Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EPIX Medical, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
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Delaware 2835 04-3030815
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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71 Rogers Street, Cambridge, Massachusetts 02142 (617) 499-1400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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MICHAEL D. WEBB
President and Chief Executive Officer
EPIX MEDICAL, INC.
71 Rogers Street
Cambridge, Massachusetts 02142
(617) 499-1400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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Copies to:
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WILLIAM T. WHELAN, ESQ. STEVEN D. SINGER, ESQ.
Palmer & Dodge LLP Hale and Dorr LLP
One Beacon Street 60 State Street
Boston, Massachusetts 02108 Boston, Massachusetts 02109
(617) 573-0100 (617) 526-6000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of each class of Amount to be Offering Price Aggregate Amount of
securities to be registered Registered(1) per Share (2) Offering Price (1)(2) Registration Fee
- ----------------------------- --------------- ------------------ ----------------------- -----------------
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Common Stock, $.01 par value
per share ............... 2,587,500 $13.00 $33,637,500 $10,194.00
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(1) Includes shares which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[/RED HERRING]
PROSPECTUS
2,250,000 Shares
[EPIX LOGO]
Common Stock
All of the 2,250,000 shares of Common Stock offered hereby are being sold by
EPIX Medical, Inc. ("EPIX" or the "Company"). The Company's Common Stock is
quoted on the Nasdaq National Market under the symbol EPIX. On October 17, 1997,
the last reported sale price of the Common Stock was $13.00 per share.
See "Price Range of Common Stock."
----------------
The shares offered hereby involve a high degree of risk. See "Risk Factors"
commencing on page 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Share ...... $ $ $
Total (3) ...... $ $ $
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to 217,500 and 120,000 additional shares of
Common Stock, respectively, on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to the Selling Stockholder will be $ , $ , $ and $ ,
respectively. The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholder. See "Underwriting" and
"Principal and Selling Stockholders."
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The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the office of the agent of Hambrecht & Quist
LLC in New York, New York.
HAMBRECHT & QUIST BANCAMERICA ROBERTSON STEPHENS
, 1997
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[INSIDE FRONT COVER]
HUMAN STUDIES WITH MS-325
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[EPIX LOGO]
EPIX Medical, Inc. is developing targeted contrast agents to improve the
capability and expand the use of magnetic resonance imaging ("MRI") as a tool
for diagnosing human disease. The Company's principal product under development,
MS-325, is an injectable vascular contrast agent. The Company believes that
MS-325 will simplify the diagnostic pathway for a number of diseases and in many
cases replace highly invasive and expensive X-ray angiography. EPIX is currently
evaluating MS-325 in Phase II clinical trials. The MRI images below were
obtained from subjects in these trials. The Company does not have any
commercially available products at this time.
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Thigh Vessels
(Illustration of thigh vessels)
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[Photograph: MRI of thigh vessels] -- Photograph: cross-section MRI image |-- Photograph: segmented cross-
-- Photograph: cross-section MRI image |-- Photograph: section MRI of
-- Photograph: cross-section MRI image |-- Photograph: femoral artery
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Left:
Enhanced thigh arteries and veins.
Center:
Enhanced cross-section images of thigh arteries and veins at three different
levels.
Right:
Expanded view of isolated enhanced femoral artery shown in
cross-section at three different levels.
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Carotid Arteries
(Illustration of carotid arteries)
[Photograph: MRI of neck [Photograph: Cross-section
vessels] MRI of neck vessels]
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Left:
Enhanced left carotid arteries.
Right:
Cross-section of enhanced left carotid arteries.
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Coronary Arteries
(Illustration of coronary arteries)
MRI of coronary arteries. [Photograph: MRI of coronary arteries]
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THE IMAGES ABOVE ARE FROM PHASE II CLINICAL TRIALS OF THE EPIX VASCULAR IMAGING
AGENT, MS-325, AN INJECTABLE CONTRAST AGENT FOR USE IN MAGNETIC RESONANCE
IMAGING. MS-325 IS CURRENTLY BEING EVALUATED IN CLINICAL TRIALS AND HAS NOT
RECEIVED MARKETING APPROVAL FROM THE FDA OR ANY FOREIGN REGULATORY BODY.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
The Company
EPIX is developing targeted contrast agents both to improve the capability
and expand the use of magnetic resonance imaging ("MRI") as a tool for
diagnosing human disease. The Company's principal product under development,
MS-325, is an injectable vascular contrast agent designed for multiple vascular
imaging indications, including coronary artery disease ("CAD") and peripheral
vascular disease ("PVD"). The Company believes that MS-325 will significantly
enhance the quality of images and provide physicians with a clinically superior,
noninvasive (i.e., no more invasive than a peripheral intravenous injection
("I.V.")) and cost-effective method for diagnosing cardiovascular disease. The
Company further believes that MS-325 will simplify the diagnostic pathway for a
number of diseases and in many cases replace highly invasive (i.e., more
invasive than a peripheral I.V. up to and including a surgical procedure) and
expensive X-ray angiography, which is currently considered the definitive
diagnostic exam for assessing cardiovascular disease. The Company is also
investigating additional imaging indications for MS-325, including pulmonary
embolism and myocardial perfusion. EPIX has entered into strategic alliances
with Mallinckrodt Inc. ("Mallinckrodt") and Daiichi Radioisotope Laboratories,
Ltd. ("Daiichi") for the development and commercialization of MS-325 and other
vascular contrast agents.
The Company completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Phase I clinical
trial yielded images and signal duration and intensity consistent with the
Company's belief that MS-325 enhanced MRI used earlier in the diagnostic pathway
will provide physicians with diagnostic information clinically equivalent to
X-ray angiography. The Company is currently conducting a Phase II clinical trial
to test the safety and preliminary efficacy of MS-325 for the evaluation of PVD
and a Phase II clinical trial to test the safety and feasibility of MS-325 for
the evaluation of CAD. In each of these clinical trials, the Company is
comparing MS-325 enhanced MRI to conventional X-ray angiography, the current
reference standard. In addition, the Company anticipates initiating a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer before the end of 1997.
The use of MRI has grown steadily over the past 10 years due to reduced
cost and improved imaging capabilities and now provides an effective diagnostic
modality for a broad range of applications. MRI manufacturers have improved the
hardware and software of their systems, reducing the time per procedure
drastically while significantly enhancing resolution. While MRI is currently
used extensively to image many organs and tissues in the body, its use in
imaging the arteries and veins has been limited. Prior attempts to develop
contrast agents to facilitate the clinical usefulness of MRI, particularly for
coronary arteries, have had limited success. Unlike most currently available MRI
contrast agents, which are non-specific, MS-325 is a targeted intravascular
contrast agent designed to bind to albumin, the most common blood protein.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time. EPIX believes that the advantages of MS-325, coupled with
the reduced cost and improved imaging capabilities of MRI, will lead to
significantly expanded use of MRI to diagnose cardiovascular and other diseases.
Cardiovascular disease is a growing worldwide problem. It is estimated that
over 500,000 people in the United States die of CAD each year, making it the
leading cause of death. PVD affects arteries throughout the body, resulting in
approximately 600,000 vascular operations, 400,000 strokes and 100,000
amputations (primarily related to PVD) each year in the United States. Diagnosis
of CAD and PVD is currently very complex and expensive, requires multiple tests
and ultimately relies upon a painful and costly X-ray angiogram for a definitive
diagnosis. It is estimated that over 3.3 million diagnostic X-ray angiograms
were performed in the United States in 1996 at an estimated cost of $6.0
billion. The Company believes that MS-325, together with anticipated hardware
and software solutions to problems associated with cardiac motion, will enable
widespread clinical use of MRI to diagnose CAD. The Company also believes that
MS-325 will significantly expand the use of currently available MRI equipment in
diagnosing PVD. If such a product were available today, the Company believes
that it could eliminate many X-ray angiograms and ancillary tests, dramatically
improving the current approach to the diagnosis of cardiovascular disease. The
Company believes, based on 1996 estimated procedure costs, that potential
savings to the United States healthcare system relating to the diagnosis of CAD
alone could exceed $2.0 billion.
3
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The Offering
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Common Stock offered by the Company ..................... 2,250,000 shares
Common Stock to be outstanding after the offering ...... 10,938,547 shares (1)
Use of proceeds ....................................... To fund research and development, clinical
trials, facilities expansion and improvements,
working capital requirements and other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol ........................... EPIX
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Summary Financial Information
(in thousands, except per share data)
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<CAPTION>
Nine Months
Year Ended Ended
March 31, Nine Months September 30,
---------------------- Ended Year Ended ----------------------
December 31, December 31,
1994 1995 1995 (2) 1996 1996 1997
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Statement of Operations Data:
Revenues ..................... $1,700 $ 412 $ 900 $10,010 $9,635 $ 4,021
Operating income (loss) ...... (579) (2,820) (4,770) 269 2,471 (4,533)
Net income (loss) ............ (617) (2,778) (4,893) 268 2,338 (3,743)
Net income (loss) per
share (3) .................. $ (0.70) $ 0.03 $ 0.30 $ (0.45)
Shares used in per share
calculations (3) ............ 6,973 7,711 7,711 8,370
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September 30, 1997
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Actual As Adjusted (4)
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Balance Sheet Data:
Cash, cash equivalents and marketable securities ...... $20,565 $47,560
Working capital ....................................... 19,219 46,214
Total assets .......................................... 23,265 50,260
Capital lease obligations, less current portion ...... 208 208
Total stockholders' equity ........................... 20,531 47,526
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(1) Based on the number of shares outstanding at September 30, 1997. Excludes
1,673,104 shares of Common Stock issuable upon exercise of options
outstanding at September 30, 1997 at a weighted average exercise price of
$4.16 per share, of which options to purchase 438,252 shares were
exercisable, and 79,696 shares of Common Stock issuable upon exercise of
warrants outstanding at September 30, 1997 at a weighted average exercise
price of $3.98 per share. See "Capitalization," "Dilution" and "Description
of Capital Stock."
(2) The Company changed its fiscal year end from March 31 to December 31
commencing with the fiscal year ended December 31, 1995.
(3) See Note 2 to Notes to Financial Statements for a description of the
calculation of net income (loss) per share.
(4) As adjusted to give effect to sale of the 2,250,000 shares of Common Stock
offered by the Company hereby and the application of the net proceeds
thereof. See "Use of Proceeds" and "Capitalization."
---------------------
Except as otherwise noted, all information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, and (ii) the sale of
2,250,000 shares of Common Stock by the Company. See "Underwriting." The shares
of Common Stock offered hereby involve a high degree of risk. Investors should
carefully consider the information set forth under "Risk Factors."
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information presented in
this Prospectus before purchasing the shares of Common Stock offered hereby.
Early Stage of Development; No Product Sales to Date. The Company commenced
operations in 1992 and is a development stage company. The Company currently has
no products for sale nor can there be any assurance that it will ever have
marketable products. All of the Company's product candidates are in research or
development, and no revenues have been generated from product sales. To date,
the Company has financed its operations through an initial public offering,
private sales of equity securities, equipment lease financings and license and
milestone payments from its strategic partners. To achieve profitable
operations, the Company, alone or with others, must successfully develop, obtain
regulatory approval for, introduce, market and sell products. The Company does
not expect to receive revenue from the sale of any of its product candidates for
the next several years. There can be no assurance that the Company's product
development efforts will be successfully completed, that required regulatory
approvals will be obtained in a timely manner, if at all, that its product
candidates can be manufactured at an acceptable cost and with acceptable quality
or that any approved products can be successfully marketed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
Dependence on MS-325. MS-325 is currently the Company's only product
candidate in human clinical trials, and there can be no assurance that any of
its other development projects will yield a product candidate suitable for entry
into clinical trials. The failure of MS-325 to achieve regulatory approval and
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--EPIX
Products and Development Programs."
Dependence on MRI Advancements for Cardiac Applications. Existing MRI
scanners do not have the capability to perform coronary angiography without
improvements in current MRI hardware and software. The success of cardiac
applications of MS-325 is therefore dependent on advancements in MRI hardware
and software. Although several leading MRI manufacturers, academic centers and
others are developing advanced MRI hardware and software, there can be no
assurance when, or if, these techniques will enable MS-325 to provide clinically
significant images in cardiac indications currently being pursued and whether
such advancements will be available on a commercially acceptable basis. See
"Business--Magnetic Resonance Imaging Background" and "--The EPIX Solution--The
EPIX Approach to CAD Diagnosis."
Uncertainty of Market Acceptance of Technology and Products. The commercial
success of MS-325 and the Company's other product candidates, when and if
approved for marketing by the United States Food and Drug Administration (the
"FDA") and corresponding foreign agencies, will depend on their acceptance by
the medical community and third-party payors as clinically useful,
cost-effective and safe. While contrast agents are currently used in an
estimated 25% of all MRI exams, there are no targeted vascular agents approved
by the FDA in use. Furthermore, clinical use of MRI for vascular imaging has
been limited, and use of MRI for cardiac imaging has occurred mainly in
research. Market acceptance, and thus sales of the Company's product candidates,
will depend on several factors, including safety, price, ease of administration,
effectiveness and the rate of adoption of up-to-date MRI technology. Market
acceptance will also depend on the ability of the Company and its strategic
partners to educate the medical community and third-party payors about the
benefits of diagnostic imaging with MRI enhanced with the Company's product
candidates compared to imaging with other modalities. The Company's MRI contrast
agents represent a new approach to imaging the cardiovascular system and market
acceptance both of MRI as an appropriate imaging technique for the
cardiovascular system and of the Company's product candidates is critical to the
Company's success. There can be no assurance that the Company's product
candidates will gain market acceptance. Failure to achieve market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Business Strategy" and
"--Competition."
5
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Intense Competition and Risk of Technological Obsolescence. Medical
technology is subject to intense competition and rapid technological change. The
Company has many competitors, including pharmaceutical, biotechnology and
chemical companies, a number of which, including two of the Company's strategic
partners, are actively developing and marketing products that could compete with
the Company's product candidates. Many of these competitors have substantially
greater capital and other resources than the Company and may represent
significant competition for the Company. Such companies may succeed in
developing technologies and products that are more effective or less costly than
any of those that may be developed by the Company, and such companies may be
more successful than the Company in developing, manufacturing and marketing
products. Furthermore, there are several well-established medical imaging
modalities that currently compete, and will continue to compete, with MRI
including X-ray angiography, computer assisted tomography ("CT"), nuclear
medicine and ultrasound. Other companies are actively developing the
capabilities of the competing modalities to enhance their effectiveness in
imaging of the cardiovascular system. There can be no assurance that the Company
will be able to compete successfully in the future or that developments by
others will not render MS-325 or the Company's future product candidates
obsolete or non-competitive or that the Company's strategic partners or
customers will not choose to use competing technologies or products. See
"Business--Competition."
Dependence on Licensed Technology. The Company and Massachusetts General
Hospital ("MGH") have entered into a license agreement (the "MGH License")
pursuant to which the Company is the exclusive licensee to certain technology,
including certain patents and patent applications, which relates to the
Company's product candidates, including MS-325. The MGH License imposes various
commercialization, sub-licensing, royalty and other obligations on the Company.
Failure of the Company to comply with these and other requirements could result
in the conversion of the license from being exclusive to non-exclusive in nature
or termination of the license agreement itself. Any such event would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Patents and Proprietary Rights."
Dependence on Strategic Partners. The Company is dependent on strategic
partners for support in product development and the regulatory approval process
as well as a variety of activities including manufacturing, marketing and
distribution of its products in the United States and abroad, when and if its
product candidates are approved for marketing by the FDA and corresponding
foreign agencies. To date, the Company has entered into two principal strategic
alliances: a collaboration agreement with Mallinckrodt to develop and
commercialize MS-325 and other MRI vascular agents worldwide, excluding Japan,
and a development and license agreement with Daiichi for the development and
commercialization of MS-325 in Japan. The Company may not receive milestone
payments from these alliances should MS-325 fail to meet certain performance
targets in clinical trials. Further, the Company's receipt of revenues from
strategic alliances is affected by the level of efforts of its partners. There
can be no assurance that the Company's partners will devote the resources
necessary to complete development, and commence marketing, of MS-325 in their
respective territories, or that they will successfully market MS-325. Both
Mallinckrodt and Daiichi currently manufacture imaging agents for other
modalities that will compete against MS-325. Mallinckrodt and the Company will
share responsibility for setting the price of the product worldwide, except
Japan, and Daiichi will be responsible for setting the product price in Japan.
There can be no assurance that either Mallinckrodt or Daiichi will do so in a
manner that maximizes revenues for the Company. In addition, Daiichi has the
right to terminate its agreement on short notice under certain circumstances,
and there can be no assurance that it will not exercise this right. The failure
of the Company to receive milestone payments, a reduction or discontinuance of
efforts by the Company's partners or the termination of these alliances would
have a material adverse effect on the Company's business, financial condition
and results of operations.
There can be no assurance that the Company will be successful in entering
into additional strategic alliances for the development and commercialization of
future product candidates, nor that these alliances, if entered into, will be on
terms favorable to the Company or will be successful. If the Company were unable
to enter into future strategic alliances with capable partners on commercially
reasonable terms, the development and commercialization of future product
candidates would be delayed and possibly postponed indefinitely. See
"Business--Strategic Alliances" and "--Manufacturing."
Unproven Safety and Effectiveness of Product Candidates; Uncertainties
Related to Clinical Trials. The Company's product candidates are in research
and development and will require additional research and development, extensive
clinical testing and regulatory approval prior to any commercial sales. The
Company cannot predict if or when any of its products under development will be
commercialized. The Company currently
6
<PAGE>
has only one product candidate, MS-325, in clinical trials. The Company will be
required to complete successfully clinical trials in the United States to
demonstrate the safety and efficacy of MS-325, currently in Phase II clinical
trials, prior to obtaining FDA approval. There can be no assurance that clinical
trials will be successful, or that they will be completed in a timely manner. To
date, the Company has tested MS-325 in limited numbers of subjects in Phase I
and Phase II clinical trials. Although no clinically significant adverse events
from MS-325 in Phase II clinical trials have been reported to date, results are
based on preliminary data only, and there can be no assurance that serious side
effects will not be reported as the clinical trials proceed. The results from
early clinical trials may not be predictive of results that will be obtained in
large scale clinical trials, as a number of companies have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in
earlier trials. There can be no assurance that Phase II trials will be completed
or that Phase III clinical trials for MS-325 will be conducted or that such
trials, if begun, will demonstrate any efficacy or will be completed
successfully in a timely manner, if at all. The rate of completion of the
Company's clinical trials is dependent upon, among other things, the rate of
patient enrollment. Patient enrollment is a function of many factors, including
the size of the patient population, the nature of the clinical protocol under
which MS-325 will be studied, the proximity of the patient to a clinical site,
the eligibility criteria for the study and the existence of concurrent clinical
trials of potentially competitive products. Delays in planned patient enrollment
may result in increased costs, regulatory filing delays, or both. Furthermore,
the Company, the FDA or other regulatory authorities may suspend or terminate
clinical trials at any time. Failure to complete successfully any of its
clinical trials on a timely basis or at all would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Government Regulation."
Uncertainty Regarding Patents and Proprietary Rights. The Company considers
the protection of its proprietary technologies to be material to its business
prospects. The Company pursues a comprehensive patent program for its product
candidates in the United States and in other countries where it believes that
significant market opportunities exist. The Company owns or has an exclusive
license to patents and patent applications on the critical aspects of its core
technology as well as many specific applications of this technology. However,
the patent positions of pharmaceutical and biopharmaceutical firms including the
Company generally include complex legal and factual questions. There can be no
assurance that the issued patents owned or licensed to the Company, or any
patents that may be issued in the future, will effectively protect the Company's
technology or provide a competitive advantage. There can be no assurance that
any of the patents or patent applications owned or licensed by the Company will
not be challenged, invalidated or circumvented in the future.
The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and abroad.
If any third-party patents are upheld as valid and enforceable in any judicial
or administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain licenses
from the owners of each such patent, or to redesign its products or processes to
avoid infringement. There are pending or issued patents, held by parties not
affiliated with the Company, relating to technologies used by the Company in the
development or use of certain of the Company's contrast agents. In particular,
the Company is aware of certain patents in the United States, Japan and
elsewhere owned by or licensed to one party that relate to MRI contrast agents
and which may cover certain of the Company's MRI contrast agents, including
MS-325. Mallinckrodt, one of the Company's strategic partners, has rights from
this third party under those patents which the Company and Mallinckrodt believe
will permit Mallinckrodt to manufacture, market and sell MS-325 and other
products developed pursuant to the collaboration agreement between the Company
and Mallinckrodt were MS-325 and those other products to be held to fall within
the claims of those third-party patents. If the agreement with Mallinckrodt is
terminated by either party and MS-325 and those other products were to be held
to fall within the claims of those third-party patents, the Company would likely
be required to enter into a strategic alliance with another party having a
license from this third party or obtain a license from this third party directly
or from others licensed by this third party in order to manufacture, market and
sell MS-325 and certain other MRI contrast agents. However, there can be no
assurance that the Company would be able to consummate a strategic alliance with
a party having this third-party license or obtain licenses from this third party
or another third party on commercially reasonable terms, if at all. The patent
rights of this third party in Japan will expire in 2002, before such time as the
Company presently anticipates that Daiichi will have material sales of MS-325 in
Japan and, therefore, the Company believes that the existence of such patents in
Japan is unlikely to have a material adverse effect on the Company. However, in
the event that Daiichi commercializes MS-325 in Japan before 2002, it may be
required to obtain an appropriate license from this third party or from others
licensed by this third party, or take other measures
7
<PAGE>
to avoid infringement of third-party patents, including delaying the
commencement of product sales. There can be no assurance that the Company's
current or future activities will not be challenged in the future, that
additional patents will not be issued containing claims materially constraining
the proposed activities of the Company, that the Company will not be required to
obtain licenses from third parties, or that the Company will not become involved
in costly, time-consuming litigation regarding patents in the field of contrast
agents, including actions brought to challenge or invalidate the Company's own
patent rights. See "Business--Patents and Proprietary Rights."
Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can be
no assurance that these competitors, many of which have substantially greater
resources than the Company and have made substantial investments in competing
technologies, will not seek to assert that the Company's products or chemical
processes infringe their existing patents and/or will not seek new patents that
claim to cover aspects of the Company's technology. Furthermore, patent
applications in the United States are maintained in secrecy until patents issue,
and patent applications in foreign countries are maintained in secrecy for a
specified period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. In addition, patents issued and patent applications
filed relating to pharmaceuticals are numerous. Therefore, there can be no
assurance that the Company is aware of all competitive patents, either pending
or issued, that relate to products or processes used or proposed to be used by
the Company. The Company's European and Japanese allowed patent applications
have been opposed by several parties. These oppositions will likely take several
years to finally resolve. While the Company believes that it will prevail in
these oppositions, there can be no assurance as to the scope of the claims that
will be maintained, if any, or the ultimate benefit, if any, of those claims to
the Company, in protecting its products.
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation may be necessary to enforce any patents issued to the Company and/or
determine the scope and validity of others' proprietary rights. The Company may
have to participate in interference proceedings declared by the United States
Patent and Trademark Office or by foreign agencies to determine the priority of
inventions. Any involvement in litigation surrounding these issues could result
in extensive costs to the Company as well as be a significant distraction for
management. Such costs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute confidentiality and assignment of inventions agreements in connection
with their employment, consulting or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore,
there can be no assurance that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology. Several of
the Company's management and scientific personnel were formerly associated with
other pharmaceutical and biotechnology companies and academic institutions. In
some cases, these individuals are conducting research in similar areas with
which they were involved prior to joining the Company. As a result, the Company,
as well as these individuals, could be subject to claims of violation of trade
secrets and similar claims.
The Company intends to vigorously protect and defend its intellectual
property. Costly and time-consuming litigation brought by the Company may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company, or to determine the enforceability, scope and
validity of the proprietary rights of others. See "Business--Patents and
Proprietary Rights."
Extensive Government Regulation; No Assurance of Regulatory Approval. The
Company is subject to extensive governmental regulatory requirements and a
lengthy approval process for its product candidates. The development and
commercial use of the Company's product candidates will be regulated by numerous
federal, state and local governmental authorities in the United States,
including the FDA and comparable foreign regulatory agencies abroad. The nature
of the Company's research and development and manufacturing processes requires
the use of hazardous substances and testing on certain laboratory animals.
Accordingly, the Company is subject to extensive federal, state and local laws,
rules, regulations and policies governing the use,
8
<PAGE>
generation, manufacture, storage, air emission, effluent discharge, handling and
disposal of certain materials and wastes, as well as the use of and care for
laboratory animals. Although the Company believes it is in compliance with all
such laws and maintains policies and procedures to ensure that it remains in
compliance, there can be no assurance that accidents will not happen that would
expose the Company to legal risk and/or financial loss. Furthermore, there can
be no assurance that current laws will not be changed or that new laws will not
be passed that force the Company to change its policies and procedures, an event
which could impose significant costs on the Company.
The regulatory approval process for new MRI contrast agents, including
required preclinical studies and clinical trials, is lengthy and expensive.
Although certain employees of the Company have experience in obtaining
regulatory approvals, the Company itself has only limited experience in filing
or pursuing applications necessary to gain regulatory approvals. Preclinical
testing of the Company's product development candidates is subject to Good
Laboratory Practices ("GLP") as prescribed by the FDA and the manufacture of any
products developed by the Company will be subject to Good Manufacturing
Practices ("GMP") as prescribed by the FDA. There can be no assurance that the
necessary FDA clearances and subsequent approvals will be obtained in a timely
manner, if at all. There can be no assurance as to the length of the clinical
trial period or the number of patients that will be required to be tested in the
clinical trials in order to establish the safety and efficacy of MS-325 or any
future product candidates of the Company. The Company may encounter
unanticipated delays or significant costs in its efforts to secure necessary
approvals. There can be no assurance, even after the performance of clinical
trials and the passage of time and the expenditure of such resources, that
regulatory approval will be obtained for MS-325 or any other product candidates
that may be developed by the Company. The Company's analysis of data obtained
from preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities which could delay, limit or prevent FDA
regulatory approval. Future United States legislative or administrative actions
also could prevent or delay regulatory approval of the Company's product
candidates. Even if regulatory approvals are obtained, they may include
significant limitations on the indicated uses for which a product may be
marketed. A marketed product also is subject to continual FDA and other
regulatory agency review and regulation. Later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the
product from the market, as well as possible civil or criminal sanctions.
Further, many academic institutions and companies conducting research and
clinical trials in the MRI contrast agent field are using a variety of
approaches and technologies. Any adverse results obtained by such researchers in
preclinical studies or clinical trials could adversely affect the regulatory
environment for MRI contrast agents generally. In addition, if marketing
approval is obtained, the FDA may require post-marketing testing and
surveillance programs to monitor the product's efficacy and side effects.
Results of these post-marketing programs may prevent or limit the further
marketing of the monitored product.
The Company and its strategic partners are also subject to numerous and
varying foreign regulatory requirements governing the design and conduct of
clinical trials and the manufacturing and marketing of its products. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above, and there can be no assurance that
foreign regulatory approvals will be obtained on a timely basis, if at all. See
"Business--Government Regulation."
History of Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability. The Company's future financial results are uncertain. The Company
has experienced significant losses since it commenced operations in 1992. As of
September 30, 1997, the Company had accumulated net losses of approximately
$12.0 million. These losses have resulted primarily from expenses associated
with the Company's research and development activities, including preclinical
and clinical trials, and general and administrative expenses. The Company
anticipates that its research and development expenses will increase
significantly in the future and it expects to incur substantial losses over at
least the next several years. There can be no assurance that the Company will
ever be able to generate revenues from the sale of products. Moreover, even if
the Company generates product revenues, there can be no assurance that the
Company will be able to achieve or sustain profitability. The Company's results
of operations have varied and will continue to vary significantly from quarter
to quarter and depend on, among other factors: the timing of fees and milestone
payments received from strategic partners; the formation of new strategic
alliances by the Company; the timing of expenditures in connection with research
and development activities, including clinical trials; the timing of product
introductions and associated launch, marketing and sales activities; and the
timing and extent of product acceptance for different indications and
9
<PAGE>
geographic areas of the world. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Future Capital Needs; Uncertainty of Additional Funding. Since inception,
the Company has funded its operations primarily through an initial public
offering of Common Stock in February 1997, private sales of equity securities,
equipment lease financings and license and milestone payments from its strategic
partners. The Company believes that the net proceeds of this offering, together
with existing cash, cash equivalents and marketable securities, will be
sufficient to fund its operations through the second quarter of 1999. The
Company will be required to provide funds to develop MS-325 under its
agreement with Mallinckrodt and believes that it will need to raise additional
funds for research, development and other expenses, through equity or debt
financings, strategic alliances or otherwise, prior to commercialization of any
of its product candidates. The Company's future liquidity and capital
requirements will depend upon numerous factors, including the following: the
progress and scope of clinical trials; the timing and costs of filing future
regulatory submissions; the timing and costs required to receive both United
States and foreign governmental approvals; the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights;
the extent to which the Company's products gain market acceptance; the timing
and costs of product introductions; the extent of the Company's ongoing research
and development programs; the costs of training physicians to become proficient
with the use of the Company's products; and, if necessary, once regulatory
approvals are received, the costs of developing marketing and distribution
capabilities. There can be no assurance that additional financing will be
available on terms acceptable to the Company, or at all. The Company's inability
to fund its capital requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. If adequate
funds are not available, the Company may be required to curtail operations
significantly or to obtain funds by entering into arrangements with strategic
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates, products or potential markets. To the
extent that additional capital is raised through the sale of equity or
securities convertible into equity, the issuance of such securities could result
in dilution to the Company's existing stockholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Limited Manufacturing Capability. The Company does not have, nor does it
currently have plans to develop, full-scale manufacturing capability for MS-325.
The Company intends to rely on Mallinckrodt as the primary manufacturer of
MS-325 for Phase III clinical trials as well as for any future human clinical
trials and commercial use in the United States and, possibly, Japan. If
Mallinckrodt is unable to produce MS-325 in adequate amounts and at a reasonable
cost or to comply with any applicable regulations, including GMP, it could have
a material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, should Mallinckrodt fail to fulfill its
manufacturing responsibilities satisfactorily, the Company could be forced to
find an alternative manufacturer. There can be no assurance that the Company
would be able to find such an alternative manufacturer. In the event the Company
were forced to develop its own FDA-approved full-scale manufacturing capability,
it would require significant expenditures of capital and management attention
and resources and could require the Company to obtain a license from a third
party, and would result in a delay in the approval or commercialization of
MS-325. There can be no assurance that the Company would be able to obtain such
a license on commercially reasonable terms, if at all. See "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights" and
"Business--Strategic Alliances" and "--Manufacturing."
Dependence on Suppliers. The Company currently procures the raw materials
for the various components of MS-325 from a broad variety of vendors and,
wherever possible, maintains relationships with multiple vendors for each
component. There are a number of components of MS-325 for which the largest
suppliers may have significant control over the market price due to controlling
market shares. If any one of the Company's suppliers decided to increase prices
significantly or reduce quantities of components of MS-325 available for sale to
the Company, it could have a material adverse effect on the Company's ability to
commercialize MS-325 and on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
Potential Product Liability Exposure and Insurance. The clinical testing,
manufacturing and marketing of the Company's product candidates may expose the
Company to product liability claims, and there can be no assurance that the
Company will not experience material product liability losses in the future. The
Company currently has limited product liability insurance for the use of its
product candidates in clinical research, but there can be no assurance that such
coverage will continue to be available on terms acceptable to the Company or
that such coverage will be adequate for liabilities actually incurred. The
Company does not have product liability insurance coverage
10
<PAGE>
for the commercial sale of its products but intends to obtain such coverage if
and when its product candidates are commercialized. However, there can be no
assurance that the Company will be able to obtain adequate additional product
liability insurance coverage on acceptable terms, if at all. A successful claim
brought against the Company in excess of available insurance coverage, or any
claim or product recall that results in significant adverse publicity against
the Company, may have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Product Liability
Insurance."
Uncertainty of Adequate Reimbursement. The Company could be adversely
affected by changes in reimbursement policies of governmental or private
healthcare payors, particularly to the extent any such changes affect
reimbursement for procedures in which the Company's product candidates would be
used. Failure by physicians, hospitals and other users of the Company's products
to obtain sufficient reimbursement from third-party payors for the procedures in
which the Company's product candidates would be used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for
such procedures would have a material adverse effect on the Company's business,
financial condition and results of operations. If the Company obtains the
necessary foreign regulatory approvals, market acceptance of the Company's
product candidates in international markets would be dependent, in part, upon
the availability of reimbursement within prevailing healthcare payment systems.
Reimbursement and healthcare payment systems in international markets vary
significantly by country, and include both government sponsored health care and
private insurance. The Company intends to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner, if at all, and failure to receive international
reimbursement approvals could have an adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought. See "Business--Reimbursement."
Dependence Upon Key Personnel. The Company's future business and operating
results depend in significant part upon the continued contributions of its key
technical and senior management personnel, many of whom would be difficult to
replace and certain of whom perform important functions for the Company beyond
those functions suggested by their respective job title or description. The
Company's future business and operating results also depend in significant part
upon its ability to attract and retain qualified management, operational and
technical personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting or retaining such
personnel. Although the Company maintains key life insurance on the lives of
certain officers, the loss of any key employee, the failure of any key employee
to perform in his or her current position, or the Company's inability to attract
and retain skilled employees, as needed, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management--Executive Officers and Directors."
Possible Volatility of Share Price. The market prices of the capital stock
of medical technology companies have historically been very volatile, and the
market price of the shares of the Company's Common Stock has been and may
continue to be highly volatile. The market price of the shares of the Common
Stock may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents or proprietary rights, conditions and
trends in the pharmaceutical and other technology industries, adoption of new
accounting standards affecting such industries, changes in financial estimates
by securities analysts, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of development stage companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, class action securities litigation has often been brought against
that company. Such litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and resources. See
"Underwriting."
Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware
Law. The Company's Restated Certificate of Incorporation (the "Restated
Certificate") authorizes the Board of Directors to issue, without stockholder
approval, up to 1,000,000 shares of preferred stock ("Preferred Stock") with
voting, conversion and other rights and preferences that could adversely affect
the voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be used to
discourage an unsolicited acquisition proposal. In addition, the possible
issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay for shares of the
Company's Common Stock. The
11
<PAGE>
Restated Certificate provides for staggered terms for the members of the Board
of Directors. A staggered Board of Directors and certain provisions of the
Restated Certificate, the Company's By-laws (the "By-laws") and of Delaware law
applicable to the Company could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. The Company, for example, is
subject to Section 203 of the General Corporate Law of Delaware which, subject
to certain exceptions, restricts certain transactions and business combinations
between a corporation and a stockholder owning 15% or more of the corporation's
outstanding voting stock (an "interested stockholder") for a period of three
years from the date the stockholder becomes an interested stockholder. These
provisions may have the effect of delaying or preventing a change of control of
the Company without action by the stockholders and, therefore, could adversely
affect the price of the Company's Stock. See "Management," "Description of
Capital Stock--Preferred Stock" and "--Anti-Takeover Measures."
Control by Directors and Officers. Upon completion of this offering, the
present directors, executive officers and principal stockholders of the Company
and their affiliates will beneficially own approximately 42% of the outstanding
Common Stock of the Company. As a result, these stockholders will be able to
significantly influence corporate actions requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders."
Broad Discretion of Management to Allocate Offering Proceeds. The Company
expects to use the net proceeds of this offering for research and development
and funding of clinical trials in support of regulatory and reimbursement
approval, facilities expansion and improvements and for working capital and
general corporate purposes. The Company is not yet able to estimate precisely
the allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's management
will have broad discretion to allocate the proceeds of this offering and the
timing of expenditures. See "Use of Proceeds."
Shares Eligible for Future Sale; Registration Rights. Future sales of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. Upon completion of this offering, the
Company will have 10,938,547 shares of Common Stock outstanding, assuming no
exercise of options and warrants outstanding on September 30, 1997. Of these
shares, approximately 4,558,819 shares, including the 2,250,000 shares sold in
this offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option), will be freely transferable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
unless they are held by "affiliates" of the Company as that term is used under
the Securities Act and the regulations promulgated thereunder. All of the
remaining shares of Common Stock are currently eligible for sale under Rules 144
and 701 under the Securities Act. Stockholders of the Company, who will hold in
the aggregate 5,538,499 shares of Common Stock after this offering, have agreed,
subject to certain limited exceptions, not to sell or otherwise dispose of any
of the shares held by them as of the date of this Prospectus for a period of 90
days after the date of this Prospectus (the "lock-up period") without the prior
written consent of Hambrecht & Quist LLC. However, Hambrecht & Quist LLC may in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. The holders of 4,750,289 shares
of Common Stock have the right in certain circumstances to require the Company
to register their shares under the Securities Act for resale to the public. If
such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Company's Common Stock.
If the Company were required to include in a Company-initiated registration
shares held by such holders pursuant to the exercise of their piggyback
registration rights, such sales may have an adverse effect on the Company's
ability to raise needed capital and could also have an adverse effect on the
market price for the Company's Common Stock. The Company has filed registration
statements under the Securities Act registering 2,099,901 shares of Common Stock
issuable under the Company's Amended and Restated 1992 Equity Incentive Plan and
66,666 Shares of Common Stock issuable under the Company's 1996 Director Stock
Option Plan. In addition, prior to January 1, 1998, the Company expects to file
a registration statement on Form S-8 registering a total of approximately 66,666
shares of Common Stock reserved for issuance under the Company's 1996 Employee
Stock Purchase Plan. See "Management--Director Compensation," "--Stock Plans,"
"Description of Capital Stock," "Shares Eligible for Future Sale-- Registration
Rights" and "Underwriting."
Immediate and Substantial Dilution. Purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their investment from the public offering price.
Additional dilution will occur upon exercise of outstanding options and
warrants. See "Dilution," "Description of Capital Stock--Stock Purchase
Warrants" and "Shares Eligible for Future Sale."
12
<PAGE>
Absence of Dividends. To date, the Company has neither declared nor paid
any cash dividends on shares of its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. See "Dividend Policy."
Forward-looking Statements. This Prospectus contains forward-looking
statements, which may be deemed to include the Company's plans to continue the
development and achieve commercial introduction of its product candidates.
Actual results could differ materially from those projected in any
forward-looking statement for a variety of reasons, including those detailed in
the other sections of this "Risk Factors" section or elsewhere in this
Prospectus.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company hereby, at the assumed public offering price
of $13.00 per share and after deducting the underwriting discounts and estimated
offering expenses, are estimated to be $26,995,000 ($29,652,850 if the
Underwriters' over-allotment option is exercised in full). The Company expects
to use the net proceeds for research and development and funding of clinical
trials in support of regulatory and reimbursement approvals including, in
particular, to fund its research and development costs under its agreement with
Mallinckrodt, facilities expansion and improvements and for working capital and
general corporate purposes. The Company is not yet able to estimate precisely
the allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's Board of
Directors and management retain complete discretion with respect to the
allocation of such proceeds and the timing of expenditures. Although the Company
may use a portion of the net proceeds for possible licensing or acquisition of
products and technologies that are complementary to those of the Company, or
acquisitions of businesses that are complementary to those of the Company, there
are no current plans or commitments in this regard. Pending such uses, the
Company plans to invest the net proceeds in investment grade, interest-bearing
securities. The Company intends to invest and use the proceeds so as not to be
considered an "investment company" under the Investment Company Act of 1940, as
amended.
The Company believes that the net proceeds from this offering and its
existing cash, cash equivalents and marketable securities will be sufficient to
fund its operations through the second quarter of 1999. Thereafter, the Company
may require additional funds to support its operating requirements or for other
purposes and may seek to raise such additional funds through public or private
equity or debt financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing would be obtainable on terms favorable to the Company and would not be
dilutive. See "Risk Factors--Future Capital Needs; Uncertainty of Additional
Funding," "--Broad Discretion of Management to Allocate Offering Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market on January 30, 1997 under the symbol EPIX. The following table sets
forth, for the periods indicated, the range of the high and low closing sale
prices for the Company's Common Stock:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1997
First Quarter (from January 30, 1997) ......... $ 9.50 $6.63
Second Quarter ................................. 9.00 6.00
Third Quarter ................................. 12.00 8.25
Fourth Quarter (through October 17, 1997) ...... 14.00 12.00
</TABLE>
On October 17, 1997, the last reported sale price of the Common Stock was
$13.00 per share. As of September 30, 1997, there were approximately 69 holders
of record of the Company's Common Stock.
DIVIDEND POLICY
To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock and does not anticipate paying any cash dividends in
the foreseeable future.
THE COMPANY
The Company was incorporated in Delaware in 1988 and commenced operations
in 1992. The Company's principal executive offices are located at 71 Rogers
Street, Cambridge, Massachusetts, 02142-1118, and its telephone number is (617)
499-1400.
15
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company on an
as adjusted basis to give effect to the issuance and sale by the Company of
2,250,000 shares of Common Stock after deducting the underwriting discounts and
estimated offering expenses. This table should be read in conjunction with the
Financial Statements of the Company and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
---------------------------
Actual As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Capital lease obligations, less current portion ........................ $ 208 $ 208
--------- ---------
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; no shares
issued or outstanding ............................................. -- --
Common Stock, $.01 par value; 15,000,000 shares authorized; 8,688,547
shares issued and outstanding actual; 10,938,547 shares issued and
outstanding as adjusted (1) ....................................... 87 109
Additional paid-in capital .......................................... 32,492 59,465
Accumulated deficit ................................................ (12,048) (12,048)
--------- ---------
Total stockholders' equity .......................................... 20,531 47,526
--------- ---------
Total capitalization ............................................. $ 20,739 $ 47,734
========= =========
</TABLE>
- ---------------------
(1) Excludes (i) 1,673,104 shares of Common Stock issuable upon exercise of
options outstanding at September 30, 1997 at a weighted average exercise
price of $4.16 per share, of which options to purchase 438,252 shares of
Common Stock were exercisable, and (ii) 79,696 shares of Common Stock
issuable upon exercise of warrants outstanding at September 30, 1997 at a
weighted average exercise price of $3.98 per share. See "Dilution,"
"Management--Stock Plans," "Description of Capital Stock" and Notes 8 and 9
to Notes to Financial Statements.
16
<PAGE>
DILUTION
As of September 30, 1997, the Company had a net tangible book value of
approximately $20.5 million, or $2.36 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets, less total
liabilities, divided by the 8,688,547 shares of Common Stock then outstanding.
After giving effect to the sale of 2,250,000 shares of Common Stock offered
hereby at the assumed public offering price of $13.00 per share and after
deduction of the underwriting discounts and estimated offering expenses payable
by the Company, the adjusted net tangible book value of the Company as of
September 30, 1997 would have been $47.5 million, or $4.34 per share of Common
Stock. This represents an immediate increase in net tangible book value of $1.98
per share to existing investors and an immediate dilution of $8.66 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ........................... $ 13.00
Net tangible book value per share before the offering ............ $ 2.36
Increase in price per share attributable to new investors ...... 1.98
-------
Adjusted net tangible book value per share after the offering ...... 4.34
--------
Dilution per share to new investors .............................. $ 8.66
========
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1997 the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ -------------------------
Average Price
Number Percent Amount Percent Per Share
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 8,688,547 79.4% $34,651,761 54.2% $ 3.99 (1)
New investors ............... 2,250,000 20.6 29,250,000 45.8 $ 13.00
----------- ------ ------------ ------
Total .................. 10,938,547 100.0% $63,901,761 100.0%
=========== ====== ============ ======
</TABLE>
The foregoing computations assume no exercise of warrants or stock options
outstanding at September 30, 1997, at which date there were 1,673,104 shares of
Common Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $4.16 per share, of which options to purchase 438,252 shares
of Common Stock were exercisable, and 79,696 shares of Common Stock issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$3.98 per share. See "Capitalization," "Management--Stock Plans" and
"Description of Capital Stock."
- ---------------------
(1) Includes the sale of 2,300,000 shares of Common Stock at a price of $7.00
per share at the Company's initial public offering in February 1997.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the period from inception
(November 29, 1988) through March 31, 1993, the nine months ended December 31,
1995, each of the two years in the period ended March 31, 1995 and the year
ended December 31, 1996 are derived from Financial Statements of the Company
which have been audited by Ernst & Young LLP, independent auditors. The
financial statements as of December 31, 1996 and 1995 and for the year ended
December 31, 1996, the nine months ended December 31, 1995 and the year ended
March 31, 1995 and the report of Ernst & Young LLP relating thereto are included
elsewhere herein. The financial data for the nine months ended September 30,
1997 and 1996 are derived from unaudited financial statements included elsewhere
herein. The unaudited financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997 or any future period. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Financial Statements and the Notes thereto and
other financial information included herein.
<TABLE>
<CAPTION>
Year Ended
Period from inception March 31, Nine Months Nine Months Ended
(November 29, 1988) ------------------- Ended Year Ended September 30,
through March 31, December 31, December 31, -----------------------
1993 1994 1995 1995 (1) 1996 1996 1997
--------------------- -------- -------- ----------- ------------ --------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $ 1,000 $ 1,700 $ 412 $ 900 $10,010 $ 9,635 $ 4,021
Operating expenses:
Research and development ...... 470 1,382 2,407 4,165 6,879 4,952 6,286
General and administrative ... 841 897 825 1,505 2,862 2,212 2,268
------- ------- -------- -------- -------- ------- --------
Total operating expenses ...... 1,311 2,279 3,232 5,670 9,741 7,164 8,554
------- ------- -------- -------- -------- ------- --------
Operating income (loss) ......... (311) (579) (2,820) (4,770) 269 2,471 (4,533)
Interest income (expense), net 41 (38) 42 (123) (1) (133) 790
------- ------- -------- -------- -------- ------- --------
Net income (loss) ............... $ (270) $ (617) $ (2,778) $ (4,893) $ 268 $2,338 $ (3,743)
======= ======= ======== ======== ======== ======= ========
Net income (loss) per share (2) $ (0.70) $ 0.03 $ 0.30 $ (0.45)
======== ======== ======= ========
Shares used in per share
calculations (2) ............... 6,973 7,711 7,711 8,370
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------------- ------------------------ September 30,
1993 1994 1995 1995 (1) 1996 1997
--------- -------- ----------- ----------- ----------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities ...... $ 114 $4,154 $ 1,079 $ 150 $ 10,664 $20,564
Working capital (deficit) ........................... (142) 3,574 516 (1,327) 8,299 19,219
Total assets .......................................... 1,118 5,050 2,141 1,211 12,575 23,265
Capital lease obligations, less current portion ...... 13 292 107 342 176 208
Redeemable convertible preferred stock ............... -- 3,941 3,949 3,956 -- --
Total stockholders' equity (deficit) .................. 773 200 (2,552) (7,336) (7,240) 20,531
</TABLE>
- ---------------------
(1) The Company changed its fiscal year end from March 31 to December 31
commencing with the fiscal year ended December 31, 1995.
(2) See Note 2 to Notes to Financial Statements for a description of the
calculation of net income (loss) per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
herein.
Overview
Since commencing operations in 1992, the Company has been engaged
principally in the research and development of its contrast imaging agent
product candidates as well as seeking various regulatory clearances and patent
protection. The Company has had no revenues from product sales and has incurred
net losses since inception through September 30, 1997 aggregating approximately
$12.0 million. The Company has received revenues only in connection with various
licensing and collaboration agreements.
The Company's initial product candidate, MS-325, an injectable MRI contrast
agent, is currently the Company's only product candidate undergoing human
clinical trials. In 1996, the Company formed a strategic alliance with Daiichi
related to the development and commercialization of MS-325 in Japan. In 1996 the
Company also formed a strategic alliance with Mallinckrodt related to the
development and commercialization of MS-325 worldwide, excluding Japan. The
Company completed a Phase I clinical trial of MS-325 in February 1997 and
commenced Phase II clinical trials of MS-325 in the second quarter of 1997.
During the second quarter of 1997, the Company also formed a strategic alliance
with Dyax Corp. ("Dyax") in which the parties will seek to identify and develop
novel diagnostic agents for imaging blood clots.
The Company anticipates fluctuation in its quarterly results of operations
due to several factors, including: the timing of fees and milestone payments
received from strategic partners; the formation of new strategic alliances by
the Company; the timing of expenditures in connection with research and
development activities; the timing of product introductions and associated
launch, marketing and sales activities; and the timing and extent of product
acceptance for different indications and geographic areas.
Results of Operations
Comparison of Nine Months Ended September 30, 1997 and 1996
Revenues. Revenues for the nine-month period ended September 30, 1997 were
$4.0 million, as compared to $9.6 million for the corresponding period of 1996.
Revenues for the nine-month period ended September 30, 1997 included milestone
payments of $2.0 million received from Mallinckrodt and $900,000 received from
Daiichi. Revenues for the 1997 period also included $1.1 million received from
Mallinckrodt and Daiichi in connection with MS-325 development contracts.
Revenues for the nine-month period ended September 30, 1996 included a $6.0
million license fee received from Mallinckrodt and a $3.0 million license fee
(net of 10% foreign withholding tax) received from Daiichi, each related to the
formation of strategic collaborations to commercialize MS-325 in the respective
territories covered by the collaboration agreements. The 1996 revenues also
included $665,000 of development contract revenue earned from Mallinckrodt.
Research and development expenses. Research and development expenses for
the nine-month period ended September 30, 1997 were $6.3 million, as compared to
$5.0 million for the corresponding period of 1996. The increase primarily
reflected the added costs to support advancement of MS-325 through the
development program. The increased expense was also due to additional personnel
and resources to support research in the area of thrombus imaging and the
advancement of the Company's core technology. Research and development expenses
are expected to increase in future quarters as MS-325 continues in Phase II
clinical trials.
General and administrative expenses. General and administrative expenses
for the nine-month period ended September 30, 1997 were $2.3 million, as
compared to $2.2 million for the corresponding period of 1996.
19
<PAGE>
The increase was primarily due to higher personnel costs associated with
additions to senior management in the second half of 1996 as well as the
increased cost to build the infrastructure needed to support development of
MS-325 and new discovery programs. The additional expenses of ongoing patent
protection activities as well as those of transitioning to and operating as a
publicly held company also contributed to the increase in general and
administrative expenses in 1997 as compared to 1996. Partially offsetting these
increases were $250,000 of nonrecurring expense incurred in 1996 in connection
with the restructuring of a liver agent development program which was terminated
by the Company in 1995. The Company terminated the program after reassessing the
anticipated future product development costs under the program measured against
the size of the potential market for products. As a part of a negotiated
termination of the agreement covering the development program, the Company paid
the contracting party $250,000 and gave a non-exclusive license to the
technology developed to date under the program in exchange for royalty payments
on future sales of products by the contracting party. The Company expects total
general and administrative expenses to increase as the Company's product
candidates advance through clinical trials and to eventual commercialization.
Interest income and expense. Interest income for the nine-month period
ended September 30, 1997 was $816,000, as compared to $140,000 for the
corresponding period of 1996. This increase was the result of higher average
cash available for investment which was due largely to the Company's initial
public offering in February 1997. Interest expense for the nine-month period
ended September 30, 1997 was $27,000, as compared to $274,000 for the
corresponding period of 1996. The 1996 period included interest on promissory
notes and bridge loans which were outstanding during the first five months of
1996.
Comparison of Year Ended December 31, 1996 and Nine Months Ended December
31, 1995
Revenues. Revenues for the year ended December 31, 1996 were $10.0 million,
as compared to $900,000 for the nine-month period ended December 31, 1995.
Revenues for the year ended December 31, 1996 included $6.0 million in license
fees and approximately $1.0 million of development contract revenue from
Mallinckrodt. Revenues during 1996 also included $3.0 million in license fees
received from Daiichi for the rights to commercialize MS-325 in Japan. Revenues
for the nine-month period ended December 31, 1995 consisted entirely of payments
received from a pharmaceutical company as consideration for an option for
certain rights to the Company's future contrast agents in Japan. The option
expired and the rights to the agent were subsequently licensed to a third party.
Research and development expenses. Research and development expenses for
the year ended December 31, 1996 were $6.9 million, as compared to $4.2 million
for the nine-month period ended December 31, 1995. This increase was due
primarily to increased MS-325 development costs associated with the commencement
of Phase I clinical trials in September 1996.
General and administrative expenses. General and administrative expenses
for the year ended December 31, 1996 were $2.9 million, as compared to $1.5
million for the nine-month period ended December 31, 1995. The $1.4 million
increase was largely due to increased personnel costs associated with
recruitment and compensation of additional senior management (approximately
$390,000) and increased expenses for strategic consulting and business
development activities. Significant secondary causes of the increase include
higher patent costs as well as increased agency fees and legal expenses
associated principally with the formation of collaborative agreements. In
addition, general and administrative expenses for 1996 included $250,000 of
nonrecurring expense incurred in connection with the restructuring of a liver
agent development program which was terminated by the Company in 1995.
Interest income and expense. Interest income for the year ended December
31, 1996 was $288,000, as compared to $28,000, for the nine-month period ended
December 31, 1995. This increase was due to higher average cash available for
investment during 1996. Interest expense for the year ended December 31, 1996
was $289,000, as compared to $151,000 for the nine-month period ended December
31, 1995. This increase was due to higher borrowings under promissory notes and
bridge loans in 1996.
Liquidity and Capital Resources
The Company financed its operations from inception through September 30,
1997 primarily with $14.3 million in net proceeds from the Company's initial
public offering completed in February 1997, $18.4 million from private sales of
equity securities, $18.0 million received from third parties in connection with
collaboration and license arrangements, $1.4 million of equipment lease
financing and $1.3 million in interest income. From
20
<PAGE>
inception through September 30, 1997, the Company has incurred $30.8 million of
costs attributable to operating activities, including $21.6 million related to
the research and development of technology and new product candidates, including
MS-325.
The Company's principal source of liquidity consists of cash, cash
equivalents and marketable securities which totaled $20.6 million at September
30, 1997, as compared to $10.7 million at December 31, 1996.
The Company is eligible to receive additional payments of $2.4 million from
Daiichi upon the attainment of certain future MS-325 development milestones.
Under the Company's agreement with Mallinckrodt, Mallinckrodt and the Company
will generally share equally in future development costs of MS-325 up to a
specified maximum amount.
During the nine months ended September 30, 1997, the Company used
approximately $8.0 million of cash for operating activities, exclusive of
license fee revenues. The Company expects that its cash needs for operations
will increase significantly in the fourth quarter of 1997 due to planned
clinical trials and other expenses associated with the development of MS-325 and
new research and development programs.
The Company estimates that the net proceeds from this offering, together
with existing cash, cash equivalents and marketable securities, will be
sufficient to fund its operations through the second quarter of 1999. The
Company believes that it may need to raise additional funds for research,
development and other expenses, through equity or debt financings, strategic
alliances or otherwise, prior to commercialization of any of its product
candidates. There can be no assurance that additional financing will be
available on terms acceptable to the Company, or at all. The Company's future
liquidity and capital requirements will depend on numerous factors, including
the following: the progress and scope of clinical trials; the timing and costs
of filing future regulatory submissions; the timing and costs required to
receive both United States and foreign governmental approvals; the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the extent to which the Company's products gain
market acceptance; the timing and costs of product introductions; the extent of
the Company's ongoing research and development programs; the costs of training
physicians to become proficient with the use of the Company's products; and, if
necessary, once regulatory approvals are received, the costs of developing
marketing and distribution capabilities.
Because of anticipated spending to support development of MS-325 and new
research programs, the Company does not expect positive cash flow from operating
activities for any future quarterly or annual period prior to commercialization
of MS-325. The Company anticipates continued investments in fixed assets,
including equipment and facilities expansion to support new and continuing
research and development programs. In July 1997, the Company reached an
agreement which will enable it to lease its current facilities through December
31, 2002.
The Company has reported only tax losses to date and therefore has not paid
significant federal or state income taxes since inception. At December 31, 1996,
the Company had loss carryforwards of approximately $7.3 million available to
offset future taxable income. These amounts expire at various times through
2010. As a result of ownership changes resulting from sales of equity
securities, the Company's ability to use the loss carryforwards is subject to
limitations as defined in Sections 382 and 383 of the Internal Revenue Code of
1986, as amended (the "Code"). The Company currently estimates that the annual
limitation on its use of net operating losses through May 31, 1996 will be
approximately $900,000. Pursuant to Section 382 of the Code, the change in
ownership resulting from the initial public offering, the offering contemplated
hereby and any other future sale of stock may also limit utilization of losses
in any one year. The Company is also eligible for research and development tax
credits which can be carried forward to offset federal taxable income. The
annual limitation and the timing of attaining profitability may result in the
expiration of net operating loss and tax credit carryforwards before
utilization.
The Company does not believe that inflation has had a material impact on
its operations.
21
<PAGE>
BUSINESS
Overview
EPIX is developing targeted contrast agents both to improve the capability
and expand the use of MRI as a tool for diagnosing human disease. The Company's
principal product under development, MS-325, is an injectable vascular contrast
agent designed for multiple vascular imaging indications, including coronary
artery disease ("CAD") and peripheral vascular disease ("PVD"). The Company
believes that MS-325 will significantly enhance the quality of images and
provide physicians with a clinically superior, noninvasive (i.e., no more
invasive than a peripheral intravenous injection ("I.V.")) and cost-effective
method for diagnosing cardiovascular disease. The Company further believes that
MS-325 will simplify the diagnostic pathway for a number of cardiovascular
diseases and in many cases replace highly invasive (i.e., more invasive than a
peripheral I.V. up to and including a surgical procedure) and expensive X-ray
angiography, which is currently considered the definitive diagnostic exam for
assessing cardiovascular disease. The Company is also investigating additional
imaging indications for MS-325, including pulmonary embolism and myocardial
perfusion. EPIX has entered into strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325 and other vascular
contrast agents.
The Company completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Phase I clinical
trial yielded images and signal duration and intensity consistent with the
Company's belief that MS-325 enhanced MRI used earlier in the diagnostic pathway
will provide physicians with diagnostic information clinically equivalent to
X-ray angiography. The Company is currently conducting a Phase II clinical trial
to test the safety and preliminary efficacy of MS-325 for the evaluation of PVD
and a Phase II clinical trial to test the safety and feasibility of MS-325 for
the evaluation of CAD. In each of these clinical trials, the Company is
comparing MS-325 enhanced MRI to conventional X-ray angiography, the current
reference standard. In addition, the Company anticipates initiating a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer before the end of 1997.
The use of MRI has grown steadily over the past 10 years due to reduced
cost and improved imaging capabilities and now provides an effective diagnostic
modality for a broad range of applications. MRI manufacturers have improved the
hardware and software of their systems, reducing the time per procedure
drastically while significantly enhancing resolution. While MRI is currently
used extensively to image many organs and tissues in the body, its use in
imaging the arteries and veins has been limited. Prior attempts to develop
contrast agents to facilitate the clinical usefulness of MRI, particularly for
coronary arteries, have had limited success. Unlike most currently available MRI
contrast agents, which are non-specific, MS-325 is a targeted intravascular
contrast agent designed to bind to albumin, the most common blood protein.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time. EPIX believes that the advantages of MS-325, coupled with
the reduced cost and improved imaging capabilities of MRI, will lead to
significantly expanded use of MRI to diagnose cardiovascular and other diseases.
Magnetic Resonance Imaging Background
In an MRI exam, images are obtained by placing a portion of the patient's
body in a magnetic field and applying safe, low-energy radio waves. The
different organs and tissues in the body respond uniquely to the MRI's
electromagnetic field and these responses are then scanned and converted into a
three-dimensional image. MRI can easily provide high contrast, high resolution
images of anatomy deep inside the body.
The use of MRI, which was developed in the 1970s, has grown steadily over
the past decade due to declining costs, increased clinical effectiveness,
reduced exam times and more comprehensive coverage by third-party payors. As an
example, a standard MRI brain exam, which in 1985 required 60 minutes and cost
approximately $1,500, now takes only 30 minutes, costs less than half as much
and can identify tumors that are over 50% smaller than those detectable in 1985.
The installed base of MRI scanners in the United States grew from fewer than 400
scanners in 1985 to over 3,900 in 1996, during which year there were over 8.5
million MRI exams performed.
Underlying the economic and clinical advancement of MRI is the consistent
and rapid technological progress achieved by MRI equipment manufacturers such as
General Electric, Philips and Siemens. Over the past 10 years,
22
<PAGE>
MRI equipment manufacturers have achieved significant improvements in both MRI
hardware and software while reducing the price of a new machine by more than
35%. The primary hardware components in an MRI scanner are the magnet,
gradients, radio frequency coils and computer processors and memory. Since 1985,
gradients have quadrupled in speed and power, and enhancements in radio
frequency coils have improved the signal-to-noise ratio by over 100%.
Improvements in computer processors, memory and software, including new
techniques to improve scanning, image processing and motion compensation, have
been even more dramatic.
Images obtained in certain applications of MRI can be enhanced through the
use of contrast agents. Contrast agents are injected into a vein in the
patient's arm prior to a scan and are designed to amplify the contrast between
various tissues, organs and anatomic structures. Currently available MRI
contrast agents are primarily non-specific gadolinium compounds which diffuse
throughout the body following injection. They are effective at enhancing images
of certain tissue types, primarily in the brain and spine, but lack the efficacy
to be clinically useful for many vascular applications. Non-specific contrast
agents are used in an estimated 25% of MRI exams and their usage has grown by
more than 60% over the last five years.
MRI has been established as the imaging modality of choice for a broad
range of indications, including brain tumors, many spinal disorders and knee
injuries. Nevertheless, MRI has been used sparingly as an imaging modality for
the vascular system due to its limited ability to image arteries and veins in
patients. In particular, cardiac motion currently precludes clinically
significant MRI of the coronary arteries. Several leading MRI manufacturers,
academic centers and others are developing hardware and software solutions to
the problem of cardiac motion. In both CAD and PVD, clinically significant
magnetic resonance images of the arterial anatomy are also limited by MRI's
inability to provide sufficient contrast between the arteries and the
surrounding tissues. Further, MRI exams using the existing non-specific contrast
agents are limited by the rapid diffusion of these agents out of the vascular
system, which reduces the time during which an image can be acquired.
Consequently, many experts believe MRI contrast agents which remain in the
vascular system for extended periods of time will be necessary to obtain
sufficient contrast for widespread clinical use of MRI to image the vascular
system.
The EPIX Solution
The Company believes that MS-325, together with the anticipated hardware
and software solutions to the cardiac motion problem, will enable widespread
clinical use of MRI to diagnose CAD. The Company also believes that MS-325 will
significantly expand the use of currently available MRI equipment in diagnosing
PVD. MS-325 has been designed to be used with MRI to provide physicians with a
clinically superior, noninvasive and cost-effective diagnostic pathway by
eliminating many X-ray angiograms and ancillary tests.
MS-325: Cardiac Indications
Background. It is estimated that over 500,000 people in the United States
die of CAD each year, making it the leading cause of death. CAD is characterized
by the accumulation of plaque on the arterial walls, leading to a disruption in
blood flow to the heart muscle. This interruption of blood to the heart can
cause ischemia (lack of oxygen) or infarction (death of heart tissue) and result
in significant morbidity or death. In order to diagnose a patient who exhibits
apparent symptoms of CAD, prescribe an effective treatment and monitor the
results of intervention, a physician often requires information on the anatomy
and function of the heart and, specifically, the coronary arteries. Due, in
part, to the lack of cost-effective, noninvasive, comprehensive diagnostic
imaging procedures, diagnosis of CAD is currently a complex and expensive
process. Based on independent sources, the Company believes that in 1996 over
6.0 million patients in the United States underwent over 11.0 million various
diagnostic tests for the diagnosis of CAD at an estimated cost of over $7.0
billion. The Company believes that MRI-based cardiac evaluations using MS-325
would simplify the process of diagnosing CAD, significantly improving patient
outcomes and lowering total medical costs.
23
<PAGE>
Traditional Approach to CAD Diagnosis. The current diagnostic process for
CAD is complex, expensive and can involve multiple, often inconclusive, tests.
While the specific diagnostic pathway may vary for any given patient, several
appointments for multiple diagnostic exams may be necessary prior to formulation
of a treatment plan. Figure 1 below outlines the traditional approach to CAD
diagnosis.
Figure 1--Coronary Artery Disease: Traditional diagnostic pathway
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
7% Acute/Critical 60% Drug Therapy
---- Ischemia ---- or Rule Out
| | CAD
| Traditional |
Initial | Non-Invasive |
Chest Pain | Imaging | 50% Drug
Workup | o Stress echo- | ---- Therapy or
| cardiogram | | No Therapy
o EKG | Indeterminate | |
o Exercise |51% Non-acute o Nuclear stress | |27%
stress test ---- Myocardial ---- perfusion study | Coronary ---- PTCA
| Infarction |40% X-ray |
6.75 Million |42% 3.44 Million ---- Angiography |
Patients ---- Rule Out CAD Patients |23%
1.38 Million ---- CABG
Patients
</TABLE>
- --------------------------------------------------------------------------------
Note: Percentages are estimates derived by the Company from both data compiled
by the Company and data obtained from independent sources. Actual diagnostic
outcomes could vary depending on numerous factors, including geographic location
of the patient, type of medical setting in which the tests are administered and
physician practice patterns.
It is estimated that over 6.75 million patients enter the CAD diagnostic
pathway in the United States each year after experiencing chest pain or
shortness of breath. An electrocardiogram ("EKG") is often performed at this
stage. Approximately 7% of these patients present with severe pain and acute or
critical ischemia and are immediately triaged for treatment. For the remaining
93%, the physician completes a work-up, history and physical exam to determine
whether the patient exhibits symptoms consistent with CAD and has any of the
risk factors for CAD, such as smoking, high cholesterol, family history, excess
weight, diabetes or high blood pressure. A patient with an abnormal EKG or
significant risk factors will likely be referred to a cardiologist for further
testing. The cardiologist will typically continue the work-up with an exercise
stress test. Based on EKG and exercise stress test results, CAD is ruled out for
approximately 42% of all patients entering the diagnostic pathway. For the
remaining 51% of all patients, results of the exercise stress test are
indeterminate and the cardiologist generally will perform a stress
echocardiogram and/or a nuclear stress perfusion study. Approximately 60% of
patients undergoing these tests receive either drug therapy or no further
treatment. For the remaining 40% of patients for whom the stress echocardiogram
or a nuclear stress perfusion study is positive or indeterminate, a coronary
X-ray angiogram is often prescribed. Approximately 50% of the patients who
receive coronary X-ray angiograms are either treated with drugs or require no
therapy. If the coronary X-ray angiogram indicates surgically correctable
disease, the patient will be scheduled for a percutaneous transluminal coronary
angioplasty ("PTCA"), a procedure designed to enlarge partially blocked
arteries, or referred to a cardiac surgeon for a coronary artery bypass graft
("CABG"), a surgical procedure designed to circumvent a blocked or partially
blocked artery or arteries with a vascular graft.
As indicated above, the following tests are generally part of the
traditional diagnostic pathway for CAD:
[bullet] EKGs measure the electrical potential of the heart using several
surface electrodes. Varying patterns of monitored electrical activity
may indicate heart abnormalities, including ischemic heart disease or a
previous heart attack.
24
<PAGE>
[bullet] Exercise stress tests measure a patient's ability to exercise without
chest pain. For certain patients with extreme results, the test can be
used to confirm or exclude the presence of blockages which
significantly decrease blood flow and sometimes to prescribe drug
therapy. However, for most patients the test is inconclusive. The test
provides no information on the anatomy of the coronary arteries.
[bullet] Stress echocardiograms use transthoracic ultrasound to measure motion
of the walls of the heart under physical or pharmacological stress. In
most cases, a lack of blood flow to a particular area of the heart will
be reflected in atypical motion of the heart wall. The test is
noninvasive and costs between $300 and $900. While a normal stress
echocardiogram usually eliminates the possibility of blockages which
significantly decrease blood flow, the test is often inconclusive and
provides no information on the anatomy of the coronary arteries. It is
estimated that over 800,000 stress echocardiograms were performed in
the United States in 1996 at an estimated cost of over $250 million.
[bullet] Nuclear stress perfusion studies, which measure the flow of blood to
cardiac tissue, can be used either as the critical diagnostic test
prior to X-ray angiography or to confirm the impact on blood flow of an
intermediate blockage identified through X-ray angiography. These tests
are noninvasive, use small quantities of ionizing radiation and cost
between $600 and $1,400. A patient is injected with a
radiopharmaceutical and then a gamma camera is used to detect uptake of
the agent in the heart muscle. A deficiency in blood flow to particular
regions of the heart is shown on the resultant images. While the test
can identify the effects of CAD, it provides no information on the
anatomy of the coronary arteries and it cannot determine the location
of blockages. It is estimated that over 2.7 million nuclear stress
perfusion studies were conducted in the United States in 1996 at an
estimated cost of more than $1.9 billion.
[bullet] Coronary X-ray angiography is currently considered by many to be the
definitive diagnostic exam for imaging the coronary artery anatomy. It
uses conventional X-ray technology enhanced with iodinated contrast
media. Coronary X-ray angiography is highly invasive and costs between
$2,000 and $6,000 per procedure. The procedure requires an
interventional cardiologist to puncture the femoral artery in the
patient's groin area and feed a catheter up into the patient's heart.
During X-ray imaging, up to 100 milliliters of contrast media are
injected into the catheter, effectively replacing blood flow in the
heart and associated arteries for approximately two seconds. This
cardiac catheterization must be performed in a surgical setting and
requires patient monitoring for at least six hours after the procedure.
Approximately 5% of patients undergoing a coronary X-ray angiogram
experience serious side effects, including renal failure, limb loss and
death, which may be caused by both the insertion of the catheter and
the high dosage of iodinated radio-opaque dye. In addition, coronary
X-ray angiography does not always provide sufficient information for
clinical decision-making. While the procedure identifies the location
of arterial blockages, in many cases it cannot conclusively determine
their impact on blood flow. Therefore, for many blockages, a nuclear
stress perfusion study must be performed to enable the physician to
make a definitive diagnosis. Due to the expensive nature of coronary
X-ray angiography, its high risk of complications, and the fact that
approximately 50% of the patients undergoing coronary X-ray angiograms
ultimately are diagnosed as having conditions that do not warrant
invasive therapy, physicians employ a battery of tests to triage
patients in an effort to avoid this procedure. However, because a
diagnostic coronary X-ray angiogram is currently the only test that can
image the coronary artery anatomy, it is estimated that over 1.4
million such procedures were performed in the United States in 1996 at
an approximate cost of more than $3.8 billion.
The EPIX Approach to CAD Diagnosis. The Company believes that MS-325,
coupled with anticipated advances in software and hardware for MRI equipment,
will enable physicians to use MRI to perform a noninvasive, integrated cardiac
exam for the diagnosis of CAD. Such a procedure will be designed to provide
information on coronary artery anatomy, including location of arterial
blockages, as well as cardiac perfusion and cardiac function data, in one
sitting early in the diagnostic pathway. Because the procedure is intended to
provide physicians with more comprehensive diagnostic information at an earlier
stage of the diagnostic pathway, physicians will be able to make a more informed
diagnosis, and arrange for appropriate patient treatment, sooner than would
otherwise be possible, thereby achieving better patient outcomes at a lower
cost. The Phase I clinical trial yielded images and signal duration and
intensity consistent with the Company's belief that MS-325 enhanced MRI used
earlier in the diagnostic pathway will provide physicians with diagnostic
information clinically equivalent to X-ray angiography. Although several leading
MRI equipment manufacturers, academic centers and others are developing advanced
hardware and software, there can be no assurance when, or if, these techniques
will enable MS-325 to provide clinically relevant images in cardiac indications
currently being pursued. See "Risk
25
<PAGE>
Factors--Dependence on MRI Advancements for Cardiac Applications." Figure 2
below outlines the EPIX approach to the diagnosis of CAD.
Figure 2--Coronary Artery Disease: EPIX diagnostic pathway
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
7% Acute/Critical 80% Drug Therapy
---- Ischemia ---- or Rule Out CAD
| |
| EPIX Solution |
Initial | MS-325/MRI |
Chest Pain | | 9% Coronary
Workup | o Anatomy ---- X-ray ---- CABG
| | Angiography
o EKG | Indeterminate o Perfusion |
o Exercise |51% Non-acute | 0.31 Million
stress test ---- Myocardial ---- o Function | Patients
| Infarction |11%
6.75 Million |42% 3.44 Million ---- PTCA
Patients ---- Rule Out CAD Patients
</TABLE>
- --------------------------------------------------------------------------------
Note: Percentages are estimates derived by the Company from both data compiled
by the Company and data obtained from independent sources. Actual diagnostic
outcomes could vary depending on numerous factors, including geographic location
of the patient, type of medical setting in which the tests are administered and
physician practice patterns.
The Company believes that the use of MS-325 enhanced MRI to perform
integrated cardiac exams will simplify and improve the diagnostic work-up for
CAD by enabling noninvasive cardiologists (approximately 80% of all
cardiologists) to visualize the coronary arteries noninvasively early in the
work-up. Under the EPIX approach for CAD assessment, a patient who has an
indeterminate EKG and exercise stress test would be referred for a noninvasive,
integrated cardiac exam. Unlike the invasive nature of coronary X-ray
angiography, the patient would receive a single injection of MS-325 in a vein in
the arm prior to the exam and then enter the MRI scanner. The exam is expected
to provide the physician with three-dimensional anatomic detail of the coronary
arteries as well as the perfusion and functional information currently provided
by stress echocardiograms and nuclear stress perfusion studies. Based on the
results of the MS-325 enhanced MRI integrated cardiac exam, the cardiologist
would either prescribe no treatment, prescribe drug therapy or refer the patient
to an interventional cardiologist (i.e., a cardiologist who performs invasive
procedures) for a PTCA or surgical planning for a CABG. Because the MS-325
enhanced MRI exam is expected to provide all of the anatomic information
currently provided by a coronary X-ray angiogram, the need for coronary X-ray
angiography as a diagnostic tool would be reduced. Only in the limited number of
cases where CABG is deemed necessary would the patient be subjected to invasive
coronary X-ray angiography for surgical planning.
The Company believes that the EPIX simplified diagnostic pathway could
result in significant cost savings to the United States healthcare system for
the diagnosis of CAD. These savings are predicated on providing noninvasive
coronary artery anatomic information earlier in the CAD work-up. In 1996, for
the over 3.44 million patients in the United States completing the traditional
diagnostic pathway, the total cost of the diagnostic work-up for CAD was more
than $5.4 billion. Under the EPIX approach to diagnosis of CAD, both stress
echocardiograms and nuclear stress perfusion studies could be eliminated. In
addition, because an MS-325 enhanced MRI exam is expected to provide physicians
with anatomic information early in the CAD work-up, the Company believes that
50% of the patients who undergo coronary X-ray angiography but do not ultimately
require invasive therapy would be able to avoid a coronary X-ray angiogram. The
estimated total cost for the 3.44 million patients completing the EPIX
diagnostic pathway for CAD would be $3.2 billion, yielding approximately $2.2
billion in savings to the United States healthcare system based on estimated
1996 procedure costs.
26
<PAGE>
Figure 3--Estimated Savings: Traditional CAD diagnostic
pathway versus EPIX diagnostic pathway
- --------------------------------------------------------------------------------
Traditional
60% Drug Therapy
$500 ---- or Rule Out
| CAD
Traditional |
Non-Invasive |
Imaging | 50% Drug
o Stress echo- | ---- Therapy or
cardiogram | | Rule Out CAD
| |
o Nuclear stress | $2,700 |27%
perfusion study | Coronary ---- PTCA
|40% X-ray |
---- Angiography |
|23%
3.44 Million ---- CABG
Patients
1.38 Million
Patients
Estimated Total U.S. Cost = $5.4 billion
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EPIX
80% Drug Therapy
---- or Rule Out CAD
$700 |
EPIX Solution |
MS-325/MRI | $2,700
| 9% Coronary
o Anatomy ---- X-Ray ---- CABG
| Angiography
o Perfusion |
| 0.31 Million
o Function | Patients
|11%
3.44 Million ---- PTCA
Patients
Estimated Total U.S. Cost = $3.2 billion
- --------------------------------------------------------------------------------
Note: Percentages are estimates derived by the Company from both data compiled
by the Company and data obtained from independent sources. Actual diagnostic
outcomes could vary depending on numerous factors, including geographic location
of the patient, type of medical setting in which the tests are administered and
physician practice patterns.
Post-Intervention Monitoring and "Relooks." The Company believes that,
after either a PTCA or a CABG, optimal patient management would include
follow-up exams to determine re-forming of blockages ("restenosis") as well as
proper functioning of grafts. However, while it is estimated that more than
400,000 PTCAs and 500,000 CABGs were performed in the United States in 1996,
only a small proportion of the patients undergoing these procedures received
follow-up coronary X-ray angiography ("relooks"). The Company estimates that
there are currently over 2.7 million patients who have undergone a CABG and over
2.1 million patients who have undergone a PTCA who are potential candidates for
a periodic relook. Due to the risk, discomfort and expense associated with
coronary X-ray angiography, follow-up imaging currently is limited, which can
lead to increased patient management costs and poorer outcomes due to
undiagnosed restenosis and other complications. The Company believes that the
availability of MS-325 may lead to an increase in follow-up exams using MRI.
Furthermore, the Company believes that MS-325 would enable noninvasive
cardiologists to visualize the coronary arteries of the over 300,000 patients
who are treated with thrombolytic therapy (streptokinase and TPA) each year.
MS-325: Peripheral Vascular Indications
Background. PVD affects arteries throughout the body and results in
significant morbidity and mortality. There are approximately 600,000 vascular
operations, 400,000 strokes and 100,000 amputations (primarily related to PVD)
each year in the United States. Similar to CAD, blockage of arteries outside the
heart can lead to ischemia (lack of oxygen) or infarction (death of tissue).
Complications from PVD include pain, limitations in mobility, amputation of the
extremities, hypertension, kidney failure in the case of renal arteries, or
stroke in the case of carotid or cerebral arteries. The need for imaging the
vascular system outside the heart extends to many areas of the body, including
the carotid arteries, vessels of the leg, the aorta and pulmonary arteries.
Traditional Approach to PVD Diagnosis. A patient with PVD may present with
a wide range of symptoms, such as leg pain, gangrene, hypertension, renal
failure, stroke or transient ischemic attack ("TIA"), a brief episode of
cerebral ischemia usually characterized by blurred vision, slurred speech,
numbness or paralysis. The appropriate initial diagnostic tests vary according
to the particular PVD indication. Traditional imaging modalities for diagnosing
PVD, such as ultrasound, nuclear medicine and CT, frequently do not provide
definitive diagnostic information. For example, ultrasound and renal nuclear
scans have poor image quality, leading to exams which
27
<PAGE>
are frequently indeterminate. CT can be used for certain peripheral vascular
indications, but can only image a limited area during each scan due to the large
amounts of potentially toxic X-ray contrast media required.
With the exception of imaging carotid arteries, MRI has not made a
significant impact on the diagnosis of PVD to date. Non-contrast MRI exams of
the vascular system, which measure blood flow and do not image anatomy, are
often ineffective when used in patients with disease because of their
limitations in imaging the blood flow associated with PVD, which may be either
minimal or turbulent. Even for the imaging of carotid arteries, where flow-based
MRI has had a substantial clinical impact, the lack of direct anatomic data
limits the ability of MRI to provide a quantitative measurement of stenosis
required for accurate diagnosis. MRI exams using existing non-specific contrast
agents are limited by the rapid diffusion of the agents out of the vascular
system.
As with the diagnostic work-up of CAD, a peripheral X-ray angiogram is
generally considered to be the definitive diagnostic exam for peripheral
vascular indications. In the work-up of PVD of the lower extremities, for
example, the patient typically presents with leg pain, gangrene or limited
mobility. The surgeon checks the patient's pulse in the ankles and performs two
noninvasive exams, impedance plethysmography and ankle brachial index
measurements, which can confirm that the patient has PVD and often localizes the
disease within the limb. An ultrasound exam is sometimes performed at this
stage. Peripheral X-ray angiography is then performed to visualize the extent of
the disease and to plan for surgery. Like coronary X-ray angiograms, peripheral
X-ray angiograms are performed in a surgical setting and involve the puncture of
the femoral artery in the groin area, the placement of a catheter in the artery
and the replacement of blood by X-ray contrast media. While peripheral X-ray
angiograms have slightly lower morbidity rates compared to coronary X-ray
angiograms, the risks are significant with complications, including limb loss
and renal failure, occurring at a rate of 1.7%. The cost of peripheral X-ray
angiography is estimated to range from less than $1,000 to almost $3,000 per
procedure. Despite the drawbacks of peripheral X-ray angiography, approximately
1.9 million of these procedures were performed in the United States in 1996.
Figure 4 below outlines the traditional diagnostic pathway for various forms of
PVD.
Figure 4--Peripheral Vascular Disease: Traditional diagnostic pathway
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Anatomic Area Current Diagnostic Exams
- ----------------------
Carotid Ultrasound
Artery ---- MRI ----| |
- ---------------------- | |
| |
- ---------------------- | |
Aorta ---- CT | ---- Surgery
- ---------------------- Ultrasound ----| |
| Peripheral |
- ---------------------- | X-ray |
Renal Renal Nuclear Scan | Angiography |
Arteries ---- Ultrasound ----| | Percutaneous
- ---------------------- | ---- Transluminal
| | Angioplasty
- ---------------------- Impedance | | (PTA)
Extremities ---- Plethysmograph (IPG) | |
- ---------------------- Ankle Brachial Index (ABI) ----| |
| Ultrasound
|
|
|
[GRAPHIC OF HUMAN BODY]
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
The EPIX Approach to PVD Diagnosis. The Company believes that the use of
MS-325 enhanced MRI will simplify and improve the PVD diagnostic pathway by
enabling radiologists to visualize peripheral arteries noninvasively early in
the work-up with resolution sufficient to provide a definitive diagnosis and
surgical plan. Although several available MRI contrast agents also provide high
resolution, they diffuse out of the cardiovascular system rapidly, making it
difficult to obtain detailed anatomic images beyond a limited area. MS-325 is
designed to remain in the blood vessels for over an hour providing sufficient
time for detailed images of large portions of the vascular system. By
significantly increasing the contrast of the vascular system and using the MRI
equipment currently in widespread use, the Company believes that MS-325 will
enable MRI to overcome the principal problem that has limited its clinical
effectiveness in evaluating PVD.
An MS-325 enhanced MRI exam is intended to provide sufficient anatomic
detail for a definitive diagnosis and the anatomic data necessary for surgical
planning. Unlike peripheral X-ray angiography which, due to its invasive and
painful nature, high cost and risk of complications, is often deferred in favor
of noninvasive, often inconclusive exams, an MS-325 enhanced MRI exam is
intended for use early in the PVD work-up. The Phase I clinical trial yielded
images and signal duration and intensity consistent with the Company's belief
that MS-325 enhanced MRI used earlier in the diagnostic pathway will provide
physicians with diagnostic information clinically equivalent to peripheral X-ray
angiography. Consequently, the Company believes that MS-325 enhanced MRI exams
would not only replace a large portion of the approximately 1.9 million
peripheral X-ray angiograms performed in the United States each year, but would
also be used in a significant number of instances where ultrasound, nuclear
medicine or other noninvasive modalities are currently employed but lack
definitive diagnostic capability as described above. Based upon estimated 1996
procedure costs, the Company believes that the use of MS-325 enhanced MRI to
diagnose PVD could yield savings to the United States healthcare system of
nearly $1.0 billion.
Thrombosis is another vascular disease outside the heart that is diagnosed
with a variety of radiological imaging techniques. Commonly referred to as
"blood clots," thrombosis can occur in the legs, arms, pelvis, lungs and neck,
and is the cause of over 400,000 deaths per year in the United States. Blood
clots can cause death from a pulmonary embolus (an obstruction in the pulmonary
vasculature), stroke or heart attack. Ultrasound and nuclear stress perfusion
studies are used early in the work-up in an attempt to defer peripheral X-ray
angiography because of cost, mortality and complications. These noninvasive
modalities are often indeterminate. Although limited in use because of the
mortality and complication rate, peripheral X-ray angiography, as in PVD,
continues to be considered by many to be the definitive diagnostic tool. The
Company believes that an MS-325 enhanced MRI exam will be able to noninvasively
provide diagnostic information which is clinically equivalent to peripheral
X-ray angiography for the diagnosis of blood clots in selected cases.
MS-325: Breast Cancer Indication
Background and Current Approach to Breast Cancer Diagnosis. Breast cancer
afflicts approximately 145,000 women in the United States each year and is the
second leading cause of death in women, resulting in over 40,000 deaths
annually. Mammography is currently the primary means of screening for breast
cancer and over 20 million mammograms are performed each year in the United
States. Between 10% and 15% of mammograms, however, are indeterminate and
further testing is required. Furthermore, approximately 20% to 25% of mammograms
provide sub-optimal information either because of dense breast tissue or
fibrocystic disease. The definitive diagnostic tests for breast cancer are
surgical excision or core biopsy, both of which are highly invasive procedures
and cost between $2,000 and $3,000 and between $500 and $1,000 per procedure,
respectively. Only 20% of the excisional and core biopsies indicate malignant
disease, suggesting that as many as 80% of these surgical procedures are
performed unnecessarily.
The EPIX Approach to Breast Cancer Diagnosis. The Company believes that
MS-325 enhanced MRI could provide a non-invasive means of detecting breast
cancer due primarily to the ability of MS-325 enhanced MRI to image
angiogenesis, which is an early indicator of malignant tumors and is
characterized by abnormal growth of blood vessels. In particular, the Company
believes that MS-325 enhanced MRI would assist physicians in diagnosing breast
cancer in the approximately 4.0 million women who have sub-optimal mammograms
each year. Furthermore, the Company believes MS-325 enhanced MRI will enable
physicians to discriminate between benign and malignant tumors in the
approximately 1.0 million women who currently undergo a biopsy.
29
<PAGE>
Business Strategy
The Company's objective is to become a worldwide leader in MRI contrast
agents by pursuing a strategy based on commercializing MS-325 and developing new
applications for its proprietary technology platform. The Company's key business
objectives are to:
Establish the safety and clinical utility of MS-325 for multiple vascular
imaging indications. The Company is conducting Phase II clinical trials to test
the safety and preliminary efficacy of MS-325 for the evaluation of PVD and the
safety and feasibility of MS-325 for the evalulation of CAD. In addition, the
Company intends to commence a Phase II clinical trial to test the safety and
feasibility of MS-325 for detecting breast cancer in the fourth quarter of 1997,
after which it intends to conduct additional clinical trials for other
indications. In each of the clinical trials currently underway, the Company is
comparing MS-325 enhanced MRI to X-ray angiography, the current reference
standard.
Achieve market acceptance of MS-325. The Company intends to collect
pharmacoeconomic and clinical data that demonstrates that MS-325 enhanced MRI is
superior to the traditional diagnostic pathway. Through its strategic partners'
extensive worldwide marketing and sales networks, the Company intends to present
this data to both physicians and third-party payors. The Company believes that
third-party payors will promote the use of MS-325 because of its potential for
substantial clinical benefits and cost savings. The Company also intends to
further the market acceptance of MS-325 enhanced MRI by coordinating its
development efforts with the development efforts of leaders in the MRI equipment
industry.
Develop new targeted MRI contrast agents. In addition to evaluating the use
of MS-325 in diagnosing thrombosis, the Company is developing
thrombosis-specific MRI contrast agents based on its proprietary technology
platform. The Company is also pursuing a discovery program for functional brain
imaging.
Maximize the value of strategic alliances. The Company currently has
strategic alliances with Mallinckrodt and Daiichi. The Company entered into
these alliances, and will seek to enter into future strategic alliances with
pharmaceutical, imaging agent and MRI equipment industry leaders, in order to
obtain access to resources and infrastructure to leverage the Company's
strengths.
Technology
Background
The products under development by the Company are based upon its
proprietary biophysics technology platform. The Company's product candidates are
small molecule chelates (soluble metal-organic complexes) containing a
magnetically active metal element which elicit a strong MRI signal and are
designed to be safely excreted through the kidneys over time. The Company has
developed significant expertise in the design, synthesis and characterization of
metal-containing complexes for in vivo use. While the contrast agents primarily
used in MRI today are non-targeted in that they diffuse indiscriminately
throughout the tissues of the body, the Company believes that its proprietary
technology platform will enable it to design contrast agents which are capable
of targeting specific tissues or organs by binding to particular proteins. The
Company's proprietary biophysics technology platform consists of two key
elements:
Receptor-Induced Magnetic Enhancement
Receptor-induced magnetic enhancement ("RIME") technology, which was
developed by Dr. Randall Lauffer, the Company's founder and Chief Scientific
Officer, while at Massachusetts General Hospital ("MGH"), allows targeting of a
contrast agent to particular tissue and fluid types in the body while
simultaneously multiplying the signal enhancing effect of the agent and is now
exclusively licensed by the Company under patents held by MGH. RIME technology
involves the design of metal complexes that bind to particular proteins and
receptor molecules in the body. This binding causes increased concentration and
retention of the contrast agent in the specific tissues and fluids that contain
targeted receptor molecules. The binding also causes a special magnetic effect
based on the complex biophysics of MRI contrast agents. One of the factors that
determines an MRI contrast agent's signal enhancing effect is its rotation, or
tumbling rate, in solution. When an agent binds to a large molecule through the
RIME process, the agent's tumbling rate decreases substantially, resulting in a
corresponding increase in the strength of the agent's magnetic signal, which is
detectable by MRI.
30
<PAGE>
Enzyme Sensing Technology
Developed by EPIX scientists, enzyme sensing technology is an extension of
the RIME technology that allows MRI to probe biological events on the molecular
level for the first time, thereby increasing the sensitivity of MRI. The Company
is developing small molecule contrast agents that become active in the presence
of certain enzymes which allows them to bind to their target receptor molecules
and express their full RIME signal enhancement. Because the presence of elevated
levels of particular enzymes occur only in certain biological situations, enzyme
sensing technology would allow MRI to scan for specific biological events
currently undetectable with MRI.
EPIX Products and Development Programs
MS-325
The Company's lead product candidate, MS-325, is a targeted vascular
contrast agent intended for use with MRI. MS-325 is a gadolinium-based small
molecule chelate which is engineered with the Company's proprietary RIME
technology and designed to bind to albumin, the most common blood protein. In an
image enhanced by MS-325 using standard MRI techniques, the blood, which is
infused with gadolinium, gives off a strong magnetic signal and appears bright
while the surrounding tissue gives off a very low magnetic signal and appears
dark. Because of its affinity for albumin, MS-325 remains at high concentrations
in the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time.
While MS-325 is based on the Company's proprietary technology platform, its
chemical composition is similar to currently available MRI contrast agents which
have a strong safety record and are known to cause few, if any, side effects.
Furthermore, due to the increased magnetic signal elicited by MS-325, the
Company expects it to be used at a similar or lower dose than currently
available MRI contrast agents. As a result of these factors, the Company
believes that MS-325 will have a safety profile comparable to currently
available MRI contrast agents.
The Company completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Company also
recently completed enrollment in a Phase I dose escalation study. The Company
anticipates that the final audit of the data from the Phase I dose escalation
study will be completed in the first quarter of 1998.
In June 1997, the Company commenced a Phase II clinical trial to test the
safety and preliminary efficacy of MS-325 for the evaluation of PVD in the
carotid, iliac and femoral arteries. This Phase II trial is being conducted at
multiple clinical sites and will involve a blinded administration of several
doses to approximately 75 patients. In the trial, MS-325 enhanced MRI will be
compared to conventional X-ray angiography, the current reference standard, to
determine the location and degree of stenotic lesions. The Company believes,
based on the initial images available from this trial, that MS-325 might aid in
the identification and evaluation of stenotic lesions, although any comparisons
to X-ray angiography will not be available until completion of the trial. The
Company anticipates that the final audit of the Phase II data for the PVD trial
will be completed in the first half of 1998.
In September 1997, the Company commenced a Phase II clinical trial to test
the safety and feasibility of MS-325 for the evaluation of CAD. This Phase II
clinical trial is being conducted at multiple sites and will involve the
administration of a single dose to approximately 105 patients. As with the Phase
II PVD trial, MS-325 enhanced MRI will be compared to X-ray angiography, the
current reference standard, to determine the location and degree of stenotic
lesions. The Company anticipates that the final audit of the Phase II data for
the CAD trial will be completed in 1998.
The Company intends to commence a Phase II clinical trial to test the
safety and feasibility of MS-325 for detecting breast cancer during the fourth
quarter of 1997. The Company believes that, based on the physical properties of
MS-325 and preclinical studies, MS-325 has potential application as part of a
noninvasive imaging procedure that would enable physicians to discriminate
between malignant and benign breast masses in patients with indeterminate
mammograms or palpable lumps. Another potential application for MS-325 in the
diagnosis of breast cancer is in defining the size of malignant lesions.
31
<PAGE>
Other Research and Development Programs
Thrombosis Imaging. The Company intends to develop novel contrast agents
for imaging thrombosis, commonly referred to as "blood clots." These clots can
occur in the legs, pelvis, or occasionally the arms where they are referred to
as deep vein thrombosis ("DVT") and can migrate to the lungs where they are
referred to as pulmonary emboli ("PE"). The Company is seeking to develop a
targeted contrast agent and protocol that would enable MRI to illuminate blood
clots against a dark background. The Company believes that its proprietary
technology platform could also enable MRI to differentiate old and new clot
formations and that such a product would change the diagnostic pathway for many
of the conditions associated with thrombotic disease, including PE and DVT. The
Company recently formed a strategic alliance with Dyax Corp. ("Dyax") to develop
novel contrast imaging agents for the diagnosis of severe blood clots in the
lungs and legs. See "--Strategic Alliances--Dyax Corp." The Company believes
that use of the new approach would lead to better medical outcomes due to
earlier definitive diagnosis. Early diagnosis is especially important for clots
in the pelvis and vena cava, the large vein through which blood returns to the
heart, because of their increased likelihood of migrating to the lungs where the
clots can be fatal. The Company believes that such contrast agents could
eliminate the need for selected ultrasound and nuclear medicine studies of
thrombosis while providing, noninvasively, diagnostic information which is
clinically equivalent to that provided by peripheral X-ray angiography.
Functional Brain Imaging. Functional brain imaging involves measuring small
changes in the brain to, in effect, "watch" the brain function in real time. In
the past, these cognitive function mapping studies were done using modalities
such as electro-encephalograms and nuclear medicine, both of which are generally
recognized to have low resolution and provide limited clinical information.
Recently however, investigators at a number of institutions, including MGH, have
developed a new brain imaging technique using MRI. Even in its present
experimental form, the technique is rapidly being adopted by many leading
neuroscience centers throughout the world. The technique detects small increases
in blood volume or flow that accompany the greater metabolic activity in
stimulated brain regions, thus allowing one to watch, in real time, different
regions of the brain "light up" as a person thinks, moves or views objects. At
present, studies are being conducted using a specialized MRI technique which
does not employ a contrast agent. However, these studies are currently difficult
to interpret since blood flow changes induced by cognitive activity are subtle
and associated signals are weak. Clinical applications of functional brain
imaging are potentially broad, including pre-surgical planning,
neurodegenerative disease diagnosis and psychiatry.
EPIX is currently conducting preclinical testing of prototype brain imaging
agents with researchers at MGH based on the Company's proprietary technology
platform. The Company is seeking to establish the feasibility of developing an
agent that would be able to magnify the signal from small volume changes in
blood flow to particular areas of the brain. The Company believes that such a
contrast agent could enable highly illuminated three-dimensional MRI scans of
brain function.
Strategic Alliances
The Company's strategy includes entering into alliances with leaders in the
pharmaceutical, diagnostic imaging and MRI equipment industries to facilitate
the development, manufacture, marketing, sale and distribution of its products.
To date, the Company has formed strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325, and with Dyax to
develop novel contrast agents for the diagnosis of severe blood clots in the
lungs and legs. See "Risk Factors--Dependence on Strategic Partners."
Mallinckrodt Inc.
Pursuant to a collaboration agreement between the Company and Mallinckrodt,
which was executed in August 1996, the Company granted Mallinckrodt an exclusive
license to develop and commercialize MS-325 worldwide, excluding Japan. The
agreement also provides for potential collaboration and cost sharing
arrangements in connection with future MRI vascular agent programs, whether
developed by the Company or Mallinckrodt or in-licensed by either party. The
operations of the collaboration are supervised by a joint steering committee
comprised of an equal number of representatives of both parties. The Company has
primary responsibility for conducting Phase I and Phase II clinical trials and
for manufacturing MS-325 for such trials. Mallinckrodt will assume primary
responsibility for development and manufacturing starting with Phase III
clinical trials. Mallinckrodt will also be responsible for the marketing and
distribution of MS-325 worldwide, excluding Japan. The agreement imposes certain
development due diligence obligations on both of the parties and certain
marketing due diligence obligations on Mallinckrodt.
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<PAGE>
The Company received a $6.0 million license fee upon execution of the
agreement with Mallinckrodt and received an additional $2.0 million milestone
payment in July 1997. Mallinckrodt and the Company will generally share equally
in the worldwide, excluding Japan, development and manufacturing scale-up and
product launch costs of MS-325 and all future MRI vascular agents which may be
covered by the agreement. The parties' current obligations with respect to
MS-325 development costs are limited to a specified amount. Under the
arrangement, the Company will share in future operating profits, if any.
The agreement provides that Mallinckrodt may not independently develop,
market or sell any MRI vascular agent worldwide except Japan other than those
that are part of the collaboration without the approval of the joint steering
committee.
Daiichi Radioisotope Laboratories, Ltd.
Pursuant to a development and license agreement, which was entered into in
March 1996, the Company granted Daiichi an exclusive license to develop and
commercialize MS-325 in Japan. Under this arrangement, Daiichi will assume
primary responsibility for clinical development, regulatory approval, marketing
and distribution of MS-325 in Japan. The Company retained the right and
obligation to manufacture MS-325 for development activities and commercial sale
under the agreement. However, Daiichi may, under certain circumstances, elect to
formulate MS-325 purchased from the Company into a final product. The agreement
imposes certain development due diligence obligations on both parties and
marketing due diligence obligations on Daiichi. The agreement may be terminated
by Daiichi upon 30 days prior written notice if Daiichi determines in its
reasonable opinion that MS- 325 lacks clinical efficacy, presents serious side
effects or otherwise exhibits unacceptable properties. In connection with this
strategic alliance, the Company received an up-front fee from Daiichi in the
amount of $3.0 million and earned a $900,000 milestone payment in June 1997.
Daiichi will be required to make future payments to EPIX up to an aggregate
amount of $2.4 million upon the achievement of certain MS-325 development
milestones. Daiichi also made a $5.0 million equity investment in the Company
and is required to make royalty payments to the Company on net sales of MS-325
in Japan.
Dyax Corp.
The Company and Dyax have formed a strategic alliance to develop novel
contrast imaging agents for the diagnosis of severe blood clots in the lungs and
legs. The companies will jointly identify and develop compounds that
specifically target PE and DVT for use as in vivo MRI and nuclear medicine
imaging agents for the diagnosis of these disorders.
Under the terms of the agreement, the two companies have agreed to use
Dyax's proprietary phage display technology to identify peptides that
specifically bind to PE and DVT. The Company will fund the phage display
screening program and provide expertise in MRI contrast technology for
development of MRI-specific imaging agents. Dyax will assume primary
responsibility for developing agents for use in nuclear medicine. Dyax will
receive royalties on sales of MRI products, and the Company will receive
royalties on sales of nuclear medicine products resulting from this
collaboration.
In 1992, the Company entered into an agency agreement with Sumitomo
Corporation ("Sumitomo") whereby the Company engaged Sumitomo as its exclusive
agent to assist the Company in entering into arrangements with third parties for
the development and commercialization of vascular, liver and tumor MRI agents in
Japan. Sumitomo assigned this agreement to Summit Pharmaceuticals International
Corporation ("Summit") in 1995. In accordance with the agreement, the Company
paid Summit a specified percentage on all amounts received by the Company from
Daiichi to date and will make payments to Summit on future milestone payments it
receives from Daiichi, if any. The Company will be obliged to make such payments
with respect to future arrangements with partners headquartered in Japan if
entered into prior to the first anniversary of the termination of the agency
agreement.
Competition
The healthcare industry is characterized by extensive research efforts and
rapid technological change, and there are many companies that are working to
develop products similar to the Company's. There are currently no FDA-approved
targeted vascular contrast agents for use with MRI. However, there are a number
of non-specific MRI agents approved for marketing in the United States and
certain foreign markets that are likely to compete with the Company's products
for certain applications. Magnevist-R- by Schering-AG, Dotarem-R- by
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<PAGE>
Guerbet, S.A., Omniscan-R- by Nycomed Imaging ASA, and ProHance-R- by Bracco
S.p.A. are all such products. The Company is aware of other agents under
development that have application in vascular imaging. There can be no assurance
that the Company's competitors will not succeed in the future in developing
products that are more effective than any that are being developed by the
Company. The Company believes that its ability to compete within the MRI
contrast agent market is dependent on a number of factors, including the success
and timeliness with which it completes FDA trials, the breadth of applications,
if any, for which it receives approval, and the effectiveness, cost, safety and
ease of use of the Company's products in comparison to the products of the
Company's competitors. The success of the Company will also be based on
physician acceptance of MRI as a primary imaging modality for certain
cardiovascular and other applications. See "Risk Factors--Uncertainty of Market
Acceptance of Technology and Products."
The Company has many competitors including pharmaceutical, biotechnology
and chemical companies, a number of which, including two of the Company's
strategic partners, are actively developing and marketing products that, if
commercialized, would compete with the Company's product candidates. Many of
these competitors have substantially greater capital and other resources than
the Company and may represent significant competition for the Company. Such
companies may succeed in developing technologies and products that are more
effective or less costly than any of those that may be developed by the Company,
and such companies may be more successful than the Company in developing,
manufacturing and marketing products. Furthermore, there are several
well-established medical imaging modalities that currently compete, and will
continue to compete, with MRI, including X-ray angiography, CT, nuclear medicine
and ultrasound. Other companies are actively developing the capabilities of the
competing modalities to enhance their effectiveness in cardiovascular system
imaging. There can be no assurance that the Company will be able to compete
successfully in the future or that developments by others will not render MS-325
or the Company's future product candidates obsolete or non-competitive or that
the Company's collaborators or customers will not choose to use competing
technologies or products.
Patents and Proprietary Rights
EPIX considers the protection of its proprietary technologies to be
material to its business prospects. The Company pursues a comprehensive patent
program in the United States and in other countries where it believes that
significant market opportunities exist.
The Company owns or has exclusively licensed patents and patent
applications on the critical aspects of its core technology as well as many
specific applications of this technology. EPIX has exclusively licensed two
patents in the United States broadly covering RIME technology, albumin binding
with metal chelates, and liver targeting metal chelates, has been issued a
patent in Europe similar to those United States patents, and has received notice
of allowance for similar patent applications in Japan and Europe. The Company's
European and Japanese allowed patent applications have been opposed by several
parties. These oppositions will likely take several years to finally resolve.
While the Company believes that it will prevail in these oppositions, there can
be no assurance as to the scope of the claims that will be maintained, if any,
or the ultimate benefit, if any, of those claims to the Company in protecting
its products. The Company has exclusively licensed five additional patents in
the United States. These patents have counterpart patent applications pending in
Japan and Europe. The Company has also received an additional United States
patent covering novel metal chelates and has a counterpart patent application
pending in Japan. Finally, the Company has patent applications pending in the
United States, Japan and Europe covering various aspects of its RIME technology.
The Company's patent protection for MS-325 currently extends to 2006 in the
United States, Japan and Europe. If the currently pending patent applications
issue, this protection will be extended until 17 years after the date of issue
in the United States, and until 2016 in Europe and Japan.
An issued patent grants to the owner the right to exclude others from
practicing inventions claimed therein. In the United States, a patent filed
before June 8, 1995 is enforceable for 17 years from the date of issuance or 20
years from the deemed date of filing the underlying patent applications,
whichever is longer. Patents based on applications filed from June 8, 1995
expire 20 years from the deemed date. The General Agreement on Tariffs and Trade
provides that patents whose applications were filed on or after June 8, 1995 are
effective for 20 years from filing. This new rule is generally regarded as
unfavorable to pharmaceutical companies, where the time period between patent
filing and commercialization of the patented product may be extended many years
because of the lengthy development cycle and regulatory process.
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The patent positions of pharmaceutical and biopharmaceutical firms involve
complex legal and factual questions. There can be no assurance that the
Company's issued patents, or any patents that may be issued in the future, will
effectively protect the Company's technology or provide a competitive advantage.
There can be no assurance that any of the Company's patents or patent
applications will not be challenged, invalidated or circumvented in the future.
The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and abroad.
If any third-party patents are upheld as valid and enforceable in any judicial
or administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain licenses
from the patent owners of each such patent, or to redesign its products or
processes, to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be available on terms acceptable to
the Company or that the Company would be successful in any attempt to redesign
its products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
There are pending or issued patents, held by parties not affiliated with
the Company, relating to technologies used by the Company in the development or
use of certain of the Company's product candidates. In particular, the Company
is aware of certain patents in the United States, Japan and elsewhere owned by
or licensed to one party that relate to MRI contrast agents and which may cover
certain of the Company's MRI product candidates, including MS-325. Mallinckrodt,
one of the Company's partners, has rights from this third party under those
patents which the Company and Mallinckrodt believe will permit Mallinckrodt to
manufacture, market and sell MS-325 and other products developed pursuant to the
collaboration agreement between the Company and Mallinckrodt if MS-325 and those
other products were to be held to fall within the claims of those third-party
patents. If the agreement with Mallinckrodt is terminated by either party and
were MS-325 and those other products to be held to fall within the claims of
those third-party patents, the Company would be required to enter into a
strategic alliance with another party having a license from this third party or
obtain a license from this third party directly or from others licensed by this
third party in order to manufacture, market and sell MS-325 and other
chelate-based MRI contrast agents. However, there can be no assurance that the
Company would be able to consummate a strategic alliance with a party having
this third-party license or obtain a license from such third party or other
third party on commercially reasonable terms, if at all. The patent rights of
this third party in Japan will expire in 2002, before such time as the Company
presently anticipates that Daiichi will have sales of MS-325 in Japan and,
therefore, the Company believes that the existence of such patents in Japan is
unlikely to have a material adverse effect on the Company. However, in the event
that Daiichi commercializes MS-325 in Japan before 2002, it may be required to
obtain an appropriate license or take other measures to avoid infringement of
the third-party patents, including delaying the commencement of product sales.
There can be no assurance that the Company's current or future activities will
not be challenged, that additional patents will not be issued containing claims
materially constraining the proposed activities of the Company, that the Company
will not be required to obtain licenses from third parties, or that the Company
will not become involved in costly, time-consuming litigation regarding patents
in the field of contrast agents, including actions brought to challenge or
invalidate the Company's own patent rights. At the same time, the Company is
aware of certain products under development by the third party referred to above
and others which it believes may infringe certain of the Company's exclusively
licensed patents. The Company intends to pursue license or cross-license
arrangements with or, if necessary and appropriate, infringement proceedings
against, these parties upon their seeking final regulatory approval for the
marketing and sale of any such products. See "Risk Factors--Uncertainty
Regarding Patents and Proprietary Rights."
Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can be
no assurance that these competitors, many of which have substantially greater
resources than the Company and have made substantial investments in competing
technologies, will not in the future seek to assert that the Company's products
or chemical processes infringe their existing patents and/or will not seek new
patents that claim to cover aspects of the Company's technology. Furthermore,
patent applications in the United States are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a specified period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related
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<PAGE>
patent applications. In addition, patents issued and patent applications filed
relating to biopharmaceuticals are numerous. Therefore, there can be no
assurance that the Company is aware of all competitive patents, either pending
or issued, that relate to products or processes used or proposed to be used by
the Company.
The Company and MGH have entered into a license agreement pursuant to which
MGH has granted the Company an exclusive worldwide license to the patents and
patent applications which relate to the Company's only product candidate,
MS-325. The MGH License imposed certain due diligence obligations with respect
to the development of products covered by the license, all of which have been
fulfilled to date. The MGH License requires the Company to pay royalties on net
sales of MS-325 by the Company. The Company must also pay MGH a percentage of
all royalties received by the Company from its sublicensees. Accordingly, the
Company will be required to make payments to MGH on profits generated under the
Mallinckrodt collaboration, if any, and on royalties received from Daiichi under
its license agreement, if any. Failure of the Company to comply with these
requirements could result in the conversion of the license from being exclusive
to non-exclusive in nature or termination of the license agreement itself. Any
such event would have a material adverse effect on the Company's business,
financial condition and results of operations.
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation may be necessary to enforce any patents issued to the Company and/or
determine the scope and validity of others' proprietary rights. The Company may
have to participate in interference proceedings declared by the United States
Patent and Trademark Office or by foreign agencies to determine the priority of
inventions. Any involvement in litigation surrounding these issues could require
extensive costs to the Company as well as be a significant distraction for
management. Such costs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how, and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants, and
advisors to execute confidentiality and assignment of inventions agreements in
connection with their employment, consulting or advisory relationships with the
Company. These agreements require disclosure and assignment to the Company of
ideas, developments, discoveries and inventions made by employees, consultants
and advisors. There can be no assurance, however, that these agreements will not
be breached or that the Company will have adequate remedies for any breach.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
The Company intends to vigorously protect and defend its intellectual
property. Costly and time-consuming litigation brought by the Company may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company, or to determine the enforceability, scope, and
validity of the proprietary rights of others. See "Risk Factors--Uncertainty
Regarding Patents and Proprietary Rights."
Manufacturing
The Company currently manufactures, as part of its ongoing development
efforts, small non-GMP batches of MS-325 in its laboratories located in
Cambridge, Massachusetts. MS-325 for use in preclinical and Phase I and II
clinical trials has been manufactured in accordance with GMP by outside
contractors. As part of its strategic alliance with the Company, Mallinckrodt
will serve as primary manufacturer for MS-325 thereafter worldwide except for in
Japan and, possibly, in Japan. If Mallinckrodt is unable to produce MS-325 in
adequate amounts and at a reasonable cost or to comply with any applicable
regulations, including GMP, it could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
should Mallinckrodt fail to fulfill its manufacturing responsibilities
satisfactorily, the Company could be forced to find an alternative manufacturer.
There can be no assurance that the Company would be able to find such an
alternative manufacturer. In the event the Company was forced to develop its own
FDA-approved full-scale manufacturing capability, it would require significant
expenditures of capital and management attention and resources and could require
the Company to obtain a license from a third party, and would result in a delay
in the approval or commercialization of MS-325. There can be no assurance that
the Company would be able to obtain such a license on commercially reasonable
terms, if at all. The Company currently procures the raw materials for the
various components of MS-325 from a broad variety of vendors and, wherever
possible,
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<PAGE>
maintains relationships with multiple vendors for each component. There are a
number of components of MS-325 for which the largest suppliers may have
significant control over the market price due to controlling market shares. If
any one of the Company's suppliers decided to increase prices significantly or
reduce quantities of any component of MS-325 available for sale to the Company,
it could have a material adverse effect on the Company's ability to
commercialize MS-325 and on the Company's business, financial condition and
results of operations. See "Business--Strategic Alliances," "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights," "--Limited
Manufacturing Capability" and "--Dependence on Suppliers."
Government Regulation
The manufacture and commercial distribution of the Company's product
candidates are subject to extensive governmental regulation in the United States
and other countries. Pharmaceuticals, including contrast imaging agents for use
with MRI, are regulated in the United States by the FDA under the Food, Drug and
Cosmetic Act ("FD&C Act") and require FDA approval prior to commercial
distribution. Pursuant to the FD&C Act, pharmaceutical manufacturers and
distributors must be registered with the FDA and are subject to ongoing FDA
regulation, including periodic FDA inspection of their facilities and review of
their operating procedures. Noncompliance with applicable requirements can
result in failure to receive approval, withdrawal of approval, total or partial
suspension of production, fines, injunctions, civil penalties, recalls or
seizure of products and criminal prosecution, each of which would have a
material adverse effect on the Company's business, financial conditions and
results of operations.
In order to undertake clinical trials and market pharmaceutical products
for diagnostic or therapeutic use in humans, the procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
followed. In the United States, a company seeking approval to market a new
pharmaceutical must obtain FDA approval of a new drug application ("NDA").
Before an NDA may be filed, however, a certain procedure is typically followed.
This includes: (i) performance of preclinical laboratory and animal studies;
(ii) submission to the FDA of an application for an investigational new drug
application ("IND"), which must become effective before human clinical trials
may commence; (iii) completion of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the pharmaceutical for its
intended application; (iv) submission to the FDA of an NDA; and (v) approval of
the NDA by the FDA prior to any commercial sale or shipment of the agent. FDA
reform bills have recently been passed by both the United States House of
Representatives and Senate and differences between the bills are presently being
discussed in conference committee. The effect, if any, of these bills, if they
were to become law, on the Company, MS-325 and the Company's other product
candidates is not known at this time.
Preclinical studies include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical studies are submitted to the FDA
as part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. Clinical trials are conducted in
accordance with protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol together with information about the clinical
investigators who will perform the studies and the institutions at which the
trials will be performed are submitted to the FDA as part of the IND. An
independent institutional review board ("IRB") at each institution at which the
trial will be conducted will also be asked by the principal investigator at that
institution to approve, according to FDA regulations governing IRBs, the trials
that will be performed at that institution. The IRB will consider, among other
things, ethical factors, the protection of human subjects and the possible
liability of the institution.
Clinical trials under the IND are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
pharmaceutical into humans, the pharmaceutical is tested for safety, dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology in
healthy adult subjects. Imaging agents may also be subject to a Phase IB trial
under which an agent's imaging characteristics in humans are first evaluated.
Phase II involves a detailed evaluation of the safety and efficacy of the agent
in a range of doses in patients with the disease or condition being studied.
Phase III clinical trials typically consist of evaluation of safety and efficacy
in a larger patient population and at more institutions.
The Company completed a Phase I clinical trial for MS-325 in February 1997
and no clinically significant adverse events were reported. The Company also
recently completed enrollment in a Phase I dose escalation
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study. The Company anticipates that the final audit of the data from the Phase I
dose escalation trial will be completed in the first quarter of 1998. In June
1997, the Company commenced a Phase II clinical trial to test the safety and
preliminary efficacy of MS-325 for the evaluation of PVD and, in September 1997,
the Company commenced a Phase II clinical trial to test the safety and
feasibility of MS-325 for the evaluation of CAD. The Company anticipates
initiating a Phase II clinical trial to test the safety and feasibility of
MS-325 for detecting breast cancer before the end of 1997. The process of
completing clinical testing and obtaining FDA approval for a new product is
likely to take a number of years. When the study for a particular indication as
described in the IND is complete, and assuming that the results support the
safety and efficacy of the product for that indication, the Company intends to
submit an NDA to the FDA. The NDA approval process can be expensive, uncertain
and lengthy. Although the FDA is supposed to complete its review of an NDA
within 180 days of the date that it is filed, the review time is often
significantly extended by the FDA which may require more information or
clarification of information already provided in the NDA. During the review
period, an FDA advisory committee likely will be asked to review and evaluate
the application and provide recommendations to the FDA about approval of the
pharmaceutical. In addition, the FDA will inspect the facility at which the
pharmaceutical is manufactured to ensure compliance with GMP and other
applicable regulations. Failure of the third-party manufacturers to comply or
come into compliance with GMP requirements could significantly delay FDA
approval of the NDA. The FDA may grant an unconditional approval of an agent for
a particular indication or may grant approval conditioned on further
post-marketing testing and/or surveillance programs to monitor the agent's
efficacy and side effects. Results of these post-marketing programs may prevent
or limit the further marketing of the agent. In addition, additional studies and
a supplement to the initially approved NDA will be required to gain approval for
the use of an approved product in indications other than those for which the NDA
was approved initially.
While the Company, because of its agreement with Mallinckrodt, does not
currently intend to manufacture any of its products itself once they are
approved, it may choose to do so in the future. Should the Company decide to
manufacture its products, the Company would be required to obtain a license from
a third party having rights to patents which may cover certain of the Company's
contrast agents. There can be no assurance that the Company would be able to
obtain such a license from the third party. Furthermore, the Company's
manufacturing facilities would be subject to inspection and approval by the FDA
before the Company could begin commercial distribution of product from its own
manufacturing facilities. See "Business--Patents and Proprietary Rights" and
"Risk Factors--Uncertainty Regarding Patents and Proprietary Rights."
After an NDA is approved, the Company would continue to be subject to
pervasive and continuing regulation by the FDA, including record keeping
requirements, reporting of adverse experience from the use of the agent and
other requirements imposed by the FDA. FDA regulations also require FDA approval
of an NDA supplement for certain changes if they affect the safety and efficacy
of the pharmaceutical, including, but not limited to, new indications for use,
labeling changes, the use of a different facility to manufacture, process or
package the product, changes in manufacturing methods or quality control systems
and changes in specifications for the product. Failure by the Company to receive
approval of an NDA supplement could have a material adverse effect on the
Company's business, financial condition and results of operations.
The advertising of most FDA-regulated products is subject to FDA and
Federal Trade Commission jurisdiction, but the FDA has sole jurisdiction over
advertisements for prescription drugs. The Company is and may be subject to
regulation under state and Federal law regarding occupational safety, laboratory
practices, handling of chemicals, environmental protection and hazardous
substance control. The Company also will be subject to other present and
possible future local, state, federal and foreign regulation. Failure to comply
with regulatory requirements could have a material adverse effect on the
Company's business, financial conditions and results of operations.
Approval and marketing of pharmaceutical products outside of the United
States are subject to regulatory requirements that vary widely from country to
country. In the European Union ("EU"), the general trend has been towards
coordination of common standards for clinical testing of new agents, leading to
changes in various requirements imposed by each EU country. The level of
regulation in the EU and other foreign jurisdictions varies widely. The time
required to obtain regulatory approval from comparable regulatory agencies in
each foreign country may be longer or shorter than that required for FDA
approval. In addition, in certain foreign markets the Company may be subject to
governmentally mandated prices for its products.
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Regulations regarding the approval, manufacture and sale of the Company's
product candidates are subject to change. The Company cannot predict what
impact, if any, such changes might have on its business, financial condition or
results of operations.
The Company's research, development and manufacturing processes require the
use of hazardous substances and testing on certain laboratory animals. As a
result, the Company is also subject to federal, state, and local laws,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials and
waste as well as the use of and care of laboratory animals. These laws and
regulations are all subject to change. The Company cannot predict what impact,
if any, such changes might have on its business, financial condition or results
of operations.
Reimbursement
The Company expects that sales volumes and prices of its products will be
dependent in large measure on the availability of reimbursement from third-party
payors and that individuals seldom would be willing or able to pay directly for
all the costs associated with procedures which in the future may incorporate the
use of the Company's products. The Company expects that its products will be
purchased by hospitals, clinics, doctors and other users that bill various
third-party payors, such as Medicare, Medicaid and other government insurance
programs, and private payors including indemnity insurers, Blue Cross Blue
Shield plans and managed care organizations ("MCOs") such as health maintenance
organizations. Most of these third-party payors provide coverage for MRI for
some indications when it is medically necessary, but the amount that a
third-party payor will pay for MRI may not include a separate payment for a
contrast imaging agent that is used with MRI. Reimbursement rates vary depending
on the procedure performed, the third-party payor, the type of insurance plan
and other factors. For example, Medicare pays hospitals a prospectively
determined amount for an in-patient stay based on a Medicare beneficiary's
discharge diagnosis related group ("DRG"). This payment includes payment for any
procedure, including MRI, that is performed while a beneficiary is in the
hospital. No additional payment is made for contrast agents used during the
procedure. Other third-party payors may pay a hospital an additional amount for
an MRI procedure performed on an in-patient according to another methodology
such as a fee schedule or a percentage of charge. Such payment may or may not
include a payment for a contrast imaging agent. In the outpatient setting,
Medicare and other third-party payors may pay for all, some portion of, or none
of the cost of contrast agents used with MRI.
Third-party payors carefully review and increasingly challenge the prices
charged for procedures and medical products. In the past few years, the amounts
paid for radiology procedures in particular have come under careful scrutiny and
have been subject to decreasing reimbursement rates. In addition, an increasing
percentage of insured individuals are receiving their medical care through MCOs
which monitor and often require preapproval of the services that a member will
receive. Many MCOs are paying their providers on a capitated basis which puts
the providers at financial risk for the services provided to their patients by
paying them a predetermined payment per member per month. The percentage of
individuals, including Medicare beneficiaries, covered by MCOs is expected to
grow in the United States over the next decade. In addition, a recently enacted
federal law overhauling Medicare may have the effect of increasing the number
and type of managed care plans available to Medicare beneficiaries. The Company
believes that the managed care approach to healthcare and the growth in
capitated arrangements and other arrangements under which the providers are at
financial risk for the services that are provided to their patients will
facilitate the market acceptance of its products, as it believes that the use of
its products will significantly lower the overall costs and improve the
effectiveness of managing patient populations. There can be no assurance,
however, that the Company's products will be available, will lower costs of care
for any patients or that providers will choose to utilize them even if they do,
or if reimbursement will be available.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have a material adverse effect on market
acceptance of the Company's product candidates in the international markets in
which such approvals are sought.
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The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets. The Company believes that the overall escalating cost of
medical products and services has led to, and will continue to lead to,
increased pressures on the health care industry, both foreign and domestic, to
reduce the cost of products and services, including products offered by the
Company. There can be no assurance, in either the United States or foreign
markets, that third party reimbursement and coverage will be available or
adequate, that current reimbursement amounts will not be decreased in the future
or that future legislation, regulation, or reimbursement policies of third-party
payors will not otherwise adversely affect the demand for the Company's product
candidates or its ability to sell its product candidates on a profitable basis,
particularly if MRI exams enhanced with the Company's contrast agents are more
expensive than competing vascular imaging techniques that are equally effective.
The unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Product Liability Insurance
The clinical and commercial development of pharmaceuticals, including
contrast agents such as those being developed by the Company, may entail
exposure to product liability claims. While the Company has never been subject
to any liability claims stemming from the manufacture of or preclinical or
clinical trials of its products, there can be no assurance that it will not face
such claims in the future. While the Company currently has product liability
insurance coverage for the clinical research use of its product candidates,
there can be no assurance that such coverage limits will be adequate nor that a
successful product liability lawsuit would not have a material adverse effect on
the Company. The Company does not have product liability insurance coverage for
the commercial sale of its products but intends to obtain such coverage if and
when its products are commercialized. If and when MS-325 or other EPIX product
candidates are approved for marketing by the FDA, or similar foreign regulatory
bodies, there can be no assurance that sufficient product liability insurance
will be available on terms acceptable to the Company or at all.
Facilities
The Company leases a total of 17,050 square feet of space at 71 Rogers
Street and adjacent locations, all in Cambridge, Massachusetts. The current
lease runs until December 31, 1997. The Company has entered into a new lease for
the same properties commencing January 1, 1998, terminating December 31, 2002.
The Company believes that its current facilities and currently available space
are adequate to meet its requirements for the foreseeable future.
Employees
As of October 21, 1997 the Company employed 42 persons on a full-time
basis, of which 31 were involved in research and development and 11 in
administration and general management. Eighteen of the Company's employees hold
Ph.D. or M.D. degrees. The Company believes that its relations are good with
all of its employees. None of the Company's employees is a party to a
collective bargaining agreement. See "Management--Executive Officers and
Directors."
Legal Proceedings
The Company is not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of September 30, 1997:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------ ----- --------------------------------------------------
<S> <C> <C>
Michael D. Webb ........................ 39 President, Chief Executive Officer, Secretary and
Director
James E. Smith, Ph.D. .................. 54 Executive Vice President, Research and
Development
Randall B. Lauffer, Ph.D. ............... 40 Chief Scientific Officer and Director
E. Kent Yucel, M.D. ..................... 41 Senior Vice President and Chief Medical Officer
Susan M. Flint ........................... 46 Vice President, Regulatory Affairs
Stephen C. Knight, M.D. ............... 37 Vice President, Strategic Planning and Corporate
Development
Jeffrey R. Lentz ........................ 43 Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Assistant
Secretary
Christopher F. O. Gabrieli (1)(2) ...... 37 Chairman of the Board
Luke B. Evnin, Ph.D. (1)(2) ............ 34 Director
Stanley T. Crooke, M.D., Ph.D. (1) ...... 52 Director and Chairman of the Scientific Advisory
Board
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Michael D. Webb joined EPIX in December 1994 from Ciba-Corning Diagnostics,
Inc., where he was most recently Senior Vice President, Worldwide Marketing and
Strategic Planning. During his tenure at Ciba from April 1989 to December 1994,
Mr. Webb's achievements included the development and commercialization of the
ACS:180-R- immunodiagnostics system. From 1984 to 1989, Mr. Webb was a
senior consultant at Booz, Allen & Hamilton, Inc., specializing in healthcare
and life sciences. Mr. Webb holds an MM degree in marketing and finance from the
J.L. Kellogg Graduate School of Management at Northwestern University.
Dr. James E. Smith has over 20 years experience in the in vivo diagnostics
industry. Prior to joining EPIX in February 1996, Dr. Smith worked for 16 years
at Du Pont Merck Pharmaceutical Company, where his experience included research
and development, regulatory, QA/QC and manufacturing for the radio-
pharmaceutical division, most recently as Senior Director of
Radiopharmaceutical Research and Development. Dr. Smith has published and
lectured on radiopharmaceutical research and development. Dr. Smith received
his Ph.D. degree in inorganic chemistry from the University of Washington.
Dr. Randall B. Lauffer, Chief Scientific Officer, founded the Company in
November 1988 and served as Chief Executive Officer until December 1994 and as
Chairman until October 1996. From November 1983 to March 1992, Dr. Lauffer was a
member of the faculty of Harvard Medical School, serving most recently as
Assistant Professor of Radiology from 1987 to 1992. During this time he was also
Director of the NMR Contrast Media Laboratory at MGH as well as an NIH
Postdoctoral Fellow and an NIH New Investigator. Dr. Lauffer is the primary
inventor of the Company's core technology and is the originator of several types
of MRI technology, including hepatobiliary (liver-enhancing) agents, vascular
agents, tissue blood flow agents, and strategies to increase the magnetic
efficiency of MRI agents in the body. He has written over 50 scientific
publications and two books, and has been named on several U.S. patents. Dr.
Lauffer holds a Ph.D. degree in inorganic chemistry from Cornell University.
41
<PAGE>
Dr. E. Kent Yucel joined the Company in June 1996. From March 1993 to July
1996, he was Chief of Vascular and Interventional Radiology and Director of MRI
at Boston Medical Center and Professor of Radiology at Boston University
Medical School. From July 1988 to February 1993 he served as Assistant
Professor of Radiology at MGH and Harvard Medical School. Dr. Yucel was
Principal Investigator for a Phase III vascular imaging trial of
Prohance-R-, the nonspecific MRI agent now sold by Bracco. Dr. Yucel is the
editor and co-author of Magnetic Resonance Angiography (McGraw-Hill, 1995). Dr.
Yucel received his M.D. degree from Harvard Medical School.
Ms. Susan M. Flint joined the Company in April 1995. She is a Regulatory
Affairs specialist with over twenty years of experience in regulatory
submissions and clinical trials. She was a regulatory affairs/clinical research
consultant to various companies, including EPIX, from April 1993 to April 1995.
Ms. Flint previously held the position of Director of Clinical Trials at
Advanced Magnetics, Inc. from February 1989 to March 1993 and Director of
Regulatory Affairs at Du Pont Pharmaceutical Company from June 1975 to January
1989. She has filed a number of applications for INDs and ten NDAs, along with
several medical device applications. Ms. Flint is certified by the Regulatory
Affairs Professional Society. She received her M.S. degree in pharmacology from
Northeastern University.
Dr. Stephen C. Knight joined the Company in July 1996. From April 1991 to
June 1996, Dr. Knight was a senior consultant with Arthur D. Little
specializing in biotechnology, pharmaceuticals and valuation. Dr. Knight was
also a consultant at APM, Inc., a consulting company. Prior to 1990, Dr. Knight
performed research at AT&T Bell Laboratories, the National Institute of
Neurological and Communicative Diseases and Stroke, and Yale University. He
serves on the board of directors of Pharmos, Inc. Dr. Knight holds an M.D. from
the Yale University School of Medicine and an MPPM degree from the Yale School
of Organization and Management.
Jeffrey R. Lentz joined the Company in May 1996 as Vice President, Finance
and Administration. He is also the Company's Chief Financial Officer and
Treasurer. Prior to joining the Company, Mr. Lentz worked from August 1994 to
May 1996 in private practice as a consultant and in venture capital. Mr. Lentz
served as Director of Finance with Nova Biomedical Corporation from March 1993
to August 1994 and as a senior manager with Ernst & Young LLP from November
1986 to November 1992. Mr. Lentz is a certified public accountant and holds an
M.S. degree from Northeastern University.
Christopher F. O. Gabrieli has served as a director of the Company since
February 1994. He is currently a manager of Deer II & Co. LLC, Deer III & Co.
LLC and Deer IV & Co. LLC, the general partners of Bessemer Venture Partners II
L.P., Bessemer Venture Partners III L.P. and Bessemer Venture Partners IV L.P.,
respectively, related venture capital partnerships, where he has worked since
1986. He is responsible for Bessemer Venture Partners' venture capital
investment activities in healthcare and life sciences. He currently serves on
the boards of directors of Isis Pharmaceuticals, Inc., where he was a
co-founder, and several privately held healthcare companies. Mr. Gabrieli was a
founder, President and Director of GMIS, Inc., which was acquired in December
1996 by HBO & Co. He is a graduate of Harvard College.
Dr. Luke B. Evnin has served as a director of the Company since February
1994. He is a General Partner at Accel Partners, where he has been involved in
the firm's biomedical investing activities since September 1990. He currently
serves on the boards of directors of several private companies including Iotek,
Sonix Technologies, and Signal Pharmaceuticals. Dr. Evnin received his Ph.D.
degree from the Department of Biochemistry at the University of California at
San Francisco.
Dr. Stanley T. Crooke has served as a director of the Company since
January 1996. Since 1989, he has been Chairman and Chief Executive Officer of
Isis Pharmaceuticals, Inc. in Carlsbad, California. Dr. Crooke serves on the
boards of directors of GeneMedicine, SIBIA and the Biotechnology Industry
Organization. Dr. Crooke holds an M.D. degree and a Ph.D. degree in
pharmacology, both from Baylor College of Medicine, where Dr. Crooke has served
as an adjunct professor of pharmacology.
The Company's Restated Certificate provides for a classified board of
directors consisting of three classes, with each class being as nearly equal in
number as possible. The term of one class expires and their successors are
elected for a term of three years at each annual meeting of the Company's
stockholders. The Company has designated two class I directors (Drs. Evnin and
Lauffer), one class II director (Dr. Crooke) and two class III directors
(Messrs. Gabrieli and Webb). These class I, class II and class III directors
will serve until the annual meeting of stockholders to be held in 2000, 1998 and
1999, respectively, and until their respective successors
42
<PAGE>
are duly elected and qualified, or until their earlier resignation or removal.
The Restated Certificate provides that directors may be removed only for cause
by a majority of stockholders. See "Description of Capital Stock--Anti-Takeover
Measures." There are no family relationships among any of the directors or
executive officers.
Board Committees
The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Dr. Evnin and Mr. Gabrieli. The
primary function of the Audit Committee is to assist the Board of Directors in
the discharge of its duties and responsibilities by providing the Board with an
independent review of the financial health of the Company and of the reliability
of the Company's financial controls and financial reporting systems. The Audit
Committee reviews the general scope of the Company's annual audit, the fee
charged by the Company's independent accountants and other matters relating to
internal control systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee's duties include the
administration of the Company's Amended and Restated 1992 Equity Incentive Plan
(the "Equity Plan") and the 1996 Employee Stock Purchase Plan. The Compensation
Committee is currently composed of Drs. Crooke and Evnin and Mr. Gabrieli.
Scientific Advisory Board
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also evaluate
the Company's research program, recommend personnel to the Company and advise
the Company on technology matters. While the Scientific Advisory Board does not
meet collectively, its members are available individually to advise the Company
on specific scientific and technical issues. Scientific Advisory Board members
are compensated on a time and expenses basis and some members have received
nonstatutory stock options under the Equity Plan. The Company has entered into
consulting agreements with a number of the Scientific Advisory Board members.
No member of the Scientific Advisory Board is employed by the Company, and
members may have other commitments to or consulting or advisory contracts with
their employers or other entities that may conflict or compete with their
obligations to the Company. Accordingly, such persons are expected to devote
only a small portion of their time to the Company. The current members of the
Company's Scientific Advisory Board are:
Stanley T. Crooke, M.D., Ph.D., Chairman of the Scientific Advisory Board.
See "Management--Executive Officers and Directors."
Lawrence H. Cohn, M.D., is Professor of Surgery at Harvard Medical School
and Chief of Cardiac Surgery at the Brigham and Women's Hospital in Boston. He
is a member of the Council on Cardiovascular Surgery at the American Heart
Association and serves on the editorial boards of the Journal of the American
College of Cardiology, American Heart Journal, the Journal of Cardiovascular
Surgery, and the Harvard Heart Letter. Dr. Cohn is an author of over 300
scientific papers in the area of cardiovascular surgery.
Richard S. J. Frackowiak, M.D., is Professor and Head of the Wellcome
Department of Cognitive Neurology and Director of the Leopold Muller Functional
Imaging Laboratory at the Institute of Neurology in London. He is also
Consultant Neurologist at the National Hospital for Neurology and Neurosurgery.
Dr. Frackowiak is Editor-in-Chief of NeuroImage: a Journal of Brain Function
and Deputy Chief Editor of the Journal of Cerebral Blood Flow and Metabolism.
He has published over 200 scientific papers in the area of function brain
imaging.
Jean-Marie Lehn, Ph.D., is Professor of Chemistry at the Universite Louis
Pasteur, Strasbourg, France. He has authored over 400 scientific papers in the
areas of organic, bio-organic and inorganic chemistry. Dr. Lehn shared the 1987
Nobel Prize in Chemistry for the design of the first cryptand, a cage-like
complexing agent for metal ions.
Bruce R. Rosen, M.D., Ph.D., is an Associate Professor of Radiology at
Harvard Medical School and Co-Director of the Massachusetts General Hospital
NMR Center. He is also Director of the Radiological Sciences Joint Program at
the Harvard/Massachusetts Institute of Technology Division of Health Sciences
and Technology.
43
<PAGE>
Dr. Rosen serves on the Board of Trustees of the International Society of
Magnetic Resonance in Medicine and is on the editorial boards of Magnetic
Resonance Imaging and the Journal of Computer Assisted Tomography. He is also
Associate Editor of Human Brain Mapping. Dr. Rosen has published over 100
scientific papers in MRI, including the first studies of real-time cognitive
activity in the human brain.
Burton E. Sobel, M.D., is the E. L. Amidon Professor and Chairman of the
Department of Medicine and Professor of Biochemistry at the University of
Vermont. He is also Physician-in-Chief at Fletcher Allen Health Care in
Burlington, VT. Dr. Sobel is a Fellow of the American College of Cardiology and
the Royal Society of Medicine and has various editorial positions with
Circulation, American Journal of Cardiology, Coronary Artery Disease, and
Fibrinolysis. He has published extensively in the area of coronary artery
disease.
Christopher T. Walsh, Ph.D., is the Hamilton Kuhn Professor and Chairman of
the Department of Biological Chemistry and Molecular Pharmacology at Harvard
Medical School. He is a member of the National Academy of Sciences, the
Institute of Medicine, and the National Institutes of Health General Medical
Sciences Council. Dr. Walsh serves on the Scientific Advisory Boards of KOSAN
Biosciences and IDUN Pharmaceuticals, and he is a director of LeukoSite. He has
over 400 publications in the areas of enzymatic reactions and the mechanisms of
drug action.
Director Compensation
Directors currently receive no compensation for their service on the
Company's Board of Directors except pursuant to the 1996 Director Stock Option
Plan (the "Director Plan") described below.
1996 Director Stock Option Plan. In December 1996, the Board of Directors
and stockholders of the Company adopted the Director Plan. All of the directors
who are not employees of the Company (the "Eligible Directors") are currently
eligible to participate in the Director Plan. There are 66,666 shares of Common
Stock reserved for issuance under the Director Plan, 6,666 of which are subject
to options outstanding as of September 30, 1997. Upon the election or reelection
of an Eligible Director, such director is automatically granted an option to
purchase 6,666 shares of Common Stock (the "Option"). Each Option becomes
exercisable with respect to 1,333 shares on each anniversary date of grant for a
period of five years, provided that the optionee is still a director of the
Company at the opening of business on such date. The Options have a term of ten
years. The exercise price for the Options is equal to the last sale price for
the Common Stock on the business day immediately preceding the date of grant, as
reported on the Nasdaq National Market. The exercise price may be paid in cash
or shares of Common Stock, or a combination of both.
44
<PAGE>
Executive Compensation
The following table sets forth certain compensation information for the
Chief Executive Officer of the Company and the four other highest paid executive
officers of the Company whose salary and bonus for the year ended December 31,
1996 exceeded $100,000 (together, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------- -------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options (#) Compensation
- ----------------------------------- ------ ----------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Webb, ............... 1996 $175,000 $65,000 83,333 --
President and Chief Executive 1995 $175,000 -- -- $30,000(2)
Officer
James E. Smith, Ph.D., ......... 1996 $192,615(4) $63,000 139,999 --
Executive Vice President, 1995 $ 82,238(5) -- -- --
Research and Development (3)
Randall B. Lauffer, Ph.D., ...... 1996 $160,000 -- -- $1,100(6)
Chief Scientific Officer 1995 $158,367 -- -- $1,100(6)
E. Kent Yucel, M.D. ............ 1996 $132,637(8) $ 8,750 133,333 --
Senior Vice President and Chief 1995 $ 1,500(9) -- 10,666 --
Medical Officer (7)
Susan M. Flint, (10) ............ 1996 $107,500 $44,800 16,666 --
Vice President, Regulatory Affairs 1995 $ 98,282(11) -- 46,666 --
</TABLE>
- ---------------------
(1) Bonuses were earned in the year indicated and are generally paid in the
subsequent year.
(2) Consists of payment made upon commencement of employment with the Company.
(3) Dr. Smith became an employee of the Company in February 1996. Prior
thereto, he was engaged as a consultant to the Company.
(4) Includes compensation in the amount of $37,200 paid by the Company for
consulting services.
(5) Consists of compensation paid by the Company for consulting services.
(6) Consists of life insurance premiums paid by the Company on behalf of Dr.
Lauffer on a policy for the benefit of Dr. Lauffer.
(7) Dr. Yucel became an employee of the Company in June 1996. Prior thereto, he
was engaged as a consultant to the Company.
(8) Includes compensation in the amount of $59,720 paid by the Company for
consulting services.
(9) Consists of compensation paid by the Company for consulting services.
(10) Ms. Flint became an employee of the Company in April 1995. Prior thereto,
she was engaged as a consultant to the Company.
(11) Includes compensation in the amount of $26,282 paid by the Company for
consulting services.
45
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 by the Company to the
Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grant
-------------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Terms (1)
Options Employees in Base Price Expiration ---------------------
Name Granted (#) Fiscal Year ($/share) Date 5% 10%
- ----------------------------- ---------------- -------------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Webb ............ 83,333(2) 11.1% $5.250 8/7/06 $275,140 $697,260
James E. Smith, Ph.D. ...... 100,000(3) 13.3% $0.825 2/1/06 $ 51,884 $131,484
33,333(4) 4.4% $5.250 8/7/06 $110,055 $278,902
Randall B. Lauffer, Ph.D. 0 -- -- -- -- --
E. Kent Yucel, M.D. ...... 133,333(5) 17.7% $4.500 6/17/06 $377,336 $956,243
Susan M. Flint ............ 16,666(6) 2.2% $5.250 8/7/06 $ 55,026 $139,447
</TABLE>
- ---------------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the underlying Common Stock. No gain to the optionees
is possible without an increase in price of the underlying Common Stock,
which will benefit all stockholders proportionately.
(2) The option becomes exercisable as to 16.8% of the shares covered by such
option:
[bullet] upon the earlier of (i) commencement of Phase III clinical trials
for MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) August 7, 2005;
[bullet] upon the earlier of (i) the first anniversary of the date of
commencement of Phase III clinical trials for MS-325 or a clinically
equivalent vascular agent as determined by the Company's Board of Directors
or (ii) August 7, 2005;
[bullet] upon the earlier of (i) the second anniversary of the date of
commencement of Phase III clinical trials for MS-325 or a clinically
equivalent vascular agent as determined by the Company's Board of Directors
or (ii) August 7, 2005;
[bullet] upon the earlier of (i) the first anniversary of the date of receipt
of NDA approval for MS-325 or a clinically equivalent vascular agent as
determined by the Company's Board of Directors or (ii) August 7, 2005; and
[bullet] upon the earlier of (i) the second anniversary of the date of
receipt of NDA approval for MS-325 or a clinically equivalent vascular agent
as determined by the Company's Board of Directors or (ii) August 7, 2005.
The option also becomes exercisable as to 16% of the shares covered by such
option upon the earlier of (i) the date of receipt of NDA approval for
MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) August 7, 2005.
(3) The option became exercisable as to 16% of the shares covered by such option
on each of February 23, 1996 and February 23, 1997. The option also became
exercisable as to 20% of the shares on August 21, 1996 (30 days after the
receipt by the FDA of the Company's MS-325 IND filing for MS-325). The
option becomes exercisable as to 16% of the shares covered by such option on
February 23 of each of 1998, 1999 and 2000.
(4) The option becomes exercisable as to 50% of the shares covered by such
option upon the earlier of (i) commencement of Phase III clinical trials for
MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) August 7, 2004. The option also becomes
exercisable as to 50% of the shares covered upon the earlier of (i) receipt
of NDA approval for MS-325 or a clinically equivalent vascular agent as
determined by the Company's Board of Directors or (ii) August 7, 2004.
46
<PAGE>
(5) The option became exercisable with respect to 16,667 shares on July 17,
1996. The option also became exercisable with respect to 16,667 shares on
each of September 13, 1996 and September 13, 1997 and becomes exercisable
with respect to 16,667 shares on September 13 of each of 1998, 1999 and
2000. The option also becomes exercisable with respect to 16,666 shares:
[bullet] upon the earlier of (i) commencement of Phase III clinical trials
for MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) June 13, 2005; and
[bullet] upon the earlier of (i) the date of receipt of NDA approval for
MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) June 13, 2005.
(6) The option becomes exercisable as to 50% of the shares covered by such
option upon the earlier of (i) commencement of Phase III clinical trials for
MS-325 or a clinically equivalent vascular agent as determined by the
Company's Board of Directors or (ii) August 7, 2004. The option also becomes
exercisable as to 50% of the shares covered by such option upon the earlier
of (i) receipt of NDA approval for MS-325 or a clinically equivalent
vascular agent as determined by the Board of Directors or (ii) August 7,
2004.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
The following table sets forth certain information concerning exercisable
and unexercisable stock options held by the Named Executive Officers as of
December 31, 1996:
<TABLE>
<CAPTION>
Number of Securities
Underlying
Unexercised Value of Unexercised
Options at In-The-Money Options
Fiscal Year-End at Fiscal Year-End (1)
Shares ------------------------------- ------------------------------
Acquired
in Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------ ---------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Webb ............ 33,333 $268,197 105,179 241,955 $846,270 $1,547,105
James E. Smith, Ph.D. ...... -- -- 42,666 97,333 327,462 599,532
Randall B. Lauffer,
Ph.D. ..................... -- -- -- -- -- --
E. Kent Yucel, M.D. ......... -- -- 35,467 108,532 149,707 465,487
Susan M. Flint ............... -- -- 14,667 48,665 118,012 311,632
</TABLE>
- ---------------------
(1) There was no public trading market for the Company's Common Stock as of
December 31, 1996. Values are based on the difference between the fair
market value of the underlying shares of Common Stock on December 31, 1996
as determined by the Board of Directors and the option exercise price.
47
<PAGE>
Stock Plans
Amended and Restated 1992 Equity Incentive Plan. The Company's 1992 Equity
Incentive Plan was adopted in July 1992 and amended and restated in December
1996 (as amended and restated, the "Equity Plan"). The Equity Plan is designed
to provide the Company flexibility in awarding equity incentives by providing
for multiple types of incentives that may be awarded. The purpose of the Equity
Plan is to attract and retain key employees of and consultants of the Company
and to enable them to participate in the long-term growth of the Company. The
Equity Plan provides for the grant of stock options (incentive and
nonstatutory), stock appreciation rights, performance shares, restricted stock
or stock units for the purchase of an aggregate of 2,099,901 shares of Common
Stock, subject to adjustment for stock-splits and similar capital changes. The
Board of Directors or, at the election of the Board of Directors, the
Compensation Committee, administers the Equity Plan. Awards under the Equity
Plan can be granted to officers, employees, consultants and other persons
affiliated with the Company. The Board of Directors or Compensation Committee,
as the case may be, selects the participants and establishes the terms and
conditions of each option or other equity right granted under the Equity Plan,
including the exercise price, the number of shares subject to options or other
equity rights and the time at which such options become exercisable. The
exercise price of all "incentive stock options" within the meaning of Section
422 of the Code, granted under the Equity Plan must be at least equal to 100% of
the fair market value of the option shares on the date of grant. The term of any
incentive stock option granted under the Equity Plan may not exceed ten years.
As of September 30, 1997, options to purchase an aggregate of 1,989,819
shares of Common Stock had been granted under the Equity Plan. Options to
purchase 246,392 shares were exercised as of such date and options to purchase
70,323 shares were cancelled. Of the options to purchase an aggregate of
1,673,104 shares of Common Stock that were outstanding as of such date, options
to purchase 438,252 shares were exercisable. No stock appreciation rights or
award other than option grants have been granted under the Equity Plan.
1996 Employee Stock Purchase Plan. In December 1996, the Company adopted
the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 66,666 shares of Common Stock reserved for issuance
under the Purchase Plan. To date, no shares of Common Stock have been issued
under the Purchase Plan. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Rights to
purchase Common Stock under the Purchase Plan are granted at the discretion of
the Board of Directors or, at the election of the Board of Directors, the
Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
Common Stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may be
paid through payroll deductions, periodic lump sum payments or a combination of
both. The Purchase Plan terminates in December 2006.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. See "Management--Stock Plans." The
Compensation Committee currently consists of Drs. Crooke and Evnin and Mr.
Gabrieli. Dr. Evnin is a General Partner of Accel Partners, a venture capital
firm and a principal stockholder of the Company. Mr. Gabrieli is a manager of
the General Partner of Bessemer Venture Partners, a venture capital firm and a
principal stockholder of the Company. See "Certain Transactions" and "Principal
and Selling Stockholders."
48
<PAGE>
CERTAIN TRANSACTIONS
In May 1995, the Company issued convertible promissory notes to Accel IV
L.P., Bessemer Venture Partners III L.P. and certain related persons in the
aggregate principal amount of $1,500,000 bearing interest at a rate of 10% per
annum and convertible into shares of Series C Convertible Preferred Stock at a
conversion price of $4.54 per share (the "1995 Convertible Notes"). Dr. Luke B.
Evnin, a director of the Company, is a General Partner of Accel IV Associates
L.P., the General Partner of Accel IV L.P. See footnotes (2) and (13) to the
table set forth under "Principal and Selling Stockholders." Christopher F. O.
Gabrieli, Chairman of the Company, is a manager of Deer III & Co. LLC, the
General Partner of Bessemer Venture Partners III L.P. See footnotes (3) and (12)
to the table set forth under "Principal and Selling Stockholders".
In November and December 1995, Accel IV L.P., Bessemer Venture Partners III
L.P. and certain related persons made bridge loans to the Company in an
aggregate principal amount of $1,200,000 in exchange for promissory notes
bearing interest at a rate of 10% per annum and convertible into shares of the
Company's securities in the Company's next permanent equity financing (the "1995
Bridge Notes").
In January 1996, the 1995 Convertible Notes were amended and restated (the
"Amended 1995 Convertible Notes") to, among other things, change the conversion
price to between $1.51 and $2.25 per share, depending on certain events of
conversion. At such time, the Company also issued additional convertible
promissory notes to the holders of the Amended 1995 Convertible Notes in an
aggregate principal amount of $1,515,862 (the "1996 Convertible Notes") with the
same terms as the Amended 1995 Convertible Notes in exchange for cash and the
surrender of the 1995 Bridge Notes (including accrued interest thereon).
In February 1996, Accel IV L.P., Bessemer Venture Partners III L.P. and
certain related persons made bridge loans to the Company in the aggregate
principal amount of $600,000 in exchange for promissory notes bearing interest
at a rate of 10% per annum (the "1996 Bridge Notes").
In March 1996, the Company entered into a Development and License Agreement
with Daiichi. Pursuant to such agreement, the Company granted Daiichi an
exclusive license to develop and market MS-325 in Japan in exchange for an
up-front fee of $3.0 million and future milestone payments for up to an
aggregate of $3.3 million and royalty payments on net sales of MS-325 in Japan.
In addition, pursuant to the agreement with Daiichi, in May and August 1996, the
Company sold an aggregate of 868,329 shares of Series E Convertible Preferred
Stock to Daiichi (which converted into an aggregate of 578,886 shares of Common
Stock concurrently with the closing of the initial public offering in February
1997) at a price of $5.76 per share.
In May 1996, the Company sold an aggregate of 1,700,002 shares of Series D
Convertible Preferred Stock (which converted into an aggregate of 1,133,325
shares of Common Stock upon the closing of the initial public offering in
February 1997) at a price of $3.00 per share (the "Series D Financing"). In
connection with the Series D Financing, Accel IV L.P., Bessemer Venture Partners
III L.P. and certain related persons surrendered their respective 1996 Bridge
Notes as partial payment for their respective shares of Series D Preferred Stock
and each received cash payments from the Company in the aggregate amount of
$9,698 for accrued interest on their respective 1996 Bridge Notes. Through the
Series D Financing, Accel IV L.P. and certain related persons purchased 266,668
shares (244,267 shares held by Accel IV L.P., 9,867 shares held by Accel
Investors '93 L.P., 5,067 shares held by Accel Keiretsu L.P., 5,867 shares held
by Ellmore C. Patterson Partners and 1,600 shares held by Prosper Partners),
Bessemer Venture Partners III L.P. and certain related persons purchased 266,667
shares (213,696 shares held by Bessemer Venture Partners III L.P. and 40,983
shares held by certain related persons, including 9,990 shares held directly by
Mr. Gabrieli and 1,998 shares held by the Gabrieli Family Foundation, of which
Mr. Gabrieli is President), affiliates of Advent International Corporation
purchased 666,667 shares (365,000 shares held by Rovent II Limited Partnership,
200,000 shares held by Advent Performance Materials Limited Partnership, 66,667
shares held by Adwest Limited Partnership and 35,000 shares held by Advent
Partners Limited Partnership) and Fidelity Ventures Ltd. purchased 500,000
shares.
Concurrently with the Series D Financing, Accel IV L.P., Bessemer Ventures
Partners III L.P. and certain related persons converted the entire principal
amount of their respective Amended 1995 Convertible Notes and 1996 Convertible
Notes, plus accrued interest, into 1,432,318 shares of Series C Convertible
Preferred Stock, which converted into an aggregate of 954,872 shares of Common
Stock concurrently with the closing of the initial public offering in February
1997 as follows: 656,006 shares held by Accel IV L.P.; 26,498 shares held by
Accel Investors '93 L.P.; 13,607 shares held by Accel Keiretsu L.P.; 15,755
shares held by Ellmore C. Patterson Partners;
49
<PAGE>
4,296 shares held by Prosper Partners); 642,837 shares held by Bessemer Venture
Partners III L.P.; and 43,386 shares held by certain persons related to Bessemer
Venture Partners III L.P., including 25,328 shares held directly by Mr. Gabrieli
and 4,605 shares held by the Gabrieli Family Foundation.
In May 1996, the Company repurchased from Randall B. Lauffer, Ph.D., a
director and executive officer of the Company, 66,666 shares of Common Stock at
a price per share of $4.05.
In June 1995 and April 1996, the Company made two loans to Dr. Lauffer,
each in the principal amount of $50,000 and bearing interest at the rate of
7.31% and 6.51% per annum, respectively (the Applicable Federal Rates for long
term loans announced for such months), and each secured by a pledge of 14,814
shares of the Company's Common Stock held by Dr. Lauffer. As of September 30,
1997, the outstanding amounts on these loans were $58,696 and $54,955,
respectively. In May 1996, the Company made a loan to Dr. Lauffer in the
principal amount of $180,000 bearing interest at the rate of 6.83% per annum
(the Applicable Federal Rate for long term loans announced for May 1996) and
secured by a pledge of 44,444 shares of the Company's Common Stock held by Dr.
Lauffer. As of September 30, 1997, the outstanding amount on this loan was
$196,720. Each of these loans is subject to acceleration upon the voluntary
termination of Dr. Lauffer's employment, among other events.
In February 1997, Bessemer Venture Partners III L.P. and certain persons
and entities related to Bessemer Venture Partners III L.P. and Accel IV L.P.
purchased an aggregate of 344,740 shares of the Company's Common Stock in
connection with the Company's initial public offering on the same terms as sales
to other investors in the offering at the initial public offering price of $7.00
per share.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's Common Stock as of September 30, 1997
by (i) persons known by the Company to beneficially own 5% or more of the
Company's Common Stock, (ii) the Named Executive Officers (including the Selling
Stockholder), (iii) each director of the Company and (iv) all current executive
officers and directors as a group:
<TABLE>
<CAPTION>
Percentage of Shares
Number of Shares Beneficially Owned (1)
Beneficially -----------------------
Owned
Prior to Shares Before After
Beneficial Owners Offering (1) Offered Offering Offering
- ---------------------------------------------------- ----------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Accel IV L.P. and certain related persons (2) 1,559,801 -- 17.93% 14.24%
428 University Avenue
Palo Alto, CA 94301
Bessemer Venture Partners III
L.P. and certain related persons (3) ............ 1,596,999 -- 18.35 14.58
Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Daiichi Radioisotope Laboratories, Ltd. (4) ...... 578,885 -- 6.66 5.29
17-10, Kyobashi 1-chome Chuo-ku
Tokyo, 104 Japan
Affiliates of Advent International Corporation (5) 455,019 -- 5.24 4.16
101 Federal Street
Boston, MA 02110
Michael D. Webb (6) .............................. 171,845 -- 1.96 1.56
Randall B. Lauffer, Ph.D. (7) ..................... 1,261,664 120,000(8) 14.52 11.53
James E. Smith, Ph.D. (9) ........................ 58,666 -- * *
E. Kent Yucel, M.D. (10) ........................ 52,134 -- * *
Susan M. Flint (11) .............................. 22,667 -- * *
Christopher F. O. Gabrieli (12) ................. 1,696,126 -- 19.49 15.49
Luke B. Evnin, Ph.D. (13) ........................ 1,559,801 -- 17.93 14.24
Stanley T. Crooke, M.D., Ph.D. (14) ............... 21,041 -- * *
All current executive officers and directors as
a group (10 persons) (15) ........................ 4,905,373 -- 54.34% 43.50%
</TABLE>
- ---------------------
* Indicates less than 1%.
(1) Assumes no exercise of the over-allotment option. The number of shares of
Common Stock deemed outstanding after this offering assumes 2,250,000
shares of Common Stock are sold by the Company in this offering. The
persons and entities named in the table have sole voting and investment
power with respect to the shares beneficially owned by them, except as
noted below. Share numbers include shares of Common Stock issuable pursuant
to outstanding options that may be exercised within 60 days after September
30, 1997.
(2) Consists of the following shares and warrants exercisable within the
60-day period following September 30, 1997: 1,440,897 shares and a warrant
to purchase 12,213 shares held by Accel IV L.P.; 58,200 shares and a
warrant to purchase 493 shares held by Accel Investors '93 L.P. and 29,885
shares and a warrant to purchase 253 shares held by Accel Keiretsu L.P.
Also includes 17,860 shares owned by Luke B. Evnin. Does not include 9,435
shares and a warrant to purchase 80 shares held by Prosper Partners and
34,604 shares and a warrant to purchase 293 shares held by Ellmore C.
Patterson Partners. Also, does not include 111,880 shares held by persons
associated with Accel IV LP., Accel Investors '93 L.P. and Accel Keiretsu
L.P. Accel IV Associates L.P. is the General Partner of Accel IV L.P. and
has voting and investment control over the shares held by Accel IV L.P.
Arthur C. Patterson, James R. Swartz, James W. Breyer, Paul H.
Klingenstein, Luke B. Evnin, Eugene
51
<PAGE>
D. Hill, III, G. Carter Sednaoui and the Swartz Family Partnership L.P.
are the General Partners of Accel IV Associates L.P. Messrs. Patterson,
Swartz, Klingenstein, Breyer, Evnin and Sednaoui are the General Partners
of Accel Investors '93 L.P. and have voting and investment control over
shares held by Accel Investors '93 L.P. Mr. Patterson is the sole General
Partner of Ellmore C. Patterson Partners and has voting and investment
control over shares held by Ellmore C. Patterson Partners. Accel Partners
& Co. L.P. is the General Partner of Accel Keiretsu L.P. and has voting
and investment control over shares held by Accel Keiretsu L.P. Messrs.
Patterson and Swartz are the co-owners and partners of Accel Partners &
Co. L.P. Messrs. Klingenstein and Sednaoui are the attorneys-in-fact for
Prosper Partners and disclaim beneficial ownership of shares held by
Prosper Partners.
(3) Includes 31,052 shares held by persons associated with Bessemer Securities
Corporation, the parent of the limited partner of Bessemer Venture Partners
III L.P. ("BVP"), as to which BVP has the power to vote and as to which BVP
and Deer III & Co. LLC ("Deer"), the general partner of BVP, disclaim
beneficial ownership, and 27,094 shares held by BVP III Special Situations
L.P. ("BVP SS"), as to which Deer, as the general partner of BVP SS, has
voting and investment control and as to which BVP disclaims beneficial
ownership and Deer disclaims beneficial ownership except to the extent of
its partnership interest in BVP SS. Also includes a warrant to purchase
13,333 shares exercisable within the 60-day period following September 30,
1997 held by Bessemer Venture Partners III L.P. Does not include 189,331
shares held by members of Deer and persons associated with such members of
Deer.
(4) Junzo Okuda, President and Chief Executive Officer of Daiichi Radioisotope
Laboratories, Ltd., has voting and investment control over these shares.
(5) Includes the ownership by the following venture capital funds managed by
Advent International Corporation: 249,125 shares held by Rovent II Limited
Partnership, 136,506 shares held by Advent Performance Materials Limited
Partnership, 45,501 shares held by Adwest Limited Partnership, 23,887
shares held by Advent Partners Limited Partnership. In its capacity as
manager of these funds, Advent International Corporation exercises sole
voting and investment power with respect to all shares held by these funds.
Advent International Corporation exercises its voting and investment power
through a group of three persons, none of whom may act independently and a
majority of whom must act in concert to exercise voting or investment power
over the beneficial holdings of such entity. Therefore, no individual in
this group is deemed to share voting or investment power.
(6) Includes 105,179 shares subject to options exercisable within the 60-day
period following September 30, 1997.
(7) Includes 26,666 shares held by Dr. Lauffer's wife and 16,000 shares held in
a trust for the benefit of Dr. Lauffer's children as to which Dr. Lauffer
disclaims beneficial ownership. Also includes 1,000,000 shares held by a
trust for the benefit of Dr. Lauffer as to which shares Dr. Lauffer has
voting and investment control.
(8) The shares are being offered by Randall B. Lauffer, Ph.D., individually as
part of the Underwriters' overallotment option. Assuming full exercise of
the underwriters' over-allotment option, Dr. Lauffer will beneficially own
10.23% of the shares after the offering.
(9) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(10) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(11) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(12) Includes 1,583,666 shares as to which Mr. Gabrieli, as a manager of Deer,
may be deemed to have voting or investment control and as to which Mr.
Gabrieli disclaims beneficial ownership except to the extent of his member
interest in Deer. Also includes a warrant to purchase 13,333 shares
exercisable within the 60-day period following September 30, 1997 held by
Bessemer Venture Partners III L.P.
(13) See footnote (2) above. Dr. Evnin disclaims beneficial ownership of these
shares except to the extent of his proportionate pecuniary interest in
shares held by Accel IV L.P. and Accel Investors '93 L.P.
(14) Consists of options exercisable within the 60-day period following
September 30, 1997.
(15) See footnotes (2), (3), (6), (7) and (9)--(15) above. Includes an
additional 338,478 shares subject to options exercisable within the 60-day
period following September 30, 1997.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
15,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000
shares of Preferred Stock, $.01 par value per share. As of the date of this
Prospectus, the Company had 69 shareholders of record. Upon the closing of this
offering, the Company will have 10,938,547 shares of Common Stock outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by (i) the provisions of the Company's Restated Certificate and
By-laws (which are included as exhibits to the Registration Statement) and (ii)
the provisions of applicable law.
Common Stock
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends if, as and when declared by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in the assets of the Company
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding shares of Preferred Stock. The Common Stock
outstanding upon the effective date of the Registration Statement, and the
shares offered by the Company hereby, upon issuance and sale, will be fully paid
and nonassessable.
Preferred Stock
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, sinking fund
terms and the number of shares constituting any series or the designation of
such series, without further vote or action by the stockholders. The Company
believes that the power to issue Preferred Stock will provide flexibility in
connection with possible corporate transactions. The issuance of Preferred Stock
could adversely affect the voting power of the holders of Common Stock and
restrict their rights to receive payment upon liquidation and could have the
effect of delaying, deferring or preventing a change-in-control of the Company.
See "Description of Capital Stock--Anti-Takeover Measures." No shares of
Preferred Stock are currently outstanding and the Company has no present plans
to issue any shares of Preferred Stock.
Stock Purchase Warrants
During the period from December 1992 to May 1996, the Company issued
warrants to purchase an aggregate of 75,317 shares of Preferred Stock in
connection with equipment leasing transactions and equity financings
(collectively, the "Warrants"). Upon the closing of the Company's initial public
offering in February 1997, each of the Warrants automatically became exercisable
for the number of shares of Common Stock into which the shares of Preferred
Stock issuable upon exercise of such Warrants immediately prior to such closing
was convertible. Such Warrants include: (i) two warrants exercisable for an
aggregate amount of 10,697 shares of Company's Series A Convertible Preferred
Stock at an exercise price of $11.21 per share which are currently exercisable
for an aggregate of 36,618 shares of Common Stock at an exercise price of $3.27,
(ii) a warrant exercisable for 11,402 shares of Company's Series B Convertible
Preferred Stock at an exercise price of $1.51 per share which is currently
exercisable for 7,601 shares of Common Stock at an exercise price of $2.27,
(iii) a warrant exercisable for 13,218 shares of Company's Series C Convertible
Preferred Stock at an exercise price of $4.54 per share which is currently
exercisable for 8,812 shares of Common Stock at an exercise price of $6.81 and
(iv) six warrants exercisable for an aggregate of 40,000 shares of Company's
Series D Convertible Preferred Stock at an exercise price of $3.00 per share
which are currently exercisable for an aggregate of 26,665 shares of Common
Stock at an exercise price of $4.50. The Warrants will expire January 31, 2001.
The exercise price of each Warrant is subject to adjustment in the event of a
stock split, combination or dividend by the Company. The number and kind of
securities for which each Warrant is exercisable is subject to adjustment in the
event of a merger or reclassification by the Company.
53
<PAGE>
Anti-Takeover Measures
In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws contain several other provisions
that are commonly considered to discourage unsolicited takeover bids. The
Restated Certificate includes a provision classifying the Board of Directors
into three classes with staggered three-year terms and a provision prohibiting
stockholder action by written consent except as otherwise provided by law. Under
the Restated Certificate and By-laws, the Board of Directors may enlarge the
size of the Board and fill any vacancies on the Board. The Restated Certificate
requires the approval of the holders of at least 66-2/3% of the outstanding
capital stock of the Company prior to (i) the merger of the Company into another
entity, (ii) the sale or disposition of all or substantially all of the
Company's assets, (iii) the issuance or transfer by the Company of its
securities having a market value in excess of $500,000 and (iv) engaging in any
other business combination transaction, unless such transaction has been
approved by a majority of the Board of Directors. Further, provisions of the
By-laws and the Restated Certificate provide that the stockholders may amend the
By-laws or certain provisions of the Restated Certificate only with the
affirmative vote of 66-2/3% of the Company's capital stock. The By-laws provide
that nominations for directors may not be made by stockholders at any annual or
special meeting unless the stockholder intending to make a nomination notifies
the Company of its intention a specified period in advance and furnishes certain
information. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President or the Board of Directors and
require advance notice of business to be brought by a stockholder before the
annual meeting.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, a law regulating corporate takeovers (the
"Anti-Takeover Law"). In certain circumstances, the Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging in a "business combination" (which
includes a merger or sale of more than ten percent of the corporation's assets)
with an "interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date on
which such stockholder became an "interested stockholder" subject to certain
exceptions, unless the transaction is approved by the board of directors and the
holders of at least 66-2/3% of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). The statutory ban does
not apply if, upon consummation of the transaction in which any person becomes
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares held by persons
who are both directors and officers or by certain employee stock plans). A
Delaware corporation subject to the Anti-Takeover Law may "opt out" of the
Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares; such an amendment is
effective following expiration of twelve months from adoption. The Company has
not "opted out" of the Anti-Takeover Law.
The foregoing provisions of the Restated Certificate and By-laws and
Delaware law could have the effect of discouraging others from attempting
hostile takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might result
from actual or rumored hostile takeover attempts. Such provisions may also have
the effect of preventing changes in the management of the Company. It is
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
Transfer Agent
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,938,547 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options. Of these shares,
approximately 4,558,819 shares including the 2,250,000 shares sold in this
offering, will be freely transferable, without restriction or further
registration under the Securities Act, except for shares purchased or held by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining 6,379,728 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144. These
may not be resold, except pursuant to an effective registration statement or an
applicable exemption from registration. All of these remaining shares of Common
Stock are currently eligible for sale under Rules 144 and 701. Stockholders of
the Company, holding in the aggregate 5,538,499 shares of Common Stock, have
agreed to enter into the 90-day lock-up agreements described below.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. All sales of shares of the Company's Common Stock, including Restricted
Shares, held by affiliates of the Company must be sold under Rule 144, subject
to the foregoing volume limitations and other restrictions.
The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior written consent
of the representatives of the Underwriters, offer to sell, sell, contract to
sell, grant any option to sell or otherwise dispose of or require the Company to
file with the Commission a registration statement under the Securities Act to
register any shares of Common Stock or securities convertible or exchangeable
for shares of Common Stock or warrants or other rights to acquire shares of
Common Stock during the 90-day period following the effective date of the
Registration Statement.
The Company has filed registration statements under the Securities Act
registering 2,099,901 shares of Common Stock issuable under the Equity Plan and
66,666 Shares of Common Stock issuable under the Director Plan. In addition, the
Company plans to file a registration statement under the Securities Act to
register approximately 66,666 shares of Common Stock issuable under the Purchase
Plan by January 1, 1998. The shares issuable under the Equity Plan and Director
Plan are and, upon registration, the shares issuable under the Purchase Plan
will be, eligible for immediate resale upon issuance, subject, in the case of
affiliates, to the volume, manner of sale and notice requirements of Rule 144.
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market may have an adverse impact on the
market price for the Common Stock. See "Risk Factors--Shares Eligible for Future
Sale; Registration Rights" and "--Immediate and Substantial Dilution."
Registration Rights
The holders of 4,750,289 shares of Common Stock (the "Registrable Shares")
are entitled to certain rights with respect to registration of the Registrable
Shares under the Securities Act. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders, such holders are entitled to notice of such
registration and are entitled to include such Registrable Shares in the
registration. The rights are subject to certain conditions and limitations,
among them, the right of the underwriters of a registered offering to limit the
number of shares included in such registration. Holders of Registrable Shares
benefiting from these rights may also require the Company to file at its expense
a registration statement under the Securities Act with respect to their shares
of Common Stock and, subject to certain conditions and limitations, the Company
is required to use its best efforts to effect such registration. Furthermore,
such holders may, subject to certain conditions and limitations, require the
Company to file additional registration statements on Form S-3 with respect to
such Registrable Shares. Such holders have waived their right to have shares of
Common Stock registered under the Securities Act as part of this offering.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and BancAmerica Robertson Stephens have severally agreed to purchase from the
Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
Number of
Name Shares
- --------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC ...............
BancAmerica Robertson Stephens ......
Total .............................. 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $. per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $. per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the Representatives of the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 217,500 and 120,000 additional shares of Common Stock,
respectively, on the same terms and conditions as set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise this option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total number of shares of
Common Stock offered hereby. The Company will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain existing stockholders of the Company, including the executive
officers and directors, who will own in the aggregate 5,538,499 shares of Common
Stock after this offering, have agreed that they will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 90-day period following the date of this Prospectus.
The Company has agreed that, it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock, other than pursuant
to its equity benefit plans, during the 90-day period following the date of this
Prospectus.
56
<PAGE>
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Company's Common Stock at levels above those which might otherwise prevail
in the open market, including by entering stabilizing bids or effecting
syndicate covering transactions. A stabilizing bid means the placing of any bid
or effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Company's Common Stock. A syndicate covering transaction means
the placing of any bid on behalf of the underwriting syndicate or the effecting
of any purchase to reduce a short position created in connection with the
offering. Such transactions may be effected on the Nasdaq National Market, in
the over-the-counter market, or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters are being passed upon for the Underwriters by Hale and Dorr LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of the Company at December 31, 1996, December 31,
1995 and March 31, 1995 and for the year ended December 31, 1996, the nine
months ended December 31, 1995 and the year ended March 31, 1995 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's following Regional Offices: Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. Such reports and other
information can also be reviewed through the Commission's Web site
(http://www.sec.gov).
Additional information regarding the Company is contained in the
Registration Statement on Form S-1 (the "Registration Statement") and the
exhibits and schedules thereto filed with the Commission under the Securities
Act, with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. All statements
made in this Prospectus regarding the contents of any contract, agreement or
other document filed as an exhibit to the Registration Statement are qualified
by reference to the copy of such document filed as an exhibit to the
Registration Statement. A copy of the Registration Statement may be inspected
without charge at the offices of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information can also be reviewed through the
Commission's Web site (http://www.sec.gov).
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
57
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors ......................................................... F-3
Financial Statements
Balance Sheets ........................................................................ F-4
Statements of Operations ............................................................... F-5
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) F-6
Statements of Cash Flows ............................................................... F-9
Notes to Financial Statements ......................................................... F-11
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
EPIX Medical, Inc.
We have audited the accompanying balance sheets of EPIX Medical, Inc. (a
company in the development stage) as of December 31, 1996 and 1995, and the
related statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for the year ended December 31,
1996, the nine months ended December 31, 1995 and the year ended March 31, 1995.
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 EPIX Medical, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996, the nine months ended December 31, 1995
and the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
January 11, 1997, except for Note 15,
which the date is February 13, 1997
F-3
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996 1997
--------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents ................................. $ 149,686 $ 2,667,892 $ 826,428
Marketable securities ....................................... 7,996,186 19,738,450
Receivables ................................................ 854,614
Prepaid expenses .......................................... 58,940 57,135 315,187
Other current assets ....................................... 13,178 12,221 10,887
------------ ------------ -------------
Total current assets .................................... 221,804 10,733,434 21,745,566
Property and equipment, net ................................. 856,912 994,179 1,157,094
Notes receivable from officer .............................. 51,878 295,344 310,371
Other assets ................................................ 80,171 551,610 51,914
------------ ------------ -------------
Total assets .......................................... $ 1,210,765 $12,574,567 $ 23,264,945
============ ============ =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations ............... $ 304,416 $ 208,571 $ 300,131
Accounts payable and accrued expenses ..................... 1,244,201 2,225,713 2,226,025
------------ ------------ -------------
Total current liabilities .............................. 1,548,617 2,434,284 2,526,156
Capital lease obligations, less current portion ............ 342,256 176,269 208,183
Promissory notes ............................................. 2,700,000
Redeemable convertible preferred stock:
Series B, $.01 par value, 2,655,138 shares authorized; 2,643,736
shares issued and outstanding at December 31, 1995 and
December 31, 1996 ($6,416,368 liquidation value at
December 31, 1996) ....................................... 3,955,505 3,963,682
Series C, $.01 par value, 1,445,536 shares authorized;
1,432,318 shares issued and outstanding at December 31,
1996 ($3,565,063 liquidation value at December 31,
1996) ................................................... 3,251,444
Series D, $.01 par value, 1,740,002 shares authorized;
1,700,002 shares issued and outstanding at December 31,
1996 ($5,641,777 liquidation value at December 31,
1996) ................................................... 5,072,575
Series E, $.01 par value, 868,329 shares authorized; 868,329
shares issued and outstanding at December 31, 1996
($4,916,106 liquidation value at December 31, 1996) ...... 4,916,106
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value, 104,388 shares
authorized; 93,691 shares issued and outstanding at December 31,
1995 and December 31, 1996 ................................ 1,037,664 1,037,664
Preferred stock, $.01 par value, 0, 0 and 1,000,000 shares
authorized at December 31, 1995, December 31, 1996 and
September 30, 1997. None issued and outstanding ............
Common stock, $.01 par value, 15,000,000 shares authorized;
1,563,808, 1,564,451 shares and 8,688,547 issued and outstanding
at December 31, 1995, December 31, 1996 and
September 30, 1997 ................................... 15,638 15,644 86,885
Additional paid-in capital ................................. 198,418 112,960 32,491,919
Accretion of redeemable convertible preferred stock to
redemption value .......................................... (14,269) (101,059)
Deficit accumulated during the development stage ............ (8,573,064) (8,305,002) (12,048,198)
------------ ------------ -------------
Total stockholders' equity (deficit) .................. (7,335,613) (7,239,793) 20,530,606
------------ ------------ -------------
Total liabilities and stockholders' equity (deficit) .. $ 1,210,765 $12,574,567 $ 23,264,945
============ ============ =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended
March 31, December 31, December 31,
1995 1995 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues ........................ $ 411,509 $ 900,000 $10,009,739
Operating expenses
Research and development ......... $ 2,407,113 4,164,940 6,878,666
General and administrative ...... 824,769 1,504,811 2,861,906
------------ ------------ -----------
Total operating expenses ...... 3,231,882 5,669,751 9,740,572
------------ ------------ -----------
Operating income (loss) ......... (2,820,373) (4,769,751) 269,167
Interest expense .................. (78,672) (151,057) (288,776)
Interest income .................. 120,845 27,880 287,671
------------ ------------ -----------
Net income (loss) ............... $ (2,778,200) $(4,892,928) $ 268,062
============ ============ ===========
Earnings per share:
Net income (loss) per share ...... $ (0.70) $ $0.03
============ ===========
Weighted-average common stock
and stock equivalents ............ 6,973,000 7,711,000
============ ===========
<CAPTION>
Period from
Inception
(November 29,
Nine months ended 1988) to
September 30, September 30,
1996 1997 1997
------------- --------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues ........................ $9,635,088 $ 4,021,343 $ 18,042,591
Operating expenses
Research and development ......... 4,951,652 6,286,198 21,588,121
General and administrative ...... 2,212,086 2,267,923 9,197,932
---------- ------------ -------------
Total operating expenses ...... 7,163,738 8,554,121 30,786,053
---------- ------------ -------------
Operating income (loss) ......... 2,471,350 (4,532,778) (12,743,462)
Interest expense .................. (273,640) (26,807) (612,288)
Interest income .................. 140,122 816,390 1,323,020
---------- ------------ -------------
Net income (loss) ............... $2,337,832 $ (3,743,195) $ (12,032,730)
========== ============ =============
Earnings per share:
Net income (loss) per share ...... $ 0.30 $ (0.45)
========== ============
Weighted-average common stock
and stock equivalents ............ 7,711,000 8,370,000
========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Convertible Preferred Common Stock
------------------------- ---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
----------- ------------ -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock in May
1989 .................................... 333,330 $ 3,333
Issuance of Series A preferred stock in
March 1992 (net of legal costs of
$12,336)................................. 93,691 $1,037,664
Cumulative net loss for the period
November 29, 1988 (date of
inception) through March 31, 1992
--------- --------- ------ --------- --------- ------
Balance at March 31, 1992 ............... 93,691 1,037,664 333,330 3,333
Issuance of common stock in April
1992 as payment for consulting
services received ..................... 5,186 52
Net loss .................................
--------- --------- ------ --------- --------- ------
Balance at March 31, 1993 ............... 93,691 1,037,664 338,516 3,385
Issuance of common stock in
February 1994 as payment for
consulting services received ......... 5,186 52
Three-for-one stock dividend declared
and paid in March 1994 .................. 1,031,118 10,311
Issuance of Series B preferred stock in
March 1994, net of issuance costs
of $58,764 .............................. 2,643,736 $3,941,236
Issuance of warrants in conjunction
with financing ........................
Net loss .................................
--------- --------- ------ --------- --------- ------
Balance at March 31, 1994 ............... 2,643,736 3,941,236 93,691 1,037,664 1,374,820 13,748
Issuance of common stock upon
exercise of options ..................... 66,866 669
Issuance of warrants in conjunction
with financing ........................
Accretion of redeemable convertible
preferred stock to redemption value 8,147
Net loss .................................
--------- --------- ------ --------- --------- ------
Balance at March 31, 1995 ............... 2,643,736 3,949,383 93,691 1,037,664 1,441,686 14,417
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred Stock Stage (Deficit)
------------ ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Issuance of common stock in May
1989 .................................... $ 1,667 $ 5,000
Issuance of Series A preferred stock in
March 1992 (net of legal costs of
$12,336)................................. 1,037,664
Cumulative net loss for the period
November 29, 1988 (date of
inception) through March 31, 1992 $ (27,911) (27,911)
---------- ---------- ------------- -------------
Balance at March 31, 1992 ............... 1,667 (27,911) 1,014,753
Issuance of common stock in April
1992 as payment for consulting
services received ..................... 26 78
Net loss ................................. (242,078) (242,078)
---------- ---------- ------------- -------------
Balance at March 31, 1993 ............... 1,693 (269,989) 772,753
Issuance of common stock in
February 1994 as payment for
consulting services received ......... 26 78
Three-for-one stock dividend declared
and paid in March 1994 .................. 5,156 (15,467)
Issuance of Series B preferred stock in
March 1994, net of issuance costs
of $58,764 ..............................
Issuance of warrants in conjunction
with financing ........................ 43,391 43,391
Net loss ................................. (616,480) (616,480)
---------- ---------- ------------- -------------
Balance at March 31, 1994 ............... 50,266 (901,936) 199,742
Issuance of common stock upon
exercise of options ..................... 27,415 28,084
Issuance of warrants in conjunction
with financing ........................ 6,925 6,925
Accretion of redeemable convertible
preferred stock to redemption value (8,147) (8,147)
Net loss ................................. (2,778,200) (2,778,200)
---------- ---------- ------------- -------------
Balance at March 31, 1995 ............... 84,606 (8,147) (3,680,136) (2,551,596)
</TABLE>
F-6
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Convertible Preferred Common Stock
-------------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount
----------- ------------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options ..................... 38,399 384
Issuance of common stock in July
1995 under license agreement ......... 83,723 837
Accretion of redeemable convertible
preferred stock to redemption value 6,122
Issuance of warrants in conjunction
with financing ........................
Net loss .................................
--------- --------- ------ --------- --------- ------
Balance at December 31, 1995 ............ 2,643,736 3,955,505 93,691 1,037,664 1,563,808 15,638
Issuance of common stock upon
exercise of options ..................... 67,309 673
Issuance of Series C preferred stock
upon conversion of convertible
notes and interest thereon in May
1996, net of issuance costs of
$12,560 ................................. 1,432,318 3,210,177
Issuance of warrants in conjunction
with financing ........................
Issuance of Series D preferred stock
for cash in May 1996, net of
issuance costs of $31,043 ............... 1,500,002 4,468,963
Issuance of Series D preferred stock
upon conversion of Bridge Notes in
May 1996 .............................. 200,000 600,000
Issuance of Series E preferred stock in
May and August 1996, net of
issuance costs of $117,628............... 868,329 4,882,372
Issuance of compensatory stock option
grants .................................
Repurchase of common stock from
officer in May 1996 ..................... (66,666) (667)
Accretion of redeemable convertible
preferred stock to redemption value 86,790
Net income ..............................
--------- --------- ------ --------- --------- ------
Balance at December 31, 1996 ............ 6,644,385 $17,203,807 93,691 $1,037,664 1,564,451 $15,644
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred Stock Stage (Deficit)
------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options ..................... 16,874 17,258
Issuance of common stock in July
1995 under license agreement ......... 68,235 69,072
Accretion of redeemable convertible
preferred stock to redemption value (6,122) (6,122)
Issuance of warrants in conjunction
with financing ........................ 28,703 28,703
Net loss ................................. (4,892,928) (4,892,928)
--------- ---------- ------------ ------------
Balance at December 31, 1995 ............ 198,418 (14,269) (8,573,064) (7,335,613)
Issuance of common stock upon
exercise of options ..................... 38,313 38,986
Issuance of Series C preferred stock
upon conversion of convertible
notes and interest thereon in May
1996, net of issuance costs of
$12,560 .................................
Issuance of warrants in conjunction
with financing ........................ 78,236 78,236
Issuance of Series D preferred stock
for cash in May 1996, net of
issuance costs of $31,043 ...............
Issuance of Series D preferred stock
upon conversion of Bridge Notes in
May 1996 ..............................
Issuance of Series E preferred stock in
May and August 1996, net of
issuance costs of $117,628...............
Issuance of compensatory stock option
grants ................................. 67,326 67,326
Repurchase of common stock from
officer in May 1996 ..................... (269,333) (270,000)
Accretion of redeemable convertible
preferred stock to redemption value (86,790) (86,790)
Net income .............................. 268,062 268,062
------------ ------------
--------- ---------- ------------ ------------
Balance at December 31, 1996 ............ $ 112,960 $ (101,059) $ (8,305,002) $(7,239,793)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Convertible Preferred Common Stock
----------------------------- ------------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------------- -------------- ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options (unaudited) ... 73,818 738
Accretion of redeemable convertible
preferred stock to redemption value
(unaudited) ........................
Issuance of common stock upon initial
public offering in February, 1997
(unaudited) ........................ 2,300,000 23,000
Conversion of preferred stock to
common stock upon initial public
offering in February 1997
(unaudited) ........................ (6,644,385) (17,203,807) (93,691) (1,037,664) 4,750,278 47,503
Issuance of compensatory stock option
grants (unaudited) ...............
Net loss (unaudited) ...............
---------- ----------- ------- ---------- --------- ------
Balance at September 30, 1997
(unaudited) ........................ 0 0 0 0 8,688,547 86,885
=========== ============ ======== =========== ========== =======
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred Stock Stage (Deficit)
------------ ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options (unaudited) ... 37,093 37,831
Accretion of redeemable convertible
preferred stock to redemption value
(unaudited) ........................ 101,059 101,059
Issuance of common stock upon initial
public offering in February, 1997
(unaudited) ........................ 14,245,564 14,268,564
Conversion of preferred stock to
common stock upon initial public
offering in February 1997
(unaudited) ........................ 18,092,909 17,102,748
Issuance of compensatory stock option
grants (unaudited) ............... 3,393 3,393
Net loss (unaudited) ............... (3,743,196) (3,743,196)
---------- -------- ------------ -----------
Balance at September 30, 1997
(unaudited) ........................ 32,491,919 0 (12,048,198) 20,530,606
=========== ======== ============ ===========
</TABLE>
F-8
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended
March 31, December 31, December 31,
1995 1995 1996
---------------- -------------- ---------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ............... $ (2,778,200) $(4,892,928) $ 268,062
Adjustments to reconcile
net income (loss) to cash
provided (used) by
operating activities:
Depreciation and
amortization ............... 285,515 396,673 549,241
Expenses paid with
equity instruments ......... 67,816 136,526
Change in operating
assets and liabilities:
Accounts receivable ..........
Prepaid expenses, other
current assets and other
assets ................... (2,769) 16,411 14,517
Accounts payable and
accrued expenses ............ (36,009) 872,018 707,588
------------ ------------ -------------
Net cash provided (used)
by operating activities ...... (2,531,463) (3,540,010) 1,675,934
Investing activities
Purchase of fixed assets ......... (367,830) (324,429) (694,893)
Proceeds from lease
financing of fixed assets ...... 41,468 511,145 17,173
Purchase of marketable
securities ..................... (7,996,186)
Proceeds from sale of
marketable securities ......... 2,356,510
Issuance of notes receivable
from officer .................. (50,000) (230,000)
------------ ------------ -------------
Net cash provided (used)
by investing activities ...... 2,030,148 136,716 (8,903,906)
------------ ------------ -------------
<CAPTION>
Period
from inception
(November 28,
Nine months ended 1988) to
September 30, September 30,
1996 1997 1997
------------ ----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities
Net income (loss) ............... $2,337,832 $ (3,743,195) $ (12,032,730)
Adjustments to reconcile
net income (loss) to cash
provided (used) by
operating activities:
Depreciation and
amortization ............... 406,169 408,173 2,060,818
Expenses paid with
equity instruments ......... 136,526 204,342
Change in operating
assets and liabilities:
Accounts receivable .......... (665,088) (854,614) (854,614)
Prepaid expenses, other
current assets and other
assets ...................... 32 227,951 88,302
Accounts payable and
accrued expenses ............ 341,110 312 1,952,101
---------- --------------- ---------------
Net cash provided (used)
by operating activities ...... 2,556,581 (3,961,373) (8,581,781)
Investing activities
Purchase of fixed assets ......... (542,812) (571,089) (2,954,141)
Proceeds from lease
financing of fixed assets ...... 17,173 302,365 1,425,218
Purchase of marketable
securities ..................... (141,970,964) (152,323,660)
Proceeds from sale of
marketable securities ......... 130,228,700 132,585,210
Issuance of notes receivable
from officer .................. (230,000) (280,000)
------------ ------------ -------------
Net cash provided (used)
by investing activities ...... (755,639) (12,010,988) (21,547,373)
---------- --------------- ---------------
</TABLE>
F-9
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Period
Nine months ended from inception
Nine months September 30, (November 12,
Year ended ended Year ended ------------------------------- 1988) to
March 31, December 31, December 31, September 30,
1995 1995 1996 1996 1997 1997
------------- -------------- -------------- -------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financing activities:
Repayment of capital lease
obligations .................. $ (245,399) $ (245,489) $ (274,143) (217,173) (178,891) $ (1,105,625)
Proceeds from issuance of
promissory notes ............ 2,700,000 300,000 300,000 3,000,000
Proceeds from issuance of
bridge notes ............... 600,000 600,000 600,000
Proceeds from sale of Series
B redeemable convertible
preferred stock ............ 3,941,236
Proceeds from sale of Series
D redeemable convertible
preferred stock ............ 4,468,963 4,468,963 4,468,963
Proceeds from sale of Series
E redeemable convertible
preferred stock ............ 4,882,372 4,882,372 4,882,372
Proceeds from sale of Series
A convertible preferred
stock ........................ 1,037,664
Repurchase of stock from
officer ..................... (270,000) (270,000) (270,000)
Sale of common stock ......... 28,084 18,514 38,986 14,268,564 14,268,564
Proceeds from issuance of
stock options and
warrants ..................... 600 19,768 41,224 132,408
---------- ---------- ---------- ----------- ------------- ------------
Net cash provided (used) by
financing activities ......... (217,315) 2,473,625 9,746,178 9,783,930 14,130,897 30,955,582
---------- ---------- ---------- ----------- ------------- ------------
Increase (decrease) in cash
and cash equivalents ......... (718,630) (929,669) 2,518,206 11,584,872 (1,841,464) 826,428
Cash and cash equivalents
at beginning of period ...... 1,797,985 1,079,355 149,686 149,686 2,667,892
---------- ---------- ---------- ----------- ------------- ------------
Cash and cash equivalents
at end of period ............ $1,079,355 $ 149,686 $2,667,892 $11,734,558 $ 826,428 $ 826,428
========== ========== ========== =========== ============= ============
Supplemental cash flow
information
Cash paid for interest ...... $ 78,672 $ 51,441 $ 96,455 $ 81,319 $ 26,807 $ 320,351
========== ========== ========== =========== ============= ============
</TABLE>
F-10
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
EPIX Medical, Inc. ("EPIX" or the "Company") was formed on November 29,
1988 as a Delaware corporation and commenced operations in 1992. The Company is
developing targeted contrast agents both to improve the capability and expand
the use of magnetic resonance imaging ("MRI") as a tool for diagnosing human
disease. The Company's principal product under development, MS-325, is an
injectable contrast agent designed for multiple vascular imaging indications.
The Company is a development-stage enterprise, as defined in Statement of
Financial Accounting Standards No. 7, and has, since inception, been engaged in
the research and development of its product candidates as well as seeking
regulatory clearances and patent protection and raising capital to fund
operations.
As more fully described in Note 15, the Company completed an initial public
offering of 2,300,000 shares of its Common Stock at a price of $7.00 per share.
The net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $14.3 million which the Company expects to use for research and
development and funding of clinical trials in support of regulatory approvals
and for general corporate purposes.
Change of Year End
Subsequent to March 31, 1995, the Company elected to change its fiscal year
end from March 31 to December 31.
Reverse Stock Split
A reverse stock split was approved by the Board of Directors and
Stockholders of the Company in December 1996, whereby one share of Common Stock
is outstanding after the split for each 1.5 shares of Common Stock outstanding
prior to the split. All share and per share amounts related to Common Stock
presented in the accompanying financial statements have been restated to reflect
the reverse stock split.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Revenues
For the year ended December 31, 1996, one source represented 70% of
revenues and another source represented 30% of revenues. All of the revenues
received during the nine-month period ended December 31, 1995 were derived from
a single source. For the year ended March 31, 1995, one source represented 61%
and another source represented 39% of the total revenues.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The balance sheet as of September 30, 1997 and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the nine months ended September 30, 1996 and 1997
and the period from inception (November 29, 1988) to September 30, 1997, are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the entire year.
F-11
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The Company considers all investments with original maturities of three
months or less to be cash equivalents. Cash equivalents consist of money market
accounts and short-term investments.
Property and Equipment
Property and Equipment are recorded at historical cost. Depreciation on
laboratory equipment and furniture, fixtures and other equipment is determined
using the straight-line method over the estimated useful lives of the related
assets, ranging from 3 to 5 years. Leasehold improvements are amortized using
the straight-line method over the shorter of the asset life or the remaining
life of the lease. Expenditures for maintenance and repairs are charged to
expense; betterments are capitalized.
Capital Lease Obligations
Assets and liabilities relating to capital leases are recorded at the
present value of the future minimum rental payments using interest rates
appropriate at the inception of the lease.
Income Taxes
The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred taxes are recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences between carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes based on when and how they are expected to affect the tax return. A
valuation allowance is provided to the extent that there is uncertainty as to
the Company's ability to generate taxable income in the future to realize the
benefit from its net deferred tax asset.
Fair Value of Financial Instruments
In 1995, the Company adopted SFAS No. 107, "Disclosure About the Fair Value
of Financial Instruments," which requires the disclosure of the fair value of
financial instruments. At December 31, 1996 and 1995, the Company's financial
instruments consist of cash, cash equivalents, marketable securities, notes
receivable from a related party, accounts payable and accrued expenses, capital
lease obligations, promissory notes payable and mandatorily redeemable preferred
stock. Fair value of issued equity instruments is based upon negotiated prices
and includes cash and the fair value of other consideration received. The fair
value of available-for-sale securities at December 31, 1996 approximates cost.
Mandatorily Redeemable Preferred Stock
Mandatorily redeemable preferred stock is recorded upon issuance at fair
value, net of issuance costs, and periodically accreted to redemption value
using the interest method.
Revenue Recognition
Revenues from non-refundable license fees are recognized upon execution of
the underlying license agreement. Option, license and milestone payments under
collaborative agreements are recorded as earned based upon the provisions of
each agreement. Payments received for which revenue has not been earned are
recorded as deferred revenue.
Technology, Licenses and Patents
Costs associated with technology, licenses and patents are expensed as
incurred.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No.
F-12
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
123, "Accounting for Stock-Based Compensation." ("SFAS 123"). The Company will
provide the required disclosures as put forth in SFAS 123. Under APB 25, when
the exercise price of options granted under these plans equals the market price
of the underlying stock on the date of grant, no compensation expense is
required.
Net Income (Loss) Per Share
Net loss per share for the nine month period ended September 30, 1997 is
computed using the weighted-average number of outstanding shares of common stock
assuming all convertible preferred stock were converted into common stock at the
beginning of the period. Common stock equivalents, consisting of options and
warrants, are excluded from the calculation because they are anti-dilutive.
Net income per share for the nine month period ended September 30, 1996 and
the nine and twelve month periods ended December 31, 1996 and 1995 are computed
using the weighted-average number of outstanding shares of common stock and
common stock equivalents, assuming conversion of convertible stock into common
stock (as of their original date of issuance). For these periods common stock
equivalents are excluded from the net income (loss) per share computation when
their effect is anti-dilutive; however, pursuant to the requirements of the
Securities and Exchange Commission, common stock equivalent shares relating to
stock options and warrants (using the treasury stock method and an assumed
initial public offering price) and convertible preferred stock issued during the
twelve-month period prior to the initial public offering are included for pro
forma purposes, whether or not they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Financial
Standards No. 128, "Earnings Per Share" (FAS 128), which simplifies the
calculation of earnings per share and creates a standard of comparability to the
recently issued International Accounting Standard No. 33, "Earnings Per Share".
Since early application is not permitted, the Company will adopt this standard
in the fourth quarter of 1997. The earnings per share calculations required
under FAS 128 are not materially different from the net loss per share
calculation for the nine month period ended September 30, 1997 as presented
herein.
Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which establishes criteria
for the recognition and measurement of impairment loss associated with
long-lived assets. The Company has adopted this standard in 1996, and its
adoption did not have a material impact on the Company's financial position or
results of operations.
3. MARKETABLE SECURITIES
Marketable Securities consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
-------------
<S> <C>
Available-for-sale securities:
Federal agency obligations ...... $ 7,496,886
Bank obligations ............... 499,300
------------
$ 7,996,186
============
</TABLE>
The fair value of available-for-sale securities at December 31, 1996
approximates cost. The above marketable securities all mature within one year or
less.
F-13
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
1996 1995
------------ -----------
<S> <C> <C>
Laboratory equipment ................................. $1,520,170 $1,163,370
Leasehold improvements .............................. 516,160 462,099
Furniture, fixtures and other equipment ............ 470,169 215,869
----------- -----------
2,506,499 1,841,338
Less accumulated depreciation and amortization ...... 1,512,320 984,426
----------- -----------
$ 994,179 $ 856,912
=========== ===========
</TABLE>
5. LEASES
The Company has entered into a number of capital leases for equipment,
including sale and leaseback transactions involving certain equipment. Assets
under capital leases, the majority of which are laboratory equipment, totaled
$1,382,350 and $1,320,994 at December 31, 1996 and 1995, respectively.
Accumulated amortization relating to assets under capital leases was $993,437
and $661,257 at December 31, 1996 and 1995, respectively. In December 1996 the
Company arranged a new lease facility which provides for additional lease
financing up to an aggregate of $1 million.
Additionally, the Company leases office space under operating lease
arrangements. The initial term of the lease expires in December 1997 and is
renewable with 12 months notice for an additional five-year term.
Future minimum commitments under leases with non-cancelable terms of one or
more years are as follows at December 31, 1996:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
1997 ....................................... $252,161 $197,556
1998 ....................................... 186,555
1999 ....................................... 10,761
--------- ---------
Total minimum lease payments ............... 449,477 $197,556
=========
Less amounts representing interest ......... 64,637
---------
Present value minimum lease payments ...... 384,840
Less amounts due within one year ......... 208,571
---------
$176,269
=========
</TABLE>
Rent expense amounted to approximately $174,666, $86,100 and $94,600 for
the twelve months ended December 31, 1996, the nine months ended December 31,
1995 and the twelve months ended March 31, 1995, respectively.
F-14
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31
1996 1995
------------ -----------
<S> <C> <C>
Accounts payable ................................. $ 428,746 $ 615,174
Accrued development expenses ..................... 963,447 435,562
Accrued interest expense ........................ 99,616
Accrued legal expense ........................... 176,209
Accrued public offering costs ..................... 294,893
Accrued license restructuring cost ............... 250,000
Other accrued expenses ........................... 112,418 93,849
----------- -----------
Total accounts payable and accrued expenses ...... $2,225,713 $1,244,201
=========== ===========
</TABLE>
7. PROMISSORY NOTES
During 1995, the Company issued 10% Promissory Notes ("Promissory Notes")
in an aggregate amount of $2,700,000 which became due upon demand on or after
February 15, 1996.
In January 1996, the Company issued convertible promissory notes for an
aggregate amount of $3,015,862 ("Convertible Notes") in exchange for $300,000 of
cash and cancellation of the Promissory Notes and accrued interest thereon. The
Convertible Notes were issued at an annual interest rate of 10% and became due
upon demand on or after February 15, 1996.
In February 1996, the Company issued additional convertible promissory
notes for an aggregate amount of $600,000 ("Bridge Notes") which became due upon
demand, with interest at a rate of 10% per year.
In May 1996 the Promissory Notes and Bridge Notes were converted to
Redeemable Convertible Preferred Stock (see Note 8). Because it was contemplated
that the Convertible Notes for which the Promissory Notes were subsequently
exchanged would be converted during 1996, the Promissory Notes were classified
as long-term at December 31, 1995.
8. CAPITAL STOCK
In addition to the sale of its Common Stock, the Company has authorized and
issued one series of convertible preferred stock ("Series A Preferred Stock")
and four series of redeemable, convertible preferred stock ("Series B, Series C,
Series D and Series E Preferred Stock").
In May 1996, the Convertible Notes (see Note 7) and accrued interest
thereon were converted at a conversion price of $2.25 into 1,432,318 shares of
the Company's Series C Preferred Stock.
In May 1996, the Company issued 1,700,002 shares of Series D Preferred
Stock, priced at $3.00 per share, in exchange for cash and cancellation of the
Bridge Notes (see Note 7) and accrued interest thereon.
The sale of the Series E Preferred Stock, was completed in two separate
closings, one in May 1996 and the other in August 1996, for a total of 868,329
shares at a price of $5.76 per share.
Conversion Rights of Preferred Stockholders
The following table shows the number of shares of Common Stock into which
outstanding shares of each Series of Preferred Stock are convertible at December
31, 1996:
F-15
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. CAPITAL STOCK (Continued)
<TABLE>
<S> <C>
Series A ...... 320,723
Series B ...... 1,762,484
Series C ...... 954,872
Series D ...... 1,133,325
Series E ...... 578,885
----------
Total ......... 4,750,289
==========
</TABLE>
The number of shares of Common Stock into which shares of Preferred Stock
are convertible is subject to adjustment upon the occurrence of certain events
principally related to changes in the capital structure, such as stock splits,
stock dividends, business combination or other recapitalization or
reorganization affecting such shares. All shares of Preferred Stock
automatically convert to Common Stock upon an initial public offering meeting
certain criteria related to size and share price.
Redemption Rights
Under the Company's Restated Certificate of Incorporation adopted in May
1996, at any time on or after May 29, 2001, holders of two thirds of the then
outstanding shares of the Series B, Series C, Series D and Series E Preferred
Stock may require the Company to redeem such series of preferred stock at
specified redemption prices (equal, as of December 31, 1996, to the original
purchase price of each such series) plus any undeclared but unpaid dividends
thereon. The consent of the holders of a majority of the outstanding shares of
Series D Preferred Stock is required to effect a redemption of any securities
prior to the redemption of Series D Preferred Stock. The holders of Series C and
Series E Preferred Stock are entitled to a $.05 per share annual dividend if,
when and as declared by the Board of Directors which must be paid prior to
payment of any other dividends.
Voting Rights and Election of Directors
Each holder of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which the Preferred Stock is
convertible. The Series A Preferred Stockholders with the Common Stockholders,
voting as a single class, have the right to elect two directors of the Company.
The holders of Series B and Series C Preferred Stock, voting as a single class,
are also entitled to elect two directors. All other directors are elected by the
Preferred Stockholders and Common Stockholders voting together as a single
class.
Liquidation Preferences
In the event of a liquidation, dissolution or winding up of the Company the
holders of Preferred Stock are entitled to receive a specified per share amount
(in each case subject to adjustment, in the event of any stock dividends, stock
split, combination or other similar recapitalization affecting such shares) plus
any other declared but unpaid dividends thereon. In addition, holders of Series
B, Series C, Series D and Series E Preferred Stock are entitled to receive a
preferential, cumulative cash dividend of 18% per annum, compounded annually
from the date of issuance. In the event of liquidation, the holders of Series D
Preferred Stock rank senior to all other Series of Preferred Stock. The
following table shows, by Series, the specified per share amount and accrued
dividends payable to Preferred Stockholders upon liquidation as of December 31,
1996:
F-16
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. CAPITAL STOCK (Continued)
<TABLE>
<CAPTION>
Per share Total
Liquidation Accumulated
Price Dividends
------------- ------------
<S> <C> <C>
Series A ...... $11.21
Series B ...... $ 1.51 $22,446
Series C ...... $ 2.25 $41,267
Series D ...... $ 3.00 $ 3,612
Series E ...... $ 5.76 $33,734
</TABLE>
On December 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in order to permit the Company to sell shares
of its Common Stock to the public. Upon consummation of the offering, all of the
Preferred Stock issued and outstanding will automatically convert into 4,750,289
shares of Common Stock. Immediately following such conversion, all currently
outstanding shares of Preferred Stock will be canceled, retired and eliminated
from the Company's authorized shares of capital stock and the number of
authorized shares of Preferred Stock will be decreased to 1,000,000 shares.
9. WARRANTS
In connection with a master lease line (see Note 5), the Company has issued
warrants to purchase shares of Series A, Series B and Series C Preferred Stock.
In connection with the issuance of Bridge Notes and the sale of Series D
preferred stock, the Company issued warrants to purchase shares of Series D
Preferred Stock (see Note 6). Information on warrants issued through and
outstanding as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Exercisable Warrants Exercised Warrants
---------------------- --------------------------
Shares of Shares of Warrant
Preferred Stock Common Stock Exercise
Description Reserved Reserved Price
- ------------------- ---------------------- -------------- ---------
<S> <C> <C> <C>
Series A ...... 10,697 36,618 $11.21
Series B ...... 11,402 7,601 $ 1.51
Series C ...... 13,218 8,812 $ 4.54
Series D ...... 40,000 26,665 $ 3.00
</TABLE>
Warrants for the purchase of 9,365 and 1,332 shares of the Company's Series
A Preferred Stock expire the earlier of five years from the date of an initial
public offering or on December 21, 2002 and August 5, 2002, respectively.
Warrants to purchase 11,402 shares of the Company's Series B Preferred Stock and
13,218 shares of the Company's Series C Preferred Stock expire on the earlier of
five years from the date of an initial public offering or June 6, 2004 and
August 2, 2005, respectively.
The value ascribed to the warrants aggregating $79,019 has been accounted
for as additional paid in capital.
10. EQUITY PLANS
Equity Incentive Plan
On July 1, 1992, the Company adopted the 1992 Equity Incentive Plan, which
provides stock awards to purchase shares of Common Stock to be granted to
employees and consultants under incentive and non-statutory stock option
agreements. In December 1996, the Company amended the 1992 Equity Incentive Plan
(as amended, "the Equity Plan") to, among other things, increase the number of
shares reserved for issuance pursuant to grants. The Equity Plan provides for
the grant of stock options (incentive and non-statutory), stock appreciation
rights, performance shares, restricted stock or stock units for the purchase of
an aggregate of
F-17
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. EQUITY PLANS (Continued)
1,599,901 shares of Common Stock, subject to adjustment for stock-splits and
similar capital changes. Awards under the Equity Plan can be granted to
officers, employees and other individuals as determined by the Board of
Directors, or at the election of the Board of Directors, the Compensation
Committee which administers the Equity Plan. The Board of Directors or the
Compensation Committee, as the case may be, selects the participants and
establishes the terms and conditions of each option or other equity right
granted under the Equity Plan, including the exercise price, the number of
shares subject to options or other equity rights and the time at which such
options become exercisable.
Stock option information relating to the Equity Incentive Plan is as
follows:
<TABLE>
<CAPTION>
Weighted
Weighted average
Options Option price average Available for exercisable
Outstanding range per share exercise price Grant Exercisable price
------------- ----------------- ---------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1993 ............ 107,976 $0.42 $0.42 725,259 6,975 $0.42
Granted .................. 142,648 $0.42 $0.42
---------
March 31, 1994 ............ 250,624 $0.42 $0.42 582,611 34,592 $0.42
Granted .................. 359,131 $0.45 $0.43
Exercised ............... (66,866) $0.42 $0.42
Canceled .................. (1,400) $0.42 $0.42
---------
March 31, 1995 ............ 541,489 $0.42-$0.45 $0.43 224,880 143,207 $0.43
Granted .................. 133,993 $0.45-$0.83 $0.55
Exercised ............... (38,399) $0.42-$0.45 $0.45
Canceled .................. (40,933) $0.42-$0.45 $0.45
---------
December 31, 1995 ......... 596,150 $0.42-$0.83 $0.47 131,820 200,631 $0.44
Granted .................. 753,896 $0.83-$8.50 $3.59
Exercised ............... (67,309) $0.42-$0.83 $0.58
Canceled .................. (4,934) $0.42-$0.45 $0.45
---------
December 31, 1996 ......... 1,277,803 $0.42-$8.50 $2.30 149,524 392,933 $1.21
Granted (unaudited) ...... 492,175 $6.50-$12.00 $8.58
Exercised (unaudited) ... (73,818) $0.42-$4.50 $0.51
Cancelled (unaudited) ... (23,056) $2.25-$8.50 $7.13
---------
September 30, 1997
(unaudited) ............... 1,673,104 $0.42-$12.00 $4.16 180,405 438,252 $1.69
=========
</TABLE>
1996 Employee Stock Purchase Plan
In December 1996, the Company adopted the Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") under which employees may purchase shares of
Common Stock at a discount from fair market value. There are 66,666 shares of
Common Stock reserved for issuance under the Purchase Plan. To date, no shares
of Common Stock have been issued under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the code. Rights to purchase Common Stock under the Purchase Plan
are granted at the discretion of Board of Directors or, at the election of the
Board of Directors, the Compensation Committee, which determines the frequency
and duration of individual offerings under the Purchase Plan and the dates when
stock may be purchased. Eligible employees participate voluntarily and may
withdraw from any offering at any time before stock is purchased. Participation
terminates automatically upon termination of employment. The purchase price per
share of Common Stock in an offering is 85% of the lesser of its fair market
value at the beginning of the offering period or on the applicable exercise date
and may be paid through payroll deductions, periodic lump sum payments or a
combination of both. The Purchase Plan terminates in December 2006.
F-18
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. EQUITY PLANS (Continued)
1996 Directors Stock Option Plan
In December 1996, the Board of Directors and stockholders of the Company
adopted the Company's 1996 Director Stock Option Plan (the "Director Plan"). All
of the directors who are not employees of the Company (the "Eligible Directors")
are currently eligible to participate in the Director Plan. There are 66,666
shares of Common Stock reserved for issuance under the Director Plan. Upon the
election or reelection of an Eligible Director, such director is automatically
granted an option to purchase 6,666 shares of Common Stock (the "Option"). Each
Option becomes exercisable with respect to 1,333 shares on each anniversary date
of grant for a period of five years, provided that the option holder is still a
director of the Company at the opening of business such date. The Options have a
term of ten years. The exercise price for the Options is equal to fair value at
the date of grant. The exercise price may be paid in cash or shares of Common
Stock or combination of both.
FAS 123 Pro Forma Information
The pro forma information as required by FAS 123 is presented below and has
been determined as if the Company accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model. For
pro forma purposes the fair value of the options is amortized over the options'
vesting period:
<TABLE>
<CAPTION>
Nine Months
Year ended ended
December 31, December 31,
1996 1995
-------------- ----------------
<S> <C> <C>
Assumptions:
Risk free interest rates ........................... 6.34% 5.85%
Dividend yields ....................................
Volatility factors ................................. 0.60 0.60
Weighted average option life (in years) ............ 5.53 4.92
Pro forma amounts
Weighted average fair value of options granted ...... $ 2.16 $ 0.31
Weighted average contractual life (in years) ......... 8.59 8.53
Net income (loss) .................................... $48,866 $ (4,896,608)
Net income (loss) per share ........................ $ 0.01 $ (0.70)
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition option valuation models require the use
of highly subjective assumptions. Because the Company's stock options have
characteristics that are significantly different from traded options and because
changes in the valuation assumptions can materially affect the fair value
estimate, in Management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
11. INCOME TAXES
The Company has incurred losses since inception and, due to the degree of
uncertainty related to the ultimate use of the loss carryforwards, fully
reserved this tax benefit. The Company has the following total deferred tax
assets as of December 31, 1996 and 1995:
F-19
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Deferred tax assets .................................
Net operating loss carryforwards .................. $ 2,921,000 $ 3,137,000
Research and development tax credits ............ 400,000 300,000
Book over tax depreciation and amortization ...... 383,000 113,400
Other ............................................. 18,000 19,900
------------ ------------
Total deferred tax assets ........................... 3,722,000 3,570,300
Valuation allowances ................................. (3,722,000) (3,570,300)
------------ ------------
Deferred income taxes, net ........................... $ -0- $ -0-
============ ============
</TABLE>
As of December 31, 1996, the Company has net operating loss carryforwards
for income tax purposes of approximately $7.3 million, which expire through the
year 2010. The valuation allowance increased by $151,700 during the twelve
months ended December 31, 1996, $2,088,700 during the nine months ended December
31, 1995 and $1,212,900 during the twelve months ended March 31, 1995, due
primarily to the additional allowance for the net operating losses incurred in
the respective periods. The tax net operating loss carryforwards differ from the
accumulated deficit principally due to temporary differences in the recognition
of certain revenue and expense items for financial and tax reporting purposes.
As a result of an ownership change occurring in May 1996 (see Note 8), the
Company's ability to utilize its tax loss carryforwards and tax credits is
subject to limitations as defined in Internal Revenue Code Sections 382 and 383.
The Company currently estimates that their annual limitation on the use of tax
loss carryforwards through May 31, 1996 will be approximately $900,000. Research
and development tax credits through May 31, 1996 of approximately $300,000
cannot be utilized until such tax loss carryforwards are fully utilized.
12. DEFINED CONTRIBUTION PLAN
During the year ended March 31, 1995, the Company began a defined
contribution 401(k) plan which covers substantially all employees. The plan
permits participants to make contributions from 1% to 15% of their compensation
(as defined).
13. RELATED PARTY TRANSACTION
During 1995 and 1996 the Company received promissory notes from one
executive officer and director. These transactions are summarized below:
<TABLE>
<CAPTION>
Shares of
Interest Company Common Stock
Date of Note Term Amount Rate Provided as Collateral
- ------------------------ ---------- ---------- ---------- -----------------------
<S> <C> <C> <C> <C>
June 26, 1995 ...... 10 years $ 50,000 7.31% 14,814
April 5, 1996 ...... 10 years $ 50,000 6.51% 14,814
May 31, 1996 ...... 10 years $230,000 6.83% 44,444
</TABLE>
The notes are subject to certain acceleration clauses. In May 1996, the
Company also repurchased from the same officer of the Company, 66,666 shares of
Common Stock at a price per share of $4.05.
14. SIGNIFICANT AGREEMENTS
The Company has a license agreement with Massachusetts General Hospital
("MGH") for the exclusive license of a number of patents and patent applications
on which the Company's research and development efforts are significantly based.
In exchange, the Company will remit royalties based on a specified percentage of
revenues.
F-20
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. SIGNIFICANT AGREEMENTS (Continued)
Under this agreement, the Company is required to pay for all patent application
costs related to the licensed technology. On July 10, 1995, the Company issued
and sold to the MGH 83,723 shares of the Company's Common Stock for $1,256 as
consideration for certain modifications to the license. The Company expensed the
difference between proceeds received and fair value at the time of issuance,
approximately $68,000.
In March 1992, the Company entered into an Agency Agreement with Sumitomo
Corp. ("Sumitomo") to assist the Company in entering into collaboration and
licensing arrangements with other companies in Japan for the development,
manufacture, distribution and sale of the Company's future products. At that
time, Sumitomo purchased 66,923 shares of the Company's Series A Preferred
Stock, $.01 par value, for $11.21 per share. In October 1995, Sumitomo assigned
the Agency Agreement and its shares to Summit Pharmaceutical International
Corporation ("Agent"). Under the terms of the amended Agency Agreement, which
expired and was extended for one year in March 1996, the Company is required to
pay the Agent certain commissions and fees, based on a stipulated percentage of
amounts received by the Company as license fees, milestone payments or capital
investments.
Also, in March 1992, the Company entered into a $3.5 million development
and license agreement with, a Japanese manufacturer and distributor ("Japanese
Manufacturer and Distributor") of medical products. Under the terms of the
agreement, the Company received funding for research and development through the
sale of Preferred Stock and license rights to the Company's liver MRI contrast
agent product candidate. In March of 1992, the Japanese Manufacturer and
Distributor purchased an equity interest in the Company in accordance with the
agreement by acquiring 26,768 shares of Series A Preferred Stock for $11.21 per
share. As of December 31, 1996, the Company had received an aggregate of $2.7
million in revenues (net of withholding tax) under this agreement.
In December 1996, the Company and the Japanese Manufacturer and Distributor
agreed to restructure the existing agreement. In connection with the
restructuring, the parties terminated further collaboration efforts and the
Japanese Manufacturer and Distributor relinquished its exclusive rights in Japan
to the liver MRI agent in exchange for a non-exclusive technology license and a
$250,000 payment from the Company. The Company is entitled to receive royalties
based upon specified percentage of future revenues, if any, from the sale of
liver MRI contrast agents by the Japanese Manufacturer and Distributor.
In March 1996, the Company entered into marketing, development and license
agreements with Daiichi Radioisotope Laboratories Ltd., a Japanese
pharmaceutical company ("Daiichi") covering the Company's vascular MRI contrast
agent. During 1996, the Company received a license fee of $3.0 million (net of
withholding tax) upon execution of the agreement and proceeds from the issuance
of 868,329 shares of Series E Preferred Stock at price of $5.76 per share (see
Note 8). In addition, the Company is entitled to receive future milestone
payments of up to $3.3 million (net of withholding tax) The agreements also
provide for the Company to supply product to Daiichi and to receive royalties
for sales made by Daiichi in Japan.
In August 1996, the Company entered into a strategic collaboration
agreement with Mallinckrodt Group Inc. ("Mallinckrodt"), a U.S. pharmaceutical
company, involving research, development and marketing of MS-325 and future MRI
vascular contrast agents developed or in-licensed by either party. Under the
terms of the agreement, Mallinckrodt and the Company will share equally in
funding a portion of the cost of developing MS-325. Mallinckrodt will have the
right to manufacture MS-325 and to market the product worldwide except Japan.
During 1996, the Company received a $6.0 million license fee payment upon
execution of the agreement and is eligible to receive a future additional $2.0
million upon the earlier of the completion of a specified milestone or a
designated date. Under the agreement, the Company will share in future operating
profits from the sale of products covered under the agreement.
F-21
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. SUBSEQUENT EVENTS
On February 4, 1997 the Company completed an initial public offering of
2,000,000 shares of its Common Stock at a price of $7.00 per share. On February
13, 1997 the Company issued an additional 300,000 shares of its Common Stock at
a price of $7.00 per share to cover an underwriters over-allotment option. The
net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $14.3 million which the Company expects to use for research and
development and funding of clinical trials in support of regulatory regulatory
and reimbursement approvals and for general corporate purposes. In connection
with the initial public offering, all shares of previously outstanding Preferred
Stock were converted to Common Stock and cancelled, retired and eliminated from
the Company's authorized capital stock and the number of authorized shares of
Preferred Stock was decreased to 1,000,000 shares.
F-22
<PAGE>
[INSIDE BACK COVER]
MS-325: NONINVASIVE CARDIOVASCULAR IMAGING
- --------------------------------------------------------------------------------
[EPIX LOGO]
EPIX Medical, Inc. is developing targeted contrast agents to improve the
capability and expand the use of magnetic resonance imaging ("MRI") as a tool
for diagnosing human disease. The Company's principal product under development,
MS-325, is an injectable vascular contrast agent. The Company believes that
MS-325 will simplify the diagnostic pathway for a number of diseases and in many
cases replace highly invasive and expensive X-ray angiography. The Company does
not have any commercially available products at this time.
- --------------------------------------------------------------------------------
X-RAY ANGIOGRAPHY
[bullet] X-ray angiography is generally
considered to be the definitive
diagnostic exam for assessing
cardiovascular disease.
[bullet] Over 3.3 million diagnostic
X-ray angiograms are performed
annually in the U.S.
[Photograph of x-ray angiography]
[bullet] X-ray angiography is highly
invasive (i.e., more invasive
than a peripheral intravenous
injection ("I.V.") up to and
including a surgical
procedure), painful and
expensive.
[Photograph of x-ray angiography]
[bullet] A catheter is fed into the
patient through an arterial
puncture in the groin area to
introduce contrast media and
enable an X-ray to be taken.
[bullet] Complications from X-ray
angiography include renal
failure, limb loss and death.
- -------------------------------------------------------------------------------
THE EPIX [bullet] EPIX is developing MS-325 to
SOLUTION provide physicians with a
clinically superior,
noninvasive (i.e., no more
invasive than a peripheral
I.V.) and cost-effective
diagnostic procedure.
[Photograph of MRI exam]
[bullet] The patient receives a single
injection of MS-325 in an arm
vein and then enters an MRI
scanner.
[bullet] MS-325 binds to the blood
protein albumin and is designed
to be excreted safely through
the kidneys over time.
[bullet] A Phase II clinical trial of
MS-325 for the evaluation of
peripheral vascular disease
began in June 1997.
[bullet] A Phase II clinical trial of
MS-325 for the evaluation of
coronary artery disease began in
September 1997.
- --------------------------------------------------------------------------------
MS-325 IS CURRENTLY BEING EVALUATED IN PHASE II CLINICAL TRIALS AND NEITHER
MS-325 NOR OTHER CONTRAST AGENTS UNDER DEVELOPMENT HAVE RECEIVED MARKETING
APPROVAL FROM THE FDA OR ANY FOREIGN REGULATORY BODY.
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations
Company or the Underwriters. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy to any person in any jurisdiction
in which such offer or solicitation would be unlawful, or to any person to
whom it is unlawful. Neither the delivery of this Prospectus nor any offer or
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any time subsequent to the date
hereof.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ..................... 3
Risk Factors ........................... 5
Use of Proceeds ........................ 14
Price Range of Common Stock ............ 15
Dividend Policy ........................ 15
The Company .............................. 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................ 19
Business ................................. 22
Management .............................. 41
Certain Transactions ..................... 49
Principal and Selling Stockholders ...... 51
Description of Capital Stock ............ 53
Shares Eligible for Future Sale ......... 55
Underwriting ........................... 56
Legal Matters ........................... 57
Experts ................................. 57
Available Information .................. 57
Index to Financial Statements ............ F-1
</TABLE>
================================================================================
2,250,000 Shares
[EPIX MEDICAL LOGO]
Common Stock
------------------------------
PROSPECTUS
------------------------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following are the expenses of issuance and distribution of the Common
Stock registered hereunder on Form S-1 other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
SEC registration fee ........................... $ 10,194
Nasdaq listing fee .............................. $ 17,500
NASD filing fee ................................. $ 3,864
Blue Sky fees and expenses ..................... $ 10,000
Printing, engraving and mailing expenses ...... $100,000
Accounting fees and expenses .................. $ 75,000
Legal fees and expenses ........................ $185,000
Transfer Agent and Registrar fees ............ $ 5,500
Miscellaneous expenses ........................ $ 92,942
--------
Total ....................................... $500,000
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law grants the Registrant
the power to indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with any such action, suit or proceeding if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant and (ii) with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful,
provided, however, no indemnification shall be made in connection with any
proceeding brought by or in the right of the Registrant where the person
involved is adjudged to be liable to the Registrant except to the extent
approved by a court.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director shall not be personally liable to the Registrant's
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the eliminations or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined.
Article TENTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by the
Delaware General Corporation Law, as amended from time to time, indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was, or has agreed to become a director or officer of the
Registrant. The indemnification provided for in Article TENTH is expressly not
exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons. Article TENTH further permits the Board of
Directors to authorize the grant of indemnification rights to other employees
and agents of the Registrant and such rights may be equivalent to, or greater or
less than, those set forth in Article TENTH.
Article V, Section 1 of the Registrant's By-laws provides that the
Registrant shall, to the full extent permitted by the Delaware General
Corporation Law, as amended from time to time, and the Certificate of
Incorporation, indemnify each person whom it may indemnify thereto.
Article V, Section 2 of the Registrant's By-Laws provides that the
Registrant shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
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<PAGE>
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity or arising out of such person's
status as such.
The Registrant's Restated Certificate of Incorporation and applicable
provisions of Delaware law provide that directors of the Registrant will not be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, whether or not an individual continues
to be a director at the time such liability is asserted, except for liability
(i) for any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derives an improper personal benefit.
The Registrant has entered into agreements with certain officers and
directors affirming the Registrant's obligation to indemnify them to the fullest
extent permitted by law and providing various other protections.
Item 15. Recent Sales of Unregistered Securities
Since 1993, the Registrant has sold and issued the following unregistered
securities:
In March 1994, the Registrant sold 2,643,736 shares of Series B Convertible
Preferred Stock at a purchase price of $1.513 per share to Bessemer Venture
Partners III L.P., Accel IV L.P. and certain related persons. Such shares
converted into shares of Common Stock on a 1-for-1.5 basis concurrently with the
Registrant's initial public offering as a result of a 1-for-1.5 reverse stock
split effected in December 1996.
In June 1994, the Registrant issued to Dominion Ventures, Inc., a warrant
to purchase 11,402 shares of the Registrant's Convertible Series B Preferred
Stock having an exercise price per share of $1.513. This warrant became
exercisable for 7,601 shares of Common Stock with an exercise price of $2.27 per
share concurrently with the Registrant's initial public offering as a result of
a 1-for-1.5 reverse stock split effected in December 1996.
In May 1995, the Registrant sold to Bessemer Venture Partners III L.P.,
Accel IV L.P. and certain related persons Convertible Promissory Notes (the
"1995 Convertible Notes") having an aggregate principal amount of $1,500,000 and
convertible, as a whole, at the holders' option, into 355,256 shares of the
Registrant's Series C Convertible Preferred Stock at a conversion price of $4.54
per share.
In August 1995, the Registrant issued to Dominion Fund II a warrant to
purchase 13,218 shares of the Registrant's Series C Convertible Preferred Stock
having an exercise price per share of $4.54. This warrant became exercisable for
8,812 shares of Common Stock with an exercise price of $6.81 per share
concurrently with the Registrant's initial public offering as a result of a
1-for-1.5 reverse stock split effected in December 1996.
In November and December 1995, Accel IV L.P., Bessemer Venture Partners III
L.P. and certain related persons made bridge loans to the Company in an
aggregate principal amount of $1,200,000 in exchange for promissory notes
bearing interest at a rate of 10% per annum and convertible on a
dollar-for-dollar basis for shares of the Company's securities in the Company's
next permanent equity financing (the "1995 Bridge Notes").
In January 1996, all of the 1995 Convertible Notes were amended and
restated to, among other things, change the conversion price to between 1.51 and
$2.25 per share, depending on certain events of conversion, and the Registrant
issued to Bessemer Venture Partners III L.P., Accel IV L.P. and certain related
persons Convertible Promissory Notes (the "1996 Convertible Notes") having an
aggregate principal amount of $1,515,862 and convertible, as a whole, at the
holder's option, into shares of the Registrants' Series C Convertible Preferred
Stock at a conversion price between $1.51 and $2.25 per share, depending on
certain events of conversion, in exchange for cash and the surrender of the 1995
Bridge Notes and accrued interest thereon.
In May 1996, the Registrant sold 1,700,002 shares of Series D Convertible
Preferred Stock at a purchase price of $3.00 per share to a group of
sophisticated investors. Such shares converted into shares of Common Stock on a
1-for-1.5 basis concurrently with the Company's initial public offering as a
result of a 1-for-1.5 reverse stock split effected in December 1996.
In May 1996, in connection with the Registrant's sale of Series D
Convertible Preferred Stock, the Registrant issued warrants to purchase an
aggregate of 40,000 shares of the Registrant's Series D Preferred Stock
II-2
<PAGE>
having an exercise price of $3.00 per share. The warrants were issued to
Bessemer Venture Partners III L.P., Accel IV L.P., Accel Investors '93 L.P.,
Ellmore C. Patterson Partners, Accel Keiretsu L.P. and Prosper Partners. These
warrants became exercisable for an aggregate of 26,665 shares of Common Stock
with an exercise price of $4.50 per share concurrently with the Registrant's
initial public offering as a result of a 1-for-1.5 reverse stock split effected
in December 1996.
Concurrently with the sale of Series D Convertible Preferred Stock, the
1995 Convertible Notes and the 1996 Convertible Notes were surrendered and
converted into an aggregate of 1,432,318 shares of Series C Convertible
Preferred Stock at a conversion price of $2.25 per share. Such shares converted
into shares of Common Stock on a 1-for-1.5 basis concurrently with the
Registrant's initial public offering as a result of a 1-for-1.5 reverse stock
split effected in December 1996.
In May 1996, the Registrant sold to Daiichi Radioisotope Laboratories, Ltd.
520,997 shares of the Registrant's Series E Convertible Preferred Stock at a
purchase price of approximately $5.76 per share. Such shares converted into
shares of Common Stock on a 1-for-1.5 basis concurrently with the Registrant's
initial public offering as a result of a 1-for-1.5 reverse stock split effected
in December 1996.
In August 1996, the Registrant issued to Daiichi Radioisotope Laboratories,
Ltd. 347,332 shares of the Registrant's Series E Convertible Preferred Stock at
a purchase price of approximately $5.76 per share. Such shares converted into
shares of Common Stock on a 1-for-1.5 basis concurrently with the Registrant's
initial public offering as a result of a 1-for-1.5 reverse stock split effected
in December 1996.
Between June 30, 1992 and December 31, 1996, the Registrant granted options
to purchase 1,497,644 shares of Common Stock to its employees and consultants
under its 1992 Equity Incentive Plan having exercise prices ranging from $0.42
to $8.50 per share. As of December 31, 1996, options to purchase 172,574 shares
had been exercised, options to purchase 47,267 shares had been cancelled and
options to purchase 1,277,803 shares remained outstanding. Between January 1,
1997 and June 30, 1997, options to purchase 64,999 shares of Common Stock were
exercised.
No underwriter was engaged in connection with the foregoing issuance of
securities. The above described issuances of the Registrant's Preferred Stock
were made in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), as transactions not involving any public
offering. The Company has reason to believe that all of the foregoing purchasers
were familiar with or had access to information concerning the operations and
financial conditions of the Company, and all of those individuals were acquiring
the shares for investment and not with a view to the distribution thereof. At
the time of issuance, all of the foregoing shares of Preferred Stock were deemed
to be restricted securities for purposes of the Act and the certificates
representing such securities bore legends to that effect.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement. Filed herewith.
3.1* Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No. 333-30531) and incorporated herein by
reference.
3.2* Amended and Restated By-Laws of the Registrant, as amended. Filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and incorporated
herein by reference.
4.1* Specimen certificate for shares of Common Stock of the Registrant. Filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
10.1+* Agency Agreement between the Registrant and Sumitomo Corporation dated
March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.2+* Amendment to the Agency Agreement between the Registrant and Sumitomo Corporation
dated June 26, 1992. Filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.3* Short Form Lease from Trustees of the Cambridge East Trust to the Registrant dated
July 1, 1992. Filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.4* Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated
December 21, 1992. Filed as Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.5* Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992. Filed as
Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.6* First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993. Filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.7* Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993. Filed as
Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.8* First Amendment Lease From Trustees of the Cambridge Trust to the Registrant dated
October 20, 1993. Filed as Exhibit 10.8 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.9* Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6, 1994.
Filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.10* Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994. Filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.11+* Amendment Agreement to the Agency Agreement between the Registrant and Sumitomo
Corporation dated September 15, 1994. Filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.12* Second Amendment Lease From Trustees of the Cambridge East Trust to the Registrant
dated September 17, 1994. Filed as Exhibit 10.12 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.13* Convertible Promissory Note Purchase Agreement by and among the Registrant and certain
purchasers named therein dated May 26, 1995. Filed as Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.14+* Amended and Restated License Agreement between the Registrant and The General
Hospital Corporation dated July 10, 1995. Filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.15* Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2, 1995.
Filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.16* Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995. Filed as
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.17* Amendment No. 1 to Convertible Promissory Note Purchase Agreement by and among the
Registrant and certain purchasers named therein dated January 19, 1996. Filed as Exhibit
10.17 to the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.18+* Extension Agreement to Agency Agreement between the Registrant and Sumitomo
Corporation dated March 5, 1996. Filed as Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.19+* Development and License Agreement dated March 29, 1996 by and among the Registrant
and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
</TABLE>
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<TABLE>
<S> <C>
10.20* Third Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated
May 1, 1996. Filed as Exhibit 10.20 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.21* Series D Convertible Preferred Stock Purchase Agreement by and among the Registrant and
certain purchasers named therein dated May 29, 1996. Filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
10.22* Third Amended and Restated Stockholders' Rights Agreement by and among the Registrant
and certain of its stockholders named therein dated May 29, 1996. Filed as Exhibit 10.22
to the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.23* Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29, 1996. Filed
as Exhibit 10.23 to the Company's Registration Statement on Form S-1 (File No. 333-
17581) and incorporated herein by reference.
10.24* Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement dated
May 31, 1996. Filed as Exhibit 10.24 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.25* Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996 between the
Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
10.26+* Strategic Collaboration Agreement between the Registrant and Mallinckrodt Medical, Inc.
and Mallinckrodt Group Inc. dated August 30, 1996. Filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
10.27* Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement dated
December 6, 1996. Filed as Exhibit 10.27 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.28* Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (File No. 333-30531) and incorporated herein by
reference.
10.29* Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.30* Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.31* 1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.32* 1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.33* Form of Consulting and Confidentiality Agreement between the Registrant and certain
consultants of the Registrant. Filed as Exhibit 10.33 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.34* Form of Invention and Non-disclosure Agreement between the Registrant and certain
employees of the Registrant. Filed as Exhibit 10.34 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.35* Form of Non-Competition and Non-Solicitation Agreement between the Registrant and
certain employees of the Registrant. Filed as Exhibit 10.35 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.36* Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.37* Form of Stock Purchase and Right of First Refusal Agreement. Filed as Exhibit 10.37 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.38* Collaboration Agreement effective as of June 20, 1997 between Dyax
Corp. and the Registrant. Filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the period ended September 30, 1997
(File No. 000-21863) and incorporated herein by reference.
10.39 Short Form Lease from Trustees of the Cambridge East Trust to the
Registrant with a commencement date of January 1, 1998. Filed
herewith.
23.1 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP. Filed herewith.
24.1 Power of Attorney (set forth on the Signature Page herein).
24.2 Certified resolutions of the Registrant authorizing power of attorney. Filed herewith.
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act.
* Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item 14- Indemnification
of Directors and Officers" above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, State of
Massachusetts, on October 21, 1997.
EPIX MEDICAL, INC.
By: /s/ Michael D. Webb
-------------------------------------
Michael D. Webb
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of EPIX Medical, Inc., hereby
severally constitute and appoint Michael D. Webb and William T. Whelan, and each
of them singly, our true and lawful attorneys, with full power to them in any
and all capacities, to sign any amendments to this Registration Statement on
Form S-1 (including Pre- and Post-Effective Amendments), and any related Rule
462(b) registration statement or amendment thereto, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ------------------------------------ -----------------
<S> <C> <C>
/s/ Michael D. Webb President, Chief Executive Officer
- ------------------------------ and Director (Principal Executive
Michael D. Webb Officer October 21, 1997
/s/ Jeffrey R. Lentz Chief Financial Officer, and Vice
- ------------------------------ President, Finance and
Jeffrey R. Lentz Administration (Principal Financial
Officer and Principal Accounting
Officer) October 21, 1997
/s/ Christopher F. O. Gabrieli Director and Chairman of the
- ------------------------------ Board
Christopher F. O. Gabrieli October 21, 1997
/s/ Stanley T. Crooke Director
- ------------------------------
Stanley T. Crooke, M.D., Ph.D. October 21, 1997
/s/ Luke B. Evnin Director
- ------------------------------
Luke B. Evnin, Ph.D. October 21, 1997
/s/ Randall B. Lauffer Director
- ------------------------------
Randall B. Lauffer, Ph.D. October 21, 1997
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------- ------------------------------------------------------------------------------------- -----
<S> <C> <C>
1.1 Form of Underwriting Agreement. Filed herewith.
3.1* Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
3.2* Amended and Restated By-Laws of the Registrant, as amended. Filed as Exhibit 4.2
to the Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
4.1* Specimen certificate for shares of Common Stock of the Registrant. Filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
10.1+* Agency Agreement between the Registrant and Sumitomo Corporation dated
March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.2+* Amendment to the Agency Agreement between the Registrant and Sumitomo
Corporation dated June 26, 1992. Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.3* Short Form Lease from Trustees of the Cambridge East Trust to the Registrant
dated July 1, 1992. Filed as Exhibit 10.3 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.4* Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated
December 21, 1992. Filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.5* Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992.
Filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.6* First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993. Filed
as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.7* Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993.
Filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.8* First Amendment Lease From Trustees of the Cambridge Trust to the Registrant
dated October 20, 1993. Filed as Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.9* Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6,
1994. Filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.10* Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994. Filed
as Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.11+* Amendment Agreement to the Agency Agreement between the Registrant and
Sumitomo Corporation dated September 15, 1994. Filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.12* Second Amendment Lease From Trustees of the Cambridge East Trust to the
Registrant dated September 17, 1994. Filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------- ----------------------------------------------------------------------------------- -----
<S> <C> <C>
10.13* Convertible Promissory Note Purchase Agreement by and among the Registrant and
certain purchasers named therein dated May 26, 1995. Filed as Exhibit 10.13 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.14+* Amended and Restated License Agreement between the Registrant and The General
Hospital Corporation dated July 10, 1995. Filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.15* Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2,
1995. Filed as Exhibit 10.15 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.16* Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995.
Filed as Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.17* Amendment No. 1 to Convertible Promissory Note Purchase Agreement by and
among the Registrant and certain purchasers named therein dated January 19,
1996. Filed as Exhibit 10.17 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.18+* Extension Agreement to Agency Agreement between the Registrant and Sumitomo
Corporation dated March 5, 1996. Filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.19+* Development and License Agreement dated March 29, 1996 by and among the
Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.19 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.20* Third Amendment Lease From Trustees of the Cambridge East Trust to the
Registrant dated May 1, 1996. Filed as Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.21* Series D Convertible Preferred Stock Purchase Agreement by and among
the Registrant and certain purchasers named therein dated May 29,
1996. Filed as Exhibit 10.21 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.22* Third Amended and Restated Stockholders' Rights Agreement by and among the
Registrant and certain of its stockholders named therein dated May 29, 1996.
Filed as Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.23* Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29,
1996. Filed as Exhibit 10.23 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.24* Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement
dated May 31, 1996. Filed as Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.25* Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996
between the Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as
Exhibit 10.25 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.26+* Strategic Collaboration Agreement between the Registrant and Mallinckrodt
Medical, Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed as
Exhibit 10.26 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- -------- --------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.27* Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement
dated December 6, 1996. Filed as Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.28* Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
10.29* Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.30* Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.31* 1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.32* 1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.33* Form of Consulting and Confidentiality Agreement between the Registrant and
certain consultants of the Registrant. Filed as Exhibit 10.33 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.34* Form of Invention and Non-disclosure Agreement between the Registrant and
certain employees of the Registrant. Filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.35* Form of Non-Competition and Non-Solicitation Agreement between the Registrant
and certain employees of the Registrant. Filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.36* Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.37* Form of Stock Purchase and Right of First Refusal Agreement. Filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.38* Collaboration Agreement effective as of June 20, 1997 between Dyax
Corp. and the Registrant. Filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the period ended September 30, 1997
(File No. 000-21863) and incorporated herein by reference.
10.39 Short Form Lease from Trustees of the Cambridge East Trust to the
Registrant with a commencement date of January 1, 1998. Filed
herewith.
23.1 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP. Filed herewith.
24.1 Power of Attorney (set forth on the Signature Page herein).
24.2 Certified resolutions of the Registrant authorizing power of attorney. Filed herewith.
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act.
* Previously filed.
EPIX MEDICAL, INC.
__________ Shares(1)
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
HAMBRECHT & QUIST LLC
BANKAMERICA ROBERTSON STEPHENS
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
EPIX Medical, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell ___________ shares of its authorized but unissued Common Stock,
$.01 par value per share (the "Common Stock") (such shares of Common Stock being
herein called the "Underwritten Stock"). The Company also proposes to grant to
the Underwriters (as hereinafter defined) an option to purchase up to ________
additional shares of Common Stock (the "Company Option Stock") and the
stockholder of the Company named in Schedule II (the "Selling Stockholder")
proposes to grant to the Underwriters (as hereinafter defined) an option to
purchase up to ________ additional shares of Common Stock (the "Selling
Stockholder Option Stock," and together with the Company Option Stock, the
"Option Stock"). The Underwritten Stock and the Option Stock are collectively
referred to herein as the "Stock." The Common Stock is more fully described in
the Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Stockholder hereby confirm their respective
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (the
"Underwriters," which term shall also include any underwriter purchasing Stock
pursuant to Section 3(b) hereof). You represent and warrant that you have been
authorized by each of the other Underwriters to enter into this Agreement on its
behalf and to act for it in the manner herein provided.
1. Registration Statement. The Company has filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-1
(No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (the "Securities Act")
of the Stock. Copies of such registration statement and of each amendment
thereto, if any, including the related preliminary prospectus (meeting the
requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you
and are identical to the electronically transmitted copies thereof filed with
the Commission pursuant to the Commission's Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR"), except to the extent permitted by Regulation
S-T.
- --------
(1) Plus an option to purchase from the Company up to ___________
additional shares to cover over-allotments.
<PAGE>
The term Registration Statement as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock ("Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Stock first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective. For the purposes of this
Agreement, all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to EDGAR.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company and the Selling
Stockholder.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as currently being conducted, and is duly qualified as a
foreign corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, operations, condition (financial or otherwise), results of
operations, income or business prospects of the Company (a "Material Adverse
Effect")).
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material adverse change, or any development for which the Company has a
reasonable basis to believe may result in a prospective material adverse change
in the business, properties, operations, condition (financial or otherwise),
results of operations, income or business prospects of the Company, whether or
not arising from transactions in the ordinary course of business, other than as
set forth in the Registration Statement and the Prospectus, and since such
dates, except in the ordinary course of business, the Company has not entered
into, or agreed to enter into, any material transaction not referred to in the
Registration Statement and the Prospectus.
2
<PAGE>
(iii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, nor
instituted proceedings for that purpose. The Registration Statement and the
Prospectus comply, and on the Closing Date (as hereinafter defined) and any
later date on which Option Stock is to be purchased, the Prospectus will comply,
as to form, in all material respects, with the provisions of the Securities Act
and the rules and regulations of the Commission thereunder. On the Effective
Date, the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading; on
the Effective Date, the Prospectus did not and, on the Closing Date and any
later date on which Option Stock is to be purchased, will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and each of the Prospectus and any
amendments or supplements thereto delivered to you for use in connection with
the offering of the Stock is identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T; provided, however, that none of the representations
and warranties in this subparagraph (iii) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in reliance
upon and in conformity with information herein or otherwise furnished in writing
to the Company by or on behalf of the Underwriters expressly for use in the
Registration Statement or the Prospectus.
(iv) The Stock is duly and validly authorized, will be, when
issued and sold to the Underwriters as provided herein, duly and validly issued,
fully paid and nonassessable and conforms to the description thereof in the
Prospectus. No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the Stock
as contemplated herein.
(v) Except as set forth in the Prospectus, to the best of the
Company's knowledge, the Company now holds, and on the Closing Date and any
later date on which Option Stock is to be purchased will hold, all material
licenses, certificates and permits from state, federal and other regulatory
authorities which are necessary for the conduct of the business of the Company
as currently conducted; the Company is not in violation of its corporate charter
or by-laws, or in default in the performance or observance of any provision of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument which is an exhibit to the Registration Statement and to which it is
a party or by which it or any of its properties is bound or, to the best of the
Company's knowledge, in violation of any law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality or court,
domestic or foreign statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or over the
properties of the Company, which violation or default would have a Material
Adverse Effect.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company; the performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument which is an exhibit to the Registration Statement and to
which the Company is a party or by which the property of the Company is bound or
(ii) the corporate charter or by-laws of the Company.
3
<PAGE>
(vii) The Company owns, or is licensed or possesses adequate
rights to use and sublicense, all patents, patent rights, inventions, trade
secrets, licenses, know-how, proprietary techniques, including processes,
trademarks, service marks, trade names, copyrights and other intellectual
property described or referred to in the Registration Statement and the
Prospectus as owned, licensed or used by it or, except as set forth in the
Prospectus, which are necessary for the conduct of its business as currently
conducted (which current business is as described in the Registration Statement
and the Prospectus). Except as set forth or referred to in the Prospectus, to
the best of the Company's knowledge, all such patents, patent rights, licenses,
trademarks, service marks and copyrights are not being infringed by any third
parties which infringement could, whether singly or in the aggregate, materially
and adversely affect the business, properties, operations, condition (financial
or otherwise), results of operations, income or business prospects of the
Company, as presently being conducted or as proposed to be conducted in the
Prospectus. Except as set forth in the Prospectus, the Company has not received
any notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, inventions, trade secrets, licenses,
know-how, proprietary techniques including processes and substances, trademarks,
service marks, trade names, copyrights or other intellectual property which,
singly or in the aggregate, is, or is reasonably likely to be, the subject of an
unfavorable decision, ruling or finding that could have a Material Adverse
Effect.
(viii) Upon filing of the Amended and Restated Certificate of
Incorporation of the Company (a true and correct copy of which has previously
been shown to your counsel) with the Secretary of State of the State of Delaware
and upon consummation of the transactions contemplated hereby, the authorized
and outstanding shares of capital stock of the Company will be as set forth in
the Prospectus under the caption "Description of Capital Stock" provided that
the outstanding shares shall have increased by the number of shares as have been
issued after September 30, 1997 and prior to the Closing Date pursuant to the
Company's 1996 Director Stock Option Plan, Amended and Restated 1992 Equity
Incentive Plan and 1996 Employee Stock Purchase Plan (collectively, the
"Plans"). On the Closing Date the capital stock of the Company will conform to
the description thereof in the Registration Statement under the caption
"Description of Capital Stock." There are no outstanding options, warrants or
other rights granted to or by the Company to purchase shares of Common Stock or
other securities of the Company, other than as described in the Prospectus. To
the best knowledge of the Company, no such option, warrant or other right has
been granted to any person, the exercise of which would cause such person to own
more than five percent (5%) of the Common Stock outstanding immediately after
the offering other than as described in the Prospectus. No person or entity
holds a right to require or participate in a registration under the Securities
Act of shares of Common Stock of the Company which right has not been
irrevocably waived by the holder thereof as of the date hereof with respect to
the registration of shares pursuant to the Registration Statement. Except as set
forth in the Prospectus, no person or entity holds a right to require
registration under the Securities Act of shares of Common Stock of the Company
at any other time. Except for rights terminating upon the consummation of the
offering of the Stock, no person or entity has a right of first refusal or
participation with respect to the sale of shares of the Stock by the Company.
The Company has no subsidiaries.
(ix) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement, present
fairly the financial position, results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. The information
set forth in such financial statements is true, complete and correct in all
material respects and has been derived from the books and records of the
Company, and such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
4
<PAGE>
periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary financial and other data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
(x) Ernst & Young LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Securities Act
and the rules and regulations thereunder.
(xi) The Company has registered the Common Stock pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the NASD is contemplating
terminating such registration or listing. The Company has filed an application
to list the Stock on the Nasdaq National Market, and has received notification
that the listing has been approved, subject to notice of issuance of the Stock.
(xii) The Company is familiar with the Investment Company Act
of 1940, as amended (the "Investment Company Act"), and has in the past
conducted its affairs in such a manner to ensure that the Company was not and is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act, and the rules and regulations
thereunder.
(xiii) There are no legal or governmental proceedings pending
to which the Company is a party or to which any property or assets of the
Company is the subject which, if determined adversely to the Company, might
result in a Material Adverse Effect; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(b) The Selling Stockholder represents and warrants as follows:
(i) The Selling Stockholder has good and marketable title to
all the shares of Stock to be sold by the Selling Stockholder hereunder, free
and clear of all liens, encumbrances, equities, security interests and claims
whatsoever, with full right and authority to deliver the same hereunder, subject
to the rights of the Company, as custodian (the "Custodian"), and that upon the
delivery of and payment for such shares of the Stock hereunder, the several
Underwriters will receive good and marketable title thereto, free and clear of
all liens, encumbrances, equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the
Stock to be sold by the Selling Stockholder have been placed in custody under a
Letter of Transmittal and Custodian Agreement (the "Custody Agreement") for
delivery under this Agreement with the Company, as custodian (the "Custodian");
the Selling Stockholder specifically agrees that the shares of the Stock
represented by the certificates so held in custody for the Selling Stockholder
are subject to the interest of the several Underwriters and the Company, that
the arrangements made by the Selling Stockholder for such custody, including the
Selling Stockholder's Irrevocable Power of Attorney (the "Power of Attorney")
provided for in the Custody Agreement, are not to be terminated by any act of
the Selling Stockholder or by
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operation of law, whether by the death or incapacity of the Selling Stockholder
or the occurrence of any other event; if any such death, incapacity,
dissolution, liquidation or other such event should occur before the delivery of
such shares of the Stock hereunder, certificates for such shares of Stock shall
be delivered by the Custodian in accordance with the terms and conditions of
this Agreement as if such death, incapacity, dissolution, liquidation or other
event had not occurred, regardless of whether the Custodian shall have received
notice of such death, incapacity, dissolution, liquidation or other event.
(iii) All consents, approvals, authorizations and orders
necessary for the execution and delivery by the Selling Stockholder of this
Agreement, the Power of Attorney and the Custody Agreement, and (assuming the
making of all filings required under Rule 424(b) or Rule 430A and the due
qualification of the Stock for public offering by the Underwriters under state
and foreign securities laws) for the sale and delivery of the Stock to be sold
by the Selling Stockholder hereunder, have been obtained; and the Selling
Stockholder has the right, power and authority to enter into this Agreement, the
Power of Attorney and Custody Agreement and to sell, assign, transfer and
deliver the Stock to be sold by the Selling Stockholder hereunder; the Power of
Attorney and the Custody Agreement constitute valid and binding obligations and
agreements of the Selling Stockholder in accordance with their respective terms.
(iv) The performance of this Agreement, the Selling
Stockholder's Irrevocable Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not result
in a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Selling Stockholder is a party or by which
the Selling Stockholder is bound, or (assuming the making of all filings
required under Rule 424(b) or Rule 430A and the due qualification of the Stock
for public offering by the Underwriters under state and foreign securities laws)
any statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Selling Stockholder or the property of the
Selling Stockholder.
(v) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which has constituted, or which is designed
to or might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Stock.
(vi) The Selling Stockholder has reviewed the Registration
Statement and Prospectus and nothing has come to the attention of the Selling
Stockholder that would lead the Selling Stockholder to believe that either (A)
on the Effective Date, the Registration contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
(B) on the Effective Date the Prospectus contained and, on the Closing Date and
any later date on which Option Stock is to be purchased, contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
shares of the Underwritten Stock to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company, the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at
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which such shares of Underwritten Stock shall be sold by the Company and
purchased by the several Underwriters shall be $___ per share. In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraphs (b) and (c) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice thereof
to you, and the non-defaulting Underwriters shall have the right within 24 hours
after the receipt by you of such notice to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or to the Selling Stockholder. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained and subject to the terms and conditions herein set forth, the
Selling Stockholder hereby grants an option to the several Underwriters to
purchase the Selling Stockholder Option Stock at the same price per share as the
Underwriter pays for the Underwritten Stock. Subject to the exercise by the
several Underwriters of the option to acquire all of the Selling Stockholder
Option Stock, on the basis of the representations, warranties and covenants
herein contained and subject to the terms and conditions herein set forth the
Company hereby grants an option to the several Underwriters to purchase the
Company Option Stock at the same price per share as the Underwriters shall pay
for the Underwritten Stock. The maximum aggregate number of shares of Option
Stock to be sold by the Selling Stockholder and the
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Company is ______ and _______, respectively. Said options may be exercised only
to cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the thirtieth day after the date of this Agreement upon
written or telegraphic notice by you to the Company and the Selling Stockholder
setting forth the aggregate number of shares of the Option Stock as to which the
several Underwriters are exercising the option. Delivery of certificates for the
shares of Option Stock, and payment therefor, shall be made as provided in
Section 5 hereof. The number of shares of the Option Stock to be purchased by
each Underwriter shall be the same percentage of the total number of shares of
the Option Stock to be purchased by the several Underwriters as such Underwriter
is purchasing of the Underwritten Stock, as adjusted by you in such manner as
you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the public offering by the Underwriters of the Stock
to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page, the last paragraph on the inside front cover and under "Underwriting" in
the Registration Statement, any Preliminary Prospectus and the Prospectus
relating to the Stock filed by the Company (insofar as such information relates
to the Underwriters) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 a.m., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Palmer & Dodge LLP, One Beacon Street, Boston, MA 02108, at
7:00 a.m., San Francisco time, on the third business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such third business day, as shall be agreed upon in writing by the
Company and you. The date and hour of such delivery and payment (which may be
postponed as provided in Section 3(b) hereof) are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Palmer & Dodge LLP, One Beacon
Street, Boston, MA 02108, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order by wire transfer or certified or official bank check or
checks in same day funds, and payment for the Stock purchased from the Selling
Stockholder shall be made to the Custodian, for the account of the Selling
Stockholder. Such payment shall be made upon delivery of certificates for the
Stock to you for
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the respective accounts of the several Underwriters against receipt therefor
signed by you. Certificates for the Stock to be delivered to you shall be
registered in such name or names and shall be in such denominations as you may
request at least one business day before the Closing Date in the case of
Underwritten Stock, and at least one business day prior to the purchase thereof
in the case of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the business day
prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New
York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholder as the case may be, for shares to be purchased by
any Underwriter whose check shall not have been received by you on the Closing
Date or any later date on which Option Stock is purchased for the account of
such Underwriter. Any such payment by you shall not relieve such Underwriter
from any of its obligations hereunder.
6. Further Agreements of the Company. The Company covenants and agrees
as follows:
(a) The Company will (i) to the extent necessary, prepare and timely
file with the Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or the
rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act. The
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Registration Statement, the Prospectus and any amendments or supplements thereto
furnished to you will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the Stock,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the public offering of
the Stock by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company or
of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and all
dealers to whom any of the Stock may be sold by the several Underwriters to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Stock in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports, documents or statements
furnished to stockholders of the Company or filed with the Commission (including
the Report on Form SR required by Rule 463 of the Commission under the
Securities Act). If applicable, any such document furnished to you will be
identical to the electronically transmitted copy thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its stockholders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholder (other
than underwriting discounts and selling commissions) under this Agreement,
including all costs and expenses incident to (i) the preparation, printing and
filing with the Commission and the NASD of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the photocopying of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v)
the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The Selling
Stockholder will pay any transfer taxes incident to the transfer to the
Underwriters of the shares of the Stock being sold by the Selling Stockholder.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for fees and related disbursements (including, without limitation,
counsel fees and disbursements and the cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Stock under state securities or blue sky laws and in the review
of the offering by the NASD.
(k) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
for a period of 90 days following the date of the Prospectus, (i) sell, offer,
contract to sell, make any short sale, pledge, transfer or otherwise dispose of,
directly or indirectly, any shares of Common Stock (including any stock
appreciation right or similar right with an exercise or conversion privilege at
a price related to, or derived from, the market price of the Common Stock) or
any securities convertible into or exchangeable or exercisable for shares of
Common Stock, or (ii) engage in any hedging transaction with respect to any
shares of Common Stock that may have an impact on the market price of the Common
Stock, whether any such transaction is to be settled by delivery of Common Stock
or such other securities, in cash or otherwise. The prohibition in clause (i) of
the foregoing sentence shall not apply to (A) the sale of Stock to be sold to
the Underwriters pursuant to this Agreement, (B) the issuance of shares of
Common Stock by the Company pursuant to the Plans and (C) the grant of options
to purchase Common Stock under the Plans.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
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(m) The Company will in the future conduct its affairs in such a manner
to ensure that the Company will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act, and the rules and regulations thereunder.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise, and the
Company agrees to reimburse each such Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of a single counsel for all indemnified
parties) incurred by the respective indemnified parties in connection with
defending against any such losses, claims, damages or liabilities or in
connection with any investigation or inquiry of, or other proceeding which may
be brought against, the respective indemnified parties, in each case arising out
of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the Prospectus
as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Subject to the provisions of Subsection (g) below, the Selling
Stockholder agrees to indemnify and hold harmless each Underwriter and each
person (including each partner or officer thereof) who controls any Underwriter
within the meaning of Section 15 of the Securities Act from and against any and
all losses, claims, damages or liabilities, joint or several, to which such
indemnified
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parties or any of them may become subject under the Securities Act, the Exchange
Act, or the common law or otherwise, and the Selling Stockholder agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of a single counsel for all indemnified parties) incurred by
the respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or (iii) any breach of any
representation, warranty, agreement or covenant of the Selling Stockholder
contained herein; provided, however, that (1) the indemnity agreements of the
Selling Stockholder contained in this paragraph (b) shall not apply to any such
losses, claims, damages, liabilities or expenses if such statement or omission
was made in reliance upon and in conformity with information furnished as herein
stated or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto and (2)
the indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Selling Stockholder contained in this paragraph (b) and the representations
and warranties of the Company contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Selling Stockholder, the Company, each of its officers who signs the
Registration Statement on his or her own behalf or pursuant to a power of
attorney, each of its directors, each other Underwriter and each person
(including each partner or officer thereof) who controls the Company or any such
other Underwriter within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of a single
counsel for all indemnified parties) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any
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untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (c) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(d) Each party indemnified under the provision of paragraphs (a), (b)
and (c) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties (it being agreed that Palmer & Dodge LLP is satisfactory in
circumstances in which the Company
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is an indemnifying party), the indemnifying party or parties will not be liable
under paragraphs (a) through (d) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within ten (10) business
days after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a), (b) or (c) of this Section 7, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in paragraph (a), (b) or (c) of this Section 7 (i) in
such proportion as is appropriate to reflect the relative benefits received by
each indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Stock received by the Company and the Selling
Stockholder and the total underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by each indemnifying party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (e) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(e). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof referred to in the first
sentence of this paragraph (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim
which is the subject of this paragraph (e). Notwithstanding the provisions of
this paragraph (e), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
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Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the failure to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(f) No indemnifying party shall, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or any person who controls such Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
(g) In no event shall the liability of the Selling Stockholder for
indemnification under this Section 7 exceed the lesser of (i) that percentage of
the total amount of such losses, claims, damages or liabilities indemnified
against which equals the percentage obtained by dividing the total number of
shares of Stock sold by the Selling Stockholder hereunder by the total number of
shares of Stock sold hereunder, or (ii) the proceeds received by the Selling
Stockholder from the Underwriters in the offering.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Stockholder if after the date of this Agreement trading in the Common
Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, or the Nasdaq National Market or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business, properties, operations, condition
(financial or otherwise), results of operations, income or business prospects of
the Company, (v) declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
the Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
pursuant to this Section 8, there shall be no liability of the Company or the
Selling Stockholder to the Underwriters and no liability of the Underwriters to
the Company or the Selling Stockholder; provided, however, that in the event of
any such termination the Company agrees to indemnify and hold harmless the
Underwriters from all actual, accountable, out-of-pocket costs and expenses
incident to the performance of the obligations of the Company under this
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<PAGE>
Agreement, including all actual, accountable, out-of-pocket costs and expenses
referred to in paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and the Selling Stockholder of all their respective
obligations to be performed hereunder at or prior to the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be, and to
the following further conditions:
(a) The Registration Statement shall have become effective, and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to the
Closing Date by Hale and Dorr LLP, counsel for the Underwriters.
(c) You shall have received from Palmer & Dodge LLP, counsel for the
Company and the Selling Stockholder, an opinion, addressed to the Underwriters
and dated the Closing Date, covering the matters set forth in Annex A hereto,
and if Option Stock is purchased at any date after the Closing Date, additional
opinions from such counsel, addressed to the Underwriters and dated such later
date, confirming that the statements expressed as of the Closing Date in such
opinion remain valid as of such later date.
(d) You shall have received from Fish & Neave, patent counsel for the
Company, an opinion, addressed to the Underwriters and dated the Closing Date,
to the effect that they serve a patent counsel to the Company with respect to
the issued patents, pending and contemplated patent applications, trade secrets
and the proprietary technology that the Company owns or has rights to, and
covering the matters set forth in Annex B hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date, in such opinion remain
valid as of such later date.
(e) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct in all material respects and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not misleading,
(ii) since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, operations,
condition (financial or otherwise), results of operations, income or business
prospects of the Company, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, the Company has not entered into, or agreed to enter
17
<PAGE>
into, any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus contained
therein, (iv) the Company has no material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are no
pending or threatened legal proceedings to which the Company is a party or of
which property of the Company is the subject which are material and which are
not disclosed in the Registration Statement and the Prospectus, (vi) there are
no franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed as
required, (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any later
date on which Option Stock is to be purchased, as the case may be, and (viii)
there has not been any material change in the market for securities in general
or in political, financial or economic conditions from those reasonably
foreseeable that would render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in market
levels for securities in general (or those of companies such as the Company in
particular) or financial or economic conditions which render it inadvisable to
proceed.
(f) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the Chief Executive Officer and
the Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (e) of this Section 9 are
true and correct.
(g) You shall have received from Ernst & Young LLP a letter or letters,
addressed to the Underwriters and dated the Closing Date and any later date on
which Option Stock is purchased, confirming that they are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and based upon the
procedures described in their letter delivered to you concurrently with the
execution of this Agreement (the "Original Letter"), but carried out to a date
not more than five business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your sole judgment makes it impractical or inadvisable to
proceed with the public offering of the Stock or the purchase of the Option
Stock as contemplated by the Prospectus.
(h) You shall have received on the Closing Date a certificate from the
Selling Stockholder stating that:
(i) The representations and warranties made by such Selling
Stockholder herein are true and correct on the Closing Date; and
(ii) Such Selling Stockholder has complied with each
obligation which is required to be performed on his part at or prior to the
Closing Date.
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(i) You shall have received from Ernst & Young LLP a letter stating
that (i) they have performed the procedures set out in Statement on Auditing
Standards No. 71 ("SAS71") for a review of interim financial information for
each of the quarters in the three-quarter period ended September 30, 1997 (the
"Quarterly Financial Statements"), (ii) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented and there was no evidence of
any weakness in internal controls that they considered to be material
weaknesses.
(j) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(k) Prior to the Closing Date, the Stock to be issued and sold by the
Company and the Selling Stockholder shall have been accepted for listing by the
Nasdaq National Market upon notice of issuance.
(l) On or prior to the Closing Date, you shall have received from all
directors, officers, and certain beneficial holders of the outstanding capital
stock of the Company, agreements, in form reasonably satisfactory to Hambrecht &
Quist LLC, stating that without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, such person or entity will not, for a period
of 90 days after the date of the Prospectus, (i) sell, offer, contract to sell,
make any short sale, pledge, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock (including any stock appreciation right
or similar right with an exercise or conversion privilege at a price related to,
or derived from, the market price of the Common Stock) or any securities
convertible into or exchangeable or exercisable for shares of Common Stock owned
directly by the undersigned or with respect to which the undersigned has the
power of disposition (including, without limitation, shares of Common Stock
which the undersigned may be deemed to beneficially own in accordance with the
rules and regulations promulgated under the Securities and Exchange Act of 1934,
as amended), or (ii) engage in any hedging transaction with respect to any
shares of Common Stock that may have an impact on the market price of the Common
Stock, whether any such transaction is to be settled by delivery of Common Stock
or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Hale and Dorr LLP, counsel for the Underwriters, shall
be reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company or the
Selling Stockholder to the Underwriters and without liability of the
Underwriters to the Company or the Selling Stockholder; provided, however, that
(i) in the event of such termination, the Company agrees to indemnify and hold
harmless the Underwriters from all actual, accountable, out-of-pocket costs and
expenses incident to the performance of the obligations of the Company and the
Selling Stockholder under this Agreement, including all actual, accountable,
out-of-pocket costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholder to perform any agreement herein, to fulfill any of the conditions
required to be performed by it herein, or to
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comply with any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all actual, accountable, out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
Company and the Selling Stockholder to deliver the Stock shall be subject to the
conditions that (a) the Registration Statement shall have become effective and
(b) no stop order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company and the
Selling Stockholder to the Underwriters and without liability of the
Underwriters to the Company and the Selling Stockholder; provided, however, that
in the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters from all actual, accountable, out-of-pocket costs and
expenses incident to the performance of the obligations of the Company under
this Agreement including all actual, accountable, out-of-pocket costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 7 of this Agreement, the Company and the Selling
Stockholder each hereby agree to reimburse on a quarterly basis the Underwriters
for all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 7 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company or the Selling Stockholder as the
case may be, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company, the Selling Stockholder and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Stockholder and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such, of any of the
Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telecopied or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; telecopy (415)399-4325; if to the Company,
shall be mailed, telecopied or delivered to it at its office, 71 Rogers Street,
Cambridge, MA 02142, Attention: Chief Executive Officer; telecopy (617)499-1414;
and if to the Selling Stockholder, shall be mailed, telecopied or delivered to
the Selling Stockholder in care of the Custodian, Epix
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Medical, Inc., 71 Rogers Street, Cambridge, MA 02142, Attention: Chief Executive
Officer; telecopy (617) 499-1414. All notices given by telecopy shall be
promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(k) and (1) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
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Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very Truly Yours,
EPIX MEDICAL, INC.
By: ------------------------------
Michael D. Webb
President and Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
HAMBRECHT & QUIST LLC
BANKAMERICA ROBERTSON STEPHENS
By: HAMBRECHT & QUIST LLC
By: ----------------------------
Managing Director
Acting on behalf of the several Underwriters, including themselves, named in
Schedule I hereto.
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SCHEDULE I
UNDERWRITERS
Number of Shares of
Underwritten Stock
Underwriters to be Purchased
Hambrecht & Quist LLC.................................
BankAmerica Robertson Stephens........................
Total........................................
===========
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SCHEDULE II
SELLING STOCKHOLDER
24
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ANNEX A
Matters to be Covered in the Opinion of
Counsel for the Company
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is duly
qualified to do business and is in good standing as a foreign corporation in the
Commonwealth of Massachusetts. The Company has all corporate power and authority
necessary to own or hold its properties and conduct the business in which it is
presently engaged.
2. The Company's authorized capitalization consists of 15,000,000
shares of Common Stock, $.01 par value per share, and 1,000,000 shares of
Preferred Stock, $0.01 par value per share. All of the issued and outstanding
shares of capital stock of the Company have been, and the shares of the Stock
being delivered on the date hereof, upon issuance and delivery and payment
therefor in the manner described in the Underwriting Agreement, will be, duly
and validly authorized and issued, fully paid and non-assessable with no
personal liability attaching to the ownership thereof. The statements made in
the Prospectus under the caption "Description of Capital Stock," insofar as they
purport to constitute summaries of the terms of the Company's capital stock
(including the Stock), constitute accurate summaries of the terms of such
capital stock in all material respects and fairly present in all material
respects the information called for with respect thereto by Item 202 of
Regulation S-K promulgated by the Commission.
3. There are no preemptive or other rights to subscribe for or to
purchase or rights of first refusal or participation with respect to any shares
of Common Stock pursuant to the Company's charter or by-laws or, to our
knowledge, any agreement or other instrument. To our knowledge, except as
described in the Prospectus and as provided in the Company charter and by-laws,
there are no restrictions upon the voting or transfer of any shares of Common
Stock pursuant to any agreement or other instrument.
4. To our knowledge, but without inquiry into the dockets of any court,
commission, regulatory body, administrative agency or other government body,
there are no legal or governmental proceedings pending to which the Company is a
party or to which any property or assets of the Company is subject which, if
determined adversely to the Company, are reasonably likely to have a material
adverse effect on the business, properties, operations, condition (financial or
otherwise), results of operations, income or business prospects of the Company
and, to our knowledge, no such proceedings are threatened by governmental
authorities or by others.
5. The Registration Statement has been declared effective under the
Securities Act and, to our knowledge based upon a conversation with the Staff of
the Commission, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is pending or
threatened by the Commission.
6. The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to the date hereof
(other than the financial statements, financial and statistical information, pro
forma financial information and related schedules and notes thereto, as to which
we express no opinion) comply as to form in all material respects with the
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requirements of the Securities Act and the rules and regulations promulgated by
the Commission. In passing upon the form of such documents, we have not
independently verified and are not passing upon, and have assumed the
correctness and completeness of, the statements made therein.
7. To our knowledge, there are no contracts or other documents that are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the rules and regulations
promulgated by the Commission that have not been described or filed as exhibits
to the Registration Statement.
8. The Company has adequate corporate power and authority to execute
and deliver the Underwriting Agreement and to perform its obligations
thereunder, and all corporate action required to be taken for the due and proper
authorization, issuance, sale and delivery of the Common Stock to be issued and
sold by the Company under the Underwriting Agreement and the consummation of the
transactions contemplated thereby to be effected by the Company have been duly
and validly taken by the Company.
9. The Underwriting Agreement has been duly authorized, executed, and
delivered by the Company.
10. To our knowledge, the issuance and sale of the shares of Stock
being delivered on the date hereof by the Company, the compliance by the Company
with all of the provisions of the Underwriting Agreement and the consummation of
the transactions contemplated thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default, an event of default, or an event which, with notice or lapse of time or
both, would constitute a default or event of default under, any indenture,
mortgage, deed of trust, loan agreement, or other agreement or instrument filed
as an exhibit to the Registration Statement, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company or any
material statute, order, rule or regulation applicable to the Company or, any
judgment, order or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or assets, except for
such conflicts, breaches, violations and defaults as are not reasonably likely,
individually or in the aggregate, to have (a) a Material Adverse Effect or (b)
any adverse effect on the consummation of the transactions contemplated by the
Underwriting Agreement. Except for the registration of the Stock under the
Securities Act, and such consents, approvals, authorizations, registrations, or
qualifications as may be required under the Exchange Act and applicable state or
foreign securities laws in connection with the purchase and distribution of the
Stock by the Underwriters thereof, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental agency or
body is required on the part of the Company for the issuance and sale of the
shares of Stock being delivered on the date hereof by the Company, the
compliance by the Company with all of the provisions of the Underwriting
Agreement or the consummation of the transactions contemplated thereby.
11. The Underwriting Agreement has been duly executed and delivered by
or on behalf of the Selling Stockholder and the Letter of Transmittal and
Custodian Agreement between the Selling Stockholder and the Company, as
Custodian, and the Power of Attorney referred to in such Letter of Transmittal
and Custodian Agreement have been duly executed and delivered by the Selling
Stockholder.
12. Upon delivery to the Underwriters of a certificate for such of the
Stock that is being sold by the Selling Stockholder under the Underwriting
Agreement and payment for such Stock by the
26
<PAGE>
Underwriters, each Underwriter will acquire all of the rights of such Selling
Stockholder in such Stock, and each Underwriter will also acquire such Stock
free of any "adverse claim" (within the meaning of Section 8-302(2) of the
Uniform Commercial Code).
13. To our knowledge, except as described under the caption "Shares
Eligible for Future Sale - Registration Rights" in the Preliminary Prospectus
there are no contracts, agreements or understandings in effect on the date
hereof between the Company and any person granting such person the right to
require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the Registration
Statement or in any other registration statement filed by the Company under the
Securities Act.
14. The Stock issued and sold by the Company has been accepted for
listing by the Nasdaq National Market upon notice to the Nasdaq National Market.
In connection with the preparation of the Registration Statement and
the Prospectus, we have participated in conferences with officers and
representatives of the Company and the independent accountants of the Company,
at which conferences we have made inquiries of such persons and others and
discussed the contents of the Registration Statement and the Prospectus. While
the limitations inherent in the independent verification of factual matters and
the character of determinations involved in the registration process are such
that we are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except as specifically stated
elsewhere in this opinion), nothing has come to our attention that has caused us
to believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading (except that we express no view or opinion with respect
to the financial statements and schedules or other financial and statistical
data included in the Registration Statement), and nothing has come to our
attention that has caused us to believe that the Prospectus, as of its date and
as of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that we express no view or opinion with respect to the
financial statements and schedules or other financial and statistical data
included in the Prospectus).
-----------------------------------------------------
27
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of
Patent Counsel for the Company
1. With respect to the U.S. patent and each of the U.S. patent
applications referred to in the Registration Statement which are listed in
Schedules ____, nothing has come to our attention which would cause us to
believe that the sections of the Registration Statement entitled "Risk Factors
Dependence on [ ]"; and "Business - Patents and Proprietary Rights", at the time
the Registration Statement became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, not misleading.
2. With respect to the U.S. patent and each of the U.S. patent
applications referred to in the Prospectus which are listed in Schedules ____,
nothing has come to our attention which would cause us to believe that the
sections of the Prospectus entitled "Risk Factors - Dependence on Patents and
Proprietary Rights"; and "Business - Patents and Proprietary Rights", as of its
date and as of the Closing Date, contain any untrue statement of material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
3. To the best of our actual knowledge, except as described in the
Prospectus, and with the exception of ex parte proceedings before the U.S.
Patent and Trademark Office, there are no pending, or threatened, legal or
governmental proceedings relating to the U.S. patent or any of the U.S. patent
applications listed in Schedules ----
4. To the best of our actual knowledge, except as described in the
Prospectus, the Company owns each of the U.S. patent applications referred to in
the Prospectus that are listed in Schedules ____.
5. To the best of our actual knowledge, the Company has not received
any notice challenging the validity or enforceability of the U.S. patents listed
in Schedule ____.
6. While there can be no guarantee that any particular patent
application will issue as a patent, each of the U.S. patent applications
referred to in the Prospectus which is listed in Schedules ____ was properly
filed, and is being properly and diligently prosecuted, in the U.S. Patent and
Trademark Office.
7. To the best of our actual knowledge, for each U.S. patent
application listed in Schedules ____, all information known to Fish & Neave, to
date, to be "material to patentability", as defined in 37 C.F.R. ss. 1.56(b),
has been disclosed, or will be disclosed pursuant to 37 C.F.R. ss. 1.97, to the
U.S. Patent and Trademark Office.
8. To the best of our knowledge, no claim, action, suit or proceeding
is presently pending or threatened against the Company relating to the potential
infringement of, or conflict with, any patents of others.
28
[PALMER & DODGE LLP LETTERHEAD]
October 20, 1997
EPIX Medical, Inc.
71 Rogers Street
Cambridge, Massachusetts 02142
We are rendering this opinion in connection with the Registration
Statement on Form S-1 (the "Registration Statement") filed by EPIX Medical, Inc.
(the "Company") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, on or about the date hereof. The Registration Statement
relates to up to 2,587,500 shares of the Company's Common Stock, $0.01 par value
(the "Shares"). We understand that the Shares are to be offered and sold in the
manner described in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the unanimous written consents of
the Board of Directors dated October 20, 1997 executed in connection with the
authorization, issuance and sale of the Shares to be sold by the Company (the
"Resolutions"). We have examined such other documents as we consider necessary
to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and, when issued and delivered by the Company against
payment therefor at the price to be determined pursuant to the Resolutions, will
be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
Palmer & Dodge LLP
For execution
SHORT FORM
LEASE
TRUSTEES OF THE CAMBRIDGE EAST TRUST
TO
EPIX MEDICAL, INC.
AT
63 Rear, 65 Rear, 69, 71 and 75 ROGERS STREET,
CAMBRIDGE, MASSACHUSETTS
Table of Contents
Section Page
1. REFERENCE DATA 4
SIGNATURES 6
CLERK'S CERTIFICATE 7
LIST OF EXHIBITS 7
2. PREMISES 8
2.1 Premises 8
2.2 Deleted 8
2.3 Appurtenant Rights 8
2.4 Landlord's Reservations 8
3. COMMENCEMENT AND TERM OF LEASE 9
3.1 Condition and Delivery of Premises 8
3.2 Habendum 8
3.3 Entry Prior to Commencement Date 8
3.4 Termination Right 8
3.5 Right of First Offer 10
4. PREPARATION OF PREMISES 12
4.1 Tenant's Work 12
5. USE OF PREMISES 13
5.1 Permitted Uses 13
5.2 Prohibited Uses 13
5.3 Licenses and Permits 13
5.4 Signs 13
6. RENT 14
6.1 Annual Fixed Rent 14
<PAGE>
6.2 Additional Rent; Taxes and Operating Expenses 15
6.2.1 Billing of Taxes and Operating Expenses 16
6.2.2 Definition of Operating Expenses 17
6.2.3 Certain Excluded Charges 18
6.3 Late Charges 19
6.4 Security Deposit 19
7. ALLOCATION OF BUILDING SERVICES 21
7.1 Landlord's Duties 21
7.2 Tenant's Duties 21
7.3 Tenant to Pay for All Utilities 21
7.4 Deleted 21
7.4.1 Repairs for Account of Tenant 21
7.5 Curtailed Services 22
7.6 Payment for Tenant's Work 22
8. TENANT'S ADDITIONAL COVENANTS 23
8.1 Compliance with Law, Including Hazardous
Substances 23
8.2 Indemnity 26
8.3 Tenant's Property is Tenant's Risk 26
8.4 Estoppel Certificate 26
8.5 Overloading, Nuisance, Restrictions on
Research Activities; Volatile or Dangerous
Substances 27
8.6 Yield Up 27
8.6.1 What are Intended to be Fixtures 27
8.7 Alterations and Improvements by Tenant
After Term Commencement 28
8.8 Floor Load; Heavy Machinery 28
8.8 Assignment and Subletting 28
8.10 Landlord's Access to Premises 30
8.11 Construction Activity 30
8.l2 Tenant's Financial Statements 30
9. INSURANCE 32
9.1 Public Liability Insurance 32
9.2 Casualty Insurance 32
9.3 Certificates of Insurance 32
9.4 Landlord's Insurance 32
9.5 Waiver of Subrogation 33
9.6 Increase in Insurance Risk 33
10. DAMAGE TO PREMISES AND CONSEQUENCES OF
EMINENT DOMAIN 34
10.1 Repair and Restoration of Casualty Loss 34
10.2 Abatement of Rent 34
10.3 Termination for Major Damage or If Damaged
<PAGE>
at End of Term 34
10.4 Eminent Domain 35
11. DEFAULT AND REMEDIES 37
11.1 Events of Default 37
11.2 Deleted 37
11.3 Damages - Termination 37
11.4 Effect of Tax and Operating Payments
on Damages 38
11.5 Landlord's Expense in Performing
Obligations of Tenant 39
11.6 Landlord's Remedies Not Exclusive 39
11.7 Landlord's Default 39
11.8 Effect of Waivers of Default 39
11.9 Repeated Defaults 39
11.10 No Accord and Satisfaction 40
12. SUBORDINATION 41
12.1 Subordination 41
13. HOLDING OVER 42
13.1 Holding Over 42
14. MISCELLANEOUS PROVISIONS 43
14.1 Notices 43
14.2 Quiet Enjoyment 43
14.3 Limitation of Landlord's Liability 43
14.4 Acts of God 43
14.5 Applicable Law and Construction 43
14.6 Arbitration 44
14.7 Timely Performance 44
14.8 No Broker 44
14.9 Financing Requirements 44
14.10 Agreement Made Only When Lease Signed 44
14.11 Demolition 44
14.12 Relocation 44
14.13 No Parking 45
EXHIBITS 46
LEASE
1. REFERENCE DATA
Each reference in this Lease to the following subjects shall be
construed to incorporate the data for that subject stated in this Section 1.
DATE: As of *date*
<PAGE>
LANDLORD: Bruce A. Beal and Robert L. Beal, Trustees of The Cambridge
East Trust, under declaration of trust dated June 1, 1983
recorded with the South Middlesex Registry of Deeds, Book
15067, Page 392 and registered with the South Middlesex
Registry District of the Land Court as Document 641740 noted
on Certificate of Title 168090, Book 970, Page 140, as
Trustees and not individually
ORIGINAL ADDRESS
OF LANDLORD: c/o Beal and Company, Inc.
177 Milk Street
Boston, Massachusetts 02109
TENANT: EPIX Medical, Inc., a Delaware corporation
ORIGINAL ADDRESS
OF TENANT: 71 Rogers Street, Cambridge Massachusetts 02142
PREMISES: The following premises shown on Exhibit 1:
approximately 2,660 square feet located in the 6,640 square
foot building known as and numbered 63 Rogers Street,
approximately 4,390 square feet located in the 5,360 square
foot building known as and numbered 65 Rogers Street,
approximately 2,500 square feet located in the 2,500 square
foot building known as and numbered 69 Rogers Street,
approximately 2,500 square feet located in the 2,500 square
foot building known as and numbered 71 Rogers Street,
approximately 5,000 square feet located in the 5,000 square
foot building known as and numbered 75 Rogers Street,
all in Cambridge, Massachusetts (collectively, the Building or
Buildings)
FIRST OFFER PREMISES: The following premises shown on Exhibit 1-A:
approximately 3,980 square feet located in the 6,640 square
foot building known as and numbered 63 Rogers Street, and
approximately 971 square feet located in the 6,640 square foot
building known as and numbered 65 Rogers Street
approximately 5,900 square feet located in the 5,900 square
foot building known as and numbered 67 Rogers Street
<PAGE>
also in Cambridge, Massachusetts. If added to the Premises,
these premises also will, with the other Premises, be referred
to collectively as the Building. See Section 3.4 for exercise
rights to lease the First Offer Premises. See Section 6.1 for
Annual Fixed Rent on the First Offer Premises.
TERM: Five years
COMMENCEMENT DATE: January 1, 1998
TERMINATION DATE: December 31, 2002
ANNUAL FIXED RENT:
January 1, 1998 - December 31, 1998 $258,700.00
January 1, 1999 - December 31, 1999 $275,750.00
January 1, 2000 - December 31, 2000 $292,800.00
January 1, 2001 - December 31, 2001 $309,850.00
January 1, 2002 - December 31, 2002 $326,900.00
MONTHLY PAYMENT:
January 1, 1998 - December 31, 1998 $ 21,558.33
January 1, 1999 - December 31, 1999 $ 22,979.17
January 1, 2000 - December 31, 2000 $ 24,400.00
January 1, 2001 - December 31, 2001 $ 25,820.83
January 1, 2002 - December 31, 2002 $ 27,241.67
TENANT'S PERCENTAGE OF
OPERATING EXPENSES: 63 Rogers Street 40.06%
65 Rogers Street 81.90%
69 Rogers Street 100%
71 Rogers Street 100%
75 Rogers Street 100%
and if the First Offer Premises
are added to the Lease:
63 Rogers Street 100%
65 Rogers Street 100%
67 Rogers Street 100%
PERMITTED USES: General Office use and technical office for research development
laboratory or research facility use, and manufacture, processing, assembly and
packaging of drug, all to the extent permitted by applicable law and no other
use
SECURITY DEPOSIT: None
BROKER: The Beal Companies
<PAGE>
SIGNATURES
LANDLORD: TENANT:
Bruce A. Beal and Robert L.
Beal, Trustees as aforesaid
and not individually
By: Beal and Company, Inc., EPIX Medical, Inc.
Managing Agent
By: /s/ Robert Beal /s/ Michael D. Webb
------------------------ -----------------------------------
Robert Beal its Michael D. Webb its President & CEO
hereunto duly authorized hereunto duly authorized
<PAGE>
CLERK'S CERTIFICATE
The undersigned hereby certifies (1) that s/he is the duly elected Clerk of
the corporation executing this Lease as Tenant, (2) that the Tenant's Board of
Directors has duly decided as required by law and the Tenant's governing
documents that the Tenant shall enter into this Lease and has duly empowered the
person who executed this Lease to do so in the name of and on behalf of the
Tenant, and (3) that the Tenant's execution and performance of this Lease is
consistent with and does not contravene or violate the law and governing
documents under which Tenant is organized and operated.
/s/ Jeffrey R. Lentz
-------------------------------
Jeffrey R. Lentz, Clerk
LIST OF EXHIBITS
Exhibit 1 - Floor Plan of Premises
Exhibit 2 - Landlord's Work
Exhibit 3 - Tenant's Work
Exhibit 4 - Clean-up Requirements
<PAGE>
2. PREMISES
2.1 Premises. The Premises are that portion of the Building shown on the Floor
Plan (Exhibit 1) attached hereto and comprise the entire Building as to the
following portions of the Premises: 69 Rogers Street, 71 Rogers Street and 75
Rogers Street.
2.2 Deleted.
2.3 Appurtenant Rights. Subject to Landlord's rules, Tenant shall have, as
appurtenant to the Premises, rights to use in common with others entitled
thereto: (a) the common lobbies and hallways, if any, of the Building; and (b)
any common toilets and other common facilities, if any.
Tenant has exclusive rights to use the entire Building(s) at 69, 71 and
75 Rogers Street. Landlord retains to right to permit restroom use within such
Building(s) as necessary or convenient in the event this Lease is terminated for
any reason as to some but not all of such portion of the Premises.
2.4 Landlord's Reservations. Landlord reserves (a) access to the Premises for
inspection and repair on prior notice reasonable under the circumstances and
during Tenant's business hours; and (b) any space in the Premises used for
shafts, stacks, pipes, conducts, wires and appurtenant fixtures, ducts,
electrical wiring, sinks or other facilities which serve the Building. Access
and repair shall be done in a manner designed to reasonably minimize
interference with Tenant's use of the Premises. Landlord reserves the right to
alter existing patterns of vehicular traffic flow in the vicinity of the
Building including, without limitation, reduction or elimination of vehicular
flow (other than delivery and other service vehicles) on Rogers Street.
<PAGE>
3. COMMENCEMENT AND TERM OF LEASE
3.1 Condition and Delivery of Premises. The Premises are leased to Tenant in
their existing condition without warranty or representations except as stated in
this Lease. Landlord shall deliver possession on the Commencement Date. If
Landlord is unable to do so because a prior tenant or occupant retains
possession, Landlord shall incur no liability thereto nor shall such failure
affect the validity of this Lease except that Annual Fixed Rent and all other
amounts due from Tenant shall be abated pro rata as to the area not delivered
until possession of the occupied space is delivered to Tenant.
Tenant acknowledges that at the time of execution of this Lease Tenant
is in full possession.
3.2 Habendum. To have and to hold the Premises for the Term commencing on the
Commencement Date and ending on the Termination Date or such earlier date upon
which said term may expire or be terminated pursuant to this Lease or pursuant
to law (collectively the "Termination Date").
3.4 Termination Right In the event this Lease is in full force and effect
without notice of default to Tenant or, if such notice of default has been
given, Tenant is acting promptly and diligently to cure the same and applicable
grace periods, if any, have not expired, and the original Tenant holds the
entire Tenant's interest hereunder, the original Tenant shall have the right to
terminate this Lease as to all Premises effective December 31, 1999 (the
"Termination Right"). Tenant shall exercise this Termination Right, if at all,
only by written notice to Landlord given not sooner than January 1, 1999 nor
later than June 1, 1999 stating Tenant's election to terminate this Lease
effective December 31, 1999 and accompanied by payment in good funds of a
termination fee of $125,000.00. If (but only if) so exercised, this Lease shall
thereupon terminate on December 31, 1999 with the same force and effect as if
that had been the originally agreed Termination Date. Following exercise of the
Termination Right, Tenant shall no longer have any Rights of First Refusal, and
any Rights of First Refusal previously exercised which have not been (or are not
to be) added to the Premises with the Term for such Premises begun on or before
January 1, 1999 shall be void and of no further force or effect. Rights of First
Refusal previously exercised as to Premises which have been added to the
Premises, with the Term begun, prior to January 1, 1999 shall not be affected by
Tenant's exercise of the Termination Right.
<PAGE>
3.5 Right of First Offer In the event this Lease is in full force and effect
without notice of default to Tenant or, if such notice of default has been
given, Tenant is acting promptly and diligently to cure the same and applicable
grace periods, if any, have not expired, and the original Tenant holds the
entire Tenant's interest hereunder and is in occupancy of not less than 70% of
the Premises and engaged in the active conduct of its business, the original
Tenant shall have a "right of first offer" to lease all the remaining space at
63 Rogers Street and 65 Rogers Street, and also all the remaining space at 67
Rogers Street, both in Cambridge, Massachusetts shown on Exhibit 1-A attached
hereto (the "First Offer Premises") in their then existing condition, with no
obligation in Landlord with regard to altering or improving the condition
thereof, for an Annual Fixed Rent determined as stated in Section 6.1 for a term
ending on the Termination Date and otherwise on all the terms and conditions of
this Lease. Tenant may exercise the right of first offer (i) as to 63 Rogers
Street and 65 Rogers Street together, (ii) as to 67 Rogers Street only or (iii)
as to all the First Offer Premises, but only on the same, single occasions, and
shall exercise the right of first offer, if at all, only as follows.
The First Offer Premises at 63 Rogers Street and 65 Rogers Street are
presently occupied by Immunetics, Inc. and the First Offer Premises at 67 Rogers
Street are presently occupied by Therion Biologics Corporation, each under
lease. If, during the Term of this Lease, the First Offer Premises are to (or
have) become available for Tenant's use, Landlord shall so notify Tenant. Such
notice shall state the date on which the First Offer Premises in question would
be added to Tenant's leased premises under this Lease (or, if that date is
uncertain, may state the earliest date such First Offer Premises could be added
to Tenant's leased premises under this Lease) and shall be given not sooner than
)ninety (90) days before such date (or, if given sooner, shall not be effective
until that date). Tenant shall have the right to lease the First Offer Premises
in question on the terms and conditions stated above if (but only if) (1) Tenant
gives Landlord written notice of its intention to do so within) thirty (30)
business days of receipt (or the effective date, if later) of Landlord's notice
of availability and also (2) executes and delivers to Landlord, within thirty
(30) business days of receipt thereof, the amendment adding the First Offer
Premises to this Lease on the terms and conditions stated above, and Tenant's
failure to do either of these acts within the time stated (time being of the
essence as stated in Section 14.7) shall terminate Tenant's right to lease the
First Offer Premises described in such notice hereunder.
The First Offer Premises are presently occupied and Tenant acknowledges
that it is in Landlord's economic interest to prefer an existing tenant to all
other occupants. Landlord and Tenant agree to balance this interest with
Tenant's economic interest in having the right of first offer as follows.
Landlord shall not be obligated to offer the First Offer Premises to Tenant (1)
so long as either Immunetics, Inc. or Therion Biologics Corporation or any
person claiming by, through or under either as the Tenant and having become the
Tenant with Landlord's consent (hereafter referred to, with respect to the space
each occupies, as the "Present Tenant") wishes to continue to occupy their
respective First Offer Premises, whether under the present lease, any extension
or renewal thereof, a new lease or otherwise. Accordingly, Tenant acknowledges
that Tenant's right of first offer (1) in no way
<PAGE>
limits Landlord's right to negotiate and grant the Present Tenant, further
rights of occupancy (under lease or otherwise) in premises which include the
First Offer Premises. Tenant shall have the right to inspect the First Offer
Premises on reasonable notice at any reasonable time and from time to time after
Landlord's notice of its availability.
<PAGE>
4. PREPARATION OF PREMISES
4.1 Tenant's Work. Landlord hereby consents to, and Tenant agrees to perform at
its sole expense, the work described in Exhibit 3. Tenant shall perform no work
in the Premises not shown on plans approved in writing by Landlord. Tenant shall
secure Landlord's prior written approval (not to be unreasonably withheld or
delayed) of the contractor(s) to do Tenant's work. All persons working in the
Premises in connection with Tenant's improvements shall be covered by workman's
compensation. Tenant shall indemnify and save harmless Landlord from all costs,
expenses, damages or losses sustained or claimed against Landlord arising out of
work done by Tenant or by Landlord on Tenant's account in the Premises,
including without implied limitation attorneys' fees, and on Landlord's written
request shall provide a copy of Tenant's contractor's payment bond, or, at
Tenant's option, other evidence of the contractor's financial integrity
satisfactory to Landlord. Tenant shall promptly cause to be removed, by lien
bond if necessary, any liens or notices or other claims of lien against the
Premises arising out of Tenant's work. Any special approvals for occupancy of
the Premises, municipal or otherwise, necessitated by the nature of Tenant's
business or the like shall be Tenant's sole responsibility.
<PAGE>
5. USE OF PREMISES
5.1 Permitted Use. Tenant shall occupy the Premises continuously during the Term
and shall use the Premises only for the purposes as set forth in Section 1 and
for no other purposes, and as to purpose(s) with area limitations stated in
Section 1, to no greater extent as to such purpose(s) than so stated. Tenant
agrees always to use the Premises in accordance with the requirements of the
Cambridge Zoning Code and other applicable law, and that Landlord has made no
warranties or representations, expressed or implied, with regard thereto.
5.2 Prohibited Uses. Without limiting the generality of Section 5.1, Tenant
shall not use any part of the Premises (a) in any manner which would violate
this Lease, (b) for any unlawful purpose, (c) in any manner which in Landlord's
judgment impairs the appearance or reputation of the Building or (d) in any
manner which impairs or interferes with Building services or the economic
heating of the Building or Premises, or with use of other areas of the Building,
or which interferes with other tenants or occupants of the Building. Tenant may
not install coffee makers, refrigerators, cooking equipment or other
food-related equipment in the Premises without Landlord's prior written consent,
which consent shall not be unreasonably withheld as to equipment designed for
Tenant's employees which requires no permits and no construction or special
venting.
All volatile, dangerous or harmful substances shall at all times be
stored in a secure area in a safe manner and always in compliance with
applicable law and government and insurance requirements and guidelines.
5.3 Licenses and Permits. Tenant shall obtain at its expense all licenses or
permits required for the lawful conduct of Tenant's business.
5.4 Signs. Tenant shall not place any new signs on the exterior of the Building,
in any window or in any common or public area without Landlord's prior written
consent, which consent shall not be unreasonably withheld to one additional sign
for each entry satisfactory in design and size to Landlord. Tenant's signs shall
comply with applicable law.
<PAGE>
6. RENT
6.1 Annual Fixed Rent. Tenant covenants and agrees to pay to Landlord at the
Original Address of Landlord, or such other place as Landlord may by written
notice to Tenant direct, Annual Fixed Rent stated in Section 1 in equal monthly
installments on the first day of each month during the Term and pro rata for any
partial month. The first payment shall be made on execution of this Lease and
shall be for the first full month for which full rent is due plus any preceding
partial month.
Tenant may (but is not obligated to) send Landlord a notice prior to
exercise of the Tenant's right of first offer to include the First Offer
Premises (or either of them) in the Premises inquiring as to the Annual Fixed
Rent Landlord would be willing to accept for such Premises (the "Rent Inquiry
Notice"). Within thirty (30) days of receipt of the Rent Inquiry Notice (or by
February 15, 1999 if later) Landlord shall inform Tenant in writing of such
Annual Fixed Rent ("Landlord's Offered Annual Fixed Rent"). If Tenant states in
Tenant's notice adding the First Offer Premises (or either of them) to the
Premises that Tenant accepts Landlord's Offered Annual Fixed Rent, then that
shall be the Annual Fixed Rent as to the First Offer Premises in question.
If Annual Fixed Rent for the First Offer Premises has not been
established in accordance with the preceding paragraph, then Annual Fixed Rent
for the First Offer Premises (or either of them) shall be established by
agreement between Landlord and Tenant and shall be based on ninety percent (90%)
of the fair market rent for the First Offer Premises (exclusive of Real Estate
Taxes and Operating Expenses) on or about the date the First Offer Premises in
question will be added to the Premises (but in no event shall the rate per
square foot of Annual Fixed Rent for the First Offer Premises at 67 Rogers
Street be less than the rate per square foot used to determine Annual Fixed Rent
for the portion of the initial Premises at 69 Rogers Street, 71 Rogers Street
and 75 Rogers Street, which was $16 per square foot for the first twelve months
increasing by $1 per square foot each twelve months thereafter, nor shall the
rate per square foot of Annual Fixed Rent for the First Offer Premises at 63
Rogers Street and 65 Rogers Street be less than the rate per square foot used to
determine Annual Fixed Rent for the other portions of the initial Premises,
which was $14 per square foot for the first twelve months increasing by $1 per
square foot each twelve months thereafter (except, as to 63 Rogers Street and 65
Rogers Street, that if the same are hereafter improved prior to exercise of the
First Offer, then such rate shall be $16 per square foot for the first twelve
months increasing by $1 per square foot each twelve months thereafter). Fair
market rent shall be the highest Annual Fixed Rent (or schedule or formula of
varying rents) which willing tenants would pay to lease such area for the term
in question in a competitive and open market under terms and conditions
substantially the same as those of this Lease with such area considered free and
clear of this Lease and as though then available for occupancy for any legal use
in their then condition. Rent historically paid under this Lease shall be
disregarded in determining fair market rent.
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If Landlord and Tenant have not agreed on such fair market rent in
writing within sixty (60) days following Tenant's exercise of its rights to rent
the First Offer Premises, the fair market rent shall be determined by
appraisers, one to be chosen by Landlord, one to be chosen by Tenant and a third
to be selected by the two first chosen if the first two cannot agree; or, at
Landlord's option, by a member of the American Society of Real Estate
Counsellors experienced in first class urban office buildings.
Landlord and Tenant shall each notify the other of its chosen appraiser
within thirty (30) days after the end of the period during which Landlord and
Tenant were to agree on Annual Fixed Rent as to the First Offer Premises and,
unless those two appraisers shall have reached a unanimous decision within
forty-five (45) days from the end of that thirty (30) day period, they shall
within the following fifteen (l5) days select a third appraiser, notify Landlord
and Tenant thereof and proceed forthwith to decision. If Landlord elects to have
the determination made by a member of the American Society of Real Estate
Counsellors, Landlord shall notify Tenant within thirty (30) days after the
commencement of such year of the name of the Counsellor chosen, and neither
party shall have any further obligation to select appraisers. If Tenant notifies
Landlord within thirty (30) days of the date of Landlord's notice that Tenant
wants two (2) or, if necessary three (3), such Counsellors to act, and includes
in that notice the name of a second Counsellor, then Landlord shall so inform
the original Counsellor, and those two Counsellors shall proceed in the manner
and on the schedule specified herein for appraisers, including selecting a third
Counsellor failing agreement of the two. Landlord and Tenant shall each bear the
expense of the appraiser/Counsellor chosen by it and shall bear equally the
expense of the third appraiser/ Counsellor (if any) or of the sole Counsellor if
he or she acts alone. The written decision of the sole Counsellor, the unanimous
written decision of the two first appraisers/Counsellors chosen, without
selection and participation of a third, or, if they do not agree, the written
decision of a majority of the three appraisers/Counsellors, as the case may be,
shall be conclusive and binding upon Landlord and Tenant.
Until Annual Fixed Rent for the First Offer Premises in question is
determined, Tenant shall make payments of Annual Fixed Rent at the annual rate
of $16 per square foot subject to retroactive adjustment, without interest, in
conformity with and within thirty (30) days of the determination of Annual Fixed
Rent as set forth in this Section.
6.2 Additional Rent; Taxes and Operating Expenses. Tenant agrees to pay as
additional rent for any period or portion thereof included within the Term and
in the manner stated in Section 6.2.1 (a) Tenant's Share (defined below) of Real
Estate Taxes (defined below) and (b) Tenant's Percentage (defined in Section 1)
of Operating Expenses as defined in Section 6.2.2. Tenant shall pay all
increased taxes attributable to any improvement or alteration in the Premises
for the exclusive benefit of Tenant.
"Tenant's Share" shall mean (i) that percentage of Real Estate Taxes
allocated to land value by the City of Cambridge assessors which the square
footage of the Premises bears to the total square footage of all buildings
included within the same tax bill as the Premises on January 1st in each year
and (ii) the applicable tax rate (a) applied to the
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assessment of the Premises most recently determined by the City of Cambridge
Assessors, and (b) if the Assessor's valuations are not available, then applied
to the Premises' share of the value attributed to all buildings within such tax
bill allocated by Landlord among the Premises and such other building(s) in
Landlord's sole good faith judgment. The term "Real Estate Taxes" and "taxes"
shall mean all taxes, assessments, betterments, use fees and charges, sewer
entrance fees and all other public charges, (including so called "linkage
payments" required to be paid by Landlord) levied, assessed or imposed at any
time by any governmental authority or agreed or governmentally imposed "in lieu
of" or similar charges, upon or against the land and Building(s) described in
Section 1 and all other properties of Landlord included in the same tax bill,
and the land used for parking by Landlord's tenants of Landlord's several
properties in the proximity of the Building (but Tenant's Share shall not
include Real Estate Taxes to the extent Real Estate Taxes for such land used for
parking are included within the parking fees charged by Landlord for such
parking), or, in the case of assessment, betterment, or other charges to improve
services, facilities or other amenities in the vicinity of Landlord's said
properties, voluntarily accepted by Landlord .
Landlord represents that the present tax bill for the Premises includes
the buildings at 69 Rogers Street, 71 Rogers Street, 75 Rogers Street, and 79
Rogers Street.
Real Estate Taxes shall not include taxes, assessments etc. on
additional rental space constructed by Landlord unless there is a corresponding
reduction in Tenant's Share.
6.2.1 Billing of Taxes and Operating Expenses.
(a) Landlord will send Tenant a copy of the tax bill(s) and a statement
for Tenant's portion thereof, and Tenant will pay Tenant's Share to Landlord
within 10 days. Landlord reserves the sole right to bring proceedings for
abatement of taxes and Tenant assigns Landlord all rights Tenant may now or
hereafter have with respect thereto, whether arising under statute or by any
other means. If Landlord receives a refund of taxes (whether as a result of
abatement or otherwise) allocable to any period for which Tenant has paid its
Share of Taxes, Landlord shall refund, or credit, Tenant, in Landlord's
discretion, Tenant's Share of the refunded amount (net of all costs and expenses
of obtaining the refund).
At Landlord's election or if any mortgagee requires, Tenant shall pay
1/12th of Tenant's obligations for real estate taxes on the first day of each
month based on taxes for the prior tax year so that Landlord shall have received
sufficient monthly payments at least 15 days before each payment is due the
taxing authority to make full payment of such taxes when they are due, which
funds Landlord may hold in co-mingled accounts and without interest to Tenant.
If Tenant is late in any tax payment, Tenant shall pay Landlord any interest
required of Landlord by the taxing authority, or if Landlord advances the Taxes,
Tenant shall pay Landlord interest as stated in Section 6.3.
If during the Term, under the laws of the United States, Massachusetts,
Middlesex County or Cambridge, or other governmental entity having jurisdiction,
there
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shall be adopted some other method of taxation upon or relating to the economic
productivity of real estate in addition, substitution or modification in whole
or in part for taxes on real estate as now levied in Massachusetts including, by
way of illustration and not limitation, taxes on rent and increased or new fees
for municipal services, Tenant will pay such substitute or modified taxes and
fees as soon as the same shall become due and payable. If the parties cannot
agree whether such taxes or fees are in fact in addition, substitution or
modification in whole or in part for taxes and fees on real estate, as now
levied, or on the extent to which the Tenant should bear the cost of such taxes
and fees, the matter shall be submitted to arbitration by the parties in
accordance with the provisions of Section 14.6. Notwithstanding such submission,
Tenant agrees to pay Landlord such taxes and fees when and in the amount
demanded by Landlord, with refund to the Tenant, without interest, of any amount
determined by said arbitrators to be in excess of Tenant's obligations under
this Section 6.2.3. It is the parties' intent that Landlord's net return of
Annual Fixed Rent shall not be reduced by changes in the methods or structure of
taxing the economic productivity of real estate and this clause shall be
interpreted to effect that result.
(b) Tenant shall incur in its own name and pay for all Operating
Expenses within the scope of its duties stated in Section 7. As to any Operating
Expenses which Landlord incurs pursuant to its duties under Section 7, Tenant
shall pay such Operating Expenses as follows. Tenant shall pay Landlord on the
first day of each month a monthly payment representing 1/12th of the annualized
Operating Expenses based on Landlord's most recent fiscal period. Landlord shall
furnish to Tenant, at such interval as Landlord shall from time to time
determine a statement of Operating Expenses sustained by Landlord during each
fiscal period, all or part of which falls within the Term, together with a
computation of Tenant's Percentage thereof and Tenant will pay Tenant's
Percentage within fourteen (14) days of receipt of such statement. Operating
Expenses of the Building are defined in Section 6.2.2. Tenant shall have the
right, on reasonable prior notice and during Landlord's business hours at
Landlord's offices, (but not more often than annually) to inspect such of
Landlord's records as are necessary to establish the Operating Expenses of the
Building for the current period and the one year preceding. If Tenant's
examination establishes that Operating Expenses were incorrectly stated,
Landlord shall reimburse (or Tenant shall pay, as the case may be) promptly such
as is required for Tenant's full payment of Operating Expenses actually due
under this Lease with respect to the period examined by Tenant.
Together with the last such payment of Operating Expenses for any
period, and on the first of each months until the next statement, Tenant shall
remit to Landlord one month's portion of the Tenant's Percentage of Operating
Expenses incurred during the period just completed. If such monthly remittances
exceed Operating Expenses for the period, Tenant may credit the difference
against the next installment of Operating Expenses due to Landlord (or if such
excess is determined after the end of the Term, Landlord shall apply such excess
to any remaining obligations Tenant may have under the Lease, and shall pay any
balance to Tenant). If such remittances are less than the Operating Expenses for
such period, Tenant shall pay the difference to Landlord when Operating Expenses
are payable as provided in the preceding paragraph. Landlord may change the
fiscal period as Landlord desires.
<PAGE>
6.2.2 Definition of Operating Expenses. "Operating Expenses" shall mean (i) all
amounts of whatever nature incurred by Landlord or Tenant in connection with the
operation, management, repair and replacement not involving casualty loss (to
which Article 10 applies), and maintenance of the Building and (ii) the
Building's pro rata share (apportioned by building area as determined by
Landlord among the building and the properties referenced below) of all amounts
of whatever nature incurred by Landlord in connection with the operation,
management, repair and replacement of the grounds surrounding the Building and
Landlord's other properties in the proximity of the Building as determined by
Landlord in its sole discretion and of the parking facilities serving Landlord's
several properties in the proximity of the Building. For example, Operating
Expenses include charges for water and other public facilities, insurance
(including, without limitation, casualty, liability, environmental and other
insurance against such risks and in such amounts as Landlord, in its sole
discretion, shall determine or as may be required by any mortgagee), exterior
maintenance of the Building; snow removal, sidewalk maintenance and repair and
maintenance of the grounds, shrubs, trees and other landscaping of Landlord's
other properties near the Building; security service, if any; compensation of
personnel below the grade of building manager providing service to the Building;
the costs of maintaining assessed value referenced in Section 6.2.1 and a
management fee atnot in excess of competitive rates. Operating Expenses pursuant
to subsection (ii) above are in the nature of common expenses and shall be
allocated among Landlord's several properties in the proximity of the Building
according to leasable building area or such other equitable basis as Landlord
shall determine. Operating Expenses do not include mortgage charges, brokerage
commissions, executive (owner) salaries, Landlord's cost of work done for a
particular tenant for which Landlord is reimbursed by such tenant and such
portion of expenditures as are not properly chargeable against income. If,
during the Term, Landlord in replacement of items makes capital expenditures in
replacement of items not fully includible in Operating Expenses for the year in
which made, there shall be included in Operating Expenses for each year the
amount, if any, by which the annual charge-off (determined as hereinafter
provided) of such expenditure (less insurance proceeds, if any, collected by
Landlord by reason of damage to, or destruction of, the capital item being
replaced) exceeds the annual charge-off of the original cost of such item; and
(ii) if a capital expenditure is made for a new capital item not in replacement
of another capital item, provided such capital expenditure is appropriate to
prudent management of real property or is of direct benefit to Tenant, then
Operating Expenses shall include in each fiscal year thereafter the annual
charge-off of such capital expenditure. Annual charge-off shall be determined by
dividing the original cost of a capital item or expenditure by the useful life
(in years) of the capital item acquired. Landlord will determine useful life in
accordance with generally accepted accounting principles.
In no event shall Operating Expenses include:
(1) repairs or other work occasioned by fire or other casualty or by
the exercise of eminent domain;
(2) leasing commissions, attorneys' fees, costs and disbursements and
other expenses incurred in connection with negotiations or disputes with
tenants, other occupants, or prospective tenants or occupants;
<PAGE>
(3) costs for which Landlord can be reimbursed by insurance, warranties
or similar sources;
(4) renovating or otherwise improving, decorating, painting or
redecorating space for tenants or other occupants of the properties;
(5) Landlord's cost of electricity and other services that are sold to
specific tenants (as distinguished from most or all tenants in Landlord's
properties in the environs f the Premises) and for which Landlord is entitled to
be reimbursed by such tenants as an additional charge; and
(6) any fines or penalties incurred due to violations by Landlord or
any governmental rule or authority.
If Landlord sustains any expense hereunder by reason of misuse or
neglect of the Premises, the Building, the grounds near Landlord's other
properties in the vicinity of the Building or driveways and parking areas by
Tenant, or its agents, employees and invitees, such cost shall not be Operating
Expenses and Tenant shall reimburse Landlord fully on within five business of
days of demand for all such expenses as additional rent.
6.2.3 Certain Excluded Charges. Tenant shall not be required to pay any
franchise, corporate, estate, inheritance, succession, capital levy, or transfer
tax of Landlord, or any income tax imposed in respect of Landlord's income from
the Premises (as distinguished from an excise tax upon rentals, which shall be
Tenant's obligation).
6.3 Late Charges. Rent and additional rent not paid within thirty (30) days of
the date due shall bear interest at the annual rate of 2% over the Base Rate of
the First National Bank of Boston, whichever is greater, (or at any lower
maximum rate permitted by law) from the date first due until paid.
6.4 Security Deposit. During such time as the Security Deposit (if any) is a
cash deposit, Tenant shall deposit and maintain with Landlord the Security
Deposit which Landlord may commingle with Landlord's other funds without
interest to Tenant. The Security Deposit shall be returned to Tenant at the
expiration of this Lease upon Tenant's written request, provided Tenant has not
breached this Lease. Landlord in its discretion may apply the Security Deposit
in total or partial satisfaction of any default by Tenant, without affecting or
waiving any other rights or remedies. At the time of execution of this Lease,
there was no Security Deposit.
<PAGE>
7. ALLOCATION OF BUILDING SERVICES
7.1 Landlord's Duties. Within a reasonable period after Landlord has received
notice (or has actual knowledge) of the need thereof, Landlord shall repair the
exterior walls (but not interior surfaces thereof or window glass) structural
interior walls (but not the surfaces thereof or glass therein) and the roof of
the Premises, in each instance to the general standard of repair now existing at
Landlord's various properties in the vicinity of the Building, and shall repair,
or replace if necessary, utilities exterior to the Building. Landlord's duty of
repair shall not extend to reasonable wear and tear. (Article 10 governs
casualty or taking).
7.2 Tenant's Duties. Except as specifically herein otherwise provided, Tenant
shall keep the Premises, including all non-structural elements,
and as to Tenant's obligations under Section 8.l, the Premises and areas in the
vicinity thereof, in the same good order, repair and condition as they are in on
the Commencement Date, or by improvements may be put in during the Term,
reasonable use and wear and damage by fire or other insured casualty, damage by
taking and damage resulting from any failure of Landlord to perform its
obligations only excepted, including, for example, floors, doors, windows,
glass, interior wall surfaces, fixtures and equipment in the Premises, heating,
air conditioning, plumbing, sprinkler system, electrical and mechanical fixtures
and equipment, and the air, water and soil in, under and in the vicinity of the
Premises. Tenant shall keep the Premises safe, orderly and clean, including, rug
shampoos and waxing of tile floors.
7.3 Tenant to Pay for All Utilities. Tenant will contract, in its own name, and
pay for all utility services, including without limitation, water, electricity
and heating, ventilation and air conditioning. Landlord shall not be liable to
Tenant for interruption in or curtailment of any utility service. If any
utilities are not separately metered, Tenant shall pay a pro rata share, based
on use as determined by Landlord or at Landlord's option according to Tenant's
Percentage of Operating Expenses.
7.4 Deleted.
7.4.1 Repairs for Account of Other Party. If, after written notice or after oral
notice which is reasonable under the circumstances, Tenant fails to do needed
repairs promptly, Landlord may, at Tenant's expense, make any such repairs
without waiving any right or remedy for Tenant's failure to make such repairs.
If after written notice, Landlord fails to do needed repairs within
thirty days (or such further reasonable time as may be required in the
circumstances, provided Landlord promptly commences and diligently pursues such
repairs), Tenant may thereafter give Landlord written notice of Tenant's
intention to perform such repairs, with a description in reasonable detail of
the work proposed to be done. Landlord may send one or more notices (the
"Objection Notice') within said thirty days identifying those portions of the
work described by Tenant which in Landlord's judgment are not Landlord
responsibilities under this Lease. Tenant may set-off against Annual Base Rent
(but not against Additional Rent) the reasonable cost of that work performed by
Tenant after the thirty day period expired which was not
<PAGE>
identified in an Objection Notice. In no event may Tenant set off any work done
prior to expiration of thirty day period or identified in an Objection Notice
until Landlord and Tenant have agreed that it is a Landlord obligation under
this Lease.
7.5 Curtailed Services. If any of Landlord's services are curtailed by any
reason or cause beyond Landlord's reasonable control, there shall be no
abatement of rent or other compensation due to Landlord, nor shall Tenant's
obligations hereunder be reduced. Landlord agrees to pursue restoration of such
services, but this undertaking does not alter in any way the preceding sentence.
7.6 Payment for Tenant's Work. The Premises shall at all times be free of liens
for labor and materials. To that end, Tenant shall pay promptly for all work or
services with respect to the Premises undertaken or on behalf of Tenant. Tenant
shall have the right to contest / dispute claims brought by contractor's,
subcontractors and suppliers so long as Tenant keeps the Premises free of all
liens and claims in the nature of liens, whether by surety bonds or otherwise,
and Landlord has not been named in (or, if named, has been dismissed from) any
litigation related thereto. Landlord shall receive a commercially reasonable
supervisory fee, determined by Landlord, for work performed by or under the
supervision of Landlord.
<PAGE>
8. TENANT'S ADDITIONAL COVENANTS
8.1 Compliance with Law, Including Hazardous Substances. Tenant, at its sole
expense, shall comply with all applicable law, and all applicable insurance
requirements, with respect to Tenant's use and occupancy of the Premises and
will not do or permit to be done anything upon the Premises which will violate
applicable law or invalidate or be in conflict with fire and casualty insurance
policies. Except for necessary quantities of customary and usual cleaning
supplies used in cleaning and maintenance of the Premises, which shall be
properly stored, and except as otherwise provided in this Section 8.l, there
shall not be brought on or kept within the Premises any inflammable, combustible
or explosive fluid, material or chemical, or any hazardous, toxic or radioactive
material or substance, including without limitation oil (collectively,
"Hazardous Substances") regulated by any local, state or Federal law (for
example, the Federal Comprehensive Environmental Response Compensation Liability
Act of l980, the Massachusetts Hazardous Waste Management Act and the
Massachusetts Oil and Hazardous Material Release Prevention Act) as now in
existence or as hereafter enacted or amended (collectively "Hazardous Substance
Law").
Tenant agrees not to store or use any Hazardous Substance in, on or
about the Premises, or dispose of Hazardous Substances from the Premises to any
other location, without Landlord's prior written consent, (i) such Hazardous
Substance is related to the Permitted Uses of the Premises and (ii) Tenant has
obtained all permits and approvals therefor and the same are validly issued and
outstanding and may be relied on by Tenant, or commit or suffer to be committed
in or on the Premises any act which would require the filing of a notice
pursuant to any Hazardous Substance Law, including without limitation
Massachusetts General Laws Chapter 2lE. Tenant agrees that it shall use, store
and dispose of such Hazardous Substances only in accordance with applicable
Hazardous Substance Laws (and, to the extent stricter than such Laws, according
to the standard operating and quality control procedures and standards
prevailing in the diagnostic medical products development industry ("Industry
Standards"), Tenant agrees that it shall, upon written request therefor from
Landlord, advise Landlord in writing in detail reasonably satisfactory to
Landlord of (a) Tenant's safety and training procedures for handling such
materials and (b) application for, receipt of, rejection regarding and
withdrawal or lapse of any license or permit required with respect to Hazardous
Substances relating to Tenant's Permitted Uses of the Premises. Tenant agrees
that it shall, upon written request from Landlord from time to time, advise
Landlord in writing of any Hazardous Substances used or stored by Tenant in the
Premises (and on written advice from Tenant regarding any confidentiality
requirements with respect to any Hazardous Substance disclosed to Landlord,
Landlord shall comply with such confidentiality requirements). In the event that
Tenant
<PAGE>
receives from any federal, state or local governmental agency any notice of
violation or alleged violation of any Hazardous Substance Law, Tenant agrees to
forward to Landlord a copy of any such notice within three (3) days of Tenant's
receipt thereof, and Tenant agrees to take all steps necessary to bring Tenant's
use of the Premises into compliance with such Hazardous Substance Law and any
other applicable law.
Tenant shall maintain on the Premises or, with notice to Landlord, at
another location in the greater Boston area, throughout the Term and, after the
termination of this Lease, at its main office, for at least five (5) years, (i)
records of all Hazardous Substances used in Tenant's business at the Premises or
otherwise brought on to the Premises and (ii) copies of all written materials
which to Tenant's knowledge constitute any part (or all) of the Industry
Standards. Subject to such confidentiality, proprietary information and trade
secret assurances as Tenant reasonably may impose with regard to further
disclosure of such records and materials, and information gained therefrom to
third parties, Landlord or its representatives may from time to time inspect and
copy such records and materials. As to materials stored at other than the
Premises, Tenant agrees to provide such copies to Landlord at Landlord's written
request. All information obtained by Landlord from its review of such records
and materials shall be used solely for evaluating compliance with Hazardous
Substances Laws and Tenant's obligations under this Lease, shall be held in
strict confidence by Landlord, and shall not be disclosed to any third party
(except in connection with the matters specifically contemplated by this Lease
or as mandated by any applicable governmental law, ordinance or regulation, and
then only to the extent necessary to accomplish the matters set forth herein or
as to so mandated). Notwithstanding anything to the contrary contained in this
Section, Landlord shall have the right to make the information available to its
employees having in Landlord's good faith judgment a need to know, to
consultants or other parties retained or contracted by Landlord to evaluate the
information and/or the Premises, and to Landlord's legal counsel, provided that
such employees, consultants and other parties, and counsel shall be bound by
these confidentiality provisions.
At Landlord's or Landlord's lender's request from time to time during,
and upon the expiration of, the Term of this Lease, Tenant shall cause the
Premises and the Building and land, air and water related thereto to be
inspected by a qualified professional satisfactory to Landlord for the presence
of any material or substance prohibited or regulated under any Hazardous
Substance Law and to obtain and forward to Landlord the professional's written
report setting forth the scope and results of such inspection; provided however,
that during the Term Landlord may require only one "without cause" inspection,
and Landlord can require other inspections during the Term only if Landlord has
reason to believe or suspect that there has been a release of Hazardous
Substances or other violation of Hazardous Substance Law for which Tenant would
be responsible. (Landlord's lender is not bound by this restriction.). In
addition, Landlord may, at its expense, have such inspections performed at any
reasonable time and Tenant will cooperate with such inspections, provided
however, that any such inspections shall be conducted in a manner reasonably
intended to minimize any disruption of Tenant's conduct of its business.
<PAGE>
Tenant agrees not to cause, permit or tolerate, by act or omission of
Tenant, Tenant's employees, agents or contractors or any other person who is on
or in the vicinity of the Premises by reason of Tenant's occupancy of the
Premises, any release or discharge any Hazardous Substance within, onto or in
the vicinity of the Premises. Tenant's responsibility shall include all releases
or discharges of Hazardous Substances (a) occurring during the Term, without
regard to actual occupancy by Tenant, and during any other period Tenant is in
occupancy of all or any part of the Premises (the "Possession Period") and also
(b) occurring or continuing to occur after the Possession Period by virtue of
events first occurring during the Possession Period for which Tenant is
responsible under this Section.
Tenant agrees at Tenant's sole cost and expense to remove from the
Premises, and the buildings adjacent to and the air, land and water above,
around and under, the Premises and buildings adjacent thereto, as more
completely set forth on Exhibit 4 any Hazardous Substance which may be released
thereon for which Tenant is responsible under this Lease. Tenant shall not be
obligated to remove any Hazardous Substances (a) that were on the Premises prior
to the date on which Tenant, its contractors, agents or employees first entered
the Premises (which the parties agree is before the Commencement Date of the
Term) or (b) caused by the acts or omissions of Landlord without regard to fault
and involving Hazardous Substances other than those brought on the Premises by
Tenant.
Tenant shall be liable for and shall indemnify Landlord, as additional
rent, against any and all liability arising from the breach of any of Tenant's
covenants and agreements under this Section 8.l, including without implied
limitation (i) all costs and expenses of or related to response and remediation,
whether performed under judicial order, governmental requirement or in voluntary
compliance with Hazardous Substance Laws, (ii) all liability for injury to
persons and damage to property, (iii) all fines and penalties and (iv) all costs
and expenses of dispute, such as attorneys' fees and costs and the fees and
costs of Licensed Site Professionals and other persons whose services are
reasonably related to such liability, incurred by Landlord in connection
therewith, whenever such liability shall arise and for as long as Landlord
remains so liable. Tenant shall be liable to and indemnify Landlord to the same
extent as Landlord is or may be liable to any governmental agency or to any
other person (such as corporations, other legally existing entities and
individuals), including, by way of example, other tenants of Landlord's adjacent
properties and abutting landowners. Tenant's liability to Landlord is intended
to include the same standard of liability imposed on Landlord by Hazardous
Substance Law, including strict liability as well as liability for negligence
and for willfully wrong conduct.
Tenant shall not be responsible to Landlord under this Section, either
as to removal or indemnification, for releases first occurring off the Premises
due to the conduct of persons other than persons for whom Tenant is responsible
which migrate onto the Premises, nor shall Tenant be responsible to Landlord
under this Section, either as to removal or indemnification, for any releases
occurring by act or omission of Landlord, Landlord's employees, agents,
contractors or any other person on or in the vicinity of the Premises at
Landlord's direction or request, provided as to releases occurring on the
Premises involving Hazardous Substances maintained by Tenant that
<PAGE>
Tenant has exercised due care supervising the person who caused the release
during the time that person was on the Premises.
Tenant releases Landlord from any and all liability with respect to
damage, however and whenever arising, actual or contingent, liquidated or
unliquidated, which is due to Hazardous Substances, excepting only liability
arising from the direct acts of Landlord, its employee and agents.
Nothing in this Section shall be construed to limit the scope of any
other indemnification in this Lease to the extent the same applies to other than
Hazardous Substances.
8.2 Indemnity. Tenant agrees to defend and hold Landlord harmless from all
injury, loss, claim or damage to or of any person or property while on the
Premises or in or about the Building and on account of any work or thing
whatsoever done (other than by or on behalf of Landlord) on the Premises
occurring during the Term or during any other period, before or after the Term,
during which Tenant is in occupancy or has possession of the Premises ,
including without implied limitation attorneys' fees; except that to the extent
required by Massachusetts law the foregoing shall not exculpate Landlord from
liability for its own negligence or wilful act.
Landlord agrees to defend and hold Tenant harmless from all injury,
loss, claim or damage to or of any person or property occurring on the Premises
or in or about the Building as a result of the willful negligent act of Landlord
or its employees, including without implied limitation attorneys' fees.
8.3 Tenant's Property is Tenant's Risk. All property of Tenant and persons
claiming by, through, or under Tenant at any time on the Premises, shall be at
the sole risk of Tenant or such person and if the whole or any part thereof
shall be destroyed or damaged by any cause whatever, no part of said loss or
damage shall be borne by Landlord; except that to the extent required by
Massachusetts law the foregoing shall not exculpate the Landlord from liability
for its own negligence or wilful act.
8.4 Estoppel Certificate. Upon not less than fifteen (15) days prior written
request, Landlord and Tenant agree to execute, acknowledge and deliver to the
other a statement certifying this Lease is unmodified and in full force and
effect (or stating any modifications), and the dates to which the Annual Fixed
Rent and all additional rent and other charges have been paid and any other
information reasonably requested. Such statement may be relied upon by any
prospective purchaser, mortgagee or lending source.
8.5 Overloading, Nuisance; Restrictions on Research Activity Volatile or
Dangerous Substances. Tenant shall not injure, overload, deface, or otherwise
harm the Premises, nor commit any nuisance, nor permit the emission of any
objectionable noise, noxious or objectionable odor or of any particulate
residue; nor make, allow or suffer any waste; nor make any use of the Premises
which is improper, offensive, or contrary to any law, ordinance, order or
regulation of any public authority or which will invalidate or increase the
premium of any insurance.
<PAGE>
All chemical, biological and similar work shall be conducted in a safe
manner and always in strict compliance with applicable law and guidelines of
governmental authority.
All dangerous substances shall be stored safely and securely in
compliance with law and applicable government and insurance requirements and
guidelines.
8.6 Yield Up. At the expiration or earlier termination of this Lease, Tenant
shall surrender all keys to the Premises, remove all personal property, remove
such installations made by it as Landlord may request and all Tenant's signs,
and yield up the Premises (including all Tenant's installations and improvements
made by Tenant to the Building during the Term and also including such of
Tenant's fixtures as are identified on Exhibit 5 hereto, except for those which
Landlord requested Tenant to remove and except for Tenant's other fixtures,
including without limitation trade fixtures and equipment not affixed in any
manner to the Premises, which at all times are Tenant's property and shall be
removed) broom clean and in the same good order, repair and condition in which
Tenant is obliged to maintain the same under this Lease. Tenant's property not
removed within thirty (30) days may be disposed of by Landlord as Landlord shall
determine. Tenant indemnifies Landlord against all loss, cost and damage,
including without limitation attorneys' fees and costs resulting from Tenant's
failure and delay in surrendering the Premises. If Tenant's failure to surrender
the Premises as required hereunder renders the Premises unavailable for use by
another tenant (for example, where Tenant or another person claiming under
Tenant remains in occupancy or Tenant or such other person has caused, permitted
or suffered the contamination of, the Premises or areas adjacent thereto with a
Hazardous Substance), Tenant shall be deemed in holdover status while such state
of facts continues to exist and shall be liable under Section l3 in addition to
all other liability under the Lease, including this Section.
8.6.1 What are Intended to be Fixtures. Equipment, fixtures, improvements and
appurtenances attached to or built into the Premises prior to or during the Term
shall be and remain part of the Premises and are intended as real estate
fixtures and shall not be removed by Tenant unless otherwise expressly provided
in this Lease or except as otherwise expressly provided in a separate written
agreement signed by both Landlord and Tenant contemporaneously with or after the
execution of this Lease. All electric, plumbing, heating and sprinkling systems,
fixtures and outlets, vaults, panelling, molding, shelving, radiator enclosures,
flooring, HVAC equipment and HVAC ducts shall be deemed to be real estate
fixtures, whether or not attached to or built into the Premises.
8.7 Alterations and Improvements by Tenant After Term Commencement. Tenant shall
make no alterations, installations, removals, additions or improvements costing
in the aggregate $5,000.00 or more, or affecting structure, or affecting
Building service systems in or
<PAGE>
to the Premises without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Tenant may make interior, nonstructural
alterations, installations, removals, additions or improvements costing in the
aggregate not more than $5,000.00 and not affecting Building service systems in
or to the Premises after written notice thereof to Landlord describing the work
to be done in reasonable detail. Any approvals for occupancy of the Premises,
municipal or otherwise, necessitated by the nature of Tenant's business shall be
Tenant's sole responsibility.
8.8 Floor Load; Heavy Machinery. Tenant shall place no load upon any floor of
the Premises exceeding the floor load per square foot of area which such floor
was designed to carry or which in its present condition it is capable of
carrying without damage and which is allowed by law.
8.9 Assignment and Subletting. Tenant shall not assign this Lease, or sublet or
license the Premises or any portion thereof, or advertise the Premises for
assignment or subletting or permit the occupancy of all or any portion of the
Premises by anybody other than Tenant (all of the foregoing actions are
sometimes collectively referred to as an "assignment") without obtaining, on
each occasion, the prior written consent of Landlord, which consent shall be
granted or withheld within thirty (30) days of Landlord's receipt of Tenant's
written request detailing the proposed assignment in detail reasonably
satisfactory to Landlord and which consent shall not be unreasonably withheld,
provided Tenant's Termination Rights have expired or been waived, but which
consent may otherwise be granted or withheld in Landlord's sole discretion.
Except as provided in the following sentence, an assignment shall include,
without limitation, any transfer of Tenant's interest in this Lease by operation
of law, merger or consolidation of Tenant into any other firm or corporation and
the transfer or sale of a controlling interest in Tenant, whether by sale of its
capital stock or otherwise. Assignment shall not include (1) assignment or
sublease to any parent or subsidiary corporation or corporation under identical
ownership as Tenant, (2) sale of the original Tenant by stock transfer or sale
of substantially all of its assets, (3) admission of additional stockholders or
other investors or (4) merger, consolidation or other reorganization involving
the original Tenant, provided in each instance that Landlord receives prior
written notice thereof and receives, promptly on request, all information with
respect to the transaction or new entity, as the case maybe, as Landlord had
previously received (or was entitled to receive, whether or not previously
requested) as to the original Tenant. In additional, while Tenant is a publicly
traded company, transfer of its capital stock on a public exchange shall not
constitute an assignment. Tenant shall not offer to make or enter into
negotiations with respect to an assignment with (i) any tenant of Landlord in
any property in the East Cambridge environs of the Building, or any affiliate
of, or any entity owned directly or indirectly by, such a tenant; and (ii) any
party with whom Tenant knows or reasonably should have known that Landlord is
then negotiating with respect to other space in any property in the East
Cambridge environs of the Building. Tenant's request for consent to an
assignment shall include a copy of the proposed instrument of assignment, if
available, or else a statement of the proposed assignment in detail reasonably
satisfactory to Landlord and financial information concerning the proposed
assignee as the assignee will, if approved, be required to submit to Landlord
under Section 8.12. If Tenant does make an assignment
<PAGE>
hereunder, and if the aggregate rent and all other amounts and charges payable
to Tenant under such assignment less the out-of-pocket costs to Tenant of such
transaction exceed the rent and other charges payable hereunder, Tenant shall
pay to Landlord, as additional rent one-half the amount of such excess when the
same is paid to Tenant, provided that Landlord shall receive its entire share of
such excess prior to Tenant retaining its share in the event the assignee fails
to pay the entire amount it owes Tenant.
Tenant shall pay to Landlord, as additional rent, Landlord's reasonable
legal fees and other expenses incurred in connection with any proposed
assignment, including without limitation fees for review of documents.
Notwithstanding any such assignment, the original Tenant named herein shall
remain directly and primarily obligated under this Lease.
It shall be a condition to the effectiveness of any such assignment
that such assignee, subtenant, licensee or occupant (collectively, an
"assignee") agree directly with Landlord to be liable, jointly and severally
with Tenant, for the performance of all of Tenant's agreements under this Lease
(including without limitation payment of rent). Landlord may collect rent and
other charges from the assignee and apply the net amount collected to the rent
and other charges herein reserved, but no such assignment or collection shall be
deemed a waiver of the provisions of Section 8.9, or the acceptance of the
assignee as a Tenant, or a release of Tenant from direct and primary liability
for the further performance of covenants on the part of Tenant herein contained.
The consent by Landlord to an assignment shall not relieve Tenant from obtaining
the express consent of Landlord to any further assignment.
In the event of any assignment requiring Landlord's consent (i)
Tenant's right to add First Offer Premises to this Lease and (ii) Tenant's
Termination Right shall each be void and of no further force or effect, whether
exercised before or after Tenant's request for, or Landlord's granting of,
Landlord's consent to assignment, except, that Tenant's exercise of its rights
with respect to First Offer Premises shall remain valid as to premises
respecting which (i) Tenant exercised its right to add the First Offer Premises
to the Premises and (ii) either (a) has taken possession thereof for active
conduct of its business or (b) has commenced construction of improvements for
its use, in either case prior to requesting Landlord's consent to assignment.
8.10 Landlord's Access to Premises. (a) Landlord may erect, use and maintain
pipes, ducts and conduits in and through the Premises provided the same do not
materially interfere with Tenant's use and enjoyment of the Premises; (b) on
reasonable prior notice, Landlord and any mortgagee and their representatives
may enter the Premises at reasonable times to inspect, repair, or replace
elements in the Premises or to inspect, repair, replace or improve other
portions of the Building or equipment or to comply with any law, order or
requirement of governmental or other authority or of exercise any right reserved
to Landlord by this Lease; (c) on reasonable prior notice, Landlord may at
reasonable times, show the Premises to other persons. If during the last month
of the Term, Tenant shall have removed all or substantially all of Tenant's
property therefrom, Landlord may immediately enter and alter, renovate and
redecorate the
<PAGE>
Premises without abatement of rent and without liability to Tenant for
compensation, and such acts shall have no effect upon this Lease.
Landlord agrees that in exercising it rights of entry to the Premises
Landlord shall respect Tenant's reasonable safety, security and confidentiality
requirements made known to Landlord and in a manner intended to minimize
disruption to Tenant's use and occupancy of the Premises (but entry in
emergencies shall be made under the circumstances in question without regard to
the preceding portion of this sentence).
Landlord or Landlord's agents may also enter the Premises, forcibly if
necessary under the circumstances as determined in Landlord's good faith
judgment, without rendering Landlord or such agents liable therefor, and without
in any manner affecting the obligations and covenants of this Lease.
8.11 Construction Activity. Construction activity in or near the Premises or the
Building shall neither entitle Tenant to any reduction in rent nor cause
Landlord to have any liability to Tenant. Landlord shall inform Tenant of such
work known to Landlord (but Landlord's failure to do so shall not affect the
preceding sentence.)
8.12 Tenant's Financial Statements. Within 90 days after the end of each of
Tenant's fiscal years, Tenant shall furnish Landlord with a true copy of
Tenant's annual financial statements, prepared or audited by a certified public
accountant, as the case may be, for Tenant's fiscal year just ended. Tenant
shall also furnish Landlord with true copies of Tenant's quarterly financial
statements to the extent the same are prepared for Tenant. Tenant agrees to meet
with Landlord at Landlord's request to review and discuss Tenant's financial
statements.
While Tenant is a public company, Tenant shall only be required to
furnish to Landlord copies of such annual, quarterly and other reports required
to be filed by Tenant with the SEC.
Landlord agrees not to disclose any information received pursuant to
this Section which is not public information to any person other than Landlord's
employees or any mortgagee or prospective mortgagee, or prospective purchaser,
of the property of which the Building is a part.
<PAGE>
9. INSURANCE
9.1 Public Liability Insurance. Tenant shall take out and maintain in force
throughout the Term commercial general liability insurance naming Tenant and all
persons claiming under Tenant as named insured, and naming Landlord and all
persons claiming under Landlord as additional insureds, against all claims and
demands for any injury to person or property which may be claimed to have
occurred on the Premises, the Building, the grounds and ways adjoining the
Building, in an amount which at the beginning of the Term shall not be less than
$3,000,000 or such higher amounts as Landlord shall determine are required by
reason of Tenants' use of the Premises and which thereafter, if Landlord
requires, shall be in such higher amounts as are then consistent with sound
commercial practice in Cambridge, Massachusetts. This coverage may be provided
through a primary policy or a primary policy with excess umbrella, at Tenant's
election.
9.2 Casualty Insurance. Tenant shall take out and maintain throughout the Term a
policy of fire, vandalism, malicious mischief, extended coverage and so-called
all risk coverage insurance insuring Tenant's improvements to the Premises and
Tenant's fixtures, furnishing and equipment to their full insurable value,
except that any such insurance may be written with an 80% co-insurance clause.
Such insurance shall include waiver of subrogation protection in conformance
with Section 9.5 if available on commercially reasonable terms.
With Landlord's prior written consent, which shall not be unreasonably
withheld, Tenant may self-insure property which will belong to Tenant at the
termination of the Lease.
9.3 Certificates of Insurance. Such insurance shall be placed with insurers
satisfactory to Landlord and authorized to do business in Massachusetts. Such
insurance shall provide that it will not be subject to cancellation,
termination, or change except after at least thirty (30) days' prior written
notice to Landlord and parties designated by Landlord. The policy or policies,
or a duly executed certificate or certificates for the same, together with
satisfactory evidence of the payment of the premium thereon, shall be deposited
with Landlord and parties designated by Landlord at the beginning of the Term
and, upon renewals of such policies, not less than thirty (30) days prior to the
expiration of the term of such coverage. If Tenant fails to comply with any of
the foregoing requirements, Landlord may obtain such insurance on behalf of
Tenant and may keep the same in effect, and Tenant shall pay Landlord, as
additional rent, the premium cost thereof upon demand.
9.4 Landlord's Insurance. Landlord shall maintain during the Term such policies
of casualty insurance, liability insurance and other coverages in such amounts
and insuring against such risks as Landlord shall from time to time determine.
Such insurance shall include waiver of subrogation protection in conformance
with Section 9.5 if available on commercially reasonable terms. Tenant agrees to
cooperate with Landlord in obtaining and maintaining such insurance.
<PAGE>
9.5 Waiver of Subrogation. Landlord and Tenant hereby release each other, to the
extent of their respective insurance coverages, from any and all liability for
any loss or damage caused by fire or any of the extended coverage casualties,
even if such fire or other casualty shall be brought about by the fault or
negligence of the party benefited by the release or its agents, provided,
however, this release shall be in force and effect only with respect to loss or
damage occurring during such time as the policies of fire and extended coverage
insurance maintained or required hereunder to be maintained by the releasing
party shall contain a clause to the effect that such release shall not affect
said policies or the right of the releasing party to recover thereunder.
Landlord and Tenant each agree to make best efforts to have their respective
fire and extended coverage insurance policies include such a clause so long as
the same is obtainable without extra cost, or if extra cost is chargeable
therefor, so long as the party benefited by such clause in its discretion
chooses to pay such extra cost.
9.6 Increase in Insurance Risk. If Tenant's use of or failure to use, the
Premises results in any increase in Landlord's insurance rates on the Building
or Landlord's other property near the Building, Tenant shall reimburse Landlord
for such increase in insurance charges, provided that Landlord provides Tenant
with reasonable evidence that Tenant was the cause of the increase. Without
limiting the generality of the foregoing, the insurer's statement to that effect
shall be sufficient evidence of such cause.
<PAGE>
10. DAMAGE TO PREMISES AND CONSEQUENCES OF EMINENT DOMAIN
10.1 Repair and Restoration of Casualty Loss. If the Premises or any part
thereof shall be damaged by an insured casualty, Landlord shall proceed with
diligence, and at its expense, to repair or cause to be repaired such damage to
the Premises (excluding all Tenant's property and all Tenant's improvements to
the Building and the Premises, which are Tenant's sole responsibility), subject
to the then applicable statutes, building codes, zoning ordinances and
regulations of governmental authority, but only to the extent of insurance
proceeds available to Landlord. Tenant shall repair or cause to be repaired
damage to Tenant improvements, whether or not covered by insurance and whether
or not the proceeds of such insurance are adequate to defray the cost of repair.
All repairs to and replacements of property which Tenant is entitled to remove
under Section 8.6.1 shall be made by and at the expense of Tenant. Landlord
shall not be liable for delays in the making of any such repairs which are
beyond Landlord's reasonable control, nor for any inconvenience or annoyance to
Tenant or injury to Tenant's business resulting from such delays, but Landlord
shall use reasonable efforts to minimize any disruption.
10.2 Abatement of Rent. If the Premises or a part of them shall have been
rendered unfit for use and occupation by reason of such damage, rent shall be
abated in proportion to the space not available to Tenant until the Premises are
repaired (except as to property to be repaired by or at the expense of Tenant)
as nearly as practicable to the condition the Premises were in immediately prior
to their damage. If Landlord, or any mortgagee of the Building shall be unable
to collect insurance proceeds (including rent insurance proceeds) applicable to
the damage because of some action or inaction on the part of Tenant, or the
employee, licensees or invitees of Tenant, the cost of repairing such damage
shall be paid by Tenant and there shall be no abatement of rent.
10.3 Termination for Major Damage or If Damaged at End of Term. If (i) the
Premises are damaged by fire or other casualty (whether or not insured) at any
time during the last eighteen (18) months of the term hereof such that the cost
to repair the damage is reasonably estimated to exceed one-third (1/3) of the
total Annual Fixed Rent plus additional rent (projected on the basis of the
preceding lease year) payable for the period from the estimated date of
restoration until the Termination Date and for these purposes the Termination
Date shall be December 31, 1999 unless Tenant has waived irrevocably, or
otherwise has no right to exercise, the Termination Right (provided, however,
that Landlord shall have no duty of repair for damage occurring during the final
six (6) months of the Term), (ii) the Building is so damaged by fire or other
casualty (whether or not insured) that substantial alteration or reconstruction
or demolition of the Building shall in Landlord's judgment be required, (iii)
the Building is damaged or destroyed to the extent of five (5%) percent or more
of the then insurable replacement value from any cause not covered by the
insurance carried by Landlord under Section 9.4, or (iv) the available insurance
proceeds, in Landlord's reasonable judgment, would be insufficient to cover the
cost of repair, or (v) in Landlord's judgment the Premises cannot be restored as
required by this Lease within 30 90 working days after work commences, then and
in any of such events this Lease and the term hereof may be terminated at the
election of Landlord by a notice in writing of its election so to terminate
which shall be given by Landlord to Tenant within sixty (60) days following such
fire or other casualty. The effective termination date shall be not less than
thirty
<PAGE>
(30) days after the day on which such termination notice is received by Tenant.
In the event of any termination, this Lease and the term hereof shall expire as
of such effective termination date as though that were the Termination Date as
stated in Section 1 and the Annual Fixed Rent, additional rent and all other
charges shall be apportioned as of such date.
Tenant shall have the right to terminate this Lease following any such
damage occurring during the last eighteen (18) months of the Term as then in
effect if Landlord refuses to provide, within a reasonable time after Tenant's
written request, written assurance that the damaged portion of the Premises will
be restored for Tenant's use within nine (9) months from the date of casualty
or, at any time during the Term if Landlord has assured Tenant that the Premises
will be restored within nine (9) months, but Landlord, having so assured Tenant,
fails to deliver the restored Premises for Tenant's use on substantially that
schedule.
10.4 Eminent Domain. In the event that the Premises or any part thereof shall be
taken by eminent domain for any public or quasi-public use, or, by virtue of any
such taking, shall suffer any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation, then this Lease may
be terminated at the election of Landlord by a notice in writing of its election
so to terminate which shall be given by Landlord to Tenant within sixty (60)
days following the date on which Landlord shall have received notice of such
taking, appropriation or condemnation. In the event that a substantial part of
the Premises (or, if the Premises include all or part of more than one building,
of any building included in the Premises) shall be taken, appropriated or
condemned or that all access to the Premises shall be permanently taken, then
(and in any such event) this Lease and the Term hereof may be terminated as to
the building(s) taken at the election of Tenant by a notice in writing of its
election so to terminate which shall be given by Tenant to Landlord within sixty
(60) days following the date on which Tenant shall have received notice of such
taking, appropriation or condemnation. No action of public authorities with
respect to the public streets in the vicinity of the Building, including without
limitation elimination of vehicular access thereon, shall affect this Lease in
any way except as stated in this Section 10.4.
Upon the giving of any such notice of termination (either by Landlord
or Tenant) this Lease and the Term hereof shall terminate on or retroactively as
of the date on which Tenant shall be required to vacate any part of the Premises
or shall be deprived of a substantial part of the means of access thereto,
provided, however, that Landlord may in Landlord's notice elect to terminate
this Lease and the Term hereof retroactively as of the date on which such taking
became legally effective. Rent and other charges shall be apportioned as of such
termination date. If neither party (having the right so to do) elects to
terminate, Landlord will, with reasonable diligence and at Landlord's expense,
restore the remainder of the Premises, or the remainder of the means of access,
as nearly as practicable to the same condition as existed prior to such taking.
A just proportion of the rent, according to the nature and extent of the injury
to the Premises, shall be abated until what may remain of the Premises shall be
restored as aforesaid, and thereafter a just proportion of the rent according to
the nature and extent of the part of the Premises so taken shall be abated for
the balance of the term of this Lease.
<PAGE>
Except for any award expressly and specifically reimbursing Tenant for
moving or relocation expenses, Landlord reserves all rights to compensation and
damages created, accrued or accruing by reason of any such taking, in
implementation and in confirmation of which Tenant hereby acknowledges that
Landlord shall be entitled to receive all such compensation and damages, grants
to Landlord all and whatever rights (if any) Tenant may have to such
compensation and damages, and agrees to execute and deliver all and whatever
further instruments of assignment as Landlord may from time to time request. In
the event of any taking of the Premises or any part thereof for temporary use,
(i) this Lease shall be and remain unaffected thereby, (ii) rent shall not
abate, and (iii) Tenant shall be entitled to receive for itself any award made
for such use, provided, that if any taking is for a period extending beyond the
Term of this Lease, such award shall be apportioned between Landlord and Tenant
as of the Termination Date or earlier termination of this Lease.
<PAGE>
11. DEFAULT AND REMEDIES
11.1 Events of Default. (a) If Tenant shall default in the performance of any of
its obligations to pay the Annual Fixed Rent or additional rent hereunder within
five (5) ten (10) business days after Landlord gives written notice of
nonpayment, or if, within thirty (30) days after written notice from Landlord to
Tenant specifying any other default or defaults, Tenant has not commenced
diligently to correct the default or defaults so specified or has not thereafter
diligently pursued such correction to completion, or (b) if any assignment shall
be made by Tenant for the benefit of creditors, or (c) if Tenant's leasehold
interest shall be taken on execution, or (d) if a petition is filed by Tenant or
any guarantor of Tenant's obligations under this Lease for adjudication as a
bankrupt or for reorganization or any arrangement under any provision of the
Bankruptcy Code as then in force and effect, or (e) if an involuntary petition
under any of the provisions of said Bankruptcy Code is filed against Tenant or
any such guarantor and is not dismissed within sixty (60) days thereafter, or
(f) if Tenant or any such guarantor shall be declared bankrupt or insolvent
according to law, or (g) if a receiver, trustee or assignee shall be appointed
for the whole or any part of Tenant's property or the property of any such
guarantor and shall not be removed within sixty (60)) days thereafter, then, and
in any of such cases, Landlord and its agents lawfully may, in addition to and
not in derogation of any remedies for any preceding breach of covenant,
immediately or at any time thereafter so long as Landlord has not accepted a
cure of such default and without demand or notice and with or without process of
law (forcibly, if necessary) enter into and upon the Premises or any part
thereof in the name of the whole or mail a notice of termination addressed to
Tenant at the Premises, and repossess the same as of Landlord's former estate
and expel Tenant and those claiming through or under Tenant and remove its and
their effects (forcibly, if necessary) without being deemed guilty of any manner
of trespass and without prejudice or prior breach of covenant, and upon such
entry or mailing as aforesaid this Lease shall terminate, Tenant hereby waiving
all statutory rights (including without limitation rights of redemption, if any)
to the extent such rights may be lawfully waived, and Landlord, with notice to
Tenant, may store Tenant's effects, and those of any person claiming through or
under Tenant at the expense and risk of Tenant, and, if Landlord so elects, may
sell such effects at public auction and apply the net proceeds to the payment of
all sums due to Landlord from Tenant, if any, and pay over the balance, if any,
to Tenant. For purposes of this Section 11.1 and all sections under Article 11,
"Tenant" shall include any guarantor of any of Tenant's obligations under this
Lease and any corporation of which Tenant is a controlled subsidiary.
11.2 Deleted.
11.3 Damages - Termination. Upon the termination of this Lease under the
provisions of this Article 11, then except as otherwise provided in Section
11.2, Tenant shall pay to Landlord the rent and other charges payable by Tenant
to Landlord up to the time of such termination, shall continue to be liable for
any preceding breach of covenant, and in addition, shall pay to Landlord as
damages, at the election of Landlord either:
(x) the amount by which, at the time of the termination of this Lease
(or at any time there after if Landlord shall have initially elected damages
under subparagraph (y),
<PAGE>
below), (i) the aggregate of the rent, taxes, Operating Expenses and other
charges projected over the period commencing with such termination and ending on
the Termination Date as stated in Section 1 (or such later date to which the
Lease has been extended) exceeds (ii) the aggregate projected value of the
Premises for such period each discounted to present value at the then prevailing
rate for Treasury bills having a maturity which most closely corresponds to the
remaining Term of the Lease; or
(y) amounts equal to the rent, taxes and Operating Expenses and other
charges which would have been payable by Tenant had this Lease not been so
terminated, payable upon the due dates therefor specified herein following such
termination and until the Termination Date as specified in Section 1, (or such
later date to which the Lease has been extended) provided, however, if Landlord
shall re-let the Premises during such period, that Landlord shall credit Tenant
with the net rents received by Landlord from such re-letting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord from such re- letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the Premises for new tenants, brokers' commissions,
attorneys' fees and all other similar and dissimilar expenses properly
chargeable against the Premises and the rental therefrom, it being understood
that any such re-letting may be for a period equal to or shorter or longer than
the remaining term of this Lease as extended; and provided, further, that (i) in
no event shall Tenant be entitled to receive any excess of such net rents over
the sums payable by Tenant to Landlord hereunder and (ii) in no event shall
Tenant be entitled in any suit for the collection of damages pursuant to this
Subparagraph (y) to a credit in respect of any net rents from a re-letting
except to the extent that such net rents are actually received by Landlord prior
to the commencement of such suit. If the Premises or any part thereof should be
re-let in combination with other space, then proper apportionment on a square
foot area basis shall be made of the rent received from such re-letting and of
the expenses of re-letting.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
11.4 Effect of Taxes and Operating Expenses on Damages. In the event of any
termination of this Lease or re-entry by Landlord under the provisions of this
Article 11 or other proceeding or action or any provision of law by reason of
default under this Lease on the part of Tenant, then for the purpose of
computing damages as shall be payable pursuant to this Article 11, it is agreed
that:
(a) If (i) Landlord shall be entitled to liquidated damages under
Section 11.2, or if (ii) Landlord shall elect that damages be payable pursuant
to Subparagraph (x) of Section 11.3, the computation of such damage shall be
made, insofar as the same relates
<PAGE>
to Taxes and Operating Expense by taking the product of (i) the sum of Taxes and
Operating Expense for the immediately preceding fiscal year of Landlord,
respectively, times (ii) the number of years remaining of the full term hereby
granted, on the assumption that the amount of such Taxes and Operating Expense
so payable for the immediately preceding fiscal year of Landlord would have
remained constant for each subsequent fiscal year of the full term hereby
granted.
(b) If Landlord shall elect that such damages be payable pursuant to
Subparagraph (y) of Section 11.3, the sums referred to in said Subparagraph (y)
shall include, without limitation, the amount of the Taxes and Operating Expense
which under the provisions of Section 6.2 would be payable by Tenant for the
period referred to in said Subparagraph (y).
11.5 Landlord's Expenses in Performing Obligations of Tenant. If Tenant shall
default in the performance of any covenant of this Lease, Landlord may without
waiving or releasing any right or remedy immediately, or at any time thereafter,
without notice if the matter in question has previously been drawn to Tenant's
attention, and otherwise with reasonable prior notice (but no notice is
necessary in emergencies as determined by Landlord in good faith),, perform the
same for Tenant's account and Tenant shall pay on demand as reimbursement the
sum so paid by Landlord with all interests, costs and damages.
11.6 Remedies Not Exclusive. Landlord's and Tenant's remedies stated in this
Lease are cumulative and not exclusive of any other remedies or means of redress
available to Landlord or Tenant by law.
11.7 Landlord's Default. Landlord shall not be in default of any of its
obligations hereunder unless it shall fail to perform such obligations within
thirty (30) days (or such further time as is reasonably necessary) after receipt
of written notice thereof from Tenant.
11.8 Effect of Waivers of Default. No consent or waiver, express or implied, by
either party to any act or omission which otherwise would be a breach of the
other party's obligations shall in any way be construed to impair such other
party's continuing obligations hereunder or operate to permit similar acts or
omissions.
11.9 Repeated Defaults. No notice of default need be given under Section 11.1,
and no default in the payment of Annual Fixed Rent or Additional Rent shall be
curable if on two prior occasions in any one lease year Tenant has failed to
make such payment or received a notice of default from Landlord and, in such
event, Landlord shall have the right to terminate this Lease as in Section 11.1
provided and the right to damages as in Section 11.3 provided.
11.10 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than
the Annual Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, nor shall any endorsement or statement on any check or any letter
accompanying any check
<PAGE>
for payment as rent or other charge be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
<PAGE>
12. SUBORDINATION
12.1 Subordination. This Lease is subject and subordinate to all matters of
record including without limitation, ground leases and mortgages, any of which
may now or hereafter be placed on or affect the Premises, or any part thereof
and to each advance made or to be made under any such mortgages, and to all
renewals, modifications, consolidations, replacements and extensions thereof and
all substitutions therefor. This Section 12 shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord and/or any mortgagee and/or lessor under any ground or underlying lease
and/or their respective successors in interest may request. Landlord agrees to
use reasonable efforts to obtain a nondisturbance agreement from the present and
any future mortgagee. "Reasonable efforts" shall consist of (1) submitting to
the mortgagee a written request and (2) providing the mortgagee with information
it requests.
Without limitation of any of the provisions of this Lease, if any
ground lessor or mortgagee shall succeed to the interest of Landlord by reason
of the exercise of its rights under such ground lease or mortgage (or the
acceptance of voluntary conveyance in lieu thereof) or the expiration or sooner
termination of such ground lease, however caused, then such successor shall give
written notice to Tenant (which in the case of a ground lease shall be within
thirty (30) days after such expiration or sooner termination) that it is
electing to succeed to the interest of Landlord under this Lease; and in such
event, at the request of such successor the Tenant shall attorn to such
successor and shall ipso facto be and become bound directly to such successor in
interest to Landlord to perform and observe all the Tenant's obligations under
this Lease without the necessity of the execution of any further instrument.
Tenant shall not be entitled to assert against mortgagee or any purchaser from
mortgagee at foreclosure or voluntary conveyance in lieu of foreclosure any
prepaid rent or offsets against or credits due to Mortgagor on account of any
period following sale of the premises at foreclosure of by voluntary conveyance
in lieu of foreclosure. Tenant agrees at any time and from time to time during
the term hereof to execute a suitable instrument suitable to the mortgagee in
confirmation of Tenant's agreements as aforesaid.
<PAGE>
13. HOLDING OVER
13.1 Holding Over. If Tenant or anyone claiming under Tenant shall remain in
occupancy of all or any portion of the Premises, or shall fail to yield-up the
Premises free of Hazardous Substances, in each case delaying rental or delivery
of possession of the Premises to another tenant, Tenant or such other person
shall be deemed to be holding over after the termination of this Lease.
If Tenant or anyone claiming under Tenant shall remain in possession of
the Premises or any part thereof after the expiration of the Term of this Lease
without any agreement in writing between Landlord and Tenant with respect
thereto, prior to acceptance of rent by Landlord the person remaining in
possession, Tenant (or such person claiming under Tenant) shall be deemed a
tenant at sufferance, and after acceptance of rent by Landlord a tenant from
month-to-month, in either case at a use and occupancy charge equal to 165% the
rate of Annual Fixed Rent plus all other charges payable under this Lease, and
subject to the provisions of this Lease (excluding all provisions for rent)
insofar as the same may be applicable. Notwithstanding the foregoing, prior to
acceptance of rent for any period after the Term, Landlord, at its option, may
re-enter and take possession of the Premises or any part thereof forthwith
without process or by any manner provided by law, in every case without
prejudice to claim for the use and occupancy charge as stated above.
If the Premises or areas adjacent thereto have been contaminated with
Hazardous Substances by reason of Tenant's act or neglect (but without regard to
fault), in any case delaying for any reason rental of the Premises to another
tenant, Tenant shall be deemed to continue to be in possession of the affected
Premises as a tenant at sufferance for the duration of such delay, however
caused, at the use and occupancy charge set forth above and subject to the
provisions of this Lease as aforesaid, and Tenant agrees that unless Tenant (and
such person claiming under Tenant) is in bankruptcy or insolvency proceedings or
similarly disabled from performing Tenant's obligations hereunder, Landlord has
the right, at Landlord's election, but no duty or obligation, to restore the
Premises to the condition required at the termination of this Lease hereunder,
and Tenant is solely responsible to do so. Landlord's election to make the
Premises conform with the requirements of this Lease, such as by removing any
Hazardous Substances, shall not diminish in any way Landlord's claim for the use
and occupancy charge as aforesaid for the duration of any delay in re-leasing
the Premises resulting therefrom.
<PAGE>
14. MISCELLANEOUS PROVISIONS
14.1 Notices. All notices hereunder shall be in writing and deemed duly served
if delivered in hand or to a recognized national courier service such as FedEx
or if mailed, certified mail, to Tenant, at the Original Address of Tenant or
such other address as Tenant shall have last designated by notice in writing to
Landlord and, Landlord, at the Original Address of Landlord or such other
address as Landlord shall have last designated by notice in writing to Tenant.
At Tenant's written request, a courtesy notice will also be given to Tenant's
counsel named in such request but such notice shall not be necessary to
Landlord's rights.
14.2 Quiet Enjoyment. Upon Tenant's paying the rent and performing all
provisions of this Lease, Tenant may peaceably and quietly have, hold and enjoy
the Premises during the Term without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord.
14.3 Limitation of Landlord's Liability. Tenant shall neither assert nor seek to
enforce any claim for breach of this Lease against any of Landlord's assets
other than Landlord's interest in the Premises and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease. In no event shall
Landlord (which term shall include, without limitation any of the officers,
trustees, directors, partners, beneficiaries, joint venturers, members,
stockholders or other principals or representatives, disclosed or undisclosed,
thereof) ever be personally liable for any such liability or ever be liable for
consequential damages.
14.4 Acts of God. In any case where either party hereto is required to do any
act, other than the payment of Annual Fixed Rent or additional rent, delays
caused by or resulting from acts of God, war, civil commotion, fire, flood or
other casualty, labor difficulties, shortages of labor, materials or equipment,
unusual government regulations, moratorium or similar acts of government,
unusually severe weather, or other causes beyond such party's reasonable control
shall not be counted in determining the time during which such act shall be
completed, whether such time be designated by a fixed date, a fixed time or "a
reasonable time," and such time shall be deemed to be extended by the period of
such delay.
14.5 Applicable Law and Construction. This Lease is made under Massachusetts law
and shall bind Landlord and Tenant and their respective heirs, successors and as
signs. If any provision of this Lease shall to any extent be invalid, the
remainder of this Lease, and the valid portion of such provisions, shall not be
affected thereby. There are no oral or written agreements between Landlord and
Tenant affecting this Lease. This Lease may be amended only by instruments in
writing executed by Landlord and Tenant. The titles of the several Articles and
Sections contained herein are for convenience only and shall not be considered
in construing this Lease.
14.6 Arbitration. Wherever this Lease provides that any question shall be
determined by arbitration, such question shall be determined by arbitration in
accordance with the
<PAGE>
rules of the American Arbitration Association and judgment upon the award
rendered shall be binding upon the parties hereto and may be entered in any
court having jurisdiction. Arbitration shall be held in Boston, Massachusetts
and the cost thereof shall be borne equally between the parties.
14.7 Timely Performance. Time is of the essence in all matters relating to this
Lease.
14.8 No Broker. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of the Building, nor had its
attention called to the Premises by anyone other than the broker, person or
firm, if any, designated in Section 1. Tenant agrees to exonerate and save
harmless and indemnify Landlord against any claims for a commission arising out
of the execution and delivery of this Lease or out of negotiations between
Landlord and Tenant with respect to the leasing of other space in the Building,
provided that Landlord shall be solely responsible for the payment of brokerage
commissions to the broker, person or firm, if any, designated in Section 1.
14.9 Financing Requirements. If in connection with obtaining financing for the
Building, a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or condition its consent
thereto provided that such modifications do not increase the obligations of
Tenant hereunder or materially adversely affect the leasehold interest hereby
created.
14.10 Agreement Made Only When Lease Signed. This Lease shall bind Landlord and
Tenant only when executed and delivered by both. This Lease when signed by one
party and delivered to the other shall constitute an offer to enter into a lease
on the terms set forth herein. No submission of this lease, unsigned by either
party to the other shall constitute an offer to lease.
14.11 Demolition. In the event Landlord decides to demolish the Building,
Landlord may terminate this Lease by not less than eighteen (18) months notice
to Tenant, and upon the giving of such notice this Lease shall, without the
necessity of further writing, terminate on the Termination Date stated in such
notice with the same effect as if such date had been the Termination Date stated
in Section l.l; provided that Landlord shall reimburse Tenant the unamortized
cost (based on the Term) to Tenant of improvements to the Building made by
Tenant with Landlord's consent which are to become Landlord's property at the
end of the Term. At Landlord request, Tenant agrees to provide Landlord with a
written statement of such costs in reasonable detail.
14.12 Relocation. At its option, Landlord may on not less than one hundred (100)
days notice require Tenant to relocate all or any part of its uses in the
Premises for the balance of the Term from the Premises to other property of
Landlord in the vicinity of the Premises of substantially equivalent quality and
area, which other premises shall thereafter be the Premises in substitution for
those Premises from which Tenant was relocated for all purposes of this lease.
Landlord's notice shall identify the premises to which Tenant will be relocated,
the Premises (or portion(s) thereof) from which Tenant is to be relocated and
Landlord's estimated date for the relocation to
<PAGE>
occur. Any cost of preparing the alternate premises to condition suitable for
Tenant's use shall be Landlord's sole expense. If (but only if) Tenant gives
Landlord written notice within thirty (30) days of the date of Landlord's notice
rejecting such relocation ("Tenant's Rejection Notice"), then this Lease shall
terminate on the date of estimated relocation stated in Landlord's notice with
the same force and effect as if such date had been the agreed Termination Date;
except that if, within seven (7) calendar days of receipt of Tenant's Rejection
Notice Landlord gives Tenant notice cancelling all relocation, then this Lease
shall remain in full force and effect as if no relocation notice had ever been
given.
14.13 No Parking. This Lease does not create any parking privileges on any of
Landlord's property.
<PAGE>
EXHIBIT 1
FLOOR PLAN OF PREMISES
Beal to attach
<PAGE>
EXHIBIT 1-A
FLOOR PLAN OF FIRST OFFER PREMISES
Beal to attach
<PAGE>
EXHIBIT 2
LANDLORD'S WORK
NONE
<PAGE>
EXHIBIT 3
TENANT'S WORK
<PAGE>
EXHIBIT 4
Clean-up Requirements,
Including Standards for Biological, Chemical and Radioactive Agents
General
Except as more specifically addressed below, Tenant shall remove any
Hazardous Substances released by Tenant on, under or adjacent to the Premises to
levels below the "reportable" or "releasable" concentration and/or quantities of
such Hazardous Substances set forth in applicable Hazardous Substance Laws. The
following shall also apply to biological, chemical and radioactive agents.
Biological
Applicable regulatory requirements shall be adhered to (for example, if
the bloodbourne pathogen standard is applicable, the requirements for clean up
and decontamination included in 29 CFR 1910.1030 shall be adhered to).
Where no applicable regulatory requirements exist, National Institutes
of Health (NIH) guidelines for general cleaning and disinfecting areas where
biological agents were used, such as presently set forth in the NIH's
"Laboratory Safety Monograph - A supplement to the NIH Guidelines for
Recombinant DNA Research", shall be adhered to.
Chemical
Applicable regulatory requirements shall be adhered to.
Where no applicable regulatory requirements exist, general cleaning of
all working and walking surfaces of the laboratories shall be performed using an
appropriate industrial strength cleaner.
Without limiting the foregoing, any disposal of washing solutions from
the Premises after cleanup shall conform with Massachusetts Water Resources
Authority and other applicable regulatory requirements.
Radioactive
Applicable regulatory requirements shall be adhered to, including
without limitation Nuclear Regulatory Commission (NRC) licensing, documentation
and decommissioning requirements and procedures.
All radioactivity, including materials regulated under the Atomic
Energy Act of 1954 and unregulated radioactive materials, shall be removed from
the Premises using NRC decontamination procedures so that all radioactive
materials remaining on the Premises are below the guidelines of NRC Regulatory
Guide 1.86.
<PAGE>
Without limiting the foregoing, all regulated radioactive materials
shall be removed in compliance with NRC licensing and decommissioning
requirements, and Tenant shall provide Landlord with a copy of the acceptance
letter from the NRC stating that the Premises have been decontaminated and
decommissioned properly.
<PAGE>
EXHIBIT 5
LIST OF FIXTURES AND EQUIPMENT WHICH REMAIN WITH PREMISES
Beal to attach
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 11,
1997 (except for Note 15, which the date is February 13, 1997) in the
Registration Statement (Form S-1) and the related Prospectus of EPIX Medical,
Inc. for the registration of 2,587,500 shares of its common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
October 17, 1997
EPIX MEDICAL, INC.
Certificate of Assistant Secretary
----------------------------------
I, William T. Whelan, being the duly elected and acting Assistant
Secretary of EPIX Medical, Inc. (the "Company"), a Delaware corporation, hereby
certify that the following is a true, correct and complete copy of resolutions
duly adopted by the Board of Directors of the Company by unanimous written
consent dated October 20, 1997; and that said resolutions have not been amended
or rescinded and are now in full force and effect.
RESOLVED: That Michael D. Webb and William T. Whelan, and each
of them acting singly, be and hereby are designated as
attorneys-in-fact of the Corporation and of any officer or
director executing the Registration Statement and any related
Rule 462(b) registration statement on behalf of the
Corporation, or otherwise, with full power of substitution and
resubstitution, for each of them in any and all capacities, to
execute and file the Registration Statement and any amendments
(including pre- and post-effective amendments), any related
Rule 462(b) registration statement, and any and all
supplements, schedules or exhibits thereto or requests for
acceleration thereof, and that any such officer or director of
the Corporation be and hereby is authorized to execute and
deliver an appropriate power of attorney reflecting such
authorization and to do and perform any and all acts and
things whatsoever necessary, appropriate or desirable to be
done in the premises, all in the name, place and stead of the
Corporation, as fully and to all intents and purposes as such
officer or director might or could do in person, and such acts
of such attorneys or any of them and any such substitute are
hereby ratified and approved.
RESOLVED: That any officer or director of the Corporation executing, on
behalf of the Corporation or in any other capacity, the
Registration Statement, any related Rule 462(b) registration
statement, and any and all amendments and supplements thereto
and other documents to be filed with the Commission in
connection therewith is hereby authorized to execute the same
through or by his or her duly authorized attorneys-in-fact
pursuant to an appropriate power of attorney signed by such
officer or director appointing each of such individuals so to
act.
WITNESS my signature and the seal of the Company affixed this 20th day
of October, 1997.
[CORPORATE SEAL] /s/ William T. Whelan
---------------------
William T. Whelan
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF EPIX MEDICAL, INC. AS OF SEPTEMBER 30, 1997 AND FOR THE THREE MONTH
PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001027702
<NAME> EPIX MEDICAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 826,428
<SECURITIES> 19,738,450
<RECEIVABLES> 854,614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,745,566
<PP&E> 3,077,588
<DEPRECIATION> 1,920,493
<TOTAL-ASSETS> 23,264,945
<CURRENT-LIABILITIES> 2,526,156
<BONDS> 0
0
0
<COMMON> 86,885
<OTHER-SE> 20,443,721
<TOTAL-LIABILITY-AND-EQUITY> 23,264,945
<SALES> 0
<TOTAL-REVENUES> 2,626,970
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,396,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,348
<INCOME-PRETAX> (462,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (462,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (462,501)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
