<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 2000
REGISTRATION NO. 333-91747
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANTIGENICS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2836 06-1562417
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
630 FIFTH AVENUE, SUITE 2100
NEW YORK, NEW YORK 10111
(212) 332-4774
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GARO H. ARMEN, PH.D.
CHIEF EXECUTIVE OFFICER
ANTIGENICS INC.
630 FIFTH AVENUE, SUITE 2100
NEW YORK, NEW YORK 10111
(212) 332-4774
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL LYTTON, ESQ. DANIELLE CARBONE, ESQ.
PAUL KINSELLA, ESQ. SHEARMAN & STERLING
PALMER & DODGE LLP 599 LEXINGTON AVENUE
ONE BEACON STREET NEW YORK, NEW YORK 10022
BOSTON, MASSACHUSETTS 02108 (212) 848-4000
(617) 573-0100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE(3)
<S> <C> <C> <C> <C>
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Common Stock, $0.01 par value per
share 3,450,000 shares $16.00 $55,200,000 $14,573
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</TABLE>
(1) Includes shares which the underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
(3) Includes $1,785 paid herewith in connection with an increase in the proposed
maximum aggregate offering price and $12,788 paid on November 30, 1999 in
connection with the initial filing of this registration statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION
DECLARES OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 10, 2000
PRELIMINARY PROSPECTUS
3,000,000 SHARES
ANTIGENICS INC. [ANTIGENICS INC. LOGO]
COMMON STOCK
$ PER SHARE
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- - We anticipate that the initial public offering price will be between $14.00
and $16.00 per share.
- - This is a firm commitment initial public offering and no public market
currently exists for our shares.
- - Proposed trading symbol: Nasdaq
National Market - AGEN
----------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Antigenics...................................... $ $
</TABLE>
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The underwriters have a 30-day option to purchase up to 450,000 additional
shares of common stock from us to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY ROBERTSON STEPHENS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
[Antigenics Logo]
- - Technology platform broadly applicable to cancer, infectious diseases and
autoimmune disorders
- - Evaluating lead product, Oncophage(R), in multiple phase II clinical trials
including kidney cancer, melanoma and colorectal cancer
- - Phase III clinical trial to commence in mid-2000
- - Lead infectious disease products in preclinical testing for genital herpes
- - Commercial scale manufacturing capacity in place
- - Nine issued United States patents cover use of our technology in treatment of
cancer, infectious diseases and autoimmune diseases
<TABLE>
<S> <C>
- -------------------------- -------------------------------------------------------------------------------------------
Clinical
Personalized Medicine Product Indication Research Preclinical Phase I/II Phase II
-------------------------------------------------------------------------------------------
CANCER
Oncophage(R) Kidney Cancer .............................................
Melanoma .........................................
Colorectal Cancer ...........................................
Gastric Cancer ...............................
Pancreatic Cancer .....................................
[Photo of vial] NHL ..........................
Sarcoma ..........................
HSPPC-70-C Various Cancers ..........
HSPPC-90-C Various Cancers ..........
HSPPC-56-C Various Cancers ..........
INFECTIOUS
DISEASES
HSPPC-96-GH Genital Herpes ...................
HSPPC-70-GH Genital Herpes ...................
HSPPC-56-I Various Infectious Diseases ..........
HSPPC-70-I Various Infectious Diseases ..........
AUTOIMMUNE
DISORDERS
gp96 Type 1 Diabetes ..........
Multiple Sclerosis ..........
[ANTIGENICS
LOGO]
- -------------------------- -------------------------------------------------------------------------------------------
</TABLE>
[PHOTO OF OUTSIDE OF BUILDING]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 8
History of Antigenics....................................... 19
Use of Proceeds............................................. 20
Recent Financing............................................ 20
Dividend Policy............................................. 20
Forward-Looking Statements.................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 31
Management.................................................. 49
Certain Relationships and Related Transactions.............. 55
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible For Future Sale............................. 60
Underwriting................................................ 62
Legal Matters............................................... 63
Experts..................................................... 64
Where You Can Find More Information......................... 64
Index To Consolidated Financial Statements.................. F-1
</TABLE>
3
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SUMMARY
We describe the items in the following summary in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, including the
financial information. We present information in this prospectus, except in the
consolidated financial statements or where we otherwise specify, to give effect
to:
- the $39.2 million private placement we completed in November 1999;
and
- our change from a limited liability company to a corporation which
will occur concurrently with this offering.
In addition, except where we indicate otherwise, we present information in this
prospectus assuming that the underwriters do not exercise their over-allotment
option.
BUSINESS OF ANTIGENICS
Antigenics is engaged in the discovery and development of a family of novel
immunotherapeutics for the treatment of life threatening and chronic medical
conditions. Immunotherapeutics are drugs that work by modulating the immune
system to fight disease. We are currently evaluating our lead immunotherapeutic,
Oncophage, in six separate phase II or phase I/II clinical trials in four
different cancers, and we expect to start a pivotal phase III trial by mid-2000.
We are also developing immunotherapeutics to treat infectious diseases, such as
genital herpes, and autoimmune disorders, such as diabetes and multiple
sclerosis. Based upon our scientific and drug development skills, our technology
platform and our strategic expertise, we intend to become a leader in drug
discovery, development and commercialization.
Our immunotherapeutics are based on a specific class of proteins known as heat
shock proteins. Heat shock proteins are present in all cells throughout the body
and published research suggests that they play a central role in the generation
of immune responses. Inside cells, heat shock proteins naturally bind to protein
fragments called peptides. We refer to these combinations of heat shock proteins
and peptides as heat shock protein-peptide complexes. These complexes are our
immunotherapeutics. We believe that our immunotherapeutics elicit a powerful
immune response that is capable of systemically targeting and killing cancers or
other diseased cells from which the specific heat shock proteins originate.
We believe our heat shock protein technology is applicable to the treatment of a
wide variety of diseases. Each of our immunotherapeutics includes a heat shock
protein that is constant and a repertoire of peptides that varies depending on
the target disease. For a disease such as cancer, which varies among
individuals, we derive heat shock protein-peptide complexes from a patient's own
cancer and therefore our cancer immunotherapeutics are patient-specific, or
autologous. For each infectious disease, which is generally caused by a common
pathogen such as a virus or bacterium, we intend to produce a disease-specific
immunotherapeutic using that same common pathogen. In a wide range of
preclinical studies, we have shown that our immunotherapeutics stimulate the
immune system to target and destroy diseased cells. In addition, over one dozen
scientific institutions world-wide have independently confirmed various aspects
of our technology platform.
Our lead immunotherapeutic, Oncophage, consists of purified, patient-specific
heat shock protein-peptide complexes. The manufacturing process for Oncophage
begins when a surgeon removes a patient's tumor and ships it frozen by overnight
courier to our manufacturing facility. Using our proprietary methods, we purify
Oncophage from the tumor tissue in a process that takes less than 10 hours. We
then ship Oncophage frozen to the hospital for administration to the patient.
Four to six weeks after surgery, a doctor or nurse injects Oncophage into the
patient. The typical course of treatment involves a series of injections into
the skin once per week for four to six weeks.
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4
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To date, we have treated approximately 160 advanced stage cancer patients with
Oncophage in our clinical trial programs. We have initially targeted cancers for
which there are limited or no treatment alternatives and cancers and stages of
disease that involve tumors that a doctor can surgically remove. Further, we
have targeted cancers and stages of disease which allow us to evaluate our
immunotherapeutics in clinical trials with near term endpoints. This should
permit us to rapidly and efficiently complete clinical trials and submit
regulatory filings. We are currently conducting separate phase II or phase I/II
clinical trials with Oncophage for the treatment of:
- renal cell carcinoma, a type of kidney cancer;
- metastatic melanoma, a type of skin cancer;
- colorectal cancer, or cancer of the colon and rectum; and
- gastric cancer, or stomach cancer.
In addition, we are planning to start separate phase II clinical trials
evaluating Oncophage as a treatment for sarcoma, a type of soft tissue cancer,
and non-Hodgkin's lymphoma, a type of cancer that originates in the lymph
tissue. We also expect to begin a pivotal phase III trial for Oncophage as a
treatment for renal cell carcinoma by mid-2000.
Preliminary results from our completed and ongoing clinical trials indicate that
Oncophage is generally safe and well tolerated. These results also demonstrate
preliminary indications of clinical benefit in a number of patients. For
example, in our renal cell carcinoma clinical trial, Oncophage has achieved a
response rate, a common measure of clinical benefit, comparable to that of the
existing approved treatment without the significant side effects associated with
that treatment. We have also shown that in all patients who responded
clinically, the number of immune cells increased after treatment with Oncophage.
Moreover, we have shown that we can manufacture Oncophage consistently and in
sufficient quantities from most tumor types.
In addition to cancer, we believe our immunotherapeutics may be effective in
treating various infectious diseases and autoimmune disorders. Our
immunotherapeutics for treating infectious diseases will consist of heat shock
proteins complexed to peptides that are produced by disease-causing pathogens.
Our first infectious disease immunotherapeutic is intended for the treatment of
genital herpes. We anticipate filing an Investigational New Drug Application, or
IND, with the United States Food and Drug Administration, or FDA, for our
immunotherapeutic for genital herpes in 2000.
We are also researching the applicability of heat shock proteins to treat
autoimmune disorders like diabetes and multiple sclerosis. We have demonstrated
in a number of animal models that heat shock proteins administered in high doses
can turn off the misguided immune responses responsible for several autoimmune
disorders.
OFFICE LOCATION
We maintain our principal operations in Woburn, Massachusetts and our executive
offices in New York, New York. The address for our executive offices is 630
Fifth Avenue, Suite 2100, New York, New York 10111 and our telephone number is
(212) 332-4774.
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5
<PAGE> 7
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THE OFFERING
Common stock offered................ 3,000,000 shares
Common stock outstanding after this
offering............................ 23,714,286 shares. This number
excludes 1,716,007 shares of common
stock issuable upon exercise of
options outstanding at December 31,
1999, with a weighted average
exercise price of $5.83 per share and
280,886 shares issuable upon exercise
of warrants outstanding at December
31, 1999, with an exercise price of
$13.96 per share.
Offering price...................... $ per share
Use of proceeds..................... To fund clinical trials; to fund
research and development of our
immunotherapeutics; to increase our
manufacturing capacity; and for
general corporate purposes.
You should read our discussion under
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.............................. AGEN
CORPORATE BACKGROUND AND MERGER
We formed our business in March 1994. We currently operate as a limited
liability company, Antigenics L.L.C. Concurrently with the completion of this
offering, Antigenics L.L.C. will change its structure from a limited liability
company to a corporation. This change will occur when we merge Antigenics L.L.C.
with and into Antigenics Inc., a newly formed Delaware corporation. In the
merger, equity holders, or members, of Antigenics L.L.C. will exchange
membership units and options in Antigenics L.L.C. for shares of Antigenics Inc.
common stock and options exercisable for shares of Antigenics Inc. common stock.
Each holder of warrants issued by Antigenics L.L.C. will exchange them for
warrants exercisable for shares of Antigenics Inc. common stock, unless the
holder of the warrants elects to convert the warrants into shares of common
stock in connection with the merger.
This prospectus contains our trademark, Oncophage(R). Each trademark, trade name
or service mark of any other company appearing in this prospectus belongs to its
holder.
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6
<PAGE> 8
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 31, 1994 MARCH 31, 1994
(DATE OF NINE MONTHS ENDED (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ------------------------------------- ------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999 1999
-------------- ------- ------- ------- ------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue..................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and
development........... (112) (742) (2,017) (2,563) (6,102) (4,196) (7,232) (18,770)
General and
administrative........ (56) (2,453) (1,781) (1,549) (3,178) (2,242) (4,016) (13,031)
Depreciation and
amortization.......... (15) (40) (79) (202) (360) (273) (726) (1,422)
----- ------- ------- ------- ------- ------- -------- --------
Loss from operations...... (183) (3,235) (3,877) (4,314) (9,640) (6,711) (11,974) (33,223)
Interest income, net...... -- 8 281 481 736 580 489 1,996
Non-operating income...... -- -- 250 -- -- -- -- 250
----- ------- ------- ------- ------- ------- -------- --------
Net loss(1)............... $(183) $(3,227) $(3,346) $(3,833) $(8,904) $(6,131) $(11,485) $(30,977)
===== ======= ======= ======= ======= ======= ======== ========
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Pro forma net loss(2)..... $(8,904) $(11,485)
Pro forma net loss per
common share, basic and
diluted(2).............. $ (0.54) $ (0.64)
Pro forma weighted average
shares outstanding,
basic and diluted(2).... 16,459 17,905
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1999
---------------------------- ----------------------------------------------
PRO FORMA,
1996 1997 1998 HISTORICAL PRO FORMA(3) AS ADJUSTED(4)
------ ------- ------- ----------- ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............. $9,588 $13,086 $22,168 $12,612 $51,535 $ 92,535
Total current assets................. 9,639 13,246 22,447 13,226 52,149 93,149
Total assets......................... 10,041 14,090 26,636 21,280 60,203 101,203
Total current liabilities............ 883 878 2,285 2,170 2,170 2,170
Long-term liabilities, less current
portion............................ -- -- 709 2,368 2,368 2,368
Members' equity/stockholders'
equity............................. 9,158 13,212 23,641 16,742 55,665 96,665
</TABLE>
- ---------------------------------------------
(1)Since we have operated historically as a limited liability company, in
accordance with federal, state and local income tax regulations which provide
that no income taxes are levied on United States limited liability companies
and each member of the company is individually responsible for reporting the
member's share of our net income or loss, we do not provide for income taxes
in our consolidated financial statements.
(2)The unaudited pro forma consolidated statement of operations data give effect
to the change from a limited liability company to a corporation as though
this event occurred as of January 1, 1998. Each unit of members' equity
outstanding will be exchanged for 172.0336 shares of common stock. The
unaudited pro forma consolidated statement of operations data are unaudited
and reflect adjustments which are necessary, in our management's opinion, for
a fair presentation of our consolidated results of operations on a pro forma
basis. The number of pro forma weighted average shares outstanding used for
computing pro forma diluted loss per common share is the same as that used
for computing pro forma basic loss per common share because our options are
not included in the calculation since the inclusion of such potential common
shares would be antidilutive.
(3)The pro forma consolidated balance sheet data give effect to the unaudited
pro forma adjustments as described in footnote (2), the private placement
completed in November 1999 and the application of the $38.9 million net
proceeds from that private placement as though these events occurred as of
September 30, 1999.
(4)The pro forma as adjusted consolidated balance sheet data give effect to the
unaudited pro forma adjustments as described in footnote (3) and are adjusted
to reflect the issuance of 3,000,000 shares of common stock at an assumed
offering price of $15.00 per share, after deducting our estimated offering
expenses and the underwriting discount, as though these events occurred as of
September 30, 1999.
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7
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. If any of these risks actually occur, our business,
financial condition, operating results or cash flows could be materially
adversely affected. This could cause the trading price of our common stock to
decline, and you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
WE DO NOT CURRENTLY GENERATE ANY REVENUE, AND WE CANNOT GUARANTEE THAT WE WILL
EVER COMMERCIALIZE ANY OF OUR IMMUNOTHERAPEUTICS AND GENERATE REVENUE IN THE
FUTURE.
WE MUST RECEIVE SEPARATE REGULATORY APPROVAL FOR EACH OF OUR
IMMUNOTHERAPEUTICS IN EACH INDICATION BEFORE WE CAN SELL THEM COMMERCIALLY IN
THE UNITED STATES OR INTERNATIONALLY.
To obtain regulatory approvals, we must, among other requirements, complete
clinical trials demonstrating that a particular immunotherapeutic is safe and
effective. Because Oncophage is our only immunotherapeutic in clinical trials,
any delays or difficulties we encounter in these clinical trials may have a
significant adverse impact on our operations and cause our stock price to
decline significantly. We have limited clinical data. Future clinical trials may
not show that Oncophage is safe and effective. In addition, we might delay or
halt our clinical trials of Oncophage for various reasons, including:
- Oncophage may not appear to be more effective than current
therapies;
- Oncophage may have unforeseen adverse side effects;
- the time required to determine whether Oncophage is effective may be
longer than expected;
- patients may die during a clinical trial because their disease is
too advanced or because they experience medical problems that may
not be related to Oncophage;
- sufficient number of patients may not enroll in the trials; or
- we may not be able to produce sufficient quantities of Oncophage to
complete the trials.
We rely on third party clinical investigators to conduct our clinical trials. As
a result, we may encounter delays outside of our control.
The process of obtaining and maintaining regulatory approvals for new
therapeutic products is lengthy, expensive and uncertain. It also can vary
substantially, based on the type, complexity and novelty of the product
involved. To date, the FDA and foreign regulatory agencies have approved only a
limited number of cancer immunotherapeutics for commercial sale. Furthermore,
the FDA and foreign regulatory agencies have relatively little experience with
autologous therapies. This lack of experience may lengthen the regulatory review
process for Oncophage, increase our development costs and delay
commercialization. In addition, problems encountered with other companies'
immunotherapeutic products may slow the regulatory approval for our
immunotherapeutics. The FDA may not consider Oncophage to be an appropriate
candidate for fast track designation should we choose to seek it. Accordingly,
Oncophage or any of our other future drug candidates could take a significantly
longer time to gain regulatory approval than we expect or may never gain
approval.
BECAUSE DEVELOPMENT OF OUR IMMUNOTHERAPEUTICS FOR INFECTIOUS DISEASES AND
AUTOIMMUNE DISORDERS WILL INVOLVE A LENGTHY AND COMPLEX PROCESS, WE ARE NOT
CERTAIN WE WILL BE ABLE TO DEVELOP ANY MARKETABLE IMMUNOTHERAPEUTICS FOR THESE
INDICATIONS.
We have not completed the preclinical development of our immunotherapeutics for
any infectious disease or autoimmune disorder. We will need to conduct extensive
additional research, preclinical and clinical testing of these
immunotherapeutics prior to commercialization. This development process takes
several years and often fails to yield commercial products. Regulatory
authorities may not permit human testing of
8
<PAGE> 10
these immunotherapeutics and, even if they permit human testing, we may not
demonstrate that an immunotherapeutic is safe and effective.
EVEN IF SOME OF OUR IMMUNOTHERAPEUTICS RECEIVE REGULATORY APPROVAL, THOSE
IMMUNOTHERAPEUTICS MAY STILL FACE SUBSEQUENT REGULATORY DIFFICULTIES.
If we receive regulatory approval to sell any of our immunotherapeutics, the FDA
or a comparable foreign regulatory agency may, nevertheless, limit the types of
patients who can use that immunotherapeutic. In addition, regulatory agencies
subject a marketed product, its manufacturer and the manufacturer's facilities
to continual review and periodic inspections. Furthermore, the FDA and foreign
regulatory agencies may require expensive post-approval trials. If we discover
previously unknown problems with a product or our manufacturing and laboratory
facility, a regulatory agency may impose restrictions on that product or on us,
including requiring us to withdraw the product from the market. If we fail to
comply with applicable regulatory approval requirements, a regulatory agency
may:
- send us warning letters;
- impose fines and other civil penalties on us;
- suspend our regulatory approvals;
- refuse to approve pending applications or supplements to approved
applications filed by us;
- refuse to permit exports of our products from the United States;
- require us to recall products;
- seize our products;
- impose restrictions on our operations; or
- criminally prosecute us.
WE MAY ENCOUNTER MANUFACTURING PROBLEMS THAT LIMIT OUR ABILITY TO SUCCESSFULLY
COMMERCIALIZE OUR IMMUNOTHERAPEUTICS.
IF WE ARE UNABLE TO PURIFY HEAT SHOCK PROTEINS FROM SOME CANCER TYPES, THE
SIZE OF OUR POTENTIAL MARKET WOULD DECREASE.
Our ability to successfully commercialize an immunotherapeutic for a particular
cancer type depends on our ability to purify heat shock proteins from that type
of cancer. Based on our clinical trials conducted to date, in renal cell
carcinoma, we have been able to manufacture Oncophage from 98% of the tumors
delivered to our manufacturing facility; for melanoma, 90%; for colorectal
carcinoma, 100%; for gastric cancer, 71%; and for pancreatic cancer, 30%. The
relatively low rate for pancreatic cancer is due to the abundance of proteases
in pancreatic tissue. Proteases are enzymes that break down proteins. These
proteases degrade the heat shock proteins during the purification process. We
may encounter this problem or similar problems with other types of cancers as we
expand our research. If we cannot overcome these problems, the number of cancer
types that our immunotherapeutics could treat would be limited.
DELAYS IN OBTAINING REGULATORY APPROVAL OF OUR MANUFACTURING FACILITY AND
DISRUPTIONS IN OUR MANUFACTURING PROCESS MAY DELAY OR DISRUPT OUR
COMMERCIALIZATION EFFORTS.
Before we can begin commercially manufacturing our immunotherapeutics, we must
obtain regulatory approval of our manufacturing facility and process.
Manufacturing of our immunotherapeutics must comply with the FDA's current Good
Manufacturing Practices requirements, commonly known as cGMP, and foreign
regulatory requirements. The cGMP requirements govern quality control and
documentation
9
<PAGE> 11
policies and procedures. In complying with cGMP and foreign regulatory
requirements, we will be obligated to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. If we fail to comply with
these requirements, we would be subject to possible regulatory action and may be
limited in the jurisdictions in which we are permitted to sell our
immunotherapeutics.
We recently transferred the manufacturing of Oncophage from our facility in
Framingham, Massachusetts to our new facility in Woburn, Massachusetts. We have
limited manufacturing experience in this facility and unforeseen circumstances
may cause delays or disruptions in our manufacturing process. The FDA, The
Commonwealth of Massachusetts and foreign regulatory authorities have the
authority to continuously inspect this facility. Preparing this facility for
commercial manufacturing may take longer than planned and the costs of complying
with FDA regulations may be higher than those which we have budgeted. In
addition, any material changes we make to the manufacturing process may require
approval by the FDA, The Commonwealth of Massachusetts or foreign regulatory
authorities. It could take longer than we expect for us to obtain these
approvals. Any delays in obtaining these approvals could disrupt our
manufacturing process.
We are the only manufacturer of our immunotherapeutics. For the next several
years, we expect that we will conduct all of our manufacturing in our facility
in Woburn, Massachusetts. If this facility or the equipment in the facility is
significantly damaged or destroyed, we will not be able to quickly or
inexpensively replace our manufacturing capacity. Due to the nature of our
immunotherapeutics, a third party may not be able to manufacture our
immunotherapeutics.
We have no experience manufacturing Oncophage in the volumes that will be
necessary to support large clinical trials or commercial sales. Our present
manufacturing process may not meet our initial expectations as to:
- scheduling;
- reproducibility;
- yield;
- purity;
- cost;
- potency;
- quality; and
- other measurements of performance.
In addition, we have not demonstrated the ability to manufacture our
immunotherapeutics other than Oncophage in quantities sufficient for any
clinical trials.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.
IF WE FAIL TO SUSTAIN AND FURTHER BUILD OUR INTELLECTUAL PROPERTY RIGHTS,
COMPETITORS WILL BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT
EFFORTS TO DEVELOP COMPETING THERAPIES.
Our success depends, in part, on our ability to maintain protection for our
products and technologies under the patent laws of the United States and other
countries, so that we can stop others from using our inventions. Our success
also will depend on our ability to prevent others from using our trade secrets.
In addition, we must operate in a way that does not infringe, or violate, the
intellectual property rights of others.
We have exclusive rights to nine issued U.S. patents, and foreign counterpart
patents and patent applications, relating to our heat shock protein technology.
Our rights to these patents are as a result of an
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exclusive worldwide license with Fordham University and one with Mount Sinai
School of Medicine of New York University. In addition, we have licensed or
optioned rights to 43 pending U.S. patent applications and foreign counterpart
patents and patent applications. The standards which the U.S. Patent and
Trademark Office uses to grant patents are not always applied predictably or
uniformly and can change. Consequently, we cannot be certain as to the type and
extent of patent claims that will be issued to us in the future. Any patents
which are issued may not contain claims which will permit us to stop competitors
from using similar technology. The standards which courts use to interpret
patents are not always applied predictably or uniformly and can change,
particularly as new technologies develop. Consequently, we cannot be certain as
to how much protection, if any, will be given to our patents, if we attempt to
enforce them and they are challenged in court. If we choose to go to court to
stop someone else from using the inventions claimed in our patents, that
individual or company has the right to ask the court to rule that our patents
are invalid and should not be enforced against them. These lawsuits are
expensive and would consume time and other resources, even if we were successful
in stopping the violation of our patents. In addition, there is a risk that the
court will decide that our patents are not valid and that we do not have the
right to stop the other party from using the inventions. There is also the risk
that, even if the validity of our patents were upheld, the court will refuse to
stop the other party on the ground that its activities are not covered by, that
is, do not infringe, our patents.
Furthermore, a third party may claim that we are using inventions covered by
their patents and may go to court to stop us from engaging in our normal
operations and activities. Such lawsuits are expensive and would consume time
and other resources. There is a risk that a court would decide that we are
violating the third party's patents and would order us to stop the activities
covered by the patents. In addition, there is a risk that a court will order us
to pay the other party's damages for having violated their patents.
We rely on certain proprietary trade secrets and know-how that are not
patentable. We have taken measures to protect our unpatented trade secrets and
know-how, including the use of confidentiality agreements with our employees,
consultants and certain contractors. It is possible, however, that:
- these persons will breach the agreements;
- we would have inadequate remedies for any breach; or
- our competitors will independently develop or otherwise discover our
trade secrets.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial. Some of
our competitors may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to continue our operations.
Should third parties file patent applications, or be issued patents claiming
technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the United States Patent and
Trademark Office to determine priority of invention. We, or our licensors, may
also need to participate in interference proceedings involving our issued
patents and pending applications of another entity. An unfavorable outcome in an
interference proceeding could require us to cease using the technology or to
license rights from prevailing third parties. There is no guarantee that any
prevailing party would offer us a license or that we could acquire any license
made available to us on commercially acceptable terms.
We cannot guarantee that the practice of our technologies will not conflict with
the rights of others. We are aware of a United States patent, issued to a third
party, with claims directed to certain heat shock protein based
immunotherapeutics and their use in the field of tissue grafting. We do not
believe that our products or activities are infringing any valid claims of this
patent. We also are aware of two United States
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patents, issued to a different third party, with claims directed to certain
methods of making heat shock protein products and related apparatuses. These
patents do not claim any therapeutic applications. These patents also do not
claim any of the methods we presently use to make our Oncophage product.
Moreover, we do not believe that our methods of producing any of our heat shock
protein-based immunotherapeutics would infringe any valid claim of either of
these patents. However, we cannot guarantee that this third party, or any other
third party, will not sue us for infringing these, or any other, patents. One of
the patent applications licensed to us contains claims which are substantially
the same as claims in one of this third party's patents. Therefore, there is a
possibility that the U.S. Patent and Trademark Office will declare an
interference proceeding between one or both of this third party's patents and
our patent application. In an interference proceeding, the party with the
earliest effective filing date has certain advantages. We believe that our
claims have an earlier effective filing date than the claims of the other
patents. However, we cannot guarantee that we would prevail in any interference
proceeding. In the past and again recently, this third party has contacted us
about licensing patents, but we have not yet responded to the recent inquiry.
In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another's foreign patent or by
third parties opposing the validity of our foreign patents. In 1995, the
European Patent Office issued a European patent, with claims directed to the use
of heat shock proteins to produce or enhance immune responses to cancer and
infectious diseases, to the Whitehead Institute for Biomedical Research and to
the Medical Research Council. This patent is exclusively licensed to StressGen
Biotechnologies Corporation. The patent holders have made no attempt to enforce
this patent against us. Nonetheless, we are seeking to have this patent revoked
in its entirety in an opposition proceeding in the European Patent Office. The
European Patent Office has issued a provisional, non-binding opinion that this
patent should be revoked in its entirety. The patent owners, in response,
amended the patent claims to exclude autologous treatment of tumors. We then
argued that this third party patent still should be revoked in its entirety.
Even if the European Patent Office changes its position and the patent is
maintained with the amended claims, we still should be free to practice our
autologous cancer business in Europe. However, the patent owners or their
licensee might try to enforce the amended patent against our infectious disease
business in Europe. We or the holders of this patent may appeal any decision to
revoke the patent in its entirety, or to maintain the patent in any form. We may
not obtain a final, non-appealable decision for several years, during which
time, the patent, with any amendments made during the opposition proceedings,
remains enforceable. We may incur significant costs by participating in the
opposition proceedings and any appeals. Furthermore, if we are sued on this
patent in Europe prior to any final decision of revocation, we may incur
significant costs defending ourselves, even if we ultimately succeed in proving
that we do not infringe any valid claims of this patent.
This European patent claims priority to a United States patent application filed
in 1988. We do not know whether this application, or any related application, is
still pending. We do not believe that any United States patent has issued from
this application, and we do not know whether a United States patent will ever
issue from this patent application. If a United States patent does issue, we do
not know whether the patent will be enforceable, whether any valid claims will
cover our activities or products, or whether the patent owner will attempt to
assert the patent against us.
Earlier this year, we received correspondence from both Copernicus Therapeutics,
Inc. and its counsel alleging similarity between the companies' respective logos
and demanding that we cease using our logo. In July 1999, we sent a response to
Copernicus stating that we have prior rights in our logo. In the response to
Copernicus, we also stated that since the respective corporate names are vastly
different, both companies should be able to continue the use of their respective
logos without causing public confusion. At this time, we have not received any
further communications from Copernicus or its counsel. Although we do not
believe we are infringing any rights owned by Copernicus, Copernicus may proceed
with a trademark lawsuit against us.
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WE ARE AN EARLY STAGE BIOTECHNOLOGY COMPANY THAT MAY NEVER BE PROFITABLE.
IF WE INCUR OPERATING LOSSES FOR LONGER THAN WE EXPECT, WE MAY BE UNABLE TO
CONTINUE OUR OPERATIONS.
We have not generated any revenues from sales, and we do not expect to generate
significant revenues for several years. We have incurred losses since we were
formed. From inception through September 30, 1999, we have generated losses
totaling $31.0 million. We expect to incur increasing and significant losses
over the next several years as we complete our Oncophage clinical trials, apply
for regulatory approvals, continue development of our technology and expand our
operations.
Our profitability will depend on the market acceptance of any of our
immunotherapeutics that receive FDA or foreign regulatory approval. The
commercial success of any of our immunotherapeutics will depend on whether:
- the immunotherapeutic is more effective than alternative treatments;
- side effects of the immunotherapeutic are acceptable to doctors and
patients;
- we produce the immunotherapeutic at a competitive price;
- we obtain sufficient reimbursement for the immunotherapeutic; and
- we have sufficient capital to market the immunotherapeutic
effectively.
Because Oncophage is autologous, or patient specific, it may be more expensive
to manufacture than conventional therapeutic products. This increased expense
may decrease our profit margins. Furthermore, because our autologous products
are novel, some doctors and patients may be reluctant to use them.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO ADVANCE OUR DEVELOPMENT PROGRAMS AND COMPLETE OUR CLINICAL TRIALS.
Developing immunotherapeutics and conducting clinical trials for multiple
diseases is expensive. We plan to conduct clinical trials for many different
cancer types simultaneously, which will increase our costs. We will need to
raise additional capital:
- to fund operations;
- to continue the research and development of our immunotherapeutics;
and
- to commercialize our immunotherapeutics.
Additional financing may not be available on favorable terms or at all. If we
are unable to raise additional funds when we need them, we may be required to
delay, reduce or eliminate some or all of our development programs and some or
all of our clinical trials. We also may be forced to license technologies to
others that we would prefer to develop internally.
On September 30, 1999, we had $12.6 million in cash and cash equivalents. We
raised net proceeds of $38.9 million in a private placement in November 1999. We
believe that, after this offering, we will have sufficient capital to fund our
operations for the next two years. We may need to raise capital sooner, however,
due to a number of factors, including:
- an acceleration of the number, size or complexity of our clinical
trials;
- slower than expected progress in developing our immunotherapeutics;
- higher than expected costs to obtain regulatory approvals;
- higher than expected costs to pursue our intellectual property
strategy;
- higher than expected costs to further develop our manufacturing
capability; and
- higher than expected costs to develop our sales and marketing
capability.
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BECAUSE OF THE SPECIALIZED NATURE OF OUR BUSINESS, THE TERMINATION OF
RELATIONSHIPS WITH OUR SCIENTIFIC ADVISORS OR THE DEPARTURE OF KEY MEMBERS OF
MANAGEMENT MAY PREVENT US FROM ACHIEVING OUR OBJECTIVES.
IF PRAMOD K. SRIVASTAVA, PH.D. SEVERS HIS RELATIONSHIP WITH ANTIGENICS, WE MAY
EXPERIENCE SIGNIFICANT DIFFICULTIES IN OUR FUTURE DEVELOPMENT EFFORTS.
Since our formation, Dr. Srivastava has played a significant role in our
research efforts. Dr. Srivastava is a director of our company and acts as
chairman of our scientific advisory board. In addition, we have licensed nearly
all of our intellectual property from institutions at which Dr. Srivastava has
worked. We sponsor research in Dr. Srivastava's laboratory at the University of
Connecticut Health Center in exchange for the right to license discoveries made
in that laboratory with our funding. Dr. Srivastava is a member of the faculty
of the University of Connecticut School of Medicine. The regulations and
policies of the University of Connecticut Health Center govern the relationship
between a faculty member and a commercial enterprise. These regulations and
policies prohibit Dr. Srivastava from becoming an employee of Antigenics.
Furthermore, the University of Connecticut may modify these regulations and
policies in the future to further limit Dr. Srivastava's relationship with us.
While Dr. Srivastava has a consulting agreement with us, which includes
financial incentives for him to remain associated with us, we cannot guarantee
that he will remain associated with us even during the time covered by the
consulting agreement. In addition, this agreement does not restrict his ability
to compete with us after his association is terminated.
IF WE FAIL TO KEEP KEY MANAGEMENT AND SCIENTIFIC PERSONNEL, WE MAY BE UNABLE
TO SUCCESSFULLY DEVELOP OUR IMMUNOTHERAPEUTICS, CONDUCT CLINICAL TRIALS AND
OBTAIN FINANCING.
We are highly dependent on our senior management and scientific staff,
particularly Garo H. Armen, Ph.D., our chairman and chief executive officer, and
Gamil G. de Chadarevian, our vice chairman and executive vice president,
international. The competition for qualified personnel in the biotechnology
field is intense, and we rely heavily on our ability to attract and retain
qualified scientific, technical and managerial personnel. Since our
manufacturing process is unique, our manufacturing and quality control personnel
are also very important.
THE COMMERCIAL SUCCESS OF ANY OF OUR IMMUNOTHERAPEUTICS WILL DEPEND UPON THE
STRENGTH OF OUR SALES AND MARKETING EFFORT AND THE AVAILABILITY OF THIRD PARTY
REIMBURSEMENT.
IF WE ARE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES OR ENTER INTO
AGREEMENTS WITH PHARMACEUTICAL COMPANIES TO SELL AND MARKET OUR
IMMUNOTHERAPEUTICS, WE MAY EXPERIENCE DIFFICULTY GENERATING REVENUES.
We do not have a sales organization and have no experience in the sales,
marketing and distribution of pharmaceutical products. If Oncophage is approved
for commercial sale, we plan to market it in the United States with our own
sales force. Developing a sales force is expensive and time consuming and could
delay any product launch. We cannot be certain that we would be able to develop
this capacity. If we are unable to establish our sales and marketing capability,
we will need to enter into sales and marketing agreements to market Oncophage in
the United States. We plan to enter into these types of arrangements for sales
outside the United States. If we are unable to establish successful distribution
relationships with pharmaceutical companies, we may fail to realize the full
sales potential of our immunotherapeutics.
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR
IMMUNOTHERAPEUTICS FROM THIRD PARTY PAYORS, THE COMMERCIAL POTENTIAL OF OUR
IMMUNOTHERAPEUTICS WILL BE SIGNIFICANTLY LIMITED.
Our profitability will depend on the extent to which government administration
authorities, private health insurance providers and other organizations provide
reimbursement for the cost of our immunotherapeutics. Many patients will not be
capable of paying for our immunotherapeutics themselves. A primary trend in the
United States health care industry is toward cost containment. Large private
payors, managed care
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organizations, group purchasing organizations and similar organizations are
exerting increasing influence on decisions regarding the use of particular
treatments. These organizations are becoming increasingly economically focused.
Furthermore, many third party payors limit reimbursement for newly approved
health care products. Cost containment measures may prevent us from becoming
profitable.
In addition, healthcare reform is an area of significant government focus. Any
reform measures, if adopted, could adversely affect:
- the pricing of immunotherapeutics in the United States or
internationally; and
- the amount of reimbursement available from governmental agencies or
other third party payors.
For example, recent proposals regarding Medicare coverage, if they take effect,
may put novel cancer therapies like Oncophage at a competitive disadvantage
compared to existing therapies.
PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US MAY REDUCE DEMAND FOR OUR PRODUCTS
OR RESULT IN SUBSTANTIAL DAMAGES.
We face an inherent risk of product liability exposure related to testing
immunotherapeutics in human clinical trials and will face an even greater risk
if we sell any of our therapeutic products commercially. An individual may bring
a product liability claim against us if one of our immunotherapeutics causes, or
merely appears to have caused, an injury. Regardless of merit or eventual
outcome, product liability claims may result in:
- decreased demand for our immunotherapeutics;
- injury to our reputation;
- withdrawal of clinical trial volunteers;
- costs of related litigation; and
- substantial monetary awards to plaintiffs.
We manufacture Oncophage from a patient's tumor, and a medical professional must
inject the Oncophage into that same patient. A patient may sue us if we, a
hospital or a delivery company fail to deliver the removed tumor or that
patient's Oncophage. We anticipate that the logistics of shipping will become
more complex as the number of patients we treat increases, and we cannot assure
that all shipments will be made without incident. In addition, administration of
Oncophage at a hospital poses another chance for delivery to the wrong patient.
Currently, we do not have insurance that covers loss of or damage to Oncophage
and do not know whether insurance will be available to us at a reasonable price
or at all.
WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
We use hazardous, infectious and radioactive materials that could be dangerous
to human health, safety or the environment. As appropriate, we store these
materials and various wastes resulting from their use at our facility pending
ultimate use and disposal. We are subject to a variety of federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes resulting from their use. We
may incur significant costs complying with both existing and future
environmental laws and regulations. In particular, we are subject to regulation
by the Occupational Safety and Health Administration and the Environmental
Protection Agency and to regulation under the Toxic Substances Control Act and
the Resource Conservation and Recovery Act. OSHA or the EPA may adopt
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulations which could have a
material adverse effect on our operations.
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Although we believe our safety procedures for handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot
entirely eliminate the risk of accidental injury or contamination from these
materials. In the event of an accident, we could be held liable for any
resulting damages which could be substantial.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITY OR MARKETING EXPERTISE.
Our business may fail because we face intense competition from major
pharmaceutical companies and specialized biotechnology companies engaged in the
development of immunotherapeutics and other therapeutic products directed at
cancer, infectious diseases and autoimmune disorders. Many of our competitors
have greater financial and human resources and more experience. Our competitors
may:
- develop safer or more effective immunotherapeutics and other
therapeutic products;
- implement more effective approaches to sales and marketing; or
- establish superior proprietary positions.
More specifically, if we receive regulatory approvals, some of our
immunotherapeutics will compete with well-established, FDA approved therapies
that have generated substantial sales over a number of years.
We anticipate that we will face increased competition in the future as new
companies enter our markets and scientific developments surrounding
immunotherapy and other cancer therapies continue to accelerate.
WE MAY NOT BE ABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES IN THE
BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES WHICH COULD MAKE OUR
IMMUNOTHERAPEUTICS OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Research and discoveries by others may result in medical
insights or breakthroughs which may render our immunotherapeutics obsolete even
before they generate any revenue.
OUR BUSINESS MAY BE DISRUPTED IF WE EXPERIENCE ANY PROBLEMS WITH Y2K COMPLIANCE.
The date fields coded in certain software products and computer systems need to
be able to distinguish 21st century dates from 20th century dates. The failure
to be able to do so is commonly known as the year 2000 or Y2K problem.
While we have yet to experience problems, our installed computer systems,
software products or other business systems, or those of our suppliers or
service providers, working either alone or in conjunction with other software
systems, may experience errors or interruptions due to the Y2K problem.
Some risks associated with the Y2K problem are beyond our ability to control,
including the extent to which our suppliers and service providers can address
the Y2K problem. The failure by a third party to adequately address the Y2K
issue may have an adverse effect on their operations, which, in turn, may have
an adverse impact on us. If, for instance, our supply of electricity and/or
water is interrupted, our freezers may not be able to adequately preserve our
immunotherapeutics and our scientific experiments may be interrupted.
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RISKS RELATING TO THE OFFERING
OUR OFFICERS AND DIRECTORS MAY BE ABLE TO BLOCK PROPOSALS FOR A CHANGE IN
CONTROL.
After this offering, Antigenics Holdings L.L.C. will control approximately 47.0%
of our outstanding common stock. Due to this concentration of ownership,
Antigenics Holdings may be able to prevail on all matters requiring a
stockholder vote, including:
- the election of directors;
- the amendment of our organizational documents; or
- the approval of a merger, sale of assets or other major corporate
transaction.
Our directors and officers, if they elect to act together, can control
Antigenics Holdings. See "Principal Stockholders."
WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS WHICH YOU AND OTHER
STOCKHOLDERS MAY NOT APPROVE.
Management will have significant flexibility in applying the net proceeds of
this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US MORE DIFFICULT.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents may make a change in control more difficult, even if the
stockholders desire a change in control. Our anti-takeover provisions include
provisions in our certificate of incorporation providing that stockholders'
meetings may only be called by the president or the majority of the board of
directors and a provision in our by-laws providing that our stockholders may not
take action by written consent. Additionally, our board of directors has the
authority to issue 1,000,000 shares of preferred stock and to determine the
terms of those shares of stock without any further action by our stockholders.
The rights of holders of our common stock are subject to the rights of the
holders of any preferred stock that may be issued. The issuance of preferred
stock could make it more difficult for a third party to acquire a majority of
our outstanding voting stock. Our charter also provides for the classification
of our board of directors into three classes. This "staggered board" generally
may prevent stockholders from replacing the entire board in a single proxy
contest. In addition, our directors may only be removed from office for cause.
Delaware law also prohibits a corporation from engaging in a business
combination with any holder of 15% or more of its capital stock until the holder
has held the stock for three years unless, among other possibilities, the board
of directors approves the transaction. The board may use this provision to
prevent changes in our management. Also, under applicable Delaware law, our
board of directors may adopt additional anti-takeover measures in the future.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING
VOLUME.
Prior to this offering, our equity did not trade in a public market. An active
public market for our common stock may not develop or be sustained after this
offering. We and the underwriters, through negotiations, will determine the
initial public offering price. The initial public offering price is not
necessarily indicative of the market price at which the common stock will trade
after this offering. The market prices for securities of companies comparable to
us have been highly volatile, and the market has experienced significant price
and volume fluctuations that are unrelated to the operating performance of the
individual
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companies. Many factors may have a significant adverse effect on the market
price of the common stock, including:
- results of our preclinical and clinical trials;
- announcement of technological innovations or new commercial products
by us or our competitors;
- developments concerning proprietary rights, including patent and
litigation matters;
- publicity regarding actual or potential results with respect to
products under development by us or by our competitors;
- regulatory developments; and
- quarterly fluctuations in our revenues and other financial results.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES COULD CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO DECLINE.
After this offering, we will have 23,714,286 shares of common stock outstanding.
In connection with the private placement completed in November 1999, we are
obligated to file, approximately 90 days after the date of this prospectus, a
registration statement covering up to 2,808,857 shares for resale. When this
registration statement is declared effective by the Securities and Exchange
Commission, these stockholders will be permitted to resell their shares on the
Nasdaq National Market. Sales of these shares or anticipation of those sales may
depress our stock price.
The sale by our company or the resale by stockholders of shares of our common
stock after this offering could cause the market price of the common stock to
decline. The 20,714,286 shares of common stock outstanding after this offering
but not offered by this prospectus will be available for resale on the Nasdaq
National Market as follows:
- 2,808,857 shares when a resale registration statement to be filed
approximately 90 days after the date of this prospectus is declared
effective, and
- 17,905,429 shares one year following this offering, some of which
are subject to volume and other limitations.
We intend to file a registration statement following the offering to permit the
sale of approximately 4,800,000 shares of common stock under our equity
incentive plan and 300,000 shares of common stock under our employee stock
purchase plan. As of December 31, 1999, options to purchase 1,716,007 shares of
our common stock upon exercise of options with a weighted average exercise price
per share of $5.83 were outstanding. Many of these options are subject to
vesting that generally occurs over a period of up to five years following the
date of grant. Substantially all outstanding options are subject to agreements
with the underwriters not to sell the shares issuable upon their exercise for
one year after the offering. As of December 31, 1999, warrants to purchase
280,886 shares of our common stock with an exercise price per share of $13.96
were outstanding.
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HISTORY OF ANTIGENICS
We formed our business in March 1994 through the creation of a Delaware
corporation. We subsequently formed Antigenics L.L.C., a Delaware limited
liability company. In December 1995, we raised capital and concurrently
transferred to Antigenics L.L.C. all of the assets, properties and rights of the
Delaware corporation in exchange for a portion of the total initial equity
interests in Antigenics L.L.C. When we complete this offering, we will merge
Antigenics L.L.C. with and into Antigenics Inc., a newly formed Delaware
corporation. As part of the merger, holders will exchange membership units and
options in Antigenics L.L.C. for shares of Antigenics Inc. common stock and
options exercisable for shares of Antigenic Inc. common stock. Each holder of
warrants issued by Antigenics L.L.C. will exchange them for warrants exercisable
for shares of Antigenics Inc. common stock, unless the holder of the warrants
elects to convert the warrants into common stock in connection with the merger.
Since inception, we have used our technology platform to develop heat shock
protein-based immunotherapeutics. Based on extensive research and preclinical
studies, we focused initially on the development of products for the treatment
of human cancer. We filed an IND in November 1996 to start clinical trials in
the United States and began our first phase I clinical trial for pancreatic
cancer patients at Memorial Sloan-Kettering Cancer Center in November 1997. We
subsequently began clinical trials in renal cell carcinoma, melanoma, colorectal
cancer and gastric cancer. During the next several years, we intend to conduct
clinical trials in additional cancer types and to further research and develop
immunotherapeutics for the treatment of infectious diseases and autoimmune
disorders.
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USE OF PROCEEDS
We estimate the net proceeds from the sale of 3,000,000 shares of common stock
in this offering at an assumed public offering price of $15.00 per share will be
$41.0 million after deducting the underwriting discount and estimated offering
expenses payable by us. Our net proceeds are estimated to be $47.3 million if
the underwriters' exercise their over-allotment option in full.
We intend to use the net proceeds of this offering to fund clinical trials,
research, preclinical and development activities for our immunotherapeutics and
general corporate purposes, including working capital and an increase in our
administrative staff. We may also use a portion of the net proceeds to increase
our manufacturing capacity or to acquire complementary businesses or products.
As of the date of this prospectus, we have no specific understandings,
commitments or agreements with respect to any acquisition.
We have not determined the amount of net proceeds that we will use for each of
these purposes. Accordingly, we will have broad discretion to use the proceeds
as we see fit. Prior to spending the funds, we will invest the net proceeds in
short-term, investment grade, interest-bearing securities or guaranteed
obligations of the United States government.
RECENT FINANCING
In November 1999, we raised an aggregate of $39.2 million in a private
placement. We incurred approximately $293,000 in related costs, so we received
net proceeds of about $38.9 million. In the private placement, we sold member
interests and warrants to purchase member interests. When we reorganize into a
corporation, the member interests will convert into approximately 2,808,857
shares of our common stock. Each warrant holder has the option to convert its
warrants into shares of common stock or into warrants to purchase common stock.
If all the warrant holders elect to convert their warrants into common stock and
the initial public offering price is $15.00 per share, we will issue
approximately 19,445 shares of common stock to the warrant holders. If all of
the warrant holders elect to receive warrants to purchase common stock, the
warrant holders will have the right to acquire approximately 280,886 shares of
common stock at $13.96 per share based on an assumed initial public offering
price of $15.00 per share of common stock.
DIVIDEND POLICY
We have never paid cash dividends. We currently intend to retain any future
earnings to finance the growth and development of our business. We do not intend
to pay cash dividends on our common stock in the foreseeable future.
20
<PAGE> 22
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, principally in the sections
entitled "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Business." Generally, these statements can be
identified by the use of phrases like "believe," "expect," "anticipate," "plan,"
"may," "will," "could," "estimate," "potential," "opportunity," "future,"
"project" and similar terms and include statements about our:
- product research and development activities and projected
expenditures;
- the efficacy of our immunotherapeutics in treating diseases;
- receipt of regulatory approvals;
- spending the proceeds from this offering;
- cash needs;
- plans for sales and marketing;
- results of scientific research;
- implementation of our corporate strategy; and
- financial performance.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed in "Risk Factors." You should carefully
consider that information before you make an investment decision. You should not
place undue reliance on our forward-looking statements.
21
<PAGE> 23
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth, as of September 30, 1999, our historical and pro
forma capitalization and cash and cash equivalents. The pro forma capitalization
gives effect to the following transactions as if they occurred on September 30,
1999:
- the $39.2 million private placement completed in November 1999 less
$293,000 of private placement expenses; and
- the change from a limited liability company to a corporation and the
exchange of each unit of members' equity into 172.0336 shares of
common stock.
The pro forma as adjusted capitalization reflects the pro forma adjustments
described in the previous sentence and the sale in this offering of 3,000,000
shares of common stock at an assumed initial public offering price of $15.00 per
share and the application of the estimated net proceeds from this offering,
after deducting the underwriting discount and estimated offering expenses
payable by us. This table does not include an aggregate of 1,716,007 shares of
common stock issuable upon exercise of stock options outstanding as of September
30, 1999 with a weighted average exercise price of $5.83 per share. This table
does not include an aggregate of 280,886 shares of common stock issuable upon
exercise of outstanding warrants at an exercise price of $13.96 per share. This
table should be read in conjunction with our consolidated financial statements
and the other financial information included in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------
PRO FORMA AS
HISTORICAL PRO FORMA ADJUSTED
----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 12,612 $ 51,535 $ 92,535
======== ======== ========
Long-term debt, including current portion............ $ 3,149 3,149 3,149
-------- -------- --------
Members' capital..................................... 48,278 -- --
Stockholders' equity
Common stock, par value $0.01 per share;
100,000,000 shares authorized, 20,714,286 shares
issued and outstanding, pro forma, 23,714,286
shares issued and outstanding, pro forma as
adjusted........................................ -- 207 237
Preferred stock, par value $0.01 par value per
share; 1,000,000 shares authorized, no shares
issued and outstanding, pro forma and pro forma
as adjusted..................................... -- -- --
Additional paid-in capital........................... -- 86,994 127,964
Deferred compensation................................ (559) (559) (559)
Deficit accumulated during the development stage..... (30,977) (30,977) (30,977)
-------- -------- --------
Total members'/stockholders' equity................ 16,742 55,665 96,665
-------- -------- --------
Total capitalization....................... $ 19,891 $ 58,814 $ 99,814
======== ======== ========
</TABLE>
22
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of September 30, 1999, was $55.7
million or $2.69 per share of common stock. Pro forma net tangible book value
per share before this offering represents the amount of our pro forma
stockholders' equity, less intangible assets, divided by the pro forma number of
shares of common stock outstanding as of September 30, 1999 after giving effect
to:
- the application of net proceeds from the $39.2 million private
placement completed in November 1999; and
- the change from a limited liability company to a corporation and the
exchange of each unit of members' equity into 172.0336 shares of
common stock.
Pro forma net tangible book value per share after this offering gives effect to
the adjustments described above and to the application of net proceeds from the
sale of 3,000,000 shares of our common stock at an assumed initial public
offering price of $15.00 per share. As of September 30, 1999, our pro forma net
tangible book value after this offering would have been $96.7 million or $4.08
per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $1.39 per share and an immediate dilution to new investors of
$10.92 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
------
Pro forma net tangible book value per share before this
offering................................................ $2.69
-----
Increase in net tangible book value per share attributable
to new investors........................................ $1.39
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 4.08
------
Dilution per share to new investors......................... $10.92
======
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option, our
adjusted pro forma net tangible book value after this offering at September 30,
1999 would have been approximately $4.26 per share, representing an immediate
increase in pro forma tangible book value of $1.57 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value of
$10.74 per share to purchasers in this offering.
The following table enumerates the number of shares of common stock purchased,
the total consideration paid and the average price per share paid by our
existing stockholders. The following table also enumerates the number of shares
of common stock purchased and the total consideration paid, calculated before
deduction of the underwriting discount and estimated offering expenses, and the
average price per share paid by the new investors in this offering assuming the
sale of 3,000,000 shares of our common stock at an assumed initial offering
price of $15.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 20,714,286 87.3% $ 79,244,995 63.8% $ 3.83
New investors.............................. 3,000,000 12.7% $ 45,000,000 36.2% $15.00
---------- ---- ------------ ----
Total............................. 23,714,286 100% $124,244,995 100% $ 5.24
========== ==== ============ ==== ======
</TABLE>
The table above is calculated on a pro forma basis as of September 30, 1999 and
gives effect to the November 1999 private placement and the change from a
limited liability company to a corporation as described above.
The tables above assume no exercise of the underwriters' over-allotment option
and no exercise of stock options outstanding at September 30, 1999. As of
September 30, 1999, there were options outstanding to purchase a total of
1,716,007 shares, at a weighted average exercise price of $5.83 per share. These
tables also do not reflect the warrants we issued in November 1999. To the
extent that any of these options or warrants are exercised, there will be
further dilution to new investors. Please see "Capitalization,"
"Management -- Director Compensation," "-- Executive Compensation," Note 5 to
Antigenics' audited consolidated financial statements and Note C to Antigenics'
unaudited consolidated financial statements.
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT AND UNIT DATA)
We have derived the selected consolidated balance sheet data set forth below, as
of December 31, 1997 and 1998, and the consolidated statement of operations data
for each of the years in the three-year period ended December 31, 1998, from our
audited consolidated financial statements included elsewhere in this prospectus.
We have derived the selected consolidated balance sheet data as of December 31,
1994, 1995 and 1996 and selected consolidated statement of operations data for
the period from March 31, 1994 (date of inception) to December 31, 1994 and the
year ended December 31, 1995 from our audited consolidated financial statements
which are not included in this prospectus. These consolidated financial
statements of Antigenics L.L.C. have been audited by KPMG LLP, independent
certified public accountants.
We have derived the selected consolidated financial data as of September 30,
1999 and for the nine months ended September 30, 1998 and 1999 and for the
period from March 31, 1994 (date of inception) to September 30, 1999 from our
unaudited consolidated financial statements which are included elsewhere in this
prospectus. The unaudited financial data includes, in our opinion, all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair presentation of our financial position and the results of our
operations for those periods. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. You should read the
selected consolidated financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes to those consolidated
financial statements included elsewhere in this prospectus.
Since we have operated historically as a limited liability company, in
accordance with federal, state and local income tax regulations which provide
that no income taxes are levied on United States limited liability companies and
each member of the limited liability company is individually responsible for
reporting the member's share of our net income or loss, we do not provide for
income taxes in our consolidated financial statements.
The unaudited pro forma information set forth below reflects adjustments which
are necessary, in our management's opinion, for a fair presentation of our
consolidated financial condition and results of operations on a pro forma basis.
The unaudited pro forma net loss, basic and diluted net loss per common share
and weighted average shares outstanding for the year ended December 31, 1998 and
the nine months ended September 30, 1999 give effect to the change from a
limited liability company to a corporation and the exchange of each unit of
members' equity into 172.0336 shares of common stock as if they occurred on
January 1, 1998.
The unaudited pro forma selected balance sheet data as of September 30, 1999
reflect the events described above as if these events occurred as of September
30, 1999 as well as the $39.2 million private placement completed in November
1999 less $293,000 of private placement expenses.
Increases in cash and cash equivalents, total current assets, total assets and
members' equity in the years presented below include the effects of the receipt
of net proceeds from our equity offerings that totalled approximately $10.6
million, $7.4 million and $20.1 million in 1996, 1997 and 1998, respectively.
24
<PAGE> 26
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 31, 1994 MARCH 31, 1994
(DATE OF NINE MONTHS ENDED (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, INCEPTION) TO
DECEMBER 31, ------------------------------------- ------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999 1999
-------------- ------- ------- ------- ------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and
development............. (112) (742) (2,017) (2,563) (6,102) (4,196) (7,232) (18,770)
General and
administrative.......... (56) (2,453) (1,781) (1,549) (3,178) (2,242) (4,016) (13,031)
Depreciation and
amortization............ (15) (40) (79) (202) (360) (273) (726) (1,422)
------- ------- ------- ------- ------- ------- --------- --------
Loss from operations...... (183) (3,235) (3,877) (4,314) (9,640) (6,711) (11,974) (33,223)
Interest income, net...... -- 8 281 481 736 580 489 1,996
Non-operating income...... -- -- 250 -- -- -- -- 250
------- ------- ------- ------- ------- ------- --------- --------
Net loss.................. $ (183) $(3,227) $(3,346) $(3,833) $(8,904) $(6,131) $ (11,485) $(30,977)
======= ======= ======= ======= ======= ======= ========= ========
Net loss per members'
equity unit, basic and
diluted................. $(10.97) $(40.92) $(39.42) $(42.81) $(93.07) $(68.10) $ (110.35)
======= ======= ======= ======= ======= ======= =========
Weighted average number of
units outstanding, basic
and diluted............. 16,675 78,854 84,876 89,525 95,673 90,032 104,079
======= ======= ======= ======= ======= ======= =========
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Pro forma net loss........ $(8,904) $ (11,485)
Pro forma net loss per
common share, basic and
diluted................. $ (0.54) $ (0.65)
Pro forma weighted average
shares outstanding,
basic and diluted....... 16,459 17,905
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1999
------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 HISTORICAL PRO FORMA
----- ------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 129 $ 791 $ 9,588 $13,086 $22,168 $12,612 $ 51,535
Total current assets............... 163 876 9,639 13,246 22,447 13,226 52,149
Total assets....................... 239 1,124 10,041 14,090 26,636 21,280 60,203
Total current liabilities.......... 22 584 883 878 2,285 2,170 2,170
Long-term liabilities, less current
portion.......................... -- -- -- -- 709 2,368 2,368
Members' equity/stockholders'
equity........................... 217 540 9,158 13,212 23,641 16,742 55,665
</TABLE>
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of the financial condition and results
of operations in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this prospectus.
OVERVIEW
Since our inception in March 1994, our activities have primarily been associated
with the development of our heat shock protein technology and our lead
immunotherapeutic, Oncophage. Our business activities have included:
- establishing manufacturing capabilities;
- product research and development;
- manufacturing immunotherapeutics for clinical trials;
- regulatory and clinical affairs; and
- intellectual property prosecution.
We have incurred significant losses since our inception because we have not
generated any revenues. As of September 30, 1999, we had an accumulated deficit
of $30,977,000. We expect to continue to incur net losses over the next several
years as we complete our Oncophage clinical trials, apply for regulatory
approvals, continue development of our technology and expand our operations. We
have been dependent on funding from equity and debt financings to finance our
business activities. Our financial results may vary depending on many factors,
including:
- the progress of Oncophage in the regulatory process;
- the acceleration of our other immunotherapeutic candidates into
preclinical and clinical trials;
- our investment in manufacturing process development and in
manufacturing capacity for Oncophage and other product candidates;
- development of a sales and marketing staff and initial sales
activities if Oncophage is approved for commercialization; and
- the progress of our other additional research and development
efforts.
In December 1999, we accelerated the vesting on some options granted to outside
advisors. As a result, we recognized a charge of $2,093,000 in the fourth
quarter of 1999. In addition, we have issued unvested options to acquire shares
of our common stock for which the exercise price will be set at the time of
vesting. We will take a compensation charge equal to the fair market value of
the options at the time these options vest.
HISTORICAL RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenue: We generated no revenue during the nine months ended September 30,
1999 or during the nine months ended September 30, 1998.
Research and Development: Research and development expense increased 72.4% to
$7,232,000 for the nine months ended September 30, 1999 from $4,196,000 for the
nine months ended September 30, 1998. This increase was partially attributable
to the increase in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $1,104,000 for the nine months ended
September 30, 1999 from $248,000 for the nine months ended September 30, 1998.
The remainder of the increase was primarily due to the number of later stage
Oncophage clinical trials in process that increased
26
<PAGE> 28
costs by $680,000, an increase in our staff to support our expanded business
activities that increased costs by $900,000 and other ongoing development
activities that increased costs by $602,000. Research and development expenses
consisted primarily of compensation for our employees and outside advisors
conducting research and development work, funding paid to the University of
Connecticut, where we sponsor research, costs associated with the operation of
our manufacturing and laboratory facility and funding paid to support our
Oncophage clinical trials.
General and Administrative: General and administrative expenses increased 79.1%
to $4,016,000 for the nine months ended September 30, 1999 from $2,242,000 for
the nine months ended September 30, 1998. This increase was partially due to the
increase in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $1,232,000 for the nine months ended
September 30, 1999 from $478,000 for the nine months ended September 30, 1998.
The remainder of the increase was primarily due to the growth in the number of
our employees to support our expanded business operations that increased costs
by $340,000. General and administrative expenses consisted primarily of
personnel compensation, office expenses and professional fees.
Depreciation and Amortization: Depreciation and amortization expense increased
165.9% to $726,000 for the nine months ended September 30, 1999 from $273,000
for the nine months ended September 30, 1998. This increase was due to the
depreciation expense of our new 30,225 square foot manufacturing and laboratory
facility and related equipment.
Interest Income, net: Interest income increased 10.5% to $641,000 for the nine
months ended September 30, 1999 from $580,000 for the nine months ended
September 30, 1998. This increase was principally attributable to a higher
average cash and cash equivalents balance during the nine months ended September
30, 1999 as compared to the nine months ended September 30, 1998 due to a
$28,000,000 private equity financing completed in January 1999. Changes in
interest rates had an immaterial effect on the change in interest income.
Interest expense was $152,000 during the nine months ended September 30, 1999
due to borrowings under a credit facility to fund the construction of our
manufacturing and laboratory facility. We incurred no interest expense during
the nine months ended September 30, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue: We generated no revenue during the year ended December 31, 1998 or
during the year ended December 31, 1997.
Research and Development: Research and development expenses increased 138.1% to
$6,102,000 for the year ended December 31, 1998 from $2,563,000 for the year
ended December 31, 1997. This increase was due primarily to an increase of
$1,777,000 in salary cost due to an increase in the number of our employees as
we expanded our business and clinical activities, an increase of $190,000 in
expense to support our Oncophage clinical trials, an increase in professional
fees of $126,000 related to expansion of our intellectual property and patent
activities, and the non-cash charge for options granted to and earned by outside
advisors, employees and directors of $275,000.
General and Administrative: General and administrative expenses increased
105.2% to $3,178,000 for the year ended December 31, 1998 from $1,549,000 for
the year ended December 31, 1997. This increase was due primarily to an increase
of $196,000 in costs related to increased personnel necessary to support our
expanding business and clinical operations and the non-cash charge for options
granted and earned by outside advisors, employees and directors of $583,000.
Depreciation and Amortization: Depreciation and amortization expense increased
78.2% to $360,000 for the year ended December 31, 1998 from $202,000 for the
year ended December 31, 1997. This increase was due to the depreciation expense
of our manufacturing and laboratory equipment.
Interest Income, net: Interest income increased 53.0% to $736,000 for the year
ended December 31, 1998 from $481,000 for the year ended December 31, 1997. This
increase was primarily attributable to a higher
27
<PAGE> 29
average cash and cash equivalents balance during the year ended December 31,
1998 as compared to the year ended December 31, 1997. Changes in interest rates
had an immaterial effect on the change in interest income. There was no interest
expense during the years ended December 31, 1998 and 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenue: We generated no revenue during the year ended December 31, 1997 or
during the year ended December 31, 1996.
Research and Development: Research and development expenses increased 27.1% to
$2,563,000 for the year ended December 31, 1997 from $2,017,000 for the year
ended December 31, 1996. This increase was primarily due to an increase of
$359,000 in the fee to the research laboratory we sponsor at the University of
Connecticut, an increase of $260,000 in costs related to additional personnel in
our clinical and preclinical programs and in an increase of $55,000 in
professional fees related to the expansion of our intellectual property and
patent activities, partially offset by a decrease in the non-cash charge for
options granted to outside advisors of $457,000.
General and Administrative: General and administrative expenses decreased 13.0%
to $1,549,000 for the year ended December 31, 1997 from $1,781,000 for the year
ended December 31, 1996. This decrease was primarily due to a decrease in the
non-cash charge for options granted to and earned by outside advisors employees
and directors of $700,000, partially offset by costs related to increased
personnel necessary to support our expanding business and clinical operations of
$309,000.
Depreciation and Amortization: Depreciation and amortization expense increased
155.7% to $202,000 for the year ended December 31, 1997 from $79,000 for the
year ended December 31, 1996. This increase was due to the depreciation expense
of our manufacturing and laboratory equipment.
Interest Income, net: Interest income increased 71.2% to $481,000 for the year
ended December 31, 1997 from $281,000 for the year ended December 31, 1996. This
increase was primarily attributable to a higher average cash and cash
equivalents balance during the year ended December 31, 1997 as compared to the
year ended December 31, 1996. We incurred no interest expense during the years
ended December 31, 1997 and 1996.
Non-operating Income: We recorded a non-recurring, non-operating fee of
$250,000 for the year ended December 31, 1996 relating to a potential
collaboration.
INCOME TAXES
We have not recorded a benefit for federal, state or local income taxes for the
net losses we incurred in the years ended December 31, 1996, 1997 and 1998, and
we have not recorded a benefit for income taxes for the period from March 31,
1994 (date of inception) through December 31, 1995. In addition, we will not
record net losses incurred prior to the closing of this offering on our federal,
state or local income tax returns. Because we operated as a limited liability
company for tax purposes during these periods, and will continue to do so until
the closing of this offering, we have allocated and will allocate all taxable
losses to the members for reporting on their income tax returns. As a result, we
will not be able to offset future taxable income, if any, against losses
incurred prior to the closing of this offering. Upon conversion from a limited
liability company to a corporation, we expect to recognize a valuation allowance
equal to any gross deferred tax assets as we believe that it is more likely than
not that we will not realize these deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and at September 30,
1999, we had incurred an accumulated deficit of $30,977,000. Since our
inception, we have financed our operations primarily through various private
placements of equity, interest income earned on cash and cash equivalent
balances and debt provided through a credit line secured by some of our
manufacturing and laboratory assets. From our
28
<PAGE> 30
inception through September 30, 1999, we raised aggregate equity proceeds of
$40,322,000 and borrowed $3,424,000 under our $5,000,000 credit facility. In
addition, in November 1999, we raised gross proceeds of $39,216,000 through a
private placement of equity. As part of the November 1999 private placement, we
issued warrants that expire September 30, 2002. The exercise price of these
warrants is $13.96 per share. See "Description of Capital Stock -- Warrants" for
a more detailed descripton of the warrants. We expect that we will fund our
capital expenditures and growing operations over the next two years with the net
proceeds from the November 1999 private placement of equity, the net proceeds
from this offering, and current working capital. Our future capital requirements
include, but are not limited to, supporting our Oncophage clinical trial efforts
and continuing our other research and development programs. Satisfying our
long-term liquidity needs will require the successful commercialization of
Oncophage or other products and may require additional capital.
Our cash and cash equivalents at September 30, 1999 were $12,612,000, a decrease
of $9,556,000 from December 31, 1998. During the nine months ended September 30,
1999 we used cash primarily to finance operations, including our Oncophage
clinical trials, and to make capital expenditures related to the establishment
of our manufacturing and laboratory facility.
Net cash used in operating activities for the years ended December 31, 1996,
1997 and 1998 was $1,473,000, $3,518,000 and $6,377,000, and for the nine months
ended September 30, 1999 was $9,416,000 compared to $5,508,000 for the nine
months ended September 30, 1998. The increase resulted from the increase in the
number and size of our Oncophage clinical trials and general expansion of our
operations.
Net cash used in investing activities for the years ended December 31, 1996,
1997 and 1998 was $231,000, $619,000 and $3,676,000, and for the nine months
ended September 30, 1999 was $4,592,000 compared to $1,047,000 for the nine
months ended September 30, 1998. The investments were primarily for the
construction of our manufacturing and laboratory facility and equipment,
furniture and fixtures. We partially financed our new manufacturing and
laboratory facility in Woburn, Massachusetts through the $5,000,000 credit
facility discussed below and available cash balances.
Net cash provided by financing activities was $10,500,000, $7,635,000 and
$19,134,000 for the years ended December 31, 1996, 1997 and 1998, and $4,451,000
for the nine months ended September 30, 1999 compared to $6,525,000 for the nine
months ended September 30, 1998. Since inception, our primary source of
financing has been from equity investments. During 1996, 1997 and 1998, equity
contributions from private placements and, in 1998, exercises of options,
totaled approximately $10,500,000, $7,635,000 and $18,225,000 and $2,212,000 for
the nine months ended September 30, 1999 compared to $6,525,000 for the nine
months ended September 30, 1998. We raised gross proceeds of $39,216,000 in
November 1999 through a private placement of equity. At September 30, 1999, we
had outstanding $3,149,000 under a $5,000,000 credit facility to finance the
construction of our manufacturing and laboratory facility and the purchase of
related equipment. Loans that are drawn down on the credit facility are secured
by specific assets, including leasehold improvements, which they finance.
YEAR 2000 COMPLIANCE
The following constitutes "Year 2000 Readiness Disclosure" under the Year 2000
Information and Readiness Disclosure Act of 1998.
The year 2000 issue, or Y2K, refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits. After January 1, 2000, any clock or date
recording mechanism incorporating date sensitive software which uses only two
digits to represent the year may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, perform laboratory analyses, or
engage in similar business activities.
We are a biopharmaceutical company and our proposed product candidates are not
software or computer based. Therefore, our proposed products are not directly
impacted by the Y2K problem. Our exposure to
29
<PAGE> 31
potential risks from this problem involves computer and information technology
systems, and other systems which include embedded technology using date
sensitive programs such as for:
- heating, ventilation, air conditioning, or HVAC;
- scientific instrumentation;
- manufacturing and laboratory equipment; and
- laboratory facilities.
Our internal information systems consist of off-the-shelf accounting and e-mail
systems, off-the-shelf application programs such as spreadsheet, word
processing, graphics, database management, and presentation software, and some
instrumentation/data acquisition software. Non-informational technology systems
consist of HVAC and telecommunications.
Prior to December 31, 1999, we completed the process of determining whether
there were any critical areas of our business that were not year 2000 compliant.
We estimate that the total cost of addressing any year 2000 problems will be
immaterial. We believe our worst case scenario relating to year 2000 risks
includes a power interruption and a lack of supplies to support our clinical
trials. We have implemented a contingency plan to cover these situations
including expanding our supplies inventory and maintaining a generator at our
manufacturing facility for the supply of electrical power. As of the date of
this prospectus, we have not yet encountered year 2000 related problems. We
continue to monitor developments in this area.
Any year 2000 compliance problems that arise could materially and adversely
affect our business, results of operations or cash flow.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to fluctuations in interest
rates as we seek debt financing to make capital expenditures. We do not employ
specific strategies, such as the use of derivative instruments or hedging, to
manage our interest rate exposures. There has been no change since the fiscal
year ended December 31, 1998 with respect to our interest rate exposures or our
approach toward those exposures. Further, we do not expect our market risk
exposures to change in the near term.
The information below summarizes our market risks associated with debt
obligations as of September 30, 1999. Fair values included herein have been
estimated taking into consideration the nature and terms of each instrument and
the prevailing economic and market conditions at September 30, 1999. The table
presents cash flows by year of maturity and related interest rates based on the
terms of the debt.
<TABLE>
<CAPTION>
ESTIMATED YEAR OF MATURITY
FAIR CARRYING -------------------------------------------
VALUE AMOUNT 1999 2000 2001 2002
---------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt(1)........ $3,351,000 $3,149,000 $781,000 $906,000 $1,050,000 $412,000
</TABLE>
- ---------------
(1) Fixed interest rates from 13.954% to 15.084%
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including derivatives instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all of our fiscal quarters beginning January 1, 2001. We do not expect this
statement to affect us as we currently do not use derivative instruments or
engage in hedging activities.
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<PAGE> 32
BUSINESS
OVERVIEW
Antigenics is engaged in the discovery and development of novel
immunotherapeutic drugs for the treatment of life threatening and chronic
medical conditions. Our immunotherapeutics are based on a specific class of
proteins known as heat shock proteins and their ability to modulate the immune
system. We are currently evaluating our lead immunotherapeutic, Oncophage, in
six clinical trials for the treatment of four different cancers, and we expect
to start our first pivotal clinical trial by mid-2000. We are also developing
immunotherapeutics to treat infectious diseases, such as genital herpes, and
autoimmune diseases, such as diabetes and multiple sclerosis. Based upon our
scientific and drug development skills, our technology platform and our
strategic expertise, we intend to become a leader in drug discovery, development
and commercialization.
THE IMMUNE SYSTEM
The immune system is the body's natural defense mechanism to prevent and combat
disease. The immune system differentiates between normal tissue, or "self,"
versus diseased tissue or "non-self." When a competent immune system recognizes
diseased cells, the immune system initiates a series of steps that results in
the elimination of these cells. There are two types of immune response:
antibody-based and T cell-based.
Antibody-based immune response is primarily involved in the prevention of
diseases. Antibodies are proteins produced by the body in response to disease
causing agents known as pathogens. Antibodies bind to pathogens, such as viruses
and bacteria, and block their ability to infect cells. Preventive vaccines that
trigger an antibody-based immune response have been very successful in reducing
the incidence of several deadly diseases, including smallpox, polio and measles.
These vaccines consist of weakened or attenuated pathogens that stimulate the
production of antibodies. However, these types of vaccines have not been
effective in the prevention or treatment of many serious diseases, including
cancer, herpes, tuberculosis, hepatitis and HIV.
T cell-based immune response, on the other hand, is primarily involved in
combating diseases, such as cancers or infections. T cells are specialized white
blood cells that are normally produced by the body to kill cancer cells and
infected cells. T cell-based immune response begins when specialized immune
cells called dendritic cells capture antigens, which are the identifying
structural components of cancers and pathogens. Once inside dendritic cells,
antigens are broken down into small fragments called peptides that are
subsequently displayed on the surface of the dendritic cell. T cells continually
scan the surface of dendritic cells for peptides. If T cells recognize displayed
peptides as foreign or non-self, they replicate rapidly and then search for and
kill other diseased cells containing those same peptides. Hormones known as
cytokines enhance this T cell-based immune response by activating various
components of the immune system.
Significant scientific evidence suggests that cancers and infections trigger a T
cell-based immune response during the initial course of their progression. This
immune response, however, is not always sufficient to eradicate the disease.
Tumor cells, for example, hide their antigens and produce substances that
suppress the patient's immune response.
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<PAGE> 33
To date, efforts to develop immunotherapeutics that sufficiently overcome this
suppression of the immune system and stimulate T cells to selectively and
accurately target and kill diseased cells have failed due to one or both of the
following:
- the inability of drug developers to discover the appropriate
antigens that identify diseases such as a particular person's
cancer; and
- the inability to present these relevant antigens to activate T cells
to selectively destroy diseased cells.
We believe our immunotherapeutics specifically address these issues.
OUR TECHNOLOGY PLATFORM
INTRODUCTION
We are the pioneers in activating T cells using purified heat shock
protein-peptide complexes. In individuals who develop cancer, infections and
autoimmune disorders, the immune system fails in its normal function. Our
immunotherapeutics are designed to restore this function and treat these life
threatening or chronic disease conditions.
We believe our immunotherapeutics will be applicable to the treatment of all
cancer types and several types of infectious diseases and autoimmune disorders.
Our immunotherapeutics consist of two components: a variable component,
consisting of small protein fragments called peptides, which is necessary for
the targeting of specific diseases; and a constant component, consisting of a
heat shock protein, which is necessary for the activation of a T cell-based
immune response to the targeted disease. In the case of cancer, which is a
highly variable disease from one patient to another, we purify, from each
patient's own tumor tissue, heat shock proteins that are bound, or complexed, to
peptides. Our cancer immunotherapeutics are therefore specific to each patient.
In contrast, for each infectious disease which is generally caused by a common
pathogen, we use a human heat shock protein complexed to peptides derived from
the target pathogen. Our immunotherapeutics for infectious diseases therefore
will be disease-specific rather than patient-specific. Our immunotherapeutic for
autoimmune disorders will be generic, meaning it will be intended for the
treatment of all disorders that result in T cells attacking healthy tissue.
The principle upon which our technology platform is based extends back over 50
years when scientists began using genetically identical laboratory animals to
study the immune response to cancer. Researchers demonstrated that animals
vaccinated with attenuated, or weakened, tumor cells are immune to subsequent
injections of live tumor cells. Further, researchers have shown that this
immunity to cancer is tumor-specific, meaning that animals are immune only to
the cancer used for immunization and not to any other kind of cancer. Twenty
years ago, the chairman of our scientific advisory board, Pramod Srivastava,
discovered that cancers harbor molecular factors known as heat shock proteins,
which are responsible for conferring immunity to cancer. Consistent with the
observation that immunity generated with attenuated tumor cells is
tumor-specific, we discovered that heat shock proteins generate immunity only to
the tumor from which they are purified.
HEAT SHOCK PROTEINS
Heat shock proteins are a class of proteins that play a major role in
transporting peptides, including antigens, within a cell and are thus often
called chaperones. In this capacity, heat shock proteins bind to the entire
antigenic repertoire or fingerprint of the cell in which they reside. Heat shock
proteins are present in all cells of all organisms from bacteria to mammals and
their structure and function are similar across these diverse life forms.
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<PAGE> 34
Published research suggests that heat shock proteins play a central role in the
generation of immune responses. This role includes coordinating the breakdown
and transport of peptides from the point of their generation inside cells to
their ultimate display on the cell's surface for recognition by T cells.
Although heat shock proteins inside tumor cells and pathogen-infected cells help
display antigens to the immune system, tumors and pathogens simultaneously
employ strategies to evade immune responses. In some cases, this evasion of
immune responses results in disease progression.
The ability of heat shock proteins to chaperone peptides is key to our
technology platform. When we purify heat shock proteins from tumor cells or
pathogen-infected cells according to our manufacturing protocols, the heat shock
proteins remain complexed to the entire repertoire of peptides produced by the
tumor or pathogen. These purified heat shock protein-peptide complexes isolated
from diseased cells are our immunotherapeutics.
We believe that when purified heat shock protein-peptide complexes are injected
into the skin, they stimulate a powerful T cell-based immune response capable of
targeting and killing cancers and pathogen-infected cells from which these
complexes originated. Doctors or nurses inject our immunotherapeutics into the
skin to take advantage of the high concentration of dendritic cells in this
region. These dendritic cells express receptors that specifically recognize heat
shock proteins; therefore, dendritic cells efficiently capture and process our
immunotherapeutics. Once inside dendritic cells, heat shock protein-peptide
complexes separate and the dendritic cell displays the peptides on its surface
where T cells can recognize the peptides.
Dendritic cells expressing cancer-specific or pathogen-specific peptides
activate T cells that are capable of specifically targeting and killing diseased
cells throughout the body that express those same peptides. The interaction of
heat shock proteins with their receptors on dendritic cells also leads to
secretion of cytokines by the dendritic cells that further stimulate the immune
system.
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<PAGE> 35
THE MECHANISM OF HEAT SHOCK PROTEIN-INDUCED IMMUNE RESPONSE
[CELL GRAPH]
STEP 1. Injection of purified heat shock protein-peptide complexes into skin
STEP 2. Heat shock protein-peptide complexes bind to receptor on surface of
dendritic cell and are subsequently internalized
STEP 3. Heat shock proteins and peptides separate inside dendritic cell
STEP 4. Dendritic cell presents peptides on its surface for recognition by T
cells. This activates T cells to kill diseased cells, such as tumor or
pathogen-infected cells, expressing those same peptides. Heat shock proteins
also stimulate dendritic cells to release cytokines which activate natural
killer cells and enhance the immune response
<TABLE>
<S> <C>
Heat shock protein receptor Dendritic cell
Heat shock protein Peptide presented on surface of dendritic cell
Peptide chaperoned by heat shock protein
</TABLE>
We believe our immunotherapeutics stimulate the immune system to recognize the
entire antigenic fingerprint of a tumor or pathogen. Due to this characteristic,
we believe our immunotherapeutics will:
- trigger the immune system to recognize and destroy all tumor or
pathogen-infected cells in the body; and
- make it difficult for tumors or pathogens to escape recognition by
the immune system.
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<PAGE> 36
We believe that the dendritic cells displaying these peptides trigger a more
potent immune response than that achieved by the presentation of these same
peptides by the tumor or pathogen-infected cell.
Our preclinical studies with heat shock protein immunotherapeutics have
demonstrated a beneficial effect in preventing or treating 13 types of cancer in
three different species. The cancer types tested include cancers of the skin,
colon, lung and other tissues. Further, our immunotherapeutics show therapeutic
benefit in animals with metastatic disease, which is when cancer has spread
beyond the primary tumor to distant regions of the body. Metastatic disease is
often responsible for the relapse and ultimate death of patients with cancer.
OUR PRODUCTS UNDER DEVELOPMENT
INTRODUCTION
The chart below summarizes the indications and status for each of our products
and development programs. We use "HSPPC" as an abbreviation for "heat shock
protein-peptide complex." The number following HSPPC is the molecular weight of
the heat shock protein used in the product. For cancer applications, we call
HSPPC-96 "Oncophage."
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- ------- ---------- ------
<S> <C> <C>
CANCER
Oncophage Renal cell carcinoma Phase II trial ongoing
Phase I/II trial completed
Melanoma Phase II trial ongoing
Phase I/II trial completed
Colorectal cancer Phase II trial enrollment completed
Gastric cancer Phase I/II trial ongoing
Pancreatic cancer Phase I trial completed
Non-Hodgkin's lymphoma Phase II trial planned
Sarcoma Phase II trial planned
HSPPC-70-C Various cancers Research
HSPPC-90-C Various cancers Research
HSPPC-56-C Various cancers Research
INFECTIOUS DISEASES
HSPPC-96-GH Genital herpes Preclinical
HSPPC-70-GH Genital herpes Preclinical
HSPPC-56-I Various infectious diseases Research
HSPPC-70-I Various infectious diseases Research
AUTOIMMUNE DISORDERS
gp96 Type 1 diabetes Research
Multiple sclerosis Research
</TABLE>
OUR CANCER IMMUNOTHERAPEUTICS
Background. The American Cancer Society estimated that doctors would diagnose
approximately 1.2 million new cases of cancer in the United States in 1999.
Cancer is the second leading cause of death in the United States, resulting in
an estimated 563,100 deaths in 1999. The American Cancer Society reports that
since 1990 medical professionals have diagnosed nearly 12 million cases of
cancer, and cancer has killed nearly 5 million people in the United States.
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<PAGE> 37
Cancer results from the uncontrolled proliferation of abnormal cells.
Eventually, these cells form a mass referred to as a tumor. As the tumor grows,
it pushes outward, often invading adjacent tissues and organs and interfering
with their normal function. In addition, small groups of cells may break away
from the primary tumor and spread or metastasize. Tumors produced at distant
sites are referred to as metastatic tumors.
The uncontrolled proliferation of cancer cells is due to alterations, or
mutations, in a cell's DNA. Mutations can take place when a gene is exposed to
radiation or particular drugs or chemicals, or when some as yet unexplained
internal change occurs. The mutations in DNA also lead to production of
antigens. Because mutations occur randomly, the antigenic fingerprint of each
person's cancer is unique.
Studies in animals have confirmed that a unique repertoire of antigens is
associated with each primary tumor. As cancers metastasize, they continue to
mutate, potentially producing new antigens not found in the primary tumor of the
same patient. However, we believe that a significant overlap exists between the
antigenic fingerprint of the metastatic cells and the primary tumor of the same
patient.
Current Treatments. Surgery, chemotherapy and radiotherapy are the three most
commonly used methods for treating cancer. Medical professionals often
administer a combination of these treatments to a cancer patient, depending upon
the type of cancer and the extent of the disease. Surgery is curative only when
a doctor detects a tumor at a relatively early stage of growth and is able to
completely remove the tumor. Unfortunately, most tumors metastasize when they
are very small, ultimately causing relapse and death in many cancer patients.
The use of chemotherapy or radiotherapy sometimes improves survival rates;
however, these treatments have significant limitations.
High rates of treatment failure and limitations posed by severe side effects and
tumor resistance have compelled researchers to focus on alternative strategies
of cancer treatment. Immunotherapeutics have the ability to target and destroy
widely disseminated disease without damaging normal tissue. In addition,
immunotherapeutics do not have many of the shortcomings of traditional cancer
treatments.
Our Approach. We purify our cancer immunotherapeutics from portions of a
patient's tumor that a doctor has surgically removed. Our cancer
immunotherapeutics are patient-specific and therefore incorporate the entire
antigenic fingerprint of each patient's own tumor. Because our cancer
immunotherapeutics contain overlapping antigens present in both the primary and
metastatic tumors, we believe they will be effective in treating all the tumor
cells that remain in the body that are derived from the primary tumor.
ONCOPHAGE
Oncophage is our lead cancer immunotherapeutic. We are evaluating Oncophage in
four different cancers in six separate phase II or phase I/II clinical trials.
Oncophage consists of purified, patient-specific heat shock protein-peptide
complexes designed to elicit a T cell-based immune response to a patient's
cancer. After a surgeon removes a patient's tumor, the hospital or clinic ships
a portion of the tumor tissue frozen by overnight courier to our facility. We
purify Oncophage from the tumor tissue using our proprietary manufacturing
process in less than ten hours. Depending on the dose, we require a minimum of
one to three grams of tumor tissue to yield a sufficient amount of Oncophage for
a typical course of treatment.
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<PAGE> 38
We formulate Oncophage in sterile saline solution and package it in standard
single injection vials in our manufacturing facility. We subject the final
immunotherapeutic to extensive quality control testing, including sterility
testing of each lot. We ship the product frozen via overnight courier back to
the hospital. We have developed sophisticated tracking systems and procedures
designed to ensure correct delivery of Oncophage to the appropriate patient.
ONCOPHAGE MANUFACTURING PROCESS
[CHART]
<TABLE>
<S> <C> <C> <C>
STARTING MATERIAL MANUFACTURING FINAL PRODUCT
Tumor tissue Sample of tissue Heat shock protein- Product frozen
removed by shipped frozen to our peptide complexes and shipped to
surgery manufacturing purified from hospital/clinic for
facility tumor tissue at patient treatment
our facility
</TABLE>
There are several benefits associated with the production and administration of
our autologous product:
- we can sterilize Oncophage through simple filtration; sterility is
required for FDA approval of a product that will be injected into
humans;
- the scheduling of production at our central facility is flexible
because we purify Oncophage from frozen tumor samples;
- doctors can administer Oncophage when the patient is ready to begin
treatment because Oncophage is frozen and has a current shelf-life
of at least six months; and
- Oncophage consists of a purified protein which can be consistently
produced from most tumor types.
A medical professional initially administers Oncophage to a patient four to six
weeks after a doctor surgically removes the patient's primary or metastatic
tumor. The typical course of treatment consists of a series of injections into
the skin administered once per week for four to six weeks. An oncologist may
recommend treating a patient with more than one course of Oncophage.
ONCOPHAGE COURSE OF TREATMENT
[CHART]
<TABLE>
<S> <C>
4-6 week Repeat course of Oncophage treatment
recovery upon request
</TABLE>
<TABLE>
<S> <C> <C>
Surgery Oncophage once per Follow up
week for 4-6 weeks
</TABLE>
Although we believe Oncophage will be applicable to the treatment of all cancer
types, our initial focus is on cancers that are resistant to available treatment
options. Further, we have chosen types of cancer and stages of disease that
typically yield tumors that doctors can surgically remove. Additionally, in
order to
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<PAGE> 39
complete clinical trials rapidly and file for regulatory approvals, we have
selected cancers and stages of disease which allow us to evaluate our
immunotherapeutics in clinical trials with near term endpoints.
We filed an IND for Oncophage in November 1996 that the FDA allowed on December
20, 1996. To date, we have treated approximately 160 advanced stage, metastatic
cancer patients with Oncophage in our clinical programs. We started enrolling
patients in our first clinical trial at the Memorial Sloan-Kettering Cancer
Center in New York, New York in November 1997.
We believe the collective results from these clinical trials show that Oncophage
is generally safe and well tolerated. These results also demonstrate preliminary
indications of clinical benefit in a number of these patients. Moreover, we have
shown that Oncophage can generate an anti-tumor immunological response. In
addition, we believe we can manufacture Oncophage consistently and in sufficient
quantities from most human cancer tissue.
The investigators participating in our clinical programs have documented tumor
regressions using standard response criteria. A complete response means that all
tumor tissue has disappeared and the patient appears to be disease free. A
partial response means that evaluable tumor tissue has shrunk by at least 50%. A
minor response means that the tumor has shrunk by 25-50%. Stable disease means
that the tumor has either shrunk or grown by less than 25%. Progressive disease
means that the tumor has grown by more than 25%.
The investigators also document survival. Median survival refers to the time at
which 50% of patients diagnosed with a particular cancer are alive.
Renal Cell Carcinoma
Background. Renal cell carcinoma is the most common type of kidney cancer. The
American Cancer Society estimated that doctors would diagnose about 30,000 new
cases of kidney cancer in the United States in 1999 and that the disease would
kill approximately 11,900 people during 1999. Of the 30,000 patients diagnosed
with kidney cancer, approximately 85% have the specific type of kidney cancer
known as renal cell carcinoma. By the time renal cell carcinoma is diagnosed in
these patients, about one-third of them have developed metastatic disease.
The median survival of patients with metastatic renal cell carcinoma is
approximately 12 months. For patients with metastatic disease, the only FDA
approved treatment is intravenous high-dose interleukin-2, a human cytokine. The
response rate, which includes partial responses and complete responses, of
patients who are treated with high-dose interleukin-2 is approximately 15%.
Treatment with high-dose interleukin-2 is generally associated with severe
adverse effects. These side effects often can lead to discontinuation of
treatment. Although not FDA-approved for the treatment of renal cell carcinoma,
a lower-dose of interleukin-2 injected underneath the skin, or subcutaneously,
either alone or in combination with other cytokines, has become a treatment
option. This treatment regimen has been the subject of a number of small studies
with widely varying outcomes. Generally, side effects using the subcutaneous
route of administration have been milder than those associated with high-dose,
intravenous treatment.
Our Clinical Program. In our phase I/II trial, we enrolled patients with
measurable metastatic renal cell carcinoma. We conducted this trial with
clinical investigators at the M.D. Anderson Cancer Center in Houston, Texas.
These patients did not receive prior or concurrent cancer therapy. After
surgical removal of their primary tumors, patients were treated at one of three
dose levels of Oncophage: 2.5 micrograms, 25 micrograms or 100 micrograms. The
clinical investigators treated 38 patients, of whom 34 could be evaluated with
standard radiology measurements.
Of the 34 evaluable patients, 13 patients responded or had stable disease. Four
patients had a partial response and one patient had a minor response. The other
eight patients showed stabilization of their disease. Three of these patients
had been stable in excess of 10 months. The response rate in this trial, which
does not include patients with a minor response or stable disease, was 12% and
no adverse events were associated with treatment with Oncophage.
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<PAGE> 40
The median survival in this trial has not yet been reached; this means that more
than half of the patients are still alive with an average follow up time of 12
months.
While the analysis of immunological results is still ongoing, testing to date
shows that in four out of five patients who responded clinically, the number of
T cells increased after treatment with Oncophage. Further, in all patients who
responded clinically, the number of natural killer cells increased after
treatment with Oncophage.
In the phase I/II trial, clinical investigators found that Oncophage is
generally safe and well tolerated. Sixty-three percent of our patients received
more than one course of treatment with Oncophage.
We were able to prepare Oncophage successfully from approximately 98% of renal
cancer carcinoma samples we received at our manufacturing facility for this
phase I/II trial. Based on this result, we believe we will be able to
manufacture Oncophage for nearly all renal cell carcinoma patients whose tumors
a surgeon can remove.
Based on the results from our phase I/II clinical trial, we have initiated a 60
patient phase II trial for patients with metastatic renal cell carcinoma at the
M.D. Anderson Cancer Center. For this trial, the dose of Oncophage has been set
at 25 micrograms and patients receive one dose once a week for four weeks,
followed by one dose every two weeks. Some patients may also receive an
injection of subcutaneous interleukin-2 if they have not had an adequate
response after three months of treatment with Oncophage. We anticipate that we
will complete this phase II trial in the first quarter of 2000. Based on the
analysis of the results from the phase I/II and phase II trials, we anticipate
that we will start a pivotal trial for renal cell carcinoma by the middle of
2000.
Melanoma
Background. Melanoma is the most serious form of skin cancer. The American
Cancer Society estimated that doctors would diagnose about 44,200 new cases of
melanoma in the United States in 1999 and that the disease would kill
approximately 7,300 people during 1999. The incidence of melanoma is growing at
5-7% per year, which is substantially faster than the growth in incidence rates
of most other cancers. Oncologists treat advanced or metastatic melanoma, also
known as stage III or IV, with surgery, radiation therapy, immunotherapy, or
chemotherapy depending on the case. Approximately 20% of all melanoma patients
at the time of their first diagnosis have stage III or stage IV disease.
Existing treatments have not significantly improved overall survival of patients
with melanoma. The median survival of patients with stage III melanoma varies
widely according to published literature. At the M.D. Anderson Cancer Center,
the median survival of patients with late stage III melanoma is 24 months.
According to published literature, patients with stage IV melanoma have a median
survival of about seven months. Although oncologists use various treatment
options, the only FDA approved drug therapies for patients with metastatic
melanoma are high dose intravenous interleukin-2 and alpha interferon, another
human cytokine.
Our Clinical Program. We have treated 36 patients in a phase I/II clinical
trial, evaluating Oncophage as a treatment for late stage III and early stage IV
metastatic melanoma. Eighty-three percent of the patients in our trial were
previously treated with chemotherapy, radiotherapy, and alpha interferon. We are
conducting the trial with clinical investigators at the M.D. Anderson Cancer
Center. After surgery to remove a portion of the tumor, the clinical
investigators treated patients with 2.5 micrograms, 25 micrograms or 100
micrograms of Oncophage.
In this trial, the clinical investigators treated 25 patients with stage IV
disease and 11 patients with stage III disease. Among the 25 patients with stage
IV disease, 12 patients were "adjuvant patients." This means that these patients
had all of their detectable melanoma tissue surgically removed before the
clinical investigators treated them with Oncophage. Of these 12 patients, 11
patients are free of disease at a median of 13 months after surgery. Not enough
time has elapsed to appropriately report on the eight patients in the adjuvant
setting with stage III disease.
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<PAGE> 41
In our melanoma trial, the clinical investigators also treated 16 stage III and
stage IV patients with "residual disease." These are patients who have had only
part of their disease surgically removed, leaving them with visible disease at
the time of Oncophage treatment. In this group of patients, there was one stage
IV patient who, after initial progression of his disease, experienced a mixed
response. This patient's largest metastatic tumor disappeared completely but the
smaller tumors progressed. There were also two other stage IV patients who
experienced stabilization of their disease following initial progression of
disease.
At the time of this analysis, 81% of all the patients who our clinical
investigators treated in this study are alive. We are continuing to analyze the
results from this trial.
To date, the trial has shown Oncophage to be generally safe and well tolerated
by patients. In addition, we have been able to successfully prepare Oncophage
from approximately 92% of melanoma samples we received at our manufacturing
facility for this phase I/II trial. Based on this result, we believe we will be
able to manufacture our product for nearly all melanoma patients from whom a
surgeon can remove an adequate amount of tumor tissue.
In addition to our phase I/II trial at the M.D. Anderson Cancer Center, we are
also currently enrolling patients in a phase II trial for melanoma at the
Istituto dei Tumori in Milan, Italy. We anticipate our clinical investigators
will treat 40 patients in this trial at 5 or 50 micrograms of Oncophage. The
purpose of this trial is to confirm the route of administration of Oncophage.
Colorectal Cancer
Background. Colorectal cancer is cancer of the colon or rectum. The American
Cancer Society estimated that doctors would diagnose about 129,400 new cases of
colorectal cancer in the United States in 1999 and that this disease would kill
approximately 56,600 people during 1999.
For patients whose disease has not spread to other parts of the body, surgery
remains the most common treatment and can be curative in about two thirds of
these cases. For patients whose disease has metastasized to other parts of the
body, treatment options are limited and the patients' prognosis is poor.
Patients with recurrence of advanced disease may have their metastatic lesions
removed by surgery. The median survival for these patients is approximately 12
months. Conventional cancer treatments such as chemotherapy and radiation have
shown limited benefit in treating colorectal cancer.
Our Clinical Program. We have completed enrollment of a 30 patient phase II
clinical trial evaluating Oncophage as a treatment for metastatic colorectal
cancer. We are conducting the trial at the Istituto dei Tumori. The clinical
investigators will treat patients with 2.5 micrograms, 25 micrograms or 100
micrograms of Oncophage after a surgeon removes the patients' metastatic tumors.
We are continuing to analyze the results from this trial. To date, the trial has
shown Oncophage to be generally safe and well tolerated by patients. In
addition, we have successfully prepared Oncophage from 100% of colorectal cancer
samples we received at our manufacturing facility for this trial. Based on this
result, we believe we will be able to manufacture our product for nearly all
colorectal cancer patients whose tumors a surgeon can remove.
Gastric Cancer
Background. Gastric cancer is cancer of the stomach. The American Cancer
Society estimated that doctors would diagnose about 21,900 new cases of gastric
cancer in the United States in 1999 and that the disease would kill
approximately 13,500 people during 1999. The treatment options for gastric
cancer are surgery, chemotherapy and radiation. Biological therapies are
currently in clinical trials. For patients with surgically removable tumors,
improvements in surgical techniques have led to increased survival. Despite
these advances, as well as the development of multi-drug chemotherapy regimens,
the median survival for patients with advanced gastric cancer, according to
published research, is approximately seven months.
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<PAGE> 42
Our Clinical Program. We are currently enrolling patients in a 30 patient phase
I/II clinical trial evaluating Oncophage as a treatment for metastatic gastric
cancer. We are conducting this trial with clinical investigators at the Johannes
Gutenberg-University Hospital in Mainz, Germany. After clinical investigators
surgically remove a patient's tumor, the clinical investigators treat the
patient with 2.5 micrograms or 15 micrograms of Oncophage. Although enrollment
is still ongoing, to date, the trial has shown Oncophage to be generally safe
and well tolerated by patients. In addition, we have been able to successfully
prepare Oncophage from approximately 71% of gastric cancer samples we received
at our manufacturing facility for this trial. Based on this result, we believe
we will be able to manufacture our product for the majority of gastric cancer
patients whose tumors a surgeon can remove.
Pancreatic Cancer
Background. Pancreatic cancer is the fourth leading cause of cancer death in
the United States. The American Cancer Society estimated that doctors would
diagnose about 28,600 new cases of pancreatic cancer in the United States in
1999 and that the disease would kill approximately 28,600 people during 1999.
The treatment options for pancreatic cancer are surgery and chemotherapy.
Doctors at the Memorial Sloan-Kettering Cancer Center report that patients who
have had tumors surgically removed have a median survival of 14 months. Doctors
treat patients with tumors that cannot be surgically removed, or resected, with
chemotherapy. The median survival time for patients with unresectable disease is
less than six months.
Our Clinical Program. In early 1999, we completed a pilot phase I clinical
trial evaluating Oncophage as a treatment for resectable pancreatic cancer. We
conducted the trial with clinical investigators at the Memorial Sloan-Kettering
Cancer Center and enrolled 15 patients. The clinical investigators treated five
of the 15 patients with five micrograms of Oncophage after doctors had removed
the patient's primary tumor.
Two out of five patients generated a T cell response to their tumor after
treatment with Oncophage. These two patients are alive and disease free at 11
and 22 months, respectively, since surgery. A third patient is known to be free
of disease at 24 months after surgery. The fourth patient is alive with
recurrent disease at 11 months, and the fifth patient died seven months after
surgery.
The trial showed Oncophage to be generally safe and well tolerated by patients.
We successfully prepared Oncophage from 5 of 15 pancreatic cancer samples we
received in our manufacturing facility. We were not able to prepare Oncophage
from the remaining tumor samples due to the presence of enzymes in the
pancreatic tissue that break down proteins, including heat shock proteins. Based
upon our process development advances, we anticipate that a modified process
will improve our rate of success for purifying Oncophage from pancreatic tumors.
Non-Hodgkin's Lymphoma
Background. Non-Hodgkin's lymphoma is cancer that originates in lymph tissue.
The American Cancer Society estimated that doctors would diagnose about 56,800
new cases of non-Hodgkin's lymphoma in the United States in 1999 and that the
disease would kill approximately 25,700 people during 1999. Approximately 40% of
patients with non-Hodgkin's lymphoma have low grade indolent disease, which is a
slow growing, often fatal, lymphoma.
Doctors have traditionally treated patients with non-Hodgkin's lymphoma with
chemotherapy. Recently, the FDA approved one new antibody therapy for low grade
non-Hodgkin's lymphoma.
Our Clinical Program. We are in the process of initiating a 35 patient phase II
clinical trial evaluating Oncophage as a treatment for low grade indolent
non-Hodgkin's lymphoma. We will conduct this trial with clinical investigators
at the M.D. Anderson Cancer Center. We anticipate that the clinical
investigators will treat patients with 25 micrograms of Oncophage after a
surgeon removes the patients' tumor tissue.
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<PAGE> 43
Sarcoma
Background. Soft tissue sarcomas are cancerous tumors that can develop from
fat, muscle, nerve, joint, blood vessel or deep skin tissues. The American
Cancer Society estimated that doctors would diagnose about 7,800 new cases of
soft tissue sarcomas in the United States in 1999 and that the disease would
kill approximately 4,400 people during 1999.
Doctors treat sarcoma with surgery, chemotherapy or targeted radiotherapy. For
resectable disease, doctors perform surgery and administer chemotherapy or
targeted radiotherapy as follow up treatments. For unresectable disease, doctors
treat patients with a combination of chemotherapy and radiotherapy.
Our Clinical Program. We are in the process of initiating a 35 patient phase II
clinical trial evaluating Oncophage as a treatment for soft tissue sarcomas. We
will conduct the trial with clinical investigators at Memorial Sloan-Kettering
Cancer Center and may expand it to include other sites. We anticipate that the
clinical investigators will treat patients with 25 micrograms of Oncophage after
a surgeon removes the patients' tumor tissue.
Other Cancer Immunotherapeutics
In addition to Oncophage, we are currently researching several other autologous
cancer immunotherapeutics using different heat shock proteins, including
HSPPC-70, HSPPC-90, and HSPPC-56. These immunotherapeutics have demonstrated
efficacy in animal cancer models.
OUR INFECTIOUS DISEASE IMMUNOTHERAPEUTICS
Background. Infectious diseases are illnesses caused by microorganisms, or
pathogens, like viruses, bacteria and parasites, and include tuberculosis,
hepatitis, genital herpes and HIV. While doctors use antiviral agents and
antibiotics to treat a number of viral and bacterial diseases effectively,
medical professionals are concerned about the emergence of new strains of
pathogens that have developed resistance to all available drugs.
Our Approach. Our immunotherapeutics for treating infectious diseases will
consist of heat shock proteins complexed, or bound, to peptides that are
produced by the pathogen causing the infection. Typically, each infectious
disease is caused by a specific pathogen. Consequently, our infectious disease
immunotherapeutics will be common to all patients with a particular infection
and will not be patient-specific. We currently produce these immunotherapeutics
from cells infected with the target pathogen. This manufacturing procedure has
enabled us to test our immunotherapeutics in preclinical studies and should
enable us to produce sufficient quantities to begin human clinical trials.
Another technique to manufacture our immunotherapeutics involves binding
specific peptides with heat shock proteins in vitro. We can generate the
peptides in microorganisms or produce them synthetically.
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<PAGE> 44
OUR INFECTIOUS DISEASE IMMUNOTHERAPEUTIC MANUFACTURING PROCESS
[CHART]
<TABLE>
<CAPTION>
STARTING MATERIAL MANUFACTURING FINAL PRODUCT
<S> <C> <C>
Mammalian cell lines Heat shock protein-peptide Product frozen
infected with pathogen complexes (purified from cell and shipped to
of interest and grown lines or produced in vitro) hospital/clinic for
in bioreactors patient treatment
or
Heat shock proteins
and pathogen specific
peptides produced
synthetically or in
microorganisms
</TABLE>
Genital Herpes. Genital herpes is a contagious viral infection that affects an
estimated 45 million Americans. Doctors estimate that as many as 500,000 new
cases may occur each year in the United States. Genital herpes is currently
treated with palliative antiviral agents that reduce further replication of the
virus. The challenge of antiviral therapy lies not only in treatment of the
symptoms during the first and recurrent episodes but also in the long-term
suppression of the herpes virus in patients with frequent recurrences. We expect
to file an IND for this indication in 2000.
OUR AUTOIMMUNE DISORDER IMMUNOTHERAPEUTIC
Background. Autoimmune disorders result from an inappropriate immune response
that targets and destroys normal tissue. While researchers have not definitively
determined what triggers autoimmune responses, many believe that both genetic
and environmental factors are probably involved in this process. Several
autoimmune disorders, including diabetes and multiple sclerosis, result in the
proliferation of misdirected T cells that attack normal tissues. We believe that
a therapeutic product that can turn off misdirected T cell responses could treat
these disorders.
Our Approach. We have demonstrated in animal models that heat shock proteins
administered at higher doses than those required for treating cancer and
infectious diseases can turn off misguided T cells that destroy healthy tissue
in animals with some autoimmune disorders. We are currently researching the
application of heat shock proteins to treat autoimmune diseases like diabetes
and multiple sclerosis. The source of heat shock proteins used in our autoimmune
disorders immunotherapeutic will be human cells. Our immunotherapeutic could
also be made using recombinant DNA techniques.
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<PAGE> 45
OUR AUTOIMMUNE DISORDER IMMUNOTHERAPEUTIC MANUFACTURING PROCESS
[CHART]
<TABLE>
<CAPTION>
Starting Material Manufacturing Final Product
<S> <C> <C>
Mammalian cells Heat shock protein-peptide Product frozen and
or complexes purified shipped to
recombinant DNA from cell lines hospital/clinic for
or patient treatment
recombinantly produced
</TABLE>
MANUFACTURING
We manufacture our own immunotherapeutic products in a 30,225 square foot
manufacturing and research and development facility located in Woburn,
Massachusetts. We are in the process of preparing this facility for the
commercialization of Oncophage.
Our process development group is currently working on improving the process by
which we manufacture heat shock protein-based immunotherapeutics. Efforts in
this area to date have resulted in a 50% reduction in the time required to
purify Oncophage from individual patients' tumors and a 40% increase in the
quantity of Oncophage we can produce from tumor tissue. These efforts in our
cancer program should also benefit preparation of our heat shock protein-based
immunotherapeutics for treatment of infectious diseases.
SALES AND MARKETING
To commercially market our immunotherapeutic products once we obtain the
necessary regulatory approvals, we must either develop our own sales and
marketing force or enter into arrangements with third parties. Currently, our
sales and marketing plans consist of the following:
- Commercialize cancer immunotherapeutics in the United States
through our own sales force. We believe that we can build a United
States sales force to market our cancer immunotherapeutics due to
the concentration of the United States oncology market.
- Form collaborations with pharmaceutical companies for
commercializing cancer immunotherapeutics outside the United
States. For example, we have entered into an agreement with
Sigma-Tau Industrie Farmaceutiche Riunite S.p.A., under which they
have agreed to pay for two clinical trials in return for rights
which include an option to enter into an agreement to market
Oncophage in Italy, Spain, Portugal and Switzerland. We have also
signed an agreement with Medison Pharma Ltd. for marketing
Oncophage in Israel.
- Form collaborations with pharmaceutical companies for infectious
diseases and autoimmune disorders. Unlike cancer, the number of
doctors and health care institutions prescribing treatments for
infectious diseases and autoimmune disorders is large and
fragmented, and we will need a large sales force to effectively
market our products.
OUR INTELLECTUAL PROPERTY PORTFOLIO
We devote significant resources to protecting and expanding our intellectual
property portfolio. We seek to protect our core technologies through a
combination of patents, trade secrets and know-how. As a result of an exclusive
worldwide license with Fordham University and one with Mount Sinai School of
Medicine,
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<PAGE> 46
we have exclusive rights to nine issued U.S. patents, and foreign counterpart
patents and patent applications, relating to our heat shock protein technology.
Prior to directing the Center for Immunotherapy of Cancer at the University of
Connecticut, Dr. Srivastava, the Chairman of our Scientific Advisory Board, was
an assistant professor of immunology at Mount Sinai School of Medicine, and,
then, a professor of immunology at Fordham University.
We also have licensed rights to 43 pending U.S. patent applications, and
corresponding foreign counterpart patents and applications, from Mount Sinai
School of Medicine of New York University, Fordham University, Duke University
and the University of Miami. Under the license agreements with these
institutions, we have exclusive, worldwide rights to inventions using heat shock
proteins in the treatment and prevention of cancer, infectious diseases,
autoimmune disorders and other indications. If we commercialize any of the
inventions, we will pay the licensors a royalty on sales of the commercialized
product. In addition, pursuant to a research agreement with the University of
Connecticut Health Center, we will fund the laboratory directed by Dr.
Srivastava at the University through December 31, 2002. In return, we have an
option to obtain an exclusive license to new inventions as that term is defined
in the research agreement, with the royalty rates and other terms to be
determined by negotiation between the parties. We also have an option to obtain
an exclusive license to certain types of "improvement" inventions as that term
is defined in the research agreement, at already-determined royalty rates, but
with the other terms to be determined by negotiation between the parties. To
date, we have exercised options to license three patent applications.
It is worth noting that:
- patent applications in the United States are maintained in secrecy
until patents are issued;
- patent applications in other countries generally are not published
until 18 months after they are first filed in any country;
- publication of technological developments in the scientific or
patent literature often lags behind the date of these developments;
and
- searches of prior art may not reveal all relevant prior inventions.
Although we have licensed nine issued United States patents and 43 pending
United States patent applications, we cannot be certain that our licensors'
inventors were the first to invent the subject matter covered by these patent
and patent applications or that they were the first to file patent applications
for those inventions or that a court or patent authority will not determine that
these patent rights are invalid or unpatentable.
REGULATORY CONSIDERATIONS
Governmental authorities in the United States and other countries extensively
regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record keeping, advertising, promotion, export, marketing and distribution,
among other things, of our immunotherapeutics. In the United States, the FDA
under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and other federal statutes and regulations subject pharmaceutical products to
rigorous review. If we do not comply with applicable requirements we may be
fined, our products may be recalled or seized, our production may be totally or
partially suspended, the government may refuse to approve our marketing
applications or allow us to enter into supply contracts, and we may be
criminally prosecuted. The FDA also has the authority to revoke previously
granted marketing authorizations.
In order to obtain approval of a new product from the FDA, we must, among other
requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof entails extensive preclinical, clinical and laboratory tests. This
testing, the preparation of necessary applications and processing of those
applications by the FDA are expensive and typically take several years to
complete. We cannot assure that the FDA will act quickly or favorably in
reviewing these applications, and we may encounter significant difficulties or
costs in our efforts to
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<PAGE> 47
obtain FDA approvals that could delay or preclude us from marketing any products
we may develop. The FDA may also require post-marketing testing and surveillance
to monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect
to patented products or technologies, delays imposed by the governmental
approval process may materially reduce the period during which we will have the
exclusive right to exploit them.
The first stage of the FDA approval process for a new biologic or drug involves
completion of preclinical studies and the submission of the results of these
studies to the FDA, together with proposed clinical protocols, manufacturing
information, analytical data and other information, in an investigational new
drug application, which must become effective before human clinical trials may
commence. The investigational new drug application is automatically effective 30
days after receipt by the FDA, unless the FDA before that time requests an
extension to review the application, or raises concerns or questions about the
conduct of the trials as outlined in the application. In the latter case, the
sponsor of the application and the FDA must resolve any outstanding concerns
before clinical trials can proceed. We cannot guarantee that submission of an
investigational new drug application will result in the FDA authorizing us to
commence clinical trials in any given case.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. The FDA
regulates preclinical studies under a series of regulations called the current
"Good Laboratory Practices" regulations. If the sponsor violates these
regulations, in some cases, the FDA may invalidate the studies and require that
the sponsor replicate those studies.
After the investigational new drug application becomes effective, a sponsor may
commence human clinical trials. The sponsor typically conducts human clinical
trials in three sequential phases, but the phases may overlap. In phase I
trials, the sponsor tests the product in a small number of patients or healthy
volunteers, primarily for safety at one or more doses. In phase II, in addition
to safety, the sponsor evaluates the efficacy of the product in a patient
population somewhat larger than phase I trials. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
population at geographically dispersed test sites. The sponsor must submit to
the FDA a clinical plan, or "protocol," accompanied by the approval of the
institution participating in the trials, prior to commencement of each clinical
trial. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.
The sponsor must submit to the FDA the results of the preclinical and clinical
testing, together with, among other things, detailed information on the
manufacture and composition of the product, in the form of a new drug
application or, in the case of a biologic, a biologics license application. In a
process which generally takes several years, the FDA reviews this application
and, when and if it decides that adequate data is available to show that the new
compound is both safe and effective and that other applicable requirements have
been met, approves the drug or biologic for marketing. The amount of time taken
for this approval process is a function of a number of variables, including the
quality of the submission and studies presented, the potential contribution that
the compound will make in improving the treatment of the disease in question,
and the workload at the FDA. We cannot guarantee that any of our
immunotherapeutics will successfully proceed through this approval process or
that the FDA will approve them in any specific period of time, or at all.
Congress enacted the Food and Drug Administration Modernization Act of 1997, in
part, to ensure the availability of safe and effective drugs, biologics and
medical devices by expediting the FDA review process for new products. The
Modernization Act establishes a statutory program for the approval of fast track
products, including biologics. A fast track product is defined as a new drug or
biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet medical needs for this
condition. Under the fast track program, the sponsor of a new drug or biologic
may
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<PAGE> 48
request the FDA to designate the drug or biologic as a fast track product at any
time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request. The FDA can base approval of a marketing application for a fast track
product on an effect on a clinical endpoint or on another endpoint that is
reasonably likely to predict clinical benefit. The FDA may subject approval of
an application for a fast track product to:
- post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint; and
- prior review of all promotional materials.
If a preliminary review of the clinical data suggests that a fast track product
may be effective, the FDA may initiate review of sections of a marketing
application for a fast track product before the sponsor completes the
application. This rolling review is available if the applicant provides a
schedule for submission of remaining information and pays applicable user fees.
However, the time periods specified under the Prescription Drug User Fee Act
concerning timing goals to which the FDA has committed in reviewing an
application, do not begin until the sponsor submits the application.
We may request fast track designation for our immunotherapeutics. We cannot
predict whether the FDA will grant that designation, nor can we predict the
ultimate impact, if any, of the fast track process on the timing or likelihood
of FDA approval of our immunotherapeutics.
The FDA may, during its review of a new drug application or biologics license
application, ask for additional test data. If the FDA does ultimately approve
the product, it may require post-marketing testing, including potentially
expensive phase IV studies, and surveillance to monitor the safety and
effectiveness of the drug. In addition, the FDA may in some circumstances impose
restrictions on the use of the drug that may be difficult and expensive to
administer, and may require prior approval of promotional materials.
Before approving a new drug application or biologics license application, the
FDA will inspect the facilities at which the product is manufactured and will
not approve the product unless the manufacturing facilities are in compliance
with current Good Manufacturing Practices. In addition, the manufacture,
holding, and distribution of a product must be in compliance with current Good
Manufacturing Practices. Manufacturers must continue to expend time, money and
effort in the area of production and quality control and record keeping and
reporting to ensure full compliance with those requirements. The labeling,
advertising, promotion, marketing and distribution of a drug or biologic product
must be in compliance with FDA regulatory requirements. Failure to comply with
applicable requirements can lead to the FDA demanding that production and
shipment cease, and, in some cases, that the manufacturer recall products, or to
enforcement actions that can include seizures, injunctions and criminal
prosecution. These failures can also lead to FDA withdrawal of approval to
market the product.
We are also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to other federal,
state or local regulations. Either or both of OSHA or the EPA may promulgate
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulation which could have a
material adverse effect on our operations.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not we have obtained FDA approval, we must obtain approval of a
product by comparable regulatory authorities of foreign countries prior to the
commencement of marketing the product in those countries. The time required to
obtain this approval may be longer or
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<PAGE> 49
shorter than that required for FDA approval. The foreign regulatory approval
process includes all the risks associated with FDA regulation set forth above as
well as country-specific regulations.
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense. Many
pharmaceutical or biotechnology companies have products on the market and are
actively engaged in the research and development of products for the treatment
of cancer, infectious diseases and autoimmune disorders. In addition, many
competitors focus on immunotherapy as a treatment for cancer, infectious
diseases and autoimmune disorders. In particular, some of these companies are
developing autologous cancer vaccines. Others are focusing on developing heat
shock protein products. We compete for funding, access to licenses, personnel
and third-party collaborations. In addition, many competitors have substantially
greater financial, manufacturing, marketing, sales, distribution and technical
resources, and more experience in research and development, clinical trials and
regulatory matters, than we do. A competing company developing, or acquiring
rights to, a more efficacious therapeutic product for the same diseases targeted
by us, or one which offers significantly lower costs of treatment, could render
our products noncompetitive or obsolete.
Academic institutions, governmental agencies and other public and private
research institutions conduct significant amounts of research in biotechnology,
medicinal chemistry and pharmacology. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with us in recruiting and retaining skilled
scientific talent.
FACILITIES
We lease approximately 30,225 square feet of laboratory space in Woburn,
Massachusetts under a lease agreement that terminates in August 2003. We have an
option to renew for an additional five-year period with the landlord's consent.
We maintain our executive offices in New York, New York, in an office building
in which we lease approximately 8,000 square feet from an affiliated party. The
agreement terminates in December 2006. You should read the discussion under
"Certain Relationships and Related Transactions" regarding our executive
offices.
EMPLOYEES
As of December 31, 1999, we had 71 employees, of whom 11 have Ph.D.s and one has
an M.D.; three are clinical staff, 21 are manufacturing and quality control
staff, 24 are research and development staff, and 23 are management or
administrative staff. None of our employees is subject to a collective
bargaining agreement. We believe that we have good relations with our employees.
LEGAL PROCEEDINGS
Other than our opposition of a European patent discussed under "Risk Factors,"
we are not currently a party to any material legal proceedings or claims. You
should read the discussion of our opposition of this European patent under "Risk
Factors."
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information regarding our executive officers,
directors and key employees, including their age as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Garo Armen, Ph.D......................... 46 Chairman of the Board, Chief Executive
Officer
Pramod Srivastava, Ph.D.................. 44 Director, Chairman of Scientific Advisory
Board
Gamil de Chadarevian..................... 47 Vice Chairman of the Board, Executive
Vice President International
Elma Hawkins, Ph.D....................... 43 Senior Vice President
Dirk Reitsma, M.D........................ 50 Vice President of Clinical Affairs
Neal Gordon, Ph.D........................ 38 Vice President of Operations
Donald Panoz............................. 64 Director, Honorary Chairman
Noubar Afeyan, Ph.D.(1)(2)............... 37 Director
Edward Brodsky(1)........................ 70 Director
Tom Dechaene(2).......................... 40 Director
Martin Taylor(1)(2)...................... 47 Director
</TABLE>
- ---------------------------------------------
(1)Member of the Compensation Committee
(2)Member of the Audit Committee
The size of the board of directors is currently set at eight members.
Our certificate of incorporation provides for a classified board of directors
consisting of three classes, with each class being as nearly equal in number as
possible. The term of one class expires and their successors are elected for a
term of three years at each annual meeting of the stockholders. We have
designated three class I directors, Messrs. de Chadarevian, Brodsky and Taylor;
three class II directors, Messrs. Panoz, Afeyan and Srivastava; and two class
III directors, Messrs. Armen and Dechaene. These class I, class II and class III
directors will serve until the annual meetings of stockholders to be held in
2000, 2001 and 2002, respectively, and until their respective successors are
duly elected and qualified, or until their earlier resignation or removal. The
board of directors appoints officers until the next annual meeting of the board
of directors.
GARO ARMEN, PH.D. co-founded Antigenics in 1994 and has been the Chairman of the
board and Chief Executive Officer since inception. Dr. Armen was previously a
Senior Vice President of Research for Dean Witter Reynolds, focusing on the
chemical and pharmaceutical industries. Dr. Armen has also served as an
Associate Professor at the Merchant Marine Academy and as a research associate
at the Brookhaven National Laboratory. He currently serves as a director of Elan
Corporation, Plc. and Color Kinetics Inc. Dr. Armen received his Ph.D. degree in
physical chemistry from the City University of New York in 1979. Since 1990, Dr.
Armen has been the managing general partner of Armen Partners, L.P., an
investment partnership specializing in public and private healthcare and
biotechnology investments.
PRAMOD SRIVASTAVA, PH.D. co-founded Antigenics in 1994 and has served as the
Chairman of the scientific advisory board since inception. Dr. Srivastava is the
Director of the Center for Immunotherapy of Cancer and Infectious Diseases at
the University of Connecticut. Dr. Srivastava has held positions at Fordham
University and the Mount Sinai School of Medicine. He performed his postdoctoral
training at Yale University and the Sloan-Kettering Institute for Cancer
Research. Dr. Srivastava serves on the Scientific Advisory Council of the Cancer
Research Institute, New York, and has been a member of the Experimental
Immunology Study Section of the National Institutes of Health of the United
States
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Government since 1994. Dr. Srivastava is a past recipient of the First
Independent Research Support & Transition Award of the National Institutes of
Health (1987), the Irma T. Hirschl Scholar Award (1988), the Investigator Award
of the Cancer Research Institute, New York (1991), the Mildred Scheel
Lectureship (1994), and the Sigma Tau Foundation Speakership (1996). In 1997, he
was inducted into the Roll of Honor of the International Union against Cancer
and was listed in the Who's Who in Science and Engineering. He is among the
twenty founding members of the Academy of Cancer Immunology. Dr. Srivastava
earned his Ph.D. in Biochemistry from the Centre for Cellular and Molecular
Biology, Hyderabad, India. Dr. Srivastava is a director of Iconics, Inc.
GAMIL DE CHADAREVIAN has served as the Vice Chairman of the Board since 1995 and
as Executive Vice President International since 1998. Until April of 1998, he
was Managing Director of Special Projects at Alza International, responsible for
creating new business opportunities in Europe. From 1992 to 1993, Mr. de
Chadarevian was the Vice President of Corporate Development for Corange London
Limited. Prior to 1992, Mr. de Chadarevian held positions at Pasfin Servizi
Finanziara SpA, GEA Consulenza and Credit Suisse. He is also co-founder and
serves as an advisor to several private health care companies in the United
States and Europe. Mr. de Chadarevian received a Lic. Oec. Publ. Degree from the
University of Zurich in Switzerland. Mr. de Chadarevian is the co-founder and
currently the Vice Chairman of Iconics, Inc. and Cambria Tech. Ltd.
ELMA HAWKINS, PH.D. has served as Senior Vice President since August 1998. From
July 1996 through August 1998, Dr. Hawkins served as our Chief Operating
Officer. Prior to her employment with us, Dr. Hawkins served in a number of
senior positions at Genzyme Corporation, including Director of Corporate
Development. Dr. Hawkins has also held positions in preclinical and clinical
research at Warner-Lambert/Parke-Davis and at the Center for the Study of Drug
Development at Tufts Medical School. Dr. Hawkins holds a Ph.D. in Medicinal
Chemistry from the University of Alabama and an M.B.A. from Boston University.
Dr. Hawkins is a director of Nalari Computing Corporation.
DIRK REITSMA, M.D. has served as Vice President of Clinical Affairs and Medical
Director since April 1997. From 1990 to 1997, Dr. Reitsma was employed by
Ciba-Geigy, where he managed the clinical development of several biologic
compounds and other new drugs. Dr. Reitsma was responsible for the phase III
trials of Aredia in breast cancer, and for their regulatory submissions to the
FDA. Prior to that, Dr. Reitsma was employed by Organon in Rockville, Maryland,
where he worked on various biologics, including human monoclonal antibodies and
on the submission of the regulatory filing for Bacillus Calmette Guerin, also
known as BCG, for superficial bladder cancer. Dr. Reitsma practiced internal
medicine and oncology at the Bergwegiekenhuis in Rotterdam prior to joining
Organon. He received his M.D. from the Erasmus University in Rotterdam, The
Netherlands.
NEAL GORDON, PH.D. has served as Vice President of Operations since May 1999.
Prior to this position he served as Vice President Process Development from July
1998. Previously, he was Senior Director of Chromatography R&D at PerSeptive
Biosystems, a division of PE Corp., formerly Perkin-Elmer Corporation. Over his
ten-year career at PerSeptive, Dr. Gordon was involved in the development and
application of innovative technologies for the purification and analysis of
biopolymers, most notably the development of the BioCAD(R) Chromatography
Workstation. Dr. Gordon received his Ph.D. in Biochemical Engineering from the
Massachusetts Institute of Technology and a Bachelors degree in Chemical
Engineering from McGill University.
DONALD PANOZ has been a director since 1995 and is the Honorary Chairman of the
board of directors. In 1969, Mr. Panoz founded Elan Corporation, Plc., a
pharmaceutical research and development company. Mr. Panoz was Chairman and
Chief Executive Officer of Elan Corporation from 1969 until his retirement in
1996. Mr. Panoz is currently a Lecturer of Pharmacy at the University of
Georgia. In January 1995, Mr. Panoz was named Honorary Irish Consul General to
Bermuda. Mr. Panoz attended Pittsburgh University and Duquesne University in
Pennsylvania.
NOUBAR AFEYAN, PH.D. has been a director since 1998. Dr. Afeyan is Chairman and
CEO of the NewcoGen Group and is also a partner at One Liberty Ventures. Dr.
Afeyan was Senior Vice President
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and Chief Business Officer of PE Corp. until August 1999. Prior to its
acquisition by PE Corp., Dr. Afeyan was the Chairman and Chief Executive Officer
of PerSeptive Biosystems, a company that he founded in 1987 to develop,
manufacture and market instruments and chemical reagents used to purify, analyze
and synthesize biomolecules. Dr. Afeyan served as Chairman of the Board of
ChemGenics Pharmaceuticals, Inc. during 1996 and 1997. He is also a member of
the board of directors of two private companies. Dr. Afeyan received his
undergraduate degree in Chemical Engineering from McGill University and his
Ph.D. in Biochemical Engineering from the Massachusetts Institute of Technology.
EDWARD BRODSKY has been a director since 1995. Mr. Brodsky has been a partner of
the law firm of Proskauer Rose LLP since 1992 and was previously a partner at
the firm of Spengler Carlson Gubar Brodsky & Frisching. Mr. Brodsky and his firm
represent us in legal matters. Mr. Brodsky is currently a director of Giant
Cement Holding, Inc. and UIS, Inc.. He received his LL.B. from New York
University School of Law.
TOM DECHAENE has been a director since 1999. Mr. Dechaene is currently the Chief
Financial Officer of ServeCast Inc. He was with Deutsche Bank from 1991 through
1999, most recently as a director in the Principal Investments Group within the
Equity Capital Markets division. Mr. Dechaene is a director of Color Kinetics
Inc. and Iconics, Inc. Mr. Dechaene holds a law degree from Ghent University,
Belgium, an MBA from INSEAD, France and a degree in Applied Economics from the
University of Antwerp.
MARTIN TAYLOR has been a director since June 1999. From 1993 until 1998, Mr.
Taylor held the position of Chief Executive Officer of Barclays Bank Plc. Mr.
Taylor is presently a member of the Council for Science and Technology and,
since November 1999, has been chairman of the W.H. Smith Group Plc. In October
1999, he became an advisor to Goldman Sachs International. He was educated at
Balliol College, Oxford University.
SCIENTIFIC ADVISORY BOARD
Our scientific advisory board is comprised of internationally recognized
scientists in the fields of immunology, oncology, genetics and drug delivery.
The scientific advisory board advises our management on strategic issues related
to our scientific development program. Dr. Srivastava chairs the board which
consists of the following other individuals:
JOSHUA LEDERBERG, PH.D. has been a member of the scientific advisory board since
1996 and is the board's Honorary Chairman. In 1958, at the age of 33, Dr.
Lederberg received the Nobel Prize in Physiology of Medicine for his work in the
field of bacterial genetics. Dr. Lederberg is currently the Sackler Foundation
Scholar and Professor- and President-Emeritus at The Rockefeller University, in
New York City, where he is researching the interrelationships of DNA
conformation and mutagenesis. Previously, Dr. Lederberg was a professor of
genetics at Stanford University. A member of the National Academy of Sciences
and a charter member of its Institute of Medicine, Dr. Lederberg has served as
chairman of the President's Cancer Panel and has chaired a comprehensive study
of emergent infections sponsored by the Institute of Medicine, intended to
counteract complacency about the threats from many infectious diseases. He has
also received the United States National Medal of Science. Dr. Lederberg has
served on the board of the Procter & Gamble Co., and continues as a part-time
consultant to several financial and pharmaceutical research and development
institutions. He received his Ph.D. from Yale University.
SIR WALTER BODMER, PH.D. has been a member of the scientific advisory board
since 1996 and he is currently the board's Vice Chairman. Sir Walter currently
serves as the Principal of Herford College, Oxford University. Previously, he
was the Director-General of the Imperial Cancer Research Fund and was Director
of Research at the Fund from 1979 to 1991. He is a Foreign Associate of the
United States National Academy of Sciences and a Foreign Honorary Member of the
American Academy of Arts and Sciences. He is also a Trustee of Sir John Soane's
Museum and the first President of the International Federation of Associations
for the Advancement of Science and Technology. In 1995, Sir Walter was appointed
Chancellor of the University of Salford. Sir Walter was the second President of
the Human
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<PAGE> 53
Genome Organization and is a past President of the British Association for the
Advancement of Science and of the Royal Statistics Society. He has served as
Chairman of the BBC Science Consultative Group and as Vice-President of the
Royal Institution. Sir Walter has recently completed his term as Chairman of the
Trustees of the Natural History Museum, having served as a Trustee for ten
years. He received a Ph.D. from Cambridge University.
HANS-GEORG RAMMENSEE, PH.D. has been a member of the scientific advisory board
since 1999. Dr. Rammensee is currently the Chair of Immunology at the University
of Tubingen, where he has served in various capacities since 1987. From 1993
until 1996, he was Head, Department of Tumorvirus-Immunology, German Cancer
Research Center, Heidelberg, where he was also on the faculty of Theoretical
Medicine. From 1987 until 1993, Dr. Rammensee was Head, Laboratory for
Immunology at the Max Planck Institute for Biology. Since 1987, Dr. Rammensee
has been Coeditor of Immunogenetics and, since 1991, Coeditor of European
Journal of Immunology. Dr. Rammensee is also Speaker for the Graduate Committee
for Cell Biology in Medicine at the University of Tubingen and a Member of the
Evaluation Committee for the Cooperation Program in Cancer Research between the
German Cancer Research Center in Heidelberg and the Ministry of Science in
Israel. From 1992 through 1997, Dr. Rammensee was a Member of the
"Hinterzartener Kreis", a committee of the German Research Council. Dr.
Rammensee has been the recipient of numerous awards including the Heinz Maier
Leibnitz Award of the German Federal Ministry of Science (1988), the Wilhelm and
Maria Meyenburg Award of the German Cancer Research Center (1991), the Gottfried
Wilhelm Leibnitz Award of the German Research Council (1991), the Avery
Landsteiner Award of the Society for Immunology (1992), the Robert Koch Award of
the Robert Koch Foundation (1993), the Paul Ehrlich and Ludwig Darmstaedter
Award of the Paul Ehrlich Foundation (1996) and the Rose Payne Distinguished
Scientist Award of the American Society for Histocompatibility and
Immunogenetics (1997). Dr. Rammensee received his Ph.D. from the University of
Tubingen in 1982, where he studied minor histocompatibility antigens in immune
response.
FELIX THEEUWES, PH.D. has been a member of the scientific advisory board since
1996. Dr. Theeuwes is currently the Chairman and Chief Scientist of Durect
Corporation, which is an affiliate of Alza Corporation. Prior to his current
position, Dr. Theeuwes was Chief Scientist at Alza Corporation. Dr. Theeuwes was
with Alza from 1970, directing research, technology development and product
development for a variety of controlled drug delivery systems. Dr. Theeuwes
holds more than 220 United States patents and has published more than 80
articles and book chapters. In 1980, Dr. Theeuwes was named Inventor of the Year
by the Peninsula Patent Law Association. In 1983, he was the recipient of the
Award for the Advancement of Industrial Pharmacy. He was the Busse Lecturer at
the University of Wisconsin in 1981 and, in 1985, the Third Annual Sidney
Riegelman Lecturer at the University of California, San Francisco. He is a
Fellow of the American Association of Pharmaceutical Scientists, and, in 1993,
he became the first recipient of Alza Corporation's Founder's Award. Dr.
Theeuwes is currently a member of the board of directors of both Vinifera, Inc.
and Durect Corporation. He received his undergraduate and graduate education in
physics at the University of Leuven, Belgium, with a D.Sc. degree in 1966. From
1966 to 1970 he served as a post-doctoral fellow and visiting research assistant
professor in the Department of Chemistry, University of Kansas.
AUDIT COMMITTEE
The audit committee makes recommendations to the board of directors about the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors, and evaluates our
internal controls. The audit committee consists of Messrs. Taylor, Dechaene and
Afeyan.
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<PAGE> 54
COMPENSATION COMMITTEE
The compensation committee reviews and approves the compensation and benefits
for our executive officers, administers our stock option plans and makes
recommendations to the board of directors about compensation matters. The
compensation committee consists of Messrs. Taylor, Brodsky and Afeyan.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1999 by our chief executive officer and all of
our other executive officers whose salary and bonus exceeded $100,000. We refer
to these persons as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
1999 ANNUAL COMPENSATION
COMPENSATION -----------------
----------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---------- --------- -----------------
<S> <C> <C> <C>
Garo H. Armen, Ph.D., Chief Executive Officer....... $150,000 -- 254,682
Elma Hawkins, Ph.D., Senior Vice President.......... $200,000 $25,000 --
Neal Gordon, Ph.D., Vice President of Operations.... $136,282 $20,000 9,634
</TABLE>
1999 OPTION GRANTS
The following table contains certain information regarding stock option grants
during the twelve months ended December 31, 1999 by us to the named executive
officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR BASE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ---------- ---------------- ---------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Garo H. Armen, Ph.D.,
Chief Executive
Officer............ 254,682 83.3% $12.07 2/09-4/09 -- $3,148,740 $6,834,681
Elma Hawkins, Ph.D.,
Senior Vice
President............ -- -- -- -- -- -- --
Neal Gordon, Ph.D.,
Vice President of
Operations......... 9,634 3.2% $ 6.50 1/09 $45,052 $ 172,771 $ 312,201
</TABLE>
- ---------------------------------------------
(1)The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC and, therefore, are not intended to forecast
possible future appreciation, if any, in the price of the underlying common
stock. The potential realizable values are calculated by assuming the initial
public offering price is $15.00 per share and that the market price
appreciates from this price at the indicated rate for the entire term of each
option and that each option is exercised and sold on the last day of its term
at the appreciated price.
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<PAGE> 55
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information about the number of shares issued upon
option exercises by the named executive officers during the year ended December
31, 1999, and the value realized by the named executive officers. The table also
provides information about the number and value of options held by the named
executive officers at December 31, 1999. As our common stock is not publicly
traded, a readily ascertainable market value is not available.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Garo H. Armen, Ph.D., Chief
Executive Officer........... -- -- 134,431 171,862 $ 941,548 $503,000
Elma Hawkins, Ph.D., Senior
Vice President............ -- -- 137,627 -- $1,864,403 --
Neal Gordon, Ph.D., Vice
President of Operations... -- -- 3,785 24,773 $ 32,186 $210,673
</TABLE>
- ---------------------------------------------
(1)Based on the difference between the option exercise price and an assumed
initial public offering price of $15.00 per share of common stock.
EMPLOYMENT AND CONSULTING AGREEMENTS
Under an employment agreement dated June 1, 1998, we agreed to employ Elma
Hawkins, Ph.D. as Senior Vice President for one year at an annual base salary of
$200,000, which is subject to performance and merit based increases. Pursuant to
the agreement, we issued Dr. Hawkins options to purchase 137,627 shares of the
company's common stock at an exercise price of $1.45 per share vesting over
three years. The agreement is automatically renewed for successive one-year
periods unless either party terminates the agreement. If we terminate Dr.
Hawkins without cause, as that term is defined in the agreement, she is entitled
to her base salary through the end of the one-year term during which the
termination occurs. If we terminate Dr. Hawkins either because we eliminate her
position of Senior Vice President or because there is a change in control of
Antigenics, we are obligated to pay her cash or Antigenics common stock equal to
one year's base salary.
In March 1995, in exchange for Dr. Pramod Srivastava's consulting services, we
agreed to pay him $1,500 per day for up to three days per month. This obligation
expires in March 2005 but will be automatically extended for additional one-year
periods unless either we or Dr. Srivastava decide not to extend the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As a limited liability company, a compensation committee consisting of Messrs.
Afeyan and Brodsky reviewed salaries and incentive compensation for our
employees and consultants. The compensation committee of the board of directors
of Antigenics Inc. consists of Messrs. Taylor, Brodsky and Afeyan. Although none
of the compensation committee members are officers or employees of Antigenics,
each of Garo Armen, our chairman and chief executive officer, and Gamil de
Chadarevian, our vice chairman and executive vice president international, have
previously participated in compensation discussions with the committee. None of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our compensation committee. Mr. Brodsky, however, is a partner of
Proskauer Rose LLP, a law firm that provides legal services to us.
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<PAGE> 56
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket and travel expenses incurred while
attending board of director and committee meetings. We have generally granted to
each director 17,203 shares when that director has joined our board.
EMPLOYEE BENEFIT PLANS
1999 EQUITY INCENTIVE PLAN
Our equity plan authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options for the purchase of an aggregate of 4,800,000 shares,
subject to adjustment for stock splits and similar capital changes, of common
stock to our employees and, in the case of non-qualified stock options, to
consultants or any affiliate, as defined in the equity plan. The board of
directors has appointed the compensation committee to administer the equity
plan. Upon the closing of this offering, we will have issued options to purchase
1,716,007 shares of common stock under the equity plan, leaving 3,083,993 shares
available for issuance under future grants under the equity plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
We have also adopted an employee stock purchase plan under which employees may
purchase shares of common stock at a discount from fair market value. We have
reserved 300,000 shares of common stock for issuance under the purchase plan.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. The compensation committee grants rights to purchase common stock under
the purchase plan. The compensation committee also determines the frequency and
duration of individual offerings under the plan and the dates when employees may
purchase stock. Eligible employees participate voluntarily and may withdraw from
any offering at any time before they purchase stock. Participation terminates
automatically upon termination of employment. The purchase price per share of
common stock in an offering will not be less than 85% of the lesser of its fair
market value at the beginning of the offering period or on the applicable
exercise date and employees may pay through payroll deductions, periodic lump
sum payments or a combination of both. The purchase plan terminates on November
15, 2009. As of December 31, 1999, we had issued no shares of common stock under
the purchase plan.
401(K) PLAN
We sponsor a 401(k) plan for all of our employees. Employees are eligible to
participate after they have completed one year of service with us. Participants
may contribute up to 15% of their current compensation, with a maximum of
$10,000 each year. Each participant is fully vested in his or her salary
contributions and related earnings and losses. We match 100% of the
participant's contribution and our matching contributions vest over four years.
We have discretion to change that amount at any time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We currently lease office space at cost from GHA Management Corporation which is
wholly owned by Garo Armen, Ph.D. Dr. Armen is our chairman and chief executive
officer, and we use the office space for our corporate headquarters. We incurred
an expense of approximately $77,000, $143,000 and $211,000 for the years ended
December 31, 1996, 1997 and 1998, respectively in connection with that lease.
Under the current agreement, we will pay approximately $312,000 annually until
the agreement expires in December 2006. We believe that the terms of the current
agreement are at least as favorable as terms we could have obtained in an arm's
length transaction with an independent third party. In addition, as of December
31, 1999, we have letters of credit for the benefit of GHA Management
Corporation in connection with this lease in the amount of $375,000. These
letters of credit expire in January 2000. You should also read the discussion
regarding Mr. Brodsky's relationship with the law firm of Proskauer Rose LLP
under "Management -- Compensation Committee Interlocks and Insider
Participation."
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 1999, and as
adjusted to reflect the sale of 3,000,000 shares of common stock in this
offering, by:
- each person, or group of affiliated persons, who is known by us to
beneficially own more than 5% of the common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and current executive officers as a group.
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all the shares of common stock
beneficially owned by them, subject to community property laws, where
applicable.
The "Number of Shares Beneficially Owned" column below is based on an assumed
20,714,286 shares of common stock outstanding before the offering, and
23,714,286 shares of common stock outstanding after the offering. For purposes
of the table below, we deem shares of common stock subject to options that are
currently exercisable or exercisable within 60 days of December 31, 1999, to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of the person but we do not
treat them as outstanding for the purpose of computing the percentage ownership
of any other person.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING
---------------- -------- --------
<S> <C> <C> <C>
BENEFICIAL OWNER(1)
Antigenics Holdings L.L.C.(2)................. 11,154,275 53.9% 47.0%
Garo H. Armen, Ph.D.(2)....................... 134,431(3) * *
Pramod Srivastava, Ph.D.(2)................... 182,478(3) * *
Gamil de Chadarevian.......................... 1,625,839(4) 7.8% 6.8%
Elma Hawkins, Ph.D............................ 137,627(3) * *
Neal Gordon, Ph.D............................. 5,712(3) * *
Donald Panoz.................................. 270,612(5) 1.3% 1.1%
Noubar Afeyan, Ph.D........................... 174,614(3) * *
Edward Brodsky(2)............................. 17,203(3) * *
Tom Dechaene.................................. -- * *
Martin Taylor................................. 54,363(6) * *
All current executive officers and directors
as a group(2) (10 persons)................. 2,602,878(7) 11.2% 9.9%
</TABLE>
- ---------------------------------------------
*Indicates less than 1%
(1)The address of each stockholder is Antigenics Inc., 630 Fifth Avenue, New
York, New York 10111.
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<PAGE> 58
(2)Founder Holdings Inc. owns about 79.1% of the outstanding common stock of
Antigenics Holdings. Antigenics Holdings owns 53.9% of our common stock
before this offering and will own 47.0% after this offering. Messrs. Armen,
Srivastava and Brodsky are managers of Antigenics Holdings. Messrs. Armen and
Brodsky are directors of Founder Holdings. The following individuals own the
indicated percentages of Founder Holdings outstanding common stock on a fully
diluted basis:
<TABLE>
<CAPTION>
INDIVIDUAL PERCENTAGE
- ---------- ----------
<S> <C> <C>
Garo Armen 43.1%
Pramod Srivastava 24.2%
Edward Brodsky 2.8%
Lawrence Feinberg 19.4%
</TABLE>
The following individuals own the indicated percentage interests in Antigenics
Holdings on a fully diluted basis:
<TABLE>
<CAPTION>
INDIVIDUAL PERCENTAGE
- ---------- ----------
<S> <C> <C>
Garo Armen 13.6%
Pramod Srivastava 6.2%
Edward Brodsky 0.6%
</TABLE>
(3)Consists solely of shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(4)Includes 146,351 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(5)Consists of (a) 17,203 shares of common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of December 31,
1999 and (b) 253,409 shares of common stock held by Fountainhead Holdings
Ltd., all of the capital stock of which is held by trusts, the beneficiaries
of which are the children and grandchildren of Mr. Panoz.
(6)Includes 17,203 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(7)Includes 832,821 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999. See
footnotes (3), (4), (5) and (6).
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital stock
will consist of 100,000,000 shares of common stock, $0.01 par value per share,
and 1,000,000 shares of preferred stock, $0.01 par value per share. After the
closing of this offering, if we give effect to the issuance of 3,000,000 shares
of common stock and the merger of Antigenics L.L.C. with and into Antigenics
Inc. and assume no warrant holders elect to convert warrants into shares of
common stock at the closing of this offering, there will be:
- 23,714,286 shares of common stock outstanding;
- options to purchase 1,716,007 shares of common stock outstanding of
which options to purchase 1,010,773 shares will be exercisable upon
the closing of this offering;
- warrants to purchase 280,886 shares of common stock outstanding, all
of which will be exercisable upon the closing of this offering; and
- no shares of preferred stock outstanding.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available for payment of dividends, as
the board may from time to time determine. Each stockholder is entitled to one
vote for each share of common stock held on all matters submitted to a vote of
stockholders. Our certificate of incorporation does not provide for cumulative
voting for the election of directors, which means that the holders of a majority
of the shares voted can elect all of the directors then standing for election.
The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue up to 1,000,000
shares of preferred stock in one or more series and to fix the designations,
powers, preferences, privileges and relative participating, optional or special
rights as well as the qualifications, limitations or restrictions of those
shares, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. Our board of directors, without stockholder
approval, is able to issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. We could therefore issue preferred stock quickly with
terms calculated to delay or prevent a change in control or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock. At
present, we have no shares of preferred stock outstanding.
WARRANTS
In a private placement in November 1999, we issued warrants to purchase member
interest in Antigenics L.L.C. In connection with this offering, each warrant
holder has the option to:
- convert the warrants into shares of common stock or
- exchange the warrants for warrants to purchase shares of Antigenics
common stock.
If all the warrant holders elect to convert into common stock and the initial
public offering price is $15.00 per share, we will issue approximately 19,445
shares of common stock to the warrant holders. If all of the warrant holders
elect to receive warrants to purchase common stock, the warrant holders will
have the right to acquire approximately 280,886 shares of common stock. The per
share exercise price for warrants
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<PAGE> 60
that remain outstanding will be $13.96. If not previously exercised or
converted, each warrant will expire on September 30, 2002. Holders may not
transfer the warrants without our consent.
ANTI-TAKEOVER PROVISIONS
Delaware Law
Section 203 of the Delaware General Corporation Law is applicable to corporate
takeovers of Delaware corporations. Subject to exceptions enumerated in Section
203, Section 203 provides that a corporation shall not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that the stockholder becomes an interested stockholder unless:
- prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
though some shares may be excluded from the calculation; and
- on or subsequent to that date, the business combination is approved
by the board of directors of the corporation and by the affirmative
votes of holders of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person who, together with any affiliates or associates of
that person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, any time within three years immediately prior to the
relevant date. Under some circumstances, Section 203 makes it more difficult for
an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect not to
be governed by this section, by adopting an amendment to our certificate of
incorporation or by-laws, effective 12 months after adoption. Our certificate of
incorporation and by-laws do not exclude us from the restrictions imposed under
Section 203. We expect that the provisions of Section 203 may encourage
companies interested in acquiring us to negotiate in advance with our board of
directors. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control of us, which could depress the market price of
the common stock and which could deprive stockholders of opportunities to
realize a premium on shares of the common stock held by them.
Charter and By-law Provisions
Our certificate of incorporation and by-laws contain provisions that could
discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. Our certificate of incorporation provides
that stockholders may not take action by written consent but may only act at a
stockholders' meeting, and that only our president or a majority of our board
may call special meetings of the stockholders. Our by-laws also require that
stockholders provide advance notice of business to be brought by a stockholder
before the annual meeting. Our certificate of incorporation includes provisions
classifying the board of directors into three classes with staggered three-year
terms. In addition, our directors may only be removed from office for cause.
Under our certificate of incorporation and by-laws, the board of directors may
enlarge the size of the board and fill any vacancies on the board. The by-laws
provide that stockholders may not make nominations for directors at any annual
or special meeting unless the stockholder intending to make a nomination
notifies us of its intention a specified period in advance and furnishes certain
information.
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<PAGE> 61
REGISTRATION RIGHTS
In connection with the private placement completed in November 1999, we granted
registration rights with respect to 2,808,857 shares of common stock sold in
that private placement. Pursuant to these registration rights, we are obligated
to file, approximately 90 days after the date of this prospectus, a registration
statement covering these shares of common stock for resale. We will bear all
expenses incurred in connection with this registration, other than any
underwriters' discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
& Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock, and we
cannot assure you that a liquid trading market for the common stock will develop
or be sustained after this offering. Future sales of substantial amounts of
common stock, including shares issued upon exercise of outstanding options and
warrants, in the public market after this offering or the anticipation of those
sales could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sales of our equity
securities.
After the closing of this offering, we will have outstanding 23,714,286 shares
of common stock, which assumes warrant holders do not convert any warrants
issued in November 1999; the underwriters do not exercise their over-allotment
option; and option holders do not exercise any outstanding options. Of these
shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by our "affiliates", as
that term is defined in Rule 144 under the Securities Act. We expect to register
an additional 2,808,857 shares under a registration statement we will file
approximately 90 days following this offering. Substantially all the remaining
17,905,429 restricted shares held by existing stockholders are subject to
various lock-up agreements providing that, with limited exceptions, the
stockholder will not offer, sell, contract to sell, grant an option to purchase,
effect a short sale or otherwise dispose of or engage in any hedging or other
transaction that is designed or reasonably expected to lead to a disposition of
any shares of common stock or any option to purchase common stock or any
securities exchangeable for or convertible into common stock for a period of one
year after the date of this prospectus. Though these shares may be eligible for
earlier sale under the provisions of the Securities Act, none of these shares
will be saleable until 365 days after the date of this prospectus as a result of
these lock-up agreements. In addition, as of December 31, 1999, we had
outstanding options to purchase 1,716,007 shares of common stock, none of which
we expect the option holders to exercise prior to the closing of this offering.
In addition, we have outstanding warrants to purchase 280,886 shares of common
stock. Warrant holders have the right to convert these warrants into 19,445
shares of common stock at the closing of this offering, assuming an initial
public offering price of $15.00 per share.
In general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, who has beneficially owned restricted shares for at least
one year is entitled to sell within any three-month period up to that number of
shares that does not exceed the greater of: (1) 1% of the number of shares of
common stock then outstanding, which will be approximately 237,143 shares after
this offering, or (2) the average weekly trading volume of the common stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to the sale. Sales under Rule 144 are also subject to certain "manner of sale"
provisions and notice requirements and to the requirement that the issuer has
made current public information about itself available. Under Rule 144(k), a
person who is not deemed to have been an affiliate of the issuer at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner except an affiliate, is entitled to sell those shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701 permits resales of qualified shares held by some affiliates in reliance
upon Rule 144 but without compliance with some restrictions, including the
holding period requirement, of Rule 144. Any of our
60
<PAGE> 62
employees, officers, directors or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 further provides that non-affiliates
may sell shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares of common stock are required to wait
until 90 days after the date of this prospectus before selling shares. However,
all shares issued pursuant to Rule 701 are subject to lock-up agreements and
will only become eligible for sale at the expiration of the 365-day lock-up.
61
<PAGE> 63
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting agreement,
the underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc. and
FleetBoston Robertson Stephens Inc. are acting as representatives, have
severally agreed to purchase the number of shares of common stock from us set
forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
U.S. Bancorp Piper Jaffray Inc..............................
FleetBoston Robertson Stephens Inc..........................
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.
We have been advised by the underwriter representatives that the underwriters
propose to offer the shares of common stock to the public initially at the price
to the public set forth on the cover page of this prospectus and to certain
dealers (who may include the underwriters) at such price less a concession not
to exceed $ per share. The underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other
underwriter and certain other dealers.
We have granted to the underwriters an option to purchase up to 450,000
additional shares of common stock at the initial public offering price less the
underwriting discount solely to cover over-allotments. Such option may be
exercised in whole or in part from time to time during the 30-day period after
the date of this prospectus. To the extent that the underwriters exercise such
option, each of the underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
underwriter's initial commitment as indicated in the preceding table. If the
underwriters exercise their option in full, the total price to the public would
be $ , the total underwriting discount would be $ and total proceeds
to us would be $ .
We, together with certain of our stockholders and our executive officers and
directors, have agreed not to directly or indirectly offer, pledge, sell,
contract to sell, sell any option or contract to purchase or grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock, or enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of such
common stock, or to cause a registration statement covering any shares of common
stock to be filed, for a period of one year after the date of this prospectus
without the prior written consent of the underwriters, subject to limited
exceptions. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no established trading market for the
common stock. The initial price to the public for the common stock offered by us
will be determined by negotiation among and the underwriter representatives and
us. The factors to be considered in determining the initial price to the public
will include the history of and the prospects for the industry in which we
compete, the ability of our management, our past and present operations, our
prospects for future earnings, the general condition of the securities markets
at the time of this offering and the recent market prices of securities of
generally comparable companies. We will apply to list our common stock on the
Nasdaq National Market.
The underwriters do not intend to make sales to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
common stock offered hereby.
62
<PAGE> 64
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot this offering, creating a
syndicate short position. Underwriters may bid for and purchase shares of common
stock in the open market to cover syndicate short positions. In addition, the
underwriters may bid for and purchase shares of common stock in the open market
to stabilize the price of the common stock. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and may end
these activities at any time.
In connection with this offering, some underwriters and selling group members
may also engage in passive market making transactions in the common stock on the
Nasdaq National Market. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by those prices in response to order flow. Rule 103
of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.
At our request, the underwriters have reserved for sale, at the initial public
offering price, up to 150,000 shares of common stock for our directors,
officers, employees and business associates. The number of shares of common
stock available for sale to the general public will be reduced to the extent
those persons purchase any of the reserved shares. Any reserved shares that are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares in this offering.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
Each underwriter has represented and agreed to the following:
- - it has not offered or sold, and for six months after the date we issue the
common stock, will not offer or sell any shares of common stock to persons in
the United Kingdom except to persons who are ordinarily involved in acquiring,
holding, managing or disposing of investments, as principal or agent, for
business purposes or in other circumstances which have not resulted and will
not result in a public offer in the United Kingdom within the Public Offers of
Securities Regulations 1995;
- - it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities Regulations
1995 in any act it has taken or will take with respect to the common stock in,
from or otherwise involving the United Kingdom; and
- - it has only distributed and will only distribute to any person in the United
Kingdom any document received by it in connection with the issuance of the
common stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise be distributed.
The common stock offered has not been and will not be registered with the
Comision Nacional del Mercado de Valores (Spanish Securities Market Commission)
according to the requirements of Act 24/1988 and R.D. 291/1992. Consequently,
the common stock may not be publicly offered, subscribed, sold or distributed in
Spain.
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts will pass upon the validity of the
common stock offered by this prospectus for us. Shearman & Sterling, New York,
New York, will pass upon certain legal matters in connection with this offering
for the underwriters.
63
<PAGE> 65
EXPERTS
We have included in this prospectus and in the registration statement the
consolidated financial statements of Antigenics L.L.C. and subsidiary as of
December 31, 1997 and 1998, and for each of the years in the three-year period
ended December 31, 1998, and for the period from March 31, 1994 (date of
inception) to December 31, 1998, in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. While we
have disclosed the material terms of any of our contracts, agreements or other
documents referenced in this prospectus, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market you should call (212) 656-5060.
You should rely only on the information contained in the registration statement,
including its exhibits. We have not, and the underwriters have not, authorized
any other person to provide you with different information. This prospectus is
not an offer to sell, nor is it seeking an offer to buy, the securities in any
state where the offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date in the front cover, but the
information may have changed since that date.
64
<PAGE> 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the period
from March 31, 1994 (date of inception) to December 31,
1998................................................... F-4
Consolidated Statements of Members' Equity for the years
ended December 31, 1996, 1997 and 1998 and for the
period from March 31, 1994 (date of inception) to
December 31, 1998...................................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the period
from March 31, 1994 (date of inception) to December 31,
1998................................................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Consolidated Interim Financial Statements:
Consolidated Balance Sheet as of September 30, 1999....... F-18
Consolidated Statement of Operations for the nine months
ended September 30, 1998 and 1999, and for the period
from March 31, 1994 (date of inception) to September
30, 1999............................................... F-19
Consolidated Statements of Members' Equity for the nine
months ended September 30, 1999, and for the period
from March 31, 1994 (date of inception) to September
30, 1999............................................... F-20
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1999, and for the period
from March 31, 1994 (date of inception) to September
30, 1999............................................... F-21
Notes to Unaudited Consolidated Financial Statements...... F-22
</TABLE>
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Members and Board of Managers
Antigenics L.L.C.:
We have audited the accompanying consolidated balance sheets of Antigenics
L.L.C. and subsidiary (a Delaware limited liability company in the development
stage and a successor operating company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, members' equity and cash
flows for each of the years in the three-year period ended December 31, 1998 and
the period from March 31, 1994 (date of inception) to December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Antigenics L.L.C.
and subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 and the period from March 31, 1994 (date of inception)
to December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Short Hills, New Jersey
October 28, 1999
F-2
<PAGE> 68
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $13,086,402 $ 22,168,049
Prepaid expenses............................................ 138,994 230,632
Other assets................................................ 20,138 21,189
Due from related party...................................... -- 27,605
----------- ------------
Total current assets................................... 13,245,534 22,447,475
Plant and equipment, net.................................... 783,655 4,106,183
Other assets................................................ 46,237 74,071
Organization costs, less accumulated amortization of $21,587
and $28,174 in 1997 and 1998, respectively................ 14,472 7,885
----------- ------------
Total assets........................................... $14,089,898 $ 26,635,614
=========== ============
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 245,602 $ 2,036,814
Accrued liabilities......................................... 570,869 48,134
Due to related party........................................ 61,658 --
Current portion, long-term debt............................. -- 200,497
----------- ------------
Total current liabilities.............................. 878,129 2,285,445
Long-term debt.............................................. -- 709,006
Members' capital -- no stated value; 93,354 and 104,024
units issued.............................................. 24,189,844 45,849,184
Subscription notes receivable............................... -- (2,102,000)
Deferred compensation....................................... (389,631) (613,545)
Deficit accumulated during development stage................ (10,588,444) (19,492,476)
----------- ------------
Total members' equity.................................. 13,211,769 23,641,163
Commitments and contingencies
----------- ------------
Total liabilities and members' equity.................. $14,089,898 $ 26,635,614
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 69
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1997 1998 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue............................ $ -- $ -- $ -- $ --
Expenses:
Research and development:
Related party................. -- (39,630) -- (39,630)
Other......................... (2,017,445) (2,523,041) (6,102,362) (11,497,890)
----------- ----------- ----------- ------------
(2,017,445) (2,562,671) (6,102,362) (11,537,520)
----------- ----------- ----------- ------------
General and administrative:
Related party................. (292,392) (518,011) (211,152) (1,021,555)
Other......................... (1,488,438) (1,030,934) (2,966,011) (7,993,763)
----------- ----------- ----------- ------------
(1,780,830) (1,548,945) (3,177,163) (9,015,318)
----------- ----------- ----------- ------------
Depreciation and amortization.... (78,856) (202,090) (360,285) (696,347)
----------- ----------- ----------- ------------
Total operating loss.......... (3,877,131) (4,313,706) (9,639,810) (21,249,185)
Other income:
Non-operating income............. 249,988 -- -- 249,988
Interest income.................. 281,245 481,179 735,778 1,506,721
----------- ----------- ----------- ------------
Net loss...................... $(3,345,898) $(3,832,527) $(8,904,032) $(19,492,476)
=========== =========== =========== ============
Net loss per members' equity unit,
basic and diluted................ $ (39.42) $ (42.81) $ (93.07)
=========== =========== ===========
Weighted average members' units
outstanding, basic and diluted... 84,876 89,525 95,673
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SUBSCRIPTION DURING
MEMBERS' NOTES DEFERRED DEVELOPMENT
UNITS CAPITAL RECEIVABLE COMPENSATION STAGE TOTAL
------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994........ -- $ -- $ -- $ -- $ -- $ --
Net loss......................... -- -- -- -- (183,440) (183,440)
Issuance of units to founders
during 1994, for cash, $6 per
unit........................... 65,200 400,010 -- -- -- 400,010
------- ----------- ----------- -------- ------------ -----------
Balance at December 31, 1994..... 65,200 400,010 -- -- (183,440) 216,570
Net loss......................... -- -- -- -- (3,226,579) (3,226,579)
Issuance of units in connection
with the recapitalization in
December 1995, $250 per unit... 6,000 1,500,000 (150,000) -- -- 1,350,000
Grant of members' equity units... 8,800 2,200,000 -- -- -- 2,200,000
------- ----------- ----------- -------- ------------ -----------
Balance at December 31, 1995..... 80,000 4,100,010 (150,000) -- (3,410,019) 539,991
Net loss......................... -- -- -- -- (3,345,898) (3,345,898)
Payment of subscription notes
receivable..................... -- -- 150,000 -- -- 150,000
Deferred compensation on
options........................ -- 781,200 -- (781,200) -- --
Grant and recognition of
options........................ -- 1,116,815 -- 347,200 -- 1,464,015
Issuance of units in private
placement from March 13, 1996
to December 31, 1996, $1,118
per unit....................... 9,512 10,600,000 (250,000) -- -- 10,350,000
------- ----------- ----------- -------- ------------ -----------
Balance at December 31, 1996..... 89,512 16,598,025 (250,000) (434,000) (6,755,917) 9,158,108
Net loss......................... -- -- -- -- (3,832,527) (3,832,527)
Payment of subscription notes
receivable..................... -- -- 250,000 -- -- 250,000
Deferred compensation on
options........................ -- 144,004 -- (144,004) -- --
Grant and recognition of
options........................ -- 62,815 -- 188,373 -- 251,188
Issuance of units in private
placement from September 8,
1997 to December 31, 1997,
$1,922 per unit................ 3,842 7,385,000 -- -- -- 7,385,000
------- ----------- ----------- -------- ------------ -----------
Balance at December 31, 1997..... 93,354 24,189,844 -- (389,631) (10,588,444) 13,211,769
Net loss......................... -- -- -- -- (8,904,032) (8,904,032)
Deferred compensation on
options........................ -- 493,701 -- (493,701) -- --
Grant and recognition of
options........................ -- 838,654 -- 269,787 -- 1,108,441
Exercise of options.............. 224 250,000 -- -- -- 250,000
Issuance of units in private
placement from January 1, 1998
to December 31, 1998, $1,922
per unit....................... 10,446 20,076,985 (2,102,000) -- -- 17,974,985
------- ----------- ----------- -------- ------------ -----------
Balance at December 31, 1998..... 104,024 $45,849,184 $(2,102,000) $(613,545) $(19,492,476) $23,641,163
======= =========== =========== ======== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1997 1998 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(3,345,898) $(3,832,527) $(8,904,032) $(19,492,476)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization.... 78,856 202,090 360,285 696,347
Members' equity options and
Predecessor Company options.... 1,464,015 251,188 1,108,441 2,823,644
Members' equity grant............ -- -- -- 2,200,000
Changes in operating assets and
liabilities:
Other assets..................... (1,792) (64,583) (28,885) (95,260)
Prepaid assets................... (10,734) (87,927) (91,638) (230,632)
Organization costs............... -- -- -- (32,934)
Accounts payable................. 246,357 (553,263) 1,791,212 2,036,814
Accrued liabilities.............. 66,865 504,004 (522,735) 48,134
Due to/from related party, net... 29,788 63,361 (89,263) (27,605)
----------- ----------- ----------- ------------
Net cash used in operating
activities.................. (1,472,543) (3,517,657) (6,376,615) (12,073,968)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of plant and equipment..... (231,262) (622,504) (3,704,168) (4,809,423)
Proceeds from the sale of plant and
equipment........................ -- 4,000 27,942 31,942
----------- ----------- ----------- ------------
Net cash used in investing
activities.................. (231,262) (618,504) (3,676,226) (4,777,481)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Members' equity contributions....... 10,500,000 7,635,000 17,974,985 37,859,995
Exercise of members' equity
options.......................... -- -- 250,000 250,000
Proceeds from debt.................. -- -- 909,503 909,503
----------- ----------- ----------- ------------
Net cash provided by financing
activities..................... 10,500,000 7,635,000 19,134,488 39,019,498
----------- ----------- ----------- ------------
Net increase in cash and cash
equivalents......................... 8,796,195 3,498,839 9,081,647 22,168,049
Cash and cash equivalents at beginning
of period........................... 791,368 9,587,563 13,086,402 --
----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period.............................. $ 9,587,563 13,086,402 22,168,049 22,168,049
=========== =========== =========== ============
Non-cash investing and financing
activities:
Members' equity contributions
financed by notes receivable..... $ 250,000 $ -- $ 2,102,000 $ 2,102,000
=========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 72
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
The business was formed on March 31, 1994 through the creation of a Delaware
corporation (the Predecessor Company). In July 1995, the founders of the
Delaware corporation formed Antigenics L.L.C. (together with its subsidiary,
Antigenics or the Company), a Delaware limited liability company, and
subsequently transferred to the Company all of the assets, liabilities,
properties and rights of the Delaware corporation in exchange for an initial
81.5% equity interest in the Company. The accounting for this recapitalization
was recorded at the Delaware corporation's historical cost. In connection with
the recapitalization, the Company also raised $1,500,000 (including $150,000 of
subscription notes receivable) in a private equity transaction in exchange for a
7.5% initial ownership interest and a further 11% initial ownership interest was
exchanged for services rendered to the Company by certain outside advisors, the
value of which was recognized as a non-cash expense of $2,200,000 during 1995.
The Company is developing immunotherapeutics for the treatment of cancer,
infectious diseases and autoimmune disorders based on the Company's proprietary
heat shock protein technology. The Company's research has demonstrated that when
purified heat shock protein-peptide complexes are injected into the skin, they
trigger an immune response against cancers and infectious diseases. Antigenics
seeks to create immunotherapeutics to stimulate patients' immune systems into
destroying diseased cells in the body.
Antigenics is primarily engaged in the development of its heat shock protein
technology and its lead immunotherapeutic product, Oncophage(R). The related
business activities include product research and development activities,
regulatory and clinical affairs, establishing manufacturing capabilities, pilot
stage production for clinical trials, and administrative and corporate
development activities. As of December 31, 1998, the Company has not commenced
commercial operations and, accordingly, is in the development stage.
Consequently, the Company is subject to all the risks inherent in the
establishment of a new business. The Company has incurred annual operating
losses since inception and, as a result, at December 31, 1998 has a deficit
accumulated during the development stage of approximately $17.5 million. The
Company's operations during development have been funded principally by members'
equity. While the Company believes that its working capital resources are
sufficient to satisfy its liquidity requirements over the next 12 months,
satisfying the Company's long-term liquidity needs will require the successful
commercialization of Oncophage or other products and additional members' equity.
The Company's immunotherapeutics require clinical trials and approvals from
regulatory agencies as well as acceptance in the marketplace. The Company is
conducting clinical trials in various cancer indications. Although the Company
believes its patents, patent rights and patent applications are valid, the
invalidation of its patents or failure of certain of its pending patent
applications to issue as patents could have a material adverse effect upon its
business. The Company competes with specialized biotechnology companies, major
pharmaceutical and chemical companies and universities and research
institutions. Many of these competitors have substantially greater resources
than does the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of
Antigenics L.L.C. and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-7
<PAGE> 73
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturities at
acquisition of three months or less to be cash equivalents. Cash equivalents at
December 31, 1997 and 1998 consist of investments in money market accounts which
are unrestricted as to withdrawal or use.
(d) PLANT AND EQUIPMENT
Plant and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Amortization
of leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset. Additions and improvements are capitalized,
while repairs and maintenance are charged to expense as incurred.
(e) ORGANIZATION COSTS
Organization costs, consisting primarily of legal fees, are being amortized
using the straight-line method over a five-year period.
(f) LONG-LIVED ASSETS
The Company's policy is to record long-lived assets at cost, amortizing these
costs over the expected useful lives of the related assets. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of,"
these assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. The assets are evaluated for continuing value and proper useful
lives by comparison to expected undiscounted future cash flows. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets, calculated as expected discounted future cash flows. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amounts of financial instruments that are
recognized at historical cost amounts. The estimated fair values of all of the
Company's financial instruments, excluding debt, approximate their carrying
amounts in the consolidated balance sheets. The fair value of the Company's
long-term debt was derived by evaluating the nature and terms of each term note
and considering the prevailing economic and market conditions at the balance
sheet date. The carrying amount of debt, including current portions, is
approximately $910,000 at December 31, 1998 and the fair value is estimated to
be approximately this amount.
F-8
<PAGE> 74
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Sponsored research..................................... $475,000 $ --
Other.................................................. 95,869 48,134
-------- --------
$570,869 $ 48,134
======== ========
</TABLE>
(i) MEMBERS' EQUITY OPTION PLAN
The Company accounts for options granted to employees and directors in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense is recorded on fixed members' equity option grants only if
the current fair value of the underlying unit exceeds the exercise price of the
option at the date of grant.
The Company accounts for members' equity options granted to non-employees on a
fair value basis in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" and Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services". As a result, the non-cash charge
to operations for non-employee options with vesting or other performance
criteria is affected each reporting period by changes in the fair value of the
Company's members' equity units.
As required, the Company also provides pro forma net loss and pro forma net loss
per members' equity unit disclosures for employee and director members' equity
option grants as if the fair-value-based method defined in SFAS No. 123 had been
applied (see Note 5).
(j) RESEARCH AND DEVELOPMENT
Research and Development expenses include the costs associated with internal
research and development by the Company and research and development conducted
for the Company by outside advisors, sponsored university-based research
partners, and clinical study partners. All research and development costs
discussed above are expensed as incurred. Amounts received under research and
development contracts, which are not refundable, are recorded as a reduction to
research and development expense in the consolidated statement of operations.
(k) INCOME TAXES
As a Delaware limited liability company, no federal, state and local income
taxes are levied on the Company. Each member of the Company is individually
responsible for reporting his or her share of the Company's net income or loss
on their personal tax returns. Therefore, no provision for income taxes and no
deferred tax assets or liabilities are recognized in the accompanying
consolidated financial statements.
(l) NET LOSS PER MEMBERS' EQUITY UNIT
Basic earnings or loss per members' equity unit (EPU) is computed using the
weighted average number of members' equity units outstanding during the period
being reported on. Diluted EPU reflects the potential dilution that could occur
if securities or other contracts to issue members' equity units were exercised
or converted into members' equity units at the beginning of the period being
reported on and the effect was dilutive. Net loss and weighted average members'
equity units used for computing diluted EPU were the
F-9
<PAGE> 75
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
same as that used for computing basic EPU for each of the years ended December
31, 1996, 1997 and 1998 because the Company's members' equity options were not
included in the calculation since the inclusion of such potential members'
equity units would be antidilutive.
(m) SEGMENT INFORMATION
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
The Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Accordingly, the Company
does not prepare discrete financial information with respect to separate product
areas or by location and does not have separately reportable segments as defined
by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
(n) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities", which requires the costs of start-up activities and organization
costs be expensed as incurred. The adoption of SOP 98-5 by the Company effective
January 1, 1999 will be immaterial to the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including derivatives instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all the Company's fiscal quarters
beginning January 1, 2001. This statement is not expected to affect the Company
as it currently does not have derivative instruments or engage in hedging
activities.
(3) PLANT AND EQUIPMENT, NET
Plant and equipment, net at December 31, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
DEPRECIABLE
1997 1998 LIVES
---------- ---------- -------------
<S> <C> <C> <C>
Furniture, fixtures and other.............. $ 299,580 $ 486,933 3 to 10 years
Laboratory and manufacturing equipment..... 621,187 1,426,427 3 to 10 years
Leasehold improvements..................... 180,128 224,580 2 to 5 years
Construction in progress................... -- 2,639,181
---------- ----------
1,100,895 4,777,121
Less accumulated depreciation and
amortization............................. 317,240 670,938
---------- ----------
$ 783,655 $4,106,183
========== ==========
</TABLE>
(4) MEMBERS' EQUITY
Antigenics has one class of members' equity. All equity members' vote their
equity interests in proportion to their respective unit interest in the Company.
Net profits and losses of the Company for each fiscal year are allocated to the
capital accounts of the members as described in the limited liability company
agreement, generally in proportion to their respective unit ownership interests.
No members are liable for
F-10
<PAGE> 76
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any obligations of the Company or are required to contribute any additional
capital related to the deficits incurred.
Since the formation of the Company in 1995 (see note 1), the Company has raised
capital through private placement equity transactions. During 1996, the Company
completed a private placement offering of approximately 9,500 members' equity
units in exchange for $10,600,000. Subscription notes receivable of $250,000 at
December 31, 1996, which represent promissory notes from members in
consideration of their equity contributions, were satisfied in full during 1997.
During 1997, the Company commenced a private placement offering, which resulted
in approximately 3,800 members' equity units being sold for approximately
$7,385,000 during 1997 and approximately 10,400 members' equity units being sold
for approximately $20,077,000 during 1998. This offering was completed during
early 1999 and resulted in an aggregate of approximately $27,572,000 being
received by the Company over the three-year period.
Subscription notes receivable of $2,102,000 at December 31, 1998, which
represent promissory notes from members in consideration of their equity
contributions, were satisfied in full during 1999.
(5) EQUITY OPTIONS
In March 1996, the board of managers approved an equity-based incentive
compensation plan (the Plan). Pursuant to the provisions of the Plan, the board
of managers may grant options to directors, employees and outside advisors to
purchase members' equity units of the Company. At the date of grant, the board
of managers sets the terms of the options including the exercise price and
vesting period. The options granted through December 31, 1998 have vesting
periods ranging up to five years. Options generally have a contractual life of
ten years. A maximum of 7% of total equity, inclusive of the options granted,
may be granted as options (approximately 7,800 options as of December 31, 1998).
F-11
<PAGE> 77
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes activity for options granted to directors and
employees, including those with an exercise price equal to the fair value of the
underlying members' equity unit at the date of grant ("at-the-money exercise
price") and those with an exercise price less than the fair value of the
underlying members' equity unit at the date of grant ("in-the-money exercise
price"):
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED
MEMBERS' EXERCISABLE AVERAGE AVERAGE
EQUITY AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995............ --
Granted:
At-the-money exercise price......... 1,300 $ 120 $ 250
In-the-money exercise price......... 900 948 250
Exercised.............................. -- -- --
-----
Outstanding December 31, 1996............ 2,200 1,500
=====
Granted:
At-the-money exercise price......... 110 687 1,118
In-the-money exercise price......... 166 1,113 522
Exercised.............................. -- -- --
-----
Outstanding December 31, 1997............ 2,476 1,733
=====
Granted:
At-the-money exercise price......... 154 1,158 1,922
In-the-money exercise price......... 536 1,441 1,001
Exercised.............................. -- -- --
===== ====== ======
Outstanding December 31, 1998............ 3,166 2,022
===== =====
</TABLE>
During 1996, 1997 and 1998, 900, 166 and 536 options, respectively, were granted
to employees and directors at exercise prices which were less than the fair
value of the underlying members' equity units on the grant date. Compensation
expense recognized with respect to such options totaled approximately $347,000,
$188,000 and $270,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Deferred compensation at December 31, 1998 of approximately
$614,000 will be recognized over the vesting period of the options.
F-12
<PAGE> 78
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes activity for options granted to outside advisors:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED
MEMBER EXERCISABLE AVERAGE AVERAGE
EQUITY AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995.............. --
Granted.................................... 2,574 $ 577 $ 344
Exercised................................ -- -- --
-----
Outstanding December 31, 1996.............. 2,574 1,449
=====
Granted.................................. -- -- --
Exercised................................ -- -- --
-----
Outstanding December 31, 1997.............. 2,574 1,857
=====
Granted.................................. 1,115 1,649 549
Exercised................................ (224) 1,422 250
----- ======= ======
Outstanding December 31, 1998.............. 3,465 1,921
===== =====
</TABLE>
The 1996 options grants include 517 options granted to outside advisors with an
exercise price which is determined based on fair value of the underlying units
beginning on the second anniversary of the grant date as the options vest.
Compensation expense for these options is recognized when the exercise price
becomes known and performance has been completed. In 1998, approximately
$199,000 was charged to operations for 138 of such options that vested at an
exercise price of approximately $1,922 per unit.
The charge to operations related to options granted to outside advisors,
including the amount described in the previous paragraph, totaled approximately
$696,000, $63,000 and $839,000 for the years ended December 31, 1996, 1997 and
1998, respectively. At December 31, 1998, unrecognized expense for options
granted to outside advisors for which performance has not yet been completed is
approximately $1,271,000; such amount is subject to change each reporting period
based upon changes in the fair value of the Company's members' equity units,
estimated volatility and the risk free interest rate until the outside advisor
completes his or her performance under the option agreement.
A summary of the Company's options outstanding and exercisable, excluding the
1996 options described above, as of December 31, 1998, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVE. ----------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVE. NUMBER WEIGHTED AVE.
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 250 - $ 750 5,258 7.73 $ 301 3,972 $ 250
$ 751 - $1,250 840 8.92 1,118 171 1,118
$ 1,251 - $1,750 -- -- -- -- --
$ 1,751 - $2,250 154 9.74 2,077 -- --
----- -----
6,252 4,143
===== =====
</TABLE>
Since the 1995 reorganization described in Note 1, the Predecessor Company has
directly or indirectly owned a majority of the Company's members' equity units.
During 1996, the Predecessor Company
F-13
<PAGE> 79
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approved a stock option plan (the Predecessor Plan). In accordance with
generally accepted accounting principles, the Predecessor Plan is accounted for
as if it had been adopted by Antigenics and treated as a contribution to
members' capital. Pursuant to the provisions of the Predecessor Plan, the
Predecessor Company may grant options to officers, directors, employees and
consultants to purchase common stock of the Predecessor Company. The terms of
the options, including exercise price and vesting period, are set at the date of
grant. The options have a contractual life of ten years and may not have an
exercise price less than the fair value of a share of common stock of the
Predecessor Company at date of grant. A maximum of 300 options may be granted
under the Predecessor Plan.
During 1996, the Predecessor Company granted approximately 160 options to
directors and employees at a weighted average exercise price of $9,006 per share
of Predecessor Company common stock and a weighted average grant-date fair value
of approximately $4,301 per share. During 1997, the Predecessor Company granted
approximately 14 options to a director at a weighted average exercise price of
$26,666 per share of Predecessor Company common stock and a weighted average
grant-date fair value of $16,407 per share. All the options are immediately
vested and exercisable. All of the options remain outstanding and none have been
exercised. No compensation expense was recognized by Antigenics during 1996 and
1997 as the exercise price of the options is equal to the fair value of the
common stock of the Predecessor Company at the date of the option grant.
During 1996, the Predecessor Company granted approximately 76 options to
consultants at a weighted average exercise price of $9,006 per share and a
weighted average grant-date fair value of approximately $5,535 per share. All of
the consultants' options are immediately vested and exercisable. All of the
consultants' options remain outstanding and none have been exercised. During
1996, Antigenics recognized a charge to operations related to options granted to
consultants by the Predecessor Company of approximately $421,000.
The Company accounts for options granted to employees and directors under APB
Opinion No. 25. Had compensation cost for options granted to employees and
directors by Antigenics and the Predecessor Company been determined consistent
with SFAS No. 123, the Company's pro forma net loss and pro forma net loss per
members' equity unit would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss:
As reported............................... $(3,345,898) $(3,832,527) $(8,904,032)
Pro forma................................. (4,468,170) (4,293,389) (9,248,441)
=========== =========== ===========
Net loss per members' equity unit:
As reported............................... $ (39.42) $ (42.81) $ (93.07)
Pro forma................................. (52.64) (47.96) (96.67)
=========== =========== ===========
</TABLE>
The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effects on reported net income or loss for future years.
F-14
<PAGE> 80
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option granted is estimated on the date of grant using an
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Estimated volatility........................................ 38% 57% 61%
Expected life in years -- employee and director options..... 6 6 6
Risk-free interest rate..................................... 6.3% 6.3% 5.4%
Dividend yield.............................................. 0% 0% 0%
</TABLE>
The Company estimates volatility for purposes of computing compensation expense
on outside advisor options and for disclosure purposes using the volatility of
public companies that the Company considers comparable. The expected life used
to estimate the fair value of outside advisor options is equal to the
contractual life of the option granted.
(6) COMMITMENTS
In November 1994, the Predecessor Company entered into a Patent License
Agreement (Mount Sinai Agreement) with the Mount Sinai School of Medicine (Mount
Sinai). Through the Mount Sinai Agreement, the Company has obtained the
exclusive licenses to the patent rights which resulted from the research and
development performed by Dr. Pramod Srivastava, a director of the Company. Under
the Mount Sinai Agreement, the Company agreed to pay Mount Sinai a nominal
royalty on related product sales (as defined in the Mount Sinai Agreement)
through the last expiration date of the patents under the Mount Sinai Agreement
(2015). In addition to these royalty payments, Mount Sinai was issued a nominal
equity interest.
During 1995, Dr. Srivastava moved his research to Fordham University (Fordham).
The Predecessor Company entered into a Patent License Agreement (Fordham
Agreement) with Fordham, agreeing to reimburse Fordham for all approved costs
incurred in the performance of the research. The Predecessor Company has also
agreed to pay Fordham a nominal royalty on related product sales, as defined,
through the last expiration date of the patents under the Fordham Agreement.
This agreement ended in mid-1997. During 1995, 1996 and 1997, the direct and
indirect costs incurred by the Company related to this agreement were
approximately $546,000, $926,000 and $902,000, respectively, and are included in
research and development expenses in the consolidated statements of operations
for such years.
In February 1998, the Company entered into a research agreement with the
University of Connecticut Health Center (UConn) and Dr. Srivastava. The
agreement has a term of approximately five years and calls for payments to UConn
totaling a minimum of $5,000,000, payable quarterly at the rate of $250,000
(contingent on the continuing employment of Dr. Srivastava by UConn). In
addition, as research was begun by Dr. Srivastava in 1997, the Company agreed to
pay approximately $475,000 for these previous services and expensed such amount
as research and development during 1997. Research and development expense in the
accompanying 1998 consolidated statement of operations includes approximately
$1,000,000 of costs incurred under the UConn agreement. Royalties at varying
rates are due to UConn upon commercialization of a product utilizing technology
discovered during the research agreement.
In 1996, Antigenics entered into an agreement with Sloan-Kettering Institute for
Cancer Research (Sloan Kettering) to conduct clinical studies. The Company is
required to pay Sloan Kettering $10,000 for administration and start up costs
and $4,000 per patient in the study.
On December 2, 1997, Antigenics entered into two agreements with The University
of Texas M.D. Anderson Cancer Center (M.D. Anderson) to conduct clinical
studies. The Company is required to pay M.D. Anderson a total of approximately
$538,000 for expenses for the clinical study of approximately
F-15
<PAGE> 81
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
90 patients and other related costs payable in four installments. In addition,
on March 20, 1998 the Company entered into another clinical study with M.D.
Anderson. Under such 1998 agreement, the Company is required to pay M.D.
Anderson a total of approximately $118,000 for the study of 30 patients and
other related costs payable in four installments.
In 1998, Antigenics entered into an agreement with the Johannes Gutenberg
Universitat Mainz Klinikum (Universitat) to conduct additional clinical studies.
The Company is required to pay the Universitat approximately $279,000 for
expenses for the clinical study of approximately 30 patients. The first
installment was paid upon signing the agreement.
In 1998, Antigenics entered into an agreement, as amended, with Sigma-Tau
Industrie Farmaceutiche Riunite S.p.A (Sigma-Tau) to conduct clinical studies in
Italy, Spain, Portugal and Switzerland. Under the agreement, Sigma-Tau is
required to reimburse Antigenics for all costs incurred on behalf of Sigma-Tau
in relation to the clinical studies. In return, Antigenics has granted Sigma-Tau
the exclusive right to negotiate a marketing and development agreement (the
Development Agreement) for the exclusive use of Antigenics' patent rights and
their product, and the right of first offer to negotiate licenses for other
medical uses of their product, in Italy, Spain, Portugal and Switzerland. The
Development Agreement has not been finalized. No costs associated with these
clinical studies were incurred during 1998. Amounts received under this
agreement are non-refundable even if the research effort is unsuccessful. In
addition, Antigenics does not incur any future performance commitments in
relation to amounts recorded for Sigma-Tau.
For the years ended December 31, 1996, 1997 and 1998, approximately $10,000,
$4,000 and $255,000, respectively, has been expensed in the accompanying
consolidated statements of operations related to the above mentioned clinical
studies.
(7) RELATED PARTY TRANSACTIONS
The Company rents office space for its New York City headquarters on a
month-to-month basis and utilizes certain office services of an entity which is
wholly-owned by the Company's chief executive officer and chairman of the board.
Rent and office services, which are recorded at the affiliate's cost, are
allocated to the Company based on square footage and clerical staff usage,
respectively, which management believes is reasonable. Such transactions
amounted to approximately $293,000, $557,000 and $211,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. From time to time the Company
also pays general and administrative costs on behalf of the affiliated entity
for which the Company is reimbursed on a current basis. As of December 31, 1998,
the affiliated entity was indebted to the Company for $27,605 of costs paid on
the affiliated entity's behalf. As of December 31, 1997, the Company was
indebted to the affiliated entity for $61,658 for rent and administrative
services.
During 1997 and renewed each year thereafter, the Company obtained stand by
letters of credit for the benefit of the related party in the amount of $375,000
in connection with the related party's lease of the New York City office space.
These letters expire in January 2000.
(8) LEASES
The Company leases administrative (see Note 7), laboratory and office facilities
under various month-to-month and long-term lease arrangements. Rent expense,
exclusive of the amounts included in Note 7, was approximately $134,000 and
$685,000 for the years ended December 31, 1997 and 1998, respectively.
F-16
<PAGE> 82
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum rental payments under the Company's lease of its Woburn,
Massachusetts manufacturing and laboratory facility, which expires in 2003, are
as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999......................................... $ 447,516
2000......................................... 447,516
2001......................................... 447,516
2002......................................... 447,516
2003......................................... 279,698
----------
$2,069,762
==========
</TABLE>
(9) DEBT
In November 1998, the Company entered into a $3 million credit facility
(increased to $5 million in May 1999) with a financial institution pursuant to
which the Company can draw down amounts to make or refinance certain capital
expenditures. As the Company utilizes the credit facility, separate term notes
will be executed. Each term loan will have a term of forty-two months and the
interest rate is fixed at the closing of each term loan. Each loan is
collateralized by the equipment, fixtures, and improvements acquired with the
proceeds of the loan.
On December 30, 1998, the Company closed its first term loan under the credit
facility for approximately $910,000; the loan bears interest on the remaining
balance at 13.954%.
The aggregate maturities of the term loan for each of the five years subsequent
to December 31, 1998 are as follows: 1999 -- $200,497; 2000 -- $230,335;
2001 -- $264,613; 2002 -- $214,059.
(10) SUBSEQUENT EVENT
On June 21, 1999, Antigenics entered into another agreement with M.D. Anderson
to conduct clinical studies. The Company is required to pay M.D. Anderson a
total of approximately $277,000 for the clinical study of approximately 40
patients and other related costs payable in installments of over two years.
(11) PRO FORMA INCOME TAX PROVISION (UNAUDITED)
As discussed in Note 2(k), the Company is not subject to income taxes and
therefore does not provide for income taxes in its consolidated financial
statements. Had the Company been organized as a tax paying entity for the year
ended December 31, 1998, there would be no pro forma income tax provision
because of a loss before income taxes and the need to recognize a valuation
allowance on all gross deferred tax assets. Given the Company's past history of
incurring operating losses, management believes that it is more likely than not
that any deferred tax assets will not be realized.
F-17
<PAGE> 83
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 12,611,690
Prepaid expenses............................................ 196,424
Other assets................................................ 418,065
------------
Total current assets.............................. 13,226,179
Plant and equipment, net.................................... 7,979,666
Other assets................................................ 74,071
------------
Total assets...................................... $ 21,279,916
============
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 986,552
Accrued liabilities......................................... 394,502
Due to related party........................................ 7,994
Current portion, long-term debt............................. 781,061
------------
Total current liabilities......................... 2,170,109
Long-term debt.............................................. 2,367,578
Members' capital -- no stated value; 104,086 units issued... 48,278,060
Deferred compensation....................................... (558,707)
Deficit accumulated during development stage................ (30,977,124)
------------
Total members' equity............................. 16,742,229
Commitments and contingencies
------------
Total liabilities and members' equity............. $ 21,279,916
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-18
<PAGE> 84
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999, AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
NINE MONTHS ENDED SEPTEMBER 30, INCEPTION) TO
------------------------------- SEPTEMBER 30,
1998 1999 1999
------------- -------------- -------------
<S> <C> <C> <C>
Revenue........................................... $ -- $ -- $ --
Expenses:
Research and development:
Related party................................ -- -- (39,630)
Other........................................ (4,196,360) (7,232,138) (18,730,028)
----------- ------------ ------------
(4,196,360) (7,232,138) (18,769,658)
----------- ------------ ------------
General and administrative:
Related party................................ (188,811) (202,445) (1,224,000)
Other........................................ (2,053,637) (3,813,046) (11,806,809)
----------- ------------ ------------
(2,242,448) (4,015,491) (13,030,809)
----------- ------------ ------------
Depreciation and amortization................... (272,822) (726,038) (1,422,385)
----------- ------------ ------------
Total operating loss.................... (6,711,630) (11,973,667) (33,222,852)
Other income/(expense):
Non-operating income............................ -- -- 249,988
Interest expense................................ -- (151,653) (151,653)
Interest income................................. 580,352 640,672 2,147,393
----------- ------------ ------------
Net loss................................ $(6,131,278) $(11,484,648) $(30,977,124)
=========== ============ ============
Net loss per members' equity unit, basic and
diluted......................................... $ (68.10) $ (110.35)
=========== ============
Weighted average members' units outstanding, basic
and diluted..................................... 90,032 104,079
=========== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-19
<PAGE> 85
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SUBSCRIPTION DURING
MEMBERS' NOTES DEFERRED DEVELOPMENT
UNITS CAPITAL RECEIVABLE COMPENSATION STAGE TOTAL
------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994....... -- $ -- $ -- $ -- $ -- $ --
Net loss........................ -- -- -- -- (183,440) (183,440)
Issuance of units to founders
during 1994, for cash, $6 per
unit.......................... 65,200 400,010 -- -- -- 400,010
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1994.... 65,200 400,010 -- -- (183,440) 216,570
Net loss........................ -- -- -- -- (3,226,579) (3,226,579)
Issuance of units in connection
with the recapitalization in
December 1995, $250 per
unit.......................... 6,000 1,500,000 (150,000) -- -- 1,350,000
Grant of members' equity
units......................... 8,800 2,200,000 -- -- -- 2,200,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1995.... 80,000 4,100,010 (150,000) -- (3,410,019) 539,991
Net loss........................ -- -- -- -- (3,345,898) (3,345,898)
Payment of subscription notes
receivable.................... -- -- 150,000 -- -- 150,000
Deferred compensation on
options....................... -- 781,200 -- (781,200) -- --
Grant and recognition of
options....................... -- 1,116,815 -- 347,200 -- 1,464,015
Issuance of units in private
placement from March 13, 1996
to December 31, 1996, $1,118
per unit...................... 9,512 10,600,000 (250,000) -- -- 10,350,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1996.... 89,512 16,598,025 (250,000) (434,000) (6,755,917) 9,158,108
Net loss........................ -- -- -- -- (3,832,527) (3,832,527)
Payment of subscription notes
receivable.................... -- -- 250,000 -- -- 250,000
Deferred compensation on
options....................... -- 144,004 -- (144,004) -- --
Grant and recognition of
options....................... -- 62,815 -- 188,373 -- 251,188
Issuance of units in private
placement from September 8,
1997 to December 31, 1997,
$1,922 pre unit............... 3,842 7,385,000 -- -- -- 7,385,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1997.... 93,354 24,189,844 -- (389,631) (10,588,444) 13,211,769
Net loss........................ -- -- -- -- (8,904,032) (8,904,032)
Deferred compensation on
options....................... -- 493,701 -- (493,701) -- --
Grant and recognition of
options....................... -- 838,654 -- 269,787 -- 1,108,441
Exercise of options............. 224 250,000 -- -- -- 250,000
Issuance of units in private
placement from January 1, 1998
to December 31, 1998, $1,922
per unit...................... 10,446 20,076,985 (2,102,000) -- -- 17,974,985
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1998.... 104,024 45,849,184 (2,102,000) (613,545) (19,492,476) 23,641,163
Net loss........................ -- -- -- -- (11,484,648) (11,484,648)
Payment of subscription notes
receivable.................... -- -- 2,102,000 -- -- 2,102,000
Deferred compensation on
options....................... -- 139,398 -- (139,398) -- --
Grant and recognition of
options....................... -- 2,179,478 -- 194,236 -- 2,373,714
Issuance of units in private
placement in January 1999,
$1,922 per unit............... 57 110,000 -- -- -- 110,000
------- ----------- ----------- --------- ------------ ------------
Balance at September 30, 1999... 104,081 $48,278,060 $ -- $(558,707) $(30,977,124) $ 16,742,229
======= =========== =========== ========= ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-20
<PAGE> 86
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
SEPTEMBER 30, INCEPTION) TO
--------------------------- SEPTEMBER 30,
1998 1999 1999
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(6,131,278) $(11,484,648) $(30,977,124)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 272,822 726,038 1,422,384
Members' equity options.................... 725,526 2,373,714 5,197,358
Members' equity grant...................... -- -- 2,200,000
Changes in operating assets and liabilities:
Other assets............................... (28,536) (396,876) (492,136)
Prepaid assets............................. 21,631 34,208 (196,424)
Organization costs......................... -- -- (32,934)
Accounts payable........................... 109,740 (1,050,262) 986,552
Accrued liabilities........................ (497,572) 346,368 394,502
Due to/from related party, net............. 19,409 35,599 7,994
----------- ------------ ------------
Net cash used in operating activities.... (5,508,258) (9,415,859) (21,489,828)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment............... (1,047,274) (4,591,636) (9,401,059)
Proceeds from the sale of plant and
equipment.................................. -- -- 31,942
----------- ------------ ------------
Net cash used in investing activities.... (1,047,274) (4,591,636) (9,369,117)
----------- ------------ ------------
Cash flows from financing activities:
Members' equity contributions................. 6,525,000 2,212,000 40,071,995
Exercise of members' equity options........... -- -- 250,000
Proceeds from debt............................ -- 2,514,656 3,424,160
Repayments of debt............................ -- (275,520) (275,520)
----------- ------------ ------------
Net cash provided by financing
activities............................ 6,525,000 4,451,136 43,470,635
----------- ------------ ------------
Net (decrease) increase in cash and cash
equivalents................................... (30,532) (9,556,359) 12,611,690
Cash and cash equivalents at beginning of
period........................................ 13,086,402 22,168,049 --
----------- ------------ ------------
Cash and cash equivalents at end of period...... $13,055,870 12,611,690 12,611,690
=========== ============ ============
Supplemental cash flow information:
Interest paid................................. $ -- $ 151,653 $ 151,653
=========== ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-21
<PAGE> 87
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the Company's
consolidated financial statements for the year ended December 31, 1998 and
footnotes thereto included elsewhere in this prospectus.
(B) ACCOUNTING FOR ORGANIZATIONAL COSTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities", which requires that the costs of start-up activities and
organization costs be expensed as incurred. The Company adopted the provisions
of SOP 98-5 effective January 1, 1999; the adoption had an immaterial effect on
the Company's consolidated financial statements.
(C) EQUITY OPTIONS
During the nine months ended September 30, 1998, the Company granted 536
members' equity options to employees and directors with exercise prices ranging
from $493 to $1,118 per unit. In addition, the Company granted 971 members'
equity options to outside advisors which vest over five years. The outside
advisors' options were granted at exercise prices ranging from $493 to $1,118
per unit.
During the nine months ended September 30, 1999, the Company granted 1,620
members' equity options to employees and directors with exercise prices ranging
from $1,118 to $2,077 per unit. In addition, the Company granted 1,321 members'
equity options to outside advisors of which 482 options vested immediately and
the remainder will vest over periods of up to three years as performance is
completed. The outside advisors' options were granted at exercise prices ranging
from $1,118 to $2,402 per unit.
During the nine months ended September 30, 1998 and 1999, 536 and 140 options
were granted to employees and directors at exercise prices which were less than
the fair value of the underlying members' equity units on the grant date.
Compensation expense recognized for options granted to employees and directors
totaled approximately $202,000 and $194,000 for the nine months ended September
30, 1998 and 1999, respectively. Deferred compensation at September 30, 1999 of
$559,000 will be recognized over the vesting period of the options.
In 1996, the Company granted certain options to outside advisors with an
exercise price which is determined based on fair value of the underlying units
at the date the options vest. Compensation expense for these options is
recognized when the exercise price becomes known and performance has been
completed. For the nine months ended September 30, 1998 and 1999, approximately
$199,000 and $189,000 was charged to operations for 138 of such options which
vested each period at exercise prices of approximately $1,922 per unit.
For the nine months ended September 30, 1998 and 1999, the charge to operations
related to options granted to outside advisors, exclusive of certain 1996
options described in the previous paragraph, totaled approximately $113,000 and
$2,263,000, respectively. At September 30, 1999, unrecognized expense for
F-22
<PAGE> 88
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options granted to outside advisors for which performance has not yet been
completed is approximately $1,756,000; such amount is subject to change each
reporting period based upon changes in the fair value of the Company's members'
equity units, estimated volatility and the risk free interest rate until the
outside advisor completes his or her performance under the option agreement.
(D) COMMITMENTS
On June 21, 1999, Antigenics entered into another agreement with M.D. Anderson
to conduct clinical studies. The Company is required to pay M.D. Anderson a
total of approximately $277,000 for the clinical study of approximately 40
patients and other related costs payable in installments over two years.
Under Antigenics' agreement with Sigma-Tau Farmaceutiche Riunite SpA (Sigma-Tau)
to conduct clinical studies in Italy, Sigma-Tau is required to reimburse
Antigenics for all costs incurred in relation to the clinical studies. During
1999, Antigenics incurred approximately $266,000 of costs on behalf of Sigma-
Tau associated with this agreement. This amount is included in other assets in
the accompanying consolidated balance sheet. Amounts received under this
agreement are non-refundable, even if the research effort is unsuccessful. In
addition, Antigenics does not incur any future performance commitments in
relation to the amounts recorded for Sigma-Tau.
(E) RELATED PARTY TRANSACTIONS
In November 1999, the Company signed a long-term lease agreement for its New
York City headquarters with an entity wholly-owned by the Company's chief
executive officer and chairman of the board. The lease expires in December 2006
and requires annual rental payments of approximately $312,000 equal to the
related party's cost.
(F) SUBSEQUENT EVENTS
Private Placement of Members' Equity
In November 1999, the Company raised gross proceeds of approximately $39.2
million from the sale of approximately 16,327 members' equity units through a
private equity placement and incurred approximately $293,000 of private
placement expenses. Each member participating in this private placement received
a warrant to purchase an additional 10% of the units acquired in this offering,
rounded to the nearest whole number, at a price of approximately $2,402 per
unit. The warrants expire September 30, 2002. Each warrant holder has the option
to convert its warrants into warrants to purchase common stock of Antigenics
Inc. on a cashless basis upon the completion of an initial public offering (IPO)
of the Company's equity, the amount of which is effected by the offering price
of stock. Each member participating in this private placement also received
registration rights in the event of an IPO.
Initial Public Offering
In November 1999, the Company created a subsidiary, Antigenics Inc. in
contemplation of the Company's IPO. The board of directors of Antigenics Inc.
authorized the filing of a registration statement with the Securities and
Exchange Commission (SEC) to sell shares of its common stock in connection with
the proposed IPO. Concurrently with the completion of the IPO, the Company will
be converted from a limited liability company to a corporation through a merger
with and into Antigenics Inc. All members will exchange their respective member
interests for shares of common stock in Antigenics Inc. based on an assumed
exchange ratio of 172.0336 shares of common stock for each members' equity unit.
If the IPO is not completed, the conversion to the corporation will not take
place.
F-23
<PAGE> 89
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Adoption of Employee Stock Purchase Plan
In connection with the proposed IPO, the board of directors of Antigenics Inc.
approved an employee stock purchase plan. Under the plan, employees may purchase
shares of common stock at a discount from fair market value. There are 300,000
shares of common stock reserved for issuance under the purchase plan. The
purchase plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
Rights to purchase common stock under the purchase plan are granted at the
discretion of the compensation committee, which determines the frequency and
duration of individual offerings under the plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
common stock in an offering will not be less than 85% of the lesser of its fair
market value at the beginning of the offering period or on the applicable
exercise date and may be paid through payroll deductions, periodic lump sum
payments or a combination of both. The plan terminates on November 15, 2009.
Adoption of Equity Incentive Plan
In connection with the proposed IPO, the board of directors of Antigenics Inc.
approved an employee equity incentive plan. Antigenics' equity incentive plan
authorizes the grant of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock
options for the purchase of an aggregate of 4,800,000 shares (subject to
adjustment for stock splits and similar capital changes) of common stock to
Antigenics' employees and, in the case of non-qualified stock options, to
consultants and directors of Antigenics Inc. or any affiliate, as defined in the
equity plan. The board of directors has appointed the compensation committee to
administer the equity plan. Members' equity options outstanding under the
Company's current equity-based incentive compensation plan will be exchanged for
stock options under the new equity incentive plan at the closing of the IPO.
Accelerated Vesting of Outside Advisor Options
In December 1999, the board of managers accelerated the remaining vesting
requirements on 1,562 members' equity options granted to outside advisors. As a
result, the Company recognized a charge to operations in the fourth quarter of
1999 of approximately $2,093,000.
(G) PRO FORMA INCOME TAX PROVISION
The Company is not subject to income taxes and therefore does not provide for
income taxes in its consolidated financial statements. Had the Company been
organized as a tax paying entity for the nine-month period ended September 30,
1999, there would be no pro forma income tax provision because of a loss before
income taxes and the need to recognize a valuation allowance on all gross
deferred tax assets. Given the Company's past history of incurring operating
losses, management believes that it is more likely than not that any deferred
tax assets will not be realized.
F-24
<PAGE> 90
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 91
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 92
3,000,000 SHARES
ANTIGENICS INC.
COMMON STOCK
[ANTIGENICS INC. LOGO]
-------------------------------
PROSPECTUS
-------------------------------
Until 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
ROBERTSON STEPHENS
, 2000
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of common stock being registered. All amounts are estimates except the
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
Registration fee............................................ $ 14,573
NASD filing fee............................................. 6,200
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving...................................... 150,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 250,000
Transfer Agent fees......................................... 3,500
Miscellaneous............................................... 30,727
--------
Total............................................. $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation or is or was
serving at the corporation's request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
the action, suit or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the corporation as
well, but only to the extent of expenses, including attorneys' fees but
excluding judgments, fines and amounts paid in settlement, actually and
reasonably incurred by the person in connection with the defense or settlement
of the action or suit. And with the further limitation that in these actions no
indemnification shall be made in the event of any adjudication of negligence or
misconduct in the performance of his duties to the corporation, unless a court
believes that in light of all the circumstances indemnification should apply.
Article V of Antigenics' By-laws provides that Antigenics shall, to the extent
legally permitted, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was, or has agreed to become, a
director or officer of Antigenics, or is or was serving, or has agreed to serve,
at the request of Antigenics, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprises. The indemnification provided for in Article V is expressly
not exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons.
Section 145(g) of the Delaware General Corporation Law and Article V of By-laws
of Antigenics provide that the company shall have the power to purchase and
maintain insurance on behalf of its officers, directors, employees and agents,
against any liability asserted against and incurred by such persons in any such
capacity.
II-1
<PAGE> 94
Antigenics has entered into indemnification agreements with each of its
directors and executive officers and has obtained insurance covering its
directors and officers against losses and insuring Antigenics against certain of
its obligations to indemnify its directors and officers.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provisions shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Section 7 of Article FIFTH of
the Certificate of Incorporation of Antigenics eliminates a director's personal
liability for monetary damages to Antigenics and its shareholders for breach of
fiduciary duty as a director, except in circumstances involving a breach of the
director's duty of loyalty to Antigenics or its shareholders, acts or omissions
not in good faith, intentional misconduct, knowing violations of the law,
self-dealing or the unlawful payment of dividends or repurchase of stock.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have sold and issued the following securities in the previous three years.
In 1996, we completed a private placement offering of equity interests in
Antigenics L.L.C. equal to 10.6% of the total post-offering equity interests in
the L.L.C. for an aggregate sale price of $10,600,000.
In January 1999, we completed a private placement offering of equity interests
in Antigenics L.L.C. equal to 13.8% of the total post-offering equity interests
in the L.L.C. for an aggregate sales price of $27,572,000.
In November 1999, we completed a private placement offering of (i) equity
interests in Antigenics L.L.C. equal to 13.56% of the total post-offering equity
interests in the L.L.C. and (ii) warrants to purchase equity interests in the
L.L.C. equal to 1.36% of the total post-offering equity interests in the L.L.C.
The equity interests and warrants were sold for an aggregate of approximately
$39,200,000.
All of the above sales of L.L.C. equity interests were made in reliance on the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended, as transactions not involving a public offering.
The registrant has from time to time granted options to purchase equity
interests in Antigenics L.L.C. As of December 31, 1999, following the company's
reorganization into a corporation, the registrant will have options with a
weighted average exercise price of $5.83 per share that are, in the aggregate,
exercisable for 7.6% of the total common stock of the registrant, assuming all
of these options are exercised. The options were issued in reliance upon
exemptions from registration pursuant to either Section 4(2) of the Securities
Act of 1933, as amended, or Rule 701 promulgated under the Securities Act of
1933, as amended.
Concurrently with the closing of this offering, the registrant will merge with
Antigenics, L.L.C. Members of the L.L.C. will receive shares of the registrant's
common stock in exchange for their equity interests at a rate of 172.0336 shares
per percentage equity interest, for an aggregate of approximately 20,714,286
shares of common stock. The issuance of the registrant's common stock upon
contribution of the equity interests in the L.L.C. will be made in reliance on
the exemption from registration under Section 4(2) of the Securities Act of 1933
and Rule 506 thereunder as a transaction not involving a public offering.
The registrant retained two placement agents in connection with the November
1999 private placement who received aggregate compensation of $217,769 in cash
and $76,298 in members' equity for their
II-2
<PAGE> 95
services. There were no underwriters employed in connection with any of the
other transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See the Exhibit Index, which is incorporated herein by reference.
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to 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.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Woburn,
Commonwealth of Massachusetts, as of January 10, 2000.
ANTIGENICS INC.
By: /s/ GARO ARMEN
------------------------------------
Garo H. Armen
Chief Executive Officer and
Chairman of
the Board of Directors
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Chief Executive Officer and January 10, 2000
- --------------------------------------------------- Chairman of the Board of
Garo Armen, Ph.D. Directors (Principal
Executive Officer and
Principal Financial and
Accounting Officer)
* Director January 10, 2000
- ---------------------------------------------------
Pramod Srivastava, Ph.D.
* Director January 10, 2000
- ---------------------------------------------------
Noubar Afeyan, Ph.D.
* Director January 10, 2000
- ---------------------------------------------------
Edward Brodsky
* Director January 10, 2000
- ---------------------------------------------------
Gamil de Chadarevian
* Director January 10, 2000
- ---------------------------------------------------
Tom Dechaene
* Director January 10, 2000
- ---------------------------------------------------
Donald Panoz
* Director January 10, 2000
- ---------------------------------------------------
Martin Taylor
*By: /s/ GARO ARMEN
- ---------------------------------------------------
As Attorney-in-Fact
</TABLE>
II-4
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement. Filed herewith.
3.1 Certificate of Incorporation of Antigenics Inc. Previously
filed.
3.2 By-laws of Antigenics Inc. Previously filed.
4.1 Form of Common Stock Certificate. Previously filed.
4.2 Form of Warrant to purchase Common Stock, together with a
list of holders. To be filed by amendment.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
10.1* 1999 Equity Incentive Plan. Filed herewith.
10.2* 1999 Employee Stock Purchase Plan. Previously filed.
10.3 Founding Scientist's Agreement between Antigenics and Pramod
K. Srivastava dated March 28, 1995. Previously filed.
10.4 Form of Indemnification Agreement between Antigenics and its
directors and executive officers. These agreements are
materially different only as to the signatories and the
dates of execution. Previously filed.
10.5 Lease Agreement between Antigenics and Cummings Property
Management, Inc. dated May 28, 1998, as amended on December
10, 1998. Previously filed.
10.6 License Agreement between GHA Management Corporation and
Antigenics dated November 12, 1999. Previously filed.
10.7 Master Loan and Security Agreement between Antigenics and
Finova Technology Finance, Inc. dated November 19, 1998.
(Schedules to be filed by amendment.)
10.8 Patent License Agreement between Antigenics and Mount Sinai
School of Medicine dated November 1, 1994, as amended on
June 5, 1995. Previously filed.(2)
10.9 Sponsored Research and Technology License Agreement between
Antigenics and Fordham University dated March 28, 1995, as
amended on March 22, 1996. Previously filed.(2)
10.10 Research Agreement between Antigenics and The University of
Connecticut Health Center dated February 18, 1998.
Previously filed.(2)
10.11 License Agreement between Antigenics and Duke University
dated March 4, 1999. Previously filed.(2)
10.12 License Agreement between Antigenics and University of Miami
dated April 12, 1999. Previously filed.(2)
10.13 Letter Agreement between Antigenics and Sigma-Tau Industrie
Farmaceutiche Riunite SpA dated June 3, 1998. Previously
filed.(2)
10.14 Letter Agreement between Antigenics and Medison Pharma Ltd.
dated November 15, 1999. Previously filed.(2)
10.15 Amendment to Letter Agreement between Antigenics and
Sigma-Tau Industrie Farmaceutiche Riunite SpA dated October
20, 1999. Filed herewith.
10.16* Employment Agreement between Antigenics and Elma Hawkins,
Ph.D. dated June 1, 1998. Previously filed.
10.17* Antigenics 401(k) Plan. Filed herewith.
23.1 Consent of KPMG LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed
as Exhibit 5.1.
24.1 Power of Attorney. Included on the signature page of the
initial filing of this Registration Statement.
27.1 Financial Data Schedule (available in EDGAR format only).
Filed herewith.
</TABLE>
- ---------------------------------------------
* Indicates a management contract or compensatory plan.
(1)As proposed to be filed with the Secretary of State of the State of Delaware
concurrently with the closing of the offering.
(2)This Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.
<PAGE> 1
3,000,000 SHARES(1)
ANTIGENICS INC.
COMMON STOCK
PURCHASE AGREEMENT
_____________________, 2000
U.S. BANCORP PIPER JAFFRAY INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o U.S. Bancorp Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Antigenics Inc., a Delaware corporation (the "Company"), proposes to
sell to the several Underwriters named in Schedule I hereto (the "Underwriters")
an aggregate of 3,000,000 shares (the "Firm Shares") of Common Stock, $.01 par
value per share (the "Common Stock"), of the Company. The Firm Shares consist of
3,000,000 authorized but unissued shares of Common Stock to be issued and sold
by the Company. The Company has also granted to the several Underwriters an
option to purchase up to 450,000 additional shares of Common Stock, on the terms
and for the purposes set forth in Section 3 hereof (the "Option Shares"). The
Firm Shares and any Option Shares purchased pursuant to this Purchase Agreement
are herein collectively called the "Securities."
Concurrently with the issuance and sale of the Securities on the First
Closing Date (as defined below), the Company and Antigenics L.L.C. will
consummate a merger whereby Antigenics L.L.C. will merge with and into the
Company (the "Merger").
- --------
(1) Plus an option to purchase up to 450,000 additional shares to cover
over-allotments.
<PAGE> 2
The Company and Antigenics L.L.C. hereby confirm their agreement with
respect to the sale of the Securities to the several Underwriters, for whom you
are acting as Representatives (the "Representatives").
1. Registration Statement and Prospectus. A registration statement on
Form S-1 (File No. 333-91747) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations ("Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission; one or more amendments to such registration
statement have also been so prepared and have been, or will be, so filed; and,
if the Company has elected to rely upon Rule 462(b) of the Rules and Regulations
to increase the size of the offering registered under the Act, the Company will
prepare and file with the Commission a registration statement with respect to
such increase pursuant to Rule 462(b). Copies of such registration statement(s)
and amendments and each related preliminary prospectus have been, or in the case
of a registration statement pursuant to Rule 462(b) will be, delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for
2
<PAGE> 3
filing pursuant to such Rule 424(b) (and Rule 434, if applicable) or from and
after the time it is first provided to the Underwriters by the Company for such
use. The term "Preliminary Prospectus" as used herein means the preliminary
prospectus included in Amendment No. 1 to the Registration Statement, as such
prospectus shall have been amended or supplemented prior to the time the
Registration Statement becomes or became effective under the Act and any
prospectus subject to completion as described in Rule 430A or 434 of the Rules
and Regulations.
As part of the offering contemplated by this Agreement, U.S. Bancorp
Piper Jaffray Inc. ("Piper Jaffray") has agreed to reserve out of the Securities
set forth opposite its name on Schedule I to this Agreement, up to 150,000
shares, for sale to the Company's employees, officers and directors and other
parties associated with the Company (collectively, "Participants"), as set forth
in the Prospectus under the heading "Underwriting" (the "Directed Share
Program"). The Securities to be sold by Piper Jaffray pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Piper Jaffray pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the business day on
which this Agreement is executed will be offered to the public by Piper Jaffray
as set forth in the Prospectus.
2. Representations and Warranties of the Company and Antigenics L.L.C.
(a) Each of the Company and Antigenics L.L.C. represents and
warrants to, and agrees with, the several Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each
Preliminary Prospectus, at the time of filing thereof, did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; except that the foregoing shall not apply to statements
in or omissions from any Preliminary Prospectus in reliance upon, and
in conformity with, written information furnished to the Company by
you, or by any Underwriter through you, specifically for use in the
preparation thereof.
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto, including a registration statement
(if any) filed pursuant to Rule 462(b) of the Rules and Regulations
increasing the size of the offering registered under the Act) is or was
declared effective by the Commission, upon the filing or first delivery
to the Underwriters of the Prospectus (or any supplement to the
Prospectus (including any term sheet meeting the requirements of Rule
434 of the Rules and Regulations)) and at the First Closing Date and
Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus (in each case, as so amended and/or
supplemented) conformed or will conform in all material respects to the
requirements of the Act and the Rules and Regulations, (B) the
Registration Statement (as so amended) did not or will not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (C) the Prospectus (as so supplemented) did
not
3
<PAGE> 4
or will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they are or were made, not misleading; except that the foregoing shall
not apply to statements in or omissions from any such document in
reliance upon, and in conformity with, written information furnished to
the Company by you, or by any Underwriter through you, specifically for
use in the preparation thereof. If the Registration Statement has been
declared effective by the Commission, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission.
(iii) The financial statements of Antigenics L.L.C., together
with the notes thereto, set forth in the Registration Statement and
Prospectus comply in all material respects with the requirements of the
Act and fairly present the financial condition of Antigenics L.L.C. as
of the dates indicated and the results of operations and changes in
cash flows for the periods therein specified in conformity with
generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise stated therein);
and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. No other
financial statements or schedules are required to be included in the
Registration Statement or Prospectus. KPMG LLP, which has expressed its
opinion with respect to the financial statements and schedules filed as
a part of the Registration Statement and included in the Registration
Statement and Prospectus, are independent public accountants as
required by the Act and the Rules and Regulations.
(iv) Each of the Company, Antigenics L.L.C. and its subsidiary
has been duly organized and is validly existing as a corporation or
limited liability company, as the case may be, in good standing under
the laws of its jurisdiction of incorporation or organization. Each of
the Company, Antigenics L.L.C. and its subsidiary has full power and
authority to own its properties and conduct its business as currently
being carried on and as described in the Registration Statement and
Prospectus, and is duly qualified to do business as a foreign entity in
good standing in each jurisdiction in which it owns or leases real
property or in which the conduct of its business makes such
qualification necessary and in which the failure to so qualify would
have a material adverse effect upon its business, condition (financial
or otherwise) or properties, taken as a whole. The Company has no
subsidiaries.
(v) Except as contemplated in the Prospectus, subsequent to
the respective dates as of which information is given in the
Registration Statement and the Prospectus, none of the Company nor
Antigenics L.L.C. or its subsidiary has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, or declared or paid any dividends or made any
distribution of any kind with respect to its equity capital or capital
stock; and there has not been any change in the equity capital or
capital stock (other than a change in the number of outstanding shares
of Common Stock or members' equity units of Antigenics L.L.C. due to
the issuance of shares or units upon the exercise of outstanding
options or warrants), or any material change in the short-term or
long-term debt,
4
<PAGE> 5
or any issuance of options, warrants, convertible securities or other
rights to purchase the equity capital or capital stock, of the Company,
Antigenics L.L.C. or its subsidiary, or any material adverse change, or
any development involving a prospective material adverse change, in the
general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of
the Company or Antigenics L.L.C. and its subsidiary, taken as a whole.
(vi) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company or Antigenics L.L.C.,
threatened or contemplated, any action, suit or proceeding to which the
Company, Antigenics L.L.C. or its subsidiary is a party before or by
any court or governmental agency, authority or body, or any arbitrator,
which might result in any material adverse change in the condition
(financial or otherwise), business, prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole.
(vii) There are no contracts or documents of the Company,
Antigenics L.L.C. or its subsidiary that are required to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations that have not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by each of the Company and Antigenics L.L.C., and constitutes
a valid, legal and binding obligation of the Company and Antigenics
L.L.C., enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any agreement or instrument to
which the Company or Antigenics L.L.C. is a party or by which either of
them is bound or to which any of their respective property is subject,
the Company's or Antigenics L.L.C.'s charter or by-laws or similar
organizational documents, or any order, rule, regulation or decree of
any court or governmental agency or body having jurisdiction over the
Company or Antigenics L.L.C. or any of their respective properties; no
consent, approval, authorization or order of, or filing with, any court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement or for the consummation of the
transactions contemplated hereby, including the Merger and the issuance
or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws and, with
respect to the Merger, the filings contemplated by the Merger
Agreement, which filings will be made on or prior to the First Closing
Date; and each of the Company and Antigenics L.L.C. has full power and
authority to enter into this Agreement and the Company has full power
and authority to authorize, issue and sell the Securities as
contemplated by this Agreement.
5
<PAGE> 6
(ix) All of the issued and outstanding shares of capital stock
of the Company, including the outstanding shares of Common Stock, are
duly authorized and validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and the holders
thereof are not subject to personal liability by reason of being such
holders; the Securities which may be sold hereunder by the Company have
been duly authorized and, when issued, delivered and paid for in
accordance with the terms hereof, will have been validly issued and
will be fully paid and nonassessable, and the holders thereof will not
be subject to personal liability by reason of being such holders; and
the capital stock of the Company, including the Common Stock, conforms
to the description thereof in the Registration Statement and
Prospectus. Except as otherwise stated in the Registration Statement
and Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's
charter, by-laws or any agreement or other instrument to which the
Company is a party or by which the Company is bound. Except as
described in the Registration Statement and the Prospectus, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights
for or relating to the registration of any shares of Common Stock or
other securities of the Company. All of the issued and outstanding
shares of capital stock of Antigenics L.L.C.'s subsidiary have been
duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise described in the Registration
Statement and Prospectus and except for any directors' qualifying
shares, Antigenics L.L.C. owns of record and beneficially, free and
clear of any security interests, claims, liens, proxies, equities or
other encumbrances, all of the issued and outstanding shares of such
stock. Except as described in the Registration Statement and the
Prospectus, there are no options, warrants, agreements, contracts or
other rights in existence to purchase or acquire from the Company,
Antigenics L.L.C. or its subsidiary any shares of the capital stock or
equity interests in the Company, Antigenics L.L.C. or its subsidiary.
The Company has an authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus.
(x) As of the date hereof, in the case of Antigenics L.L.C.
and its subsidiary, and as of the date hereof and after giving effect
to the Merger, in the case of the Company, (a) the Company, Antigenics
L.L.C. and its subsidiary hold, and are operating in compliance in all
material respects with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders of any
governmental or self-regulatory body required for the conduct of their
business and all such franchises, grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid and
in full force and effect and (b) the Company, Antigenics L.L.C. and its
subsidiary are in compliance in all material respects with all
applicable federal, state, local and foreign laws, regulations, orders
and decrees.
(xi) As of the date hereof, in the case of Antigenics L.L.C.
and its subsidiary, and as of the date hereof and after giving effect
to the Merger, in the case of the Company, the
6
<PAGE> 7
Company and its subsidiaries have good and marketable title to all
property described in the Registration Statement and Prospectus as
being owned by them, in each case free and clear of all liens, claims,
security interests or other encumbrances except such as are described
in the Registration Statement and the Prospectus; the property held
under lease by the Company, Antigenics L.L.C. and its subsidiary is
held by them under valid, subsisting and enforceable leases with only
such exceptions with respect to any particular lease as do not
interfere in any material respect with the conduct of the business of
the Company, Antigenics L.L.C. or its subsidiary.
(xii) Except as described in the Registration Statement and
Prospectus, as of the date hereof, in the case of Antigenics L.L.C. and
its subsidiary, and as of the date hereof and after giving effect to
the Merger, in the case of the Company, the Company, Antigenics L.L.C.
and its subsidiary own or possess all patents, patent applications,
trademarks, service marks, tradenames, trademark registrations, service
mark registrations, copyrights, licenses, inventions, trade secrets and
rights necessary for the conduct of the business of the Company,
Antigenics L.L.C. and its subsidiary as currently carried on by
Antigenics L.L.C. and as described in the Registration Statement and
Prospectus; except as stated in the Registration Statement and
Prospectus, no name which the Company, Antigenics L.L.C. or its
subsidiary uses and, to the best knowledge of the Company and
Antigencis L.L.C., no other aspect of the business of the Company,
Antigenics L.L.C. or its subsidiary will involve or give rise to any
infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of others material to
the business or prospects of the Company or Antigenics L.L.C., and none
of the Company, Antigenics L.L.C. or its subsidiary has received any
notice alleging any such infringement or fee.
(xiii) None of the Company, Antigenics L.L.C. or its subsidiary is in
violation of its respective charter or by-laws or similar
organizational documents or in breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement or
any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company, Antigenics L.L.C. or its
subsidiary is subject.
(xiv) The Company, Antigenics L.L.C. and its subsidiary have
filed all federal, state, local and foreign income and franchise tax
returns required to be filed prior to the date hereof and are not in
default in the payment of any taxes which were payable pursuant to said
returns or any assessments with respect thereto, other than any which
the Company, Antigenics L.L.C. or its subsidiary is contesting in good
faith.
(xv) Neither the Company nor Antigenics L.L.C. has distributed
nor will they distribute any prospectus or other offering material in
connection with the offering and sale
7
<PAGE> 8
of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by
the Company or Antigenics L.L.C.
(xvi) On the date the Registration Statement became or becomes
effective, the Company's Registration Statement on Form 8-A or other
applicable form under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), became or will become effective.
(xvii) Other than Adjucine Therapeutics, Inc., a wholly owned
subsidiary of Antigenics L.L.C., neither Antigenics L.L.C. nor the
Company owns any capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association,
trust or other entity.
(xviii) Each of the Company and Antigenics L.L.C. maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xix) Other than as contemplated by this Agreement, neither
the Company nor Antigenics L.L.C. has incurred any liability for any
finder's or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xx) Neither Antigenics L.L.C. nor the Company is and, after
giving effect to the offering and sale of the Securities and the
application of the proceeds thereof as described in the Registration
Statement and the Prospectus, the Company will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(xxi) No material labor dispute with the employees of the
Company, Antigenics L.L.C. or its subsidiary exists, except as
described in the Registration Statement and the Prospectus, or, to the
knowledge of the Company or Antigenics L.L.C., is imminent; and neither
the Company nor Antigenics L.L.C. is aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could have a material
adverse effect on the Company or on Antigenics L.L.C. and its
subsidiary, taken as a whole.
(xxii) The Company, Antigenics L.L.C. and its subsidiary are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the businesses in which they are engaged; none of the
8
<PAGE> 9
Company, Antigenics L.L.C. or its subsidiary has been refused any
insurance coverage sought or applied for; and none of the Company,
Antigenics L.L.C. or its subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company or on
Antigenics L.L.C. and its subsidiary, taken as a whole, except as
described in the Prospectus.
(xxiii) Neither the Company nor Antigenics L.L.C. has offered,
or caused the Underwriters to offer, Securities to any person pursuant
to the Directed Share Program with the specific intent to unlawfully
influence (A) a customer or supplier of the Company or Antigenics
L.L.C. to alter the customer's or supplier's level or type of business
with the Company or Antigenics L.L.C., or (B) a trade journalist or
publication to write or publish favorable information about the Company
or Antigenics L.L.C. or their products.
(xxiv) (i) The Registration Statement, the Prospectus and any
Preliminary Prospectus comply in all material respects, and any further
amendments or supplements thereto will comply in all material respects,
with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any Preliminary Prospectus, as amended or
supplemented, if applicable, are distributed in connection with the
Directed Share Program, and (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any
government, governmental instrumentality or court, other than such as
have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(xxv) As of the date hereof, in the case of Antigenics L.L.C.
and its subsidiary, and as of the date hereof and after giving effect
to the Merger, in the case of the Company, the Company, Antigenics
L.L.C. and its subsidiary (A) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (B) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance with all
terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would
not, singly or in the aggregate, have a material adverse effect on the
Company or on Antigenics L.L.C. and its subsidiary, taken as a whole.
(xxvi) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
medical wastes, toxic wastes, hazardous wastes or hazardous substances
by the Company, Antigenics L.L.C. or its subsidiary (or, to the
knowledge of the Company and Antigenics L.L.C., any of their
predecessors in interest) at,
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upon or from any of the property now or previously owned or leased by
the Company, Antigenics L.L.C. or its subsidiary in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or could not
be reasonably likely to have, singularly or in the aggregate with all
such violations and remedial actions a material adverse effect on the
Company or on Antigenics L.L.C. and its subsidiary, taken as a whole;
there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or of any
medical wastes, toxic wastes, hazardous wastes or hazardous substances
due to or caused by the Company, Antigenics L.L.C. or its subsidiary or
with respect to which the Company, Antigenics L.L.C. or its subsidiary
had knowledge, except for any such spill, discharge, leak, emission,
injection, escapes, dumpings or releases which would not have or would
not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings or releases, a material adverse effect on the Company or on
Antigenics L.L.C. and its subsidiary, taken as a whole; and the terms
"hazardous substances," "toxic wastes," "hazardous wastes" and "medical
wastes" shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to
environmental protection.
(xxvii) The Merger Agreement dated as of __________, 2000,
between the Company and Antigenics L.L.C. has been duly authorized,
executed and delivered by each of the Company and Antigenics L.L.C. and
constitutes a legal, valid and binding obligation of each of the
Company and Antigenics L.L.C. enforceable in accordance with its terms
(except as such enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the rights of creditors generally and subject
to general principles of equity). All conditions to the consummation of
the Merger other than the issuance and sale of the Securities on the
First Closing Date have been either satisfied or validly waived on or
prior to the date hereof.
(b) Any certificate signed by any officer of the Company or
Antigenics L.L.C. and delivered to you or to counsel for the Underwriters shall
be deemed a representation and warranty by the Company or Antigenics L.L.C. to
each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell 3,000,000 Firm Shares to the several
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The purchase price for each Firm Share
shall be $ per share. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraph (c) of this Section 3
and in Section 8 hereof, the agreement of each Underwriter is to purchase only
the respective number of Firm Shares specified in Schedule I.
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<PAGE> 11
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by same day funds payable to the order of the Company at the offices of
U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable, at
9:00 a.m. Central time on the third (or if the Securities are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern
time, the fourth) full business day following the date hereof, or at such other
time and date as you and the Company determine pursuant to Rule 15c6-1(a) under
the Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company, will be made available for checking and packaging
not later than 10:30 a.m., Central time, on the business day next preceding the
First Closing Date at the offices of U.S. Bancorp Piper Jaffray, Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as
may be mutually acceptable.
(b) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters an option to
purchase all or any portion of the Option Shares at the same purchase price as
the Firm Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the effective date of this Agreement upon notice (confirmed in writing) by
the Representatives to the Company setting forth the aggregate number of Option
Shares as to which the several Underwriters are exercising the option, the names
and denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option Shares
are to be delivered, such time and date being herein referred to as the "Second
Closing" and "Second Closing Date," respectively; provided, however, that the
Second Closing Date shall not be earlier than the First Closing Date nor earlier
than the second business day after the date on which the option shall have been
exercised. The number of Option Shares to be purchased by each Underwriter shall
be the same percentage of the total number of Option Shares to be purchased by
the several Underwriters as the number of Firm Shares to be purchased by such
Underwriter is of the total number of Firm Shares to be purchased by the several
Underwriters, as adjusted by the Representatives in such manner as the
Representatives deem advisable to avoid fractional shares. No Option Shares
shall be sold and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The Option Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by same day funds payable to the order of the Company at the offices of
U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable at
9:00 a.m., Central time, on the Second Closing Date. If the Representatives so
elect, delivery of the Option
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<PAGE> 12
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Option Shares in definitive form and in such denominations and
registered in such names as you have set forth in your notice of option
exercise, will be made available for checking and packaging not later than 10:30
a.m., Central time, on the business day next preceding the Second Closing Date
at the office of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South
Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually
acceptable.
(c) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter for the Securities to
be purchased by such Underwriter. Any such payment by you shall not relieve any
such Underwriter of any of its obligations hereunder. Nothing herein contained
shall constitute any of the Underwriters an unincorporated association or
partner with the Company.
4. Covenants.
(a) The Company and Antigenics L.L.C. covenant and agree with
the several Underwriters as follows:
(i) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best
efforts to cause the Registration Statement and any post-effective
amendments thereto to become effective as promptly as possible; the
Company will notify you promptly of the time when the Registration
Statement or any post-effective amendment to the Registration Statement
has become effective or any supplement to the Prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations)
has been filed and of any request by the Commission for any amendment
or supplement to the Registration Statement or Prospectus or additional
information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will prepare and file a Prospectus
(or term sheet within the meaning of Rule 434 of the Rules and
Regulations) containing the information omitted therefrom pursuant to
Rule 430A of the Rules and Regulations with the Commission within the
time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable, of the Rules
and Regulations; if the Company has elected to rely upon Rule 462(b) of
the Rules and Regulations to increase the size of the offering
registered under the Act, the Company will prepare and file a
registration statement with respect to such increase with the
Commission within the time period required by, and otherwise in
accordance with the provisions of, Rule 462(b); the Company will
prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus
(including any term sheet within the meaning of Rule 434 of the Rules
and Regulations) that, in your reasonable opinion, may be necessary or
advisable in connection with the distribution of the Securities by the
Underwriters; and the Company will not file any amendment or supplement
to the Registration Statement or
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<PAGE> 13
Prospectus (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations) to which you shall reasonably object by
notice to the Company after having been furnished a copy a reasonable
time prior to the filing.
(ii) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceeding for any such purpose; and
the Company will promptly use its best efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such a stop order
should be issued.
(iii) Within the time during which a prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations)
relating to the Securities is required to be delivered under the Act,
the Company will comply as far as it is able with all requirements
imposed upon it by the Act, as now and hereafter amended, and by the
Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the
Securities as contemplated by the provisions hereof and the Prospectus.
If during such period any event occurs as a result of which the
Prospectus would include an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in
the light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend the Registration Statement
or supplement the Prospectus to comply with the Act, the Company will
promptly notify you and will amend the Registration Statement or
supplement the Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.
(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as
you reasonably designate and to continue such qualifications in effect
so long as required for the distribution of the Securities, except that
the Company shall not be required in connection therewith to qualify as
a foreign corporation or to execute a general consent to service of
process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (two of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements (including any term sheet within the meaning
of Rule 434 of the Rules and Regulations) to such documents, in each
case as soon as available and in such quantities as you may from time
to time reasonably request.
(vi) During a period of five years commencing with the date
hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and
special reports furnished to the stockholders of the Company and
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<PAGE> 14
all information, documents and reports filed with the Commission, the
National Association of Securities Dealers, Inc., NASDAQ or any
securities exchange.
(vii) The Company will make generally available to its
security holders as soon as practicable, but in any event not later
than 15 months after the end of the Company's current fiscal quarter,
an earnings statement (which need not be audited) covering a 12-month
period beginning after the effective date of the Registration Statement
that shall satisfy the provisions of Section 11(a) of the Act and Rule
158 of the Rules and Regulations.
(viii) The Company and Antigenics L.L.C., whether or not the
transactions contemplated hereunder are consummated or this Agreement
is prevented from becoming effective under the provisions of Section
9(a) hereof or is terminated, will pay or cause to be paid (A) all
expenses (including transfer taxes allocated to the respective
transferees) incurred in connection with the delivery to the
Underwriters of the Securities, (B) all expenses and fees (including,
without limitation, fees and expenses of the Company's accountants and
counsel but, except as otherwise provided below, not including fees of
the Underwriters' counsel) in connection with the preparation,
printing, filing, delivery, and shipping of the Registration Statement
(including the financial statements therein and all amendments,
schedules, and exhibits thereto), the Securities, each Preliminary
Prospectus, the Prospectus, and any amendment thereof or supplement
thereto, and the printing, delivery, and shipping of this Agreement and
other underwriting documents, (C) all filing fees and fees and
disbursements of the Underwriters' counsel incurred in connection with
the qualification of the Securities for offering and sale by the
Underwriters or by dealers under the securities or blue sky laws of the
states and other jurisdictions which you shall designate in accordance
with Section 4(a)(iv) hereof, (D) the fees and expenses of any transfer
agent or registrar, (E) the filing fees and other fees and expenses
(including, without limitation, the reasonable fees and disbursements
of the Underwriters' counsel) incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the
sale of the Securities, (F) listing fees, if any, (G) all fees and
disbursements of special or local counsel incurred by the Underwriters
in connection with the Directed Share Program and stamp duties, similar
taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program and (H) all other costs and
expenses incident to the performance of their obligations hereunder
that are not otherwise specifically provided for herein. If the sale of
the Securities provided for herein is not consummated by reason of
action by the Company pursuant to Section 9(a) hereof which prevents
this Agreement from becoming effective, or by reason of any failure,
refusal or inability on the part of the Company or Antigenics L.L.C. to
perform any agreement on their part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to
be fulfilled by the Company is not fulfilled, the Company and
Antigenics L.L.C. will reimburse the several Underwriters for all
reasonable out-of-pocket disbursements (including fees and
disbursements of counsel) incurred by the Underwriters in connection
with their investigation, preparing to market and marketing the
Securities or in contemplation of performing their obligations
hereunder. Neither the Company nor Antigenics L.L.C. shall
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<PAGE> 15
in any event be liable to any of the Underwriters for loss of
anticipated profits from the transactions covered by this Agreement.
(ix) The Company will apply the net proceeds from the sale of
the Securities to be sold by it hereunder for the purposes set forth in
the Prospectus and will file such reports or provide such information
to the Commission with respect to the sale of the Securities and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 of the Rules and Regulations.
(x) Neither the Company nor Antigenics L.L.C. will, without
your prior written consent, offer for sale, sell, contract to sell,
grant any option for the sale of or otherwise issue or dispose of any
Common Stock or any securities convertible into (as a result of the
Merger or otherwise) or exchangeable for, or any options or rights to
purchase or acquire, Common Stock, except (i) for the sale by the
Company of the Securities to the Underwriters pursuant to this
Agreement, (ii) for the issuance by the Company of shares of Common
Stock pursuant to the Merger Agreement, (iii) for the issuance by the
Company of shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing, (iv) for the
grant by the Company of any option or right to purchase up to an
aggregate of [ ] shares of Common Stock pursuant to the Company's 1999
Equity Incentive Plan or 1999 Employee Stock Purchase Plan, each as in
effect on the date of this Agreement; provided that no such options or
rights shall be exercisable prior to the expiration of the 365-day
period referred to in this Section, and (v) for the issuance by the
Company of shares of Common Stock in connection with a merger with or
acquisition of a corporation or entity that is not an affiliate of the
Company or an acquisition of the assets or property of a corporation or
entity that is not an affiliate of the Company, for a period of 365
days after the commencement of the public offering of the Securities by
the Underwriters.
(xi) The Company and Antigenics L.L.C. either have caused to
be delivered to you or will cause to be delivered to you prior to the
effective date of the Registration Statement a letter from each of
Antigenics L.L.C.'s directors and officers and the equityholders listed
on Schedule II, substantially in the form of Exhibit A hereto, stating
that such person agrees that he or she will not, without your prior
written consent, offer for sale, sell, contract to sell or otherwise
dispose of any shares of Common Stock, equity interests in Antigenics
L.L.C. or rights to purchase Common Stock or equity interests in
Antigenics L.L.C. for a period of 365 days after commencement of the
public offering of the Securities by the Underwriters.
(xii) Neither the Company nor Antigenics L.L.C. has taken nor
will take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in, or which has
constituted, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities, and has not effected any sales of equity interests or
Common Stock which are required to be disclosed in response to
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<PAGE> 16
Item 701 of Regulation S-K under the Act which have not been so
disclosed in the Registration Statement.
(xiii) Neither the Company nor Antigenics L.L.C. will incur
any liability for any finder's or broker's fee or agent's commission in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(xiv) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the
extent required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration Statement.
Piper Jaffray will notify the Company as to which Participants will
need to be so restricted. The Company will direct the transfer agent to
place stop transfer restrictions upon such securities for such period
of time.
(xv) To comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed
Share Program.
5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company and Antigenics L.L.C. contained herein,
to the performance by the Company and Antigenics L.L.C. of their respective
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., Central time (and any registration statement pursuant to
Rule 462(b) shall have become effective not later than 10 p.m., Central time),
on the date of this Agreement, or such later time and date as you, as
Representatives of the several Underwriters, shall approve and all filings
required by Rules 424, 430A and 434 of the Rules and Regulations shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement or any amendment thereof shall have been issued; no proceedings for
the issuance of such an order shall have been initiated or threatened; and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact which, in your reasonable
opinion, is material, or omits to state a fact which, in your reasonable
opinion, is material and is required to be stated therein or necessary to make
the statements therein not misleading.
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<PAGE> 17
(c) Except as contemplated in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, none of the Company, Antigenics L.L.C. or its
subsidiary shall have incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions, or declared or paid
any dividends or made any distribution of any kind with respect to its capital
stock; and there shall not have been any change in the equity capital or capital
stock (other than a change in the number of outstanding shares of Common Stock
or members' equity units of Antigenics L.L.C. due to the issuance of shares or
units upon the exercise of outstanding options or warrants), or any material
change in the short-term or long-term debt of the Company or Antigenics L.L.C.,
or any issuance of options, warrants, convertible securities or other rights to
purchase the equity capital or capital stock of the Company, Antigenics L.L.C.
or its subsidiary, or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the ordinary
course of business), in the general affairs, condition (financial or otherwise),
business, key personnel, property, prospects, net worth or results of operations
of the Company or Antigenics L.L.C. and its subsidiary, taken as a whole, that,
in your judgment, makes it impractical or inadvisable to offer or deliver the
Securities on the terms and in the manner contemplated in the Prospectus.
(d) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of Palmer &
Dodge LLP, counsel for the Company, dated such Closing Date and addressed to
you, to the effect that:
(i) Each of the Company, Antigenics L.L.C. and its subsidiary
has been duly organized and is validly existing as a corporation or
limited liability company, as the case may be, in good standing under
the laws of its jurisdiction of incorporation or organization. Each of
the Company, Antigenics L.L.C. and its subsidiary has full corporate
power and authority to own its properties and conduct its business as
currently being carried on and as described in the Registration
Statement and Prospectus, and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to
so qualify would have a material adverse effect upon the business,
condition (financial or otherwise) or properties of the Company or
Antigenics L.L.C. and its subsidiary, taken as a whole.
(ii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock." All of the issued and
outstanding shares of the capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and
the holders thereof are not subject to personal liability by reason of
being such holders. The Securities to be issued and sold by the Company
hereunder have been duly authorized and, when issued, delivered and
paid for in accordance with the terms of this Agreement, will have been
validly issued and will be fully paid and nonassessable, and the
holders thereof will not be subject to personal liability by reason of
being such holders. Except as otherwise stated in the Registration
Statement and Prospectus, there are no preemptive rights or other
rights to
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<PAGE> 18
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's
charter, by-laws or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company is
bound. Except as described in the Registration Statement and the
Prospectus, to the best of such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights
for or relating to the registration of any shares of Common Stock or
other securities of the Company.
(iii) The Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or, to
the knowledge of such counsel, threatened by the Commission.
(iv) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings, contracts
and other documents are accurate and fairly present the information
required to be shown in all material respects; and such counsel does
not know of any statutes or legal or governmental proceedings required
to be described in the Prospectus that are not described as required in
all material respects, or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus or
included as exhibits to the Registration Statement that are not
described or included as required.
(v) Each of the Company and Antigenics L.L.C. has full
corporate power and authority to enter into this Agreement, and this
Agreement has been duly authorized, executed and delivered by each of
the Company and Antigenics L.L.C. and constitutes a valid, legal and
binding obligation of the Company and Antigenics L.L.C. enforceable in
accordance with its terms (except as rights to indemnity hereunder may
be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting the rights of creditors generally and subject
to general principles of equity); the execution, delivery and
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any
statute, rule or regulation, any agreement or instrument known to such
counsel to which the Company or Antigenics L.L.C. is a party or by
which either of them is bound or to which any of their respective
property is subject, the Company's or Antigenics L.L.C.'s charter or
by-laws or similar organizational documents, or any order or decree
known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or Antigenics L.L.C. or any of
their respective properties; and no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
or for the consummation of the transactions contemplated hereby,
including the issuance or sale of the
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<PAGE> 19
Securities by the Company, except such as may be required under the Act
or state securities laws.
(vi) To the best of such counsel's knowledge, none the
Company, Antigenics L.L.C. or its subsidiary is in violation of its
respective charter or by-laws or other organizational documents. To the
best of such counsel's knowledge, none of the Company, Antigenics
L.L.C. or its subsidiary is in breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement or
any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company, Antigenics L.L.C. or its
subsidiary is subject.
(vii) Neither Antigenics L.L.C. nor the Company is and, after
giving effect to the offering and sale of the Securities and the
application of the proceeds thereof as described in the Registration
Statement and the Prospectus, the Company will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(viii) The Merger Agreement dated as of __________, 2000,
between the Company and Antigenics L.L.C. has been duly authorized,
executed and delivered by each of the parties thereto and constitutes a
legal valid and binding obligation of each of the parties thereto
enforceable in accordance with its terms (except as such enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
rights of creditors generally and subject to general principles of
equity).
(ix) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), comply as
to form in all material respects with the requirements of the Act and
the Rules and Regulations; and on the basis of conferences with
officers of the Company, examination of documents referred to in the
Registration Statement and Prospectus and such other procedures as such
counsel deemed appropriate, nothing has come to the attention of such
counsel that causes such counsel to believe that the Registration
Statement or any amendment thereof, at the time the Registration
Statement became effective and as of such Closing Date (including any
Registration Statement filed under Rule 462(b) of the Rules and
Regulations), contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus (as of its date and as of such Closing Date), as amended or
supplemented, includes any untrue statement of material fact or omits
to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
it being understood that such counsel need express no opinion as to the
financial statements or other financial data included in any of the
documents mentioned in this clause.
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(x) The offering, sale and delivery of members' equity units
and warrants by Antigenics L.L.C. completed in November 1999 was exempt
from the registration requirements of the Securities Act.
In rendering such opinion such counsel may rely (i) as to matters of
law other than the Delaware General Corporation Law and federal law, upon the
opinion or opinions of local counsel provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such opinion
or opinions of local counsel are satisfactory to them and that they believe they
and you are justified in relying thereon and (ii) as to matters of fact, to the
extent such counsel deems reasonable upon certificates of officers of the
Company, Antigenics L.L.C. and its subsidiary provided that the extent of such
reliance is specified in such opinion.
(e) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of Pennie &
Edmonds, special patent counsel for the Company and Antigenics L.L.C., dated
such Closing Date and addressed to you, to the effect that:
(i) The statements made in the Registration Statement and the
Prospectus under the captions "Risk Factors--Risks Related to Our
Business--If we are unable to protect our proprietary technology, trade
secrets or know-how, we may not be able to operate our business
profitably and "Business--Our Intellectual Property Portfolio"
(collectively, the "Patent Sections") insofar as such statements
constitute a summary of statutes, regulations, rules, legal matters,
documents or proceedings referred to therein, fairly present the
information set forth therein with respect to such statutes,
regulations, rules, legal matters, documents or proceedings.
(ii) Except as described in the Registration Statement and the
Prospectus and except for patent applications pending, there are no
legal or governmental proceedings relating to patent rights of the
Company to which the Company is a party, and to such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or others.
(iii) Except as described in the Registration Statement and
the Prospectus, to the knowledge of such counsel, the Company has not
received any communications in which it is alleged that the Company is
infringing or violating the patents or other intellectual property
rights of third parties.
(iv) Nothing has come to the attention of such counsel that
causes such counsel to believe that the Patent Sections in (A) the
Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date
(including any Registration Statement filed under Rule 462(b) of the
Rules and Regulations), contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
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<PAGE> 21
(B) the Prospectus (as of its date and as of such Closing Date) as
amended or supplemented, included any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of Venable,
Baetjer, Howard & Civiletti, LLP, special regulatory counsel for the Company and
Antigenics L.L.C., dated such Closing Date and addressed to you, to the effect
that:
(i) The statements made in the Registration Statement and the
Prospectus under the captions "Risk Factors--Risks Related to Our
Business--We do not currently generate any revenue, and we cannot
guarantee that we will ever commercialize any of our immunotheraputics
and generate revenue in the future," "-- Delays in obtaining regulatory
approval of our manufacturing facility and disruptions in our
manufacturing process may cause delays in our commercialization
efforts" and "Business--Regulatory Considerations" (collectively, the
"Regulatory Sections") insofar as such statements constitute a summary
of statutes, regulations, rules, legal matters, documents or
proceedings referred to therein, are accurate summaries and fairly
present the information set forth therein with respect to such
statutes, regulations, rules, legal matters, documents or proceedings.
(ii) Nothing has come to the attention of such counsel that
causes such counsel to believe that the Regulatory Sections in (A) the
Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date
(including any Registration Statement filed under Rule 462(b) of the
Rules and Regulations), contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
(B) the Prospectus (as of its date and as of such Closing Date) as
amended or supplemented, included any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, such opinion or opinions
from Shearman & Sterling, counsel for the several Underwriters, dated such
Closing Date and addressed to you, with respect to the due incorporation of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as you reasonably may request, and such
counsel shall have received such papers and information as they request to
enable them to pass upon such matters.
(h) On each Closing Date you, as Representatives of the
several Underwriters, shall have received a letter of KPMG LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under
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<PAGE> 22
Rule 2-01 of Regulation S-X of the Commission, and stating, as of the date of
such letter (or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than three days prior to the date of such
letter), the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
(i) On each Closing Date, there shall have been furnished to
you, as Representatives of the Underwriters, a certificate, dated such Closing
Date and addressed to you, signed by the chief executive officer of each of the
Company and Antigenics L.L.C., to the effect that:
(i) The representations and warranties of the Company and
Antigenics L.L.C. in this Agreement are true and correct, in all
material respects, as if made at and as of such Closing Date, and the
Company and Antigenics L.L.C. have complied with all the agreements and
satisfied all the conditions on their part to be performed or satisfied
at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness
of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued,
and no proceeding for that purpose has been instituted or, to the best
of their knowledge, is contemplated by the Commission or any state or
regulatory body; and
(iii) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations), and (A) such
documents contain all statements and information required to be
included therein, the Registration Statement, or any amendment thereof,
does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as
amended or supplemented, does not include any untrue statement of
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, (B) since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth, (C)
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, none of the Company,
Antigenics L.L.C. or its subsidiary has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or
declared or paid any dividends or made any distribution of any kind
with respect to its equity capital or capital stock, and except as
disclosed in the Prospectus, there has not been any change in the
equity capital or capital stock (other than a change in the number of
outstanding shares of Common Stock or members' equity units of
Antigenics
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<PAGE> 23
L.L.C. due to the issuance of shares or units upon the exercise of
outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the equity capital
or capital stock, of the Company, Antigenics L.L.C. or its subsidiary,
or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the
ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects,
net worth or results of operations of the Company or Antigenics L.L.C.
and its subsidiary, taken as a whole, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to
the knowledge of the Company or Antigenics L.L.C., threatened or
contemplated, any action, suit or proceeding to which the Company,
Antigenics L.L.C. or its subsidiary is a party before or by any court
or governmental agency, authority or body, or any arbitrator, which
might result in any material adverse change in the condition (financial
or otherwise), business, prospects or results of operations of the
Company and its subsidiary, taken as a whole.
(j) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and the directors, officers and the
equityholders of Antigenics L.L.C. listed on Schedule II relating to sales and
certain other dispositions of Common Stock or certain other securities,
delivered to you, shall be in full force and effect.
(k) The Common Stock shall have been approved for listing on
the NASDAQ National Market, subject only to official notice of issuance.
(l) The Merger shall have been consummated.
(m) The Company shall have furnished to you and counsel for
the Underwriters such additional documents, certificates and evidence as you or
they may have reasonably requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and counsel for the Underwriters. The Company will furnish you
with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) Each of the Company and Antigenics L.L.C., jointly and
severally, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company) and Antigenics L.L.C., insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including the information
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<PAGE> 24
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rules 430A and 434(d) of the Rules and Regulations, if applicable,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that neither the Company nor Antigenics
L.L.C. shall be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company and Antigenics L.L.C. by you, or by any
Underwriter through you, specifically for use in the preparation thereof.
Each of the Company and Antigenics L.L.C., jointly and severally,
agrees to indemnify and hold harmless Piper Jaffray against any losses, claims,
damages or liabilities, joint or several, to which Piper Jaffray may become
subject (including in settlement of any litigation if such settlement is
effected with the written consent of the Company and Antigenics L.L.C.), insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapper material
prepared by or with the consent of the Company and Antigenics L.L.C. for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any preliminary prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, when considered in
conjunction with the Prospectus or any applicable preliminary prospectus, not
misleading; (ii) the failure of any Participant to pay for and accept delivery
of the shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase; or (iii)
relating to, arising out of, or in connection with the Directed Share Program,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against such loss,
claim, damage, liability or action; provided, that neither the Company nor
Antigenics L.L.C. shall be responsible under this subparagraph (iii) for any
losses, claim, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Piper Jaffray.
In addition to its other obligations under this Section 6(a) and
subject to Section 6(c) of this Agreement, each of the Company and Antigenics
L.L.C. agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding in respect of which indemnity
may be sought pursuant to this Section 6(a), it will reimburse each Underwriter
on a monthly basis for all reasonable legal fees or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or Antigenics L.L.C.'s obligation to reimburse the Underwriters for such
expenses and
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<PAGE> 25
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriter that
received such payment shall promptly return it to the party that made such
payment, together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by ____________________ (the "Prime
Rate"). Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement shall be
in addition to any liabilities which the Company or Antigenics L.L.C. may
otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company and Antigenics L.L.C. against any losses, claims, damages or liabilities
to which the Company may become subject, under the Act or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company and Antigenics L.L.C. by you, or by such
Underwriter through you, specifically for use in the preparation thereof, and
will reimburse the Company and Antigenics L.L.C. for any legal or other expenses
reasonably incurred by the Company and Antigenics L.L.C. in connection with
investigating or defending against any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall relieve the indemnifying party from any liability that
it may have to any indemnified party only to the extent the indemnifying party
is materially prejudiced as a result of such omission and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this agreement. In case any such action shall be brought against any indemnified
party, and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense
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<PAGE> 26
thereof other than reasonable costs of investigation; provided, however, that
if, due to the fact that named parties to any such proceeding (including any
impleaded parties) include both the indemnifying and indemnified parties, it is
advisable for the Underwriters to be represented as a group by separate counsel
due to actual or potential differing interests between the Underwriters and the
Company and Antigencis L.L.C., the Representatives shall have the right to
employ a single counsel to represent the Representatives and all Underwriters
who may be subject to liability arising from any claim in respect of which
indemnity may be sought by the Underwriters under subsection (a) of this Section
6, in which event the reasonable fees and expenses of such separate counsel
shall be borne by the indemnifying party or parties and reimbursed to the
Underwriters as incurred (in accordance with the provisions of the third
paragraph in subsection (a) above). Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the second paragraph of
Section 6(a) hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for Piper Jaffray for the defense of any
losses, claims, damages and liabilities arising out of the Directed Share
Program, and all persons, if any, who control Piper Jaffray within the meaning
of the Act. An indemnifying party shall not be obligated under any settlement
agreement relating to any action under this Section 6 to which it has not agreed
in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and Antigenics L.L.C. on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and Antigenics L.L.C. on the
one hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and Antigenics L.L.C. on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relevant intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company, Antigenics L.L.C. and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (d)
were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this subsection (d). The amount paid by an indemnified party
as a result of
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<PAGE> 27
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and Antigenics L.L.C. under
this Section 6 shall be in addition to any liability which the Company and
Antigenics L.L.C. may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company and Antigenics L.L.C. (including any person who, with
his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company and
Antigenics L.L.C. within the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company and Antigenics L.L.C.
herein or in certificates delivered pursuant hereto, and the agreements of the
several Underwriters and the Company and Antigenics L.L.C. contained in Section
6 hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company, Antigenics L.L.C. or any of their respective officers,
directors, or controlling persons, and shall survive delivery of, and payment
for, the Securities to and by the Underwriters hereunder.
8. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall fail to take up
and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters
to be purchased hereunder, upon tender of such Firm Shares in accordance with
the terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule I hereto,
the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule I hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
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<PAGE> 28
(b) If any Underwriter or Underwriters shall fail to take up
and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters
to be purchased hereunder, upon tender of such Firm Shares in accordance with
the terms hereof, and the amount of Firm Shares not purchased aggregates more
than 10% of the total amount of Firm Shares set forth in Schedule I hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination neither the Company nor Antigenics L.L.C.
shall be under any liability to any Underwriter (except to the extent provided
in Section 4(a)(viii) and Section 6 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the amount of Firm Shares agreed by
such Underwriter to be purchased hereunder) be under any liability to the
Company or Antigenics L.L.C. (except to the extent provided in Section 6
hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m.,
Central time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(viii) and Section 6 hereof shall at all times be
effective.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the First Closing Date, and the option
referred to in Section 3(b), if exercised, may be cancelled at any time prior to
the Second Closing Date, if (i) either the Company or Antigenics L.L.C. shall
have failed, refused or been unable, at or prior to such Closing Date, to
perform any agreement on its part to be performed hereunder in any material
respect, (ii) any other condition of the Underwriters' obligations hereunder in
any material respect is not fulfilled, (iii) trading on the New York Stock
Exchange, the American Stock
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Exchange or the NASDAQ National Market System shall have been wholly suspended,
(iv) minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required, on the New York Stock
Exchange or the American Stock Exchange, by such Exchange or by order of the
Commission or any other governmental authority having jurisdiction, (v) a
banking moratorium shall have been declared by Federal or New York authorities,
or (vi) there has occurred any material adverse change in the financial markets
in the United States or an outbreak of major hostilities (or an escalation
thereof) in which the United States is involved, a declaration of war by
Congress, any other substantial national or international calamity or any other
event or occurrence of a similar character shall have occurred since the
execution of this Agreement that, in your judgment, makes it impractical or
inadvisable to proceed with the completion of the sale of and payment for the
Securities. Any such termination shall be without liability of any party to any
other party except that the provisions of Section 4(a)(viii) and Section 6
hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company shall be notified promptly by you by telephone or telegram, confirmed by
letter. If the Company elects to prevent this Agreement from becoming effective,
you shall be notified by the Company by telephone or telegram, confirmed by
letter.
10. Default by the Company. If the Company shall fail at the First
Closing Date to sell and deliver the number of Securities which it is obligated
to sell hereunder, then this Agreement shall terminate without any liability on
the part of any non-defaulting party.
No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
11. Information Furnished by Underwriters. The statements set forth in
(I) the third paragraph of text under the caption "Underwriting" concerning the
terms of the offering by the Underwriters, (ii) the seventh paragraph of text
under the caption "Underwriting" concerning the terms of the offering by the
Underwriters and (iii) the eighth paragraph of text under the caption
"Underwriting" concerning stabilization and over-allotment in the Prospectus
constitute the written information furnished by or on behalf of the Underwriters
referred to in Section 2 and Section 6 hereof.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing and, if to the Underwriters, shall be mailed or
delivered to the Representatives c/o U.S. Bancorp Piper Jaffray, Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402, except that notices
given to an Underwriter pursuant to Section 6 hereof shall be sent to such
Underwriter at the address stated in the Underwriters' Questionnaire furnished
by such Underwriter in connection with this offering; if to the Company, shall
be mailed or delivered to it at 630 Fifth Avenue, Suite 2100, New York, NY 10011
Attention: Garo H. Armen; or in each case to such other address as the person to
be notified may have requested in writing. Any party to this Agreement may
29
<PAGE> 30
change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
[Signature Page Follows]
30
<PAGE> 31
Please sign and return to the Company and Antigenics L.L.C. the
enclosed duplicates of this letter whereupon this letter will become a binding
agreement between the Company, Antigenics L.L.C. and the several Underwriters in
accordance with its terms.
Very truly yours,
ANTIGENICS INC.
By: ______________________
Title:
ANTIGENICS L.L.C.
By: ______________________
Title:
Confirmed as of the date first above mentioned, on behalf of themselves and the
other several Underwriters named in Schedule I hereto.
U.S. BANCORP PIPER JAFFRAY INC.
By: ____________________________
Title:
FLEETBOSTON ROBERTSON STEPHENS INC.
By: ____________________________
Title:
31
<PAGE> 32
SCHEDULE I
Underwriter Number of Firm Shares (1)
- ----------- -------------------------
U.S. Bancorp Piper Jaffray Inc..................
FleetBoston Robertson Stephens Inc..............
---------
Total 3,000,000
=========
- -----------------
(1) The Underwriters may purchase up to an additional 450,000 Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.
32
<PAGE> 33
SCHEDULE II
[List of Persons Subject to Lock-up]
33
<PAGE> 34
EXHIBIT A
[FORM OF LOCK-UP AGREEMENT]
-----------, ----
U.S. Bancorp Piper Jaffray Inc.
FleetBoston Robertson Stephens Inc.
as Representatives of the several Underwriters
c/o U.S. Bancorp Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
The undersigned understands that U.S. Bancorp Piper Jaffray
Inc. ("Piper Jaffray") proposes to enter into a Purchase Agreement (the
"Purchase Agreement") with Antigenics, Inc., a Delaware corporation (the
"Company"), and Antigenics L.L.C., a Delaware limited liability company,
providing for the public offering (the "Public Offering") by the several
Underwriters, including Piper Jaffray (the "Underwriters"), of shares of the
Common Stock, par value $0.01 per share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Piper
Jaffray on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 365 days after the date of the final prospectus
relating to the Public Offering (the "Lock-Up Period"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, including any equity interest in Antigenics L.L.C., or (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock or
equity interests in Antigenics L.L.C., whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock, equity
interests in Antigenics L.L.C. or such other securities, in cash or otherwise;
provided however, that securities acquired by the undersigned in the November
1999 private placement of Antigencis L.L.C. are not subject to this agreement.
The foregoing sentence shall not apply to (a) if the undersigned is an
individual, he or she may transfer Common Stock or equity interests in
Antigenics L.L.C. during his or her lifetime or upon death by gift, will or
intestacy pursuant to the laws of descent and distribution, (b) transfers to
affiliates (as defined in Regulation C under the Securities Act of 1933, as
amended) of the undersigned, (c) transfers as a distribution to limited
partners, members or shareholders of the
<PAGE> 35
undersigned, (d) transfers occurring by operation of law or (e) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering; provided that any
transferee pursuant to clauses (a), (b), (c) or (d) of this sentence shall
execute a lock-up agreement in substantially the form hereof covering the
remainder of the Lock-Up Period under this Agreement. In addition, the
undersigned agrees that, without the prior written consent of Piper Jaffray on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 365 days after the date of the prospectus relating to the
Public Offering, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock, including any equity interest in
Antigenics L.L.C.
The undersigned confirms that the agreements of the
undersigned are irrevocable and shall be binding upon the undersigned's legal
representatives successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of any Common Stock held by the undersigned except in
compliance with the terms and conditions of this Agreement. The undersigned also
understands that the Company and the Underwriters will proceed with the Public
Offering in reliance on this Agreement. Notwithstanding anything else herein, in
the event the registration statement relating to the Public Offering is not
declared effective by the Securities and Exchange Commission on or prior to
April 30, 2000, the terms and provisions of this Agreement shall be of no
further force or effect.
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to the Purchase Agreement, the terms of which are subject to
negotiation between the Company, Antigenics L.L.C.
and the Underwriters.
Very truly yours,
(Name)
(Address)
A-II
<PAGE> 1
EXHIBIT 5.1
PALMER & DODGE LLP
ONE BEACON STREET, BOSTON, MA 02108-3190
TELEPHONE: (617) 573-0100 FACSIMILE: (617) 227-4420
January 7, 2000
Antigenics Inc.
630 Fifth Avenue, Suite 2100
New York, New York 10111
Ladies and Gentlemen:
We are rendering this opinion in connection with the Registration
Statement on Form S-1 (the "Registration Statement") filed by Antigenics Inc.
(the "Company") with the U.S. Securities and Exchange Commission under the
Securities Act of 1933, as amended, on or about the date hereof. The
Registration Statement relates to up to 3,450,000 shares of the Company's Common
Stock, $0.01 par value (the "Shares"), being sold by the Company, including
450,000 Shares issuable upon exercise of the overallotment option granted by the
Company. We understand that the Shares are to be offered and sold in the manner
described in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors in connection with the authorization, issuance and sale of the Shares
(the "Resolutions"). We have examined such other documents as we consider
necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and, when issued and delivered by the Company against
payment therefor at the price to be determined pursuant to the Resolutions, will
be validly issued, fully paid and non-assessable.
The foregoing opinion is limited to Delaware General Corporation Law
and the federal laws of the United States.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 10.1
ANTIGENICS INC.
1999 EQUITY INCENTIVE PLAN
Section 1. PURPOSE
The purpose of the Antigenics Inc. 1999 Equity Incentive Plan (the
"Plan") is to attract and retain directors, key employees and consultants of the
Company and its Affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-term
growth of the Company.
Section 2. DEFINITIONS
"Affiliate" means any business entity that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with the Company. For purposes hereof, "Control" (and with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession of the power to direct or cause the direction of the
management and policies of the Company, whether through the ownership of voting
stock, by contract or otherwise. In the case of a corporation "control" shall
mean, among other things, the direct or indirect ownership of more than fifty
percent (50%) of its outstanding voting stock.
"Award" means any Option, Stock Appreciation Right or Restricted Stock
awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan. If a Committee is authorized to
grant Options to a Reporting Person or a "covered employee" within the meaning
of Section 162(m) of the Code, each member shall be a "non-employee director" or
the equivalent within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended from time to time, or any successor law, and an "outside
director" or the equivalent within the meaning of Section 162(m) of the Code,
respectively. Until such committee is appointed, "Committee" means the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of
the Company.
"Company" means Antigenics Inc.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "Designated
Beneficiary" shall mean the Participant's estate.
1
<PAGE> 2
"Effective Date" means November 15, 1999.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 that is not intended to be
an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.
"Participant" means a person selected by the Committee to receive an
Award under the Plan.
"Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Committee
during which an Award may be forfeited to the Company pursuant to the terms and
conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 8.
"Stock Appreciation Right" or "SAR" means a right to receive any excess
in value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
Section 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons or covered
employees and all determinations under the Plan with respect thereto, provided
that the Committee shall fix the maximum amount of such Awards for all such
Participants and a maximum for any one Participant.
Section 4. ELIGIBILITY
All employees, directors and consultants of the Company or any
Affiliate capable of contributing significantly to the successful performance of
the Company, other than a person who has irrevocably elected not to be eligible,
are eligible to be Participants in the Plan.
2
<PAGE> 3
Incentive Stock Options may be granted only to persons eligible to receive such
Options under the Code.
Section 5. STOCK AVAILABLE FOR AWARDS
(a) Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 4,800,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited without the Participant having had the benefits of ownership (other
than voting rights), the shares subject to such Award, to the extent of such
expiration, termination or forfeiture, shall again be available for award under
the Plan. Common Stock issued through the assumption or substitution of
outstanding grants from an acquired company shall not reduce the shares
available for Awards under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make provision for a cash payment with respect to an outstanding Award,
provided that the number of shares subject to any Award shall always be a whole
number.
(c) Subject to adjustment under Subsection (b): (i) the maximum number
of shares of Common Stock with respect to which Options and Stock Appreciation
Rights may be granted to any Participant in the aggregate in any calendar year
shall not exceed 1,000,000 shares, and (ii) the maximum number of shares of
Common Stock that may be granted as Restricted Stock, with respect to which
performance goals apply, to any Participant in the aggregate in any calendar
year shall not exceed 1,000,000 shares.
Section 6. STOCK OPTIONS
(a) Subject to the provisions of the Plan, the Committee may award Incentive
Stock Options and Nonstatutory Stock Options and determine the number of shares
to be covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code or any successor provision and any regulations thereunder, and no
Incentive Stock Option may be granted hereunder more than ten years after the
Effective Date.
3
<PAGE> 4
(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options. Nonstatutory Stock Options may be granted at such prices as the
Committee may determine.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
Section 7. STOCK APPRECIATION RIGHTS
(a) Subject to the provisions of the Plan, the Committee may award SARs
in tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised.
(b) The Committee shall fix the exercise price of each SAR or specify
the manner in which the price shall be determined. SARs granted in tandem with
Options shall have an exercise price not less than the exercise price of the
related Option. SARs granted alone and unrelated to an Option may be granted at
such exercise prices as the Committee may determine.
Section 8. RESTRICTED STOCK
(a) Subject to the provisions of the Plan, the Committee may award
shares of Restricted Stock and determine the duration of the Restricted Period
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. The Committee may
establish performance goals for the granting or lapse of risk of forfeiture of
Restricted Stock. Such performance goals may be based on earnings per share,
revenues, sales or expense targets of the Company or any subsidiary, division or
product line thereof, stock price or such other business criteria as the
Committee may determine. Shares of Restricted Stock may be issued for no cash
consideration or such minimum consideration as may be required by applicable
law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the
4
<PAGE> 5
Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
Section 9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant or agreement executed by the Participant
specifying the terms and conditions thereof and containing such other terms and
conditions not inconsistent with the provisions of the Plan as the Committee
considers necessary or advisable to achieve the purposes of the Plan or to
comply with applicable tax and regulatory laws and accounting principles.
(b) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(c) Settlement. The Committee shall determine whether Awards are
settled in whole or in part in cash, Common Stock, other securities of the
Company, Awards or other property. The Committee may permit a Participant to
defer all or any portion of a payment under the Plan, including the crediting of
interest on deferred amounts denominated in cash and dividend equivalents on
amounts denominated in Common Stock.
(d) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(e) Termination of Employment or Service on the Board. The Committee
shall determine the effect on an Award of the disability, death, retirement or
other termination of employment or service on the Board of a Participant and the
extent to which, and the period during which, the Participant's legal
representative, guardian or Designated Beneficiary may receive payment of an
Award or exercise rights thereunder.
(f) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company (as defined by
the Committee), the Committee in its discretion may, at the time an Award is
made or at any time thereafter, take one or more of the following actions: (i)
provide for the acceleration of any time period relating to the exercise or
realization of the Award, (ii) provide for the purchase of the Award upon the
Participant's request for an amount of cash or other property that could have
been received upon the exercise or realization of the Award had the Award been
currently exercisable or payable, (iii) adjust the terms of the Award in a
manner determined by the Committee to reflect the change in control, (iv) cause
the Award to be assumed, or new rights substituted therefor, by another entity,
or (v) make such other provision as the Committee may consider equitable to
Participants and in the best interests of the Company.
(g) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with any Award under the Plan, which
loans may be secured by any
5
<PAGE> 6
security, including Common Stock, underlying or related to such Award (provided
that such Loan shall not exceed the Fair Market Value of the security subject to
such Award), and which may be forgiven upon such terms and conditions as the
Committee may establish at the time of such loan or at any time thereafter.
(h) Withholding Taxes. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. In the Committee's discretion, the
minimum tax obligations required by law to be withheld in respect of Awards may
be paid in whole or in part in shares of Common Stock, including shares retained
from the Award creating the tax obligation, valued at their Fair Market Value on
the date of retention or delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(i) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable laws.
(j) Amendment of Award. The Committee may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(k) Transferability. In the discretion of the Committee, any Award may
be made transferable upon such terms and conditions and to such extent as the
Committee determines, provided that Incentive Stock Options may be transferable
only to the extent permitted by the Code. The Committee may in its discretion
waive any restriction on transferability.
Section 10. MISCELLANEOUS
(a) No Right To Employment or Service on the Board. No person shall
have any claim or right to be granted an Award, and the grant of an Award shall
not be construed as giving a Participant the right to continued employment or
service on the Board. The Company expressly reserves the right at any time to
dismiss a Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective on the Effective Date. Before such
approval, Awards may be made under the Plan expressly subject to such approval.
6
<PAGE> 7
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to any stockholder approval
that the Board determines to be necessary or advisable.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
-----------------------------------------
This Plan was approved by the Board of Directors on November 15, 1999.
This Plan must be approved by the stockholders prior to November 15, 2000.
7
<PAGE> 1
EXHIBIT 10.15
AMENDMENT AGREEMENT
The Letter Agreement of June 3, 1998 between Antigenics L.L.C. and Sigma-Tau
Industrie Farmaceutiche Riunite S.p.A. is hereby amended as follows:
- -ON PAGE 1, THE INITIAL SIX LINES:
"Gentlemen:
We refer to our recent discussions regarding a potential scientific and business
cooperation between Antigenics L.L.C. ("Antigenics") and Sigma-Tau Industrie
Farmaceutiche Riunite S.p.A. (the "Company") in Italy (the "Territory") with
regard to Antigenics' proprietary technology on the use of Heat Shock Proteins
("HSP") for the use of HSP to boost and modulate the immune system against
cancer (the "Technology")."
are deleted and replaced by the following:
"Gentlemen:
We refer to our recent discussions regarding a potential scientific and business
cooperation between Antigenics L.L.C. ("Antigenics") and Sigma-Tau Industrie
Farmaceutiche Riunite S.p.A. (the "Company") in Italy, Spain, Portugal and
Switzerland (the "Territory") with regard to Antigenics' proprietary technology
on the use of Heat Shock Proteins ("HSP") for the use of HSP to boost and
modulate the immune system against cancer (the "Technology")."
- -ON PAGE 1, PARAGRAPH 2, 10TH LINE:
"by the Company, within 12 (twelve) months from the date of this Letter
Agreement; it being"
is deleted and replaced by the following:
"by the Company, within 30 (thirty) months from the date of this Letter
Agreement; it being"
- -ON PAGE 1, PARAGRAPH 3., 3RD LINE:
"parties, (ii) six months from the completion of the second Trial, if the
parties agree to only"
is deleted and replaced by the following:
"PARTIES, (ii) TWELVE MONTHS FROM THE COMPLETION OF THE SECOND TRIAL, IF THE
PARTIES AGREE TO ONLY"
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement by their
duly authorized representatives in duplicate as of the day and year below
written.
ANTIGENICS, L.L.C. SIGMA-TAU INDUSTRIE
FARMACEUTICHE
RUINITE S.p.A.
By: /s/ Garo Armen By: /s/ Emilio Plate
-------------------------------- --------------------------------
Name/Title: Garo Armen Name/Title: Emilio Plate - Chief
-------------------------- --------------------------
Operating Officer
Date: 10/14/99 Date: 20-10-99
-------------------------------- --------------------------------
<PAGE> 1
FLEXIBLE STANDARDIZED 401(k) PROFIT SHARING PLAN
ADOPTION AGREEMENT
================================================================================
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
Name of Employer Antigenics, LLC
-------------------------------------------------------------
Address 630 Fifth Avenue, Suite 2170
----------------------------------------------------------------------
City New York State NY Zip 10111
--------------------- --------------- -------------
Telephone 212-332-4774 Employer's Federal Tax Identification Number 13-3769335
------------ ----------
<TABLE>
<S> <C> <C> <C> <C>
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership [ ] Corporation [ ] Corporation
[X] Other (Specify) Limited Liability Company
----------------------------------------------------------
</TABLE>
[ ] Check here if Related Employers may participate in this Plan and attach
a Related Employer Participation Agreement for each Related Employer
who will participate in this Plan.
Business Code
----------------------------------------------
Name of Plan Antigenics 401(k)
--------------------------------------------------------------
Name of Trust (if different from Plan name)
--------------------------------
Plan Sequence Number 001 (Enter 001 if this is the first qualified plan the
--- Employer has ever maintained, enter 002 if it is
the second, etc.)
<TABLE>
<S> <C>
Trust Identification Number (if applicable) Account Number (Optional) 41145
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
COMPLETE PARTS A AND B
- --------------------------------------------------------------------------------
PART A. GENERAL EFFECTIVE DATES (Check and Complete Option 1 or 2):
OPTION 1: [X] This is the initial adoption of a profit sharing plan
by the Employer.
The Effective Date of this Plan is 01-01-1997.
NOTE: The effective date is usually the first day of
the Plan Year in which this Adoption Agreement is
signed.
OPTION 2: [ ] This is an amendment and restatement of an existing
profit sharing plan (a Prior Plan).
The Prior Plan was initially effective on
__________________ .
The Effective Date of this amendment and restatement
is __________________ .
NOTE: The effective date is usually the first day of
the Plan Year in which this Adoption Agreement is
signed.
PART B. COMMENCEMENT OF ELECTIVE DEFERRALS:
Elective Deferrals may commence on 06-12-1997.
-----------
NOTE: This date may be no earlier than the date this Adoption
Agreement is signed because Elective Deferrals cannot be made
retroactively.
- --------------------------------------------------------------------------------
SECTION 3. RELEVANT TIME PERIODS
COMPLETE PARTS A THROUGH C
- --------------------------------------------------------------------------------
PART A. EMPLOYER'S FISCAL YEAR:
The Employer's fiscal year ends (Specify month and date) 12-31
-----
PART B. PLAN YEAR MEANS:
<PAGE> 2
OPTION 1: [ ] The 12-consecutive month period which coincides with
the Employers fiscal year.
OPTION 2: [X] The calendar year.
OPTION 3: [ ] Other 12-consecutive month period (Specify)
------------
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
If the initial Plan Year is less than 12 months (a short Plan Year)
specify such Plan Year's beginning and ending dates.
___________________________________________________________________
PART C. LIMITATION YEAR MEANS:
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year.
OPTION 3: [ ] Other 12-consecutive month period (Specify)
------------
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 4. ELIGIBILITY REQUIREMENTS
COMPLETE PARTS A THROUGH F
- --------------------------------------------------------------------------------
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
in the Plan (and thus be eligible to make Elective Deferrals) and
receive Matching Contributions (including Qualified Matching
Contributions, if applicable) after completing 1 (enter 0, 1 or any
fraction less than 1) Years of Eligibility Service.
2. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 10 of the Adoption
Agreement after completing 1 (enter 0, 1, 2 or any fraction less
than 2) Years of Eligibility Service.
NOTE: If more than 1 year is selected for Item 2, the immediate 100%
vesting schedule of Section 12 will automatically apply for
contributions described in such item. If either item is left blank, the
Years of Eligibility Service required for such item will be deemed to
be 0. If a fraction is selected, an Employee will not be required to
complete any specified number of Hours of Service to receive credit for
a fractional year. If a single Entry Date is selected in Section 4,
Part F for an item, the Years of Eligibility Service required for such
item cannot exceed 1 1/2 (1/2 for Elective Deferrals).
PART B. AGE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
(and thus be eligible to make Elective Deferrals) and receive
Matching Contributions (including Qualified Matching Contributions,
if applicable) after attaining age 21 (no more than 21).
2. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 10 of the Adoption
Agreement after attaining age 21 (no more than 21).
NOTE: If either of the above items in this Section 4, Part B is left
blank, it will be deemed there is no age requirement for such item. If
a single Entry Date is selected in Section 4, Part F for an item, no
age requirement can exceed 20 1/2 for such item.
PART C. EMPLOYEES EMPLOYED AS OF EFFECTIVE DATE:
2
<PAGE> 3
Will all Employees employed as of the Effective Date of this Plan who
have not otherwise met the requirements of Part A or Part B above be
considered to have met those requirements as of the Effective Date?
[X] Yes [ ] No
NOTE: If a box is not checked for any item in this Section 4, Part C,
"No" will be deemed to be selected.
PART D. EXCLUSION OF CERTAIN CLASSES OF EMPLOYEES:
All Employees will be eligible to become Participants in the Plan
except:
a. [X] Those Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining and if two percent or less of
the Employees who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representatives" does not include any organization more than
half of whose members are Employees who are owners, officers,
or executives of the Employer.
b. [X] Those Employees who are non-resident aliens (within the meaning
of Section 7701(b)(1)(B) of the Code) and who received no
earned income (within the meaning of Section 911(d)(2) of the
Code) from the Employer which constitutes income from sources
within the United States (within the meaning of Section
861(a)(3) of the Code).
PART E. HOURS REQUIRED FOR ELIGIBILITY PURPOSES:
1. 1000 Hours of Service (no more than 1,000) shall be required
to constitute a Year of Eligibility Service.
2. 500 Hours of Service (no more than 500 but less than the
number of specified in Section 4, Part E, Item 1, above) must
be exceeded to avoid a Break in Eligibility Service.
3. For purposes of determining Years of Eligibility Service,
Employees shall be given credit for Hours of Service with the
following predecessor employer(s): (Complete if applicable)
------------------------------------------------------------------
------------------------------------------------------------------
PART F. ENTRY DATES:
The Entry Dates for participation shall be (Choose one):
OPTION 1: [ ] The first day of the Plan Year and the first day of the
seventh month of the Plan Year.
OPTION 2: [X} Other (Specify) THE FIRST DAY OF EACH MONTH
----------------------------------------
----------------------------------------
NOTE: If no option is selected, Option 1 will be deemed to be selected
Option 2 can be selected for an item only if the eligibility
requirements and Entry Dates are coordinated such that each Employee
will become a Participant in the Plan no later than the earlier of: (1)
the first day of the Plan Year beginning after the date the Employee
satisfies the age and service requirements of Section 410(a) of the
Code; or (2) 6 months after the date the Employee satisfies such
requirements..
- --------------------------------------------------------------------------------
SECTION 5. METHOD OF DETERMINING SERVICE
COMPLETE PART A OR B
- --------------------------------------------------------------------------------
PART A. HOURS OF SERVICE EQUIVALENCIES:
Service will be determined on the basis of the method selected below.
Only one method may be selected. The method selected will be applied to
all Employees covered under the Plan. (Choose one):
OPTION 1: [X] On the basis of actual hours for which an Employee is
paid or entitled to payment.
OPTION 2: [ ] On the basis of days worked. An Employee will be
credited with 10 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at
least 1 Hour of Service during the day.
3
<PAGE> 4
OPTION 3: [ ] On the basis of weeks worked. An Employee will be
credited with 45 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at
least 1 Hour of Service during the week.
OPTION 4: [ ] On the basis of months worked. An Employee will be
credited with 190 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at
least 1 Hour of Service during the month.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
This Section 5, Part A will not apply if the Elapsed Time Method of
Section 5, Part B is selected.
PART B. ELAPSED TIME METHOD:
In lieu of tracking Hours of Service of Employees, will the elapsed
time method described in Section 2.07 of the Plan be used? (Choose
one):
OPTION 1: [ ] No.
OPTION 2: [ ] Yes.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 6. ELECTIVE DEFERRALS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF ELECTIVE DEFERRALS:
Will Elective Deferrals be permitted under this Plan? (Choose one):
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Complete the remainder of Section 6 only if Option 1 is selected.
PART B. LIMITS ON ELECTIVE DEFERRALS:
If Elective Deferrals are permitted under the Plan, a contributing
Participant may elect under a salary reduction agreement to have his or
her Compensation reduced by an amount as described below (Choose one):
OPTION 1: [X] An amount equal to a percentage of the Contributing
Participant's Compensation from 1% to 15% in increments
of 1%.
OPTION 2: [ ] An amount of the Contributing Participant's Compensation
not less than ______ and not more than ______.
The amount of such reduction shall be contributed to the Plan by the
Employer on behalf of the Contributing Participant. For any taxable
year, a Contributing Participant's Elective Deferrals shall not exceed
the limit contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
PART C. ELECTIVE DEFERRALS BASED ON BONUSES:
Instead of or in addition to making Elective Deferrals through payroll
deduction, may a Contributing Participant elect to contribute to the
Plan, as an Elective Deferral, part or all of a bonus rather than
receive such bonus in cash? (Choose one):
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be selected.
PART D. RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE DEFERRALS:
A Participant who ceases Elective Deferrals by revoking a salary
reduction agreement may return as a Contributing Participant as of such
times established by the Plan Administrator in a uniform and
nondiscriminatory manner.
4
<PAGE> 5
PART E. CHANGING ELECTIVE DEFERRALS AMOUNTS:
A Contributing Participant may modify a salary reduction agreement to
prospectively increase or decrease the amount of his or her Elective
Deferrals as of such times established by the Plan Administrator in a
uniform and nondiscriminatory manner.
PART F. CLAIMING EXCESS ELECTIVE DEFERRALS:
Participants who claim Excess Elective Deferrals for the preceding
calendar year must submit their claims in writing to the Plan
Administrator by (Choose one):
OPTION 1: [X] March 1.
OPTION 2: [ ] Other (Specify a date not later than April 15)______
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 7. MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF MATCHING CONTRIBUTIONS:
Will the Employer make Matching Contributions to the Plan on behalf of
Qualifying Contributing Participants? (Choose one):
OPTION 1: [X] Yes, but only with respect to a Contributing
Participant's Elective Deferrals.
OPTION 2: [ ] Yes, but only with respect to a Participant's
Nondeductible Employee Contributions.
OPTION 3: [ ] Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: [ ] No.
NOTE: If no option is selected, Option 4 will be deemed to be selected.
Complete the remainder of Section 7 only if Option 1, 2 or 3 is
selected.
PART B. MATCHING CONTRIBUTION FORMULA:
If the Employer will make Matching Contributions, then the amount of
such Matching Contributions made on behalf of a Qualifying Contributing
Participant each Plan Year shall be (Choose one):
OPTION 1: [X] An amount equal to 100% of such Contributing
Participant's Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable).
OPTION 2: [ ] An amount equal to the sum of _____% of the portion of
such Contributing Participant's Elective Deferral
(and/or Nondeductible Employee Contribution, if
applicable) which does not exceed _____% of the
Contributing Participant's Compensation plus _____% of
the portion of such Contributing Participant's Elective
Deferral (and/or Nondeductible Employee Contribution, if
applicable) which exceeds _____% of the Contributing
Participant's Compensation.
OPTION 3: [ ] Such amount, if any, equal to that percentage of each
Contributing Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if applicable)
which the Employer, in its sole discretion, determines
from year to year.
OPTION 4: [ ] Other Formula. (Specify)
-------------------------------
-------------------------------
NOTE: If Option 4 is selected, the formula specified can only allow
Matching Contributions to be made with respect to a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable).
PART C. LIMIT ON MATCHING CONTRIBUTIONS:
5
<PAGE> 6
Notwithstanding the Matching Contribution formula specified above, no
Matching Contribution will be made with respect to a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contributions, if applicable) in excess of ________ or _____% of such
Contributing Participant's Compensation.
PART D. QUALIFYING CONTRIBUTING PARTICIPANTS:
A Contributing Participant who satisfies the eligibility requirements
described in Section 4 will be a Qualifying Contributing Participant
and thus entitled to share in Matching Contribution for any Plan Year
only in the Participant is a Contributing Participant and satisfies the
following additional conditions (Check one or more Options):
OPTION 1: [ ] No Additional Conditions.
OPTION 2: [X] Hours of Service Requirement. The Contributing
Participant completes at least 500 (not more than 500)
Hours of Service during the Plan Year. However, this
condition will be waived for the following reasons
(Check at least one):
[X] The Contributing Participant's Death.
[X] The Contributing Participant's Termination of
Employment after having incurred a Disability.
[X] The Contributing Participant's Termination of
Employment after having reached Normal Retirement
Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will the Employer make Qualified Nonelective Contributions to the Plan?
(Choose one):
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
If the Employer elects to make Qualified Nonelective Contributions,
then the amount, if any, of such contribution to the Plan for each Plan
Year shall be an amount determined by the Employer.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Complete the remainder of Section 8 only if Option 1 is selected.
PART B. PARTICIPANTS ENTITLED TO QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions shall be made to the
Individual Accounts of (Choose one):
OPTION 1: [ ] Only Participants who are not Highly Compensated
Employees.
OPTION 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART C. ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions to Participants
entitled thereto shall be made (Choose one):
OPTION 1: [ ] In the ratio which each Participant's Compensation for
the Plan Year bears to the total Compensation of all
Participants for such Plan Year.
OPTION 2: [ ] In the ratio which each Participant's Compensation not
in excess of ______ for the Plan Year bears to the total
Compensation of all Participants not in excess of ______
for such Plan Year.
6
<PAGE> 7
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED MATCHING CONTRIBUTIONS:
Will the Employer make Qualified Matching Contributions to the Plan on
behalf of Qualifying Contributing Participants? (Choose one):
OPTION 1: [ ] Yes, but only with respect to a Contributing
Participant's Elective Deferrals.
OPTION 2: [ ] Yes, but only with respect to a Participant's
Nondeductible Employee Contributions.
OPTION 3: [ ] Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: [X] No.
NOTE: If no option is selected, Option 3 will be deemed to be selected.
Complete the remainder of Section 9 only if Option 1, 2 or 3 is
selected.
PART B. QUALIFIED MATCHING CONTRIBUTION FORMULA:
If the Employer will make Qualified Matching Contributions, then the
amount of such Qualified Matching Contributions made on behalf of a
Qualifying Contributing Participant each Plan Year shall be (Choose
one):
OPTION 1: [ ] An amount equal to ______% of such Contributing
Participant's Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable).
OPTION 2: [ ] An amount equal to the sum of _______% of the portion of
such Contributing Participant's Elective Deferral
(and/or Nondeductible Employee Contribution, if
applicable) which does not exceed ________% of the
Contributing Participant's Compensation plus ________%
of the portion of such Contributing Participant's
Elective Deferral (and/or Nondeductible Employee
Contribution, if applicable) which exceeds ________% of
the Contributing Participant's Compensation.
OPTION 3: [ ] Such amount, if any, as determined by the Employer in
its sole discretion, equal to that percentage of the
Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable) of each Contributing
Participant entitled thereto which would be sufficient
to cause the Plan to satisfy the Actual Contribution
Percentage tests (described in Section 11.402 of the
Plan) for the Plan Year.
OPTION 4: [ ] Other Formula. (Specify)
--------------------------------
--------------------------------
NOTE: If no option is selected, Option 3 will be deemed to be selected.
PART C. PARTICIPANTS ENTITLED TO QUALIFIED MATCHING CONTRIBUTIONS:
Qualified Matching Contributions, if made to the Plan, will be made on
behalf of (Choose one):
OPTION 1: [ ] Only Contributing Participants who make Elective
Deferrals who are not Highly Compensated Employees.
OPTION 2: [ ] All Contributing Participants who make Elective
Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART D. LIMIT ON QUALIFIED MATCHING CONTRIBUTIONS:
Notwithstanding the Qualified Matching Contribution formula specified
above, the Employer will not match a Contributing Participant's
Elective Deferrals (and/or Nondeductible Employee Contribution, if
applicable) in excess of ________ or _____% of such Contributing
Participant's Compensation.
7
<PAGE> 8
- --------------------------------------------------------------------------------
SECTION 10. EMPLOYER PROFIT SHARING CONTRIBUTIONS
COMPLETE PARTS A, B AND C
- --------------------------------------------------------------------------------
PART A. CONTRIBUTION FORMULA:
For each Plan Year the Employer will contribute an Amount to be
determined from year to year.
PART B. ALLOCATION FORMULA: (Choose one)
OPTION 1: [ ] Pro Rata Formula. Employer Profit Sharing Contributions
shall be allocated to the Individual Accounts of
Qualifying Participants in the ratio that each
Qualifying Participant's Compensation for the Plan Year
bears to the total Compensation of all Qualifying
Participants for the Plan Year.
OPTION 2: [X] Integrated Formula. Employer Profit Sharing
Contributions shall be allocated as follows (Start with
Step 3 if this Plan is not a Top-Heavy Plan):
Step 1. Employer Profit Sharing Contributions shall
first be allocated pro rata to Qualifying
Participants in the manner described in Section
10, Part B, Option 1. The percent so allocated
shall not exceed 3% of each Qualifying
Participant's Compensation.
Step 2. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 1 shall
be allocated to each Qualifying Participant's
Individual Account in the ratio that each
Qualifying Participant's Compensation for the
Plan Year in Excess of the integration level
bears to all Qualifying Participants'
Compensation in excess of the integration
level, but not in excess of 3%.
Step 3. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 2 shall
be allocated to each Qualifying Participant's
Individual Account in the ratio that the sum of
each Qualifying Participant's total
Compensation and Compensation in excess of the
integration level bears to the sum of all
Qualifying Participants' total Compensation and
Compensation in excess of the integration
level, but not in excess of the profit sharing
maximum disparity rate as described in Section
3.01(B)(3) of the Plan.
Step 4. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 3 shall
be allocated pro rata to Qualifying
Participants in the manner described in Section
10, Part B, Option 1.
The integration level shall be (Choose one):
SUBOPTION (a): [X] The Taxable Wage Base.
SUBOPTION (b): [ ] _________ (a dollar amount less than
the Taxable Wage Base).
SUBOPTION (c): [ ] _____% (not more than 100%) of the
Taxable Wage Base.
NOTE: If no option is selected, Suboption (a) will be
deemed to be selected.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART C. QUALIFYING PARTICIPANTS:
A Participant will be a Qualifying Participant and thus entitled to
share in the Employer Profit Sharing Contribution for any Plan Year
only if the Participant is a Participant on at least one day of such
Plan Year and satisfies the following additional conditions (Check one
or more Options):
OPTION 1: [ ] No Additional Conditions.
8
<PAGE> 9
OPTION 2: [X] Hours of Service Requirement. The Participant completes
at least 500 (not more than 500) Hours of Service during
the Plan Year. However, this condition will be waived
for the following reasons (Check at least one):
[X] The Participant's Death.
[X] The Participant's Termination of Employment after
having incurred a Disability.
[X] The Participant's Termination of Employment after
having reached Normal Retirement Age.
[ ] This condition will not bewaived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 11. COMPENSATION
COMPLETE PARTS A THROUGH D
- --------------------------------------------------------------------------------
PART A. BASIC DEFINITION:
Compensation will mean all of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 3401(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART B. MEASURING PERIOD FOR COMPENSATION:
Compensation shall be determined over the following applicable period
(Choose one):
OPTION 1: [ ] The Plan Year.
OPTION 2: [X] The calendar year ending with or within the Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART C. INCLUSION OF ELECTIVE DEFERRALS:
Does Compensation include Employer Contributions made pursuant to a
salary reduction agreement which are not includible in the gross income
of the Employee under Section 125, 402(e)(3), 402(h)(1)(B), and 403(b)
of the Code? [X] Yes [ ] No
NOTE: If neither box is checked, "Yes" will be deemed to be selected.
PART D. PRE-ENTRY DATE COMPENSATION:
For the Plan Year in which an Employee enters the Plan, the Employee's
Compensation which shall be taken into account for purposes of the Plan
shall be (Choose one):
OPTION 1: [ ] The Employee's Compensation only from the time the
Employee became a Participant in the Plan.
OPTION 2: [X] The Employee's Compensation for the whole of such Plan
Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 12. VESTING AND FORFEITURES
COMPLETE PARTS A THROUGH G
- --------------------------------------------------------------------------------
PART A. VESTING SCHEDULE FOR EMPLOYER PROFIT SHARING CONTRIBUTIONS. A
Participant shall become Vested in his or her Individual Account
derived from Profit Sharing Contributions made pursuant to Section 10
of the Adoption Agreement as follows (Choose one):
================================================================================
9
<PAGE> 10
<TABLE>
<CAPTION>
VESTED PERCENTAGE
YEARS OF
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 0%
-----------
2 0% 20% 100% 0% 25%
-----------
3 0% 40% 100% 20% 50% (not less than 20%)
-----------
4 0% 60% 100% 40% 75% (not less than 40%)
-----------
5 100% 80% 100% 60% 100% (not less than 60%)
-----------
6 100% 100% 100% 80% 100% (not less than 80%)
-----------
7 100% 100% 100% 100% 100% (not less than 100%)
-----------
</TABLE>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
================================================================================
PART B. VESTING SCHEDULE FOR MATCHING CONTRIBUTIONS. A Participant shall become
Vested in his or her Individual Account derived from Matching
Contributions made pursuant to Section 7 of the Adoption Agreement as
follows (Choose one):
================================================================================
<TABLE>
<CAPTION>
VESTED PERCENTAGE
YEARS OF
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 0%
-----------
2 0% 20% 100% 0% 25%
-----------
3 0% 40% 100% 20% 50% (not less than 20%)
-----------
4 0% 60% 100% 40% 75% (not less than 40%)
-----------
5 100% 80% 100% 60% 100% (not less than 60%)
-----------
6 100% 100% 100% 80% 100% (not less than 80%)
-----------
7 100% 100% 100% 100% 100% (not less than 100%)
-----------
</TABLE>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
================================================================================
PART C. HOURS REQUIRED FOR VESTING PURPOSES:
1. 1000 Hours of Service (no more than 1,000) shall be required
to constitute a Year of Vesting Service.
2. 500 Hours of Service (no more than 500 but less than the
number of specified in Section 12, Part C, Item 1, above) must
be exceeded to avoid a Break in Vesting Service.
3. For purposes of determining Years of Vesting Service,
Employees shall be given credit for Hours of Service with the
following predecessor employer(s): (Complete if applicable)
----------------------------------------------------------------
----------------------------------------------------------------
PART D. EXCLUSION OF CERTAIN YEARS OF VESTING SERVICE:
All of an Employee's Years of Vesting Service with the Employer are
counted to determine the vesting percentage in the Participant's
Individual Account except (Check any that apply):
[ ] Years of Vesting Service before the Employee reaches age 18.
[ ] Years of Vesting Service before the Employer maintained this Plan
or a predecessor plan.
PART E. ALLOCATION OF FORFEITURES OF EMPLOYER PROFIT SHARING CONTRIBUTIONS:
Forfeitures of Employer Profit Sharing Contributions shall be
(Choose one):
10
<PAGE> 11
OPTION 1: [ ] Allocated to the Individual Accounts of the Participants
specified below in the manner as described in Section
10, Part B (for Employer Profit sharing Contributions).
The Participants entitled to receive allocations of such
Forfeitures shall be (Choose one):
SUBOPTION (a): [ ] Only Qualifying Participants.
SUBOPTION (b): [ ] All Participants.
OPTION 2: [X] Applied to reduce Employer Profit Sharing Contributions
(Choose one):
SUBOPTION (a): [X] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [ ] Applied first to the payment of the Plan's
administrative expenses and any excess applied to reduce
Employer Profit Sharing Contributions (Choose one):
SUBOPTION (a): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be
deemed to be selected.
PART F. ALLOCATION OF FORFEITURES OF MATCHING CONTRIBUTIONS:
Forfeitures of Matching Contributions shall be (Choose one):
OPTION 1: [ ] Allocated, after all other Forfeitures under the Plan,
to each Participant's Individual Account in the ratio
which each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for
such Plan Year.
The Participants entitled to receive allocations of such
Forfeitures shall be (Choose one):
SUBOPTION (a): [ ] Only Qualifying Contributing
Participants.
SUBOPTION (b): [ ] Only Qualifying Participants.
SUBOPTION (c): [ ] All Participants.
OPTION 2: [X] Applied to reduce Matching Contributions (Choose one):
SUBOPTION (a): [X] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [ ] Applied first to the payment of the Plan's
administrative expenses and any excess applied to reduce
Matching Contributions (Choose one):
SUBOPTION (a): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be
deemed to be selected.
PART G. ALLOCATION OF FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS:
Forfeitures of Excess Aggregate Contributions shall be (Choose one):
11
<PAGE> 12
OPTION 1: [ ] Allocated, after all other Forfeitures under the Plan,
to each Contributing Participant's Matching Contribution
account in the ratio which each Contributing
Participant's Compensation for the Plan Year bears to
the total Compensation of all Contributing Participants
for such Plan Year. Such Forfeitures will not be
allocated to the account of any Highly Compensated
Employee.
OPTION 2: [X] Applied to reduce Matching Contributions (Choose one):
SUBOPTION (a): [X] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [ ] Applied first to the payment of the Plan's
administrative expenses and any excess applied to reduce
Matching Contributions (Choose one):
SUBOPTION (a): For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): For any Plan Year subsequent to the Plan
Year for which the Forfeiture arises.
NOTE: If no option is selected, Option 2 and Suboption (a) will be
deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 13. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
- --------------------------------------------------------------------------------
PART A. THE NORMAL RETIREMENT AGE UNDER THE PLAN SHALL BE (Check and complete
one option):
OPTION 1: [X] Age 65.
OPTION 2: [ ] Age ________ (not to exceed 65).
OPTION 3: [ ] The later of age _______ (not to exceed 65) or the ____
(not to exceed 5th) anniversary of the first day of the
first Plan Year in which the Participant commenced
participation in the Plan.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART B. EARLY RETIREMENT AGE (Choose one option):
OPTION 1: [X] An Early Retirement Age is not applicable under the
Plan.
OPTION 2: [ ] Age ________ (not less than 55 nor more than 65).
OPTION 3: [ ] A Participant satisfies the Plan's Early Retirement Age
conditions by attaining age _______ (not less than 55)
and completing _____ Years of Vesting Service.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 14. DISTRIBUTIONS
- --------------------------------------------------------------------------------
DISTRIBUTABLE EVENTS. ANSWER EACH OF THE FOLLOWING ITEMS.
A. Termination of Employment Before Normal Retirement Age. May a Participant
who has not reached Normal Retirement Age request a distribution from the
Plan upon Termination of Employment? [X] Yes [ ] No
B. Disability. May a Participant who has incurred a Disability request a
distribution from the Plan? [X] Yes [ ] No
C. Attainment of Normal Retirement Age. May a Participant who has attained
Normal Retirement Age but has not incurred a Termination of Employment
request a distribution from the Plan? [X] Yes [ ] No
D. Attainment of Age 59 1/2. Will Participants who have attained age 59 1/2 be
permitted to withdraw Elective Deferrals while still employed by the
Employer? [ ] Yes [X] No
12
<PAGE> 13
E. Hardship Withdrawals of elective Deferrals. will Participants be permitted
to withdraw Elective Deferrals on account of hardship pursuant to Section
11.503 of the Plan? [X] Yes [ ] No
F. In-Service Withdrawals. Will Participants be permitted to request a
distribution during service pursuant to Section 6.01(A)(3) of the Plan?
[ ] Yes [X] No
G. Hardship Withdrawals. Will Participants be permitted to make hardship
withdrawals pursuant to Section 6.01(A)(4) of the Plan? [ ] Yes [X] No
H. Withdrawals of Rollover or Transfer Contributions. Will Employees be
permitted to withdraw their Rollover or Transfer Contributions at any time?
[X] Yes [ ] No
NOTE: If a box is not checked for an item, "Yes" will be deemed to be selected
for that item. Section 411(d)(6) of the Code prohibits the elimination of
protected benefits. In general, protected benefits include the forms and timing
of payout options. If the Plan is being adopted to amend and replace a Prior
Plan that permitted a distribution option described above, you must answer "Yes"
to that item.
- --------------------------------------------------------------------------------
SECTION 15. JOINT AND SURVIVOR ANNUITY
- --------------------------------------------------------------------------------
PART A. RETIREMENT EQUITY ACT SAFE HARBOR:
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: You must select "No" if you are adopting this Plan as an
amendment and restatement of a Prior Plan that was subject to the joint
and survivor annuity requirements.
PART B. SURVIVOR ANNUITY PERCENTAGE: (Complete only if your answer in Section
15, Part A is "No")
The survivor annuity portion of the Joint and Survivor Annuity shall be
a percentage equal to 50% (at least 50% but no more than 100%) of the
amount paid to the Participant prior to his or her death.
- --------------------------------------------------------------------------------
SECTION 16. OTHER OPTIONS
ANSWER "YES" OR "NO" TO EACH OF THE FOLLOWING QUESTIONS BY CHECKING THE
APPROPRIATE BOX. IF A BOX IS NOT CHECKED FOR A QUESTION, THE ANSWER WILL BE
DEEMED TO BE "NO.
- --------------------------------------------------------------------------------
A. Loans: Will loans to Participants pursuant to Section [X] Yes [ ] No
6.08 of the Plan be permitted?
B. Insurance: Will the Plan allow for the investment in [X] Yes [ ] No
insurance policies pursuant to Section 5.13 of the
Plan?
C. Employer Securities: Will the Plan allow for the [ ] Yes [X] No
investment in qualifying Employer securities or
qualifying Employer real property?
D. Rollover Contributions: Will Employees be permitted to [X] Yes [ ] No
make rollover contributions to the Plan pursuant to
Section 3.03 of the Plan? [ ] Yes, but only
after becoming
a Participant.
E. Transfer Contributions: Will Employees be permitted to [ ] Yes [X] No
make transfer contributions to the Plan pursuant to
Section 3.04 of the Plan? [ ] Yes, but only
after becoming
a Participant.
F. Nondeductible Employee Contributions: Will Employees be [ ] Yes [X] No
permitted to make Nondeductible Employee Contributions
pursuant to Section 11.305 of the Plan?
Check here if such contributions will be mandatory. [ ]
G. Will Participants be permitted to direct the investment [X] Yes [ ] No
of their Plan assets pursuant to Section 5.14 of the
Plan?
13
<PAGE> 14
- --------------------------------------------------------------------------------
SECTION 17. LIMITATION ON ALLOCATIONS
MORE THAN ONE PLAN.
- --------------------------------------------------------------------------------
If you maintain or ever maintained another qualified plan (other than a paired
standardized money purchase pension plan using the same Basic Plan Document as
this Plan) in which any Participant in this Plan is (or was) a Participant or
could become a Participant, you must complete this section. You must also
complete this section if you maintain a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(1)(2) of the Code, under which amounts are treated as annual
additions with respect to any Participant in this Plan.
PART C. INDIVIDUALLY DESIGNED DEFINED CONTRIBUTION PLAN:
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
1. [X] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of the
Plan will apply as if the other plan were a master or prototype
plan.
2. [ ] Other method. (Provide the method under which the plans will
limit total annual additions to the maximum permissible amount,
and will properly reduce any excess amounts, in a manner that
precludes Employer discretion.) _______________________________
_______________________________________________________________
_______________________________________________________________
PART D. DEFINED BENEFIT PLAN:
If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of Section
415(e) of the Code.
1. [X] If the projected annual addition to this Plan to the account of
a Participant for any limitation year would cause the 1.0
limitation of Section 415(e) of the Code to be exceeded, the
annual benefit of the defined benefit plan for such limitation
year shall be reduced so that the 1.0 limitation shall be
satisfied.
If it is not possible to reduce the annual benefit of the
defined benefit plan and the projected annual addition to this
Plan to the account of a Participant for a limitation year
would cause the 1.0 limitation to be exceeded, the Employer
shall reduce the Employer Contribution which is to be allocated
to this Plan on behalf of such Participant so that the 1.0
limitation will be satisfied. (The provisions of Section 415(e)
of the Code are incorporated herein by reference under the
authority of Section 1106(h) of the Tax Reform Act of 1986.)
2. [ ] Other method. (Provide language describing another method. Such
language must preclude Employer discretion.) __________________
_______________________________________________________________
_______________________________________________________________
- --------------------------------------------------------------------------------
SECTION 18. TOP-HEAVY MINIMUM
COMPLETE PARTS A AND B
- --------------------------------------------------------------------------------
PART E. MINIMUM ALLOCATION OR BENEFIT:
For any Plan Year with respect to which this Plan is a Top-Heavy Plan,
any minimum allocation required pursuant to Section 3.01(E) of the Plan
shall be made (Choose one):
OPTION 1: [X] To this Plan.
OPTION 2: [ ] To the following other plan maintained by the Employer
(Specify name and plan number of plan)
--------------------------------------------------------
--------------------------------------------------------
14
<PAGE> 15
OPTION 3: [ ] In accordance with the method described on an attachment
to this Adoption Agreement. (Attach language describing
the method that will be used to satisfy Section 416 of
the Code. Such method must preclude Employer
discretion.)
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART F. TOP-HEAVY VESTING SCHEDULE:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that will
apply when this Plan is a Top-Heavy Plan (unless the Plan's regular
vesting schedule provides for more rapid vesting) shall be (Choose
one):
OPTION 1: [X] 6 Year Graded.
OPTION 2: [ ] 3 Year Cliff.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 19. PROTOTYPE SPONSOR
- --------------------------------------------------------------------------------
Name of Prototype Sponsor TRAVELERS INSURANCE COMPANY
------------------------------------------------------
Address ONE TOWER SQUARE, HARTFORD, CT 06183
------------------------------------------------------------------------
Telephone Number 888-822-4710
---------------------------------------------------------------
PERMISSIBLE INVESTMENTS
The assets of the Plan shall be invested only in those investments described
below (To be completed by the Prototype Sponsor):
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 20. TRUSTEE OR CUSTODIAN
- --------------------------------------------------------------------------------
OPTION A: [X] Financial Organization as Trustee or Custodian
CHECK ONE: [X] Custodian, [ ] Trustee without full trust powers, or
[ ] Trustee with full trust powers
Financial Organization SMITH BARNEY
---------------------------------------------------------
Signature
----------------------------------------------------------------------
Type Name
----------------------------------------------------------------------
COLLECTIVE OR COMMINGLED FUNDS
List any collective or commingled funds maintained by the financial organization
Trustee in which assets of the Plan may be invested (Complete if applicable).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION B: [X] Individual Trustee(s)
Signature /s/ Elma S. Hawkins Signature
----------------------- ----------------------------
Type Name /s/ Elma S. Hawkins Type Name
----------------------- ----------------------------
Signature Signature
----------------------- ----------------------------
Type Name Type Name
----------------------- ----------------------------
- --------------------------------------------------------------------------------
SECTION 21. RELIANCE
- --------------------------------------------------------------------------------
15
<PAGE> 16
An Employer who has ever maintained or who later adopts any plan (including a
welfare benefit fund, as defined in Section 419(e) of the Code, which provides
post-retirement medical benefits allocated to separate accounts for key
employees, as defined in Section A(d)(3) of the Code, or an individual medical
account, as defined in Section 415(1)(2) of the Code) in addition to this Plan
(other than a paired standardized money purchase pension plan using the same
Basic Plan Document as this Plan) may not rely on the opinion letter issued by
the National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Section 401 of the Internal Revenue Code. If the Employer who
adopts or maintains multiple plans wishes to obtain reliance that his or her
plan(s) are qualified, application for a determination letter should be made to
the appropriate Key District Director of Internal Revenue.
The Employer may not rely on the opinion letter issued by the National Office of
the Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the code unless the terms of the Plan, as herein adopted or
amended, that pertain to the requirements of Sections 401(a)(4), 401(a)(17),
401(1), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax Reform
Act of 1986, or later laws, (a) are made effective retroactively to the first
day of the first Plan Year beginning after December 31, 1988 (or such later date
on which these requirements first become effective with respect to this Plan);
or (b) are made effective no later than the first day on which the Employer is
no longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Basic Plan Document
No. 04.
- --------------------------------------------------------------------------------
SECTION 22. EMPLOYER SIGNATURE
IMPORTANT: PLEASE READ BEFORE SIGNING
- --------------------------------------------------------------------------------
I am an authorized representative of the Employer named above and I state the
following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal tax implications of
adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement
may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments
made to the Plan and will notify me should it discontinue or abandon the
Plan.
4. I have received a copy of this Adoption Agreement and the corresponding
Basic Plan Document.
Signature for Employer /s/ Elma S. Hawkins Date Signed 8/13/97
------------------------ -----------------
Type Name Elma S Hawkins Title Chief Operating Officer
------------------------------------- -------------------------
16
<PAGE> 17
QUALIFIED RETIREMENT PLAN/403(b)
LOAN DISCLOSURE
================================================================================
As a participant in the qualified retirement plan/403(b) adopted by your
employer, you may be able to borrow a portion of your vested account balance.
The loan program adopted by your employer is available on a uniform basis to all
parties in interest to the plan who meet loan qualification requirements. For
additional information about the loan program available under your employer's
plan, contact the loan program administrator listed below.
NOTE: THIS LOAN DISCLOSURE CONSTITUTES PART OF THE SUMMARY PLAN DESCRIPTION
(SPD) OF YOUR QUALIFIED RETIREMENT PLAN AND SHOULD BE KEPT WITH YOUR OTHER SPD
DOCUMENTS.
- --------------------------------------------------------------------------------
PLAN LOAN INFORMATION
- --------------------------------------------------------------------------------
Plan Name Antigenics 401(k)
----------------------------------------------------------------------
Plan Number 001 Plan Year-End 12-31
-------------------------- --------------------------
- --------------------------------------------------------------------------------
EFFECTIVE DATE
- --------------------------------------------------------------------------------
The effective date of the plan loan program is 01-01-1997
---------------------------------
- --------------------------------------------------------------------------------
LOAN PROGRAM ADMINISTRATOR
- --------------------------------------------------------------------------------
The person responsible for administering your loan program is ELENA HAWKINS
Your loan program administrator may be reached at the following address and/or
telephone number: 212-332-4774
--------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN APPLICATION PROCEDURE
- --------------------------------------------------------------------------------
To apply for a loan under this plan, you must complete and return to the loan
program administrator a Loan Application Form, furnishing all information
requested and pay any required loan application processing fees. In addition,
you must follow the procedures described below. (specify)
-----------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIMITATIONS ON TYPES OF LOANS
- --------------------------------------------------------------------------------
Loans from this plan may be used for the following purposes:
[X] all
[ ] purchase of your principal residence
[ ] post-secondary tuition for you or your immediate family
[ ] medical expenses for you or your immediate family
[ ] rent or mortgage payments to prevent eviction or foreclosure from your
principal residence
[ ] other (specify)
-------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN APPROVAL STANDARDS
- --------------------------------------------------------------------------------
Decisions approving or denying loans from this Plan will be based on the
following criteria:
[X] the value of your vested individual account balance
[ ] other (specify)
------------------------------------------------------------
<PAGE> 18
NOTE: LOAN APPROVAL BASIS SELECTED MUST NOT CAUSE LOANS TO BE MADE AVAILABLE ON
A DISCRIMINATORY BASIS.
- --------------------------------------------------------------------------------
LOAN PRINCIPAL LIMITATIONS
- --------------------------------------------------------------------------------
Loans from this plan shall be in a minimum amount of: $ 500.00 (may not exceed
$1,000.)
The maximum amount of all loans outstanding cannot exceed: [X] one-half of your
vested account balance or $50,000
[ ] other (specify)
-------------------------------------------------------------
NOTE: IF THE "OTHER" OPTION IS SELECTED, THE AMOUNT ENTERED CANNOT EXCEED THE
LESSER OF ONE-HALF THE VESTED BALANCE OR $50,000.
- --------------------------------------------------------------------------------
INTEREST CALCULATION
- --------------------------------------------------------------------------------
Interest on loans from this plan will be computed on the following basis:
[ ] prime rate (as specified in the Wall Street Journal)
-----------------------
- --------------------------------------------------------------------------------
[ ] prime rate (as specified in the Wall Street Journal) plus
-------------------
percent
-------------------------------------------------------------------------
[X] other (specify) the prime rate as of the first day of each month plus two
-----------------------------------------------------------
percent
-----------------------------------------------------------
NOTE: THE INTEREST RATE MUST BE COMPARABLE TO THAT CHARGED BY COMMERCIAL LENDERS
IN A SIMILAR TRANSACTION. ANY LOAN RENEWALS ARE SUBJECT TO INTEREST RATE
MODIFICATION.
- --------------------------------------------------------------------------------
COLLATERAL PLEDGE
- --------------------------------------------------------------------------------
A percentage of your vested account balance equal to the amount borrowed divided
by your vested account balance is pledged as security of repayment of loans
under this program.
- --------------------------------------------------------------------------------
DEFAULT PROVISIONS
- --------------------------------------------------------------------------------
The following are deemed to be acts of default under your qualified plan/403(b)
loan program:
* failure to remit payment in a timely manner as required under the Loan
Agreement
* breach of any of your obligations or duties under the Loan Agreement
* termination of employment
* other (specify)
------------------------------------------------------------
Upon default, your loan program administrator is entitled to foreclose its
security interest in your vested account balance pledged for repayment upon the
occurrence of an event which triggers a distribution of your benefits.
In addition, the loan program administrator will report as taxable any amounts
which are deemed distributed as a result of failing to make loan payments.
2
<PAGE> 19
QUALIFIED RETIREMENT PLAN AND TRUST
DEFINED CONTRIBUTION BASIC PLAN DOCUMENT 04
- --------------------------------------------------------------------------------
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with
initial capital letters shall, for the purpose of this Plan,
have the meanings set forth below unless the context indicates
that other meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it
adopts the Plan and Trust and thereby agrees to be bound by
all terms and conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BENEFICIARY
Means the individual or individuals designated pursuant to
Section 6.03(A) of the Plan.
1.04 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails
to complete more than 500 Hours of Service (or such lesser
number of Hours of Service specified in the Adoption Agreement
for this purpose).
1.05 BREAK IN VESTING SERVICE
Means a Plan Year (or other vesting computation period
described in Section 1.50) during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number
of Hours of Service specified in the Adoption Agreement for
this purpose).
1.06 CODE
Means the Internal Revenue Code of 1986 as amended from
time-to-time.
<PAGE> 20
1.07 COMPENSATION
A. Basic Definition
For Plan Years beginning on or after January 1, 1989,
the following definition of Compensation shall apply:
As elected by the Employer in the Adoption Agreement
(and if no election is made, W-2 wages will be deemed
to have been selected), Compensation shall mean one
of the following:
1. W-2 wages. Compensation is defined as
information required to be reported under
Sections 6041 and 6051, and 6052 of the Code
(Wages, tips and other compensation as
reported on Form W-2). Compensation is
defined as wages within the meaning of
Section 3401(a) of the Code and all other
payments of compensation to an Employee by
the Employer (in the course of the
Employer's trade or business) for which the
Employer is required to furnish the Employee
a written statement under Sections 6041(d)
and 6051(a)(3), and 6052 of the Code.
Compensation must be determined without
regard to any rules under Section 3401(a)
that limit the remuneration included in
wages based on the nature or location of the
employment or the services performed (such
as the exception for agricultural labor in
Section 3401(a)(2)).
2. Section 3401(a) wages. Compensation is
defined as wages within the meaning of
Section 3401(a) of the Code, for the
purposes of income tax withholding at the
source but determined without regard to any
rules that limit the remuneration included
in wages based on the nature or location of
the employment or the services performed
(such as the exception for agricultural
labor in Section 3401(a)(2)).
3. 415 safe-harbor compensation. Compensation
is defined as wages, salaries, and fees for
professional services and other amounts
received (without regard to whether or not
an amount is paid in cash) for personal
services actually rendered in the course of
employment with the Employer maintaining the
Plan to the extent that the amounts are
includible in gross income (including, but
not limited to, commissions paid salesmen,
compensation for services on the basis of a
percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other
expense allowances under a nonaccountable
plan (as described in 1.62-2(c)), and
excluding the following:
a. Employer contributions to a plan of
deferred compensation which are not
includible in the Employee's gross
income for the taxable year in which
contributed, or employer contributions
under a
2
<PAGE> 21
simplified employee pension plan to
the extent such contributions are
deductible by the Employee, or any
distributions from a plan of deferred
compensation;
b. Amounts realized from the exercise of
a nonqualified stock option, or when
restricted stock (or property) held by
the Employee either becomes freely
transferable or is no longer subject
to a substantial risk of forfeiture;
c. Amounts realized from the sale,
exchange or other disposition of stock
acquired under a qualified stock
option; and
d. Other amounts which received special
tax benefits, or contributions made by
the Employer (whether or not under a
salary reduction agreement) towards
the purchase of an annuity contract
described in Section 403(b) of the
Code (whether or not the contributions
are actually excludable from the gross
income of the Employee).
For any Self-Employed Individual covered under the
Plan, Compensation will mean Earned Income.
B. Determination Period And Other Rules
Compensation shall include only that Compensation
which is actually paid to the Participant during the
determination period. Except as provided elsewhere in
this Plan, the determination period shall be the Plan
Year unless the Employer has selected another period
in the Adoption Agreement. If the Employer makes no
election, the determination period shall be the Plan
Year.
Unless otherwise indicated in the Adoption Agreement,
Compensation shall include any amount which is
contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in
the gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
Where this Plan is being adopted as an amendment and
restatement to bring a Prior Plan into compliance
with the Tax Reform Act of 1986, such Prior Plan's
definition of Compensation shall apply for Plan Years
beginning before January 1, 1989.
C. Limits On Compensation
For years beginning after December 31, 1988 and
before January 1, 1994, the annual Compensation of
each Participant taken into account for determining
all benefits provided under the Plan for any
determination period shall not exceed $200,000. This
limitation shall be adjusted by the Secretary at the
same time and in the same manner as under Section 4
3
<PAGE> 22
15(d) of the Code, except that the dollar increase in
effect on January 1 of any calendar year is effective
for Plan Years beginning in such calendar year and
the first adjustment to the $200,000 limitation is
effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994,
the annual Compensation of each Participant taken
into account for determining all benefits provided
under the Plan for any Plan Year shall not exceed
$150,000, as adjusted for increases in the
cost-of-living in accordance with Section
401(a)(17)(B) of the Internal Revenue Code. The
cost-of-living adjustment in effect for a calendar
year applies to any determination period beginning in
such calendar year.
If the period for determining Compensation used in
calculating an Employee's allocation for a
determination period is a short Plan Year (i.e.,
shorter than 12 months), the annual Compensation
limit is an amount equal to the otherwise applicable
annual Compensation limit multiplied by a fraction,
the numerator of which is the number of months in the
short Plan Year, and the denominator of which is 12.
In determining the Compensation of a Participant for
purposes of this limitation, the rules of Section
414(q)(6) of the Code shall apply, except in applying
such rules, the term "family" shall include only the
spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19
before the close of the year. If, as a result of the
application of such rules the adjusted $200,000
limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the
integration level, if this Plan provides for
permitted disparity), the limitation shall be
prorated among the affected individuals in proportion
to each such individual's Compensation as determined
under this Section prior to the application of this
limitation.
If Compensation for any prior determination period is
taken into account in determining an Employee's
allocations or benefits for the current determination
period, the Compensation for such prior determination
period is subject to the applicable annual
Compensation limit in effect for that prior period.
For this purpose, in determining allocations in Plan
Years beginning on or after January 1, 1989, the
annual Compensation limit in effect for determination
periods beginning before that date is $200,000. In
addition, in determining allocations in Plan Years
beginning on or after January 1, 1994, the annual
Compensation limit in effect for determination
periods beginning before that date is $150,000.
1.08 CUSTODIAN
Means an entity specified in the Adoption Agreement as
Custodian or any duly appointed successor as provided in
Section 5.09.
4
<PAGE> 23
1.09 DISABILITY
Unless the Employer has elected a different definition in the
Adoption Agreement, Disability means the inability to engage
in any substantial, gainful activity by reason of any
medically determinable physical or mental impairment that can
be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months. The permanence and degree of such impairment shall be
supported by medical evidence.
1.10 EARLY RETIREMENT AGE
Means the age specified in the Adoption Agreement. The Plan
will not have an Early Retirement Age if none is specified in
the Adoption Agreement.
1.11 EARNED INCOME
Means the net earnings from self-employment in the trade or
business with respect to which the Plan is established, for
which personal services of the individual are a material
income-producing factor. Net earnings will be determined
without regard to items not included in gross income and the
deductions allocable to such items. Net earnings are reduced
by contributions by the Employer to a qualified plan to the
extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction
allowed to the Employer by Section 164(t) of the Code for
taxable years beginning after December 31, 1989.
1.12 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the
Adoption Agreement. However, as indicated in the Adoption
Agreement, certain provisions may have specific effective
dates. Further, where a separate date is stated in the Plan as
of which a particular Plan provision becomes effective, such
date will control with respect to that provision.
1.13 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be
the 12 consecutive month period commencing on the Employee's
Employment Commencement Date. The Employee's subsequent
Eligibility Computation Periods shall be the 12 consecutive
month periods commencing on the anniversaries of his or her
Employment Commencement Date; provided, however, if pursuant
to the Adoption Agreement, an Employee is required to complete
one or less Years of Eligibility Service to become a
Participant, then his or her subsequent Eligibility
Computation Periods shall be the Plan Years commencing with
the Plan Year beginning during his or her initial Eligibility
Computation Period. An Employee does not complete a Year of
Eligibility Service before the end of the 12 consecutive month
period regardless of when during such period the Employee
completes the required number of Hours of Service.
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<PAGE> 24
1.14 EMPLOYEE
Means any person employed by an Employer maintaining the Plan
or of any other employer required to be aggregated with such
Employer under Sections 4 14(b), (c), (m) or (0) of the Code.
The term Employee shall also include any Leased Employee
deemed to be an Employee of any Employer described in the
previous paragraph as provided in Section 414(n) or (0) of the
Code.
1.15 EMPLOYER
Means any corporation, partnership, sole-proprietorship or
other entity named in the Adoption Agreement and any successor
who by merger, consolidation, purchase or otherwise assumes
the obligations of the Plan. A partnership is considered to be
the Employer of each of the partners and a sole-proprietorship
is considered to be the Employer of a sole proprietor. Where
this Plan is being maintained by a union or other entity that
represents its member Employees in the negotiation of
collective bargaining agreements, the term Employer shall mean
such union or other entity.
1.16 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as
determined under this Plan.
1.17 EMPLOYMENT COMMENCEMENT DATE
An Employee's Employment Commencement date means the date the
Employee first performs an Hour of Service for the Employer.
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION
Means an Employer Contribution made pursuant to the Section of
the Adoption Agreement titled "Employer Profit Sharing
Contributions." The Employer may make Employer Profit Sharing
Contributions without regard to current or accumulated
earnings or profits.
1.19 ENTRY DATES
Means the first day of the Plan Year and the first day of the
seventh month of the Plan Year, unless the Employer has
specified different dates in the Adoption Agreement.
1.20 ERISA
Means the Employee Retirement Income Security Act of 1974 as
amended from time-to-time.
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<PAGE> 25
1.21 FORFEITURE
Means that portion of a Participant's Individual Account
derived from Employer Contributions which he or she is not
entitled to receive (i.e., the nonvested portion).
1.22 FUND
Means the Plan assets held by the Trustee for the
Participants' exclusive benefit.
1.23 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly
compensated active employees and highly compensated former
employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination
year and who, during the look-back year: (a) received
Compensation from the Employer in excess of $75,000 (as
adjusted pursuant to Section 415(d) of the Code); (b)received
Compensation from the Employer in excess of $50,000 (as
adjusted pursuant to Section 415(d) of the Code) and was a
member of the top-paid group for such year; or (c) was an
officer of the Employer and received Compensation during such
year that is greater than 50% of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code. The term Highly
Compensated Employee also includes: (a) Employees who are both
described in the preceding sentence if the term "determination
year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most
Compensation from the Employer during the determination year;
and (b) Employees who are 5% owners at any time during the
look-back year or determination year.
If no officer has satisfied the Compensation requirement of
(c) above during either a determination year or look-back
year, the highest paid officer for such year shall be treated
as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan
Year. The look-back year shall be the 12 month period
immediately preceding the determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior
to the determination year, performs no service for the
Employer during the determination year, and was a highly
compensated active employee for either the separation year or
any determination year ending on or after the Employee's 55th
birthday.
If an Employee is, during a determination year or look-back
year, a family member of either a 5% owner who is an active or
former Employee or a Highly Compensated Employee who is one of
the 10 most Highly Compensated Employees ranked on the basis
of Compensation paid by the Employer during such year, then
the family member and the 5% owner or top 10 Highly
Compensated Employee shall be aggregated. In such case, the
family member and 5% owner or top 10 Highly Compensated
Employee shall be treated as a single Employee receiving
Compensation and Plan contributions or benefits equal to the
sum of such Compensation and contributions or benefits
7
<PAGE> 26
equal to the sum of such Compensation and contributions or
benefits of the family member and 5% owner or top 10 Highly
Compensated Employee. For purposes of this Section, family
member includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
Employees in the top-paid group, the top 100 Employees, the
number of Employees treated as officers and the Compensation
that is considered, will be made in accordance with Section
414(q) of the Code and the regulations thereunder.
1.24 HOURS OF SERVICE - Means
A. Each hour for which an Employee is paid, or entitled
to payment, for the performance of duties for the
Employer. These hours will be credited to the
Employee for the computation period in which the
duties are performed; and
B. Each hour for which an Employee is paid, or entitled
to payment, by the Employer on account of a period of
time during which no duties are performed
(irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty,
military duty or leave of absence. No more than 501
Hours of Service will be credited under this
paragraph for any single continuous period (whether
or not such period occurs in a single computation
period). Hours under this paragraph shall be
calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations
which is incorporated herein by this reference; and
C. Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer. The same Hours of Service will not
be credited both under paragraph (A) or paragraph
(B), as the case may be, and under this paragraph
(C). These hours will be credited to the Employee for
the computation period or periods to which the award
or agreement pertains rather than the computation
period in which the award, agreement, or payment is
made.
D. Solely for purposes of determining whether a Break in
Eligibility Service or a Break in Vesting Service has
occurred in a computation period (the computation
period for purposes of determining whether a Break in
Vesting Service has occurred is the Plan Year or
other vesting computation period described in Section
1.50) an individual who is absent from work for
maternity or paternity reasons shall receive credit
for the Hours of Service which would otherwise have
been credited to such individual but for such
absence, or in any case in which such hours cannot be
determined, 8 Hours of Service per day of such
absence. For purposes of this paragraph, an absence
from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the
individual, (2) by reason of a birth of a child of
the individual, (3) by reason of the placement of a
child with the individual in connection with
8
<PAGE> 27
the adoption of such child by such individual, or (4)
for purposes of caring for such child for a period
beginning immediately following such birth or
placement. The Hours of Service credited under this
paragraph shall be credited (1) in the Eligibility
Computation Period or Plan Year or other vesting
computation period described in Section 1.50 in which
the absence begins if the crediting is necessary to
prevent a Break in Eligibility Service or a Break in
Vesting Service in the applicable period, or (2) in
all other cases, in the following Eligibility
Computation Period or Plan Year or other vesting
computation period described in Section 1.50.
E. Hours of Service will be credited for employment with
other members of an affiliated service group (under
Section 4 14(m) of the Code), a controlled group of
corporations (under Section 414(b) of the Code), or a
group of trades or businesses under common control
(under Section 4 14(c) of the Code) of which the
adopting. Employer is a member, and any other entity
required to be aggregated with the Employer pursuant
to Section 4 14(o) of the Code and the regulations
thereunder.
Hours of Service will also be credited for any
individual considered an Employee for purposes of
this Plan under Code Sections 4 14(n) or 4 14(o) and
the regulations thereunder.
F. Where the Employer maintains the plan of a
predecessor employer, service for such predecessor
employer shall be treated as service for the
Employer.
G. The above method for determining Hours of Service may
be altered as specified in the Adoption Agreement.
1.25 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan
for each Participant in accordance with Section 4.01.
1.26 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to
Section 5.05.
1.27 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under
Section 10.08.
1.28 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined
in accordance with Section 414(n)(6) of the Code) on a
substantially full time basis for a period of at least one
year, and such services are of a type historically performed
by Employees in the business field of the recipient
9
<PAGE> 28
Employer. Contributions or benefits provided a Leased Employee
by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as
provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the
recipient if: (1) such employee is covered by a money purchase
pension plan providing: (a) a nonintegrated employer
contribution rate of at least 10% of compensation, as defined
in Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Section 125,
Section 402(e)(3), Section 402(h)(l)(B) or Section 403(b) of
the Code, (b)immediate participation, and (c) full and
immediate vesting; and (2) Leased Employees do not constitute
more than 20% of the recipient's nonhighly compensated work
force.
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Means any contribution made to the Plan by or on behalf of a
Participant that is included in the Participant's gross income
in the year in which made and that is maintained under a
separate account to which earnings and losses are allocated.
1.30 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Agreement. However, if
the Employer enforces a mandatory retirement age which is less
than the Normal Retirement Age, such mandatory age is deemed
to be the Normal Retirement Age. If no age is specified in the
Adoption Agreement, the Normal Retirement Age shall be age 65.
1.31 OWNER - EMPLOYEE
Means an individual who is a sole proprietor, or who is a
partner owning more than 10% of either the capital or profits
interest of the partnership.
1.32 PARTICIPANT
Means any Employee or former Employee of the Employer who has
met the Plan's eligibility requirements, has entered the Plan
and who is or may become eligible to receive a benefit of any
type from this Plan or whose Beneficiary may be eligible to
receive any such benefit.
1.33 PLAN
Means the prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus
the corresponding Adoption Agreement as completed and signed
by the Employer.
1.34 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan
Administrator in accordance with Section 8.01.
10
<PAGE> 29
1.35 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's fiscal year or such other 12 consecutive month
period as is designated in the Adoption Agreement.
1.36 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this
Plan document as indicated in the Adoption Agreement.
1.37 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement that
makes this prototype plan available to employers for adoption.
1.38 QUALIFYING PARTICIPANT
Means a Participant who has satisfied the requirements
described in Section 3.01(B)(2) to be entitled to share in any
Employer Contribution (and Forfeitures, if applicable) for a
Plan Year.
1.39 RELATED EMPLOYER
Means an employer that may be required to be aggregated with
the Employer adopting this Plan for certain qualification
requirements under Sections 414(b), (c), (m) or (o) of the
Code (or any other employer that has ownership in common with
the Employer). A Related Employer may participate in this Plan
if so indicated in the Section of the Adoption Agreement
titled "Employer Information" or if such Related Employer
executes a Related Employer Participation Agreement.
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT
Means the agreement under this prototype Plan that a Related
Employer may execute to participate in this Plan.
1.41 SELF-EMPLOYED INDIVIDUAL
Means an individual who has Earned Income for the taxable year
from the trade or business for which the Plan is established;
also, an individual who would have had Earned Income but for
the fact that the trade or business had no net profits for the
taxable year.
1.42 SEPARATE FUND
Means a subdivision of the Fund held in the name of a
particular Participant representing certain assets held for
that Participant. The assets which comprise a Participant's
Separate Fund are those assets earmarked for him or her and
those assets subject to the Participant's individual direction
pursuant to Section 5.14.
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<PAGE> 30
1.43 TAXABLE WAGE BASE
Means, with respect to any taxable year, the contribution and
benefit base in effect under Section 230 of the Social
Security Act at the beginning of the Plan Year.
1.44 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer
shall occur whenever his or her status as an Employee of such
Employer ceases for any reason other than death. An Employee
who does not return to work for the Employer on or before the
expiration of an authorized leave of absence from such
Employer shall be deemed to have incurred a Termination of
Employment when such leave ends.
1.45 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is
determined to be such pursuant to Section 10.08.
1.46 TRUSTEE
Means an individual, individuals or corporation specified in
the Adoption Agreement as Trustee or any duly appointed
successor as provided in Section 5.09. Trustee shall mean
Custodian in the event the financial organization named as
Trustee does not have full trust powers.
1.47 VALUATION DATE
Means the date or dates as specified in the Adoption
Agreement. If no date is specified in the Adoption Agreement,
the Valuation Date shall be the last day of the Plan Year and
each other date designated by the Plan Administrator which is
selected in a uniform and nondiscriminatory manner when the
assets of the Fund are valued at their then fair market value.
1.48 VESTED
Means nonforfeitable, that is, a claim which is unconditional
and legally enforceable against the Plan obtained by a
Participant or the Participant's Beneficiary to that part of
an immediate or deferred benefit under the Plan which arises
from a Participant's Years of Vesting Service.
1.49 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee
completes at least 1,000 Hours of Service (or such lesser
number of Hours of Service specified in the Adoption Agreement
for this purpose). An Employee does not complete a Year of
Eligibility Service before the end of the 12 consecutive month
period regardless of when during such period the Employee
completes the required number of Hours of Service.
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<PAGE> 31
1.50 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least
1,000 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose).
Notwithstanding the preceding sentence, where the Employer so
indicates in the Adoption Agreement, vesting shall be computed
by reference to the 12 consecutive month period beginning with
the Employee's Employment Commencement Date and each
successive 12 month period commencing on the anniversaries
thereof.
In the case of a Participant who has 5 or more consecutive
Breaks in Vesting Service, all Years of Vesting Service after
such Breaks in Vesting Service will be disregarded for the
purpose of determining the Vested portion of his or her
Individual Account derived from Employer Contributions that
accrued before such breaks. Such Participant's prebreak
service will count in vesting the postbreak Individual Account
derived from Employer Contributions only if either:
(A) such Participant had any Vested right to any portion
of his or her Individual Account derived from
Employer Contributions at the time of his or her
Termination of Employment; or
(B) upon returning to service, the number of consecutive
Breaks in Vesting Service is less than his or her
number of Years of Vesting Service before such
breaks.
Separate subaccounts will be maintained for the Participant's
prebreak and postbreak portions of his or her Individual
Account derived from Employer Contributions. Both subaccounts
will share in the gains and losses of the Fund.
Years of Vesting Service shall not include any period of time
excluded from Years of Vesting Service in the Adoption
Agreement.
In the event the Plan Year is changed to a new 12-month
period, Employees shall receive credit for Years of Vesting
Service, in accordance with the preceding provisions of this
definition, for each of the Plan Years (the old and new Plan
Years) which overlap as a result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who
belong to a class of Employees which is excluded from
participation as indicated in the Adoption Agreement, shall be
eligible to participate in this Plan upon the satisfaction of
the age and Years of Eligibility Service requirements
specified in the Adoption Agreement.
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<PAGE> 32
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by
amendment or restatement, each Employee of the
Employer who was a Participant in said Prior Plan
before the Effective Date shall continue to be a
Participant in this Plan.
B. An Employee will become a Participant in the Plan as
of the Effective Date if the Employee has met the
eligibility requirements of Section 2.01 as of such
date. After the Effective Date, each Employee shall
become a Participant on the first Entry Date
following the date the Employee satisfies the
eligibility requirements of Section 2.01 unless
otherwise indicated in the Adoption Agreement.
C. The Plan Administrator shall notify each Employee who
becomes eligible to be a Participant under this Plan
and shall furnish the Employee with the application
form, enrollment forms or other documents which are
required of Participants. The eligible Employee shall
execute such forms or documents and make available
such information as may be required in the
administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible
to participate because he or she is no longer a member of an
eligible class of Employees, but has not incurred a Break in
Eligibility Service, such Employee shall participate
immediately upon his or her return to an eligible class of
Employees. If such Employee incurs a Break in Eligibility
Service, his or her eligibility to participate shall be
determined by Section 2.04.
An Employee who is not a member of the eligible class of
Employees will become a Participant immediately upon becoming
a member of the eligible class provided such Employee has
satisfied the age and Years of Eligibility Service
requirements. If such Employee has not satisfied the age and
Years of Eligibility Service requirements as of the date he or
she becomes a member of the eligible class, such Employee
shall become a Participant on the first Entry Date following
the date he or she satisfies those requirements unless
otherwise indicated in the Adoption Agreement.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILiTY SERVICE
A. Employee Not Participant Before Break - If an
Employee incurs a Break in Eligibility Service before
satisfying the Plan's eligibility requirements, such
Employee's Years of Eligibility Service before such
Break in Eligibility Service will not be taken into
account.
B. Nonvested Participants - In the case of a Participant
who does not have a Vested interest in his or her
Individual Account derived from Employer
Contributions, Years of Eligibility Service before a
period of consecutive Breaks in Eligibility Service
will not be taken into account for eligibility
purposes if the number of consecutive Breaks in
Eligibility Service in
14
<PAGE> 33
such period equals or exceeds the greater of 5 or the
aggregate number of Years of Eligibility Service
before such break. Such aggregate number of Years of
Eligibility Service will not include any Years of
Eligibility Service disregarded under the preceding
sentence by reason of prior breaks.
If a Participant's Years of Eligibility Service are
disregarded pursuant to the preceding paragraph, such
Participant will be treated as a new Employee for
eligibility purposes. If a Participant's Years of
Eligibility Service may not be disregarded pursuant
to the preceding paragraph, such Participant shall
continue to participate in the Plan, or, if
terminated, shall participate immediately upon
reemployment.
C. Vested Participants - A Participant who has sustained
a Break in Eligibility Service and who had a Vested
interest in all or a portion of his or her Individual
Account derived from Employer Contributions shall
continue to participate in the Plan, or, if
terminated, shall participate immediately upon
reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise
provided herein or by law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact
that a common law Employee has become a Participant shall give
to that common law Employee any right to continued employment;
nor shall either fact limit the right of the Employer to
discharge or to deal otherwise with a common law Employee
without regard to the effect such treatment may have upon the
Employee's rights under the Plan.
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED
This Section 2.07 shall apply where the Employer has indicated
in the Adoption Agreement that the elapsed time method will be
used. When this Section applies, the definitions of year of
service, break in service and hour of service in this Section
will replace the definitions of Year of Eligibility Service,
Year of Vesting Service, Break in Eligibility Service, Break
in Vesting Service and Hours of Service found in the
Definitions Section of the Plan (Section One).
For purposes of determining an Employee's initial or continued
eligibility to participate in the Plan or the Vested interest
in the Participant's Individual Account balance derived from
Employer Contributions, (except for periods of service which
may be disregarded on account of the "rule of parity"
described in Sections 1.50 and 2.04) an Employee will receive
credit for the aggregate of all time period(s) commencing with
the Employee's first day of employment or reemployment and
ending on the date a break in service begins. The first day of
employment or reemployment is the first day the Employee
performs an hour of
15
<PAGE> 34
service. An Employee will also receive credit for any period
of severance of less than 12 consecutive months. Fractional
periods of a year will be expressed in terms of days.
For purposes of this Section, hour of service will mean each
hour for which an Employee is paid or entitled to payment for
the performance of duties for the Employer. Break in service
is a period of severance of at least 12 consecutive months.
Period of severance is a continuous period of time during
which the Employee is not employed by the Employer. Such
period begins on the date the Employee retires, quits or is
discharged, or if earlier, the 12 month anniversary of the
date on which the Employee was otherwise first absent from
service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12 consecutive month
period beginning on the first anniversary of the first date of
such absence shall not constitute a break in service. For
purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence (1) by reason of the
pregnancy of the individual, (2) by reason of the birth of a
child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of
such child by such individual, or (4) for purposes of caring
for such child for a period beginning immediately following
such birth or placement.
Each Employee will share in Employer Contributions for the
period beginning on the date the Employee commences
participation under the Plan and ending on the date on which
such Employee severs employment with the Employer or is no
longer a member of an eligible class of Employees.
If the Employer is a member of an affiliated service group
(under Section 414(m) of the Code), a controlled group of
corporations (under Section 414(b) of the Code), a group of
trades or businesses under common control (under Section 4
14(c) of the Code), or any other entity required to be
aggregated with the Employer pursuant to Section 414(o) of the
Code, service will be credited for any employment for any
period of time for any other member of such group. Service
will also be credited for any individual required under
Section 4 14(n) or Section 4 14(o) to be considered an
Employee of any Employer aggregated under Section 414(b), (c),
or (m) of the Code.
2.08 ELECTION NOT TO PARTICIPATE
This Section 2.08 will apply if this Plan is a nonstandardized
plan and the Adoption Agreement so provides. If this Section
applies, then an Employee or a Participant may elect not to
participate in the Plan for one or more Plan Years. The
Employer may not contribute for an Employee or Participant for
any Plan Year during which such Employee's or Participant's
election not to participate is in effect. Any election not to
participate must be in writing and filed with the Plan
Administrator.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules as it deems necessary or advisable to
carry out the terms of this Section, including, but not
limited to, rules prescribing the timing of the filing of
elections not to participate and the procedures for electing
to re-participate in the Plan.
16
<PAGE> 35
An Employee or Participant continues to earn credit for
vesting and eligibility purposes for each Year of Vesting
Service or Year of Eligibility Service he or she completes and
his or her Individual Account (if any) will share in the gains
or losses of the Fund during the periods he or she elects not
to participate.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer shall make
contributions to the Plan in accordance with the
contribution formula specified in the Adoption
Agreement. If this Plan is a profit sharing plan, the
Employer shall, in its sole discretion, make
contributions without regard to current or
accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the
Employer Contribution -
1. General - The Employer Contribution for any
Plan Year will be allocated or contributed
to the Individual Accounts of Qualifying
Participants in accordance with the
allocation or contribution formula specified
in the Adoption Agreement. The Employer
Contribution for any Plan Year will be
allocated to each Participant's Individual
Account as of the last day of that Plan
Year.
Any Employer Contribution for a Plan Year
must satisfy Section 401(a)(4) and the
regulations thereunder for such Plan Year.
2. Qualifying Participants - A Participant is a
Qualifying Participant and is entitled to
share in the Employer Contribution for any
Plan Year if the Participant was a
Participant on at least one day during the
Plan Year and satisfies any additional
conditions specified in the Adoption
Agreement. If this Plan is a standardized
plan, unless the Employer specifies more
favorable conditions in the Adoption
Agreement, a Participant will not be a
qualifying Participant for a Plan Year if he
or she incurs a Termination of Employment
during such Plan Year with not more than 500
Hours of Service if he or she is not an
Employee on the last day of the Plan Year.
The determination of whether a Participant
is entitled to share in the Employer
Contribution shall be made as of the last
day of each Plan Year.
3. Special Rules for Integrated Plans - This
Plan may not allocate contributions based on
an integrated formula if the Employer
maintains any other plan that provides for
allocation of contributions based on an
integrated formula that benefits any of the
same Participants. If the Employer has
selected the integrated contribution or
allocation formula in the Adoption
Agreement, then the maximum disparity rate
shall be determined in accordance with the
following table.
17
<PAGE> 36
<TABLE>
<CAPTION>
MAXIMUM DISPARITY RATE
Integration Level Top-Heavy Nonstandardized and
Money Purchase Profit Sharing Non-Top-Heavy Profit Sharing
<S> <C> <C> <C>
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than 20% of TWB 5.7% 2.7% 5.7%
More than 20% of TWB but
not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than TWB 5.4% 2.4% 5.4%
</TABLE>
C. Allocation of Forfeitures - Forfeitures for a Plan
Year which arise as a result of the application of
Section 6.01(D) shall be allocated as follows:
1. Profit Sharing Plan - If this is a profit
sharing plan, unless the Adoption Agreement
indicates otherwise, Forfeitures shall be
allocated in the manner provided in Section
3.01(B) (for Employer Contributions) to the
Individual Accounts of Qualifying
Participants who are entitled to share in
the Employer Contribution for such Plan
Year. Forfeitures shall be allocated as of
the last day of the Plan Year during which
the Forfeiture arose (or any subsequent Plan
Year if indicated in the Adoption
Agreement).
2. Money Purchase Pension and Target Benefit
Plan - If this Plan is a money purchase plan
or a target benefit plan, unless the
Adoption Agreement indicates otherwise,
Forfeitures shall be applied towards the
reduction of Employer Contributions to the
Plan. Forfeitures shall be allocated as of
the last day of the Plan Year during which
the Forfeiture arose (or any subsequent Plan
Year if indicated in the Adoption
Agreement).
D. Timing of Employer Contribution - The Employer
Contribution for each Plan Year shall be delivered to
the Trustee (or Custodian, if applicable) not later
than the due date for filing the Employer's income
tax return for its fiscal year in which the Plan Year
ends, including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The
contribution and allocation provisions of this
Section 3.01(E) shall apply for any Plan Year with
respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4)
below, the Employer Contributions and
Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall
not be less than the lesser of 3% of such
Participant's Compensation or (in the case
where the Employer has no defined benefit
plan which
18
<PAGE> 37
designates this Plan to satisfy Section 401
of the Code) the largest percentage of
Employer Contributions and Forfeitures, as a
percentage of the first $200,000 ($150,000
for Plan Years beginning after December 31,
1993), (increased by any cost of living
adjustment made by the Secretary of Treasury
or the Secretary's delegate) of the Key
Employee's Compensation, allocated on behalf
of any Key Employee for that year. The
minimum allocation is determined without
regard to any Social Security contribution.
The Employer may, in the Adoption Agreement,
limit the Participants who are entitled to
receive the minimum allocation. This minimum
allocation shall be made even though under
other Plan provisions, the Participant would
not otherwise be entitled to receive an
allocation, or would have received a lesser
allocation for the year because of (a) the
Participant's failure to complete 1,000
Hours of Service (or any equivalent provided
in the Plan), or (b) the Participant's
failure to make mandatory Nondeductible
Employee Contributions to the Plan, or (c)
Compensation less than a stated amount.
2. For purposes of computing the minimum
allocation, Compensation shall mean
Compensation as defined in Section 1.07 of
the Plan and shall include any amounts
contributed by the Employer pursuant to a
salary reduction agreement and which is not
includible in the gross income of the
Employee under Sections 125, 402(e)(3),
402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to exclude such
contributions in the definition of
Compensation used for other purposes under
the Plan.
3. The provision in (1) above shall not apply
to any Participant who was not employed by
the Employer on the last day of the Plan
Year.
4. The provision in (1) above shall not apply
to any Participant to the extent the
Participant is covered under any other plan
or plans of the Employer and the Employer
has provided in the adoption agreement that
the minimum allocation or benefit
requirement applicable to Top-Heavy Plans
will be met in the other plan or plans.
5. The minimum allocation required under this
Section 3.01(E) and Section 3.0l(F)(1) (to
the extent required to be nonforfeitable
under Code Section 4 16(b)) may not be
forfeited under Code Section 41 1(a)(3)(B)
or 41 1(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer
maintains paired plans if the Employer has adopted
both a standardized profit sharing plan and a
standardized money purchase pension plan using this
Basic Plan Document.
19
<PAGE> 38
1. Minimum Allocation - When the paired plans
are top-heavy, the top-heavy requirements
set forth in Section 3.01(E)(1) of the Plan
shall apply.
a. Same eligibility requirements. In
satisfying the top-heavy minimum
allocation requirements set forth in
Section 3.01(E) of the Plan, if the
Employees benefiting under each of the
paired plans are identical, the
top-heavy minimum allocation shall be
made to the money purchase pension
plan.
b. Different eligibility requirements. In
satisfying the top-heavy minimum
allocation requirements set forth in
Section 3.01(E) of the Plan, if the
Employees benefiting under each of the
paired plans are not identical, the
top-heavy minimum allocation will be
made to both of the paired plans.
A Participant is treated as benefiting
under the Plan for any Plan Year
during which the Participant received
or is deemed to receive an allocation
in accordance with
Section 1 .410(b)-3(a).
2. Only One Plan Can Be Integrated - If the
Employer maintains paired plans, only one of
the Plans may provide for the disparity in
contributions which is permitted under
Section 40 1(l) of the Code. In the event
that both Adoption Agreements provide for
such integration, only the money purchase
pension plan shall be deemed to be
integrated.
G. Return of the Employer Contribution to the Employer
Under Special Circumstances - Any contribution made
by the Employer because of a mistake of fact must be
returned to the Employer within one year of the
contribution.
In the event that the Commissioner of Internal
Revenue determines that the Plan is not initially
qualified under the Code, any contributions made
incident to that initial qualification by the
Employer must be returned to the Employer within one
year after the date the initial qualification is
denied, but only if the application for qualification
is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the
Plan is adopted, or such later date as the Secretary
of the Treasury may prescribe.
In the event that a contribution made by the Employer
under this Plan is conditioned on deductibility and
is not deductible under Code Section 404, the
contribution, to the extent of the amount disallowed,
must be returned to the Employer within one year
after the deduction is disallowed.
20
<PAGE> 39
H. Omission of Participant
1. If the Plan is a money purchase plan or a
target benefit plan and, if in any Plan
Year, any Employee who should be included as
a Participant is erroneously omitted and
discovery of such omission is not made until
after a contribution by the Employer for the
year has been made and allocated, the
Employer shall make a subsequent
contribution to include earnings thereon,
with respect to the omitted Employee in the
amount which the Employer would have
contributed with respect to that Employee
had he or she not been omitted.
2. If the Plan is a profit sharing plan, and if
in any Plan Year, any Employee who should be
included as a Participant is erroneously
omitted and discovery of such omission is
not made until after the Employer
Contribution has been made and allocated,
then the Plan Administrator must re-do the
allocation (if a correction can be made) and
inform the Employee. Alternatively, the
Employer may choose to contribute for the
omitted Employee the amount to include
earnings thereon, which the Employer would
have contributed for the Employee.
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
This Plan will not accept Nondeductible Employee Contributions
and matching contributions for Plan Years beginning after the
Plan Year in which this Plan is adopted by the Employer.
Nondeductible Employee Contributions for Plan Years beginning
after December 31, 1986, together with any matching
contributions as defined in Section 401(m) of the Code, will
be limited so as to meet the nondiscrimination test of Section
40 1(m) of the Code.
A separate account will be maintained by the Plan
Administrator for the Nondeductible Employee Contributions of
each Participant.
A Participant may, upon a written request submitted to the
Plan Administrator withdraw the lesser of the portion of his
or her Individual Account attributable to his or her
Nondeductible Employee Contributions or the amount he or she
contributed as Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will
be nonforfeitable at all times. No Forfeiture will occur
solely as a result of an Employee's withdrawal of
Nondeductible Employee Contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning
after December 31, 1986. Contributions made prior to that date
will be maintained in a separate account which will be
nonforfeitable at all times. The account will share in the
gains and losses of the Fund in the same manner as described
in Section 4.03 of the Plan. No part of the deductible
employee contribution account will be used to purchase life
insurance. Subject to Section 6.05, joint and survivor annuity
requirements (if applicable),
21
<PAGE> 40
the Participant may withdraw any part of the deductible
employee contribution account by making a written application
to the Plan Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If so indicated in the Adoption Agreement, an Employee may
contribute a rollover contribution to the Plan. The Plan
Administrator may require the Employee to submit a written
certification that the contribution qualifies as a rollover
contribution under the applicable provisions of the Code. If
it is later determined that all or part of a rollover
contribution was ineligible to be rolled into the Plan, the
Plan Administrator shall direct that any ineligible amounts,
plus earnings attributable thereto, be distributed from the
Plan to the Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan
Administrator for each Employee's rollover contributions which
will be nonforfeitable at all times. Such account will share
in the income and gains and losses of the Fund in the manner
described in Section 4.03 and shall be subject to the Plan's
provisions governing distributions.
The Employer may, in a uniform and nondiscriminatory manner,
only allow Employees who have become Participants in the Plan
to make rollover contributions.
3.04 TRANSFER CONTRIBUTIONS
If so indicated in the Adoption Agreement, the Trustee (or
Custodian, if applicable) may receive any amounts transferred
to it from the trustee or custodian of another plan qualified
under Code Section 40 1(a). If it is later determined that all
or part of a transfer contribution was ineligible to be
transferred into the Plan, the Plan Administrator shall direct
that any ineligible amounts, plus earnings attributable
thereto, be distributed from the Plan to the Employee as soon
as administratively feasible.
A separate account shall be maintained by the Plan
Administrator for each Employee's transfer contributions which
will be nonforfeitable at all times. Such account will share
in the income and gains and losses of the Fund in the manner
described in Section 4.03 and shall be subject to the Plan's
provisions governing distributions.
The Employer may, in a uniform and nondiscriminatory manner,
only allow Employees who have become Participants in the Plan
to make transfer contributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has
never participated in another qualified plan
maintained by the Employer or a welfare benefit fund,
as defined in Section 4 19(e) of the Code maintained
by the Employer, or an individual medical account, as
defined
22
<PAGE> 41
in Section 415(l)(2) of the Code, or a simplified
employee pension plan, as defined in Section 408(k)
of the Code, maintained by the Employer, which
provides an annual addition as defined in Section
3.08(E)(l), the following rules shall apply:
1. The amount of annual additions which may be
credited to the Participant's Individual
Account for any limitation year will not
exceed the lesser of the maximum permissible
amount or any other limitation contained in
this Plan. If the Employer Contribution that
would otherwise be contributed or allocated
to the Participant's Individual Account
would cause the annual additions for the
limitation year to exceed the maximum
permissible amount, the amount contributed
or allocated will be reduced so that the
annual additions for the limitation year
will equal the maximum permissible amount.
2. Prior to determining the Participant's
actual Compensation for the limitation year,
the Employer may determine the maximum
permissible amount for a Participant on the
basis of a reasonable estimation of the
Participant's Compensation for the
limitation year, uniformly determined for
all Participants similarly situated.
3. As soon as is administratively feasible
after the end of the limitation year, the
maximum permissible amount for the
limitation year will be determined on the
basis of the Participant's actual
Compensation for the limitation year.
4. If pursuant to Section 3.05(A)(3) or as a
result of the allocation of Forfeitures
there is an excess amount, the excess will
be disposed of as follows:
a. Any Nondeductible Employee
Contributions, to the extent they
would reduce the excess amount, will
be returned to the Participant;
b. If after the application of paragraph
(a) an excess amount still exists, and
the Participant is covered by the Plan
at the end of the limitation year, the
excess amount in the Participant's
Individual Account will be used to
reduce Employer Contributions
(including any allocation of
Forfeitures) for such Participant in
the next limitation year, and each
succeeding limitation year if
necessary;
c. If after the application of paragraph
(b) an excess amount still exists, and
the Participant is not covered by the
Plan at the end of a limitation year,
the excess amount will be held
unallocated in a suspense account. The
suspense account will be applied to
reduce future Employer Contributions
(including allocation of any
Forfeitures) for all remaining
Participants in the next limitation
year, and each succeeding limitation
year if necessary;
23
<PAGE> 42
d. If a suspense account is in existence
at any time during a limitation year
pursuant to this Section, it will not
participate in the allocation of the
Fund's investment gains and losses. If
a suspense account is in existence at
any time during a particular
limitation year, all amounts in the
suspense account must be allocated and
reallocated to Participants'
Individual Accounts before any
Employer Contributions or any
Nondeductible Employee Contributions
may be made to the Plan for that
limitation year. Excess amounts may
not be distributed to Participants or
former Participants.
B. If, in addition to this Plan, the Participant is
covered under another qualified master or prototype
defined contribution plan maintained by the Employer,
a welfare benefit fund maintained by the Employer, an
individual medical account maintained by the
Employer, or a simplified employee pension maintained
by the Employer that provides an annual addition as
defined in Section 3.05(E)(1), during any limitation
year the following rules apply:
1. The annual additions which may be credited
to a Participant's Individual Account under
this Plan for any such limitation year will
not exceed the maximum permissible amount
reduced by the annual additions credited to
a Participant's Individual Account under the
other qualified master or prototype plans,
welfare benefit funds, individual medical
accounts and simplified employee pensions
for the same limitation year. If the annual
additions with respect to the Participant
under other qualified master or prototype
defined contribution plans, welfare benefit
funds, individual medical accounts and
simplified employee pensions maintained by
the Employer are less than the maximum
permissible amount and the Employer
Contribution that would otherwise be
contributed or allocated to the
Participant's Individual Account under this
Plan would cause the annual additions for
the limitation year to exceed this
limitation, the amount contributed or
allocated will be reduced so that the annual
additions under all such plans and funds for
the limitation year will equal the maximum
permissible amount. If the annual additions
with respect to the Participant under such
other qualified master or prototype defined
contribution plans, welfare benefit funds,
individual medical accounts and simplified
employee pensions in the aggregate are equal
to or greater than the maximum permissible
amount, no amount will be contributed or
allocated to the Participant's Individual
Account under this Plan for the limitation
year.
2. Prior to determining the Participant's
actual Compensation for the limitation year,
the Employer may determine the maximum
permissible amount for a Participant in the
manner described in Section 3.05(A)(2).
24
<PAGE> 43
3. As soon as is administratively feasible
after the end of the limitation year, the
maximum permissible amount for the
limitation year will be determined on the
basis of the Participant's actual
Compensation for the limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a
result of the allocation of Forfeitures a
Participant's annual additions under this
Plan and such other plans would result in an
excess amount for a limitation year, the
excess amount will be deemed to consist of'
the annual additions last allocated, except
that annual additions attributable to a
simplified employee pension will be deemed
to have been allocated first, followed by
annual additions to a welfare benefit fund
or individual medical account, regardless of
the actual allocation date.
5. If an excess amount was allocated to a
Participant on an allocation date of this
Plan which coincides with an allocation date
of another plan, the excess amount
attributed to this Plan will be the product
of,
a. the total excess amount allocated as
of such date, times
b. the ratio of (i) the annual additions
allocated to the Participant for the
limitation year as of such date under
this Plan to (ii) the total annual
additions allocated to the Participant
for the limitation year as of such
date under this and all the other
qualified prototype defined
contribution plans.
6. Any excess amount attributed to this Plan
will be disposed in the manner described in
Section 3.05(A)(4).
C. If the Participant is covered under another qualified
defined contribution plan maintained by the Employer
which is not a master or prototype plan, annual
additions which may be credited to the Participant's
Individual Account under this Plan for any limitation
year will be limited in accordance with Sections
3.05(B)(l) through 3.05(B)(6) as though the other
plan were a master or prototype plan unless the
Employer provides other limitations in the Section of
the Adoption Agreement titled "Limitation on
Allocation - More Than One Plan."
D. If the Employer maintains, or at any time maintained,
a qualified defined benefit plan covering any
Participant in this Plan, the sum of the
Participant's defined benefit plan fraction and
defined contribution plan fraction will not exceed
1.0 in any limitation year. The ANNUAL additions
which may be credited to the Participant's Individual
Account under this Plan for any limitation year will
be limited in accordance with the Section of the
Adoption Agreement titled "Limitation on Allocation -
More Than One Plan."
25
<PAGE> 44
E. The following terms shall have the following meanings
when used in this Section 3.05:
1. Annual additions: The sum of the following
amounts credited to a Participant's
Individual Account for the limitation year:
a. Employer Contributions,
b. Nondeductible Employee Contributions,
c. Forfeitures,
d. amounts allocated, after March 31,
1984, to an individual medical
account, as defined in Section
415(l)(2) of the Code, which is part
of a pension or annuity plan
maintained by the Employer are treated
as annual additions to a defined
contribution plan. Also amounts
derived from contributions paid or
accrued after December 31, 1985, in
taxable years ending after such date,
which are attributable to
post-retirement medical benefits,
allocated to the separate account of a
key employee, as defined in Section
419A(d)(3) of the Code, under a
welfare benefit fund, as defined in
Section 4 19(e) of the Code,
maintained by the Employer are treated
as annual additions to a defined
contribution plan, and
e. allocations under a simplified
employee pension.
For this purpose, any excess amount applied
under Section 3.05(A)(4) or 3.05(B)(6) in
the limitation year to reduce Employer
Contributions will be considered annual
additions for such limitation year.
2. Compensation: Means Compensation as defined
in Section 1.07 of the Plan except that
Compensation for purposes of this Section
3.05 shall not include any amounts
contributed by the Employer pursuant to a
salary reduction agreement and which is not
includible in the gross income of the
Employee under Sections 125, 402(e)(3),
402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to include such
contributions in the definition of
Compensation used for other purposes under
the Plan. Further, any other exclusion the
Employer has elected (such as the exclusion
of certain types of pay or pay earned before
the Employee enters the Plan) will not apply
for purposes of this Section.
Notwithstanding the preceding sentence,
Compensation for a Participant in a defined
contribution plan who is permanently and
totally disabled (as defined in Section
22(e)(3) of the Code) is the Compensation
such Participant would have received for
26
<PAGE> 45
the limitation year if the Participant had
been paid at the rate of Compensation paid
immediately before becoming permanently and
totally disabled; such imputed Compensation
for the disabled Participant may be taken
into account only if the Participant is not
a Highly Compensated Employee (as defined in
Section 414(q) of the Code) and
contributions made on behalf of such
Participant are nonforfeitable when made.
3. Defined benefit fraction: A fraction, the
numerator of which is the sum of the
Participant's projected annual benefits
under all the defined benefit plans (whether
or not terminated) maintained by the
Employer, and the denominator of which is
the lesser of 125% of the dollar limitation
determined for the limitation year under
Section 4 15(b) and (d) of the Code or 140%
of the highest average compensation,
including any adjustments under Section
415(b) of the Code.
Notwithstanding the above, if the
Participant was a Participant as of the
first day of the first limitation year
beginning after December 31, 1986, in one or
more defined benefit plans maintained by the
Employer which were in existence on May 6,
1986, the denominator of this fraction will
not be less than 125% of the sum of the
annual benefits under such plans which the
Participant had accrued as of the close of
the last limitation year beginning before
January 1, 1987, disregarding any changes in
the terms and conditions of the plan after
May 5, 1986. The preceding sentence applies
only if the defined benefit plans
individually and in the aggregate satisfied
the requirements of Section 415 of the Code
for all limitation years beginning before
January 1, 1987.
4. Defined contribution dollar limitation:
$30,000 or if greater, one-fourth of the
defined benefit dollar limitation set forth
in Section 415(b)(l) of the Code as in
effect for the limitation year.
5. Defined contribution fraction: A fraction,
the numerator of which is the sum of the
annual additions to the Participant's
account under all the defined contribution
plans (whether or not terminated) maintained
by the Employer for the current and all
prior limitation years (including the ANNUAL
additions attributable to the Participant's
nondeductible employee contributions to all
defined benefit plans, whether or not
terminated, maintained by the Employer, and
the animal additions attributable to all
welfare benefit funds, as defined in Section
419(e) of the Code, individual medical
accounts, and simplified employee pensions,
maintained by the Employer), and the
denominator of which is the sum of the
maximum aggregate amounts for the current
and all prior limitation years of service
with the Employer (regardless of whether a
defined contribution plan was maintained by
the Employer). The maximum aggregate amount
in any limitation year is the lesser of 125%
of the dollar
27
<PAGE> 46
limitation determined under Section 4 15(b)
and (d) of the Code in effect under Section
415(c)(l)(A) of the Code or 35% of the
Participant's Compensation for such year.
If the Employee was a Participant as of the
end of the first day of the first limitation
year beginning after December 31, 1986, in
one or more defined contribution plans
maintained by the Employer which were in
existence on May 6, 1986, the numerator of
this fraction will be adjusted if the sum of
this fraction and the defined benefit
fraction would otherwise exceed 1.0 under
the terms of this Plan. Under the
adjustment, an amount equal to the product
of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator
of this fraction, will be permanently
subtracted from the numerator of this
fraction. The adjustment is calculated using
the fractions as they would be computed as
of the end of the last limitation year
beginning before January 1, 1987, and
disregarding any changes in the terms and
conditions of the Plan made after May 5,
1986, but using the Section 415 limitation
applicable to the first limitation year
beginning on or after January 1, 1987.
The annual addition for any limitation year
beginning before January 1, 1987, shall not
be recomputed to treat all Nondeductible
Employee Contributions as annual additions.
6. Employer: For purposes of this Section 3.05,
Employer shall mean the Employer that adopts
this Plan, and all members of a controlled
group of corporations (as defined in Section
4 14(b) of the Code as modified by Section
415(h)), all commonly controlled trades or
businesses (as defined in Section 414(c) as
modified by Section 4 15(b)) or affiliated
service groups (as defined in Section
414(m)) of which the adopting Employer is a
part, and any other entity required to be
aggregated with the Employer pursuant to
regulations under Section 414(o) of the
Code.
7. Excess amount: The excess of the
Participant's annual additions for the
limitation year over the maximum permissible
amount.
8. Highest average compensation: The average
compensation for the three consecutive years
of service with the Employer that produces
the highest average.
9. Limitation year: A calendar year, or the
12-consecutive month period elected by the
Employer in the Adoption Agreement. All
qualified plans maintained by the Employer
must use the same limitation year. If the
limitation year is amended to a different
12-consecutive month period, the new
limitation year must begin on a date within
the limitation year in which the amendment
is made.
28
<PAGE> 47
10. Master or prototype plan: A plan the form of
which is the subject of a favorable opinion
letter from the Internal Revenue Service.
11. Maximum permissible amount: The maximum
annual addition that may be contributed or
allocated to a Participant's Individual
Account under the Plan for any limitation
year shall not exceed the lesser of:
a. the defined contribution dollar
limitation, or
b. 25% of the Participant's Compensation
for the limitation year.
The compensation limitation referred to in
(b) shall not apply to any contribution for
medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the
Code) which is otherwise treated as an
annual addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a short limitation year is created
because of an amendment changing the
limitation year to a different
12-consecutive month period, the maximum
permissible amount will not exceed the
defined contribution dollar limitation
multiplied by the following fraction:
Number of months in the short limitation year
---------------------------------------------
12
12. Projected annual benefit: The annual
retirement benefit (adjusted to an
actuarially equivalent straight life annuity
if such benefit is expressed in a form other
than a straight life annuity or qualified
joint and survivor annuity) to which the
Participant would be entitled under the
terms of the Plan assuming:
a. the Participant will continue
employment until Normal Retirement Age
under the Plan (or current age, if
later), and
b. the Participant's Compensation for the
current limitation year and all other
relevant factors used to determine
benefits under the Plan will remain
constant for all future limitation
years.
Straight life annuity means an annuity
payable in equal installments for the life
of the Participant that terminates upon the
Participants' death.
29
<PAGE> 48
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain
an Individual Account in the name of each Participant
to reflect the total value of his or her interest in
the Fund. Each Individual Account established
hereunder shall consist of such subaccounts as may be
needed for each Participant including:
1. a subaccount to reflect Employer
Contributions and Forfeitures allocated on
behalf of a Participant;
2. a subaccount to reflect a Participant's
rollover contributions;
3. a subaccount to reflect a Participant's
transfer contributions;
4. a subaccount to reflect a Participant's
Nondeductible Employee Contributions; and
5. a subaccount to reflect a Participant's
deductible employee contributions.
B. The Plan Administrator may establish additional
accounts as it may deem necessary for the proper
administration of the Plan, including, but not
limited to, a suspense account for Forfeitures as
required pursuant to Section 6.01(D).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at fair market
value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a
Participant's Individual Account are invested in a
Separate Fund for the Participant, then the value of
that portion of such Participant's Individual Account
at any relevant time equals the sum of the fair
market values of the assets in such Separate Fund,
less any applicable charges or penalties.
B. The fair market value of the remainder of each
Individual Account is determined in the following
manner:
1. First, the portion of the Individual Account
invested in each Investment Fund as of the
previous Valuation Date is determined. Each
such portion is reduced by any withdrawal
made from the applicable Investment Fund to
or for the benefit of a Participant or the
Participant's Beneficiary, further reduced
by any amounts forfeited by the Participant
pursuant to Section 6.01(D) and further
reduced by any transfer to another
30
<PAGE> 49
Investment Fund since the previous Valuation
Date and is increased by any amount
transferred from another Investment Fund
since the previous Valuation Date. The
resulting amounts are the net Individual
Account portions invested in the Investment
Funds.
2. Secondly, the net Individual Account
portions invested in each Investment Fund
are adjusted upwards or downwards, pro rata
(i.e., ratio of each net Individual Account
portion to the sum of all net Individual
Account portions) so that the sum of all the
net Individual Account portions invested in
an Investment Fund will equal the then fair
market value of the Investment Fund.
Notwithstanding the previous sentence, for
the first Plan Year only, the net Individual
Account portions shall be the sum of all
contributions made to each Participant's
Individual Account during the first Plan
Year.
3. Thirdly, any contributions to the Plan and
Forfeitures are allocated in accordance with
the appropriate allocation provisions of
Section 3. For purposes of Section 4,
contributions made by the Employer for any
Plan Year but after that Plan Year will be
considered to have been made on the last day
of that Plan Year regardless of when paid to
the Trustee (or Custodian, if applicable):
Amounts contributed between Valuation Dates
will not be credited with investment gains
or losses until the next following Valuation
Date.
4. Finally, the portions of the Individual
Account invested in each Investment Fund
(determined in accordance with (1), (2) and
(3) above) are added together.
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may
establish different or additional procedures (which shall be
uniform and nondiscriminatory) for determining the fair market
value of the Individual Accounts.
4.05 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a
lump sum, the Plan Administrator may place that Participant's
account balance into a segregated Investment Fund for the
purpose of maintaining the necessary liquidity to provide
benefit installments on a periodic basis.
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the
Plan Administrator shall furnish a statement to each
Participant indicating the Individual Account balances of such
Participant as of the last Valuation Date in such Plan Year.
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SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which
shall consist of the assets of the Plan held by the Trustee
(or Custodian, if applicable) pursuant to this Section 5.
Assets within the Fund may be pooled on behalf of all
Participants, earmarked on behalf of each Participant or be a
combination of pooled and earmarked. To the extent that assets
are earmarked for a particular Participant, they will be held
in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for,
or diverted to, purposes other than for the exclusive benefit
of Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual
direction of investments by Participants), the Employer, not
the Trustee (or Custodian, if applicable), shall have
exclusive management and control over the investment of the
Fund into any permitted investment. Notwithstanding the
preceding sentence, a Trustee may make an agreement with the
Employer whereby the Trustee will manage the investment of all
or a portion of the Fund. Any such agreement shall be in
writing and set forth such matters as the Trustee deems
necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST
POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with
respect to this Plan, as Custodian or as Trustee without full
trust powers (under applicable law). Hereinafter, a financial
organization Trustee without full trust powers (under
applicable law) shall be referred to as a Custodian. The
Custodian shall have no discretionary authority with respect
to the management of the Plan or the Fund but will act only as
directed by the entity who has such authority.
A. Permissible Investments - The assets of the Plan
shall be invested only in those investments which are
available through the Custodian in the ordinary
course of business which the Custodian may legally
hold in a qualified plan and which the Custodian
chooses to make available to Employers for qualified
plan investments. Notwithstanding the preceding
sentence, the Prototype Sponsor may, as a condition
of making the Plan available to the Employer, limit
the types of property in which the assets of the Plan
may be invested.
B. Responsibilities of the Custodian - The
responsibilities of the Custodian shall be limited to
the following:
1. To receive Plan contributions and to hold,
invest and reinvest the Fund without
distinction between principal and interest;
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<PAGE> 51
provided, however, that nothing in this Plan
shall require the Custodian to maintain
physical custody of stock certificates (or
other indicia of ownership of any type of
asset) representing assets within the Fund;
2. To maintain accurate records of
contributions, earnings, withdrawals and
other information the Custodian deems
relevant with respect to the Plan;
3. To make disbursements from the Fund to
Participants or Beneficiaries upon the
proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a
statement which reflects the value of the
investments in the hands of the Custodian as
of the end of each Plan Year and as of any
other times as the Custodian and Plan
Administrator may agree.
C. Powers of the Custodian - Except as otherwise
provided in this Plan, the Custodian shall have the
power to take any action with respect to the Fund
which it deems necessary or advisable to discharge
its responsibilities under this Plan including, but
not limited to, the following powers:
1. To invest all or a portion of the Fund
(including idle cash balances) in time
deposits, savings accounts, money market
accounts or similar investments bearing a
reasonable rate of interest in the
Custodian's own savings department or the
savings department of another financial
organization;
2. To vote upon any stocks, bonds, or other
securities; to give general or special
proxies or powers of attorney with or
without power of substitution; to exercise
any conversion privileges or subscription
rights and to make any payments incidental
thereto; to oppose, or to consent to, or
otherwise participate in, corporate
reorganizations or other changes affecting
corporate securities, and to pay any
assessment or charges in connection
therewith; and generally to exercise any of
the powers of an owner with respect to
stocks, bonds, securities or other property;
3. To hold securities or other property of the
Fund in its own name, in the name of its
nominee or in bearer form; and
4. To make, execute, acknowledge, and deliver
any and all documents of transfer and
conveyance and any and all other instruments
that may be necessary or appropriate to
carry out the powers herein granted.
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<PAGE> 52
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as
Trustee with full trust powers. This Section also applies
where one or more individuals are named in the Adoption
Agreement to serve as Trustee(s).
A. Permissible Investments - The Trustee may invest the
assets of the Plan in property of any character, real
or personal, including, but not limited to the
following: stocks, including shares of open-end
investment companies (mutual funds); bonds; notes;
debentures; options; limited partnership interests;
mortgages; real estate or any interests therein; unit
investment trusts; Treasury Bills, and other U.S.
Government obligations; common trust funds, combined
investment trusts, collective trust funds or
commingled funds maintained by a bank or similar
financial organization (whether or not the Trustee
hereunder); savings accounts, time deposits or money
market accounts of a bank or similar financial
organization (whether or not the Trustee hereunder);
annuity contracts; life insurance policies; or in
such other investments as is deemed proper without
regard to investments authorized by statute or rule
of law governing the investment of trust funds but
with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype
Sponsor may, as a condition of making the Plan
available to the Employer, limit the types of
property in which the assets of the Plan may be
invested.
B. Responsibilities of the Trustee - The
responsibilities of the Trustee shall be limited to
the following:
1. To receive Plan contributions and to hold,
invest and reinvest the Fund without
distinction between principal and interest;
provided, however, that nothing in this Plan
shall require the Trustee to maintain
physical custody of stock certificates (or
other indicia of ownership) representing
assets within the Fund;
2. To maintain accurate records of
contributions, earnings, withdrawals and
other information the Trustee deems relevant
with respect to the Plan;
3. To make disbursements from the Fund to
Participants or Beneficiaries upon the
proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a
statement which reflects the value of the
investments in the hands of the Trustee as
of the end of each Plan Year and as of any
other times as the Trustee and Plan
Administrator may agree.
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<PAGE> 53
C. Powers of the Trustee - Except as otherwise provided
in this Plan, the Trustee shall have the power to
take any action with respect to the Fund which it
deems necessary or advisable to discharge its
responsibilities under this Plan including, but not
limited to, the following powers:
1. To hold any securities or other property of
the Fund in its own name, in the name of its
nominee or in bearer form;
2. To purchase or subscribe for securities
issued, or real property owned, by the
Employer or any trade or business under
common control with the Employer but only if
the prudent investment and diversification
requirements of ERISA are satisfied;
3. To sell, exchange, convey, transfer or
otherwise dispose of any securities or other
property held by the Trustee, by private
contract or at public auction. No person
dealing with the Trustee shall be bound to
see to the application of the purchase money
or to inquire into the validity, expediency,
or propriety of any such sale or other
disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other
securities; to give general or special
proxies or powers of attorney with or
without power of substitution; to exercise
any conversion privileges or subscription
rights and to make any payments incidental
thereto; to oppose, or to consent to, or
otherwise participate in, corporate
reorganizations or other changes affecting
corporate securities, and to delegate
discretionary powers, and to pay any
assessments or charges in connection
therewith; and generally to exercise any of
the powers of an owner with respect to
stocks, bonds, securities or other property;
5. To invest any part or all of the Fund
(including idle cash balances) in
certificates of deposit, demand or time
deposits, savings accounts, money market
accounts or similar investments of the
Trustee (if the Trustee is a bank or similar
financial organization), the Prototype
Sponsor or any affiliate of such Trustee or
Prototype Sponsor, which bear a reasonable
rate of interest;
6. To provide sweep services without the
receipt by the Trustee of additional
compensation or other consideration (other
than reimbursement of direct expenses
properly and actually incurred in the
performance of such services);
7. To hold in the form of cash for distribution
or investment such portion of the Fund as,
at any time and from time-to-time, the
Trustee shall deem prudent and deposit such
cash in interest bearing or noninterest
bearing accounts;
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<PAGE> 54
8. To make, execute, acknowledge, and deliver
any and all documents of transfer and
conveyance and any and all other instruments
that may be necessary or appropriate to
carry out the powers herein granted;
9. To settle, compromise, or submit to
arbitration any claims, debts, or damages
due or owing to or from the Plan, to
commence or defend suits or legal or
administrative proceedings, and to represent
the Plan in all suits and legal and
administrative proceedings;
10. To employ suitable agents and counsel, to
contract with agents to perform
administrative and recordkeeping duties and
to pay their reasonable expenses, fees and
compensation, and such agent or counsel may
or may not be agent or counsel for the
Employer;
11. To cause any part or all of the Fund,
without limitation as to amount, to be
commingled with the funds of other trusts
(including trusts for qualified employee
benefit plans) by causing such money to be
invested as a part of any pooled, common,
collective or commingled trust fund
(including any such fund described in the
Adoption Agreement) heretofore or hereafter
created by any Trustee (if the Trustee is a
bank), by the Prototype Sponsor, by any
affiliate bank of such a Trustee or by such
a Trustee or the Prototype Sponsor, or by
such an affiliate in participation with
others; the instrument or instruments
establishing such trust fund or funds, as
amended, being made part of this Plan and
trust so long as any portion of the Fund
shall be invested through the medium
thereof; and
12. Generally to do all such acts, execute all
such instruments, initiate such proceedings,
and exercise all such rights and privileges
with relation to property constituting the
Fund as if the Trustee were the absolute
owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian) from
time-to-time to divide and redivide the Fund into one or more
Investment Funds. Such Investment Funds may include, but not
be limited to, Investment Funds representing the assets under
the control of an investment manager pursuant to Section 5.12
and Investment Funds representing investment options available
for individual direction by Participants pursuant to Section
5.14. Upon each division or redivision, the Employer may
specify the part of the Fund to be allocated to each such
Investment Fund and the terms and conditions, if any, under
which the assets in such Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such
reasonable compensation as may be agreed upon by the Trustee
(or Custodian) and the
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<PAGE> 55
Employer. The Trustee (or Custodian) shall be entitled to
reimbursement by the Employer for all proper expenses incurred
in carrying out his or her duties under this Plan, including
reasonable legal, accounting and actuarial expenses. If not
paid by the Employer, such compensation and expenses may be
charged against the Fund.
All taxes of any kind that may be levied or assessed under
existing or future laws upon, or in respect of, the Fund or
the income thereof shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if
applicable) and Plan Administrator the information which each
party deems necessary for the administration of the Plan
including, but not limited to, changes in a Participant's
status, eligibility, mailing addresses and other such data as
may be required. The Trustee (or Custodian) and Plan
Administrator shall be entitled to act on such information as
is supplied them and shall have no duty or responsibility to
further verify or question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding
federal income taxes from distributions from the Plan, unless
the Participant (or Beneficiary, where applicable) elects not
to have such taxes withheld. The Trustee (or Custodian) or
other payor may act as agent for the Plan Administrator to
withhold such taxes and to make the appropriate distribution
reports, if the Plan Administrator furnishes all the
information to the Trustee (or Custodian) or other payor it
may need to do withholding and reporting.
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any
time by giving 30 days advance written notice to the Employer.
The resignation shall become effective 30 days after receipt
of such notice unless a shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time
by giving written notice to such Trustee (or Custodian) and
such removal shall be effective 30 days after receipt of such
notice unless a shorter period is agreed upon. The Employer
shall have the power to appoint a successor Trustee (or
Custodian).
Upon such resignation or removal, if the resigning or removed
Trustee (or Custodian) is the sole Trustee (or Custodian), he
or she shall transfer all of the assets of the Fund then held
by such Trustee (or Custodian) as expeditiously as possible to
the successor Trustee (or Custodian) after paying or reserving
such reasonable amount as he or she shall deem necessary to
provide for the expense in the settlement of the accounts and
the amount of any compensation due him or her and any sums
chargeable against the Fund for which he or she may be liable.
If the Funds as reserved are not sufficient for such purpose,
then he or she shall be entitled to reimbursement from the
successor Trustee (or Custodian) out of the
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<PAGE> 56
assets in the successor Trustee's (or Custodian's) hands under
this Plan. If the amount reserved shall be in excess of the
amount actually needed, the former Trustee (or Custodian)
shall return such excess to the successor Trustee (or
Custodian).
Upon receipt of the transferred assets, the successor Trustee
(or Custodian) shall thereupon succeed to all of the powers
and responsibilities given to the Trustee (or Custodian) by
this Plan.
The resigning or removed Trustee (or Custodian) shall render
an accounting to the Employer and unless objected to by the
Employer within 30 days of its receipt, the accounting shall
be deemed to have been approved and the resigning or removed
Trustee (or Custodian) shall be released and discharged as to
all matters set forth in the accounting. Where a financial
organization is serving as Trustee (or Custodian) and it is
merged with or bought by another organization (or comes under
the control of any federal or state agency), that organization
shall serve as the successor Trustee (or Custodian) of this
Plan, but only if it is the type of organization that can so
serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee
or custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Trustee
(or Custodian) has failed to comply with the requirements of
Section 1.401-12(n) or is not keeping such records or making
such returns or rendering such statements as are required by
forms or regulations.
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY
The Trustee (or Custodian) shall not be liable for any losses
incurred by the Fund by any direction to invest communicated
by the Employer, Plan Administrator, investment manager
appointed pursuant to Section 5.12 or any Participant or
Beneficiary. The Trustee (or Custodian) shall be under no
liability for distributions made or other action taken or not
taken at the written direction of the Plan Administrator. It
is specifically understood that the Trustee (or Custodian)
shall have no duty or responsibility with respect to the
determination of matters pertaining to the eligibility of any
Employee to become a Participant or remain a Participant
hereunder, the amount of benefit to which a Participant or
Beneficiary shall be entitled to receive hereunder, whether a
distribution to Participant or Beneficiary is appropriate
under the terms of the Plan or the size and type of any policy
to be purchased from any insurer for any Participant hereunder
or similar matters; it being understood that all such
responsibilities under the Plan are vested in the Plan
Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR
CUSTODIAN)
Notwithstanding any other provision herein, and except as may
be otherwise provided by ERISA, the Employer shall indemnify
and hold harmless the Trustee (or Custodian, if applicable)
and the Prototype Sponsor, their officers, directors,
employees, agents, their heirs, executors, successors and
assigns, from and
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against any and all liabilities, damages, judgments,
settlements, losses, costs, charges, or expenses (including
legal expenses) at any time arising out of or incurred in
connection with any action taken by such parties in the
performance of their duties with respect to this Plan, unless
there has been a final adjudication of gross negligence or
willful misconduct in the performance of such duties.
Further, except as may be otherwise provided by ERISA, the
Employer will indemnify the Trustee (or Custodian) and
Prototype Sponsor from any liability, claim or expense
(including legal expense) which the Trustee (or Custodian) and
Prototype Sponsor shall incur by reason of or which results,
in whole or in part, from the Trustee's (or Custodian's) or
Prototype Sponsor's reliance on the facts and other directions
and elections the Employer communicates or fails to
communicate.
5.12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may
appoint one or more investment managers to make
investment decisions with respect to all or a portion
of the Fund. The investment manager shall be any firm
or individual registered as an investment adviser
under the Investment Advisers Act of 1940, a bank as
defined in said Act or an insurance company qualified
under the laws of more than one state to perform
services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate
Investment Fund shall be established representing the
assets of the Fund invested at the direction of the
investment manager. The investment manager so
appointed shall direct the Trustee (or Custodian, if
applicable ) with respect to the investment of such
Investment Fund. The investments which may be
acquired at the direction of the investment manager
are those described in Section 5.03(A) (for
Custodians) or Section 5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment
manager shall be by written agreement between the
Employer and the investment manager and a copy of
such agreement (and any modification or termination
thereof) must be given to the Trustee (or Custodian).
The agreement shall set forth, among other matters, the
effective date of the investment manager's appointment and an
acknowledgement by the investment manager that it is a
fiduciary of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written
notice of each appointment of an investment manager
shall be given to the Trustee (or Custodian) in
advance of the effective date of such appointment.
Such notice shall specify which portion of the Fund
will constitute the Investment Fund subject to the
investment manager's direction. The Trustee (or
Custodian) shall comply with the investment direction
given to it by the investment manager and will not be
liable for any loss which may result by reason of any
action (or inaction) it takes at the direction of the
investment manager.
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5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a
Participant, the aggregate premium for certain life
insurance for each Participant must be less than a
certain percentage of the aggregate Employer
Contributions and Forfeitures allocated to a
Participant's Individual Account at any particular
time as follows:
1. Ordinary Life Insurance - For purposes of
these incidental insurance provisions,
ordinary life insurance contracts are
contracts with both nondecreasing death
benefits and nonincreasing premiums. If such
contracts are purchased, less than 50% of
the aggregate Employer Contributions and
Forfeitures allocated to any Participant's
Individual Account will be used to pay the
premiums attributable to them,
2. Term and Universal Life Insurance - No more
than 25% of the aggregate Employer
Contributions and Forfeitures allocated to
any Participant's Individual Account will be
used to pay the premiums on term life
insurance contracts, universal life
insurance contracts, and all other life
insurance contracts which are not ordinary
life.
3. Combination - The sum of 50% of the ordinary
life insurance premiums and all other life
insurance premiums will not exceed 25% of
the aggregate Employer Contributions and
Forfeitures allocated to any Participant's
Individual Account.
If this Plan is a profit sharing plan, the above
incidental benefits limits do not apply to life
insurance contracts purchased with Employer
Contributions and Forfeitures that have been in the
Participant's Individual Account for at least 2 full
Plan Years, measured from the date such contributions
were allocated.
B. Any dividends or credits earned on insurance
contracts for a Participant shall be allocated to
such Participant's Individual Account.
C. Subject to Section 6.05, the contracts on a
Participant's life will be converted to cash or an
annuity or distributed to the Participant upon
commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply
for and will be the owner of any insurance
contract(s) purchased under the terms of this Plan.
The insurance contract(s) must provide that proceeds
will be payable to the Trustee (or Custodian),
however, the Trustee (or Custodian) shall be required
to pay over all proceeds of the contract(s) to the
Participant's designated Beneficiary in accordance
with the distribution provisions of this Plan. A
Participant's spouse will be the designated
Beneficiary of the proceeds in all circumstances
unless a qualified election has been made in
accordance with Section 6.05. Under no circumstances
shall the Fund retain any part of the proceeds. In
the
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event of any conflict between the terms of this Plan
and the terms of any insurance contract purchased
hereunder, the Plan provisions shall control.
E. The Plan Administrator may direct the Trustee (or
Custodian) to sell and distribute insurance or
annuity contracts to a Participant (or other party as
may be permitted) in accordance with applicable law
or regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant
may individually direct the Trustee (or Custodian, if
applicable) regarding the investment of part or all of his or
her Individual Account. To the extent so directed, the
Employer, Plan Administrator, Trustee (or Custodian) and all
other fiduciaries are relieved of their fiduciary
responsibility under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his or her Individual Account.
Each Separate Fund shall be charged or credited (as
appropriate) with the earnings, gains, losses or expenses
attributable to such Separate Fund. No fiduciary shall be
liable for any loss which results from a Participant's
individual direction. The assets subject to individual
direction shall not be invested in collectibles as that term
is defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it
deems necessary or advisable including, but not limited to,
rules describing (1) which portions of Participant's
Individual Account can be individually directed; (2) the
frequency of investment changes; (3) the forms and procedures
for making investment changes; and (4) the effect of a
Participant's failure to make a valid direction.
The Plan Administrator may, in a uniform and nondiscriminatory
manner, limit the available investments for Participants'
individual direction to certain specified investment options
(including, but not limited to, certain mutual funds,
investment contracts, deposit accounts and group trusts). The
Plan Administrator may permit, in a uniform and
nondiscriminatory manner, a Beneficiary of a deceased
Participant or the alternate payee under a qualified domestic
relations order (as defined in Section 414(p) of the Code) to
individually direct in accordance with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. Distributable Events
1. Entitlement to Distribution - The Vested
portion of a Participant's Individual
Account shall be distributable to the
Participant upon (1) the occurrence of any
of the distributable events specified in the
Adoption Agreement; (2) the Participant's
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Termination of Employment after attaining
Normal Retirement Age; (3) the termination
of the Plan; and (4) the Participant's
Termination of Employment after satisfying
any Early Retirement Age conditions.
If a Participant separates from service
before satisfying the Early Retirement Age
requirement, but has satisfied the service
requirement, the Participant will be
entitled to elect an early retirement
benefit upon satisfaction of such age
requirement.
2. Written Request: When Distributed - A
Participant entitled to distribution who
wishes to receive a distribution must submit
a written request to the Plan Administrator.
Such request shall be made upon a form
provided by the Plan Administrator. Upon a
valid request, the Plan Administrator shall
direct the Trustee (or Custodian, if
applicable) to commence distribution no
later than the time specified in the
Adoption Agreement for this purpose and, if
not specified in the Adoption Agreement,
then no later than 90 days following the
later of:
a. the close of the Plan Year within
which the event occurs which entitles
the Participant to distribution; or
b. the close of the Plan Year in which
the request is received.
3. Special Rules for Withdrawals During Service
- If this is a profit sharing plan and the
Adoption Agreement so provides, a
Participant may elect to receive a
distribution of all or part of the Vested
portion of his or her Individual Account,
subject to the requirements of Section 6.05
and further subject to the following limits:
a. Participant for 5 or more years. An
Employee who has been a Participant in
the Plan for 5 or more years may
withdraw up to the entire Vested
portion of his or her Individual
Account.
b. Participant for less than 5 years. An
Employee who has been a Participant in
the Plan for less than 5 years may
withdraw only the amount which has
been in his or her Individual Account
attributable to Employer Contributions
for at least 2 full Plan Years.
measured from the date such
contributions were allocated. However,
if the distribution is on account of
hardship, the Participant may withdraw
up to his or her entire Vested portion
of the Participant's Individual
Account. For this purpose, hardship
shall have the meaning set forth in
Section 6.01(A)(4) of the Code.
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4. Special Rules for Hardship Withdrawals - If
this is a profit sharing plan and the
Adoption Agreement so provides, a
Participant may elect to receive a hardship
distribution of all or part of the Vested
portion of his or her Individual Account,
subject to the requirements of Section 6.05
and further subject to the following limits:
a. Participant for 5 or more years. An
Employee who has been a Participant in
the Plan for 5 or more years may
withdraw up to the entire Vested
portion of his or her Individual
Account.
b. Participant for less than 5 years. An
Employee who has been a Participant in
the Plan for less than 5 years may
withdraw only the amount which has
been in his or her Individual Account
attributable to Employer Contributions
for at least 2 full Plan Years,
measured from the date such
contributions were allocated.
For purposes of this Section
6.01(A)(4) and Section 6.0l(A)(3)
hardship is defined as an immediate
and heavy financial need of the
Participant where such Participant
lacks other available resources. The
following are the only financial needs
considered immediate and heavy:
expenses incurred or necessary for
medical care, described in Section 2
13(d) of the Code, of the Employee,
the Employee's spouse or dependents;
the purchase (excluding mortgage
payments) of a principal residence for
the Employee; payment of tuition and
related educational fees for the next
12 months of post-secondary education
for the Employee, the Employee's
spouse, children or dependents; or the
need to prevent the eviction of the
Employee from, or a foreclosure on the
mortgage of, the Employee's principal
residence.
A distribution will be considered as
necessary to satisfy an immediate and
heavy financial need of the Employee
only if:
1) The employee has obtained all
distributions, other than
hardship distributions, and
all nontaxable loans under
all plans maintained by the
Employer;
2) The distribution is not in
excess of the amount of an
immediate and heavy financial
need (including amounts
necessary to pay any federal,
state or local income taxes
or penalties reasonably
anticipated to result from
the distribution).
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<PAGE> 62
5. One-Time In-Service Withdrawal Option - If
this is a profit sharing plan and the
Employer has elected the one-time in-service
withdrawal option in the Adoption Agreement,
then Participants will be permitted only one
in-service withdrawal during the course of
such Participants employment with the
Employer. The amount which the Participant
can withdraw will be limited to the lesser
of the amount determined under the limits
set forth in Section 6.01(A)(3) or the
percentage of the Participant's Individual
Account specified by the Employer in the
Adoption Agreement. Distributions under this
Section will be subject to the requirements
of Section 6.05.
6. Commencement of Benefits - Notwithstanding
any other provision, unless the Participant
elects otherwise, distribution of benefits
will begin no later than the 60th day after
the latest of the close of the Plan Year in
which:
a. the Participant attains Normal
Retirement Age;
b. occurs the 10th anniversary of the
year in which the Participant
commenced participation in the Plan;
or
c. the Participant incurs a Termination
of Employment.
Notwithstanding the foregoing, the failure of a
Participant and spouse to consent to a distribution
while a benefit is immediately distributable, within
the meaning of Section 6.02(B) of the Plan, shall be
deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this
Section.
B. Determining the Vested Portion - In determining the
Vested portion of a Participant's Individual Account,
the following rules apply:
1. Employer Contributions and Forfeitures - The
Vested portion of a Participant's Individual
Account derived from Employer Contributions
and Forfeitures is determined by applying
the vesting schedule selected in the
Adoption Agreement (or the vesting schedule
described in Section 6.01(C) if the Plan is
a Top-Heavy Plan).
2. Rollover and Transfer Contributions - A
Participant is fully Vested in his or her
rollover contributions and transfer
contributions.
3. Fully Vested Under Certain Circumstances - A
Participant is fully Vested in his or her
Individual Account if any of the following
occurs:
a. the Participant reaches Normal
Retirement Age;
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<PAGE> 63
b. the Plan is terminated or partially
terminated; or
c. there exists a complete discontinuance
of contributions under the Plan.
Further, unless otherwise indicated in the
Adoption Agreement, a Participant is fully
Vested if the Participant dies, incurs a
Disability, or satisfies the conditions for
Early Retirement Age (if applicable).
4. Participants in a Prior Plan - If a
Participant was a participant in a Prior
Plan on the Effective Date, his or her
Vested percentage shall not be less than it
would have been under such Prior Plan as
computed on the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The
following vesting provisions apply for any Plan Year
in which this Plan is a Top-Heavy Plan.
Notwithstanding the other provisions of this Section
6.01 or the vesting schedule selected in the Adoption
Agreement (unless those provisions or that schedule
provide for more rapid vesting), a Participant's
Vested portion of his or her Individual Account
attributable to Employer Contributions and
Forfeitures shall be determined in accordance with
the vesting schedule elected by the Employer in the
Adoption Agreement (and if no election is made the 6
year graded schedule will be deemed to have been
elected) as described below:
6 YEAR GRADED 3 YEAR CLIFF
Years of Years of
Vesting Service Vested Percentage Vesting Service Vested Percentage
- --------------- ----------------- --------------- -----------------
1 0 1 0
2 20 2 0
3 40 3 100
4 60
5 80
6 100
This minimum vesting schedule applies to all benefits
within the meaning of Section 411 (a)(7) of the Code,
except those attributable to Nondeductible Employee
Contributions including benefits accrued before the
effective date of Section 416 of the Code and
benefits accrued before the Plan became a Top-Heavy
Plan. Further, no decrease in a Participant's Vested
percentage may occur in the event the Plan's status
as a Top-Heavy Plan changes for any Plan Year.
However, this Section 6.0 1(C) does not apply to the
Individual Account of any Employee who does not have
an Hour of Service after the Plan has initially
become a Top-Heavy Plan and such Employee's
Individual Account attributable to
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<PAGE> 64
Employer Contributions and Forfeitures will be
determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in
accordance with the above restrictions, the vesting
schedule as selected in the Adoption Agreement will
govern. If the vesting schedule under the Plan shifts
in or out of top-heavy status, such shift is an
amendment to the vesting schedule and the election in
Section 9.04 applies.
D. Break in Vesting Service and Forfeitures - If a
Participant incurs a Termination of Employment, any
portion of his or her Individual Account which is not
Vested shall be held in a suspense account. Such
suspense account shall share in any increase or
decrease in the fair market value of the assets of
the Fund in accordance with Section 4 of the Plan.
The disposition of such suspense account shall be as
follows:
1. Breaks in Vesting Service - If a Participant
neither receives nor is deemed to receive a
distribution pursuant to Section 6.01(D)(3)
or (4) and the Participant returns to the
service of the Employer before incurring 5
consecutive Breaks in Vesting Service, there
shall be no Forfeiture and the amount in
such suspense account shall be recredited to
such Participant's Individual Account.
2. Five Consecutive Breaks in Vesting Service -
If a Participant neither receives nor is
deemed to receive a distribution pursuant to
Section 6.01(D)(3) or (4) and the
Participant does not return to the service
of the Employer before incurring 5
consecutive Breaks in Vesting Service, the
portion of the Participant's Individual
Account which is not Vested shall be treated
as a Forfeiture and allocated in accordance
with Section 3.01(C).
3. Cash-out of Certain Participants - If the
value of the Vested portion of such
Participant's Individual Account derived
from Nondeductible Employee Contributions
and Employer Contributions does not exceed
$3,500, the Participant shall receive a
distribution of the entire Vested portion of
such Individual Account and the portion
which is not Vested shall be created as a
Forfeiture and allocated in accordance with
Section 3.01(C). For purposes of this
Section, if the value of the Vested portion
of a Participant's Individual Account is
zero, the Participant shall be deemed to
have received a distribution of such Vested
Individual Account. A Participant's Vested
Individual Account balance shall not include
accumulated deductible employee
contributions within the meaning of Section
72(o)(5)(B) of the Code for Plan Years
beginning prior to January 1, 1989.
4. Participants Who Elect to Receive
Distributions - If such Participant elects
to receive a distribution, in accordance
with Section 6.02(B), of the value of the
Vested portion of his or her
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<PAGE> 65
Individual Account derived from
Nondeductible Employee Contributions and
Employer Contributions, the portion which is
not Vested shall be treated as a Forfeiture
and allocated in accordance with Section
3.01(C).
5. Re-employed Participants - If a Participant
receives or is deemed to receive a
distribution pursuant to Section 6.0l(D)(3)
or (4) above and the Participant resumes
employment covered under this Plan, the
Participant's Employer-derived Individual
Account balance will be restored to the
amount on the date of distribution if the
Participant repays to the Plan the full
amount of the distribution attributable to
Employer Contributions before the earlier of
5 years after the first date on which the
Participant is subsequently re-employed by
the Employer, or the date the Participant
incurs 5 consecutive Breaks in Vesting
Service following the date of the
distribution.
Any restoration of a Participant's Individual Account
pursuant to Section 6.01(D)(5) shall be made from
other Forfeitures, income or gain to the Fund or
contributions made by the Employer.
E. Distribution Prior to Full Vesting - If a
distribution is made to a Participant who was not
then fully Vested in his or her Individual Account
derived from Employer Contributions and the
Participant may increase his or her Vested percentage
in his or her Individual Account, then the following
rules shall apply:
1. a separate account will be established for
the Participant's interest in the Plan as of
the time of the distribution, and
2. at any relevant time the Participant's
Vested portion of the separate account will
be equal to an amount ("X") determined by
the formula: X=P (AB + (R x D)) - (R x D)
where "P" is the Vested percentage at the
relevant time, "AB" is the separate account
balance at the relevant time; "D" is the
amount of the distribution; and "R" is the
ratio of the separate account balance at the
relevant time to the separate account
balance after distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Does Not Exceed $3,500 -
If the value of the Vested portion of a Participant's
Individual Account derived from Nondeductible
Employee Contributions and Employer Contributions
does not exceed $3,500, distribution from the Plan
shall be made to the Participant in a single lump sum
in lieu of all other forms of distribution from the
Plan as soon as administratively feasible.
B. Value of Individual Account Exceeds $3,500
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<PAGE> 66
1. If the value of the Vested portion of a
Participant's Individual Account derived
from Nondeductible Employee Contributions
and Employer Contributions exceeds (or at
the time of any prior distribution exceeded)
$3,500, and the Individual Account is
immediately distributable, the Participant
and the Participant's spouse (or where
either the Participant or the spouse died,
the survivor) must consent to any
distribution of such Individual Account. The
consent of the Participant and the
Participant's spouse shall be obtained in
writing within the 90-day period ending on
the annuity starting date. The annuity
starting date is the first day of the first
period for which an amount is paid as an
annuity or any other form. The Plan
Administrator shall notify the Participant
and the Participant's spouse of the right to
defer any distribution until the
Participant's Individual Account is no
longer immediately distributable. Such
notification shall include a general
description of the material features, and an
explanation of the relative values of, the
optional forms of benefit available under
the Plan in a manner that would satisfy the
notice requirements of Section 417(a)(3) of
the Code, and shall be provided no less than
30 days and no more than 90 days prior to
the annuity starting date.
If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue
Code do not apply, such distribution may
commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, provided
that:
a. the Plan Administrator clearly informs
the Participant that the Participant
has a right to a period of at least 30
days after receiving the notice to
consider the decision of whether or
not to elect a distribution (and, if
applicable, a particular distribution
option), and
b. the Participant, after receiving the
notice, affirmatively elects a
distribution.
Notwithstanding the foregoing, only the
Participant need consent to the commencement
of a distribution in the form of a qualified
joint and survivor annuity while the
Individual Account is immediately
distributable.
Neither the consent of the Participant nor
the Participant's spouse shall be required
to the extent that a distribution is
required to satisfy Section 40l(a)(9) or
Section 415 of the Code. In addition, upon
termination of this Plan if the Plan does
not offer an annuity option (purchased from
a commercial provider), the Participant's
Individual Account may, without the
Participant's consent, be distributed to the
Participant or transferred to another
defined contribution plan (other than an
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<PAGE> 67
employee stock ownership plan as defined in
Section 4975(e)(7) of the Code) within the
same controlled group.
An Individual Account is immediately
distributable if any part of the Individual
Account could be distributed to the
Participant (or surviving spouse) before the
Participant attains or would have attained
(if not deceased) the later of Normal
Retirement Age or age 62.
2. For purposes of determining the
applicability of the foregoing consent
requirements to distributions made before
the first day of the first Plan Year
beginning after December 31, 1988, the
Vested portion of a Participant's Individual
Account shall not include amounts
attributable to accumulated deductible
employee contributions within the meaning of
Section 72(o)(5)(B) of the Code.
C. Other Forms of Distribution to Participant - If the
value of the Vested portion of a Participant's
Individual Account exceeds $3,500 and the Participant
has properly waived the joint and survivor annuity,
as described in Section 6.05, the Participant may
request in writing that the Vested portion of his or
her Individual Account be paid to him or her in one
or more of the following forms of payment: (1) in a
lump sum; (2) in installment payments over a period
not to exceed the life expectancy of the Participant
or the joint and last survivor life expectancy of the
Participant and his or her designated Beneficiary; or
(3) applied to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the
contrary, a Participant cannot elect payments in the
form of an annuity if the Retirement Equity Act safe
harbor rules of Section 6.05(F) apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each
Participant may designate, upon a form provided by
and delivered to the Plan Administrator, one or more
primary and contingent Beneficiaries to receive all
or a specified portion of the Participant's
Individual Account in the event of his or her death.
A Participant may change or revoke such Beneficiary
designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a
primary Beneficiary who is not his or her spouse, his
or her spouse must consent in writing to such
designation, and the spouse's consent must
acknowledge the effect of such designation and be
witnessed by a notary public or plan representative.
Notwithstanding this consent requirement, if the
Participant establishes to the satisfaction of the
Plan Administrator that such written consent may not
be obtained because there is no spouse or the spouse
cannot be located, no consent shall be required. Any
change of Beneficiary will require a new spousal
consent.
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<PAGE> 68
B. Payment to Beneficiary - If a Participant dies before
the Participant's entire Individual Account has been
paid to him or her, such deceased Participant's
Individual Account shall be payable to any surviving
Beneficiary designated by the Participant, or, if no
Beneficiary survives the Participant, to the
Participant's estate. C. Written Request: When
Distributed - A Beneficiary of a deceased Participant
entitled to a distribution who wishes to receive a
distribution must submit a written request to the
Plan Administrator. Such request shall be made upon a
form provided by the Plan Administrator, Upon a valid
request, the Plan Administrator shall direct the
Trustee (or Custodian) to commence distribution no
later than the time specified in the Adoption
Agreement for this purpose and if not specified in
the Adoption Agreement, then no later than 90 days
following the later of:
1. the close of the Plan Year within which the
Participant dies; or
2. the close of the Plan Year in which the
request is received.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Does Not Exceed $3,500 -
If the value of the Participant's Individual Account
derived from Nondeductible Employee Contributions and
Employer Contributions does not exceed $3,500, the
Plan Administrator shall direct the Trustee (or
Custodian, if applicable) to make a distribution to
the Beneficiary in a single lump sum in lieu of all
other forms of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the
value of a Participant's Individual Account derived
from Nondeductible Employee Contributions and
Employer Contributions exceeds $3,500 the
preretirement survivor annuity requirements of
Section 6.05 shall apply unless waived in accordance
with that Section or unless the Retirement Equity Act
safe harbor rules of Section 6.05(F) apply. However,
a surviving spouse Beneficiary may elect any form of
payment allowable under the Plan in lieu of the
preretirement survivor annuity. Any such payment to
the surviving spouse must meet the requirements of
Section 6.06.
C. Other Forms of Distribution to Beneficiary - If the
value of a Participant's Individual Account exceeds
$3,500 and the Participant has properly waived the
preretirement survivor annuity, as described in
Section 6.05 (if applicable) or if the Beneficiary is
the Participant's surviving spouse, the Beneficiary
may, subject to the requirements of Section 6.06,
request in writing that the Participant's Individual
Account be paid as follows: (1) in a lump sum; or (2)
in installment payments over a period not to exceed
the life expectancy of such Beneficiary.
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<PAGE> 69
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any
Participant who is credited with at least one Hour of
Eligibility Service with the Employer on or after
August 23, 1984, and such other Participants as
provided in Section 6.05(G).
B. Qualified Joint and Survivor Annuity - Unless an
optional form of benefit is selected pursuant to a
qualified election within the 90-day period ending on
the annuity starting date, a married Participant's
Vested account balance will be paid in the form of a
qualified joint and survivor annuity and an unmarried
Participant's Vested account balance will be paid in
the form of a life annuity. The Participant may elect
to have such annuity distributed upon attainment of
the earliest retirement age under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an
optional form of benefit has been selected within the
election period pursuant to a qualified election, if
a Participant dies before the annuity starting date
then the Participant's Vested account balance shall
be applied toward the purchase of an annuity for the
life of the surviving spouse. The surviving spouse
may elect to have such annuity distributed within a
reasonable period after the Participant's death.
D. Definitions
1. Election Period - The period which begins on
the first day of the Plan Year in which the
Participant attains age 35 and ends on the
date of the Participant's death. If a
Participant separates from service prior to
the first day of the Plan Year in which age
35 is attained, with respect to the account
balance as of the date of separation, the
election period shall begin on the date of
separation.
Pre-age 35 waiver - A Participant who will
not yet attain age 35 as of the end of any
current Plan Year may make special qualified
election to waive the qualified
preretirement survivor annuity for the
period beginning on the date of such
election and ending on the first day of the
Plan Year in which the Participant will
attain age 35. Such election shall not be
valid unless the Participant receives a
written explanation of the qualified
preretirement survivor annuity in such terms
as are comparable to the explanation
required under Section 6.05(E)(1). Qualified
preretirement survivor annuity coverage will
be automatically reinstated as of the first
day of the Plan Year in which the
Participant attains age 35. Any new waiver
on or after such date shall be subject to
the full requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date
on which, under the Plan, the Participant
could elect to receive retirement benefits.
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<PAGE> 70
3. Qualified Election - A waiver of a qualified
joint and survivor annuity or a qualified
preretirement survivor annuity. Any waiver
of a qualified joint and survivor annuity or
a qualified preretirement survivor annuity
shall not be effective unless: (a) the
Participant's spouse consents in writing to
the election, (b) the election designates a
specific Beneficiary, including any class of
beneficiaries or any contingent
beneficiaries, which may not be changed
without spousal consent (or the spouse
expressly permits designations by the
Participant without any further spousal
consent); (c) the spouse's consent
acknowledges the effect of the election; and
(d) the spouse's consent is witnessed by a
plan representative or notary public.
Additionally, a Participant's waiver of the
qualified joint and survivor annuity shall
not be effective unless the election
designates a form of benefit payment which
may not be changed without spousal consent
(or the spouse expressly permits
designations by the Participant without any
further spousal consent). If it is
established to the satisfaction of a plan
representative that there is no spouse or
that the spouse cannot be located, a waiver
will be deemed a qualified election.
Any consent by a spouse obtained under this
provision (or establishment that the consent
of a spouse may not be obtained) shall be
effective only with respect to such spouse.
A consent that permits designations by the
Participant without any requirement of
further consent by such spouse must
acknowledge that the spouse has the right to
limit consent to a specific Beneficiary, and
a specific form of benefit where applicable,
and that the spouse voluntarily elects to
relinquish either or both of such rights. A
revocation of a prior waiver may be made by
a Participant without the consent of the
spouse at any time before the commencement
of benefits.
The number of revocations shall not be limited. No
consent obtained under this provision shall be valid
unless the Participant has received notice as
provided in Section 61)5(E) below.
4. Qualified Joint and Survivor Annuity - An
immediate annuity for the life of the
Participant with a survivor annuity for the
life of the spouse which is not less than
50% and not more than 100% of the amount of
the annuity which is payable during the
joint lives of the Participant and the
spouse and which is the amount of benefit
which can be purchased with the
Participant's vested account balance. The
percentage of the survivor annuity under the
Plan shall be 50% (unless a different
percentage is elected by the Employer in the
Adoption Agreement).
5. Spouse (surviving spouse) - The spouse or
surviving spouse of the Participant,
provided that a former spouse will be
treated as the spouse or surviving spouse
and a current spouse will not be treated as
the spouse or surviving spouse to the extent
provided
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<PAGE> 71
under a qualified domestic relations order
as described in Section 414(p) of the Code.
6. Annuity Starting Date - The first day of the
first period for which an amount is paid as
an annuity or any other form.
7. Vested Account Balance - The aggregate value
of the Participant's Vested account balances
derived from Employer and Nondeductible
Employee Contributions (including
rollovers), whether Vested before or upon
death, including the proceeds of insurance
contracts, if any, on the Participant's
life. The provisions of this Section 6.05
shall apply to a Participant who is Vested
in amounts attributable to Employer
Contributions, Nondeductible Employee
Contributions (or both) at the time of death
or distribution.
E. Notice Requirements
1. In the case of a qualified joint and
survivor annuity, the Plan Administrator
shall no less than 30 days and not more than
90 days prior to the annuity starting date
provide each Participant a written
explanation of: (a) the terms and conditions
of a qualified joint and survivor annuity;
(b) the Participant's right to make and the
effect of an election to waive the qualified
joint and survivor annuity form of benefit;
(c) the rights of a Participant's spouse;
and (d) the right to make, and the effect
of, a revocation of a previous election to
waive the qualified joint and survivor
annuity.
2. In the case of a qualified preretirement
annuity as described in Section 6.05(C), the
Plan Administrator shall provide each
Participant within the applicable period for
such Participant a written explanation of
the qualified preretirement survivor annuity
in such terms and in such manner as would be
comparable to the explanation provided for
meeting the requirements of Section
6.05(E)(1) applicable to a qualified joint
and survivor annuity.
The applicable period for a Participant is
whichever of the following periods ends
last: (a) the period beginning with the
first day of the Plan Year in which the
Participant attains age 32 and ending with
the close of the Plan Year preceding the
Plan Year in which the Participant attains
age 35; (b) a reasonable period ending after
the individual becomes a Participant; (c) a
reasonable period ending after Section
6.05(E)(3) ceases to apply to the
Participant; and (d) a reasonable period
ending after this Section 6.05 first applies
to the Participant. Notwithstanding the
foregoing, notice must be provided within a
reasonable period ending after separation
from service in the case of a Participant
who separates from service before attaining
age 35.
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<PAGE> 72
For purposes of applying the preceding
paragraph, a reasonable period ending after
the enumerated events described in (b), (c)
and (d) is the end of the two-year period
beginning one year prior to the date the
applicable event occurs, and ending one year
after that date. In the case of a
Participant who separates from service
before the Plan Year in which age 35 is
attained, notice shall be provided within
the two-year period beginning one year prior
to separation and ending one year after
separation. If such a Participant thereafter
returns to employment with the Employer, the
applicable period for such Participant shall
be redetermined.
3. Notwithstanding the other requirements of
this Section 6.05(E), the respective notices
prescribed by this Section 6.05(E), need not
be given to a Participant if (a) the Plan
"fully subsidizes" the costs of a qualified
joint and survivor annuity or qualified
preretirement survivor annuity, and (b) the
Plan does not allow the Participant to waive
the qualified joint and survivor annuity or
qualified preretirement survivor annuity and
does not allow a married Participant to
designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan
fully subsidizes the costs of a benefit if
no increase in cost, or decrease in benefits
to the Participant may result from the
Participant's failure to elect another
benefit.
F. Retirement Equity Act Safe Harbor Rules
1. If the Employer so indicates in the Adoption
Agreement, this Section 6.05(F) shall apply
to a Participant in a profit sharing plan,
and shall always apply to any distribution,
made on or after the first day of the first
Plan Year beginning after December 31, 1988:
from or under a separate account
attributable solely to accumulated
deductible employee contributions, as
defined in Section 72(o)(5)(B) of the Code,
and maintained on behalf of a Participant in
a money purchase pension plan, (including a
target benefit plan) if the following
conditions are satisfied:
a. the Participant does not or cannot
elect payments in the form of a life
annuity; and
b. on the death of a Participant, the
Participant's Vested account balance
will be paid to the Participant's
surviving spouse, but if there is no
surviving spouse, or if the surviving
spouse has consented in a manner
conforming to a qualified election,
then to the Participant's designated
Beneficiary. The surviving spouse may
elect to have distribution of the
Vested account balance commence within
the 90-day period following the date
of the Participant's death. The
account balance shall be adjusted for
gains or losses occurring after the
Participant's death in accordance with
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<PAGE> 73
the provisions of the Plan governing
the adjustment of account balances for
other types of distributions. This
Section 6.05(F) shall not be operative
with respect to a Participant in a
profit sharing plan if the plan is a
direct or indirect transferee of a
defined benefit plan, money purchase
plan, a target benefit plan, stock
bonus, or profit sharing plan which is
subject to the survivor annuity
requirements of Section 401(a)(11) and
Section 417 of the code. If this
Section 6.05(F) is operative, then the
provisions of this Section 6.05 other
than Section 6.05(G) shall be
inoperative.
2. The Participant may waive the spousal death
benefit described in this Section 6.05(F) at
any time provided that no such waiver shall
be effective unless it satisfies the
conditions of Section 6.05(D)(3) (other than
the notification requirement referred to
therein) that would apply to the
Participant's waiver of the qualified
preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested
account balance shall mean, in the case of a
money purchase pension plan or a target
benefit plan, the Participant's separate
account balance attributable solely to
accumulated deductible employee
contributions within the meaning of Section
72(o)(5)(B) of the Code. In the case of a
profit sharing plan, Vested account balance
shall have the same meaning as provided in
Section 6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving
benefits on August 23, 1984, who would
otherwise not receive the benefits
prescribed by the previous subsections of
this Section 6.05 must be given the
opportunity to elect to have the prior
subsections of this Section apply if such
Participant is credited with at least one
Hour of Service under this Plan or a
predecessor plan in a Plan Year beginning on
or after January 1, 1976, and such
Participant had at least 10 Years of Vesting
Service when he or she separated from
service.
2. Any living Participant not receiving
benefits on August 23, 1984, who was
credited with at least one Hour of Service
under this Plan or a predecessor plan on or
after September 2, 1974, and who is not
otherwise credited with any service in a
Plan Year beginning on or after January 1,
1976, must be given the opportunity to have
his or her benefits paid in accordance with
Section 6.05(G)(4).
3. The respective opportunities to elect (as
described in Section 6.05(G)(1) and (2)
above) must be afforded to the appropriate
Participants during the period commencing on
August 23, 1984,
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<PAGE> 74
and ending on the date benefits would
otherwise commence to said Participants.
4. Any Participant who has elected pursuant to
Section 6.05(G)(2) and any Participant who
does not elect under Section 6.05(G)(I) or
who meets the requirements of Section
6.05(G)(1) except that such Participant does
not have at least 10 Years of Vesting
Service when he or she separates from
service, shall have his or her benefits
distributed in accordance with all of the
following requirements if benefits would
have been payable in the form of a life
annuity:
a. Automatic Joint and Survivor Annuity -
If benefits in the form of a life
annuity become payable to a married
Participant who:
(1) begins to receive payments
under the Plan on or after
Normal Retirement Age; or
(2) dies on or after Normal
Retirement Age while still
working for the Employer; or
(3) begins to receive payments on
or after the qualified early
retirement age; or
(4) separates from service on or
after attaining Normal
Retirement Age (or the
qualified early retirement
age) and after satisfying the
eligibility requirements for
the payment of benefits under
the Plan and thereafter dies
before beginning to receive
such benefits; then such
benefits will be received
under this Plan in the form
of a qualified joint and
survivor annuity, unless the
Participant has elected
otherwise during the election
period. The election period
must begin at least 6 months
before the Participant
attains qualified early
retirement age and ends not
more than 90 days before the
commencement of benefits. Any
election hereunder will be in
writing and may be changed by
the Participant at any time.
b. Election of Early Survivor Annuity - A
Participant who is employed after
attaining the qualified early
retirement age will be given the
opportunity to elect, during the
election period, to have a survivor
annuity payable on death. If the
Participant elects the survivor
annuity, payments under such annuity
must not be less than the payments
which would have been made to the
spouse under the qualified joint and
survivor annuity if the Participant
had retired on the day before his or
her death.
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<PAGE> 75
Any election under this provision will
be in writing and may be changed by
the Participant at any time. The
election period begins on the later of
(1) the 90th day before the
Participant attains the qualified
early retirement age, or (2) the date
on which participation begins, and
ends on the date the Participant
terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement
age is the latest of:
a. the earliest date,
under the Plan, on
which the Participant
may elect to receive
retirement benefits,
b. the first day of the
120th month beginning
before the Participant
reaches Normal
Retirement Age, or
c. the date the
Participant begins
participation.
2. Qualified joint and survivor
annuity is an annuity for the
life of the Participant with
a survivor annuity for the
life of the spouse as
described in Section
6.05(D)(4) of this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. General Rules
1. Subject to Section 6.05 Joint and Survivor
Annuity Requirements, the requirements of
this Section shall apply to any distribution
of a Participant's interest and will take
precedence over any inconsistent provisions
of this Plan. Unless otherwise specified,
the provisions of this Section 6.06 apply to
calendar years beginning after December 31,
1984.
2. All distributions required under this
Section 6.06 shall be determined and made in
accordance with the Income Tax Regulations
under Section 401(a)(9), including the
minimum distribution incidental benefit
requirement of Section 1 .401(a)(9)-2 of the
proposed regulations.
B. Required Beginning Date - The entire interest of a
Participant must be distributed or begin to be
distributed no later than the Participant's required
beginning date.
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<PAGE> 76
C. Limits on Distribution Periods - As of the first
distribution calendar year, distributions, if not
made in a single sum, may only be made over one of
the following periods (or a combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated
Beneficiary,
3. a period certain not extending beyond the
life expectancy of the Participant, or
4. a period certain not extending beyond the
joint and last survivor expectancy of the
Participant and a designated Beneficiary.
D. Determination of Amount to be Distributed Each Year -
If the Participant's interest is to be distributed in
other than a single sum, the following minimum
distribution rules shall apply on or after the
required beginning date:
1. Individual Account
a. If a Participant's benefit is to be
distributed over (1) a period not
extending beyond the life expectancy
of the Participant or the joint life
and last survivor expectancy of the
Participant and the Participant's
designated Beneficiary or (2) a period
not extending beyond the life
expectancy of the designated
Beneficiary, the amount required to be
distributed for each calendar year,
beginning with distributions for the
first distribution calendar year, must
at least equal the quotient obtained
by dividing the Participant's benefit
by the applicable life expectancy.
b. For calendar years beginning before
January 1, 1989, if the Participant's
spouse is not the designated
Beneficiary, the method of
distribution selected must assure that
at least 50% of the present value of
the amount available for distribution
is paid within the life expectancy of
the Participant.
c. For calendar years beginning after
December 31, 1988, the amount to be
distributed each year, beginning with
distributions for the first
distribution calendar year shall not
be less than the quotient obtained by
dividing the Participant's benefit by
the lesser of (1) the applicable life
expectancy or (2) if the Participant's
spouse is not the designated
Beneficiary, the applicable divisor
determined from the table set forth in
Q&A-4 of Section 1 .401(a)(9)-2 of the
Proposed Income Tax Regulations.
Distributions after the death of the
Participant shall be
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<PAGE> 77
distributed using the applicable life
expectancy in Section 6.05(D)(1)(a)
above as the relevant divisor without
regard to proposed regulations 1
.401(a)(9)-2.
d. The minimum distribution required for
the Participant's first distribution
calendar year must be made on or
before the Participant's required
beginning date. The minimum
distribution for other calendar years,
including the minimum distribution for
the distribution calendar year in
which the Employee's required
beginning date occurs, must be made on
or before December 31 of that
distribution calendar year.
2. Other Forms - If the Participant's benefit
is distributed in the form of an annuity
purchased from an insurance company,
distributions thereunder shall be made in
accordance with the requirements of Section
401(a)(9) of the Code and the regulations
thereunder.
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the
Participant dies after distribution of his
or her interest has begun, the remaining
portion of such interest will continue to be
distributed at least as rapidly as under the
method of distribution being used prior to
the Participant's death.
2. Distribution Beginning After Death - If the
Participant dies before distribution of his
or her interest begins, distribution of the
Participant's entire interest shall be
completed by December 31 of the calendar
year containing the fifth anniversary of the
Participant's death except to the extent
that an election is made to receive
distributions in accordance with (a) or (b)
below:
a. if any portion of the Participant's
interest is payable to a designated
Beneficiary, distributions may be made
over the life or over a period certain
not greater than the life expectancy
of the designated Beneficiary
commencing on or before December 31 of
the calendar year immediately
following the calendar year in which
the Participant died;
b. if the designated Beneficiary is the
Participant's surviving spouse, the
date distributions are required to
begin in accordance with (a) above
shall not be earlier than the later of
(1) December 31 of the calendar year
immediately following the calendar
year in which the Participant dies or
(2) December 31 of the calendar year
in which the Participant would have
attained age 70 1/2.
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<PAGE> 78
If the Participant has not made an
election pursuant to this Section
6.05(E)(2) by the time of his or her
death, the Participant's designated
Beneficiary must elect the method of
distribution no later than the earlier
of (1) December 31 of the calendar
year in which distributions would be
required to begin under this Section
6.05(E)(2), or (2) December 31 of the
calendar year which contains the fifth
anniversary of the date of death of
the Participant. If the Participant
has no designated Beneficiary, or if
the designated Beneficiary does not
elect a method of distribution,
distribution of the Participant's
entire interest must be completed by
December 31 of the calendar year
containing the fifth anniversary of
the Participant's death.
3. For purposes of Section 6.06(E)(2) above, if
the surviving spouse dies after the
Participant, but before payments to such
spouse begin, the provisions of Section
6.06(E)(2), with the exception of paragraph
(b) therein, shall be applied as if the
surviving spouse were the Participant.
4. For purposes of this Section 6.06(E), any
amount paid to a child of the Participant
will be treated as if it had been paid to
the surviving spouse if the amount becomes
payable to the surviving spouse when the
child reaches the age of majority.
5. For purposes of this Section 6.06(E),
distribution of a Participant's interest is
considered to begin on the Participant's
required beginning date (or, if Section
6.06(E)(3) above is applicable, the date
distribution is required to begin to the
surviving spouse pursuant to Section
6,06(E)(2) above). If distribution in the
form of an annuity irrevocably commences to
the Participant before the required
beginning date, the date distribution is
considered to begin is the date distribution
actually commences.
F. Definitions
1. Applicable Life Expectancy - The life
expectancy (or joint and last survivor
expectancy) calculated using the attained
age of the Participant (or designated
Beneficiary) as of the Participant's (or
designated Beneficiary's) birthday in the
applicable calendar year reduced by one for
each calendar year which has elapsed since
the date life expectancy was first
calculated. If life expectancy is being
recalculated, the applicable life expectancy
shall be the life expectancy as so
recalculated. The applicable calendar year
shall be the first distribution calendar
year, and if life expectancy is being
recalculated such succeeding calendar year.
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<PAGE> 79
2. Designated Beneficiary - The individual who
is designated as the Beneficiary under the
Plan in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year
for which a minimum distribution is
required. For distributions beginning before
the Participant's death, the first
distribution calendar year is the calendar
year immediately preceding the calendar year
which contains the Participant's required
beginning date. For distributions beginning
after the Participant's death, the first
distribution calendar year is the calendar
year in which distributions are required to
begin pursuant to Section 6.05(E) above.
4. Life Expectancy - Life expectancy and joint
and last survivor expectancy are computed by
use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the
Income Tax Regulations.
Unless otherwise elected by the Participant
(or spouse, in the case of distributions
described in Section 6.05(E)(2)(b) above) by
the time distributions are required to
begin, life expectancies shall be
recalculated annually. Such election shall
be irrevocable as to the Participant (or
spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse
Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last
valuation date in the valuation
calendar year (the calendar year
immediately preceding the distribution
calendar year) increased by the amount
of any Contributions or Forfeitures
allocated to the account balance as of
dates in the valuation calendar year
after the valuation date and decreased
by distributions made in the valuation
calendar year after the valuation
date.
b. Exception for second distribution
calendar year. For purposes of
paragraph (a) above, if any portion of
the minimum distribution for the first
distribution calendar year is made in
the second distribution calendar year
on or before the required beginning
date, the amount of the minimum
distribution made in the second
distribution calendar year shall be
treated as if it had been made in the
immediately preceding distribution
calendar year.
6. Required Beginning Date
a. General Rule - The required beginning
date of a Participant is the first day
of April of the calendar year
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<PAGE> 80
following the calendar year in which
the Participant attains age 70 1/2.
b. Transitional Rules - The required
beginning date of a Participant who
attains age 70 1/2 before January 1,
1988, shall be determined in
accordance with (1) or (2) below:
(1) Non 5% Owners - The required
beginning date of a
Participant who is not a 5%
owner is the first day of
April of the calendar year
following the calendar year
in which the later of
retirement or attainment of
age 70 1/2 occurs.
(2) 5% Owners - The required
beginning date of a
Participant who is a 5% owner
during any year beginning
after December 31, 1979, is
the first day of April
following the later of:
(a) the calendar year in
which the Participant
attains age 70 1/2, or
(b) the earlier of the
calendar year with or
within which ends the
Plan Year in which the
Participant becomes a
5% owner, or the
calendar year in which
the Participant
retires.
The required beginning date
of a Participant who is not a
5% owner who attains age 70
1/2 during 1988 and who has
not retired as of January 1,
1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as
a 5% owner for purposes of this
Section 6.06(F)(6) if such Participant
is a 5% owner as defined in Section 4
16(i) of the Code (determined in
accordance with Section 416 but
without regard to whether the Plan is
top-heavy) at any time during the Plan
Year ending with or within the
calendar year in which such owner
attains age 66 1/2 or any subsequent
Plan Year.
d. Once distributions have begun to a 5%
owner under this Section 6.06(F)(6)
they must continue to be distributed,
even if the Participant ceases to be a
5% owner in-a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of
this Section 6.06 and subject to the
requirements of Section 6.05, Joint and
Survivor
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<PAGE> 81
Annuity Requirements, distribution on behalf
of any Employee, including a 5% owner, may
be made in accordance with all of the
following requirements (regardless of when
such distribution commences):
a. The distribution by the Fund is one
which would not have qualified such
Fund under Section 401(a)(9) of the
Code as in effect prior to amendment
by the Deficit Reduction Act of 1984.
b. The distribution is in accordance with
a method of distribution designated by
the Employee whose interest in the
Fund is being distributed or, if the
Employee is deceased, by a Beneficiary
of such Employee.
c. Such designation was in writing, was
signed by the Employee or the
Beneficiary, and was made before
January 1, 1984.
d. The Employee had accrued a benefit
under the Plan as of December 31,
1983.
e. The method of distribution designated
by the Employee or the Beneficiary
specifies the time at which
distribution will commence, the period
over which distributions will be made,
and in the case of any distribution
upon the Employee's death, the
Beneficiaries of the Employee listed
in order of priority.
2. A distribution upon death will not be
covered by this transitional rule unless the
information in the designation contains the
required information described above with
respect to the distributions to be made upon
the death of the Employee.
3. For any distribution which commences before
January 1, 1984, but continues after
December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is
being made, will be presumed to have
designated the method of distribution under
which the distribution is being made if the
method of distribution was specified in
writing and the distribution satisfies the
requirements in Sections 6.06(G)(1)(a) and
(e).
4. If a designation is revoked, any subsequent
distribution must satisfy the requirements
of Section 401(a)(9) of the Code and the
regulations thereunder. If a designation is
revoked subsequent to the date distributions
are required to begin, the Plan must
distribute by the end of the calendar year
following the calendar year in which the
revocation occurs the total amount not yet
distributed which would have been required
to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations
thereunder, but for the Section 242(b)(2)
election,
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<PAGE> 82
For calendar years beginning after December
31, 1988, such distributions must meet the
minimum distribution incidental benefit
requirements in Section 1 .401(a)(9)-2 of
the Proposed Income Tax Regulations. Any
changes in the designation will be
considered to be a revocation of the
designation. However, the mere substitution
or addition of another Beneficiary (one not
named in the designation) under the
designation will not be considered to be a
revocation of the designation, so long as
such substitution or addition does not alter
the period over which distributions are to
be made under the designation, directly or
indirectly (for example, by altering the
relevant measuring life). In the case in
which an amount is transferred or rolled
over from one plan to another plan, the
rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted
or required by this Section 6) must be nontransferable. The
terms of any annuity contract purchased and distributed by the
Plan to a Participant or spouse shall comply with the
requirements of the Plan.
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may
receive a loan from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on
a reasonably equivalent basis.
B. Loans shall not be made available to Highly
Compensated Employees (as defined in Section 414(q)
of the Code) in an amount greater than the amount
made available to other Employees.
C. Loans must be adequately secured and bear a
reasonable interest rate.
D. No Participant loan shall exceed the present value of
the Vested portion of a Participant's Individual
Account.
E. A Participant must obtain the consent of his or her
spouse, if any, to the use of the Individual Account
as security for the loan. Spousal consent shall be
obtained no earlier than the beginning of the 90 day
period that ends on the date on which the loan is to
be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be
witnessed by a plan representative or notary public.
Such consent shall thereafter be binding with respect
to the consenting spouse or any subsequent spouse
with respect to that loan. A new consent shall be
required if the account balance is used for
renegotiations, extension, renewal, or other revision
of the loan. Notwithstanding the foregoing, no
spousal consent is necessary if, at the time the loan
is secured, no consent would be required for a
distribution under Section 417(a)(2)(B). In
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<PAGE> 83
addition, spousal consent is not required if the Plan
or the Participant is not subject to Section
40l(a)(11) at the time the Individual Account is used
as security, or if the total Individual Account
subject to the security is less than or equal to
$3,500.
F. In the event of default, foreclosure on the note and
attachment of security will not occur until a
distributable event occurs in the Plan.
Notwithstanding the preceding sentence, a
Participant's default on a loan will be treated as a
distributable event and as soon as administratively
feasible after the default, the Participant's Vested
Individual Account will be reduced by the lesser of
the amount in default (plus accrued interest) or the
amount secured. If this Plan is a 401(k) plan, then
to the extent the loan is attributable to a
Participant's Elective Deferrals, Qualified
Nonelective Contributions or Qualified Matching
Contributions, the Participant's Individual Account
will not be reduced unless the Participant has
attained age 59 1/2 or has another distributable
event. A Participant will be deemed to have consented
to the provision at the time the loan is made to the
Participant.
G. No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a
shareholder-employee means an employee or officer of
an electing small business (Subchapter S) corporation
who owns (or is considered as owning within the
meaning of Section 3l8(a)(1) of the Code), on any day
during the taxable year of such corporation, more
than 5% of the outstanding stock of the corporation.
If a valid spousal consent has been obtained in accordance
with 6.08(E), then, notwithstanding any other provisions of
this Plan, the portion of the Participant's Vested Individual
Account used as a security interest held by the Plan by reason
of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the account
balance payable at the time of death or distribution, but only
if the reduction is used as repayment of the loan. If less
than 100% of the Participant's Vested Individual Account
(determined without regard to the preceding sentence) is
payable to the surviving spouse, then the account balance
shall be adjusted by first reducing the Vested Individual
Account by the amount of the security used as repayment of the
loan, and then determining the benefit payable to the
surviving spouse.
To avoid taxation to the Participant, no loan to any
Participant can be made to the extent that such loan when
added to the outstanding balance of all other loans to the
Participant would exceed the lesser of (a) $50,000 reduced by
the excess (if any) of the highest outstanding balance of
loans during the one year period ending on the day before the
loan is made, over the outstanding balance of loans from the
Plan on the date the loan is made, or (b) 50% of the present
value of the nonforfeitable Individual Account of the
Participant or, if greater, the total Individual Account up to
$10,000. For the purpose of the above limitation, all loans
from all plans of the Employer and other members of a group of
employers described in Sections 414(b), 414(c), and 414(m) of
the Code are aggregated. Furthermore, any loan shall by its
terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than
quarterly, over a
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<PAGE> 84
period not extending beyond 5 years from the date of the loan,
unless such loan is used to acquire a dwelling unit which
within a reasonable time (determined at the time the loan is
made) will be used as the principal residence of the
Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or
assignment with respect to any insurance contract purchased
under the Plan, will be treated as a loan under this
paragraph.
The Plan Administrator shall administer the loan program in
accordance with a written document. Such written document
shall include, at a minimum, the following: (i) the identity
of the person or positions authorized to administer the
Participant loan program; (ii) the procedure for applying for
loans; (iii) the basis on which loans will be approved or
denied; (iv) limitations (if any) on the types and amounts of
loans offered; (v) the procedure under the program for
determining a reasonable rate of interest; (vi) the types of
collateral which may secure a Participant loan; and (vii) the
events constituting default and the steps that will be taken
to preserve Plan assets in the event of such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this
Plan to be made either in a form actually held in the Fund, or
in cash by converting assets other than cash into cash, or in
any combination of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option
This Section applies to distributions made on or
after January 1, 1993. Notwithstanding any provision
of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution that is
equal to at least $500 paid directly to an eligible
retirement plan specified by the distributee in a
direct rollover.
B. Definitions
1. Eligible rollover distribution - An eligible
rollover distribution is any distribution of
all or any portion of the balance to the
credit of the distributee, except that an
eligible rollover distribution does not
include:
a. any distribution that is one of a
series of substantially equal periodic
payments (not less frequently than
annually) made for the life (or life
expectancy) of the distributee or the
joint lives (or joint life
expectancies) of the distributee and
the distributee's designated
Beneficiary, or for a specified period
of ten years or more;
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<PAGE> 85
b. any distribution to the extent such
distribution is required under Section
401(a)(9) of the Code;
c. the portion of any other distribution
that is not includible in gross income
(determined without regard to the
exclusion for net unrealized
appreciation with respect to employer
securities); and
d. any other distribution(s) that is
reasonably expected to total less than
$200 during a year.
2. Eligible retirement plan - An eligible
retirement plan is an individual retirement
account described in Section 408(a) of the
Code, an individual retirement annuity
described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of
the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the
distributee's eligible rollover
distribution. However, in the case of an
eligible rollover distribution to the
surviving spouse, an eligible retirement
plan is an individual retirement account or
individual retirement annuity.
3. Distributee - A distributee includes an
Employee or former Employee. In addition,
the Employee's or former Employee's
surviving spouse and the Employee's or
former Employee's spouse or former spouse
who is the alternate payee under a qualified
domestic relations order, as defined in
Section 4l4(p) of the Code, are distributees
with regard to the interest of the spouse or
former spouse.
4. Direct rollover - A direct rollover is a
payment by the Plan to the eligible
retirement plan specified by the
distributee.
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES
The Plan Administrator must use all reasonable measures to
locate Participants or Beneficiaries who are entitled to
distributions from the Plan. In the event that the Plan
Administrator cannot locate a Participant or Beneficiary who
is entitled to a distribution from the Plan after using all
reasonable measures to locate him or her, the Plan
Administrator may, consistent with applicable laws,
regulations and other pronouncements under ERISA, use any
reasonable procedure to dispose of distributable plan assets,
including any of the following: (1) establish a bank account
for and in the name of the Participant or Beneficiary and
transfer the assets to such bank account, (2) purchase an
annuity contract with the assets in the name of the
Participant or Beneficiary, or (3) after the expiration of 5
years after the benefit becomes payable, treat the amount
distributable as a Forfeiture and allocate it in accordance
with the terms of the Plan and if the Participant or
Beneficiary is later located, restore such benefit to the
Plan.
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<PAGE> 86
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to make a claim for
the Vested portion of the Participant's Individual Account
shall file a written request with the Plan Administrator on a
form to be furnished to him or her by the Plan Administrator
for such purpose. The request shall set forth the basis of the
claim, The Plan Administrator is authorized to conduct such
examinations as may be necessary to facilitate the payment of
any benefits to which the Participant or Beneficiary may be
entitled under the terms of the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan
Administrator must furnish such Participant or Beneficiary
written notice of the denial within 60 days of the date the
original claim was filed. This notice shall set forth the
specific reasons for the denial, specific reference to
pertinent Plan provisions on which the denial is based, a
description of any additional information or material needed
to perfect the claim, an explanation of why such additional
information or material is necessary and an explanation of the
procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt
of the denial notice in which to make written application for
review by the Plan Administrator. The Participant or
Beneficiary may request that the review be in the nature of a
hearing. The Participant or Beneficiary shall have the right
to representation, to review pertinent documents and to submit
comments in writing. The Plan Administrator shall issue a
decision on such review within 60 days after receipt of an
application for review as provided for in Section 7.02. Upon a
decision unfavorable to the Participant or Beneficiary, such
Participant or Beneficiary shall be entitled to bring such
actions in law or equity as may be necessary or appropriate to
protect or clarify his or her right to benefits under this
Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless
the managing body of the Employer designates a person
or persons other than the Employer as the Plan
Administrator and so notifies the Trustee (or
Custodian, if applicable). The Employer shall also be
the Plan Administrator if the person or persons so
designated cease to be the Plan Administrator. The
Employer may establish an administrative committee
that will carry out the Plan Administrator's duties.
Members of the administrative committee may allocate
the Plan Administrator's duties among themselves.
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B. If the managing body of the Employer designates a
person or persons other than the Employer as Plan
Administrator, such person or persons shall serve at
the pleasure of the Employer and shall serve pursuant
to such procedures as such managing body may provide.
Each such person shall be bonded as may be required
by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate
the duties of the Plan Administrator among several
individuals or entities. Such appointments shall not
be effective until the party designated accepts such
appointment in writing.
B. The Plan Administrator shall have the authority to
control and manage the operation and administration
of the Plan. The Plan Administrator shall administer
the Plan for the exclusive benefit of the
Participants and their Beneficiaries in accordance
with the specific terms of the Plan.
C. The Plan Administrator shall be charged with the
duties of the general administration of the Plan,
including, but not limited to, the following:
1. To determine all questions of interpretation
or policy in a manner consistent with the
Plan's documents and the Plan
Administrator's construction or
determination in good faith shall be
conclusive and binding on all persons except
as otherwise provided herein or by law. Any
interpretation or construction shall be done
in a nondiscriminatory manner and shall be
consistent with the intent that the Plan
shall continue to be deemed a qualified plan
under the terms of Section 40 1(a) of the
Code, as amended from time-to-time, and
shall comply with the terms of ERISA, as
amended from time-to-time;
2. To determine all questions relating to the
eligibility of Employees to become or remain
Participants hereunder;
3. To compute the amounts necessary or
desirable to be contributed to the Plan;
4. To compute the amount and kind of benefits
to which a Participant or Beneficiary shall
be entitled under the Plan and to direct the
Trustee (or Custodian, if applicable) with
respect to all disbursements under the Plan,
and, when requested by the Trustee (or
Custodian), to furnish the Trustee (or
Custodian) with instructions, in writing, on
matters pertaining to the Plan and the
Trustee (or Custodian) may rely and act
thereon;
5. To maintain all records necessary for the
administration of the Plan;
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6. To be responsible for preparing and filing
such disclosure and tax forms as may be
required from time-to-time by the Secretary
of Labor or the Secretary of the Treasury;
and
7. To furnish each Employee, Participant or
Beneficiary such notices, information and
reports under such circumstances as may be
required by law.
D. The Plan Administrator shall have all of the powers
necessary or appropriate to accomplish his or her
duties under the Plan, including, but not limited to,
the following:
1. To appoint and retain such persons as may be
necessary to carry out the functions of the
Plan Administrator;
2. To appoint and retain counsel, specialists
or other persons as the Plan Administrator
deems necessary or advisable in the
administration of the Plan;
3. To resolve all questions of administration
of the Plan;
4. To establish such uniform and
nondiscriminatory rules which it deems
necessary to carry out the terms of the
Plan;
5. To make any adjustments in a uniform and
nondiscriminatory manner which it deems
necessary to correct any arithmetical or
accounting errors which may have been made
for any Plan Year; and
6. To correct any defect, supply any omission
or reconcile any inconsistency in such
manner and to such extent as shall be deemed
necessary or advisable to carry out the
purpose of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not
limited to, those involved in retaining necessary professional
assistance may be paid from the assets of the Fund.
Alternatively, the Employer may, in its discretion, pay any or
all such expenses. Pursuant to uniform and nondiscriminatory
rules that the Plan Administrator may establish from
time-to-time, administrative expenses and expenses unique to a
particular Participant may be charged to a Participant's
Individual Account or the Plan Administrator may allow
Participants to pay such fees outside of the Plan. The
Employer shall furnish the Plan Administrator with such
clerical and other assistance as the Plan Administrator may
need in the performance of his or her duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his or her duties,
the Employer shall supply full and timely information to the
Plan Administrator (or his or her
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designated agents) on all matters relating to the Compensation
of all Participants, their regular employment, retirement,
death, Disability or Termination of Employment, and such other
pertinent facts as the Plan Administrator (or his or her
agents) may require. The Plan Administrator shall advise the
Trustee (or Custodian, if applicable) of such of the foregoing
facts as may be pertinent to the Trustee's (or Custodian's)
duties under the Plan. The Plan Administrator (or his or her
agents) is entitled to rely on such information as is supplied
by the Employer and shall have no duty or responsibility to
verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly
delegates to the Prototype Sponsor the power, but not
the duty, to amend the Plan without any further
action or consent of the Employer as the Prototype
Sponsor deems necessary for the purpose of adjusting
the Plan to comply with all laws and regulations
governing pension or profit sharing plans.
Specifically, it is understood that the amendments
may be made unilaterally by the Prototype Sponsor.
However, it shall be understood that the Prototype
Sponsor shall be under no obligation to amend the
Plan documents and the Employer expressly waives any
rights or claims against the Prototype Sponsor for
not exercising this power to amend. For purposes of
Prototype Sponsor amendments, the mass submitter
shall be recognized as the agent of the Prototype
Sponsor. If the Prototype Sponsor does not adopt the
amendments made by the mass submitter, it will no
longer be identical to or a minor modifier of the
mass submitter plan.
B. An amendment by the Prototype Sponsor shall be
accomplished by giving written notice to the Employer
of the amendment to be made. The notice shall set
forth the text of such amendment and the date such
amendment is to be effective. Such amendment shall
take effect unless within the 30 day period after
such notice is provided, or within such shorter
period as the notice may specify, the Employer gives
the Prototype Sponsor written notice of refusal to
consent to the amendment. Such written notice of
refusal shall have the effect of withdrawing the Plan
as a prototype plan and shall cause the Plan to be
considered an individually designed plan. The right
of the Prototype Sponsor to cause the Plan to be
amended shall terminate should the Plan cease to
conform as a prototype plan as provided in this or
any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the
Adoption Agreement; (2) add overriding language in the
Adoption Agreement when such language is necessary to satisfy
Section 415 or Section 416 of the Code because of the required
aggregation of multiple plans; and (3) add certain model
amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the
Plan to be treated as individually designed. An Employer that
amends the Plan for any other reason, including a waiver of
the
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minimum funding requirement under Section 4 12(d) of the Code,
will no longer participate in this prototype plan and will be
considered to have an individually designed plan.
An Employer who wishes to amend the Plan to change the options
it has chosen in the Adoption Agreement must complete and
deliver a new Adoption Agreement to the Prototype Sponsor and
Trustee (or Custodian, if applicable). Such amendment shall
become effective upon execution by the Employer and Trustee
(or Custodian).
The Employer further reserves the right to replace the Plan in
its entirety by adopting another retirement plan which the
Employer designates as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that
it has the effect of decreasing a Participant's accrued
benefit. Notwithstanding the preceding sentence, a
Participant's Individual Account may be reduced to the extent
permitted under Section 412(c)(8) of the Code. For purposes of
this paragraph, a plan amendment which has the effect of
decreasing a Participant's Individual Account or eliminating
an optional form of benefit with respect to benefits
attributable to service before the amendment shall be treated
as reducing an accrued benefit. Furthermore, if the vesting
schedule of a Plan is amended, in the case of an Employee who
is a Participant as of the later of the date such amendment is
adopted or the date it becomes effective, the Vested
percentage (determined as of such date) of such Employee's
Individual Account derived from Employer Contributions will
not be less than the percentage computed under the Plan
without regard to such amendment.
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the
computation of the Participant's Vested percentage, or if the
Plan is deemed amended by an automatic change to or from a
top-heavy vesting schedule, each Participant with at least 3
Years of Vesting Service with the Employer may elect, within
the time set forth below, to have the Vested percentage
computed under the Plan without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in
any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "5 Years of Vesting
Service" for "3 Years of Vesting Service" where such language
appears.
The Period during which the election may be made shall
commence with the date the amendment is adopted or deemed to
be made and shall end the later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
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C. 60 days after the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the
necessary contributions thereto indefinitely, but such
continuance and payment is not assumed as a contractual
obligation. Neither the Adoption Agreement nor the Plan nor
any amendment or modification thereof nor the making of
contributions hereunder shall be construed as giving any
Participant or any person whomsoever any legal or equitable
right against the Employer, the Trustee (or Custodian, if
applicable) the Plan Administrator or the Prototype Sponsor
except as specifically provided herein, or as provided by law,
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by
appropriate action of its managing body. Such termination
shall be effective on the date specified by the Employer. The
Plan shall terminate if the Employer shall be dissolved,
terminated, or declared bankrupt. Written notice of the
termination and effective date thereof shall be given to the
Trustee (or Custodian), Plan Administrator, Prototype Sponsor,
Participants and Beneficiaries of deceased Participants, and
the required filings (such as the Form 5500 series and others)
must be made with the Internal Revenue Service and any other
regulatory body as required by current laws and regulations.
Until all of the assets have been distributed from the Fund,
the Employer must keep the Plan in compliance with current
laws and regulations by (a) making appropriate amendments to
the Plan and (b) taking such other measures as may be
required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the
Employer may continue the Plan and be substituted in the place
of the present Employer. The successor and the present
Employer (or, if deceased, the executor of the estate of a
deceased Self-Employed Individual who was the Employer) must
execute a written instrument authorizing such substitution and
the successor must complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to retain its qualified status, the Plan
will no longer be considered to be part of a prototype plan,
and such Employer can no longer participate under this
prototype. In such event, the Plan will be considered an
individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable
without regard to the community property laws of any state.
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10.02 READINGS
The headings of the Plan have been inserted for convenience of
reference only and are to be ignored in any construction of
the provisions hereof.
10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender
they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and
whenever any words are used herein in the singular form they
shall be construed as though they were also used in the plural
form in all cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with,
or transfer of assets or liabilities of such Plan to any other
plan, each Participant shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer (if
the Plan had then terminated) which are equal to or greater
than the benefits he or she would have been entitled to
receive immediately before the merger, consolidation, or
transfer (if the Plan had then terminated). The Trustee (or
Custodian) has the authority to enter into merger agreements
or agreements to directly transfer the assets of this Plan but
only if such agreements are made with trustees or custodians
of other retirement plans described in Section 401(a) of the
Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other
fiduciary under this Plan shall discharge their duties with
respect to this Plan solely in the interests of Participants
and their Beneficiaries and with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent man acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims. No fiduciary shall cause the
Plan to engage in any transaction known as a "prohibited
transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and
execute any and all documents and papers which may be
necessary or desirable for the carrying out of this Plan and
any of its provisions.
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns, as those terms shall
apply to any and all parties hereto, present and future.
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10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983,
this Plan is a Top-Heavy Plan if any of the following
conditions exist:
1. If the top-heavy ratio for this Plan exceeds
60% and this Plan is not part of any
required aggregation group or permissive
aggregation group of plans.
2. If this Plan is part of a required
aggregation group of plans but not part of a
permissive aggregation group and the
top-heavy ratio for the group of plans
exceeds 60%.
3. If this Plan is a part of a required
aggregation group and part of a permissive
aggregation group of plans and the top-heavy
ratio for the permissive aggregation group
exceeds 60%.
For purposes of this Section 10.08, the following
terms shall have the meanings indicated below:
B. Key Employee - Any Employee or former Employee (and
the Beneficiaries of such Employee) who at any time
during the determination period was an officer of the
Employer if such individual's annual compensation
exceeds 50% of the dollar limitation under Section
415(b)(1)(A) of the Code, an owner (or considered an
owner under Section 318 of the Code) of one of the 10
largest interests in the Employer if such
individual's compensation exceeds 100% of the dollar
limitation under Section 415(c)(1)(A) of the Code, a
5% owner of the Employer, or a 1% owner of the
Employer who has an annual compensation of more than
$150,000. Annual compensation means compensation as
defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employer
pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under
Section 125, Section 402(e)(3), Section 402(h)(l)(B)
or Section 403(b) of the Code. The determination
period is the Plan Year containing the determination
date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be
made in accordance with Section 416(i)(1) of the Code
and the regulations thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more
defined contribution plans (including any
simplified employee pension plan) and the
Employer has not maintained any defined
benefit plan which during the 5-year period
ending on the determination date(s) has or
has had accrued benefits, the top-heavy
ratio for this Plan alone or for the
required or permissive aggregation group as
appropriate is a fraction, the numerator of
which is the sum of the account balances of
all Key Employees as of the determination
date(s) (including any part of any account
balance
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distributed in the 5-year period ending on
the determination date(s)), and the
denominator of which is the sum of all
account balances (including any part of any
account balance distributed in the 5-year
period ending on the determination date(s)),
both computed in accordance with Section 416
of the Code and the regulations thereunder.
Both the numerator and the denominator of
the top-heavy ratio are increased to reflect
any contribution not actually made as of the
determination date, but which is required to
be taken into account on that date under
Section 416 of the Code and the regulations
thereunder.
2. If the Employer maintains one or more
defined contribution plans (including any
simplified employee pension plan) and the
Employer maintains or has maintained one or
more defined benefit plans which during the
5-year period ending on the determination
date(s) has or has had any accrued benefits,
the top-heavy ratio for any required or
permissive aggregation group as appropriate
is a fraction, the numerator of which is the
sum of account balances under the aggregated
defined contribution plan or plans for all
Key Employees, determined in accordance with
(1) above, and the present value of accrued
benefits under the aggregated defined
benefit plan or plans for all Key Employees
as of the determination date(s), and the
denominator of which is the sum of the
account balances under the aggregated
defined contribution plan or plans for all
Participants, determined in accordance with
(1) above, and the present value of accrued
benefits under the defined benefit plan or
plans for all Participants as of the
determination date(s), all determined in
accordance with Section 416 of the Code and
the regulations thereunder. The accrued
benefits under a defined benefit plan in
both the numerator and denominator of the
top-heavy ratio are increased for any
distribution of an accrued benefit made in
the S-year period ending on the
determination date.
3. For purposes of(l) and (2) above, the value
of account balances and the present value of
accrued benefits will be determined as of
the most recent valuation date that falls
within or ends with the 12-month period
ending on the determination date, except as
provided in Section 416 of the Code and the
regulations thereunder for the first and
second plan years of a defined benefit plan.
The account balances and accrued benefits of
a Participant (a) who is not a Key Employee
but who was a Key Employee in a Prior Year,
or (b) who has not been credited with at
least one Hour of Service with any employer
maintaining the plan at any time during the
S-year period ending on the determination
date will be disregarded. The calculation of
the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are
taken into account will be made in
accordance with Section 416 of the Code and
the regulations thereunder. Deductible
employee contributions will not be taken
into account for purposes of computing the
top-heavy ratio. When aggregating
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plans the value of account balances and
accrued benefits will be calculated with
reference to the determination dates that
fall within the same calendar year.
The accrued benefit of a Participant other
than a Key Employee shall be determined
under (a) the method, if any, that uniformly
applies for accrual purposes under all
defined benefit plans maintained by the
Employer, or (b)if there is no such method,
as if such benefit accrued not more rapidly
than the slowest accrual rate permitted
under the fractional rule of Section 41
1(b)(l)(C) of the Code.
4. Permissive aggregation group: The required
aggregation group of plans plus any other
plan or plans of the Employer which, when
considered as a group with the required
aggregation group, would continue to satisfy
the requirements of Sections 401(a)(4) and
410 of the Code.
5. Required aggregation group: (a) Each
qualified plan of the Employer in which at
least one Key Employee participates or
participated at any time during the
determination period (regardless of whether
the Plan has terminated), and (b) any other
qualified plan of the Employer which enables
a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of
the Code.
6. Determination date: For any Plan Year
subsequent to the first Plan Year, the last
day of the preceding Plan Year. For the
first Plan Year of the Plan, the last day of
that year.
7. Valuation date: For purposes of calculating
the top-heavy ratio, the valuation date
shall be the last day of each Plan Year.
8. Present value: For purposes of establishing
the "present value" of benefits under a
defined benefit plan to compute the
top-heavy ratio, any benefit shall be
discounted only for mortality and interest
based on the interest rate and mortality
table specified for this purpose in the
defined benefit plan, unless otherwise
indicated in the Adoption Agreement.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business for which
this Plan is established and one or more other trades or
businesses, this Plan and the plan established for other
trades or businesses must, when looked at as a single plan,
satisfy Sections 40 1(a) and (d) of the Code for the employees
of those trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses
must be included in a plan which satisfies Sections 40 1(a)
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and (d) of the Code and which provides contributions and
benefits not less favorable than provided for Owner-Employees
under this Plan.
If an individual is covered as an Owner-Employee under the
plans of two or more trades or businesses which are not
controlled and the individual controls a trade or business,
then the contributions or benefits of the employees under the
plan of the trade or business which is controlled must be as
favorable as those provided for him or her under the most
favorable plan of the trade or business which is not
controlled.
For purposes of the preceding paragraphs, an Owner-Employee,
or two or more Owner-Employees, will be considered to control
a trade or business if the Owner-Employee, or two or more
Owner-Employees, together:
A. own the entire interest in a unincorporated trade or
business, or
B. in the case of a partnership, own more than 50% of
either the capital interest or the profit interest in
the partnership.
For purposes of the preceding sentence, an Owner-Employee, or
two or more Owner-Employees, shall be treated as owning any
interest in a partnership which is owned, directly or
indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control
within the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily.
The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations
order, unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p) of the
Code.
Generally, a domestic relations order cannot be a qualified
domestic relations order until January 1, 1985. However, in
the case of a domestic relations order entered before such
date, the Plan Administrator:
(1) shall treat such order as a qualified domestic
relations order if such Plan Administrator is paying
benefits pursuant to such order on such date, and
(2) may treat any other such order entered before such
date as a qualified domestic relations order even if
such order does not meet the requirements of Section
414(p) of the Code.
Notwithstanding any provision of the Plan to the contrary, a
distribution to an alternate payee under a qualified domestic
relations order shall be permitted even if the Participant
affected by such order is not otherwise entitled to a
distribution and even if such Participant has not attained
earliest retirement age as defined in Section 414(p) of the
Code.
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10.11 CANNOT ELIMINATE PROTECTED BENEFITS
Pursuant to Section 41 1(d)(6) of the Code, and the
regulations thereunder, the Employer cannot reduce, eliminate
or make subject to Employer discretion any Section 411(d)(6)
protected benefit. Where this Plan document is being adopted
to amend another plan that contains a protected benefit not
provided for in this document, the Employer may attach a
supplement to the Adoption Agreement that describes such
protected benefit which shall become part of the Plan.
SECTION ELEVEN 401(K) PROVISIONS
In addition to Sections 1 through 10, the provisions of this
Section 11 shall apply if the Employer has established a
401(k) cash or deferred arrangement (CODA) by completing and
signing the appropriate Adoption Agreement.
11.100 DEFINITIONS
The following words and phrases when used in the Plan with
initial capital letters shall, for the purposes of this Plan,
have the meanings set forth below unless the context indicates
that other meanings are intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan Year,
the average of the ratios (calculated separately for each
Participant in such group) of (1) the amount of Employer
Contributions actually paid over to the Fund on behalf of such
Participant for the Plan Year to (2) the Participant's
Compensation for such Plan Year (taking into account only that
Compensation paid to the Employee during the portion of the
Plan Year he or she was an eligible Participant, unless
otherwise indicated in the Adoption Agreement). For purposes
of calculating the ADP. Employer Contributions on behalf of
any Participant shall include: (1) any Elective Deferrals made
pursuant to the Participant's deferral election, (including
Excess Elective Deferrals of Highly Compensated Employees),
but excluding (a) Excess Elective Deferrals of Non-highly
Compensated Employees that arise solely from Elective
Deferrals made under the Plan or plans of this Employer and
(b) Elective Deferrals that are taken into account in the
Contribution Percentage test (provided the ADP test is
satisfied both with and without exclusion of these Elective
Deferrals); and (2) at the election of the Employer, Qualified
Nonelective Contributions and Qualified Matching
Contributions. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but for
the failure to make Elective Deferrals shall be treated as a
Participant on whose behalf no Elective Deferrals are made.
11.102 AGGREGATE LIMIT
Means the sum of (1) 125% of the greater of the ADP of the
Participants who are not Highly Compensated Employees for the
Plan Year or the ACP of the Participants who are not Highly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan
Year of the CODA; and (2) the lesser of 200% or two plus the
lesser of such ADP or ACP. "Lesser" is substituted for
"greater" in "(1)" above, and "greater" is
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substituted for "lesser" after "two plus the" in "(2)" if it
would result in a larger Aggregate Limit.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)
Means the average of the Contribution Percentages of the
Eligible Participants in a group.
11.104 CONTRIBUTING PARTICIPANT
Means a Participant who has enrolled as a Contributing
Participant pursuant to Section 11.201 and on whose behalf the
Employer is contributing Elective Deferrals to the Plan (or is
making Nondeductible Employee Contributions).
11.105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the
Participant's Contribution Percentage Amounts to the
Participant's Compensation for the Plan Year (taking into
account only the Compensation paid to the Employee during the
portion of the Plan Year he or she was an eligible
Participant, unless otherwise indicated in the Adoption
Agreement).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of the Nondeductible Employee Contributions,
Matching Contributions, and Qualified Matching Contributions
made under the Plan on behalf of the Participant for the Plan
Year. Such Contribution Percentage Amounts shall not include
Matching Contributions that are forfeited either to correct
Excess Aggregate Contributions or because the contributions to
which they relate are Excess Deferrals, Excess Contributions,
Excess Aggregate Contributions or excess annual additions
which are distributed pursuant to Section 11.508. If so
elected in the Adoption Agreement, the Employer may include
Qualified Nonelective Contributions in the Contribution
Percentage Amount. The Employer also may elect to use Elective
Deferrals in the Contribution Percentage Amounts so long as
the ADP test is met before the Elective Deferrals are used in
the ACP test and continues to be met following the exclusion
of those Elective Deferrals that are used to meet the ACP
test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the
election of the Participant, in lieu of cash compensation, and
shall include contributions made pursuant to a salary
reduction agreement or other deferral mechanism. With respect
to any taxable year, a Participant's Elective Deferral is the
sum of all Employer contributions made on behalf of such
Participant pursuant to an election to defer under any
qualified CODA as described in Section 401(k) of the Code, any
simplified employee pension cash or deferred arrangement as
described in Section 402(h)(1)(B), any eligible deferred
compensation plan under Section 457, any plan as described
under Section 501(c)(18), and any Employer contributions made
on the behalf of a Participant for the purchase of an annuity
contract under Section 403(b) pursuant to a salary reduction
agreement. Elective
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Deferrals shall not include any deferrals properly distributed
as excess annual additions.
No Participant shall be permitted to have Elective Deferrals
made under this Plan, or any other qualified plan maintained
by the Employer, during any taxable year, in excess of the
dollar limitation contained in Section 402(g) of the Code in
effect at the beginning of such taxable year.
Elective Deferrals may not be taken into account for purposes
of satisfying the minimum allocation requirement applicable to
Top-Heavy Plans described in Section 3.01(E).
11.108 ELIGIBLE PARTICIPANT
Means any Employee who is eligible to make a Nondeductible
Employee Contribution or an Elective Deferral (if the Employer
takes such contributions into account in the calculation of
the Contribution Percentage), or to receive a Matching
Contribution (including Forfeitures thereof) or a Qualified
Matching Contribution.
If a Nondeductible Employee Contribution is required as a
condition of participation in the Plan, any Employee who would
be a Participant in the Plan if such Employee made such a
contribution shall be treated as an Eligible Participant on
behalf of whom no Nondeductible Employee Contributions are
made.
11.109 EXCESS AGGREGATE CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate Contribution Percentage Amounts taken
into account in computing the numerator of the
Contribution Percentage actually made on behalf of
Highly Compensated Employees for such Plan Year, over
B. The maximum Contribution Percentage Amounts permitted
by the ACP test (determined by reducing contributions
made on behalf of Highly Compensated Employees in
order of their Contribution Percentages beginning
with the highest of such percentages).
Such determination shall be made after first
determining Excess Elective Deferrals pursuant to
Section 11.111 and then determining Excess
Contributions pursuant to Section 11.110.
11.110 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions
actually taken into account in computing the ADP of
Highly Compensated Employees for such Plan Year, over
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B. The maximum amount of such contributions permitted by
the ADP test (determined by reducing contributions
made on behalf of Highly Compensated Employees in
order of the ADPs, beginning with the highest of such
percentages).
11.111 EXCESS ELECTIVE DEFERRALS
Means those Elective Deferrals that are includible in a
Participant's gross income under Section 402(g) of the Code to
the extent such Participant's Elective Deferrals for a taxable
year exceed the dollar limitation under such Code section.
Excess Elective Deferrals shall be treated as annual additions
under the Plan, unless such amounts are distributed no later
than the first April 15 following the close of the
Participant's taxable year.
11.112 MATCHING CONTRIBUTION
Means an Employer Contribution made to this or any other
defined contribution plan on behalf of a Participant on
account of an Elective Deferral or a Nondeductible Employee
Contribution made by such Participant under a plan maintained
by the Employer.
Matching Contributions may not be taken into account for
purposes of satisfying the minimum allocation requirement
applicable to Top-Heavy Plans described in Section 3.01(E).
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS
Means contributions (other than Matching Contributions or
Qualified Matching Contributions) made by the Employer and
allocated to Participants' Individual Accounts that the
Participants may not elect to receive in cash until
distributed from the Plan; that are nonforfeitable when made;
and that are distributable only in accordance with the
distribution provisions that are applicable to Elective
Deferrals and Qualified Matching Contributions.
Qualified Nonelective Contribution may be taken into account
for purposes of satisfying the minimum allocation requirement
applicable to Top-Heavy Plans described in Section 3.01(E).
11.114 QUALIFIED MATCHING CONTRIBUTIONS
Means Matching Contributions which are subject to the
distribution and nonforfeitability requirements under Section
401(k) of the Code when made.
11.115 QUALIFYING CONTRIBUTING PARTICIPANT
Means a Contributing Participant who satisfies the
requirements described in Section 11.302 to be entitled to
receive a Matching Contribution (and Forfeitures, if
applicable) for a Plan Year.
11.200 CONTRIBUTING PARTICIPANT
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11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Each Employee who satisfies the eligibility
requirements specified in the Adoption Agreement may
enroll as a Contributing Participant as of any
subsequent Entry Date (or earlier if required by
Section 2.03) specified in the Adoption Agreement for
this purpose. A Participant who wishes to enroll as a
Contributing Participant must complete, sign and file
a salary reduction agreement (or agreement to make
Nondeductible Employee Contributions) with the Plan
Administrator.
B. Notwithstanding the times set forth in Section
11.201(A) as of which a Participant may enroll as a
Contributing Participant, the Plan Administrator
shall have the authority to designate, in a
nondiscriminatory manner, additional enrollment times
during the 12 month period beginning on the Effective
Date (or the date that Elective Deferrals may
commence, if later) in order that an orderly first
enrollment might be completed. In addition, if the
Employer has indicated in the Adoption Agreement that
Elective Deferrals may be based on bonuses, then
Participants shall be afforded a reasonable period of
time prior to the issuance of such bonuses to elect
to defer them into the Plan.
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS
A Contributing Participant may modify his or her salary
reduction agreement (or agreement to make Nondeductible
Employee Contributions) to increase or decrease (within the
limits placed on Elective Deferrals (or Nondeductible Employee
Contributions) in the Adoption Agreement) the amount of his or
her Compensation deferred into the Plan. Such modification may
only be made as of the dates specified in the Adoption
Agreement for this purpose, or as of any other more frequent
date(s) if the Plan Administrator permits in a uniform and
nondiscriminatory manner. A Contributing Participant who
desires to make such a modification shall complete, sign and
file a new salary reduction agreement (or agreement to make
Nondeductible Employee Contribution) with the Plan
Administrator. The Plan Administrator may prescribe such
uniform and nondiscriminatory rules it deems appropriate to
carry out the terms of this Section.
11.203 CEASING ELECTIVE DEFERRALS
A Participant may cease Elective Deferrals (or Nondeductible
Employee Contributions) and thus withdraw as a Contributing
Participant as of the dates specified in the Adoption
Agreement for this purpose (or as of any other date if the
Plan Administrator so permits in a uniform and
nondiscriminatory manner) by revoking the authorization to the
Employer to make Elective Deferrals (or Nondeductible Employee
Contributions) on his or her behalf. A Participant who desires
to withdraw as a Contributing Participant shall give written
notice of withdrawal to the Plan Administrator at least thirty
days (or such lesser period of days as the Plan Administrator
shall permit in a uniform and nondiscriminatory manner) before
the effective date of withdrawal. A Participant shall cease to
be a
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Contributing Participant upon his or her Termination of
Employment, or an account of termination of the Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE
DEFERRALS
A Participant who has withdrawn as a Contributing Participant
under Section 11.203 (or because the Participant has taken a
hardship withdrawal pursuant to Section 11.503) may not again
become a Contributing Participant until the dates set forth in
the Adoption Agreement for this purpose, unless the Plan
Administrator, in a uniform and nondiscriminatory manner,
permits withdrawing Participants to resume their status as
Contributing Participants sooner.
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS
This Section 11.205 applies where the Employer has indicated
in the Adoption Agreement that an Employee may make a one-time
irrevocable election to have the Employer make contributions
to the Plan on such Employee's behalf. In such event, an
Employee may elect, upon the Employee's first becoming
eligible to participate in the Plan, to have contributions
equal to a specified amount or percentage of the Employee's
Compensation (including no amount of Compensation) made by the
Employer on the Employee's behalf to the Plan (and to any
other plan of the Employer) for the duration of the Employee's
employment with the Employer. Any contributions made pursuant
to a one-time irrevocable election described in this Section
are not treated as made pursuant to a cash or deferred
election, are not Elective Deferrals and are not includible in
an Employee's gross income.
The Plan Administrator shall establish such uniform and
nondiscriminatory procedures as it deems necessary or
advisable to administer this provision.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER
The Employer shall make contributions to the Plan in
accordance with the contribution formulas specified in the
Adoption Agreement.
11.302 MATCHING CONTRIBUTIONS
The Employer may elect to make Matching Contributions under
the Plan on behalf of Qualifying Contributing Participants as
provided in the Adoption Agreement. To be a Qualifying
Contributing Participant for a Plan Year, the Participant must
make Elective Deferrals (or Nondeductible Employee
Contributions, if the Employer has agreed to match such
contributions) for the Plan Year, satisfy any age and Years of
Eligibility Service requirements that are specified for
Matching Contributions in the Adoption Agreement and also
satisfy any additional conditions set forth in the Adoption
Agreement for this purpose. In a uniform and nondiscriminatory
manner, the Employer may make Matching Contributions at the
same time as it contributes Elective Deferrals or at any other
time as permitted by laws and regulations.
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11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may elect to make Qualified Nonelective
Contributions under the Plan on behalf of Participants as
provided in the Adoption Agreement.
In addition, in lieu of distributing Excess Contributions as
provided in Section 11.505 of the Plan, or Excess Aggregate
Contributions as provided in Section 11.506 of the Plan, and
to the extent elected by the Employer in the Adoption
Agreement, the Employer may make Qualified Nonelective
Contributions on behalf of Participants who are not Highly
Compensated Employees that are sufficient to satisfy either
the Actual Deferral Percentage test or the Average
Contribution Percentage test, or both, pursuant to regulations
under the Code.
11.304 QUALIFIED MATCHING CONTRIBUTIONS
The Employer may elect to make Qualified Matching
Contributions under the Plan on behalf of Participants as
provided in the Adoption Agreement.
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Notwithstanding Section 3.02, if the Employer so allows in the
Adoption Agreement, a Participant may contribute Nondeductible
Employee Contributions to the Plan.
If the Employer has indicated in the Adoption Agreement that
Nondeductible Employee Contributions will be mandatory, then
the Employer shall establish uniform and nondiscriminatory
rules and procedures for Nondeductible Employee Contributions
as it deems necessary and advisable including, but not limited
to, rules describing in amounts or percentages of Compensation
Participants may or must contribute to the Plan.
A separate account will be maintained by the Plan
Administrator for the Nondeductible Employee Contributions for
each Participant.
A Participant may, upon a written request submitted to the
Plan Administrator, withdraw the lesser of the portion of his
or her Individual Account attributable to his or her
Nondeductible Employee Contributions or the amount he or she
contributed as Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will
be nonforfeitable at all times. No Forfeiture will occur
solely as a result of an Employee's withdrawal of
Nondeductible Employee Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A. Limits on Highly Compensated Employees - The Actual
Deferral Percentage (hereinafter "ADP") for
Participants who are Highly Compensated Employees for
each Plan Year and the ADP for
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Participants who are not Highly Compensated Employees
for the same Plan Year must satisfy one of the
following tests:
1. The ADP for Participants who are Highly
Compensated Employees for the Plan Year
shall not exceed the ADP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ADP for Participants who are Highly
Compensated Employees for the Plan Year
shall not exceed the ADP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 2.0
provided that the ADP for Participants who
are Highly Compensated Employees does not
exceed the ADP for Participants who are not
Highly Compensated Employees by more than 2
percentage points.
B. Special Rules
1. The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and
who is eligible to have Elective Deferrals
(and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both,
if treated as Elective Deferrals for
purposes of the ADP test) allocated to his
or her Individual Accounts under two or more
arrangements described in Section 401(k) of
the Code, that are maintained by the
Employer, shall be determined as if such
Elective Deferrals (and, if applicable, such
Qualified Nonelective Contributions or
Qualified Matching Contributions, or both)
were made under a single arrangement. If a
Highly Compensated Employee participates in
two or more cash or deferred arrangements
that have different Plan Years, all cash or
deferred arrangements ending with or within
the same calendar year shall be treated as a
single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as
separate if mandatorily disaggregated under
regulations under Section 401(k) of the
Code.
2. In the event that this Plan satisfies the
requirements of Sections 401(k), 401(a)(4),
or 410(b) of the Code only if aggregated
with one or more other plans, or if one or
more other plans satisfy the requirements of
such sections of the Code only if aggregated
with this Plan, then this Section 11.401
shall be applied by determining the ADP of
Employees as if all such plans were a single
plan. For Plan Years beginning after
December 31, 1989 plans may be aggregated in
order to satisfy Section 401(k) of the Code
only if they have the same Plan Year.
3. For purposes of determining the ADP of a
Participant who is a 5% owner or one of the
10 most highly paid Highly Compensated
Employees, the Elective Deferrals (and
Qualified Nonelective Contributions or
Qualified Matching Contributions, or both,
if treated as Elective Deferrals for
purposes of the ADP
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test) and Compensation of such Participant
shall include the Elective Deferrals (and,
if applicable, Qualified Nonelective
Contributions and Qualified Matching
Contributions, or both) and Compensation for
the Plan Year of family members (as defined
in Section 414(c)(6) of the Code). Family
members, with respect to such Highly
Compensated Employees, shall be disregarded
as separate Employees in determining the ADP
both for Participants who are not Highly
Compensated Employees and for Participants
who are Highly Compensated Employees.
4. For purposes of determining the ADP test,
Elective Deferrals, Qualified Nonelective
Contributions and Qualified Matching
Contributions must be made before the last
day of the 12 month period immediately
following the Plan Year to which
contributions relate.
5. The Employer shall maintain records
sufficient to demonstrate satisfaction of
the ADP test and the amount of Qualified
Nonelective Contributions or Qualified
Matching Contributions, or both, used in
such test.
6. The determination and treatment of the ADP
amounts of any Participant shall satisfy
such other requirements as may be prescribed
by the Secretary of the Treasury.
7. If the Employer elects to take Qualified
Matching Contributions into account as
Elective Deferrals for purposes of the ADP
test, then (subject to such other
requirements as may be prescribed by the
Secretary of the Treasury) unless otherwise
indicated in the Adoption Agreement, only
the amount of such Qualified Matching
Contributions that are needed to meet the
ADP test shall be taken into account.
8. In the event that the Plan Administrator
determines that it is not likely that the
ADP test will be satisfied for a particular
Plan Year unless certain steps are taken
prior to the end of such Plan Year, the Plan
Administrator may require Contributing
Participants who are Highly Compensated
Employees to reduce their Elective Deferrals
for such Plan Year in order to satisfy that
requirement. Said reduction shall also be
required by the Plan Administrator in the
event that the Plan Administrator
anticipates that the Employer will not be
able to deduct all Employer Contributions
from its income for Federal income tax
purposes.
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
A. Limits on Highly Compensated Employees - The Average
Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for
each Plan Year and the ACP for
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Participants who are not Highly Compensated Employees
for the same Plan Year must satisfy one of the
following tests:
1. The ACP for Participants who are Highly
Compensated Employees for the Plan Year
shall not exceed the ACP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ACP for Participants who are Highly
Compensated Employees for the Plan Year
shall not exceed the ACP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 2, provided
that the ACP for the Participants who are
Highly Compensated Employees does not exceed
the ACP for Participants who are not Highly
Compensated Employees by more than 2
percentage points.
B. Special Rules
1. Multiple Use - If one or more Highly
Compensated Employees participate in both a
CODA and a plan subject to the ACP test
maintained by the Employer and the sum of
the ADP and ACP of those Highly Compensated
Employees subject to either or both tests
exceeds the Aggregate Limit, then, as
elected in the Adoption Agreement, the AC?
or the ADP of those Highly Compensated
Employees who also participate in a CODA
will be reduced (beginning with such Highly
Compensated Employee whose ACP (or ADP, if
elected) is the highest) so that the limit
is not exceeded. The amount by which each
Highly Compensated Employee's Contribution
Percentage Amounts (or ADP, if elected) is
reduced shall be treated as an Excess
Aggregate Contribution (or Excess
Contribution, if elected). The ADP and ACP
of the Highly Compensated Employees are
determined after any corrections required to
meet the ADP and ACP tests. Multiple use
does not occur if the ADP and ACP of the
Highly Compensated Employees does not exceed
1.25 multiplied by the AD? and AC? of the
Participants who are not Highly Compensated
Employees.
2. For purposes of this Section 11.402, the
Contribution Percentage for any Participant
who is a Highly Compensated Employee and who
is eligible to have Contribution Percentage
Amounts allocated to his or her Individual
Account under two or more plans described in
Section 40 1(a) of the Code, or arrangements
described in Section 401(k) of the Code that
are maintained by the Employer, shall be
determined as if the total of such
Contribution Percentage Amounts was made
under each plan. If a Highly Compensated
Employee participates in two or more cash or
deferred arrangements that have different
plan years, all cash or deferred
arrangements ending with or within the same
calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing,
certain plans shall be treated as
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separate if mandatorily disaggregated under
regulations under Section 40 1(m) of the
Code.
3. In the event that this Plan satisfies the
requirements of Sections 40 1(m), 401(a)(4)
or 4 10(b) of the Code only if aggregated
with one or more other plans, or if one or
more other plans satisfy the requirements of
such Sections of the Code only if aggregated
with this Plan, then this Section shall be
applied by determining the Contribution
Percentage of Employees as if all such plans
were a single plan. For Plan Years beginning
after December 31, 1989, plans may be
aggregated in order to satisfy Section
401(m) of the Code only if they have the
same Plan Year.
4. For purposes of determining the Contribution
Percentage of a Participant who is a 5%
owner or one of the 10 most highly paid
Highly Compensated Employees, the
Contribution Percentage Amounts and
Compensation of such Participant shall
include the Contribution Percentage Amounts
and Compensation for the Plan Year of family
members, (as defined in Section 414(q)(6) of
the Code). Family members, with respect to
Highly Compensated Employees, shall be
disregarded as separate Employees in
determining the Contribution Percentage both
for Participants who are not Highly
Compensated Employees and for Participants
who are Highly Compensated Employees.
5. For purposes of determining the Contribution
Percentage test, Nondeductible Employee
Contributions are considered to have been
made in the Plan Year in which contributed
to the Fund. Matching Contributions and
Qualified Nonelective Contributions will be
considered made for a Plan Year if made no
later than the end of the 12 month period
beginning on the day after the close of the
Plan Year.
6. The Employer shall maintain records
sufficient to demonstrate satisfaction of
the ACP test and the amount of Qualified
Nonelective Contributions or Qualified
Matching Contributions, or both, used in
such test.
7. The determination and treatment of the
Contribution Percentage of any Participant
shall satisfy such other requirements as may
be prescribed by the Secretary of the
Treasury.
8. If the Employer elects to take Qualified
Nonelective Contributions into account as
Contribution Percentage Amounts for purposes
of the ACP test, then (subject to such other
requirements as may be prescribed by the
Secretary of the Treasury) unless otherwise
indicated in the Adoption Agreement, only
the amount of such Qualified Nonelective
Contributions that are needed to meet the
ACP test shall be taken into account.
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9. If the Employer elects to take Elective
Deferrals into account as Contribution
Percentage Amounts for purposes of the AC?
test, then (subject to such other
requirements as may be prescribed by the
Secretary of the Treasury) unless otherwise
indicated in the Adoption Agreement, only
the amount of such Elective Deferrals that
are needed to meet the ACP test shall be
taken into account.
11.500 DISTRIBUTION PROVISIONS
11.501 GENERAL RULE
Distributions from the Plan are subject to the provisions of
Section 6 and the provisions of this Section 11. In the event
of a conflict between the provisions of Section 6 and Section
11, the provisions of Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective Contributions, and
Qualified Matching Contributions, and income allocable to each
are not distributable to a Participant or his or her
Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary or Beneficiaries' election,
earlier than upon separation from service, death or
disability.
Such amounts may also be distributed upon:
A. Termination of the Plan without the establishment of
another defined contribution plan, other than an
employee stock ownership plan (as defined in Section
4975(e) or Section 409 of the Code) or a simplified
employee pension plan as defined in Section 408(k).
B. The disposition by a corporation to an unrelated
corporation of substantially all of the assets
(within the meaning of Section 409(d)(2) of the Code
used in a trade or business of such corporation if
such corporation continues to maintain this Plan
after the disposition, but only with respect to
Employees who continue employment with the
corporation acquiring such assets.
C. The disposition by a corporation to an unrelated
entity of such corporation's interest in a subsidiary
(within the meaning of Section 409(d)(3) of the Code)
if such corporation continues to maintain this Plan,
but only with respect to Employees who continue
employment with such subsidiary.
D. The attainment of age 59 1/2 in the case of a profit
sharing plan.
E. If the Employer has so elected in the Adoption
Agreement, the hardship of the Participant as
described in Section 11.503.
All distributions that may be made pursuant to one or
more of the foregoing distributable events are
subject to the spousal and Participant consent
requirements (if applicable) contained in Section
401(a)(1) and
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417 of the Code. In addition, distributions after
March 31, 1988, that are triggered by any of the
first three events enumerated above must be made in a
lump sum.
11.503 HARDSHIP DISTRIBUTION
A. General - If the Employer has so elected in the
Adoption Agreement, distribution of Elective
Deferrals (and any earnings credited to a
Participant's account as of the end of the last Plan
Year, ending before July 1, 1989) may be made to a
Participant in the event of hardship. For the
purposes of this Section, hardship is defined as an
immediate and heavy financial need of the Employee
where such Employee lacks other available resources.
Hardship distributions are subject to the spousal
consent requirements contained in Sections 401(a)(l
1) and 417 of the Code.
B. Special Rules
1. The following are the only financial needs
considered immediate and heavy: expenses
incurred or necessary for medical care,
described in Section 2 13(d) of the Code, of
the Employee, the Employee's spouse or
dependents; the purchase (excluding mortgage
payments) of a principal residence for the
Employee; payment of tuition and related
educational fees for the next 12 months of
post-secondary education for the Employee,
the Employee's spouse, children or
dependents; or the need to prevent the
eviction of the Employee from, or a
foreclosure on the mortgage of, the
Employee's principal residence.
2. A distribution will be considered as
necessary to satisfy an immediate and heavy
financial need of the Employee only if:
a. The Employee has obtained all
distributions, other than hardship
distributions, and all nontaxable
loans under all plans maintained by
the Employer;
b. All plans maintained by the Employer
provide that the Employee's Elective
Deferrals (and Nondeductible Employee
Contributions) will be suspended for
12 months after the receipt of the
hardship distribution;
c. The distribution is not in excess of
the amount of an immediate and heavy
financial need (including amounts
necessary to pay any Federal, state or
local income taxes or penalties
reasonably anticipated to result from
the distribution); and
d. All plans maintained by the Employer
provide that the Employee may not make
Elective Deferrals for the Employee's
taxable year immediately following the
taxable year of the hardship
distribution in excess of the
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applicable limit under Section 402(j)
of the Code for such taxable year less
the amount of such Employee's Elective
Deferrals for the taxable year of the
hardship distribution.
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A. General Rule - A Participant may assign to this Plan
any Excess Elective Deferrals made during a taxable
year of the Participant by notifying the Plan
Administrator on or before the date specified in the
Adoption Agreement of the amount of the Excess
Elective Deferrals to be assigned to the Plan. A
Participant is deemed to notify the Plan
Administrator of any Excess Elective Deferrals that
arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of
the Employer.
Notwithstanding any other provision of the Plan.
Excess Elective Deferrals, plus any income and minus
any loss allocable thereto, shall be distributed no
later than April 15 to any Participant to whose
Individual Account Excess Elective Deferrals were
assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
B. Determination of Income or Loss - Excess Elective
Deferrals shall be adjusted for any income or loss up
to the date of distribution. The income of loss
allocable to Excess Elective Deferrals is the sum of:
(1) income or loss allocable to the Participant's
Elective Deferral account for the taxable year
multiplied by a fraction, the numerator of which is
such Participant's Elective Deferrals for the year
and the denominator is the Participant's Individual
Account balance attributable to Elective Deferrals
without regard to any income or loss occurring during
such taxable year; and (2) 10% of the amount
determined under (1) multiplied by the number of
whole calendar months between the end of the
Participant's taxable year and the date of
distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
Notwithstanding the preceding sentence, the Plan
Administrator may compute the income or loss
allocable to Excess Elective Deferrals in the manner
described in Section 4 (i.e., the usual manner used
by the Plan for allocating income or loss to
Participants' Individual Accounts), provided such
method is used consistently for all Participants and
for all corrective distributions under the Plan for
the Plan Year.
11.504 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of
this Plan, Excess Contributions, plus any income and
minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan
Year to Participants to whose Individual Accounts
such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts are
distributed more than 2 1/2 months after the last day
of the Plan Year in which such excess amounts arose,
a 10% excise tax will be imposed on the Employer
maintaining the Plan with respect to such amounts.
Such distributions
92
<PAGE> 111
shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess
Contributions attributable to each of such Employees.
Excess Contributions of Participants who are subject
to the family member aggregation rules shall be
allocated among the family members in proportion to
the Elective Deferrals (and amounts treated as
Elective Deferrals) of each family member that is
combined to determine the combined ADP.
Excess Contributions (including the amounts
recharacterized) shall be treated as annual additions
under the Plan.
B. Determination of Income or Loss - Excess
Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or
loss allocable to Excess Contributions is the sum of:
(1) income or loss allocable to Participant's
Elective Deferral account (and, if applicable, the
Qualified Nonelective Contribution account or the
Qualified Matching Contributions account or both) for
the Plan Year multiplied by a fraction, the numerator
of which is such Participant's Excess Contributions
for the year and the denominator is the Participant's
Individual Account balance attributable to Elective
Deferrals (and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if any of
such contributions are included in the ADP test)
without regard to any income or loss occurring during
such Plan Year; and (2) 10% of the amount determined
under (1) multiplied by the number of whole calendar
months between the end of the Plan Year and the date
of distribution, counting the month of distribution
if distribution occurs after the 15th of such month.
Notwithstanding the preceding sentence, the Plan
Administrator may compute the income or loss
allocable to Excess Contributions in the manner
described in Section 4 (i.e., the usual manner used
by the Plan for allocating income or loss to
Participants' Individual Accounts), provided such
method is used consistently for all Participants and
for all corrective distributions under the Plan for
the Plan Year.
C. Accounting for Excess Contributions - Excess
Contributions shall be distributed from the
Participant's Elective Deferral account and Qualified
Matching Contribution account (if applicable) in
proportion to the Participant's Elective Deferrals
and Qualified Matching Contributions (to the extent
used in the ADP test) for the Plan Year. Excess
Contributions shall be distributed from the
Participant's Qualified Nonelective Contribution
account only to the extent that such Excess
Contributions exceed the balance in the Participant's
Elective Deferral account and Qualified Matching
Contribution account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of
this Plan, Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan
Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the
93
<PAGE> 112
preceding Plan Year. Excess Aggregate Contributions
of Participants who are subject to the family member
aggregation rules shall be allocated among the family
members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching
Contributions) of each family member that is combined
to determine the combined ACP. If such Excess
Aggregate Contributions are distributed more than 2
1/2 months after the last day of the Plan Year in
which such excess amounts arose, a 10% excise tax
will be imposed on the Employer maintaining the Plan
with respect to those amounts.
Excess Aggregate Contributions shall be treated as
annual additions under the Plan.
B. Determination of Income or Loss - Excess Aggregate
Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is
the sum of: (1) income or loss allocable to the
Participant's Nondeductible Employee Contribution
account, Matching Contribution account (if any, and
if all amounts therein are not used in the ADP test)
and, if applicable, Qualified Nonelective
Contribution account and Elective Deferral account
for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess
Aggregate Contributions for the year and the
denominator is the Participant's Individual Account
balance(s) attributable to Contribution Percentage
Amounts without regard to any income or loss
occurring during such Plan Year; and (2) 10% of the
amount determined under (1) multiplied by the number
of whole calendar months between the end of the Plan
Year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th
of such month. Notwithstanding the preceding
sentence, the Plan Administrator may compute the
income or loss allocable to Excess Aggregate
Contributions in the manner described in Section 4
(i.e., the usual manner used by the Plan for
allocating income or loss to Participants' Individual
Accounts), provided such method is used consistently
for all Participants and for all corrective
distributions under the Plan for the Plan Year.
B. Forfeitures of Excess Aggregate Contributions -
Forfeitures of Excess Aggregate Contributions may
either be reallocated to the accounts of Contributing
Participants who are not Highly Compensated Employees
or applied to reduce Employer Contributions, as
elected by the Employer in the Adoption Agreement.
C. Accounting for Excess Aggregate Contributions -
Excess Aggregate Contributions shall be forfeited, if
forfeitable or distributed on a pro rata basis from
the Participant's Nondeductible Employee Contribution
account, Matching Contribution account, and Qualified
Matching Contribution account (and, if applicable,
the Participant's Qualified Nonelective Contribution
account or Elective Deferral account, or both).
94
<PAGE> 113
11.506 RECHARACTERIZATION
A Participant may treat his or her Excess Contributions as an
amount distributed to the Participant and then contributed by
the Participant to the Plan. Recharacterized amounts will
remain nonforfeitable and subject to the same distribution
requirements as Elective Deferrals. Amounts may not be
recharacterized by a Highly Compensated Employee to the extent
that such amount in combination with other Nondeductible
Employee Contributions made by that Employee would exceed any
stated limit under the Plan on Nondeductible Employee
Contributions.
Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such
Excess Contributions arose and is deemed to occur no earlier
than the date the last Highly Compensated Employee is informed
in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the
Participant for the Participant's tax year in which the
Participant would have received them in cash.
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS
Notwithstanding any other provision of the Plan, a
Participant's Elective Deferrals shall be distributed to him
or her to the extent that the distribution will reduce an
excess annual addition (as that term is described in Section
3.05 of the Plan).
11.600 VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective
Deferrals, Qualified Nonelective Contributions, Nondeductible
Employee Contributions, and Qualified Matching Contributions
is nonforfeitable. Separate accounts for Elective Deferrals,
Qualified Nonelective Contributions, Nondeductible Employee
Contributions, Matching Contributions, and Qualified Matching
Contributions will be maintained for each Participant. Each
account will be credited with the applicable contributions and
earnings thereon.
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS
Matching Contributions shall be Vested in accordance with the
vesting schedule for Matching Contributions in the Adoption
Agreement. In any event, Matching Contributions shall be fully
Vested at Normal Retirement Age, upon the complete or partial
termination of the profit sharing plan, or upon the complete
discontinuance of Employer Contributions. Notwithstanding any
other provisions of the Plan, Matching Contributions or
Qualified Matching Contributions must be forfeited if the
contributions to which they relate are Excess Elective
Deferrals, Excess Contributions, Excess Aggregate
Contributions or excess annual additions which are distributed
pursuant to Section 11.508. Such Forfeitures shall be
allocated in accordance with Section 3.01(C).
95
<PAGE> 114
When a Participant incurs a Termination of Employment, whether
a Forfeiture arises with respect to Matching Contributions
shall be determined in accordance with Section 6.01(D).
96
<PAGE> 115
TABLE OF CONTENTS
PAGE
SECTION ONE DEFINITIONS..............................................1
1.01 ADOPTION AGREEMENT................................................1
1.02 BASIC PLAN DOCUMENT...............................................1
1.03 BENEFICIARY.......................................................1
1.04 BREAK IN ELIGIBILITY SERVICE......................................1
1.05 BREAK IN VESTING SERVICE..........................................1
1.06 CODE..............................................................1
1.07 COMPENSATION......................................................1
1.08 CUSTODIAN.........................................................4
1.09 DISABILITY........................................................4
1.10 EARLY RETIREMENT AGE..............................................5
1.11 EARNED INCOME.....................................................5
1.12 EFFECTIVE DATE....................................................5
1.13 ELIGIBILITY COMPUTATION PERIOD....................................5
1.14 EMPLOYEE..........................................................5
1.15 EMPLOYER..........................................................6
1.16 EMPLOYER CONTRIBUTION.............................................6
1.17 EMPLOYMENT COMMENCEMENT DATE......................................6
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION..............................6
1.19 ENTRY DATES.......................................................6
1.20 ERISA.............................................................6
1.21 FORFEITURE........................................................6
1.22 FUND..............................................................6
1.23 HIGHLY COMPENSATED EMPLOYEE.......................................7
1.24 HOURS OF SERVICE - MEANS..........................................8
1.25 INDIVIDUAL ACCOUNT................................................9
1.26 INVESTMENT FUND...................................................9
1.27 KEY EMPLOYEE......................................................9
1.28 LEASED EMPLOYEE...................................................9
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS.............................10
1.30 NORMAL RETIREMENT AGE............................................10
1.31 OWNER - EMPLOYEE.................................................10
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TABLE OF CONTENTS
(CONTINUED)
PAGE
1.32 PARTICIPANT......................................................10
1.33 PLAN.............................................................10
1.34 PLAN ADMINISTRATOR...............................................10
1.35 PLAN YEAR........................................................10
1.36 PRIOR PLAN.......................................................11
1.37 PROTOTYPE SPONSOR................................................11
1.38 QUALIFYING PARTICIPANT...........................................11
1.39 RELATED EMPLOYER.................................................11
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT.........................11
1.41 SELF-EMPLOYED INDIVIDUAL.........................................11
1.42 SEPARATE FUND....................................................11
1.43 TAXABLE WAGE BASE................................................11
1.44 TERMINATION OF EMPLOYMENT........................................12
1.45 TOP-HEAVY PLAN...................................................12
1.46 TRUSTEE..........................................................12
1.47 VALUATION DATE...................................................12
1.48 VESTED...........................................................12
1.49 YEAR OF ELIGIBILITY SERVICE......................................12
1.50 YEAR OF VESTING SERVICE..........................................12
SECTION TWO ELIGIBILITY AND PARTICIPATION...........................13
2.01 ELIGIBILITY TO PARTICIPATE.......................................13
2.02 PLAN ENTRY.......................................................13
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS.............................14
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE.......14
2.05 DETERMINATIONS UNDER THIS SECTION................................15
2.06 TERMS OF EMPLOYMENT..............................................15
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED............15
2.08 ELECTION NOT TO PARTICIPATE......................................16
SECTION THREE CONTRIBUTIONS...........................................17
3.01 EMPLOYER CONTRIBUTIONS...........................................17
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS.............................21
3.03 ROLLOVER CONTRIBUTIONS...........................................22
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TABLE OF CONTENTS
(CONTINUED)
PAGE
3.04 TRANSFER CONTRIBUTIONS...........................................22
3.05 LIMITATION ON ALLOCATIONS........................................22
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION.......29
4.01 INDIVIDUAL ACCOUNTS..............................................29
4.02 VALUATION OF FUND................................................30
4.03 VALUATION OF INDIVIDUAL ACCOUNTS.................................30
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS...........31
4.05 SEGREGATION OF ASSETS............................................31
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS.................................31
SECTION FIVE TRUSTEE OR CUSTODIAN....................................31
5.01 CREATION OF FUND.................................................31
5.02 INVESTMENT AUTHORITY.............................................32
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST
POWERS...........................................................32
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL TRUSTEE...............................................33
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS...........................36
5.06 COMPENSATION AND EXPENSES........................................36
5.07 NOT OBLIGATED TO QUESTION DATA...................................37
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS.......................37
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN).................37
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY........................38
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE
(OR CUSTODIAN)...................................................38
5.12 INVESTMENT MANAGERS..............................................39
5.13 MATTERS RELATING TO INSURANCE....................................39
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT..........................41
SECTION SIX VESTING AND DISTRIBUTION................................41
6.01 DISTRIBUTION TO PARTICIPANT......................................41
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT............................47
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT....................49
6.04 FORM OF DISTRIBUTION TO BENEFICIARY..............................50
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS..........................50
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<PAGE> 118
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.06 DISTRIBUTION REQUIREMENTS........................................57
6.07 ANNUITY CONTRACTS................................................64
6.08 LOANS TO PARTICIPANTS............................................64
6.09 DISTRIBUTION IN KIND.............................................66
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS..............66
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES..............67
SECTION SEVEN CLAIMS PROCEDURE........................................67
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS............................67
7.02 DENIAL OF CLAIM..................................................67
7.03 REMEDIES AVAILABLE...............................................68
SECTION EIGHT PLAN ADMINISTRATOR......................................68
8.01 EMPLOYER IS PLAN ADMINISTRATOR...................................68
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR......................68
8.03 EXPENSES AND COMPENSATION........................................70
8.04 INFORMATION FROM EMPLOYER........................................70
SECTION NINE AMENDMENT AND TERMINATION...............................70
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN.....................70
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN..............................71
9.03 LIMITATION ON POWER TO AMEND.....................................71
9.04 AMENDMENT OF VESTING SCHEDULE....................................72
9.05 PERMANENCY.......................................................72
9.06 METHOD AND PROCEDURE FOR TERMINATION.............................72
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER........................73
9.08 FAILURE OF PLAN QUALIFICATION....................................73
SECTION TEN MISCELLANEOUS...........................................73
10.01 STATE COMMUNITY PROPERTY LAWS....................................73
10.02 READINGS.........................................................73
10.03 GENDER AND NUMBER................................................73
10.04 PLAN MERGER OR CONSOLIDATION.....................................73
10.05 STANDARD OF FIDUCIARY CONDUCE....................................74
10.06 GENERAL UNDERTAKING OF ALL PARTIES...............................74
10.07 AGREEMENT BINDS HEIRS, ETC.......................................74
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TABLE OF CONTENTS
(CONTINUED)
PAGE
10.08 DETERMINATION OF TOP-HEAVY STATUS................................74
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES..........................77
10.10 INALIENABILITY OF BENEFITS.......................................78
10.11 CANNOT ELIMINATE PROTECTED BENEFITS..............................78
SECTION ELEVEN 401(K) PROVISIONS.......................................78
11.100 DEFINITIONS..........................................................78
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP).....................................79
11.102 AGGREGATE LIMIT......................................................79
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)................................79
11.104 CONTRIBUTING PARTICIPANT.............................................79
11.105 CONTRIBUTION PERCENTAGE..............................................79
11.106 CONTRIBUTION PERCENTAGE AMOUNTS......................................80
11.107 ELECTIVE DEFERRALS...................................................80
11.108 ELIGIBLE PARTICIPANT.................................................80
11.109 EXCESS AGGREGATE CONTRIBUTIONS.......................................81
11.110 EXCESS CONTRIBUTIONS.................................................81
11.111 EXCESS ELECTIVE DEFERRALS............................................81
11.112 MATCHING CONTRIBUTION................................................81
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS..................................82
11.114 QUALIFIED MATCHING CONTRIBUTIONS.....................................82
11.115 QUALIFYING CONTRIBUTING PARTICIPANT..................................82
11.200 CONTRIBUTING PARTICIPANT.............................................82
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT.................82
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS...................................83
11.203 CEASING ELECTIVE DEFERRALS...........................................83
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE
DEFERRALS............................................................83
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS...............................83
11.300 CONTRIBUTIONS........................................................84
11.301 CONTRIBUTIONS BY EMPLOYER............................................84
11.302 MATCHING CONTRIBUTIONS...............................................84
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS..................................84
11.304 QUALIFIED MATCHING CONTRIBUTIONS.....................................85
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TABLE OF CONTENTS
(CONTINUED)
PAGE
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS.................................85
11.400 NONDISCRIMINATION TESTING............................................85
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)................................85
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS........................................................87
11.500 DISTRIBUTION PROVISIONS..............................................89
11.501 GENERAL RULE.........................................................89
11.502 DISTRIBUTION REQUIREMENTS............................................90
11.503 HARDSHIP DISTRIBUTION................................................90
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS............................91
11.504 DISTRIBUTION OF EXCESS CONTRIBUTIONS.................................92
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.......................93
11.506 RECHARACTERIZATION...................................................94
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS........95
11.600 VESTING..............................................................95
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS................................95
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS....................95
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An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
<PAGE> 1
EXHIBIT 23.1
The Members and Board of Managers
Antigenics L.L.C.:
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus and registration statement.
/s/ KPMG LLP
Short Hills, New Jersey
January 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 22,168,049
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,447,475
<PP&E> 4,777,121
<DEPRECIATION> (670,938)
<TOTAL-ASSETS> 26,635,614
<CURRENT-LIABILITIES> 2,285,445
<BONDS> 709,006
0
0
<COMMON> 0
<OTHER-SE> 23,641,163
<TOTAL-LIABILITY-AND-EQUITY> 26,635,614
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (8,904,032)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,904,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,904,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,904,032)
<EPS-BASIC> (93.0)
<EPS-DILUTED> (93.0)
</TABLE>
