<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997
REGISTRATION NO. 333-18173
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CHEMGENICS PHARMACEUTICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 8099 06-1334380
(State or other jurisdiction
of Incorporation or (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
ONE KENDALL SQUARE
BUILDING 300
CAMBRIDGE, MASSACHUSETTS 02139
(617) 374-9090
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
BARRY A. BERKOWITZ, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHEMGENICS PHARMACEUTICALS INC.
ONE KENDALL SQUARE
BUILDING 300
CAMBRIDGE, MASSACHUSETTS 02139
(617) 374-9090
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LEWIS J. GEFFEN, ESQUIRE ALAN L. JAKIMO, ESQUIRE
MINTZ, LEVIN, COHN, FERRIS, BROWN & WOOD LLP
GLOVSKY AND POPEO, P.C. ONE WORLD TRADE CENTER
ONE FINANCIAL CENTER 58TH FLOOR
BOSTON, MA 02111 NEW YORK, NY 10048
(617) 542-6000 (212) 839-5300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED JANUARY 14, 1997
2,500,000 SHARES
CHEMGENICS PHARMACEUTICALS INC.
COMMON STOCK
-------------------------------
All of the shares of Common Stock, par value $.001 per share (the "Common
Stock"), offered are being sold by ChemGenics Pharmaceuticals Inc. ("ChemGenics"
or the "Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CGNS."
-------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
=============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated offering expenses payable by the Company
estimated to be $750,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 375,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all of such additional
shares are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of the certificates for the shares will be made at the offices of Cowen
& Company, New York, New York, on or about , 1997.
-------------------------------
COWEN & COMPANY MONTGOMERY SECURITIES
, 1997
<PAGE> 3
DESCRIPTION OF FIGURES
Inside front cover (2 page gatefold)
The diagram is of the drug discovery process indicating each of the steps in
the process, the rate limiting steps, and the applicable ChemGenics
technologies. In addition, there are three pictorial representations. The first
is of a piece of DNA inserting into a yeast cell to genetically transform it.
The second is of ChemGenics' drug source, listing and graphically displaying the
Company's biorational collection of fungi, genetic manipulation of fungi, and
information-based QuickScan index. The third is an illustration of some of the
Company's Advanced Drug Selection technologies, depicting a mixture of
molecules going through chromatographic columns and a mass spectrometer to
yield a drug lead.
<PAGE> 4
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document are not
necessarily complete and, in each instance where such documents are filed as an
exhibit to the Registration Statement, reference is made in each instance to the
copy of such document filed as exhibit to the Registration Statement for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected without charge and copies obtained at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants (including the Company) that file
electronically with the Commission, which can be accessed at http://www.sec.gov.
---------------------
As a result of this offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith will be required to
file periodic reports, proxy statements and other information with the
Commission. The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
accountants and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. 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.
---------------------
QuickScan[Trademark], Drug Discovery Genomics[Trademark] and
BioCombinatorial[Trademark] are trademarks of ChemGenics Pharmaceuticals Inc.
for which United States trademark registration applications have been filed.
All other trademarks or trade names referred to in this Prospectus are the
property of their respective owners.
2
<PAGE> 5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information including "Risk Factors" and the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and reflects (i) a 1-for-2.65 reverse stock split,
effected prior to the closing of this offering and (ii) the conversion of all
outstanding shares of convertible preferred stock into 4,458,528 shares of
Common Stock upon the closing of this offering.
THE COMPANY
ChemGenics is a drug discovery company that applies its two complementary
technology platforms, Drug Discovery Genomics and Advanced Drug Selection
Technologies, to key rate limiting steps in identifying new drugs. These rate
limiting steps are the translation of genomic information into novel drug
targets and the selection and identification from sources of chemical diversity
of drug leads that interact with drug targets. The Company's Drug Discovery
Genomics platform includes proprietary gene technologies and expertise in
microbial model systems used to determine the function of genes and to
prioritize drug targets. The Company's Advanced Drug Selection Technologies
combine the steps of drug screening, chemical selection and structural analysis
into an integrated process designed to identify drug leads faster than
conventional methods. These technology platforms are used with the Company's
growing drug source of 50,000 chemical-producing fungi collected worldwide. The
breadth of the Company's technology platforms allows it to pursue multiple
pharmaceutical and biotechnology alliances, such as its alliances with Pfizer,
Inc. ("Pfizer") and Wyeth-Ayerst Laboratories, the pharmaceutical division of
American Home Products Corporation ("Wyeth-Ayerst").
In January 1995, the Company entered into a strategic collaboration with
Pfizer for the discovery of novel drug leads for treating human fungal
infections, which could provide over $50 million in equity, research funding and
development milestone payments, plus potential royalties. In December 1996, the
Company entered into a strategic collaboration with Wyeth-Ayerst for the
discovery of novel drug leads for treating human bacterial infections, which
could provide up to $70 million in equity, research funding and development
milestone payments, plus potential royalties. The Company is conducting
additional drug discovery programs in cancer, peptic ulcer disease (Helicobacter
pylori), immune system regulation, inflammatory disease and viral infections. In
May, November and December 1996, the Company entered into agreements with
PerSeptive Biosystems, Inc. ("PerSeptive") under which, in exchange for a
substantial equity interest in ChemGenics and a $3 million promissory note, the
Company acquired certain assets and a worldwide, royalty-free license to present
and future technology of PerSeptive for use in the field of drug discovery.
Current rate limiting steps in drug discovery provide opportunities for
innovative technologies that can increase the speed, efficiency and productivity
of this process. A significant rate limiting step is the translation of genomic
information into novel drug targets. Genomics is a powerful technique that can
identify disease genes, but is unlikely by itself to produce the next generation
of drug targets. Once a gene is identified, its function in disease and utility
as a drug target must be determined. A second significant rate limiting step is
separation and identification of drug leads from large sources of chemical
diversity. Advances in combinatorial chemistry and other drug sourcing
technologies have expanded the size and diversity of chemical libraries, but
separation and identification of individual drug leads remain time consuming and
expensive. The Company has designed its Drug Discovery Genomics and Advanced
Drug Selection Technologies to integrate the process of drug target and drug
lead discovery to enhance speed, efficiency and productivity.
ChemGenics' Drug Discovery Genomics platform encompasses proprietary gene
technologies and expertise in microbial model systems and is applied to gene
discovery, determination of gene function, selection of drug targets,
configuration of drug screens and genetic manipulation of fungi to produce its
novel drug source. The Company believes that model organisms, such as its
microbial systems, offer solutions to translate efficiently genes and genomic
information into novel drug targets. ChemGenics is translating genomic
information into useful drug targets by identifying essential genes for cell
function, using fungal homologs of human disease genes and measuring expression
levels of genes in model organisms to determine
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3
<PAGE> 6
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the function of unknown microbial and human genes. The Company is applying its
Drug Discovery Genomics platform to the discovery of both anti-infective drugs
and drugs targeting other human diseases.
ChemGenics' Advanced Drug Selection Technologies are designed to select
drug leads rapidly and cost effectively from large, complex chemical mixtures by
combining drug screening and chemical and structural analysis into a single
flow-through process. These technologies are supported and enhanced by
miniaturization, high throughput screening, automation and informatics. The
Company has demonstrated that its Advanced Drug Selection Technologies are
highly sensitive and capable of identifying drug leads that cannot readily be
found using conventional methods and permit the direct quantification and
prioritization of drug leads. The Company believes that the technology it
acquired from PerSeptive has enhanced its Advanced Drug Selection Technologies
platform.
ChemGenics has assembled a large, diverse and productive collection of over
50,000 fungi as a drug source. The Company has developed proprietary
BioCombinatorial methods of genetically manipulating these fungi to enhance
their chemical diversity. The Company has also developed a proprietary,
informatics-based index to its fungal chemical source, referred to as QuickScan,
that has been used to increase the speed of identifying natural product drug
leads by five- to ten-fold compared to previous methods used by the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby........................ 2,500,000 shares
Common Stock to be outstanding after this
offering......................................... 10,103,815 shares(1)
Use of proceeds.................................... For repayment of the $3 million
promissory note to PerSeptive, research
and development, expansion of its
laboratory facilities, working capital
and general corporate purposes.
Proposed Nasdaq National Market symbol............. CGNS
</TABLE>
- ---------------
(1) Excludes 912,109 shares issuable upon the exercise of options with a
weighted average exercise price of $1.89 per share and 1,914,496 shares
issuable upon exercise of warrants with a weighted average exercise price of
$12.90 per share. See "Capitalization," "Management -- Employee Benefit
Plans" and "Description of Capital Stock -- Stock Purchase Warrants."
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4
<PAGE> 7
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 218,095 $ 2,903,179 $ 3,573,010
Operating expenses:
Research and development..................... 3,870,375 4,949,925 7,370,780
General and administrative................... 883,219 1,011,505 1,437,664
Acquired in-process research and
development(1)............................... -- -- 6,783,900
----------- ----------- ------------
Total operating expenses.................. 4,753,594 5,961,430 15,592,344
----------- ----------- ------------
Interest income (expense), net................. (84,609) 662,969 486,513
----------- ----------- ------------
Net loss....................................... $(4,620,108) $(2,395,282) $(11,532,821)
=========== =========== ============
Pro forma net loss per common share(2)......... $(1.37)
======
Shares used in computing pro forma net loss per
common share(2).............................. 8,434,365
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities...... $ 13,460,876 $ 37,610,876
Total assets.......................................... 17,221,271 41,371,271
Promissory note....................................... 3,000,000 --
Accumulated deficit(1)................................ (22,762,682) (22,762,682)
Total stockholders' equity............................ 11,797,512 38,947,512
</TABLE>
- ---------------
(1) Reflects a one-time charge equal to the value placed on technology acquired
from PerSeptive that is in the research stage and has no alternative future
use. Such value was determined by independent appraisal and was charged to
operations because the future net realizable value of the technology is
uncertain. See Note 3 of Notes to Financial Statements.
(2) Computed on the basis described in Note 2(f) of Notes to Financial
Statements.
(3) Gives effect to (i) the automatic conversion of all outstanding Convertible
Preferred Stock into 4,458,528 shares of Common Stock upon the closing of
this offering and (ii) the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share and the application of the net proceeds therefrom
(including the payment of the $3,000,000 promissory note payable to
PerSeptive), after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds."
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5
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. Accordingly, prospective investors should consider
carefully the following risk factors, as well as the other information contained
in this Prospectus, before purchasing the shares of Common Stock offered hereby.
This Prospectus contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results and the timing of certain events could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and other factors discussed elsewhere in this Prospectus.
EARLY STAGE OF DEVELOPMENT; UNCERTAINTIES RELATING TO THE COMPANY'S DRUG
DISCOVERY TECHNOLOGY
The Company is at an early stage of development. To date, the Company has
not developed, commercialized or commenced clinical development of any products
based on its technological approaches, nor does the Company expect that any drug
lead resulting from its research efforts will be developed or commercially
available for a significant number of years, if at all. There can be no
assurance that any of these drug leads will be developed as drugs or that the
Company's approach to drug discovery will result in any additional drug leads
that will be selected for development as drugs.
ChemGenics is a drug discovery company that applies its two complementary
technology platforms, Drug Discovery Genomics and Advanced Drug Selection
Technologies, to key rate limiting steps in identifying new drugs. This approach
of discovering drug targets and subsequently drug leads for development as drugs
is subject to the risks of failure inherent in new technologies as well as the
widely acknowledged risks of failure in drug discovery in general. The Company's
Drug Discovery Genomics technologies for discovering novel drug targets are
dependent in large part on performing molecular genetics techniques with various
species of microbes, particularly fungi, the existence of similarities
(homologies) between the sequences of human genes related to the disease, the
sequences of counterpart fungal genes and the ability to clone and express those
human genes in fungal cells. Although there has been a clear demonstration of
homologies between the human genome and fungal genomes and the techniques to
clone and express human genes in fungal cells, no assurance can be given that
these homologies and cloning and expression techniques can be successfully
exploited to discover drug targets for non-infectious human disease. It is
possible that certain diseases in humans for which the Company is seeking to
discover novel drug leads will be associated with a human gene that has no
homolog in fungal genomes because the human genome is larger and more complex
than fungal genomes. In addition, since the function of a gene in a fungal
species may not be the same as that of its homolog in humans, the use of the
target encoded by that gene may not lead to a safe or effective drug for
treating the human disease associated with that gene. Also, the function of a
human gene cloned and expressed in a fungal cell may not be similar to the
function of that gene in a human cell.
The Company's chemical diversity technology for producing compounds to
screen against targets is significantly dependent on the breadth and utility of
the Company's collection of fungi. While many commercially successful drugs have
been derived by third parties from compounds produced by fungi, no assurance can
be given that the Company will be able to discover any novel compounds from its
fungal collection that will be safe and effective and otherwise capable of being
developed into drugs for treating disease. The Company's Advanced Drug Selection
Technologies have been engineered to address certain rate limiting steps in the
drug discovery process by increasing the speed and lowering the cost of
selecting and analyzing compounds that interact with targets (referred to by the
Company as drug leads), and the integration of technologies developed at
PerSeptive into the Company's overall Advanced Drug Selection Technologies has
led to certain early results. However, no assurance can be given that the pace
at which these early results have occurred will continue or that the Company's
Advanced Drug Selection Technologies will result in the discovery of any novel
drug targets or drug leads.
UNCERTAINTIES RELATING TO DRUG DEVELOPMENT AND COMMERCIALIZATION
The Company's success will depend on the ability of the Company and its
strategic collaborators to develop and commercialize drugs based on the drug
leads discovered by using the Company's drug discovery
6
<PAGE> 9
technologies. No assurance can be given that any drug lead discovered using the
Company's drug discovery technologies will be successfully developed and
commercialized as a drug. Development and commercialization of new drugs is
highly uncertain, and uncontrollable or unanticipated events, including delays
in clinical trials, unexpected adverse side effects or inadequate therapeutic
efficacy, and delays in obtaining regulatory approval, may slow or prevent
development efforts of the Company or its strategic collaborators and may have a
material adverse effect on the Company's business, financial condition and
results of operations. In the United States and elsewhere, extensive preclinical
studies and clinical trials demonstrating a drug's safety and efficacy in
treating a particular disease indication are required prior to obtaining
regulatory approval to market the drug for that indication. Preclinical studies
and clinical trials for a drug for a particular indication usually take a number
of years, and the time required to complete such studies and trials cannot be
predicted. There can be no assurance that any drugs based on drug leads
discovered with the Company's technology by the Company or any of its strategic
collaborators will be shown to be safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being manufactured in commercial
quantities at reasonable costs, be accepted by physicians, patients, hospital
formularies, insurers, health maintenance organizations, pharmacy benefit
managers or similar entities, be patentable by the Company or its strategic
collaborators and free of proprietary rights held by third parties, and be at
least as effective as any competing drugs. See "--Government Regulation; No
Assurances of Regulatory Approval."
RELIANCE ON STRATEGIC COLLABORATORS
The Company's strategy for funding a substantial portion of its drug
discovery operations and developing and commercializing drugs from drug leads
discovered with its technology includes the formation of strategic
collaborations and licensing arrangements with pharmaceutical and biotechnology
companies that have substantial resources devoted to conducting preclinical
studies and clinical trials of drug candidates, obtaining regulatory approval
for drug candidates and manufacturing and marketing drugs. The failure of the
Company to obtain additional collaborations and further funding for its drug
discovery operations from strategic collaborations and licensing arrangements
would require it to scale back or terminate certain of its drug discovery
programs. Also, in the absence of additional strategic collaborations and
licensing arrangements, it is unlikely that the Company would be able to obtain
the capital and other resources necessary to develop and commercialize drugs
based on drug leads that it discovers. In any strategic collaboration or
licensing arrangement, the Company will be subject to significant discretion on
the part of the strategic collaborator or licensee to proceed with, and to
control the amount and timing of resources devoted to, the development and
commercialization of drugs based on drug leads covered by the collaboration or
arrangement. There can be no assurance that any strategic collaborator or
licensee will pursue the development and commercialization of any such drug
leads, that the interests of any strategic collaborator or licensee will
continue to coincide with those of the Company, that disputes will not arise
over proprietary interests such as whether a specific drug lead was discovered
by the Company or with the Company's technology, that any strategic collaborator
or licensee will not pursue, (independently or with third parties), the
development and commercialization of alternative drug leads in preference to or
in competition with those discovered by the Company or using the Company's
technology, or that any such development or commercialization would be
successful and generate royalties for the Company. The Company will rely on its
collaborative relationships to market, sell, manufacture and distribute its
product candidates. Under its existing collaborations, and to the extent the
Company enters into future collaborations, any revenue received by the Company
under these collaborations will depend upon the efforts of third parties. There
can be no assurance that any such efforts by third parties will be successful.
If any strategic collaborator or licensee were to breach or terminate its
agreement with the Company or otherwise fail to conduct its collaborative
activities successfully and in a timely manner, the development and
commercialization of drug leads covered by that agreement would be delayed or
terminated. Any such delay or termination could materially and adversely affect
the Company's business, financial condition and results of operations. To date,
the Company has entered into strategic alliances with Pfizer and with
Wyeth-Ayerst relating to the discovery, development and commercialization of
drugs for treating fungal and bacterial infections, respectively, in humans. The
Company's agreements with Pfizer and Wyeth-Ayerst are subject to termination
under certain circumstances. Wyeth-Ayerst has an option to terminate its
agreement with the Company if the Company fails to reach certain research
objectives by the end of the third year of the collaboration. Although the
Company anticipates receiving significant milestone payments from Pfizer and
7
<PAGE> 10
Wyeth-Ayerst, there can be no assurance that such milestones will be achieved
and such payments will be earned. In addition, there can be no assurance that
the Company will be able to establish additional strategic collaborations or
licensing arrangements with other companies on terms that are favorable to the
Company. See "Business -- Collaborations."
RISKS ASSOCIATED WITH PERSEPTIVE AGREEMENTS
In connection with the Company's agreements with PerSeptive, the Company
and PerSeptive entered into a Voting Agreement pursuant to which, as long as it
owns at least 20% of the Company's outstanding voting stock, PerSeptive is
entitled to require the nomination of two PerSeptive nominees for election to
the Company's Board of Directors if the Board is comprised of six or seven
directors, or three PerSeptive nominees if the Board is comprised of eight or
more directors. If PerSeptive owns less than 20% of the Company's outstanding
capital stock, but at least 10%, it is entitled to require the nomination of one
PerSeptive nominee for election to the Company's Board of Directors. Certain
stockholders of the Company, who own an aggregate of 93.8% of the Company's
capital stock prior to the offering, have agreed to vote in favor of the
election of such nominees. In addition, PerSeptive has entered into a standstill
agreement, pursuant to which it has agreed not to acquire any additional Company
equity securities and to restrict its ability to sell any equity securities of
the Company, and, as long as PerSeptive owns at least 20% of the Company's
equity securities, to vote its shares in accordance with the recommendation of
ChemGenics' Board of Directors. This agreement will remain in effect until June
30, 2006. By virtue of PerSeptive's representation on the Company's Board of
Directors, PerSeptive will have the ability to influence the direction and
policies of the Company. Although under the terms of the agreements PerSeptive's
representatives on the Board of Directors would abstain from voting on any
matter that involved a direct conflict of interest between ChemGenics and
PerSeptive, PerSeptive's ownership of a significant percentage of the Company's
Common Stock, and its representation on ChemGenics' Board of Directors, could
permit PerSeptive to exercise a degree of influence on any such matter. Dr.
Noubar B. Afeyan, Chief Executive Officer of PerSeptive, currently serves as
Chairman of ChemGenics' Board of Directors.
Pursuant to the PerSeptive agreements, PerSeptive has agreed not to engage
in drug discovery or enter into any similar collaborative research and/or
development agreement for drug discovery with any party other than ChemGenics.
In addition, PerSeptive has agreed to provide ChemGenics with early and
preferred access to its technology. However, PerSeptive may sell and offer full
product support for its equipment and reagents to third parties, which the third
parties may use for any purpose, including drug discovery. In addition, during
the first five years of its collaboration with PerSeptive, the Company will have
an 18-month period of exclusivity for inventions or improvements developed
jointly by the parties that are primarily useful in drug discovery, during which
period PerSeptive will not sell, license, or distribute products incorporating
such joint inventions or improvements. After the first five years of such
collaboration, the Company will no longer be entitled to any such period of
exclusivity for joint inventions or improvements which are primarily useful in
drug discovery, unless PerSeptive so agrees. There can be no assurance that
PerSeptive will so agree or, if it does so agree, that such agreement will be
upon terms commercially reasonable to the Company. The Company also acquired
certain supplies and other assets related to drug discovery programs at
PerSeptive, including the right to use without charge (i) certain equipment
until the earlier of the successful conclusion of an initial public offering by
the Company or June 30, 1997 and (ii) certain supplies of the type manufactured
or distributed by PerSeptive until the later of the successful conclusion of an
initial public offering by the Company or March 31, 1997. Thereafter, the
Company will pay PerSeptive's fully burdened manufacturing cost for such
equipment and supplies.
The Company is dependent on technology developed by PerSeptive, and may
continue to be so in the future. Accordingly, the occurrence of an event which
materially affects the ability of PerSeptive to perform its obligations under
its agreements with the Company, may have a material adverse affect upon the
Company's ability to continue the development of certain of its technologies. In
addition, if PerSeptive were to terminate its agreements with the Company or
otherwise fail to comply with its covenants and agreements in a timely manner,
such terminations or failures could have a material adverse affect on the
Company's business, financial condition and results of operations. See "Business
- -- Collaborations -- PerSeptive Biosystems," and "Certain Transactions --
Agreement with PerSeptive Biosystems."
8
<PAGE> 11
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES
As of December 31, 1996, the Company had an accumulated deficit of
approximately $22.8 million, including a one-time charge of $6.8 million
associated with the acquisition of in-process research and development from
PerSeptive. The Company is currently operating at a loss and expects to incur
operating losses over at least the next several years. Even if the Company
succeeds in developing a commercial product, the Company expects to incur
significant losses for at least the next several years and that such losses will
increase as the Company expands its research and development activities
including preclinical studies and clinical trials. To achieve profitability, the
Company, alone or with others, must successfully develop its drug candidates,
conduct clinical trials, obtain required regulatory approvals and successfully
manufacture, introduce and market such drugs. The time required to reach
commercial revenue and profitability is highly uncertain and there can be no
assurance that the Company will be able to achieve any such revenue and
profitability on a sustained basis, if at all. See "Selected Financial Data,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations," and "Business."
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has experienced no net cash flows from operations since its
inception. The Company has funded its activities to date through issuances of
equity securities, research funding and interest income and expects capital and
operating expenditures to increase over the next several years as it expands its
infrastructure and its research and development activities. The Company's actual
future capital requirements will depend on many factors, including, without
limitation, the progress of the Company's research and development; achievement
of milestones under strategic alliance arrangements; the ability of the Company
to establish and maintain additional strategic collaborations and licensing
arrangements; the progress of the development efforts of the Company's strategic
collaborators; competing technological and market developments; the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; and the purchase of additional capital equipment.
These factors also include the level of the Company's activities relating to
commercialization rights it has retained in its strategic collaborations and the
costs and timing of regulatory approvals. Any such strategic collaborations or
licensing arrangements could result in limitation on the Company's ability to
control the research and development of potential drugs and commercialization of
resulting drugs if any, and could limit profits, if any, therefrom. Should the
Company choose to develop, manufacture or market any drugs it discovers, the
Company will require substantial funds for research and development, preclinical
studies, clinical trials, manufacturing and marketing of any of its
pharmaceutical products. The Company believes that the anticipated net proceeds
from this offering, together with existing cash, investment securities, and the
anticipated cash flow from existing strategic alliances, will be sufficient to
support the Company's operations for the next two years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
The Company expects that it will require significant additional financing
in the future, which it may seek to raise through public or private equity
offerings, debt financing or additional strategic collaborations and licensing
arrangements. No assurance can be given that additional financing will be
available when needed, or that, if available, such financing will be obtained on
terms favorable to the Company or its stockholders. To the extent the Company
raises additional capital by issuing equity securities, ownership dilution to
existing stockholders may result. To the extent that the Company raises
additional funds through strategic collaborations and licensing arrangements,
the Company may be required to relinquish rights to certain of its technologies
or product candidates, or to grant licenses on terms that are not favorable to
the Company, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
that adequate funds are not available, the Company may be required to reduce the
scope of or eliminate one or more of its research and development programs or
certain personnel and related expenses, which could have a material adverse
affect on the Company.
COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE
Drug discovery and development is a highly competitive field characterized
by extensive research efforts and rapid technological development. The Company
faces, and will continue to face, intense and increasing
9
<PAGE> 12
competition from organizations such as pharmaceutical and biotechnology
companies, as well as academic and research institutions and government
agencies. The Company is also subject to significant competition from
organizations that are pursuing the same or similar technologies as those being
pursued by the Company and from organizations that are pursuing pharmaceutical
products that are competitive with the Company's potential products, and such
competition is likely to increase.
Many of the Company's competitors have substantially greater financial,
technical and personnel resources than the Company. Although the Company
believes that it has identified new and distinct approaches to drug discovery,
there are other companies with drug discovery programs, at least some of the
objectives of which are the same or similar to those of the Company. Competing
technologies may be developed which would render the Company's technology
obsolete or noncompetitive. The Company is aware of many pharmaceutical and
biotechnology companies that are engaged in efforts to treat each of the
diseases for which the Company is seeking to develop therapeutic products. There
can be no assurance that competitors of the Company will not develop competing
technologies or drugs that are more effective than those developed by the
Company and its collaborators, thereby rendering the Company's and its
collaborators' technologies or drugs obsolete or non-competitive. Moreover,
there can be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the Company's
or its collaborators' ability to use the Company's technologies or commercialize
its or their drugs.
Each of the Company's strategic collaborators may be conducting multiple
product development efforts within each disease area that is the subject of its
strategic collaboration with the Company. Generally, the Company's strategic
collaborations do not restrict its strategic collaborators from pursuing
competing development efforts. Any product candidate of the Company, therefore,
may be subject to competition with a potential product under development by a
strategic collaborator. See " -- Reliance on Strategic Collaborators" and
"Business -- Competition."
PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS
The Company's commercial success depends in part on its ability to obtain
and enforce patent and certain other proprietary rights relating to its gene
discoveries, drug targets, screening technologies and drug leads. As of December
31, 1996, the Company had 10 patents pending in the United States, and two U.S.
patents based on the Company's discoveries had issued. There can be no assurance
that any present or future patent application will result in a patent or that
any present or future patent will protect a commercially viable product, will
provide the Company with any competitive advantages or will not be challenged by
third parties, or that the patents of others will not have an adverse effect on
the ability of the Company to do business. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
issued to the Company, design around the patented technologies developed by the
Company. In addition, the Company could incur substantial costs in litigation if
it is required to defend itself in patent suits brought by third parties or if
it initiates such suits.
Patent law as it relates to inventions in the biotechnology field is still
evolving and legal principles are not firmly established. Accordingly, there can
be no assurance that patents will be granted with respect to any of the
Company's pending patent applications or with respect to any patent applications
filed by the Company in the future. In addition, even if such patents are
granted, there can be no assurance that in the event any claims in such patents
are challenged that any court or patent authority would determine that such
patent claims are valid and enforceable or sufficiently broad in scope to
protect the Company's proprietary rights. Moreover, because patent applications
in the United States are maintained in secrecy until patents issue, because
patent applications in certain other countries generally are not published until
more than eighteen months after they are filed, because publication of
technological developments in the scientific or patent literature often lags
behind the date of such developments, and because searches of prior art may not
reveal all relevant prior inventions, the Company cannot be certain that it was
the first to invent the subject matter covered by its patent applications or
that it was the first to file patent applications for such inventions.
10
<PAGE> 13
The commercial success of the Company will depend in part on not infringing
patents or proprietary rights of others, and there can be no assurance that the
technologies and products used or developed by the Company will not infringe
such rights. If such infringement occurs and the Company is not able to obtain a
license from the relevant third party, the Company will not be able to continue
the development, manufacture, use or sale of any such infringing technology or
product. There can be no assurance that necessary licenses to third-party
technology will be available at all, or on commercially reasonable terms.
Failure by the Company to obtain a license to technology that it may require to
utilize its technologies or commercialize its products could have a material
adverse effect on the Company. In some cases, litigation or other proceedings
may be necessary to defend against or assert claims of infringement, to enforce
patents issued to the Company, to protect trade secrets, know-how or other
intellectual property rights owned by the Company or to determine the scope and
validity of the proprietary rights of third parties. Any potential litigation
could result in substantial costs to, and diversion of, resources by the Company
and could have a material and adverse impact on the Company. There can be no
assurance that any of the Company's issued or licensed patents would ultimately
be held valid or that efforts to defend any of its patents, trade secrets,
know-how or other intellectual property rights would be successful. An adverse
outcome in any such litigation or proceeding could subject the Company to
significant liabilities, require the Company to cease using the subject
technology or require the company to license the subject technology from the
third party, all of which could have a material adverse effect on the Company's
business. See "Business--Patents."
In addition to patent protection, the Company relies upon trade secrets,
proprietary know-how and continuing technological advances to develop and
maintain its competitive position. To maintain the confidentiality of its trade
secrets and proprietary information, the Company requires its employees,
consultants and collaborators to execute confidentiality agreements upon the
commencement of their relationships with the Company. In the case of employees,
the agreements also provide that all inventions resulting from work performed by
them while in the employ of the Company will be the exclusive property of the
Company. There can be no assurance, however, that these agreements will not be
breached, that the Company would have adequate remedies in the event of any such
breach or that the Company's trade secrets or proprietary information will not
otherwise become known or developed independently by others.
The Company is party to various license agreements which give it rights to
use certain technologies in its research and development processes. There can be
no assurance that the Company will be able to continue to license such
technology on commercially reasonable terms, if at all. Failure by the Company
to maintain rights to such technology could have a material adverse effect on
the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION; NO ASSURANCES OF REGULATORY APPROVAL
The Company's drug discovery activities and the potential commercialization
of its product candidates will be subject to extensive regulation by the United
States Food and Drug Administration (the "FDA") and other regulatory authorities
in the United States. These activities will also be regulated in countries
outside the United States where the Company's product candidates may be tested
and sold. Significant time and cost will be expended in response to government
regulations which require the Company and its collaborators to provide extensive
safety and efficacy data to the FDA. The regulatory process, which includes
preclinical studies and clinical trials of each product candidate, takes many
years and requires the expenditure of substantial resources. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent FDA regulatory approval. In addition, delays
or rejections may be encountered based upon changes in FDA policy for drug
approval during the period of product development and FDA regulatory review of
each submitted new drug application ("NDA"). Similar delays may also be
encountered in foreign countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for any drugs
developed by the Company and its collaborators. Moreover, if regulatory approval
of a drug is granted, such approval may entail limitations on the indicated uses
for which it may be marketed. Further, even if such regulatory approval is
obtained, a marketed drug and its manufacturing facilities are subject to
continual review and periodic inspections, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
11
<PAGE> 14
restrictions on such product or manufacturer, including withdrawal of the
product from the market. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecutions.
Further, additional governmental regulation may be established that could
prevent or delay regulatory approval of the Company's products.
The Company's business is also subject to regulation under state and
federal laws regarding environmental protection and hazardous substances
control, including the Occupational Safety and Health Act, the Environmental
Protection Act, and the Toxic Substance Control Act. The Company could be held
liable for any damages that result from violations of these laws and any such
liability could exceed the resources of the Company. There can be no assurance
that the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future. In addition, there can be no
assurance that statutes or regulations applicable to the Company's business will
not be adopted that impose substantial additional costs or otherwise materially
adversely affect the Company's operations. See "Business -- Government
Regulation."
ATTRACTION AND RETENTION OF KEY EMPLOYEES
The Company is highly dependent on the principal members of its management
and scientific staff, including Dr. Barry A. Berkowitz and Dr. William E.
Timberlake. The loss of services of any of these personnel could have an adverse
effect on the Company. Furthermore, recruiting and retaining qualified
scientific personnel will also be critical to the Company's success as a result
of the intense competition for qualified management and scientific staff in the
pharmaceutical and biotechnology industries. There can be no assurance that the
Company will be able to attract and retain such personnel on acceptable terms
and the failure to recruit and retain such personnel may have a material adverse
effect on the Company.
PRODUCT LIABILITY AND LIMITED INSURANCE
The Company's business exposes it to potential product liability claims,
which are inherent in the development, testing, manufacturing, marketing and
sales of human therapeutics. The use of the Company's product candidates in
clinical trials also exposes the Company to product liability claims and
possible adverse publicity. These risks increase with respect to the Company's
product candidates, if any, that receive regulatory approval for
commercialization. The Company currently has no product liability insurance
coverage for the clinical use of its products. Moreover, there can be no
assurance that the Company will be able to obtain such insurance coverage on
acceptable terms, if at all, or that a product liability claim would not
materially adversely affect the business of the Company.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND COST CONTAINMENT INITIATIVES
The Company expects that all of its revenue in the foreseeable future will
be derived from services and products provided to the Company's pharmaceutical
and biotechnology customers. The Company's success will therefore be directly
dependent upon the success of the companies within these industries. The level
of revenue and profitability of the Company's customers may be adversely
impacted by the continuing efforts of governmental and third party payors,
including health maintenance organizations, to contain or reduce health care
costs, including drug prices, through various means and the initiatives of third
party payors with respect to the availability of reimbursement. In certain
foreign markets pricing or profitability of pharmaceuticals is subject to
government control. In the U.S., there have been and will continue to be state
and federal proposals to implement similar government control. To the extent
that such proposals or reforms impact the business, financial condition and
profitability of pharmaceutical companies that are current or proposed
collaborators with the Company, the Company's business, financial condition and
results of operations could be materially and adversely affected.
SHARES ELIGIBLE FOR FUTURE SALES; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital in the future. Upon completion
of this offering, the Company will have a total of 10,103,815 shares of Common
12
<PAGE> 15
Stock outstanding, of which the 2,500,000 shares offered hereby will be freely
tradeable without restriction by persons other than "affiliates" of the Company,
as such term is defined under the Securities Act. The remaining 7,603,815 shares
of Common Stock outstanding are "restricted securities" as the term is defined
by Rule 144 promulgated under the Securities Act (the "Restricted Shares"). Of
the 7,603,815 Restricted Shares, 217,786 shares may be sold immediately after
this offering under Rule 144(k). An additional 4,496,142 shares will become
eligible for sale 90 days after completion of the offering pursuant to Rule 144
and Rule 701 promulgated under the Securities Act. The remaining 2,889,887
shares will be eligible for sale upon the expiration of their respective holding
periods as set forth in Rule 144. The Securities and Exchange Commission has
proposed certain amendments to Rule 144 that would reduce by one year the
holding periods required for shares subject to Rule 144 to become eligible for
resale in the public market. This proposal, if adopted, would permit earlier
resale of shares of Common Stock currently subject to holding periods under Rule
144. No assurance can be given concerning whether or when the proposal will be
adopted by the Securities and Exchange Commission. Furthermore, 7,576,305 of the
Restricted Shares are subject to lock-up agreements, of which 5,013,030
Restricted Shares are subject to lock-up agreements expiring 180 days following
the date of this Prospectus, and 2,563,275 Restricted Shares, which are held by
PerSeptive, are subject to a separate, more extended lock-up agreement with the
Company. The 180-day lock-up agreements provide that Cowen & Company may, in its
sole discretion and at any time without notice, release all or a portion of the
shares subject to these lock-up agreements. Upon the expiration of these lock-up
agreements, 4,713,928 of the 7,603,815 Restricted Shares may be sold pursuant to
Rule 144 or 701, subject in some cases to certain volume restrictions imposed
thereby. Certain existing shareholders have rights to include shares of Common
Stock owned by them in future registrations by the Company for the sale of
Common Stock or to request that the Company register their shares under the
Securities Act. See "Description of Capital Stock -- Registration Rights."
Following the date of this Prospectus, the Company intends to register on one or
more registration statements on Form S-8 approximately 1,500,000 shares of
Common Stock issuable under its stock option plan. Of the 1,500,000 shares
issuable under its stock option plan, 912,109 shares are subject to outstanding
options as of January 13, 1997, of which 878,736 shares are subject to lock-up
agreements. Shares covered by such registration statements will immediately be
eligible for sale in the public market upon the filing of such registration
statements. See "Shares Eligible for Future Sale," and "Description of Capital
Stock -- Registration Rights."
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company's Restated Certificate of Incorporation provides for a
classified Board of Directors commencing with the 1997 annual meeting of
stockholders, and members of the Board of Directors may be removed only for
cause upon the affirmative vote of holders of at least a majority of the shares
of capital stock of the Company entitled to vote. Furthermore, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of these provisions could have the effect of delaying or
preventing a change of control of the Company. Certain other provisions of the
Company's Restated Certificate of Incorporation, including provisions
eliminating the right of stockholders to act by written consent, eliminating the
right of stockholders to call special meetings and requiring special notice
provisions for stockholder proposals or nominations, could also have the effect
of delaying or preventing
13
<PAGE> 16
changes of control or management of the Company, which could adversely affect
the market price of the Company's Common Stock. See "Description of Capital
Stock -- Delaware Law and Certain Charter Provisions."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Common
Stock of the Company. There can be no assurance that an active trading market
will develop or, if one does develop, that it will be maintained. The public
offering price of the Common Stock will be established by negotiations between
the Company and the Representatives of the Underwriters. See "Underwriting." The
market price of the shares of Common Stock, like that of the common stock of
many other biotechnology companies, may be highly volatile. Factors such as
announcements of technological innovations or new commercial products by the
Company or its competitors, disclosure of results of clinical testing or
regulatory proceedings, governmental regulation and approvals, developments in
patent or other proprietary rights, public concern as to the safety of products
developed by the Company and general market conditions may have a significant
effect on the market price of the Common Stock. In addition, the stock market
has experienced extreme price and volume fluctuations. This volatility has
significantly affected the market prices of securities of many biotechnology and
pharmaceutical companies for reasons frequently unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS; CONCENTRATION OF STOCK OWNERSHIP
Following this offering, the Company's directors, executive officers and
affiliated entities will beneficially own approximately 63.2% of the outstanding
shares of Common Stock. Accordingly, such persons will have the ability to
exercise significant influence over the management and policies of the Company
and to control the election of the Company's Board of Directors and other
stockholder actions. See "Principal Stockholders."
DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in tangible book value per share. In
addition, investors purchasing shares of Common Stock in this offering will
incur additional dilution to the extent outstanding options and warrants are
exercised. See "Dilution," "Management -- Employee Benefit Plans" and
"Description of Capital Stock -- Stock Purchase Warrants." The Company has never
paid cash dividends and does not intend to pay cash dividends in the foreseeable
future. See "Dilution; Dividend Policy."
14
<PAGE> 17
THE COMPANY
ChemGenics Pharmaceuticals Inc., formerly Myco Pharmaceuticals Inc., was
incorporated in Delaware in January 1992. As used herein, the "Company" refers
to ChemGenics Pharmaceuticals Inc. and its predecessor. The Company's principal
executive offices are located at One Kendall Square, Building 300, Cambridge,
Massachusetts 02139 and its telephone number is (617) 374-9090.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be $27,150,000 ($31,335,000 if the
Underwriters exercise their over-allotment option in full), assuming an initial
public offering price of $12.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company intends to use the net proceeds of this offering for
repayment of the $3 million promissory note issued to PerSeptive and for
research and development, expansion of its laboratory facilities, working
capital and general corporate purposes. See "Business -- Collaborations --
PerSeptive Biosystems." The Company may also use a portion of such net proceeds
to acquire or invest in businesses, products and technologies that are
complementary to those of the Company, although no such acquisitions are planned
or being negotiated as of the date of this Prospectus, and no portion of the net
proceeds has been allocated to any specific acquisition.
The amount and timing of expenditures for each purpose may vary
significantly depending upon numerous factors, including progress of the
Company's research programs, the number and scope of these programs, achievement
of milestones under collaborative arrangements, the ability of the Company to
establish and maintain additional collaborative and licensing arrangements and
the progress of the development efforts of the Company's strategic
collaborators. Additional factors include the level of the competing
technological and market developments, the costs involved in filing, prosecuting
and enforcing patent claims and other intellectual property rights, the costs
and timing of regulatory approvals and administrative and legal expenses.
Until used, the Company intends to invest the net proceeds of this offering
in interest-bearing, investment-grade securities. While the net proceeds are so
invested, the interest earned by the Company on such proceeds will be limited by
available market rates. The Company intends to invest and use such proceeds so
as to avoid being required to register as an "investment company" under the
Investment Company Act of 1940, as amended.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends on its Common Stock for the
foreseeable future. The Company intends to retain future earnings, if any, for
use in the operation of its business. See "Risk Factors -- Dilution; Absence of
Dividends."
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on an actual basis, (ii) on a pro forma basis to give
effect to the automatic conversion of all outstanding shares of Convertible
Preferred Stock into an aggregate of 4,458,528 shares of Common Stock upon the
closing of this offering and (iii) on a pro forma as adjusted basis to reflect
the sale of 2,500,000 shares of Common Stock pursuant to this offering and the
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Capital lease obligations, net of current portion(1)..... $ 860,619 $ 860,619 $ 860,619
------------ ------------ ------------
Promissory note.......................................... 3,000,000 3,000,000 --
Stockholders' equity (2)(3):
Convertible Preferred Stock, $.01 par value:
13,441,667 shares authorized; 11,815,171 issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted... 118,152 -- --
Preferred Stock, $.001 par value: 5,000,000 shares
authorized; no shares issued and outstanding
actual, pro forma and pro forma as adjusted....... -- -- --
Common Stock, $.001 par value: 25,000,000 shares
authorized; 3,145,287 shares issued and
outstanding actual; 7,603,815 shares issued and
outstanding pro forma; 10,103,815 shares issued
and outstanding pro forma as adjusted............. 3,145 7,604 10,104
Additional paid-in-capital.......................... 34,700,230 34,813,923 61,961,423
Deferred compensation............................... (261,333) (261,333) (261,333)
Accumulated deficit................................. (22,762,682) (22,762,682) (22,762,682)
----------- ----------- -----------
Total stockholders' equity..................... 11,797,512 11,797,512 38,947,512
------------ ------------ ------------
Total capitalization........................... $ 15,658,131 $ 15,658,131 $ 39,808,131
============ ============ ============
</TABLE>
- ---------------
(1) See Note 7 of Notes to Financial Statements.
(2) Excludes 912,109 shares issuable upon exercise of options outstanding with a
weighted average exercise price of $1.89 per share and 1,914,496 shares
issuable upon exercise of warrants outstanding with a weighted average
exercise price of $12.90 per share.
(3) Upon the closing of this offering, the Company's Certificate of
Incorporation will be amended and restated to, among other things, reduce
the number of authorized shares of Common Stock from 33,866,667 to
25,000,000 and of Preferred Stock from 13,441,667 to 5,000,000.
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<PAGE> 19
DILUTION
The Company's pro forma net tangible book value at December 31, 1996, was
approximately $11.1 million, or $1.46 per share of Common Stock, after giving
effect to the automatic conversion of all outstanding shares of Convertible
Preferred Stock into 4,458,528 shares of Common Stock upon consummation of this
offering. Pro forma net tangible book value per share represents the amount of
the Company's total tangible assets, less total liabilities, divided by
7,603,815, the pro forma number of shares of Common Stock outstanding as of
December 31, 1996. After giving effect to the sale of 2,500,000 shares of Common
Stock in this offering at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom, the Company's
pro forma net tangible book value at December 31, 1996 would have been
approximately $38.3 million, or $3.79 per share. This represents an immediate
increase in pro forma net tangible book value of $2.33 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$8.21 per share to purchasers of Common Stock in this offering. The following
table illustrates the per share dilution in pro forma net tangible book value to
new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $12.00
Pro forma net tangible book value per share at December 31,
1996........................................................ $1.46
Increase per share attributable to new investors............. 2.33
-----
Pro forma as adjusted net tangible book value per share after this
offering........................................................ 3.79
------
Pro forma net tangible book value dilution per share to new
investors....................................................... $ 8.21
======
</TABLE>
The following table sets forth on a pro forma basis as described above the
number of shares of Common Stock issued by the Company, the total consideration
paid and the average price per share paid by the existing stockholders and to be
paid (at the assumed initial public offering price of $12.00 per share) by new
investors purchasing shares of Common Stock in this offering (before deducting
underwriting discounts, commissions and estimated offering expenses payable by
the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 7,603,815 75% $34,560,194 54% $ 4.55
New Investors............................. 2,500,000 25% 30,000,000 46% 12.00
---------- --- ----------- ---
Total................................. 10,103,815 100% $64,560,194 100%
========== === =========== ===
</TABLE>
The foregoing tables exclude 1,486,289 shares of Common Stock reserved for
issuance under the 1992 Employee, Director and Consultant Stock Option Plan
(under which, as of December 31, 1996, an aggregate of 912,109 shares of Common
Stock issuable upon the exercise of outstanding options at a weighted average
price of $1.89 per share were outstanding) and 1,914,496 shares of Common Stock
reserved for issuance upon the exercise of outstanding warrants at a weighted
average exercise price of $12.90 per share. To the extent that outstanding
options and warrants are exercised, there will be further dilution in pro forma
net tangible book value per share to new investors. See "Management -- Employee
Benefit Plans," "Description of Capital Stock -- Stock Purchase Warrants" and
Note 5 of Notes to Financial Statements.
17
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1995 and
1996 and for the three years in the period ending December 31, 1996 are derived
from the Company's financial statements, which have been audited by Arthur
Andersen LLP whose report with respect thereto is included elsewhere in this
Prospectus. The selected financial data set forth below as of December 31, 1992,
1993 and 1994 and for the years ended December 31, 1992 and 1993 are derived
from the Company's financial statements, which have been audited by Arthur
Andersen LLP and which are not included herein. The selected financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1992(1) 1993 1994 1995 1996
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ -- $ -- $ 218,095 $ 2,903,179 $ 3,573,010
Operating expenses:
Research and development......................... 652,668 2,432,021 3,870,375 4,949,925 7,370,780
General and administrative....................... 397,748 796,624 883,219 1,011,505 1,437,664
Acquired in-process research and
development(2)................................. -- -- -- -- 6,783,900
----------- ----------- ----------- ----------- ------------
Total operating expenses............................. 1,050,416 3,228,645 4,753,594 5,961,430 15,592,344
----------- ----------- ----------- ----------- ------------
Interest income (expense), net....................... 41,994 22,596 (84,609) 662,969 486,513
----------- ----------- ----------- ----------- ------------
Net loss............................................. $(1,008,422) $(3,206,049) $(4,620,108) $(2,395,282) $(11,532,821)
=========== =========== =========== =========== ============
Pro forma net loss per common share(3)............... $ (1.37)
============
Shares used in computing pro forma net loss per
common share(3).................................... 8,434,365
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, ----------------------------
--------------------------------------------------- PRO FORMA AS
1992(1) 1993 1994 1995 ACTUAL ADJUSTED(4)
----------- ----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities................................ $ 1,048,615 $ 17,082 $ 653,781 $ 13,080,663 $ 13,460,876 $ 37,610,876
Total assets................................ 1,076,478 1,881,639 2,863,194 15,550,255 17,221,271 41,371,271
Promissory note............................. -- -- -- -- 3,000,000 --
Accumulated deficit(2)...................... (1,008,422) (4,214,471) (8,834,579) (11,229,861) (22,762,682) (22,762,682)
Total stockholders' equity (deficit)........ 944,812 (237,237) 1,125,148 13,721,716 11,797,512 38,947,512
</TABLE>
- ---------------
(1) Operations of the Company commenced in January 1992.
(2) Reflects a one-time charge equal to the value placed on technology acquired
from PerSeptive that is in the research stage and has no alternative future
use. Such value was determined by independent appraisal and was charged to
operations because the future net realizable value of the technology is
uncertain. See Note 3 of Notes to Financial Statements.
(3) Computed on the basis described in Note 2(f) of Notes to Financial
Statements.
(4) Gives effect to (i) the automatic conversion of all outstanding Convertible
Preferred Stock into 4,458,528 shares of Common Stock upon the closing of
this offering and (ii) the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share and the application of net proceeds therefrom (including
the payment of the $3,000,000 promissory note payable to PerSeptive), after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. See "Use of Proceeds."
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Prospectus.
OVERVIEW
ChemGenics is a drug discovery company that applies its two complementary
technology platforms, Drug Discovery Genomics and Advanced Drug Selection
Technologies, to key rate limiting steps in identifying new drugs. Since January
1995, the Company has been engaged in a research and development collaboration
in the field of human antifungal therapeutics with Pfizer. In December 1996, the
Company entered into a strategic alliance with Wyeth-Ayerst for the discovery of
novel drug leads for treating human bacterial infections. In May, November and
December 1996, the Company entered into agreements with PerSeptive covering the
May 1996 acquisition of certain assets and technologies for use in the field of
drug discovery.
In January 1995, the Company entered into a strategic collaboration with
Pfizer for the discovery of novel drug leads for treating human fungal
infections, which could provide over $50 million in equity, research funding and
development milestone payments, plus potential royalties. Pursuant to the
agreements, Pfizer is funding a drug discovery program over a four-year term,
which began in January 1995. Pfizer has waived its one-time option to terminate
the agreement. In connection with the collaboration, Pfizer purchased 2,700,000
shares of Series D Convertible Preferred Stock (which will be converted into
1,018,867 shares of common stock upon the consummation of this offering) for
$13.5 million. Pfizer has agreed to provide the Company with up to $11.7 million
in research funding over the agreement's four-year term and may become obligated
to make payments to the Company upon achievement of certain milestones which
could total up to an additional $32.5 million. If the collaboration is
successful in identifying targets and leads for products to treat human fungal
disease, Pfizer will pay all costs related to its product development and
commercialization, including, without limitation, clinical trials, regulatory
filings and marketing and will also pay ChemGenics royalties on product sales,
if any, which result from the collaboration. The Company has recognized revenues
of $5.0 million for research funding under these agreements through December 31,
1996. See "Business -- Collaborations -- Pfizer."
In December 1996, the Company entered into a strategic collaboration with
Wyeth-Ayerst for the discovery of novel drug leads for treating human bacterial
infections which could provide up to $70 million in equity, research funding and
development milestone payments, plus potential royalties. In connection with the
collaboration, Wyeth-Ayerst purchased 833,334 shares of Series E Convertible
Preferred Stock (which will be converted into 314,465 shares of Common Stock
upon the consummation of this offering) for approximately $5 million and is
committed, subject to ChemGenics' meeting certain research performance
objectives, to a second purchase of $5 million of Common Stock to occur no
sooner than June 2, 1997 and a third purchase of $3 million of Common Stock to
occur no sooner than December 2, 1998. The second and third purchases will be
priced at 115% of the then current market price of the Common Stock following
the Company's initial public offering, or at $15.90 per common share if no such
offering has been completed. Assuming the collaboration concludes its five-year
term, Wyeth-Ayerst is obligated to pay ChemGenics $15 million in research
funding (adjusted for inflation in certain circumstances) and may be obligated
to pay up to an additional $9 million in research performance payments.
ChemGenics may also receive up to an additional $33 million in development
milestone payments. If the collaboration is successful in identifying targets
and leads for products to treat bacterial disease, Wyeth-Ayerst will pay all
costs related to its product development and commercialization, including,
without limitation, clinical trials, regulatory filings and marketing and will
also pay ChemGenics royalties on product sales, if any, which result from the
collaboration. ChemGenics has recognized revenues of $750,000 for research
funding under this agreement through December 31, 1996. See "Business --
Collaborations -- Wyeth-Ayerst."
In May, November and December 1996, the Company entered into agreements
with PerSeptive under which the Company exchanged a substantial equity interest
in ChemGenics and a $3 million promissory note
19
<PAGE> 22
payable to PerSeptive for certain assets and a worldwide, royalty-free license
for use in the field of drug discovery to all of PerSeptive's existing patents
and technology, including selection technologies, all future patented and
unpatented technology, early and preferred access to all technology and certain
other assets, and for a period of five years to all prototype equipment. Upon
execution of the agreements, ChemGenics hired 10 employees of PerSeptive and
entered into a temporary sublease agreement for approximately 5,000 square feet
of laboratory and office space in Framingham, Massachusetts. Under the
agreements, PerSeptive acquired 2,563,275 shares of the Company's Common Stock,
of which 250,000 shares are subject to forfeiture lapsing over a three-year
period in the event PerSeptive fails to provide certain services, equipment use,
supplies and other assets. PerSeptive also received a warrant, expiring in June
2000, to purchase an additional 1,847,673 shares of Common Stock at an exercise
price of $13.25 per share, for an aggregate exercise price of approximately
$24.5 million. In addition, the Company also issued PerSeptive a $3 million
promissory note which the Company intends to pay out of the net proceeds of this
offering. This transaction was accounted for as a purchase. See Note 3 of Notes
to Financial Statements. PerSeptive expended approximately $20 to $25 million in
research and development expenses for the purchased technology prior to its
purchase by the Company. See "Business -- Collaborations -- PerSeptive
Biosystems."
As of December 31, 1996, the Company has derived all of its revenue from
payments from Pfizer, Wyeth-Ayerst, and United States government research
grants. The Company will not receive royalties on product sales until such time,
if ever, that products based on its drug discovery efforts are commercialized.
Although the Company intends to enter into additional strategic alliances, it
also expects to incur increasing expenses and additional losses for at least the
next several years, primarily due to expansion of its research programs. The
Company has incurred significant losses since inception, with an accumulated
deficit of approximately $22.8 million at December 31, 1996. The Company's
results of operations have fluctuated from period to period and may continue to
fluctuate in the future based upon the timing and composition of funding under
existing collaborative agreements and the investment of resources in research
programs. Therefore, the Company's results of operations for any period may not
be comparable to the results of operations for any other period.
RESULTS OF OPERATIONS
Years Ended December 31, 1996 and December 31, 1995
Revenues increased to approximately $3.6 million for the year ended
December 31, 1996 from approximately $2.9 million for the year ended December
31, 1995. Revenues for the year ended December 31, 1996 consisted of research
revenues of approximately $2.6 million from the collaboration with Pfizer,
$750,000 from the collaboration with Wyeth-Ayerst, and $242,000 from United
States government grants. Revenues for the year ended December 31, 1995
consisted of research revenues of approximately $2.5 million from the
collaboration with Pfizer and $441,000 from United States government grants.
The Company's total operating expenses increased to approximately $15.6
million for the year ended December 31, 1996 from approximately $6.0 million for
the year ended December 31, 1995, primarily due to an approximately $6.8 million
one-time charge for acquired in-process research and development associated with
the PerSeptive agreements. Research and development expenses increased to
approximately $7.4 million for the year ended December 31, 1996 from
approximately $4.9 million for the year ended December 31, 1995, primarily due
to increases in staffing associated with the expansion of the Company's research
programs. The Company expects research and development expense to increase in
future periods in connection with the Wyeth-Ayerst collaboration and expansion
of research programs and personnel. General and administrative expenses
increased to approximately $1.4 million for the year ended December 31, 1996
from approximately $1.0 million for the year ended December 31, 1995, primarily
due to increases in staffing.
Interest income declined to approximately $708,000 for the year ended
December 31, 1996 from approximately $838,000 for the year ended December 31,
1995, primarily due to a reduction in average funds available for investment
during 1996. Interest expense increased to approximately $222,000 for the year
ended December 31, 1996 from approximately $175,000 for the year ended December
31, 1995, primarily due to an
20
<PAGE> 23
increase in the average outstanding balances of the Company's capital lease
obligations and to interest payable under the PerSeptive promissory note.
Years Ended December 31, 1995 and December 31, 1994
Revenues increased to approximately $2.9 million for the year ended
December 31, 1995 from $218,000 for the year ended December 31, 1994. Revenues
for the year ended December 31, 1995 consisted of research revenues of
approximately $2.5 million from Pfizer and $441,000 from United States
government grants. Revenues for the year ended December 31, 1994 consisted
solely of research revenue from United States government grants.
The Company's total operating expenses increased to approximately $6.0
million for the year ended December 31, 1995, from approximately $4.8 million
for the year ended December 31, 1994. Research and development expenses
increased to approximately $4.9 million for the year ended December 31, 1995
from approximately $3.9 million for the year ended December 31, 1994 primarily
due to the expansion of the Company's research programs. General and
administrative expenses increased to approximately $1.0 million for the year
ended December 31, 1995 from $883,000 for the year ended December 31, 1994
primarily due to the hiring of additional finance and business development
personnel.
Interest income increased to $838,000 for the year ended December 31, 1995
from $49,000 for the year ended December 31, 1994 resulting from increased funds
available for investment as a result of the Company's sale of equity securities
in January 1995. Interest expense increased to $175,000 for the year ended
December 31, 1995 from $134,000 for the year ended December 31, 1994, resulting
from an increase in the average outstanding balances of the Company's capital
lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's primary sources of cash have been proceeds
from the sale of equity securities, revenue from collaborative research
agreements and government grants and borrowings under a capital lease
arrangement. Through December 31, 1996, the Company has financed its operations
primarily with approximately $30.0 million from private placements of equity
securities, $5.0 million from its collaboration with Pfizer, approximately $3.0
million in capital lease funding, $1.7 million in interest income, $750,000 from
its collaboration with Wyeth-Ayerst and $901,000 from United States government
grants. The Company has used $13.2 million of cash to finance operating
activities from inception through December 31, 1996. In addition, the Company
has made payments of $1.5 million on its capital lease obligation through
December 31, 1996. Since inception the Company has acquired approximately $4.4
million of property and equipment, including approximately $3.0 million of
assets acquired under capital leases and $700,000 of equipment acquired from
PerSeptive. The Company is obligated to make minimum payments under such capital
leases of approximately $1.8 million, of which approximately $860,000 is payable
in 1997. At December 31, 1996, the Company had approximately $277,000 available
under its capital lease arrangement to finance additional equipment purchases.
The Company currently estimates that it will incur costs of approximately $4.5
million for capital equipment and leasehold improvements over the next 12
months, a portion of which will be financed under the capital lease arrangement.
At December 31, 1996, the Company had available net operating loss
carryforwards for financial reporting and income tax purposes of approximately
$22.8 million and $2.5 million, respectively. The difference primarily relates
to expenses reflected in the financial statements not yet deductible for tax
purposes. The Company also has approximately $280,000 of research and
development and tax credits. These losses and tax credits are available to
reduce federal taxable income and federal income taxes, respectively, in future
years, if any. These losses and tax credits are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in ownership interests of significant shareholders
over a three-year period in excess of 50%. The Company believes that it has
experienced cumulative ownership changes in excess of 50% and that it may
experience an additional change in ownership in excess of 50% upon completion of
the proposed initial public offering. The Company does not believe that these
changes in ownership will significantly impact the Company's ability to utilize
its net operating loss carryforwards.
21
<PAGE> 24
As of December 31, 1996, the Company had cash, cash equivalents and
marketable securities of approximately $13.5 million and working capital of
approximately $12.4 million. The Company anticipates that its existing capital
resources, including the net proceeds of this offering and interest earned
thereon, will be adequate to maintain its current and planned operations for at
least the next two years, although no assurance can be given that changes will
not occur that would consume available capital resources before such time. The
Company's future capital requirements will be substantial and will depend on
many factors, including progress of the Company's research programs, the number
and scope of these programs, achievement of milestones under strategic alliance
arrangements, the ability of the Company to establish and maintain additional
strategic alliance and licensing arrangements, the cost involved in enforcing
patent claims and other intellectual property rights and the costs and timing of
regulatory approvals.
22
<PAGE> 25
BUSINESS
OVERVIEW
ChemGenics is a drug discovery company that applies its two complementary
technology platforms, Drug Discovery Genomics and Advanced Drug Selection
Technologies, to key rate limiting steps in identifying new drugs. These rate
limiting steps are the translation of genomic information into novel drug
targets and the selection and identification from sources of chemical diversity
of drug leads that interact with drug targets. The Company's Drug Discovery
Genomics platform includes proprietary gene technologies and expertise in
microbial model systems used to determine the function of genes and to
prioritize drug targets. The Company's Advanced Drug Selection Technologies
combine the steps of drug screening, chemical selection and structural analysis
into an integrated process to identify drug leads faster than conventional
methods. These technology platforms are used with the Company's growing drug
source of 50,000 chemical-producing fungi collected worldwide. The breadth of
the Company's technology platforms allows it to pursue multiple pharmaceutical
and biotechnology alliances, such as its alliances with Pfizer and Wyeth-Ayerst.
In January 1995, the Company entered into a strategic collaboration with
Pfizer for the discovery of novel drug leads for treating human fungal
infections, which could provide for over $50 million in equity, research funding
and development milestone payments, plus potential royalties. In December 1996,
the Company entered into a strategic collaboration with Wyeth-Ayerst for the
discovery of novel drug leads for treating human bacterial infections, which
could provide up to $70 million in equity, research funding and development
milestone payments, plus potential royalties. The Company is conducting
additional drug discovery programs in cancer, peptic ulcer disease (Helicobacter
pylori), immune system regulation, inflammatory disease and viral infections. In
May, November and December 1996, the Company entered into agreements with
PerSeptive under which, in exchange for a substantial equity interest in
ChemGenics and a $3 million promissory note, the Company acquired certain assets
and a worldwide, royalty-free license to present and future technology of
PerSeptive for use in the field of drug discovery.
THE DRUG DISCOVERY PROCESS
Drug discovery is a multi-disciplinary process involving elucidation of the
biology of disease and the identification of chemical compounds that can
selectively interact with a drug target to produce a desired therapeutic result.
During the past two decades, the number of new chemical entities approved as
novel drugs by the FDA has remained relatively constant despite a ten-fold
increase in research and development spending. Industry estimates suggest the
need for a more than five-fold improvement in research productivity to achieve
the growth objectives of most major pharmaceutical companies. The pace of drug
discovery is limited by two significant challenges: identification of biological
drug targets; and selection from sources of chemical diversity of drug leads
that are active against chosen drug targets. The Company believes that an
efficient drug discovery process needs to integrate biology and chemistry and be
iterative, with information from each step influencing previous and subsequent
steps. However, the focus of many biotechnology companies on either drug targets
or drug leads has limited the integration of the drug discovery process.
Drug discovery typically includes: (1) identification of a drug target, (2)
configuration of a screening assay, (3) sourcing of chemical diversity, (4) high
throughput screening, (5) deconvolution, (6) drug lead identification and (7)
drug lead optimization.
Identification of a Drug Target. Drug discovery begins with identification
of a drug target, typically a protein, with important biological functions in
the disease process that can be stimulated, inhibited, or mimicked by a drug to
produce a desired therapeutic effect. For example, Pfizer's antifungal drug
Diflucan interferes with a target enzyme, sterol 14-a-demethylase, required for
fungal cell growth. Pharmaceutical and biotechnology companies use the tools of
biology, including model systems, to understand a disease process and identify
potentially useful drug targets.
Configuration of a Screening Assay. Once a target is identified, it must
be configured into a screening assay for drug lead discovery. Assays can be
configured based on biochemical reactions or affinity binding, to detect direct
interaction of targets with chemical sources. Assays can also be based on living
cells that have
23
<PAGE> 26
been genetically engineered to provide a rapidly measured signal when the target
is affected. An assay identifies from large numbers of chemical compounds those
few compounds that bind optimally to, and modify the biological function of, a
drug target and therefore may be useful as drugs. Typically, screening assays
are configured in 96-well microtiter plates so that a large number of chemical
compounds can be tested rapidly. The assay system in each well should report
activity by a change in appearance or physical characteristics (color,
absorption of light or radioactivity).
Sourcing of Chemical Diversity. Broad diversity of chemical compounds is
desired for screening because the drug discovery process produces a high number
of inactive or non-selective compounds. The larger and more diverse the source
of chemical compounds, the greater the probability of identifying a compound
with appropriate three-dimensional shape and physical-chemical properties to
interact with a drug target. To provide broad chemical diversity, pharmaceutical
and biotechnology companies have assembled large libraries of hundreds of
thousands of chemical compounds from a variety of different sources.
High Throughput Screening. The screening process combines chemical
diversity with targets configured into assays. High throughput screening
utilizes robotics and information systems to combine chemical sources and drug
targets, read assay results, and collect and evaluate data. Due to the
increasing size of chemical libraries, some pharmaceutical and biotechnology
companies have developed capabilities for screening in excess of one million
microtiter wells per year. In addition, chemical sources are often screened in
mixtures of 10 to 1,000 compounds per well in an attempt to speed the screening
process. The assay system reports a positive signal if one or more of the
compounds in a mixture is active.
Deconvolution. Deconvolution is the process of identifying the
component(s) in a complex screening mixture responsible for a desired activity.
With simple mixtures, it is possible to carry out a separate screen of each of
the individual components and determine activity against a drug target, although
this approach may be expensive and time consuming. Many sources of chemical
diversity are utilized in formats where the exact content of the mixture is not
known. For example, combinatorial chemistry libraries may contain unknown
chemical structures resulting from side reactions among the components of the
mixture. Therefore, it is necessary to select the active compound(s) from the
mixture by using techniques of chemistry and biochemistry. Frequently this
process involves multiple steps of separating the mixture into fractions, often
using chromatography, and re-assaying for activity until a drug lead is isolated
for further study.
Drug Lead Identification. Following isolation of a drug lead, its exact
chemical structure must be determined. Multiple analytical technologies, such as
mass spectrometry, nuclear magnetic resonance spectroscopy, x-ray
crystallography and Fourier transform infrared spectroscopy, are used to
determine the precise arrangement of atoms that make up the drug lead.
Collectively, the process of chemical separation and identification of a single
drug lead can take months, depending on the nature of the compound and the
source.
Drug Lead Optimization. It is unusual for an initial drug lead to possess
optimal qualities of potency, selectivity, and desired physical-chemical
properties to serve as a drug candidate. The process of chemically modifying the
drug lead and assessing its biological activity in order to improve its
potential safety, efficacy and physical characteristics is referred to as lead
optimization.
Rate Limiting Steps of Drug Discovery
Two of the most significant rate limiting steps of drug discovery are (i)
translation of genomic information into novel drug targets and (ii) selection
and identification of drug leads from large sources of chemical diversity.
Translation of Genomic Information Into Novel Drug Targets. Most potential
drug targets are proteins encoded by the DNA sequence of genes. Consequently,
many potent tools for the identification of novel drug targets are emerging
today from advances in genomics. Although genomics has augmented the
opportunities for drug target identification, this field also has increased the
challenges involved due to the vast amount of information it generates. The
Human Genome Project and related efforts are identifying numerous genes encoding
potential drug targets. Many genes and their related proteins may be associated
with a disease, but generally only a few play a critical role that can be
regulated by a drug in order to produce a therapeutic effect.
24
<PAGE> 27
Once a gene is identified and determined to be associated with disease, it is
still necessary to understand its specific function and relative importance in
the disease process. It is necessary to determine how genes interact with other
biological molecules and if the gene or its protein product can be selectively
modified by a potential drug without inducing undesirable biological responses
that could result in toxicity. The use of information systems and gene
databases, a bioinformatics process referred to as sequence analysis, can
provide insights into the class of protein encoded by a gene of interest, but
rarely provides enough information to identify a useful drug target. Thus,
translation of biological information into useful drug targets remains rate
limiting and is not fully enabled by gene sequences or sequence analysis.
Selection and Identification of Drug Leads from Large Sources of Chemical
Diversity. To find potential drug leads, pharmaceutical companies assemble
large chemical libraries to increase the probability of success in screening
against drug targets. Advances in generating chemical diversity have resulted in
the expansion of libraries and the complexity of mixtures used in screening. The
increasing size and number of these collections, and the diverse methods by
which they are generated and stored, have created new opportunities for
identifying potential drug leads. They have also created new challenges in the
cost- and time-effective separation and identification of drug leads, a process
that is often rate limiting. Three major types of chemical libraries, each
presenting different challenges for chemical separation and identification are:
Natural products. Natural products are chemical compounds generated
by living organisms. The Company believes that natural products are the
most diverse source of chemical structures, but provide the greatest
challenges in drug lead selection and identification. Unlike other sources
of chemical diversity, the content of complex chemical mixtures produced by
living organisms is often completely unknown and consists of hundreds to
thousands of compounds. Historically, the identification of a single drug
lead from an active natural products mixture can take over a year.
Combinatorial chemistry libraries. Combinatorial chemistry libraries,
generated by combining varying chemical compounds, are frequently produced
and screened as complex chemical mixtures. These mixtures generally contain
10 to 100 chemical structures that are the intended result of combinatorial
synthesis. In addition, these mixtures may contain unknown chemical
structures resulting from side reactions among the mixture's constituents.
Each of the intended structures can be individually re-synthesized and
tested or a chemical tag can be used to identify the active compound.
Although generally useful, these approaches often add considerable cost and
time to the drug lead identification process. However, when a chemical
structure resulting from a side reaction is responsible for activity,
current techniques cannot efficiently identify the active component. As a
result, pharmaceutical companies observe that some of the activities that
they see in screening are lost when the individual components are tested.
Thus separation and identification of lead structures often remains rate
limiting.
Historical chemical files. Historical chemical files consist of
compounds synthesized by medicinal and organic chemists, accumulated over
years or decades and maintained in large libraries by pharmaceutical
companies. Some of the contents of these libraries are not precisely known
due to the instability of libraries stored over time. These files are often
screened in mixtures of 10 to 50 compounds. Separating and identifying
active components in these mixtures is often rate limiting because of the
need to re-test individual compounds once activity has been detected and
because the exact content of the mixture is sometimes unknown.
Integration of Drug Discovery Steps
Drug discovery is an integrated and iterative process, with each step
producing information and reagents that are valuable for refining upstream and
downstream steps. For example, discovery of the ulcer drug Tagamet resulted from
an evolving understanding both of the biology of histamine and its receptors as
targets, as well as the chemistry of histamine antagonists as drugs. The
interaction of biological and chemical data led to the identification and
validation of the histamine-2 receptor as a drug target. This target and the
chemical information were then used in an integrated, iterative program to
discover and optimize further histamine-2 receptor antagonists as anti-ulcer
drugs. Many biotechnology companies focus on supplying either drug targets or
chemical compound libraries to pharmaceutical companies for use in drug
discovery. The lack of integration
25
<PAGE> 28
of the biology of drug targets and sources of chemical diversity leads to a
suboptimal discovery process. The Company believes that its own discovery
programs, including its collaborations with Pfizer and Wyeth-Ayerst, confirm the
benefits of integrating the biology and chemistry of drug discovery.
CHEMGENICS TECHNOLOGIES
ChemGenics' two complementary technology platforms, Drug Discovery Genomics
and Advanced Drug Selection Technologies, enable a high degree of integration of
the steps and related information flow within the drug discovery process. For
example, Drug Discovery Genomics makes it possible to use the same microbial
systems in identifying a gene, determining its function and identifying
potential drug targets. These microbial systems can be used further for
expressing the drug target proteins and configuring them into a selective assay
to find drug leads. Advanced Drug Selection Technologies combine screening,
separation and rapid identification of drug leads into an integrated process.
Advanced Drug Selection Technologies were in part developed by the Company and
accelerated by the Company's license of proprietary chemical selection and
analysis technologies from PerSeptive. The Company believes that it achieves
competitive advantages in speed and efficiency through these broad and
integrated platform technologies.
Drug Discovery Genomics
Drug Discovery Genomics includes the Company's proprietary gene
technologies and the Company's expertise with microbial model systems. This
platform is applied by the Company to multiple steps within the drug discovery
process, including methods for gene discovery, rapid determination of gene
function and identification of drug targets. The Company also applies its
related gene technologies to expression of drug targets for use in selection of
drug leads and efficient configuration of assays for use in high throughput
screening. The Company's staff and advisors include leading scientists
responsible for important advances in microbial molecular biology, including:
(i) demonstration of fungal transformation, the insertion and incorporation of
foreign DNA into a yeast cell; (ii) subtractive hybridization, a widely used
method for detecting differentially expressed genes; and (iii) demonstration of
fundamental genetic regulatory mechanisms.
The Use of Microbial Model Systems. The Company's Drug Discovery Genomics
platform uses microbial model systems to translate genes into drug targets by
determining the functions of unknown genes and their relevance as drug targets
and setting up early-phase screening options. The Company has significant
expertise with these systems and believes that microbes, including fungi such as
the budding yeast Saccharomyces cerevisiae and Aspergillus nidulans and the
bacterium Escherichia coli ("E. coli"), offer a number of advantages for
discovering novel drug targets for human diseases rapidly and cost-effectively.
Although the Company believes that model systems are useful for identifying
biological targets for drug development, there can be no assurance that drug
leads identified and validated through these systems will result in compounds
efficacious in humans.
The Company believes that microorganisms offer several important
advantages. First, the complete DNA sequences of yeast and a number of other
microbes are known and their genomes have been extensively analyzed. Second,
experiments with microbes can be carried out rapidly because of relatively short
times between generations. Third, use of microbial model systems is relatively
inexpensive because experiments with microbes can be carried out cost
effectively in microtiter plates, test tubes, and petri dishes, with no
requirement for animal facilities. Finally, microbes can be used to configure
assays for high throughput screening and to produce target proteins encoded by
human genes.
An additional advantage of using microbes as model systems for drug
discovery is that they are responsible for some of the most important human
diseases. Sales of bacterial and fungal antibiotics were over $25 billion in
1995. There is a clear need for new antibacterial and antifungal drugs because
of the development of drug resistance in infectious microbes, inadequate
treatment of many infectious diseases, and side effects of existing drugs.
ChemGenics has focused its initial efforts on these two therapeutic areas, both
to develop potential products and to build its core gene technologies based on
model systems. The Company has expanded the application of its microbial model
systems in therapeutic areas outside of infectious diseases.
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The Company believes that microorganisms, particularly yeast and
Aspergillus, are also very useful model systems for certain human processes and
that these systems have contributed significantly to the understanding of the
molecular biology of human cells. Both human and fungal cells are eukaryotic,
possessing a nucleus that contains genetic information. Fungal and human cells
share much of the same organization and basic cellular processes. Many genes
involved in human disease have close homologs in fungi, which the Company
believes makes these systems applicable in many major therapeutic areas.
Identifying Drug Targets. ChemGenics uses several complementary approaches
to translate efficiently genes into useful drug targets:
Essentiality libraries. ChemGenics has developed or acquired
technologies for rapidly identifying the most essential genes for the life
of an organism. The Company has assembled a library of approximately 500
genes which it believes are among the most important for growth and
division of eukaryotic cells as well as approximately 300 of the most
important genes in bacteria. ChemGenics has used these libraries to
identify new targets in its anti-infective programs as well as for diseases
involving cell proliferation, including cancer and inflammation. The
Company believes that its knowledge of the essentiality of these genes is
proprietary and has filed and intends to file additional patent
applications on specific genes derived from this approach that demonstrate
utility as drug targets.
Fungal homologs. The Company has developed techniques for using
fungal homologs of human disease genes to determine gene function,
prioritize drug targets and configure high throughput screens. For example,
the Company has configured screens in yeast for important drug targets
which the Company believes are useful in discovering drugs for treating
cancer. It has also discovered several drug leads using these approaches
that are currently undergoing chemical optimization.
Gene Expression Spectroscopy. ChemGenics is developing gene
expression spectroscopy to measure expression levels of substantially all
of the genes in a model organism to determine the functions of unknown
genes. Altered patterns of gene expression may suggest the functions of
unknown genes introduced into a model organism. The utility of gene
expression spectroscopy in determining function is expected to increase as
data on known genes is collected and analyzed. ChemGenics is developing
proprietary databases for this purpose. This approach includes technologies
from PerSeptive which the Company expects will enhance quantification of
gene expression.
Drug Screens for Use with Genes of Unknown Function. One of the
greatest challenges in drug discovery is assessing the role of genes of
unknown function as potential targets for drug discovery. The Company has
developed methods based on yeast and bacterial expression systems and
Advanced Drug Selection Technologies for rapidly screening for drugs that
modulate genes of unknown function. These modulators can be used to
understand more about the biology and chemistry of a potential target and
determine its usefulness in drug discovery. This approach potentially
provides an early path to lead compounds for modulating gene products whose
role in a disease appears important or has been established, but whose
precise biological function is unknown.
Product Profile Approach. Many companies use a gene-driven approach
in which the starting point for drug discovery is a disease gene that may
or may not be useful as a drug target. ChemGenics' Drug Discovery Genomics
platform enables the use of genomics in a product profile-driven approach
that the Company believes is highly efficient. ChemGenics begins with a
detailed profile of the therapeutic characteristics of a drug with large
market opportunities. The Company uses this profile to identify genes that
encode potential drug targets that may allow the discovery of such a drug.
The chart below indicates how an antifungal product profile has been used
by the Company to prioritize genes for drug discovery.
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CHEMGENICS PRODUCT PROFILE-DRIVEN APPROACH TO DRUG DISCOVERY
<TABLE>
<S> <C> <C> <C> <C>
SAMPLE PRODUCT PROFILE: ACCOMPANYING TARGET
ANTIFUNGAL PRODUCT CHARACTERISTIC CHEMGENICS TECHNOLOGY
Kills fungal cells [Arrow] Essential for the life of the [Arrow] Drug Discovery Genomics to
fungal cell identify essential genes and
novel fungal targets
Active against major fungal [Arrow] Present in all major fungal [Arrow] Drug Discovery Genomics and
pathogens in humans pathogens bioinformatics to validate
genes in pathogens
Readily measurable predictors [Arrow] Readily able to be configured [Arrow] Screen configuration using
of efficacy into a screen expertise in fungal molecular
biology
Non-toxic to humans [Arrow] Not present in humans [Arrow] Drug Discovery Genomics and
bioinformatics to confirm not
in humans
Orally available small Target type modulated by [Arrow] Advanced Drug Selection
molecule [Arrow] small molecule Technologies; novel drug
source; QuickScan
</TABLE>
Target to Screen. Once a target is identified, ChemGenics' technologies
permit the rapid completion of the next step in drug discovery, screen
configuration. The Company believes that its ability to express both microbial
and human genes in microbial cells provides an advantage in drug discovery
because it greatly facilitates screen development. In one approach, genetically
engineered microbes are used as cell-based screens to report whether or not a
specific target of interest has been affected by a chemical inhibitor. In a
second approach, bacteria or fungi are used to express large amounts of the
target protein of interest that are then used in an affinity selection or
biochemical assay based on the Company's Advanced Drug Selection Technologies.
The Company's technologies permit the selection of what should be the most
appropriate system for the target of interest. A number of the Company's
screening systems and related technologies are the subject of patent
applications.
Advanced Drug Selection Technologies
The Company's selection approach directly combines screening, chemical
separation and drug lead identification in an integrated process to achieve
advantages over conventional methods in speed, quantification, sensitivity,
flexibility and cost.
Increased speed. The Company has demonstrated that the use of a
continuous process in its selection technologies can significantly speed
the identification of drug leads compared to conventional techniques. A
continuous process is achieved by using a flow-through screening approach
rather than a conventional microtiter batch process. In this flow-through
approach, drug leads flow from an affinity selection column that screens
for compounds binding to the drug target, into a second column that
separates the drug leads from other components of the mixture, and then
directly into an ultraviolet detector and specially designed mass
spectrometer for structural analysis. In conventional microtiter screens,
the output is generally a signal, as opposed to chemical compounds that can
move directly into downstream steps of separation and analysis. Efficient
coupling is made possible by the Company's proprietary techniques directly
interfaced with ultra-sensitive, mass spectrometers developed by
PerSeptive.
Quantification. The Company's Advanced Drug Selection Technologies
permit direct quantification of the strength of binding between drug leads
and the drug target. Conventional microtiter screens typically provide only
a positive or negative signal. This quantitative output can be used to
prioritize drug leads based on level of binding and to direct drug lead
optimization.
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Sensitivity. Increased screening sensitivity permits the
cost-effective identification of side reactants from combinatorial mixtures
and the discovery of compounds not previously accessible from natural
products. ChemGenics' application of affinity selection and proprietary
delayed extraction mass spectrometry technologies provides sufficient
sensitivity to detect minute amounts of a compound (as little as 10(-15)
moles). For example, the Company has demonstrated in its antibacterial
program that a natural products mixture determined by conventional
techniques to contain one active compound actually contained three such
compounds, providing structural activity data and a compound previously
undiscovered.
Flexibility. In addition, the Company's Advanced Drug Selection
Technologies can be applied to a variety of drug targets and chemical
sources. The Company has used its Advanced Drug Selection Technologies
successfully with natural product, combinatorial chemical, and synthetic
chemical sources. In addition, Advanced Drug Selection Technologies permit
the use of targets in drug discovery that have been difficult to screen
using conventional techniques. Microtiter assays are best suited to enzymes
or receptors. However, many genes identified by genomics do not code for
products that fit into these categories but may still represent attractive
drug targets. Advanced Drug Selection Technologies have, for example, been
used to identify inhibitors of protein-protein interactions.
Protein-protein interactions represent an important type of drug target but
have previously presented significant challenges for screening.
Cost. The Company's Advanced Drug Selection Technologies permit
screening, separation, and identification to be carried out with smaller
amounts of expensive drug target, drug source, and associated reagents. In
addition, the rate limiting steps of chemical separation and analysis are
conventionally highly labor intensive and expensive. Advanced Drug
Selection Technologies automate most of the drug lead identification
process.
Miniaturization. The Company is developing a new generation of its
Advanced Drug Selection Technologies by using mass spectrometry and
miniaturized screening formats to achieve further increases in speed and
reductions in cost. The Company has demonstrated in feasibility studies
that it can collect data simultaneously on activity of compounds for a drug
target, the level of binding and chemical structure.
High Throughput Screening. ChemGenics complements selection-based
approaches with microtiter-based high throughput screening techniques in its own
drug lead programs and in its collaborations with Pfizer and Wyeth-Ayerst. The
Company has developed proprietary robotics and associated information systems to
enable cost effective high-throughput screening that it believes are comparable
to major pharmaceutical companies. The flexible robotic systems permit fully
automated sample preparation, configuration of screening plates, and addition of
assays. The Company has the capacity to screen up to eight million assay wells
per year. In the future, the Company expects to develop improved robotics
capabilities to support additional corporate alliances and new assay formats.
ChemGenics anticipates that it will have the capacity to double its high-
throughput screening capacity during 1997.
Automated Chemical Separations. ChemGenics has designed, constructed, and
implemented automated chromatography systems coupled to chemical analysis
systems to speed and reduce the cost of separating and analyzing chemical
mixtures containing drug leads. The Company is creating a proprietary database
containing separations and analysis information from its natural product source,
and the Company expects to use this database and associated informatics systems
to accelerate the identification of active drug leads.
Novel Chemical Source
Microorganisms are among the most versatile of natural product sources,
producing thousands of different compounds in many different structural classes.
Fungi represent a particularly large and diverse class of microorganisms that
have played a prominent role in the pharmaceutical industry as sources of
important drugs, such as the antibacterial classes of penicillins and
cephalosporins, the immunosuppressant cyclosporin and the precursor of the
cholesterol-lowering agent Mevacor. An advantage of fungi is the relatively low
cost of production and storage of specimens which can subsequently be recultured
to produce additional supply. It
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is estimated that there are more than 1.5 million fungal species of which fewer
than 5% have been collected from nature and even fewer have been used in drug
discovery. Thus, fungi represent a large and diverse resource for the discovery
of new classes of pharmaceuticals.
ChemGenics has assembled a diverse collection of over 50,000 fungi as a
source of chemicals for drug discovery by using (i) biorational methods for
collecting organisms that produce therapeutically relevant compounds and (ii) a
BioCombinatorial approach based on the genetic manipulation of organisms to
enhance chemical diversity. The Company has also developed QuickScan, an
informatics-based index to the Company's natural products library that permits
rapid screening of the collection for drug discovery. The Company believes that
its fungal collection, which is expected to grow by more than 20,000 organisms
per year, is the largest, most diverse collection assembled for drug discovery.
Biorational Natural Collection. The Company has worked with leaders in the
field of mycology, the study of fungi, to construct a highly diverse collection
of organisms from around the world. The organisms have been chosen by experts
based on their potential for producing compounds with important therapeutic
activities, a procedure referred to as biorational collecting. These organisms
are stored by ChemGenics and can then be reconstituted. The Company has compiled
a proprietary database that relates each organism to its origin and to each drug
screen in which it has been used. These data are used to guide ongoing
collecting activities to select for increasingly productive and valuable
organisms.
BioCombinatorial Sourcing. The Company uses three proprietary methods,
collectively termed BioCombinatorial, to engineer fungal genomes and achieve
further chemical diversity. In the first approach, the Company has developed a
genetic method for accessing the chemical diversity of non-culturable organisms
by isolating their DNA and expressing their genes in well understood laboratory
organisms. The Company believes that these transgenic fungi may produce many
classes of compounds previously unexplored by the pharmaceutical industry. In
the second approach, the Company activates many of the genes responsible for
chemical production that are normally inactive in the laboratory. Finally, the
Company uses a hybridization process that may produce thousands of genetically
distinct offspring from distantly related parents. The Company has demonstrated
that these offspring produce chemical compounds not generated by the parents.
The BioCombinatorial approaches of the Company are the subject of an issued
patent and several patent applications.
QuickScan. Screening for drug activity of very large numbers of natural
product samples presents a significant challenge. ChemGenics has integrated its
diverse collection with the power of information systems to develop a
proprietary new approach to indexing its natural products called QuickScan. The
Company has selected approximately 1,000 organisms that are representative of
the diversity and productivity of the larger collection by analysis of
biological, screening, and chemical data from many thousands of diverse
organisms. For a given target, this indexed collection is screened first and
active samples are used to guide ChemGenics scientists back into the larger
collection to find related organisms that may produce variants of active
compounds and may help advance drug lead optimization. Organisms showing
activity can then be subjected to BioCombinatorial methods to alter production
of active compounds quantitatively and qualitatively. In some instances, the
QuickScan results may direct additional collecting activities to expand on a
drug lead. The Company has demonstrated that the use of QuickScan results in a
five- to ten-fold increase in the speed of screening the collection and
identifying lead activities compared to other approaches used by the Company. In
the future, the Company plans to produce additional indices of its collection,
including the rapidly growing number of BioCombinatorial organisms. The Company
has filed several patent applications relating to QuickScan.
BUSINESS STRATEGY
The Company's objective is to become a leading drug discovery company. The
Company's strategy to achieve this objective consists of four main components:
Continue Development of Drug Discovery Technology Platforms. ChemGenics
intends to continue to develop its drug discovery technologies that translate
genes into drug targets and chemical diversity into novel drug structures and to
expand and diversify its fungal and natural products chemical drug source
library. These enabling technologies can be applied in multiple therapeutic
areas and pharmaceutical programs in order to generate drug leads.
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Form Multiple Types of Strategic Alliances. The Company intends to
leverage its core drug discovery technologies in three types of alliances:
therapeutic, technology and drug lead. First, the Company intends to enter into
strategic collaborations in specific disease areas, such as its antifungal and
antibacterial drug discovery collaborations with Pfizer and Wyeth-Ayerst,
respectively. In addition, ChemGenics currently has active drug discovery
programs in cancer, peptic ulcer disease (Helicobacter pylori),
immunoregulation/inflammation, and anti-virals, in which one or more broad
therapeutic alliances may be sought. Second, each of the Company's enabling
technologies may serve as the basis for one or more collaborations. For example,
the Company may collaborate with different pharmaceutical companies by using its
Advanced Drug Selection Technologies for specific targets of interest. Finally,
the Company may license specific drug leads to a pharmaceutical or biotechnology
company for development and commercialization.
Diversify Risk and Minimize Operating Losses. The Company diversifies its
risk by reducing its dependence on any single alliance, therapeutic area,
disease program, target or technology. The Company believes its strategy creates
opportunities for multiple royalty streams from various sources. This diversity
of strategic alliances also permits the Company to minimize its operating losses
and accelerate the commercialization of its discoveries.
Focus on Large Market Opportunities. ChemGenics focuses primarily on
therapeutic areas with high unmet medical need and substantial market
opportunity. In addition, the Company believes that its product profile driven
effort emphasizes high value approaches within each of these therapeutic areas.
Information from the medical community, the market and pharmaceutical partners
is used to define highly attractive product profiles. ChemGenics uses its Drug
Discovery Genomics technologies to identify drug targets that could permit the
discovery of a drug with such a profile.
DRUG DISCOVERY PROGRAMS
Antifungal Program
Fungal infections have become an increasing medical problem, in part due to
the growing number of patients whose immune systems are compromised due to HIV
infection, chemotherapy treatments, increased use of immunosuppressant drugs,
and aging. Treatments to combat fungal infections are a growing segment of the
anti-infective market, with worldwide sales of approximately $3.5 billion in
1995. Despite current approaches to treatment, the mortality rate in patients
with systemic fungal infections is extremely high, ranging from 30% to 80%,
depending on the disease.
There is a clear need for improved therapies to overcome the inadequacies
of existing treatments. There are only two major classes of antifungal drugs in
use today. Amphotericin-B, the only drug generally effective against Candida,
Aspergillus, and Cryptococcus, must be administered intravenously and has
serious side effects at therapeutic doses in many patients, such as reduced
kidney function, heart rhythm disturbances, low blood pressure, breathing
abnormalities, anemias, pain, vomiting and fever. The other major type of
antifungals, which belong to the chemical class known as azoles, are well
tolerated and available in orally active forms. However, the azoles currently
marketed may be ineffective against one or more pathogenic species such as
Aspergillus. Moreover, drug resistant strains have emerged, particularly in
patients with AIDS.
ChemGenics is collaborating with Pfizer to discover and develop new
antifungal compounds for human use. The Company is using its Drug Discovery
Genomics platform to discover antifungal drug targets and its Advanced Drug
Selection Technologies to identify drug leads for these targets. The Company has
used proprietary approaches to determine which essential yeast genes are also
essential in the targeted fungal pathogens. Under the Pfizer collaboration,
ChemGenics is applying its system for prioritizing drug targets based on their
likelihood of identifying drugs with lower probabilities of major toxicities and
their appropriateness for drug discovery. ChemGenics has identified a number of
novel drug targets that are being used in screen configuration. The
collaboration has resulted in the discovery of several series of drug leads that
are the subject of ongoing research.
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Antibacterial Program
The Company believes that there is a need for new treatments for bacterial
infections. Infectious diseases are the third leading cause of death in the
United States, with mortality rates on the rise. There have been few new
antibacterial products or treatments based on new drug targets discovered and
commercialized in the last 20 years, yet the market is large and growing, with
worldwide sales of products to treat bacterial infections exceeding $22 billion
in 1995.
Bacterial resistance to existing antibiotics, including the betalactams,
which include penicillins and cephalosporins, makes discovery of novel
antibacterial therapies a medical priority. Resistance is increasing in
Streptococcus pneumonia, the bacterium that causes pneumonia, and other common
disease-causing bacteria. Enterococci, a leading cause of post-surgical
infections, have already developed resistance to all major classes of
antibiotics including vancomycin. Methicillin-resistant Staphylococcus aureus
("MRSA") is an extremely dangerous bacterium that can only be treated
effectively by intravenous administration of vancomycin. If MRSA becomes
resistant to vancomycin, there will be no effective treatment for this serious
infection, likely resulting in significant increases in morbidity, mortality and
health care costs.
ChemGenics is collaborating with Wyeth-Ayerst to discover and develop new
antibacterial compounds for human use. The Company is using its core technology
platforms to discover novel antibacterial drug targets and to identify drug
leads for these targets. The Company is using proprietary approaches to identify
and prioritize essential bacterial genes. Under the Wyeth-Ayerst collaboration,
ChemGenics is applying its systems for prioritizing drug targets based on their
likelihood of identifying drugs with lower probabilities of major toxicities and
their appropriateness for drug discovery. ChemGenics has identified a number of
novel drug targets that are being considered for screen configuration.
Prior to the Wyeth-Ayerst collaboration, the Company configured and ran
high throughput screens for six antibacterial targets. Advanced Drug Screening
Technologies were used in this program to identify drug leads that were not
identified by conventional screening methods. The Company has also used its
fungal drug source and its QuickScan technology in the program to identify
several series of drug leads of interest that are the subject of ongoing
research.
Anti-Cancer Program
There is a clear need for new drug classes to treat various cancers by
targeting mechanisms responsible for cancer. Most cancers are still treated
inadequately and have high morbidity and mortality rates, and cancer therapies
have serious side effects. Chemotherapy and radiation treatments attempt to
eradicate rapidly dividing cancer cells. However, because these treatments are
nonspecific, they are also toxic to the body's normal cells, causing
immunosuppression, bleeding disorders, anemias, and gastrointestinal side
effects. These side effects limit the doses of cancer agents that can be used
and therefore restrict their efficacy. In addition, resistance develops to most
chemotherapeutic drugs.
The Company believes that its expertise in eukaryotic and fungal model
systems provides significant advantage in discovering novel cancer targets and
drug leads. The Company has identified several human genes corresponding to
fungal genes, has designed cellular assays for inhibitors of the human function,
run these assays in high throughput screens, and has discovered drug leads. In
addition, the Company has shown as proof of principle that it can configure
fungal cells as screens for two cancer targets, the targets of the drugs Taxol
and Camptothecan. The Company has run high throughput screens for these targets
and drug leads have been identified. The Company currently plans to seek a
pharmaceutical collaborator for further development and commercialization of its
anticancer program in the next 18 months.
Helicobacter Pylori ("H. pylori") Program
H. pylori, a Gram-negative bacterium, is now generally considered to be the
primary cause of gastric ulcer disease and chronic gastritis and has been
implicated in cancer of the stomach as well as other cancers. Current antibiotic
treatments for H. pylori suffer from sub-optimal success rates, resistance
development and poor patient compliance. ChemGenics is using its proprietary
bacterial gene discovery approaches to identify novel targets for
focused-spectrum antibiotics with enhanced efficacy and reduced side effects for
eradication
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of H. pylori from infected individuals. In addition, the Company believes it has
identified lead compounds that kill H. pylori in vitro by a novel mechanism and
is planning preliminary in vivo studies. Drugs to treat the symptoms of ulcer
disease and gastritis had sales over $7 billion in 1995. The Company currently
intends to enter into an agreement with a pharmaceutical collaborator for
further development and commercialization of its H. pylori program in the
future.
Immune Regulation Program
The Company has identified several specific targets in the areas of immune
suppression, autoimmune disease, and inflammatory disease, has configured
screens, and has discovered several lead activities by using its Drug Discovery
Genomics and its Advanced Drug Selection Technologies. In addition, ChemGenics
believes that drug candidates derived from its large and diverse collection of
fungi may have significant potential for immune regulation. Cyclosporin, the
market leading immunosuppressive agent with sales of approximately $1.3 billion
in 1995, and the recently approved drug mycophenolate mofetil, are derived from
fungi.
Anti-Viral Program
The Company has a number of screens in research feasibility studies and has
identified several viral inhibitors. The Company believes that its unique fungal
drug source may provide potential leads useful in the area of virology because
fungi are resistant to many viruses. The Company intends to explore the use of
its fungal drug source and other technologies to discover compounds for the
prevention and treatment of viral infections.
COLLABORATIONS
Pfizer
ChemGenics is working in collaboration with Pfizer to discover and develop
human antifungal drugs for human use. Pursuant to the agreements, Pfizer is
funding and collaborating in a drug discovery program with ChemGenics over an
initial four year term, which began in January 1995. In September 1995, the
parties executed an additional agreement which shifted responsibility for a
portion of the program from Pfizer to ChemGenics, pursuant to which ChemGenics
will perform DNA sequencing and bioinformatics services in the antifungal area
for the remaining term of the Pfizer agreement in exchange for increased
compensation. Pfizer has waived its one-time option to terminate its
collaboration with the Company. Pfizer purchased 2,700,000 shares of Series D
Convertible Preferred Stock at a price of $5.00 per share (which will be
converted into 1,018,867 shares of Common Stock upon the consummation of this
offering) and has agreed to provide the Company with up to $11.7 million in
research funding over the agreement's four-year term, and is obligated to make
payments to the Company contingent upon the achievement of certain milestones
which could total an additional $32.5 million. ChemGenics has recognized $5.0
million in research revenues and $13.5 million in equity funding under these
agreements through December 31, 1996. The agreements provide Pfizer the option
for a period ending one year after the end of the research program to acquire
exclusive worldwide rights to develop and commercialize products to treat human
fungal infections discovered as part of the collaboration. If the option is not
exercised for a particular product candidate, and Pfizer is not developing
another product with a similar profile of activity under the agreements, then
all program rights to that product revert to the Company after the expiration of
the option period. If ChemGenics or a licensee of ChemGenics sells any such
product, a royalty payment to Pfizer may be required. In the event the
collaboration is successful in identifying targets and leads for products to
treat human fungal disease, Pfizer will pay all costs related to its product
development and commercialization, including, without limitation, clinical
trials, regulatory filings and marketing and will also pay ChemGenics royalties
on product sales, if any, which result from the collaboration. ChemGenics
receives the same milestone and royalty payments on any product that advances
from the collaboration whether it originates from ChemGenics or Pfizer. Under
certain circumstances, if ChemGenics develops and markets compounds from the
alliance, it will owe royalties to Pfizer. A joint steering committee, comprised
of an equal number of participants from the two companies, is responsible for
the decision making and coordination of all aspects of drug discovery pursuant
to the collaboration.
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Wyeth-Ayerst
ChemGenics is working in collaboration with Wyeth-Ayerst to discover and
develop antibacterial drugs for human use. Pursuant to the agreements,
Wyeth-Ayerst is funding and collaborating with ChemGenics over a five-year
period in a program aimed at the comprehensive identification and prioritization
of the genes that encode potential new molecular drug targets in important
bacterial pathogens. Wyeth-Ayerst also has a right of first refusal for products
for the prevention and treatment of bacterial diseases in animals and a right of
first negotiation for drugs to treat H. pylori infection of humans. If the
alliance successfully concludes its five-year term, ChemGenics could receive
funds of up to $70 million. Pursuant to the agreements, on December 2, 1996
Wyeth-Ayerst purchased 833,334 shares of Series E Convertible Preferred Stock at
$6.00 per share (which will be converted into 314,465 shares of Common Stock
upon the consummation of this offering) and is committed, subject to ChemGenics'
meeting certain research performance objectives, to a second purchase of $5
million of Common Stock to occur no sooner than June 2, 1997 and a third
purchase of $3 million of Common Stock to occur no sooner than December 2, 1998.
The second and third purchases will be priced at 115% of the then current market
price of the Common Stock following the Company's initial public offering, or at
$15.90 per share of Common Stock if no such offering has been completed.
Assuming the agreements conclude their five-year term, Wyeth-Ayerst will become
obligated to pay ChemGenics $15 million in research funding (adjusted for
inflation, under certain circumstances) and may be obligated to pay up to an
additional $9 million in research performance payments. ChemGenics may also
receive up to an additional $33 million in development milestone payments. In
the event the collaboration is successful in identifying targets and leads for
products to treat bacterial infection, Wyeth-Ayerst will pay all costs related
to its product development and commercialization, including, without limitation,
clinical trials, regulatory filings and marketing and will also pay ChemGenics
royalties on product sales, if any, which result from the collaboration.
Pursuant to the agreements ChemGenics has received $750,000 in research funding
through December 31, 1996.
If certain research performance checkpoints are not achieved by ChemGenics
by the end of the third year, Wyeth-Ayerst has an option to terminate the
agreements. The agreements provide Wyeth-Ayerst the ability to acquire exclusive
worldwide rights to develop and commercialize products discovered as part of the
collaboration to treat human bacterial infections. Commencing one year after the
end of the research term, ChemGenics will have the exclusive right, by itself or
with a third party in the field, to develop and commercialize any ChemGenics
product and a first refusal right to any Wyeth-Ayerst product arising from the
collaboration, provided Wyeth-Ayerst is not developing a product from the
collaboration with the same activity profile. In the event the collaboration is
successful in identifying targets and leads for products to treat human
bacterial infections, Wyeth-Ayerst will pay all costs related to its development
and commercialization including, without limitation, clinical trials, regulatory
filings, manufacture and marketing. Wyeth-Ayerst will also pay ChemGenics
royalties on product sales. ChemGenics receives the same milestone and royalty
payments on any product that advances from the collaboration whether it
originates from ChemGenics or Wyeth-Ayerst. A joint steering committee,
comprised of an equal number of participants from each company, is responsible
for decision making and coordination of the joint drug discovery efforts
pursuant to the collaboration.
PerSeptive Biosystems
In May, November and December 1996, the Company entered into agreements
with PerSeptive under which the Company exchanged a substantial equity interest
in ChemGenics and a $3 million promissory note payable to PerSeptive for certain
assets and a worldwide, royalty-free license for use in the field of drug
discovery to all of PerSeptive's existing patents (over 80 patents and
applications) and technology, including selection technologies, all future
patented and unpatented technology, early and preferred access to all technology
and certain other assets, and for a period of five years, to all prototype
equipment. ChemGenics received a world-wide royalty free exclusive license to
all PerSeptive patents and technology arising out of certain drug discovery
programs previously conducted by PerSeptive for the purpose of developing,
making, using or selling the drugs of those programs. The Company believes that
PerSeptive is an innovative, worldwide leader in the development of new
reagents, equipment and systems useful as tools for biotechnology. PerSeptive
has agreed not to engage in drug discovery or enter into any similar research
and/or
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development agreement or other collaborative arrangement for drug discovery with
any party other than ChemGenics, although the foregoing limitation will not
preclude PerSeptive or any of its affiliates, licensees or sub-licensees from:
(i) engaging in its or their current business of developing, selling and
licensing products and instrumentation systems for the purification, synthesis,
sequencing or analysis of biomolecules and providing tools to the life sciences
industry; (ii) selling or licensing, to any person and for any purpose within or
outside the field of drug discovery instruments, reagents, compounds and other
materials; (iii) providing any services outside the field of drug discovery; or
(iv) providing pre- and post-sale services, consistent with PerSeptive's current
practice, related to the development, manufacture or sale of PerSeptive products
or for license of the foregoing within the field of drug discovery. During the
first five years of the collaboration, ChemGenics will have an 18-month period
of exclusivity for inventions or improvements jointly developed by the parties
primarily useful in drug discovery, during which period PerSeptive will not
sell, license, or distribute products incorporating such inventions or
improvements. The Company also acquired certain equipment, supplies and other
assets related to drug discovery programs at PerSeptive, including the right to
use without charge (i) certain equipment until the earlier of the successful
conclusion of an initial public offering by the Company or June 30, 1997 and
(ii) certain supplies of the type manufactured or distributed by PerSeptive
until the later of the successful conclusion of an initial public offering by
the Company or March 31, 1997. Thereafter, the Company will pay PerSeptive's
fully burdened manufacturing cost for such equipment and supplies. ChemGenics
has agreed not to commercially sell equipment or reagents for the purification,
analysis, sequencing or synthesis of molecules, but may use for its
collaborations or license to others inventions or improvements, including
equipment or reagents, developed by ChemGenics.
The agreements provide for PerSeptive and ChemGenics to collaborate in
integrating the technologies of PerSeptive with ChemGenics' expertise in drug
discovery. PerSeptive will provide senior management consultation services to
the Company without charge for five years. ChemGenics hired the 10 member
research team primarily responsible for applying PerSeptive's technology to drug
discovery and entered into a sublease agreement for approximately 5,000 square
feet of space in Framingham, Massachusetts. The Company will pay no rent on the
subleased facility until the successful conclusion of an initial public offering
by the Company, and will pay rent equal to PerSeptive's fully burdened cost of
the Company's facility thereafter.
Under the agreements, PerSeptive acquired 2,563,275 shares of the Company's
Common Stock of which 250,000 shares are subject to forfeiture lapsing over a
three-year period in the event PerSeptive fails to provide certain services,
equipment use, supplies and other assets as described above. PerSeptive also
received a warrant, expiring in June 2000, to purchase an additional 1,847,673
shares of Common Stock at an exercise price of $13.25 per share, for an
aggregate exercise price of approximately $24.5 million. In addition, the
Company issued PerSeptive a $3 million promissory note, which the Company
intends to pay out of the proceeds of this offering. See Note 3 of Notes to
Financial Statements.
The Company and PerSeptive entered into a Voting Agreement pursuant to
which, as long as PerSeptive owns at least 20% of the Company's outstanding
voting stock, PerSeptive is entitled to require the nomination of two PerSeptive
nominees as members of the Company's Board of Directors (if comprised of six or
seven directors) or three PerSeptive nominees if the Company's Board of
Directors is comprised of eight or more total directors. If PerSeptive owns less
than 20% of the Company's outstanding capital stock, but at least 10%, it is
entitled to require the nomination of one PerSeptive nominee as a member of the
Company's Board of Directors. Certain stockholders of the Company, who own 93.8%
of the Company's capital stock prior to the offering, have agreed to vote in
favor of the election of such nominees. In addition, PerSeptive entered into a
standstill agreement, pursuant to which it agrees not to acquire any additional
Company equity securities and to restrict its ability to sell any equity
securities of the Company, and, as long as PerSeptive owns at least 20% of the
Company's equity securities, to vote its shares in accordance with the
recommendation of ChemGenics' Board of Directors. This agreement will remain in
effect until June 30, 2006.
Other
ChemGenics has a number of alliances with leading scientists and academic
centers, governmental agencies and research institutes. In the area of
antifungal drugs and fungal molecular biology, the Company has been awarded a
National Drug Discovery Research Grant under which the Company collaborates with
Dr.
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Phillips Robbins of the Massachusetts Institute of Technology. Dr. Gerald Fink,
Director of the Whitehead Institute of Biomedical Research, an affiliate of MIT,
is an advisor for this grant. Additionally, the Company is collaborating with
Dr. Jeffrey Becker of the University of Tennessee in the area of antifungal
drugs and fungal molecular biology. See "Management -- Scientific Advisory
Board." The Company is also collaborating with Dr. George Sachs of Veterans
Administration West Los Angeles Medical Center on approaches to treating H.
pylori infection.
PATENTS
The Company's commercial success depends in part on its ability to obtain
and enforce patent and certain other proprietary rights relating to its gene
discoveries, drug targets, screening technologies and drug leads. As of December
31, 1996, the Company had 10 patents pending in the United States, and two U.S.
patents based on the Company's discoveries had issued. There can be no assurance
that any present or future patent application will result in a patent or that
any present or future patent will protect a commercially viable product. These
patents and applications cover core technology, chemical compounds and specific
genes. It is the Company's policy is to seek, when appropriate, patent
applications in the United States and internationally.
Patent law as it relates to inventions in the biotechnology field is still
evolving, and involves complex legal and factual questions for which legal
principles are not firmly established. Accordingly, there can be no assurance
that patents will be granted with respect to any of the Company's pending patent
applications or with respect to any patent applications filed by the Company in
the future. In addition, even if such patents are granted, there can be no
assurance that in the event any claims in such patents are challenged, that any
court or patent authority would determine that such patent claims are valid and
enforceable or sufficiently broad in scope to protect the Company's proprietary
rights. Moreover, because patent applications in the United States are
maintained in secrecy until patents issue, because patent applications in
certain other countries generally are not published until more than 18 months
after they are filed, because publication of technological developments in the
scientific or patent literature often lags behind the date of such developments,
and because searches of prior art may not be conducted or may not reveal all
relevant prior inventions, the Company cannot be certain that it was the first
to invent the subject matter covered by its patent applications or that it was
the first to file patent applications for such inventions.
The commercial success of the Company will depend in part on not infringing
patents or proprietary rights of others, and there can be no assurance that the
technologies and products used or developed by the Company will not infringe
such rights. If such infringement occurs and the Company is not able to obtain a
license from the relevant third party, the Company will not be able to continue
the development, manufacture, use or sale of any such infringing technology or
product. There can be no assurance that necessary licenses to third-party
technology will be available at all, or on commercially reasonable terms.
Failure by the Company to obtain a license to technology that it may require to
utilize its technologies or commercialize its products may have a material
adverse effect on the Company. In some cases, litigation or other proceedings
may be necessary to defend against or assert claims of infringement, to enforce
patents issued to the Company, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the propriety rights of third parties. Any potential litigation
could result in substantial costs to and diversion of resources by the Company
and could have a material adverse impact on the Company. There can be no
assurance that any of the Company's issued or licensed patents would ultimately
be held valid or that efforts to defend any of its patents, trade secrets,
know-how or other intellectual property rights would be successful. An adverse
outcome in any such litigation or proceeding could subject the Company to
significant liabilities, require the Company to cease using the subject
technology or require the Company to license the subject technology from the
third party, all of which could have a material adverse effect on the Company's
business.
In addition to patent protection, the Company relies upon trade secrets,
proprietary know-how and continuing technological advances to develop and
maintain its competitive position. To maintain the confidentiality of its trade
secrets and propriety information, the Company requires its employees,
consultants and collaborators to execute confidentiality agreements upon the
commencement of their relationships with the Company. In the case of employees,
the agreements also provide that all inventions resulting from work
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performed by them while in the employ of the Company will be the exclusive
property of the Company. There can be no assurance, however, that these
agreements will not be breached, that the Company would have adequate remedies
in the event of any such breach or that the Company's trade secrets or propriety
information will not otherwise become known or developed independently by
others. See "Risk Factors -- Patents and Proprietary Rights, Third Party
Rights."
COMPETITION
The drug discovery business is characterized by intense competition and
rapid technological change. In particular there are a significant number of
organizations competing in the field of genomics-based drug discovery. In
addition, there are a significant number of organizations competing in the field
of drug identification and optimization (including chemical diversity and
screening). These organizations include combinatorial chemistry companies and
companies which utilize genomics-based target identification and advanced
screening methods for antibacterial drug leads. The Company's competitors are
also engaged in drug discovery through methods that do not include genomics
research. Many of the Company's competitors, particularly large pharmaceutical
companies, biotechnology companies, academic and research institutions and
government agencies, have substantially greater financial resources and research
and development capabilities than the Company.
The Company expects that its strategic collaborators will be engaged in a
number of product development efforts, both in and outside the disease area or
areas covered by an alliance or collaboration with the Company. The Company's
product candidates could, therefore, be in competition with other products
developed by its strategic collaborators. In addition, although the Company has
licensed certain technology from PerSeptive in the field of drug discovery and
certain aspects of these technologies are exclusive to ChemGenics, and although
PerSeptive has agreed not to enter into drug discovery collaborations,
PerSeptive may still sell components of this technology to other organizations
which compete with the Company. See "Risk Factors -- Competition; Risk of
Technological Obsolescence."
GOVERNMENT REGULATION
The Company's research and development activities, and the preclinical
studies and clinical trials, and ultimately the manufacturing, marketing and
labeling of its drug candidates, are subject to extensive regulation by FDA and
other regulatory authorities in the United States and other countries. The
United States Federal Food, Drug, and Cosmetic Act and the regulations
promulgated thereunder and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of
pharmaceutical products. Preclinical study and clinical trial requirements and
the regulatory approval processes take years to complete and require the
expenditure of substantial resources. Additional government regulation may be
established that could prevent or delay regulatory approval of the Company's
product candidates. Delays or rejections in obtaining regulatory approvals would
adversely affect the Company's ability to commercialize any product candidates
developed by the Company or its strategic collaborators and the Company's
ability to receive product revenues or royalties. If regulatory approval of a
product candidate is granted, the approval may include significant limitations
on the indicated uses for which the product may be marketed.
The steps required before a pharmaceutical agent may be marketed in the
United States include (a) preclinical laboratory, in vivo, and formulation
studies, (b) the submission to FDA of an Investigational New Drug application
("IND"), which must become effective before human clinical trials may commence,
(c) adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug, (d) the submission of an NDA to FDA, and (e) FDA
approval of the NDA, including approval of all product labeling and advertising.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product candidate. Preclinical safety tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practices. The results of the preclinical tests are submitted to FDA
as part of an IND and are reviewed by FDA before
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the commencement of human clinical trials. Unless FDA objects to an IND, the IND
will become effective 30 days following its receipt by FDA. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials or that the lack of an objection means that FDA will ultimately
approve an NDA.
Clinical trials involve the administration of the investigational new drug
to humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with good clinical practices under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety, and efficacy criteria to be evaluated. Each protocol must be
submitted to FDA as part of the IND. Also, each clinical trial must be approved
and conducted under the auspices an Institutional Review Board ("IRB") at each
location where such clinical trials take place. Each IRB will consider, among
other things, ethical factors, the safety of human subjects, and the possible
liability of the institution conducting the clinical trials.
The results of preclinical studies and clinical trials, if successful, are
submitted in an NDA to seek FDA approval to market and commercialize the product
candidates for a specified use. The testing and approval process will require
substantial time and effort, and there can be no assurance that any approval
will be granted for any product or that approval will be granted according to
any schedule. FDA may deny an NDA if it believes that applicable regulatory
criteria are not satisfied. FDA may also require additional testing for safety
and efficacy of the drug. Moreover, if regulatory approval of a product
candidates granted, the approval will be limited to specific indications.
Because the Company intends to rely on its strategic collaborators for the
commercialization of its product candidates, the Company will have little or no
control over significant aspects of such development and commercialization,
including the conduct of clinical trials and the manufacturing of the products.
See "Business -- Business Strategy -- Strategic Alliances." There can be no
assurance that any of the Company's product candidates will receive regulatory
approval for commercialization. See "Risk Factors -- Government Regulation; No
Assurances of Regulatory Approval."
FDA has implemented an accelerated review process for pharmaceutical agents
that treat serious or life threatening diseases and conditions, subject to
payment of user fees. If appropriate, the Company's strategic collaborators may
pursue opportunities for accelerated review of its product candidates. The
Company cannot predict the ultimate effect of the new review process on the
timing or likelihood of FDA review of any of its product candidates.
Even if regulatory approvals for the Company's product candidates are
obtained, the Company, its product candidates, and the facilities used to
manufacture the Company's products (presumably those facilities owned or
controlled by the Company's strategic collaborators) will be subject to
continual review and periodic inspection. FDA will require postmarketing
reporting to monitor the safety of the Company's products. FDA stringently
applies regulatory standards of manufacturing. Discovery of previously unknown
problems with respect to a product, manufacturer or facility may result in
restrictions on the product, manufacturer or facility, including warning
letters, suspensions of regulatory approvals, operating restrictions, delays in
obtaining new product approvals, withdrawal of the product from the market,
product recalls, fines, injunctions, and criminal prosecution. Each United
States drug manufacturing establishment must be registered with FDA. Domestic
manufacturing establishments are subject to biennial inspections by FDA and must
comply with FDA's Good Manufacturing Practices. To supply drug products for use
in the United States, foreign manufacturing establishments must comply with
FDA's Good Manufacturing Practices and are subject to periodic inspection by FDA
or by regulatory authorities in those countries under reciprocal agreements with
FDA. In complying with Good Manufacturing Standards, manufacturers must expend
funds, time and effort in the area of production and quality control to ensure
full technical compliance. The Company does not have any drug manufacturing
capability and must rely on its strategic collaborators or outside firms for
this capability. See "Risk Factors -- Reliance on Strategic Collaborators."
Before drug products resulting from the Company's product candidates can be
marketed outside of the United States, they are subject to regulatory approval
similar to FDA requirements in the United States,
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although the requirements governing the conduct of clinical trials, product
licensing, pricing, and reimbursement vary widely from country to country. No
action can be taken to market any drug product in a country until an appropriate
application has been approved by the regulatory authorities in that country. FDA
approval does not assure approval by other regulatory authorities. The current
approval process varies from country to country, and the time spent in gaining
approval varies from that required for FDA approval. In some countries, the sale
price of a drug product must also be approved. The pricing review period often
begins after market approval is granted. Even if a foreign regulatory authority
approves any of the Company's product candidates, no assurance can be given that
it will approve satisfactory prices for the products.
The Company's research and development involves the controlled use of
hazardous materials, chemicals, fungi, bacteria or viruses, and various
radioactive compounds. Although the Company believes that its procedures for
handling and disposing of those materials comply with state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. If such an accident occurs, the Company could be held
liable for resulting damages, which could be material to the Company's financial
condition and business. The Company is also subject to numerous environmental,
health and workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens, and the handling of
biohazardous materials. Additional federal, state and local laws and regulations
affecting the Company may be adopted in the future. Any violation of, and the
cost of compliance with, these laws and regulations could materially and
adversely affect the Company.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other existing and potential future federal, state and local
regulations.
Prior to the commencement of marketing a product in other countries,
regulatory approval in such countries is required, whether or not FDA approval
has been obtained for such product. The requirements governing the conduct of
clinical trials and product approvals vary widely from country to country, and
the time required for approval may be longer or shorter than the time required
for FDA approval. Although there are some procedures for unified filings for
certain European countries, in general, each country has its own procedures and
requirements.
FACILITIES
ChemGenics occupies 11,526 square feet of laboratory and office space in
Cambridge, Massachusetts, under a lease that expires in 2003. The Company has
entered into a short-term lease arrangement for an additional 2,000 square feet
of office space, which has an initial term of less than one year. In addition,
the Company subleases approximately 5,000 square feet of laboratory and office
space in Framingham, Massachusetts under the terms of a short-term arrangement
with PerSeptive. The Company intends to use a portion of the proceeds of this
offering to expand its laboratory and office space. With this expansion,
ChemGenics believes that its facilities will be adequate to meet its anticipated
level of operations for the foreseeable future.
EMPLOYEES
As of December 31, 1996, the Company had 69 full-time employees, 34 of whom
hold a Ph.D. degree. The Company considers its relations with its employees to
be good. None of the Company's employees is covered by a collective bargaining
agreement. The Company has entered into confidentiality agreements with all of
its employees, members of its Scientific Advisory Board and consultants and
non-competition agreements with its staff scientists and management.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table provides information concerning the executive officers,
directors and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Barry A. Berkowitz, Ph.D.(1)............ 53 President, Chief Executive Officer and
Director
William E. Timberlake, Ph.D............. 48 Executive Vice President, Research
Alan L. Crane........................... 33 Vice President, Business Development
Janet C. Bush........................... 43 Interim Chief Financial Officer
Yigal Koltin, Ph.D...................... 59 Vice President, Molecular and Cellular
Biology
Sean O'Connor, Ph.D. ................... 56 Vice President, Advanced Screening Research
Reimar C. Bruening, Ph.D., R.Ph. ....... 47 Vice President, Chemical Sciences and
Technologies
Noubar B. Afeyan, Ph.D.................. 34 Chairman of the Board of Directors
Gary J. Anderson, M.D.(1)............... 56 Director
Hubert J. P. Schoemaker, Ph.D.(1)....... 46 Director
Christopher F. O. Gabrieli(1)(2)........ 36 Director
Edwin M. Kania, Jr.(2).................. 38 Director
</TABLE>
- -----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Executive officers are elected annually by the Board of Directors to serve
in their respective capacities, subject to the discretion of the Board of
Directors, until the next annual meeting of Directors of the Company or until
their successors are appointed. There are no family relationships among any
Directors or executive officers of the Company. A brief biography of each
executive officer and member of the Board of Directors and certain key employees
follows:
Barry A. Berkowitz, Ph.D., President, Chief Executive Officer and Director.
Dr. Berkowitz founded the Company in January 1992. Previously he was a founder
of Magainin Pharmaceuticals, Inc. (formerly Magainin Science, Inc.) and from
1989 to 1991 served in positions including President, Chief Executive Officer,
and Chairman. From 1978 to 1989 he held senior executive positions including the
Vice President of Biological Research and Development, Vice President of
Compound Acquisitions and Development, and Director of Pharmacology of Smith
Kline & French. From 1968 to 1978 he was an Assistant Member and then Associate
Member of the Roche Institute of Molecular Biology. Dr. Berkowitz received his
Ph.D. in pharmacology in 1968 from the University of California, San Francisco.
William E. Timberlake, Ph.D., Executive Vice President, Research. Dr.
Timberlake was a founding member of the Scientific Advisory Board and joined the
Company in 1993. Previously, he was Professor of Genetics and Research Professor
of Genetics at the University of Georgia from 1986 to 1993, Professor of Plant
Pathology at the University of California, Davis from 1981 to 1986, and
Assistant and Associate Professor of Biological Sciences at Wayne State
University from 1974 to 1981. Dr. Timberlake was a member of the founding
scientific advisory board of Calgene, Inc. and senior consultant for
Zymogenetics Inc. Dr. Timberlake received his Ph.D. in biochemistry in 1973 from
Syracuse University.
Alan L. Crane, Vice President, Business Development. Mr. Crane has been
with the Company since 1995. Prior to joining the Company, he served as Vice
President, Business Development at Organogenesis Inc. from 1994 to 1995. He was
also Worldwide Product Manager and Associate Director at The DuPont Merck
Pharmaceutical Company from 1992 to 1994 and a consultant to pharmaceutical
companies from 1988 to 1992. Mr. Crane received his M.B.A. in 1992 and his M.A.
in cellular biology in 1986, both from Harvard University.
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Janet C. Bush, Interim Chief Financial Officer. Ms. Bush joined the Company
in December 1996 as its Interim Chief Financial Officer, a part-time position.
From 1992 to 1996 she was a consultant and teacher in various biotechnology and
non-profit organizations. Ms. Bush was a co-founder of ImmuLogic Pharmaceutical
Corporation and its Vice President of Finance and Administration and Treasurer
from 1987 to 1992. She held financial management positions in two privately held
companies from 1984 to 1987 and was a Certified Public Accountant at Coopers and
Lybrand from 1980 to 1984. Ms. Bush received her Masters in Public and Private
Management from Yale in 1980, and her Masters in Education from Harvard
University in 1993. Consistent with the Company's agreement with Ms. Bush, the
Company plans to hire a permanent, full-time Chief Financial Officer in 1997.
Yigal Koltin, Ph.D., Vice President, Molecular and Cellular Biology. Dr.
Koltin is a Company founder and a founding member of the Scientific Advisory
Board and joined the Company in 1993. He served as a Visiting Professor at
Massachusetts Institute of Technology Cancer Center from 1993 to 1996. From 1973
to 1993, he was Professor of Genetics in the Department of Molecular
Microbiology and Biotechnology and he is former chairman of the Department of
Microbiology at Tel Aviv University. He also served as consultant for SmithKline
Beecham and Schering Corporation from 1982 to 1992. Dr. Koltin received his
Ph.D. in biology and genetics in 1967 from Harvard University.
Sean O'Connor, Ph.D., Vice President, Advanced Screening Research. Dr.
O'Connor joined the Company in 1992, having previously served as Director of
Screening and Biological Evaluation at Bristol-Myers Squibb from 1982 to 1992.
From 1966 to 1982 he was involved in natural products research at Eli Lilly &
Co. Dr. O'Connor received his Ph.D. in organic chemistry in 1965 from the
National University of Ireland.
Reimar C. Bruening, Ph.D., R.Ph., Vice President, Chemical Sciences and
Technologies. Dr. Bruening joined the Company in 1995. From 1990 to 1995, Dr.
Bruening was Chief Scientist and Director of Drug Discovery at Shaman
Pharmaceuticals. He also served as an Assistant Professor at the University of
Hawaii, a Senior Research Associate at Columbia University and a Postdoctoral
Research Fellow at the University of Nagoya, Japan. He received his Ph.D. in
1979 and a government pharmacy license in 1974 from the University of Munich.
Noubar B. Afeyan, Ph.D., Chairman of the Board of Directors. Dr. Afeyan
became Chairman of the Board of Directors in May 1996. Since July 1992, Dr.
Afeyan has served as Chief Executive Officer of PerSeptive Biosystems, Inc., and
has been a Director of PerSeptive Biosystems, Inc. since 1987, and Chairman of
the Board of Directors of PerSeptive Biosystems, Inc. since 1993. Dr. Afeyan
served as PerSeptive Biosystems Inc.'s President from 1992 to 1996 and its
Executive Vice President -- Technology and Operations from 1987 to 1992. He was
President and a Director of PerSeptive Technologies II Corporation from 1993 to
1996. He received his Ph.D. in biochemical engineering in 1987 from the
Massachusetts Institute of Technology.
Gary J. Anderson, M.D., Director. Dr. Anderson served as Chairman of the
Company's Board of Directors from February 1992 until May 1996. Dr. Anderson has
been a managing director of Technology Leaders Management L.P. since 1991, a
general partner of Technology Leaders Management L.P. since 1995 and a managing
general partner of Technology Leaders II Management L.P. since 1994. Dr.
Anderson has served as Executive Vice President, Fund Management since 1991.
Previously, Dr. Anderson served as Executive Vice President of Safeguard
Scientifics, Inc. from 1988 to 1991. He is also a director of USData, Inc., EMAX
Solution Partners, Avitech, Inc., Virtus Corporation and DATAMATIX Inc.
Hubert J. P. Schoemaker, Ph.D., Director. Dr. Schoemaker has served as
Chairman of the Board of Directors of Centocor, Inc. since 1987. Previously, Dr.
Schoemaker was Centocor's Chief Executive Officer from 1987 to 1992, and
President from 1983 to 1987, and has been associated with Centocor since 1980.
He is also a director of Apollon, Inc., Avitech Diagnostic Inc., and Safeguard
Scientifics, Inc.
Christopher F. O. Gabrieli, Director. Mr. Gabrieli is general partner of
Deer II & Co. and Deer III & Co., the general partner of Bessemer Venture
Partners II L.P. and Bessemer Venture Partners III L.P., affiliated venture
capital partnerships with which he has been affiliated since 1986. He was a
founder and President of
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GMIS Inc., and is a director of Opta Food Ingredients, Inc., Isis
Pharmaceuticals, Inc. and several privately held health care companies.
Edwin M. Kania, Jr., Director. Mr. Kania is managing general partner of One
Liberty Ventures, a venture capital firm, where he has been employed since 1985.
Through affiliate funds, Morgan Holland Fund II L.P. and Gilde Investment Fund
B.V., One Liberty Ventures is a shareholder in the Company. Mr. Kania is also a
director of PerSeptive Biosystems, Inc., Cytyc Corporation and Anesta
Corporation, as well as several private companies.
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 programs, recommend personnel to the Company and advise
the Company on technical matters. In addition to its Scientific Advisory Board,
ChemGenics has established consulting relationships with a number of scientific
experts who advise the Company on a project-specific basis.
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 may devote only a small
portion of their time to the Company. The members of the Company's Scientific
Advisory Board are:
Gerald R. Fink, Ph.D., Chairman of the Company's Scientific Advisory Board;
Director, The Whitehead Institute for Biomedical Research; American Cancer
Society Professor of Genetics, Massachusetts Institute of Technology. Dr. Fink
is a founding member and has chaired the Scientific Advisory Board since the
Company's inception. He is recognized as an international leader in genetics and
molecular biology. He is a member of the National Academy of Sciences, the
National Academy of Sciences Institute of Medicine and the American Academy of
Arts and Sciences, and was the recipient of the National Academy of
Sciences/U.S. Steel Foundation award in molecular biology. Dr. Fink's pioneering
work in science has combined genetics and state-of-the-art molecular biology,
and has made extensive use of yeast and fungi to provide answers to fundamental
biological questions. Dr. Fink received his Ph.D. from Yale University.
Anthony G. M. Barrett, Ph.D., Chairman of Chemistry, Imperial College of
Science, Technology and Medicine. He is a founding member of the Scientific
Advisory Board. Dr. Barrett is an international leader in the medicinal
chemistry of antibacterial and antifungal drugs. Previously, he was Professor of
Chemistry at Northwestern University and Colorado State University. He has
received numerous awards from the Royal Society of Chemistry. Dr. Barrett holds
a Ph.D. from the Imperial College of Science and Technology.
Jeffrey M. Becker, Ph.D., Professor of Microbiology and Director of the
Interdepartmental Graduate Program in Cellular, Molecular and Developmental
Biology, University of Tennessee, Knoxville. He is a Company founder and a
founding member of the Scientific Advisory Board. Dr. Becker is internationally
known for his research in mycology focused on membrane transport and receptors,
and peptide structure and function. Dr. Becker obtained his Ph.D. from the
University of Cincinnati.
Richard D. Diamond, M.D., Professor of Medicine and Biochemistry, Boston
University. Dr. Diamond is an expert in the science and therapeutics of fungal
diseases of man. He is a founding member of the Scientific Advisory Board. He is
a fellow at the Infectious Diseases Society of America, and a member of the
American Society of Microbiology. Dr. Diamond earned his M.D. at Harvard Medical
School.
John E. Edwards, Jr., M.D., Professor of Medicine, University of California
at Los Angeles; Head of the Division of Infectious Diseases, Harbor UCLA Medical
Center. He is a founding member of the Scientific Advisory Board. Dr. Edwards is
a worldwide clinical leader in the diagnosis and treatment of infectious
diseases, with a focus on fungal diseases. Dr. Edwards is the Associate Editor
of Reviews of Infectious Diseases. Dr. Edwards received his M.D. from the
University of California at Irvine.
42
<PAGE> 45
Richard Losick, Ph.D., Chairman, Department of Molecular and Cellular
Biology, Harvard University and Maria Moors Cabot Professor of Biology. He
joined the Scientific Advisory Board in 1995. Dr. Losick is a world leader in
the genetics and molecular biology of bacteria. He is a member of the National
Academy of Sciences and a Fellow of the American Academy of Sciences. Dr. Losick
is on the editorial boards of Science and Cell. He received his Ph.D. from the
Massachusetts Institute of Technology.
N. Ronald Morris, M.D., Professor of Pharmacology, University of Medicine
and Dentistry of New Jersey. Dr. Morris is a recognized world leader in cell
cycle control, fungal genetics, biochemistry and molecular biology. He is a
founding member of the Scientific Advisory Board and of the Cancer Institute. He
is on the editorial boards of the Journal of Cell Biology and Molecular Biology
of the Cell. Dr. Morris earned his M.D. at Yale School of Medicine.
Koji Nakanishi, Ph.D., Centennial Professor of Chemistry, Columbia
University; former Director of the Suntory Institute for Bio-Organic Research,
Osaka, Japan. He is a founding member of the Scientific Advisory Board. Dr.
Nakanishi was the recipient of the 1990 Japan Academy Prize and the Imperial
Prize, the highest Japanese honor a scholar can receive. He received a B.S. and
a Ph.D. in Chemistry from Nagoya University.
Phillips W. Robbins, Ph.D., Professor of Biochemistry, Massachusetts
Institute of Technology. Dr. Robbins is a world leader in carbohydrate,
glycoprotein and microbial membrane research. He is a founding member of the
Scientific Advisory Board. He is a member of the National Academy of Sciences,
and is a member of the American Society of Biochemistry and Molecular Biology,
and the American Society of Microbiology. Dr. Robbins received his Ph.D. from
the University of Illinois.
Jerry A. Weisbach, Ph.D., technical and business consultant. He is a
Company founder and founding member of the Scientific Advisory Board. From 1988
to 1994, Dr. Weisbach served as Director of Technology Transfer and Adjunct
Professor at Rockefeller University. Dr. Weisbach served as Vice President of
Warner-Lambert Company from 1981 to 1987 and as President of the Pharmaceutical
Research Division from 1979 to 1987. He served in various positions at Smith
Kline & French Laboratories from 1960 to 1979, including as Vice President,
Research. Dr. Weisbach received his M.A. and his Ph.D. in chemistry from Harvard
University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established (i) a Compensation Committee, which
is responsible for determining salaries, incentives and other forms of
compensation for officers and other employees of the Company and administers
various incentive compensation and benefit plans; and (ii) an Audit Committee,
which reviews the results and scope of the annual audit and other services
provided by the Company's independent public accountants.
ELECTION AND COMPENSATION OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes as nearly equal in size as possible, each of whose members will serve
for a staggered three-year term. At each annual meeting of stockholders, a class
of directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The initial terms of the three
classes of directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders held during the
calendar years 1998, 1999, and 2000, respectively, and such directors shall
serve until their respective successors are duly elected and qualified, or until
their earlier resignation or removal. The classification of the Board of
Directors could have the effect of increasing the length of time necessary to
change the composition of a majority of the Board of Directors and could
therefore make it more difficult for a third party to acquire, or discourage a
third party from acquiring, control of the Company. In general, at least two
annual meetings of stockholders will be necessary for stockholders to effect a
change in a majority of the members of the Board of Directors. See "Description
of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions."
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.
43
<PAGE> 46
Dr. Afeyan was elected to the Board of Directors pursuant to a Voting
Agreement among the Company, PerSeptive and certain of the Company's
securityholders (the "PerSeptive Voting Agreement"). Pursuant to the PerSeptive
Voting Agreement, as long as PerSeptive owns at least 20% of the Company's
capital stock on a fully diluted basis, PerSeptive may require the nomination of
two representatives of PerSeptive (the "PerSeptive Nominees") to the Company's
Board of Directors, and the parties to the agreement have agreed to vote in
favor of the PerSeptive Nominees. The parties have agreed to vote their shares
to fix and maintain the size of the Board of Directors at not less than six and
not more than nine members. In the event the size of the Board of Directors is
increased to eight members, PerSeptive may require the nomination of, and the
parties will vote in favor of, a third PerSeptive Nominee; thus the Board of
Directors will be increased to nine members. As long as Dr. Afeyan remains an
officer and director of PerSeptive he shall be one of the PerSeptive Nominees;
as long as Mr. Kania remains on the Company's Board of Directors, he shall be
the other PerSeptive Nominee. If PerSeptive owns less than 20% but more than 10%
of the Company's capital stock on a fully diluted basis, PerSeptive may require
the nomination of, and parties to the agreement have agreed to vote in favor of,
one PerSeptive Nominee. The PerSeptive Voting Agreement provides that the
PerSeptive Nominees shall be evenly distributed among the classes of Directors,
and initially shall be placed in the classes with the longest terms. The
PerSeptive Voting Agreement will terminate on the earliest to occur of (i) a
sale of all or substantially all of the assets or stock of Company, (ii) June
28, 2006 or (iii) the date on which PerSeptive owns less than 10% of the
Company's capital stock on a fully diluted basis. Drs. Berkowitz, Anderson and
Schoemaker and Messrs. Kania and Gabrieli were elected to the Board of Directors
pursuant to a Second Amended and Restated Voting Agreement (the "Voting
Agreement") among the Company, certain of the Company's stockholders and venture
capital purchasers of the Company's Preferred Stock. The provision in the Voting
Agreement relating to election of directors of the Company will terminate upon
the consummation of this offering.
Directors of the Company do not receive cash compensation for their service
on the Board of Directors. The Company reimburses non-employee directors for
expenses incurred in attending meetings of the Board of Directors and its
committees. In addition, under the Company's 1992 Stock Option Plan,
non-employee directors who join the Board of Directors after the Company's
initial public offering will receive an automatic grant of non-qualified options
to purchase 10,000 shares of Common Stock. These options vest in equal
installments over five years, assuming continued membership on the Board. Also,
on June 1 of each year, all non-employee directors will receive a non-qualified
option to purchase 2,500 shares of Common Stock. These options vest in one year,
assuming continued membership on the Board. All such options have exercise
prices equal to the fair market value of the Common Stock on the date of grant.
See "-- 1992 Stock Option Plan."
44
<PAGE> 47
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid to and earned by the
Company's Chief Executive Officer and other executive officers of the Company
whose combined salary and bonus for services rendered in all capacities during
fiscal 1996 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------ SECURITIES
NAME AND 1996 OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION (2)
- ------------------ ----- -------- -------- -------------------- ------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Berkowitz, Ph.D....... 1996 $206,333 $57,800 $ -- -- $4,800
President and Chief
Executive Officer
William E. Timberlake, Ph.D.... 1996 179,688 60,000 2,500 -- --
Executive Vice President,
Research
Yigal Koltin, Ph.D............. 1996 137,639 11,333 -- 27,168 --
Vice President, Molecular
and Cellular Biology
Reimar C. Bruening, Ph.D.,
R.Ph......................... 1996 150,000 -- -- -- --
Vice President, Chemical
Sciences and Technologies
Alan L. Crane.................. 1996 131,250 15,000 -- 16,980 --
Vice President,
Business Development
</TABLE>
- -----------
(1) Consists of additional compensation to the named executive officer for the
purchase of term life and disability insurance.
(2) Reflects automobile allowance.
Option Grants
The following table sets forth certain information regarding stock options
granted during fiscal 1996 by the Company to its Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
--------------------------------------------------- VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED 1996 PER SHARE DATE 5% 10%
- ---- ---------- ------------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Berkowitz, Ph.D..... -- -- $ -- -- $ -- $ --
William E. Timberlake,
Ph.D....................... -- -- -- -- -- --
Yigal Koltin, Ph.D........... 6,792(2) 3.1% 1.33 02/01/06 5,660 14,343
15,094(3) 6.9% 7.95 10/01/06 75,466 191,245
3,773(4) 1.7% 7.95 10/01/06 18,864 47,805
1,509(5) 0.7% 7.95 12/02/06 7,545 19,119
Reimar C. Bruening, Ph.D.,
R.Ph....................... -- -- -- -- -- --
Alan L. Crane................ 11,320(3) 5.2% 7.95 09/24/06 56,577 143,427
5,660(5) 2.6% 7.95 12/02/06 28,298 71,714
</TABLE>
45
<PAGE> 48
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are based
on assumed rates of stock price appreciation of 5% and 10% compounded
annually from the date the option was granted through the expiration date.
(2) Options granted are incentive stock options under the 1992 Stock Option Plan
that become exercisable upon the achievement of certain performance
milestones.
(3) Options granted are incentive stock options under the 1992 Stock Option Plan
that become exercisable in five equal amounts on each of the first five
anniversaries of the date of grant.
(4) Options granted are incentive stock options under the 1992 Stock Option Plan
that were vested upon grant.
(5) Options granted are incentive stock options under the 1992 Stock Option
Plan, half of which become exercisable upon achievement of certain
performance milestones and half of which become exercisable in five equal
amounts on each of the first five anniversaries of the date of grant.
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the Named Executive Officers during 1996, and the value
realized by the Named Executive Officers. The table also provides information
about the number and value of options held by the Named Executive Officers at
December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FY END FY END(1)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Berkowitz,
Ph.D..................... -- $-- -- -- $ -- $ --
William E. Timberlake,
Ph.D. ................... -- -- 114,716 85,284 849,195 629,798
Yigal Koltin, Ph.D. ....... -- -- 59,244 24,529 408,895 56,096
Reimar C. Bruening, Ph.D.,
R. Ph. .................. -- -- 12,578 34,591 83,330 229,158
Alan L. Crane.............. -- -- 17,169 37,547 113,743 136,252
</TABLE>
- ---------------
(1) Based on the deemed fair market value of the Common Stock at December 31,
1996 ($7.95 per share as determined by the Board of Directors) less the
exercise price per share.
EMPLOYMENT CONTRACTS
In January 1992, the Company entered into an employment and non-competition
agreement with no specified duration with Barry A. Berkowitz, Ph.D., President
and Chief Executive Officer of the Company. Pursuant to such agreement, Dr.
Berkowitz received an initial annual base salary of $195,000 subject to increase
on an annual basis as agreed by the Board of Directors. Also pursuant to such
agreement, Dr. Berkowitz receives an annual bonus of up to $28,500 or such
greater amount per year as determined by the Board of Directors. In addition,
the Company provides Dr. Berkowitz with life insurance and reimbursement for
automobile expenses. In the event that the Company terminates Dr. Berkowitz's
employment without cause, as defined in the employment agreement, or in the
event that Dr. Berkowitz terminates his employment because of a material change
in the duties imposed upon him by the Board of Directors or because of a breach
by the Company of its obligations to Dr. Berkowitz, the Company will continue to
pay Dr. Berkowitz's base salary and cost of health insurance for a period of one
year following termination, less any income earned by Dr. Berkowitz from full
time employment with another entity during this one year period.
In December 1992, the Company entered into an employment agreement with no
specified duration with William E. Timberlake, Ph.D., Executive Vice President,
Research. Pursuant to such agreement Dr. Timberlake received an initial salary
of $170,000, a signing bonus of $60,000, and options to purchase 90,566
46
<PAGE> 49
shares of Common Stock. Pursuant to the agreement, options for an additional
75,471 shares of Common Stock were granted to Dr. Timberlake at a price of
approximately $.53 per share. In the event that the Company terminates Dr.
Timberlake's employment without cause, the Company will continue to pay Dr.
Timberlake's base salary for a period of up to one year following such
termination or until he accepts full time employment. In October 1993 the
Company provided Dr. Timberlake with a $100,000 loan for use as a down payment
on a home. The loan bears an interest rate of prime rate as published from time
to time in the Wall Street Journal (8.25% at December 31, 1996) and is for a
four-year term. See "Certain Transactions."
The Company entered into employment agreements of no specified duration
with Dr. Koltin, Dr. Bruening and Mr. Crane in March 1993, November 1995 and
June 1995, respectively. Pursuant to Dr. Koltin's agreement, he received an
initial salary of $125,000 and a grant of 11,320 options to purchase Common
Stock, along with contingent bonuses. Pursuant to Dr. Bruening's agreement, he
received an initial salary of $150,000, a $10,000 loan from the Company, a lump
sum of $20,000 for reasonable relocation expenses and grants of 47,169 options
to purchase Common Stock. Pursuant to Mr. Crane's agreement, he received an
initial salary of $120,000, a bonus of $5,000 paid upon completion of one year
of employment and grants of 37,735 options to purchase Common Stock.
Each of the Named Executive Officers has entered into non-competition and
confidentiality agreements with the Company (the "Non-Compete Agreements"),
which restrict such officer from competing with the Company and from soliciting,
diverting or attempting to solicit or divert any customers or employees of the
Company during the term of the officer's employment and for a time or until he
accepts full time employment after termination of such employment. The
Non-Compete Agreements also oblige the Named Executive Officer not to reveal any
confidential information of the Company both during and after the term of the
officer's employment. The Non-Compete Agreements require the Named Executive
Officers to assign all right and interest in any intellectual property developed
by the officer during the term of the officer's employment with the Company.
The Company currently has no compensatory plan or arrangement with any of
the Named Executive Officers that is activated upon resignation, termination or
retirement of any such officer upon a change in control of the Company.
EMPLOYEE BENEFIT PLANS
1992 Stock Option Plan
The Company's 1992 Employee, Director and Consultant Stock Option Plan (the
"1992 Stock Option Plan") was initially approved by the Company's Board of
Directors and stockholders in February 1992. The Company has reserved an
aggregate of 1,500,000 shares of Common Stock for issuance pursuant to the 1992
Stock Option Plan. The 1992 Stock Option Plan is administered by the
Compensation Committee of the Board of Directors which, among other things,
determines the persons to whom options will be granted, the number of shares of
Common Stock to be covered by each grant and the terms and conditions upon which
options may be granted.
Options granted under the 1992 Stock Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) options that are
not incentive stock options ("non-qualified stock options"). Incentive stock
options may be granted under the 1992 Stock Option Plan to employees of the
Company and its affiliates. Non-qualified stock options may be granted to
consultants, directors and employees of the Company and its affiliates. Under
the 1992 Stock Option Plan, non-employee directors who join the Board of
Directors after the Company's initial public offering will receive an automatic
grant of non-qualified options to purchase 10,000 shares of Common Stock. These
options vest in equal installments over five years, assuming continued
membership on the Board. Also, on June 1 of each year, all non-employee
directors will receive a non-qualified option to purchase 2,500 shares of Common
Stock. These options vest in one year, assuming continued membership on the
Board. See " -- Election and Compensation of Directors."
Incentive stock options granted under the 1992 Stock Option Plan may not be
granted at a price less than 100% of the fair market value of the Common Stock
on the date of grant (or 110% of fair market value in the
47
<PAGE> 50
case of employees or officers holding 10% or more of the voting stock of the
Company). Incentive stock options granted under the 1992 Stock Option Plan
expire not more than ten years from the date of grant, or not more than five
years from the date of grant in the case of incentive stock options granted to
an employee or officer holding 10% or more of the voting stock of the Company.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable by an
employee in any calendar year under any incentive stock option plan of the
Company may not exceed $100,000. Non-qualified stock options granted under the
1992 Stock Option Plan may not be granted at an exercise price less than the par
value per share of Common Stock.
Generally, incentive stock options granted under the 1992 Stock Option Plan
are exercisable for up to 90 days following termination of the option holder's
employment with the Company (other than by reason of death, disability or
termination "for cause" as defined in the 1992 Stock Option Plan) to the extent
exercisable on the date of such termination, provided that such incentive stock
option has not expired on the date of such exercise. In granting any
non-qualified stock option, the Compensation Committee may specify that such
non-qualified stock option shall be subject to such termination or cancellation
provisions as the Compensation Committee may specify. Generally, in the event of
the option holder's death or disability, both incentive stock options and
non-qualified stock options may be exercised, to the extent exercisable on the
date of death or disability, by the option holder's survivors at any time prior
to the earlier of the option's specified expiration date or one year from the
date of the option holder's death or disability. As of December 31, 1996,
options to purchase an aggregate of 912,109 shares of Common Stock were
outstanding under the 1992 Stock Option Plan.
Under the 1992 Stock Option Plan, if the Company is consolidated with or
acquired by another entity, the administrator of the Plan or Board of Directors
of the successor entity will provide for the continuation of such options by
substituting for the shares subject to the options any consideration payable
with respect to the outstanding shares of Common Stock in connection with the
acquisition or merger or securities of the successor entity. Alternatively, upon
written notice, the administrator of the Plan or Board of Directors of the
successor entity may make all options granted immediately exercisable or else
terminated within a specified period of time of such notice or may terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to the options over the exercise price of such
options.
401(k) Plan
In December 1994, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering all of the Company's employees age
21 and over. Pursuant to the 401(k) Plan, employees may elect to defer a portion
of their current compensation in an amount up to the lesser of the statutorily
prescribed annual limit ($9,500 in 1996) or 15% of their compensation annually
and have the amount of such reduction contributed to the 401(k) Plan. The 401(k)
Plan also allows additional contributions by the Company on behalf of all
participants. The Company has not made any such additional contributions to
date. The 401(k) Plan is intended to qualify under Section 401 of the Code so
that employee deferrals and Company contributions to the 401(k) Plan, and income
earned on 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and employee deferrals and contributions by the
Company, if any, will be deductible by the Company for the fiscal year to which
they relate. On July 1, 1996, the Company appointed Strong Retirement Plan
Services as the 401(k) Plan Administrator and Firstar Trust Company as Trustee.
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Directors
Anderson, Gabrieli and Schoemaker. Dr. Berkowitz, President and Chief Executive
Officer of the Company, participates in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants of the
Company, except that Dr. Berkowitz is excluded from discussions regarding his
own salary and incentive compensation.
Certain members of the Company's Board of Directors are parties to
transactions with the Company. See "Certain Transactions."
48
<PAGE> 51
CERTAIN TRANSACTIONS
PROMOTERS
Dr. Berkowitz, Dr. Timberlake and a number of consultants participated in
the founding and organization of the Company, and each may be considered a
promoter of the Company.
In January 1992, Dr. Berkowitz purchased 126,792 shares of Common Stock for
an aggregate price of $336.00. In February 1992, he purchased 324,528 shares of
Common Stock for an aggregate price of $860.00, which are subject to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
Scientific and Financial Advisors. In February 1992, the Company sold an
aggregate of 101,883 shares of Common Stock for an aggregate price of
approximately $270.00 to the scientific and financial advisors named in the
table below who participated in the founding of the Company. Since that time,
those advisors have been granted options to purchase an aggregate of 475,093
shares of Common Stock in connection with services provided to the Company. The
following table sets forth the number of shares purchased on their becoming
advisors to the Company and options granted individually to such persons
thereafter:
<TABLE>
<CAPTION>
SHARES OPTIONS
NAME PURCHASED GRANTED
- ---- --------- -------
<S> <C> <C>
Yigal Koltin, Ph.D. .................................................... 22,641 83,773
Jeffrey M. Becker, Ph.D. ............................................... 22,641 45,283
Jerry A. Weisbach, Ph.D. ............................................... 11,320 22,641
William E. Timberlake, Ph.D. ........................................... 7,547 200,000
Gerald R. Fink, Ph.D.................................................... 37,734 79,245
Robert W. Morgan........................................................ -- 44,151
</TABLE>
CONVERTIBLE PREFERRED STOCK FINANCINGS
Convertible Preferred Stock Issuances. References to the Company's
convertible preferred stock, $.01 par value per share (the "Convertible
Preferred Stock"), in the following paragraph and table are presented on an
actual basis. Upon the consummation of this offering, each share of Convertible
Preferred Stock will automatically convert on a 1-for-2.65 basis into 4,458,528
shares of Common Stock.
Since inception, the Company has issued in private placements shares of its
Convertible Preferred Stock as follows: (i) in February 1992, the Company sold
an aggregate of 2,000,000 shares of Series A Convertible Preferred Stock at a
price of $1.00 per share, (ii) in January 1993, the Company sold an aggregate of
2,024,000 shares of Series A Convertible Preferred Stock at a price of $1.00 per
share, (iii) in January 1994, the Company sold 1,952,568 shares of Series A
Convertible Preferred Stock at a price of $1.00 per share and 976,284 shares of
Series B Convertible Preferred Stock at a price of $1.50 per share, (iv) in July
1994, the Company sold an aggregate of 174,165 shares of Series A Convertible
Preferred Stock at a price of $1.00 per share, 87,081 shares of Series B
Convertible Preferred Stock at a price of $1.50 per share and 767,739 shares of
Series C Convertible Preferred Stock at a price of $3.00 per share, (v) in
February 1995, the Company sold an aggregate of 3,000,000 shares of Series D
Convertible Preferred Stock at a price of $5.00 per share and (vi) in December
1996, the Company sold an aggregate of 833,334 shares of Series E Convertible
Preferred Stock at a price of $6.00 per share. Holders of Common Stock issuable
upon such conversion are entitled to certain registration rights. See
"Description of Capital Stock -- Registration Rights." Certain holders of the
Series A, B, C and D Convertible Preferred Stock have entered into a voting
agreement with the Company pursuant to which each party has agreed to vote in
favor of electing the following persons as directors of the Company: (i) four
representatives of the holders of such series of Convertible Preferred Stock (or
the Common Stock issued on conversion or exchange thereof), each of which shall
be selected jointly by Technology Leaders L.P., Technology Leaders Offshore
C.V., Bessemer Venture Partners II L.P., Morgan Holland Ventures and Pfizer,
Inc., (ii) Barry Berkowitz, so long as he is materially involved with the
Company and (iii) a person chosen by the then Chief Executive Officer of the
Company and approved by the holders of at least 60% of the outstanding shares of
the Series A, B, C and D Convertible Preferred Stock. The provisions of this
agreement will terminate upon consummation of this offering. The following table
sets forth
49
<PAGE> 52
the shares of Convertible Preferred Stock purchased by the Company's directors,
executive officers, five percent shareholders and their respective affiliates:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CONVERTIBLE PREFERRED STOCK COMMON SHARES
------------------------------------------------------ AS CONVERTED
INVESTOR SERIES A SERIES B SERIES C SERIES D SERIES E (1)
- -------------------------------------- --------- -------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bessemer Venture Partners II and III
L.P.(2)(3).......................... 2,571,428 285,714 300,000 119,733 -- 1,236,556
Wyeth-Ayerst.......................... -- -- -- -- 833,334 314,465
Pfizer, Inc........................... -- -- -- 2,700,000 -- 1,018,867
Technology Leaders Offshore C.V.(4)... 1,366,318 149,990 159,930 63,829 -- 656,629
Technology Leaders L.P.(4)............ 1,196,650 131,364 140,070 55,903 -- 575,089
Morgan Holland Fund II, L.P.(5)....... 857,142 428,571 150,000 54,447 -- 562,324
Barry A. Berkowitz, Ph.D.............. 23,878 11,939 1,072 -- -- 13,920
</TABLE>
- ---------------
(1) Upon the consummation of this offering, each share of convertible preferred
stock will automatically convert on a 1-for-2.65 basis into shares of Common
Stock.
(2) Includes an aggregate of 322,986 convertible preferred shares held by
individual associates of Bessemer Venture Partners L.P., including 82,284,
9,143 and 9,600 shares of Series A, B and C Convertible Preferred Stock,
respectively, purchased by Christopher F. O. Gabrieli, a director of the
Company.
(3) The Company borrowed $125,000 and $175,000 in December 1993 and September
1993, respectively, from Bessemer Venture Partners L.P. Both loans were
cancelled as part of the consideration paid by Bessemer Venture Partners
L.P. for shares of Series A and B Convertible Preferred Stock.
(4) The Company borrowed $175,000 and $125,000 in October 1993 and December
1993, respectively, from Technology Leaders L.P. and its affiliate,
Technology Leaders FR Corp. Both loans were cancelled as part of the
consideration paid by Technology Leaders L.P. for shares of Series A and B
Convertible Preferred Stock.
(5) Includes 8,570, 4,285, 1,500 and 544 shares of Series A, B, C and D
Convertible Preferred Stock, respectively, purchased by Gilde Investment
Fund B.V., an affiliate of Morgan Holland Fund II, L.P.
Wyeth-Ayerst Collaboration. In December 1996, the Company entered into a
strategic collaboration with Wyeth-Ayerst for the discovery of novel drug leads
for treating human bacterial infections which provides for up to $70 million in
equity, research funding and development milestone payments, plus potential
royalties. In connection with the collaboration, Wyeth-Ayerst purchased 833,334
shares of Series E Convertible Preferred Stock (which will be converted into
314,465 shares of Common Stock upon the consummation of this offering) for
approximately $5 million and is committed, subject to ChemGenics' meeting
certain research performance objectives, to a second purchase of $5 million of
Common Stock to occur no sooner than June 2, 1997 and a third purchase of $3
million of Common Stock to occur no sooner than December 2, 1998. The second and
third purchases will be priced at 115% of the then current market price of the
Common Stock following the Company's initial public offering, or at $15.90 per
common share if no such offering has been completed. Assuming the agreements
conclude their 5-year term, Wyeth-Ayerst is obligated to pay ChemGenics $15
million in research funding (adjusted for inflation in certain circumstances)
and is obligated to pay up to an additional $9 million in research performance
payments. ChemGenics may also receive up to an additional $33 million in
development milestone payments. If the collaboration is successful in
identifying targets and leads for products to treat bacterial disease,
Wyeth-Ayerst will pay all costs related to its product development and
commercialization including, without limitation, clinical trials, regulatory
filings and marketing, and will also pay ChemGenics royalties on product sales,
if any, which result from the collaboration. Pursuant to these agreements,
ChemGenics has recognized revenues of $750,000 for research funding through
December 31, 1996. See "Business -- Collaborations -- Wyeth-Ayerst."
Pfizer Collaboration. In connection with sale of Series D Convertible
Preferred Stock to Pfizer, the Company is working in collaboration with Pfizer
to discover and develop anti-fungal drugs. Under the terms of the agreements,
Pfizer is funding a discovery program at ChemGenics over an initial four-year
term, which began in January 1995. Pfizer has agreed to provide the Company with
up to $11.7 million in research funding over the agreement's four-year term, and
may make payments contingent upon certain milestones which could total an
additional $32.5 million. ChemGenics has recognized revenues of $5.0 million for
research funding and $13.5 million for equity funding through the purchase of
the Series D Convertible Preferred Stock under these agreements through December
1996. In the event the collaboration is successful in identifying targets
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<PAGE> 53
and leads for products to treat human fungal disease, Pfizer will also pay all
costs related to product development and commercialization, including, without
limitation, clinical trials, regulatory filings and marketing and a royalty on
product sales, if any, which result from the collaboration. See "Business --
Collaborations -- Pfizer."
Agreement with PerSeptive Biosystems
In May, November and December 1996, the Company entered into agreements
with PerSeptive under which the Company exchanged a substantial equity interest
in ChemGenics and a $3 million promissory note payable to PerSeptive for certain
assets and a worldwide, royalty-free license for use in the field of drug
discovery to all of PerSeptive's existing patents (over 80 patents and
applications) and technology, including selection technologies, all future
patented and unpatented technology, early and preferred access to all technology
and certain other assets, and for a period of five years to all prototype
equipment. Upon execution of the agreements, ChemGenics hired 10 employees of
PerSeptive and entered into a temporary sublease agreement for approximately
5,000 square feet of laboratory and office space in Framingham, Massachusetts.
Under the agreements, PerSeptive acquired 2,563,275 shares of the Company's
Common Stock of which 250,000 shares are subject to forfeiture lapsing over a
three-year period in the event PerSeptive fails to provide certain services,
equipment use, supplies and other assets as described above. PerSeptive also
received a warrant, expiring in June 2000, to purchase an additional 1,847,673
shares of Common Stock at an exercise price of $13.25 per share, for an
aggregate exercise price of approximately $24.5 million. In addition, the
Company also issued PerSeptive a $3 million promissory note which the Company
intends to pay out of the proceeds of this offering. This transaction was
accounted for as a purchase. See Note 3 of Notes to Financial Statements.
PerSeptive expended approximately $20 to $25 million in research and development
expenses for the purchased technology prior to its purchase by the Company. See
"Business -- Collaborations -- PerSeptive Biosystems."
LOANS TO CERTAIN OFFICERS OF THE COMPANY
In October 1993, the Company loaned $100,000 to William E. Timberlake,
Ph.D., the Company's Executive Vice President for Research. The principal and
accrued interest is repaid through annual bonuses. The loan bears interest at
the prime rate as published from time to time in the Wall Street Journal (8.25%
at December 31, 1996) and is secured by a second mortgage on Dr. Timberlake's
home. As of December 31, 1995 and December 31, 1996, the outstanding balance of
the loan was $57,225 and $17,103, respectively.
In March 1996, the Company loaned $10,000 to Reimar C. Bruening, Ph.D.,
R.Ph., the Company's Vice President, Chemical Sciences and Technologies. The
principal and accrued interest is payable in three equal payments plus accrued
interest, annually on the anniversary date of the loan. The loan bears interest
at the prime rate, as published from time to time in the Wall Street Journal. At
December 31, 1996, the outstanding balance of the loan was $10,000.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock (including Common Stock issuable upon conversion
of the Company's Convertible Preferred Stock) as of January 13, 1997, and as
adjusted to reflect the sale of the shares offered hereby, by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer of the
Company, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated below, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to their
shares of Common Stock, except to the extent authority is shared by spouses
under applicable law. Unless otherwise noted, the address for the individuals
listed below is: c/o ChemGenics Pharmaceuticals Inc., One Kendall Square,
Building 300 Cambridge, Massachusetts 02139.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL(2)
-------------------------
NUMBER OF SHARES BEFORE THE AFTER THE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ---------------- --------------------- ---------- -----------
<S> <C> <C> <C>
PerSeptive Biosystems, Inc.(3)......................... 3,313,275 39.7% 30.5%
500 Old Connecticut Path
Framingham, MA 01701
Bessemer Venture Partners III L.P.(4) ................. 1,134,511 14.9% 11.2%
83 Walnut Street
Wellesley Hills, MA 02181
Pfizer, Inc............................................ 1,018,867 13.4% 10.1%
Eastern Point Road
Groton, CT 06340
Technology Leaders Offshore C.V.(5).................... 656,629 8.6% 6.5%
800 Safeguard Building
435 Devon Park Drive
Wayne, PA 19807-1945
Technology Leaders L.P.(5)............................. 575,089 7.6% 5.7%
800 Safeguard Building
435 Devon Park Drive
Wayne, PA 19807-1945
Morgan Holland Fund II, L.P.(6)........................ 562,324 7.4% 5.6%
c/o One Liberty Ventures
One Liberty Square - Suite 840
Boston, MA 02109
Barry A. Berkowitz, Ph.D.(7)........................... 465,239 6.1% 4.6%
William E. Timberlake, Ph.D.(8)........................ 140,376 1.8% 1.4%
Yigal Koltin, Ph.D.(9)................................. 81,885 1.1% *
Reimar C. Bruening, Ph.D., R.Ph.(10)................... 12,578 * *
Alan L. Crane(11)...................................... 17,169 * *
Christopher F. O. Gabrieli(12)......................... 1,172,633 15.4% 11.6%
Noubar B. Afeyan, Ph.D.(13)............................ 3,313,275 39.7% 30.5%
Gary J. Anderson, M.D.(14)............................. 1,231,718 16.2% 12.2%
Hubert J. P. Schoemaker, Ph.D.(15)..................... 1,231,718 16.2% 12.2%
Edwin M. Kania, Jr.(16)................................ 562,324 7.4% 5.6%
All executive officers and directors as a group (10
persons)............................................. 6,997,195 81.6% 63.2%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock or voting power.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within 60 days after January 13, 1997 through the exercise of any stock
option, warrant or other right. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
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<PAGE> 55
(2) Percentage of ownership is based on 7,603,815 shares of Common Stock
outstanding before this offering and 10,103,815 shares of Common Stock
outstanding after this offering.
(3) Consists of 2,563,275 shares of Common Stock owned by PerSeptive (including
250,000 shares of Common Stock subject to forfeiture under certain
circumstances) and 750,000 shares of Common Stock subject to currently
exercisable warrants. Does not include 1,097,673 shares of Common Stock
subject to warrants which will not become exercisable until six months
after this offering.
(4) Includes 1,114,675 shares of Common Stock held by Bessemer Venture Partners
III L.P. ("Bessemer III"). Does not include 99,884 shares held by partners
of Deer III & Co., which is the general partner of Bessemer III. Includes
19,836 shares held by persons associated with Bessemer Securities
Corporation, which is the limited partner of Bessemer III, as to which
shares Bessemer III has the power to vote.
(5) Technology Leaders Offshore C.V. and Technology Leaders L.P. are affiliated
venture capital funds, with overlapping management, but each disclaims
beneficial ownership of the shares held by the other.
(6) Includes 5,622 shares of Common Stock held by Gilde Investment Fund B.V.,
an affiliate of Morgan Holland Fund II, L.P.
(7) Includes 18,866 shares of Common Stock owned by Dr. Berkowitz's children,
as to which Dr. Berkowitz disclaims beneficial ownership.
(8) Includes 132,829 shares of Common Stock issuable to Dr. Timberlake within
60 days of January 13, 1997 upon exercise of stock options.
(9) Includes 59,244 shares of Common Stock issuable to Dr. Koltin within 60
days of January 13, 1997 upon exercise of stock options.
(10) Includes 12,578 shares of Common Stock issuable to Dr. Bruening within 60
days of January 13, 1997 upon exercise of stock options.
(11) Includes 17,169 shares issuable to Mr. Crane within 60 days of January 13,
1997 upon exercise of stock options.
(12) Includes 1,114,675 shares of Common Stock owned by Bessemer III. Mr.
Gabrieli is a partner of Deer III & Co., which is the general partner of
Bessemer III. Also includes 19,836 shares owned by persons associated with
Bessemer Securities Corporation, which is the limited partner of Bessemer
III, as to which shares Bessemer III, and therefore Mr. Gabrieli, have
voting power. Mr. Gabrieli disclaims beneficial ownership of the foregoing
shares.
(13) Consists of 3,313,275 shares of Common Stock held by PerSeptive. Dr. Afeyan
is a Director and the Chief Executive Officer of PerSeptive. In such
capacities, Dr. Afeyan may be deemed to share voting and investment control
of such shares and may be deemed to have beneficial ownership of such
shares, although he disclaims such beneficial ownership. See Note 3 above.
(14) Includes 656,629 shares of Common Stock held by Technology Leaders Offshore
C.V. and 575,089 shares of Common Stock held by Technology Leaders L.P. Dr.
Anderson is a general partner, Managing Director, and member of the
Executive Committee of Technology Leader Management, L.P. and the general
partner of Technology Leaders L.P. and Technology Leaders Offshore C.V. In
such capacity, Dr. Anderson may be deemed to share voting and investment
control of the shares owned by those partnerships, although he disclaims
beneficial ownership of such shares.
(15) Includes 656,629 shares of Common Stock held by Technology Leaders Offshore
C.V. and 575,089 shares of Common Stock held by Technology Leaders L.P. Dr.
Schoemaker is a member of the Executive Committee and controls a corporate
general partner of Technology Leaders Management L.P. In such capacity, Dr.
Schoemaker may be deemed to share voting and investment control of the
shares owned by Technology Leaders L.P. and Technology Leaders Offshore
C.V., although he disclaims beneficial ownership of such shares.
(16) Includes 556,702 shares of Common Stock held by Morgan Holland Fund II L.P.
and 5,622 shares held by Gilde Investment Fund B.V. Mr. Kania is a general
partner of Morgan Holland Fund II L.P. and Gilde Investment Fund B.V. In
such capacities, Mr. Kania may be deemed to share investment and voting
control of the shares held by Morgan Holland Fund II L.P. and Gilde and may
be deemed to be the beneficial owner of such shares, although he disclaims
such beneficial ownership.
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<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future. Upon the closing of this offering, there will
be no shares of Convertible Preferred Stock outstanding.
CONVERTIBLE PREFERRED STOCK
Prior to this offering, there were authorized and outstanding 13,441,667
shares of Convertible Preferred Stock, of which 6,400,000 were designated Series
A Convertible Preferred Stock, 1,100,000 were designated Series B Convertible
Preferred Stock, 775,000 were designated Series C Convertible Preferred Stock,
3,000,000 were designated Series D Convertible Preferred Stock and 2,166,667
were designated Series E Convertible Preferred Stock. All outstanding shares of
series of Convertible Preferred Stock will be automatically converted on a
1-for-2.65 basis into an aggregate of 4,458,528 shares of Common Stock upon the
closing of this offering, and such shares of Convertible Preferred Stock will no
longer be authorized, issued or outstanding.
PREFERRED STOCK
The Board of Directors will be authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The Company believes
that this power to issue preferred stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock, however,
could adversely affect the voting power of holders of Common Stock and restrict
their rights to receive payments upon liquidation, and could have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
STOCK PURCHASE WARRANTS
In connection with a June 1993 capital lease agreement, the Company granted
the leasing company warrants to purchase 177,083 shares of Series A Convertible
Preferred Stock, exercisable for 66,823 shares of Common Stock (on a post split
basis) at an exercise price of $3.18 per common share (the "Series A Warrants").
The Series A Warrants are fully exercisable and expire upon the earlier of 10
years from the date of issuance or five years from the effective date of the
Company's initial public offering.
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<PAGE> 57
In connection with the Company's transaction with PerSeptive, the Company
issued to PerSeptive warrants to purchase 1,847,673 shares of Common Stock at an
exercise price of $13.25 per share. The warrants are fully exercisable with
respect to 750,000 shares, and the remaining 1,097,673 shares become exercisable
six months after the closing of this offering. The warrants expire 4 years from
the date of issuance.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits certain publicly-held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person or entity became an interested stockholder, unless, among other
exceptions, (i) prior to the date the interested stockholder attained such
status the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) the holders of two-thirds of the outstanding voting stock not
owned by the interested stockholder approved the business combination, or (iii)
the interested stockholder acquired 85% or more of the outstanding voting stock
of the corporation in the same transaction that makes it an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans). For purposes of Section 203, a "business combination" is
defined broadly to include mergers, asset sales and other transactions resulting
in a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person or entity who, together with
affiliates and associates, owns, or within the three immediately preceding years
of a business combination did own, 15% or more of the corporation's outstanding
voting stock.
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by the Delaware General Corporation
Law. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers. See "-- Limitation of Liability and Indemnification Matters."
The Company's Restated Certificate of Organization and Restated By-Laws
will provide for a Board of Directors classified into three classes, with the
initial terms of each class expiring at the 1998, 1999 and 2000 annual
stockholders' meetings, respectively. After the expiration of each initial term,
the directors in each class will be elected for three year terms. The Board of
Directors has not determined which of the current directors will be nominated
for election to each particular class. See "Management." The Board of Directors
is authorized to create new directorships and to fill such positions so created.
After the classification of the Board of Directors, the Board of Directors will
be permitted to specify to which class such new position is assigned, provided
that the newly created directorship shall if reasonably possible be (a)
apportioned among the three classes of directors so that no one class has more
than one director more than any other class and (b) if consistent with (a),
added to those classes whose terms of office are to expire at the latest dates.
The person filling such position will serve for the term applicable to that
class. The Board of Directors (or its remaining members, even though less than a
quorum) is also empowered to fill vacancies on the Board of Directors occurring
for any reason for the remainder of the term of the class of directors in which
the vacancy occurred. The Company's Restated Certificate of Incorporation
provides that Directors may be removed with cause by the vote of the holders of
at least two-thirds (66.6%) of the voting power of the outstanding stock of the
Company. These provisions are likely to increase the time necessary for
stockholders to change the composition of the Board of Directors and could
therefore make it more difficult for a third party to acquire, or discourage a
third party from acquiring, control of the Company. In general, at least two
annual meetings of the stockholders will be necessary for stockholders to effect
a change in a majority of the members of the Board of Directors.
The Company's Restated By-Laws provide that for nominations for the Board
of Directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than 60 days nor more
than 90 days prior to the annual meeting. If the meeting is not an annual
meeting, the notice must generally be delivered not more than ninety days prior
to the special meeting and not later than the later of 60 days prior to the
special meeting or 10 days following
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<PAGE> 58
the day on which public announcement of the meeting is first made by the
Company. The notice must contain, among other things, certain information about
the stockholder delivering the notice and, as applicable, background about the
nominee or a description of the proposed business to be brought before the
meeting.
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide that any action required or permitted to be taken by the stockholders of
the Company shall be taken only at a duly called annual or special meeting of
the stockholders, not by written consent. Special meetings may be called only by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President of the Company. These provisions could have the effect of
delaying until the next annual stockholders' meeting stockholder actions which
are favored by the holders of a majority of the outstanding voting securities of
the Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders' meeting,
and not by written consent.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless the corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Company's Restated Certificate of
Incorporation requires the affirmative vote of the holders of at least
two-thirds (66.6%) of the outstanding voting stock of the Company to amend or
repeal any of the foregoing provisions in the Company's Restated Certificate of
Incorporation, and to reduce the number of authorized shares of Common Stock and
Preferred Stock. Such two-thirds vote is also required to amend or repeal the
Company's Restated By-Laws. The Restated By-Laws may also be amended or repealed
by a majority vote of the Board of Directors. Such two-thirds stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might be outstanding
at the time any such amendments are submitted to the stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation contains provisions
eliminating or limiting the personal financial liability of the Company's
directors to the fullest extent permitted by Delaware General Corporation Law.
Delaware law provides that directors will not be personally liable to a
corporation or its stockholders for monetary damages for breach of their
fiduciary duties as directors, except for liability where there has been a
breach of the duty of loyalty, a failure to act in good faith, an act of
intentional misconduct, a knowing violation of law, certain unlawful payments of
dividends, stock repurchases or redemptions, or any transaction from which the
director derives an improper personal benefit. In addition, the Company's
Restated Certificate of Incorporation and Restated By-Laws include provisions to
indemnify its officers, directors and Scientific Advisory Board and certain
persons serving at the request of the Company to the fullest extent permitted by
Delaware General Corporation Law against expenses, judgments, fines and amounts
paid in connection with threatened, pending or completed suits and proceedings
against such persons by reason of having served as officers, directors, members
of the Scientific Advisory Board or in other capacities. The Company's Restated
Bylaws also provide that the Company may grant such rights to indemnification
and to the advancement of expenses to any employee or agent of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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.
The Company intends to obtain director and officer liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.
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<PAGE> 59
REGISTRATION RIGHTS
Dr. Berkowitz has certain registration rights with respect to 324,528
shares of Common Stock. Under the terms of a Stock Purchase and Repurchase
Agreement, if the Company proposes to register any of its Common Stock under the
Securities Act (other than pursuant to a Form S-8, Form S-4 or comparable
registration statement), Dr. Berkowitz is entitled to notice of such
registration and has "piggyback" rights to request that the Company include such
shares of Common Stock in the registration. The rights are subject to certain
conditions and limitations, such as the right of the underwriters of a
registered offering to limit for marketing reasons the number of shares included
in such registration.
The holders of the Convertible Preferred Stock and the Series A Warrants
each have certain registration rights with respect to the 4,458,528 shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock and the
66,823 shares of Common Stock issuable upon exercise of the Series A Warrants,
respectively. If the Company proposes to register any of its equity securities
under the Securities Act (other than pursuant to a Form S-8, Form S-4 or
comparable registration statement), such holders are entitled to notice of such
registration and have "piggyback" rights to request that the Company include
such shares in the registration. Such rights are subject to certain conditions
and limitations, such as the right of the underwriters of a registered offering
to limit for marketing reasons the number of shares included in such
registration. Also, except during the 180-day period following the effective
date of a registration statement filed by the Company, such holders have certain
"demand" rights to request (so long as a certain percentage of such holders
request the registration of a certain percentage of such shares) that the
Company prepare and file, on three occasions (unless two offerings contemplated
thereby are consummated), a registration statement on Form S-1 so as to permit a
public offering and sale of their shares of Common Stock, provided that the
market value of the securities to be registered is estimated to be at least
$3,000,000 at the time of filing such registration statement. The "demand
rights" are subject to the right of the Company to delay any such registration
in view of the Company's current circumstances. In addition, such holders have
"S-3 demand rights," subject to certain conditions and limitations, to have the
Company register its shares for resale on Form S-3, except during the 180-day
period following the effective date of a registration statement filed by the
Company or while the Company is preparing a registration statement, provided
that the Company is eligible to use Form S-3 at such times and provided that the
market value of the securities to be registered is estimated to be at least
$1,000,000 at the time of filing such registration statement. The "piggyback
rights," "S-3 demand rights" and "demand rights" of any such stockholder are
suspended for any period of time during which such holder's shares represent
less than 2% of the outstanding Common Stock of the Company and are terminated
if and when such shares become eligible for resale pursuant to Rule 144(k) of
the Securities Act.
PerSeptive has certain registration rights with respect to (i) 2,563,275
shares of Common Stock, for which such rights will become available in June
1999, and (ii) 1,847,673 shares of Common Stock underlying a warrant, for which
such rights will generally become available for such shares which PerSeptive
agrees to acquire by exercise of the warrant, in each case in accordance with
the terms of a Standstill and Registration Rights Agreement. Pursuant to such
agreement, if the Company proposes to register any of its equity securities
under the Securities Act (other than pursuant to a Form S-8, Form S-4 or
comparable registration statement), PerSeptive is entitled to notice of such
registration and has "piggyback" rights to request that the Company include such
shares in the registration. Such rights are subject to certain conditions and
limitations, such as the right of the underwriters of a registered offering to
limit for marketing reasons the number of shares included in such registration.
In addition, PerSeptive has the right, subject to certain conditions and
limitations, to require the Company to register its shares and/or warrant shares
for resale on Form S-3, except during the 180-day period following the effective
date of a registration statement filed by the Company or while the Company is
preparing a registration statement, provided that the Company is eligible to use
Form S-3 at such times. In addition, these registration rights are subject to an
agreement between the Company and PerSeptive pursuant to which PerSeptive has
agreed not to sell or distribute its Company securities for specified periods of
time. See "Shares Eligible for Future Sale."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C. of East Hartford, Connecticut.
57
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,103,815 shares
of Common Stock outstanding, assuming no exercise of any outstanding warrants or
any options to purchase Common Stock after January 13, 1997. Of these shares,
the 2,500,000 shares of Common Stock sold in this offering will be freely
transferable without restriction under the Securities Act unless they are held
by the Company's affiliates as that term is used in Rule 144 under the
Securities Act.
The remaining 7,603,815 shares of Common Stock outstanding are "restricted
securities" as the term is defined by Rule 144 promulgated under the Securities
Act (the "Restricted Shares"). Of the 7,603,815 Restricted Shares, 217,786
shares may be sold immediately after this offering under Rule 144(k). An
additional 4,496,142 shares will become eligible for sale 90 days after
completion of the offering pursuant to Rule 144 and Rule 701 under the
Securities Act. The remaining 2,889,887 shares will be eligible for sale upon
the expiration of their respective holding periods as set forth in Rule 144. The
Securities and Exchange Commission has proposed certain amendments to Rule 144
that would reduce by one year the holding periods required for shares subject to
Rule 144 to become eligible for resale in the public market. This proposal, if
adopted, would permit earlier resale of shares of Common Stock currently subject
to holding periods under Rule 144. No assurance can be given concerning whether
or when the proposal will be adopted by the Securities and Exchange Commission.
Furthermore, 7,576,305 of the Restricted Shares are subject to lock-up
agreements, of which 5,013,030 Restricted Shares are subject to lock-up
agreements expiring 180 days following the date of this Prospectus and 2,563,275
Restricted Shares, which are held by PerSeptive, are subject to a separate, more
extended lock-up agreement with the Company (the "PerSeptive Lock-up"), the
terms of which are described in greater detail below. The 180-day lock-up
agreements provide that Cowen & Company may, in its sole discretion and at any
time without notice, release all or a portion of the shares subject to these
lock-up agreements. Upon the expiration of these lock-up agreements, 4,713,928
of the 7,603,815 Restricted Shares may be sold pursuant to Rule 144 or 701,
subject in some cases to certain volume restrictions imposed thereby. Certain
existing shareholders have rights to include shares of Common Stock owned by
them in future registrations by the Company for the sale of Common Stock or to
request that the Company register their shares under the Securities Act. See
"Description of Capital Stock -- Registration Rights." Following the date of
this Prospectus, the Company intends to register on one or more registration
statements on Form S-8 approximately 1,500,000 shares of Common Stock issuable
under its stock option plan. Additionally, 912,109 shares are subject to
outstanding options as of January 13, 1997, of which 878,736 shares are subject
to lock-up agreements. Shares covered by such registration statements will
immediately be eligible for sale in the public market upon the filing of such
registration statements.
In general, under Rule 144, a person (or persons whose shares are
aggregated), shareholders, including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell in broker transactions, within
any three-month period, commencing 90 days after this offering, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding Common
Stock (approximately 101,038 shares immediately after this offering assuming no
exercise of the Underwriters' over-allotment option) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
sale, subject to the filing of a Form 144 with respect to the sale and other
limitations. In general, shares issued in compliance with Rule 701 may be sold
by non-affiliates subject to the manner of sale requirements of Rule 144, but
without compliance with the other requirements of Rule 144. Affiliates may sell
shares they acquired under Rule 701 in compliance with the provisions of Rule
144, except that there is no required holding period. A person who is not an
affiliate, has not been an affiliate within three months prior to sale and has
beneficially owned the Restricted Shares for at least three years, is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
The Company has also agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercises or exchangeable for Common Stock or any rights to acquire
Common Stock for a period of 180 days after the date of this Prospectus, without
the prior written consent of the Underwriters, subject to certain limited
exceptions (including exercises of stock options and warrants). At the
completion of this offering, certain persons will be entitled to certain rights
with respect
58
<PAGE> 61
to registration under the Securities Act of approximately 7,346,331 shares. See
"Description of Capital Stock -- Registration Rights."
The PerSeptive Lock-up generally provides that PerSeptive will not
distribute any shares of Common Stock or warrants convertible into Common Stock
to its stockholders until the earlier of (i) twelve months following the closing
of the Company's initial public offering or (ii) December 30, 1998 (such earlier
date being the "Release Date"), and it will not sell any shares of Common Stock
or warrants convertible into Common Stock until the earlier of (i) eighteen
months after the closing of the Company's initial public offering or (ii)
December 30, 1998. In addition, during any six-month period commencing after the
Release Date PerSeptive may only sell or distribute to its stockholders an
amount of shares equal to one-third of the number of shares of Common Stock held
by it as of the date of the Company's initial public offering plus up to
one-third of the number of shares issued to PerSeptive upon exercise of its
warrant from the Company. The foregoing restrictions on transfer and
distribution terminate on the earlier of June 30, 1999 or 24 months after the
closing of the Company's initial public offering if such offering occurs prior
to June 30, 1997 and are subject to certain exceptions including that following
the closing of a public offering, PerSeptive is permitted to sell such number of
shares as would reduce its ownership to 19.99% or less, if necessary to avoid
including its proportionate share of the Company's losses on its income
statement, and that PerSeptive may sell its shares pursuant to a tender offer
for all of the common stock which is approved by the Company's Board of
Directors.
Prior to this offering, there has been no public market for the Common
Stock of the Company. No prediction can be made regarding the effect, if any,
that the sale or availability for sale of shares of additional Common Stock will
have on the market price of the Common Stock. Nevertheless, sales of substantial
numbers of shares by existing shareholders or by shareholders purchasing in
their offering could have a negative effect on the market price of the Common
Stock.
59
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company and Montgomery Securities, have severally agreed to purchase
from the Company the following respective numbers of shares of Common Stock at
the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Cowen & Company..............................................................
Montgomery Securities........................................................
---------
Total..................................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial 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 initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,500,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,500,000 shares are being offered.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
The Company, all of its directors and executive officers, and substantially
all of its stockholders and other securityholders have entered into agreements
providing that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Cowen & Company, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exchangeable for, or warrants to purchase, any
shares of Common Stock, or grant any option to purchase or right to acquire or
any option to dispose of any shares of Common Stock, except in certain limited
circumstances. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods,
60
<PAGE> 63
the market capitalizations and stages of development of other companies that the
Company and the Representatives of the Underwriters believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts. Brown & Wood LLP, New York, New York, have
acted as counsel for the Underwriters in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996 included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The statements in this Prospectus set forth under the caption "Risk Factors
- -- Patents and Proprietary Rights; Third Party Rights" and "Business -- Patents"
have been reviewed and approved by Carella, Byrne, Bain, Gilfallan, Cecchi,
Stewart & Olstein, Roseland, New Jersey, patent counsel to the Company, as
experts on such matters, and are included herein in reliance upon that review
and approval.
61
<PAGE> 64
CHEMGENICS PHARMACEUTICALS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................... F-2
Balance Sheets as of December 31, 1995 and 1996, and Pro Forma December 31, 1996
(Unaudited).......................................................................... F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996.......... F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1994,
1995, and 1996 and Pro Forma December 31, 1996 (Unaudited)........................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.......... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 65
After the 1-for-2.65 reverse stock split discussed in Note 5(a) to the
Company's financial statements is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 10, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ChemGenics Pharmaceuticals Inc.:
We have audited the accompanying balance sheets of ChemGenics
Pharmaceuticals Inc. (a Delaware corporation) as of December 31, 1995 and 1996,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
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 ChemGenics Pharmaceuticals
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Boston, Massachusetts
F-2
<PAGE> 66
CHEMGENICS PHARMACEUTICALS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31 DECEMBER 31,
---------------------------- 1996
1995 1996 (NOTE 2(A))
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 8,050,821 $ 2,301,697 $ 2,301,697
Marketable securities.................................................. -- 11,159,179 11,159,179
Accounts receivable.................................................... 154,090 63,870 63,870
Prepaid expenses and other current assets.............................. 323,144 445,355 445,355
------------ ------------ ------------
Total current assets................................................. 8,528,055 13,970,101 13,970,101
------------ ------------ ------------
Property and Equipment, at Cost:
Equipment under capital leases......................................... 2,322,724 3,038,320 3,038,320
Laboratory equipment................................................... 303,690 1,207,676 1,207,676
Office furniture and equipment......................................... 80,492 84,201 84,201
Leasehold improvements................................................. 66,351 66,351 66,351
------------ ------------ ------------
2,773,257 4,396,548 4,396,548
------------ ------------ ------------
Less -- Accumulated depreciation and amortization...................... 1,183,716 2,019,198 2,019,198
------------ ------------ ------------
1,589,541 2,377,350 2,377,350
Other Assets:
Marketable securities.................................................. 5,029,842 -- --
Other assets, net...................................................... 402,817 873,820 873,820
------------ ------------ ------------
5,432,659 873,820 873,820
------------ ------------ ------------
$ 15,550,255 $ 17,221,271 $ 17,221,271
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations........................... $ 599,464 $ 753,458 $ 753,458
Accounts payable....................................................... 22,258 233,095 233,095
Accrued expenses....................................................... 283,403 550,388 550,388
Deferred revenue....................................................... 26,199 26,199 26,199
------------ ------------ ------------
Total current liabilities............................................ 931,324 1,563,140 1,563,140
------------ ------------ ------------
Capital Lease Obligations, net of current portion........................ 897,215 860,619 860,619
------------ ------------ ------------
Promissory Note to PerSeptive Biosystems, Inc............................ -- 3,000,000 3,000,000
------------ ------------ ------------
Commitments (Note 8)
Stockholders' Equity:
Convertible preferred stock, $.01 par value --
Authorized -- 13,441,667 shares and no shares pro forma
Issued and outstanding -- 10,981,837 shares in 1995, 11,815,171
shares in 1996 and no shares pro forma............................. 109,818 118,152 --
Preferred stock, $.001 par value --
Authorized 5,000,000 shares pro forma
Issued and outstanding -- none....................................... -- -- --
Common stock, $.001 par value --
Authorized -- 33,866,667 shares and 25,000,000 shares pro forma
Issued and outstanding -- 573,636 shares in 1995, 3,145,287 shares in
1996 and 7,603,815 shares pro forma................................ 574 3,145 7,604
Additional paid-in capital............................................. 24,841,185 34,700,230 34,813,923
Deferred compensation.................................................. -- (261,333) (261,333)
Accumulated deficit.................................................... (11,229,861) (22,762,682) (22,762,682)
------------ ------------ ------------
Total stockholders' equity............................................... 13,721,716 11,797,512 11,797,512
------------ ------------ ------------
$ 15,550,255 $ 17,221,271 $ 17,221,271
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 67
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenues......................................................... $ 218,095 $ 2,903,179 $ 3,573,010
----------- ----------- ------------
Operating Expenses:
Research and development....................................... 3,870,375 4,949,925 7,370,780
General and administrative..................................... 883,219 1,011,505 1,437,664
Acquired in-process research and development................... -- -- 6,783,900
----------- ----------- ------------
Total operating expenses..................................... 4,753,594 5,961,430 15,592,344
----------- ----------- ------------
Loss from operations......................................... (4,535,499) (3,058,251) (12,019,334)
Interest Income.................................................. 49,315 837,750 708,249
Interest Expense................................................. (133,924) (174,781) (221,736)
----------- ----------- ------------
Net loss..................................................... $(4,620,108) $(2,395,282) $(11,532,821)
=========== =========== ============
Pro Forma Net Loss Per Common Share.............................. $ (1.37)
============
Shares Used in Computing Pro Forma Net Loss Per Common Share..... 8,434,365
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 68
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------- ----------------- TOTAL
NUMBER $.01 NUMBER $.001 ADDITIONAL STOCKHOLDERS'
OF PAR OF PAR PAID-IN DEFERRED ACCUMULATED EQUITY
SHARES VALUE SHARES VALUE CAPITAL COMPENSATION DEFICIT (DEFICIT)
---------- --------- --------- ------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993.................... 4,024,000 $ 40,240 568,301 $ 568 $ 3,936,426 $ -- $ (4,214,471) $ (237,237)
Conversion of demand
note payable to Series
A and B Convertible
Preferred Stock....... 440,620 4,406 -- -- 436,214 -- -- 440,620
Sale of Series A and B
Convertible Preferred
Stock, net of issuance
costs of $26,895...... 2,749,478 27,495 -- -- 3,226,771 -- -- 3,254,266
Sale of Series C
Convertible Preferred
Stock, net of issuance
costs of $16,450...... 767,739 7,677 -- -- 2,279,090 -- -- 2,286,767
Exercise of common stock
options............... -- -- 1,561 2 838 -- -- 840
Net loss................ -- -- -- -- -- -- (4,620,108) (4,620,108)
----------- --------- --------- ------ ----------- --------- ------------ ------------
Balance, December 31,
1994.................... 7,981,837 79,818 569,862 570 9,879,339 -- (8,834,579) 1,125,148
Sale of Series D
Convertible Preferred
Stock, net of issuance
costs of $10,450...... 3,000,000 30,000 -- -- 14,959,550 -- -- 14,989,550
Exercise of common stock
options............... -- -- 3,774 4 2,296 -- -- 2,300
Net loss................ -- -- -- -- -- -- (2,395,282) (2,395,282)
----------- --------- --------- ------ ----------- --------- ------------ ------------
Balance, December 31,
1995.................... 10,981,837 109,818 573,636 574 24,841,185 -- (11,229,861) 13,721,716
Net issuance of common
stock and common stock
purchase warrants to
PerSeptive Biosystems,
Inc. in exchange for
technology and other
assets................ -- -- 2,563,275 2,563 4,301,337 -- -- 4,303,900
Sale of Series E
Convertible Preferred
Stock ................ 833,334 8,334 -- -- 4,991,670 -- -- 5,000,004
Exercise of common stock
options............... -- -- 8,376 8 6,038 -- -- 6,046
Deferred compensation on
grant of stock
option................ -- -- -- -- 280,000 (280,000) -- --
Compensation on grant of
stock option.......... -- -- -- -- 280,000 -- -- 280,000
Amortization of deferred
compensation.......... -- -- -- -- -- 18,667 -- 18,667
Net loss................ -- -- -- -- -- -- (11,532,821) (11,532,821)
----------- --------- --------- ------ ----------- --------- ------------ ------------
Balance, December 31,
1996.................... 11,815,171 118,152 3,145,287 3,145 34,700,230 (261,333) (22,762,682) 11,797,512
Conversion of
Convertible Preferred
Stock into common
stock (unaudited)..... (11,815,171) (118,152) 4,458,528 4,459 113,693 -- -- --
---------- --------- --------- ------ ----------- --------- ------------ ------------
Pro Forma Balance,
December 31, 1996
(unaudited)............. -- $ -- 7,603,815 $7,604 $34,813,923 $(261,333) $(22,762,682) $ 11,797,512
========== ========= ========= ====== =========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 69
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss....................................................... $(4,620,108) $(2,395,282) $(11,532,821)
Adjustments to reconcile net loss to net cash used in operating
activities --
Depreciation and amortization................................ 482,668 634,765 913,795
Compensation related to stock option grants.................. -- -- 298,667
Acquired in-process research development..................... -- -- 6,783,900
Changes in current assets and liabilities --
Accounts receivable........................................ (38,848) (80,517) 90,220
Prepaid expenses and other current assets.................. (82,655) (211,822) (122,211)
Accounts payable........................................... (101,333) (43,000) 210,837
Accrued expenses........................................... 78,039 120,707 266,985
Deferred revenue........................................... -- 26,199 --
----------- ----------- ------------
Net cash used in operating activities.................... (4,282,237) (1,948,950) (3,090,628)
----------- ----------- ------------
Cash Flows from Investing Activities:
Purchases of marketable securities, net........................ -- (5,029,842) (6,129,337)
Purchases of property and equipment............................ (96,838) (57,892) (207,695)
Increase in other assets....................................... (83,000) (89,324) (549,136)
Cash paid in connection with the PerSeptive
transaction.................................................. -- -- (180,000)
----------- ----------- ------------
Net cash used in investing activities.................... (179,838) (5,177,058) (7,066,168)
----------- ----------- ------------
Cash Flows from Financing Activities:
Proceeds from exercise of common stock options................. 840 2,300 6,046
Net proceeds from sale of Convertible Preferred Stock.......... 5,541,033 14,989,550 5,000,004
Payments on capital lease obligations.......................... (283,719) (468,802) (598,378)
Payment of demand notes payable to stockholders................ (159,380) -- --
----------- ----------- ------------
Net cash provided by financing activities................ 5,098,774 14,523,048 4,407,672
----------- ----------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents............. 636,699 7,397,040 (5,749,124)
Cash and Cash Equivalents, beginning of year..................... 17,082 653,781 8,050,821
----------- ----------- ------------
Cash and Cash Equivalents, end of year........................... $ 653,781 $ 8,050,821 2,301,697
=========== =========== ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest......................................... $ 127,482 $ 154,396 $ 193,724
=========== =========== ============
Noncash Investing and Financing Activities:
In connection with the acquisition of assets of PerSeptive (see
Note 3), the following noncash transactions occurred --
Fair value of assets acquired................................ $ -- $ -- $ 7,483,900
Issuance of common stock and common stock purchase
warrants................................................... -- -- (4,303,900)
Issuance of promissory note to PerSeptive.................... -- -- (3,000,000)
----------- ----------- ------------
Cash paid for acquisition costs............................ $ -- $ -- $ 180,000
=========== =========== ============
Property and equipment acquired under capital leases........... $ 526,183 $ 455,388 $ 715,596
=========== =========== ============
Conversion of demand notes payable to stockholder to preferred
stock........................................................ $ 440,620 $ -- $ --
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 70
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS
ChemGenics Pharmaceuticals Inc., formerly Myco Pharmaceuticals Inc., (the
Company or ChemGenics) was incorporated in Delaware on January 13, 1992.
ChemGenics is a drug discovery company which applies two complementary
technology platforms, Drug Discovery Genomics and Advanced Selection
Technologies, to key rate limiting steps in identifying new drugs. Prior to
December 31, 1996, the Company was in the development stage. Since inception the
Company has incurred significant operating losses and as of December 31, 1996
had an accumulated deficit of approximately $22,763,000, which includes a
one-time charge of $6,783,900 associated with the acquisition of in-process
research and development from PerSeptive Biosystems, Inc. (PerSeptive) (see Note
3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies described below and elsewhere in the notes to financial
statements.
A. PRO FORMA INFORMATION
The unaudited pro forma information as of December 31, 1996 reflects the
automatic conversion of all outstanding shares of Convertible Preferred Stock
into an aggregate of 4,458,528 shares of common stock, which will occur upon the
closing of the Company's proposed initial public offering.
B. REVENUE RECOGNITION
Revenues consist of research and contract revenues which are derived from
government grants as well as under collaborative agreements. Research revenues
under government grants and collaborative research and development arrangements
are recognized as earned. Milestone payments under collaborative research and
development arrangements are recognized when they are achieved. Deferred revenue
represents amounts received prior to revenue recognition.
C. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company applies
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Under SFAS No. 115,
securities that the Company has the positive intent and ability to hold to
maturity are reported at amortized cost and are classified as held-to-maturity.
F-7
<PAGE> 71
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1996 cash and cash equivalents and marketable
securities consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Commercial paper................................ $7,950,359 $ 1,973,217
(average maturity of 31 and 30 days in 1995 and
1996, respectively)
Cash............................................ 100,462 328,480
---------- -----------
$8,050,821 $ 2,301,697
========== ===========
MARKETABLE SECURITIES
Less than one year:
Commercial paper................................ $ -- $ 6,157,521
(average maturity of 71 days in 1996)
1 to 5 years:
U.S. treasury notes............................. 5,029,842 5,001,658
(average maturity of 396 and 30 days in 1995 and
1996, respectively)
---------- -----------
$5,029,842 $11,159,179
========== ===========
</TABLE>
D. DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization by charges to
operations using the straight-line method over an estimated useful life of five
years. Equipment under capital leases is depreciated over four years. Leasehold
improvements are amortized over the life of the lease.
E. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F. PRO FORMA NET LOSS PER COMMON SHARE
For the year ended December 31, 1996, pro forma net loss per common share
is computed by dividing the net loss by the pro forma weighted average number of
common shares outstanding during the period which consist of (i) the weighted
average number of common shares outstanding, (ii) the automatic conversion of
all outstanding shares of Series A, B, C, D, and E Convertible Preferred Stock
into an aggregate of 4,458,528 shares of common stock and (iii) issuances of
common stock and stock options granted after January 1, 1996, which have been
reflected as outstanding, as required by the Securities and Exchange Commission,
using the treasury stock method. Common stock equivalents issued in earlier
periods have not been included, as the effect would be antidilutive. Historical
net loss per share data has not been presented, as such information is not
considered to be relevant or meaningful.
G. RESEARCH AND DEVELOPMENT
The Company expenses all research and development expenses as incurred.
F-8
<PAGE> 72
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
H. CONCENTRATION OF CREDIT RISK
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risks or
financial instruments with concentration of credit risk. The Company maintains
its cash and cash equivalent balances with several financial institutions, and
its accounts receivable balances are all domestic. The Company has not written
off any of its accounts receivable to date. The Company recorded revenues of
greater than 10% of total revenues under its corporate alliances (see Note 4).
I. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments
approximates their carrying value.
3. ACQUISITION OF TECHNOLOGY AND OTHER ASSETS FROM PERSEPTIVE BIOSYSTEMS, INC.
The Company received a worldwide, royalty-free license to certain present
and future patented and unpatented technology of PerSeptive, including early and
preferred access to all technology and five years' access to all prototype
equipment, for use in the field of drug discovery under agreements dated May,
November and December 1996. Under the terms of the agreements, the Company also
acquired certain equipment, supplies and other assets related to drug discovery
programs at PerSeptive. In the event that PerSeptive fails to provide certain
services, access to equipment or supplies within three years, it would forfeit
up to 250,000 of the shares issued to it. In exchange for the license and other
assets, the Company issued PerSeptive 2,563,275 shares of its common stock, a
$3,000,000 promissory note and a warrant to purchase 1,847,673 shares of its
common stock at a purchase price of $13.25 per share exercisable through June
2000. Warrants to purchase 750,000 shares are exercisable immediately and
warrants to purchase 1,097,673 shares become exercisable six months after the
closing of the Company's initial public offering of common stock contemplated
herein. The promissory note bears interest at the Applicable Federal Rate of
Interest and becomes payable in full if the Company successfully consummates an
initial public offering yielding gross proceeds in excess of $15.0 million or if
the Company is acquired. In the event an initial public offering yields gross
proceeds of less than $15.0 million, the Company is required to utilize 10% of
the gross proceeds of such offering to pay down the promissory note and is
required to pay down the remaining balance of the promissory note in two equal
installments in either cash or shares of common stock, as defined, on the six
and twelve month anniversaries of the initial public offering. In the event the
Company does not complete an initial public offering by December 31, 1998, the
promissory note plus accrued interest would be payable, in either cash or shares
of common stock, on December 31, 2002, with earlier payment at the Company's
option. Upon execution of the agreement in May 1996, the Company hired 10
employees of PerSeptive and entered into a temporary sublease agreement for
approximately 5,000 square feet of laboratory and office space in Framingham,
Massachusetts.
In connection with the issuance of the shares and the warrants, the Company
and PerSeptive have entered into a Standstill and Registration Rights Agreement,
as amended, pursuant to which PerSeptive has agreed that it will not distribute
any shares of common stock or warrants convertible into common stock to its
stockholders until the earlier of (i) twelve months following the closing of the
Company's initial public offering or (ii) December 30, 1998 (such earlier date
being the Release Date), and it will not sell any shares of common stock until
the earlier of (i) eighteen months after the closing of the Company's initial
public offering or (ii) December 30, 1998. In addition, during any six-month
period commencing after the Release Date PerSeptive may only sell or distribute
to its stockholders an amount of shares equal to one-third of the number of
shares of common stock held by it as of the date of the Company's initial public
offering plus up to one-third of the number of shares issued to PerSeptive upon
exercise of its warrant from the Company. The foregoing restrictions on transfer
and distribution terminate on the earlier of June 30, 1999 or 24 months after
F-9
<PAGE> 73
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the closing of the Company's initial public offering if such offering occurs
prior to June 30, 1997 and are subject to certain exceptions including that
following the closing of a public offering, PerSeptive is permitted to sell such
number of shares as would reduce its ownership to 19.99% or less, if necessary
to avoid including its proportionate share of the Company's losses on its income
statement, and that PerSeptive may sell its shares pursuant to a tender offer
for all of the common stock which is approved by the Company's Board of
Directors. The Company has agreed to provide certain piggyback registration
rights to PerSeptive, subordinate to those of existing investors, and certain
registration rights pursuant to a registration statement on Form S-3, which
would not be available until at least one year after the registration of the
Company's securities under the Securities Exchange Act of 1934.
The agreement with PerSeptive also stipulates that in the event the Company
does not complete an initial public offering by June 30, 1997, the Company will
repurchase 754,716 shares of its common stock in exchange for a promissory note
of $2,000,000 having terms similar to those of the $3,000,000 promissory note,
including a provision for repayment no later than December 31, 2002.
The PerSeptive transaction was accounted for as a purchase. Accordingly,
the initial purchase price, which consisted of the value of the common stock and
warrants issued to PerSeptive, as determined by an independent appraiser, the
$3,000,000 promissory note, and the estimated acquisition costs were allocated
to the acquired assets as follows:
<TABLE>
<S> <C>
In-process research and development.......................... $6,783,900
Equipment.................................................... 700,000
----------
$7,483,900
=========
</TABLE>
In order for the technology acquired from PerSeptive to be commercialized,
the Company will need to expend a substantial amount on additional research and
development, preclinical testing and clinical trials, regulatory clearances, and
manufacturing, distribution and marketing arrangements. Accordingly, the net
realizable value of the acquired research and development is uncertain.
PerSeptive incurred approximately $20 to $25 million in research and development
costs related to the purchased technology.
4. CORPORATE ALLIANCES
A. WYETH-AYERST LABORATORIES
In December 1996, the Company entered into a collaboration with
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth-Ayerst) to discover and develop antibacterial drugs for human
use. Pursuant to the agreements, Wyeth-Ayerst is funding and collaborating with
the Company over a five-year period in a program aimed at the comprehensive
identification and prioritization of the genes that encode potential new
molecular drug targets in important bacterial pathogens. Wyeth-Ayerst also has a
right of first refusal for products for the prevention and treatment of
bacterial diseases in animals and a right of first negotiation for drugs to
treat H. pylori infection of humans. If the alliance successfully concludes its
five-year term, the Company could receive up to $70 million (which includes $13
million in equity and $57 million in research funding). Pursuant to the
agreements, on December 2, 1996 Wyeth-Ayerst purchased 833,334 shares of Series
E Convertible Preferred Stock for $5,000,004, (which shares will be converted
into 314,465 shares of common stock upon the closing of the Company's proposed
initial public offering -- see Note 5(c)) and is committed, subject to
ChemGenics' meeting certain research performance objectives, to a second
purchase of $5 million of common stock to occur no sooner than June 2, 1997 and
a third purchase of $3 million of common stock to occur no sooner than December
2, 1998. The second and third purchases will be priced at 115% of the then
current market price of the common stock following the Company's initial public
offering, or at $15.90 per common share if no such offering has been
F-10
<PAGE> 74
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
completed. Assuming the agreements conclude their five-year term, Wyeth-Ayerst
will become obligated to pay ChemGenics $15 million in research funding
(adjusted for inflation under certain circumstances) and may be obligated to pay
up to an additional $9 million in research performance payments. ChemGenics may
also receive up to an additional $33 million in development milestone payments.
In the event the collaboration is successful in identifying targets and leads
for products to treat bacterial infection, Wyeth-Ayerst will pay all costs
related to its product development and commercialization, including, without
limitation, clinical trials, regulatory filings and marketing, and will also pay
ChemGenics royalties on product sales, if any, which result from the
collaboration. ChemGenics recorded $750,000 of revenue in 1996 for funding
received from Wyeth-Ayerst under the collaboration which represents
approximately 21% of revenues in 1996.
If certain research performance checkpoints are not achieved by ChemGenics
by the end of the third year, Wyeth-Ayerst has an option to terminate the
agreements. The agreements provide Wyeth-Ayerst the ability to acquire exclusive
worldwide rights to develop and commercialize products discovered as part of the
collaboration to treat human bacterial infections. Commencing one year after the
end of the research term, ChemGenics will have the exclusive right, by itself,
or with a third party in the field, to develop and commercialize any ChemGenics
product and a first refusal right to any Wyeth-Ayerst product arising from the
collaboration, provided Wyeth-Ayerst is not developing a product from the
collaboration with the same activity profile. In the event the collaboration is
successful in identifying targets and leads for products to treat human
bacterial infections, Wyeth-Ayerst will pay all costs related to its development
and commercialization, including without limitation, clinical trials, regulatory
filings, manufacture and marketing. Wyeth-Ayerst will also pay ChemGenics
royalties on product sales. ChemGenics receives the same milestone and royalty
payments on any product that advances from the collaboration whether it
originates from ChemGenics or Wyeth-Ayerst.
B. PFIZER, INC.
In January 1995, the Company entered into a research and development
collaboration and licensing agreement with Pfizer, Inc. (Pfizer) to discover and
develop antifungal treatments for human use. Pfizer has the exclusive option to
acquire royalty-bearing licenses to develop and commercialize lead compounds
identified by the research program. Under the terms of the agreement, Pfizer is
funding a discovery program at the Company over a four-year term, which began in
January 1995. In connection with the agreement, Pfizer purchased 2,700,000
shares of the Company's Series D Convertible Preferred Stock for $13,500,000
(which shares will be converted into 1,018,867 shares of the Company's common
stock upon the closing of the Company's proposed initial public offering -- see
Note 5(c)). In addition, Pfizer has agreed to provide the Company with up to
$11.7 million in research funding over a four-year term of the agreement, as
well as milestone and equity payments based on the achievement of certain
program accomplishments, which could total up to an additional $32.5 million. In
the years ended December 31, 1995 and 1996, the Company recognized approximately
$2,462,000 and $2,581,000, respectively, under this agreement, which represents
approximately 85% and 72%, of revenues for the respective periods.
5. STOCKHOLDERS' EQUITY (DEFICIT)
A. STOCK SPLIT AND AMENDMENT TO CHARTER
On December 16, 1996, the Company's Board of Directors approved, subject to
stockholder approval, a 1-for-2.65 reverse stock split of the Company's common
stock prior to the closing of the Company's initial public offering of common
stock contemplated herein and amended the conversion terms of the Company's
Convertible Preferred Stock, effective upon the closing of the Company's
proposed initial public offering of common stock contemplated herein.
Accordingly, all share and per share amounts of common stock for all periods
presented have been retroactively adjusted to reflect the reverse stock split.
Upon completion of the
F-11
<PAGE> 75
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's initial public offering, the Company will be authorized to issue
25,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of
undesignated preferred stock, $.001 par value.
B. COMMON STOCK
In 1992, the Company sold 568,301 shares of common stock to an officer and
to consultants of the Company for $.001 per share.
In connection with the acquisition of technology and other assets from
PerSeptive (see Note 3), the Company issued 2,563,275 shares of common stock to
PerSeptive.
C. CONVERTIBLE PREFERRED STOCK
On December 16, 1996, the Company's preferred stockholders approved the
conversion of the Company's Convertible Preferred Stock into common stock
effective upon the closing of the Company's proposed initial public offering of
common stock as contemplated herein. As of December 31, 1996, the Company had
authorized 13,441,667 shares of Convertible Preferred Stock and designated
6,400,000, 1,100,000, 775,000, 3,000,000 and 2,166,667 of such shares as Series
A, B, C, D and E Convertible Preferred Stock, respectively.
The Company issued Series A, B, C, D, and E Convertible Preferred Stock as
follows:
<TABLE>
<CAPTION>
NUMBER
OF PRICE PER
DATE OF ISSUANCE DESCRIPTION SHARES SHARE
- ---------------- ----------- --------- ---------
<S> <C> <C> <C>
February 1992, January 1993, January
and July 1994...................... Series A Convertible Preferred Stock 6,150,732 $1.00
January and July 1994................ Series B Convertible Preferred Stock 1,063,366 $1.50
July 1994............................ Series C Convertible Preferred Stock 767,739 $3.00
February 1995........................ Series D Convertible Preferred Stock 3,000,000 $5.00
December 1996........................ Series E Convertible Preferred Stock 833,334 $6.00
</TABLE>
The rights, preferences and privileges of Series A, B, C, D, and E
Convertible Preferred Stock are as follows:
CONVERSION
The Convertible Preferred Stock is convertible, as amended, into common
stock at the rate of one share of common stock for every 2.65 shares of
Convertible Preferred Stock, adjustable for certain dilutive events. The
conversion is at the option of the preferred stockholder, but becomes automatic
upon the closing of a public offering of common stock with gross proceeds to the
Company of at least $9,000,000. In addition, the Convertible Preferred Stock
automatically converts into common stock with the consent of at least 60% of the
outstanding holders of Convertible Preferred Stock or, with respect to each
series of Convertible Preferred Stock, at such time as less than 250,000 shares
of each series of Convertible Preferred Stock are outstanding. The Company has
reserved sufficient shares of common stock for issuance upon the conversion of
the outstanding shares of Convertible Preferred Stock.
LIQUIDATION PREFERENCE
The holders of the Convertible Preferred Stock have preference in the event
of liquidation or dissolution of the Company in an amount equal to the greater
of $1.00, $1.50, $3.00, $5.00 and $6.00 per share for Series A, B, C, D and E
Convertible Preferred Stock, respectively, or an amount that would have been
payable had each share of Convertible Preferred Stock been converted into common
stock immediately preceding the liquidation or dissolution. The aggregate
liquidation value at December 31, 1996 is $30,049,002.
F-12
<PAGE> 76
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
VOTING RIGHTS
The holders of the Convertible Preferred Stock shall be entitled to the
number of votes equal to the number of shares of common stock into which each
share of Convertible Preferred Stock may be converted. Additionally, the holders
of 60% of the Convertible Preferred Stock shall be entitled to elect four
directors of the Company.
DIVIDENDS
Dividends may be declared and paid upon the consent of the holders of at
least 60% of the outstanding shares of the Convertible Preferred Stock. Upon the
declaration by the Board of Directors of a dividend payable on the then
outstanding shares of common stock, the holders of the Convertible Preferred
Stock shall be entitled to the amount of dividends per share as would be payable
on the number of shares of common stock into which each share of the Convertible
Preferred Stock could be converted.
REORGANIZATIONS, CONSOLIDATIONS OF CONVERTIBLE PREFERRED STOCK, MERGERS AND
SALE OF ASSETS
The holders of at least 60% of the outstanding shares of Convertible
Preferred Stock, voting together as a single class, have to approve such
transactions, as defined.
REGISTRATION RIGHTS
If at any time the Company registers any of its securities, for certain
events as defined, each shareholder of Convertible Preferred Stock has the right
to register their shares, with certain limitations as defined, upon written
notification to the Company.
RIGHT OF FIRST REFUSAL
Before the Company agrees to, or issues, sells or exchanges any shares of
equity or convertible debt securities, as defined, it shall first offer to sell
such securities to those individuals then holding Convertible Preferred Stock of
the Company in proportion to the number of shares of Convertible Preferred Stock
held on an as-converted basis to the total number of outstanding shares of
capital stock of the Company, including shares issuable upon the conversion of
the Company's Convertible Preferred Stock outstanding.
D. STOCK OPTION PLAN
The Company established the 1992 Stock Option Plan (the Plan) which
provides for the grant of incentive and nonqualified stock options for the
purchase of up to 1,500,000 shares of common stock, as amended. Incentive stock
options are granted at a price not less than fair value at the date of grant, as
determined by the Board of Directors. Options granted under the Plan generally
vest over four to five years; however, options to purchase up to 198,349 shares
of common stock become vested at the end of five years or earlier, upon the
achievement of certain milestones. As of December 31, 1996, there were 574,180
shares available for future grants under the Plan. In 1996 the Company amended
the vesting provisions of options to purchase 37,735 shares of common stock
granted in 1992 at an exercise price of $.53 per share. The Company recorded
deferred compensation in the amount of $280,000 to recognize the difference
between the option exercise price and the fair market value of the common stock
as of the amendment date. The deferred compensation is being amortized over the
five-year vesting period ending August 31, 2003 or earlier, upon the achievement
of this milestone. In addition, in December 1996 a performance milestone
associated with certain options to purchase 37,735 shares of common stock was
achieved. The Company recorded $280,000 of compensation expense to recognize the
difference between the option exercise price and the fair market value of the
Company's common stock on the date this milestone was achieved.
F-13
<PAGE> 77
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes option activity under the Plan:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding, December 31, 1993............... 467,643 $ .53
Granted.................................... 69,868 .61- .80
Exercised.................................. (1,561) .53
Terminated................................. (893) .53
------- -----------
Outstanding, December 31, 1994............... 535,057 .53- .80
Granted.................................... 223,245 .80- 1.33
Exercised.................................. (3,774) .61
Terminated................................. (33,943) .53- 1.33
------- -----------
Outstanding, December 31, 1995............... 720,585 .53- 1.33
Granted.................................... 218,397 1.33- 7.95
Exercised.................................. (8,376) .53- 1.33
Terminated................................. (18,497) .53- 7.95
------- -----------
Outstanding, December 31, 1996............... 912,109 $ .53-$7.95
======= ===========
Exercisable, December 31, 1996............... 461,363 $ .53-$7.95
======= ===========
</TABLE>
E. WARRANTS
As of December 31, 1996, the Company has the following outstanding
warrants:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON EXERCISE
STOCK PRICE EXPIRATION DATE
--------- -------- ---------------
<S> <C> <C> <C>
Warrants issued in connection with the
acquisition of technology and other
assets (see Note 3).................... 1,847,673 $13.25 June 2000
Warrants issued in connection with
capital lease obligations (see Note
7)..................................... 66,823 $ 3.18 June 2003, or five years from
the effective date of an
initial public offering
</TABLE>
F. NEW ACCOUNTING STANDARD
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes a fair-value based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted, as well as certain other information.
F-14
<PAGE> 78
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted for the years ended December 31, 1995 and 1996
using the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Risk free interest rate............................ 6.42% 6.56%
Expected dividend yield............................ 0 0
Expected lives..................................... 7.5 years 7.5 years
Expected volatility................................ 75% 75%
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Pro forma net loss........................... $(2,395,282) $(11,532,821)
Pro forma net loss as adjusted............... (2,417,846) (11,662,823)
Pro forma net loss per share................. -- $ (1.37)
Pro forma net loss per share as adjusted..... -- (1.38)
</TABLE>
6. INCOME TAXES
The Company applies the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
tax liability or asset for the estimated future tax effects of temporary
differences between the carrying value of assets and liabilities for financial
reporting and their tax bases and carryforwards to the extent they are
realizable.
At December 31, 1996, the Company had available net operating loss
carryforwards for financial reporting and income tax purposes of approximately
$22,763,000 and $2,526,000, respectively. The difference relates primarily to
expenses reflected in the financial statements not yet deductible for tax
purposes. These net operating loss carryforwards may be used to reduce future
taxable income, if any, and expire through 2012. The Company also has
approximately $190,000 and $90,000 of research and development credits and
investment tax credits available to offset future federal and state income
taxes, respectively, if any. Net operating loss carryforwards and credits are
subject to review and possible adjustments by the Internal Revenue Service and
may be limited in the event of certain cumulative changes in the ownership
interest of significant shareholders over a three-year period in excess of 50%.
The Company believes it has experienced a change in ownership in excess of 50%
and that it may experience an additional change in ownership in excess of 50%
upon completion of the proposed initial public offering. The Company does not
believe that these changes in ownership will significantly impact the Company's
ability to utilize its net operating loss carryforwards.
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
Capitalized research and development........... $3,071,000 $ 4,560,000
Acquired in-process research and development... -- 2,623,000
Operating loss carryforwards................... 580,000 1,010,000
Temporary differences.......................... 868,000 2,042,000
Tax credit carryforwards....................... 222,000 280,000
---------- -----------
4,741,000 10,515,000
Less -- Valuation allowance.................... 4,741,000 10,515,000
---------- -----------
$ -- $ --
========== ===========
</TABLE>
F-15
<PAGE> 79
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Due to the uncertainty of the realization of these potential tax benefits,
the Company has recorded a valuation allowance against its deferred tax assets.
The increase in the valuation allowance during these periods primarily relates
to the Company's operating results.
7. CAPITAL LEASES
During 1993, the Company entered into a capital lease agreement for the
acquisition of laboratory equipment. The agreement allows the Company to finance
purchases of up to $3,500,000 of equipment. Under the agreement, the Company
leased equipment valued at approximately $3,038,000 as of December 31, 1996. The
Company may purchase up to an additional $277,000 of equipment under this
agreement, which expires in June 1997. In connection with the capital lease
agreement, the Company granted the leasing company warrants to purchase 177,083
shares of Series A Convertible Preferred Stock which can be converted into
66,823 shares of the Company's common stock at $3.18 per share. The warrants are
fully exercisable and expire upon the earlier of 10 years or five years from the
effective date of the Company's initial public offering.
Future minimum payments under the capital lease agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997....................................................... $ 863,710
1998....................................................... 474,110
1999....................................................... 302,612
2000....................................................... 171,972
2001....................................................... 7,455
----------
Total lease payments.................................... 1,819,859
Less -- Amounts representing interest........................ 205,782
----------
Present value of minimum lease payments................. 1,614,077
Less -- Current portion...................................... 753,458
----------
$ 860,619
==========
</TABLE>
8. COMMITMENTS
A. OPERATING LEASES
The Company leases its main office and laboratory facilities under an
operating lease which expires on June 30, 2003. In addition, in 1996 the Company
entered into a short-term facilities lease in connection with the PerSeptive
transaction (see Note 3). Minimum future lease payments pursuant to these
agreements, exclusive of operating costs and real estate taxes, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997...................................................... $ 432,000
1998...................................................... 256,000
1999...................................................... 175,000
2000...................................................... 175,000
2001...................................................... 175,000
Thereafter................................................ 261,000
----------
$1,474,000
==========
</TABLE>
F-16
<PAGE> 80
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense under these lease agreements was approximately $317,000,
$338,000 and $419,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company's main facilities lease has declining lease payments.
Accordingly, the Company has levelized its lease expense over the life of the
lease. The cumulative difference between the cash paid and rent expense was
$119,615 and $201,526 at December 31, 1995 and 1996, respectively, and is
included in other assets on the accompanying balance sheets.
B. LICENSE AGREEMENTS
Certain technologies utilized by the Company have been obtained under
license agreements whereby the Company has been granted exclusive and
nonexclusive licenses for certain patent rights. Pursuant to the agreements, the
Company is required to pay royalties on net sales of products covered by the
patent rights. As of December 31, 1996, the Company has not had any product
sales related to these patent rights.
9. NOTE RECEIVABLE FROM EMPLOYEE
In October 1993, the Company loaned $100,000 to an officer/stockholder of
the Company. The principal and accrued interest is repaid through annual
bonuses. The loan bears interest at the prime rate as published from time to
time in the Wall Street Journal (8.25% at December 31, 1996) and is secured by a
second mortgage on the officer/stockholders' residence. In March 1996, the
Company loaned $10,000 to an officer of the Company. The principal and accrued
interest is payable in three equal payments plus accrued interest, annually on
the anniversary date. The loan bears interest at the prime rate. As of December
31, 1995 and 1996, the aggregate outstanding balance of these loans was $57,225
and $27,103, respectively. The current and long-term portion of these note
receivables are included as a component of account receivables and other assets
on the accompanying balance sheets.
10. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred offering costs..................................... $ -- $368,629
Deferred rent............................................... 119,615 201,526
Deposits.................................................... 152,900 177,710
Patents and licenses........................................ 107,802 119,288
Note receivable from employee, net of current portion....... 22,500 6,667
-------- --------
$402,817 $873,820
======== ========
</TABLE>
11. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
-------- --------
<S> <C> <C>
Payroll and related expenses................................ $117,377 $153,538
Professional and consulting fees............................ 37,174 171,889
Other....................................................... 128,852 224,961
-------- --------
$283,403 $550,388
======== ========
</TABLE>
F-17
<PAGE> 81
[art work]
Inside back cover
The figure is a pictorial representation of the Company's drug source, listing
and graphically displaying the Company's biorational collection of fungi,
genetic manipulation of fungi, and information-based QuickScan index. In
addition, a picture of the earth from outerspace is depicted in the background
to indicate that the collection is from around the world.
<PAGE> 82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
The Company.............................. 15
Use of Proceeds.......................... 15
Dividend Policy.......................... 15
Capitalization........................... 16
Dilution................................. 17
Selected Financial Data.................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 19
Business................................. 23
Management............................... 40
Certain Transactions..................... 49
Principal Stockholders................... 52
Description of Capital Stock............. 54
Shares Eligible for Future Sale.......... 58
Underwriting............................. 60
Legal Matters............................ 61
Experts.................................. 61
Index to Financial Statements............ F-1
</TABLE>
------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 SHARES
CHEMGENICS
PHARMACEUTICALS INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
MONTGOMERY SECURITIES
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's costs and expenses, other
than underwriting discounts and commissions, expected to be incurred in
connection with the issuance and distribution of the securities being
registered. Except for the SEC Registration Fee, the NASD Filing Fee and the
Nasdaq National Market Fees, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 14,375
NASD Filing Fee.......................................................... 4,669
Nasdaq National Market Fees.............................................. 47,498
Legal Fees and Expenses.................................................. 400,000
Accounting Fees and Expenses............................................. 135,000
Blue Sky Fees and Expenses (including legal fees)........................ 25,000
Printing and Engraving Fees.............................................. 75,000
Transfer Agent and Registrar Fees........................................ 3,000
Miscellaneous............................................................ 45,458
--------
Total............................................................... $750,000
========
</TABLE>
The Registrant shall bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Registrant's Certificate of
Incorporation and By-Laws provide for indemnification of the Registrant's
directors and officers for liabilities and expenses that they may incur in such
capacities. Reference is made to the Registrant's Restated Certificate of
Incorporation and Restated By-Laws filed as Exhibits 3.1 and 3.2 hereto,
respectively.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director of officer of the corporation. Such indemnity may be against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, if the indemnified party acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
indemnified party did not have reasonable cause to believe his conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation.
Section 145(g) of the Delaware Corporation law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of the law.
II-1
<PAGE> 84
Article EIGHTH of the Registrant's Restated Certificate of Incorporation
provides that, to the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and members of its Scientific Advisory Board and any person who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise, if such person was or is made a party to or is threatened to be made
a party to or is otherwise involved (including, without limitation, as a
witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Corporation or a member of the Corporation's
Scientific Advisory Board or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan. However, Article V of the Registrant's
Restated By-laws provides that, except as provided in Section 3 of such Article
with respect to proceedings to enforce rights to indemnification or as otherwise
required by law, the Corporation shall not be required to indemnify or advance
expenses to any such Indemnitee in connection with a proceeding (or part
thereof) initiated by such Indemnitee unless such proceeding (or part thereof)
was authorized by the board of directors of the Corporation.
Article EIGHTH further provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, such Article shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that no director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by applicable law, (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 or successor provisions
of the General Corporation Law of the State of Delaware; or (iv) for any
transaction from which the director derived an improper personal benefit.
Article NINTH further provides that it shall not eliminate or limit the
liability of a director for any act or omission if such elimination or
limitation is prohibited by the General Corporation Law of the State of
Delaware.
The Registrant intends to obtain insurance that insures the officers and
directors of the Registrant against certain losses and that insures the
Registrant against certain of its obligations to indemnify such officers and
directors.
In addition, the Underwriting Agreement, the form of which will be filed as
Exhibit 1.1 hereto, contains provisions for indemnification by the Underwriters
of the Registrant and its officers, directors and controlling stockholders
against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act. Share amounts and exercise prices reported in this section do
not reflect the Company's 1-for-2.65 reverse stock split to be effected prior to
the closing of this offering.
On December 2, 1996, the Registrant sold an aggregate of 833,334 shares of
Series E Convertible Preferred Stock to American Home Products Corporation
acting through its Wyeth-Ayerst Laboratory Division in connection with a
Collaborative Research and License Agreement, at a purchase price of $6.00 per
share for an aggregate cash consideration of approximately $5 million.
Pursuant to agreements entered into in May, November and December, 1996,
the Registrant sold an aggregate of 6,792,679 shares of Common Stock, together
with warrants to purchase 4,896,335 shares of
II-2
<PAGE> 85
common stock at an exercise price of $5.00 per share and a $3 million promissory
note payable to PerSeptive Biosystems, Inc. ("PerSeptive") in exchange for
certain assets and a worldwide, royalty-free license for use in the field of
drug discovery to all of PerSeptive's existing patents and technology, including
selection technologies, all future patented and unpatented technology, early and
preferred access to all technology and certain other assets, and for a period of
five years, to all prototype equipment.
On February 9, 1995, the Registrant sold an aggregate of 3,000,000 shares
of Series D Convertible Preferred Stock at a purchase price of $5.00 per share
for an aggregate cash consideration of $15 million. Of the 3,000,000 shares
sold, 2,700,000 shares were sold to Pfizer, Inc. in connection with a
Collaborative Research Agreement and License Option, License and Royalty
Agreement, and 300,000 shares were sold to existing stockholders of the
Registrant.
On July 27, 1994, the Registrant sold an aggregate of 767,739 shares of
Series C Convertible Preferred Stock to a group of investors at a purchase price
of $3.00 per share for an aggregate cash consideration of approximately
$2,303,000. Each of the 767,739 shares were sold to existing stockholders of the
Registrant.
On January 11, 1994 and July 13, 1994, the Registrant sold an aggregate of
1,063,366 shares of Series B Convertible Preferred Stock at a purchase price of
$1.50 per share for an aggregate cash consideration of approximately $1,595,000.
Each of the 1,063,366 shares were sold to existing stockholders of the
Registrant.
On January 11, 1994, February 22, 1994 and July 13, 1994, the Registrant
sold an aggregate of 3,020,648 shares of Series A Convertible Preferred Stock to
a group of investors at a purchase price of $1.00 per share for an aggregate
cash consideration of $3,020,648.
During the past three years, the Registrant has issued options to purchase
an aggregate of 1,355,500 shares of Common Stock under the ChemGenics
Pharmaceuticals Inc. 1992 Stock Option Plan, exercisable at a weighted average
price of $1.22 per share. Options to purchase an aggregate of 36,400 shares of
Common Stock have been exercised during the past three years.
No person acted as an underwriter with respect to the transactions set
forth above. In each of the foregoing instances, the Registrant relied on
Section 4(2) or Rule 701 of the Securities Act for the exemption from the
registration requirements of the Securities Act, since no public offering was
involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
***(1.1) Form of Underwriting Agreement
*(3.1) Restated Certificate of Incorporation
*(3.2) Form of Restated Certificate of Incorporation, effective upon the consummation
of the offering
*(3.3) Restated By-Laws
*(3.4) Form of Restated By-Laws, effective upon the consummation of the offering
*(4.1) See Exhibits 3.1 and 3.2 for provisions of the Registrant's Certificate of
Incorporation and By-Laws defining the rights of securityholders
*(4.2) Form of Common Stock Certificate
*(4.3) Form of Lock-Up Letter Agreement
***(5.1) Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to
the legality of the shares of Common Stock being registered
*(10.1) Series A Preferred Stock Purchase Agreement, dated as of February 25, 1992, by
and between the Registrant and the Purchasers listed in Schedule 1.01 hereto
*(10.2) Series A and B Preferred Stock Purchase Agreement, dated as of January 11,
1994, by and between the Registrant and the Purchasers listed in Schedule 1.01
thereto
*(10.3) Series A and B Preferred Stock Purchase Agreement, dated as of July 13, 1994,
by and between the Registrant and the Purchasers listed in Schedule 1.01
thereto
*(10.4) Series C Preferred Stock Purchase Agreement, dated as of July 27, 1994, by and
between the Registrant and the Purchasers listed in Schedule 1.01 thereto
</TABLE>
II-3
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
*+(10.5) Series D Preferred Stock Purchase Agreement, dated as of February 9, 1995, by
and between the Registrant and the Purchasers listed in Schedule 1.01 thereto
*(10.6) Series E Preferred Stock Purchase Agreement, dated as of November 27, 1996, by
and between the Registrant and American Home Products Corporation, acting
through its Wyeth-Ayerst Laboratories Division
*(10.7) Standstill Agreement, dated as of November 27, 1996, by and between the
Registrant and American Home Products Corporation, acting through its
Wyeth-Ayerst Laboratories Division
*+(10.8) Collaborative Research Agreement, dated as of January 1, 1995, by and between
the Registrant and Pfizer, Inc.
*+(10.9) License Option, License and Royalty Agreement, dated as of January 1, 1995, by
and between the Registrant and Pfizer, Inc.
*+(10.10) Collaborative Research and License Agreement, dated as of November 1, 1996, by
and between the Registrant and American Home Products Corporation, represented
by its Wyeth-Ayerst Laboratories Division
*+(10.11) License Agreement, dated as of June 28, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
*(10.12) Second Amended and Restated Voting and Co-Sale Agreement, dated as of February
9, 1995, by and between the Registrant and certain of the Registrant's security
holders
*(10.13) Standstill Agreement, dated as of February 9, 1995, by and between the
Registrant and Pfizer, Inc.
*(10.14) The Registrant's 1992 Employee, Director and Consultant Stock Option Plan, as
amended through December 16, 1996
*(10.15) Master Agreement, dated as of May 7, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
*(10.16) Amendment, dated November 22, 1996, to the Master Agreement dated May 7, 1996
between the Registrant and PerSeptive Biosystems, Inc. and the Warrant to
purchase Common Stock issued to PerSeptive Biosystems, Inc.
(10.17) Omnibus Amendment Agreement dated December 18, 1996 between the Registrant and
PerSeptive Biosystems, Inc.
*(10.18) Consulting and Interim Services Agreement, dated as of June 28, 1996, by and
between the Registrant and PerSeptive Biosystems, Inc.
*(10.19) Confidentiality and Non-Competition Agreement, dated as of June 28, 1996, by
and between the Registrant and PerSeptive Biosystems, Inc.
*(10.20) Voting Agreement, dated as of June 28, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
*(10.21) Standstill and Registration Rights Agreement, dated as of June 28, 1996, by and
between the Registrant and PerSeptive Biosystems, Inc.
*(10.22) Employment and Non-Competition Agreement, dated as of January 1, 1992, by and
between the Registrant and Barry A. Berkowitz, Ph.D.
*(10.23) Confidentiality Agreement, dated as of January 1, 1992, between the Registrant
and Barry A. Berkowitz, Ph.D.
*(10.24) Stock Purchase and Repurchase Agreement, dated February 19, 1992, by and
between the Registrant and Barry A. Berkowitz, Ph.D.
*(10.25) Employment Agreement, dated December 23, 1992, between the Registrant and
William E. Timberlake, Ph.D.
*(10.26) Confidentiality Agreement, dated March 1, 1993, between the Registrant and
William E. Timberlake, Ph.D.
</TABLE>
II-4
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-------- -----------------------
<S> <C>
*(10.27) Non-Competition Agreement, dated January 22, 1993, between the Registrant and
William E. Timberlake, Ph.D.
*(10.28) Employment Agreement, dated November 11, 1995, between the Registrant and Reimar
Bruening, Ph.D.
*(10.29) Confidentiality Agreement, dated as of November 15, 1995, by and between the
Registrant and Reimar Bruening, Ph.D.
*(10.30) Non-Competition Agreement, dated November 15, 1995, between the Registrant and
Reimar Bruening, Ph.D.
*(10.31) Employment Agreement, dated August 26, 1992, between the Registrant and Sean
O'Connor, Ph.D.
*(10.32) Confidentiality Agreement, dated December 16, 1992, between the Registrant and
Sean O'Connor, Ph.D.
*(10.33) Non-Competition Agreement, dated December 16, 1992, between the Registrant and
Sean O'Connor, Ph.D.
*(10.34) Employment Agreement, dated March 12, 1993, between the Registrant and Yigal
Koltin, Ph.D.
*(10.35) Confidentiality Agreement, dated June 1, 1993, between the Registrant and Yigal
Koltin, Ph.D.
*(10.36) Non-Competition Agreement, dated May 11, 1993, between the Registrant and Yigal
Koltin, Ph.D.
*(10.37) Employment Agreement, dated June 21, 1995, between the Registrant and Alan Crane
*(10.38) Confidentiality Agreement, dated June 21, 1995, between the Registrant and Alan
Crane
*(10.39) Non-Competition Agreement, dated June 21, 1995, between the Registrant and Alan
Crane
*(10.40) Warrant Agreement, dated as of June 17, 1993, between the Registrant and
Comdisco, Inc.
*(10.41) Warrant Agreement, dated as of May 24, 1994, between the Registrant and
Comdisco, Inc.
(10.42) Warrant to purchase Common Stock of the Registrant issued to PerSeptive
Biosystems, Inc.
*(10.43) Form of Consulting Agreement by and between the Registrant and members of the
Registrant's Scientific Advisory Board
*(10.44) Lease Agreement between the Registrant and Old Cambridge Realty Trust, Inc.
*(10.45) Form of Sub-Lease Agreement, dated June 28, 1996, by and between the Registrant
and PerSeptive Biosystems, Inc.
*(10.46) Equipment Lease, dated as of June 17, 1993, by and between the Registrant and
Comdisco, Inc.
(10.47) Sublease dated May 14, 1993 by and between the Registrant and MYOCRT, Inc.
(11.1) Statement Re: Computation of Earnings
**(23.1) Consent of Arthur Andersen LLP (see page II-8)
***(23.2) Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in
Exhibit 5.1)
*(23.3) Consent of Carella, Byrne, Bain, Gilfallan, Cecchi, Stewart & Olstein
*(24.1) Power of Attorney
(27.1) Financial Data Schedule For Year Ended December 31, 1996
(27.2) Financial Data Schedule For Year Ended December 31, 1995
</TABLE>
- ---------------
* Previously filed.
** As filed in Part II of this Registration Statement.
*** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and have been filed separately with the Commission.
II-5
<PAGE> 88
B. FINANCIAL STATEMENT SCHEDULES.
All Financial Statement Schedules have been omitted because the information
is not applicable or is not material or because other information required is
included in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the 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 of the Registrant in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes:
(1) 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.
(2) that 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 part of this Registration
Statement as of the time it was declared effective.
(3) that 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> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on the 13th day of January 1997.
CHEMGENICS PHARMACEUTICALS INC.
By: /s/ BARRY A. BERKOWITZ, PH.D.
--------------------------------
BARRY A. BERKOWITZ, PH.D.
ITS PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on January 13, 1997.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ---------- -----
<S> <C>
/s/ BARRY A. BERKOWITZ, PH.D. President and Chief Executive Officer
- ------------------------------------------ (principal executive officer) and Director
BARRY A. BERKOWITZ, PH.D.
* Interim Chief Financial Officer
- ------------------------------------------ (principal financial officer)
JANET C. BUSH
* Manager of Accounting
- ------------------------------------------ (principal accounting officer)
KIMBERLY A. LARSON
* Chairman of the Board and Director
- ------------------------------------------
NOUBAR B. AFEYAN, PH.D.
* Director
- ------------------------------------------
GARY J. ANDERSON, M.D.
* Director
- ------------------------------------------
HUBERT J. P. SCHOEMAKER
* Director
- ------------------------------------------
CHRISTOPHER F. O. GABRIELI
* Director
- ------------------------------------------
EDWIN M. KANIA, JR.
</TABLE>
* By executing his name hereto, Barry A. Berkowitz, Ph.D. is signing this
document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
By: /s/ BARRY A. BERKOWITZ, PH.D.
-------------------------------
BARRY A. BERKOWITZ, PH.D.
(ATTORNEY-IN-FACT)
II-7
<PAGE> 90
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 10, 1997
II-8
<PAGE> 91
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- --------------------------------------------------------------------------------
<C> <S>
*(1.1 ) Form of Underwriting Agreement
(3.1 ) Restated Certificate of Incorporation
(3.2 ) Form of Restated Certificate of Incorporation, effective upon the consummation
of the offering
(3.3 ) Restated By-Laws
(3.4 ) Form of Restated By-Laws, effective upon the consummation of the offering
(4.1 ) See Exhibits 3.1 and 3.2 for provisions of the Registrant's Certificate of
Incorporation and By-Laws defining the rights of securityholders
(4.2 ) Form of Common Stock Certificate
(4.3 ) Form of Lock-Up Letter Agreement
*(5.1 ) Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to
the legality of the shares of Common Stock being registered
(10.1 ) Series A Preferred Stock Purchase Agreement, dated as of February 25, 1992, by
and between the Registrant and the Purchasers listed in Schedule 1.01 hereto
(10.2 ) Series A and B Preferred Stock Purchase Agreement, dated as of January 11, 1994,
by and between the Registrant and the Purchasers listed in Schedule 1.01 thereto
(10.3 ) Series A and B Preferred Stock Purchase Agreement, dated as of July 13, 1994, by
and between the Registrant and the Purchasers listed in Schedule 1.01 thereto
(10.4 ) Series C Preferred Stock Purchase Agreement, dated as of July 27, 1994, by and
between the Registrant and the Purchasers listed in Schedule 1.01 thereto
+(10.5 ) Series D Preferred Stock Purchase Agreement, dated as of February 9, 1995, by
and between the Registrant and the Purchasers listed in Schedule 1.01 thereto
(10.6 ) Series E Preferred Stock Purchase Agreement, dated as of November 27, 1996, by
and between the Registrant and American Home Products Corporation, acting
through its Wyeth-Ayerst Laboratories Division
(10.7 ) Standstill Agreement, dated as of November 27, 1996, by and between the
Registrant and American Home Products Corporation, acting through its
Wyeth-Ayerst Laboratories Division
+(10.8 ) Collaborative Research Agreement, dated as of January 1, 1995, by and between
the Registrant and Pfizer, Inc.
+(10.9 ) License Option, License and Royalty Agreement, dated as of January 1, 1995, by
and between the Registrant and Pfizer, Inc.
+(10.10 ) Collaborative Research and License Agreement, dated as of November 1, 1996, by
and between the Registrant and American Home Products Corporation, represented
by its Wyeth-Ayerst Laboratories Division
+(10.11 ) License Agreement, dated as of June 28, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
(10.12 ) Second Amended and Restated Voting and Co-Sale Agreement, dated as of February
9, 1995, by and between the Registrant and certain of the Registrant's security
holders
(10.13 ) Standstill Agreement, dated as of February 9, 1995, by and between the
Registrant and Pfizer, Inc.
(10.14 ) The Registrant's 1992 Employee, Director and Consultant Stock Option Plan, as
amended through December 16, 1996
(10.15 ) Master Agreement, dated as of May 7, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
(10.16 ) Amendment, dated November 22, 1996, to the Master Agreement dated May 7, 1996
between the Registrant and PerSeptive Biosystems, Inc. and the Warrant to
purchase Common Stock issued to PerSeptive Biosystems, Inc.
*(10.17 ) Omnibus Amendment Agreement dated December 18, 1996 between the Registrant and
PerSeptive Biosystems, Inc.
(10.18 ) Consulting and Interim Services Agreement, dated as of June 28, 1996, by and
between the Registrant and PerSeptive Biosystems, Inc.
(10.19 ) Confidentiality and Non-Competition Agreement, dated as of June 28, 1996, by and
between the Registrant and PerSeptive Biosystems, Inc.
(10.20 ) Voting Agreement, dated as of June 28, 1996, by and between the Registrant and
PerSeptive Biosystems, Inc.
(10.21 ) Standstill and Registration Rights Agreement, dated as of June 28, 1996, by and
between the Registrant and PerSeptive Biosystems, Inc.
(10.22 ) Employment and Non-Competition Agreement, dated as of January 1, 1992, by and
between the Registrant and Barry A. Berkowitz, Ph.D.
(10.23 ) Confidentiality Agreement, dated as of January 1, 1992, between the Registrant
and Barry A. Berkowitz, Ph.D.
(10.24 ) Stock Purchase and Repurchase Agreement, dated February 19, 1992, by and between
the Registrant and Barry A. Berkowitz, Ph.D.
(10.25 ) Employment Agreement, dated December 23, 1992, between the Registrant and
William E. Timberlake, Ph.D.
(10.26 ) Confidentiality Agreement, dated March 1, 1993, between the Registrant and
William E. Timberlake, Ph.D.
(10.27 ) Non-Competition Agreement, dated January 22, 1993, between the Registrant and
William E. Timberlake, Ph.D.
(10.28 ) Employment Agreement, dated November 11, 1995, between the Registrant and Reimar
Bruening, Ph.D.
(10.29 ) Confidentiality Agreement, dated as of November 15, 1995, by and between the
Registrant and Reimar Bruening, Ph.D.
(10.30 ) Non-Competition Agreement, dated November 15, 1995, between the Registrant and
Reimar Bruening, Ph.D.
(10.31 ) Employment Agreement, dated August 26, 1992, between the Registrant and Sean
O'Connor, Ph.D.
(10.32 ) Confidentiality Agreement, dated December 16, 1992, between the Registrant and
Sean O'Connor, Ph.D.
(10.33 ) Non-Competition Agreement, dated December 16, 1992, between the Registrant and
Sean O'Connor, Ph.D.
(10.34 ) Employment Agreement, dated March 12, 1993, between the Registrant and Yigal
Koltin, Ph.D.
(10.35 ) Confidentiality Agreement, dated June 1, 1993, between the Registrant and Yigal
Koltin, Ph.D.
(10.36 ) Non-Competition Agreement, dated May 11, 1993, between the Registrant and Yigal
Koltin, Ph.D.
(10.37 ) Employment Agreement, dated June 21, 1995, between the Registrant and Alan Crane
(10.38 ) Confidentiality Agreement, dated June 21, 1995, between the Registrant and Alan
Crane
(10.39 ) Non-Competition Agreement, dated June 21, 1995, between the Registrant and Alan
Crane
(10.40 ) Warrant Agreement, dated as of June 17, 1993, between the Registrant and
Comdisco, Inc.
(10.41 ) Warrant Agreement, dated as of May 24, 1994, between the Registrant and
Comdisco, Inc.
*(10.42 ) Warrant to purchase Common Stock of the Registrant issued to PerSeptive
Biosystems, Inc.
(10.43 ) Form of Consulting Agreement by and between the Registrant and members of the
Registrant's Scientific Advisory Board
(10.44 ) Lease Agreement between the Registrant and Old Cambridge Realty Trust, Inc.
(10.45 ) Form of Sub-Lease Agreement, dated June 28, 1996, by and between the Registrant
and PerSeptive Biosystems, Inc.
(10.46 ) Equipment Lease, dated as of June 17, 1993, by and between the Registrant and
Comdisco, Inc.
*(10.47 ) Sublease dated May 14, 1993 by and between the Registrant and MYOCRT, Inc.
(11.1 ) Statement Re: Computation of Earnings
**(23.1 ) Consent of Arthur Andersen LLP (see page II-9)
*(23.2 ) Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in
Exhibit 5.1)
(23.3 ) Consent of Carella, Byrne, Bain, Gilfallan, Cecchi, Stewart & Olstein
**(24.1 ) Power of Attorney
(27.1 ) Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** As filed in Part II of this Registration Statement.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.17
OMNIBUS AMENDMENT AGREEMENT
This Omnibus Amendment Agreement (the "Amendment") is entered into this
18th day of December, 1996, by and between ChemGenics Pharmaceuticals Inc.
(formerly known as Myco Pharmaceuticals Inc.), a Delaware corporation
("ChemGenics") and PerSeptive Biosystems, Inc., a Delaware corporation
("PerSeptive" or "PBIO").
WHEREAS, ChemGenics and PerSeptive are parties to a Master Agreement dated
May 7, 1996 (the "Master Agreement");
WHEREAS, at the Closing under the Master Agreement, the parties executed
and delivered among other documents the various documents listed in Section 1.03
of the Master Agreement (the "Ancillary Agreements"), including without
limitation the Consulting and Interim Services Agreement, the Standstill and
Registration Rights Agreement and the Warrant (as such terms are defined in the
Master Agreement) and stock certificates for the Shares (as defined in the
Master Agreement); and
WHEREAS, ChemGenics and PerSeptive have agreed upon modifications to the
terms of the transaction reflected in the Master Agreement and the Ancillary
Agreements, and wish to set forth such modifications herein, to be effective
retroactively to the Closing Date (as defined in the Master Agreement), as if
initially set forth in the Master Agreement and the Ancillary Agreements.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained in the Master Agreement, the Ancillary Agreements and this Amendment,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties, intending to be legally bound, agree
as follows:
1. Definitions.
-----------
1.1 Terms which are defined in the Master Agreement and the Ancillary
Agreements are used herein as so defined.
2. Amendments to the Master Agreement.
----------------------------------
The Master Agreement is hereby amended as follows:
<PAGE> 2
2.01 The first seven lines of Section 1.01.B are deleted from the Master
Agreement, and the following is inserted in lieu thereof:
"In consideration for the License Agreement and the transfer of
the Transferred Assets, upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date,
ChemGenics shall issue to PerSeptive an aggregate of 6,792,679
shares (the "Shares") of ChemGenics' Common Stock, $.001 par
value per share (the "Common Stock") and shall deliver to
PerSeptive a Promissory Note in the principal amount of
$3,000,000, such Note to be in the form of Exhibit 1.03(B). Of
such shares, 662,500"
Section 1.01(B) is further amended by deleting the numbers "979,268,
652,844 and 326,422" from the chart on page 3, and inserting, in lieu
thereof, the numbers "662,500, 441,667 and 220,833".
2.02 Section 8.04 is amended by deleting clause (ii) thereof, and inserting
in lieu thereof the following:
"(ii) PerSeptive will agree to restrictions on its sale or
transfer of Capital Stock of ChemGenics,"
2.03 Section 8.06 is amended by deleting the text thereof in its entirety,
and replacing it with the following:
"ChemGenics will use commercially reasonable efforts to
accomplish an underwritten registered initial public offering of
its Common Stock (a "Public Offering"), in which ChemGenics will
seek to raise at least $15,000,000 in gross proceeds on or before
June 30, 1997. If a Public Offering is not consummated by June
30, 1997, then PerSeptive will deliver to ChemGenics a
certificate for 2,000,000 of the Shares delivered to PerSeptive
hereunder, leaving PerSeptive with an aggregate of
- 2 -
<PAGE> 3
4,792,679 Shares, and ChemGenics will deliver to PerSeptive a
Promissory Note in the principal amount of $2,000,000 in the form
of Exhibit 8.06. PerSeptive shall at its own cost, assist and
cooperate with ChemGenics as ChemGenics may reasonably request in
effecting the Public Offering in a timely manner."
2.04 Section 8.07 is deleted from the Master Agreement.
2.05 It is understood and agreed that the terms of Exhibits 1.03(C)(i),
1.03(C)(ii), 1.03(C)(iii), 1.03(C)(iv) and Exhibit 1.03(C)(v) are
superseded in their entirety by the agreements executed at the Closing
as amended by this Agreement.
2.06 The last sentence of Section 8.03 and clause (i) of Section 10.15 of
the Master Agreement are hereby deleted from the Master Agreement.
3. AMENDMENT OF CONSULTING AND INTERIM SERVICES AGREEMENT. The Consulting and
Interim Services Agreement is hereby amended as follows:
3.01 Section 3 is amended by adding the following sentence immediately
after the first sentence thereof:
"The Supplies will be provided free of charge until the later of
(i) March 31, 1997 or (ii) the closing of the first Public
Offering (as defined in the Master Agreement), and thereafter
will be supplied for the balance of the three-year period at a
price equal to (a) fully-burdened manufacturing cost for Supplies
manufactured by PBIO, and (b) and the actual cost of acquisition
for Supplies distributed by PBIO."
3.02 Section 4.A is amended by deleting the words "During the three year
period commencing on the date hereof, PBIO shall loan to ChemGenics"
at the beginning thereof, and replacing them with the words:
- 3 -
<PAGE> 4
"Until the earlier of (i) June 30, 1997 or (ii) the closing of
the first Public Offering (as defined in the Master Agreement),
PBIO shall loan to ChemGenics, and thereafter through June 27,
1999, shall sell to ChemGenics at fully-burdened manufacturing
cost for Equipment manufactured by PBIO and the actual cost of
acquisition for Equipment distributed by PBIO"
Section 4.A is further amended by adding the phrase "or sold as
provided above" following the word "loaned" in the twelfth line on
page 4.
3.03 Section 5 is amended by deleting the numbers "979,268, 652,844 and
326,422" from the chart on page 7, and inserting, in lieu thereof, the
numbers "662,500, 441,667 and 220,833".
3.04 Section 9 is amended by deleting the third sentence thereof and
inserting the following:
"PBIO will on demand pay or reimburse ChemGenics for the payment
of all Severance Pay and other severance related costs in excess
of the Space Value for Drug Discovery Program Employees
terminated on or before the earlier of the closing of the Public
Offering or March 31, 1997."
and by adding the following to the last sentence of the first
paragraph thereof:
", provided the employment of such employee is terminated on or
before the earlier of the closing of the Public Offering or March
31, 1997."
4. AMENDMENT OF STANDSTILL AND REGISTRATION RIGHTS AGREEMENT. The Standstill
and Registration Rights Agreement is hereby amended as follows:
4.01 The number 9,792,679 in the first "whereas" clause is replaced with
the number 6,792,679.
- 4 -
<PAGE> 5
4.02 Section 2.02 is amended by deleting the first paragraph thereof, but
not subparagraphs (a), (b), (c) and (d), and replacing it with the
following:
"A. PBIO agrees that until the Initial Release Date (which shall
be the earlier of (i) twelve months following the Closing of the
Company's first Public Offering ("IPO") or (ii) December 30,
1998), it will not, nor will it permit any of its affiliates or
associates, to (x) distribute to its shareholders, or (y) sell,
solicit an offer to sell, agree to sell, offer or propose to sell
(collectively, "Sell") any Voting Securities of the Company or
derivative securities relating thereto ("Company Securities").
After such period:
(1) (a) during the period from the Initial Release Date until six
(6) months thereafter, PBIO may distribute to the shareholders of
PBIO (i) up to one-third of the number of shares of ChemGenics
Common Stock held by PBIO as of the earlier of the closing of the
IPO or December 30, 1998, excluding for this purpose any shares
of ChemGenics Common Stock issued upon exercise of the Warrant
(the "Non-Warrant Shares") and/or (ii) up to one-third of the
number of shares of Common Stock issuable to PBIO upon exercise
of the Warrant ("Warrant Shares"), but only to the extent PBIO
has exercised the Warrant and acquired Warrant Shares ("Exercised
Warrant Shares"), (b) in the next two succeeding six-month
periods thereafter, PBIO may distribute to its shareholders (i)
up to one-third of the Non-Warrant Shares and/or (ii) up to
one-third of the Exercised Warrant Shares and/or (iii) the
Non-Warrant Shares and the Exercised Warrant Shares permitted
to be
- 5 -
<PAGE> 6
but not distributed by PBIO in the prior six-month period and (c)
thereafter, subject to the following clause 3 of this paragraph,
Section 3.09 and applicable securities laws, PBIO shall be
permitted to distribute any or all of its Non-Warrant Shares and
Exercised Warrant Shares to its shareholders;
(2) (a) during the six-month period beginning on the earlier of
(i) 18 months from the closing of the Company's IPO or (ii)
December 30, 1998, PBIO may Sell up to one-third of PBIO's
Non-Warrant Shares and/or up to one-third of PBIO's Exercised
Warrant Shares and (b) in the next two succeeding six-month
periods thereafter, PBIO may Sell an additional one-third of
PBIO's Non-Warrant Shares and/or up to one-third of PBIO's
Exercised Warrant Shares and/or PBIO's Non-Warrant Shares and
Exercised Warrant Shares permitted to be but not sold by PBIO in
the prior six-month period and (c) thereafter, subject to the
following clause 3 of this paragraph, Section 3.09 and applicable
securities laws, PBIO shall be permitted to Sell any or all of
its Non-Warrant Shares and Exercised Warrant Shares; and
(3) In addition to the restrictions and limitations set forth in
the preceding clauses, in any six (6) month period ending on (i)
twenty four (24) months after the closing of the IPO, if the IPO
closes on or before June 30, 1997 or (ii) until the later of
twelve months after the closing of the IPO or June 30, 1999 if
the IPO closes after June 30, 1997, PBIO shall not distribute or
Sell more than a total of one-third of the Non-Warrant Shares and
one-third of the Exercised Warrant
- 6 -
<PAGE> 7
Shares. As used herein, "Public Offering" shall mean an
underwritten public offering of ChemGenics Common Stock
registered with the SEC. Notwithstanding the foregoing:"
4.03 Section 3.01 is amended by deleting the words commencing immediately
following the words "PROVIDED, HOWEVER," where appearing in the first
sentence thereof and ending with the word "Shares" at the beginning of
the fifth line on page 6 and inserting the following words: "that the
Company shall not be required to include in any such registration
statement any Registrable Shares which PBIO is not permitted to Sell
pursuant to the initial paragraph of Section 2.02 and provided further
that as a condition to including any shares issued or issuable upon
exercise of the Warrant ("Warrant Shares")
4.04 Sections 3.01 and 3.02 are amended by deleting the words "at any time
after the third anniversary of this Agreement" from the first sentence
thereof and replacing them with the words "at any time when PBIO is
permitted to Sell Company Securities pursuant to the initial paragraph
of Section 2.02,".
4.05 Section 3.09 is amended by inserting after the words "held by it"
where appearing in the first sentence thereof, the following words:
"for such period of time, and on such other terms, as shall be agreed
to among the Company, the underwriters and a majority of the venture
capital partnerships that hold Company Securities as of the IPO, nor
will PBIO permit any of its affiliates to do any of the foregoing" and
deleting the remainder of the first sentence. Section 3.09 is further
amended by deleting the words "180-day" where appearing in the last
sentence thereof and inserting the words "agreed-upon."
- 7 -
<PAGE> 8
5. Exchange of Warrants.
--------------------
5.01 Contemporaneously with the execution hereof, PerSeptive will deliver
to ChemGenics the Warrant as delivered at the Closing, and ChemGenics
shall deliver to PerSeptive a new Warrant in the form attached hereto.
The new Warrant shall, for all purposes, be deemed to be the "Warrant"
under the Master Agreement and the Ancillary Agreements.
6. EXCHANGE OF STOCK CERTIFICATES. Contemporaneously with the execution
hereof, PerSeptive shall deliver to ChemGenics certificates numbered
C0028-31 for 8,813,411, 326,423, 326,423 and 326,422 shares of Common Stock
of ChemGenics and ChemGenics shall deliver to PerSeptive certificates for
4,130,179, 2,000,000, 220,833, 220,833 and 220,834 shares of Common Stock
of ChemGenics.
7. NO OTHER CHANGES. In all other respects, the Master Agreement and the
Ancillary Agreements shall not be affected hereby, and shall remain in
force and effect as initially executed and delivered.
IN WITNESS WHEREOF, ChemGenics and PerSeptive have executed this Amendment
as of the day and year first above written.
CHEMGENICS PHARMACEUTICALS INC.
By:
------------------------------------
Barry Berkowitz
President
PERSEPTIVE BIOSYSTEMS, INC.
By:
------------------------------------
Noubar B. Afeyan
President
- 8 -
<PAGE> 1
EXHIBIT 10.42
Revised 12/17/96
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CHEMGENICS PHARMACEUTICALS INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THAT CERTAIN
MASTER AGREEMENT DATED MAY 7, 1996 BETWEEN CHEMGENICS PHARMACEUTICALS INC. AND
THE REGISTERED HOLDER OF THIS WARRANT, AND THAT CERTAIN STANDSTILL AND
REGISTRATION RIGHTS AGREEMENT DATED JUNE 28, 1996 BETWEEN CHEMGENICS
PHARMACEUTICALS INC. AND THE REGISTERED HOLDER OF THIS WARRANT, COPIES OF WHICH
ARE AVAILABLE AT THE OFFICES OF CHEMGENICS PHARMACEUTICALS INC.
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
CHEMGENICS PHARMACEUTICALS INC.
(A Delaware Corporation)
VOID AFTER 5:00 P.M., BOSTON, MASSACHUSETTS TIME, ON JUNE 28, 2000
CHEMGENICS PHARMACEUTICALS INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, PerSeptive Biosystems, Inc., a
Delaware corporation (the "Registered Holder"), or its successors or registered
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company from time to time before 5:00 p.m., Boston, Massachusetts time, on
June 28, 2000 (the "Termination Date"), Four Million, Eight Hundred Ninety-Six
Thousand, Three Hundred Thirty-Five (4,896,335) shares of Common Stock, $.001
par value, of the Company ("Common Stock"), at a purchase price of Five Dollars
($5.00) per share. The Registered Holder shall have the right to purchase up to
1,987,500 Warrant Shares at any time after the issuance of this Warrant until
the Termination Date and to purchase up to the entire amount of Warrant Shares
not previously purchased hereunder at any time after the
<PAGE> 2
earlier of (1) June 30, 1998 or (ii) six months after the closing of the first
underwritten public offering of Common Stock by the Company which is registered
with the SEC, until the Termination Date. The number of shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
1. Exercise.
--------
(a) This Warrant may be exercised by the Registered Holder, in hole or
in part, by surrendering this Warrant, with the purchase form appended hereto as
EXHIBIT I duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full shares of
Warrant Stock to which such Registered Holder shall be entitled upon
such exercise; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal
(without giving effect to any adjustment therein) to the number of
such shares called for on the face of this Warrant minus the number of
such shares purchased by the Registered Holder upon such exercise as
provided in subsection 1(a) above.
2. Adjustments.
-----------
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in
<PAGE> 3
respect of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend be proportionately reduced. If outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of shares of
Warrant Stock purchasable upon the exercise of this Warrant shall be changed to
the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par
value or a subdivision or combination as provided for in subsection 2(a)
above), then, as part of any such reorganization or reclassification,
lawful provision shall be made so that the Registered Holder of this
Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property
which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization or reclassification, such
Registered Holder had held the number of shares of Common stock which were
then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant such that the provisions set forth in
this Section 2 (including provisions with respect to adjustment of the
Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or
property thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of stock or other securities or
property into which this Warrant shall be exercisable following the
occurrence of any of the events specified in subsection 2(a) or (b) above.
3. NO FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but in lieu thereof any
fractional shares shall be cancelled.
4. LIMITATION ON SALES,ETC. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Stock have not been registered under the Securities
Act of 1933, as
-3-
<PAGE> 4
now in force or hereafter amended, or any successor legislation (the "Act"), and
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the
absence of (a) an effective registration statement under the Act as to this
Warrant or such Warrant Stock and registration or qualification of this Warrant
or such Warrant Stock under any applicable "blue sky" or state securities law
then in effect, or (b) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required.
Without limiting the generality of the foregoing, unless the offering and
sale of the Warrant Stock to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, for investment
and not with a view to, or for sale in connection with, the distribution of any
such shares, in which event the Registered Holder shall be bound by the
provisions of the following legend or a legend in substantially similar form
which shall be endorsed upon the certificate(s) evidencing the Warrant Stock
issued pursuant to such exercise:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, in the absence of an effective
registration statement for the shares under the Securities Act of
1933, as amended, or an opinion of counsel satisfactory to ChemGenics
Pharmaceuticals Inc. that an exemption from registration is then
available."
In addition, without limiting the generality of the foregoing, the Company
may delay issuance of the Warrant Stock until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including without limitation state securities or "blue sky" laws).
5. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if it had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
-4-
<PAGE> 5
6. Notices of Record Date, etc. In case:
----------------------------
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time deliverable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice, provided that the failure to give such notice shall in no event affect
the validity of the actions taken.
7. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Warrant Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
8. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
- 5 -
<PAGE> 6
9. MERGERS AND RECLASSIFICATIONS. If after the original issue date of this
Warrant there shall be any reclassification, capital reorganization or change of
the Common Stock (other than as a result of a subdivision, combination or stock
dividend provided for in Section 2(a) hereof), or any consolidation of the
Company with, or merger of the Company into, another corporation or other
business organization (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Registered Holder, so
that the Registered Holder shall thereafter have the right to purchase, at a
total price not to exceed that payable upon the exercise of this Warrant in
full, the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased by the Registered Holder immediately prior to
such reclassification, reorganization, change consolidation, merger, sale or
conveyance, and in any such case appropriate provisions shall be made with
respect to the rights and interest of the Registered Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.
10. Transfers, etc.
--------------
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its, his or her address as shown on the warrant register by written
notice to the Company requesting such change.
(b) This Warrant shall not be transferable by the Registered Holder
and shall be exercisable only by the Registered Holder except that the
Registered Holder may transfer this Warrant without the consent of the Company
to a person or entity that acquires all or substantially all the business assets
or stock of the Registered Holder, pursuant to a merger consolidation or other
transaction. Except as aforesaid, without the prior written consent of the
Company, the Warrant shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Warrant or of any rights
granted hereunder contrary to the provisions
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<PAGE> 7
of this Section, or the levy of any attachment or similar process upon the
Warrant or such rights, shall be null and void.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
11. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its offices at One Kendall Square,
Building 300 - Third Floor, Cambridge, Massachusetts 02139, or such other
address as the Company shall so notify the Registered Holder.
12. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Registered Holder.
14. BUSINESS DAYS. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Massachusetts, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
15. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
16. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
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<PAGE> 8
17. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the State of Delaware.
ChemGenics Pharmaceuticals Inc.
By:
--------------------------
Barry A. Berkowitz, Ph.D.,
President
[Corporate Seal]
ATTEST:
- ------------------------
Acknowledged and Agreed:
PerSeptive Biosystems, Inc.
By:
---------------------
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<PAGE> 9
EXHIBIT I
PURCHASE FORM
-------------
Dated:
ChemGenics Pharmaceuticals Inc.
One Kendall Square
Building 300 - Third Floor
Cambridge, Massachusetts 02139
Gentlemen:
The undersigned pursuant to the provisions set forth in the attached
Warrant (No. __), hereby irrevocably elects to purchase _____ shares of the
Common Stock (the "Common Stock") covered by such Warrant and herewith makes
payment of $____ , representing the full purchase price for such shares at the
price per share provided for in such Warrant.
The undersigned is aware that the Common Stock has not been registered
under the Securities Act of 1933, as amended (the "Act") or any state securities
or "blue sky" laws. The undersigned understands that the reliance by the Company
on exemptions under the Act is predicated in part upon the truth and accuracy of
the statements of the undersigned in this Purchase Form.
The undersigned represents and warrants that (1) it has been furnished with
all information which it deems necessary to evaluate the merits and risks of the
purchase of the Common Stock; (2) it has had the opportunity to ask questions
concerning the Common Stock and the Company and all questions posed have been
answered to its satisfaction; (3) it has been given the opportunity to obtain
any additional information it deems necessary to verify the accuracy of any
information obtained concerning the Common Stock and the Company; and (4) it has
such knowledge and experience in financial and business matters that it is able
to evaluate the merits and risks of purchasing the Common Stock and to make an
informed investment decision relating thereto.
The undersigned hereby represents and warrant that it is purchasing the
Common Stock for its own account for investment and not with a view to the sale
or distribution of all or any part of the Common Stock.
The undersigned understands that because the Common Stock has not been
registered under the Act, it must continue to bear the economic risk of the
investment for an indefinite time and the Common Stock cannot be sold unless the
Common Stock is subsequently
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<PAGE> 10
registered under applicable federal and state securities laws or an exemption
from such registration is available.
The undersigned agrees that it will in no event sell or distribute or
otherwise dispose of all or any part of the Common Stock unless (1) there is an
effective registration statement under the Act and applicable state securities
laws covering any such transaction involving the Common Stock or (2) the Company
receives an opinion of its legal counsel (concurred in by legal counsel for the
Company) stating that such transaction is exempt from registration or the
Company otherwise satisfies itself that such transaction is exempt from
registration.
The undersigned consents to the placing of a legend on its certificate for
the Common Stock stating that the Common Stock has not been registered and
setting forth the restriction on transfer contemplated hereby and to the placing
of a stop transfer order on the books of the Company and with any transfer
agents against the Common Stock until the Common Stock may be legally resold or
distributed without restriction.
The undersigned understands that at the present time Rule 144 of the
Securities and Exchange Commission (the "SEC") may not be relied on for the
resale or distribution of the Common Stock.
The undersigned understands the terms and restrictions on the right to
dispose of the Common Stock set forth in the Warrant dated [__________], 1996
which the undersigned has carefully reviewed. The undersigned consents to the
placing of a legend on its certificate for the Common Stock referring to such
restrictions and the placing of stop transfer orders until the Common Stock may
be transferred in accordance with the terms of such restrictions.
The undersigned has considered the federal and state income tax
implications of the exercise of the Warrant and the purchase and subsequent sale
of the Common Stock.
------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.47
SUBLEASE
--------
1. THIS SUBLEASE is made this 14th day of May, 1993 between MYOCRT, INC., a
Massachusetts corporation ("SUBLESSOR"), which expression shall include its
successors and assigns where the context so permits and MYCO PHARMACEUTICALS
INC., a Delaware corporation, ("SUBLESSEE"), which expression shall include its
successors and assigns, where the context so permits.
Sublessor hereby subleases the Leased Premises, as described in Paragraph 2
of this Sublease, to Sublessee, and Sublessee hereby subleases the Leased
Premises from Sublessor, upon the terms, provisions and conditions set forth in
this Sublease, subject to the terms, provisions and conditions of the Prime
Lease referred to hereinafter.
Subject to the terms and conditions of the Consent Agreement, a copy of
which is attached as Exhibit D hereto, this Sublease is subject and subordinate
to a certain Prime Lease between Robert A. Jones, K. George Najarian, and David
E. Clem, Trustees of Old Cambridge Realty Trust, under a Declaration of Trust
dated December, 1982 recorded with Middlesex South District Registry of Deeds at
Book 14828, Page 324, also filed with the Middlesex South Registry of the Land
Court as Document #632431, and not individually (hereinafter LESSOR or MASTER
LESSOR) and MYOCRT, INC. dated as of May 14, 1993.
Except as may be inconsistent with the terms of this Sublease, all the
terms, covenants, and conditions in the Prime Lease apply to this Sublease as if
SUBLESSOR were the LESSOR under the Prime Lease and SUBLESSEE were the LESSEE
under it.
<PAGE> 2
However, no subsequent changes in the Prime Lease which increase the obligations
or diminish or reduce the rights of the LESSEE thereunder, shall increase the
obligations or diminish or reduce the rights of the SUBLESSEE under this
Sublease, unless and until SUBLESSOR has obtained the written consent of the
SUBLESSEE. SUBLESSEE shall be given prompt notice and copies of any and all
changes to the Prime Lease or any assignment, subletting or consolidation
thereunder. In case of any breach of this Sublease, SUBLESSOR shall have all the
rights against SUBLESSEE that would be available to the LESSOR against the
LESSEE under the Prime Lease if the breach were by the LESSEE under the Prime
Lease. SUBLESSEE shall indemnify and hold SUBLESSOR harmless from and against
all claims by reason of any breach or default on the part of SUBLESSEE which
thereby constitutes a breach or default of SUBLESSOR under the Prime Lease.
SUBLESSEE acknowledges that LESSOR may exercise the SUBLESSOR's rights directly
against SUBLESSEE for breach of this Sublease, however, SUBLESSEE'S liability
shall be limited to the type of relief provided for under this Sublease.
SUBLESSOR consents and acknowledges that SUBLESSEE may directly request from
LESSOR that LESSOR provide to SUBLESSEE Building Services and Building
Replacements, as hereinafter defined, that LESSOR has otherwise agreed to
provide to SUBLESSOR under the Prime Lease to the same extent that SUBLESSOR
would otherwise be entitled to receive said services from Prime Lessor.
SUBLESSEE represents that it has read and is familiar with the terms of the
Prime Lease, which is attached hereto as Exhibit C.
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<PAGE> 3
Notwithstanding the foregoing, SUBLESSOR shall have no obligation to make
repairs and/or replacements (Building Replacements) to the Leased Premises, the
Building, or the Complex, as those terms are hereinafter defined. The SUBLESSOR
shall have no obligation to provide any services and utilities to the Leased
Premises, including, without limitation, heating, ventilation, air conditioning,
electricity, hot and cold water, and janitorial and other building maintenance
services (collectively "Building Services"). SUBLESSEE agrees to look solely to
the Prime LESSOR for the performance of Building Services and Building Repair
and Replacements. SUBLESSEE holds harmless the SUBLESSOR from any liability,
damage, cost, or expenses incurred by the SUBLESSEE arising out of or related to
the failure of Prime Lessor to perform its covenants and agreements under the
Prime Lease. Upon execution of this Lease (i) SUBLESSOR and SUBLESSEE shall
execute a Notice of Lease in the form of Exhibit E hereto, (ii) SUBLESSOR shall
deliver (a) the consent of the Prime Lessor in the form of Exhibit D hereto, and
(b) Subordination, Non Disturbance and Attornment Agreements from the holders of
all mortgages affecting the Lot, the Building and the Complex, in the form of
Exhibit F hereto.
2. LEASED PREMISES:
---------------
The "Leased Premises" shall consist of the entire third floor, a portion of
the basement, and shaft spaces in Building No. 300 (the "Building"), located in
the mixed use retail and office and laboratory complex in Cambridge,
Massachusetts known as and referred to as "One Kendall Square" (the "Complex"),
as
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<PAGE> 4
described in the Exhibit B hereto, which third floor space contains eleven
thousand five hundred and twenty six (11,526) rentable square feet of space,
more or less, and which basement space contains one hundred twenty (120)
rentable square feet, more or less, and which shaft space contains one hundred
and four rentable square feet more or less, as is outlined on the plan contained
in Exhibit Al (herein called the "Leased Premises").
The Leased Premises shall have as appurtenant thereto: (a) the right to use
in common with others entitled thereto, the entrances, lobbies, hallways,
stairways, walkways, sidewalks, driveways, loading docks, elevators and other
common facilities in the Building, and on the land constituting the Lot more
particularly described in Exhibit B hereto (herein called the "Lot"), necessary
or appropriate for the intended use and the approved construction of the Leased
Premises (so long as SUBLESSEE complies with the reasonable rules and
regulations of the SUBLESSOR with respect to these appurtenant rights and which
rules are applicable to and consistently applied to all other tenants in the
Building), for access to and enjoyment of the Leased Premises, or any portion
thereof, and (b) the pipes, conduits, wires, and appurtenant equipment serving
the Leased Premises, or portion thereof, in common with other portions of the
Building containing any part of the Leased Premises, subject, however, to the
following rights which are expressly excepted and reserved by PRIME LESSOR in
the Prime Lease.
Subject to PRIME LESSOR's reserved rights specified in the Prime Lease,
paragraph 2, subparagraphs (i), (ii), and (iii), there
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<PAGE> 5
shall be appurtenant to the Leased Premises the right to park twenty three (23)
passenger motor vehicles (the "Parking Rights") in the parking garage which is
located appurtenant to the Lot on Binney Street, commonly known as the OKS
Garage. SUBLESSOR reserves the right to designate the locations of the spaces to
be utilized for such parking rights by written notice to SUBLESSEE, and to
change the location of any or all of such spaces by notice to SUBLESSEE at any
time and from time to time as SUBLESSOR shall solely determine; provided however
that SUBLESSEE'S parking spaces shall at all times be located within the indoor
parking garage and not in separate outdoor lots. The parking spaces provided
hereunder need not be contiguous. SUBLESSOR agrees that to the extent guest
parking privileges are afforded in connection with the OKS Garage, they shall be
made available to SUBLESSEE to the same extent as they are made available to the
other tenants in the Complex.
3.1 TERM. The term (the "term") of this Sublease shall be for a period of
ten (10) years following the "Rent Commencement Date". The "Rent Commencement
Date" shall be the date of the earlier to occur of:
(a) The date upon which the Leased Premises are, after the completion of
tenant improvements, "ready for occupancy" (as defined in Paragraph 3.2
below) or
(b) six months after the Sublease Commencement Date, as that term is
defined in Paragraph 3.1.1. However, in the event of Sublessor caused
delays, including any delays in obtaining appropriate orders of the
Bankruptcy Court to
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<PAGE> 6
permit financing of the tenant improvements or delays of the Prime Lessor
arising out of consummation of its Bankruptcy Plan, or force majeure events
unrelated to construction which affect the Building or the Lot as a whole
(but not tenant caused delays or force majeure events related to
construction or which do not affect the Building or the Lot as a whole)
which cause the construction of the tenant improvements to be delayed
beyond six months from the date of Sublease execution, the Rent
Commencement Date shall be extended by a period of time commensurate with
said Sublessor caused delay or applicable force majeure event. It is
expressly understood that the failure of the Sublessor to timely make
payment of its pro rata portion of the costs of the Tenant Improvements,
after Sublessee has complied with all of the preconditions to payment of
said costs, which failure to pay results in construction delays and is
unrelated to a dispute between the parties involving the adequacy and
sufficiency of the construction, shall constitute Sublessor caused delay.
3.1.1. CONDITION OF PREMISES. The SUBLESSOR shall deliver the Leased
Premises to the SUBLESSEE in their present "as is" condition, broom clean and
free of any other tenants, on the Sublease Commencement Date. SUBLESSOR makes no
representations or warranties concerning the condition of the Leased Premises or
their suitability for SUBLESSEE's purposes. The Sublease Commencement Date shall
be May 14, 1993.
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<PAGE> 7
3.2. COMPLETION OF IMPROVEMENTS. The Leased Premises shall be considered
"ready for occupancy" on the date upon which the improvements detailed in the
final plans and specifications referred to herein, to be constructed by
SUBLESSEE (the "Tenant Improvements") with respect to the Leased Premises are
substantially completed, and SUBLESSEE is given a copy of a certificate of
occupancy issued by the City of Cambridge Building Department covering the
Leased Premises. The Leased Premises shall be deemed substantially completed
notwithstanding that completion of work and adjustment of equipment and fixtures
or minor items of uncompleted work (so-called "punch list" work items) remain to
be done, if such work can be completed after occupancy has been taken without
causing unreasonable interference with SUBLESSEE's use of the Leased Premises.
3.3. LESSEE'S IMPROVEMENT WORK. With respect to the construction work to be
completed by SUBLESSEE at the Leased Premises ("the Tenant Improvements"),
SUBLESSEE shall deliver to SUBLESSOR within ten (10) business days after
execution of this Sublease, preliminary plans and specifications for the
construction of any such improvements to the Leased Premises. After the
SUBLESSOR's approval of the preliminary plans and specifications, the SUBLESSEE
shall submit detailed plans and specifications to the SUBLESSOR for approval.
All such plans and specifications shall be subject to approval by SUBLESSOR in
the exercise of SUBLESSOR's reasonable judgment, which approval shall not be
unreasonably withheld or delayed. Notice of disapproval, if any, by SUBLESSOR
shall be served upon SUBLESSEE within five
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<PAGE> 8
business (5) days of receipt by SUBLESSOR of the preliminary plans and
specifications, as the case may be. Any such notice of disapproval shall include
therein the reasons for disapproval. Failure on the part of the SUBLESSOR to
respond within the five business (5) day period shall be deemed to be approval
of that particular set of plans and specifications. Provided that the final
plans and specifications are in the form substantially similar to the
preliminary plans and specifications previously approved by the SUBLESSOR, the
SUBLESSOR shall approve the final plans and specifications. Once approved,
SUBLESSEE agrees to perform, or have performed, the construction and improvement
work, identified on the detailed plans and specifications diligently and
completely and to perform such work in a good and workmanlike manner,
substantially in conformance with the plans and specifications earlier approved,
or deemed approved by SUBLESSOR. SUBLESSOR also reserves the right to reasonably
approve contractors. Notice of disapproval by SUBLESSOR of contractors, if any,
shall be served upon SUBLESSEE within three (3) business days of receipt by
SUBLESSOR of a notice from SUBLESSEE identifying the contractor. Any such notice
of disapproval by SUBLESSOR of contractors shall include therein the reasons for
disapproval. Failure on the part of SUBLESSOR within said three (3) business day
period shall be deemed to be approval of that particular contractor. SUBLESSOR
grants preapproval to use GLC as laboratory consultants. SUBLESSEE shall
indemnify and hold SUBLESSOR harmless for all damages which may be occasioned to
the SUBLESSOR by reason of said construction work.
- 8 -
<PAGE> 9
With respect to all such SUBLESSEE work, SUBLESSEE further agrees as
follows: that such work shall commence only after all required municipal and
other governmental permits and authorizations have been obtained (the SUBLESSOR
agreeing to join in any application therefor and reasonably cooperate with
SUBLESSEE) at SUBLESSEE's expense whenever necessary, and all such work shall be
done in a good and workmanlike manner in compliance with building and zoning
laws and with all other laws, ordinances, regulations and requirements of all
federal, state and municipal agencies, and in accordance with the requirements
and policies issued by any insurer of SUBLESSOR or SUBLESSEE with respect to the
amount and type of insurance to be carried with respect to said SUBLESSEE's
work; that all such work shall be prosecuted with reasonable dispatch to
completion; that at all times when any such work is in progress, SUBLESSEE shall
maintain or cause to be maintained adequate workmen's compensation insurance for
those employed in connection therewith with respect to whom death or injury
could be asserted against SUBLESSOR, the SUBLESSEE or the Leased Premises and
comprehensive general liability or builder's risk insurance (for mutual benefit
of SUBLESSEE and SUBLESSOR) in coverages reasonably approved by SUBLESSOR; and
that all such work of SUBLESSEE shall be coordinated with any work being
performed by SUBLESSOR and other tenants of the building in which the work is
taking place to the extent reasonable and to the extent such coordination does
not cause undue delay in the completion of SUBLESSEE's work and that all such
work of SUBLESSEE shall be performed in such manner as
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<PAGE> 10
to maintain harmonious labor relations and not to unreasonably interfere with
the operation of the Building or the construction work of others and SUBLESSOR
reserves the right to obtain an injunction to stop SUBLESSEE's work in any such
event or to exercise any right set forth in Paragraph 18 of this Sublease,
except that nothing herein shall obligate SUBLESSEE to use union or non-union
contractors.
SUBLESSEE shall not permit any mechanics' liens, or similar liens to remain
upon the Leased Premises for labor and materials furnished to SUBLESSEE or
claimed to have been furnished to SUBLESSEE in connection with the work of the
SUBLESSEE of any character performed or claimed to have been performed at the
direction of SUBLESSEE, and shall cause any such lien to be released of record
or sufficiently bonded forthwith without cost to SUBLESSOR. To that end,
SUBLESSEE shall, upon completion of all improvements, certify to SUBLESSOR that
all contractors, subcontractors and other independent contractors have been paid
in full, except as to those contractors, subcontractors and other independent
contractors with whom SUBLESSEE has a bona fide dispute. In the event SUBLESSEE
has a bona fide dispute with any such contractor, subcontractor or independent
contractor, SUBLESSEE shall notify SUBLESSOR of the identity of such contractor
and the amount of the bona fide dispute but SUBLESSEE shall not be relieved of
its obligation not to permit any mechanics' liens, or similar liens to remain
upon the Leased Premises and to cause any such lien to be released of record or
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<PAGE> 11
sufficiently bonded forthwith, all as set forth in this Paragraph 3.3.
At the reasonable request of the SUBLESSEE, SUBLESSEE shall have such
access to the space of other tenants within the Building to accomplish the
foregoing construction work as the SUBLESSOR is able to provide to the SUBLESSEE
consistent with other leases.
SUBLESSOR hereby appoints Conrad Fagone as its Construction Representative
in connection with the completion of the Tenant Improvement work. Any action or
failure to act by the Construction Representative shall be deemed to be the
action or failure to act of the SUBLESSOR. SUBLESSOR shall only change its
Construction Representative after having given written notice to Sublessee.
All work necessary to prepare the Leased premises for SUBLESSEE'S occupancy
shall be performed by SUBLESSEE. Subject to reasonable rules and regulations
established at a pre-construction meeting with SUBLESSOR'S Construction
Representative, SUBLESSOR shall permit Sublessee to enter the Leased Premises
and other portions of the Building for the purpose of performing the Tenant
Improvement work. Any such entry shall be at SUBLESSEE'S sole risk and expense
and SUBLESSOR shall not be responsible for any damage or loss to any property or
installations which may be placed in the Leased Premises prior to the Rent
Commencement Date, unless caused by SUBLESSOR, its agents, representatives,
employees or servants. SUBLESSEE shall
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<PAGE> 12
not be required to pay any fees or commissions to SUBLESSOR in connection with
the performance of the Tenant Improvement work.
3.4. FINANCING OF LESSEE IMPROVEMENT WORK. Subject to the terms of a
financing commitment received from Neworld Bank, SUBLESSOR has agreed to finance
the tenant improvement work referenced in Paragraph 3.3 in an amount equal to
five hundred seventy six thousand, three hundred ($576,300.00) dollars
("Landlord's Contribution"). Any and all other costs and expenses over and above
$576,300.00 shall be the sole and exclusive responsibility of SUBLESSEE.
SUBLESSEE shall submit to SUBLESSOR's lender such reasonable documentation,
including financial statements, as the lender deems necessary to assure lender
of SUBLESSEE's ability to fund its portion of the buildout costs.
Disbursement of Landlord's Contribution shall be subject to such reasonable
conditions, including but not limited to processing time, inspections and
retainage, which may be imposed by SUBLESSOR's lender. SUBLESSOR shall
communicate said conditions to SUBLESSEE within seven (7) business days of
receipt of same. Payment of SUBLESSEE's contractors shall be on a pro rata
basis, that is proportional between SUBLESSOR and SUBLESSEE in the same
percentage that Landlord's Contribution bears to the total budget for tenant
improvements. In no event shall SUBLESSOR be responsible for contributing more
than $576,300 toward tenant improvements.
It is further understood and acknowledged that the Master LESSOR of the One
Kendall Square Complex has filed a so-called
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"prepackaged" bankruptcy petition. It is acknowledged that as a precondition to
disbursement by the Tenant Improvements Lender that the bankruptcy case be
completed or appropriate orders of the Bankruptcy Court be entered protecting
the status and priority of the Tenant Improvements Lender's security interest,
after the expiration of applicable appeal periods.
4. RENT. SUBLESSEE covenants and agrees to pay to SUBLESSOR annual base
rent ("Base Rent") in the amounts set forth or provided for below, by equal
payments of one-twelfth of such annual rate on the first day of each calendar
month in advance, the first monthly payment to be made on the Rent Commencement
Date, and by payment in advance of a pro-rata portion of a monthly payment for
any portion of a month at the beginning or end of the term; all payments to be
made without deduction, set off or counterclaim, and except as otherwise noted
in this SUBLEASE, without abatement; all payments to be made to SUBLESSOR or
such agent, and at such place, as SUBLESSOR shall from time to time in writing
designate, the following being now so designated:
MYOCRT, INC.
c/o THE ATHENREUM GROUP
215 First Street
Cambridge, MA 02142
The annual Base Rent during the ten year term of the SUBLEASE shall be:
(a) During Year l: $281,249.50; calculated as $24.25 per rentable square
foot multiplied by 11,526 rentable square feet, plus $5.00 per rentable square
foot multiplied by 120 rentable
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square feet; plus $11.00 per rentable square foot multiplied by 104 rentable
square feet;
(b) During Year 2: $295,657; calculated as $25.50 per rentable square foot
multiplied by 11,526 rentable square feet, plus $5.00 per rentable square foot
multiplied by 120 rentable square feet; plus $11.00 per rentable square foot
multiplied by 104 rentable square feet;
(c) During Year 3: $310,064.50; calculated as $26.75 per rentable square
foot multiplied by 11,326 rentable square feet, plus $5.00 per rentable square
foot multiplied by 120 rentable square feet; plus $11.00 per rentable square
foot multiplied by 104 rentable square feet;
(d) During Year 4: $325,970.38; calculated as $28.13 per rentable square
foot multiplied by 11,526 rentable square feet, $5.00 per rentable square foot
multiplied by 120 rentable square feet; plus $11.00 per rentable square foot
multiplied by 104 rentable square feet;
(e) During Year 5: $337,496.38; calculated as $29.13 per rentable square
foot multiplied by 11,526 rentable square feet, plus $5.00 per rentable square
foot multiplied by 120 rentable square feet; plus $11.00 per rentable square
foot multiplied by 104 rentable square feet;
(f) During Years 6-10: At the annual rate of $174,634; calculated as $15.00
per rentable square foot multiplied by 11,526 rentable square feet, plus $5.00
per rentable square foot multiplied by 120 rentable square feet; plus $11.00 per
rentable square foot multiplied by 104 rentable square feet;
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<PAGE> 15
PLUS
(i) During the first five years of the lease term, $105 per month for
each of the parking spaces taken by LESSEE hereunder.
(ii) During years 6 through 10 of the term, the annual fair rental
value of LESSEE's parking spaces, as reasonably determined by
LESSOR, but not more than the fair rental value of parking spaces
actually charged other tenants for use of the OKS Garage.
Notwithstanding the foregoing, during the period of time after the Lease
Commencement Date but before the Rent Commencement Date, LESSEE shall pay to
LESSOR $105 per month per parking space actually used by LESSEE during said time
period.
5. RENT ADJUSTMENTS.
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5.1 RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE LOT.
Commencing as of the Rent Commencement Date and with respect to any calendar
year or any fraction of a calendar year thereafter falling within the term, the
SUBLESSEE shall pay to the SUBLESSOR as additional rent, the "LESSEE'S
Proportionate CAO Lot Expense Share" as defined in the Prime Lease.
Notwithstanding the foregoing, Sublessee's payments pursuant to this Section
shall not be increased on an annual basis by more than 125% of any annual
increase in the CPI over that same period. As set forth in the Prime Lease, the
total rentable area of the Leased Premises is 11,750 square feet and the total
rentable area of the Complex is 610,564 square feet or 1.92%.
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<PAGE> 16
5.2. RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE BUILDING.
Commencing as of the Rent Commencement Date and with respect to any calendar
year falling within the term, or fraction of a calendar year at the beginning or
end of the term, the SUBLESSEE shall pay to the SUBLESSOR, as additional rent,
the "LESSEE'S Proportionate Building Expense Share" as defined in the Prime
Lease. Notwithstanding the foregoing, Sublessee's payments pursuant to this
Section shall not be increased on an annual basis by more than 125% of any
annual increase in the CPI over that same period. As set forth in the Prime
Lease, the total rentable area of the Leased Premises is 11,750 square feet and
the total rentable area of the Building is 59,353 or 19.80%. Attached as Exhibit
G is a summary of expenses for the Building and Complex for the 1992 Calendar
Year.
5.3 MONTHLY PAYMENTS. Beginning as of the Rent Commencement Date, and in
subsequent years during the term of this SUBLEASE, the SUBLESSEE shall pay to
the SUBLESSOR pro rata monthly installments of amounts due under Paragraphs 5.1
and 5.2 of the Prime Lease. Appropriate adjustments of estimated amounts shall
be made between SUBLESSOR and SUBLESSEE promptly after the close of each
calendar year to account for actual CAO Lot Expenses and CAO Building Expenses
for such year. The balance of any amounts due from either party to the other
shall be paid within twenty (20) days after written notice thereof. SUBLESSEE
shall have the same rights as SUBLESSOR to audit and review the books and
records of LESSOR for calculation of CAO Lot and CAO Building Expenses as
SUBLESSOR has under the Prime Lease.
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<PAGE> 17
5.4.2. LESSEE'S SHARE OF TAXES. The SUBLESSEE shall pay to the SUBLESSOR,
as additional rent, the SUBLESSEE'S Proportionate Building Expense Share of that
portion of the Taxes attributable to the Building and SUBLESSEE'S Proportionate
CAO Lot Expense Share of that portion of the Taxes attributable to the land
which constitutes the Lot all as set forth in the Prime Lease (inclusive of
interest on assessments payable in installments, but exclusive of any interest
or fines, penalties or other costs due solely by reason of the late payment of
any Real Estate Taxes, including assessments payable in installments). The
increase caps referred to in Paragraphs 5.1 and 5.2 shall not apply to the
calculation of Sublessee's share of taxes.
5.4.3. RENT ADJUSTMENT-PAYMENT. Beginning on the Rent Commencement Date and
in subsequent years during the term of this Sublease, SUBLESSEE shall pay to the
SUBLESSOR monthly installments of one-twelfth of the amounts due to LESSOR under
Paragraphs 5.4.1 and 5.4.2 of the Prime Lease. Appropriate adjustments of
estimated amounts shall be made between SUBLESSOR and SUBLESSEE promptly after
SUBLESSOR shall have received from LESSOR the actual tax bill covering any such
period.
5.4.4. TAX ADJUSTMENT. If the SUBLESSOR or any other party (excluding
SUBLESSEE) in the Building shall construct an addition to the Building, or
construct improvements within the Building of unusual value so as to result in
an increase in Taxes over the Taxes which would have been assessed to that
Building but for such construction, there shall not be included in Taxes
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<PAGE> 18
for purposes of this SUBLEASE the amount of such increase in Taxes unless such
additions or improvements directly benefit the SUBLESSEE. If the SUBLESSEE, or
the SUBLESSOR at the direction of the SUBLESSEE, shall construct improvements
within the Leased Premises, or any part thereof, of unusual value so as to
result in an increase in Taxes over the Taxes which would have been assessed to
the Building, or part, but for such unusually valuable improvements, the
SUBLESSEE shall be responsible for the payment of the full amount of such
increase.
5.5 DEFINITION OF C.P.I. For the purpose of this SubLease, the "Consumer
Price Index" shall mean the Consumer Price Index for all Urban Consumers
(CPI-U)(Revised), Boston, Massachusetts Series A (1982-84=100) as published by
the United States Bureau of Labor Statistics; and the percentage increase
therein shall be calculated on the basis of the Consumer Price Index figure for
the reporting date next prior to each applicable January 1. It is the purpose
and intent of the parties that such adjustments be measured and determined by
reference to the Consumer Price Index in effect, and generally as it is
calculated, computed and constituted, on the Execution Date. Accordingly, if the
Bureau of Labor Statistics should cease to publish such index in its present
form and calculated on the present basis, a comparable index or an index
reflecting change in the cost of living determined in a similar manner shall be
chosen by agreement by the parties.
6. UTILITIES AND OTHER SERVICES.
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<PAGE> 19
(a) The SUBLESSEE shall pay charges for all heat, air-conditioning,
electricity, water and sewer, and other utilities which are separately metered
or sub-metered to the Leased Premises. SUBLESSEE shall be responsible for all
utility company deposits applicable to the supply of such services to the Leased
Premises. SUBLESSEE shall also pay LESSEE's Proportionate Building Expense Share
as set forth in the Prime Lease, of all utilities not separately metered or
sub-metered to the Leased Premises but which serve the Leased Premises. Upon
request by the SUBLESSOR, the SUBLESSEE shall provide the SUBLESSOR with
evidence of payment of such charges. SUBLESSEE shall defend, indemnify and hold
SUBLESSOR harmless from and against any claim or liability arising for such
charges which SUBLESSEE is responsible for, but for which it fails to pay.
(b) Except where the interruption of services or utilities is caused
by the negligence or act of the SUBLESSOR, and such interruption continues for
more than five (5) consecutive business days or more than ten (10) business days
within any calendar month (whether or not consecutive), LESSOR shall not be
liable to LESSEE or SUBLESSEE for any compensation or reduction of rent by
reason of inconvenience or annoyance or for loss of business arising from the
necessity of SUBLESSOR or its agents entering the Leased Premises, to make
repairs in order to restore utilities, or for making repairs or renovations to
any portion of the Building in order to restore utilities. In case LESSOR is
prevented or delayed from making any such repairs or alterations, or supplying
the utilities or services provided for
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<PAGE> 20
herein, or performing any other covenant or duty to be performed on behalf of
SUBLESSOR'S part, by reason of any cause beyond SUBLESSOR'S control, SUBLESSOR
shall not be liable to SUBLESSEE therefor, nor shall SUBLESSEE be entitled to
any abatement or reduction of rent by reason thereof, nor shall the same give
rise to a claim in SUBLESSEE's favor that such failure constitutes actual or
constructive, total or partial, eviction from the Leased Premises, or any
portion thereof. SUBLESSEE acknowledges that LESSOR has in the Prime Lease
reserved the right to stop any service or utility system, when necessary by
reason of accident or emergency, or until necessary repairs have been completed.
(c) To the extent SUBLESSOR or SUBLESSEE has installed separate meters
for any utilities including heat, electricity, water and sewer, and
air-conditioning to the Leased Premises, the SUBLESSEE shall pay its utility
charges directly to the suppliers of such utility services before the same
become delinquent. The SUBLESSEE shall have the right to audit said charges and
payments upon reasonable notice.
7. USE OF LEASED PREMISES. The SUBLESSEE may use the Leased Premises only
for the purpose of general office use, laboratories, research and development,
including in vitro and in vivo testing of pharmaceutical, and accessory uses
generally common to pharmaceutical research and development, including
production of pharmaceutical, but only on a pilot scale.
8. COMPLIANCE WITH LAWS. The SUBLESSEE acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof which
shall be unlawful, improper, noisy or
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<PAGE> 21
offensive, or be contrary to any law or any municipal by-law or ordinance in
force in the City of Cambridge. Except as otherwise provided herein, the
SUBLESSEE shall keep the Leased Premises equipped with all safety appliances and
shall procure and keep in force all licenses and permits required by law or
ordinance of any public authority because of the particular uses made of the
Leased Premises by SUBLESSEE and shall maintain in good condition on the Leased
Premises all safety and fire protection devices required by the Board of Fire
Underwriters, or other body having similar functions, and of every insurance
company and policy by which SUBLESSOR or SUBLESSEE is insured. If any use of the
Leased Premises results in the cancellation of any insurances carried by
SUBLESSOR, or increases the cost thereof, the SUBLESSEE shall on demand
reimburse the SUBLESSOR all extra insurance premiums incurred as a result of
such use of the Leased Premises by the SUBLESSEE.
9. RISK OF LOSS OF PERSONAL EFFECTS. SUBLESSEE acknowledges and agrees that
all of the furnishings, equipment effects and property of SUBLESSEE and of all
persons claiming by, through or under SUBLESSEE which may be on the Leased
Premises or elsewhere in any building in the Complex, shall be at the sole risk
and hazard of SUBLESSEE and if the whole or any part thereof shall be destroyed
or damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by SUBLESSOR, except that
SUBLESSOR shall in no event be indemnified or held harmless
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<PAGE> 22
or exonerated from any liability to SUBLESSEE or to any other person, arising
from any injury, loss, damage or liability caused by SUBLESSOR'S gross
negligence.
9A. INSURANCE - WAIVER OF SUBROGATION. SUBLESSOR as an additional insured
under the LESSOR'S insurance policy agrees to keep the Building and the Tenant
Improvements and SUBLESSEE agrees to keep any replacement or additional
improvements made by the SUBLESSEE to the Leased Premises, (other than the
Tenant Improvements) and all equipment, machinery and fixtures therein insured
in amounts equal to the actual cash value without deduction for depreciation
(i.e. full replacement cost) of the same, against fire and other perils included
in a standard extended coverage endorsement, and against breakdown of boilers
and other machinery and equipment (hereinafter "Property Insurance"), and
SUBLESSEE agrees to procure and keep in force comprehensive general liability
insurance indemnifying SUBLESSEE against all claims and damages for any injury
to or death of person or damage to property which may be claimed to have
occurred upon or to have been caused by activities or conditions within the
Leased Premises and indemnifying SUBLESSOR to the extent any such claims and
demands are the responsibility or obligation of SUBLESSEE pursuant to this
SUBLEASE or as a matter of law, in amounts not less than $500,000 for property
damage, $500,000 for injury or death of one person, and $1,000,000 for injury or
death of more than one person in a single accident.
SUBLESSOR, as an additional insured under the LESSOR's insurance policy
agrees to procure and keep in force
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<PAGE> 23
comprehensive general liability insurance for personal injury liability
(including without limitation, bodily injury, sickness, disease and death)
arising out of an occurrence in the common areas of the Lot and Building.
All insurance required hereunder shall be written by insurance carriers
qualified to do business and in good standing in Massachusetts and approved by
SUBLESSOR, which approval shall not be unreasonably withheld. The SUBLESSEE'S
policy of liability insurance shall name SUBLESSOR and SUBLESSEE as the insured
parties, and the insurance carried by the SUBLESSOR on the Tenant Improvements
("Tenant Improvements Insurance") shall name the Tenant Improvements Lender and
SUBLESSEE as additional insureds. Each required policy of insurance shall
provide that, notwithstanding any act or omission of SUBLESSEE which might
otherwise result in forfeiture of said insurance; (A) it shall not be cancelled
nor its coverage reduced without at least ten (10) days prior written notice to
each insured named therein, and (B) with respect to the Tenants Improvements
Insurance, any proceeds shall first be payable to the Tenants Improvement Lender
and then to the SUBLESSOR and SUBLESSEE as their respective interests may
appear, as set forth below.
As of the commencement of the term hereof, and thereafter not less than
fifteen (15) days prior to the expiration dates of the expiring policies, the
original policies to be obtained by SUBLESSEE hereto issued by the respective
insurers or certificates thereof. Upon reasonable request, SUBLESSEE shall
provide SUBLESSOR photocopies of the original policies.
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<PAGE> 24
Any insurance carried by either party with respect to the Leased Premises
or property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this SUBLEASE to the
contrary, hereby waives any rights of recovery against the other for injury or
loss due to hazards covered by such insurance.
Notwithstanding anything herein contained to the contrary SUBLESSOR'S cost
of obtaining Tenant Improvements Insurance during the initial term of the
SUBLEASE (excluding any extension periods) shall be borne by the SUBLESSEE. In
the event of a casualty to the Tenant Improvements, unless LESSOR does not
receive necessary insurance proceeds to restore that portion of the Building
necessary to be restored prior to the reconstruction of the Tenant Improvements,
LESSOR shall use the Tenant Improvement Insurance proceeds to restore the Tenant
Improvements to substantially the same condition as existed prior to the
casualty. In the event that the LESSOR does not receive insurance proceeds
necessary to restore that portion of the Building which is a necessary
prerequisite to restore the Tenant Improvements, any proceeds of the Tenants
Improvement Insurance shall first be payable to the Tenant Improvements Lender
and the balance shall be distributed to the SUBLESSOR and the SUBLESSEE as set
forth herein. The interest of the SUBLESSOR and SUBLESSEE shall be based on the
assumption that the SUBLESSEE'S insurable
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<PAGE> 25
interest in the Tenant Improvements was 100% as of the date on which the Tenant
Improvements were substantially completed and diminished on a straight line
basis to 0% as of the date which is ten (10) years after the Rent Commencement
Date. SUBLESSOR shall upon request, deliver to SUBLESSEE a certificate of
insurance evidencing such Tenant Improvement Insurance, including any
replacement or renewal certificates and evidence of payment. SUBLESSEE shall be
named as an additional insured of such policy.
10. MAINTENANCE OF LEASED PREMISES. The SUBLESSEE agrees to maintain the
interior of the Leased Premises in the same condition as they are at the
commencement of the term or as they may be put in during the term of this
SUBLEASE, reasonable wear and tear, damage by fire, other casualty and eminent
domain, and matters for which the SUBLESSOR is responsible hereunder only
excepted, to provide its own interior janitorial service, to install and
maintain its own security system as it considers appropriate and, whenever
necessary, to replace plate glass and other glass therein with that of the same
quality as that damaged or injured, except as otherwise provided in the Prime
Lease. SUBLESSEE shall maintain and pay for the HVAC System solely servicing the
Leased Premises, and SUBLESSEE shall be responsible for all repairs and
replacements to said system, insurance casualty only excepted. The SUBLESSEE
shall not permit the Leased Premises to be overloaded, damaged, stripped, or
defaced, nor suffer any waste. SUBLESSEE shall obtain written consent of
SUBLESSOR before erecting any sign on or about the Leased Premises, which
consent shall not be unreasonably withheld or
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<PAGE> 26
delayed. SUBLESSEE further covenants and agrees: to take all reasonably
necessary actions to insure that smoke, fumes, vapors and odors will not
permeate the Building and will be removed only through the exhaust and
ventilating system servicing the Leased Premises; to keep the Leased Premises
free of pests, roaches and vermin; to keep all trash, garbage and debris stored
on the Leased Premises (and not in any other portions of the Lot or the
Building) in adequate covered containers, approved by SUBLESSOR and placed in
locations or areas approved by SUBLESSOR in writing and to arrange for the
regular removal thereof once each day; to provide for the frequent and adequate
cleaning of the Leased Premises and all walls, floors, fixtures and equipment
therein consistent with its use.
11. ALTERATIONS - ADDITIONS. (a) Other than the Tenant Improvements, the
construction of which shall be governed by Paragraph 3.3, the SUBLESSEE shall
not make structural alterations or additions to the Leased Premises, but may
make non-structural alterations and improvements costing less than fifty
thousand ($50,000.00) dollars in the aggregate which does not in any way affect
the Building systems and for which it has provided SUBLESSOR with plans and
specifications for such work at least five (5) days prior to commencement of
such alterations. SUBLESSEE may make non-structural improvements costing more
than fifty thousand ($50,000.00) dollars in the aggregate which does not affect
Building systems, provided the SUBLESSOR consents thereto in advance in writing
in each instance, which consent shall not be unreasonably withheld or delayed so
long as
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<PAGE> 27
SUBLESSOR is furnished with detailed plans and specifications to be reasonably
approved by SUBLESSOR. Failure to disapprove any such plans within fifteen (15)
business days of receipt of such plans shall be deemed approval. All such
allowed alterations or additions shall be at SUBLESSEE'S sole cost and expense
and shall be in quality at least equal to the Tenant Improvement construction
referred to in Paragraph 3.3.
(b) SUBLESSEE shall not permit any mechanics' liens, or similar liens, to
remain upon the Leased Premises for labor and materials furnished to SUBLESSEE
or claimed to have been furnished to SUBLESSEE in connection with the work of
any character performed or claimed to have been performed at the direction of
SUBLESSEE, and shall cause any such lien to be released of record or
sufficiently bonded forthwith without cost to SUBLESSOR. Any alterations,
additions or improvements made by the SUBLESSEE, pursuant to this Paragraph 11,
except for equipment, moveable partitions and furnishings identified in writing
as such at the time SUBLESSEE seeks consent from SUBLESSOR to perform such
non-structural alterations, leased or installed at the SUBLESSEE'S cost, shall
become the property of the SUBLESSOR at the termination of the SUBLEASE as
provided herein.
(c) Anything herein or in the Prime Lease to the contrary notwithstanding,
all business and trade fixtures, machinery and equipment (including, without
limitation, scientific and business equipment and installations); communications
and office equipment, whether or not attached to or built into the Premises;
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and all furniture, furnishing and other movable articles of personal property
owned by SUBLESSEE and located in the Premises (all of which are herein referred
to as "Sublessee's Property") shall remain the property of SUBLESSEE and may be
removed by SUBLESSEE or any person claiming under SUBLESSEE at any time or times
during the Lease Term, and may be removed by SUBLESSEE at the expiration or
earlier termination of the Lease Term. Upon any removal by SUBLESSEE of
SUBLESSEE's Property, SUBLESSEE shall repair or pay the cost of repairing any
damage to the Premises or the Building occasioned by such removal and shall
restore or pay the cost of restoring the Leased Premises to the condition which
existed after the completion of the Tenant's improvements or any approved
alteration or addition, as the case may be.
With respect to all such SUBLESSEE work, SUBLESSEE further agrees as
follows: that such work shall commence only after all required municipal and
other governmental permits and authorizations have been obtained (the SUBLESSOR
agreeing to join in any application therefor at the SUBLESSEE'S expense,
whenever necessary) and all such work shall be done in a good and workmanlike
manner in compliance with building and zoning laws and with all other laws,
ordinances, regulations and requirements of all federal, state and municipal
agencies, and in accordance with the requirements and policies issued by any
insurer of SUBLESSOR or SUBLESSEE; that all such work shall be prosecuted with
reasonable dispatch to completion; that at all times when any such work is in
progress, SUBLESSEE shall maintain or cause to be maintained adequate workmen's
compensation insurance for
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<PAGE> 29
those employed in connection therewith with respect to whom death or injury
claims could be asserted against SUBLESSOR, the SUBLESSEE or the Leased Premises
and comprehensive general liability or builder's risk insurance (for mutual
benefit of SUBLESSEE and SUBLESSOR, in coverages reasonably approved by
SUBLESSOR; and that all such work of SUBLESSEE shall be coordinated with any
work being performed in the Building in such manner as to maintain harmonious
labor relations and not to interfere with the operation of the Building or the
Complex or the construction work of others.
12. ASSIGNMENT - SUBLETTING. The SUBLESSEE may assign or sublet the whole
or any part of the Leased Premises, upon obtaining SUBLESSOR'S prior written
consent, which consent shall not be unreasonably withheld or delayed. Failure to
disapprove within ten (10) business days, shall be deemed to be approval.
Notwithstanding any such consent, SUBLESSEE shall remain liable to SUBLESSOR for
the payment of all rent and for the full performance of the covenants and
conditions of this SUBLEASE (which following assignment and/or subletting, as
the case may be, shall be joint and several with any assignee or sub-lessee). In
addition, SUBLESSEE shall pay to LESSOR as additional rent hereunder, one half
of any profit earned by SUBLESSEE as a result of any such sublet or assignment.
For purposes of this clause, profit shall be defined as the rent in excess of
SUBLESSEE'S obligations to SUBLESSOR, less all reasonable costs associated with
the sublet or assignment. This section shall not apply to (a) a bona fide
reorganization of Sublessee into a successor
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corporation or other entity in connection with the reasonable and valid business
purpose of Sublessee and not intended to avoid the restrictions or payment
obligations set forth in this Paragraph 12, or (b) any assignment, subletting or
other transfer to an affiliate of Sublessee and not intended to avoid the
restrictions or payment obligations set forth in this Paragraph 12.
12A. QUIET ENJOYMENT, COVENANT OF TITLE. The SUBLESSEE, on paying the rent
and other charges hereunder, as and when the same shall become due and payable
and observing and performing the covenants, conditions and agreements contained
in this SUBLEASE on the part of the SUBLESSEE to be observed and performed, all
as herein provided shall and may lawfully, peaceably and quietly have, hold and
enjoy the Leased Premises during the term, subject to all of the terms and
provisions hereof, without hindrance, ejection or disturbance by the SUBLESSOR
or by any person or persons claiming by, through or under the SUBLESSOR or by
anyone claiming paramount title. After the completion of the Tenant
Improvements, SUBLESSOR shall maintain throughout the Lease Term a Certificate
of Occupancy for the Building permitting the Premises to be occupied.
13. SUBORDINATION. The SUBLEASE and SUBLESSEE'S interest hereunder shall be
subordinate to the lien of any present, or provided LESSOR's and SUBLESSOR'S
respective mortgagees provide SUBLESSEE with a non-disturbance agreement as
hereinafter described, future mortgage or mortgages upon the Leased Premises or
any property of which the Leased Premises are a part, irrespective of the time
of execution or the time of recording of
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<PAGE> 31
any such mortgage or mortgages, and to each advance made or to be made
thereunder and to all renewals, modifications, consolidations, and extensions
thereof, and all substitutions therefor. Provided SUBLESSEE receives a
non-disturbance agreement from LESSOR's and SUBLESSOR'S mortgagees as
hereinafter described, the SUBLESSEE shall and does hereby agree, upon default
by the LESSOR or SUBLESSOR under any such mortgage, as the case may be, to
attorn to and recognize the holder of any such mortgage or anyone else claiming
thereunder, including a purchaser at a foreclosure sale, at its request as
successor to the interest of the SUBLESSOR under this SUBLEASE, to execute,
acknowledge and deliver in recordable form such evidence of this attornment as
such holder or such successor may reasonably request and make payments of Base
Rent and other payments required hereunder directly to such holder or any such
successor, as the case may be, upon request. As used in this Paragraph 13, the
word "holder" includes any person claiming through or under any such mortgage,
including any purchaser at a foreclosure sale, and the word "SUBLESSEE" shall
include SUBLESSEE'S successors and assigns. The word "mortgage" as used in this
Paragraph shall mean mortgages, deeds of trust, and other similar instruments
held by any institutional lender and all modifications, extensions, renewals and
replacements thereof. This Paragraph 13 is self-operative as it relates to the
present mortgagee, and no further instrument of subordination shall be required.
The SUBLESSEE agrees to execute such further documents in recordable form
as the LESSOR and SUBLESSOR or any lender may
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reasonably require, consistent with the terms of this Paragraph 13 and 21
provided that SUBLESSEE receives from LESSOR and SUBLESSOR'S respective
mortgagees a non-disturbance agreement under which the mortgagee agrees that so
long as SUBLESSEE is not in default hereunder, beyond the expiration of
applicable cure periods, the SUBLESSEE'S possession of the Leased Premises shall
not be disturbed in event of a foreclosure sale or otherwise. Should the
SUBLESSEE fail to execute and deliver to the SUBLESSOR any such document within
ten (10) days of a written notice requesting the SUBLESSEE to execute and
deliver such document, SUBLESSEE shall pay to SUBLESSOR (as liquidated damages
and not as a penalty) the sum of $500.00 per day for each day after such tenth
(10th) day during which such failure to deliver such instrument continues.
14. SUBLESSOR'S ACCESS. The SUBLESSOR or agents of the SUBLESSOR may, at
reasonable times and upon reasonable prior notice to the SUBLESSEE, enter to
view the Leased Premises, or any part thereof and may remove placards and signs
not approved and affixed as herein provided; and, at SUBLESSEE'S expense, to
remove any alterations, additions, signs, or other improvements made by
SUBLESSEE, and not consented to by SUBLESSOR; to show the Leased Premises to
others, with reasonable prior notice, in a manner so as not to unreasonably
interfere with the normal conduct of the SUBLESSEE'S business, at any time,
during normal business hours, within the four (4) month period prior to the
expiration of the term; to affix to any suitable part of the Building a notice
for letting or selling the Leased Premises or
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property of which the Leased Premises are a part and keep the same so affixed
without hindrance or molestation.
15. INDEMNIFICATION AND LIABILITY. The SUBLESSEE shall defend, save
harmless and indemnify SUBLESSOR from any claims of liability for injury, loss,
accident or damage to any person or property while on the Leased Premises, if
not due to the negligence of SUBLESSOR, or SUBLESSOR'S employees or agents, and
to any person or property anywhere occasioned by any omission, fault, negligence
or other misconduct of SUBLESSEE and persons for whose conduct SUBLESSEE is
legally responsible.
16. HOLDING OVER. SUBLESSEE agrees to pay to SUBLESSOR one and one-half
times the total of the Base Rent set forth in Paragraph 4 in effect for the
period immediately prior to SUBLESSEE'S holding over and one and one-half times
the additional rent provided for under this SUBLEASE then applicable for each
month or portion thereof SUBLESSEE shall retain possession of the Leased
Premises or any part thereof after the termination of this SUBLEASE, whether by
lapse of time or otherwise, and also to pay all damages for breach of this
SUBLEASE sustained by SUBLESSOR as a result of SUBLESSEE'S holdover, including,
but not limited to all reasonable costs and attorneys fees incurred in evicting
SUBLESSEE or recovering possession of the Premises from SUBLESSEE, costs to
prepare the premises to be re-let, (but not including the costs of removing the
Tenant Improvements), and provided SUBLESSOR has given SUBLESSEE thirty days
written notice of the existence of a lease agreement with another tenant and
SUBLESSEE has failed to vacate
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the Leased Premises within such thirty day period (or such longer time as
provided in said notice), loss of rental income from said other tenant; the
provisions of this paragraph shall not operate as a waiver by SUBLESSOR of any
right of re-entry provided in this SUBLEASE.
16A. FURTHER LESSEE COVENANTS. SUBLESSEE further covenants and agrees
during the term and such further time as SUBLESSEE holds any part of the Leased
Premises:
(a) to pay when due all rent and other sums herein specified, without
offset, deduction set off or counterclaim and, except as otherwise noted in the
SUBLEASE, without abatement;
(b) not to obstruct in any manner any portion of any building not hereby
leased or the sidewalks or approaches to such building or any inside windows or
doors;
(c) that neither the original SUBLESSOR nor any successor SUBLESSOR who or
which is a trustee or a partnership, nor any beneficiary of the original
SUBLESSOR or any successor SUBLESSOR nor any partner, general or limited, of
such partnership shall be personally liable under any term, condition, covenant,
obligation or agreement expressed herein or implied hereunder or for any claim
or damage or cause at law or in equity arising out of the occupancy of the
Leased Premises or the use or maintenance of the Building and SUBLESSEE
specifically agrees to look solely to the SUBLESSOR'S interest in the Complex
for the recovery of any judgment against SUBLESSOR; and
(d) if any payment of rent or other sums due hereunder is not paid when
due, beyond any applicable grace period as set
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forth in the last sentence of Paragraph 18, SUBLESSEE shall pay to SUBLESSOR a
late charge equal to five (5%) percent of the unpaid amount per month, or part
thereof, that such amount remains unpaid.
17. FIRE, CASUALTY.
17.1 CASUALTY DAMAGE TO THE BUILDING. If during the Sublease Term there
shall be damage to the Building by fire or other casualty and if such damage
shall materially interfere with the SUBLESSEE'S use of the Building or the
Leased Premises as contemplated by this SUBLEASE, the SUBLESSOR shall, unless
LESSOR'S mortgagee does not make the Building insurance proceeds available to
SUBLESSOR for reconstruction, promptly proceed to restore the Building and the
Leased Premises, including the Tenant Improvements, to substantially the
condition in which they were immediately prior to the occurrence of such damage.
Notwithstanding the foregoing, if there shall be damage to the Building, and if
such damage shall materially interfere with SUBLESSEE'S use of the Leased
Premises as contemplated by this SUBLEASE occurring during the last twelve (12)
months of the SUBLEASE Term (and SUBLESSEE has not exercised any applicable
option to extend pursuant to Paragraph 24 hereof or fails to so exercise within
ten (10) days after the casualty) of such a character that the same cannot, in
ordinary course, be expected to be repaired within thirty (30) days from the
time such repair work would begin, the SUBLESSOR may, within ten (10) days of
the date of such damage, elect to terminate this SUBLEASE. If such
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election is not made, the SUBLESSOR shall promptly proceed with such
restoration.
17.2. TERMINATION AFTER CASUALTY. (a) if the LESSOR'S mortgagee does not
make insurance proceeds available for reconstruction of the Building and the
Leased Premises, the SUBLESSOR may terminate this SUBLEASE by notice to the
SUBLESSEE within thirty (30) days after the date of the casualty. (b) if the
Tenant Improvement's Lender does not make insurance proceeds available for
reconstruction of the Tenant Improvements, the SUBLESSEE may terminate this
SUBLEASE by notice to the SUBLESSOR within thirty (30) days after the date of
casualty. (c) if the SUBLESSOR is required to restore the Leased Premises and
the Building and the Tenant Improvements and if such damage shall not have been
repaired to the extent necessary for the SUBLESSEE to resume its normal business
operations at the Leased Premises by the end of the 18th day following the date
of such fire or casualty, then the SUBLESSEE may, at any time thereafter while
the damage remains unrepaired, terminate this SUBLEASE upon notice to the
SUBLESSOR, provided however that said notice to terminate shall not become
effective in the event that SUBLESSOR has commenced to restore or repair the
Tenant Improvements and SUBLESSOR substantially completes said repair or
restoration within sixty (60) days after receipt of SUBLESSEE'S notice of
intention to terminate. If the SUBLESSOR or the SUBLESSEE shall give any notice
of termination as provided in this Article 17, then this SUBLEASE shall
terminate as on the date which is sixty (60) days after the date of such notice
with the same force and
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effect as if such date were the date originally established as the expiration
date hereof.
17.3. ABATEMENT OF RENT. If during the SUBLEASE Term the Building shall be
damaged by fire or casualty and if such damage shall materially interfere with
the SUBLESSEE'S use of the Building or the Leased Premises as contemplated by
this SUBLEASE, a just and proportionate amount of the rent and other charges
(base rent, financing rent and additional rent) payable by the SUBLESSEE
hereunder shall abate proportionately for the period in which, by reason of such
damage, there is such interference with the SUBLESSEE'S use of the Leased
Premises.
17A. EMINENT DOMAIN. If the Building is totally taken by condemnation or
right of eminent domain, this SUBLEASE shall terminate as of the date of such
taking. If the Building, or such portion thereof as to render the balance (if
reconstructed to the maximum extent practicable in the circumstances) physically
unsuitable in the SUBLESSEE'S reasonable judgment for the SUBLESSEE'S purposes,
shall be taken by condemnation or right of eminent domain (including a temporary
taking in excess of 180 days), the SUBLESSEE or the SUBLESSOR shall have the
right to terminate this SUBLEASE by notice to the other of its desire to do so,
provided that such notice is given not later than thirty (30) days after the
SUBLESSEE has been deprived of possession.
Should any part of the Building be so taken or condemned or receive such
damage and should this SUBLEASE not be terminated in accordance with the
foregoing provisions, the SUBLESSOR shall, to the extent condemnation proceeds
are available to SUBLESSOR,
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promptly restore the Leased Premises (and the Tenant Improvements) to an
architectural unit that is suitable to the uses of the SUBLESSEE permitted
hereunder. In the event that the amount of such proceeds, if any, made available
by SUBLESSOR for reconstruction of the Tenant Improvements is not sufficient in
SUBLESSEE'S reasonable judgment to restore the Leased Premises to a suitable
whole, SUBLESSEE shall have the right to terminate this SUBLEASE within thirty
(30) days after SUBLESSOR has notified SUBLESSEE of the amount of proceeds
available for reconstruction of the Tenant Improvements.
In the event of a taking described in this Paragraph 17A, the rent and
other charges (base rent, financing rent and additional rent) payable hereunder,
or a fair and just proportion thereof according to the nature and extent of the
loss of use, shall be suspended or abated.
The SUBLESSOR reserves, and the SUBLESSEE grants to the SUBLESSOR, all
rights which the SUBLESSEE may have for damages or injury to the Leased Premises
for any taking by eminent domain, except for damage to the SUBLESSEE'S trade
fixtures, personal property or equipment, if any, the SUBLESSEE'S right to
relocation expenses, if any, and the SUBLESSEE'S right for business
interruption, if any.
18. DEFAULT OF TENANT. In the event that:
-----------------
(a) The SUBLESSEE shall default in the payment of any installment of rent
or other sum herein specified; or
(b) The SUBLESSEE shall default in the observance or performance of the
SUBLESSEE'S covenants, agreements, or
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obligations hereunder (except as provided in Paragraph 18(a) above) and the
SUBLESSEE shall not cure such default within thirty (30) days after written
notice thereof or if such default cannot be cured within thirty (30) days, then
if SUBLESSEE shall not commence to cure the same within thirty (30) days and
diligently pursue the curing of the same; or
(c) If SUBLESSEE makes any assignment for the benefit of creditors, commits
any act of bankruptcy or files a petition under any bankruptcy or insolvency
law; or if such a petition is filed against SUBLESSEE and is not dismissed
within ninety (90) days; or if a receiver or similar officer becomes entitled to
SUBLESSEE'S leasehold hereunder and it is not returned to SUBLESSEE within
ninety (90) days, or if such leasehold is taken on execution or other process of
law in any action against SUBLESSEE; then in any such case the SUBLESSOR shall
have the right thereafter, while such default continues, to re-enter and take
complete possession of the Leased Premises, to declare the term of this SUBLEASE
ended, and remove the SUBLESSEE'S effects at SUBLESSEE'S sole cost and expense,
without prejudice to any remedies which might be otherwise used for arrears of
rent or other default. The SUBLESSEE shall indemnify the SUBLESSOR against all
reasonable costs of collection (including attorneys' fees), reasonable costs to
prepare the premises to be re-let (but not including the cost of removing the
Tenant Improvements), reasonable costs to re-let the premises, loss of rental
income that would otherwise have been paid by SUBLESSEE, and reasonable payment
of such other damages for breach of this SUBLEASE which
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the SUBLESSOR may incur by reason of such early termination of the SUBLEASE, but
only during the residue of the term. In the event of default, SUBLESSOR shall
use its reasonable efforts to re-let the Leased Premises so as to mitigate any
damages to the SUBLESSEE hereunder. If SUBLESSOR re-lets the Leased Premises,
SUBLESSEE may off-set its payable rent by the amount of rent received by
SUBLESSOR.
If the SUBLESSEE shall default, after written notice thereof as provided
herein, in the observance or performance of any conditions or covenants on its
part to be observed or performed under or by virtue of any of the provisions of
this SUBLEASE and after the expiration of any period within which the SUBLESSEE
is entitled to cure such default as is provided above in this Paragraph l8, the
SUBLESSOR, without being under any obligation to do so and without thereby
waiving such default, may remedy such default for the account and at the expense
of the SUBLESSEE. In the event either party makes any expenditures or incurs any
obligations for the payment of money in connection therewith, including, but not
limited to, reasonable attorney's fees (except for unsuccessful suits against
the other) in instituting, prosecuting or defending any action or proceeding
under this SUBLEASE, such sums paid or obligations incurred, with interest at
the rate of twelve (12%) percent per annum and costs, shall be paid to the
prevailing party by the non-prevailing party.
Nothing contained in this SUBLEASE shall limit or prejudice the right of
SUBLESSOR to claim and obtain in proceedings for bankruptcy, insolvency or like
proceedings by reason of the
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<PAGE> 41
termination of this SUBLEASE, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which the damages are to be claimed or proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damages referred to
above. Notwithstanding the foregoing, SUBLESSEE shall be and is hereby granted
two ten day grace periods per calendar year in which to cure what would
otherwise constitute monetary defaults under this SUBLEASE.
18A. DEFAULT OF LANDLORD AND MORTGAGEE RIGHTS. SUBLESSOR shall in no event
be in default in the performance of any of SUBLESSOR'S obligations hereunder
unless and until SUBLESSOR shall have failed to perform such obligations within
thirty (30) days, or, provided that SUBLESSOR shall have promptly commenced to
perform the specified obligation after receipt of notice, such additional time
as is reasonably required to correct any such default, after receipt of written
notice by SUBLESSEE to SUBLESSOR properly specifying wherein SUBLESSOR has
failed to perform any such obligation. SUBLESSEE agrees to give any mortgagee,
by registered mail, a copy of any notice of default served upon the SUBLESSOR,
provided that prior to such notice the SUBLESSEE has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise) of the
address of such mortgagee. The SUBLESSEE further agrees that if the SUBLESSOR
shall have failed to cure such default within the time provided for in this
SUBLEASE, then the mortgagee shall have an additional sixty (60) days within
which to cure such default or
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<PAGE> 42
if such default cannot be cured within that time, then such additional time as
may be necessary if within sixty (60) days the mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including but
not limited to commencement of foreclosure proceedings, if necessary to effect
such cure) in which event this SUBLEASE shall not be terminated while such
remedies are being so diligently pursued.
18B. BANKRUPTCY OR INSOLVENCY:
------------------------
(a) SUBLESSEE'S INTEREST NOT TRANSFERABLE. Neither SUBLESSEE'S interest in
this SUBLEASE nor any estate hereby created in SUBLESSEE nor any interest herein
or therein shall pass to any trustee, except as may specifically be provided
pursuant to the Bankruptcy Code (11 USC Sec. 101 et seq.) or to any receiver or
assignee for the benefit of creditors or otherwise by operation of law.
(b) TERMINATION OF SUBLEASE. Notwithstanding anything to the contrary
contained in this SUBLEASE, in the event the interest or estate created in
SUBLESSEE hereby shall be taken in execution or by other process of law or if
SUBLESSEE or SUBLESSEE'S executors, administrators or assigns, if any, shall be
adjudicated insolvent or bankrupt pursuant to the provisions of any state law or
an order for the relief of such entity shall be entered pursuant to the
Bankruptcy Code, or if a receiver or trustee of the property of SUBLESSEE' shall
be appointed by reason of the insolvency or inability of SUBLESSEE to pay its
debts or if any assignment shall be made of the property of SUBLESSEE for the
benefit of creditors, then and in any such
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<PAGE> 43
events this SUBLEASE and all rights hereunder shall automatically cease and
terminate with the same force and effect as though the date of such event were
the date originally established herein and fixed for the expiration of the term
and SUBLESSEE shall vacate and surrender the Leased Premises but shall remain
liable as herein provided.
(c) SUBLESSEE'S OBLIGATION TO AVOID CREDITORS' PROCEEDINGS. SUBLESSEE shall
not cause or give cause for the appointment of a trustee or receiver of the
assets of SUBLESSEE and shall not make any assignment for the benefit of
creditors or become or be adjudicated insolvent. The allowance of any petition
under any insolvency law, except under the Bankruptcy Code or the appointment of
a trustee or receiver of SUBLESSEE shall be conclusive evidence that SUBLESSEE
caused or gave cause therefor, unless such allowance of the petition or the
appointment of a trustee or receiver is vacated within ninety (90) days after
such allowance or appointment. Any act described in this paragraph shall be
deemed a material breach of SUBLESSEE'S obligations hereunder and this SUBLEASE
shall thereupon automatically terminate. SUBLESSEE does, in addition, reserve
any all other remedies provided in this SUBLEASE or in law.
(d) RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a
petition by or against SUBLESSEE under the Bankruptcy Code, SUBLESSEE, as debtor
and as debtor-in-possession, and any trustee who may be appointed agree as
follows: (i) to perform each and every obligation of SUBLESSEE
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under this SUBLEASE including but not limited to, the manner of operation of
this SUBLEASE, until such time as this SUBLEASE is either rejected or assumed by
order of the United States Bankruptcy Court; (ii) to pay monthly, in advance, on
the first day of each month, as reasonable compensation for use and occupancy of
the Leased Premises, an amount equal to all fixed Annual Base Rent, Additional
Rent and other charges otherwise due pursuant to this SUBLEASE; (iii) to reject
or assume this SUBLEASE within sixty (60) days of the appointment of such
trustee under Chapter 7 of the Bankruptcy Code or within one hundred twenty
(120) days (or such shorter term as SUBLESSOR, in its sole discretion, may deem
reasonable, so long as notice of such period is given) of the filing of a
petition under any other chapter; (iv) to give SUBLESSOR at least forty five
(45) days prior written notice of any proceeding relating to any assumption of
this SUBLEASE; (v) to give at least thirty (30) days prior written notice of any
abandonment of the Leased Premises, with any such abandonment to be deemed a
rejection of this SUBLEASE and an abandonment of any property not previously
removed from the Leased Premises; (vi) to do all other things of benefit to
SUBLESSOR otherwise required under the Bankruptcy Code; (vii) to be deemed to
have rejected this SUBLEASE in the event of the failure to comply with any of
the above; (viii) to have consented to the entry of an order by an appropriate
United States Bankruptcy Court providing all of the above, waiving notice and
hearing of the entry of same.
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<PAGE> 45
No default of this SUBLEASE by SUBLESSEE, either prior to or subsequent to
the filing of such a petition, shall be deemed to have been waived unless
expressly done so in writing by SUBLESSOR.
Included within and in addition to any other conditions or obligations
imposed upon SUBLESSEE or its successor in the event of assumption and/or
assignment are the following: (i) the cure of any monetary defaults and the
reimbursement of pecuniary loss immediately upon entry of a court order
providing for assumption and/or assignment; (ii) the deposit of an additional
sum equal to three (3) months Rent to be held as a security deposit; (iii) the
use of the Leased Premises as set forth in the reference date section of this
SUBLEASE and the quality, quantity and/or lines of merchandise of any goods or
services required to be offered for sale are unchanged; (iv) the payment of any
sums which may then be due or which may thereafter become due under the
provisions of this SUBLEASE; (v) the debtor, debtor-in-possession, trustee or
assignee of such entity demonstrates in writing that it has sufficient
background, including, but not limited to, substantial commercial experience in
buildings of comparable size and financial ability to operate a commercial
establishment out of the Leased Premises in the manner contemplated in this
SUBLEASE, and meets all other reasonable criteria of SUBLESSOR as did SUBLESSEE
upon execution of this SUBLEASE; (vi) the prior written consent of any mortgagee
to which this SUBLEASE has been assigned as collateral security; and (vii) the
Leased Premises at all times remains a single store (if
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retail) and no physical changes of any kind may be made to the Leased Premises
unless in compliance with the applicable provisions of this SUBLEASE.
Any person or entity to which this SUBLEASE is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed further act or deed to have
assumed all of the obligations arising under this SUBLEASE on and after the date
of such assignment. Any such assignee shall, upon demand, execute and deliver to
SUBLESSOR an instrument confirming such assumption in accordance with the terms
of paragraph 21 hereof.
19A. PARAGRAPH HEADINGS. The paragraph headings throughout this instrument
are for convenience and reference only, and the words contained therein shall in
no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this SUBLEASE.
20. BROKER. The SUBLESSOR and SUBLESSEE each represent and warrant to the
other that each has had no dealings with any Brokers concerning this SUBLEASE,
except ROBERT A. JONES AND COMPANY and Meredith & Grew and each party agrees to
indemnify and hold the other harmless for any damages occasioned to the other by
reason of a breach of this representation and warranty. The SUBLESSOR shall be
responsible for the payment of any commissions due the above named brokers,
which shall only be deemed earned, if, as and when the Rent Commencement Date
occurs.
21. ESTOPPEL CERTIFICATE. SUBLESSOR and SUBLESSEE each agree at any time
from time to time, upon not less than ten (10) days prior notice to execute,
acknowledge and deliver to the
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other, a statement in writing, certifying to the extent possible that this
SUBLEASE is unmodified and in full force and effect, or if there have been
modifications, that the same is in full force and effect as modified and stating
such modifications and otherwise certifying if there exists any default under
the terms of this SUBLEASE and such other information as may be reasonably
requested concerning this SUBLEASE by the other party or any other third party
with a bona fide interest. Should either party fail to deliver to the other
party any such statement within ten (10) days of receipt of a written notice
requesting any such statement, the party failing to deliver any such statement
shall pay to the requesting party, the sum of $500.00 per day (as liquidated
damages and not as a penalty), for each day after such tenth (10th) day during
which such failure continues.
22. NOTICE. Any notice from the SUBLESSOR to the SUBLESSEE relating to the
Leased Premises or to the occupancy thereof shall be deemed duly served, if in
writing and delivered in hand, or by overnight/express courier or mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the SUBLESSEE,
Myco Pharmaceutical, Inc.
One Kendall Square
Building 300
Cambridge, MA 02139
Any notice from the SUBLESSEE to the SUBLESSOR relating to the Leased Premises
or to the occupancy thereof, shall be deemed duly served, if in writing and
delivered in hand, or by
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<PAGE> 48
overnight/express courier or mailed to the SUBLESSOR by registered or certified
mail, return receipt requested, postage prepaid, addressed to the SUBLESSOR at
such address as the SUBLESSOR may from time to time advise in writing, the
following now being designated:
MYOCRT, INC.
c/o The Athenaeum Group
215 First Street
Cambridge, MA 02142
with a copy to:
Old Cambridge Realty Trust
c/o The Athenaeum Group
215 First Street
Cambridge, MA 02142
Any notices delivered hereunder shall be deemed given when delivery is
first attempted during regular business hours. So long as SUBLESSEE delivers a
copy of its notice to SUBLESSOR contemporaneously to LESSOR, notice to
SUBLESSOR, in connection with any request requiring SUBLESSOR's consent,
including but not limited to SUBLESSEE's rights under Paragraphs 24, 25 and 26
shall be deemed to be notice from LESSEE to LESSOR under the Prime Lease.
Similarly, any approval or disapproval received by SUBLESSEE from LESSOR shall
be deemed to be the approval or disapproval of SUBLESSOR.
23. SURRENDER. Except as otherwise provided in this Paragraph 23 and in
Paragraph 11, the SUBLESSEE shall at the expiration or other termination of this
SUBLEASE yield up and peaceably surrender all portions of the Leased Premises to
SUBLESSOR and shall remove all SUBLESSEE'S goods and effects
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<PAGE> 49
therefrom (including, without hereby limiting the generality of the foregoing,
all signs and lettering affixed or painted by the SUBLESSEE, either inside or
outside the Leased Premises). SUBLESSEE shall deliver to the SUBLESSOR the
Leased Premises and all keys, locks thereto, and all fixtures, alterations and
additions made to or upon the Leased Premises, except for equipment-moveable
partitions and furnishings leased or installed at the SUBLESSEE'S expense which
have previously been identified in writing as such from SUBLESSEE to SUBLESSOR,
in the same condition as they were after the construction of the Tenant
Improvements, or as they were put in during the term hereof, reasonable wear and
tear and damage by fire, other casualty or eminent domain and matters for which
the SUBLESSOR is responsible hereunder only excepted. All equipment, moveable
partitions and furnishings, which have previously been identified in writing as
such from SUBLESSEE to SUBLESSOR, installed in the Leased Premises at the
SUBLESSEE'S expense during the term of the SUBLEASE may be removed by the
SUBLESSEE at the expiration or other termination of the SUBLEASE. The SUBLESSEE
shall, at its expense, promptly repair any and all damage to the Leased Premises
resulting from such removal and shall restore or pay the cost of restoring, the
Leased Premises to the condition which existed after the completion of the
Tenant's Improvements or any approved alteration or addition, as the case may
be. In the event of the SUBLESSEE'S failure to remove any of the SUBLESSEE'S
property from the Leased Premises, SUBLESSOR is hereby authorized, upon fifteen
(15) days written notice to the
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SUBLESSEE without liability to SUBLESSEE for loss or damage thereto, and at the
sole risk of SUBLESSEE to (a) remove and store any of the property at
SUBLESSEE'S sole cost and expense, (b) deem any of SUBLESSEE'S property which
remains on the Leased Premises to be abandoned and in such case (i) retain it as
SUBLESSOR'S property or (ii) dispose of it without accountability at SUBLESSEE'S
expense, in such manner as SUBLESSOR may see fit. It is specifically understood
by the parties that the Tenant Improvements performed at the commencement of
this SUBLEASE, and referred to in Paragraph 3.3 of the SUBLEASE shall become the
property of the SUBLESSOR at the expiration or sooner termination of this
SUBLEASE. It is also understood by the parties that the SUBLESSEE may lease
equipment from third parties and in connection therewith, SUBLESSOR shall agree
to execute so-called Landlord Waivers in a form reasonably acceptable to
SUBLESSOR, which at minimum, shall include provisions (a) permitting the
equipment lessor to enter the Leased Premises for purposes of removal of leased
equipment so long as said equipment lessor agrees to restore the Leased Premises
and repair any damage caused by the removal of such leased equipment, and (b)
permitting (but not requiring) the SUBLESSOR an opportunity to cure any default
of SUBLESSEE, and thereby succeed to the rights of the equipment lessee under
the equipment lease. Upon execution or sooner or termination of this SUBLEASE,
such equipment shall, unless the parties agree otherwise, become the property of
the SUBLESSOR. In the event that at such expiration or termination of the
SUBLEASE, there is leased equipment for
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<PAGE> 51
which lease payments are still outstanding, SUBLESSOR shall have the option of
making the payments due thereunder, and thereby succeed to the interest of the
SUBLESSEE in the equipment or may require the equipment lessor to remove the
leased equipment as set forth in the Landlord Consent form.
24. OPTION TO EXTEND. (a) Provided SUBLESSEE is not then in default beyond
any applicable grace period of notice or opportunity to cure, SUBLESSEE shall
have the option to extend this Sublease for one additional five (5) year term
commencing on the expiration of the initial term upon the same conditions as
herein contained, except the Annual Base Rent referred to in Paragraph 4 shall
be at fair market value then existing as determined by SUBLESSOR but in no event
less than $16.00 per square foot or more than $18.00 per square foot. In
addition, SUBLESSEE shall pay to SUBLESSOR the fair rental value of SUBLESSEE'S
parking spaces, as generally in effect in the Complex.
SUBLESSEE's option to extend shall be exercised by written notice from
SUBLESSEE and received by SUBLESSOR at least six (6) months prior to the
expiration of the initial term of the SUBLEASE, but not earlier than eight (8)
months prior to the expiration of the initial term of the SUBLEASE.
(b) In the event SUBLESSEE gives timely extension notice in accordance with
the provisions of Paragraph 24(a) hereof and the parties are unable to agree as
to the fair market rent within thirty (30) days after the receipt of SUBLESSEE's
extension notice, then SUBLESSOR or SUBLESSEE may initiate the appraisal
- 51 -
<PAGE> 52
process provided for herein by giving notice to that effect to the other, and
the party so initiating the appraisal process (the "Initiating Party") shall
specify in such notice the name and address of the person designated to act as
an appraiser on its behalf. Within thirty (30) days after the designation of the
appraiser, the other party (the "Other Party") shall give notice to the
Initiating Party specifying the name and address of the person designated to act
as an appraiser on its behalf. The two appraisers so chosen shall meet within
ten (10) days after the second appraiser is appointed and if, within ten (10)
days after the second appraiser is appointed, the two appraisers shall not agree
on a fair market rent, then on the second Business Day following the close of
such ten (10) day period, the two appraisers shall, within thirty (30) days
after the second appraiser is appointed, together appoint a third appraiser. In
the event of their being unable to agree upon such appointment within forty (40)
days after the appointment of the second appraiser, the third appraiser shall be
selected by the parties themselves if they can agree thereon within a further
period of fifteen (15) days. If the parties do not so agree, then either party,
on behalf of both and on notice to the other, may request such appointment by
the Boston Office of the American Arbitration Association (or organization
successor thereto) in accordance with its rules then prevailing. Within five (5)
days after the appointment of the third appraiser, the first appraiser and
second appraiser shall submit to such third appraiser their respective
determinations of the fair market rent as described in
- 52 -
<PAGE> 53
the immediately preceding clause. Such third appraiser shall, within fifteen
(15) days after the end of such five (5) day period, choose the fair market rent
specified by either the first appraiser or the second appraiser in such
submissions and the fair market rent selected by the third appraiser from the
fair market rents submitted by the first appraiser and the second appraiser
shall conclusively be deemed to be the fair market rent.
Each party shall pay the fees and expenses of the appraiser selected by it.
The fees and expenses of the third appraiser and all other expenses (not
including the attorney's fees, witness fees and similar expenses of the parties
which shall be borne equally by the parties thereto.
Under no circumstances may the appraisers modify or disregard any provision
of this Sublease or of the Prime Lease and the jurisdiction of the appraisers is
restricted accordingly. The appraisers shall include the fair market rent such
cost escalators as are then customary and appropriate. Fair Market Rental Value
is intended to be calculated in a fair and comprehensive manner so that Landlord
shall achieve, and Tenant shall pay based upon, an amount which is no less than
the same net rental which Landlord would actually receive upon a re-letting of
the applicable space in an arms-length transaction to an unrelated third party
tenant where neither party is under any compulsion or undue influence.
In the event SUBLESSOR or SUBLESSEE initiates the appraisal process
pursuant to this Article III and as of the commencement
- 53 -
<PAGE> 54
of the Extension Term the amount of the fair market rent has not been
determined, SUBLESSEE shall pay the amount specified by the SUBLESSOR's
appraiser, and when such determination has been made, it shall be retroactive as
of the commencement date of the Extension Term and any excess shall be credited
by SUBLESSOR to SUBLESSEE as against the next monthly Base Rent payment or
payments.
(c) In the event that SUBLESSEE does not exercise its option to extend
under this Paragraph 24, and SUBLESSOR rents the Leased Premises to a third
party in the Leased Premises' then "as is" condition for a laboratory use by the
third party, SUBLESSOR shall pay to SUBLESSEE, if, as and when received from the
third party ten (10%) percent of the "as is" base rent attributable to the
Leased Premises. Payments under this Paragraph shall be only during the period
of time, which, if SUBLESSEE had exercised its option to extend this SUBLEASE,
would have been years 11 through 15 of the SUBLEASE Term. The intent of this
Paragraph is to recognize SUBLESSEE's remaining share of the value of the Tenant
Improvements made at the inception of the SUBLEASE.
25. RIGHT OF FIRST OPPORTUNITY.
--------------------------
(a) RIGHTS. During the Term of this Sublease, SUBLESSEE shall have a "Right
of First Opportunity" to lease all or any portion of space in the Complex above
the ground floor level used or usable for laboratories, but at all times,
subject to predominate rights of first opportunity or rights of first refusal
granted to other tenants of the Complex (hereinafter the First Opportunity
Space).
- 54 -
<PAGE> 55
SUBLESSOR will notify SUBLESSEE in writing of its plans to lease any
portion of the First Opportunity Space to third parties. SUBLESSOR's notice
shall specify the square footage of the space and its location, the date of
availability, rent, allowances, concessions and all other material terms and
conditions which will apply to such space. SUBLESSEE will notify SUBLESSOR
within twenty (20) business days of SUBLESSOR's notice if SUBLESSEE wishes to
lease such space from SUBLESSOR on the term and conditions so specified and
otherwise on substantially the same terms and conditions as contained in the
Sublease. If SUBLESSEE notifies SUBLESSOR that it wishes to lease the First
Opportunity Space, SUBLESSOR and SUBLESSEE shall execute a lease agreement
incorporating such terms and conditions. If SUBLESSEE fails to notify SUBLESSOR
within said twenty (20) business day period that SUBLESSEE intends to lease such
First Opportunity Space or fails to execute a lease agreement for such First
Opportunity Space within thirty (30) business days of SUBLESSEE's notice of
intent to SUBLESSOR (or if such lease agreement is not executed with said thirty
(30) business day period for reasons beyond the reasonable control of SUBLESSEE,
such longer period as is reasonably required so long as any such delay is not
due to reasons within SUBLESSEE's reasonable control), SUBLESSOR shall be
entitled to lease such space to a third party at an effective rent, considering
all pertinent aspects of the SUBLESSOR proposed terms such as concessions,
allowances, broker fees and any other costs to SUBLESSOR, no lower and on other
terms not materially more favorable than those offered to SUBLESSEE; provided,
- 55 -
<PAGE> 56
however, if after negotiations with any such third party, SUBLESSOR desires to
lease such space at an effective rent which is lower or on other terms which are
materially more favorable than those offered to SUBLESSEE, SUBLESSOR will notify
SUBLESSEE, which notice shall include all material terms and conditions of
SUBLESSOR's proposed lease to such third-party, and SUBLESSEE will notify
SUBLESSOR within five (5) business days of SUBLESSOR's notice if SUBLESSEE
wishes to lease such space from SUBLESSOR on the terms and conditions so
specified. If SUBLESSEE fails to notify SUBLESSOR within said five (5) business
day period that SUBLESSEE intends to lease such First Opportunity Space or fails
to execute a lease agreement for such First Opportunity Space within thirty (30)
business days of SUBLESSEE's notice of intent to SUBLESSOR, (or if such lease
agreement is not executed within said thirty (30) business day period for
reasons beyond the reasonable control of SUBLESSEE, such longer period as is
reasonably required so long as any such delay is not due to reasons within
SUBLESSEE's reasonable control), SUBLESSOR shall be entitled to lease such space
to such third party on the terms and conditions set forth in SUBLESSOR's notice
to SUBLESSEE. If SUBLESSOR does not enter into such a lease for the First
Opportunity Space with another tenant within twelve (12) months after
SUBLESSOR's original notice to SUBLESSEE, then SUBLESSEE's rights under this
Section 9 shall be reinstated.
26. RIGHT OF FIRST REFUSAL. Provided SUBLESSEE is not then in default
beyond any applicable grace period of notice, or opportunity to cure, SUBLESSOR
hereby grants to SUBLESSEE a right
- 56 -
<PAGE> 57
of first refusal with respect to any additional space which hereinafter becomes
vacant in Building 300 ("Added Space") but only on the following terms and
conditions.
SUBLESSOR shall give to SUBLESSEE written notice of the availability of
Added Space. Prior to accepting any proposal for lease of any Added Space from
any other third parties SUBLESSOR shall give to SUBLESSEE written notice of the
proposed lease, and terms thereof. SUBLESSEE shall have ten (10) business days
following receipt of SUBLESSOR's notice to elect by written notice received by
SUBLESSOR within said time to add such space to the Leased Premises on the same
terms as the proposal for lease. Non-exercise by SUBLESSEE with respect to any
such space so offered in any one instance will extinguish SUBLESSEE's right with
respect to such space offered but will not extinguish SUBLESSEE's right with
respect to any other space not so offered.
27. SECURITY DEPOSIT. Upon execution of the Sublease SUBLESSEE shall
deposit one hundred fifty thousand ($150,000.00) dollars with the SUBLESSOR as
security for SUBLESSEE'S payment of rent and performance of its other obligation
under this Sublease and any renewals or extensions of this Sublease. If
SUBLESSEE defaults in its payment of rent or performance of its other
obligations under this Sublease, SUBLESSOR may use all or part of the security
deposit for the payment of rent or any other amount in default, or for the
payment of any other amount that SUBLESSOR may spend or become obligated to
spend by reason of SUBLESSEE'S default, or for the payment to SUBLESSOR or an
other loss or damage that SUBLESSOR may suffer by reason of SUBLESSEE'S
- 57 -
<PAGE> 58
default. If SUBLESSOR so uses any portion of the security deposit, SUBLESSEE
will restore the security deposit to its original amount within five (5) days
after written demand from SUBLESSOR. The security deposit will not be a
limitation on SUBLESSOR's damages or other rights under this Sublease, or a
payment of liquidated damages, or an advance of the rent. If SUBLESSEE pays the
rent and performs all of its other obligations under this Sublease, SUBLESSOR
will return the unused portion of the security deposit to SUBLESSEE within sixty
(60) days after the end of the term or such earlier time as provided for
hereunder; however, if SUBLESSOR has evidence that the security deposit has been
assigned to an assignee of the Sublease, SUBLESSOR will return the security
deposit to the assignee. SUBLESSOR may deliver the security deposit to a
purchaser of the premises and be discharged from further liability with respect
to it.
Said security deposit shall be held by SUBLESSOR for the benefit of
SUBLESSEE in an insured (for the full amount of the deposit), interest bearing
account at Neworld Bank with any interest thereon paid to SUBLESSEE on a
semi-annual basis. If SUBLESSEE is not in default of its obligations under the
Sublease on June 13, 1998 SUBLESSOR shall return the security deposit and any
interest thereon to SUBLESSEE, and no such deposit shall be required thereafter.
SUBLESSEE shall have the option at any time to substitute an irrevocable letter
of credit from a bank or other financial institution in lieu of the security
deposit required hereunder.
- 58 -
<PAGE> 59
28. HAZARDOUS WASTE INDEMNITY:
-------------------------
SUBLESSEE hereby agrees to indemnify and hold SUBLESSOR harmless from
and against any and all demands, claims, actions, losses, damages and
liabilities (the "Claims"), which may be imposed on, asserted against or
incurred by SUBLESSOR arising from or out of SUBLESSEE'S use and occupancy of
the demised premises, including, without limitation, any and all liabilities
pertaining to any present or future use (within the term of this lease) in
violation of any Federal, state, local or other laws, relating to pollution or
protection of the environment, including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes.
If any action or proceeding is brought against SUBLESSOR by reason of any
claim, SUBLESSEE, upon notice from SUBLESSOR, shall defend such action or
proceeding by counsel reasonably satisfactory to SUBLESSOR, and SUBLESSEE shall
pay all reasonable expenses incurred in connection with defending against such
action or proceeding.
29. MISCELLANEOUS.
-------------
- 59 -
<PAGE> 60
(a) The parties shall execute a so-called Short Form Notice of Lease in
conformity with M.G.L. c. 183 ss.4. The SUBLESSEE may record, at its expense,
said Notice of Lease.
(b) The SUBLESSOR reserves the right to assign or transfer any and all of
its right, title and interest under the SUBLEASE, including but not limited to
the benefit of all covenants of the SUBLESSEE hereunder. Notwithstanding
anything contained in this SUBLEASE to the contrary, it is specifically
understood and agreed that the obligations imposed upon the SUBLESSOR hereunder
shall be binding upon the SUBLESSOR and SUBLESSOR'S successors in interest only
with respect to breaches occurring during SUBLESSOR'S and SUBLESSOR'S
successors' ownership of SUBLESSOR'S interest hereunder and SUBLESSOR and its
said successors in interest shall not be liable for acts and occurrences arising
from and after the transfer of their interest as SUBLESSOR hereunder.
(c) This SUBLEASE shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, as the same may from time to time
exist.
(d) SUBLESSOR shall reimburse SUBLESSEE for five thousand dollars in
transaction costs incurred in connection with the Lease. Said payment shall be
made if, as and when and only if the Rent Commencement Date occurs.
(e) This SUBLEASE contains all of the agreements of the parties with
respect to the subject matter thereof and supersedes all prior oral and written
negotiations and dealings between them with respect to such subject matter. The
agreement of the
- 60 -
<PAGE> 61
parties contained in this SUBLEASE shall not be modified or amended unless such
modification or amendment is in writing and signed by the parties.
(f) The SUBLESSEE acknowledges that SUBLESSEE has not been influenced to
enter into this SUBLEASE nor has it relied upon any warranties or
representations not set forth or incorporated in this SUBLEASE or previously
made in writing.
(g) If any term or provision of this SUBLEASE or the application thereof to
any person or circumstance shall to any extent be invalid or unenforceable, the
remainder of this SUBLEASE of the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each term and provision of this
SUBLEASE shall be valid and enforced to the fullest extent permitted by law.
(h) The time for performance of any act required to be done by either party
shall be extended by a period equal to any delay caused by or resulting from act
of God, war, civil commotion, fire, casualty, labor difficulties, shortages of
labor or materials or equipment, and government regulation, ("force majeure
events"). Notwithstanding the provisions of Paragraph 3.1, the Rent Commencement
Date may be extended for SUBLESSOR caused delays, or force majeure events, but
in no event more than nine (9) months from the SUBLEASE Commencement Date.
(i) in the event that the Tenant Improvements Lender is paid in full,
SUBLESSEE recognizes that the Master Lessor has the option, exercisable
exclusively in its sole discretion, to
- 61 -
<PAGE> 62
replace MYOCRT, Inc. as its LESSEE with Myco Pharmaceutical, Inc. In that event,
Myco Pharmaceutical, Inc. shall become the LESSEE under the Prime Lease; MYOCRT,
Inc. shall be discharged from any further liability under the Prime Lease; this
Sublease shall be thereby extinguished and of no further force and effect; and
SUBLESSOR shall assume SUBLESSOR's obligations with respect to SUBLESSEE's
security deposit.
(j) SUBLESSEE shall have the option to prepay the NEWORLD tenant
improvement financing, together with any costs and prepayment penalty. In the
event that the SUBLESSEE exercises said option, the Base Rent for the Leased
Premises shall be recalculated on the basis of the remaining principal of the
NEWORLD loan (but not the costs or prepayment penalty) and the twelve (12%)
percent interest rate originally utilized in calculating the rent.
IN WITNESS WHEREOF, the SUBLESSOR and SUBLESSEE have hereunto set their
hands and common seals as of this 14th day of May, 1993.
MYOCRT, INC.
- ----------------------------------- ----------------------------------
ROBERT A. JONES, PRESIDENT WITNESS
MYCO PHARMACEUTICAL, INC.
BY:
------------------------------- ----------------------------------
PRESIDENT, duly authorized WITNESS
- 62 -
<PAGE> 63
[FLOOR PLAN]
- 63 -
<PAGE> 1
EXHIBIT 11.1
CHEMGENICS PHARMACEUTICALS, INC.
STATEMENT OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net loss....................................................................... $(11,532,821)
------------
Weighted average common shares outstanding..................................... 2,941,688
Common stock options and shares issued after January 1, 1996 pursuant to the
treasury stock method........................................................ 1,034,149
Common stock issuable upon conversion of series A, B, C, D and E preferred
stock........................................................................ 4,458,528
------------
Shares used in computing pro forma net loss per common share................... 8,434,365
------------
Pro forma net loss per common share............................................ $ (1.37)
============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
FOOTNOTES THERETO.
</LEGEND>
<CIK> 0001029047
<NAME> CHEMGENICS PHARMACEUTICALS INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,301,697
<SECURITIES> 11,159,179
<RECEIVABLES> 63,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,970,101
<PP&E> 4,396,548
<DEPRECIATION> 2,019,198
<TOTAL-ASSETS> 17,221,271
<CURRENT-LIABILITIES> 1,563,140
<BONDS> 0
0
118,152
<COMMON> 3,145
<OTHER-SE> 34,438,897
<TOTAL-LIABILITY-AND-EQUITY> 17,221,271
<SALES> 0
<TOTAL-REVENUES> 3,573,010<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,592,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,736
<INCOME-PRETAX> (11,532,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,532,821)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>TOTAL REVENUES EXCLUDES $708,249 INTEREST INCOME
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS AND
FOOTNOTES THERETO.
</LEGEND>
<CIK> 0001029047
<NAME> CHEMGENICS PHARMACEUTICALS INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 8,050,821
<SECURITIES> 0
<RECEIVABLES> 154,090
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,528,055
<PP&E> 2,773,257
<DEPRECIATION> 1,183,716
<TOTAL-ASSETS> 15,550,255
<CURRENT-LIABILITIES> 931,324
<BONDS> 0
0
109,818
<COMMON> 574
<OTHER-SE> 24,841,185
<TOTAL-LIABILITY-AND-EQUITY> 15,550,255
<SALES> 0
<TOTAL-REVENUES> 2,903,179<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,961,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,781
<INCOME-PRETAX> (2,395,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,395,282)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>TOTAL REVENUE EXCLUDES $837,750 INTEREST INCOME.
</FN>
</TABLE>
