of the exercise price may be made in cash,
promissory notes or other consideration determined by the Administrator. The
term of a stock option may not exceed 10 years (five years if issued to a 10%
Stockholder). No option may be transferred by the optionee other than by will or
the laws of descent or distribution. Each option may be exercised during the
lifetime of the optionee only by such optionee. Options granted to each employee
under the 1993 Plan generally become exercisable for 12.5% of the total number
of shares subject to the options after the six-month period from the date of
grant, and approximately 2% each month thereafter. Similarly, stock purchase
rights granted to employees typically are subject to the Company's right to
repurchase the shares at the purchase price in the event that the employee's
relationship with the Company terminates, which repurchase right typically
lapses in accordance with the vesting schedule set forth in the preceding
sentence.
In the event of certain changes in control of the Company, the 1993 Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation. The Administrator has the authority to
amend or terminate the 1993 Plan as long as such action does not adversely
affect any outstanding option and provided that shareholder approval shall be
required for an amendment to increase the number of shares subject to the 1993
Plan, or any change in the designation of the class of persons eligible to be
granted options, or a material increase in benefits accruing to participants
under the 1993 Plan if the Company is registered under Section 12 of the
Exchange Act. If not terminated earlier, the 1993 Plan will terminate in March
2003.
1997 Equity Incentive Plan
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board in October 1997. Currently, there is an aggregate of 800,000 shares
of Common Stock authorized for issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock purchase awards and stock bonuses
under the Code, to employees (including officers and employee-directors) and
nonstatutory stock options, restricted stock purchase awards and stock bonuses
to employees (including officers and employee-directors), directors and
consultants of the Company. The Incentive Plan is administered by the
Compensation Committee of the Board of Directors which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.
The exercise price of options granted under the Incentive Plan is
determined by the Compensation Committee of the Board of Directors, provided
that the exercise price for a nonstatutory stock option cannot be less than 85%
of the fair market value of the Common Stock on the date of the option grant,
and the exercise price for an incentive stock option cannot be less than 100% of
the fair market value of the Common Stock on the date of the option grant.
Options granted under the Incentive Plan vest at the rate specified in the
option agreement. Generally, no stock option may be transferred by the optionee
other than by will or the laws of descent or distribution, except a nonstatutory
stock may also be transferred pursuant to a domestic relations order. In all
events, an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose relationship with the Company
or any affiliate ceases for any reason (other than by death or permanent and
total disability) may generally exercise vested options in the three-
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<PAGE> 57
month period following such cessation. In the case of death or total and
permanent disability, vested options may be exercised for 18 or 12 months,
respectively, after an optionee's relationship with the Company and related
entities ceases. Notwithstanding the foregoing, an optionee's option agreement
may provide for longer or shorter post-termination exercise periods as
determined by the Compensation Committee of the Board of Directors. In no event,
however, may an option be exercised after 10 years following the date of its
grant.
No incentive stock option may be granted to any person who at the time of
the grant is a 10% Stockholder unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of grant
and the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Incentive Plan and all other stock plans of the Company and its affiliates)
may not exceed $100,000.
When the Company becomes subject to Section 162(m) of the Code (which
denies a deduction to publicly held corporations for certain compensation paid
to specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 300,000 shares of Common Stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. The Compensation Committee of the Board of
Directors has the authority to reprice outstanding options and to offer
optionees the opportunity to replace outstanding options with new options for
the same or a different number of shares. Both the original and new options will
count toward the limitation set forth above.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Compensation Committee
of the Board of Directors. Restricted stock purchases must be at a price equal
to at least 85% of the stock's fair market value on the award date, but stock
bonuses may be awarded in consideration of past services without a purchase
payment. Rights under a stock bonus or restricted stock purchase agreement may
not be transferred other than by will, the laws of descent and distribution or a
domestic relations order during such period as the stock awarded pursuant to
such an agreement remains subject to the agreement.
Upon certain changes in control of the Company, all outstanding awards
under the Incentive Plan may either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, then, with respect to persons then performing services for the Company,
the exercise period for such awards will be accelerated and the awards
terminated if not exercised prior to the change in control. Awards held by other
persons will be terminated if not exercised prior to such event, subject to a
limited number of exceptions. If the surviving entity assumes or substitutes
such awards, and if a person's service as an employee, director or consultant is
terminated within 13 months following the date of the change in control, the
full vesting of any award held by such person shall accelerate and such award
will become exercisable for up to 12 months after the date of full vesting. An
award under the Incentive Plan that has been assumed or substituted by the
surviving entity and is held by a person still providing services to the Company
13 months after the change in control will become fully vested on such date, and
such award will become exercisable for up to 12 months following the date of
full vesting.
1997 Non-Employee Directors' Stock Option Plan
In October 1997, the Board adopted the 1997 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee.
The aggregate number of shares of Common Stock that may be issued pursuant
to options granted under the Directors' Plan is 80,000. Pursuant to the terms of
the Directors' Plan, each person serving as a director of the Company who is not
an employee of the Company (a "Non-Employee Director") shall upon the date
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<PAGE> 58
such person first becomes a Non-Employee Director after the date that the
Directors' Plan is adopted automatically be granted an option to purchase 10,000
shares of Common Stock. In addition, on the date immediately following the date
of each stockholders meeting, each Non-Employee Director who has been in office
for 6 months will automatically be granted an option to purchase 2,500 shares of
Common Stock.
Each initial grant of options under the Directors' Plan will vest in four
equal, annual installments commencing one year from the date of the grant of the
option. Each subsequent annual grant shall become exercisable one year from the
date of grant. The exercise price of the options granted under the Directors'
Plan will be equal to the fair market value of the Common Stock granted on the
date of grant. No option granted under the Directors' Plan may be exercised
after the expiration of 10 years from the date it was granted. Options granted
under the Directors' Plan are generally non-transferable. The Directors' Plan
will terminate in 2007 unless sooner terminated by the Board.
In the event of certain changes of control, options outstanding under the
Directors' Plan will automatically become fully vested and will terminate if not
exercised prior to such change of control.
Employee Stock Purchase Plan
In October 1997, the Board of Directors approved the Employee Stock
Purchase Plan (the "Purchase Plan") with an aggregate of 600,000 shares of
Common Stock reserved for issuance under such plan. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Code. Under the Purchase Plan, the Board may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering will be no longer than 27 months.
Generally, employees are eligible to participate if they are employed by
the Company or an affiliate of the Company designated by the Board of Directors.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board, to the purchase of shares of Common Stock. The price of
Common Stock purchased under the Purchase Plan will be equal to 85% of the lower
of the fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Subject to the terms of an
offering, employees may end their participation in the offering at any time
during the offering period, and participation ends automatically on termination
of employment with the Company.
In the event of certain changes of control, the Board of Directors has
discretion to provide that each right to purchase Common Stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the Board's direction.
401(k) Plan
In 1992, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") under which eligible employees may elect to
defer their current compensation up to certain statutorily prescribed annual
limits ($9,500 in 1997) and to contribute such amounts to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching contributions to
the 401(k) Plan by the Company on behalf of all participants in the 401(k) Plan.
Effective January 1, 1997 the Company has agreed to match 10% of each
participant's contribution. Each employee's matching contribution vests at a
rate of 25% per year. The 401(k) Plan is intended to qualify under Section 401
of the Code, so that contributions by employees or by the Company to the 401(k)
Plan, and income earned on the 401(k) Plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that contributions by the
Company, if any, will be deductible by the Company when made. The trustee under
the 401(k) Plan, at the direction of each participant, invests the 401(k) Plan
employee salary deferrals in selected investment options.
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<PAGE> 59
CERTAIN TRANSACTIONS
In January 1994, the Company purchased the assets of Hyline in exchange for
$800,000 in cash, promissory notes due and payable on January 5, 1995, January
5, 1996, January 5, 1997, and January 5, 1998 in the principal amounts of
$1,121,000, $916,000, $910,000 and $909,000, respectively, and a warrant to
purchase 92,820 shares of Common Stock at an original exercise price of $15.87
per share (the "Hyline Warrant"). Hyline is a beneficial owner of more than 5%
of the outstanding Common Stock. Each such promissory note accrued interest at
3.98% per annum, except that the promissory note due and payable on January 5,
1998 accrues interest at 5.32% per annum. The promissory note due January 1998
was amended to provide for a principal payment of $500,000 in January 1998, with
the remaining principal balance of $409,000, plus accrued interest, in May 1998.
The $409,000 principal balance will begin to accrue interest at 7% on January 5,
1998. As consideration for this amendment, the Company issued a warrant to
purchase 13,923 shares of Common Stock at $15.87 per share. The warrant expires
January 1999. The Company paid in full the principal amounts of the notes due
and payable in 1995, 1996 and 1997 and paid interest on the notes due and
payable in 1995, 1996 and 1997 in the amounts of $44,616, $72,914 and $108,654,
respectively. In connection with the asset purchase, the Company entered into a
non-competition agreement with Michael Ashkin, the President and sole
stockholder of Hyline, in exchange for $386,000, of which $82,000 was due and
paid on January 5, 1995, $91,000 was due and paid on January 5, 1996, $101,000
was due and paid on January 5, 1997 and $112,000 was due and paid on January 5,
1998. In addition, the Company entered into a consulting agreement with Mr.
Ashkin. The agreement provides for guaranteed payments of $50,000 per quarter
from January 1995 through December 1999, whether or not he provides services to
the Company. To date, Mr. Ashkin has not performed any services for the Company
under this agreement, and the Company does not expect to use his services in the
future. The Hyline Warrant contains certain antidilution adjustment provisions,
and as a result of various transactions since January 1994, the current exercise
price is $15.87. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In April 1994, the Company sold an aggregate of 4,000,000 shares (after
giving effect to a three-for-four stock split of the Company's outstanding
Series E Preferred Stock effected in November 1995) of Series E Preferred Stock
at a price of $2.25 per share ($31.51 per share of Common Stock on an
as-converted basis) in a private placement to certain institutional investors,
including 444,445 shares to entities affiliated with Kleiner Perkins Caufield &
Byers V ("KPCB V"), 666,666 shares to CW Ventures II L.P. ("CW"), 444,445 shares
to Domain Partners II, L.P. ("Domain"), 444,445 shares to Sierra Ventures III
("Sierra"), 888,889 shares to Biotechnology Investments Limited ("BIL") and
666,666 shares to entities affiliated with Oxford Bioscience Partners
("Oxford"). Dr. Alexander E. Barkas, a former director of the Company, was a
partner with KPCB until June 1997. KPCB is an affiliate of KPCB V, a beneficial
owner of more than 5% of the outstanding Common Stock. Charles Hartman, a former
director of the Company, is a partner with CW Group, the general partner of CW,
which is a beneficial owner of more than 5% of the outstanding Common Stock. Dr.
Jesse Treu, a director of the Company, is a general partner of Domain, a
beneficial owner of more than 5% of the outstanding Common Stock. Dr. Petri
Vainio, a former director of the Company, is a partner of Sierra, a beneficial
owner of more than 5% of the outstanding Common Stock. BIL and Oxford each are
beneficial owners of more than 5% of the outstanding Common Stock.
In July and September 1995, the Company issued to certain investors and a
financial institution convertible promissory notes in an aggregate principal
amount of $4,394,680 bearing interest at a rate of 7% per annum, to provide
temporary working capital for the Company. Included in the total principal
amount of notes issued were $733,555 principal amount of notes issued to KPCB V,
$632,375 principal amount of notes issued to CW, $581,875 principal amount of
notes issued to each of Domain and Sierra, and $500,000 principal amount of
notes issued to each of BIL and Oxford. In September 1995, the Company repaid
$765,000 principal amount of these notes to the financial institution. In
November 1995, the remaining outstanding notes were converted into an aggregate
of 1,647,814 shares of Series E Preferred Stock at a rate of one share per $2.25
of principal and interest due and payable (including 332,250 shares to KPCB V,
286,843 shares to CW, 264,180 to each of Domain and Sierra and 227,437 to each
of BIL and Oxford.)
In February 1996, the Company issued to certain investors convertible
promissory notes in an aggregate principal amount of $1,892,500 bearing interest
at a rate of 7% per annum to provide temporary working
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<PAGE> 60
capital for the Company. Included in the total amount of notes issued were
$434,000 principal amount of notes issued to KPCB V, $395,000 principal amount
of notes issued to CW, $346,500 principal amount of notes issued to Domain,
$240,000 principal amount of notes issued to Sierra, $265,000 principal amount
of notes issued to BIL and $212,000 principal amount of notes issued to Oxford.
In May 1996, such notes were converted into an aggregate of 860,844 shares of
Series E Preferred Stock at a rate of one share per $2.25 of principal and
interest due and payable (including 197,415 shares to KPCB V, 179,675 shares to
CW, 157,613 shares to Domain, 109,169 shares to Sierra, 120,541 shares to BIL
and 96,431 shares to Oxford).
In May 1996, in connection with the Abbott Agreements, Abbott purchased an
aggregate of 1,555,556 shares of Series E Preferred Stock at a per share price
of $2.25. Abbott also agreed, pursuant to the Abbott Purchase Agreement, to
purchase the Abbott Shares concurrently with the closing of the Offering. See
"Business -- Collaborative and Research Agreements." Abbott is a beneficial
owner of more than 5% of the outstanding Common Stock.
Concurrently with the closing of the Offering, each outstanding share of
Series E Preferred Stock will be converted into 0.0714 of a share of Common
Stock. See "Description of Capital Stock -- Preferred Stock."
In connection with the Series F Private Placement in August 1996, the
Company entered into a Placement Agency Agreement (the "Placement Agency
Agreement") with Paramount Capital, Inc. ("Paramount"). Pursuant to the
Placement Agency Agreement, the Company paid Paramount commissions and
non-accountable expense allowances of $681,586. The Company also granted to
Paramount Placement Agent Unit Options to purchase 228,266 Placement Agent
Units, each consisting of two shares of Series F Preferred Stock and one
Placement Agent Class A Warrant. The Placement Agent Unit Options which include
a cashless exercise provision, may be exercised for an aggregate of
approximately $283,000 and expire on December 23, 2007. The Placement Agent
Class A Warrants expire on June 22, 2003. The Series F Private Placement was
conducted by Paramount on a best-efforts basis. Accordingly, the compensation
paid to Paramount was based on a percentage of the total amount of Premium
Preferred Units (as defined below) placed by Paramount. The percentage rates
used to determine the commission and the amount of Placement Agent Unit Options
issued was determined by negotiations between the Company and Paramount.
Pursuant to the Placement Agency Agreement, Paramount is entitled to propose one
person for nomination as a voting director of the Company until 2001. The
Company is required to vote all voting securities for which the Company holds
proxies granting it voting discretion, or which the Company is otherwise
entitled to vote, in favor of, and to use its best efforts to cause the election
of such individual. At the Placement Agent's option, in lieu of proposing a
voting director for nomination, it may designate a nonvoting observer who shall
be entitled to attend all meetings of the Board of Directors and any of its
committees. Paramount has currently elected to designate an observer in lieu of
a voting director.
In February 1997 and June 1997, the Company sold an aggregate of 2,282,663
premium preferred units in the Series F Private Placement at a purchase price of
$2.25 per premium preferred unit (each, a "Premium Preferred Unit"). Each
Premium Preferred Unit consists of one share of Series F Preferred Stock and one
Class A Common Stock Warrant. Each share of Series F will be converted upon the
completion of the Offering into 0.6429 of a share of Common Stock (assuming an
offering price of $7.00 per share). The conversion ratio of the Series F
Preferred Stock will depend on the initial public offering price of the Common
Stock sold in the Offering.
The Class A Warrants have a six-year term and entitle the holder to
purchase 0.0714 of a share of Common Stock at an exercise price per share equal
to the lesser of (i) $31.51 or (ii) the effective per share price of common
stock in an initial public offering which results in gross proceeds of at least
$7.5 million to the Company. In the Series F Private Placement, The Aries Trust
purchased 573,334 Premium Preferred Units, Aries Domestic Fund, L.P. (the "Aries
Fund") purchased 315,555 Premium Preferred Units, CW purchased 44,445 Premium
Preferred Units, KPCB V purchased 88,889 Premium Preferred Units and Oxford
purchased 88,889 Premium Preferred Units. The Aries Trust and related entities
constitute a beneficial owner of more than 5% of the outstanding Common Stock.
In connection with and as a condition of the Series F Private Placement,
the Company also entered into a Financial Advisory Agreement with Paramount in
June 1997 (the "Financial Advisory Agreement"),
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<PAGE> 61
pursuant to which Paramount receives $4,000 per month for a minimum of 24 months
to provide financial advisory services to the Company. Although Paramount is
under no obligation to provide any services under the Financial Advisory
Agreement, pursuant to such agreement, Paramount may receive additional
compensation for certain referral services including the introduction of parties
by Paramount to the Company in which the Company completes the sale of
securities, sale, merger or acquisition of the Company, strategic alliance or
product acquisition with such parties as provided for in the Financial Advisory
Agreement. In addition, Paramount received 342,399 Placement Agent Unit Options.
The Placement Agent Unit Options may be exercised for an aggregate of $424,500
and expire on December 23, 2007. The Class A Warrants included in the Placement
Agent Unit Options expire on June 22, 2003.
The Placement Agent Unit Options granted to Paramount were distributed by
Paramount in September 1997. As a result of this distribution, Dr. Lindsay
Rosenwald, a former director of the Company, holds 353,947 Placement Agent Unit
Options, the Aries Fund holds 31,556 Placement Agent Unit Options and The Aries
Trust holds 57,333 Placement Agent Unit Options. The balance of 127,879
Placement Agent Unit Options were distributed to designees or employees of
Paramount.
Dr. Rosenwald is the President, Chairman of the Board of Directors and the
sole stockholder of both Paramount Capital Asset Management Inc., the general
partner of the Aries Fund and the investment manager to The Aries Trust, and
Paramount. Dr. Rosenwald was appointed by Paramount to the Board of Directors
pursuant to the rights, described above, but subsequently resigned in September
1997. An employee of Paramount currently serves as an observer on the Board of
Directors of the Company.
Concurrently with the closing of the Offering, each outstanding share of
Series F Preferred Stock will be converted into 0.6429 of a share of Common
Stock (assuming an initial public offering price of $7.00 per share). See
"Description of Capital Stock -- Preferred Stock."
In March 1997, the Company issued to Paramount warrants to purchase 1,785
shares of Common Stock at $31.51 per share. Paramount subsequently distributed
such warrants to an employee of Paramount in September 1997.
In May 1993, the Company entered into an employment agreement with Charles
J. Casamento, President, Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement provides for an annual base salary of
$200,000, subject to annual review. Effective July 24, 1997 and retroactive to
January 1, 1997, Mr. Casamento's annual base salary was increased to $325,000.
In addition, the Board of Directors approved a bonus of up to $150,000 to be
paid to Mr. Casamento in the event of a Merger (as defined in the employment
agreement) or an initial public offering of the Company's Common Stock, and up
to an additional $150,000 for the achievement of specific goals ($50,000 per
goal) in 1997, of which $50,000 was paid in connection with the execution of the
Series F Private Placement. On the first day of employment and on the first and
second anniversary of employment, the Company loaned Mr. Casamento $40,000 (for
a total of $120,000) in the form of three-year notes with interest rates of
3.62%, 5.63% and 5.97% per annum, respectively. These loans were made in
connection with cost-of-living adjustments and may be forgiven, at the election
of the Board of Directors, for so long as Mr. Casamento remains employed by the
Company. The loans due in June of 1996 and 1997 have been forgiven. In addition,
in October 1993, the Company provided Mr. Casamento with a bridge loan in the
aggregate of $250,000, which loan subsequently was repaid by Mr. Casamento in
October 1994. In July 1993, Mr. Casamento purchased an aggregate of 10,710
shares of Common Stock. In March 1994, August 1996 and March 1997, Mr. Casamento
purchased an aggregate of 30,794 shares of Common Stock pursuant to purchase
rights issued under the 1993 Stock Plan. In payment for such Common Stock, Mr.
Casamento issued promissory notes to the Company in the aggregate principal
amount of $108,293. Such Notes accrue interest at 5.47%, 5.29%, 6.73% and 6.32%
per annum, respectively. As of December 31, 1997, $95,992 of the aggregate
principal amount of such notes remained outstanding plus an aggregate of $12,625
of accrued interest.
In July 1995, the Company entered into a Change of Control agreement with
Mr. Casamento that provides for certain severance benefits in the event his
employment is involuntarily terminated other than for cause at any time within
12 months after, or in contemplation of, a Change of Control (defined as a
reorganization in which the current shareholders hold less than a 50% ownership
interest in the surviving entity
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<PAGE> 62
consummated without the approval of the Board of Directors, a sale of all or
substantially all of the Company's assets, a liquidation of the Company or a
transaction in which more than half of the Company's Board of Directors is
replaced). Severance benefits include a lump sum payment equal to 12 months'
salary and the continued payment of medical benefits during the 12 months
following termination. In addition, all loans issued by the Company to Mr.
Casamento shall automatically be forgiven upon a Change of Control. The Change
of Control agreement also provides that all options held by Mr. Casamento will
immediately vest, and the exercise period of such options will be extended to a
date one year from the earlier of the termination date or the date upon which
any lock-up agreements expire.
In July 1995, the Company also entered into Change of Control agreements
with Dr. Lehman and Mr. Morris that provide for certain severance benefits in
the event their employment is terminated, other than for cause, at any time
within 12 months after, or in contemplation of, a Change of Control. Severance
benefits payable to Dr. Lehman and Mr. Morris include a lump sum payment equal
to six months' salary and continuation of certain medical benefits for the six
month period following termination. Dr. Lehman and Mr. Morris will receive
additional vesting six months on their stock options, and the exercise term of
such options will extend to 12 months from the earlier of the termination date
or the expiration of any lock-up agreements.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 31, 1998, as
adjusted to reflect the sale of 2,700,000 shares of Common Stock in the Offering
and the sale by the Company to Abbott of the Abbott Shares by (i) each person
who is known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES ----------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Dr. Lindsay Rosenwald(2).................................. 1,235,948 18.9% 19.23%
787 Seventh Avenue
New York, NY 10019
The Aries Trust(3)........................................ 487,343 9.62% 8.28%
787 Seventh Avenue
New York, NY 10019
Aries Domestic Fund, L.P.(4).............................. 268,227 5.39% 4.60%
787 Seventh Avenue
New York, NY 10019
Kleiner Perkins Caufield & Byers V,....................... 208,369 12.07% 3.61%
a California Limited Partnership(5)
2750 Sand Hill Road
Menlo Park, CA 94025
CW Ventures II, L.P.(6)................................... 163,697 10.45% 2.84%
1041 Third Avenue
New York, NY 10021
Domain Partners II, L.P................................... 115,627 8.56% 2.01%
One Palmer Square
Princeton, NJ 08542
Sierra Ventures III....................................... 111,979 8.29% 1.94%
a California Limited Partnership(7)
3000 Sand Hill Road
Building A, Suite 210
Menlo Park, CA 94025
Abbott Laboratories....................................... 682,495 8.22% 11.84%
100 Abbott Park Road
Abbott Park, IL 60064
Hyline Laboratories, Inc.(8).............................. 106,743 7.32% 1.82%
100 Banks Avenue
Rockville Center, NY 11570
Oxford Bioscience Partners L.P.(9)........................ 134,212 6.61% 2.33%
650 Town Center Drive, Suite 810
Costa Mesa, CA 92626
Biotechnology Investment Limited.......................... 88,311 6.54% 1.53%
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
Digby Barrios(10)......................................... 3,034 * *
Charles J. Casamento(11).................................. 72,766 5.27% 1.26%
Laura S. Lehman(12)....................................... 16,827 1.24% *
Timothy E. Morris(13)..................................... 14,309 1.05% *
Frank J. Sasinowski....................................... 0 * *
Jon S. Saxe............................................... 3,034 * *
Dr. Jesse I. Treu(14)..................................... 119,175 8.80% 2.07%
All executive officers and directors
as a group (7 persons)(15).............................. 229,145 16.32% 3.94%
</TABLE>
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<PAGE> 64
- ---------------
* Less than one percent
(1) Calculated in accordance with Rule 13d-3 promulgated under the Exchange Act
based on 5,764,055 shares of capital stock outstanding on an as-converted
basis as of March 31, 1998.
(2) Includes 480,378 shares issuable upon exercise of outstanding Placement
Agent Unit Options, 368,596 shares held by The Aries Trust and 202,870
shares by the Aries Fund. Also includes 118,747 shares issuable upon
exercise of outstanding Class A Warrants and Placement Agent Unit Options
held by The Aries Trust and 65,357 shares issuable upon exercise of Class A
Warrants and Placement Agent Unit Options held by the Aries Fund. Dr.
Rosenwald is the general partner of the Aries Fund and the investment
manager to The Aries Trust. Dr. Rosenwald disclaims beneficial ownership of
the securities held by the Aries Fund and The Aries Trust, except to the
extent of his pecuniary interest therein, if any.
(3) Includes 118,747 shares issuable upon the exercise of Class A Warrants and
Placement Agent Unit Options held by The Aries Trust.
(4) Includes 65,357 shares issuable upon exercise of Class A Warrants and
Placement Agent Unit Options.
(5) Includes 6,346 shares issuable upon exercise of outstanding Class A
Warrants, and 589 shares held by KPCB Zaibatsu Fund I ("KPCB Zaibatsu"), an
entity affiliated with KPCB V.
(6) Includes 3,173 shares issuable upon exercise of outstanding Class A
Warrants.
(7) Includes 2,237 shares held by Sierra Ventures III International, an entity
affiliated with Sierra.
(8) Consists of 106,743 shares of Common Stock issuable upon exercise of
outstanding warrants.
(9) Includes 25,573 shares held by Oxford Bioscience Partners (Adjunct) L.P.
("OBP Adjunct") and 22,213 shares held by Oxford Bioscience Partners
(Bermuda) ("OBP Bermuda"), entities affiliated with Oxford Bioscience
Partners L.P. ("OBP L.P."). Also includes Common Stock issuable upon
exercise of outstanding Class A Warrants, in the following amounts, 1,269
held by OBP Adjunct, 1,102 held by OBP Bermuda and 3,974 held by OBP L.P.
(10) Consists of options to purchase 3,034 shares exercisable within 60 days of
March 31, 1998.
(11) Includes 3,854 shares held by various family members of Mr. Casamento that
Mr. Casamento may be deemed to beneficially own; 13,110 shares subject to
repurchase as of March 31, 1998; and options or stock purchase rights for
the purchase of 29,835 shares exercisable within 60 days of March 31, 1998.
(12) Includes options to purchase 9,511 shares exercisable within 60 days of
March 31, 1998 and 2,573 shares subject to repurchase as of March 31, 1998.
(13) Includes 4,507 shares subject to repurchase as of March 31, 1998 and
options to purchase 6,812 shares exercisable within 60 days of March 31,
1998.
(14) Consists of 115,627 shares held by Domain. Dr. Treu is a general partner of
One Palmer Square Associates II, L.P. which is the general partner of
Domain. Dr. Treu shares voting and investment power with respect to such
shares and may be deemed the beneficial owner of such shares but disclaims
such beneficial ownership except to the extent of his proportionate
interest therein. Also includes options to purchase 3,548 shares
exercisable within 60 days of March 31, 1998. Excludes 88,311 shares held
by BIL. Domain Associates, of which Dr. Treu is a general partner, is the
United States venture capital advisor to BIL pursuant to a contractual
agreement. Domain Associates has no voting or investment power over BIL and
Dr. Treu disclaims beneficial ownership of the BIL shares.
(15) See footnote (5) and footnotes (10) - (14).
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DESCRIPTION OF CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation authorize
68,932,344 shares of capital stock, consisting of 50,000,000 shares of Common
Stock and 18,932,344 shares of Preferred Stock. In connection with the Offering
and the reincorporation of the Company in Delaware, the Company will adopt a
Certificate of Incorporation (the "Restated Certificate of Incorporation"),
which will authorize the issuance of 35,000,000 shares of capital stock,
consisting of 30,000,000 shares of Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share. Set forth below
is a description of the capital stock of the Company.
COMMON STOCK
As of March 31, 1998, there were 2,492,626 shares of Common Stock issued
and outstanding held of record by 66 stockholders, assuming conversion of all
outstanding shares of Preferred Stock. The holders of Common Stock are entitled
to one vote per share on all matters submitted to a vote of stockholders and are
not entitled to cumulative voting rights with respect to the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefore, subject to preferences that may be applicable
to any outstanding Preferred Stock. In the event of liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all net assets remaining after payment of liabilities and the liquidation
preference of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption, conversion or other subscription rights,
and there are no sinking fund provisions applicable to the Common Stock. All
currently outstanding shares of Common Stock are, and the shares of Common Stock
being issued and sold in the Offering will be, duly authorized, validly, issued,
fully paid and nonassessable.
PREFERRED STOCK
No shares of Preferred Stock will be outstanding after the Offering. At
March 31, 1998, the Company had outstanding an aggregate of 12,851,076 shares of
Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock.
Each share of such outstanding Preferred Stock will convert automatically into
0.0714 of a share of Common Stock concurrently with the closing of the Offering,
for a total of 917,529 shares of Common Stock. Holders of Series A through
Series E and Series G Preferred Stock have been granted certain registration
rights. See "-- Registration Rights."
At March 31, 1998, the Company had outstanding 2,282,663 shares of Series F
Preferred Stock. The ratio by which the Series F Preferred Stock is convertible
into Common Stock (the "Conversion Ratio") will be determined by the following
formula:
4.5
---
P
where:
<TABLE>
<S> <C> <C>
P = the initial public offering price per share of Common Stock
</TABLE>
Assuming an initial public offering price of $7.00 per share, the Series F
Preferred Stock will convert into 1,467,510 shares of Common Stock.
The number of shares of Common Stock issuable upon conversion of the
outstanding shares of Series F Preferred Stock is calculated by multiplying the
Conversion Ratio by the number of shares of Series F Preferred Stock
outstanding.
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Thus, when:
<TABLE>
<S> <C> <C> <C>
P = $7.00
4.5
Conversion ratio = $7.00 = .6429
Outstanding shares of Series F
Preferred Stock = 2,282,663 X .6429
= 1,467,510
</TABLE>
Any adjustment made to the conversion ratio of the Series F Preferred Stock
would change the number of shares used in calculations of, among other things,
dilution to new investors, shares held by certain principal stockholders, shares
subject to registration rights and shares eligible for future sale. See
"Dilution," "Principal Stockholders," "-- Registration Rights," and "Shares
Eligible for Future Sale."
Following completion of the Offering and the conversion of all the
outstanding shares of Preferred Stock, the Board of Directors will have the
authority to issue from time to time up to 5,000,000 shares of Preferred Stock
in one or more series and to fix the powers, designations, preferences and
relative, participating, optional or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock could adversely affect the rights of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
WARRANTS
At March 31, 1998, there were warrants outstanding to purchase (i) an
aggregate of 20,111 shares of Common Stock at an exercise price of $31.51, (ii)
an aggregate of 106,743 shares of Common Stock at an exercise price of $15.87
per share, (iii) an aggregate of 928 shares of Common Stock at exercise of
$15.44 per share, (iv) an aggregate of 3,793 shares of Common Stock at an
exercise price of $15.82 per share, (v) an aggregate of 1,998 shares of Common
Stock at an exercise price of $11.26, (vi) an aggregate of 17,646 shares of
Common Stock at an exercise price of $14.45 per share, and (vii) an aggregate of
15,100 shares of Common Stock at an exercise price of $7.00 per share. In
addition, the Company has 2,282,663 outstanding Class A Warrants which initially
entitled the holder to purchase .0714 of a share of Common Stock at an exercise
price per share equal to the lesser of (a) $31.51 or (b) the initial public
offering price. If the initial public offering price is $7.00 per share, the
outstanding Class A Warrants will be exercisable into 162,967 shares of Common
Stock. Each warrant contains provisions for the adjustment of the exercise price
and the aggregate number of shares issuable upon the exercise of the warrant
under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassification and consolidations. Each warrant may be
exercised, without the payment of cash, for an adjusted number of shares of
Common Stock. The warrants have terms expiring from September 1998 to June 2002.
Warrant holders have been granted certain registration rights. See
"-- Registration Rights."
PLACEMENT AGENT UNIT OPTIONS
At March 31, 1998, 570,665 Placement Agent Unit Options were outstanding,
at an exercise price of $1.24 per Placement Agent Unit Option. Each Placement
Agent Unit Option entitles the holder thereof to purchase a Placement Agent Unit
consisting of two shares of Series F Preferred Stock and one Class A Warrant.
The Class A Warrants expire on June 22, 2003. The Placement Agent Unit Options
expire on December 23, 2007. Following the Offering, assuming an initial public
offering price of $7.00 per share, the Placement Agent Unit Options will be
exercisable for an aggregate of 733,755 shares of Common Stock and an aggregate
of 40,739 Class A Warrants. The number of shares of Common Stock to be issued
upon exercise of the Placement Agent Unit Options, and the exercise price
thereof, will depend upon the initial public offering price. See "-- Preferred
Stock" and "Certain Transactions."
65
<PAGE> 67
The number of shares of Common Stock issuable upon exercise of the
Placement Agent Unit Options will increase as a result of the increase in the
Conversion Ratio.
Assuming an initial public offering price per share is $7.00, the number of
shares issuable upon the exercise of the Placement Agent Unit Options would be
determined by multiplying the Conversion Ratio by the number of shares of Series
F Preferred Stock into which the Placement Agent Unit Options are convertible.
The Conversion Ratio equals:
4.5
---
P
Where: P = The initial public offering price per share of Common Stock
Thus, when:
<TABLE>
<S> <C> <C> <C>
P = $7.00
4.5
Conversion ratio = $7.00 = .6429
</TABLE>
Consequently, the aggregate number of shares of Common Stock issuable upon
exercise of the Placement Agent Unit Options adjusted for fractional shares
would be calculated as follows:
570,665 X 2 X .6429 = 733,755
At an initial public offering price of $7.00 per share, the Class A
warrants underlying the Placement Agent Unit Options will be exercisable for an
aggregate at 40,739 shares of Common Stock.
REPRESENTATIVE'S WARRANTS
The Company has agreed to issue to the Representatives warrants to purchase
an aggregate of 270,000 shares of Common Stock, exercisable at any time
following the first anniversary of the date of this Prospectus, each warrant
having an exercise price equal to 165% of the initial public offering price of
the Common Stock and expiring five years from the date of this Prospectus (the
"Representative's Warrants"). The Company has granted the holders of the
Representative's Warrants certain demand and piggy-back registration rights with
respect to the shares of Common Stock issuable upon the exercise of such
warrants. See "-- Registration Rights" and "Underwriting."
REGISTRATION RIGHTS
The holders of 917,529 shares of Common Stock (including holders of Series
G Preferred Stock) issuable upon conversion of outstanding preferred stock
(except Series F Preferred Stock) and the holders of warrants exercisable for up
to 23,437 shares of Common Stock (collectively, the "Registrable Securities")
will be entitled to certain rights with respect to the registration of such
shares of Common Stock under the Securities Act. Under the terms of an agreement
between the Company and such holders, if the Company proposes to register any of
its Common Stock either for its own account or for the account of other
stockholders, subject to certain exceptions, under the Securities Act, the
holders of Registrable Securities are entitled to notice of the registration and
are entitled to include, at the Company's expense, shares of such Common Stock
therein. The holders of Registrable Securities have waived their registration
rights with respect to the Offering. In addition, holders of at least 25% of the
then-outstanding Registrable Securities may, on two occasions, require the
Company to file a registration statement under the Securities Act at the
Company's expense, registering the Registrable Securities for public resale.
Such rights may not be exercised until 90 days after the effective date of the
Offering. Further, holders of sufficient shares with registration rights may
require the Company to register their shares on Form S-3 at such holders'
expense when such form becomes available to the Company, subject to certain
conditions and limitations. Such registration rights expire in December 2004.
66
<PAGE> 68
In addition, the holders of an aggregate of 1,467,510 shares of Common
Stock issuable upon conversion of the outstanding Series F Preferred Stock
concurrently with the closing of the Offering, the holders of Class A Warrants
issued in connection with the Series F Private Placement to purchase an
aggregate of 162,967 shares of Common Stock and holders of the Placement Agent
Unit Options (collectively, the "Series F Holders") are entitled to require the
Company to file a shelf registration statement at the Company's expense pursuant
to the Securities Act within 270 days after the closing of the Offering covering
shares of Common Stock then held by the holders of Series F Preferred Stock. The
number of shares of Common Stock to be issued upon conversion of the Series F
Preferred Stock and the exercise of the Placement Agent Unit Options will depend
upon the initial public offering price. See "-- Preferred Stock" and
"-- Placement Agent Unit Options."
Pursuant to the Abbott Purchase Agreement, the Company has granted certain
demand registration rights to Abbott which become operative one year after the
Offering. The registration expenses of any such registration are to be borne by
the Company subject to certain limitations.
The Company will grant to the holders of the Representative's Warrants
certain demand and piggy-back registration rights with respect to the shares of
Common Stock issuable upon the exercise of such warrants.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Under the Company's Certificate of Incorporation, the Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the powers, rights, preferences and privileges of those shares
without any further vote or action by the Company's stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. While the Company has no present intention to issue shares of Preferred
Stock, such issuance would dilute the voting power of holders of Common Stock
and, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
In addition, upon the completion of the Company's reincorporation in
Delaware, the Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if properly brought before such meeting and may
not be taken by written action in lieu of a meeting. The Restated Certificate of
Incorporation further provides that special meetings of the stockholders may
only be called by the Chairman of the Board of Directors, the Chief Executive
Officer, the Board of Directors or by any person or persons holding at least 10%
of the outstanding capital stock. Under the Company's Amended and Restated
By-Laws (the "By-Laws"), in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with certain requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders meeting stockholder actions which
are favored by holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-
67
<PAGE> 69
laws, unless a corporation's certificate of incorporation or by-laws, as the
case may be, requires a greater percentage. The Restated Certificate of
Incorporation and the By-Laws require the affirmative vote of the holders of at
least 66 2/3 percent of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
68
<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering the Company will have outstanding an
aggregate of 5,764,055 shares of Common Stock (6,169,055 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,700,000 shares offered hereby will be freely tradeable without restriction or
further registration under the Securities Act, except for any shares held by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining 3,064,055 shares of Common Stock held
by existing stockholders of the Company (including the Abbott Shares) are
"restricted securities" as that term is defined in Rule 144 (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under the Securities Act,
including an exemption under Rule 144 or 701 under the Securities Act. Pursuant
to "lock-up" agreements, all directors and executive officers and certain other
stockholders of the Company, holding in the aggregate substantially all of the
shares of Common Stock outstanding prior to the Offering, have agreed not to
offer, sell, contract to sell, grant any options to purchase or otherwise
dispose of any of such shares for a period 180 days from the date of this
Prospectus without the prior written consent of the Representative.
As of March 31, 1998, options to purchase an aggregate of 182,433 shares of
Common Stock were outstanding under the Company's stock plans and an aggregate
of 1,506,557 shares of Common Stock were reserved for future grants or purchases
under the Company's equity incentive plans. The holders of all such outstanding
options have agreed not to offer, sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock issuable upon
exercise of such options for a period 180 days from the date of this Prospectus
without the prior written consent of the Company, and the Company has agreed in
the Underwriting Agreement that it will not grant any such consent without the
prior written consent of the Representative. After the effective date of the
Offering, the Company intends to file registration statements on Forms S-8 to
register an aggregate of 1,506,557 shares of Common Stock reserved for issuance
upon exercise of its Company's equity incentive plans. Such registration
statements will become effective automatically upon filing. Shares issued under
the Company's equity incentive plans after the filing of the registration
statements on Form S-8 may be sold in the open market subject, in the case of
certain holders, to the Rule 144 limitations applicable to affiliates, the
above-referenced lockup agreements and vesting restrictions imposed by the
Company.
In addition, as of March 31, 1998, 166,319 shares of Common Stock were
reserved for issuance upon the exercise of warrants (other than Class A
Warrants); 162,967 shares of Common Stock were reserved for issuance upon
exercise of the Class A Warrants; 733,755 shares of Common Stock were reserved
for issuance upon exercise of the Placement Agent Units, each Placement Agent
Unit consisting of two shares of Series F Preferred Stock and one Class A
Warrant (the "Placement Agent Class A Warrants"); 40,739 shares of Common Stock
were reserved for issuance upon the exercise of the Placement Agent Class A
Warrants; and 270,000 shares of Common Stock were reserved for issuance upon
exercise of warrants issued to the Representatives, at an exercise price equal
to 165% of the initial public offering price of the Common Stock (the
"Representatives' Warrants"). Holders of warrants to purchase an aggregate of
370,025 shares of Common Stock will enter into lock-up agreements with the
Representative agreeing not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any of their shares of Common Stock or any
securities convertible into or exercisable for shares of Common Stock, for a
period of 180 days from the date of this Prospectus without the prior written
consent of the Representative. See "Underwriting."
Upon expiration of the lockup period, approximately 191,206 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) and approximately 1,478,242
Restricted Shares held by affiliates and approximately 756,271 Restricted Shares
held by non-affiliates will be so eligible subject to compliance with the volume
limitations of Rule 144 described below. Sales of Restricted Shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock.
69
<PAGE> 71
Rule 701 permits resales of shares issued pursuant to certain compensatory
benefit plans and contracts commencing 90 days after the issuer becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144.
If all the requirements of Rule 701 are met, upon expiration of the Lockup
Period an aggregate of 117,165 shares of Common Stock issuable upon exercise of
currently outstanding options will be eligible for sale pursuant to such rule.
In general, under Rule 144 as currently in effect, an affiliate of the
Company or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year will be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (57,640) or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, is
entitled to sell such shares under Rule 144(k) without regard to the limitations
described above.
The Company is unable to estimate accurately the number of Restricted
Shares that will be sold under Rule 144 since this will depend in part on the
market price for the Common Stock, the personal circumstances of the seller and
other factors. See "Description of Capital Stock -- Preferred Stock."
Following completion of the Offering, holders of 2,385,039 Restricted
Shares and 370,025 shares issuable upon exercise of outstanding warrants will be
entitled to certain registration rights under the Securities Act. See
"Description of Capital Stock -- Registration Rights."
70
<PAGE> 72
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Gruntal & Co., L.L.C. is
acting as the Representative, have severally agreed to purchase, and the Company
has agreed to sell to the Underwriters, the following respective number of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Gruntal & Co., L.L.C........................................
---------
Total............................................. 2,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
at the 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 to selected dealers and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares of Common Stock, the
offering price and other selling terms may be changed by the Representative.
The Company has granted to the Underwriters an option, exercisable at any
time during the 45-day period after the date of this Prospectus, to purchase up
to an additional 405,000 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has agreed to issue to the Representative warrants to purchase
up to an aggregate of 270,000 shares of Common Stock, exercisable at any time
following the first anniversary of the date of this Prospectus, each warrant
having an exercise price equal to 165% of the initial public offering price of
the Common Stock set forth on the cover page of this Prospectus, and expiring
five years from the date of this Prospectus. The Representative's Warrants
contain provisions providing for adjustment of the exercise price and the number
and type of securities issuable upon the exercise thereof upon the occurrence of
certain events, including the issuance of any shares of Common Stock or other
securities convertible into or exercisable for
71
<PAGE> 73
shares of Common Stock at a price per share less than the exercise price, or the
market price of the Common Stock, or in the event of any stock dividend, stock
split, stock combination or similar transaction. Holders of the Representative's
Warrants have been granted certain demand and piggy-back registrations rights
under the Securities Act with respect to the securities issuable upon exercise
of the Representative's Warrants. For a period of twelve months from the date of
this Prospectus, the Representative is generally prohibited from selling,
transferring, assigning, pledging or hypothecating the Representative's Warrants
or the Common Stock underlying the Representative's Warrants. Thereafter, the
Representative's Warrants will be transferable subject to compliance with the
Securities Act. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible For Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof. The
Underwriting Agreement provides that on the closing of the Offering the
Representative will be paid a non-accountable expense allowance equal to 3% of
the gross proceeds of the Offering.
The executive officers, directors and certain employees of the Company and
other stockholders, including Abbott and Dainippon, have agreed that they will
not, without the prior written consent of Gruntal & Co, L.L.C., offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock, or securities exchangeable for or convertible into
shares of Common Stock for a period of 180 days from the date of this
Prospectus. The Company has also agreed that it will not, without the prior
written consent of Gruntal & Co, L.L.C., offer, sell, contract to sell, grant
any option to purchase or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock for a period of 180 days after
the date of this Prospectus, except for securities issued under its option plan
or upon exercise of currently outstanding warrants. See "Shares Eligible for
Future Sale."
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiations between the
Company and the Representative. Among the factors to be considered in
determining such price will be the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of the Company's development, its past and
present operations and financial performance, the prospects for future earnings
of the Company, the present state of the Company's research programs, the
current state of the economy in the United States and the current level of
economic activity in the industry in which the Company competes and in
comparable industries, and the current prevailing condition in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "RIBO." See "Risk Factors -- No Assurance of Nasdaq
National Market Listing."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP. Certain legal matters will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois),
Chicago, Illinois.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 and for
the period from inception (May 5, 1989) to December 31, 1997 included in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern as described in Note 1 to
the financial statements) appearing elsewhere herein and are included in
reliance upon such report, given on the authority of such firm as experts in
accounting and auditing.
72
<PAGE> 74
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Rights" and
"Business -- Patents and Proprietary Rights" relating to United States patent
matters have been reviewed and approved by Pennie & Edmonds LLP, New York, New
York, patent counsel to the Company, and have been included herein in reliance
upon the review and approval by such firm as experts in patent law.
ADDITIONAL INFORMATION
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Exchange Act, and in accordance
therewith will file periodic reports, proxy statements and other information
with the Commission. The Company intends to furnish to its stockholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered by the Company hereby has been filed with
the Commission, Washington, D.C. 20549. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statements and the exhibits and schedules thereto. A copy of
the Registration Statement and exhibits thereto may be inspected without charge
at the public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's regional
offices located at the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor, New York,
New York 10048, and copies of all or any part thereof may be obtained from such
offices, upon payment of certain fees prescribed by the Commission. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information filed electronically with the
Commission. The address of the Commission World Wide Website is
http://www.sec.gov.
73
<PAGE> 75
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Financial Statements
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-8
Notes to Financial Statements............................... F-9
</TABLE>
F-1
<PAGE> 76
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
RiboGene, Inc.
We have audited the accompanying balance sheets of RiboGene, Inc. (a
development stage company) as of December 31, 1996 and 1997, and the related
statements of operations, cash flows and stockholders' equity (deficit) for each
of the three years in the period ended December 31, 1997 and for the period from
inception (May 5, 1989) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RiboGene, Inc. (a
development stage company) at December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 and for the period from inception (May 5, 1989) to December
31, 1997, in conformity with generally accepted accounting principles.
As more fully described in Note 1 to the financial statements, the Company
is in the development stage, has incurred losses from inception to December 31,
1997 of approximately $35.7 million and expects such losses to continue. At
December 31, 1997, the Company had a working capital deficit and a net
stockholders' deficit of approximately $1.7 million and $162,000, respectively.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans as to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Palo Alto, California
January 22, 1998, except as to Notes 9 and 10,
for which the date is , 1998
- ----------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the changes of the capital accounts as described in Note 9 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 6, 1998
F-2
<PAGE> 77
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------- EQUITY AT
1996 1997 DECEMBER 31, 1997
-------- -------- -----------------
(NOTE 9)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 1,981 $ 2,045
Prepaid expenses and other current assets............... 184 207
-------- --------
Total current assets............................ 2,165 2,252
Property and equipment, net............................... 285 471
Deferred offering costs................................... -- 1,142
Deferred lease expense.................................... -- 290
Other assets.............................................. 207 157
-------- --------
$ 2,657 $ 4,312
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 499 $ 1,402
Accrued compensation.................................... 263 254
Accrued interest payable................................ 294 224
Deferred revenue -- related party....................... 556 556
Other current liabilities............................... 401 469
Current portion of capital lease obligations............ 106 174
Current portion of notes payable........................ 1,000 918
-------- --------
Total current liabilities....................... 3,119 3,997
Long-term portion of capital lease obligations............ 137 289
Long-term portion of notes payable........................ 1,000 --
Other noncurrent liabilities.............................. 357 188
Commitments
Stockholders' equity (deficit):
Preferred Stock, no par value; 12,658,491 and 18,932,344
shares authorized at December 31, 1996 and 1997,
respectively (5,000,000 shares authorized, $0.001 par
value, pro forma); issuable in series; 12,094,932 and
14,377,595 convertible preferred shares issued and
outstanding at December 31, 1996 and 1997,
respectively (none pro forma) (aggregate liquidation
preference of $40,478,381 in 1997)................... 29,449 33,533 $ --
Common Stock, no par value; 25,000,000 and 50,000,000
shares authorized at December 31, 1996 and 1997,
respectively (30,000,000 shares authorized, $0.001
par value, pro forma); 83,373 and 103,845 shares
issued and outstanding at December 31, 1996 and 1997,
respectively (2,434,896 shares pro forma)............ 290 1,839 5
Additional paid-in capital................................ -- 1,672 37,039
Notes receivable from stockholders........................ (111) (147) (147)
Deferred compensation..................................... -- (1,362) (1,362)
Deficit accumulated during the development stage.......... (31,584) (35,697) (35,697)
-------- -------- --------
Total stockholders' equity (deficit)...................... (1,956) (162) $ (162)
-------- -------- ========
$ 2,657 $ 4,312
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEARS ENDED DECEMBER 31, (MAY 5, 1989)
--------------------------- TO DECEMBER 31,
1995 1996 1997 1997
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue from related party... $ -- $ 1,112 $ 1,668 $ 2,780
Grant revenue.................................. 407 975 1,303 2,923
------- ------- ------- --------
Total revenue.......................... 407 2,087 2,971 5,703
------- ------- ------- --------
Operating expenses:
Research and development....................... 4,663 4,077 4,130 22,698
General and administrative..................... 2,758 1,372 1,551 11,639
Financial advisory costs (Note 7).............. -- -- 1,396 1,396
Restructuring costs............................ -- 219 -- 219
Acquired in-process research and development... -- -- -- 5,000
------- ------- ------- --------
Total operating expenses............... 7,421 5,668 7,077 40,952
------- ------- ------- --------
Loss from operations............................. (7,014) (3,581) (4,106) (35,249)
Interest expense, net............................ (240) (282) (7) (448)
------- ------- ------- --------
Net loss......................................... $(7,254) $(3,863) $(4,113) $(35,697)
======= ======= ======= ========
Pro forma net loss per share..................... $ (1.95)
=======
Shares used in computing pro forma net loss per
share.......................................... 2,109
=======
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (MAY 5, 1989) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
------------------- ---------------- PAID IN FROM DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
---------- ------- ------- ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares of Common
Stock to founders for
services in May 1989 at
$0.35 per share.......... -- $ -- 9,093 $ 3 $ -- $ -- $ -- $ --
Issuance of Series A
Preferred Stock for
in-process technology in
May 1990................. 65,329 -- -- -- -- -- -- --
Sale of Series A Preferred
Stock at $6.60 per share
and Series B and Series C
Preferred Stock warrants
at $0.10 per warrant to
investors for cash in
June 1990, net of
issuance costs of $25.... 68,182 437 -- -- -- -- -- --
Exercise of Series B
Preferred Stock warrants
at $10.00 per share in
October 1990............. 75,000 750 -- -- -- -- -- --
Exercise of Common Stock
purchase rights at $14.00
per share................ -- -- 10 -- -- -- -- --
Exercise of Series C
Preferred Stock warrants
at $12.00 per share by
investors for cash in
April 1991 (subsequently
converted to Series B
Preferred Stock)......... 25,000 300 -- -- -- -- -- --
Dividend of Series A
Preferred Stock in June
1991..................... 4,757 -- -- -- -- -- -- --
Conversion of Series C
Preferred Stock to Series
B Preferred Stock in June
1991..................... 5,000 -- -- -- -- -- -- --
Sale of Series B Preferred
Stock at $10.00 per share
to investors for cash in
December 1990 and June
1991, net of issuance
costs of $43............. 187,695 1,834 -- -- -- -- -- --
Issuance of Series B
Preferred Stock at $10.00
per share to consultants
for services performed in
November 1991............ 1,303 13 -- -- -- -- -- --
Sale of Series B Preferred
Stock at $10.00 per share
and Common Stock warrants
at $0.04 per warrant to
investors for cash in
February 1992, net of
issuance costs of $23.... 170,673 1,685 -- -- -- -- -- --
Exercise of Common Stock
options and Common Stock
purchase rights at $14.00
to $16.80 per share...... -- -- 5,072 82 -- (79) -- --
Repurchase of Common Stock
issued to founders at
$0.35 per share.......... -- -- (3,760) (1) -- -- -- --
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Issuance of shares of Common
Stock to founders for
services in May 1989 at
$0.35 per share.......... $ 3
Issuance of Series A
Preferred Stock for
in-process technology in
May 1990................. --
Sale of Series A Preferred
Stock at $6.60 per share
and Series B and Series C
Preferred Stock warrants
at $0.10 per warrant to
investors for cash in
June 1990, net of
issuance costs of $25.... 437
Exercise of Series B
Preferred Stock warrants
at $10.00 per share in
October 1990............. 750
Exercise of Common Stock
purchase rights at $14.00
per share................ --
Exercise of Series C
Preferred Stock warrants
at $12.00 per share by
investors for cash in
April 1991 (subsequently
converted to Series B
Preferred Stock)......... 300
Dividend of Series A
Preferred Stock in June
1991..................... --
Conversion of Series C
Preferred Stock to Series
B Preferred Stock in June
1991..................... --
Sale of Series B Preferred
Stock at $10.00 per share
to investors for cash in
December 1990 and June
1991, net of issuance
costs of $43............. 1,834
Issuance of Series B
Preferred Stock at $10.00
per share to consultants
for services performed in
November 1991............ 13
Sale of Series B Preferred
Stock at $10.00 per share
and Common Stock warrants
at $0.04 per warrant to
investors for cash in
February 1992, net of
issuance costs of $23.... 1,685
Exercise of Common Stock
options and Common Stock
purchase rights at $14.00
to $16.80 per share...... 3
Repurchase of Common Stock
issued to founders at
$0.35 per share.......... (1)
</TABLE>
F-5
<PAGE> 80
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
PERIOD FROM INCEPTION (MAY 5, 1989) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
------------------- ---------------- PAID IN FROM DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
---------- ------- ------- ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of Common Stock
options and Common Stock
purchase rights at $16.80 per
share........................ -- $ -- 917 $ 16 $ -- $ (3) $ -- $ --
Repurchase of unvested shares
of Common Stock at prices
ranging from $0.35 to $16.80
per share and cancellation of
notes receivable on
termination of employment of
stockholders................. -- -- (2,629) (41) -- 41 -- --
Payments on notes receivable... -- -- -- -- -- 24 -- --
Sale of Series B Preferred
Stock at $10.00 per share and
Common Stock warrants at
$0.04 per warrant to
investors for cash in June
1992, net of issuance costs
of $19....................... 115,390 1,135 -- -- -- -- -- --
Net loss -- inception (May 5,
1989) to December 31, 1992... -- -- -- -- -- -- -- (5,191)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1992.... 718,329 6,154 8,703 59 -- (17) -- (5,191)
Issuance of Series C Preferred
Stock at $1.50 per share and
Series D Preferred Stock
warrants at $0.01 per share
for cash in April and June
1993, net of issuance costs
of $52....................... 2,805,519 4,159 -- -- -- -- -- --
Exercise of Series D Preferred
Stock warrants at $2.25 in
August 1993.................. 270,222 608 -- -- -- -- -- --
Issuance of Common Stock at
$2.10 per share to an
officer...................... -- -- 10,710 23 -- (23) -- --
Exercise of Common Stock
options and Common Stock
purchase rights at $0.16 to
$21.00 per share............. -- -- 3,787 47 -- (25) -- --
Repurchase of unvested shares
of Common Stock at $16.80 per
share for cancellation of
notes receivable............. -- -- (1,041) (17) -- 17 -- --
Forgiveness of notes
receivable................... -- -- -- -- -- 25 -- --
Net loss -- year ended December
31, 1993..................... -- -- -- -- -- -- -- (3,839)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1993.... 3,794,070 10,921 22,159 112 -- (23) -- (9,030)
Issuance of Series E Preferred
Stock at $2.25 per share in
April 1994, net of issuance
costs of $58................. 4,000,000 8,942 -- -- -- -- -- --
Exercise of Common Stock
options and Common Stock
purchase rights at $2.10 to
$4.20 per share.............. -- -- 22,632 62 -- (51) -- --
Net loss -- year ended December
31, 1994..................... -- -- -- -- -- -- -- (11,437)
---------- ------- ------- ---- ------ ----- ------- --------
Balances at December 31, 1994.... 7,794,070 $19,863 44,791 $174 $ -- $ (74) $ -- $(20,467)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Exercise of Common Stock
options and Common Stock
purchase rights at $16.80 per
share........................ $ 13
Repurchase of unvested shares
of Common Stock at prices
ranging from $0.35 to $16.80
per share and cancellation of
notes receivable on
termination of employment of
stockholders................. --
Payments on notes receivable... 24
Sale of Series B Preferred
Stock at $10.00 per share and
Common Stock warrants at
$0.04 per warrant to
investors for cash in June
1992, net of issuance costs
of $19....................... 1,135
Net loss -- inception (May 5,
1989) to December 31, 1992... (5,191)
--------
Balances at December 31, 1992.... 1,005
Issuance of Series C Preferred
Stock at $1.50 per share and
Series D Preferred Stock
warrants at $0.01 per share
for cash in April and June
1993, net of issuance costs
of $52....................... 4,159
Exercise of Series D Preferred
Stock warrants at $2.25 in
August 1993.................. 608
Issuance of Common Stock at
$2.10 per share to an
officer...................... --
Exercise of Common Stock
options and Common Stock
purchase rights at $0.16 to
$21.00 per share............. 22
Repurchase of unvested shares
of Common Stock at $16.80 per
share for cancellation of
notes receivable............. --
Forgiveness of notes
receivable................... 25
Net loss -- year ended December
31, 1993..................... (3,839)
--------
Balances at December 31, 1993.... 1,980
Issuance of Series E Preferred
Stock at $2.25 per share in
April 1994, net of issuance
costs of $58................. 8,942
Exercise of Common Stock
options and Common Stock
purchase rights at $2.10 to
$4.20 per share.............. 11
Net loss -- year ended December
31, 1994..................... (11,437)
--------
Balances at December 31, 1994.... $ (504)
</TABLE>
F-6
<PAGE> 81
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
PERIOD FROM INCEPTION (MAY 5, 1989) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
------------------- ---------------- PAID IN FROM DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
---------- ------- ------- ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994
(brought forward)............ 7,794,070 $19,863 44,791 $ 174 $ -- $ (74) $ -- $(20,467)
Exercise of Common Stock
options and purchase rights
at $3.15 to $4.20 per
share........................ -- -- 3,289 11 -- -- -- --
Repurchase of unvested shares
of Common Stock.............. -- -- (3,808) (13) -- 13 -- --
Repayment and forgiveness of
stockholder notes
receivable................... -- -- -- -- -- 7 -- --
Issuance of Common Stock
warrants at $0.70 per
share........................ -- -- -- 3 -- -- -- --
Issuance of Series E Preferred
Stock at $2.25 per share for
conversion of notes payable
and accrued interest in
November 1995................ 1,647,814 3,708 -- -- -- -- -- --
Net loss -- year ended December
31, 1995..................... -- -- -- -- -- -- -- (7,254)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1995.... 9,441,884 23,571 44,272 175 -- (54) -- (27,721)
Exercise of Common Stock
options and purchase rights
of $2.10 to $4.20 per
share........................ -- -- 39,123 115 -- (57) -- --
Issuance of Series E Preferred
Stock at $2.25 per share for
cash and the conversion of
notes payable and accrued
interest in February and May
1996, net of issuance cost of
$92.......................... 2,653,048 5,878 -- -- -- -- -- --
Net loss -- year ended December
31, 1996..................... -- (3,863)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1996.... 12,094,932 29,449 83,373 290 -- (111) -- (31,584)
Exercise of Common Stock
options and purchase rights
at $3.75 per share, net of
repurchases.................. -- -- 20,472 69 -- (36) -- --
Sale of Series F Preferred
Stock and Common Stock
warrants at $2.25 per unit in
February and June 1997, net
of issuance costs of
$1,052....................... 2,282,663 4,084 -- -- -- -- -- --
Unit options and warrants
issued....................... -- -- -- -- 1,672 -- -- --
Deferred compensation.......... -- -- -- 1,480 -- -- (1,480) --
Amortization of deferred
compensation................. -- -- -- -- -- -- 118 --
Net loss -- year ended December
31, 1997..................... -- -- -- -- -- -- -- (4,113)
---------- ------- ------- ------ ------ ----- ------- --------
Balances at December 31, 1997.... 14,377,595 $33,533 103,845 $1,839 $1,672 $(147) $(1,362) $(35,697)
========== ======= ======= ====== ====== ===== ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balances at December 31, 1994
(brought forward)............ $ (504)
Exercise of Common Stock
options and purchase rights
at $3.15 to $4.20 per
share........................ 11
Repurchase of unvested shares
of Common Stock.............. --
Repayment and forgiveness of
stockholder notes
receivable................... 7
Issuance of Common Stock
warrants at $0.70 per
share........................ 3
Issuance of Series E Preferred
Stock at $2.25 per share for
conversion of notes payable
and accrued interest in
November 1995................ 3,708
Net loss -- year ended December
31, 1995..................... (7,254)
--------
Balances at December 31, 1995.... (4,029)
Exercise of Common Stock
options and purchase rights
of $2.10 to $4.20 per
share........................ 58
Issuance of Series E Preferred
Stock at $2.25 per share for
cash and the conversion of
notes payable and accrued
interest in February and May
1996, net of issuance cost of
$92.......................... 5,878
Net loss -- year ended December
31, 1996..................... (3,863)
--------
Balances at December 31, 1996.... (1,956)
Exercise of Common Stock
options and purchase rights
at $3.75 per share, net of
repurchases.................. 33
Sale of Series F Preferred
Stock and Common Stock
warrants at $2.25 per unit in
February and June 1997, net
of issuance costs of
$1,052....................... 4,084
Unit options and warrants
issued....................... 1,672
Deferred compensation.......... --
Amortization of deferred
compensation................. 118
Net loss -- year ended December
31, 1997..................... (4,113)
--------
Balances at December 31, 1997.... $ (162)
========
</TABLE>
See accompanying notes
F-7
<PAGE> 82
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED INCEPTION
DECEMBER 31, (MAY 5, 1989)
--------------------------- TO DECEMBER 31,
1995 1996 1997 1997
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(7,254) $(3,863) $(4,113) $(35,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 204 168 140 966
Amortization of deferred compensation..................... -- -- 118 118
Accrued interest on bridge notes converted to Preferred
Stock................................................... 78 44 -- 122
Losses on advances to related parties..................... 120 -- -- 465
Non-cash financial advisory costs......................... -- -- 1,300 1,300
Acquisition of in-process research and development for
notes payable........................................... -- -- -- 4,200
Other..................................................... 7 -- -- 38
Changes in assets and liabilities:
Prepaid expenses and other current assets............... 16 (66) (23) (207)
Other assets............................................ (7) (162) 50 (157)
Accounts payable........................................ 200 205 903 1,402
Deferred revenue -- related party....................... -- 556 -- 556
Accrued expenses and other liabilities.................. 388 (25) (180) 1,135
------- ------- ------- --------
Net cash used in operating activities....................... (6,248) (3,143) (1,805) (25,759)
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (4) (14) -- (397)
Organization costs.......................................... -- -- -- (68)
Advances to related parties................................. (40) -- -- (715)
Repayment of notes receivable -- officer.................... -- -- -- 250
Purchase of short-term investments.......................... (500) -- (4,577) (6,481)
Maturities of short-term investments........................ 500 -- 4,577 4,500
Sales of short-term investments............................. 2,000 -- -- 2,000
------- ------- ------- --------
Net cash provided by (used in) investing activities......... 1,956 (14) -- (911)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bridge financing.............................. 3,630 -- -- 3,630
Proceeds from short-term debt............................... 3,015 1,893 -- 4,908
Repayment of short-term debt................................ (1,515) (1,500) -- (3,015)
Repayment of notes payable.................................. (1,200) (1,000) (1,000) (3,200)
Principal payments on capital lease obligations............. (171) (151) (106) (728)
Proceeds from sale-leaseback of equipment................... -- -- -- 207
Deferred offering costs..................................... -- -- (1,142) (1,142)
Proceeds from issuances of Common Stock and warrants, net of
repurchases and repayment of stockholder notes............ 14 58 33 180
Net proceeds from issuance of convertible Preferred Stock
and warrants.............................................. -- 3,941 4,084 27,875
------- ------- ------- --------
Net cash provided by financing activities................... 3,773 3,241 1,869 28,715
------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents........ (519) 84 64 2,045
Cash and cash equivalents at beginning of period............ 2,416 1,897 1,981 --
------- ------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,897 $ 1,981 $ 2,045 $ 2,045
======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 160 $ 335 $ 210 $ 844
======= ======= ======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Equipment purchased under capital leases.................... $ 107 $ 95 $ 326 $ 933
======= ======= ======= ========
Conversion of debt obligations and accrued interest to
Preferred Stock .......................................... $ 3,708 $ 1,937 -- $ 5,645
======= ======= ======= ========
Deferred compensation related to stock option grants........ $ -- $ -- 1,480 $ 1,480
======= ======= ======= ========
Warrants issued in connection with lease and borrowing
transactions.............................................. $ -- $ -- $ 372 $ 372
======= ======= ======= ========
</TABLE>
See accompanying notes.
F-8
<PAGE> 83
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
RiboGene, Inc. (the "Company") was incorporated in the State of California
on May 5, 1989. The Company was originally founded to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research effort initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. The Company is in the development stage and its
principal activities to date have involved performing research and development
on the above technologies.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has sustained operating
losses since inception and expects such losses to continue as it furthers its
research and development programs. From inception to December 31, 1997, the
Company incurred cumulative net losses of approximately $35,697,000, and had a
working capital deficit of $1,745,000 and a net stockholders' deficit of
$162,000 at December 31, 1997. The Company will need to obtain additional funds
from outside sources to continue its research and development activities, fund
operating expenses and pursue regulatory approvals for its products under
development. Management believes that sufficient funds are available to support
planned operations through at least August, 1998. The Company may seek to fund
its operations thereafter through collaborative arrangements and through public
or private financings, including this offering or other debt or equity
financings. If the Company is unable to obtain the necessary capital,
substantial restructuring options may be necessary which would have a material
adverse effect on the Company's business, results of operations and prospects.
The financial statements do not include any adjustments to reflect the possible
future effects in the recoverability and classification of assets or the amounts
and classification of liabilities that might result from the possible inability
of the Company to continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity from
the date of purchase of three months or less to be cash equivalents.
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in income.
The Company has not experienced any realized gains or losses on its cash
equivalents. The cost of securities sold is based on the specific identification
method. Cash and cash equivalents at December 31, 1996 and 1997, is comprised of
demand deposits with banks and investments in money market accounts.
F-9
<PAGE> 84
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from four to five years. Assets recorded under
capital leases are amortized using the straight-line method over the shorter of
the useful life or the lease term.
REVENUE RECOGNITION
Revenue earned under collaborative research agreements are recognized as
the related services are performed and research expenses are incurred. Amounts
received in advance of services to be performed are recorded as deferred revenue
until the related expenses are incurred. Milestone payments are recognized as
revenue in the period earned.
The Company has received government grants which support the Company's
research effort in specific research projects. These grants generally provide
for reimbursement of approved costs incurred as defined in the various awards.
NET LOSS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
98. SFAS 128 requires the presentation of basic earnings (loss) per share and
diluted earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of Common Stock outstanding during
the period. Pro forma net loss per share as presented in the Statement of
Operations has been computed as described above and also gives effect to the
conversion of the convertible Preferred Stock that will automatically convert
upon completion of the Company's initial public offering (using the as-if
converted method) from the original date of issuance.
F-10
<PAGE> 85
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in the calculation of pro forma basic net
loss per share and pro forma net loss per share follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Net loss..................................... $ (7,254) $(3,863) $(4,113)
======== ======= =======
Weighted average shares of Common Stock
outstanding................................ 44 73 100
======== ======= =======
Basic net loss per share..................... $(164.86) $(52.92) $(41.13)
======== ======= =======
Calculation of shares outstanding for
computing basic pro forma net loss per
share:
Shares used in computing basic net loss per
share...................................... 100
Adjusted to reflect the effect of the assumed
conversion of Preferred Stock from the date
of issuance or as of the beginning of the
period..................................... 2,009
-------
Shares used in computing pro forma net loss
per share.................................. 2,109
=======
Pro forma net loss per share................. $ (1.95)
=======
</TABLE>
Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is anti-dilutive. Had the Company been in a net
income position, shares used in calculating diluted earnings per share would
have included an additional 1,290,000 shares related to the Company's
outstanding stock options and warrants (prior to the application of the treasury
stock method).
ACCOUNTING FOR STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying Common Stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), which
require additional disclosures to be adopted beginning in the first quarter of
1998 and on December 31, 1998, respectively. Under SFAS 130, the Company will be
required to display comprehensive income and its components as part of the
Company's full set of financial statements. SFAS 131 requires that the Company
report financial and descriptive information about its reportable operating
segments. The Company does not believe that the implementation of SFAS 130 and
SFAS 131 will have a material impact on its financial statement disclosures.
F-11
<PAGE> 86
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Laboratory equipment........................................ $ 579,000 734,000
Office and computer equipment............................... 223,000 352,000
Furniture and fixtures...................................... 204,000 231,000
Leasehold improvements...................................... 37,000 52,000
---------- ----------
1,043,000 1,369,000
Less accumulated depreciation and amortization.............. (758,000) (898,000)
---------- ----------
Property and equipment, net................................. $ 285,000 471,000
========== ==========
</TABLE>
Property and equipment includes approximately $890,000 and $781,000 of
equipment under capital leases for the years ended December 31, 1996 and 1997,
respectively, that are pledged as security for the related lease obligations.
Accumulated amortization related to leased assets totaled $648,000 and $338,000
for the years ended December 31, 1996 and 1997, respectively.
3. COLLABORATION AGREEMENTS
In April 1996, the Company entered into collaborative research and license
agreements with Abbott Laboratories ("Abbott") to discover and develop
antifungal products identified using the Company's drug discovery technology
(see Note 10). This agreement grants Abbott the exclusive worldwide right to
develop and market antifungal products discovered with the Company. Abbott
agreed to make contract research payments of up to $5,000,000 for the Company's
antifungal research activity over a three-year period. Specifically, the
Company's activities will include screening compound samples, the identification
of new targets and the design and implementation of assays incorporating these
targets. The Company has no obligation to incur expenses in excess of the funds
provided by Abbott. During 1996 and 1997, Abbott made payments of $1,668,000 in
each year pursuant to this agreement, of which $1,112,000 and $1,668,000,
respectively, was recognized as revenue based on costs incurred during the
period. Collaborative research payments from Abbott are non-refundable. The
agreement also provides milestone payments to the Company for up to $9,000,000
per product as well as royalties on any product sales. The agreements may be
terminated by Abbott with notice of up to 60 days. In connection with this
agreement, Abbott purchased 1,555,556 shares of Series E Preferred Stock
(convertible into 111,066 shares of Common Stock) which resulted in net proceeds
to the Company of $3,500,000. Abbott also agreed to purchase an additional $4.0
million of Common Stock in a private placement at a purchase price equal to the
initial public offering price assuming the initial public offering results in
gross proceeds to the Company of $16.0 million.
The Company has entered into research agreements with Trega Biosciences
Inc., Pharmacopeia, Inc. and ArQule, Inc. to screen compounds provided by these
companies. The terms of each of these research agreements require the Company to
complete the screening activities within a specific period of time, all of which
are less than one year but not to pay any funds to the other party. In the case
of Pharmacopeia and ArQule, once a compound with specified activity is
identified as a result of the screening activities, then the Company has the
right to negotiate for the rights to develop the compound. Under the Trega
Biosciences agreement, if a compound is selected for further development, the
parties will jointly agree on a development plan which will further specify each
party's obligations. Each party has the right, but not the obligation, to
participate in the development of the compound and each will proportionally
share in the ownership of the compound developed based on each party's
contribution (defined as internal and external development
F-12
<PAGE> 87
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. COLLABORATION AGREEMENTS (CONTINUED)
expenditures). Following initial screening activities, in no case is the Company
obligated to expend additional funds for development. To date, no compounds have
been selected for development under any of these agreements. The agreement with
Trega Biosciences Inc. expires in October 1998. The agreements with
Pharmacopeia, Inc. and ArQule, Inc. can be terminated by the Company without any
further obligation upon 60 and 30 days notice, respectively.
In April 1997, the Company entered into an agreement with the University of
Washington, which was amended in October 1997, pursuant to which RiboGene
received an exclusive worldwide license to certain patent rights and technology.
Under the agreement, the Company paid an upfront license fee and has agreed to
pay a minimal quarterly license maintenance fee and a milestone payment of
$250,000 upon the approval of an NDA for a compound developed using the licensed
patent rights. Once a compound is selected for development, the Company will be
obligated to complete certain development milestones at its own expense. To
date, no compound has been selected for development.
In April 1993, RiboGene entered into an agreement with the University of
Washington and McGill University, under which RiboGene received an option to
acquire an exclusive, worldwide license to certain patent rights and technology
relating to the tumor-suppressing properties of the enzyme PKR. This agreement
was amended in April 1996 to extend the term of the option through April 1998,
in exchange for a minimal payment and a commitment by the Company to screen
specified compounds in assays incorporating this technology, which has been
completed, and to conduct preclinical studies on future lead compounds, if
selected. No lead compounds have been selected for development to date. The
funding for these obligations is provided by a 1996 SBIR grant that awarded the
Company up to $640,000 over a two-year period.
4. NOTES PAYABLE
In January and February 1996, the Company issued $1,893,000 principal
amount of bridge notes payable. In May 1996, the $1,893,000 of principal and
$44,000 of accrued interest were converted into 860,844 shares of Series E
Preferred Stock (convertible into 61,464 shares of Common Stock) at a price of
$2.25 per share.
In May 1995, the Company borrowed $750,000 from a bank subject to a note
payable. The note was repaid in July 1995. In connection with this borrowing,
the Company issued the bank a warrant with a five-year term to acquire 13,333
shares of Series E Preferred Stock (which will be convertible into 2,076 shares
of Common Stock) at $2.25 per share.
In July through September 1995, the Company received $4,394,680 in bridge
financing from stockholders. In connection with this transaction, the lenders
purchased warrants at a price of $0.70 per warrant to acquire 15,100 shares of
Common Stock at $7.00 per share. The warrants have a three-year term. In
September 1995, $765,000 of these notes were repaid. In November 1995, the
remaining $3,629,680 of principal and $77,906 of accrued interest were converted
into 1,647,814 shares of Series E Preferred Stock (convertible into 117,653
shares of Common Stock) at a price of $2.25 per share.
In September 1995, the Company borrowed $1,500,000 from a bank under a note
payable. In connection with this borrowing, the Company issued the bank a
warrant with a five-year term to acquire 20,000 shares of Series E Preferred
Stock (which will be convertible into 3,114 shares of Common Stock) at $2.25 per
share. The note was repaid in April 1996.
The fair value of each of the warrants described in the above paragraphs
was determined to be immaterial at the date of issuance. Such determination was
made using the Black-Scholes method with valuation
F-13
<PAGE> 88
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. NOTES PAYABLE (CONTINUED)
assumptions as follows: expected life equal to the term of the warrant; a risk
free interest rate of 6%; an expected volatility factor of .5; and a dividend
yield of 0%.
In January 1994, in consideration for the acquisition of certain technology
(see Note 5), the Company issued notes payable totaling $4,200,000, which are
due with interest of 4%-5%. At December 31, 1997, notes payable totaling
$1,000,000 remain outstanding including accrued interest, $500,000 of which was
paid in January 1998. Pursuant to a letter of agreement dated December 31, 1997,
the maturity date of the remaining $500,000 note has been extended to May 5,
1998. The interest rate for the extension period is 7%. In consideration for the
extension, the Company issued a warrant to purchase 13,923 shares of Common
Stock with an exercise price of $15.87 per share which expires January 1999. The
fair value of $82,000 assigned to the warrant was determined using the
Black-Scholes method. The Black-Scholes valuation was determined using the
following assumptions: expected life of one year; a risk-free interest rate of
6%; an expected volatility factor of .5; a dividend yield of 0%; and an
estimated fair value of the underlying common stock of $31.75. The value of the
warrants has been reflected as a debt discount and will be amortized to interest
expense over the remaining term of the note payable. The note payable is secured
by the technology and intellectual capital acquired in this transaction. The
fair value of the note, calculated based on a discounted cash flow analysis
using the Company's incremental borrowing rate, does not differ materially from
its carrying value in the financial statements.
5. ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT
In January 1994, the Company entered into an asset purchase agreement for
certain intangible assets and intellectual property related to several drug
candidates in development. In 1996, the Company discontinued development of
these drug candidates. In exchange for the intangible assets and intellectual
property received, the Company paid $800,000 in cash and issued notes payable
totaling approximately $4,200,000 (see Note 4). The Company also issued a
warrant to purchase 92,820 shares of Common Stock with an exercise price of
$15.87 per share which expires in January 1999. The value assigned to the
warrant using the Black-Scholes method for financial statement purposes was
immaterial. The Black-Scholes valuation was calculated using the following
assumptions: expected life of five years; a risk free interest rate of 6%; an
expected volatility factor of .5; and a dividend yield of 0%, and a fair value
of the underlying common stock of $3.15. In connection with this transaction,
the Company charged $5,000,000 to acquired in-process research and development
as the assets acquired had no alternative future uses.
In connection with the above agreement, the Company entered into a
five-year consulting agreement with the sole shareholder of the seller. The
agreement provides for payments of $50,000 per quarter from January 1995 through
December 1999. In 1995, the Company determined it would no longer require the
services of the consultant at a level commensurate with the amounts payable in
1996 through 1999, and therefore the remaining present value of the unpaid
balance (discounted at 10.5%) amounting to $646,000 was recognized as expense in
the accompanying statement of operations.
F-14
<PAGE> 89
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. LEASES
The Company leases certain facilities and laboratory and office equipment.
Future minimum lease payments under such noncancelable leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year ended December 31,
1998............................................. $ 212,000 $ 618,000
1999............................................. 174,000 603,000
2000............................................. 183,000 590,000
2001............................................. 12,000 603,000
2002............................................. -- 626,000
Thereafter....................................... -- 7,578,000
--------- -----------
Total minimum payments required.................... 581,000 $10,618,000
===========
Less amount representing interest.................. (118,000)
---------
Present value of future lease payments............. 463,000
Less current portion............................... (174,000)
---------
Long-term portion.................................. $ 289,000
=========
</TABLE>
Rent expense for operating leases was approximately $117,000, $213,000 and
$347,000 in the years ended December 31, 1995, 1996 and 1997, respectively. In
1997, the Company entered into a facility lease which provides for scheduled
rent increases annually over the 15-year term. The rent is being recognized as
expense on a straight-line basis and the actual cash flow is included in the
future minimum lease payment schedule above. In connection with the new facility
lease, in November 1997 the Company became obligated to issue the landlord a six
year warrant to purchase 17,850 shares of Common Stock at $31.51 per share. The
warrant was assigned a value of $290,000 which is being amortized over the lease
term. Such valuation was determined using the Black-Scholes method with the
following assumptions: an expected life of six years; a risk-free interest rate
of 6%; a dividend yield of 0%; and an estimated fair value of the underlying
common stock of $30.00.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The authorized and outstanding shares of Preferred Stock and related
liquidation preferences were as follows at December 31, 1997:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES AS PREFERENCE
CONVERTED PER LIQUIDATION
AUTHORIZED SHARES INTO PREFERRED PREFERENCE
DESIGNATION SHARES OUTSTANDING COMMON STOCK SHARE TOTAL
----------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A............. 138,269 138,268 9,870 $ 6.60 $ 912,569
Series B............. 800,000 580,061 41,407 $10.00 5,800,610
Series C............. 2,950,000 2,805,519 200,307 $ 1.50 4,208,279
Series D............. 270,222 270,222 19,293 $ 2.25 608,000
Series E............. 8,500,000 8,300,862 592,664 $ 2.25 18,676,939
Series F............. 5,555,554 2,282,663 1,467,510 $ 4.50 10,271,984
---------- ---------- --------- -----------
18,214,045 14,377,595 2,331,051 $40,478,381
========== ========== ========= ===========
</TABLE>
F-15
<PAGE> 90
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
In February 1997 and June 1997, the Company issued an aggregate of
2,282,663 units (the "Premium Preferred Units") resulting in net proceeds of
approximately $4,100,000. Each Premium Preferred Unit consisted of one share of
Series F Preferred Stock and one Class A Common Stock warrant (the "Class A
Warrants"). The Class A Warrants have a six-year term and initially entitled the
holder to purchase .0714 of a share of Common Stock at an exercise price per
share equal to the lesser of (i) $31.51 or (ii) the effective per share price of
Common Stock in an initial public offering which results in gross proceeds of at
least $7,500,000 to the Company. If the Company's proposed initial public
offering is consummated on the terms presently contemplated, the outstanding
Class A Warrants will be exercisable into 162,967 shares of Common Stock at an
exercise price of $7.00 per share.
Holders of Series A, B, C, D and E Preferred Stock are entitled to
noncumulative dividends when and if declared by the board of directors. The
holders of Series F Preferred Stock are entitled to receive, prior and in
preference to any declaration or payment of dividend on any other class of
stock, dividends of $2.25 per share on the first day following the close of the
Series F offering and shall be entitled to receive an additional $1.125 per
share on the second anniversary of the Series F closing and each year
thereafter. The dividends shall be payable only when and if declared by the
board of directors; however, dividends not declared and paid when due shall
accumulate and be included in the Series F Preferred Stock liquidation
preference and in the determination of the Series F Preferred Stock conversion
ratio (see discussion below). The initial Series F Preferred Stock dividend has
not been declared or paid. No dividends or other distributions shall be made to
Common stockholders other than dividends payable solely in Common Stock, unless,
at the same time, an equivalent dividend to the Preferred stockholders has been
paid or provided for. No dividends shall be declared or paid on any class of
Preferred Stock while there are any accrued but unpaid dividends on the Series F
Preferred Stock and unless a like dividend is declared on the Series F Preferred
Stock.
All Series of Preferred Stock have voting rights on an as-converted basis.
In addition, the holders of not less than 66 2/3% of the Series F Preferred
Stock are entitled to approve certain transactions including liquidation or the
sale of the Company, the issuance of any securities with terms on par or senior
to the Series F Preferred Stock and the incurrence of any indebtedness above
specified limits. Each share of Series A through E Preferred Stock is
convertible into .0714 of a share of Common Stock, subject to adjustment for
antidilution. As a result of the provisions related to the undeclared dividend
discussed above, each share of Series F Preferred Stock is initially convertible
into .1429 of a share of Common Stock. The preferred shares will automatically
convert into Common Stock upon the closing of a firm commitment underwritten
public offering under the Securities Act of 1933 in which the aggregate offering
price to the public is not less than $7,500,000 or, as to Series A, B, C, D or
E, at such time as the Company receives the consent of not less than 66 2/3% of
the holders of such Series of Preferred Stock.
The Series F Preferred Stock conversion ratio is subject to adjustment upon
the closing of an initial public offering at an offering price of less than
$31.51 per share. Such adjustment is intended to provide for the conversion of
the Series F Preferred Stock at a value not less than $4.50 per Series F
Preferred share (the original stated value of $2.25 per share, plus the $2.25
per share undeclared dividend discussed above). If the initial public offering
price is below $31.51, the ratio by which the Series F Preferred Stock is
convertible into Common Stock equals $4.50 divided by the initial public
offering price. To the extent that the adjusted conversion price results in the
holders of Series F Preferred Stock receiving in excess of 326,193 shares of
Common Stock, then the fair value of the incremental shares is deemed to be the
equivalent of a preferred stock dividend. Any such deemed dividend will be
recorded at the time of conversion by offsetting charges and credits to
additional paid in capital, without any effect on total stockholders' equity.
There will be no effect on net loss from the conversion. However, the amount
will increase the loss allowable to Common Stock in the
F-16
<PAGE> 91
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
calculation of net loss per share in the period of conversion. If the Company's
proposed initial public offering is consummated on the terms presently
contemplated, each share of Series F Preferred Stock will convert into .6429 of
a share of Common Stock, resulting in the issuance of an incremental 1,141,317
shares of Common Stock and a non-cash deemed dividend of approximately $8
million.
Series A, B, C, D and E Preferred Stock may be redeemed at the option of
the board of directors after April 15, 1999, or earlier, if approved by holders
of 66 2/3% of the outstanding shares of such series. Holders of Series F
Preferred Stock can, at their option, participate in the redemption. At
redemption, the preferred stockholders will receive a redemption price in cash
equal to the original issue price of the respective shares, together with any
declared but unpaid dividends.
In the event of sale, merger, liquidation, dissolution or winding up of the
Company, the holders of Series F Preferred Stock then outstanding will first be
entitled to receive, in preference to all other series of preferred and Common
Stock, $4.50 per share (the original stated value of $2.25 per share, plus the
$2.25 per share undeclared dividend discussed above) plus declared but unpaid
dividends. The holders of Series C, D and E Preferred Stock shall be entitled to
receive, prior and in preference to the holders of Series A and B Preferred
Stock and Common Stock, the liquidation preferences noted in the table above,
plus declared but unpaid dividends. If assets remain after such distribution,
the holders of Series B Preferred Stock are entitled to receive the amount shown
above in preference to the Series A Preferred Stockholders and Common
Stockholders. Upon completion of the above distributions, holders of Common
Stock shall receive an amount equal to $0.50 per share and any remaining assets
shall be distributed among the holders of Series A, B, C, D, E and F Preferred
Stock and Common Stock as prescribed in the Articles of Incorporation.
PLACEMENT AGENT UNIT OPTIONS
In connection with the sale of Premium Preferred Units described above, the
Company issued the placement agent an option to purchase 228,266 units (the
"Placement Agent Units"). Each Placement Agent Unit initially consisted of one
share of Series F Preferred Stock and one Class A Common Stock Warrant. In
addition, the Company entered into a two-year Financial Advisory Agreement with
the Placement Agent pursuant to which the Company issued the Placement Agent
options to purchase 342,399 Placement Agent Units. The options to purchase
Placement Agent Units had an initial exercise price of $2.475 per option and
expire in 10 years. Upon the closing of the Company's initial public offering
and the conversion of the outstanding shares of Series F Preferred Stock, the
options to acquire Placement Agent Units will automatically be adjusted based
upon an assumed initial offering price of $7.00 such that the exercise price per
option will decrease to $1.24 and the number of shares of Series F Preferred
Stock included in the Placement Agent Unit will increase to two. As a result, if
the Company's initial public offering is consummated on the terms presently
contemplated, a total of 733,755 shares of Common Stock and 40,739 Class A
Warrants will be issuable for an aggregate option exercise price of
approximately $708,000. The options to acquire Placement Agent Units issued
pursuant to the Financial Advisory Agreement have been assigned a value of
$1,300,000 which has been expensed and included in the loss from operations for
the year ended December 31, 1997, as the Company does not believe it will
receive future services commensurate with this amount. The value of the
Placement Agent Units was determined at the date of issuance using the
Black-Scholes method with valuation assumptions as follows: expected life of 10
years; risk free interest rate of 6%; an expected volatility factor of .5; a
dividend yield of 0%, and a fair value of the underlying units of $4.34. The
fair value of the underlying units was determined by reference to the price paid
by investors for the Premium Preferred Units, giving consideration to the fact
that each Placement Agent Unit consists of two shares of Series F
F-17
<PAGE> 92
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock and one Class A warrant. The Company has also accrued an
additional $96,000 of fees due to the placement agent.
WARRANTS
The Company had issued and outstanding warrants at December 31, 1997 as
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES AS EXERCISE REMAINING
CONVERTED PRICE CONTRACTUAL
INTO PER SHARE OF LIFE
CLASS OF STOCK SHARES COMMON STOCK COMMON STOCK (IN YEARS)
-------------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Series B Preferred Stock warrants........... 23,334 3,793 $15.82 1.7
Series C Preferred Stock warrants........... 15,000 1,998 $11.26 3.4
Series E Preferred Stock warrants........... 113,332 17,646 $14.45 3.7
Class A Common Stock warrants............... 2,282,663 162,967 $ 7.00 5.5
Other Common Stock warrants................. 142,882 142,882 $17.13 1.6
-------
Total............................. 329,286 $11.92
=======
</TABLE>
At December 31, 1994, 1995 and 1996 there were outstanding warrants to
acquire 93,748, 108,348, and 108,348 shares of common stock (on an as-converted
to common stock basis), respectively, at weighted average exercise prices per
common share of $15.87, $14.64 and $14.64, respectively. No warrants were
exercised, canceled or forfeited in 1995, 1996 or 1997. All warrants were fully
exercisable upon issuance.
STOCK PLANS
In March 1993, adopted the 1993 Stock Plan (the "1993 Plan"). Under the
terms of the 1993 Plan, the board of directors may grant stock purchase rights
and stock options. Stock purchase rights may not be issued at less than 85% of
the fair value of the Common Stock at the date of grant and generally provide
the Company with a repurchase right in the event of termination of employment
which lapses over periods specified by the board of directors. Options granted
pursuant to the 1993 Plan may be either incentive stock options or nonstatutory
stock options, at the discretion of the board of directors. Incentive stock
options may be granted to employees with exercise prices of no less than the
fair market value and nonstatutory options may be granted to employees or
consultants at exercise prices of no less than 85% of the fair value of the
Common Stock on the grant date, as determined by the board of directors. If, at
the time the Company grants an option, the optionee directly or by attribution
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, the option price shall be at least 110% of the
fair market value and the option shall not be exercised more than five years
after the date of grant. Except as noted above, options expire no more than 10
years after the date of grant or earlier if employment is terminated. Options
become exercisable as determined by the board of directors, generally over a
period of four years. Through December 31, 1997, a total of 295,239 shares have
been reserved for issuance under the 1993 Plan.
F-18
<PAGE> 93
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity under the 1990 Plan and the
1993 Plan:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
---------------- --------------
<S> <C> <C>
Balance at December 31, 1994.............................. 90,269 $ 3.22
Granted with exercise prices equal to fair value........ 69,820 $ 3.36
Exercised............................................... (1,147) $ 2.10
Canceled................................................ (1,454) $ 2.80
-------
Balance at December 31, 1995.............................. 157,488 $ 3.22
Granted with exercise prices equal to fair value........ 11,127 $ 3.22
Granted with exercise prices greater than fair value.... 2,142 $31.51
Exercised............................................... (20,823) $ 2.66
Canceled................................................ (20,868) $ 3.36
-------
Balance at December 31, 1996.............................. 129,066 $ 3.78
Granted with exercise prices equal to fair value........ 73,824 $ 3.15
Exercised............................................... (6,850) $ 3.75
Canceled................................................ (9,540) $ 3.16
-------
Balance at December 31, 1997.............................. 186,500 $ 3.57
=======
</TABLE>
Through December 31, 1997, the board of directors granted 56,007 Common
Stock purchase rights under the 1993 Plan, all of which have been exercised for
cash and promissory notes. Of this amount, 5,146 shares have been repurchased
through December 31, 1997 and 22,476 shares are subject to the Company's
repurchase right at December 31, 1997 which generally lapses over four years.
The promissory notes bear interest at 5.29% to 6.73%. At December 31, 1997,
26,162 shares were available for future grant or sale.
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE NUMBER PRICE LIFE NUMBER PRICE
- ------------- -------------- --------- ----------- ------------ ---------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$2.10 - $2.80 24,870 $ 2.26 6.00 22,716 $ 2.21
$3.15 - $4.20 159,488 $ 3.41 8.30 70,058 $ 3.55
$31.51 2,142 $31.51 8.72 2,142 $31.51
------- -------
186,500 $ 3.57 8.00 94,916 $ 3.86
======= =======
</TABLE>
At December 31, 1996, 69,331 options were exercisable.
For certain options granted in 1997 with an exercise price of $3.15 per
share, the Company has recognized deferred compensation expense of approximately
$1,480,000 which will be amortized to expense over the vesting period of the
options. A total of $118,000 was amortized to compensation expense in 1997.
During 1996, the Company adopted SFAS 123. Using the minimum value method
to value options and stock purchase rights granted to employees in 1995, 1996
and 1997 resulted in a pro forma net loss of
F-19
<PAGE> 94
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
$4,175,000 and a pro forma net loss per share of $1.98 for the year ended
December 31, 1997. The effect on reported historical net loss and net loss per
share amounts in 1995 and 1996 was immaterial and has not been presented. SFAS
123 is applicable only to options granted subsequent to December 31, 1994 and
therefore its pro forma effect will not be fully realized until 1998. In future
years, the applications of SFAS 123 may result in a pro forma net loss which is
materially different from actual reported results. The minimum value method was
applied using the following weighted average assumptions for 1995, 1996, and
1997, respectively; risk free interest rates of 6.34%, 6.35% and 6.0%, an
expected option life of 5 years and no annual dividends. The weighted-average
fair value of options and stock purchase rights granted with exercise prices
equal to the fair value of the Company's stock on the date of grant during 1995,
1996 and 1997 was $0.85, $0.85 and $0.80, respectively.
RESERVED SHARES
The Company has reserved shares of Common Stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Stock option and purchase plans:
Outstanding options....................................... 186,500
Reserved for future grant or sale......................... 1,506,162
Convertible Preferred Stock:
Issued and outstanding.................................... 2,331,051
Upon exercise of Placement Agent Unit Option.............. 733,755
Upon exercise of other warrants........................... 23,437
Class A Warrants (including Class A Warrants underlying
Placement Agent Unit Options)............................. 203,706
Common Stock warrants....................................... 142,882
----------
5,127,493
==========
</TABLE>
8. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforward............................. $ 9,330,000 $ 10,430,000
Research and development credit carryforward................ 900,000 950,000
Capitalized research and development........................ 850,000 1,050,000
Acquired research and development........................... 1,500,000 1,400,000
Other....................................................... 236,000 486,000
------------ ------------
Gross deferred tax assets................................... 12,816,000 14,316,000
Valuation allowance......................................... (12,816,000) (14,316,000)
------------ ------------
Net deferred tax assets..................................... $ -- $ --
============ ============
</TABLE>
The valuation allowance increased by $3,300,000 and $1,436,000 for the
years ended December 31, 1995 and 1996, respectively.
F-20
<PAGE> 95
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. INCOME TAXES (CONTINUED)
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $28,400,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$575,000 and $375,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2012, if
not utilized.
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." Such a "change of ownership" as described in Section 382 of the
Internal Revenue Code may limit the Company's utilization of its net operating
loss and tax credit carryforwards.
9. INITIAL PUBLIC OFFERING AND RELATED MATTERS
In October 1997, the board of directors authorized the Company to proceed
with an initial public offering (the "Offering") of the Company's Common Stock.
If the offering is consummated under the terms presently anticipated, all of the
outstanding Preferred Stock at December 31, 1997 will automatically convert into
2,331,051 shares of Common Stock. Unaudited pro forma stockholders' equity, as
adjusted for the assumed conversion of all outstanding shares of convertible
Preferred Stock as of December 31, 1997, is set forth on the accompanying
balance sheet.
Prior to the effective date of the Offering, the Company expects to file an
Amended and Restated Certificate of Incorporation in the State of Delaware to
effect a one-for-14 reverse stock split of all outstanding shares of Common
Stock, and Common Stock options and warrants. Following the reverse stock split,
each share of Series A through E Preferred Stock will convert into 0.0714 of a
share of Common Stock. Each share of Series F Preferred Stock will convert into
0.6429 of a share of Common Stock (assuming an offering price of $7.00 per
share-see Note 7). All common shares and per share data and Preferred Stock
conversion ratios in the accompanying financial statements have been adjusted
retroactively to give effect to the reverse stock split. The Amended and
Restated Certificate of Incorporation will also reduce the authorized stock of
the Company such that the Company will be authorized to issue 5,000,000 shares
of $0.001 par value Preferred Stock, and 30,000,000 shares of $0.001 par value
Common Stock.
10. SUBSEQUENT EVENTS
On January 27, 1998, the Company entered into a collaboration with
Dainippon Pharmaceutical Co., Ltd. for two of its targets in the antibacterial
program (the "Dainippon Collaboration"). As part of the Dainippon Collaboration,
Dainippon has agreed to provide the Company with up to $6.0 million in research
support payments and fund additional research and development at Dainippon. The
Company may also be entitled to receive milestone payments upon the achievement
of mostly late-stage regulatory milestones in the amount of up to $10.0 million,
consisting of up to $5.0 million in milestones through approval in Japan and an
additional $5.0 million through approval in one other major market territory,
for each product developed through the collaboration. RiboGene also has the
right to co-promote, on a country-by-country basis, any products resulting from
the collaboration. In connection with the Dainippon Collaboration, Dainippon
made a $2.0 million equity investment in the Company by purchasing the Company's
Series G Preferred Stock, which will convert into 53,988 shares of Common Stock
upon the closing of the Offering.
On February 6, 1998 Abbott notified the Company of its intent to end its
research collaboration with the Company effective April 8, 1998.
In March 1998, the board of directors adopted, subject to stockholder
approval, the 1997 Equity Incentive Plan (the "Incentive Plan"). The Incentive
Plan provides for grants of incentive stock options to
F-21
<PAGE> 96
RIBOGENE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. SUBSEQUENT EVENTS (CONTINUED)
employees and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees and consultants of the
Company. The Incentive Plan will supersede the 1993 Plan and 800,000 shares of
Common Stock will be reserved for issuance.
In March 1998, the board of directors adopted, subject to stockholder
approval, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") and reserved 80,000 shares of Common Stock for issuance under the
Directors' Plan. The Directors' Plan provides for automatic grants of options to
purchase shares of Common Stock to nonemployee directors of the Company.
In March 1998, the board of directors adopted, subject to stockholder
approval, the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 600,000 shares of Common Stock. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value at the beginning or end of the
applicable offering period.
F-22
<PAGE> 97
======================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 21
Dividend Policy......................... 21
Capitalization.......................... 22
Dilution................................ 23
Selected Financial Data................. 24
Management's Discussion And Analysis of
Financial Condition And Results of
Operations............................ 25
Business................................ 29
Management.............................. 50
Certain Transactions.................... 58
Principal Stockholders.................. 62
Description Of Capital Stock............ 64
Shares Eligible For Future Sale......... 69
Underwriting............................ 71
Legal Matters........................... 72
Experts................................. 72
Additional Information.................. 73
Index To Financial Statements........... F-1
UNTIL , 1998 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
==============================================
</TABLE>
======================================================
2,700,000 SHARES
RIBOGENE LOGO
Common Stock
-------------------
PROSPECTUS
-------------------
GRUNTAL & CO., L.L.C.
======================================================
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the Common Stock being registered. All amounts are
estimated, except the registration fee, the NASD filing fee and the Nasdaq
National Market application fee:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 9,619
NASD filing fee............................................. 3,674
Nasdaq National Market application fee...................... 63,725
Blue Sky fees and expenses.................................. 30,000
Accounting fees............................................. 400,000
Legal fees and expenses..................................... 500,000
Transfer agent and registrar fees........................... 40,000
Printing and engraving...................................... 350,000
Miscellaneous............................................... 35,982
----------
Total............................................. $1,433,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that directors of
the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. The Registrant's Bylaws provide for indemnification of officers and
directors to the full extent and in the manner permitted by Delaware law.
Section 145 of the Delaware General corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
The Registrant has entered into indemnification agreements with each
director which provide indemnification under certain circumstances for acts and
omissions which may not be covered by any directors' and officers' liability
insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the
Registration Statement, provides for indemnification of the Registrant and its
controlling persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1994, the Registrant has sold and issued the following
unregistered securities:
1. In July through September 1995, the Registrant received $4,394,680 in
bridge financing from stockholders. In September 1995, $765,000 of these notes
were repaid. In November 1995, the remaining $3,629,680 of principal and $77,906
of accrued interest were converted into 1,647,814 shares of Series E Preferred
Stock (including 332,250 shares to KPCB V, 286,843 shares to CW, 264,180 shares
to each Domain and Sierra, 227,437 shares each to BIL and Oxford and 45,487
shares to Apertures Associates). In connection with this transaction, the
Registrant issued Warrants to acquire 13,312 shares of Common Stock.
2. In May and September 1995, the Registrant issued a warrant to purchase
an aggregate of 33,333 shares of Series E Preferred Stock to Silicon Valley Bank
in connection with bridge financings in the aggregate of $2,250,000.
3. In January and February 1996, the Registrant issued to certain of its
investors $1,893,000 principal amount of bridge notes. In May 1996, the
$1,893,000 of principal and $44,000 of accrued interest were converted into
860,844 shares of Series E Preferred Stock (including 197,415 shares to KPCB V,
179,675
II-1
<PAGE> 99
shares to CW, 157,613 shares to Domain, 120,541 shares to BIL, 109,169 shares to
Sierra and 96,431 shares to Oxford).
4. In April 1996, the Registrant sold and issued an aggregate of 1,555,556
shares of Series E Preferred Stock to Abbott Laboratories in connection with a
collaborative arrangement for an aggregate of $3,500,000.
5. In April 1996, the Registrant sold and issued an aggregate of 236,648
shares of Series E Preferred Stock (including 185,000 shares to Bio Equity Fund
L.P. and 51,648 shares to Dominion Fund II) for cash in the aggregate amount of
$532,458.
6. In May 1996, the Registrant issued a warrant to purchase an aggregate of
17,778 shares of Series E Preferred Stock to Dominion Ventures, Inc. in
connection with a leasing transaction.
7. In December 1996, the Registrant issued a warrant to purchase an
aggregate of 44,444 shares of Series E Preferred Stock to Venture Lending in
connection with a credit facility in the aggregate of $2,000,000.
8. In February and June 1997, the Registrant sold and issued Premium
Preferred Units consisting of an aggregate of 2,282,663 shares of Series F
Preferred Stock, warrants to purchase an aggregate of 2,282,663 shares of Common
Stock issued to a group of accredited investors (including 573,334 shares to the
Aries Trust, 315,555 shares to Aries Domestic Fund, L.P., 266,667 shares to J.F.
Shea Company, as nominee, 100,000 shares to Palmetto Partners Ltd., 88,889
shares to Oxford, 88,889 shares to KPCB V, 55,000 shares to Bios Equity Fund,
44,445 shares to CW, 44,444 shares to Aperture, 39,556 shares to Dominion and
665,884 shares to other accredited investors) for cash in connection with a
private placement for an aggregate amount of $5,136,000. In connection with this
offering, Paramount Capital Inc., as placement agent, received options
exercisable for an aggregate of 1,141,330 shares of Series F Preferred Stock and
options exercisable for warrants to purchase an aggregate of 143,746 shares of
Common Stock.
9. In November 1997, the Registrant issued to Transamerica Financial
Business Credit Corporation a warrant to purchase up to an aggregate of 6,667
shares of Series E Preferred Stock in connection with a leasing transaction.
10. In December 1997, the Registrant issued to Hyline Laboratories, Inc. a
warrant to purchase up to an aggregate of 49,120 shares of Common Stock in
connection with the extension of a promissory note due from the Company in
connection with the acquisition of intranasal products from Hyline Laboratories,
Inc.
11. In April 1998, the Registrant issued to Hayward Point I Limited
Partnership a warrant to purchase up to an aggregate of 250,000 shares of Common
Stock in connection with a leasing transaction.
12. From January 1, 1993 until March 31, 1998, the Registrant has granted
incentive stock options nonstatutory stock options and purchase rights to
employees, directors and consultants of the Registrant under its 1993 Stock
Option Plan covering an aggregate of 320,192 shares of the Registrant's Common
Stock, at exercise prices ranging from $2.10 to $31.51 per share. Options to
purchase 46,328 shares of Common Stock have been canceled or have lapsed without
being exercised. The Registrant has issued 86,283 shares of its Common Stock to
employees, directors and consultants pursuant to the exercise of stock options
and purchase rights, net of repurchases. At March 31, 1997, 26,522 shares remain
available for grant.
13. In February 1998, the Registrant sold and issued an aggregate of
756,144 shares of Series G Preferred Stock to Dainippon in connection with a
collaborative arrangement for an aggregate of $2,000,000.
The sale and issuance of securities in the transactions described in
paragraphs 1-9 above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) adopted thereunder. The purchasers in
each case represented their intention to acquire the securities for investment
only and not with a view to distribution thereof. Appropriate legends are
affixed to the stock certificates issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
The sale and issuance of securities in the transactions described in
paragraph 10 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder, in that they
II-2
<PAGE> 100
were issued either pursuant to written compensatory benefit plans or pursuant to
a written contract relating to compensation, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
***1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
**3.2 Bylaws of the Registrant.
**3.3 Form of Certificate of Incorporation of the Registrant to be
effective upon reincorporation in Delaware.
3.4 Form of Bylaws of the Registrant to be effective upon
reincorporation in Delaware.
3.5 Form of Restated Certificate of Incorporation of the
Registrant, to be filed after completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
**4.2 Specimen Stock Certificate.
4.3 Tenth Amended and Restated Rights Agreement among the
Registrant and the investors named therein, dated January
27, 1998.
**4.4 Form of Class A Warrant Certificates for Purchase of Common
Stock, dated June 23, 1997.
**4.5 Unit Purchase Option Warrant for the Purchase of 342,399
Option Units, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
**4.6 Unit Purchase Option Warrant for the Purchase of 228,266
Option Units, consisting of Shares of Preferred Stock and
Warrants, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
**4.7 Warrant Agreement between the Registrant and Paramount
Capital Inc., dated June 23, 1997.
**4.8 Warrant for Common Stock, issued by the Registrant to
Paramount Capital Inc., dated March 12, 1997.
**4.9 Warrant for Series B Preferred Stock, issued by the
Registrant to Dominion Ventures, dated August 9, 1991.
**4.10 Warrant for Series C Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 18, 1993.
**4.11 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Fund II, dated August 2, 1996.
**4.12 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated September 25, 1995.
**4.13 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated May 19, 1995.
**4.14 Warrant for Series E Preferred Stock, issued by the
Registrant to Venture Lending, dated December 23, 1996.
**4.15 Warrant for Common Stock, issued by the Registrant to SBC
Warburg, dated September 20, 1995.
**4.16 Warrant for Common Stock, issued by the Registrant to Judith
Donaldson, dated September 20, 1995.
**4.17 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 13, 1994.
**4.18 Warrant for Common Stock, issued by the Registrant to Hyline
Laboratories, dated January 5, 1994.
**4.19 Warrant for Common Stock, issued by the Registrant to Rip
Grossman and Associates, Inc., dated January 5, 1994.
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
***4.20 Form of Warrant Agreement (including the Form of Warrant) to
be entered into among the Registrant and the
Representatives.
4.21 Warrant for Common Stock, issued by Registrant to Hyline
Laboratories, Inc., dated December 31, 1997.
**4.22 Investor Rights Agreement among the Registrant and the
investors named therein, dated June 23, 1997.
4.23 Amendment to Unit Purchase Option Warrant to purchase
342,399 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
4.24 Amendment to Unit Purchase Option Warrant to purchase
228,266 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998
***5.1 Opinion of Cooley Godward LLP.
**+10.1 License Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
**+10.2 Research Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
**10.3 Series E Preferred Stock Purchase Agreement between the
Registrant and Abbott, dated April 26, 1996.
**+10.4 License Agreement between the Registrant and University of
Washington, dated April 4, 1997.
**+10.5 Collaboration Agreement between the Registrant and Houghten
Pharmaceuticals, dated April 12, 1995, as amended on April
10, 1997.
**10.6 1993 Stock Plan.
**10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
**10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993
Stock Plan.
**10.9 Employment Agreement between the Registrant and Charles J.
Casamento, dated May 11, 1993.
**10.10 Change of Control Agreement between the Registrant and
Charles Casamento, dated July 20, 1995.
**10.11 Employment Letter Agreement between the Registrant and Laura
S. L. Gaeta, dated May 6, 1994.
**10.12 Change of Control Agreement between the Registrant and Laura
S. L. Gaeta, dated July 20, 1995.
**10.13 Employment Letter Agreement between the Registrant and
Timothy E. Morris, dated May 31, 1995.
**10.14 Change of Control Agreement between the Registrant and
Timothy E. Morris, dated June 30, 1995.
**10.15 Real Property Lease between the Registrant and Hayward Point
Eden I Limited Partnership, dated March 7, 1997.
**10.16 First Amendment to Real Property Lease between the
Registrant and Hayward Point Eden I Limited Partnership,
dated September 24, 1997.
**10.17 Real Property Lease between the Registrant and Hall
Properties, Inc., dated February 6, 1992.
**10.18 Placement Agency Agreement between the Registrant and
Paramount Capital, Inc., dated August 1, 1996.
**10.19 Subscription Agreement for the Purchase and Sale of Premium
Preferred Units, dated June 23, 1997.
**10.20 Asset Purchase Agreement by and among the Registrant, Hyline
Laboratories, and Michael Ashkin, dated January 5, 1994.
**10.21 Non-Competition Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
**10.22 Consulting Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
**10.23 Secured Promissory Notes issued to Hyline Laboratories,
dated January 5, 1994.
</TABLE>
II-4
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
**10.24 Master Lease Agreement between the Registrant and Dominion
Ventures, dated August 9, 1991.
**10.25 Form of Scientific Advisor Agreement.
**10.26 Consulting Agreement between the Registrant and Michael
Mathews, dated April 13, 1993.
**10.27 Consulting Agreement between the Registrant and Joe B.
Harford, dated July 11, 1997.
**10.28 Consulting Agreement between the Registrant and Michael
Katze, dated February 6, 1997.
**10.29 Consulting Agreement between the Registrant and Nahum
Sonenberg, dated January 29, 1993.
**10.30 Approval of Outside Activity by Alan Hinnebusch, dated
October 15, 1992.
**10.31 Form of Indemnification Agreement between the Registrant and
the parties identified on Attachment A thereto.
**10.32 Financial Advisory Agreement between the Registrant and
Paramount Capital, Inc., dated June 23, 1997.
10.33 Letter Agreement between the Registrant, Hyline
Laboratories, Inc. and Michael Ashkin dated December 31,
1997.
+10.34 License Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
+10.35 Research Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
10.36 1998 Equity Incentive Plan
10.37 1998 Non-Employee Directors Stock Option Plan
10.38 1998 Employee Stock Purchase Plan
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
23.3 Consent of Pennie & Edmonds LLP.
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
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-5
<PAGE> 103
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus as filed as part of the registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the time it was
declared effective, and (2) for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, RiboGene, Inc.
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf, by the undersigned, thereunto duly authorized, in the City of
Hayward, County of Alameda, State of California, as of April 8, 1998.
RIBOGENE, INC.
By: /s/ CHARLES J. CASAMENTO
------------------------------------
Charles J. Casamento
President, Chief Executive Officer
and Chairman
Pursuant to the requirements of the Securities Act of 1933, the Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ CHARLES J. CASAMENTO President, Chief Executive April 8, 1998
- ----------------------------------------------------- Officer and Chairman
Charles J. Casamento (Principal Executive
Officer)
/s/ TIMOTHY E. MORRIS Vice President, Finance & April 8, 1998
- ----------------------------------------------------- Administration and Chief
Timothy E. Morris Financial Officer
(Principal Financial and
Accounting Officer)
/s/ DIGBY W. BARRIOS* Director April 8, 1998
- -----------------------------------------------------
Digby W. Barrios
/s/ FRANK J. SASINOWSKI Director April 8, 1998
- -----------------------------------------------------
Frank J. Sasinowski
/s/ JON S. SAXE* Director April 8, 1998
- -----------------------------------------------------
Jon S. Saxe
/s/ JESSE I. TREU, PH.D.* Director April 8, 1998
- -----------------------------------------------------
Jesse I. Treu, Ph.D.
*By: /s/ TIMOTHY E. MORRIS
------------------------------------------------
Timothy E. Morris, Attorney-in-Fact
</TABLE>
II-7
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
***1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
**3.2 Bylaws of the Registrant.
**3.3 Form of Certificate of Incorporation of the Registrant to be
effective upon reincorporation in Delaware.
3.4 Form of Bylaws of the Registrant to be effective upon
reincorporation in Delaware.
3.5 Form of Restated Certificate of Incorporation of the
Registrant, to be filed after completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
**4.2 Specimen Stock Certificate.
4.3 Tenth Amended and Restated Rights Agreement among the
Registrant and the investors named therein, dated January
27, 1998.
**4.4 Form of Class A Warrant Certificates for Purchase of Common
Stock, dated June 23, 1997.
**4.5 Unit Purchase Option Warrant for the Purchase of 342,399
Option Units, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
**4.6 Unit Purchase Option Warrant for the Purchase of 228,266
Option Units, consisting of Shares of Preferred Stock and
Warrants, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
**4.7 Warrant Agreement between the Registrant and Paramount
Capital Inc., dated June 23, 1997.
**4.8 Warrant for Common Stock, issued by the Registrant to
Paramount Capital Inc., dated March 12, 1997.
**4.9 Warrant for Series B Preferred Stock, issued by the
Registrant to Dominion Ventures, dated August 9, 1991.
**4.10 Warrant for Series C Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 18, 1993.
**4.11 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Fund II, dated August 2, 1996.
**4.12 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated September 25, 1995.
**4.13 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated May 19, 1995.
**4.14 Warrant for Series E Preferred Stock, issued by the
Registrant to Venture Lending, dated December 23, 1996.
**4.15 Warrant for Common Stock, issued by the Registrant to SBC
Warburg, dated September 20, 1995.
**4.16 Warrant for Common Stock, issued by the Registrant to Judith
Donaldson, dated September 20, 1995.
**4.17 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 13, 1994.
**4.18 Warrant for Common Stock, issued by the Registrant to Hyline
Laboratories, dated January 5, 1994.
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
**4.19 Warrant for Common Stock, issued by the Registrant to Rip
Grossman and Associates, Inc., dated January 5, 1994.
***4.20 Form of Warrant Agreement (including the Form of Warrant) to
be entered into among the Registrant and the
Representatives.
4.21 Warrant for Common Stock issued by the Registrant to Hyline
Laboratories, Inc., dated December 31, 1997.
**4.22 Investor Rights Agreement among the Registrant and the
investors named therein, dated June 23, 1997.
4.23 Amendment to Unit Purchase Option Warrant to purchase
342,399 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
4.24 Amendment to Unit Purchase Option Warrant to purchase
228,266 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998
***5.1 Opinion of Cooley Godward LLP.
**+10.1 License Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
**+10.2 Research Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
**10.3 Series E Preferred Stock Purchase Agreement between the
Registrant and Abbott, dated April 26, 1996.
**+10.4 License Agreement between the Registrant and University of
Washington, dated April 4, 1997.
**+10.5 Collaboration Agreement between the Registrant and Houghten
Pharmaceuticals, dated April 12, 1995, as amended on April
10, 1997.
**10.6 1993 Stock Plan.
**10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
**10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993
Stock Plan.
**10.9 Employment Agreement between the Registrant and Charles J.
Casamento, dated May 11, 1993.
**10.10 Change of Control Agreement between the Registrant and
Charles J. Casamento, dated July 20, 1995.
**10.11 Employment Letter Agreement between the Registrant and Laura
S. L. Gaeta, dated May 6, 1994.
**10.12 Change of Control Agreement between the Registrant and Laura
S. L. Gaeta, dated July 20, 1995.
**10.13 Employment Letter Agreement between the Registrant and
Timothy E. Morris, dated May 31, 1995.
**10.14 Change of Control Agreement between the Registrant and
Timothy E. Morris, dated June 30, 1995.
**10.15 Real Property Lease between the Registrant and Hayward Point
Eden I Limited Partnership, dated March 7, 1997.
**10.16 First Amendment to Real Property Lease between the
Registrant and Hayward Point Eden I Limited Partnership,
dated September 24, 1997.
**10.17 Real Property Lease between the Registrant and Hall
Properties, Inc., dated February 6, 1992.
**10.18 Placement Agency Agreement between the Registrant and
Paramount Capital, Inc., dated August 1, 1996.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
**10.19 Subscription Agreement for the Purchase and Sale of Premium
Preferred Units, dated June 23, 1997.
**10.20 Asset Purchase Agreement by and among the Registrant, Hyline
Laboratories, and Michael Ashkin, dated January 5, 1994.
**10.21 Non-Competition Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
**10.22 Consulting Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
**10.23 Secured Promissory Notes issued to Hyline Laboratories,
dated January 5, 1994.
**10.24 Master Lease Agreement between the Registrant and Dominion
Ventures, dated August 9, 1991.
**10.25 Form of Scientific Advisor Agreement.
**10.26 Consulting Agreement between the Registrant and Michael
Mathews, dated April 13, 1993.
**10.27 Consulting Agreement between the Registrant and Joe B.
Harford, dated July 11, 1997.
**10.28 Consulting Agreement between the Registrant and Michael
Katze, dated February 6, 1997.
**10.29 Consulting Agreement between the Registrant and Nahum
Sonenberg, dated January 29, 1993.
**10.30 Approval of Outside Activity by Alan Hinnebusch, dated
October 15, 1992.
**10.31 Form of Indemnification Agreement between the Registrant and
the parties identified on Attachment A thereto.
**10.32 Financial Advisory Agreement between the Registrant and
Paramount Capital, Inc., dated June 23, 1997.
10.33 Letter Agreement between the Registrant, Hyline
Laboratories, Inc. and Michael Ashkin dated December 31,
1997.
+10.34 License Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
+10.35 Research Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
10.36 1998 Equity Incentive Plan
10.37 1998 Non-Employee Directors Stock Option Plan
10.38 1998 Employee Stock Purchase Plan
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
23.3 Consent of Pennie & Edmonds LLP.
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed.
*** To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF RIBOGENE, INC.
The undersigned, Charles J. Casamento and Timothy E. Morris, hereby
certify that:
ONE: They are the duly elected and acting President and Chief Financial
Officer, respectively, of this corporation.
TWO: The Articles of Incorporation of this corporation shall be amended
and restated to read in full as follows:
"ARTICLE I
The name of this corporation is RiboGene, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Sixty-Nine Million Six Hundred Eighty-Eight Thousand Four Hundred
Eighty-Eight (69,688,488) shares. Fifty Million (50,000,000) shares shall be
Common Stock and Nineteen Million Six Hundred Eighty-Eight Thousand Four Hundred
Eighty-Eight (19,688,488) shares shall be Preferred Stock.
(B) Rights, Preferences, Privileges and Restrictions of Preferred
Stock. The Preferred Stock authorized by these Restated Articles of
Incorporation may be issued from time to time in series. The rights,
preferences, privileges and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 138,269 shares, on the Series B
Preferred Stock, which series shall consist of 800,000 shares, on the Series C
Preferred Stock, which series shall consist of 2,950,000 shares, on the Series D
Preferred Stock, which series shall consist of 270,222 shares, on the Series E
Preferred Stock, which series shall consist of 8,500,000 shares, on the Series F
Preferred Stock, which series shall consist of 5,555,554 shares and on the
Series G Preferred Stock, which series shall consist of 756,144 shares, are as
set forth below in this Article III(B).
-1-
<PAGE> 2
Except as to the Series A, Series B, Series C, Series D, Series E,
Series F and Series G Preferred Stock and except as otherwise provided in these
Restated Articles of Incorporation, the Board of Directors is hereby authorized
to fix or alter the rights, preferences, privileges and restriction, granted to
or imposed upon any wholly unissued additional series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them. The Board of Directors, except as otherwise provided in these
Articles of Incorporation, is also authorized to decrease the number of shares
of any series, excluding the Series A, Series B, Series C, Series D, Series E,
Series F and Series G Preferred Stock, subsequent to the issuance of shares that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which such series had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions.
(a) The holders of shares of Series F Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation for purposes of a stock split or
recapitalization) on the Common Stock or other shares of Preferred Stock of this
corporation, at the rate of (i) $2.25 per share effective the first day
following the final closing of the initial offering of Series F Preferred Stock
by the Company (excluding dates on which shares of Series F Preferred Stock are
issued pursuant to the exercise or conversion of exercisable or convertible
securities, the "FINAL CLOSING DATE") and (ii) an additional $1.125 per share
effective on the second anniversary of the-Final Closing Date and on each
anniversary thereafter (collectively, the "PREFERRED DIVIDENDS"). The Preferred
Dividends shall be payable only when, as and if declared by the Board of
Directors. Preferred Dividends not declared and paid when due shall accrue and
accumulate. No dividend shall be declared and/or paid with respect to any other
series or class of capital stock while there are accrued but unpaid dividends on
the Series F Preferred Stock outstanding unless a like dividend is declared
and/or paid (as appropriate) with respect to the Series F Preferred Stock after
payment of any accrued but unpaid dividends (including Preferred Dividends) on
the Series F Preferred Stock.
(b) The holders of shares of Series A, Series B, Series C, Series
D, Series E and Series G Preferred Stock shall be entitled to receive dividends,
out of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation for purposes of a stock split or recapitalization) on the Common
Stock of this corporation, at the rate of $0.66, $1.00, $0.15, $0.225, $0.225
and $0.2645, respectively, per share per annum or, if greater (as determined on
an as-converted basis for the Series A, Series B, Series C, Series D, Series E
and Series G Preferred Stock), an amount equal to that paid on any other
outstanding shares of this corporation (other than on shares of Series F
Preferred Stock) whenever funds are legally available therefor, payable
quarterly when, as and if declared by the Board of Directors. No
-2-
<PAGE> 3
dividend shall be declared and/or paid with respect to any Series A, Series B,
Series C, Series D, Series E or Series G Preferred Stock unless a dividend is
declared and/or paid with respect to each of the Series A, Series B, Series C,
Series D and Series E Preferred Stock at a rate that is no less favorable to the
Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock
than $0.66, $1.00, $0.15, $0.225, $0.225 and $0.2645 for each share of Series
A, Series B, Series C, Series D, Series E and Series G Preferred Stock,
respectively. Such dividends shall not be cumulative.
2. Liquidation Preference.
(a) (i) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary (a "Liquidation Event"),
the holders of the Series F Preferred Stock shall be entitled to receive, prior
and in preference to any distribution, payment, declaration or setting apart of
any of the assets of this corporation to, or in respect of, the holders of
Common Stock or other series of Preferred Stock, an amount per share equal to
$2.25 for each outstanding share of Series F Preferred Stock (the "Original
Series F Issue Price") plus an mount equal to all accrued Preferred Dividends
thereon, and any other declared but unpaid dividends thereon. If, upon the
occurrence of such an event, the assets and property thus distributed among the
holders of the Series F Preferred Stock shall be insufficient to permit the
payment to such holders of the full preferential amount, then the assets and
property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series F Preferred Stock in
proportion to the aggregate preferential amounts owed such holders upon a
liquidation, dissolution or winding up of the corporation. All outstanding
shares of Series F Preferred Stock shall rank as to payment, upon the occurrence
of a Liquidation Event senior to the Common Stock and all other series of the
corporation's Preferred Stock.
(ii) After the distribution to the holders of the Series F
Preferred Stock, the holders of the Series C, Series D, Series E and Series G
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock, Series A Preferred Stock or Series B Preferred Stock by reason of their
ownership thereof, an amount per share equal to $1.50 for each outstanding share
of Series C Preferred Stock (the "Original Series C Issue Price"), $2.25 for
each outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price") and $2.25 for each outstanding share of Series E Preferred Stock (the
"Original Series E Issue Price") and $2.645 for each outstanding share of Series
G Preferred Stock (the "Original Series G Issue Price") plus an amount equal to
declared but unpaid dividends thereon. If, upon the occurrence of such an event,
the assets and property thus distributed among the holders of the Series C,
Series D, Series E and Series G Preferred Stock shall be insufficient to permit
the payment to such holders of the full preferential amount, then the assets and
property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series C, Series D, Series E and
Series G Preferred Stock in proportion to the aggregate preferential amounts
owed such holders upon a liquidation, dissolution or winding up of the
corporation.
(iii) After the distribution to the holders of the Series C,
Series D, Series E and Series G Preferred Stock, the holders of the Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of the assets of this corporation to the holders of Common Stock or
Series A Preferred Stock by reason of their ownership thereof, an amount
-3-
<PAGE> 4
per share equal to the sum of $10.00 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price") and an amount equal to
declared but unpaid dividends. If, upon the occurrence of such an event, the
assets and property thus distributed among the holders of the Series B Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amount, then the assets and property of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series B Preferred Stock in proportion to the aggregate preferential amounts
owed such holders of the outstanding Series B Preferred Stock upon a
liquidation, dissolution or winding up of the corporation.
(iv) After the distribution to the holders of the Series B
Preferred Stock, the holders of the Series A Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of the assets of this
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of $6.60 for each outstanding share of
Series A Preferred Stock (the "Original Series A Issue Price") and an amount
equal to declared but unpaid dividends. If, upon the occurrence of such an
event, the assets and property. Thus distributed among the holders of the Series
A Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amount, then the assets and property of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the aggregate
preferential amounts owed such holders of the outstanding Series A Preferred
Stock upon a liquidation, dissolution or winding up of the corporation.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Section 2, if, assets remain in this corporation, the
holders of the Common Stock of this corporation shall receive an amount equal to
$0.50 per share.
(c) Upon the completion of the distributions required by
subparagraphs (a) and (b) of this Section 2, if assets remain in this
corporation, the holders of Series A, Series B, Series C, Series D, Series E and
Series G Preferred Stock and Common Stock pro rata based on the number of shares
of Common Stock held by each (assuming conversion of the outstanding Series A,
Series B, Series C, Series D, Series E and Series G Preferred Stock) shall
receive a per share amount equal to the result of (i) the aggregate value of
accrued but unpaid Preferred Dividends and declared but unpaid dividends
distributed to the holders of Series F Preferred Stock pursuant to subparagraph
(a) above divided by (ii) the number of shares of Common Stock outstanding
immediately prior to the Liquidation Event (assuming conversion of the
outstanding Series A, Series B, Series C, Series D, Series E and Series G
Preferred Stock).
(d) After the distributions described in subsection (a), (b) and
(c) above have been paid, the remaining assets of the corporation available for
distribution to shareholders, if any, shall be distributed among the holders of
Series A, Series B, Series C, Series D, Series E, Series F and Series G
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming conversion of all outstanding Preferred
Stock).
(e) A merger of this corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of this
-4-
<PAGE> 5
corporation or the effectuation by the corporation of a transaction or series of
related transactions in which more than 50% of the voting power of the
corporation is disposed of, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2, but shall instead be treated
pursuant to Section 5 hereof.
3. Redemption.
(a) On or at any time after April 15, 1999 this corporation may,
at any time it may lawfully do so, at the option of the Board of Directors,
redeem in whole or in part the Series A, Series B, Series C, Series D, Series E
and Series G Preferred Stock by paying in cash therefor a sum per share equal to
the Original Series A Issue Price, the Original Series B Issue Price, the
Original Series C Issue Price, the Original Series D Issue Price, the Original
Series E Issue Price and the Original Series G Issue Price as the case may be,
plus any declared but unpaid dividends on such shares as of the Redemption Date
(such total amount is hereinafter referred to as the "Redemption Price").
(b) On or at any time after the receipt by this corporation from
the holders of 66-2/3% of the then outstanding shares of Series A, Series B,
Series C, Series D, Series E and Series G Preferred Stock of their written
consent to redemption hereunder of their respective, shares, this corporation
may, at any time it may lawfully do so, at the option of the Board of Directors,
redeem in whole or in part the Series A, Series B, Series C, Series D, Series E
and Series G Preferred Stock by paying in cash therefor a sum equal to the
Redemption Price for the shares so redeemed.
(c) (i) In the event of any redemption of only a part of the then
outstanding Series A, Series B, Series C, Series D, Series E and Series G
Preferred Stock, this corporation shall redeem the same proportion of each
outstanding series of Preferred Stock and, as to each such series, shall effect
such redemption pro rata according to the number of shares held by each holder
thereof. No redemption of any series of Preferred Stock shall occur, unless
there is a pro rata redemption of all series of Preferred Stock in accordance
with the foregoing. In the event of any redemption of all or part of the then
outstanding Series A, Series B, Series C, Series D, Series E and Series G
Preferred Stock, any holder thereof may avoid all or part of such redemption by
converting into Common Stock, pursuant to Section 4 below, up to that number of
shares of such holder's Preferred stock scheduled to be redeemed in' such
redemption. Such holder may condition such conversion on deposit by the
corporation of the Redemption Price for the shares to be redeemed pursuant to
subsection 3(e)(iv) below.
(ii) At least 30 but no more than 60 days prior to the date
fixed for any redemption hereunder (the "REDEMPTION DATE"), written notice shall
be mailed, first class postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is given)
of the Series A, Series B, Series C, Series D, Series E and Series G Preferred
Stock to be redeemed, at the address last shown on the records of this
corporation for such holder or given by the holder to this corporation for the
purpose of notice, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained and the
date on which such holder's Conversion Rights (as hereinafter
-5-
<PAGE> 6
defined) as to such shares terminate and calling upon such holder to surrender
to this corporation, in the manner and at the place designated, his certificate
or certificates representing the shares to be redeemed (the "Redemption
Notice"). Except as provided in subsection 3(c)(iii), on or after the Redemption
Date, each holder of Series A, Series B, Series C, Series D, Series E and
Series G Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all dividends on the
Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock
designated for redemption in the Redemption Notice shall cease to accrue, all
rights of the holders of such shares as holders of Series A, Series B, Series C,
Series D, Series E and Series G Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the corporation legally
available for redemption of shares of Series A, Series B, Series C, Series D,
Series E and Series G Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A, Series B, Series C, Series D and
Series E Preferred Stock to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares in accordance with the provisions of paragraph 3(c)(i) hereof. The shares
of Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
corporation are legally available for the redemption of shares of Series A,
Series B, Series C, Series D, Series E and Series G Preferred Stock, such
funds will immediately be used to redeem the balance of the shares which the
corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed.
(iv) Three days prior to the Redemption Date, this
corporation shall deposit the Redemption Price of all outstanding shares of
Series A, Series B, Series C, Series D, Series E and Series G Preferred Stock
designated for redemption in the Redemption Notice, and not yet redeemed or
converted, with a bank or trust company having aggregate capital and surplus in
excess of $50,000,000 as a trust fund for the benefit of the respective holders
of the shares designated for redemption and not yet redeemed. Simultaneously,
this corporation shall deposit irrevocable instruction and authority to such
bank or trust company to publish the notice of redemption thereof (or to
complete such publication if theretofore commenced) and to pay, on and after the
date fixed for redemption or prior thereto, the Redemption Price of the Series
A, Series B, Series C, Series D, Series E and Series G Preferred Stock to the
holders thereof upon surrender of their certificates. Any monies deposited by
this corporation pursuant to this subsection 3(c)(iv) for the-redemption of
shares which are thereafter converted into shares of Common Stock pursuant to
Section 4 hereof no later than the close of business on the Redemption Date
shall be returned to this corporation forthwith upon such conversion. The
balance of any monies
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deposited by this corporation pursuant to this subsection 3(c)(iv) remaining
unclaimed at the expiration of two years following the Redemption Date shall
thereafter be returned to this corporation, provided that the shareholder to,
which such money would be payable hereunder shall be entitled, upon proof of its
ownership of the Series A, Series B, Series C, Series D, Series E and Series G
Preferred: Stock and payment of any bond requested by the corporation, to
receive such monies but without interest from the Redemption Date.
(d) In the event that the corporation elects to conduct any
redemption of any series of outstanding Preferred Stock pursuant to subsections
3(a) or 3(b) above, the corporation shall promptly deliver a written notice of
such intention to the holders of the Series F Preferred Stock then outstanding
setting forth in reasonable detail information regarding the planned redemption
and shall include in such redemption the shares of Series F Preferred Stock held
by those holders that deliver to the corporation, within twenty-five (25) days
after the date of the corporation's notice to such holders, a written election
to have the shares of Series F Preferred Stock then held by them included in
such redemption. In the event that any holders of Series F Preferred Stock elect
to participate in a redemption, the Redemption Price for each share of Series F
Preferred Stock to be redeemed shall be equal to the Original Series F Issue
Price plus any declared but unpaid dividends, including Preferred Dividends, on
such share as of the Redemption Date. The redemption of the Series F Preferred
Stock included in any such redemption shall be conducted on at as a part of, the
same time and on the same terms as the redemption of the other series of
Preferred Stock then being redeemed, as set forth in detail in subsection 3(c)
above.
4. Conversion. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections (c) and (d), each share of
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share and prior to the close of
business on any Redemption Date as may have been fixed in any Redemption Notice
with respect to such share (if applicable), at the office of this corporation or
any transfer agent for the Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $6.60 for each
share of Series A Preferred, $10.00 for each share of Series B Preferred Stock,
$1.50 for each share of Series C-Preferred, $2.25 for each share of Series D
Preferred, $2.25 for each share of Series E Preferred, $2.25 (plus any accrued
but unpaid dividends, including Preferred Dividends) for each share of Series F
Preferred and $2.645 for each share of Series G Preferred by the Conversion
Price at the time in effect for such share. The initial Conversion Prices for
shares of Preferred Stock shall be $6.60, $10.00, $1.50, $2.25, $2.25, $2.25 and
$2.645 per share for the Series A, Series B, Series C, Series D, Series E,
Series F and Series G Preferred Stock, respectively; provided, however, that
such Conversion Prices shall be subject to adjustment as set forth in
subsections 4(c) and 4(d). Upon conversion of any share of Preferred Stock after
all conversion ratio adjustments set forth herein, all accrued but unpaid
dividends, including Preferred Dividends, on such stock will be canceled.
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<PAGE> 8
(ii) In the event of a call for redemption of any shares of
Series A, Series B, Series C, Series D, Series E, Series G (and, if applicable,
Series F) Preferred Stock pursuant to Section 3 hereof, the Conversion Rights
shall terminate as to the shares designated for redemption at the close of
business on the Redemption Date, unless default is made in payment of the
Redemption Price.
(iii) Each share of Series A, Series B, Series C, Series D,
Series E, Series F and Series G Preferred Stock shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such series of Preferred Stock immediately upon the consummation of the
corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting.pursuant to a registration statement under the Securities Act of
1933, as amended, which results in aggregate gross cash proceeds to this
corporation in excess of $7,500,000 (the "Qualified IPO").
(iv) Each share of Series A, Series B, Series C, Series D,
Series E and Series G Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the time in effect for such
Series A, Series B, Series C, Series D, Series E or Series G Preferred Stock at
such time as the corporation receives the consent of the holders of not less
than 66-2/3% of each of the Series A, Series B, Series C, Series D, Series E and
Series G Preferred Stock then outstanding.
(b) Mechanics of Conversion. Before any holder Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mall, postage prepaid, to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office such holder of Preferred Stock, or
to the nominee or nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
will be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, unless otherwise designated in writing by
the holders of such Preferred Stock, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(c) Conversion Price Adjustments of All Series of Preferred
Stock. The Conversion Price of Series A, Series B, Series C, Series D, Series E,
Series F and Series G Preferred Stock shall be subject to adjustment from time
to time as follows:
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<PAGE> 9
(i) (A) If the corporation, at any time or from time to time
after the effective date of these Amended and Restated Articles of Incorporation
(the "Articles Date") shall issue any Additional Stock (as defined below)
without consideration or for a consideration per-share less than the Conversion
Price for such series of Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series of
Preferred Stock in effect immediately prior to each such issuance shall
forthwith be adjusted to a price determined by multiplying such Conversion Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of shares
of Common Stock which the aggregate consideration received by the corporation
for the total number of shares of Additional Stock so issued would purchase at
such Conversion Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of such shares of Additional Stock so issued; provided that for the
purposes of this subsection, all shares of Common Stock issuable upon conversion
of outstanding Preferred Stock shall be deemed to be outstanding, and
immediately after any Additional Stock is deemed issued, such Additional Stock
shall be deemed to be outstanding.
(B) No adjustment of the Conversion price for any series
of Preferred Stock shall be made in an mount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carded forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this subsection
4(c)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the mount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance, whether before, on or
after the Articles Date, of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities (which are not excluded from the definition of
Additional Stock), the following provisions shall apply:
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<PAGE> 10
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were: issued and for a consideration equal to the
consideration (determined in the manner provided in subsections 4(c)(i)(c) and
4(c) (i)(D)), if any, received by the corporation upon the issuance of such
options or rights plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities Or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities the exercise of any related options or
rights (the consideration in each case to be determined in the manner provided
in subsections 4(c)(i)(c) and 4(c)(i)(D)).
3. In the event of any change in the number of shares
of Common Stock deliverable or any increase in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Prices of the Series A, Series B, Series C, Series D, Series E,
Series F or Series G Preferred Stock obtained with respect to the adjustment
which was made upon the issuance of such options, rights or securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any .payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Prices of the Preferred Stock obtained with respect to the
adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities. Upon the
expiration of any such options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities shall continue to be deemed to be issued.
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<PAGE> 11
5. All Common Stock deemed issued pursuant to this
subsection 4(c)(i)(E) shall be considered issued only at the time of its deemed
issuance and any actual issuance of such stock shall not be an actual issuance
or a deemed issuance of the corporation's Common Stock under the provisions of
this Section 4.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed issued pursuant to subsection 4(c)(i)(E)) by this corporation
on or after the Articles Date other than shares of Common Stock issued or
issuable
(A) pursuant to a transaction described in subsection
4(d), (e) or (f) hereof,
(B) to officers, directors, employees and consultants of
this corporation directly or pursuant to a stock option plan or restricted stock
plan approved by the shareholders and directors of this corporation,
(C) upon the issuance of shares of any authorized series
of Preferred Stock;
(D) upon conversion of any series of Preferred Stock;
(E) upon the exercise of outstanding warrants dated (1)
August 9, 1991, originally issued with respect to the purchase of up to 60,000
shares of Series B Preferred Stock at an exercise price of $1.00 per share, (2)
on or about June 4, 1993, originally issued with respect to the purchase of up
to 150,000 shares of Series C Preferred Stock at an exercise price of $0.15 per
share, and (3) on or about June 2, 1994, originally issued with respect to the
purchase of up to approximately 13,333 shares of Series E Preferred Stock at an
exercise price of $3.00 per share, respectively, issued to Dominion Ventures,
Inc., in connection with an equipment lease therewith and extensions thereof, as
such amounts may be or have been subsequently adjusted pursuant to the terms of
such warrants, or upon the issuance of the stock purchasable upon exercise of
such warrants;
(F) upon the exercise of an outstanding warrant
originally issued to purchase up to 2,702,222 shares of Series D Preferred Stock
at an exercise price of.$0.225 per share dated on or about June 4, 1993, as such
amounts may be or have been subsequently adjusted pursuant to the terms of such
warrant, or upon the issuance of the Series D Preferred Stock purchasable upon
exercise thereof;
(G) upon the exercise of outstanding warrants originally
issued to purchase up to an aggregate of 1,313,000 shares of Common Stock at an
exercise price of $2.25 per share dated on or about January 5, 1994, issued in
connection with the acquisition of assets and technology from another entity, as
such amounts may be or have been subsequently adjusted pursuant to the terms of
such warrant, or upon the issuance of the Common Stock purchasable upon exercise
thereof; or
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<PAGE> 12
(H) upon the exercise of outstanding warrants dated (1),
on or about May 19, 1995, originally issued with respect to the purchase of up
to 10,000 shares of Series E Preferred Stock at an exercise price of $3.00 per
share, and (2) on or about September 25, 1995, originally issued with respect to
the purchase of up to 15,000 shares of Series E Preferred Stock at an exercise
price of $3.00 per share, respectively, issued to Silicon Valley Bank in
connection with bridge loan and extension thereof, as such amounts may be or
have been subsequently adjusted pursuant to the terms of such warrants, or upon
the issuance of the stock purchasable upon exercise of such warrants;
(I) upon the exercise of outstanding warrants dated on or
about September 20, 1995, originally issued with respect to the purchase of up
to an aggregate of 52,850 shares of Common Stock at an exercise price of $2.00
per share issued to two former bridge lenders of the corporation, as such
amounts may be or have been subsequently adjusted pursuant to the terms of such
warrants; or
(J) upon the issuance of exercise of the Placement
Warrants or the Advisory Warrants (in each case as defined in the Placement
Agency Agreement between the corporation and Paramount Capital, Inc. dated
August 1, 1996), or upon the issuance or exercise of any of the Class A Warrants
of the corporation issued (i) in connection with the sale of Series F Preferred
Stock on or prior to the Final Closing Date or (ii) pursuant to the exercise of
the Placement Options or the Advisory Options.
Notwithstanding the foregoing provisions of this Section 4(c)(ii), the
conversion price adjustments set forth in this Section 4(c) shall be deemed to
apply (and any applicable adjustments shall be made) to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in subsections (c)(ii)(A) through (c)(ii)(I) above other than automatic
modifications made pursuant to the terms of such instruments (regarding
automatic adjustments of conversion or exercise prices, numbers of shares,
etc.) or operation of this Section 4(c).
(d) Additional Conversion Price Adjustments of Series F Preferred
Stock. The Conversion Price in effect immediately prior to the Qualified IPO
will be adjusted and reset effective as of the effective date of the Qualified
IPO to the extent necessary to insure that each share of Series F Preferred
Stock is convertible into that number of shares of Common Stock such that when
multiplied by the Qualified IPO Price (as defined below), each share of
Preferred Stock shall be worth at least $2.25 (subject to equitable adjustments
for stock splits and similar events) plus declared but unpaid dividends thereon,
if any, and all accrued but unpaid Preferred Dividends thereon. Accordingly, the
aggregate number of shares of Common Stock issuable upon conversion of the
Series F Preferred Stock is subject to adjustment at the time of the Qualified
IPO if the PMV (as defined below) is less than the Minimum Value (as defined
below). In such event, the Conversion Price of the Series F Preferred Stock
shall be reduced, and the conversion ratio accordingly increased to equal a
ratio that will provide that the issued and outstanding shares of Series F
Preferred Stock (assuming exercise of the Series F Preferred Stock Equivalents
(as defined below)) shall in the aggregate be convertible into a number of
shares of
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<PAGE> 13
Common Stock equal to the product of (A) the Pre-Qualified IPO Shares (as
defined below) multiplied by (B) a fraction, the numerator of which is the
Stated Value of the Series F Preferred Stock plus declared but unpaid dividends
on such Series F Preferred Stock, if any, and all accrued but unpaid Preferred
Dividends on such stock and the denominator of which is the PMV.
Notwithstanding the foregoing, no adjustment shall be made if the PMV is greater
than the Minimum Value. For purposes of the foregoing calculations:
(i) "STATED VALUE OF THE SERIES F PREFERRED STOCK" shall mean
the product of (A) $2.25 multiplied by (B) the number of outstanding shares of
Series F Preferred Stock (assuming exercise or conversion of all Series F
Preferred Stock Equivalents);
(ii) "COMMON STOCK EQUIVALENTS" shall mean all securities
exercisable for or convertible, directly or indirectly, into shares of Common
Stock;
(iii) "UNADJUSTED PERCENTAGE" shall mean the quotient of (A)
all shares of Common Stock issuable upon the exercise and/or conversion of all
Series F Preferred Stock and Series F Preferred Stock Equivalents prior to any
adjustments under this subsection, divided by (B) all outstanding shares of
Common Stock and all shares of Common Stock is issuable upon the exercise or
conversion of all outstanding Common Stock Equivalents (including shares
issuable upon conversion of the Series F Preferred Stock and Series F Preferred
Stock Equivalents prior to any adjustment under this subsection);
(iv) "MINIMUM VALUE" shall mean the quotient obtained by
dividing (A) the sum of (x) the Stated Value of the Series F Preferred Stock,
and (y) declared but unpaid dividends on the Series F Preferred Stock, if any,
and all accrued but unpaid Preferred Dividends, by (B) the Unadjusted
Percentage;
(v) "PRE-QUALIFIED IPO SHARES" shall mean the aggregate
number of shares of Common Stock Outstanding on a fully diluted basis (assuming
the exercise or conversion of all Common Stock Equivalents prior to any
adjustments pursuant to this subsection) upon the effectiveness of the Qualified
IPO, but excluding shares of Common Stock and Common Stock Equivalents issued in
the Qualified IPO;
(vi) "SERIES F PREFERRED STOCK EQUIVALENTS" shall mean all
securities exercisable for, or convertible into, shares of Series F Preferred
Stock;
(vii) "PMV" shall be equal to the aggregate value of the Pre-
Qualified IPO Shares determined by multiplying the number of Pre-Qualified IPO
Shares by the Qualified IPO Price; and
(viii) "QUALIFIED IPO PRICE" shall mean the per share public
offering price of the Common Stock sold in the Qualified IPO. If units of Common
Stock and other securities are issued in the Qualified IPO, the Board of
Directors of the Company shall allocate value to the Common Stock based on the
relative historical values of similar unit offerings conducted by the same
and/or similar underwriters.
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<PAGE> 14
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such ease for the purpose of this subsection 4(e), the holders of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Stock Splits, Stock Dividends and Recapitalizations.
(i) In the event the corporation should at any time or from
time to time after the Articles Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof' to receive directly or
indirectly, additional shares of Common Stock (for purposes of this subsection
4(f) referred to as "COMMON EQUIVALENTS") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Prices of the Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of outstanding
shares determined in accordance with subsection 4(c)(i)(E).
(ii) If the number of shares of Common Stock outstanding at
any time after the Articles Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Prices for the Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 4 or
Section 5) provision shall be made so that the holders of the Preferred Stock
shall thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property of the corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any.such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Prices then in effect and the number of shares
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<PAGE> 15
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
the Preferred Stock, and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of any Conversion Price of a series of Preferred Stock pursuant to this Section
4, this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Prices at the time in effect, and (c) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
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<PAGE> 16
conversion of all outstanding shares of the Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion. of all then outstanding shares of the
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be given
by registered or certified air mail, postage prepaid, return receipt requested,
or by facsimile with confirmation of receipt, and shall be deemed given when
receipt is so confirmed, and addressed to each holder of record at his address
appearing on the books of this corporation.
5. Merger.
(a) At any time after the Articles Date, in the event of:
(i) any merger of the corporation with or into any other
corporation or other entity or person, or any other corporate reorganization in
which the corporation shall not be the continuing or surviving entity of such
merger or reorganization or any transaction or series of related transactions by
the corporation in which in excess of 50% of the corporation's voting power is
transferred, or
(ii) a sale or other disposition of all or substantially all
of the assets of the corporation, the documents effecting such transactions
shall provide that:
(A) The holders of the Series F Preferred Stock shall
first receive for each share of such stock, in cash or in securities received
from the acquiring corporation, or in a combination thereof, at the closing of
any such transaction, an mount equal to the Original Series F Issue Price plus
an amount equal to all accrued but unpaid dividends thereon (including Preferred
Dividends thereon) and any other declared but unpaid dividends thereon. If the
aggregate cash value in such transaction otherwise available to holders of the
Series F Preferred Stock is insufficient to satisfy the aforementioned
preference of such stock, then all such cash or securities shall be distributed
ratably among the holders of the outstanding Series F Preferred Stock in
proportion to the aggregate preferential amounts owed such holders as set forth
above. Upon or immediately prior to such transaction, the corporation shall
provide for the payment of any such amount to the holders of Series F Preferred
Stock.
(B) In the event additional cash or securities remain
available for distribution after the distributions to the holders of the Series
F Preferred Stock, the holders of the Series C, Series D, Series E and Series G
Preferred Stock shall first receive for each share of such stock, in cash or in
securities received from the acquiring corporation, or in a combination thereof,
at the closing of any such transaction, an amount equal to the Original Series C
Issue Price,-the Original Series D Issue Price, the Original Series E Issue
Price and the Original Series G Issue Price, respectively. If the aggregate cash
value in such transaction otherwise available to holders of the Series C, Series
D, Series E and Series G Preferred Stock is insufficient to satisfy the
aforementioned preference of such
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<PAGE> 17
stock, then all such cash or securities shall be distributed ratably among
the holders of the outstanding Series C, Series D, Series E and Series G
Preferred Stock in proportion to the aggregate preferential amounts owed such
holders as set forth above.
(C) In the event additional cash or securities remain
available for distribution after the distributions to the holders of the Series
C, Series D and Series E Preferred Stock, then holders of the Series B Preferred
Stock shall then be entitled to receive for each share of such stock, in cash or
in securities received from the acquiring corporation, or in a combination
thereof, at the closing of any such transaction, an amount equal to the Original
Series B Issue Price. If the aggregate cash value in such transaction otherwise
available to holders of the Series B Preferred Stock is insufficient to satisfy
the aforementioned preference of the Series B Preferred Stock, then all such
cash or securities shall be distributed ratably among the holders of the
outstanding Series B Preferred Stock in proportion to the aggregate preferential
amounts owed such holders as set forth above.
(D) In the event additional cash or securities remain
available for distribution after the distributions to the holders of the Series
B, Series C, Series D, Series E and Series G Preferred Stock, then holders of
the Series A Preferred Stock shall then be entitled to receive for each share of
such stock, in cash or in securities received from .the acquiring corporation,
or in a combination thereof, at the closing of any such transaction, an amount
equal to the Original Series A Issue Price. If the aggregate cash value in such
transaction otherwise available to holders of the Series A Preferred Stock is
insufficient to satisfy the aforementioned preference of the Series A Preferred
Stock, then all such cash or securities shall be distributed ratably among the
holders of the outstanding Series A Preferred Stock in proportion to the
aggregate preferential amounts owed such holders as set forth above.
(E) In the event additional cash or securities remain
available for distribution after the distributions to the holders of the Series
A, Series B, Series C, Series D, Series E and Series G Preferred Stock, then
holders of the Common Stock shall then be entitled to receive for each share of
such stock, in cash or in securities received from the acquiring corporation, or
in a combination thereof, at the closing of any such transaction, an amount
equal to $0.50 per share. If the aggregate cash value in such transaction
otherwise available to holders of the Common Stock is insufficient to satisfy
the aforementioned preference of the Common Stock, then all such cash or
securities shall be distributed ratably among the holders of the outstanding
Common Stock in proportion to the aggregate preferential amounts owed such
holders as set forth above.
(F) In the event additional cash or securities remain
available for distribution after the distributions pursuant to subparagraphs
(A)-(E) above, then the holders of the Series A, Series B, Series C, Series D,
Series E and Series G Preferred Stock and the Common Stock shall then be
entitled to receive, pro rata based on the number of shares of Common Stock held
by each (assuming conversion of the outstanding Series A, Series B, Series C,
Series D, Series E and Series G Preferred Stock), in cash or in securities
received from the acquiring corporation, or in a combination thereof, at the
closing of any such transaction, a per share amount equal to the result of (i)
the aggregate value of accrued but unpaid Preferred Dividends
-17-
<PAGE> 18
and declared but unpaid dividends distributed to the holders of Series F
Preferred Stock pursuant to subparagraph (A) above divided by (ii) the number of
shares of Common Stock outstanding: immediately prior to the such transaction
(assuming conversion of the outstanding Series A, Series B, Series C, Series D
and Series E Preferred Stock). If the aggregate cash value in such transaction
otherwise available to holders of the Series A, Series B, Series C, Series D,
Series E and Series G Preferred Stock and the Common Stock is insufficient to
satisfy the aforementioned preference of the Common Stock, then all such cash or
securities shall be distributed ratably among the holders of Common Stock
(assuming conversion of the outstanding Series A, Series B, Series C, Series D,
Series E and Series G Preferred Stock).
(G) In the event additional cash or securities remain
available for distribution alter the distributions pursuant to subparagraphs
(A)-(F) above have been paid, the remaining assets of the corporation available
for distribution to shareholders shall be distributed among the holders of the
Series A, Series B, Series C, Series D, Series E, Series F and Series G
Preferred Stock and the Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming conversion of such series of Preferred
Stock); provided that
(1) at such time as the holders of Series C Preferred
Stock shall have received an aggregate of $5.25 per share of Series C Preferred
Stock they own (including all other amounts paid to such holders pursuant to
this subsection (a) of Section 5), such shares shall be considered fully paid
and the holders thereof shall be entitled to no further distributions pursuant
to this subsection 5(a)(ii)(G) with respect to such shares or shares assumed to
be issued upon conversion thereof,
(2) at such time as the holders of Series D Preferred
Stock shall have received an aggregate of $7.87 per share of Series D Preferred
Stock they own (including all other amounts paid to such holders pursuant to
this subsection (a) of Section 5), such shares shall be considered fully paid
and the holders thereof shall be entitled to no further distributions pursuant
to this subsection 5(a)(ii)(G) with respect to such shares or shares assumed to
be issued upon conversion thereof,
(3) at such time as the holders of Series E Preferred
Stock shall have received an aggregate of $7.87 per share of Series E Preferred
Stock they own (including all other amounts paid to such holders pursuant to
this subsection (a) of Section 5), such shares shall be considered fully paid
and the holders thereof shall be entitled to no further distributions pursuant
to this subsection 5(a)(ii)(G) with respect to such shares or shares assumed to
be issued upon conversion thereof,
(4) at such time as the holders of Series F Preferred
Stock shall have received an aggregate of $7.87 per share of Series F Preferred
Stock they own (including all other amounts paid to such holders pursuant to
this subsection (a) of Section 5), such shares shall be considered fully paid
and the holders thereof shall be entitled to no further distributions pursuant
to this subsection 5(a)(ii)(G) with respect to such shares or shares assumed to
be issued upon conversion thereof,
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<PAGE> 19
(5) at such time as the holders of Series G Preferred
Stock shall have received an aggregate of $9.25 per share of Series G Preferred
Stock they own (including all other mounts paid to such holders pursuant to this
subsection (a) of Section 5), such shares shall be considered fully paid and the
holders thereof shall be entitled to no further distributions pursuant to this
subsection 5(a)(ii)(G) with respect to such shares or shares assumed to be
issued upon conversion thereof,
(6) at such time as the holders of Series A Preferred
Stock shall have received an aggregate of $23.10 per share of Series A Preferred
Stock they own (including all other amounts paid to such holders pursuant to
this subsection (a) of Section 5), such shares shall be considered fully paid
and the holders thereof shall be entitled to no further distributions pursuant
to this subsection 5(a)(ii)(G) with respect to such shares or shares assumed to
be issued upon conversion thereof.
(7) at such time as the holders of Series B
Preferred Stock shall have received an aggregate of $35.00 per share of Series
B Preferred Stock they own (including all other amounts paid to such holders
pursuant to this subsection (a) of Section 5), such shares shall be considered
fully paid and the holders thereof shall be entitled to no further
distributions pursuant to this subsection 5(a)(ii)(G) with respect to such
shares or shares assumed to be issued upon conversion thereof.
(b) Any securities to be delivered to the respective holders of
the Preferred Stock pursuant to subsection 5(a) above shall be valued as
follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or The Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the 30-day period ending three
(3) trading days prior to the closing;
(B) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) trading days prior to the closing; and
(C) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the corporation and
the holders of not less than a majority of the then outstanding shares of
Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
03) or (c) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of a majority of the then
outstanding shares of Preferred Stock.
(c) In the event the requirements of subsection 5(a) are not
complied with, .the corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 5 have been complied with, or
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<PAGE> 20
(ii) cancel such transaction, in which event the rights,
preferences, privileges and restrictions of the holders of the Preferred Stock
shall revert to and be the same as such rights, preferences, privileges and
restrictions existing immediately prior to the date of the first notice referred
to in subsection 5(d) hereof.
(d) The corporation shall give each holder of record of Preferred
Stock written notice of such impending transaction not later than twenty (20)
days prior to the shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction, whichever is earlier,
and shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 5,
and the corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the corporation has given the first notice provided for
herein or sooner than ten (10) days after the corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of a majority of the
shares of Preferred Stock then outstanding.
(e) The provisions of this Section 5 are in addition to the
protective provisions of Section 7 hereof.
6. Voting Rights. The holder of each share of Preferred Stock shall
have the right to one vote for each share of Common Stock into which such share
of Preferred Stock could then be converted (with,any fractional share determined
on an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting fights and powers
equal to the voting fights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
7. Protective Provisions. So long as shares of Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Preferred Stock, voting together as
one class except where otherwise required by law:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the corporation is disposed of;
-20-
<PAGE> 21
(b) alter or change the rights, preferences, privileges or
restrictions of the shares of Series A, Series B, Series C, Series D, Series E,
Series F or Series G Preferred Stock so as to affect such shares adversely;
(c) increase the authorized number of shares of Series A, Series
B, Series C, Series D, Series E, Series F or Series G Preferred Stock;
(d) create any new class or series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a parity with, the Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock with respect to voting, dividends
or upon liquidation, or (ii) having rights similar to any of the rights of the
Series A, Series B, Series C, Series D, Series E, Series F or Series G
Preferred Stock under this Section 7; or
(e) do any act or thing which would result in taxation of the
holders of shares of the Series A, Series B, Series C, Series D, Series E,
Series F and Series G Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
8. Additional Protective Provisions of Series F Preferred Stock. So
long as shares of Series F Preferred Stock remain outstanding, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least 66-2/3% of the then outstanding
shares of Series F Preferred Stock, voting together as one class except where
otherwise required by law;
(a) sell, convey, liquidate, dissolve or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned
subsidiary.corporation) or effect any transaction or series of related
transactions in which more than 50% of the voting power of the corporation is
disposed of;
(b) alter or change the rights, preferences, privileges or
restrictions of the shares of Series F Preferred Stock so as to affect such
shares adversely;
(c) create any new class or series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a party with, the Series F Preferred Stock with
respect to voting, dividends or upon liquidation, or (ii) having rights similar
to any of the rights of the Series F Preferred Stock under this Section 8;
(d) create any subsidiary corporation;
(e) consummate any transactions with affiliates of the
corporation, other than transactions approved by a majority of the disinterested
members of the Company's Board of Directors relating to the issuance of capital
stock, or options to purchase capital stock, pursuant to the corporation's
equity benefit plans in existence from time to time, provided that
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<PAGE> 22
the approval of the holders of 66-2/3% of the Series F Preferred Stock then
outstanding shall be required to amend any equity benefit plan for the purpose
of increasing the shares reserved for: issuance thereunder to in excess of
3,600,000; or
(f) issue any debt securities or incur any indebtedness, other
than (i) up to an aggregate of $300,000 in such debt securities for the purchase
of equipment and (ii) up to an aggregate of $150,000 of such debt securities
issued in the ordinary course of business.
9. Status of Converted or Redeemed Stock. In the event any shares of
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so converted or redeemed shall be canceled and shall not
.be issuable by the corporation, and the Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
10. Repurchase of Shares. In connection with repurchases by this
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof providing for such repurchases in the event of the termination
of the status of such holder as an employee, director or consultant to the
corporation, each holder of Preferred Stock shall be deemed to have consented,
for purposes of Sections 502, 503 and 506 of the California General Corporation
Law, to distributions made by the corporation with respect to such repurchases.
(C) Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (03) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any shareholders
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
(A) Limitation of Directors, Liability. The liability of the directors
of the corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
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<PAGE> 23
(B) Indemnification of Corporate Agents. This corporation is authorized
to indemnify the directors and officers of the corporation to the fullest extent
Permissible under California law.
(C) Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article IV by the shareholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification."
* * *
THREE: The foregoing amendment has been approved by the Board of
Directors of this corporation.
FOUR: The foregoing amendment was approved by the holders of the
requisite number of shares of this corporation in accordance with Sections 902
and 903 of the California General Corporation Law. The total number of
outstanding shares entitled to vote with respect to the foregoing amendment was
1,413,409 shares of Common Stock, 138,268 shares of Series A Preferred Stock,
580,061 shares of Series B Preferred Stock, 2,805,519 shares of Series C
Preferred Stock, 270,222 shares of Series D Preferred Stock, 8,300,862 shares of
Series E Preferred Stock and 2,282,663 shares of Series F Preferred Stock. There
are no other shares of any series of Preferred Stock outstanding as of the date
hereof. The number of shares voting in favor of the foregoing amendment equaled
or exceeded the vote required, such required vote being a majority of the
outstanding shares of Common Stock, a majority of the outstanding shares of
Series A Preferred Stock, a majority of the outstanding shares of Series B
Preferred Stock, and a majority of the outstanding shares of Series C, Series D,
Series E and Series F Preferred Stock, Series C, Series D, Series E and Series F
Preferred Stock, voting together as a single class.
* * *
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<PAGE> 24
IN WITNESS WHEREOF, the undersigned certify under penalty of perjury that
they have read the foregoing Amended and Restated Articles of Incorporation and
know the contents thereof, and that the statements therein are true.
Executed at Hayward, California on February , 1998.
/s/ CHARLES J. CASAMENTO
------------------------------------
Charles J. Casamento, President
/s/ TIMOTHY E. MORRIS
------------------------------------
Timothy E. Morris, Chief Financial
Officer
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<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
RIBOGENE MERGER CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - OFFICES................................................................ 1
Section 1. Registered Office............................................. 1
Section 2. Other Offices................................................. 1
ARTICLE II - CORPORATE SEAL........................................................ 1
Section 3. Corporate Seal................................................ 1
ARTICLE III - STOCKHOLDERS' MEETINGS............................................... 1
Section 4. Place of Meetings............................................. 1
Section 5. Annual Meeting................................................ 1
Section 6. Special Meetings.............................................. 3
Section 7. Notice of Meetings............................................ 4
Section 8. Quorum........................................................ 4
Section 9. Adjournment and Notice of Adjourned Meetings.................. 5
Section 10. Voting Rights................................................. 5
Section 11. Joint Owners of Stock......................................... 5
Section 12. List of Stockholders.......................................... 5
Section 13. Action Without Meeting........................................ 6
Section 14. Organization.................................................. 6
ARTICLE IV - DIRECTORS............................................................. 7
Section 15. Number and Term of Office..................................... 7
Section 16. Powers........................................................ 7
Section 17. Classes of Directors.......................................... 7
Section 18. Vacancies..................................................... 8
Section 19. Resignation................................................... 8
Section 20. Removal....................................................... 8
Section 21. Meetings...................................................... 8
(a) Annual Meetings............................................... 8
(b) Regular Meetings.............................................. 9
(c) Special Meetings.............................................. 9
(d) Telephone Meetings............................................ 9
(e) Notice of Meetings............................................ 9
(f) Waiver of Notice.............................................. 9
Section 22. Quorum and Voting............................................. 9
Section 23. Action Without Meeting........................................ 10
Section 24. Fees and Compensation......................................... 10
Section 25. Committees.................................................... 10
(a) Executive Committee........................................... 10
(b) Other Committees.............................................. 11
(c) Term.......................................................... 11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
(d) Meetings...................................................... 11
Section 26. Organization.................................................. 12
ARTICLE V - OFFICERS............................................................... 12
Section 27. Officers Designated........................................... 12
Section 28. Tenure and Duties of Officers................................. 12
(a) General....................................................... 12
(b) Duties of Chairman of the Board of Directors.................. 12
(c) Duties of Chief Executive Officer............................. 12
(d) Duties of President........................................... 13
(e) Duties of Vice Presidents..................................... 13
(f) Duties of Secretary........................................... 13
(g) Duties of Chief Financial Officer............................. 13
Section 29. Delegation of Authority....................................... 14
Section 30. Resignations.................................................. 14
Section 31. Removal....................................................... 14
ARTICLE VI - EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
Owned By The Corporation.................................................... 14
Section 32. Execution of Corporate Instruments............................ 14
Section 33. Voting of Securities Owned by the Corporation................. 15
ARTICLE VII - SHARES OF STOCK...................................................... 15
Section 34. Form and Execution of Certificates............................ 15
Section 35. Lost Certificates............................................. 15
Section 36. Transfers..................................................... 17
Section 37. Fixing Record Dates........................................... 17
Section 38. Registered Stockholders....................................... 18
ARTICLE VIII - OTHER SECURITIES OF THE CORPORATION................................. 18
Section 39. Execution of Other Securities................................. 18
ARTICLE IX - DIVIDENDS............................................................. 19
Section 40. Declaration of Dividends...................................... 19
Section 41. Dividend Reserve.............................................. 19
ARTICLE X - FISCAL YEAR............................................................ 19
Section 42. Fiscal Year................................................... 19
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XI - INDEMNIFICATION....................................................... 19
Section 43. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents.................... 19
(a) Directors and Officers........................................ 19
(b) Employees and Other Agents.................................... 20
(c) Expenses...................................................... 20
(d) Enforcement................................................... 20
(e) Non-Exclusivity of Rights..................................... 21
(f) Survival of Rights............................................ 21
(g) Insurance..................................................... 21
(h) Amendments.................................................... 21
(i) Saving Clause................................................. 21
(j) Certain Definitions........................................... 21
ARTICLE XII - NOTICES.............................................................. 22
Section 44. Notices....................................................... 22
(a) Notice to Stockholders........................................ 22
(b) Notice to directors........................................... 23
(c) Affidavit of Mailing.......................................... 23
(d) Time Notices Deemed Given..................................... 23
(e) Methods of Notice............................................. 23
(f) Failure to Receive Notice..................................... 23
(g) Notice to Person with Whom Communication Is Unlawful.......... 23
(h) Notice to Person with Undeliverable Address................... 23
ARTICLE XIII - AMENDMENTS.......................................................... 24
Section 45. Amendments.................................................... 24
ARTICLE XIV - LOANS TO OFFICERS.................................................... 24
Section 46. Loans to Officers............................................. 24
ARTICLE XV - MISCELLANEOUS......................................................... 24
Section 47. Annual Report................................................. 24
</TABLE>
iii.
<PAGE> 5
BYLAWS
OF
RIBOGENE MERGER CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held
1.
<PAGE> 6
on such date and at such time as may be designated from time to time by the
Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders
2.
<PAGE> 7
by or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this paragraph (c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation in accordance with the provisions of paragraph (b) of this
Section 5. Such stock- holder's notice shall set forth (i) as to each person, if
any, whom the stockholder proposes to nominate for election or re-election as a
director: (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nominations are to be made by the stockholder,
and (E) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 5. At the request of the
Board of Directors, any person nominated by a stockholder for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by tele-
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graphic or other facsimile transmission to the Chairman of the Board of
Directors, the Chief Executive Officer, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the request.
Upon determination of the time and place of the meeting, the officer receiving
the request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws,
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the affirmative vote of the majority (plurality, in the case of the election of
directors) of the votes cast, including abstentions, by the holders of shares of
such class or classes or series shall be the act of such class or classes or
series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents (if such consents are allowed
pursuant to these Bylaws) shall have the right to do so either in person or by
an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within
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the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not specified, at the place where the meeting is
to be held. The list shall be produced and kept at the time and place of meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the Chief
Executive Officer, or, if the Chief Executive Officer is absent, a chairman of
the meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The
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Secretary, or, in his absence, an Assistant Secretary directed to do so by the
Chairman, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. TERM OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be elected at each annual meeting of stockholders for a term of
one year.
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shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of at least majority of the voting power of all the then-outstanding
shares of voting stock of the corporation, entitled to vote at an election of
directors (the "Voting Stock") or (ii) without cause by the affirmative vote of
the holders of at least a majority of the voting power of all the
then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary
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and such meeting shall be held for the purpose of electing officers and
transacting such other business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the Chief Executive Officer or any two of
the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in
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accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, including without limitation the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to
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the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed to do
so by the Chief Executive Officer, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings of
the Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. The Chief Executive Officer shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. The Chief Executive
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
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(d) DUTIES OF PRESIDENT. The President may assume and perform the
duties of the Chief Executive Officer in the absence or disability of the Chief
Executive Officer or whenever the office of Chief Executive Officer is vacant.
The President shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board of
Directors or the Chief Executive Officer shall designate from time to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer or the President shall designate from time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The Chief Executive Officer may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time. The Chief Executive Officer may
direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant Controller
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
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SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chief Executive Officer or to
the Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
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SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as
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it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to fix
a record date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within 10 days of the date on which such a request is received, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings
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of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or any Vice President, or
such other person as may be authorized by the Board of Directors, and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate
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security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers and, provided, further, that the corporation shall not be
required to indemnify any director or officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the
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powers vested in the corporation under the Delaware General Corporation Law or
(iv) such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSES. The corporation shall advance to 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, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such officer is or was a
director of the corporation in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers and officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract between
the corporation and the director or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such officer is or
was a director of the corporation) for advances, the corporation shall be
entitled to raise a defense as to any such
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action clear and convincing evidence that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement,
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arbitration and appeal of, and the giving of testimony in, any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any
proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Bylaw with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the
request of the corporation as, respectively, a director, executive
officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any
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governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
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the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities
registered under Section 12 of the 1934 Act, that Act shall take precedence.
Such report shall be sent to stockholders at least fifteen (15) days prior to
the next annual meeting of stockholders after the end of the fiscal year to
which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
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EXHIBIT 3.5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RIBOGENE, INC.
RIBOGENE, INC., a corporation organized and existing under the laws of
the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is RiboGene, Inc. The Corporation was
originally incorporated under the name RiboGene Merger Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was _______, 1997.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned have signed this certificate this
____ day of __________, 1997, and hereby affirm and acknowledge under penalty of
perjury that the filing of this Restated Certificate of Incorporation is the act
and deed of RiboGene, Inc.
RIBOGENE, INC.
By
-----------------------------------
Charles J. Casamento
Chairman, President and Chief Executive
Officer
ATTEST:
- -------------------------------
Timothy E. Morris
Vice President, Finance & Administration,
Chief Financial Officer and Assistant Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RIBOGENE, INC.
I.
The name of this corporation is RiboGene, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Thirty-Five
Million (35,000,000) shares. Thirty Million (30,000,000) shares shall be Common
Stock, each having a par value of one tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of one
tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1.
<PAGE> 3
V.
A. For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(1) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be elected at each annual meeting of
stockholders for a term of one year.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the Corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least a majority of the voting power of all the then-outstanding
shares of the Voting Stock.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such
2.
<PAGE> 4
vacancies or newly created directorships shall be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the Initial Public
Offering no action shall be taken by the stockholders by written consent.
(4) Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
(5) Special meetings of the stockholders of the Corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President, (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption) or (iv) by the holders of the shares entitled to cast not less that
ten percent (10%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors shall fix.
VI.
A. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
3.
<PAGE> 5
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
4.
<PAGE> 1
EXHIBIT 4.3
RIBOGENE, INC.
TENTH AMENDED AND RESTATED RIGHTS AGREEMENT
___________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. TERMINATION OF PRIOR RIGHTS.................................................4
2. AMENDMENT...................................................................4
3. REGISTRATION RIGHTS.........................................................4
3.1 Definitions.......................................................4
3.2 Requested Registration............................................6
3.3 Company Registration..............................................7
3.4 Obligations of the Company........................................7
3.5 Furnish Information...............................................8
3.6 Expenses of Demand Registration...................................8
3.7 Expenses of Company Registration..................................8
3.8 Underwriting Requirements.........................................9
3.9 Delay of Registration.............................................9
3.10 Indemnification...................................................9
3.11 Reports Under Securities Exchange Act of 1934....................11
3.12 Form S-3 Registration............................................12
3.13 Assignment of Registration Rights................................13
3.14 Limitations on Subsequent Registration Rights....................13
3.15 "Market Stand-Off" Agreement.....................................13
3.16 Termination of Registration Rights...............................14
3.17 Limit on Sales...................................................14
3.18 Subsequent Rights................................................14
4. ADDITIONAL RIGHTS..........................................................15
4.1 Right of First Refusal...........................................15
5. MISCELLANEOUS..............................................................17
5.1 Assignment.......................................................17
5.2 Third Parties....................................................17
5.3 Governing Law....................................................17
5.4 Counterparts.....................................................17
5.5 Notices..........................................................17
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.6 Severability.....................................................18
5.7 Amendment and Waiver.............................................18
5.8 Effect of Amendment or Waiver....................................18
5.9 Rights of Holders................................................18
5.10 Delays or Omissions..............................................18
</TABLE>
ii
<PAGE> 4
RIBOGENE, INC.
TENTH AMENDED AND RESTATED RIGHTS AGREEMENT
THIS TENTH AMENDED AND RESTATED RIGHTS AGREEMENT (THE "RESTATED RIGHTS
AGREEMENT") is entered into as of __________, 1998, by and among RIBOGENE, INC.,
a California corporation (the "COMPANY"), and
Bios Equity Fund L.P.
The Institute of Protein Research of the Academy of Sciences of the USSR,
Sierra Ventures III,
Sierra Ventures III International,
Kleiner Perkins Caufield & Byers V
KPCB Zaibatsu Fund I,
Domain Partners II, L.P,
Michael Ross,
Aperture Associates,
CW Ventures II, L.P.,
Biotechnology Investments Limited,
Oxford Bioscience Partners L.P.,
Oxford Bioscience Partners (Bermuda) Limited Partnership,
Oxford Bioscience Partners (Adjunct) L.P.,
Dominion Fund II,
Dominion Ventures, Inc.,
Hyline Laboratories, Inc.,
Silicon Valley Bank,
SBC Capital Markets, Inc. and an individual affiliated therewith,
Abbott Laboratories,
all purchasers of Series C Shares under the Fourth Purchase Agreement, and
Dainippon Pharmaceutical Co., Ltd.
(hereinafter jointly referred to as the "SHAREHOLDERS").
WHEREAS, the Company, the Institute of Protein Research of the Academy of
Sciences of the USSR ("IPR"), Sierra Ventures III ("SIERRA III") and Sierra
Ventures III International ("SIERRA INTERNATIONAL", and collectively with Sierra
III, "SIERRA") are parties to a Preferred Stock and Warrants Purchase Agreement
dated May 23, 1990 (the "FIRST PURCHASE AGREEMENT"), pursuant to which the
Company sold, and IPR and Sierra acquired, shares of the Company's Series A
Preferred Stock (the "SERIES A SHARES") and, in the case of Sierra, warrants to
purchase shares of the Company's capital stock (the "SIERRA WARRANTS");
WHEREAS, the Company, Sierra, Kleiner Perkins Caufield & Byers V ("KPCB
V"), KPCB Zaibatsu Fund I ("KPCB ZAIBATSU," and collectively with KPCB V,
"KPCB") and
1.
<PAGE> 5
Michael Ross are parties to a Series B Preferred Stock Purchase Agreement dated
June 5, 1991 (the "SECOND PURCHASE AGREEMENT"), pursuant to which the Company
sold and KPCB, Sierra and Michael Ross acquired, shares of the Company's Series
B Preferred Stock (the "OLD SERIES B SHARES");
WHEREAS, the Company, Sierra, KPCB V, Domain Partners II, L.P,
("DOMAIN") and Aperture Associates ("APERTURE") are parties to a Series B
Preferred Stock and Warrant Purchase Agreement dated February 28, 1992 as
amended on June 29, 1992 (the "THIRD PURCHASE AGREEMENT"), pursuant to which the
Company shares sold or shall sell, and Sierra, KPCB V, Domain and Aperture have
acquired or shall acquire, shares of the Company's Series B Preferred Stock (the
"NEW SERIES B SHARES," and collectively with the Old Series B Shares, the
"SERIES B SHARES") and warrants to purchase up to an aggregate of 3,295,226
shares of the Company's Common Stock, which have since terminated;
WHEREAS, the Company, Sierra, KPCB V, Domain, Aperture, CW Ventures
II, L.P. ("CW"), Vladimir I. Baronov, Jack Chirikjian, JMC Family Partnership,
Thomas E. Davis, Michael W. Hall, Joel Kirschbaum, Holly Marcum, and Pam Grace
Versaw and Timothy T. Revak, as Joint Tenants with Rights of Survivorship are or
may be parties to a Series C Preferred Stock Purchase Agreement dated March 31,
1993, or Amendment No. 1 thereto dated June 4, 1993 (collectively the "FOURTH
PURCHASE AGREEMENT"), pursuant to which the Company has sold, and Sierra, KPCB,
Domain, Aperture, CW, Vladimir I. Baronov, Jack Chirikjian, JMC Family
Partnership, Thomas E. Davis, Michael W. Hall, Joel Kirschbaum and Holly Marcum
have acquired, shares of the Company's Series C Preferred Stock (the "SERIES C
SHARES") and CW purchased a warrant to purchase shares of the Company's Series D
Preferred Stock, which warrant was subsequently exercised for shares of the
Company's Series D Preferred Stock (the "CW WARRANT SHARES");
WHEREAS, the Company elected a l-for-10 share reverse stock split on
August 2, 1993 pursuant to which all shares of the Company's capital stock were
automatically converted into one-tenth (1/10) of one share such class and series
of stock (all share numbers stated hereafter are stated in post-split numbers).
WHEREAS, the Company, Sierra, KPCB V, Domain, Aperture, CW,
Biotechnology Investments Limited(1) ("BIL"), Oxford Bioscience Partners L.P.,
Oxford Bioscience Partners (Bermuda) Limited Partnership, and Oxford Bioscience
Partners (Adjunct) L.P. (collectively with the previous two Oxford Bioscience
funds, "OXFORD"), and Dominion Fund II ("DOMINION FUND") are parties to a Series
E Preferred Stock Purchase Agreement dated April 26, 1994, as amended June 13,
1994 (the "FIFTH PURCHASE AGREEMENT"), pursuant to which the Company has sold,
and Sierra, KPCB, Domain, Aperture, CW, BIL, Oxford and Dominion Fund have
acquired, shares of the Company's Series E Preferred Stock (the "FIRST SERIES E
SHARES");
WHEREAS, the Company effected a 4-for-3 share stock split of the
outstanding Series E Preferred Stock on November 9, 1995, pursuant to which all
shares of the Company's Series E
- --------
(1) Shares purchased by Biotechnology Investments Limited will be held under the
record name of "Old Court Limited."
2.
<PAGE> 6
Preferred Stock were automatically converted into one and one third shares
(11/3) of such series of stock (all share numbers stated hereafter are stated in
post-split numbers);
WHEREAS, the Company, Sierra, KPCB V, Domain, Aperture, CW, BIL and
Oxford are. parties to a Conversion Agreement of dated November 10, 1995, (the
"CONVERSION AGREEMENT"), pursuant to which the Company has sold, and Sierra,
KPCB V, Domain, Aperture, CW, BIL and Oxford have acquired, shares of the
Company's Series E Preferred Stock (the "SECOND SERIES E SHARES");
WHEREAS, Sierra has acquired an aggregate of 73,500 shares of the
Company's Series B Preferred Stock by exercising in full the Sierra Warrants
(the "SIERRA WARRANT SHARES"), CW has acquired an aggregate of 270,222 shares of
the Company's Series D Preferred Stock by exercising in full the CW Warrant (the
"CW WARRANT SHARES"), and IPR and Sierra have acquired an aggregate of 4,757
shares of the Company's Series A Preferred Stock as a dividend pursuant to
Section 1.1(d) of the First Purchase Agreement (the "DIVIDEND SHARES");
WHEREAS, the Company intends to issue up to an additional 21,546
shares of its Series B Preferred Stock to Dominion Ventures, Inc. ("DOMINION")
upon exercise of a warrant dated August 9, 1991 (as such amount may be adjusted
by the terms of such warrant, the "DOMINION B WARRANT SHARES"), up to an
additional 15,000 shares of its Series C Preferred Stock to Dominion upon
exercise of a warrant dated June 4, 1993 (as such amount may be adjusted by the
terms of such warrant, the "DOMINION C WARRANT Shares"), up to an additional
anticipated 17,777 shares of its Series E Preferred Stock to Dominion upon
exercise of a warrant issued in May 1994 (such final amount, as such amount may
be adjusted by the terms of such warrant, to be the "DOMINION E WARRANT SHARES"
and collectively with the Dominion B Warrant Shares and the Dominion E Warrant
Shares, the "DOMINION WARRANT SHARES"), up to an additional 1,300,000 shares of
its Common Stock to Hyline Laboratories, Inc. ("HYLINE") upon exercise of
warrant dated January 5, 1994 (the "HYLINE WARRANT" and the shares of Common
Stock issuable thereunder as the "HYLINE WARRANT SHARES"), up to an additional
13,000 shares of its Common Stock to Rip Grossman & Associates, Inc. ("BROKER")
upon exercise of a warrant dated January 5, 1994 (the "BROKER WARRANT SHARES"),
up to an additional 33,333 shares of its Series E Preferred Stock to Silicon
Valley Bank ("SVB") upon exercise of a warrants dated May 19, 1995 and September
25, 1995 (the "SVB WARRANT SHARES"), and 52,850 shares of Common Stock to SBC
Capital Markets, Inc. and an individual affiliated therewith (together, "SBC")
upon exercise of warrants dated September 20, 1995 (the "SBC WARRANT SHARES");
WHEREAS, the Company and the Shareholders, other than the Shareholder
purchasing the Series G Shares as of the date hereof, are also parties to a
Rights Agreement originally dated June 26, 1990, as amended and restated on June
5, 1991 and as amended on August 9, 1991, as amended and restated on February
28, 1992, June 29, 1992, March 31, 1993, June 4, 1993, January 5, 1994, April
26, 1994 and June 13, 1994, and as amended September 20, 1995, and as amended
and restated on May 1, 1996 (the "RIGHTS AGREEMENT"), pursuant to which the
Company granted to such Shareholders certain registration rights and a right of
first offer; and
3.
<PAGE> 7
WHEREAS, the Company and Abbott Laboratories ("ABBOTT") are parties
to a Series E Preferred Stock Purchase Agreement dated May 1, 1996 (the "SIXTH
PURCHASE AGREEMENT"), pursuant to which the Company has sold, and Abbott has
acquired, shares of the Company's Series E Preferred Stock (together with all
other shares of Company capital stock purchased by Abbott as a result of the
provisions of the Sixth Purchase Agreement that are "RESTRICTED SECURITIES"
under the Securities Act of 1933, the "ABBOTT SHARES");
WHEREAS, the Company, Sierra, KPCB V, Domain, Aperture, CW, BIL,
Oxford, Dominion Fund and Bios Equity Fund L.P. ("BIOS") are parties to a Series
E Preferred Stock Purchase Agreement dated May 1, 1996 (the "SEVENTH PURCHASE
AGREEMENT"), pursuant to which the Company has sold, and Sierra, KPCB V, Domain,
Aperture, CW, BIL, Oxford, Dominion Fund and Bios have acquired, shares of the
Company's Series E Preferred Stock (the "THIRD SERIES E SHARES" and collectively
with the First Series E Shares and the Second Series E Share, the "SERIES E
SHARES,")
WHEREAS, The Company and Dainippon Pharmaceutical Co. Ltd.
("DAINIPPON") are parties to a Series G Preferred Stock Purchase Agreement of
even date herewith (the "EIGHTH PURCHASE AGREEMENT"), pursuant to which the
Company will sell, and Dainippon will acquire shares of the Company's Series G
Preferred Stock (the "SERIES G SHARES", which, taken collectively with the
Series A Shares, the Series B Shares, the Series C Shares, the CW Warrant
Shares, the Sierra Warrant Shares, the Dividend Shares, the Dominion Warrant
Shares, the Hyline Warrant Shares, the Broker Warrant Shares, the SVB Warrant
Shares, the SBC Warrant Shares and the Abbott Shares are referred to herein as
the "SHARES");
WHEREAS, the Company and the Shareholders wish to execute this
Restated Rights Agreement and grant the Shareholder purchasing the Series G
Shares the rights contained herein in order to provide it with a further
inducement to purchase such Shares;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
1. TERMINATION OF PRIOR RIGHTS. The Shareholders, who include a
majority in interest of the "Shareholders" who are parties to the Rights
Agreement, and the Company hereby terminate the Rights Agreement and in place
thereof enter into this Restated Rights Agreement which shall be the sole
agreement among the Shareholders and the Company relating to the subject matter
hereof.
2. AMENDMENT. Except as expressly provided herein, neither this
Restated Rights Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought; provided, however, that any provisions hereof may be amended, waived,
discharged or terminated upon the written consent of the Company and the holders
of a majority of the outstanding Registrable Securities (as defined below),
determined on the basis of assumed conversion of all Shares into Registrable
Securities.
3. REGISTRATION RIGHTS.
<PAGE> 8
3.1 DEFINITIONS. As used in this Restated Rights Agreement:
(A) The terms "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the "ACT")
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(B) The term "REGISTRABLE SECURITIES" means:
(I) the shares of Common Stock constituting or issuable
or issued upon conversion or exercise of (l) the Series A Shares, (2) the Series
B Shares, (3) the Series C Shares, (4) the Series E Shares, (5) the Common
Warrant Shares, (6) the CW Warrant Shares, (7) the Dividend Shares, (8) the
Sierra Warrant Shares, (9) the Dominion Warrant Shares, (10) the Hyline Warrant,
(11) the Broker Warrant, (12) the SVB Warrant Shares, (13) the SBC Warrant
Shares, (14) the Abbott Shares, and (15) the Series G Shares (the shares of
Common Stock referred to in the foregoing clauses (1) through (15) being
collectively referred to hereafter as the "STOCK"); and
(II) any other shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Stock, excluding in all cases,
however, any Registrable Securities, or Registrable Securities issuable upon the
exercise of other securities, sold by a person in a transaction in which his or
her rights under this Restated Rights Agreement are not assigned;
provided, however, that Common Stock or other securities shall only be treated
as Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Act under Section 4(1)
thereof, in either case, so that all transfer restrictions, and restrictive
legends with respect thereto, if any, are removed upon the consummation of such
sale.
Notwithstanding the foregoing, or any other provision herein to the
contrary, the parties hereto understand and agree that the Dominion Warrant
Shares shall be entitled only to "piggy-back" and Form S-3 registration rights
hereunder. Consequently, neither the Dominion Warrant Shares nor the Common
Stock issuable upon conversion thereof shall be deemed Registrable Securities or
Stock, and the holders of such Dominion Warrant Shares shall not be deemed
Shareholders, Holders or Rightholders as such terms are used herein for purposes
of Sections 3.2, 3.6, 3.14 and 4.
(C) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities (including, without
limitation, then exercisable warrants) which are, Registrable Securities.
5.
<PAGE> 9
(D) The term "HOLDER" means any holder of outstanding
Registrable Securities who acquired such Registrable Securities in a transaction
or series of transactions not involving any registered public offering.
(E) The term "FORM S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
3.2 REQUESTED REGISTRATION.
(A) If the Company shall receive at any time after the
earlier of (i) March 31, 1998, or (ii) three (3) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of at least twenty-five percent (25%) of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
coveting the registration of the lesser of (A) at least twenty-five percent
(25%) of the Registrable Securities then outstanding (or a lesser percent if the
anticipated aggregate offering price would exceed $2,000,000) or (B) 250,000
Registrable Securities, then the Company shall, within ten (10) days of the
receipt thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 3.2(b), effect as soon as practicable,
and in any event within ninety (90) days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 5.5.
(B) If the Holders initiating the registration request
hereunder ("INITIATING HOLDERS") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 3.2 and the
Company shall include such information in the written notice referred to in
subsection 3.2(a). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Holders participating in such public offering (the
"PARTICIPATING Holders") and the underwriter of such offering) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
3.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Participating Holders. Notwithstanding any other provision of
this Section 3.2, if the underwriter advises the Participating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the number of shares of Registrable Securities that may be
included in the underwriting shall be allocated among all Participating Holders
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Participating Holder.
6.
<PAGE> 10
(C) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 3.2.
(D) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 3.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
3.3 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its Common Stock
or other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating either to the
sale of securities to participants in a Company stock option, stock purchase or
similar plan or to an SEC Rule 145 transaction, or a registration on any other
form not reasonably and customarily appropriate for this purpose), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 5.5,
the Company shall subject to the provisions of Section 3.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
3.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 3
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(A) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(B) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(C) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
7.
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(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwater of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(F) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
requited to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact requited to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(G) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 3, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 3, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
3.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 3 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
3.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of
8.
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any registration proceeding begun pursuant to Section 3.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all Participating
Holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one (1) demand
registration pursuant to Section 3.2; provided further, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request, then the Holders shall not be required to
pay any of such expenses and shall retain their rights pursuant to Section 3.2.
3.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
3.3 for each Holder (which right may be assigned as provided in Section 3.13),
including (without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
3.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 3.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the written opinion of the underwriters, jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters reasonably believe compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders); but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
twenty-five percent (25%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case the selling shareholders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included or (ii) notwithstanding (i) above, any shares being sold
by a shareholder exercising a demand registration right similar to that granted
in Section 3.2 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "SELLING
SHAREHOLDER," and any pro rata reduction with respect to such selling
shareholder shall be based
9.
<PAGE> 13
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "SELLING SHAREHOLDER," as defined in
this sentence.
3.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 3:
(A) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or, state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "VIOLATION"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay as
incurred to each such Holder, underwriter or controlling person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 3.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld or delayed), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the Holder,
underwriter or controlling person seeking indemnification hereunder.
(B) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection
10.
<PAGE> 14
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 3.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 3.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld or delayed; provided that in no
event shall any indemnity under this subsection 3.10(b) exceed the gross
proceeds from the offering received by such Holder.
(C) Promptly after receipt by an indemnified party under this
Section 3.10 of notice of a claim or of the commencement of any action
(including any governmental claim or action), such indemnified party will, if
claim in respect thereof is to be made against any indemnifying party under this
Section 3.10, deliver to the indemnifying party a written notice of the claim or
the commencement of the action and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 3.10 only to the
extent that it was so prejudiced, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 3.10.
(D) The obligations of the Company and Holders under this Section
3.10 shall survive the completion of. any offering of Registrable Securities in
a registration statement under this Section 3, and otherwise.
3.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(A) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(B) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as
11.
<PAGE> 15
practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;
(C) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act;
(D) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of. any such securities without registration or pursuant to such form;
(E) upon the request of any Holder, remove all legends and stop
transfer orders on such Holder's Registrable Securities (i) at such time as such
Registrable Securities qualify for sale under Rule 144(k), or (ii) in connection
with a sale of such Registrable Securities pursuant to the other provisions of
Rule 144;
(F) use its best efforts to otherwise comply with the "REGISTRANT
REQUIREMENTS" for the use of Form S-3.
3.12 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders owning in the aggregate at least the lesser of (i) twenty
percent (20%) of the Registrable Securities then outstanding (or a lesser
percent if the fair market value of the Registrable Securities held by such
Holder(s) would exceed $2,000,000) or (ii) 250,000 Registrable Securities
(adjusted to reflect subsequent stock splits, stock dividends or
recapitalization), a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(A) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(B) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 3.12, (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to
12.
<PAGE> 16
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 3.12,
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the six (6) month
period preceding the date of such request, already effected one registration on
Form S-3 for the Holders pursuant to this Section 3.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(C) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 3.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration; provided, however, that the Company
shall bear any auditing expenses that shall be incurred in the normal course of
business and shall bear all regular salary expenses of its employees.
Registrations effected pursuant to this Section 3.12 shall not be counted as
demands for registration or registrations effected pursuant to Section 3.2 or
3.3.
3.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 3 may be assigned by
a Holder to a transferee or assignee of at least the lesser of (i) 150,000
shares (adjusted to reflect subsequent stock splits, stock dividends or
recapitalization) or (ii) all of such Holder's Registrable Securities provided
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. The foregoing share
limitation shall not apply, however, to transfers by a Holder to shareholders,
partners (including limited partners) or retired partners of the Holder
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses, or trusts for their benefit, who acquire Registrable
Securities by glib, will or intestate succession) if all such transferees or
assignees agree in writing to appoint a single representative as their attorney
in fact for the purpose of receiving any notices and exercising their rights
under this Section 3.
3.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Restated Rights Agreement, the Company shall not, without the prior
written consent of
13.
<PAGE> 17
the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 3.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could remit in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 3.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 3.2.
3.15 "MARKET STAND-OFF" AGREEMENT. The Holder hereby agrees that during
the 180-day period following the effective date of a registration statement of
the Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, sell or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any Common Stock of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
(A) such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(B) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Restated Rights
Agreement) enter into similar agreements.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
3.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to
exercise any right provided for in this Section 3: (a) after seven (7) years
following the consummation of the Company's sale of its Common Stock in a bona
fide, firm commitment underwriting pursuant to a registration statement on Form
S-1 under the Act which results in aggregate gross cash proceeds to the Company
in excess of $7,500,000 and the public offering price of which is not less than
$5.00 per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction); or (b) at such time
following the Company's initial public offering and for so long as such Holder
may sell all of such Holder's Registrable Securities in any one three-month
period pursuant to Rule 144 (or such successor rule as may be adopted).
3.17 LIMIT ON SALES. Notwithstanding anything herein to the contrary,
none of (a) Hyline, (b) Abbott, (c) Dainippon, or (d) the remaining Holders of
Registrable Securities as a group, respectively, shall dispose of more than
250,000 shares of Registrable Securities within any three-month period after the
date of this Agreement pursuant to a registration made under
14.
<PAGE> 18
Sections 3.2 or 3.12 above; provided, however, that if Hyline, Abbott, or
Dainippon wishes to so dispose of more than 250,000 shares of Registrable
Securities in any such period, it may do so provided that (i) it delivers to the
Company a written notice not less than ninety (90) days prior to the date on
which shares in excess of 250,000 will be disposed of stating its desire to so
dispose of Registrable Securities and setting forth the aggregate number of
shares that Hyline, Abbott, or Dainippon wishes to so dispose of in the such
three-month period and (ii) the Company does not receive a writing from its
principal investment banker or equivalent financial advisor advising the Company
that marketing factors require a limitation of the number of shares to be
underwritten at such time, which limitation would otherwise be exceeded by the
registration of in excess of 250,000 shares of Registrable Securities by Hyline,
Abbott, or Dainippon.
3.18 SUBSEQUENT RIGHTS. If, after the date of this Agreement, the
Company shall grant registration rights to a third party different from the
rights set forth in this Section 3, the following shall apply on each such
occasion until the right set forth in this Section 3.18 is exercised:
(I) The Company shall first deliver to each of Hyline, Abbott, and
Dainippon a written notice (the "Notice") setting forth the material terms of
such subsequent registration rights (the "SUBSEQUENT RIGHTS").
(II) For a period of thirty (30) days after the receipt of the
Notice (the "NOTICE PERIOD"), Hyline, Abbott and Dainippon shall each have the
right, but not the obligation, to surrender its registration rights under this
Section 3 and agree to accept and be bound by the terms of the Subsequent Rights
(the "EXCHANGE RIGHT"). If Hyline, Abbott and/or Dainippon chooses to so
exercise the Exchange Right, it shall deliver a written notice of such intent to
the Company and enter into an agreement with the Company pursuant to which it
will surrender its registration rights under this Section 3 and the Company will
grant to Hyline, Abbott and/or Dainippon, as appropriate. the Subsequent Rights.
(III) To the extent that Hyline, Abbott, or Dainippon declines to
exercise the Exchange Right within the Notice Period, it shall retain its
registration rights and the Exchange Right under this Section 3 with respect to
future Subsequent Rights, if any, and shall not be entitled to, nor bound by,
the Subsequent Rights so declined.
4. ADDITIONAL RIGHTS.
4.1 RIGHT OF FIRST REFUSAL. Subject to the terms and conditions
specified in this Section 4.1, and subject to any limitations imposed by
applicable laws governing the nature and extent of foreign investment in
companies domiciled in the U.S., the Company hereby grants to each Shareholder,
so long as such Shareholder holds at least 50,000 Shares (or, in the case of a
holder of the Hyline Warrant, the portion of such warrant so held represents the
right to purchase at least 50,000 Shares) (as subsequently adjusted for
subsequent stock splits, stock dividends or recapitalization) (the
"RIGHTHOLDER"), a right of first offer with respect to future sales by the
Company of its New Securities (as hereinafter defined). For purposes of this
Section 4.1, the term Rightholder includes any partners, shareholders or
affiliates of the Rightholder. The
15.
<PAGE> 19
Rightholder shall be entitled to apportion the right of first offer hereby
granted among itself and its partners, shareholders and affiliates in such
proportions as it deems appropriate.
(A) In the event the Company proposes to issue New Securities, it
shall give the Rightholder written notice (the "NOTICE") of its intention
stating (i) a description of the New Securities it proposes to issue, (ii) the
number or shares of New Securities it proposes to offer, (iii) the price per
share at which, and other terms on which, it proposes to offer such New
Securities and (iv) the number of shares that the Rightholder has the right to
purchase under this Section 4.1, based on the Rightholder's Percentage (as
defined in Section 4. l(d)(ii)).
(B) Within thirty (30) days after the Notice is given (in
accordance with Section 5.5), the Rightholder may elect to purchase, at the
price specified in the Notice, up to the number of shares of the New Securities
proposed to be issued that the Rightholder has the right to purchase as
specified in the Notice. An election to purchase shall be made in writing and
must be given to the Company within such thirty (30) day period (in accordance
with Section 5.5). The closing of the sale of New Securities by the Company to
the participating Rightholder upon exercise of its rights under this Section 4.1
shall take place simultaneously with the closing of the sale of New Securities
to third parties. Notwithstanding the foregoing, the thirty-day period set forth
above shall be fifteen (15) days with respect to the holder(s) of the Hyline
Warrant, other than a Shareholder who holds other Shares in addition to such
Hyline Warrant.
(C) The Company shall have ninety (90) days after the last date on
which the Rightholder's right of first offer lapsed to enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within forty-five (45) days from the execution thereof) to sell the
New Securities which the Rightholder did not elect to purchase under this
Section 4.1, at or above the price and upon terms not materially more favorable
to the purchasers of such securities than the terms specified in the initial
Notice given in connection with such sale. In the event the Company has not
entered into an agreement to sell the New Securities within such ninety (90) day
period (or sold and issued New Securities in accordance with the foregoing
within forty-five days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rightholder in the manner provided in this Section 4.1.
(D) "NEW SECURITIES" shall mean any shares of, or securities
convertible into or exercisable for any shares of, any class of the Company's
capital stock; provided that "NEW SECURITIES" does not include: (i) the Shares
or the Common Stock issuable upon conversion thereof; (ii) securities issued
pursuant to the acquisition of another business entity by the Company by merger,
purchase of substantially all of the assets of such entity, or other
reorganization whereby the Company owns not less than a majority of the voting
power of such entity; (iii) shares, or options to purchase shares, of the
Company's Common Stock and the shares of Common Stock issuable upon exercise of
such options, issued pursuant to any arrangement approved by the Board of
Directors to employees, officers and directors of, or consultants, advisors or
other persons performing services for, the Company; (iv) shares of the Company's
Common Stock or Preferred Stock of any series issued in connection with any
stock split, stock dividend or recapitalization of the Company; (v) Common Stock
issued upon exercise
16.
<PAGE> 20
of warrants, options or convertible securities if the issuance of such
warrants, options or convertible securities was a result of the exercise of the
right of first offer granted under this Section 4.1 or was subject to the right
of first offer granted under this Section 4.1; (vi) capital stock or warrants or
options for the purchase of shares of capital stock issued by the Company to a
lender in connection with any loan or lease financing transaction; and (vii)
securities sold to the public in an offering pursuant to a registration
statement filed with the Securities and Exchange Commission under the Act.
(i) The applicable "PERCENTAGE" for the Rightholder shall be
the number of shares of New Securities calculated by dividing (i) the total
number of shares of Common Stock owned by the Rightholder (assuming conversion
of all shares of Preferred Stock and exercise of the Hyline Warrant) by (ii) the
total number of shares of Common Stock outstanding at the time the Notice is
given (assuming conversion of all shares of Preferred Stock and exercise of the
Hyline Warrant); provided, however, that IPR shall not be entitled to purchase
more than that number of shares of New Securities the aggregate purchase price
of which is equal to the cumulative sum of $25,000 for each calendar quarter
that has elapsed from June 26, 1990 until the time of exercise of the right of
first offer provided by this Section 4.1, less the aggregate purchase price of
any New Securities already purchased by the Rightholder pursuant to this Section
4.1; provided that in no case may the number of shares of capital stock of the
Company owned by the Rightholder equal or exceed 25.1% of the total number of
outstanding shares of capital stock of the Company.
(E) The right of first offer granted under this Section 4. l shall
expire upon the earlier of (a) March 31, 1998, or (b) following the consummation
of the Company's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the Act
which results in aggregate gross cash proceeds to the Company in excess of
$7,500,000 and the public offering price of which is not less than $600 per
share (as subsequently adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a SEC Rule 145 transaction).
(F) The right of first offer granted under this section may be
assigned by the Rightholder to a transferee or assignee of the Rightholder's
shares of the Company's stock acquiring the lesser of (a) at least 50,000 of the
Rightholder's shares of the Company's Common Stock (treating all shares of
Preferred Stock for this purpose as though convened into Common Stock and the
Hyline Warrant as having been exercised) (equitably adjusted for any stock
splits, subdivision stock dividends, changes, combinations or the like) or (b)
all of the Rightholder's remaining shares of the Company's stock. In the event
that the Rightholder shall assign its right of first offer pursuant to this
Section 4.1 in connection with the transfer of less than all of its shares of
the Company's stock, the Rightholder shall also retain its right of first otter.
5. MISCELLANEOUS.
17.
<PAGE> 21
5.1 ASSIGNMENT. Subject to the provisions of Section 3.13 hereof, the
terms and conditions of this Restated Rights Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto.
5.2 THIRD PARTIES. Nothing in this Restated Rights Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Restated Rights Agreement, except as
expressly provided herein.
5.3 GOVERNING LAW. This Restated Rights Agreement shall be governed by
and construed under the laws of the State of California in the United States of
America.
5.4 COUNTERPARTS. This Restated Rights Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5.5 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested (or if the addressee and addresser are in different countries,
by prepaid registered or certified airmail, return receipt requested, or by
facsimile with confirmation of receipt), and addressed, if to the Company, to
its principal offices, or if to a Shareholder, to the address for such
Shareholder set forth on Exhibit A hereto. Such notice shall be deemed to have
been given when receipt is so confirmed.
5.6 SEVERABILITY. If one or more provisions of this Restated Rights
Agreement are held to be unenforceable under applicable law, portions of such
provisions, or such provisions in their entirety, to the extent necessary, shall
be severed from this Restated Rights Agreement, and the balance of this Restated
Rights Agreement shall be enforceable in accordance with its terms.
5.7 AMENDMENT AND WAIVER. Any provision of this Restated Rights
Agreement may be amended with the written consent of the Company and the Holders
of at least a majority of the outstanding shares of the Registrable Securities.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder of Registrable Securities, and the Company. In
addition, the Company may waive performance of any obligation owing to it, as to
some or all of the Holders of Registrable Securities, or agree to accept
alternatives to such performance, without obtaining the consent of any Holder of
Registrable Securities. In the event that an underwriting agreement is entered
into between the Company and any Holder, and such underwriting agreement
contains terms differing from this Restated Rights Agreement, as to any such
Holder the terms of such underwriting agreement shall govern.
5.8 EFFECT OF AMENDMENT OR WAIVER. Each Shareholder and its successors
and assigns acknowledge that by the operation of Section 5.7 hereof the holders.
of a majority of the outstanding Registrable Securities, acting in conjunction
with the Company, will have the right and power to diminish or eliminate all
rights pursuant to this Restated Rights Agreement.
18.
<PAGE> 22
5.9 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Restated Rights Agreement,
including, without limitation, the right to consent to the waiver or
modification of any obligation under this Restated Rights Agreement, and such
holder shall not incur any liability to any other holder of any securities of
the Company as a result of exercising or refraining from exercising any such
right or rights.
5.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any pant to this Restated Rights Agreement, upon any
breach or default of the other patty, shall impair any such right, power or
remedy of such nonbreaching party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any since breach
or default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this Restated
Rights Agreement, or any waiver on the part of any party of any provisions or
conditions of this Restated Rights Agreement, must be made in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Restated Rights Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
19.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this
Tenth Amended and Restated Rights Agreement as of the
day and year first above written.
COMPANY: SHAREHOLDERS:
RIBOGENE, INC.
By:
-------------------------------- -----------------------------------------
(Print or Type Name of Shareholder)
Title: By:
------------------------------ --------------------------------------
Title:
------------------------------------
-----------------------------------------
(Print or Type Name of, Shareholder)
By:
--------------------------------------
Title:
------------------------------------
-----------------------------------------
(Print or Type Name of, Shareholder)
By:
--------------------------------------
Title:
------------------------------------
20.
<PAGE> 24
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
<TABLE>
<CAPTION>
<S> <C>
Abbott Laboratories Institute of Protein Research of the Russian
100 Abbott Park Road Academy of Sciences
Abbott Park, IL 60064-3500 142292 Puschino
Attn: Dr. Al Harris Moscow Region, Russia
Biotechnology Investments Limited(2) Dominion Fund II
c/o Domain Associates Dominion Ventures, Inc.
One Palmer Square 44 Montgomery Street
Princeton, NJ 08542 San Francisco, CA 94104
Attn: Kathleen Shoemaker
Michael J. Ross
Oxford Bioscience Partners L.P. 1065 Hayne Road
Oxford Bioscience Partners (Bermuda) Limited Partnership Hillsborough, CA 94010
Oxford Bioscience Partners (Adjunct) L.P.
650 Town Center Drive, Ste. 810 CW Ventures II, L.P.
Costa Mesa, CA 92626 1041 Third Avenue
Attn: Edmund Olivier New York, NY 10021
Attn: Charles Hartman
Domain Partners II, L.P. Vladimir I. Baranov
One Palmer Square 646 Foothill Drive
Princeton, NJ 08542 Pacifica, CA 94044
Sierra Ventures III Jack Chirikjian
Sierra Ventures III International 8726 Hickory Bend Trail
3000 Sand Hill Road Potomac, MC 20854
Menlo Park, CA 94025
Attn: Petri Vainio JMC Family Partnership
c/o Jack Chirikjian
Kleiner Perkins Caulfield & Byers V 8726 Hickory Bend Trail
KPCB Zaibatsu Fund I Potomac, MD 20854
2750 Sand Hill Road
Menlo Park, CA 94025 Grace A. Cruz
Attn: Alexander Barkas 1693 Chianti Way
Oakley, CA 94561
Aperture Associates, L.P.
c/o Horsley Keogh Associates Thomas E. Davis
505 Montgomery Street 2642 Ulloa Street
San Francisco, CA 941112 San Francisco, CA 94116
Attn: Dan Reeve
- --------
(2) These shares will be held under the record name of "Old Court Limited."
</TABLE>
<PAGE> 25
SCHEDULE OF SHAREHOLDERS (CON'T.)
<TABLE>
<CAPTION>
<S> <C>
Holly Marcum Michael W. Hall
2642 Ulloa Street 1716 Fulton Street
San Francisco, CA 94116 Palo Alto, CA 94303
Pam Grace Versaw and Timothy T. Revak, Joel Kirschbaum
as Joints Tenants with 6132 Johnston Drive
Rights of Survivorship Oakland, CA 94611
23121 Mora Glen Drive
Los Altos, CA 94022
Hyline Laboratories, Inc. Silicon Valley Bank
100 Banks Avenue 3000 Lakeside Drive
Rockville Center, NY 11570 Santa Clara, CA 95054
Rip Grossman & Associates, Inc. SBC Capital Markets, Inc.
4200 Somerset Drive, Suite 101 141 West Jackson Boulevard
Prairie Village, KS 66208 Chicago, IL 60604
Attn:____________________
Dr. Judith Donaldson Bios Equity Fund, L.P.
Donaldson Capital Management Corporation 401 South LaSalle Street, Suite 1306
401 South LaSalle Street, Suite 1306 Chicago, IL 60605
Chicago, IL 60605 Attn:____________________
Dainippon Pharmaceutical Co., Ltd.
8 Doshomachi 2 chome, Chuo-ku
Osaka 541-0045
Japan
Attention: President
</TABLE>
2.
<PAGE> 1
EXHIBIT 4.21
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICE.
Issued: December, 31, 1997 CSW-14
RIBOGENE, INC.
COMMON STOCK PURCHASE WARRANT
1. NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT.
(a) EXERCISE OF THE WARRANT. Subject to the terms and conditions
herein set forth, Hyline Laboratories, Inc., a New York corporation (the
"Purchaser"), or a permitted holder hereof, shall be entitled to purchase from
RiboGene, Inc., a California corporation (the "Company"), at any time and from
time to time after the date hereof but on or before the earlier to occur of (A)
January 5, 1999, (B) the closing of the Company's sale of all or substantially
all of its assets or the acquisition of the Company by another entity by means
of merger or other transaction as a result of which all shareholders of the
Company immediately prior to such acquisition in the aggregate possess a
minority of the voting power of the acquiring entity immediately following such
acquisition (the "Acquisition") to the extent that the acquiror in such
transaction requires, as a condition of such Acquisition, the exercise or
termination of all or part of this Warrant on or before the closing of such
Acquisition, which requirement shall be set forth in a writing signed by the
acquiror and delivered to the holder hereof, or (C) the date of the closing of
the Company's first underwritten public offering of securities at an aggregate
offering price of not less than $7,500,000 and a price per share of at least
$5.00, as adjusted for stock splits, combinations and the like (the "Initial
Public Offering"), to the extent that the managing underwriter(s) in such
transaction requires, as a condition of such underwriting, the exercise or
termination of all or part of this Warrant on or before the closing of such
Initial Public Offering, which requirement shall be set forth in a writing
signed by the underwriter and delivered to the holder hereof, up to 195,000
shares (which number of shares is subject to adjustment as described below) of
fully paid and nonassessable Common Stock of the Company (the "Shares") upon
surrender hereof at the principal office of the Company, and upon payment of the
purchase price for such shares (the "Purchase Price"), determined as the product
of the number of shares of Common Stock acquired upon exercise hereof and the
Warrant Price (as defined below), at said office in cash, by check, by wire
transfer or by cancellation of indebtedness, or upon a net exercise of this
Warrant as provided in Sections 7, 8 or 9 below. The Company shall give notice
to the Purchaser of the Initial Public Offering or Acquisition at least thirty
(30) days prior to the effective date thereof.
1.
<PAGE> 2
(b) WARRANT PRICE. Subject to adjustment as hereinafter provided,
the exercise price for one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions hereinafter
set forth) shall be $2.48. The exercise price for one share of Common Stock (or
such securities as may be substituted for one share of Common Stock pursuant to
the provisions hereinafter set forth) payable from time to time upon the
exercise of this Warrant (whether such price be the price specified above or an
adjusted price determined as hereinafter provided) is referred to herein as the
"Warrant Price."
2. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities issuable upon the exercise of this Warrant shall be subject
to adjustment from time to time and the Company agrees to provide notice upon
the happening of certain events as follows:
(a) Adjustment of Warrant Price upon Issuance of Additional
Stock. The Warrant Price shall be subject to adjustment from time to time as
follows:
(i) (A) Upon each issuance by the Company of any
Additional Stock (as defined below), after the date of this Warrant, without
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to the issuance of such Additional Stock, the Warrant
Price in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this Section 2(a)) be adjusted to a price determined by
multiplying the Warrant Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock which could be purchased were the then
Warrant Price used instead of the purchase price actually paid for such
Additional Stock (calculated by dividing the total consideration (before
deduction of costs) to be received by the Company in such issuance by the then
Warrant Price) and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of such Additional Stock issued in such issuance. For purpose of this
Subsection (a), all shares of Common Stock issuable upon conversion of
outstanding Preferred Stock or upon exercise of this Warrant or any subsequent
warrant issued or deemed issued to Hyline Laboratories, Inc. within 90 days of
the date hereof shall be deemed to be outstanding and, immediately after any
Additional Stock is deemed issued, such Additional Stock shall be deemed
outstanding.
(B) No adjustment of the Warrant Price shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to 3 years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of 3 years from the date of the
event giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections 2(a)(i)(E)(3) and (E)(4), no adjustment of
the Warrant Price pursuant to this subsection 2(a)(i) shall have the effect of
increasing the Warrant Price above the Warrant Price in effect immediately prior
to such adjustment.
2.
<PAGE> 3
(C) In the case of issuance by the Company of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of issuance by the Company of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value as determined
by the Board of Directors of the Company irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before,
on or after the date of this Warrant) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 2(a)(i);
1. The aggregate maximum number of shares
of Common Stock deliverable upon exercise (to the extent then exercisable) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 2(a)(i)(C) and (a)(i)(D)), if any, received by the Company upon
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
2. The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange for (to the extent
then convertible or exchangeable) convertible or exchangeable securities or upon
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 2(a)(i)(C) and 2(a)(i)(D)).
3. In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Company under such options or rights or under such convertible or exchangeable
securities, including but not limited to, a change resulting from antidilution
provisions thereof, the Warrant Price, to the extent in any way affected by or
computed using such options, rights or securities, shall be adjusted based upon
3.
<PAGE> 4
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
4. Upon the expiration of any such options
or rights, the termination of any such options or rights to convert or exchange,
or the expiration of any options or rights related to such convertible or
exchangeable securities, the Warrant Price, to the extent in any way affected by
or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
5. The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to subsections
2(a)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
2(a)(i)(E)(3) or (4).
(ii) "ADDITIONAL STOCK" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 2(a)(i)(E))
by this Company after the date of this Warrant other than (A) shares of Common
Stock issued upon conversion of the Company's Preferred Stock issued prior to
the date of this Warrant, (B) shares of Common Stock issued to employees or
directors of or consultants and advisers to the Company or any subsidiary
pursuant to stock purchase or stock option plans or other similar arrangements
approved by the Company's Board of Directors, (C) shares of Common Stock issued
upon the exercise of warrants or options issued by the Company prior to the date
of this Warrant, or (D) shares of Common Stock issued or issuable upon exercise
or conversion of warrants to purchase shares of the capital stock of the Company
issued in connection with equipment lease financing transactions or bank
financing transactions unanimously approved by the Board of Directors, where the
issuance of such warrants is not principally for the purpose of raising
additional equity capital for the Company.
(b) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor, other or additional
securities or other property of the Company by way of dividend or distribution,
then and in each case, the holder of this Warrant shall, upon the exercise
hereof, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional securities or other property of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional securities or
other property receivable by it as aforesaid during such
4.
<PAGE> 5
period, giving effect to all adjustments called for during such period by this
paragraph (b) and paragraphs (a), (c) and (d) of this Section 2.
(c) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case
of any reclassification or change of the outstanding securities of the Company
or of any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, then and in each such case the Company
shall give the holder of this Warrant at least thirty (30) days notice of the
proposed effective date of such transaction, and the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such
reclassification, change or reorganization, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a), (b) and (d) of this Section 2.
(d) STOCK SPLITS AND REVERSE STOCK SPLITS. If at any time on or
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of the Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares of Common Stock receivable upon exercise of this Warrant shall thereby be
proportionately decreased. Notwithstanding the foregoing, the Company shall not
conduct a reverse stock split with respect to its Common Stock without first
obtaining the written consent of the holders of a majority of the Warrant Shares
represented hereby; provided, however, that such requirement terminate upon and
shall not apply to a reverse stock split conducted in connection with the
Initial Public Offering (if such reverse stock split is conditioned upon the
consummation of the Initial Public Offering).
3. NO FRACTIONAL SHARES. No fractional shares of Common Stock will
be issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. SHAREHOLDER RIGHTS AND OBLIGATIONS. This Warrant as such shall
not entitle its holder to any of the rights or bind its holder to any of the
obligations of a shareholder of the Company until the holder has exercised this
Warrant in accordance with Section 6 hereof. The shares of Common Stock issued
upon the exercise of this Warrant shall be entitled to the rights, preferences
and privileges afforded to the other shares of Common Stock as set forth in the
Company's Articles of Incorporation, as may be amended from time to time in
accordance with applicable law.
5.
<PAGE> 6
5. RESERVATION OF STOCK. The Company covenants that during the
period this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant. The Company agrees
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
6. PROCEDURE FOR EXERCISE. This Warrant may be exercised by its
holder by the surrender of this Warrant and the executed Notice of Exercise
attached hereto at the principal office of the Company, accompanied by payment
in full of the Purchase Price of the Shares purchased thereby, as described
above, or may be net exercised as described below. This Warrant shall be deemed
to have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the Shares or other securities issuable upon such exercise shall be treated for
all purposes as the holder of such shares of record as of the close of business
on such date. As promptly as practicable, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or certificates
for the number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share as provided above. If this
Warrant shall have been only partially exercised, the Company shall also deliver
to the holder either (a) a statement executed by an officer of the Company
setting forth the shares remaining subject to purchase under this Warrant or (b)
a replacement Warrant identical to this Warrant except that the Shares
purchasable thereunder shall be only those Shares not purchased upon exercise of
this Warrant, at the Company's option.
7. EXERCISE UPON INITIAL PUBLIC OFFERING.
(a) HOLDER RIGHTS COMPANY OPTION. In the event that the managing
underwriter(s) in the Initial Public Offering require the exercise or
termination of this Warrant as a condition to their underwriting, the holder
shall have the right to exercise one or any combination of the rights of the
holder set forth in Sections (b) and (c) below in such combination as the
Company, in its sole and complete discretion, shall determine in a notice
delivered to the holder hereof not later than promptly following the meeting of
the pricing committee of the Company's Board of Directors with the managing
underwriter(s) of the Initial Public Offering in which the offering is sized and
priced. All actions taken by the holder hereof pursuant to this Section 7 shall
be conditioned upon the closing of the Initial Public Offering. If for some
reason the holder hereof has taken action under this Section 7 and such offering
does not close within one hundred twenty (120) days after such action is taken,
the holder's actions hereunder shall be considered to have been rescinded and
this Warrant shall continue in full force and effect until otherwise terminated
or exercised.
(b) EXERCISE AND REGISTRATION. If this Warrant shall be exercised
as result of such requirement by the managing underwriter(s) for the Initial
Public Offering, then upon such exercise in accordance with the terms stated in
Section 1 above, the holder shall be entitled, to the extent permitted by the
Company under this Section 7, to include in the Initial Public
6.
<PAGE> 7
Offering that number of Shares such that the proceeds to the holder, net of
underwriting commission or discounts ("Proceeds"), shall equal not less than the
total Purchase Price of this Warrant actually paid by the holder upon exercise
under this subsection (b) (the "Inclusion Right"). In lieu of payment of the
Purchase Price to be paid upon exercise under this subsection (b), the holder
and the Company may direct the underwriters to pay that portion of the proceeds
from the Initial Public Offering otherwise payable to the holder directly to the
Company in satisfaction of the holder's Purchase Price obligation.
(c) RIGHT TO CONVERT. If this Warrant shall be exercised as a
result of such requirement by the managing underwriter(s) for the Initial Public
Offering, then the holder hereof shall be entitled, to the extent permitted by
the Company under this Section 7, to so exercise by converting this Warrant or
portion hereof (the "Conversion Right") into shares of Common Stock, without
payment by such holder of any cash or other consideration, as provided below
immediately prior to its expiration after the Company has given the Purchaser
notice of the Initial Public Offering pursuant to Section 1 above, subject to
the restrictions set forth in subsection (e) hereof. In connection with any
exercise of the Conversion Right, this Warrant shall represent the right to
subscribe for and acquire the number of Shares (rounded to the next highest
integer) (the "Converted Warrant Shares") equal to
(i) the number of Shares being converted by the holder
hereunder, as specified by the holder pursuant to subsection (d) below (the
"Total Number"), multiplied by
(ii) a fraction, (A) the numerator of which is the excess of
the Fair Market Value of one Share, as determined pursuant to subsection (f)
below, over the Warrant Price then in effect, and (B) the denominator of which
is the Fair Market Value of one Share, all determined as of the Conversion Date.
(d) EXERCISE OF CONVERSION RIGHT. To the extent exercisable, the
Conversion Right set forth in subsection (c) above may be exercised by the
holder hereof by the surrender of this Warrant prior to its expiration and after
the Company shall have given the Purchaser notice pursuant to Section 1 of the
Initial Public Offering, at the principal office of the Company together with
written statement specifying that the holder thereby intends to exercise the
Conversion Right immediately prior to the expiration of this Warrant and
indicating the number of shares subject to this Warrant which are being
surrendered (referred to in subsection (c) hereof as the Converted Warrant
Shares) in exercise of the Conversion Right. Such conversion shall be effective
immediately prior to the expiration of this Warrant (the "Conversion Date").
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right (or any other securities deliverable in lieu thereof under
Section 2(b) above) and, if applicable, a new Warrant of like tenor evidencing
the balance of the Shares remaining subject to this Warrant shall be issued as
of the Conversion Date and shall be delivered to the holder immediately
following the Conversion Date.
(e) RESTRICTIONS ON CONVERSION RIGHT. In the event that the
Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company's independent certified public accountants
to trigger a charge to the Company's
7.
<PAGE> 8
earnings for financial reporting purposes, then the Conversion Right under this
Section 7 shall automatically terminate upon the Company's written notice to the
holder of such adverse accounting treatment.
(f) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 7, fair market value of a share of Common Stock as of the Conversion
Date shall mean the value of the shares of Common Stock, as provided in the
"Price to Public" specified in the final prospectus with respect to such
offering.
(g) COMBINATION OF RIGHTS. To the extent that the Company limits
the exercise of the Conversion Right to a portion of this Warrant or if the
Conversion Right is terminated under Section 7(e) above, it shall allow the
holder hereof to exercise the Inclusion Right to the extent necessary to produce
Proceeds equal to the aggregate purchase price of those Shares not eligible for
conversion under the Conversion Right. Similarly, to the extent that the Company
limits the exercise of the Inclusion Right to a portion of this Warrant, it
shall allow the holder hereof to exercise the Conversion Right with respect to
those Shares the purchase price for which would not be accounted for through
such limited exercise of the Inclusion Right.
(h) DEMONSTRATION OF EXERCISE UNDER SECTION 7. Examples of a full
and partial exercise of the rights set forth in this Section 7 are attached
hereto as Attachment 1. Such examples are limited by their stated assumptions
and should be used for reference purposes only.
8. NET EXERCISE UPON ACQUISITION OR TERMINATION.
(a) In the event that the acquiror in the Acquisition requires
the exercise or termination of this Warrant as a condition to such Acquisition,
the holder shall have the right to exercise the rights of the holder set forth
in Sections 7(c), 7(d) and 7(f) above (without reference to Section 7(e)),
interpreting all references therein to "Initial Public Offering" to mean
"Acquisition" and substituting the following language for the determination of
fair market value set forth in Section 7(f): "fair market value of a share of
Common Stock as of the Conversion Date shall mean the effective per share
consideration to be received in an Acquisition by holders of the Common Stock,
which price shall be as specified in the agreement entered into with respect to
such Acquisition, or if no such price is set forth in the agreement concerning
the Acquisition, then as reasonably determined in good faith by the Company's
Board of Directors upon a review of all relevant factors." All actions taken by
the holder hereof pursuant to this Section 8(a) shall be conditioned upon the
closing of the Acquisition. If for some reason the holder hereof has taken
action under this Section 8(a) and such transaction does not close within one
hundred twenty (120) days after such action is taken, the holder's actions
hereunder shall be considered to have been rescinded and this Warrant shall
continue in full force and effect until otherwise terminated or exercised.
(b) If this Warrant shall not have been exercised or terminated
prior to January 5, 1999, then this Warrant shall be deemed to have been
automatically converted pursuant to the provisions set forth in Sections 7(c),
7(d) and 7(f) above (without reference to the first sentence
8.
<PAGE> 9
in Section 7(d) or to Section 7(e)), ignoring all references therein to "Initial
Public Offering," any notice deliverable thereupon or any other language or
right specific thereto other than the right to convert this Warrant into shares
of Common Stock. For purposes of this Section 8(b), the following language shall
be substituted for the determination of fair market value set forth in Section
7(f): "fair market value of a share of Common Stock as of the Conversion Date
shall mean, at the holder's option, either (i) the price per share at which the
Company's Preferred Stock (initially convertible into one share of Common Stock)
was last sold by the Company prior to the Conversion Date, or (ii) the value
determined by a mutually acceptable investment advisor within thirty (30) days
after the Conversion Date upon review of all relevant factors provided, however,
in determining the value of share of Common Stock, no discount shall be taken
for either the fact that the shares of Common Stock to be issued to a Holder may
not then be freely tradeable on a public market or that such shares may
constitute a minority interest in the Company. The holder shall indicate in
written notice to the Company not later than the Conversion Date which of
options (i) or (ii) the holder wishes to accept or pursue. The fees and expenses
of the investment advisor, if applicable, shall be borne equally by the Company
and the holder; provided, however, that if the Company's Preferred Stock
(initially convertible into one share of Common Stock) was last sold by the
Company within eighteen (18) months prior to the Conversion Date, the fees and
expenses of the investment advisor, if applicable, shall be borne solely by the
holder."
9. NET EXERCISE RIGHT. In lieu of exercising this Warrant as
specified in Section 1(a) above, Purchaser may from time to time exchange this
Warrant, in whole or in part, into the number of Shares determined by dividing
(a) the aggregate fair market value on the date of such exchange of a number of
Shares or other securities otherwise issuable upon exercise of this Warrant
designated by Purchaser (the "Designated Shares") minus the aggregate Warrant
Price of the Designated Shares by (b) the fair market value of one Share. Upon
such exchange, the number of Shares purchasable upon exercise of this Warrant
shall be reduced by the number of Designated Shares and, if a balance of
purchasable Shares remains after such exchange, the Company shall execute and
deliver to Purchaser a new Warrant evidencing the right to purchase such balance
of Shares; provided, no fractional shares shall be issuable upon such exchange,
and if the number of Shares determined in accordance with the foregoing formula
is other than a whole number, the Company shall pay Purchaser an amount by
check, determined in accordance with the provisions of Section 3. For purposes
of this Section 9, if the Shares are traded in a public market, the fair market
value of the Shares shall be the closing price of the Shares (or the closing
price of the Company's stock into which the Shares are convertible) reported for
the business day immediately before Purchaser delivers its Notice of Exercise to
the Company. If the Shares are not traded in a public market, the Board of
Directors of the Company shall determine fair market value in its reasonable
good faith judgment. The foregoing notwithstanding, if Purchaser advises the
Board of Directors in writing that Purchaser disagrees with such determination,
then the Company and Purchaser shall promptly agree upon a reputable investment
banking firm to undertake such valuation. All fees and expenses of the
investment banking firm shall be borne equally by the Company and Purchaser.
10. CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price or number
or type of securities issuable upon exercise of this Warrant is adjusted, as
herein provided, the Company
9.
<PAGE> 10
shall promptly deliver to the record holder of this Warrant a certificate of an
officer of the Company setting forth the nature of such adjustment and a brief
statement of the facts requiring such adjustment.
11. PROPOSED TRANSFERS. This Warrant may not be sold, assigned,
pledged or otherwise transferred by the holder hereof to a third party other
than in compliance with all terms of this Section 11.
(a) This Warrant may be sold, assigned, pledged or otherwise
transferred by the holder hereof to a majority-owned subsidiary of the Purchaser
or an entity holding a majority of the Purchaser's outstanding voting securities
or to the members of the immediate family of such majority shareholder, if an
individual, or to trusts for their benefit.
(b) If the holder hereof wishes to sell, assign, pledge or
otherwise transfer this Warrant or any portion thereof to a party(ies) other
than a party set forth in subsection 11(a) above, the holder shall first offer
the Warrant to the Company on the following terms:
(i) The transferring holder shall first deliver to the
Company a written offer (the "Offer") to sell at the price and on the terms
offered to the third-party transferee(s) with respect to the offered portion(s)
of this Warrant (collectively, the "Offered Portion"), along with a statement
(the "Offer Statement") setting forth the holder's intention to so transfer and
the name and address of the third-party transferee(s).
(ii) For a period of thirty (30) days after the receipt of
the Offer (the "Offer Period"), the Company shall have the right, but not the
obligation, to purchase all of the Offered Portion on the terms set forth in the
Offer. If the Company chooses to so exercise this purchase right, it shall
deliver a written notice of such intent to the transferring holder and must so
purchase all (and not less than all) of the security(ies) so offered within
thirty (30) days of the receipt of such notice by the transferring holder.
(iii) To the extent that the Company declines to exercise
its right to purchase all of the Offered Portion within the Offer Period, the
transferring holder may sell, assign, pledge or otherwise transfer the Offered
Portion to the third-party transferee(s) set forth in the Offer Statement at a
price not less than, and upon terms not more favorable to such transferee(s)
than the terms set forth in the Offer; provided, however, that if the
transferring holder has not completed such transfer within one hundred twenty
(120) days after the Offer Period lapses, such transfer shall again become
subject to the terms of this subsection 11(b).
(iv) The right of purchase set forth in this subsection
11(b) may be assigned by the Company without the consent of the holder hereof.
Notice of such assignment shall be given to the holder hereof.
(c) Other than transfers of this Warrant or any Shares received
upon exercise hereof to a transferee or transferees set forth in subsection (a)
above, prior to any proposed transfer of this Warrant consistent with the
foregoing or the Shares received upon the exercise
10.
<PAGE> 11
hereof (collectively, the "Securities"), unless there is in effect a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, and shall, if the Company so requests,
be accompanied (except in transactions in compliance with Rule 144) by either
(i) an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company's counsel, to the effect that the proposed
transfer of the Securities may be effected without registration under the
Securities Act, or (ii) a "no action " letter from the Commission to the effect
that the transfer of such Securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of the Securities shall be entitled to transfer
the Securities in accordance with the terms of the notice delivered by the
holder to the Company. Each certificate evidencing the Securities transferred as
above provided shall bear the appropriate restrictive legend set forth above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the Securities Act.
12. MERGER. If the Company shall at any time merge with or into
another corporation in a transaction that is not an Acquisition, the holder of
this Warrant will thereafter receive, upon the exercise of this Warrant in
accordance with its terms, the securities or properties to which the holder of
the number of shares of Common Stock then deliverable upon exercise of this
Warrant would have been entitled upon such merger.
13. OBSERVER RIGHTS. At any time prior to the consummation of the
Initial Public Offering and for so long as this Warrant is issued and
outstanding, Michael Ashkin shall have the right to attend all meetings
(including telephonic meetings) of the Company's Board of Directors in a
non-voting, observer capacity and, in this respect, the Company shall give Mr.
Ashkin, whether or not present at such meetings, copies of all notices, minutes,
consents and other materials that it provides to its directors; provided,
however, (i) that Mr. Ashkin shall agree to hold in confidence and trust and to
act in a fiduciary manner with respect to all information so provided; (ii) that
the Company reserves the right to withhold any information and to exclude Mr.
Ashkin from any meeting, or portion thereof, if the Board of Directors
determines in good faith that access to such information or attendance at such
meeting could materially and adversely affect the Company, whether by way of
adversely affecting the attorney-client privilege between the Company and its
counsel, or otherwise; and (iii) that in no event shall the failure to provide
the notice described above invalidate in any way any action taken at a meeting
of the Company's Board of Directors. If it is necessary for Mr. Ashkin to travel
to any such Board meeting, he shall receive the same remuneration and
reimbursement from the Company as do the Company's Directors residing in the
eastern United States. Notwithstanding the foregoing, the observer rights set
forth in this Section 13 shall terminate if and at such time as Michael Ashkin
beneficially owns less than 650,000 Shares. For the purpose of the calculation
set forth in the preceding sentence, "beneficial ownership" shall be interpreted
consistently with Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as
11.
<PAGE> 12
amended, except that such term shall be deemed to include shares held by the
members of Mr. Ashkin's immediate family or in trusts for their benefit.
14. HSR ACT AND RULES. In the event the Company or any holder hereof
reasonably believes that the exercise of this Warrant and the issuance of shares
of Common Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) requires prior compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR Act and Rules"), any such exercise
shall be contingent upon such prior compliance, and, subject to effecting such
compliance, be effective as of the date that this Warrant is surrendered for
exercise pursuant to Section 6 above.
15. MISCELLANEOUS. This Warrant shall be governed by the laws of the
State of California (without reference to conflict of laws principles). The
headings in this Warrant are for purposes of convenience of reference only and
shall not be deemed to constitute a part hereof. Neither this Warrant nor any
term hereof may be changed, waived, discharged or terminated orally but only by
an instrument in writing signed by the Company and the registered holder hereof.
All notices and other communications from the Company to the holder of this
Warrant shall be delivered personally or mailed by first class mail, postage
prepaid, to the address furnished to the Company in writing by the last holder
of this Warrant who shall have furnished an address to the Company in writing,
and if mailed shall be deemed given three days after deposit in the U.S. Mail.
IN WITNESS WHEREOF, this Common Stock Purchase Warrant No. CSW-14 is
issued this 31st day of December, 1997.
RIBOGENE, INC.
a California corporation
By: /s/ CHARLES CASAMENTO
-----------------------------------
Title:
--------------------------------
12.
<PAGE> 13
NOTICE OF EXERCISE
OF RIBOGENE, INC.
COMMON STOCK PURCHASE WARRANT
To:
Attn:
1. The undersigned hereby elects to purchase _______________ shares
of Stock of _____________________________________ pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
Name:
Address:
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
other than distributions to members of the undersigned immediate family or to
trusts for their benefit.
--------------------------------
(Signature)
- --------------------------------------
(Date)
13.
<PAGE> 14
ATTACHMENT 1
EXAMPLES OF EXERCISE OF CONVERSION AND INCLUSION RIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLE #1
Assumptions:
1. Full exercise of Conversion Right
2. Variables:
X = Shares acquirable upon exercise of conversion right
Y = Total Number (to be converted) = 2,000,000
A = Fair Market Value = 5
B = Warrant Price = 3
Conversion Right Calculation:
X = Y * (A-B) - X = 2,000,000 * (5-3) - X = 800,000 shares
----- -----------------
B 5
- --------------------------------------------------------------------------------
EXAMPLE #2
Assumptions:
1. 1/2 exercise of Conversion Right and 1/2 cash exercise and full exercise
of Inclusion Right.
2. Underwriting discounts and commissions have not been taken into
consideration.
3. Variables:
- For Conversion Right Calculation:
X = Shares acquirable upon exercise of right
Y = Total Number (to be converted) = 1,000,000
A = Fair Market Value = 5
B = Warrant Price = 3
14.
<PAGE> 15
- For Cash Exercise and Inclusion Right:
X = Shares included in Initial Public Offering
Y = Shares cash exercised = 1,000,000
Z = Fully paid shares owned by holder after cash
exercise and inclusion
A = Fair Market Value = 5
B = Warrant Price = 3
Calculations:
Conversion Right Calculation:
X = Y * (A-B) - X =1,000,000 * (5-3) - X = 400,000 shares
----- -----
B 5
Cash Exercise and Inclusion Right Calculation:
X = (Y * B)- X = (1,000,000 * 3) - X = 600,000 shares
----- -------------
A 5
Z = Y - X - Z = 1,000,000 - 600,000 - Z = 400,000
- --------------------------------------------------------------------------------
ACCORDINGLY, THE HOLDER IS LEFT WITH 800,000 FULLY PAID SHARES UNDER
EACH OF THE FOREGOING EXAMPLES, REGARDLESS OF WHETHER THE CONVERSION RIGHT WAS
EXERCISED IN FULL (800,000 shares) OR WHETHER EACH RIGHT WAS EXERCISED EQUALLY
(400,000 + 400,000 shares).
15.
<PAGE> 1
EXHIBIT 4.23
AMENDMENT
TO
UNIT PURCHASE OPTION
This amendment (the "Amendment") to that certain Unit Purchase Option,
dated June 23, 1997, to purchase up to an aggregate of 342,399 Option Units (the
"Option") is made as of April 6, 1998 by and between RIBOGENE, INC., a
California corporation (the "Company") and the undersigned holders of the Option
(each "Holder").
RECITALS
WHEREAS, the undersigned understands that the Company plans to authorize,
sell and issue shares of its common stock (the "Common Stock") on or before
August 30, 1998 through an initial public offering involving an underwriting
(the "IPO"); and
WHEREAS, Option contain certain conversion adjustments pursuant to
Paragraph 3(b) thereof.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. In connection with the IPO, Paragraph 3(b) is hereby amended and restated
in its entirety as follows:
" (b) Upon the conversion of all the Preferred Stock into Common Stock the
Per Option Unit Price shall be adjusted to be equal to a fraction, the
numerator of which shall be the Aggregate Option Price underlying this Option
and the denominator of which shall be the product obtained by multiplying (i)
the quotient obtained by dividing 2.25 (plus declared but unpaid dividends on
the Series F Preferred stock, if any, and all accrued but unpaid Preferred
Dividends thereon) by 2.25, by (ii) the number of Option Units held by Holder.
In addition, after the Conversion Date, the following anti-dilution provisions
shall protect the Holder from dilution resulting from the issuance of Common
Stock and Common Stock equivalents:"
2. Pursuant to Paragraph 12 of the Option, this Amendment shall be effective
upon execution of counterparts hereof by the Company and by Holders holding
more than fifty percent (50%) in interest of the Company's Option Units, as
that term is defined in the Option.
3. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
1.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
first set forth above.
RIBOGENE, INC. HOLDER
By: /s/ TIMOTHY E. MORRIS By: /s/ LINDSAY ROSENWALD
---------------------------------- ----------------------------------
Name: Timothy E. Morris Name: Lindsay Rosenwald
-------------------------------- --------------------------------
Title: CFO Title:
------------------------------- -------------------------------
2.
<PAGE> 3
Exhibit I - Hypothetical
Antidilution Adjustment Prior to a Trigger Event
If prior to a Trigger Event, the Company were to issue or sell any Preferred
Stock, any securities convertible into Preferred Stock, any rights, options or
warrants to purchase Preferred Stock or any securities convertible into
Preferred Stock for a price per share which is less than either the then Market
Price Per Option Unit in effect on the date of such issuance or sale or the Per
Option Unit Price, the Per Option Unit Price shall be adjusted. For example, if
the Company were to sell 1 million shares of Preferred stock at a price per
share of $2.00 per share, the adjusted Per Option Unit Price would be equal to:
Original Per Option Unit Price =
$2.475 x Preferred Stock outstanding (15,134,000)
+ Preferred Stock total consideration divided by
Per Option Unit Price
(2,000,000 + 2.475)
----------------------------------------------------------------------
Preferred Stock outstanding (15,134,000)
+
Maximum number of Preferred Stock Sold (1,000,000)
15,134,000 + (2,000,000 + 2.475)
2.475 x -------------------------------------
15,134,000 + 1,000,000
2.475 x 15,134,000 + 808,080
-------------------------------------
16,134,000
2.475 x .9881 = $2.4456
New Per Option Unit Price is $2.44
<PAGE> 4
Upon a Trigger Event, the number of shares of Series F (common) would be
calculated using the formula shown on Exhibit II as follows:
Option Agreement
Adjustments o The Per Option Unit Price as adjusted is $2.44. Upon
Per Option Unit Price conversion of all Preferred to Common at IPO, the
following formula applies:
Adjusted Per Option ($2.44/unit)(570,665)
Unit Price = ---------------------
(2.0)(570.665 units)
= $1.22
The price falls to $1.22 per Option Unit
Number of Shares Per o When any change to the Per Option Unit Price above is
Option Unit triggered, a simultaneous adjustment is made to the
number of shares of Series F (or Common Stock)
purchasable per Option Unit. The following applies:
(Shares of Series F per Option
Unit X Per Option Unit Price)
Shares/Option Unit = ------------------------------
Per Option Unit Price, as
adjusted
(1.0)($2.475)
-------------------
= $1.22
= 2.0287
The number of shares of Series F purchasable per unit
increases to 2.0287.
<PAGE> 5
Exhibit II - Hypothetical
Adjustment upon conversion of the Preferred Stock:
Where: Option Units 570,665
Per Option Unit Price $2.475
Declared but unpaid dividends
on Series F Preferred Stock
and all accrued but unpaid
Preferred Dividends $2.25
1-for-14 Reverse split
Aggregate Option Price =$2.475x570,665=$1,412,396
Adjusted Per Option Unit Price = ($2.475) (570,665)
-----------------------------------
(($2.25 + $2.25)/($2.25)) (570,665)
=$1.2375
Adjustment to Number of shares per Option Unit:
Shares/Option Unit=(Shares of Series F per Option Unit) (Per Option Unit Price)
------------------------------------------------------------
Per Option Unit Price, as adjusted
=(1.0)($2.475)
--------------
$1.2375
=2.0
1.
<PAGE> 1
EXHIBIT 4.24
AMENDMENT
TO
UNIT PURCHASE OPTION
This amendment (the "Amendment") to that certain Unit Purchase Option,
dated June 23, 1997, to purchase up to an aggregate of 228,266 Option Units (the
"Option") is made as of April 6, 1998 by and between RIBOGENE, INC., a
California corporation (the "Company") and the undersigned holders of the Option
(each "Holder").
RECITALS
WHEREAS, the undersigned understands that the Company plans to authorize,
sell and issue shares of its common stock (the "Common Stock") on or before
August 30, 1998 through an initial public offering involving an underwriting
(the "IPO"); and
WHEREAS, Option contain certain conversion adjustments pursuant to
Paragraph 3(b) thereof.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. In connection with the IPO, Paragraph 3(b) is hereby amended and restated
in its entirety as follows:
" (b) Upon the conversion of all the Preferred Stock into Common Stock the
Per Option Unit Price shall be adjusted to be equal to a fraction, the
numerator of which shall be the Aggregate Option Price underlying this Option
and the denominator of which shall be the product obtained by multiplying (i)
the quotient obtained by dividing 2.25 (plus declared but unpaid dividends on
the Series F Preferred stock, if any, and all accrued but unpaid Preferred
Dividends thereon) by 2.25, by (ii) the number of Option Units held by Holder.
In addition, after the Conversion Date, the following anti-dilution provisions
shall protect the Holder from dilution resulting from the issuance of Common
Stock and Common Stock equivalents:"
2. Pursuant to Paragraph 12 of the Option, this Amendment shall be effective
upon execution of counterparts hereof by the Company and by Holders holding
more than fifty percent (50%) in interest of the Company's Option Units, as
that term is defined in the Option.
3. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
1.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
first set forth above.
RIBOGENE, INC. HOLDER
By: /s/ TIMOTHY E. MORRIS By: /s/ LINDSAY ROSENWALD
---------------------------------- ----------------------------------
Name: Timothy E. Morris Name: Lindsay Rosenwald
-------------------------------- --------------------------------
Title: CFO Title:
------------------------------- -------------------------------
2.
<PAGE> 3
Exhibit I - Hypothetical
Antidilution Adjustment Prior to a Trigger Event
If prior to a Trigger Event, the Company were to issue or sell any Preferred
Stock, any securities convertible into Preferred Stock, any rights, options or
warrants to purchase Preferred Stock or any securities convertible into
Preferred Stock for a price per share which is less than either the then Market
Price Per Option Unit in effect on the date of such issuance or sale or the Per
Option Unit Price, the Per Option Unit Price shall be adjusted. For example, if
the Company were to sell 1 million shares of Preferred stock at a price per
share of $2.00 per share, the adjusted Per Option Unit Price would be equal to:
Original Per Option Unit Price =
$2.475 x Preferred Stock outstanding (15,134,000)
+ Preferred Stock total consideration divided by
Per Option Unit Price
(2,000,000 + 2.475)
----------------------------------------------------------------------
Preferred Stock outstanding (15,134,000)
+
Maximum number of Preferred Stock Sold (1,000,000)
15,134,000 + (2,000,000 + 2.475)
2.475 x -------------------------------------
15,134,000 + 1,000,000
2.475 x 15,134,000 + 808,080
-------------------------------------
16,134,000
2.475 x .9881 = $2.4456
New Per Option Unit Price is $2.44
<PAGE> 4
Upon a Trigger Event, the number of shares of Series F (common) would be
calculated using the formula shown on Exhibit II as follows:
Option Agreement
Adjustments o The Per Option Unit Price as adjusted is $2.44. Upon
Per Option Unit Price conversion of all Preferred to Common at IPO, the
following formula applies:
Adjusted Per Option ($2.44/unit)(570,665)
Unit Price = ---------------------
(2.0)(570.665 units)
= $1.22
The price falls to $1.22 per Option Unit
Number of Shares Per o When any change to the Per Option Unit Price above is
Option Unit triggered, a simultaneous adjustment is made to the
number of shares of Series F (or Common Stock)
purchasable per Option Unit. The following applies:
(Shares of Series F per Option
Unit X Per Option Unit Price)
Shares/Option Unit = ------------------------------
Per Option Unit Price, as
adjusted
(1.0)($2.475)
-------------------
= $1.22
= 2.0287
The number of shares of Series F purchasable per unit
increases to 2.0287.
<PAGE> 5
Exhibit II - Hypothetical
Adjustment upon conversion of the Preferred Stock:
Where: Option Units 570,665
Per Option Unit Price $2.475
Declared but unpaid dividends
on Series F Preferred Stock
and all accrued but unpaid
Preferred Dividends $2.25
1-for-14 Reverse split
Aggregate Option Price =$2.475x570,665=$1,412,396
Adjusted Per Option Unit Price = ($2.475) (570,665)
-----------------------------------
(($2.25 + $2.25)/($2.25)) (570,665)
=$1.2375
Adjustment to Number of shares per Option Unit:
Shares/Option Unit=(Shares of Series F per Option Unit) (Per Option Unit Price)
------------------------------------------------------------
Per Option Unit Price, as adjusted
=(1.0)($2.475)
--------------
$1.2375
=2.0
1.
<PAGE> 1
EXHIBIT 10.33
December 31, 1997
Hyline Laboratories, Inc.
c/o Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, NY 10017
Attn: Joel Salon
Mr. Michael Ashkin
c/o Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, NY 10017
Attn: Joel Salon
RE: Letter Agreement
Dear Mr. Ashkin:
Reference is made to that certain Secured Promissory Note in the aggregate
principal amount of $909,000, dated January 5, 1994 (the "Note"), by and between
RiboGene, Inc. (the "Company") and Hyline Laboratories, Inc. ("Hyline"), and the
Non-Competition Agreement dated January 5, 1994 (the "Non-Competition
Agreement") entered into between the Company and you (together, the two
agreements shall be referred to herein as the "Agreements").
Pursuant to the terms of the Note, an aggregate principal amount of $909,000 and
accrued interest thereon in the aggregate amount of $209,425.90 will become due
and payable on January 5, 1998. Additionally, pursuant to Section 3 of the
Non-Competition Agreement, the Company is obligated to pay you the amount of
$112,000 on January 5, 1998 (the "Non-Competition Payment").
The Company, Hyline and you hereby agree to the following amendments to the
Agreements:
1. Subject to the partial payment of principal as provided below, the date
upon which the remaining unpaid principal amount of the Note and all accrued but
unpaid interest thereon become due and payable, and the maturity date of the
Note will be extended from the close of business on January 5, 1998 to the
earlier of: (i) the close of business on May 5, 1998; and (ii)
1.
<PAGE> 2
Salon, Marrow & Dyckman, LLP
December 31, 1997
Page 2
the close of business twenty (20) days following the closing of an initial
public offering of the Company's common stock.
2. Commencing on January 5, 1998, the interest on the unpaid principal balance
of the Note and accrued and unpaid interest thereon shall be equal to 7.0% per
annum, compounded annually and calculated on the basis of a 365 day year.
3. The date upon which the Non-Competition Payment becomes due and payable
hereby is extended from January 5, 1998 to the earlier of: (i) May 5, 1998; and
(ii) the close of business twenty (20) days after the closing of an initial
public offering of the Company's common stock. Commencing on January 5, 1998,
interest shall accrue on the Non-Competition Payment at the rate of 7.0% per
annum, compounded annually and calculated on the basis of a 365 day year.
4. Payments under that certain Consulting Agreement, dated January 5, 1994, by
and between the Company and you will continue to be made when due without
extension.
5. In consideration for the foregoing amendments to the Agreements, the
Company agrees to (1) repay Five Hundred Thousand Dollars ($500,000) of the
principal amount of the Note on January 5, 1998, and (2) issue to Hyline a
warrant to purchase up to an aggregate of 195,000 shares of Common Stock of the
Company in substantially the form attached hereto as Annex A.
6. Except as herein amended, the Note, the Non-Competition Agreement and that
certain Security Agreement, dated January 5, 1994, by and between the Company,
Hyline and you, securing payment of all obligations of the Company to you and
Hyline are hereby ratified and confirmed.
This letter shall constitute a binding obligation of each of the Company, Hyline
and you.
2.
<PAGE> 3
Salon, Marrow & Dyckman, LLP
December 31, 1997
Page 3
If the foregoing is acceptable, please acknowledge agreement hereto in the space
indicated below and return a signed copy of this letter agreement to me.
Sincerely,
RIBOGENE, INC.
By: /s/ Charles J. Casamento
-------------------------------
Title: Chairman, President and CEO
----------------------------
ACCEPTED AND AGREED:
/s/ Michael Ashkin
- ----------------------------------
Michael Ashkin
HYLINE LABORATORIES, INC.
By: /s/ Michael Ashkin
-------------------------------
Title: President
----------------------------
3.
<PAGE> 4
Salon, Marrow & Dyckman, LLP
January , 1998
Page 4
ANNEX A
4.
<PAGE> 1
EXHIBIT 10.34
LICENSE AGREEMENT
THIS AGREEMENT ("AGREEMENT") is entered into as of the _____ day of
_________, 1998 the "EFFECTIVE DATE") by and between RIBOGENE INC., a California
corporation ("RIBOGENE"), and DAINIPPON PHARMACEUTICAL CO., LTD. ("DAINIPPON"),
a corporation organized under the laws of Japan.
RECITALS
WHEREAS, Dainippon and RiboGene concurrently with this Agreement are
entering into a research agreement (the "Research Agreement") for the discovery
of compounds which are active in certain RiboGene assays; and
WHEREAS, the parties wish to develop and market novel therapeutic
products based on compounds identified pursuant to the Research Agreement; and
WHEREAS, in connection with the establishment of the relationship
between the parties, on or before February 13, 1998 Dainippon is purchasing
shares of RiboGene stock in the amount of US$ 2 million pursuant to a stock
purchase agreement agreed upon between the parties on or before February 5,
1998;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
promises contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "CONFIDENTIAL INFORMATION" shall mean a party's confidential
information, including, without limitation, Dainippon Know-How, RiboGene
Know-How, Collaboration Know-How, Development Plans, engineering designs and
drawings, research data, manufacturing processes and techniques, scientific,
manufacturing, marketing, and business plans, financial or personnel matters
relating to the party, its present or future products, sales, suppliers,
customers, employees, investors or business.
1.2 "NET SALES" shall mean, with respect to a Product, and on a
country-by-country basis, the gross invoice price of all Product sold by
Dainippon, its Affiliates or sublicensees to an independent third party after
deducting, if not already deducted in the amount invoiced (a) trade, quantity
and cash discounts actually taken, (b) returns, rebates and allowances, (c)
duties, sales and excise taxes and (d) transportation and insurance charges.
With respect to sales of combination products, which shall consist of Products
combined with one or more additional active ingredients, the parties will agree
on a method of allocation in the event the situation arises. Sales among
Dainippon and its Affiliates or sublicensees shall not be deemed Net Sales.
Products shall be considered sold when invoiced by Dainippon.
1.
<PAGE> 2
1.3 "MAJOR MARKET" shall mean any one of the following countries:
Japan, USA, United Kingdom, France, Germany, or Italy. For purposes of this
Agreement, the term "Major Market" shall also include any number of countries
within the European Union sufficient to obtain Regulatory Approvals throughout
the European Union.
1.4 "PRODUCT" shall mean any pharmaceutical product, including all
formulations, line extensions or modes of administration thereof, which contains
a Licensed Compound as an active ingredient or compound which is derived from a
Licensed Compound for replacement of the Licensed Compound.
1.5 "PHASE III" shall mean that phase in the clinical development of
a Product during which expanded controlled and/or uncontrolled studies are
conducted after preliminary evidence of effectiveness of the Product has been
obtained, and which studies are intended to gather additional information about
effectiveness and safety that is needed to evaluate the overall benefit-risk
relationship of the Product, to provide an adequate basis for physician labeling
and to support a filing for marketing approval.
1.6 "TERRITORY" shall mean the entire world.
1.7 Each of the following terms shall have the meaning given it,
respectively, in the Research Agreement:
"Active Compounds", "Affiliate", "Assays", "Collaboration Know-How",
"Collaboration Patents", "Collaboration Technology", "Dainippon Know-How",
"Dainippon Patents", "Dainippon Substances", "Dainippon Technology",
"Development Program", "FDA", "Field", "GLP Toxicology Studies", "Inactive
Derived Compound", "IND", "NDA", "Licensed Back-Up Compound", "Licensed
Compound", "Regulatory Approval(s)", "Research Committee", "Research Program",
"Research Term", "RiboGene Know-How", "RiboGene Patents", " RiboGene
Substances", "RiboGene Technology", "Tail End Period", and "Targets".
ARTICLE 2
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
2.1 CONDUCT OF THE DEVELOPMENT PROGRAM. With respect to each
Licensed Compound, Dainippon will conduct a Development Program designed to
obtain Regulatory Approval in the Territory.
2.2 DUE DILIGENCE.
(a) The parties agree that the goal of the Development
Program for each Licensed Compound shall be to develop and commercialize a
Product in the entire Territory. To that end, Dainippon shall devote the same
degree of attention, resources and diligence to the preclinical and clinical
development of each Licensed Compound as it devotes to its own high priority
compounds and products.
2.
<PAGE> 3
(b) In particular, Dainippon shall make commercially
reasonable efforts to conduct for each Product clinical trials in the countries
of the Major Market as early as possible, and to seek Regulatory Approval for
each Product in these countries.
(c) Further, Dainippon shall make commercially reasonable
efforts to launch and sell each Product in each country in the Territory as
early as possible, but in no case shall Dainippon launch and sell a Product in
any country in the Territory [*] for such Product in that country has been
granted, unless the parties agree on an extension of such period or unless the
delay is caused by any reason not controllable by Dainippon [*]. [*] if
Dainippon has not launched the Product in that country it may, at its option,
either (i) [*] the Product in that country or (ii) pay RiboGene [*] which would
have been payable to [*] for [*] based upon Dainippon's good faith estimates of
[*] and the applicable [*] determined as provided in Section 5.2(a). If
Dainippon elects to [*] the Product in such country, RiboGene shall have the
right, if necessary, under all applicable Dainippon owned Collaboration
Technology to sublicense, make, have made, use and sell such Product in such
country and the right to [*] upon reimbursement to Dainippon of its development
and regulatory costs, applicable to such Product for such country. Such rights
shall be royalty-bearing if the Product contains a Licensed Compound which is,
or is derived from, a Dainippon Substance but otherwise shall be royalty-free.
If Dainippon elects to [*] such payment shall not [*] which may become due upon
Net Sales by Dainippon.
2.3 OBLIGATION TO INFORM. Dainippon shall keep RiboGene informed on
the development of each Licensed Compound (including, but not limited to written
updates on the progress of each filing with the FDA or its equivalent non-US
Regulatory Authority), such reports to be provided to RiboGene on [*] and upon
the completion of each major phase in the clinical development.
2.4 DISCONTINUANCE OF COMMERCIALIZATION. If Dainippon discontinues
the development, marketing or sales of all the Products in all the countries,
RiboGene shall have a perpetual, exclusive, royalty-bearing, worldwide,
sublicensable license under Dainippon owned Collaboration Technology to
research, develop, make, have made, use and sell any such Products and to use
and apply non-compound related Collaboration Technology in the Field. If
Dainippon discontinues the development, marketing or sales of a certain Product
in a certain country, RiboGene shall have the right, if necessary, under all
applicable Dainippon owned Collaboration Technology to sublicense, make, have
made, use and sell such Product in such country and to cause Dainippon to assign
all related applications for Regulatory Approvals upon reimbursement to
Dainippon of its development and regulatory costs, applicable to such Product
for such country. Such rights shall be royalty-bearing if the Product contains a
Licensed Compound which is, or is derived from, a Dainippon Substance but
otherwise shall be royalty-free.
ARTICLE 3
CO-PROMOTION
3.1 OPTION RIGHT. RiboGene shall have the option to co-promote any
Products in North America and in Europe ("Co-promotion Territory").
3.
<PAGE> 4
3.2 EXERCISING OF OPTION. The option shall be exercised by written
notice to Dainippon no later than one hundred eighty (180) days after filing of
the NDA for the respective Product on a country-by-country basis. It is
understood that RiboGene shall carry out the co-promotion by itself and shall
not grant the right of co-promotion to any third party. Furthermore, it is the
intent of the parties that the co-promotion shall be made in a manner to
strengthen the marketing and profitability of the Product. At the same time as
the notice is delivered to Dainippon, RiboGene shall provide Dainippon with its
proposed plan of the co-promotion. Within ninety (90) days from delivery of the
notice to Dainippon, the parties shall negotiate and agree on the terms of the
co-promotion agreement in good faith. Such terms shall include a provision for
Dainippon to pay RiboGene a co-promotion fee, in addition to royalties on Net
Sales, in an amount based on the amount of RiboGene's co-promotion activity, and
a provision on overall framework of the co-promotion, including appropriate
degree of RiboGene's participation in the co-promotion, to the satisfaction of
Dainippon and RiboGene, and such other customary terms as the parties agree, and
shall be from time to time reviewed and, if necessary, modified by mutual
agreement of the parties to reflect the then-current situation, particularly the
profitability of both parties. The co-promotion fee shall equal RiboGene's Fully
Burdened Cost plus [*] percent [*] of the costs of (iv) below. The term "Fully
Burdened Cost" shall mean (i) direct costs specifically identifiable incurred
for the advertising, promotion and marketing of a Product in the Co-Promotion
Territory, including, without limitation, advertisements, conventions,
promotional literature, market research and market planning, direct mail,
product samples, marketing services, sales training programs, activities
relating to promotion and marketing to managed care customers, launch expenses,
(ii) post-approval medical and clinical trial costs, (iii) costs of product
liability insurance, (iv) all costs incurred to operate and maintain a marketing
and sales force which promotes the Product in the Territory, including, without
limitation, salaries, benefits, incentives, personal computers, and car leases,
all as determined in accordance with GAAP. For purposes of clarification, if
RiboGene does not exercise the option to co-promote a Product, the royalty
obligations of Section 5.2 shall apply. Unless RiboGene can utilize Dainippon's
facilities or other resources as described in, or relating to facilities or
resources described in (i), (ii) and (iii), RiboGene shall use its own
facilities or resources to the extent that such facilities or resources are
agreed to in advance by Dainippon. If RiboGene utilizes Dainippon's facilities
or resources, the costs of (i), (ii) and (iii) above shall not be included in
"Fully Burdened Cost;" in any other case, the costs of (i), (ii) and (iii) above
shall be included in "Fully Burdened Cost" and be reimbursed to RiboGene by
Dainippon. Notwithstanding the above provisions, in the event Dainippon
sublicenses the Product in any of the countries in the Co-Promotion Territory,
Dainippon shall make its reasonable efforts to have the sublicensee accept the
co-promotion by RiboGene and conditions as provided for above in such country.
However, if Dainippon sublicenses the Product in the United States, Dainippon
shall require the sublicensee to accept the co- promotion by RiboGene. In the
event RiboGene is acquired by or merged into a company reasonably unacceptable
to Dainippon for co-promotion in any countries, the above option of co-promotion
shall no longer be exercisable unless otherwise agreed upon.
ARTICLE 4
OWNERSHIP OF INTELLECTUAL PROPERTY; LICENSE GRANTS
4.
<PAGE> 5
4.1 OWNERSHIP. Ownership of Dainippon Technology, RiboGene
Technology and Collaboration Technology shall be allocated to each party as
provided in Section 3.1 of the Research Agreement.
4.2 DEVELOPMENT AND COMMERCIALIZATION LICENSE.
(a) LICENSE GRANT BY RIBOGENE. RiboGene hereby grants
Dainippon the right and license, with the right to sublicense, to develop, make,
have made, use and sell Products in the Territory solely within the Field under
RiboGene Technology and the RiboGene-owned and jointly owned Collaboration
Technology. The license granted herein shall be exclusive, even as to RiboGene,
except for the co-promotion rights retained by RiboGene as set forth in Article
3. Exhibit 4.2 hereto shall list all Licensed Compounds and the patents and
patent applications included in the RiboGene Technology and the RiboGene-owned
and jointly owned Collaboration Technology licensed under this subsection (a),
updated from time to time to include new Licensed Compounds and the patent
applications and issued patents relating thereto. Dainippon covenants and agrees
that it will not use, directly or indirectly, the RiboGene Technology or
RiboGene solely owned Collaboration Technology for any purpose other than
developing, making, having made, using or selling Products in the Territory in
the Field under this Agreement.
(b) REGISTRATION. Dainippon may register an exclusive
license (senyo jisshiken) granted with respect to the patents licensed under
this Agreement in the Japanese Patent Office and RiboGene shall cooperate
reasonably with Dainippon in such registration.
(c) ADDITIONAL USES. If Dainippon desires to have the rights
and licenses under RiboGene Technology or RiboGene solely owned Collaboration
Technology to develop and sell a Licensed Compound outside the Field, it may
notify RiboGene as provided in Section 3.4 of the Research Agreement.
ARTICLE 5
COMMERCIAL TERMS
5.1 DEVELOPMENT MILESTONES. Dainippon shall pay to RiboGene the
following amounts in the course of the development of each Product:
<TABLE>
<CAPTION>
Milestone Event/Due Date* Amount (net of withholding)
------------------------- ---------------------------
Japan Major Market (other than Japan)
----- -------------------------------
<S> <C> <C>
Start of first human clinical trial [*] [*]
Start of first Phase III trial [*] [*]
Filing of first NDA [*] [*]
Launch in first Major Market [*] [*]
</TABLE>
5.
<PAGE> 6
*Each milestone payment shall be made for each Product only once regardless of
any substitution of a Licensed Back-up Compound for a Licensed Compound and any
consequent repetition of a milestone event.
Any withholding tax levied at source relating to the milestone payments payable
to RiboGene under Section 5.1 shall be borne by Dainippon. RiboGene shall
reasonably assist Dainippon with respect to payment of the tax.
5.2 ROYALTIES.
(a) ROYALTY PAYMENTS. Dainippon shall pay to RiboGene a
royalty on Net Sales as follows:
<TABLE>
<CAPTION>
ROYALTY RATE IN PERCENT (%) PAYABLE ON PORTION OF ANNUAL NET SALES
(IN U.S. $MILLIONS)
UNITED STATES REST OF WORLD
<S> <C> <C>
[*] [*] 75 or less
[*] [*] More than 75 less than 150
[*] [*] 150 or more
</TABLE>
(b) ROYALTY TERM.
(i) In any country where the manufacture, use or
sale of a Product is not covered by a Collaboration Patent or RiboGene Patent,
royalties shall be payable in such country until the expiration of [*] from the
date of first commercial sale of such Product in such country.
(ii) In any country where the manufacture, use or
sale of a Product is covered by a Collaboration Patent or RiboGene Patent,
royalties shall be payable in such country until the later of (i) [*] from the
first commercial sale of such Product in such country and (ii) the expiration of
the last to expire of such Collaboration Patent or RiboGene Patent.
ARTICLE 6
PAYMENTS; RECORDS; AUDIT
6.1 PAYMENT; REPORTS.
(a) MILESTONE PAYMENTS. Dainippon shall make the milestone
payments under Sections 5.1 within thirty (30) days of the Due Date by means of
wire transfer to RiboGene's account in a bank in the United States to be
designated by RiboGene.
6.
<PAGE> 7
(b) ROYALTY PAYMENTS.
(i) Royalty amounts payable to RiboGene under
Section 5.2 shall be paid in U.S. Dollars within ninety (90) days of the end of
each March, June, September and December. Each payment of royalties shall be
accompanied by a statement of the amount of Net Sales during such period, the
amount of aggregate Net Sales to date as of the end of such period where
necessary in determination of royalty rates, and the amount of royalties due on
such sales.
(ii) Royalty payments and reports for the sale of
Products shall be made for each three month period ending on the last day of
March, June, September and December. For the purpose of calculating royalties on
Net Sales generated in currencies other than U.S. dollars, such Net Sales shall
be converted into U.S. dollars at the rate of exchange on the last business day
of the relevant royalty period, established by the Bank of Tokyo-Mitsubishi,
Tokyo. All royalty payments owed under this Agreement shall be made by means of
wire transfer to RiboGene's account in a bank in the United States to be
designated by RiboGene.
(iii) If RiboGene does not receive payment of any sum
on the date it is due, simple interest shall thereafter accrue on the sum due to
RiboGene until the date of payment at the per annum rate of two percent (2%)
over the then current prime rate of Citibank in New York City, which rate shall
vary concurrently with any change in the prime rate.
(iv) Any withholding tax levied at source relating to
the royalties payable to RiboGene under Section 5.2 shall be borne by RiboGene.
Dainippon shall reasonably assist RiboGene in obtaining a tax credit under the
applicable taxation treaties and laws, including by providing appropriate
evidence of RiboGene's payment of the withholding tax.
6.2 RECORDS AND AUDIT.
(a) During the term of this Agreement and for a period of
two (2) years thereafter, Dainippon shall keep complete and accurate records
pertaining to the sale or other disposition of the Products commercialized by
it, in sufficient detail to permit RiboGene to confirm the accuracy of all
payments due hereunder.
(b) RiboGene shall have the right to cause an independent,
certified public accountant to audit such records to confirm Dainippon's Net
Sales and royalty payments; provided, however, that such auditor shall not
disclose Dainippon's confidential information to RiboGene, except to the extent
such disclosure is necessary to verify the amount of royalties due under this
Agreement.
(c) Such audits may be exercised once a year, within two (2)
years after the royalty period to which such records relate, upon notice to
Dainippon and during normal business hours.
(d) RiboGene shall bear the full cost of such audit unless
such audit discloses an understatement of more than five percent (5%) from the
amount of the Net Sales or royalties
7.
<PAGE> 8
previously paid. In such case, Dainippon shall bear the full cost of such audit.
In case that such audit discloses an overpayment of royalties by Dainippon, such
overpayment shall be refunded to Dainippon. The terms of this Section 6.2 shall
survive any termination or expiration of this Agreement for a period of two (2)
years.
ARTICLE 7
PATENT PROSECUTION AND DEFENSE
7.1 PATENT PROSECUTION. The provisions made in Section 5.1 of the
Research Agreement for the filing, prosecution and maintenance of Collaboration
Patents shall apply, and all such matters shall be governed thereby.
7.2 INFRINGEMENT OF PATENTS BY THIRD PARTIES.
(a) Notice. Each party shall promptly notify the other in
writing of any alleged or threatened infringement of RiboGene Patents, Dainippon
Patents, or Collaboration Patents which may adversely impact the rights of the
parties hereunder.
(b) DAINIPPON PATENTS AND RIBOGENE PATENTS.
(i) The party which is the holder of Dainippon
Patents or RiboGene Patents, respectively, shall have the sole right, but not
the obligation, to bring at its expense an appropriate action against any person
or entity directly or contributorily infringing its patents. If the patent
holder brings an action against an alleged infringer, the other party shall
cooperate reasonably with the patent holder in any such efforts.
(ii) Any recovery obtained by the patent holder as a
result of such action, whether obtained by settlement or otherwise, shall be
disbursed as follows: first, each party shall be reimbursed for any reasonable
expenses incurred in bringing or assisting in such action (including counsel
fees). If the infringement was made by a third party product which competed with
a Product in the Territory, the remaining proceeds shall be received by
Dainippon and added to Net Sales. In the event of any other kind of
infringement, the remaining proceeds shall retained by the patent holder.
(iii) No settlement, compromise or other disposition
of any such action which compromises a party's rights under this Agreement shall
be entered into without such party's prior consent, which shall not be
unreasonably withheld.
(c) COLLABORATION PATENTS.
(i) If a Collaboration Patent is infringed in the
Territory, Dainippon shall have the right, but not the obligation, to bring, at
its own expense, an appropriate action against any person or entity directly or
contributorily infringing such Collaboration Patent. In such event, RiboGene
shall cooperate reasonably with Dainippon in any such action, including if
8.
<PAGE> 9
required to bring such action, consenting to be named as a party to such action
and the furnishing of a power of attorney.
(ii) In the event Dainippon fails to institute an
infringement suit or take other reasonable action to protect the relevant
Collaboration Patent, RiboGene shall have the right, upon sixty (60) days of
notification of Dainippon, to institute such suit or take other appropriate
action at its own expense in its own name, the joint owners' name, or both. In
such event, Dainippon hereby agrees to cooperate reasonably with RiboGene in any
such effort, including if required to bring such action, consenting to be named
as a party to such action and the furnishing of a power of attorney.
(iii) In the event that the above provisions of (i)
and (ii) are not enforceable under the applicable laws, the parties shall meet
and discuss in good faith how to respond to the infringement.
(iv) Regardless of which party brings the action, any
recovery obtained by settlement or otherwise shall be disbursed as follows: the
party bringing such action shall first ensure that any reasonable expenses
incurred in assisting in such action (including counsel fees) by both parties
are reimbursed. Thereafter, the party bringing such action shall ensure that the
net recovery shall be received by Dainippon and added to Net Sales.
7.3 INFRINGEMENT OF THIRD PARTY RIGHTS.
(i) JOINT STRATEGY. In the event that any Product
developed, manufactured or sold hereunder becomes the subject of a claim for
patent, copyright or other proprietary right infringement in the Territory
("Product Infringement Claim"), and irrespective of whether Dainippon or
RiboGene is charged with said infringement, and the venue of such claim, the
parties shall promptly confer to discuss the claim.
(ii) DEFENSE. Dainippon shall have the responsibility
to conduct the defense of any Product Infringement Claim against Dainippon at
its own expense. If Dainippon decides not to assume the responsibility for the
defense of a Product Infringement Claim, it shall so declare to RiboGene in
writing within ninety (90) days from being notified of the claim, but at least
thirty (30) days prior to the date on which a response or other filing with a
judicial body is due. In that event, RiboGene shall have the right, but not the
obligation, to conduct the defense of the Product Infringement Claim. The party
which assumes responsibility for such defense shall bear all costs for the
conduct thereof. In such event, the other party shall have the right, but not
the obligation, to participate in any such suit, at its sole option and at its
own expense. Each party shall reasonably cooperate with the party conducting the
defense of the Product Infringement Claim, including if required to conduct such
defense, furnishing a power of attorney. Neither party shall enter into any
settlement that affects the other party's rights or interests without such other
party's written consent, which consent shall not be unreasonably withheld. In
the event Dainippon and RiboGene shall enter into an agreement providing for
RiboGene to co-promote a Product as provided in Section 3.2, then such agreement
shall provide for such amendment as may be appropriate for this Section 7.3
(ii). Furthermore, in the event
9.
<PAGE> 10
that the above provision in Section 7.3 (ii) is not enforceable under the
applicable laws, the parties shall meet and discuss in good faith how to respond
to the Product Infringement Claim.
7.4 PATENT MARKING. Dainippon shall mark, if necessary, all Products
manufactured, used or sold under the terms of this Agreement, or their
containers, in accordance with the applicable patent marking laws, as required.
ARTICLE 8
PUBLICATION; PUBLICITY
The provisions of Article 6 of the Research Agreement shall apply to the
rights and obligations of the parties regarding publication and publicity during
the term of this Agreement.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants:
9.1 CORPORATE POWER. Such party is duly organized and validly
existing under the laws of the state or country of its incorporation and has
full corporate power and authority to enter into this Agreement and to carry out
the provisions hereof.
9.2 DUE AUTHORIZATION. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
9.3 BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and is enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having authority over it.
9.4 INTELLECTUAL PROPERTY. Such party (i) has the full right to
grant the licenses granted by it under this Agreement; and (ii) is not aware, to
the best of its knowledge, of any claims by third parties to a conflicting
ownership interest in its solely-owned Patents.
9.5 RIBOGENE DISCLAIMER. THE RIBOGENE TECHNOLOGY AND COLLABORATION
TECHNOLOGY LICENSED HEREUNDER IS PROVIDED "AS IS" AND RIBOGENE EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL
CASES WITH RESPECT THERETO.
10.
<PAGE> 11
9.6 DAINIPPON DISCLAIMER. THE DAINIPPON TECHNOLOGY AND COLLABORATION
TECHNOLOGY LICENSED HEREUNDER IS PROVIDED "AS IS" AND DAINIPPON EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL
CASES WITH RESPECT THERETO.
ARTICLE 10
INDEMNIFICATION
The provisions of Article 8 of the Research Agreement shall apply to the
rights and obligations of the parties under this Agreement regarding
indemnification.
ARTICLE 11
CONFIDENTIALITY
11.1 DISCLOSURE OF CONFIDENTIAL INFORMATION. Confidential Information
disclosed by one party to the other pursuant to and during the term of this
Agreement shall be subject to the confidentiality obligations set forth below:
(a) if disclosed in writing and marked "confidential" or
"proprietary" by the disclosing party prior to or at the time of the disclosure
thereof, or if it would be apparent to a reasonable person, familiar with the
disclosing party's business and the industry, that such information is of a
confidential or proprietary nature; and
(b) if within 30 days after disclosure of Confidential
Information, the disclosing party informs the receiving party in writing of the
confidential nature of the disclosed information, describing such information
and referencing the place and date of the oral, visual or written disclosure and
the names of the employees or officers of the receiving party to whom such
disclosure was made.
11.2 CONFIDENTIALITY AND NON-USE. Except to the extent expressly
authorized by this Agreement or unless otherwise agreed in writing by the
parties, each party agrees that, for the combined term of this Agreement and the
Research Agreement, and for [*] thereafter, it shall keep confidential and shall
not publish or otherwise disclose and shall not use for any purpose other than
as provided for in this Agreement any Confidential Information, unless the
receiving party can demonstrate by competent proof that such Confidential
Information:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure by the other
party;
(b) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to the receiving party;
11.
<PAGE> 12
(c) became generally available to the public or otherwise
part of the public domain after it disclosure and other than through any act or
omission of the receiving party in breach of such Agreements;
(d) was disclosed to the receiving party, other than under
an obligation of confidentiality to a third party, by a third party who had no
obligation to the disclosing party not to disclose such information to others;
or
(e) was independently discovered or developed by the
receiving party without the use of Confidential Information belonging to the
disclosing party.
11.3 AUTHORIZED DISCLOSURE.
(a) Each party may disclose Confidential Information
belonging to the other party to Affiliates and sublicensees who agree to be
bound by similar terms of confidentiality. In addition, each party may disclose
Confidential Information of the other party to the extent such disclosure is
reasonably necessary to: (i) comply with applicable securities laws and
regulations and other applicable governmental regulations, (ii) file or
prosecute patents relating to Collaboration Technology, (iii) prosecute or
defend litigation, (iv) file applications for Regulatory Approvals for Active
Compounds, Licensed Back-Up Compounds, Licensed Compounds and Products, and (v)
conduct pre-clinical or clinical trials with Active Compounds, Licensed
Compounds and Products.
(b) Notwithstanding the foregoing, in the event a party is
required to make a disclosure of the other party's Confidential Information
pursuant to subsection (a) above, it will, except where impracticable, give
reasonable advance notice to the other party of such disclosure and use best
efforts to secure confidential treatment of such information. In any event, the
parties agree to take all reasonable action to avoid disclosure of Confidential
Information hereunder.
ARTICLE 12
IMPORT AND EXPORT CONTROLS
12.1 UNITED STATES LAWS. The parties understand and acknowledge that
each of them is subject to regulation by agencies of the U.S. government,
including the U.S. Department of Commerce, which prohibit export, re-export or
diversion of certain products and technology to certain countries. Any and all
obligations of Dainippon or RiboGene to provide access to or license any
technology pursuant to this Agreement, as well as any technical assistance shall
be subject in all respects to such United States laws and regulations as shall
from time to time govern the license and delivery of technology and products
abroad by persons subject to the jurisdiction of the United States, including
the Export Administration Act of 1979, as amended, any successor or interim
controlling legislation, and the Export Administration Regulations issued by the
Department of Commerce, International Trade Administration, Bureau of Export
Administration. Both parties also agree to comply with the requirements of the
U.S. Foreign Corrupt Practices Act (the "ACT") and shall refrain from making any
payments to third parties
12.
<PAGE> 13
which would cause Dainippon or RiboGene to violate the Act. Dainippon and
RiboGene shall each provide the other party with such reasonable assistance as
may be required for the party requesting such assistance to comply with all
United States laws, ordinances, rules, regulations and the like of all
governmental units or agencies having jurisdiction pertaining to this Agreement,
including without limitation, obtaining all import, export and other permits,
certificates, licenses or the like required by such United States laws,
ordinances, rules, regulations, and the like, necessary to permit the parties to
perform hereunder and to exercise their respective rights hereunder.
12.2 NON-UNITED STATES LAWS. Dainippon and RiboGene shall each
provide the other party with such reasonable assistance as may be required for
the party requesting such assistance to comply with all non-United States laws,
ordinances, rules, regulations and the like of all governmental units or
agencies having jurisdiction pertaining to this Agreement, including without
limitation, obtaining all import, export and other permits, certificates,
licenses or the like required by such non-United States laws, ordinances, rules,
regulations and the like, necessary to permit the parties to perform hereunder
and to exercise their respective rights hereunder.
ARTICLE 13
TERM; TERMINATION
13.1 TERM. Except as provided under Section 13.2 below, the term of
this Agreement shall commence upon the Effective Date and shall expire on the
expiration date of the last to expire royalty obligation.
13.2 TERMINATION ON MATERIAL BREACH. If either party materially
breaches the Agreement, including without limitation its due diligence
obligations under Section 2.2, and the breaching party has not (i) cured the
breach or (ii) initiated good faith efforts to cure such breach to the
reasonable satisfaction of the non-breaching party, within sixty (60) days of
notice of breach from the non-breaching party, the non-breaching party may
terminate this Agreement upon expiration of such sixty (60)-day period.
13.3 LICENSES UPON EXPIRATION OR TERMINATION. Upon expiration of this
Agreement, Dainippon shall have a fully paid, nonexclusive license under
RiboGene Technology and Collaboration Technology relating to the Products
commercialized under this Agreement. In the event this Agreement is terminated
by RiboGene based on a material breach by Dainippon, then Dainippon's license
and rights shall terminate and RiboGene shall have a perpetual, paid-up,
worldwide license under Dainippon Technology and Dainippon-owned and jointly
owned Collaboration Technology to make, have made, use and sell Products. In the
event this Agreement is terminated by Dainippon based on a material breach by
RiboGene, then RiboGene's license and rights shall terminate and Dainippon shall
have a perpetual, paid-up worldwide exclusive license under RiboGene Technology
and RiboGene owned and jointly owned Collaboration Technology to make, have
made, use and sell Products.
13.
<PAGE> 14
13.4 SURVIVING RIGHTS AND OBLIGATIONS. The rights and obligations of
the parties under Sections 4.1, 6.2, 13.3, 13.6, 14.6, and Articles 7, 8, 9, 10
and 11 shall survive termination or expiration of this Agreement.
13.5 ACCRUED RIGHTS. The termination, relinquishment or expiration of
the Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of either party prior to such termination,
relinquishment or expiration, including any damages arising from any breach
hereunder.
13.6 TERMINATION FOR BANKRUPTCY. To the extent permitted by law, in
the event either party becomes insolvent, files bankruptcy or is declared
bankrupt, the other party may terminate this Agreement immediately; provided,
however, in the event of such termination the insolvent or bankrupt party shall
assign to the other the intellectual property rights licensed under this
Agreement subject only to the payment of any royalties agreed herein with
respect to such intellectual property.
ARTICLE 14
MISCELLANEOUS
14.1 WAIVER. No waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent or similar breach or default.
14.2 ASSIGNMENT. Neither party shall assign any of its rights and
obligations hereunder except (i) as incident to the merger, consolidation,
reorganization or acquisition of stock affecting actual voting control or of
substantially all of the assets of the assigning party or (ii) to an Affiliate;
provided, however, that in no event shall either party's rights and obligations
hereunder be assigned without prior written notice to the other party. In any
case, neither party may make an assignment of its assets which renders it unable
to perform its material obligations hereunder. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors and assigns.
14.3 NOTICES. Any notice or other communication required or permitted
to be given to either party hereto shall be in writing and shall be deemed to
have been properly given and to be effective on the date of delivery if
delivered in person or by facsimile or fourteen (14) days after mailing by
registered or certified airmail, postage paid, to the other party at the
following address:
In the case of RiboGene: RiboGene Inc.
26118 Research Road
Hayward, CA 94545
Fax: 510-293-2596
Attention: President
with a copy to: Cooley Godward LLP
14.
<PAGE> 15
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Fax: (650) 857-0663
Attention: Brian C. Cunningham, Esq.
In the case of Dainippon: Dainippon Pharmaceutical Co., Ltd.
6-8 Doshomachi 2-chome, Chuo-ku
Osaka 541-0045, Japan
Fax: 011-81-6-203-0059
Attention: President
Either party may change its address for communications by a notice to the other
party in accordance with this section.
14.4 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
14.5 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
14.6 CONSTRUCTION OF AGREEMENT AND CHOICE OF LAW, JURISDICTION AND
VENUE.
(a) This Agreement and its terms and conditions shall be
governed exclusively by and construed according to the laws of California,
U.S.A., excluding its choice of law provisions and also excluding the United
Nations Convention on Contracts for the International Sale of Goods. The
official text of the Agreement and any Notices given or accounts or statements
required hereby shall be in English.
(b) All disputes which may arise between the parties hereto
in relation to the interpretation or administration of this Agreement shall be
resolved by the agreement of the Chief Executive Officers or the Presidents of
the respective parties. Any disputes which cannot be resolved in this manner
shall be finally settled by arbitration in accordance with the Conciliation and
Arbitration Rules of the International Chamber of Commerce. The arbitration
shall be held in San Francisco, California. The award rendered by the
arbitration shall in any case be final and binding upon the parties hereto.
14.7 FORCE MAJEURE. Any delays in performance by any party under this
Agreement (other than either party's failure to pay money to the other party,
unless such failure results solely from wire transfer failures beyond the
control of the paying party, or the like) shall not be considered a breach of
this Agreement if and to the extent caused by occurrences beyond the reasonable
control of the party affected, including but not limited to acts of God,
embargoes, governmental restrictions, strikes or other concerted acts of
workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or
sabotage. The party suffering such occurrence shall
15.
<PAGE> 16
immediately notify the other party as soon as practicable and any time for
performance hereunder shall be extended by the actual time of delay caused by
the occurrence.
14.8 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, Dainippon and RiboGene are and shall act at all times as independent
contractors and nothing contained in this Agreement shall be construed or
implied to create an agency, partnership or employer and employee relationship
between RiboGene and Dainippon. At no time shall one party make commitments or
incur any charges or expenses for or in the name of the other party.
14.9 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
14.10 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between the
parties. All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
14.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
14.12 ENTIRE AGREEMENT. This Agreement and any and all Exhibits
referred to herein embodies the entire understanding of the parties with respect
to the subject matter hereof and shall supersede all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, both Dainippon and RiboGene have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, as of the day and year hereinabove written.
RIBOGENE, INC. DAINIPPON PHARMACEUTICAL CO., LTD.
By: By:
--------------------------------- ------------------------------------
Name: Charles J. Casamento Name: Takeshi Tomotake
Title: Chairman, President and Title: President
Chief Executive Officer
16.
<PAGE> 17
EXHIBIT 4.2
LICENSED COMPOUNDS
1.
<PAGE> 1
EXHIBIT 10.35
RESEARCH AGREEMENT
THIS AGREEMENT ("AGREEMENT") is entered into as of the _____ day of
_________, 1998 ("EFFECTIVE DATE") by and between RIBOGENE INC., a California
corporation ("RIBOGENE"), and DAINIPPON PHARMACEUTICAL CO., LTD. ("DAINIPPON"),
a corporation organized under the laws of Japan.
RECITALS
WHEREAS, RiboGene has developed screening assays and other technology
useful in the identification of anti-bacterial compounds; and
WHEREAS, Dainippon and RiboGene possess and will acquire libraries of
natural and synthetic compounds which have potential therapeutic pharmaceutical
utility; and
WHEREAS, RiboGene and Dainippon desire to establish a research
relationship where RiboGene will screen both company's compound libraries using
certain assays, and will conduct research with some or all of the compounds
which show activity in those assays;
WHEREAS, the parties desire to develop and commercialize one or more
compounds discovered under this Agreement under a separate agreement granting
Dainippon certain licenses ("LICENSE AGREEMENT") executed by and between the
parties of even date herewith;
WHEREAS, in connection with the establishment of the relationship
between the parties, on or before February 13, 1998 Dainippon is purchasing
shares of RiboGene stock in the amount of US$ 2 million pursuant to a stock
purchase agreement agreed upon between the parties on or before February 5,
1998;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
promises contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "ACTIVE COMPOUND" shall mean each Dainippon or RiboGene
Substance which meets the criteria set forth in Exhibit 1.1 (including any such
Substance which was screened in Assays prior to the Effective Date and for which
the Research Committee determines that such criteria are met), and each
derivative or analogue thereof developed in the course of, but not after, the
Research Program or the Tail End Period, if such derivative or analog thereof
meets the criteria set forth in Exhibit 1.1.
1.2 "AFFILIATE" shall mean (i) any corporation or other entity
("Parent") which directly or indirectly owns or controls at least fifty percent
(50%) of the outstanding voting securities of a party, (ii) any corporation or
other entity in which a party owns or controls at least
1.
<PAGE> 2
fifty percent (50%) equity interest, and (iii) any corporation or other entity
in which a Parent of a party owns or controls at least fifty percent (50%)
equity interest.
1.3 "ASSAYS" shall mean the Target specific assays of RiboGene
described in Exhibit 1.3, and any additional Target specific assays developed by
or licensed (with the right to sublicense) to RiboGene during the Research Term.
Prior to their use in the Research Program, Exhibit 1.3 shall be amended to
include such additional assays.
1.4 "COLLABORATION KNOW-HOW" shall mean all inventions, discoveries,
materials and information developed by either party in the course of the
Research Program, but not after the Research Program. Collaboration Know-How
shall not include Collaboration Patents.
1.5 "COLLABORATION PATENTS" shall mean any and all patents,
including, without limitation, any substitutions, extensions, reissues,
renewals, supplementary protection certificates and inventors' certificates,
which have not been held invalid or unenforceable by a non-appealable or
non-appealed decision of a court of competent jurisdiction, issuing from patent
applications filed in any jurisdiction, including, without limitation, any
provisionals, divisionals, continuations, continuations-in- part, which cover
inventions or discoveries made by either party alone or both parties jointly in
the course of the Research Program, but not after the Research Program.
1.6 "COLLABORATION TECHNOLOGY" shall mean all Collaboration Patents
and Collaboration Know-How.
1.7 "CONFIDENTIAL INFORMATION" shall mean a party's confidential
information, including, without limitation, Dainippon Know-How, RiboGene
Know-How, Collaboration Know-How, Research Plans, engineering designs and
drawings, research data, manufacturing processes and techniques, scientific,
manufacturing, marketing, and business plans, financial or personnel matters
relating to the party, its present or future products, sales, suppliers,
customers, employees, investors or business.
1.8 "DAINIPPON KNOW-HOW" shall mean all inventions, discoveries,
materials and information which both (i) Dainippon owns, controls or has a
license to (with a right to sublicense) as of the Effective Date or which arise
outside of the Research Program or the Development Program from time to time
during the term of this Agreement or the License Agreement, and (ii) are
necessary or useful for the conduct of the Research Program, the Development
Program, or the manufacture, use or sale of Products. Dainippon Know-How shall
not include Dainippon Patents.
1.9 "DAINIPPON PATENTS" shall mean any and all patents other than
Collaboration Patents, including, without limitation, any substitutions,
extensions, reissues, renewals, supplementary protection certificates and
inventors' certificates, which have not been held invalid or unenforceable by a
non-appealable or non-appealed decision of a court of competent jurisdiction,
issuing from patent applications filed in any jurisdiction, including, without
limitation, any provisionals, divisionals, continuations, continuations-in-part,
which (i) Dainippon owns, controls or has a license to (with the right to
sublicense) as of the Effective
2.
<PAGE> 3
Date, and (ii) would be infringed by the conduct of the Research Program, the
Development Program, or the manufacture, use or sale of Products.
1.10 "DAINIPPON SUBSTANCES" shall mean those natural extracts,
natural compounds and synthetic compounds which Dainippon owns or has licensed
or sublicensed, and has the right to license or sublicense as of the Effective
Date or during the Research Term, and which are screened in Assays in the course
of the Research Program.
1.11 "DAINIPPON TECHNOLOGY" shall mean, collectively, the Dainippon
Patents, the Dainippon Know-How and the Dainippon Substances.
1.12 "DEVELOPMENT PROGRAM" shall mean the program of preclinical and
clinical development activities undertaken by Dainippon pursuant to the License
Agreement.
1.13 "FDA" shall mean the United States Food and Drug Administration.
1.14 "FIELD" shall mean therapeutic treatment of bacterial infections
in humans with anti-bacterial pharmaceutical products which have activity
against the Targets.
1.15 "GLP TOXICOLOGY STUDIES" shall mean the preclinical toxicology
studies carried out in accordance with Good Laboratory Practices described in
the U.S. Federal Register dated December 22, 1988, as amended, or the Japanese
or European equivalent, which are intended to enable the filing of an IND.
1.16 "INACTIVE DERIVED COMPOUND" shall mean each derivative or
analogue of Dainippon Substance or RiboGene Substance synthesized in the course
of, but not after, the Research Program, which does not meet the criteria set
forth in Exhibit 1.1.
1.17 "IND" stands for "Investigational New Drug Application" and
shall mean an application for approval by the FDA or the equivalent non-U.S.
regulatory authority, to commence human clinical testing of a drug.
1.18 "LICENSED BACK-UP COMPOUNDS" shall mean [*] Active Compounds
recommended by the Research Committee and selected by Dainippon which are of the
same chemical class as a Licensed Compound.
1.19 "LICENSED COMPOUND" shall mean a compound which is an Active
Compound and which is recommended by the Research Committee and selected by
Dainippon for GLP Toxicology Studies and further development under the License
Agreement.
1.20 "NDA" or "NEW DRUG APPLICATION" shall mean an application for
approval by the FDA or an equivalent non-U.S. authority required for the
marketing and sale of a Product in the Territory.
1.21 "PRODUCT" shall have the meaning as defined in the License
Agreement.
1.22 "REGULATORY APPROVAL(S)" shall mean all approvals of INDs and
NDAs, new drug approvals, marketing approvals, pricing approvals, licenses,
permits, and other
3.
<PAGE> 4
authorizations, which are required for conducting clinical trials with a
Product, and for manufacturing and selling a Product in compliance with
applicable laws and regulations in the Territory;
1.23 "RESEARCH PROGRAM" shall mean the research program with respect
to the Targets described in Exhibit 1.23 hereto, as amended from time to time by
the Research Committee in accordance with Section 2.2(c).
1.24 "RESEARCH COMMITTEE" shall mean that committee formed pursuant
to Section 2.2 hereof.
1.25 "RESEARCH TERM" shall mean the period of three (3) years
commencing on the Effective Date, unless extended pursuant to Section 2.2(c).
1.26 "RIBOGENE KNOW-HOW" shall mean all inventions, discoveries,
materials and information which both (i) RiboGene owns, controls or has a
license (with a right to sublicense) as of the Effective Date or which arise
outside the Research Program or the Development Program during the term of this
Agreement or the License Agreement, and (ii) are necessary or useful for the
conduct of the Research Program, the Development Program, or the manufacture,
use or sale of Products. RiboGene Know-How shall not include RiboGene Patents.
1.27 "RIBOGENE PATENTS" shall mean any and all patents other than
Collaboration Patents, including, without limitation, any substitutions,
extensions, reissues, renewals, supplementary protection certificates and
inventors' certificates, which have not been held invalid or unenforceable by a
non-appealable or non-appealed decision of a court of competent jurisdiction,
issuing from patent applications filed in any jurisdiction, including, without
limitation, any provisionals, divisionals, continuations, continuations-in-part,
which (i) RiboGene owns, controls or has a license to (with the right to
sublicense) as of the Effective Date, and (ii) would be infringed by the conduct
of the Research Program, the Development Program, or the manufacture, use or
sale of Products.
1.28 "RIBOGENE SUBSTANCES" shall mean those natural extracts, natural
compounds and synthetic compounds which RiboGene owns or has licensed or
sublicensed, and has the right to license or sublicense as of the Effective Date
and during the Research Term, and which are screened in Assays in the course of
the Research Program.
1.29 "RIBOGENE TECHNOLOGY" shall mean, collectively, the RiboGene
Patents, the RiboGene Know-How, the RiboGene Substances, and the Assays.
1.30 "TAIL END PERIOD" shall mean [*] from the completion or
termination of the Research Term, the purpose of which is to [*].
1.31 "TARGETS" shall mean ppGpp and Deformylase.
1.32 "TERRITORY" shall have the meaning as defined in the License
Agreement
4.
<PAGE> 5
ARTICLE 2
RESEARCH PROGRAM
2.1 CONDUCT OF THE RESEARCH PROGRAM. RiboGene and Dainippon will
conduct the Research Program under the direction of the Research Committee.
2.2 RESEARCH COMMITTEE.
(a) FORMATION OF RESEARCH COMMITTEE. The Research Committee
shall consist of an equal number of members from Dainippon and RiboGene,
appointed and substituted by each party as necessary from time to time. Each
member shall have appropriate technical credentials and knowledge and ongoing
familiarity with the Research Program. The chairperson of the Research Committee
shall be an employee of the party hosting the meeting. All decisions of the
Research Committee shall be unanimous and shall be recorded in the minutes of
the Research Committee.
(b) MEETINGS OF RESEARCH COMMITTEE. The Research Committee
shall meet quarterly at such times as shall be mutually agreed upon by the
parties and at a site alternating between RiboGene's and Dainippon's place of
business, or as otherwise mutually agreed. Dainippon and RiboGene shall bear the
travelling expenses and accommodation charges of its own members attending
meetings of the Research Committee.
(c) RESPONSIBILITIES OF THE RESEARCH COMMITTEE. The Research
Committee shall coordinate the activities carried out under the Research Program
and monitor the progress of the Research Program. The Research Committee may
revise or extend the Research Program as necessary to achieve the overall goal
of discovering Active Compounds, developing Licensed Compounds, and
commercializing Products; provided, however, that any such revision or extension
shall be subject to agreement, if necessary, as to reimbursement of any
additional costs. In particular, the Research Committee shall carry out the
following responsibilities during the Research Term and the Tail End Period:
(1) define the yearly research and development objectives,
(2) determine which Dainippon or RiboGene Substances have
shown sufficient activity in one or more Assays to be
classified as an Active Compound,
(3) define and coordinate activities required to carry out
further development and optimization of Active
Compounds,
(4) recommend to Dainippon the Licensed Compounds and the
Licensed Back-Up Compounds for development under the
License Agreement and updating the list of Licensed
Compounds in Exhibit 4.2,
(5) determine the scope, countries, timing and other matters
relating to patent applications to be filed under this
Agreement.
(d) MODIFICATION OF CRITERIA FOR ACTIVE COMPOUND AND
LICENSED COMPOUND. The Research Committee shall monitor the appropriateness of
the criteria for Active Compound and Licensed Compound set forth in Exhibits 1.1
and Exhibit 2.3, respectively, in light of the results obtained from the
Research Program and may, if warranted,
5.
<PAGE> 6
modify such criteria as necessary in order to achieve the objectives of the
Research Program. Any such modifications shall be in a writing, signed by both
parties, which amends Exhibit 1.1 or Exhibit 2.3, as the case may be.
2.3 SELECTION AND ABANDONMENT OF COMPOUNDS.
(a) ACTIVE COMPOUNDS. Each Dainippon Substance and RiboGene
Substance which meets the criteria set forth in Exhibit 1.1 to the satisfaction
of the Research Committee shall be designated as an Active Compound and shall be
further developed and optimized.
(b) LICENSED COMPOUNDS. Each Active Compound which meets the
criteria set forth in Exhibit 2.3 to the satisfaction of the Research Committee
may be recommended by the Research Committee to Dainippon which shall have the
right to select from those so recommended the Active Compound for the GLP
Toxicology Study and further development and commercialization under the License
Agreement. Such selection shall be made by written notice to RiboGene. Each
Active Compound so selected shall be designated a Licensed Compound and shall be
covered by the terms of the License Agreement.
(c) LICENSED BACK-UP COMPOUNDS. The Research Committee shall
recommend to Dainippon, and Dainippon shall select the Licensed Back-Up
Compounds for each Licensed Compound selected as hereinabove provided. Such
selection shall be made by written notice to RiboGene at the same time the
related Licensed Compound is selected. Dainippon shall have the right to
substitute any Licensed Back-Up Compound for the related Licensed Compound as
provided in the License Agreement.
(d) REMAINING ACTIVE COMPOUNDS AND SUBSTANCES. Each
Dainippon Substance, RiboGene Substance and Active Compound not selected as a
Licensed Compound or Licensed Back-Up Compound and each Inactive Derived
Compound shall be returned to the party having ownership thereof in accordance
with Section 3.1(c).
2.4 [*] During the term of the Research Program, RiboGene will [*]
at Dainippon's request and expense, [*] to facilitate and enhance the
collaboration between the parties under the Research Program. Dainippon will [*]
from time to time, at RiboGene's request and expense, [*]. Each party may
replace its visiting research scientist from time to time with a different
visiting research scientist.
2.5 OBLIGATION TO INFORM. Each party hereby agrees to keep the
Research Committee fully informed on a monthly basis of the progress of the
Research Program. Such monthly reports shall describe the results of the
research work carried out under the Research Program, including the results of
the screening activities conducted with the Assays and in vitro and in vivo
antibacterial activity tests, but shall not include information on inactive
Compounds or Substances, except that the information on those inactive Compounds
or Substances structurally related to Active Compound or possible Active
Compound shall be included in such monthly reports.
2.6 RESOURCE ALLOCATION. Each party shall devote the same degree of
attention, resources and diligence to its respective obligations under the
Research Program as it devotes to high priority compounds of its own discovery
and development programs. RiboGene shall devote
6.
<PAGE> 7
an average of [*] to the Research Program during the Research Term. RiboGene
shall promptly inform Dainippon of any changes in the assignments of any such
FTEs and shall promptly add or substitute individuals of comparable or superior
skills into the Research Program, in place of one or more of the original FTEs,
as circumstances dictate, and shall inform Dainippon, in advance, of all plans
of such additions or substitutions of individuals.
2.7 ADDITIONAL TARGETS. At any time during the Research Term, the
parties may wish to expand the scope of the Research Program to cover targets in
addition to the Targets. The parties shall determine in good faith negotiations
whether they can agree on the terms of a separate agreement which shall cover
the discovery, development and commercialization of compounds acting on those
additional targets; provided, however, neither party shall be obligated to enter
into such negotiations or to reach agreement if negotiations are conducted.
2.8 EXCLUSIVE COLLABORATION. Dainippon and RiboGene agree that
during the term of this Agreement, the collaboration under the Research Program
shall be on an exclusive basis within the Field.
ARTICLE 3
OWNERSHIP OF INTELLECTUAL PROPERTY; LICENSE GRANTS
3.1 OWNERSHIP.
(a) DAINIPPON TECHNOLOGY. RiboGene acknowledges and agrees
that Dainippon is and shall remain the sole owner of the Dainippon Technology
and that RiboGene has no rights in or to any of them other than the license and
rights specifically granted herein and the licenses granted pursuant to the
License Agreement.
(b) RIBOGENE TECHNOLOGY. Dainippon acknowledges and agrees
that RiboGene is and shall remain the sole owner of the RiboGene Technology and
that Dainippon has no rights in or to any of them other than the rights
specifically granted herein and the license to be granted pursuant to the
License Agreement.
(c) COLLABORATION TECHNOLOGY.
(i) Dainippon shall own all rights under
Collaboration Technology regarding Active Compounds, Licensed Compounds,
Licensed Back-Up Compounds, Inactive Derived Compounds and Products which are
Dainippon Substances, or which are derived by Dainippon from Dainippon
Substances. RiboGene shall have no rights to such Collaboration Technology owned
by Dainippon except as expressly granted under this Agreement or the License
Agreement.
(ii) RiboGene shall own all rights under
Collaboration Technology regarding Active Compounds, Licensed Compounds,
Licensed Back-Up Compounds, Inactive Derived Compounds and Products which are
RiboGene Substances, or which are derived by RiboGene from RiboGene Substances.
Dainippon shall have no rights to such Collaboration Technology owned by
RiboGene except as expressly granted under this Agreement or the License
Agreement.
7.
<PAGE> 8
(iii) The parties shall jointly own all rights under
Collaboration Technology regarding Active Compounds, Licensed Compounds,
Licensed Back-Up Compounds, Inactive Derived Compounds and Products which are
derived by RiboGene from Dainippon Substances or by Dainippon from RiboGene
Substances.
(iv) The parties understand that the optimization of
Active Compounds and generation of derivatives of the Dainippon Substances and
the RiboGene Substances shall be conducted by each party primarily with its own
Substances, unless the parties specifically agree otherwise in writing. The
parties understand further that such agreement shall not be unreasonably
withheld if this would result in significant delays in the progress of the
Research Program.
(v) Collaboration Technology which does not relate
to Active Compounds, Licensed Compounds, Licensed Back-Up Compounds, Inactive
Derived Compounds or Products shall be owned by either party alone or jointly
with the other party depending on whether such Collaboration Technology was
developed by a party alone or jointly with the other party. Inventorship shall
be determined in accordance with the rules of inventorship under U.S. patent
laws. Neither party shall have rights to such Collaboration Technology owned
solely by the other party except as expressly granted under this Agreement or
the License Agreement.
3.2 MUTUAL RESEARCH LICENSE.
(a) LICENSE GRANT. Each party hereby grants to the other
party non-royalty bearing, worldwide, non-exclusive licenses under Dainippon
Technology, RiboGene Technology, and Collaboration Technology, respectively, for
the sole purpose of conducting the Research Program. The parties understand that
the Assays will be disclosed to Dainippon only for the purpose of conducting the
Research Program.
(b) SUBLICENSING. Neither party may grant sublicenses under
the licenses granted in subsection (a) above, except in the context of contract
research or contract development by a third party as part of the Research
Program, and then only after the prior written approval of the licensor. The
terms of any sublicense shall conform with the terms of this Agreement in all
respects.
3.3 USE OF A PARTY'S OWN SUBSTANCES. Notwithstanding anything to the
contrary in this Article 3, each party shall retain the right to use freely its
own Dainippon or RiboGene Substances, respectively, which are not Active
Compounds.
3.4 RESEARCH. RiboGene and Dainippon agree that during the period of
the Research Agreement and License Agreement, RiboGene has the right in any
field to use or apply, have its Affiliates use or apply, grant to any third
party a license under RiboGene owned or jointly owned Collaboration Technology
to research, develop, make, have made, use and sell Active Compounds, other than
Licensed Compounds, Licensed Back-Up Compounds and Products; provided, however,
[*]. In addition, [*] agrees [*] or [*] which [*]. If Dainippon notifies
RiboGene that it desires to have the rights and licenses under RiboGene
Technology or RiboGene solely owned Collaboration Technology to sublicense,
research, develop, make, have
8.
<PAGE> 9
made, use and sell any Active Compound [*] if any, as may be reached at that
time. It is understood that Dainippon [*] use and apply, or have its Affiliates
use and apply or grant to any third party a license under Dainippon owned and
jointly owned Collaboration Technology to research, develop, make, have made,
use and sell Active Compound [*].
ARTICLE 4
FINANCIAL TERMS
4.1 RESEARCH PROGRAM FUNDING. Dainippon shall support RiboGene's
costs of conducting the Research Program by making research payments as follows:
Due Date Amount
- -------- ------
Signing of this Agreement US$2,000,000
First Anniversary of this Agreement US$2,000,000
Second Anniversary of this Agreement US$2,000,000
RiboGene shall provide Dainippon with a statement of the details of RiboGene's
estimated costs of conducting the Research Program prior to the above payment by
Dainippon and quarterly reports describing actual costs and expenses actually
incurred at RiboGene. Any costs incurred by RiboGene during the Tail End Period
for conducting research activities assigned to it by the Research Committee will
be reimbursed by Dainippon. If an installment of the Research Program Funding
would have become due on a date after Dainippon gives notice of termination of
this Agreement pursuant to Section 11.2, then on such date Dainippon shall pay
only such portion of the installment as shall apply to the remaining period of
the Research Term which will occur after such date. If any amount of the
Research Program Funding already paid by Dainippon hereunder is not used for the
Research Program upon termination of this Agreement except for material breach
by Dainippon, such unused amount shall be refunded to Dainippon.
4.2 MANNER OF PAYMENT. Dainippon shall make the payments under
Sections 4.1 within thirty (30) days of the due date by means of wire transfer
to RiboGene's account in a bank in the United States to be designated by
RiboGene.
4.3 EQUITY PURCHASE. Dainippon agrees to purchase $2,000,000 in
equity of RiboGene. Such equity purchase shall be made on or before February 13,
1998, as the purchase of 756,144 shares of RiboGene's Series G Preferred Stock
("Series G Preferred") at a price per share of $2.645. The Series G Preferred
shall have substantially the same terms and conditions and shall be accompanied
by substantially the same investors rights as RiboGene's Series E Preferred
stock purchased by its existing major collaboration partner. The Stock Purchase
Agreement, Amended Articles of Incorporation and Investors Rights Agreement and
forms of closing certificates and related documents shall be prepared and agreed
by Dainippon and RiboGene not later than February 5, 1998.
9.
<PAGE> 10
ARTICLE 5
PATENT PROSECUTION AND DEFENSE
5.1 PATENT PROSECUTION.
(a) Applications for RiboGene Patents and Dainippon Patents
shall be prosecuted and maintained by RiboGene and Dainippon, respectively, at
such party's option and its own expense. However, RiboGene agrees it will not
discontinue prosecuting or maintaining any such patent or application in any
country of the Territory which covers a Licensed Compound or Product for which
Dainippon has commenced preclinical development in the Territory unless
Dainippon shall otherwise agree.
(b) Each party shall be responsible for filing and
prosecuting applications for its solely-owned Collaboration Patents, and for
maintaining its solely-owned Collaboration Patents, in the Territory. The
Research Committee will decide which party shall prosecute jointly-owned
Collaboration Patents; [*] will bear [*] the cost of prosecuting jointly-owned
patent applications and maintaining jointly-owned Collaboration Patents in the
Territory; provided, however, that [*] shall bear such costs for applications
and patents for any Licensed Compound or Product commencing as of [*]. The
Research Committee also shall determine the countries in which to file
applications for such Collaboration Patents in the Territory.
(c) The prosecuting party shall keep the other party
informed of the status of any applications for Collaboration Patents and any
patents issued thereon. In particular, the prosecuting party shall provide to
the other party a copy of any proposed filings or letters to and from the patent
offices in the countries of the Territory. The other party shall have the right
to review such drafts and letters, and shall provide comments to the prosecuting
party within thirty (30) days after receipt thereof. The prosecuting party shall
consider the other party's comments in good faith and revise the draft filings
or letters as reasonably necessary to address the other party's concerns.
(d) In the event that the prosecuting party decides not to
proceed with prosecuting an application for a Collaboration Patent or filing a
patent application in a country of the Territory, or not to maintain a
Collaboration Patent in a country of the Territory, it shall give the other
party sixty (60) days' notice before any relevant deadline, and the other party
shall have the right to pursue, at its own expense, prosecution of such patent
application or maintenance of such patent in the country, and such patent in the
country shall be excluded from the licenses granted herein or in the License
Agreement. However, RiboGene agrees it will not discontinue prosecuting or
maintaining any such patent or application in any country of the Territory which
covers a Licensed Compound or Product for which Dainippon has commenced
preclinical development in the Territory unless Dainippon shall otherwise agree.
(e) Each party agrees to cooperate with the other and take
all reasonable additional actions and execute such agreements, instruments, and
documents as may be reasonably required to prosecute patent applications as
provided in this section, and to perfect the other's ownership interest in
Collaboration Patents as allocated in Section 3.1, including, without
limitation, the execution of necessary and appropriate instruments of
assignment.
10.
<PAGE> 11
5.2 INFRINGEMENT OF PATENTS BY THIRD PARTIES. Infringement of
Dainippon Patents, RiboGene Patents or Collaboration Patents by third parties as
well as infringement of third party patents by Dainippon shall be governed by
the provisions of the License Agreement.
ARTICLE 6
PUBLICATION; PUBLICITY
6.1 PUBLICATION.
(a) REVIEW AND APPROVAL. Each party to this Agreement
recognizes that the publication of papers, including oral presentations and
abstracts, regarding the Collaboration Know-How and the Collaboration Patents,
subject to reasonable controls to protect Confidential Information, will be
beneficial to both parties. However, each party shall have the right to review
and approve any paper proposed for publication by the other party, including
oral presentations and abstracts, which utilizes data generated from the
Research Program and/or includes Collaboration Know-How or Confidential
Information of the reviewing party.
(b) REVIEW AND APPROVAL PROCESS. At least thirty (30) days
before any such paper is presented or submitted for publication, the party
proposing publication shall deliver a complete copy to the other party. The
receiving party shall review any such paper and give its comments to the
publishing party within thirty (30) days of the delivery of such paper to the
receiving party. With respect to oral presentation materials and abstracts, the
parties shall make reasonable efforts to expedite review of such materials and
abstracts, and shall return such items as soon as practicable to the publishing
party with appropriate comments, if any, but in no event later than thirty (30)
days from the delivery date thereof to the receiving party. The publishing party
shall comply with the other party's request to delete references to any
Confidential Information in any such paper and agrees to withhold publication of
same in order to permit the parties to obtain patent protection, if either of
the parties deem it necessary, in accordance with the terms of this Agreement.
6.2 PUBLICITY. Except as otherwise provided herein or required by
law, no party shall originate any publication, news release or other public
announcement, written or oral, whether in the public press, or stockholders'
reports, or otherwise, relating to the existence of or the performance under
this Agreement, without the prior written approval of the other party, which
approval shall not be unreasonably withheld, but in no case shall be withheld
for longer than fifteen (15) days.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants:
7.1 CORPORATE POWER. Such party is duly organized and validly
existing under the laws of the state or country of its incorporation and has
full corporate power and authority to enter into this Agreement and to carry out
the provisions hereof.
11.
<PAGE> 12
7.2 DUE AUTHORIZATION. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
7.3 BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and is enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having authority over it.
7.4 INTELLECTUAL PROPERTY. Such party (i) has the full right to
grant the licenses granted by it under this Agreement; and (ii) is not aware, to
the best of its knowledge, of any claims by third parties to a conflicting
ownership interest in its solely-owned Patents.
7.5 RIBOGENE DISCLAIMER. THE RIBOGENE TECHNOLOGY, INCLUDING THE
RIBOGENE SUBSTANCES, PROVIDED HEREUNDER, IS PROVIDED "AS IS" AND RIBOGENE
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN
ALL CASES WITH RESPECT THERETO. Without limiting the generality of the
foregoing, RiboGene expressly does not warrant (i) the success of any study or
test commenced pursuant to the Research Program, or (ii) the safety or
usefulness for any purpose of RiboGene Technology or the Collaboration Know-How.
7.6 DAINIPPON DISCLAIMER. THE DAINIPPON TECHNOLOGY, INCLUDING THE
DAINIPPON SUBSTANCES, PROVIDED HEREUNDER ARE PROVIDED "AS IS" AND DAINIPPON
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN
ALL CASES WITH RESPECT THERETO. Without limiting the generality of the
foregoing, Dainippon expressly does not warrant the safety or usefulness for any
purpose of the Dainippon Technology or the Collaboration Know-How.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY RIBOGENE. RiboGene shall indemnify Dainippon,
its Affiliates and sublicensees, and all their officers, directors, employees
and agents, for any reasonable out-of-pocket costs and expenses (including court
and arbitration costs, witness fees and reasonable attorneys' fees),
non-appealed or non-appealable judicial or arbitration damage awards, and
settlement payments agreed with the third party claimants, payable or owed by
Dainippon in connection with any demands, law suits and other legal actions of
third parties ("Third Party Claim") arising from (i) the performance or breach
of this Agreement or the
12.
<PAGE> 13
License Agreement by RiboGene, (ii) any negligent actions or willful misconduct
by RiboGene, its Affiliates, agents or sublicensees, and (iii) the possession,
manufacture, use, sale or administration of Active Compounds, Inactive Derived
Compounds, Licensed Compounds, Licensed Back-Up Compounds or Products by
RiboGene or RiboGene's Affiliates or sublicensees.
8.2 INDEMNIFICATION UNDERTAKING BY DAINIPPON. Dainippon shall
indemnify RiboGene, its Affiliates and sublicensees, and all their officers,
directors, employees and agents, for any reasonable out-of-pocket costs and
expenses (including court and arbitration costs, witness fees and reasonable
attorneys' fees), non-appealed or non-appealable judicial or arbitration damage
awards, and settlement payments agreed with the third party claimants payable or
owed by RiboGene in connection with any Third Party Claim arising from (i) the
performance or breach of this Agreement or the License Agreement by Dainippon,
(ii) any negligent actions or willful misconduct by Dainippon, its Affiliates,
agents or sublicensees, and (iii) the possession, manufacture, use, sale or
administration of Active Compounds, Inactive Derived Compounds, Licensed
Compounds, Licensed Back-Up Compounds or Products by Dainippon or Dainippon's
Affiliates or sublicensees.
8.3 CONDITIONS AND LIMITATIONS OF INDEMNIFICATION OBLIGATION.
(a) In order to maintain the right to be indemnified by the
other party ("Indemnitor"), the party claiming indemnification ("Indemnitee")
must:
(i) notify the Indemnitor promptly after learning of
a Third Party Claim;
(ii) allow the Indemnitor to manage and control (by
way of intervention or otherwise) the defense and/or settlement of any such
Third Party Claim against the Indemnitee;
(iii) cooperate with the Indemnitor in the defense or
the settlement negotiations of Third Party Claims as reasonably required by the
Indemnitor;
(iv) abstain from making any statements or taking any
actions which damage the defense against a Third Party Claim (including, without
limitation, any statements against the interest of the Indemnitee or admissions
of causation or guilt);
(v) submit to the Indemnitor for prior approval
(which shall not be unreasonably withheld) any out-of-pocket expenditures to be
made in connection with the defense against a Third Party Claim.
(b) The Indemnitor shall not agree to any settlement that
adversely affects the Indemnitee's rights or interest without the Indemnitee's
prior written approval (which approval shall not be unreasonably withheld). If
the Indemnitor assumes the control of the defense against a Third Party Claim,
any out-of-pocket costs and expenses of the Indemnitee approved pursuant to
subsection (v) above shall be reimbursed based on an invoice and receipts
showing the payment of such costs and expenses.
13.
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(c) The Indemnitor shall have no obligation to indemnify the
Indemnitee to the extent that a Third Party Claim results from the negligence or
willful misconduct of the Indemnitee.
ARTICLE 9
CONFIDENTIALITY
9.1 DISCLOSURE OF CONFIDENTIAL INFORMATION. Confidential Information
disclosed by one party to the other pursuant to and during the term of this
Agreement shall be subject to the confidentiality obligations set forth below:
(a) if disclosed in writing and marked "confidential" or
"proprietary" by the disclosing party prior to or at the time of the disclosure
thereof, or if it would be apparent to a reasonable person, familiar with the
disclosing party's business and the industry, that such information is of a
confidential or proprietary nature; and
(b) if within 30 days after disclosure of Confidential
Information, the disclosing party informs the receiving party in writing of the
confidential nature of the disclosed information, describing such information
and referencing the place and date of the oral, visual or written disclosure and
the names of the employees or officers of the receiving party to whom such
disclosure was made.
9.2 CONFIDENTIALITY AND NON-USE. Except to the extent expressly
authorized by this Agreement or unless otherwise agreed in writing by the
parties, each party agrees that, for the combined term of this Agreement and the
License Agreement, and for [*] thereafter, it shall keep confidential and shall
not publish or otherwise disclose and shall not use for any purpose other than
as provided for in this Agreement any Confidential Information, unless the
receiving party can demonstrate by competent proof that such Confidential
Information:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure by the other
party;
(b) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of such Agreements;
(d) was disclosed to the receiving party, other than under
an obligation of confidentiality to a third party, by a third party who had no
obligation to the disclosing party not to disclose such information to others;
or
(e) was independently discovered or developed by the
receiving party without the use of Confidential Information belonging to the
disclosing party.
14.
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9.3 AUTHORIZED DISCLOSURE.
(a) Each party may disclose Confidential Information
belonging to the other party to Affiliates and sublicensees who agree to be
bound by similar terms of confidentiality. In addition, each party may disclose
Confidential Information of the other party to the extent such disclosure is
reasonably necessary to: (i) comply with applicable securities laws and
regulations and other applicable governmental regulations, (ii) file or
prosecute patents relating to Collaboration Technology, (iii) prosecute or
defend litigation, (iv) file applications for Regulatory Approvals for Active
Compounds, Licensed Back-Up Compounds, Licensed Compounds and Products, and (v)
conduct pre-clinical or clinical trials with Active Compounds, Licensed
Compounds and Products.
(b) Notwithstanding the foregoing, in the event a party is
required to make a disclosure of the other party's Confidential Information
pursuant to subsection (a) above, it will, except where impracticable, give
reasonable advance notice to the other party of such disclosure and use best
efforts to secure confidential treatment of such information. In any event, the
parties agree to take all reasonable action to avoid disclosure of Confidential
Information hereunder.
ARTICLE 10
IMPORT AND EXPORT CONTROLS
10.1 UNITED STATES LAWS. The parties understand and acknowledge that
each of them is subject to regulation by agencies of the U.S. government,
including the U.S. Department of Commerce, which prohibit export, re-export or
diversion of certain products and technology to certain countries. Any and all
obligations of Dainippon or RiboGene to provide access to or license any
technology pursuant to this Agreement, as well as any technical assistance shall
be subject in all respects to such United States laws and regulations as shall
from time to time govern the license and delivery of technology and products
abroad by persons subject to the jurisdiction of the United States, including
the Export Administration Act of 1979, as amended, any successor or interim
controlling legislation, and the Export Administration Regulations issued by the
Department of Commerce, International Trade Administration, Bureau of Export
Administration. Both parties also agree to comply with the requirements of the
U.S. Foreign Corrupt Practices Act (the "ACT") and shall refrain from making any
payments to third parties which would cause Dainippon or RiboGene to violate the
Act. Dainippon and RiboGene shall each provide the other party with such
reasonable assistance as may be required for the party requesting such
assistance to comply with all United States laws, ordinances, rules, regulations
and the like of all governmental units or agencies having jurisdiction
pertaining to this Agreement, including without limitation, obtaining all
import, export and other permits, certificates, licenses or the like required by
such United States laws, ordinances, rules, regulations and the like, necessary
to permit the parties to perform hereunder and to exercise their respective
rights hereunder.
10.2 NON-UNITED STATES LAWS. Dainippon and RiboGene shall each
provide the other party with such reasonable assistance as may be required for
the party requesting such assistance to comply with all non-United States laws,
ordinances, rules, regulations and the like of all governmental units or
agencies having jurisdiction pertaining to this Agreement, including without
15.
<PAGE> 16
limitation, obtaining all import, export and other permits, certificates,
licenses or the like required by such non-United States laws, ordinances, rules,
regulations and the like, necessary to permit the parties to perform hereunder
and to exercise their respective rights hereunder.
ARTICLE 11
TERM; TERMINATION
11.1 TERM. This Agreement shall expire at the end of the Tail End
Period following the Research Term; provided, however, that Dainippon shall have
the option to forego the Tail End Period and terminate the Research Program at
the end of the Research Term by giving thirty (30) days prior written notice to
RiboGene.
11.2 VOLUNTARY TERMINATION BY DAINIPPON. Dainippon may give notice of
termination of this Agreement at any time after one (1) year from the Effective
Date which notice shall be effective one hundred eighty (180) days' after the
date received by RiboGene. Dainippon shall reimburse RiboGene for the costs of
any activities pursuant to the Research Program for which obligations were
undertaken prior to receipt of such notice and which are incurred during or
after the one hundred eighty (180) days period to the extent that such costs are
not covered by the Research Program Funding already paid by Dainippon at that
time pursuant to Section 4.1. If Dainippon terminates this Agreement pursuant to
this Section 11.2, all rights and licenses to Active Compounds, Licensed
Compounds, Licensed Back-Up Compounds, RiboGene Technology and Collaboration
Technology granted to Dainippon under this Agreement or the License Agreement
shall terminate.
11.3 TERMINATION FOR MATERIAL BREACH. If either party materially
breaches this Agreement, including, without limitation, its due diligence
obligations under Section 2.7, and the breaching party has not within sixty (60)
days of notice of breach from the non-breaching party (i) cured the breach or
(ii) initiated good faith efforts to cure such breach to the reasonable
satisfaction of the non-breaching party, the non-breaching party may terminate
this Agreement upon expiration of such sixty (60)-day period.
11.4 LICENSES UPON TERMINATION FOR MATERIAL BREACH. In the event this
Agreement is terminated by Dainippon based on a material breach by RiboGene,
then RiboGene's license and rights shall terminate and Dainippon shall have a
perpetual, paid-up exclusive worldwide license under RiboGene Technology and
RiboGene owned and jointly owned Collaboration Technology to research, develop,
make, have made, use and sell any Active Compound in any field. In the event
this Agreement is terminated by RiboGene based on a material breach by
Dainippon, then Dainippon's license and rights shall terminate and RiboGene
shall have a perpetual, paid-up exclusive worldwide license under Dainippon
Technology and Dainippon owned and jointly owned Collaboration Technology to
research, develop, make, have made, use and sell any Active Compound in any
field.
11.5 LICENSES AFTER EXPIRATION OR TERMINATION. If upon expiration or
termination of this Agreement other than due to breach by RiboGene, Dainippon
has not developed [*] Licensed Compound, or if such development terminates [*]
RiboGene shall have a perpetual exclusive [*] worldwide license under Dainippon
solely owned Collaboration Technology to
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research, develop, make, have made, use and sell any Active Compound and to use
and apply non-compound related Collaboration Technology [*].
11.6 SURVIVING RIGHTS. The obligations and rights of the parties
under Sections 3.1, 3.3, 3.4, 4.1, 11.4, 11.5, 11.8, 12.6, and Articles 5, 6, 7,
8, and 9 shall survive expiration or termination of this Agreement.
11.7 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. The termination,
relinquishment or expiration of the Agreement for any reason shall be without
prejudice to any rights which shall have accrued to the benefit of either party
prior to such termination, relinquishment or expiration, including any damages
arising from any breach hereunder.
11.8 TERMINATION FOR BANKRUPTCY. To the extent permitted by law, in
the event either party becomes insolvent, files bankruptcy or is declared
bankrupt, the other party may terminate this Agreement immediately; provided,
however, in the event of such termination the insolvent or bankrupt party shall
assign to the other the intellectual property rights licensed under this
Agreement subject only to the payment of any royalties agreed herein with
respect to such intellectual property.
ARTICLE 12
MISCELLANEOUS
12.1 WAIVER. No waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent or similar breach or default.
12.2 ASSIGNMENT. Neither party shall assign any of its rights and
obligations hereunder except (i) as incident to the merger, consolidation,
reorganization or acquisition of stock affecting actual voting control or of
substantially all of the assets of the assigning party or (ii) to an Affiliate;
provided, however, that in no event shall either party's rights and obligations
hereunder be assigned without prior written notice to the other party. In any
case, neither party may make an assignment of its assets which renders it unable
to perform its material obligations hereunder. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors and assigns.
12.3 NOTICES. Any notice or other communication required or permitted
to be given to either party hereto shall be in writing and shall be deemed to
have been properly given and to be effective on the date of delivery if
delivered in person or by facsimile or fourteen (14) days after mailing by
registered or certified airmail, postage paid, to the other party at the
following address:
17.
<PAGE> 18
In the case of RiboGene: RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
Fax: (510) 293-2596
Attention: President
with a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Fax: (650) 857-0663
Attention: Brian C. Cunningham, Esq.
In the case of Dainippon: Dainippon Pharmaceuticals Co., Ltd..
6-8 Doshomachi 2 chome, Chuo-ku
Osaka 541-0045
Japan
Fax: 011 81 6 203 0059
Attention: President
Either party may change its address for communications by a notice to the other
party in accordance with this section.
12.4 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
12.5 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
12.6 CONSTRUCTION OF AGREEMENT AND CHOICE OF LAW; RESOLUTION OF
DISPUTES.
(a) This Agreement and its terms and conditions shall be
governed exclusively by and construed according to the laws of California,
U.S.A., excluding its choice of law provisions and also excluding the United
Nations Convention on Contracts for the International Sale of Goods. The
official text of the Agreement and any notices given or accounts or statements
required hereby shall be in English.
(b) All disputes which may arise between the parties hereto
in relation to the interpretation or administration of this Agreement shall be
first referred to the Research Committee for resolution. Any disputes which the
Research Committee is unable to resolve within a reasonable period of time shall
be resolved by the agreement of the Chief Executive Officers or the Presidents
of the respective parties.
(c) Any disputes which cannot be resolved in this manner
shall be finally settled by arbitration in accordance with the Conciliation and
Arbitration Rules of the
18.
<PAGE> 19
International Chamber of Commerce. The arbitration shall be held in San
Francisco. The award rendered by the arbitration shall in any case be final and
binding upon the parties hereto.
12.7 FORCE MAJEURE. Any delays in performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, flood,
explosion, riots, wars, civil disorder, rebellion or sabotage. The party
suffering such occurrence shall immediately notify the other party as soon as
practicable and any time for performance hereunder shall be extended by the
actual time of delay caused by the occurrence.
12.8 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, Dainippon and RiboGene are, and shall act at all times as independent
contractors and nothing contained in this Agreement shall be construed or
implied to create an agency, partnership or employer and employee relationship
between RiboGene and Dainippon. At no time shall one party make commitments or
incur any charges or expenses for or in the name of the other party.
12.9 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
12.10 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between the
parties. All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
12.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
12.12 ENTIRE AGREEMENT. This Agreement and any Exhibits referred to
herein embodies the final and complete understanding of the parties with respect
to the subject matter hereof and shall supersede all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof.
19.
<PAGE> 20
IN WITNESS WHEREOF, both Dainippon and RiboGene have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, as of the day and year hereinabove written.
RIBOGENE, INC. DAINIPPON PHARMACEUTICAL CO., LTD.
By: By:
--------------------------------- ------------------------------------
Name: Charles J. Casamento Name: Takeshi Tomotake
Title: Chairman, President and Title: President
Chief Executive Officer
20.
<PAGE> 21
EXHIBIT 1.1
CRITERIA FOR ACTIVE COMPOUNDS
[*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
i.
<PAGE> 22
EXHIBIT 1.3
ASSAYS
[*]
[*]
[*]
[*]
[*]
[*]
[*]
i.
<PAGE> 23
EXHIBIT 1.23
RESEARCH PROGRAM
RiboGene Responsibility
[*]
Joint Responsibility
[*]
Dainippon Responsibility
[*]
ii.
<PAGE> 24
EXHIBIT 1.23 (CONTINUED)
TIME FRAME
[*]
<TABLE>
<S> <C> <C> <C> <C>
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
</TABLE>
iii.
<PAGE> 25
EXHIBIT 1.23 (continued)
RiboGene Resources
RiboGene anticipates [*] during the Research Term. The [*] approximately as
follows over the term of the Research Program.
Annual Breakdown:
[*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
iv.
<PAGE> 26
EXHIBIT 2.3
CRITERIA FOR LICENSED COMPOUNDS
Criteria for Licensed Compounds will be determined by the Research Committee and
will be decided based on [*]. The following criteria [*] :
[*]
v.
<PAGE> 1
EXHIBIT 10.36
RIBOGENE, INC.
1998 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 8, 1998
APPROVED BY STOCKHOLDERS ______________, 1998
1. PURPOSES.
(a) The purpose of the 1998 Equity Incentive Plan (the "Plan") is to
provide a means by which selected Employees and Directors of and Consultants to
the Company and its Affiliates may be given an opportunity to benefit from
increases in value of the common stock of the Company ("Common Stock") through
the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options,
(iii) stock bonuses and (iv) rights to purchase restricted stock, all as defined
below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CAUSE" means willful conduct that is materially injurious to the
Company (or any Affiliate) or any successor thereto, whether financial or
otherwise.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(f) "COMPANY" means RiboGene, Inc., a Delaware corporation.
<PAGE> 2
(g) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means a person's continuous service for the
Company or an Affiliate of the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole discretion,
may determine whether Continuous Service shall be considered interrupted in the
case of: (i) any leave of absence approved by the Board, including sick leave,
military leave, or any other personal leave; or (ii) transfers between locations
of the Company or between the Company, its Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the last market trading day prior to
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation
2
<PAGE> 3
(directly or indirectly) from the Company or its parent or subsidiary for
services rendered as a consultant or in any capacity other than as a Director
(except for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933
("Regulation S-K"), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "PLAN" means this 1997 Equity Incentive Plan.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(x) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, and any right to purchase restricted stock.
(y) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
3
<PAGE> 4
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, or a combination of the foregoing; the provisions of each Stock Award
granted (which need not be identical), including the time or times when a person
shall be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
13.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
or committees ("Committee") of two or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate eight hundred thousand shares (800,000) shares
of Common Stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
4
<PAGE> 5
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Stock Awards
covering more than three hundred thousand (300,000) shares of Common Stock in
any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option Agreement or
otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement. In
addition, the "par value" of stock acquired under an Option may not be paid
pursuant to a deferred compensation arrangement.
5
<PAGE> 6
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit transfer, then such Nonstatutory
Stock Option shall not be transferable except by will, by the laws of descent
and distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person or any transferee
pursuant to a domestic relations order. Notwithstanding the foregoing, the
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability) and subject to the provisions of Section 11, the Optionee may
exercise his or her Option within such period of time designated by the Board,
which shall in no event be later than the expiration of the term of the Option
as set forth in the Option Agreement (the "Post-Termination Exercise Period")
and only to the extent that the Optionee was entitled to exercise the Option on
the date Optionee's Continuous Service terminates. The Board may at any time,
with the consent of the Optionee, extend the Post-Termination Exercise Period
and provide for continued vesting; provided however, that any extension of such
period by the Board in excess of three (3) months from the date of termination
shall cause an Incentive Stock Option so extended to become a Nonstatutory Stock
Option, effective as of the date of Board action. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement or as otherwise
determined above, the Option shall terminate, and the shares covered by such
Option shall revert to the Plan. Notwithstanding the foregoing, the Board shall
have the power to permit an Option to continue to vest during the
Post-Termination Exercise Period.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it at the date of termination), but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
6
<PAGE> 7
termination (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a three (3)-month period after the termination of, the
Optionee's Continuous Service, the Option may be exercised to the extent vested
by the Optionee's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionee's death pursuant to subsection 6(d), but only within
the period ending on the earlier of (i) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
7
<PAGE> 8
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to any restrictions pursuant to the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion. Notwithstanding the foregoing, the Board
or Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.
(e) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person, subject to the
provisions of Section 11.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
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(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
its Affiliates, or to continue serving as a Consultant and Director, or shall
affect the right of the Company or any of its Affiliates to terminate the
employment of any Employee with or without notice and with or without cause, the
right to terminate the relationship of any Consultant pursuant to the terms of
such Consultant's agreement with the Company or any of its Affiliates or service
as a Director pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
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<PAGE> 10
(f) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the Stock
Award; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
11. CHANGE IN CONTROL.
(a) In the event of a Change in Control, (i) any surviving or
acquiring corporation shall assume Stock Awards outstanding under the Plan or
shall substitute similar Stock Awards for those outstanding under the Plan, or
(ii) in the event any surviving or acquiring corporation refuses to assume such
Stock Awards or to substitute similar Stock Awards for those outstanding under
the Plan, (A) with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the vesting of such Stock
Awards (including the lapse of any repurchase right held by the Company with
respect to shares acquired by such persons under a Stock Award) and the time
during which such Stock Awards may be exercised shall be accelerated prior to
such event, and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event.
(b) With respect to any person who was providing services as an
Employee, Director or Consultant immediately prior to the consummation of a
Change in Control, any assumed Stock Awards or substitute stock awards held by
such persons shall immediately become fully vested and exercisable for the
longer of twelve (12) months following such full vesting or the expiration of
any applicable underwriters' lock-up agreements and thereafter shall terminate,
but such period shall not be longer than the term of the Option; and any
repurchase right held by the acquiring or surviving corporation with respect to
shares acquired by such persons under a Stock Award shall lapse, if such
person's Continuous Service is terminated by the surviving or acquiring
corporation other than for Cause, death or disability within the thirteen (13)
months following a Change in Control.
(c) With respect to any person whose Continuous Service is terminated
by the Company, other than for Cause, death or disability, within the sixty (60)
days prior to a Change in Control, any Stock Awards held by such persons shall
immediately become fully vested and exercisable for the longer of twelve (12)
months following such full vesting or the expiration of any applicable
underwriters' lock-up agreements and thereafter shall terminate, but such period
shall not be longer than the term of the Option; and any repurchase right held
by the Company with respect to shares acquired by such persons under a Stock
Award shall lapse.
(d) With respect to any persons whose Continuous Service is not
terminated prior to thirteen (13) months after a Change in Control, then any
Stock Awards held by such persons shall immediately become fully vested and
exercisable for the longer of twelve (12) months following such full vesting or
the expiration of any applicable underwriters' lock-up agreements
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<PAGE> 11
and thereafter shall terminate, but such period shall not be longer than the
term of the Option; and any repurchase right held by the Company with respect to
shares acquired by such persons under a Stock Award shall lapse.
(e) For purposes of this Section 11 only, termination of Continuous
Service by the acquiring or surviving corporation following a Change in Control
shall include a termination of Continuous Service by a person upon thirty (30)
days written notice to the acquiring or surviving corporation that is due to any
one of the following actions being taken without such person's express written
consent: (i) material reduction in job responsibilities given the person's
position with the Company and the person's prior responsibilities with the
Company; (ii) any reduction in the person's annual base compensation as in
effect immediately prior to such reduction; (iii) relocation of the person's
workplace to a facility or location more than twenty-five (25) miles from the
person's workplace immediately prior to such relocation; or (iv) any purported
termination by the acquiring or surviving corporation which is not effected for
death, disability, or Cause; or for which the grounds relied upon are not valid.
(f) Notwithstanding the foregoing, the terms of a Stock Award
Agreement may provide for different terms to govern events described in this
Section 11. In the event the provisions of this Section 11 conflict with an
employment agreement or other agreement relating to the rights of the holder of
a Stock Award, the provisions of this Section 11 and the conflicting agreement
shall be construed to provide the greatest benefit to the holder of the Stock
Award.
(g) For purposes of this Plan, "Change in Control" means: (1) a
dissolution, liquidation, or sale of all or substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
If any change is made in the stock subject to the Plan, or subject to any
Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of
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<PAGE> 12
which shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company.")
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
15. STOCKHOLDER APPROVAL.
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No Stock Awards granted under the Plan shall be exercisable in whole or
part unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
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<PAGE> 1
EXHIBIT B
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE> 2
EXHIBIT 10.37
RIBOGENE, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 8, 1998
APPROVED BY STOCKHOLDERS ______________, 1998
1. PURPOSE.
(a) The purpose of the 1998 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of RiboGene, Inc. (the
"Company") who is not otherwise at the time of grant an employee of or
consultant to the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate eighty thousand (80,000) shares
of the Company's common stock. If any option granted under the Plan shall for
any reason expire or otherwise terminate without having been exercised in full,
the stock not purchased under such option shall again become available for the
Plan.
<PAGE> 3
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is first elected or appointed to the Board as a
Non-Employee Director after the Adoption Date shall automatically be granted, on
the date of such initial election or appointment, an option to purchase ten
thousand (10,000) shares of common stock of the Company on the terms and
conditions set forth herein (hereinafter, an "Initial Grant").
(b) Each Non-Employee Director who is serving as a Non-Employee
Director immediately following each annual meeting of stockholders, commencing
with the annual meeting of stockholders in calendar year 1998, and who has
continuously served as a Non-Employee Director for the six (6)-month period
prior to the date of the such annual meeting of stockholders, shall
automatically be granted, on such date, an option to purchase two thousand five
hundred (2,500) shares of common stock of the Company on the terms and
conditions set forth herein (hereinafter, an "Annual Grant").
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable as of
the date of termination of all such service under the provisions of subparagraph
6(e).
(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(e) of this Plan) subject to such option on the date such option is
granted.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) In cash (or check) at the time of exercise;
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<PAGE> 4
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date immediately preceding the date of exercise; or
(iii) Pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.
(iv) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(e) (i) An Initial Grant shall become exercisable in four (4) equal
annual installments measured from the date of grant, commencing on the one
(1)-year anniversary of the date of grant of the option, and (ii) an Annual
Grant shall become exercisable one (1) year from the date of grant, provided
that, with respect to any grant under the Plan, the optionee has, during the
entire period prior to such vesting installment date, continuously served as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate of the Company, whereupon such option shall become fully exercisable
in accordance with its terms with respect to that portion of the shares
represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (x) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (y) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other
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<PAGE> 5
representations, written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with applicable
securities laws as a condition of granting an option to the optionee or
permitting the optionee to exercise the option. The Company may, upon advice of
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of Delaware General
Corporations Law.
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<PAGE> 6
(c) No Non-Employee Director, individually or as a member of a
group, and no beneficiary or other person claiming under or through him, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(e) As used in this Plan, "Fair Market Value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(ii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any comparable successor provisions (excluding
any employee benefit plan, or related trust,
5
<PAGE> 7
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent not prohibited by
applicable law, the time during which options outstanding under the Plan may be
exercised shall be accelerated prior to such event and the options terminated if
not exercised after such acceleration and at or prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 30, 2007. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board.
(b) No option granted under the Plan shall be exercised or become
exercisable unless and until the Plan is approved by the stockholders of the
Company.
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<PAGE> 8
EXHIBIT C
1997 EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 1
EXHIBIT 10.38
RIBOGENE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 8, 1998
APPROVED BY THE STOCKHOLDERS _____________, 1998
1. PURPOSE.
(a) The purpose of the 1998 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of RiboGene, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
<PAGE> 2
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate six hundred thousand (600,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
2
<PAGE> 3
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under
the Plan if, immediately after any such rights are granted, such employee owns
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or of any Affiliate. For purposes
of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply
in determining the stock ownership of any employee, and stock which such
employee may purchase under all outstanding rights and options shall be treated
as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company
3
<PAGE> 4
and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit
such employee's rights to purchase stock of the Company or any Affiliate to
accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair
market value of such stock (determined at the time such rights are granted) for
each calendar year in which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the
4
<PAGE> 5
Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to the maximum percentage specified by the
Board or the Committee of such employee's Earnings during the Offering.
"Earnings" is defined as an employee's regular salary or wages (including
amounts thereof elected to be deferred by the employee, that would otherwise
have been paid, under any arrangement established by the Company intended to
comply with Section 401(k), Section 402(e)(3), Section 125, Section 402(h), or
Section 403(b) of the Code, and also including any deferrals under a
non-qualified deferred compensation plan or arrangement established by the
Company), any may also include or exclude (as provided for each Offering) the
following items of compensation: bonuses, commissions, overtime pay, incentive
pay, profit sharing, other remuneration paid directly to the employee, the cost
of employee benefits paid for by the Company or an Affiliate, education or
tuition reimbursements, imputed income arising under any group insurance or
benefit program, traveling expenses, business and moving expense reimbursements,
income received in connection with stock options, contributions made by the
Company or an Affiliate under any employee benefit plan, and similar items of
compensation, as determined by the Board or Committee. The payroll deductions
made for each participant shall be credited to an account for such participant
under the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
5
<PAGE> 6
8. EXERCISE.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan, unless the Offering document specifically provides otherwise. The amount,
if any, of accumulated payroll deductions remaining in each participant's
account after the purchase of shares which is less than the amount required to
purchase one share of stock on the final Purchase Date of an Offering shall be
held in each such participant's account for the purchase of shares under the
next Offering under the Plan, unless such participant withdraws from such next
Offering, as provided in subparagraph 7(b), or is no longer eligible to be
granted rights under the Plan, as provided in paragraph 5, in which case such
amount shall be distributed to the participant after such final Purchase Date,
without interest. The amount, if any, of accumulated payroll deductions
remaining in any participant's account after the purchase of shares which is
equal to the amount required to purchase whole shares of stock on the final
Purchase Date of an Offering shall be distributed in full to the participant
after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance
6
<PAGE> 7
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
7
<PAGE> 8
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment if such amendment requires stockholder approval in order for the Plan
to obtain employee stock purchase plan treatment under Section 423 of the Code
or to comply with the requirements of Rule 16b-3 promulgated under the Exchange
Act or any Nasdaq or securities exchange requirements.
(b) The Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to employee stock purchase plans and/or to bring
the Plan and/or rights granted under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan,
except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under the Plan
comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as
8
<PAGE> 9
necessary to comply with any laws or governmental regulation, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the Company's initial public
offering of shares of common stock (the "Effective Date"), but no rights granted
under the Plan shall be exercised unless and until the Plan has been approved by
the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted by the Board or the Committee, which date may be prior
to the Effective Date.
9
<PAGE> 10
EXHIBIT D
NEW POST-IPO CERTIFICATE
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated January 22, 1998
(except Notes 9 & 10, as to which the date is _________, 1998), in Amendment
No. 4 to the Registration Statement (Form S-1) and related Prospectus of
RiboGene, Inc. for the registration of 3,105,000 shares of its common stock.
Ernst & Young LLP
Palo Alto, California
______________________________________
The foregoing consent is in the form that will be signed upon the completion of
the changes to the capital accounts described in Note 9 to the financial
statements.
/s/ Ernst & Young LLP
Palo Alto, California
April 6, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Experts" in Amendment No. 4 to
the Registration Statement on Form S-1 of RiboGene, Inc.
/s/ Pennie & Edmonds LLP
- ---------------------------
PENNIE & EDMONDS LLP
New York, New York
April 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENT OF OPERATIONS
FOR THE YEAR THEN ENDED OF RIBOGENE, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FORM S-1.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 1,981 2,045
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,165 2,252
<PP&E> 1,043 1,369
<DEPRECIATION> 758 (898)
<TOTAL-ASSETS> 2,657 4,312
<CURRENT-LIABILITIES> 3,119 3,997
<BONDS> 0 289
0 0
29,449 33,533
<COMMON> 290 1,839
<OTHER-SE> (31,695) 163
<TOTAL-LIABILITY-AND-EQUITY> (1,956) 4,312
<SALES> 2,087 0
<TOTAL-REVENUES> 2,087 2,971
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 5,668 7,077
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (282) (7)
<INCOME-PRETAX> (3,863) (4,113)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,863) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,863) (4,113)
<EPS-PRIMARY> (0.75) (1.95)
<EPS-DILUTED> (0.75) (1.95)
</TABLE>
