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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 001-14165
RIBOGENE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3095154
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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26118 RESEARCH ROAD
HAYWARD, CALIFORNIA 94545
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(510) 732-5551
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(TITLE OF CLASS)
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1999, was approximately $8.7 million*.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement filed with the
Commission pursuant to Regulation 14A in connection with the 1999 Annual Meeting
are incorporated herein by reference into Part III of this Report.
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* Based on a closing price of $2.00 per share of the Registrants' Common Stock
held by executive officers, directors and stockholders whose ownership exceeds
5% of the Common Stock outstanding at February 28, 1999. Exclusion of such
shares should not be construed to indicate that any such person possesses the
power, direct or indirect, to direct or cause the direction of the management
or policies of the of the registrant or that such person is controlled by or
under common control with the Registrant.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......... 26
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 27
Item 6. Selected Financial Data..................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 29
Quantitative and Qualitative Disclosures about Market
Item7(a) Risk........................................................ 34
Item 8. Financial Statements and Supplementary Data................. 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 53
PART III
Item Directors and Executive Officers of the Registrant..........
10. 53
Item Executive Compensation......................................
11. 53
Item Security Ownership of Certain Beneficial Owners and
12. Management.................................................. 53
Item Certain Relationships and Related Transactions..............
13. 53
PART IV
Item Exhibits, Financial Statement Schedules and Reports on Form
14. 8-K......................................................... 53
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Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the heading "Risk Factors" at the end of Item
1 Business.
PART I
ITEM 1. BUSINESS
OVERVIEW
RiboGene, Inc. (the "Company") 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. 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 pathogen specific translation mechanisms may lead to the
discovery of drugs that are effective against either drug-resistant pathogens or
pathogens for which current therapies are not effective.
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 $34.0 billion in 1997 and
constituted the third largest pharmaceutical sales category. The antibacterial,
antifungal and antiviral markets are estimated to be approximately $25.0
billion, $4.0 billion and $5.0 billion, respectively, based on 1997 sales. There
are currently four antibacterial drugs that each generate in excess of $1.0
billion in worldwide sales annually and one antifungal drug that generates
nearly $900 million. Of the 100 best selling brand name drugs worldwide in 1997,
22 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.
To compliment its drug discovery efforts, the Company also seeks to
in-license or acquire compounds with demonstrated activity relevant to certain
therapeutic targets. Consistent with this strategy, in 1994 the Company acquired
Emitasol(R), an intranasal form of metoclopramide. Metoclopramide is an approved
antiemetic and is available in oral and intravenous form. The Company and its
partners are developing Emitasol for the treatment of diabetic gastroparesis
(stomach paralysis) and for emesis (nausea and vomiting) associated with cancer
chemotherapy. Emitasol is currently being developed in North America as well as
in certain countries in Europe through corporate partners. Emitasol is intended
to control diabetic gastroparesis and to prevent delayed emesis associated with
cancer chemotherapy. Currently, there are no drugs specifically approved to
treat delayed emesis, and metoclopramide is approved to treat diabetic
gastroparesis and to prevent acute chemotherapy-induced emesis. RiboGene
believes that Emitasol, when given intranasally, may be effective in treating
diabetic gastroparesis and delayed onset emesis. Such advantages may include:
ease of administration, an increased level of efficacy as compared to
alternatives and cost effectiveness. The Company, together with its
collaborative partner, expects to begin Phase III clinical trials of Emitasol
for diabetic gastroparesis in 1999. However, substantial additional development,
clinical testing and investment will be required prior to seeking any regulatory
approval for commercialization of this product. There can be no assurance that
clinical trials of Emitasol will demonstrate the safety and efficacy of such
product to the extent necessary to obtain regulatory approvals for the
indications being studied, or at all. The failure to demonstrate adequately the
safety and efficacy of Emitasol could delay or prevent regulatory approval of
the product.
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In order to accelerate the discovery, development and commercialization of
drugs, and to offset the costs of discovery and development, 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 July 1998, the Company entered into an option and license agreement with
Roberts Pharmaceutical Corporation ("Roberts") for the development of Emitasol
(the "Roberts Collaboration"). In connection with the Roberts Collaboration,
Roberts made a $10 million equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock at $7.00 per share. In
conjunction with the Company, Roberts will develop Emitasol to treat diabetic
gastroparesis and delayed onset emesis caused by cancer chemotherapy.
In January 1998, the Company entered into a collaboration with Dainippon
Pharmaceutical Co. Ltd. ("Dainippon") encompassing the two principal targets in
the Company's antibacterial program (the "Dainippon Collaboration"). As part of
the Dainippon Collaboration, Dainippon agreed to provide the Company with
research support payments ($4.0 million of which has been received, as of
February 1999), 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 clinical and regulatory milestones. RiboGene also has the right to
co-promote, in Europe and the United States, any products resulting from the
collaboration. In connection with the Dainippon Collaboration, Dainippon made a
$2.0 million equity investment in the Company in February 1998, by purchasing
756,144 shares of the Company's Series G Preferred Stock (the "Dainippon
Shares"), which automatically converted into 53,988 shares of Common Stock upon
the closing of the Company's initial public offering (the "Offering"). In
exchange for an increase in the royalty rate to be received by RiboGene, the
Company issued an additional 230,000 shares of common stock to Dainippon in
September 1998.
The Company also has agreements with ArQule, Inc. ("ArQule"), and EnzyMed,
Inc. ("EnzyMed") 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 objectives are to discover and develop novel drugs to treat
infectious disease and other unmet medical needs. The Company has adopted two
approaches to accomplish these objectives. The first is to discover novel
compounds in a proprietary program based on translation, the process used by
cells to synthesize proteins. However, the Company also recognizes that it will
be a number of years before any potential products reach the market, given the
extensive preclinical and clinical development programs through which each must
proceed. Accordingly, RiboGene's second approach is to acquire rights to drug
candidates that have reached a more advanced stage of development and are thus
more likely to reach the commercial market sooner. 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 assays which are used to identify compounds with desired mechanisms of
action. By using targets which are specific to pathogens, the Company believes
that it may be able to identify small-molecule lead compounds which inhibit
pathogen function and thereby kill or attenuate pathogen growth with minimal
effects on humans. The Company believes that in certain applications these
small-molecule lead compounds may have better safety and efficacy profiles than
those of existing drugs.
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DISCOVER 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 pathogen specific
translation mechanisms may have different molecular targets than those of
existing classes of antiinfectives, the Company believes that potential drug
candidates resulting from its drug discovery programs may be effective against
existing drug resistant pathogens.
IN-LICENSE OR ACQUIRE LATER STAGE COMPOUNDS AND PRODUCTS
The Company believes that by acquiring later stage products, either by
in-licensing, through corporate partnering, or through acquisitions, it can
accelerate the discovery and development of novel drugs to treat infectious
disease or other unmet medical diseases. The Company intends to continue this
approach and it currently is reviewing a number of product acquisition
candidates that are in later stages of development.
ESTABLISH COLLABORATIVE RELATIONSHIPS FOR ITS DRUG DISCOVERY PROGRAM
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 trial,
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.
SCIENTIFIC 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.
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THE RIBOGENE APPROACH
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 pathogen specific translation mechanisms
represent a new class of targets for drug discovery. By focusing discovery
efforts on drugs which are effective inhibitors of pathogen specific translation
mechanisms, the Company believes that it may be possible to discover drug
candidates for which pathogens have not already developed resistance. In
addition, because the Company selects only pathogen specific translation
mechanism targets which are essential for the life of the pathogen and appear to
bear little or no resemblance to their human counterpart, 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 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 pathogen specific translation mechanisms
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. 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.
RIBOGENE'S DRUG DISCOVERY PROCESS.
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; (ii) assay development;
(iii) lead discovery; and (iv) lead optimization. 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 pathogen specific translation mechanism targets for use
in its drug discovery programs. When pathogen specific translation mechanism
targets have been identified and validated, RiboGene scientists use a variety of
techniques to design and implement translation-based assays to identify and
characterize compounds active against such targets. Once a pathogen specific
translation mechanism 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. 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. In its
antibacterial program, the Company has two principal targets, deformylase and
ppGpp degradase, for which it conducts research in collaboration with Dainippon.
Deformylase is in the lead optimization phase, and ppGpp degradase is in the
lead discovery phase. The Company has several additional antibacterial targets,
to which it has retained rights to, that are in the assay development phase. In
its antifungal program, several targets, are in the lead discovery phase. In its
antiviral program, which is currently
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focused exclusively on the hepatitis C virus ("HCV"), the Company has one
target, HCV NS5A/PKR, in the assay development phase.
THE RIBOGENE RESEARCH PROGRAMS; ANTIBACTERIAL PROGRAM
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 pathogen
specific translation mechanisms and is designing and implementing antibacterial
drug discovery systems incorporating these pathogen specific translation
mechanism targets. The Company's bacterial pathogen specific translation
mechanism 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 pathogen specific translation mechanism 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 pathogen specific translation
mechanism 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
pathogen specific translation mechanisms 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
degradase. As part of the Dainippon Collaboration, RiboGene is screening both
the RiboGene and Dainippon compound libraries and applying it internal chemistry
resources to these projects. RiboGene has responsibility for assay development
and lead discovery. Both parties have joint responsibility for in vitro testing
and lead optimization. Dainippon generally has responsibility for any
preclinical and clinical development, regulatory submission, manufacturing or
marketing. See "-- Collaborative and Research Agreements."
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
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 optimization
phase. Through its assay system, the Company has discovered small-molecule
compounds that inhibit deformylase. The Company, in collaboration with
Dainippon, will continue to screen compounds in the deformylase assays to
identify additional novel 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
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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
Company, in collaboration with Dainippon, will continue to screen compounds in
the ppGpp assays to identify novel lead compounds suitable for lead
optimization.
THE RIBOGENE RESEARCH PROGRAMS; 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%.
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 pathogen specific translation mechanism targets and developed
fungal-specific in vitro and whole cell assays. The hits identified in the
primary high-throughput assays will be analyzed using secondary in vitro
translational assays to confirm that the compounds interfere specifically with
fungal translation without significantly affecting mammalian translation. If any
compounds with the desired potency and selectivity are discovered, they are then
assayed for their effects against pathogenic fungi in cell culture.
The Company has designed and constructed a biochemical assay around certain
targets essential to fungal growth and reproduction and is actively screening
its compounds and those of its collaborative partners in these assays. For
example, the Candida in vitro assay is designed to provide information on fungal
translation by responding to inhibition of several steps within the translation
pathway. The Company uses an in vitro screen to detect for inhibitors of these
translation components. RiboGene has developed and scaled up this assay, as well
as several others incorporating certain fungal targets, for high throughput
screening.
From April 1996 to April 1998, the Company, through a collaboration with
Abbott Laboratories ("Abbott" and the "Abbott Collaboration"), worked towards
the development of novel antifungal drugs. In February 1998, Abbott notified the
Company of its termination of the Abbott Collaboration effective April
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1998. The Company is seeking to establish a corporate collaboration for its
antifungal program to replace the Abbott Collaboration.
THE RIBOGENE RESEARCH PROGRAMS; 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 occurring each
year. The World Health Organization estimates that an additional 10 million
individuals are infected with HCV in Europe and a total of 170 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.
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 pathogen specific translation
mechanism 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 Scientific Advisory Board ("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 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 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. See "Risk Factors -- Dependence on Patents and
Proprietary Rights."
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. At the current time, the Company is focusing all of its
HCV efforts on the NS5A/PKR 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 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 increasing 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. The Company is currently seeking
corporate partners to continue the development of the HCV targets.
THE RIBOGENE DEVELOPMENT PROGRAM
EMITASOL
The Company acquired the rights to Emitasol from Hyline Laboratories, Inc.
in 1994. The Company, in conjunction with Roberts, is developing Emitasol for
two indications; diabetic gastroparesis and delayed onset emesis associated with
chemotherapy. See "-- Collaborative and Research Agreements."
Diabetic gastroparesis. For some diabetics, proper digestion may be
difficult. Variable blood glucose levels may lead to a condition known as
gastroparesis or stomach paralysis. Gastroparesis can result in general loss of
appetite, nausea and vomiting, and in some cases severe dehydration. Many
prescription medications are used to treat gastroparesis, including bethanecal,
cisapride and erythromycin. Each of these drugs has limited effectiveness and
has side effects. Metoclopramide tablets are approved for treating
gastroparesis. The Company believes that the intranasal form of metaclopramide
may provide diabetics with gastroparesis an easier route of administration and
better patient compliance. The Company intends to study the control of diabetic
gastroparesis in a phase III clinical trial which it expects to initiate by mid
1999. Positive results in these trials may allow for the submission of a New
Drug Application ("NDA") to the United States Food and Drug Administration
("FDA"), which the Company expects may occur in 2000.
Delayed onset emesis. Nausea and vomiting (emesis) are common side effects
of cancer chemotherapy. Chemotherapy-induced emesis is considered to occur in
two phases: acute (within 24 hours of the initiation of chemotherapy) and
delayed (on the second and subsequent days). Several drugs have been approved by
the FDA for preventing nausea and vomiting associated with emetogenic
chemotherapy, including injectable forms of ondansetron, granisetron, and
metoclopramide. Ondansetron and granisetron are representatives of a newer class
of drugs called serotonin antagonists or setrons, and are considered highly
effective in controlling acute chemotherapy-induced emesis. There are
conflicting reports, however, about the efficacy of serotonin antagonists in
controlling delayed onset emesis. There are in fact no FDA-approved treatments
specifically for delayed onset emesis. Increasing numbers of these patients are
being treated as outpatients and experience delayed onset emesis when they are
no longer under the immediate care of a medical professional. Any medication for
such emesis should therefore be suitable for self-administration by the patient.
Injectable medications are unlikely to be suitable in this context. It appears
that current practice is to provide patients initially with oral antiemetics in
tablet form. Tablets are not, however, particularly suitable for patients who
are nauseous and may vomit.
Prior clinical trials for Emitasol have demonstrated that metoclopramide is
absorbed and effective when given intranasally. Phase I trials indicated that
the overall amount of metoclopramide which reaches the plasma is very similar
whether the drug is given intranasally, intravenously or orally. Given the
similarity in uptake of the three dosage forms, similarity might also be
expected in their clinical performance. For acute emesis the expected similarity
in performance has been demonstrated for the intranasal and intravenous dosage
forms: in a prior phase III study, Emitasol provided protection against acute
emesis comparable to that previously reported for intravenous metoclopramide.
RiboGene therefore anticipates that intranasal metoclopramide may be effective
for controlling delayed onset emesis, an activity suggested for oral
metoclopramide in the clinical literature.
According to the American Cancer Society, about 1.3 million new patients
are diagnosed with cancer in the United States each year, many of which are
treated with chemotherapy. Chemotherapy is typically
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administered as a series of separate courses over a period of several months. In
total, therefore, the number of courses of chemotherapy administered to cancer
patients each year in the United States is estimated to be over a million.
Additionally, according to the Center for Disease Control, there are 16 million
diabetics in the United States, of which 40 to 50 percent may show signs of
gastroparesis.
Although the Company is currently conducting a Phase III clinical trial of
Emitasol for the treatment of diabetic gastroparesis, substantial additional
development, clinical testing and investment will be required prior to seeking
any regulatory approval for commercialization of this product. There can be no
assurance that clinical trials of Emitasol will demonstrate the safety and
efficacy of such product to the extent necessary to obtain regulatory approvals
for the indications being studied, or at all. The failure to demonstrate
adequately the safety and efficacy of Emitasol could delay or prevent regulatory
approval of the product.
COLLABORATIVE AND RESEARCH AGREEMENTS
THE DAINIPPON AGREEMENTS
In January 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 research reimbursements ($2.0 million of which support was received in 1998
and another $2.0 million for the 1999 research year was received in February
1999) 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 clinical and regulatory milestones,
consisting of up to $5.0 million through approval in Japan and up to $5.0
million through approval 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 in Europe and the United States 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 a stock purchase agreement to purchase shares of Series G preferred
stock, 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 automatically converted into 53,988 shares of Common
Stock upon the closing of the Company's Offering. Dainippon also received
certain registration rights with respect to the Dainippon Shares. In exchange
for an increase in the royalty rate to be received by RiboGene, the Company
issued an additional 230,000 shares of common stock to Dainippon in September
1998. 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
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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."
THE ROBERTS AGREEMENT
In July 1998, the Company entered into an option and license agreement with
Roberts for the development of Emitasol, for treatment of diabetic gastroparesis
and delayed onset emesis in cancer chemotherapy patients. In addition, Roberts
made a $10.0 million equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock at $7.00 per share.
Holders of the Series A non-voting convertible preferred stock are entitled to
non-cumulative dividends, when and if declared by the Board of Directors, and
have a liquidation preference, prior to any declared dividends equal to the
original issue price of $7.00 per share. The Series A non-voting convertible
preferred stock is convertible into common stock on a one-for-one basis,
provide, however, that on or following each of the first three annual
anniversary dates of the stock issuance, the holders of the Series A preferred
stock only convert up to 33%, 50% and 100% of their shares, respectively.
Additionally, Roberts may request that the Company register up to 20% of the
converted shares in any twelve month period. Under the terms of the option and
license agreement, Roberts will conduct clinical trials using Emitasol and, if
those are successful, submit an NDA for Emitasol. If FDA regulatory approval is
obtained, Roberts will have 60 days to exercise an exclusive option for a
license to market Emitasol in North America. Roberts has agreed to make a
payment to RiboGene of up to $10.0 million upon the exercise of the option and
to pay a royalty on product sales. RiboGene will provide up to $7.0 million in
funding for the development of Emitasol through completion of Phase III trials
and the submission of an NDA, with the balance, if any, provided by Roberts.
RESEARCH AGREEMENTS
EnzyMed, Inc. In July 1998, the Company entered into a material transfer,
screening and collaboration agreement with EnzyMed (the "EnzyMed Agreement"), a
chemistry company that specializes in the synthesis, optimization and
identification of pharmaceutical compounds. EnzyMed's proprietary technology
integrates interactive enzymatic and microbial reactions with selected chemical
synthesis to create libraries of diverse compounds. The Company is in the
process of screening the compounds provided by EnzyMed in certain of its assays.
Upon receipt of samples from EnzyMed, the Company has four months to test the
compounds in certain of its assays. In the event RiboGene identifies a compound
that meets certain criteria, the parties will develop a mutually agreed plan for
the development of that compound. Future revenues, if any, resulting from the
sale of any compound discovered as part of this collaboration will be shared by
each party according to a predetermined formula. This agreement may be
terminated at any time upon written notice by either party. Termination would
take effect 30 days after the end of any current four month screening period.
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 has screened and intends to continue 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. The agreement can be
terminated by the Company upon 30 days notice, without any further obligation.
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.
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LICENSE AGREEMENTS
Crinos Industria Farmacobiologica SpA ("Crinos"). In January 1994, as part
of its acquisition of Emitasol and certain other intranasal products from Hyline
Laboratories, Inc., RiboGene entered into a license agreement with Crinos. The
agreement grants Crinos an exclusive license to manufacture and market Emitasol
in Italy. The Company will receive a royalty on net sales of Emitasol, if any,
in Italy. The agreement expires 10 years after the first commercial sale in
Italy subject to automatic renewal for three-year periods. In October 1996, the
agreement was amended to grant Crinos a non-exclusive world-wide license to
manufacture Emitasol. The amendment provides that RiboGene will receive
additional royalties on all supply arrangements between Crinos and any licensees
of RiboGene to Emitasol. RiboGene may terminate the license agreement in the
event Crinos fails to pay certain minimum royalties. RiboGene also retains the
right to all data generated by Crinos on Emitasol, including clinical and
manufacturing information.
Crinos has received governmental approval to market Emitasol in Italy.
RiboGene believes that Crinos plans to launch this product under the tradename
Pramidin by the middle of 1999. Pramidin will be marketed in two dosage forms
under the names Pramidin 10 (200 mg of active ingredient) and Pramidin 20 (400
mg of active ingredient).
CSC Pharmaceuticals Handels GmbH ("CSC"). In April 1997, the Company
entered into an agreement with CSC. The agreement grants CSC an exclusive
license to market and sell Emitasol in Austria, Poland, Bulgaria, the Czech
Republic, Slovakia, Hungary, Rumania, the Community of Independent States and
eight other eastern European countries. CSC has agreed to pay a royalty to the
Company based on net sales within the countries listed above. The agreement will
expire on a country-by-country basis 10 years after the first commercial sale in
that country. RiboGene can terminate the license if CSC does not obtain approval
in any country contained in the agreement by April 16, 1999. CSC has filed for
regulatory approval in Austria and the Czech Republic.
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. See "Risk Factors -- Dependence on
Patents and Proprietary Rights."
THE ABBOTT COLLABORATION
From April 1996 to April 1998, RiboGene had a collaboration with Abbott
Laboratories, Inc. to discover and develop antifungal drugs. Pursuant to the
agreement with Abbott, the Company granted Abbott exclusive worldwide rights to
develop and market any and all antifungal products discovered through the
Abbott-sponsored collaborative research program. From May 1996 to April 1998,
Abbott funded a significant portion of the costs associated with the Company's
antifungal program. As of December 31, 1998, the Company had realized $3.5
million in research support revenues from Abbott. As a result of Abbott's
termination of the Abbott Collaboration, effective April 8, 1998, Abbott
reimbursed the Company an additional $177,000 (included in research support
revenues for 1998) 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 agreement 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.
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
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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.
The Company owns two provisional applications, a pending patent application
and certain corresponding foreign applications relating to its antibacterial
drug discovery program; two issued U.S. patents, and certain corresponding
foreign applications, and an issued Austrian patent relating to its antifungal
drug discovery program; and an issued United States patent, a pending United
States patent application and certain corresponding foreign applications
relating to its antiviral drug discovery program. See "Risk Factors --
Dependence on Patents and Proprietary Rights."
The Company is an assignee, along with McGill University, of an issued U.S.
patent and a pending U.S. patent application generally relating to translational
control of gene expression. 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. 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.
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, 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. 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 licensed rights to
Emitasol in North America, Italy, Austria
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and certain former Eastern European countries. The Italian licensee received
approval to market Emitasol in Italy. There can be no assurance that the other
foreign licensees, or future 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.
In April 1997, the Company entered into an agreement with CSC
Pharmaceuticals Ltd., 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 was obligated and has filed for regulatory approval in
Austria on its behalf. CSC filed for approval in Austria in 1997 and in the
Czech Republic in 1998. In a separate agreement, the Company's Italian License,
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
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.
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
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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.
As it relates to its drug discovery efforts, the Company currently is
engaged in the preliminary stages of drug discovery 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, its collaborators or future collaborators. 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.
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.
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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
and its collaborative partners 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 and its collaborative partners 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.
In order to export any drug outside of the United States prior to FDA
approval to market in the United States, 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 -- Uncertainties Related to Clinical Trials" and "-- 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 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 pathogen specific translation
mechanism-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
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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 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
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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.
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 December 31, 1998, the Company had 40 full-time employees. Twenty-seven
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, fourteen 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."
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RISK FACTORS
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY.
RiboGene, Inc. is a drug discovery company that has experienced operating
losses every year since its inception. At December 31, 1998, the Company had an
accumulated deficit of approximately $42.3 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, begins
clinical trials of its products and acquires products and technologies.
Neither the Company nor its collaborative partners have, except for
Emitasol, which is approved in Italy and will begin Phase III testing in the
U.S., developed products that have generated any revenues to the Company or
entered clinical trials with any potential products developed with or
in-licensed from 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 research and license agreements, 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. Significant 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 or in-licensed 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.
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT.
RiboGene's drug discovery and development programs are at an early stage of
development. RiboGene 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 focusing 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
from its drug discovery efforts 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, third party patents, 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.
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
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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 Research Programs,"
"-- The RiboGene Development Program" 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, and short-term
investments, revenue from the research and development collaboration with
Dainippon, and interest income will be sufficient to allow the Company to
maintain its current and planned operations through mid-2001. 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, among other things, 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 "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 January 1998, RiboGene entered into the Dainippon Collaboration with
Dainippon to discover and develop antibacterial drugs based on the two principal
targets in the Company's antibacterial program. Pursuant to a license agreement
and research agreement by and between the Company and Dainippon, dated January
27, 1998 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, and which are discovered during the
Dainippon-sponsored collaborative research program. Dainippon has the right to
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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.
In April 1996, RiboGene established a collaboration with Abbott to discover
and develop antifungal drugs. In February 1998, Abbott notified the Company of
its termination of the Abbott Collaboration, effective April 1998. 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, the Company may
scale back or eliminate this program. The Company is currently funding the
antifungal program from its own resources.
The Company currently does not have a corporate partner for its antiviral
research. The Company is seeking to establish a corporate collaboration or to
obtain additional funding for its antiviral programs. 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 antiviral program, the
Company may scale back or eliminate this program.
The Company's revenues will be dependent on the success of the lead
compounds and potential drug candidates developed through the Dainippon
Collaboration and the approval and sale of Emitasol in conjunction with Roberts
and the Company's other licenses and on the Company's ability to establish
additional collaborations for its other programs. The failure of the Company to
maintain the Dainippon or Roberts 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 or Roberts 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."
DEPENDENCE ON A SINGLE TECHNOLOGICAL APPROACH.
The Company's research and development efforts are based solely on its
pathogen specific translation mechanism targeted approach. The Company began to
focus its research and development efforts on its pathogen specific translation
mechanism approach to drug discovery in 1993. To date, the Company has not
developed or commercialized any product or product candidates. While the Company
has demonstrated that
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certain compounds have the ability to inhibit the activity of certain of the
Company's pathogen specific translation mechanism 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 pathogen specific translation mechanism technology is still
in early stages and will require significant further research, development and
testing in order to validate translation generally, or pathogen specific
translation mechanism targets specifically, as an effective method to discover
new antiinfectives. In the event that the Company's pathogen specific
translation mechanism 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,"
and "Business -- Collaborative and Research Agreements."
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
two provisional applications, a pending patent application and certain
corresponding foreign applications relating to its antibacterial drug discovery
program; two issued United States patents, a pending United States patent
application and certain corresponding foreign applications and an issued
Austrian patent relating to its antifungal drug discovery program; and an issued
United States patent, a pending United States patent application and certain
corresponding foreign applications relating to its antiviral drug discovery
program. One of the coinventors of the Company-owned patent and patent
applications relating to the antiviral drug discovery program is Michael Katze,
Ph.D. Dr. Katze presently is a member of the Company's 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 been in discussions with
the University of Washington regarding a potential, partial ownership interest
in the patent and the 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
and 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 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, minor 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
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issued U.S. patent and a pending U.S. patent application generally relating to
translational control of gene expression. 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. 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 is
sued 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.
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
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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."
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 attempting to discover 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. 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.
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 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 services of Charles J. Casamento,
President, Chief Executive Officer and Chairman of the Board. There can be no
assurance that Mr. Casamento will continue to be employed by the Company in the
future. The loss of Mr. Casamento 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 product development, clinical trials and regulatory affairs,
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
23
<PAGE> 26
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.
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 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
24
<PAGE> 27
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."
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 has granted an option to Roberts for North
American marketing rights to Emitasol. 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 or maintain 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 payers 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
25
<PAGE> 28
could control or significantly influence the purchase of health care services
and products, as well as legislative 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 payers 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 payers 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.
ITEM 2. PROPERTIES
RiboGene currently leases approximately 30,000 square feet of laboratory
and office space in Hayward, California under a lease expiring in November 2012.
The Company has sublet 5,000 square feet of this facility through February 28,
2001. In connection with the lease, the Company issued to the landlord a
six-year warrant to purchase 17,850 shares of Common Stock at $31.51 per share.
ITEM 3. LEGAL PROCEEDINGS
RiboGene is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Shares of the Company's Common Stock commenced trading on the American
Stock Exchange on May 28, 1998, under the symbol "RBO." The Company has never
paid cash dividends and does not anticipate paying cash dividends in the
foreseeable future. As of February 28, 1999, there were approximately 160
holders of record of the Company's Common Stock.
The following table sets forth quarterly range of high and low sale prices
available reported by the American Stock Exchange
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Quarter (from May 28, 1998).......................... 7 1/8 5 3/8
Third Quarter............................................... 7 2 13/16
Fourth Quarter.............................................. 4 1/2 1 13/16
</TABLE>
(b) Use of Proceeds. The effective date of the Company's registration
statement, filed on Form S-1 under the Securities and Exchange Act of 1933, as
amended (File No. 333-38781), was May 28, 1998 (the "Registration Statement").
The class of securities registered was Common Stock and all securities sold were
sold in the offering. The underwriter for the offering was Gruntal & Co., L.L.C.
Pursuant to the Registration Statement, the Company sold 2,300,000 shares of its
Common Stock for an aggregate offering price of $16.1 million.
In connection with the public offering, the Company incurred expenses of
$3.9 million, of which $1.8 million represented underwriting discounts and
commissions and expense reimbursements and $2.1 million represented other
expenses related to the offering. No proceeds were paid directly or indirectly
to directors, officers, general partners of the Company or to persons holding
ten percent or more of any class of equity security issued by the Company, or to
any other affiliate of the Company. The net offering proceeds to the Company
after total expenses was $12.2 million.
The Company has used $3.6 million of the net proceeds from the offering for
operations. The Company has invested the remainder of the net proceeds in
short-term, investment-grade, interest bearing financial instruments. The use of
the proceeds from the offering does not represent a material change in the use
of the proceeds described in the Registration Statement.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1998, the Registrant issued to Reedland Capital Partners
("Reedland") a warrant to purchase up to an aggregate of 50,000 shares of Common
Stock in connection with a credit facility arrangement.
The above-listed securities were issued in reliance on Section 4(2) of the
Securities Act of 1933.
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<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
audited financial statements of the Company. The audited financial statements of
the Company as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998, together with the notes thereto and the
related report of Ernst & Young LLP, independent auditors, are included
elsewhere herein. 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research................. $ 2,569 $ 1,668 $ 1,112 $ -- $ --
Grants............................ 594 1,303 975 407 238
-------- -------- -------- -------- --------
3,163 2,971 2,087 407 238
Operating expenses:
Research and development.......... 7,296 4,130 4,296 4,663 4,209
General and administrative........ 3,033 1,551 1,372 2,758 2,424
Financial advisory costs.......... -- 1,396 -- -- --
Acquired in-process research and
development.................... -- -- -- -- 5,000
-------- -------- -------- -------- --------
Total operating expenses............ 10,329 7,077 5,668 7,421 11,633
-------- -------- -------- -------- --------
Loss from operations................ (7,166) (4,106) (3,581) (7,014) (11,395)
Interest income (expense), net...... 605 (7) (282) (240) (42)
-------- -------- -------- -------- --------
Net loss............................ (6,561) (4,113) (3,863) (7,254) (11,437)
Deemed dividend upon conversion of
preferred stock(2)................ (7,989) -- -- -- --
-------- -------- -------- -------- --------
Net loss attributable to common
stockholders...................... $(14,550) $ (4,113) $ (3,863) $ (7,254) $(11,437)
======== ======== ======== ======== ========
Basic net loss per common
share(1).......................... $ (4.49) $ (41.13) $ (52.92) $(164.86) $(300.97)
======== ======== ======== ======== ========
Shares used in computing basic net
loss per common share(1).......... 3,244 100 73 44 38
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments......... $ 29,518 $ 2,045 $ 1,981 $ 1,897 $ 4,416
Working capital (deficit)......... 26,261 (1,745) (954) (1,762) 2,133
Total assets...................... 31,820 4,312 2,657 2,404 5,105
Long-term obligations............. 5,718 477 1,494 2,656 3,192
Accumulated deficit............... (42,258) (35,697) (31,584) (27,721) (20,467)
Total stockholders' equity
(deficit)...................... 22,755 (162) (1,956) (4,029) (504)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of net loss per share.
(2) See Note 6 of Notes to Financial Statements for information concerning the
deemed dividend upon conversion of preferred stock.
28
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contain 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 or
contribute to such a difference include, but are not limited to, those discussed
herein and in "Risk Factors" in Part I.
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, which are based on
translational control of gene expression, target bacterial, fungal, and viral
infections. A significant part of the Company's strategy is to enter into
collaborative arrangements with partners to develop pharmaceutical candidates
and to pursue the acquisition of late stage clinical compounds. 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, and warrants to purchase 92,820 shares of Common Stock, with an
exercise price of $16.67. As consideration for an amendment to a certain
promissory note issued by RiboGene to Hyline in connection with such purchase,
the Company issued a warrant to Hyline to purchase an additional 13,923 shares
of Common Stock at $16.67 per share. All warrants related to the Intranasal
Product Acquisition and amendment expired 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 July 1998, the Company entered into the Roberts Agreement to
develop Emitasol for the treatment of diabetic gastroparesis and the prevention
of delayed onset emesis due to chemotherapy. See "Business -- Patents and
Proprietary Rights" and "Certain Transactions."
In January, 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 research support payments over three years ($4.0 million of which has been
received to date), 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 clinical and 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 through approval in Japan and up to $5.0 million 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 automatically converted into 53,988 shares of
Common Stock concurrently with the closing of the Company's initial public
offering. In September 1998, the Company issued to Dainippon 230,000 shares of
Common Stock in exchange for an increased royalty interest in the sales from
future products, as defined in the collaboration agreement between the Company
and Dainippon. As a result of this transaction, the
29
<PAGE> 32
Company recognized a $747,000 one-time non-cash charge to research and
development expense during 1998, representing the fair market value of the
common stock at the date of issuance. From April 1996 to April 1998, the Company
had a collaboration with Abbott for the Company's antifungal program. As of
December 31, 1998, the Company had realized $3.3 million in research support
revenues from Abbott. In connection with the Abbott Collaboration, Abbott made a
$3.5 million equity investment in the Company and purchased an additional $4.0
million of Common Stock directly from the Company in a private placement at
$7.00 per share concurrently with the closing of the Company's initial public
offering. See "Business -- Collaborative and Research Agreements."
The Company has generated no revenue from the sales of products and,
through December 31, 1998, has incurred cumulative net losses of approximately
$42.3 million and, at December 31, 1998, had net stockholders' equity of $22.8
million. 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 significant revenues from product
sales for a number of years, if ever. The Company's sources of revenues for the
next several years will be payments from strategic collaborations, royalties on
Emitasol sales, if any, in North America 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
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
For the year ended December 31, 1998, the Company's revenues consisted of
revenues from collaboration agreements and SBIR grants from the National
Institutes of Health. Revenue earned under the Dainippon Agreements, which began
in February 1998, amounted to $1.8 million for the year ended December 31, 1998.
Revenue earned under the Abbott Agreements was $736,000 and $1.7 million for the
years ended December 31, 1998 and 1997, respectively. The Abbott Agreements
ended in April 1998. Revenues from SBIR grants for the year ended December 31,
1998 were $594,000 as compared to $1.3 million in the year ended December 31,
1997. The decrease in grant revenues results from the completion of three grants
during 1997 and four grants during 1998. Revenues earned under research grants
are determined by the timing of the award from the issuing agency and services
performed by the Company. 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 increased $3.2 million or 77%, to
approximately $7.3 million for the year ended December 31, 1998, from $4.1
million in the year ended December 31, 1997. This increase resulted from
equipment and facility costs associated with the Company's new laboratories and
recruiting and other costs for the addition of research personnel to expand
medicinal chemistry capabilities and the antiinfective drug discovery programs.
The Company also recorded a $747,000 one-time non-cash charge to research and
development expense in 1998 upon the issuance of 230,000 shares of the Company's
common stock to Dainippon. The Company also initiated its development effort
with Roberts on Emitasol in the fall of 1998. Research and development expenses
represented approximately 71% of total operating expenses of $10.3 million in
the year ended December 31, 1998, as compared to 58% of total operating expenses
of $7.1 million in the year ended December 31, 1997.
General and administration expenses increased $1.5 million, or 96%, to $3.0
million for the year ended December 31, 1998, from $1.6 million in the year
period ended December 31, 1997. This increase is due to additional operating
costs associated with the Company's new facility, increased business development
costs, and additional internal staff, legal, accounting, and reporting costs
associated with public company status.
30
<PAGE> 33
The Company recognized net interest income of $605,000 for the year ended
December 31, 1998 compared to net interest expense of $7,000 for the year ended
December 31, 1997. This change results from interest income earned on the
short-term investment of the proceeds from the Company's initial public offering
and the equity investment from Roberts.
The net loss for the year ended December 31, 1998 was $6.6 million an
increase of $2.5 million, or 60%, from the net loss of $4.1 million for the year
ended December 31, 1997. The increase resulted from the changes in revenue and
operating expenses discussed above.
The Company recorded a deemed dividend of $8.0 million in 1998 upon
conversion of Series F preferred stock to common stock concurrent with the
closing of the Company's initial public offering. The Series F preferred stock
contained certain anti-dilution provisions that resulted in the Series F
preferred stockholders receiving an additional 1,141,317 shares of common stock
upon conversion.
As of December 31, 1998, the Company had a federal net operating loss
carryforward of approximately $34.8 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 2018, 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 7 of Notes to Financial Statements.
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 compared to
$4.3 million in 1996. 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 infectious disease drug discovery programs.
Research and development expenses represented approximately 58% of total
operating expenses of $7.1 million in 1997 as compared to 76% 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 the 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.
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.
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<PAGE> 34
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 with the Placement Agent. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since incorporation primarily
through public offerings and private sales of Common Stock and Preferred Stock,
warrants, SBIR grants, the Roberts, Dainippon and Abbott Collaborations, the
issuance of short-term convertible and long-term notes and equipment financing
arrangements. Through December 31, 1998, the Company has raised approximately
$67.4 million from such sales of Common Stock and Preferred Stock, warrants and
short-term convertible notes, $3.5 million from SBIR grants, and $5.4 million
from the Abbott and Dainippon Collaborations (excluding the initial Abbott and
Dainippon equity investments). The Company's capital expenditures and payments
under capital lease obligations aggregate approximately $2.5 million through
December 31, 1998, and cash used to fund operating activities since
incorporation $30.9 million. In September 1998, the Company entered into $2.0
million line of credit for financing capital purchases. Drawdowns under this
line of credit are collateralized by equipment purchased under this agreement.
At December 31, 1998, the Company had drawn down $620,000 under this line of
credit and anticipates utilizing the remainder in 1999.
In December 1998, the Company received $5.0 million from long-term debt
financing with a bank. The note requires monthly interest payments with the
principal payment due at the end of the three year term. The note earns interest
at 8.75%. The note is collateralized by a perfected security interest in all
unencumbered assets of the Company and requires that the Company maintain its
depository accounts with the bank with a minimum of $5.0 million in aggregate
cash and depository balances. The Company is also required to comply with
financial covenants based on certain ratios.
At December 31, 1998, the Company had cash and cash equivalents and
short-term investments of approximately $29.5 million and working capital of
$26.3 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.
Pursuant to the lease, the Company issued 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 has sublet the additional space through February 28, 2001. See
"Business -- Facilities."
The Company is very reliant on the positive results of the clinical trials
of Emitasol and the subsequent royalties derived from sales of Emitasol in North
America, pending approval by the FDA. The Company is also very reliant upon the
continuation of the collaboration with Dainippon. In order to provide additional
products in its research pipeline, the Company has begun to review numerous
in-license opportunities and potential merger and acquisition candidates. In the
event the Company proceeds with the in-license of a clinical stage product or a
merger with a company containing clinical stage products, the Company may elect
to scale back or eliminate some or all of its antifungal and HCV research
efforts.
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 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 middle of 2001. 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
32
<PAGE> 35
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
The Year 2000 ("Y2K") issue refers to the inability of older computer
hardware and software to accept four-digit codes for the year field in a set of
data (the "Year 2000 Issue"). Beginning in the year 2000, four-digit codes will
be necessary to distinguish between 1900 base-year dates and 2000 base-year
dates. Such inability to recognize a date using "00" as the year 2000 rather
than the year 1900 could result in a system failure or miscalculations causing
disruptions in the Company's research and development efforts. 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 has developed a formal plan to address this issue. The
Company's objective is to ensure an uninterrupted transition into Year 2000. The
Company's Year 2000 compliance project addresses the Company's (1) information
systems ("IS") such as software and hardware; (2) non-IS systems or embedded
technology such as microcontrollers contained in various laboratory equipment,
environmental and safety systems, facilities and utilities, and (3) readiness of
key third parties, including suppliers, collaborators, and key financial
institutions.
The plan includes an extensive inventory of systems that are time-date
related, an assessment of each inventoried item to identify uncertainties or
risk items, obtaining statements of year 2000 compliance from key vendors,
defining actions required and prioritizing systems which have been determined to
be non-compliant and would have the greatest impact on operations, and
developing and implementing a remediation process for non-compliant systems.
In conjunction with the above described plan, the Company has completed its
assessment with respect to its critical systems and at this time has not
uncovered any reason for it to believe that such systems critical to the core
business will not function properly with respect to dates in the years 1999,
2000 and thereafter. Additionally, in connection with its move to new facilities
late in 1997, the Company improved, upgraded and replaced many of its systems.
Based on written representations from manufacturers of these systems, the
Company believes that these new systems are Year 2000 compliant.
While the Company believes all systems critical to its core business are
now Y2K compliant, the Company anticipates having the remainder of the internal
systems Year 2000 compliant by the fall of 1999. Currently, however, the Company
has no contingency plans in place in the event it does not fully complete its
Year 2000 readiness program by such time.
To date, the Company has not incurred significant expenses in connection
with assessing, testing and modifying its systems for Year 2000 readiness.
However, because the Company has not fully completed the Year 2000 compliance
plan, the Company is unable to determine the cost of becoming fully Year 2000
ready. To date, the costs of executing the plan have been funded from cash
reserves. The Company believes its formal plan to address Year 2000 readiness is
adequate to identify critical systems and to ensure that these systems, based on
internal testing or certificates from vendors, are Year 2000 compliant. There
can be no assurance that the Company's Year 2000 plan, its internal testing or
the reliance placed on vendor certificates is adequate to determine the impact
on the Company's operations in the event the systems ultimately prove not to be
Year 2000 compliant. While the Company can sustain minor interruptions in
utilities for 48 hours, the Company has no contingency plans in the event it is
unable to carry on operations due to any major failure
33
<PAGE> 36
by utility companies or municipalities caused by Year 2000. The Company believes
the greatest risk of failure due to the Year 2000 problem lies with the
financial and social infrastructure necessary for it to continue operations
(e.g., banks, stock exchanges, communications, transportation and utilities). To
the extent that the Company or its key suppliers and providers and the financial
and social infrastructure fail to achieve Year 2000 readiness, there could be a
material adverse effect on the Company's business, results of operation and
financial position.
ITEM. 7(A) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RATE RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's investment portfolio and bank borrowings. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investment with high quality issuers and
follows internally developed guidelines to limit the amount of credit exposure
to any one issuer. Additionally, in an attempt to limit interest rate risk, the
Company follows guidelines to limit the average and longest single maturity
dates. The Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default, market and reinvestment
risk. The Company's investments include money market accounts, commercial paper
and corporate notes, and all such investments held in the Company's portfolio as
of December 31, 1998, mature in 1999 and 2000. The table below presents the
amounts and related interest rates of the Company's investment portfolio as of
December 31, 1998:
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000 2001 TOTAL 12/31/98
------- ------ ------ ------- ----------
(IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents............... $12,815 $ -- $ -- $12,815 $12,815
Average Interest Rate................... 4.36% -- -- -- --
Short-term investments.................. 13,124 $3,605 $ -- $16,729 $16,703
Average Interest Rate................... 5.59% 5.04% -- -- --
Liabilities
Note Payable............................ $ -- $ -- $5,000 $ 5,000 $ 5,000
Average Interest Rate................... -- -- 8.75%
</TABLE>
34
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS
RIBOGENE, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 36
Audited Financial Statements
Balance Sheets............................................ 37
Statements of Operations.................................. 38
Statement of Stockholders' Equity (Deficit)............... 39
Statements of Cash Flows.................................. 40
Notes to Financial Statements............................. 41
</TABLE>
35
<PAGE> 38
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
RiboGene, Inc.
We have audited the accompanying balance sheets of RiboGene, Inc. as of
December 31, 1998 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, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RiboGene, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 12, 1999
36
<PAGE> 39
RIBOGENE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 4)........................ $ 12,815 $ 2,045
Short term investments.................................... 16,703 122
Prepaid expenses and other current assets................. 90 85
-------- --------
Total current assets.............................. 29,608 2,252
-------- --------
Property and equipment, net................................. 1,389 471
Deferred offering costs..................................... -- 1,142
Deferred financing costs.................................... 622 290
Other assets................................................ 201 157
-------- --------
$ 31,820 $ 4,312
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,456 $ 1,402
Accrued liabilities....................................... 206 478
Deferred revenue -- related parties....................... 167 556
Accrued development cost -- related party................. 400 --
Other current liabilities................................. 845 469
Current portion of capital lease obligations.............. 158 174
Current portion of notes payable.......................... 115 918
-------- --------
Total current liabilities......................... 3,347 3,997
-------- --------
Long-term portion of capital lease obligations.............. 224 289
Long-term portion of notes payable.......................... 5,482 --
Other noncurrent liabilities................................ 12 188
Commitments
Stockholders' equity (deficit):
Preferred stock, 5,000,000 shares, $0.001 par value and
18,932,344 shares, no par value, authorized at December
31, 1998 and 1997, respectively; issuable in series;
1,428,572 and 14,377,595 shares issued and outstanding at
December 31, 1998 and 1997, respectively (aggregate
liquidation preference of $10,000,000 at December 31,
1998)..................................................... 1 33,533
Common stock, 30,000,000 shares, $0.001 par value, and
50,000,000 shares, no par value, authorized at December
31, 1998 and 1997, respectively; 5,774,421 and 103,845
shares issued and outstanding at December 31, 1998 and
1997, respectively........................................ 6 1,839
Additional paid-in capital.................................. 66,990 1,672
Notes receivable from stockholders.......................... (147) (147)
Accumulated other comprehensive loss........................ (26) --
Deferred compensation....................................... (1,811) (1,362)
Accumulated deficit......................................... (42,258) (35,697)
-------- --------
Total stockholders' equity (deficit).............. 22,755 (162)
-------- --------
$ 31,820 $ 4,312
======== ========
</TABLE>
See accompanying notes.
37
<PAGE> 40
RIBOGENE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenue:
Contract research revenue from related parties............ $ 2,569 $ 1,668 $ 1,112
Grant revenue............................................. 594 1,303 975
-------- ------- -------
Total revenue..................................... 3,163 2,971 2,087
-------- ------- -------
Operating expenses:
Research and development.................................. 7,296 4,130 4,296
General and administrative................................ 3,033 1,551 1,372
Financial advisory costs (Note 6)......................... -- 1,396 --
-------- ------- -------
Total operating expenses.......................... 10,329 7,077 5,668
-------- ------- -------
Loss from operations........................................ (7,166) (4,106) (3,581)
Interest income (expense), net.............................. 605 (7) (282)
-------- ------- -------
Net loss.................................................... (6,561) (4,113) (3,863)
Deemed dividend upon conversion of preferred stock (Note
6)........................................................ (7,989) -- --
-------- ------- -------
Net loss attributable to common stockholders................ $(14,550) $(4,113) $(3,863)
======== ======= =======
Basic net loss per common share............................. $ (4.49) $(41.13) $(52.92)
======== ======= =======
Weighted average shares of common stock outstanding......... 3,244 100 73
======== ======= =======
</TABLE>
See accompanying notes.
38
<PAGE> 41
RIBOGENE, INC
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM DECEMBER 31, 1995 TO DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------------- ------------------- PAID-IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS COMPENSATION
----------- -------- --------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995.... 9,441,884 $ 23,571 44,272 $ 175 $ -- $ (54) $ --
Exercise of common stock options
and purchase rights............. -- -- 39,101 115 -- (57) --
Issuance of Series E preferred
stock at $2.25 per share for
cash and the conversion of notes
payable and accrued interest,
net of issuance costs of $92.... 2,653,048 5,878 -- -- -- -- --
Net loss -- year ended December
31, 1996........................ -- -- -- -- -- -- --
----------- -------- --------- ------- ------- ------- --------
Balances at December 31, 1996.... 12,094,932 29,449 83,373 290 -- (111) --
Exercise of common stock options
and purchase rights, net of
repurchases..................... -- -- 20,472 69 -- (36) --
Sale of Series F preferred stock
and common stock warrants at
$2.25 per unit, 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........................ -- -- -- -- -- -- --
----------- -------- --------- ------- ------- ------- --------
Balances at December 31, 1997.... 14,377,595 33,533 103,845 1,839 1,672 (147) (1,362)
Sale of Series G preferred stock
at $2.645 per share, net of
issuance cost of $19............ 756,144 1,981 -- -- -- -- --
Deferred compensation............ -- -- -- -- 635 -- (635)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 461
Conversion of preferred stock to
common stock upon closing of the
initial public offering and
reincorporation in Delaware in
May 1998........................ (15,133,739) (35,514) 2,385,039 (1,836) 37,350 -- --
Issuance of common stock at $7.00
per share upon initial public
offering, net of issuance cost
of $3,879....................... -- -- 2,871,429 3 16,218 -- --
Exercise of Placement Agent
Options......................... -- -- 68,759 -- -- -- --
Sale of Series A non-voting,
convertible preferred stock at
$7.00 per share................. 1,428,572 1 -- -- 9,999 -- --
Common Stock issued to
collaboration partner........... -- -- 230,000 -- 747 -- --
Exercise of common stock options,
purchase rights and grants of
restricted stock................ -- -- 115,349 -- 289 -- (275)
Warrants issued in connection
with loan....................... -- -- -- -- 80 -- --
Comprehensive loss:
Net loss-year ended December 31,
1998.......................... -- -- -- -- -- -- --
Net unrealized loss on
investments................... -- -- -- -- -- -- --
Total comprehensive
loss..................... -- -- -- -- -- -- --
----------- -------- --------- ------- ------- ------- --------
Balances at December 31, 1998.... 1,428,572 $ 1 5,774,421 $ 6 $66,990 $ (147) $ (1,811)
=========== ======== ========= ======= ======= ======= ========
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDERS
ACCUMULATED COMPREHENSIVE EQUITY
DEFICIT LOSS (DEFICIT)
----------- ------------- ------------
<S> <C> <C> <C>
Balances at December 31, 1995.... $(27,721) $ -- $ (4,029)
Exercise of common stock options
and purchase rights............. -- -- 58
Issuance of Series E preferred
stock at $2.25 per share for
cash and the conversion of notes
payable and accrued interest,
net of issuance costs of $92.... -- -- 5,878
Net loss -- year ended December
31, 1996........................ (3,863) -- (3,863)
-------- ------- --------
Balances at December 31, 1996.... (31,584) -- (1,956)
Exercise of common stock options
and purchase rights, net of
repurchases..................... -- -- 33
Sale of Series F preferred stock
and common stock warrants at
$2.25 per unit, 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) -- (4,113)
-------- ------- --------
Balances at December 31, 1997.... (35,697) -- (162)
Sale of Series G preferred stock
at $2.645 per share, net of
issuance cost of $19............ -- -- 1,981
Deferred compensation............ -- -- --
Amortization of deferred
compensation.................... -- -- 461
Conversion of preferred stock to
common stock upon closing of the
initial public offering and
reincorporation in Delaware in
May 1998........................ -- -- --
Issuance of common stock at $7.00
per share upon initial public
offering, net of issuance cost
of $3,879....................... -- -- 16,221
Exercise of Placement Agent
Options......................... -- -- --
Sale of Series A non-voting,
convertible preferred stock at
$7.00 per share................. -- -- 10,000
Common Stock issued to
collaboration partner........... -- -- 747
Exercise of common stock options,
purchase rights and grants of
restricted stock................ -- -- 14
Warrants issued in connection
with loan....................... -- -- 80
Comprehensive loss:
Net loss-year ended December 31,
1998.......................... (6,561) -- (6,561)
Net unrealized loss on
investments................... -- (26) (26)
--------
Total comprehensive
loss..................... -- -- (6,587)
-------- ------- --------
Balances at December 31, 1998.... $(42,258) $ (26) $ 22,755
======== ======= ========
</TABLE>
See accompanying notes.
39
<PAGE> 42
RIBOGENE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,561) $(4,113) $(3,863)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 251 140 168
Amortization of warrants and deferred compensation........ 509 118 --
Accrued interest on bridge notes converted to Preferred
Stock.................................................. -- -- 44
Issuance of common stock to collaboration partner......... 747 -- --
Non-cash financial advisory costs......................... -- 1,300 --
Changes in assets and liabilities:
Prepaid expenses and other current assets................. (5) (23) (66)
Other assets.............................................. (44) 50 (162)
Accounts payable.......................................... 54 903 205
Deferred revenue -- related party......................... (389) -- 556
Accrued expenses and other current and noncurrent
liabilities............................................ 328 (180) (25)
-------- ------- -------
Net cash used in operating activities....................... (5,110) (1,805) (3,143)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (1,079) -- (14)
Purchases of short-term investments....................... (18,857) (4,577) --
Maturities of short-term investments...................... 2,250 4,577 --
-------- ------- -------
Net cash provided by (used in) investing activities......... (17,686) -- (14)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt............................. -- -- 1,893
Proceeds from long-term debt.............................. 5,632 -- --
Repayment of short-term debt.............................. -- -- (1,500)
Repayment of notes payable................................ (953) (1,000) (1,000)
Principal payments on capital lease obligations........... (171) (106) (151)
Deferred offering costs................................... 1,142 (1,142) --
Deferred financing costs.................................. (300) -- --
Proceeds from issuances of common stock and warrants, net
of repurchases and repayment of stockholder notes
and issuances costs.................................... 16,235 33 58
Net proceeds from issuances of convertible preferred stock
and warrants........................................... 11,981 4,084 3,941
-------- ------- -------
Net cash provided by financing activities................... 33,566 1,869 3,241
-------- ------- -------
Net increase in cash and cash equivalents................... 10,770 64 84
Cash and cash equivalents at beginning of period............ 2,045 1,981 1,897
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 12,815 $ 2,045 $ 1,981
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 346 $ 210 $ 335
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Equipment purchased under capital leases.................... $ 91 $ 326 $ 95
======== ======= =======
Conversion of debt obligations and accrued interest to
Preferred Stock........................................... $ -- $ -- $ 1,937
======== ======= =======
Deferred compensation related to stock option grants........ $ 635 $ 1,480 $ --
======== ======= =======
Warrants issued in connection with lease and borrowing
transactions.............................................. $ 80 $ 372 $ --
======== ======= =======
</TABLE>
See accompanying notes.
40
<PAGE> 43
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. During 1998, the Company was reincorporated in
the State of Delaware and completed an initial public offering (see Note 6).
Also during 1998, the Company significantly expanded its chemistry operations
and established new collaborations. Accordingly, the Company is no longer
classified as a development stage company.
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, 1998, the Company incurred cumulative net losses of
approximately $42,258,000. 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 mid-2001. The Company may seek to fund its
operations thereafter through collaborative arrangements and through public or
private financings, including debt or equity financings.
All common stock and common per share amounts have been retroactively
restated to reflect a one-for - 14 reverse stock split which was effected in May
1998 (see Note 6). All references to the numbers of shares and share prices
retroactively reflect post-split activity.
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 and Short Term Investments
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. As of December 31, 1998, the amortized cost of the Company's investments
approximated their fair value. 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
41
<PAGE> 44
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
equivalents and short-term investments at December 31, 1998 and 1997 consists of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Demand deposits with banks and money market funds......... $12,815 $2,045
Corporate debt securities and instruments
- Maturing 1999......................................... 13,133 --
- Maturing 2000......................................... 3,570 --
------- ------
$29,518 $2,045
======= ======
</TABLE>
Deferred Offering Costs
Costs related to offering of the Company's stock were deferred until the
completion of the offering and were offset against proceeds from the offering.
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 is 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. Non-refundable milestone payments,
which do not require the Company to perform additional services, are recognized
as revenue in the period earned. The Company has not received nor recognized as
revenue any milestone payments to date.
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.
42
<PAGE> 45
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The following table sets forth the calculation of basic net loss per share
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net loss attributable to common
stockholders............................... $(14,550) $(4,113) $(3,863)
======== ======= =======
Weighted average shares of common stock
outstanding................................ 3,244 100 73
-------- ------- -------
Basic net loss per common share.............. $ (4.49) $(41.13) $(52.92)
======== ======= =======
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the convertible preferred stock that
automatically converted upon completion of the Company's initial public offering
(using the as-if converted method) from the original date of issuance. Pro forma
net loss per share for the year ended December 31, 1998 and 1997 was $3.43 and
$1.95, respectively. Shares used in computing the pro forma net loss per share
were 4,248,000 and 2,109,000 for the years ended December 31, 1998 and 1997,
respectively.
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 at December 31, 1998 and 1997, shares used in calculating
diluted earnings per share would have included the effect of an additional
2,410,000 and 1,290,000 shares related to the Company's outstanding stock
options and warrants (prior to the application of the treasury stock method),
respectively.
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"). SFAS 130
establishes standards for reporting comprehensive income and was adopted by the
Company during 1998. The Company has determined that it operates in a single
segment and the impact of adopting SFAS 131 on its financial statement
disclosures was not material. SFAS 131 establishes standards for annual and
interim disclosures of operating segments, product and services, geographic
areas and major customers.
43
<PAGE> 46
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Laboratory equipment............................... $ 1,538,000 $ 734,000
Office and computer equipment...................... 615,000 352,000
Furniture and fixtures............................. 312,000 231,000
Leasehold improvements............................. 47,000 52,000
----------- ----------
2,512,000 1,369,000
Less accumulated depreciation and amortization..... (1,123,000) (898,000)
----------- ----------
Property and equipment, net........................ $ 1,389,000 $ 471,000
=========== ==========
</TABLE>
Property and equipment includes approximately $2,124,000 and $781,000 of
equipment under capital leases and loans to finance capital purchases for the
years ended December 31, 1998 and 1997, respectively, that are pledged as
security for the related lease obligations. Accumulated amortization related to
financed assets totaled $549,000 and $338,000 for the years ended December 31,
1998 and 1997, respectively.
3. DEVELOPMENT AND COLLABORATION AGREEMENTS
In January 1998, the Company entered into a collaboration with Dainippon
for two of its targets in the antibacterial program. As part of the Dainippon
Collaboration, Dainippon has agreed to provide the Company with research support
payments over three years, and fund additional research and development at
Dainippon. In February 1998, Dainippon made a payment of $2,000,000, of which
$1,833,000 was recognized by the Company as revenue through December 31, 1998,
based on costs incurred during the period. Collaborative research payments from
Dainippon are non-refundable. The Company may also be entitled to receive
milestone payments upon the achievement of mostly late-stage clinical and
regulatory milestones in the amount of up to $10,000,000, consisting of up to
$5,000,000 in milestones through approval in Japan and an additional $5,000,000
through approval in one other major market territory, for each product developed
through the collaboration. RiboGene also has the right to co-promote, in Europe
and the U.S., any products resulting from the collaboration. In connection with
this agreement, Dainippon also purchased 756,144 shares of Series G preferred
stock, which converted to common stock upon the Company's initial public
offering (see Note 6).
In September, 1998, the Company issued Dainippon 230,000 shares of common
stock in exchange for an increased royalty interest in the sales from future
products, as defined in the collaboration agreement between the Company and
Dainippon. As a result of this transaction, the Company recognized a $747,000
one-time non-cash charge to research and development expense during 1998,
representing the fair market value of the common stock at the date of issuance.
In July, 1998, the Company entered into an option and license agreement
with Roberts Pharmaceutical Corporation ("Roberts") for the development of
Emitasol, an intranasally administered drug being developed for the treatment of
diabetic gastroparesis and for the prevention of delayed onset emesis. Roberts
also made a $10,000,000 equity investment in RiboGene by purchasing 1,428,572
shares of Series A non-voting convertible preferred stock (the "Series A
Preferred Stock") at $7.00 per share. Holders of the Series A Preferred Stock
are entitled to non-cumulative dividends, when and if declared by the Board of
Directors, and have a liquidation preference, prior to any declared dividends,
equal to the original issue price of $7.00 per share. The Series A Preferred
Stock is convertible into common stock on a one-for-one basis, provided,
however, that on or following each of the first three annual anniversary dates
of the stock issuance, the holders of the Series A
44
<PAGE> 47
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Preferred Stock can only convert up to 33%, 50% and 100% of their shares,
respectively. Additionally, holders of the Series A Preferred Stock may request
that the Company register up to 20% of the converted shares in any twelve-month
period.
Under the terms of the option and license agreement, Roberts will conduct
clinical trials using Emitasol and, if those are successful, submit a New Drug
Application ("NDA") for Emitasol. If FDA regulatory approval is obtained,
Roberts will have 60 days to exercise an exclusive option for a license to
market Emitasol in North America. Roberts has agreed to make a payment to
RiboGene of up to $10,000,000 upon the exercise of the option and to pay a
royalty on product sales. RiboGene will provide up to $7,000,000 in funding for
the development of Emitasol through completion of Phase III trials and the
submission of an NDA, with the balance, if any, provided by Roberts. As of
December 31, 1998, the Company had recognized approximately $400,000 of
development expenses for costs incurred by Roberts through that date.
In July, 1998, the Company entered into a material transfer, screening and
collaboration agreement with EnzyMed to screen and test compounds provided by
EnzyMed. The Company and EnzyMed will develop a mutually agreed upon plan for
the development of compounds that meet certain criteria. Future revenues, if
any, resulting from the sale of any compound discovered as part of this
collaboration will be shared by each party by a predetermined formula based on a
percentage of risk taken by each party. The agreement may be terminated at any
time upon written notice which would be effective 30 days after the end of any
current four-month screening period.
In September 1997, the Company entered into a material transfer and
screening agreement with ArQule, Inc. ("ArQule") a combinatorial chemistry
company which grants the Company access to ArQule's proprietary combinatorial
chemistry libraries. The Company is actively screening compounds supplied by
ArQule in certain of its assays. If the Company detects activity with one of
these compounds, the Company will have an opportunity to enter into a
collaboration agreement for such compounds. This agreement can be terminated by
the Company upon 30 days notice without any further obligation.
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.
This agreement granted 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 included screening compound samples, the identification of new
targets and the design and implementation of assays incorporating these targets.
The Company had 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 were non-refundable. On February 6,
1998, Abbott notified the Company of its intent to end its research
collaboration with the Company effective April 8, 1998. During 1998, the Company
recognized $736,000 in revenue from Abbott, consisting of $556,000 which had
been deferred at December 31, 1997 and a final additional payment of $180,000.
There are no future performance obligations of either the Company or Abbott.
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.
45
<PAGE> 48
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. NOTES PAYABLE
In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note requires monthly
interest only payments at prime plus 1.0%. The rate at December 31, 1998 was
8.75%. The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At December 31, 1998, the Company was in compliance with all
required covenants. In connection with this financing arrangement, the Company
issued to the placement agent a warrant to purchase 50,000 shares of common
stock at an exercise price of $2.50 per share. The warrant expires in December
2003. The warrant has been assigned a value of $80,000, which is being amortized
over the term of the loan along with an additional $300,000 in placement and
bank fees paid by the Company. The valuation of the warrant was determined using
the Black-Scholes method with the following assumptions: an expected life of 5
years; an expected volatility factor of 0.7; risk free interest rate of 5%; a
dividend yield of 0%; and an estimated fair value of the underlying Common Stock
at the date of grant of $2.94.
In September 1998, the Company entered into a $2,000,000 arrangement for
financing capital purchases. The loan is collateralized by the underlying
equipment, payable over a four-year term at an interest rate of 7.2% plus an
index rate based on U.S. Treasury Notes. At December 31, 1998, $620,000 was
outstanding under notes from this arrangement at an interest rate of 12.72%.
5. COMMITMENTS
The Company leases certain facilities and laboratory and office equipment.
Future minimum lease payments under such noncancelable leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1999............................................... $ 207,000 $ 630,000
2000............................................... 226,000 617,000
2001............................................... 33,000 630,000
2002............................................... -- 654,000
2003............................................... -- 672,000
Thereafter......................................... -- 7,211,000
--------- -----------
Total minimum payments required.......... 466,000 $10,414,000
===========
Less amount representing interest.................. (84,000)
---------
Present value of future lease payments............. 382,000
Less current portion............................... (158,000)
---------
Long-term portion.................................. $ 224,000
=========
</TABLE>
Rent expense for operating leases was approximately $891,000, $347,000 and
$213,000 in the years ended December 31, 1998, 1997 and 1996, 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 facility
lease, the Company issued to 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 vesting period of the warrant. Such
valuation was determined using the Black-Scholes method with the following
assumptions: an expected life of six years; an expected volatility factor of
46
<PAGE> 49
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
0.7; 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.
In January 1994, the Company entered into a five-year consulting agreement
that 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.
6. STOCKHOLDERS' EQUITY
Initial Public Offering
In June 1998, the Company consummated an initial public offering (the
"Offering") with the issuance of 2,300,000 shares of common stock at a price of
$7.00 per share. Concurrently with the closing of the Offering, the Company sold
571,429 additional shares of common stock at $7.00 per share to Abbott in a
private placement. Proceeds from the Offering and private placement net of
issuance costs were $16,221,000.
The Company filed a Certificate of Amendment 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 in May 1998. As a result of the
reverse stock split, each share of Series A through E and G preferred stock
converted into 0.0714 of a share of common stock. Each share of Series F
preferred stock converted into 0.6429 of a share of common stock. The Series F
preferred stock contained certain antidilution provisions that resulted in the
Series F preferred stock holders receiving an additional 1,141,317 shares of
common stock upon conversion. The value of this additional common stock,
$7,989,000, has been deemed to be equivalent of a preferred stock dividend. The
Company recorded the deemed dividend at the time of conversion by offsetting
charges and credits to additional paid in capital, without any effect on total
stockholders' equity. The amount increased the loss allocable to common
stockholders, in the calculation of basic net loss per share for the year ended
December 31, 1998. Following the Offering, the Company filed a Restated
Certificate of Incorporation to reduce the authorized stock of the Company such
that the Company is 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.
Preferred Stock
At December 31, 1998, 1,428,572 shares of Series A non-voting convertible
preferred stock were issued and outstanding, pursuant to a stock purchase
agreement with Roberts Pharmaceutical Corporation (see Note 3).
Placement Agent Unit Options
In connection with the sale of Series F preferred stock in 1997, the
Company issued the placement agent an option to purchase units (the "Placement
Agent Units") that 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 additional Placement
Agent Units. As a result of certain anti-dilution provisions upon the closing of
the Company's initial public offering, options to acquire a total of 733,755
shares of common stock and 40,739 Class A Warrants with an aggregate option
exercise price of approximately $708,000 became exercisable. 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 did not believe it would receive future services commensurate with
this amount. The value of the Placement Agent Units was determined at the date
47
<PAGE> 50
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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 in the Series F preferred stock
financing, giving consideration to the fact that each Placement Agent Unit
consisted of two shares of Series F preferred stock and one Class A warrant. The
Company also accrued an additional $96,000 of fees due to the placement agent.
Warrants
From time to time, the Company issued warrants in connection with equity,
financing, debt, and lease arrangements. The Company had outstanding warrants at
December 31, 1998 as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE REMAINING
PER SHARE OF CONTRACTUAL LIFE
CLASS OF STOCK SHARES COMMON STOCK (IN YEARS)
-------------- ------- ---------------- ----------------
<S> <C> <C> <C>
Class A common stock warrants..... 162,967 $ 7.00 4.5
Other common stock warrants....... 200,157 $14.44 2.1
-------
Total................... 363,124 $11.10 3.2
=======
</TABLE>
At December 31, 1997 and 1996, there were outstanding warrants to acquire,
328,224 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
$12.22 and $14.64 respectively. During 1998, 15,100 warrants expired, and no
warrants were exercised, cancelled or forfeited in 1996, 1997 or 1998. All
warrants were fully exercisable upon issuance.
Stock Option Plans
For employees and consultants, the Company has three stock option plans
(the "Plans"), the 1993 Stock Plan, the 1997 Equity Incentive Plan and the 1998
Non-Officer Employee Stock Option Plan. Under the terms of the Plans, 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 Plans 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,
1998, a total of 1,695,357 shares have been reserved for issuance under the
Plans.
Additionally, the Company has a stock option plan for its Board of
Directors, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for automatic grants of options to purchase
shares of common stock to non-employee directors of the Company. There are
80,000 shares of common stock reserved for issuance under the Directors' Plan.
48
<PAGE> 51
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The following table summarizes option activity under the Plans and the
Directors' Plan:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
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
Granted with exercise prices equal to fair
value........................................... 864,259 $ 2.58
Granted with exercise price below fair value...... 579,000 $ 5.56
Exercised......................................... (115,355) $ 2.54
Canceled.......................................... (240,668) $ 5.46
---------
Balance at December 31, 1998...................... 1,273,736 $ 3.54
=========
</TABLE>
In December 1998, the Board of Directors authorized the cancellation and
regrant of employee options to purchase 206,900 shares of common stock effective
as of the close of business on December 11, 1998 at an exercise price equal to
the then fair value of the Company's common stock of $2.375 per share. Under the
terms of the option exchange, the new options maintain the same vesting and
expiration terms. The Company's officers did not participate in the option
exchange.
Through December 31, 1998, the Board of Directors granted 56,007 common
stock purchase rights under the Plans, all of which have been exercised for cash
and promissory notes. Of this amount, 5,146 shares have been repurchased through
December 31, 1998 and 14,288 shares are subject to the Company's repurchase
right or vesting at December 31, 1998 which generally lapses over four years.
The promissory notes bear interest at 5.29% to 6.73%. At December 31, 1998,
303,660 shares were available for future grant or sale.
During 1998, the Board of Directors granted the Company's officers, 110,000
shares of restricted stock and 430,000 shares of incentive stock options out of
the 1997 Equity Incentive Plan. 129,000 of such options are subject to
stockholder approval. The incentive stock options have an exercise price equal
to the grant date fair value of the Company's common stock of $2.50 per share.
The restricted stock and the incentive stock options are subject to vesting
based on the performance of the Company's common stock, such that the initial
25% is vested when the target stock price of $5.00 is attained as measured by a
90 day trailing period, and then for each $1.00 further increase in stock price,
an additional 25% of the shares shall vest. The restricted stock and incentive
options will automatically vest after seven years. The Company will record
compensation expense for the restricted stock as the shares vest. All of the
restricted stock is subject to the Company's repurchase right, which lapses over
the vesting period.
49
<PAGE> 52
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -------------------
WEIGHTED-
AVERAGE
WEIGHTED- REMAINING WEIGHTED-
AVERAGE CONTRACTUAL AVERAGE
EXERCISE EXERCISE LIFE EXERCISE
PRICE NUMBER PRICE (IN YEARS) NUMBER PRICE
-------- --------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
$2.10 - $2.80 732,890 $ 2.38 8.34 418,174 $ 2.30
$3.00 - $3.38 127,908 $ 3.16 8.18 62,723 $ 3.15
$4.20 - $5.63 410,795 $ 5.12 8.61 73,546 $ 3.27
$31.51 2,143 $31.51 7.72 2,143 $31.51
--------- -------
1,273,736 $ 3.39 8.41 556,586 $ 2.64
========= =======
</TABLE>
At December 31, 1997, 94,916 options were exercisable.
For certain options granted in 1997 and 1998, the Company has recognized
deferred compensation expense of approximately $1,480,000 and $635,000,
respectively. These amounts are being amortized to expense over the vesting
period of the options. A total of $118,000 and $461,000 was amortized to
compensation expense in 1997 and 1998, respectively.
During 1996, the Company adopted SFAS 123. Using the Black-Scholes method
to value options and stock purchase rights granted to employees subsequent to
its initial public offering and the minimum value method prior to the offering
resulted in a pro forma net loss of $14,930,000 and $4,175,000 and a pro forma
net loss per share of $4.60 and $41.75 for the year ended December 31, 1998 and
1997, respectively. The effect on historical net loss and net loss per share
amounts in 1996 was immaterial and has not be presented. 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 valuation methods were applied using
the following weighted average assumptions for 1995, 1996, 1997, and 1998
respectively; risk free interest rates of 6.34%, 6.35%, 6.0% and 5.0%, an
expected option life of 5 years and no annual dividends. Since newly public
companies do not have a statistical measure of historical volatility, an
expected volatility factor of 0.7 was used in 1998, which is comparable to
similarly situated companies in the biotechnology industry. 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, 1997 and 1998 was $0.85, $0.85, $0.80 and $2.58, respectively.
Employee Stock Purchase Plan
In March 1998, the Board of Directors adopted 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. No
shares were issued under the Purchase Plan through December 31, 1998.
50
<PAGE> 53
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Reserved Shares
The Company has reserved shares of Common Stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Stock option and purchase plans:
Outstanding options......................................... 1,273,736
Employee Stock Purchase Plan................................ 600,000
Convertible preferred stock issued and outstanding.......... 1,428,572
Upon exercise of Placement Agent Unit Options............... 733,755
Class A warrants (including Class A warrants underlying
Placement Agent Unit Options)............................. 203,706
Common stock warrants....................................... 200,157
Reserved for future grant or sale........................... 303,660
---------
4,743,586
=========
</TABLE>
7. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforward................. $ 12,100,000 $ 10,430,000
Research and development credit carryforward.... 1,100,000 950,000
Capitalized research and development............ 600,000 1,050,000
Acquired research and development............... 1,300,000 1,400,000
Other........................................... 600,000 486,000
------------ ------------
Gross deferred tax assets....................... 15,700,000 14,316,000
Valuation allowance............................. (15,700,000) (14,316,000)
------------ ------------
Net Deferred tax assets......................... $ -- $ --
============ ============
</TABLE>
The valuation allowance increased by $1,436,000 and $1,500,000 for the
years ended December 31, 1996 and 1997, respectively.
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $34,800,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$700,000 and $500,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2018, 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" 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.
51
<PAGE> 54
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. SUBSEQUENT EVENTS
Warrants
In January 1999, the Company entered into an arrangement for services with
a consultant. In connection with this arrangement, the Company agreed to issue
warrants to purchase 125,000 shares of common stock at prices ranging from $3.00
to $4.20 per share based on the completion of certain contractual milestones.
The warrants will generally vest fully six months after the date of grant and be
exercisable for a period of five years from grant date. The Company will record
compensation expense as the services are provided.
52
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is hereby incorporated by reference from the
information contained in the Company's definitive Proxy Statement with respect
to the Company's Annual Meeting of Stockholders, filed with the Commission
pursuant to Regulation 14A (the "Proxy Statement") under the headings "Nominees"
and "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
contained in the Proxy Statement under the heading of "Security Ownership of
Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
from information contained in the Proxy Statement under the heading "Certain
Transactions" and "Executive Compensation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K:
(1) Financial Statements:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets
Statements of Operations
Statement of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statements schedules have been omitted from this report
because the information is provided in the Financial Statements or is
not applicable.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)3.1 Restated Certificate of Incorporation of the Registrant.
(1)3.2 Bylaws of the Registrant.
(1)4.1 Specimen Stock Certificate.
(1)4.2 Tenth Amended and Restated Rights Agreement among the
Registrant and the investors named therein, dated January
27, 1998.
(1)4.3 Form of Class A Warrant Certificates for Purchase of Common
Stock, dated June 23, 1997.
(1)4.4 Unit Purchase Option Warrant for the Purchase of 342,399
Option Units, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)4.5 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.
(1)4.6 Warrant Agreement between the Registrant and Paramount
Capital Inc., dated June 23, 1997.
(1)4.7 Warrant for Common Stock, issued by the Registrant to
Paramount Capital Inc., dated March 12, 1997.
(1)4.8 Warrant for Series B Preferred Stock, issued by the
Registrant to Dominion Ventures, dated August 9, 1991.
(1)4.9 Warrant for Series C Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 18, 1993.
(1)4.10 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Fund II, dated August 2, 1996.
(1)4.11 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated September 25, 1995.
(1)4.12 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated May 19, 1995.
(1)4.13 Warrant for Series E Preferred Stock, issued by the
Registrant to Venture Lending, dated December 23, 1996.
(1)4.14 Warrant for Common Stock, issued by the Registrant to SBC
Warburg, dated September 20, 1995.
(1)4.15 Warrant for Common Stock, issued by the Registrant to Judith
Donaldson, dated September 20, 1995.
(1)4.16 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 13, 1994.
(1)4.17 Warrant for Common Stock, issued by the Registrant to Hyline
Laboratories, dated January 5, 1994.
(1)4.18 Warrant for Common Stock, issued by the Registrant to Rip
Grossman and Associates, Inc., dated January 5, 1994.
(1)4.19 Form of Warrant Agreement (including the Form of Warrant) to
be entered into among the Registrant and the Representative.
(1)4.20 Warrant for Common Stock, issued by Registrant to Hyline
Laboratories, Inc., dated December 31, 1997.
(1)4.21 Investor Rights Agreement among the Registrant and the
investors named therein, dated June 23, 1997.
(1)4.22 Amendment to Unit Purchase Option Warrant to purchase
342,399 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
(1)4.23 Amendment to Unit Purchase Option Warrant to purchase
228,266 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
4.24 Form of Warrant for Common Stock, issued by Registrant to
Reedland Capital Partners.
(1)10.1 License Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
(1)10.2 Research Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
(1)10.3 Series E Preferred Stock Purchase Agreement between the
Registrant and Abbott, dated April 26, 1996.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)10.4 License Agreement between the Registrant and University of
Washington, dated April 4, 1997.
(1)10.5 Collaboration Agreement between the Registrant and Houghten
Pharmaceuticals, dated April 12, 1995, as amended on April
10, 1997.
(1)10.6 1993 Stock Plan.
(1)10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
(1)10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993
Stock Plan.
(1)10.9 Employment Agreement between the Registrant and Charles J.
Casamento, dated May 11, 1993.
(1)10.10 Change of Control Agreement between the Registrant and
Charles Casamento, dated July 20, 1995.
(1)10.11 Employment Letter Agreement between the Registrant and Laura
S. L. Gaeta, dated May 6, 1994.
(1)10.12 Change of Control Agreement between the Registrant and Laura
S. L. Gaeta, dated July 20, 1995.
(1)10.13 Employment Letter Agreement between the Registrant and
Timothy E. Morris, dated May 31, 1995.
(1)10.14 Change of Control Agreement between the Registrant and
Timothy E. Morris, dated June 30, 1995.
(1)10.15 Real Property Lease between the Registrant and Hayward Point
Eden I Limited Partnership, dated March 7, 1997.
(1)10.16 First Amendment to Real Property Lease between the
Registrant and Hayward Point Eden I Limited Partnership,
dated September 24, 1997.
(1)10.17 Real Property Lease between the Registrant and Hall
Properties, Inc., dated February 6, 1992.
(1)10.18 Placement Agency Agreement between the Registrant and
Paramount Capital, Inc., dated August 1, 1996.
(1)10.19 Subscription Agreement for the Purchase and Sale of Premium
Preferred Units, dated June 23, 1997.
(1)10.20 Asset Purchase Agreement by and among the Registrant, Hyline
Laboratories, and Michael Ashkin, dated January 5, 1994.
(1)10.21 Non-Competition Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
(1)10.22 Consulting Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
(1)10.23 Secured Promissory Notes issued to Hyline Laboratories,
dated January 5, 1994.
(1)10.24 Master Lease Agreement between the Registrant and Dominion
Ventures, dated August 9, 1991.
(1)10.25 Form of Scientific Advisor Agreement.
(1)10.26 Consulting Agreement between the Registrant and Michael
Mathews, dated April 13, 1993.
(1)10.27 Consulting Agreement between the Registrant and Joe B.
Harford, dated July 11, 1997.
(1)10.28 Consulting Agreement between the Registrant and Michael
Katze, dated February 6, 1997.
(1)10.29 Consulting Agreement between the Registrant and Nahum
Sonenberg, dated January 29, 1993.
(1)10.30 Approval of Outside Activity by Alan Hinnebusch, dated
October 15, 1992.
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)10.31 Form of Indemnification Agreement between the Registrant and
the parties identified on Attachment A thereto.
(1)10.32 Financial Advisory Agreement between the Registrant and
Paramount Capital, Inc., dated June 23, 1997.
(1)10.33 Letter Agreement between the Registrant, Hyline
Laboratories, Inc. and Michael Ashkin dated December 31,
1997.
(1)10.34 License Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
(1)10.35 Research Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
(2)10.36 1998 Equity Incentive Plan.
(2)10.37 1998 Non-Employee Directors Stock Option Plan.
(2)10.38 1998 Employee Stock Purchase Plan.
(3)10.39 Stock Purchase Agreement, dated May 29, 1998, between the
Company and Abbott Laboratories.
(4)10.40 Option and License Agreement by and between the Company and
Roberts Pharmaceutical Corporation dated July 6, 1998.
(4)10.41 Stock Purchase Agreement by and between the Company and
Roberts Pharmaceutical Corporation dated July 16, 1998.
(4)10.42 Rights Agreement by and between the Company and Roberts
Pharmaceutical Corporation dated July 6, 1998.
(4)10.43 Amendment No. 1 to Option and License Agreement by and
between the Company and Dainippon Pharmaceutical Co. Ltd.
dated September 18, 1998.
(4)10.44 Common Stock Purchase Agreement by and between the Company
and Dainippon Pharmaceutical Co. Ltd. dated September 18,
1998.
10.45 Loan Agreement by and between the Company and Venture
Lending Group, dated December 24, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-38781) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-63751) filed on September 18, 1998 and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q as filed on August 13,
1998, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Form 10-Q as filed on November 12,
1998, and incorporated herein by reference.
(b) The Company has filed no reports on Form 8-K.
56
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 22, 1999 RIBOGENE, INC.
By: /s/ CHARLES J. CASAMENTO
------------------------------------
Charles J. Casamento
President, Chief Executive Officer
and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles J. Casamento and Timothy E.
Morris, and each or any one of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHARLES J. CASAMENTO President, Chief Executive March 22, 1999
- -------------------------------------------------------- Officer and Chairman
Charles J. Casamento (Principal Executive Officer)
/s/ TIMOTHY E. MORRIS Vice President, Finance & March 22, 1999
- -------------------------------------------------------- Administration and
Timothy E. Morris Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ DIGBY W. BARRIOS Director March 22, 1999
- --------------------------------------------------------
Digby W. Barrios
/s/ FRANK J. SASINOWSKI Director March 22, 1999
- --------------------------------------------------------
Frank J. Sasinowski
/s/ JON S. SAXE Director March 22, 1999
- --------------------------------------------------------
Jon S. Saxe
/s/ ROGER STOLL Director March 22, 1999
- --------------------------------------------------------
Roger Stoll
</TABLE>
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)3.1 Restated Certificate of Incorporation of the Registrant.
(1)3.2 Bylaws of the Registrant.
(1)4.1 Specimen Stock Certificate.
(1)4.2 Tenth Amended and Restated Rights Agreement among the
Registrant and the investors named therein, dated January
27, 1998.
(1)4.3 Form of Class A Warrant Certificates for Purchase of Common
Stock, dated June 23, 1997.
(1)4.4 Unit Purchase Option Warrant for the Purchase of 342,399
Option Units, issued by the Registrant to Paramount Capital,
Inc., dated June 23, 1997.
(1)4.5 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.
(1)4.6 Warrant Agreement between the Registrant and Paramount
Capital Inc., dated June 23, 1997.
(1)4.7 Warrant for Common Stock, issued by the Registrant to
Paramount Capital Inc., dated March 12, 1997.
(1)4.8 Warrant for Series B Preferred Stock, issued by the
Registrant to Dominion Ventures, dated August 9, 1991.
(1)4.9 Warrant for Series C Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 18, 1993.
(1)4.10 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Fund II, dated August 2, 1996.
(1)4.11 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated September 25, 1995.
(1)4.12 Warrant for Series E Preferred Stock, issued by the
Registrant to Silicon Valley Bank, dated May 19, 1995.
(1)4.13 Warrant for Series E Preferred Stock, issued by the
Registrant to Venture Lending, dated December 23, 1996.
(1)4.14 Warrant for Common Stock, issued by the Registrant to SBC
Warburg, dated September 20, 1995.
(1)4.15 Warrant for Common Stock, issued by the Registrant to Judith
Donaldson, dated September 20, 1995.
(1)4.16 Warrant for Series E Preferred Stock, issued by the
Registrant to Dominion Ventures, dated June 13, 1994.
(1)4.17 Warrant for Common Stock, issued by the Registrant to Hyline
Laboratories, dated January 5, 1994.
(1)4.18 Warrant for Common Stock, issued by the Registrant to Rip
Grossman and Associates, Inc., dated January 5, 1994.
(1)4.19 Form of Warrant Agreement (including the Form of Warrant) to
be entered into among the Registrant and the Representative.
(1)4.20 Warrant for Common Stock, issued by Registrant to Hyline
Laboratories, Inc., dated December 31, 1997.
(1)4.21 Investor Rights Agreement among the Registrant and the
investors named therein, dated June 23, 1997.
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)4.22 Amendment to Unit Purchase Option Warrant to purchase
342,399 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
(1)4.23 Amendment to Unit Purchase Option Warrant to purchase
228,266 Option Units, issued by the Registrant to Paramount
Capital, Inc., dated April 6, 1998.
4.24 Form of Warrant for Common Stock, issued by Registrant to
Reedland Capital Partners.
(1)10.1 License Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
(1)10.2 Research Agreement between the Registrant and Abbott
Laboratories, dated April 26, 1996.
(1)10.3 Series E Preferred Stock Purchase Agreement between the
Registrant and Abbott, dated April 26, 1996.
(1)10.4 License Agreement between the Registrant and University of
Washington, dated April 4, 1997.
(1)10.5 Collaboration Agreement between the Registrant and Houghten
Pharmaceuticals, dated April 12, 1995, as amended on April
10, 1997.
(1)10.6 1993 Stock Plan.
(1)10.7 Stock Option Agreement pursuant to 1993 Stock Plan.
(1)10.8 Form of Restricted Stock Purchase Agreement pursuant to 1993
Stock Plan.
(1)10.9 Employment Agreement between the Registrant and Charles J.
Casamento, dated May 11, 1993.
(1)10.10 Change of Control Agreement between the Registrant and
Charles Casamento, dated July 20, 1995.
(1)10.11 Employment Letter Agreement between the Registrant and Laura
S. L. Gaeta, dated May 6, 1994.
(1)10.12 Change of Control Agreement between the Registrant and Laura
S. L. Gaeta, dated July 20, 1995.
(1)10.13 Employment Letter Agreement between the Registrant and
Timothy E. Morris, dated May 31, 1995.
(1)10.14 Change of Control Agreement between the Registrant and
Timothy E. Morris, dated June 30, 1995.
(1)10.15 Real Property Lease between the Registrant and Hayward Point
Eden I Limited Partnership, dated March 7, 1997.
(1)10.16 First Amendment to Real Property Lease between the
Registrant and Hayward Point Eden I Limited Partnership,
dated September 24, 1997.
(1)10.17 Real Property Lease between the Registrant and Hall
Properties, Inc., dated February 6, 1992.
(1)10.18 Placement Agency Agreement between the Registrant and
Paramount Capital, Inc., dated August 1, 1996.
(1)10.19 Subscription Agreement for the Purchase and Sale of Premium
Preferred Units, dated June 23, 1997.
(1)10.20 Asset Purchase Agreement by and among the Registrant, Hyline
Laboratories, and Michael Ashkin, dated January 5, 1994.
(1)10.21 Non-Competition Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
(1)10.22 Consulting Agreement between the Registrant and Michael
Ashkin, dated January 5, 1994.
(1)10.23 Secured Promissory Notes issued to Hyline Laboratories,
dated January 5, 1994.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<C> <S>
(1)10.24 Master Lease Agreement between the Registrant and Dominion
Ventures, dated August 9, 1991.
(1)10.25 Form of Scientific Advisor Agreement.
(1)10.26 Consulting Agreement between the Registrant and Michael
Mathews, dated April 13, 1993.
(1)10.27 Consulting Agreement between the Registrant and Joe B.
Harford, dated July 11, 1997.
(1)10.28 Consulting Agreement between the Registrant and Michael
Katze, dated February 6, 1997.
(1)10.29 Consulting Agreement between the Registrant and Nahum
Sonenberg, dated January 29, 1993.
(1)10.30 Approval of Outside Activity by Alan Hinnebusch, dated
October 15, 1992.
(1)10.31 Form of Indemnification Agreement between the Registrant and
the parties identified on Attachment A thereto.
(1)10.32 Financial Advisory Agreement between the Registrant and
Paramount Capital, Inc., dated June 23, 1997.
(1)10.33 Letter Agreement between the Registrant, Hyline
Laboratories, Inc. and Michael Ashkin dated December 31,
1997.
(1)10.34 License Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
(1)10.35 Research Agreement between the Registrant and Dainippon
Pharmaceutical Co., Ltd. dated January 27, 1998.
(2)10.36 1998 Equity Incentive Plan.
(2)10.37 1998 Non-Employee Directors Stock Option Plan.
(2)10.38 1998 Employee Stock Purchase Plan.
(3)10.39 Stock Purchase Agreement, dated May 29, 1998, between the
Company and Abbott Laboratories.
(4)10.40 Option and License Agreement by and between the Company and
Roberts Pharmaceutical Corporation dated July 6, 1998.
(4)10.41 Stock Purchase Agreement by and between the Company and
Roberts Pharmaceutical Corporation dated July 16, 1998.
(4)10.42 Rights Agreement by and between the Company and Roberts
Pharmaceutical Corporation dated July 6, 1998.
(4)10.43 Amendment No. 1 to Option and License Agreement by and
between the Company and Dainippon Pharmaceutical Co. Ltd.
dated September 18, 1998.
(4)10.44 Common Stock Purchase Agreement by and between the Company
and Dainippon Pharmaceutical Co. Ltd. dated September 18,
1998.
10.45 Loan Agreement by and between the Company and Venture
Lending Group, dated December 24, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-38781) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-63751) filed on September 18, 1998 and incorporated herein by
reference.
<PAGE> 63
(3) Filed as an exhibit to the Registrant's Form 10-Q as filed on August 13,
1998, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Form 10-Q as filed on November 12,
1998, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 4.24
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
RIBOGENE INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
_____________________, 199___ 50,000 Shares
For Value Received, RIBOGENE, INC., a Delaware corporation (the
"Company"), with its principal office at 26118 Research Road, Hayward,
California 94545, hereby certifies that REEDLAND CAPITAL PARTNERS ("Holder"), or
its assigns, in partial consideration for the engagement of Holder as exclusive
placement agent pursuant to that certain Letter of Engagement dated December 2,
1998, is entitled, subject to the provisions of this Warrant, to purchase from
the Company, at any time before 5:00 p.m. (Pacific Standard Time) December ___,
2003 (the "Expiration Date"), the number of fully paid and nonassessable shares
of Common Stock of the Company set forth above, subject to adjustment as
hereinafter provided.
Holder may purchase such number of shares of Common Stock at a purchase
price per share (as appropriately adjusted pursuant to Section 7 hereof) of
Three Dollars and Eight Cents ($3.08) (the "Exercise Price"). The term "Common
Stock" shall mean the aforementioned Common Stock of the Company, together with
any other equity securities that may be issued by the Company in addition
thereto or in substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for a share of Common Stock are subject to
adjustment from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares."
SECTION 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole
or in part on any business day prior to the Expiration Date by presentation and
surrender hereof to the Company at its principal office at the address set forth
in the initial paragraph hereof (or at such other address as the Company may
hereafter notify Holder in writing) with the Purchase Form annexed hereto duly
executed and accompanied by proper payment of the Exercise Price in
1.
<PAGE> 2
lawful money of the United States of America in the form of a check, subject to
collection, for the number of Warrant Shares specified in the Purchase Form. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant, execute and deliver a new Warrant evidencing the rights of
Holder thereof to purchase the balance of the Warrant Shares purchasable
hereunder. Upon receipt by the Company of this Warrant and such Purchase Form,
together with proper payment of the Exercise Price, at the principal office of
the Company, Holder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such Warrant Shares shall not then
be actually delivered to Holder.
SECTION 2. NET EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the Holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Form of Subscription and notice
of such election in which event the Company shall issue to the Holder a number
of shares of Common Stock computed using the following formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
The current fair market price of a share of Common Stock for purposes of
this Section 2 and Section 4 is the last reported sales price of the Common
Stock on the last trading day prior to the exercise date, as reported by the
American Stock Exchange, or the primary national securities exchange or market
on which the Common Stock is then quoted; provided, however, that if the Common
Stock is neither traded on the American Stock Exchange nor on a national
securities exchange or market, the price referred to above shall be the price
reflected in the over-the counter market as reported by the National Quotation
Bureau, Inc. or any organization performing a similar function.
SECTION 3. RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon
2.
<PAGE> 3
exercise of this Warrant. All such shares shall be duly authorized and, when
issued upon such exercise in accordance with the terms of this Warrant, shall be
validly issued, fully paid and nonassessable.
SECTION 4. FRACTIONAL INTEREST. The Company will not issue a fractional
share of Common Stock upon exercise of a Warrant. Instead, the Company will
deliver its check for the current market value of the fractional share. The
current market value of a fraction of a share is determined as follows: multiply
the current market price of a full share by the fraction of a share and round
the result to the nearest cent.
SECTION 5. TRANSFERS; ASSIGNMENT OR LOSS OF WARRANT.
(a) Subject to the terms and conditions contained in Section 10
hereof, this Warrant and all rights hereunder are transferable in whole or in
part by Holder and any successor transferee; provided that prior to such
transfer Holder shall give thirty (30) days prior written notice of any such
transfer to the Company, and the Company shall have the right to acquire the
Warrant under the identical provisions contained in such notice by giving Holder
written notice within fifteen (15) days of receipt of such notice. The Company's
failure to respond to said notice within said fifteen (15) days shall be deemed
a waiver of this right of first refusal. The transfer shall be recorded on the
books of the Company upon receipt by the Company of the Transfer Notice annexed
hereto, at its principal offices and the payment to the Company of all transfer
taxes and other governmental charges imposed on such transfer.
(b) Holder shall not, without obtaining the prior written
consent of the Company, which consent shall not be unreasonably withheld, assign
its interest in this Warrant in whole or in part to any person or persons.
Subject to the provisions of Section 10, upon surrender of this Warrant to the
Company or at the office of its stock transfer agent or warrant agent, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees named in such
instrument of assignment (any such assignee will then be a "Holder" for purposes
of this Warrant) and, if Holder's entire interest is not being assigned, in the
name of Holder, and this Warrant shall promptly be canceled.
(c) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date. In the event that this
Warrant is lost, stolen, destroyed or mutilated, Holder shall pay all reasonable
attorneys' fees and expenses incurred by the Company in connection with the
replacement of this Warrant and the issuance of a new Warrant.
SECTION 6. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of Holder are limited to those expressed in this Warrant. Nothing
contained in this Warrant shall be construed as conferring upon Holder hereof
the right to vote or to consent or to receive notice as a stockholder of the
Company on any matters or with respect to any rights whatsoever as a stockholder
of the Company. No dividends or interest shall be payable or accrued in respect
of
3.
<PAGE> 4
this Warrant or the interest represented hereby or the Warrant Shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised in accordance with its terms.
SECTION 7. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OF OUTSTANDING SECURITIES. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), the Company shall execute a new Warrant (in form and substance
reasonably satisfactory to the Holder of this Warrant) providing that the Holder
of this Warrant shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of Common Stock theretofore issuable
upon exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification or change
by a holder of one share of Common Stock. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this subsection
(a) shall similarly apply to successive reclassification or changes.
(b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Exercise Price and the number of Warrant Shares
issuable upon exercise hereof shall be proportionately adjusted.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend payable in shares of
Common Stock (except any distribution specifically provided for in the foregoing
subsections (a) and (b)), then the Exercise Price shall be adjusted, from and
after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Exercise
Price in effect immediately prior to such date of determination by a fraction
(a) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution and the number of
Warrant Shares subject to this Warrant shall be proportionately adjusted.
(d) NOTICE OF RECORD DATE. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail to the Holder of this Warrant, at least ten days prior to the date
specified
4.
<PAGE> 5
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.
(e) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments
shall be made under any Section herein in connection with the issuance of
Warrant Shares upon exercise of the Warrants.
SECTION 8. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section 8, the Company shall deliver
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officer's
certificate shall be signed by the chairman, president or chief financial
officer of the Company.
SECTION 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This
Warrant may not be exercised and neither this Warrant nor any of the Warrant
Shares, nor any interest in either, may be offered, sold, assigned, pledged,
hypothecated, encumbered or in any other manner transferred or disposed of, in
whole or in part, except in compliance with applicable United States federal and
state securities or blue sky laws and the terms and conditions hereof. Each
Warrant shall bear a legend in substantially the same form as the legend set
forth on the first page of this Warrant. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such
Warrant Shares are acquired pursuant to a registration statement that has been
declared effective under the Securities Act of 1933, as amended (the "Securities
Act"), and applicable blue sky laws, shall bear a legend substantially in the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
Any certificate for any Warrant Shares issued at any time in exchange or
substitution for any certificate for any Warrant Shares bearing such legend
(except a new certificate for any Warrant Shares issued after the acquisition of
such Warrant Shares pursuant to a registration statement that has been declared
effective under the Securities Act) shall also bear such legend unless, in the
opinion of counsel for the Company, the Warrant Shares represented thereby need
no longer be subject to the restriction contained herein. The provisions of this
Section 10 shall be binding
5.
<PAGE> 6
upon all subsequent holders of certificates for Warrant Shares bearing the above
legend and all subsequent holders of this Warrant, if any.
SECTION 10. REPRESENTATIONS AND COVENANTS OF HOLDER. This Warrant has
been entered into by the Company in reliance upon the following representations
and covenants of Holder, which by its execution hereof Holder hereby confirms:
(a) Investment Purpose. The right to acquire Common Stock, and
any Common Stock issued upon exercise of Holder's rights contained herein, will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and Holder has no present intention of selling or engaging in
any public distribution of the same except pursuant to a registration or
exemption.
(b) Private Issue. Holder understands (i) that the Common Stock
issuable upon exercise of Holder's rights contained herein is not registered
under the Securities Act or qualified under applicable state securities laws on
the ground that the issuance contemplated by this Warrant will be exempt from
the registration and qualification requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 11.
(c) Disposition of Holder's Rights. In no event will Holder make
a disposition of any of its rights to acquire Common Stock, or of any Common
Stock issued upon exercise of such rights, unless and until (i) it shall have
notified the Company of the proposed disposition, and (ii) if requested by the
Company, it shall have furnished the Company with an opinion of counsel (which
counsel may either be inside or outside counsel to Holder) satisfactory to the
Company and its counsel to the effect that (A) appropriate action necessary for
compliance with the Securities Act has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of any of its
rights to acquire Common Stock, or of any Common Stock issued on the exercise of
such rights do not apply to transfers from the beneficial owner of any of the
aforementioned securities to its nominee or from such nominee to its beneficial
owner, and shall terminate as to any particular share of Common Stock when (1)
such security shall have been effectively registered under the Act and sold by
the holder thereof in accordance with such registration, (2) such security shall
have been sold without registration in compliance with Rule 144 under the
Securities Act, or (3) a letter shall have been issued to Holder at its request
by the staff of the Securities and Exchange Commission or a ruling shall have
been issued to Holder at its request by such Commission stating that no action
shall be recommended by such staff or taken by such Commission, as the case may
be, if such security is transferred without registration under the Securities
Act in accordance with the conditions set forth in such letter or ruling, and
such letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, Holder or a holder of a share of Common Stock then
outstanding as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Common Stock not bearing any
restrictive legend.
6.
<PAGE> 7
(d) Financial Risk. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. Holder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Act, or file reports pursuant to Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act), or if a
registration statement covering the securities under the Securities Act is not
in effect when it desires to sell (i) the rights to purchase Common Stock
pursuant to this Warrant, or (ii) the Common Stock issued upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. Holder also understands that any sale of its rights of Holder to
purchase Common Stock, or of any Common Stock, which might be made by it in
reliance upon Rule 144 under the Securities Act may be made only in accordance
with the terms and conditions of that Rule.
(f) Accredited Investor. Holder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
SECTION 11. REGISTRATION RIGHTS.
(a) If, within one year of the date of this Warrant, the Company
shall file any registration statement under the Securities Act for purposes of a
public offering of the securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations), then the Company will:
(A) Promptly give to Holder a written notice thereof
prior to such filing; and
(B) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 12(b) below, and in any underwriting involved therein,
all of the Warrant Shares specified in a written request or requests made by
Holder and received by the Company within ten (10) days after the written notice
from the Company described in clause (A) above is mailed or delivered by the
Company. Such written request may specify all or a part of the Warrant Shares.
(b) If the registration of which the Company gives notice to
Holder is for a registered public offering involving an underwriting, the
Company shall so advise Holder as a part of the written notice given pursuant to
Section 12(a)(A). In such event, the right of Holder to registration pursuant to
Section 12(a) shall be conditioned upon Holder's participation in such
underwriting and the inclusion of all or any part of the Warrant Shares
specified in Holder's notice in the underwriting to the extent provided herein.
Holder shall (together with the Company and the other holders of securities of
the Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
7.
<PAGE> 8
Notwithstanding any other provision of Sections 12(a) or (b), if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all of
the Warrant Shares from, or limit the number of Warrant Shares to be included
in, the registration and underwriting. The Company shall so advise Holder and
other holders of securities requesting registration, and the number of shares
that are entitled to be included in the registration and underwriting shall be
allocated first to the Company for securities being sold for its own account and
thereafter the number of shares that are entitled to be included in the
registration shall be allocated among Holder and other holders requesting
inclusion of shares on a pro rata basis, subject to any prior agreements among
the Company and its other stockholders, but only to the extent that such other
agreements provide for additional limitations on the number of shares such other
stockholders or the Company will be entitled to include in the registration,
which agreements are in effect as of the date hereof. If Holder or any other
person does not agree to the terms of any such underwriting, Holder and any
other such person shall be excluded therefrom by written notice from the Company
or the underwriter. Any Warrant Shares or other securities excluded or withdrawn
from such underwriting shall also be withdrawn from such registration.
(c) As used herein, "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Section 12, including,
without limitation, all registration, qualification and filing fees; printing
expenses; fees and disbursements of counsel for the Company (and the fees and
disbursements of counsel for the Company in its capacity as counsel to Holder
and other holders hereunder; if Company counsel does not make itself available
for this purpose, the Company will pay the reasonable fees and disbursements of
one counsel for Holder and other holders as mutually agreed upon by all such
holders) and of the Company's independent accounting firm; blue sky fees and
expenses; and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company). All Registration
Expenses in connection with any registration pursuant to Section 12(a) hereof
shall be borne by the Company; provided, however, that (A) any incremental
filing fees or other expenses incurred by the Company solely by reason of
Holder's exercise of registration rights pursuant to Section 12(a), and (B) any
underwriting discounts and commissions payable in connection with Holder's
exercise of registration rights pursuant to Section 12(a) shall be borne by
Holder.
(d) The rights conferred upon Holder under this Section 12 may
be assigned by Holder to any permitted transferee of the Warrant Shares;
provided that such transfer complies with Section 10 hereof.
(e) In the event any Warrant Shares are included in a
registration statement under Section 12(a):
(A) To the extent permitted by law, the Company will
indemnify and hold harmless Holder, the partners, officers, directors and legal
counsel of Holder, any underwriter (as defined in the Securities Act) for Holder
and each person, if any, who controls Holder or such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become
8.
<PAGE> 9
subject under the Securities Act, the Exchange 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") by the Company: (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 Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse Holder and each partner, officer or director, underwriter
or controlling person for 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 Section 12(e)(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, 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 Holder or such partner, officer, director, underwriter or
controlling person of Holder.
(B) To the extent permitted by law, Holder will
indemnify and hold harmless the Company, each of its directors, its officers and
legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other person selling
securities under such registration statement or any of such other person's
partners, directors or officers or any person who controls such person, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such person, or partner, director, officer or controlling person of such person
may become subject under the Securities Act, the Exchange 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 Holder under an
instrument duly executed by Holder and stated to be specifically for use in
connection with such registration; and Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other person, or partner, officer, director
or controlling person of such other person in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 12(e)(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 Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 12(e)(B) exceed the net proceeds from the offering
received by such Holder.
9.
<PAGE> 10
(C) Promptly after receipt by an indemnified party under
this Section 12(e) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 12(e), deliver
to the indemnifying party a written notice of the commencement thereof 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 materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 12(e), 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
12(e).
(D) If the indemnification provided for in this Section
12(e) is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
Holder hereunder exceed the proceeds from the offering received by Holder.
(E) The obligations of the Company and Holder under this
Section 12(e) shall survive completion of any offering of securities in a
registration statement pursuant to Section 12. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
SECTION 12. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday in
the State of California, then such action may
10.
<PAGE> 11
be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday in the State of California.
SECTION 13. ISSUE TAX. The issuance of certificates for Common Stock
upon the exercise of the Warrant shall be made without charge to the holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificates in a name other than that of the then
Holder of the Warrant being exercised.
SECTION 14. MODIFICATION AND WAIVER. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated other than by an
instrument in writing signed by the Company and by Holder.
SECTION 15. NOTICES. Unless otherwise specified herein, any notice,
request or other document required or permitted to be given or delivered to
Holder or the Company shall be given in writing and shall be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) three (3)
days after deposit in the United States mail if sent by registered or certified
mail, postage prepaid, or (iii) one (1) day after deposit with an overnight
courier, specifying next day delivery, with written verification of receipt. All
communications shall be sent to Holder at its address as shown on the books of
the Company, or to the Company at the address indicated therefor in the first
paragraph of this Warrant.
SECTION 16. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California, without
regard to its conflicts of laws principles.
SECTION 17. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
SECTION 18. SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant shall survive the execution and delivery of this Warrant.
SECTION 19. SEVERABILITY. In the event any one or more of the provisions
of this Warrant shall for any reason be held invalid, illegal or unenforceable,
the remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
11.
<PAGE> 12
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed by its duly authorized officer and to be dated as of the date first above
written.
COMPANY:
RIBOGENE, INC.
By:
---------------------------------
Charles J. Casamento
Chief Executive Officer
12.
<PAGE> 13
PURCHASE FORM
Dated ___________, ____
The undersigned hereby irrevocably elects to exercise the within Warrant
to purchase ______ shares of Common Stock and hereby makes payment of
$_____________ in payment of the exercise price thereof, together with all
applicable transfer taxes, if any.
In exercising its rights to purchase the Common Stock of RiboGene, Inc.,
the undersigned hereby confirms and acknowledges the investment representations
and warranties made in Section 11 of the Warrant.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
------------------------------------
(Name)
------------------------------------
(Address)
HOLDER:
REEDLAND CAPITAL PARTNERS
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
13.
<PAGE> 14
ASSIGNMENT FORM
Dated _________, _____
FOR VALUE RECEIVED, REEDLAND CAPITAL PARTNERS hereby sells, assigns and
transfers unto_________________________________________________________________
(the "Assignee"), (please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _______ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
____________________________ attorney, to transfer the same on the books of the
Company, with full power of substitution in the premises.
REEDLAND CAPITAL PARTNERS
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
14.
<PAGE> 15
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant, execute this form and supply
required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby transferred and assigned to:
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated
-------------------------------
Holder's Signature
------------------
Holder's Address
------------------
Note: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant.
15.
<PAGE> 1
EXHIBIT 10.45
- --------------------------------------------------------------------------------
RIBOGENE, INC.
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
This LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of
December 24, 1998, by and between VENTURE BANKING GROUP, a division of Cupertino
National Bank ("Bank") and RIBOGENE, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from Bank, and Bank desires to continue
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall have the
following definitions:
"Advance" or "Advances" means a cash advance under Section
2.1.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members, provided
that for purposes of this Agreement, with respect to Borrower, Affiliate shall
mean only Borrower, Borrower's Subsidiaries and each of Borrower's and its
Subsidiaries senior executive officers, directors, partners and for any
subsidiary that is a limited liability company, such Subsidiary's managers and
members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation and negotiation of the Loan Documents; and Bank's reasonable
attorneys' fees and expenses incurred in amending, enforcing or defending the
Loan Documents (including fees and expenses of appeal or review, or those
incurred in any Insolvency Proceeding), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
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"Credit Extension" means each Advance or any other extension
of credit by Bank for the benefit of Borrower hereunder.
"Default Rate" has the meaning assigned in Section 2.3((b)).
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the third anniversary of the Closing
Date.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Payment Date" means the last calendar day of each month,
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed
in the Schedule;
(c) Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited
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hereby), and Indebtedness of any Subsidiary to any other Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of any
other Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to
purchase equipment which is secured in accordance with clause (c) of "Permitted
Liens" below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of acquisition;
and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment;
(e) Leases or subleases and licenses or sublicenses granted
to others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license, provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder;
(f) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (d) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently published in the Western Edition of The Wall Street Journal, as
the "prime rate," whether or not such rate is the lowest rate available from
Bank.
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"Responsible Officer" means each of the Chief Executive
Officer, President, Chief Financial Officer and Controller of Finance of
Borrower.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Term Loan Amount" means Five Million Dollars ($5,000,000).
"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as liabilities
on the consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
1.2 Accounting and Other Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations and determinations made
hereunder shall be made in accordance with GAAP. When used herein, the term
"financial statements" shall refer to the financial statements of Borrower
prepared on a separate company basis and shall include the notes and schedules
thereto. The terms "including" / "includes" shall always be read as meaning
"including (or includes) without limitation," when used herein or in any other
Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Advance.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make an Advance to Borrower on the Closing Date in an
amount not to exceed the Term Loan Amount. The Advance shall be used for
transaction expenses, working capital, capital expenditures, and other lawful
corporate purposes. The Advance, to the extent repaid, may not be reborrowed.
Borrower shall deliver to Bank a promissory note in substantially the form of
Exhibit C hereto.
(b) Interest shall accrue from the date of the Advance at
the rate specified in Section 2.3((a)), and shall be payable monthly for each
month through the Maturity Date.
(c) The Advance and any other amounts due under this
Agreement shall be immediately due and payable on the Maturity Date. The Advance
may be prepaid at any time without premium or penalty.
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2.2 Reserved.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3((b)),
the Advance shall bear interest on the average daily balance thereof, at a per
annum rate equal to the Prime Rate plus 0.50%.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
each Payment Date and on the Maturity Date. Borrower hereby authorizes Bank to
debit any accounts with Bank, including, without limitation, Account Number
______________ for payments of principal and interest due on the Obligations and
any other amounts owing by Borrower to Bank. Bank will notify Borrower of all
debits which Bank has made against Borrower's accounts. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check or other item of payment to such deposit
account or Obligation as Borrower specifies. After the occurrence of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other item
of payment, whether directed to Borrower's deposit account with Bank or to the
Obligations or otherwise, shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment in respect of the Obligations
unless such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon Pacific time shall be deemed to have
been received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees.
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Fifty Thousand
Dollars ($50,000), which fee shall be due on the Closing Date and shall be fully
earned and non-refundable;
(b) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
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2.6 Additional Costs.
In case any law, regulation, treaty or official directive or
the interpretation or application thereof by any court or any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect the
Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term.
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF CREDIT EXTENSIONS
3.1 Conditions Precedent to Advance.
The obligation of Bank to make the Advance is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to certificate of incorporation, bylaws, incumbency and resolutions authorizing
the execution and delivery of this Agreement;
(c) a promissory note evidencing Borrower's indebtedness to
Bank in substantially the form as Exhibit C hereto;
(d) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
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(e) financing statement (Form UCC-1);
(f) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Further Conditions Precedent to Advance.
The obligation of Bank to make the Advance is further subject
to the following conditions:
(a) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Advance as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Advance. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(a).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt payment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank,
at the request of Bank, all Negotiable Collateral, all financing statements and
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and continue perfected Bank's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.3 Right to Inspect.
Bank (through any of its officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during
Borrower's usual business hours, to inspect Borrower's Books and to make copies
thereof and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification.
Borrower and each Subsidiary is a corporation duly existing
and in good standing under the laws of its state of incorporation and qualified
and licensed to do business in, and is in good standing in, any state in which
the conduct of its business or its ownership of property requires that it be so
qualified, except for states as to which any failure to so qualify would have
not have a Material Adverse Effect.
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5.2 Due Authorization; No Conflict.
The execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower's
Certificate of Incorporation or Bylaws, nor will they constitute an event of
default under any material agreement to which Borrower is a party or by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default would reasonably be expected to
have a Material Adverse Effect.
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the Collateral,
free and clear of Liens.
5.4 Name; Location of Chief Executive Office.
Except as disclosed in the Schedule, Borrower has not done
business and will not, without at least thirty (30) days prior written notice to
Bank, do business under any name other than that specified on the signature page
hereof. The chief executive office of Borrower is located at the address
indicated in Section 10 hereof.
5.5 Litigation.
Except as set forth in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.6 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and
any Subsidiary that have been delivered by Borrower to Bank fairly present in
all material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.7 Solvency.
Borrower is solvent and Borrower is able to pay its debts
(including trade debts) as they mature.
5.8 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
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5.9 Environmental Condition.
None of Borrower's or any Subsidiary's properties or assets
has ever been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the release or other disposition of hazardous waste
or hazardous substances into the environment.
5.10 Taxes.
Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.11 Government Consents.
Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of Borrower's business as currently conducted except where
any failure to do so would not reasonably be expected to have a Material Adverse
Effect.
5.12 Full Disclosure.
No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower are not to be viewed as facts and that actual results
during the period or periods covered by any such projections and forecasts may
differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing.
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which would reasonably be
expected to have a Material Adverse Effect.
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6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet,
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary
to comply, with all statutes, laws, ordinances and government rules and
regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available, but
in any event within twenty (20) days after the end of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form and certified by an
Officer of Borrower reasonably acceptable to Bank; (b) as soon as available, but
in any event within ninety (90) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit B hereto.
6.4 Taxes.
Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof.
6.5 Principal Depository.
Borrower shall maintain its principal depository and operating
accounts with Bank. Borrower shall at all times hold not less than Five Million
Dollars ($5,000,000) in one or more certificates of deposit or other deposit
accounts at Bank.
6.6 Insurance.
(a) Borrower, at its expense, shall keep its properties
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the properties in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer
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must give at least twenty (20) days notice to Bank before canceling its policy
for any reason. At Bank's request, Borrower shall deliver to Bank certified
copies of such policies of insurance and evidence of the payments of all
premiums therefor. All proceeds payable under any such policy shall, at the
option of Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Liquidity.
Borrower shall maintain, as of the last day of each calendar
month, a Liquidity Ratio of at least 2.0 to 1.0. For purposes of this Section,
"Liquidity Ratio" means as of any date for which it is tested, the ratio of (a)
an amount equal to (i) cash and cash equivalents to (b) the outstanding
principal amount of the Advance.
6.8 Tangible Net Worth.
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth of not less than Ten Million Dollars ($10,000,000).
6.9 Debt-Net Worth Ratio.
Borrower shall maintain, as of the last day of each calendar
month, a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than 1.0 to 1.0.
6.10 Year 2000.
Borrower and its Subsidiaries have reviewed the areas within
their business and operations which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the risk
that certain computer applications used by the Borrower or its Subsidiaries (or
any of their respective material suppliers, customers or vendors) may be unable
to recognize and perform properly date-sensitive functions involving dates prior
to and after December 31, 1999 (the "Year 2000 Problem"). Borrower shall perform
all acts as shall be reasonably necessary to ensure that the Year 2000 Problem
will not result in any Material Adverse Effect.
6.11 Further Assurances.
At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower in the ordinary course of
business, (iii) of worn-out or obsolete Equipment, or (iv) of research and
development arrangements in the ordinary course of business.
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<PAGE> 13
7.2 Changes in Business, Ownership, Management or Business
Locations.
Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and its Subsidiaries and any business substantially similar or related
thereto (or incidental thereto), or suffer a material change in Borrower's
ownership or management. Borrower will not, without at least thirty (30) days
prior written notification to Bank, relocate its chief executive office.
7.3 Distributions.
Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock.
7.4 Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, except where Borrower is the
surviving entity.
7.5 Transactions with Affiliates.
Directly or indirectly enter into any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length transaction with
a non-affiliated Person.
7.6 Subordinated Debt.
Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent.
7.7 Compliance.
Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
7.8 Indebtedness.
Create, incur, assume or be or remain liable with respect to
any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
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<PAGE> 14
7.9 Encumbrances.
Create, incur, assume or suffer to exist any Lien with respect
to any of its property, or assign or otherwise convey any right to receive
income, including the sale of any accounts receivable, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or if Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed an additional thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of Borrower or (ii) is a
material impairment of Borrower's ability to repay any portion of the
Obligations when and as due or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment.
If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
13
<PAGE> 15
8.5 Insolvency.
If Borrower becomes insolvent, or if an Insolvency Proceeding
is commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within thirty (30) days (provided that
no Credit Extensions will be made from the date of commencement of an Insolvency
Proceeding up to the date of the dismissal of such Insolvency Proceeding);
8.6 Subordinated Debt.
If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is required pursuant to the terms of such
Subordinated Debt which Subordinated Debt has been approved by Bank or is
allowed under any subordination agreement entered into with Bank;
8.7 Judgments.
If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of twenty (20) days (provided that no
Credit Extensions will be made from the date of such judgment until to the
satisfaction or stay of such judgment); or
8.8 Misrepresentations.
If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in
any certificate or writing delivered to Bank by any Responsible Officer pursuant
to this Agreement or to induce Bank to enter into this Agreement or any other
Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Liquidate or otherwise dispose of the Collateral and
apply any proceeds thereof to any Obligations; and
(d) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank.
14
<PAGE> 16
9.2 Power of Attorney.
Effective only upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank's designated officers, or employees) as Borrower's true and lawful attorney
to liquidate or otherwise dispose of the Collateral. The appointment of Bank as
Borrower's attorney in fact, and each and every one of Bank's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully repaid and performed and Bank's obligation to provide Advances
hereunder is terminated.
9.3 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not expressly set forth herein as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.
9.4 Demand; Protest.
Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
9.5 Intellectual Property Collateral.
Notwithstanding any other provisions of this Agreement, for so
long as no Event of Default has occurred, the security interest granted under
this Agreement in the Intellectual Property Collateral shall be deemed to extend
only to the cash and non-cash proceeds (including accounts and general
intangibles) arising from the disposition of all or any part of the Intellectual
Property Collateral, and Bank shall have no right to exercise any foreclosure
remedies, whether by sale, strict foreclosure or otherwise, with respect to
Intellectual Property Collateral other than with respect to such proceeds;
provided that this Section 15 shall have no further force or effect upon the
occurrence of an Event of Default or at any time thereafter. Upon the occurrence
of an Event of Default, Borrower agrees to execute and deliver to Bank an
Intellectual Property Security Agreement in form and content satisfactory to
Bank, and to execute such other documents and take such further action as may be
reasonably be requested by Bank to grant Bank a first priority perfected
security interest in the Intellectual Property Collateral.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
Attn: Chief Financial Officer
15
<PAGE> 17
FAX: (510) 732-7741
If to Bank: Venture Banking Group
Three Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attn: Dan Pistone
FAX: (650) 843-6969
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties; provided, however, that
neither this Agreement nor any rights hereunder may be assigned by Borrower
without Bank's prior written consent, which consent may be granted or withheld
in Bank's sole discretion. Bank shall have the right without the consent of or
notice to Borrower to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
hereunder to any affiliate of Bank or the U.S. Federal Reserve. Bank shall have
the right, with the prior consent of Borrower, which consent shall not be
unreasonably withheld, to sell, transfer, negotiate, or grant participation in
all or any part of, or any interest in, Bank's obligations, rights and benefits
hereunder to any other financial institution, provided that such consent shall
not be required if an Event of Default has occurred and is continuing.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold harmless Bank and
its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by the Loan Documents; and (b) all losses or
Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or
in any way arising out of, following, or consequential to transactions between
Bank and Borrower whether under the Loan Documents, or otherwise (including
without limitation reasonable attorneys fees and expenses), except for losses
caused by Bank's gross negligence or willful misconduct.
16
<PAGE> 18
12.3 Time of Essence.
Time is of the essence for the performance of all obligations set
forth in this Agreement.
12.4 Severability of Provisions.
Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
12.5 Amendments in Writing, Integration.
This Agreement cannot be amended or terminated except by a writing
signed by Borrower and Bank. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents, provided that any financing statement
previously filed for the benefit of Bank continues to perfect the security
interest in the Collateral.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations remain
outstanding. The obligations of Borrower to indemnify Bank with respect to the
expenses, damages, losses, costs and liabilities described in Section 12.2 shall
survive until all applicable statute of limitations periods with respect to
actions that may be brought against Bank have run.
12.8 Confidentiality.
In handling any confidential information Bank shall exercise the
same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the subsidiaries or affiliates
of Bank in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest in the
Advances, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank, and (v) as Bank may deem appropriate in
connection with the enforcement of its remedies hereunder. Confidential
information hereunder shall not include information that either (a) is in the
public domain or in the knowledge or possession of Bank when disclosed to Bank,
or becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing such
information.
17
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
RIBOGENE, INC.
By: _____________________________________
Title: __________________________________
VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: _____________________________________
Title: __________________________________
18
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63751) pertaining to the 1997 Equity Incentive Plan, the 1997
Employee Stock Purchase Plan, and the 1997 Non-Employee Directors' Stock Option
Plan of RiboGene, Inc. of our report dated February 12, 1999, with respect to
the financial statements of RiboGene, Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Palo Alto, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,815
<SECURITIES> 16,703
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,608
<PP&E> 2,512
<DEPRECIATION> 1,123
<TOTAL-ASSETS> 31,820
<CURRENT-LIABILITIES> 3,347
<BONDS> 0
0
1
<COMMON> 6
<OTHER-SE> 22,748
<TOTAL-LIABILITY-AND-EQUITY> 31,820
<SALES> 0
<TOTAL-REVENUES> 3,163
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> (6,561)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,561)
<EPS-PRIMARY> (4.49)
<EPS-DILUTED> 0
</TABLE>
