CONFIDENTIAL -- FOR USE OF THE COMMISSION ONLY
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. 4)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SERAGEN, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state now it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
$5,000,000
5) Total fee paid:
$1,000.00
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount previously paid:
______________________________________
2) Form, Schedule or Registration Statement No:
______________________________________
3) Filing party:
______________________________________
4) Date filed:
______________________________________
<PAGE>
[LOGO]
November 4, 1997
Dear Seragen Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders to be held at the offices of the Company, 97 South Street,
Hopkinton, Massachusetts, on December 16, 1997 at 12:00 noon, local time.
At the Annual Meeting, six members will be elected to the Board of Directors.
In addition, the Company will seek shareholder approval and ratification of a
proposal (a) to sell to Boston University or its nominee for $5 million the
Company's operating division, which includes substantially all of the Company's
assets and personnel other than (i) its patents (which have been previously
pledged to secure certain dividend obligations) and other intellectual property
(ii) certain management personnel, and (iii) assets utilized by the retained
management personnel in the performance of their duties, and (b) to enter into
a related contract service arrangement with Boston University. The Company
also will seek shareholder approval of a proposal to amend the Company's 1992
Long Term Incentive Plan to increase the number of shares available under the
plan from 2,300,000 to 16,000,000. Finally, the Company will seek shareholder
ratification of the selection of Arthur Andersen LLP as independent auditors
for the Company for the fiscal year ending December 31, 1997. The Board of
Directors recommends the approval of each of these proposals.
Directors will be elected by a plurality of the votes cast for the
election of directors. Approval of the proposal to sell the Company's
operating facilities to Boston University requires the affirmative vote of a
majority of the outstanding stock of the Company entitled to vote on the
transaction. In addition, the Board of Directors has determined to seek
ratification of the transaction by a majority of the shareholders who do not
have a significant connection with Boston University. If the transaction is
not ratified by a majority of the outstanding shares of capital stock entitled
to vote on the transaction, excluding shares owned by or the voting of which
is controlled by Boston University, Leon C. Hirsch, Turi Josefsen, or their
affiliates, the Board of Directors will reconsider whether to proceed with the
transaction. Boston University is the Company's largest shareholder and owns
approximately 42% of the total voting power of the Company. Mr. Hirsch and
Ms. Josefsen may be deemed to be affiliated with Boston University. Approval
of the amendments to the Company's 1992 Long Term Incentive Plan requires the
affirmative vote of a majority of the votes cast at the Annual Meeting.
Ratification of Arthur Andersen LLP as the Company's independent auditors
requires the affirmative vote of a majority of the votes cast at the Annual
Meeting.
In addition to the formal items of business to be brought before the Annual
Meeting, I will report on the Company's recent operations. This will be
followed by a question and answer period.
Your participation in Seragen's affairs is important, regardless of the
number of shares you hold. To ensure your representation, even if you cannot
attend the Annual Meeting, please sign, date and return the enclosed proxy
promptly.
We look forward to seeing you on December 16th.
Sincerely,
By: /s/ Reed R. Prior
-----------------------
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
1
<PAGE>
[LOGO]
SERAGEN, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
November 4, 1997
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Seragen, Inc. will be held at the offices of the Company, 97 South Street,
Hopkinton, Massachusetts, on December 16, 1997 at 12:00 noon, for the
following purposes:
1. To elect six directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified
or until their earlier resignation or removal.
2. To approve and ratify the sale of the Company's operating division
(which includes substantially all of the Company's assets and personnel
other than (i) its patents (which have been previously pledged to
secure certain dividend obligations) and other intellectual property,
(ii) certain management personnel, and (iii) assets utilized by the
retained management personnel in the performance of their duties) to
Boston University, or its nominee, pursuant to the terms and
conditions of an Asset Purchase Agreement dated as of February
14, 1997, as amended effective May 16, 1997, August 25, 1997, and
October 21, 1997, and a Service Agreement dated as of February 14,
1997, between the Company and Boston University.
3. To approve an amendment to the Company's 1992 Long Term Incentive
Plan to increase the number of shares available under that plan
from 2,300,000 to 16,000,000.
4. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
5. To transact such other business as properly may come before the
Annual Meeting or any adjournments thereof.
YOUR VOTE IS PARTICULARLY IMPORTANT BECAUSE WITH RESPECT TO
PROPOSAL 2
THE BOARD OF DIRECTORS HAS DETERMINED TO SEEK RATIFICATION BY
AFFIRMATIVE VOTE
OF A MAJORITY OF THE DISINTERESTED SHARES ISSUED AND OUTSTANDING
AND ENTITLED
TO VOTE. IF THE SPECIFIED VOTE IS NOT OBTAINED, THE BOARD OF DIRECTORS
WILL
RECONSIDER WHETHER TO PROCEED WITH THE TRANSACTION.
The Board of Directors has fixed the close of business on October 28,
1997 as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting and at any adjournments thereof.
All shareholders are cordially invited to attend the Annual Meeting. However,
to ensure your representation, you are requested to complete, sign, date and
return the enclosed proxy card as soon as possible in accordance with the
instructions on the card. A return addressed envelope is enclosed for your
convenience.
By Order of the Board of Directors,
By: /s/ Reed R. Prior
------------------------
Reed R. Prior,
Chairman, Chief Executive
Officer and Treasurer
Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
November 4, 1997
2
<PAGE>
SERAGEN, INC.
97 South Street
Hopkinton, Massachusetts 01748
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Seragen, Inc. (the "Company") of proxies to be voted at
the 1997 Annual Meeting of Shareholders of the Company (the "Annual Meeting")
on December 16, 1997, and at any and all adjournments thereof.
At the Annual Meeting, shareholders will be asked to approve and ratify
the sale of the Company's operating division to Boston University, or its
nominee, pursuant to the terms and conditions of an Asset Purchase Agreement,
dated as of February 14, 1997, as amended effective May 16, 1997, August 25,
1997, and October 21, 1997 (the "Asset Purchase Agreement"), and a Service
Agreement, dated as of February 14, 1997 (the "Service Agreement"), between
the Company and Boston University. The following considerations may be of
importance to shareholders in connection with their consideration of the
proposed transaction between the Company and Boston University:
- pursuant to the transaction, the Company will sell or transfer to
Boston University substantially all of its assets and personnel
other than (i) its patents (which have been previously pledged to
secure certain dividend obligations) and other intellectual
property, (ii) certain of its management personnel, and (iii)
assets used by its retained management personnel in the discharge
of their duties;
- the Company's Board of Directors has not received any independent
valuation of the assets to be sold to Boston University;
- ratification of the transaction by the Company's shareholders will
afford the directors the protections available under Section 144
of the Delaware General Corporation Law ("DGCL Section 144;"
see "Sale of the Operating Division to Boston University --
Approvals Required for the Operating Division Sale; Shareholder
Approval and Interest of Controlling Shareholder in the
Transaction"); and
- the Company's shareholders will not have appraisal rights with
respect to the transaction.
For a complete discussion of the proposed transaction with Boston University,
including of the considerations set forth above, see "Sale of the Operating
Division to Boston University."
This Proxy Statement, the accompanying proxy card and the Annual Report
to Shareholders are being mailed to shareholders on or about November 4,
1997. Business at the Annual Meeting will be conducted in accordance
with the procedures determined by the presiding officer and will generally be
limited to matters properly brought before the Annual Meeting by or at the
suggestion of the Board of Directors or by a shareholder pursuant to
provisions of the Company's Bylaws requiring advance notice and disclosure of
relevant information.
The voting securities of the Company outstanding on October 28, 1997, the
record date for the Annual Meeting, consisted of 20,853,893 shares of common
stock, $.01 par value per share (the "Common Stock"), each share of which is
entitled to one vote, and 23,800 shares of Series B Preferred Stock (the
"Series B Shares"), each share of which is entitled to 250 votes on each
matter submitted to a vote of shareholders. The last reported sale price of
the Company's Common Stock as of October 28, 1997 was $0.625. There is no
public market for the Series B Shares. Holders of Series A Preferred Stock
("Series A Shares") and Series C Preferred Stock ("Series C Shares") are not
entitled to vote on any of the matters intended to be submitted to a vote at
the Annual Meeting. Shareholders do not have cumulative voting rights.
With respect to the tabulation of votes, abstentions and broker non-votes
will have no effect on the vote with respect to Proposals 1, 3, and 4, but
will be counted as "no" votes with respect to Proposal 2.
3
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . 1
VOTING OF PROXIES . . . . . . . . . . . . . . . . . . . . . 1
ATTENDANCE AT ANNUAL MEETING. . . . . . . . . . . . . . . . 1
ELECTION OF DIRECTORS
PROPOSAL 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 2
THE BOARD OF DIRECTORS AND ITS COMMITTEES . . . . . . . . . 4
Board Meetings . . . . . . . . . . . . . . . . . . . . 4
Certain Committees of the Board. . . . . . . . . . . . 4
Director Compensation. . . . . . . . . . . . . . . . . 4
Other Director Arrangements. . . . . . . . . . . . . . 5
EXECUTIVE OFFICERS OF THE COMPANY . . . . . . . . . . . . . 5
Management Restructuring . . . . . . . . . . . . . . . 6
Terms of Office; Relationships . . . . . . . . . . . . 6
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . 7
Option Grants. . . . . . . . . . . . . . . . . . . . . 9
Fiscal Year-End Option Values. . . . . . . . . . . . . 10
Compensation Committee Report on Option Repricing. . . 10
Option Repricings. . . . . . . . . . . . . . . . . . . 11
Compensation Committee Report on Executive Compensation 11
Performance Graph. . . . . . . . . . . . . . . . . . . 14
Employment and Consulting Agreements; Change in Control
Arrangements. . . . . . . . . . . . . . . . . . . 15
Compensation Committee Interlocks and Insider Participation 17
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . 22
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 23
SALE OF THE OPERATING DIVISION TO BOSTON UNIVERSITY
PROPOSAL 2 . . . . . . . . . . . . . . . . . . . . . . . . . . 27
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Risks. . . . . . . . . . . . . . . . . . . . . . . . . 29
Background of the Sale . . . . . . . . . . . . . . . . 29
Boston University. . . . . . . . . . . . . . . . . . . 29
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT . . . . . . . . 30
Transferred Assets . . . . . . . . . . . . . . . . . . 30
Purchase Price for Assets. . . . . . . . . . . . . . . 31
Consummation of Operating Division Sale. . . . . . . . 31
Indemnification. . . . . . . . . . . . . . . . . . . . 32
DESCRIPTION OF THE SERVICE AGREEMENT. . . . . . . . . . . . 33
Services to be Provided. . . . . . . . . . . . . . . . 33
Employee Matters . . . . . . . . . . . . . . . . . . . 33
Term . . . . . . . . . . . . . . . . . . . . . . . . . 33
Disposition of Operating Division Assets . . . . . . . 34
Payment for Services . . . . . . . . . . . . . . . . . 34
Obligations Related to Services. . . . . . . . . . . . 34
Boston University's Operating Income . . . . . . . . . 35
<PAGE> 4
REASONS FOR AND EFFECTS OF THE SALE OF THE OPERATING DIVISION 36
Advisability of Sale of Operating Division; Board
Deliberations . . . . . . . . . . . . . . . . . . 36
Tax Consequences . . . . . . . . . . . . . . . . . . . 39
Accounting Treatment . . . . . . . . . . . . . . . . . 40
Pro Forma Financial Information. . . . . . . . . . . . 40
Selected Financial Data. . . . . . . . . . . . . . . . 41
Effect on Security Holders . . . . . . . . . . . . . . 44
Market Price of the Company's Common Stock . . . . . . 44
APPROVALS REQUIRED FOR THE OPERATING DIVISION SALE. . . . . 44
Regulatory Approvals . . . . . . . . . . . . . . . . . 44
Shareholder Approval and Interest of Controlling Shareholder
in the Transaction. . . . . . . . . . . . . . . . 44
AMENDMENT OF THE 1992 LONG TERM INCENTIVE PLAN
PROPOSAL 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 46
AMENDMENTS TO THE INCENTIVE PLAN. . . . . . . . . . . . . . 46
DESCRIPTION OF INCENTIVE PLAN . . . . . . . . . . . . . . . 47
Purposes Of The Incentive Plan . . . . . . . . . . . . 47
Administration . . . . . . . . . . . . . . . . . . . . 47
Eligibility. . . . . . . . . . . . . . . . . . . . . . 47
Shares Available For Awards. . . . . . . . . . . . . . 47
Awards Under The Incentive Plan. . . . . . . . . . . . 47
Change in Control Provisions . . . . . . . . . . . . . 49
Adjustments. . . . . . . . . . . . . . . . . . . . . . 49
Amendments of the Incentive Plan . . . . . . . . . . . 50
Duration of the Incentive Plan . . . . . . . . . . . . 50
INCENTIVE PLAN BENEFITS . . . . . . . . . . . . . . . . . . 50
REASONS FOR THE PROPOSED AMENDMENT. . . . . . . . . . . . . 53
MARKET PRICE OF THE COMPANY'S COMMON STOCK. . . . . . . . . 53
FEDERAL INCOME TAX CONSEQUENCES OF GRANTS . . . . . . . . . 53
Incentive Stock Options. . . . . . . . . . . . . . . . 53
Non-Qualified Stock Options. . . . . . . . . . . . . . 54
SARs/Limited SARs. . . . . . . . . . . . . . . . . . . 54
Restricted Stock . . . . . . . . . . . . . . . . . . . 54
Deferred Stock . . . . . . . . . . . . . . . . . . . . 55
Stock Purchase Rights. . . . . . . . . . . . . . . . . 55
Other Stock-Based Awards . . . . . . . . . . . . . . . 55
Section 83(h) of the Code. . . . . . . . . . . . . . . 56
Section 162(m) of the Code . . . . . . . . . . . . . . 56
Other Tax Consequences . . . . . . . . . . . . . . . . 56
APPROVAL REQUIRED FOR AMENDMENT TO INCENTIVE PLAN . . . . . 57
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
PROPOSAL 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 58
MARKET FOR THE COMPANY'S SECURITIES AND RELATED STOCK MATTERS.
59
PROXY SOLICITATION . . . . . . . . . . . . . . . . . . . . . . 60
<PAGE> 5
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR NEXT YEAR'S ANNUAL MEETING . . . . . . . . . . . . . . . . 60
ATTENDANCE OF INDEPENDENT AUDITORS AT ANNUAL MEETING . . . . . 60
ANNUAL REPORT TO SHAREHOLDERS AND INCORPORATION BY REFERENCE .
60
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 60
UNAUDITED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS FOR THE QUARTER ENDED JUNE 30, 1997. . . . . . . . . . F-1
EXHIBIT A-1 - ASSET PURCHASE AGREEMENT. . . . . . . . . . . . A1-1
EXHIBIT A-2 - AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT A2-1
EXHIBIT A-3 - AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT A3-1
EXHIBIT A-4 - AMENDMENT NO. 3 TO ASSET PURCHASE AGREEMENT A4-1
EXHIBIT B - SERVICE AGREEMENT. . . . . . . . . . . . . . . . B-1
EXHIBIT C - SERAGEN INC. 1992 LONG TERM INCENTIVE PLAN C-1
<PAGE> 6
THE ANNUAL MEETING
VOTING OF PROXIES
Because many shareholders are unable to attend the Company's Annual
Meeting, the Board of Directors is soliciting proxies to give each shareholder
an opportunity to vote on all matters scheduled to come before the Annual
Meeting, as they are set forth in this Proxy Statement. Shareholders are
urged to read carefully the material in this Proxy Statement, specify their
choice on each matter by marking the appropriate boxes on the enclosed proxy
card, and sign, date and return the card in the enclosed stamped envelope.
Where a shareholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of each of the six nominees for Director named in this Proxy
Statement, FOR the proposal to approve and ratify the sale of the Company's
operating division, which includes the Company's manufacturing, clinical
trial, and product development facilities (the "Operating Division"), and the
related contract service arrangement between the Company and Boston
University, FOR the proposal to amend the Company's 1992 Long Term Incentive
Plan (the "Incentive Plan"), and FOR ratification of the selection of
independent auditors. A shareholder may revoke or revise the proxy that is
conferred by the enclosed proxy card at any time before the Annual Meeting by
delivering to the Company a written notice of revocation (which may take any
form) or a duly executed proxy bearing a later date, or by voting by ballot at
the Annual Meeting.
Shareholders of record at the close of business on October 28, 1997 are
entitled to receive notice of the Annual Meeting and to vote the shares held
by them on that date. The holders of a majority of the issued and outstanding
shares of capital stock of the Company entitled to vote at the Annual Meeting
must be present in person or represented by proxy at the Annual Meeting in
order to constitute a quorum for the conduct of business at the Annual
Meeting.
The vote required for approval of each item to be considered at the
Annual Meeting is discussed below under the description of each item.
Shareholder proxies will be received by the Bank of Boston, the Company's
independent proxy processing agent. The proxy vote will be certified by an
independent Inspector of Election. Proxies and ballots that identify the vote
of individual shareholders are kept confidential until the final vote has been
tabulated at the Annual Meeting, except where disclosure is necessary to meet
legal requirements or in a contested proxy solicitation and in cases where
shareholders write comments on their proxy cards.
ATTENDANCE AT ANNUAL MEETING
To ensure the availability of adequate space for shareholders wishing to
attend the Annual Meeting, priority seating will be given to shareholders of
record and beneficial owners of the Company's stock having evidence of such
ownership, or their authorized representatives, and to the invited guests of
management. In addition, a shareholder may bring one guest. In order that
seating may be equitably allocated, a shareholder wishing to bring more than
one guest must contact Lora Maurer, Manager - Investor Relations/Corporate
Communications, telephone 508-435-2331, in advance of the Annual Meeting.
<PAGE> 7
ELECTION OF DIRECTORS
PROPOSAL 1
Six Directors will be elected at the Annual Meeting. The Board of
Directors currently consists of eight members. Of those eight Directors, Drs.
John E. Bagalay, Jr. and John R. Murphy have declined to stand for reelection.
Accordingly, in accordance with the Company's By-Laws, the Board of Directors
has reduced the size of the Board to six members and has nominated the six
individuals listed below, each of whom currently is a Director, for election
as a Director at the Annual Meeting.
Each Director elected at the meeting will hold office until the next
annual meeting of shareholders and until his or her successor is duly elected
and qualified or until his or her earlier resignation or removal. The
Company's By-Laws authorize the Board of Directors from time to time to
determine the number of its members. Vacancies in unexpired terms and any
additional positions created by Board action may be filled by the existing
Board of Directors. Pursuant to a shareholders agreement, holders of shares
representing a majority of the voting power of the Company's securities have
agreed to increase the size of the Board of Directors to nine. However, as of
the date of this Proxy Statement, no persons have been identified to fill the
positions that would be created by such an increase in the Board's size. See
"Certain Transactions."
The following information sets forth biographical summaries and ages (as
of October 7, 1997) of each of the six persons who has been nominated by
the Board of Directors for election as a Director of the Company. Information
with respect to the number of shares of the Company's Common Stock
beneficially owned by each nominee as of October 7, 1997, appears on pages
26 through 29 of this Proxy Statement.
Name Age Positions with the Company
Reed R. Prior. . . . . . . . . . 46 Chairman of the Board of Directors,
Chief Executive Officer, Treasurer,
and Director
Gerald S.J. Cassidy. . . . . . . . 57 Director
Kenneth G. Condon. . . . . . . . . 50 Director
Norman A. Jacobs . . . . . . . . . 60 Director
Jean C. Nichols, Ph.D. . . . . . . 46 President, Chief Technology
Officer and Director
John R. Silber, Ph.D.. . . . . . . 71 Director
Reed R. Prior -- Mr. Prior was elected Chairman of the Board of
Directors and Chief Executive Officer and Treasurer in November 1996. Prior
to joining the Company, Mr. Prior served as President and Chief Executive
Officer of ActiMed Laboratories, Inc., a privately-held medical diagnostics
company. From 1992 to 1995, he was President and Chief Executive Officer of
Receptor Laboratories, Inc., a start-up biopharmaceutical firm which was sold
to Cytel Corporation in July 1995. From 1990 to 1991, Mr. Prior served as
President and Chief Executive Officer of Genex Corporation, which merged with
Enzon, Inc. in October 1991. From 1986 to 1990, Mr. Prior was President and
Chief Executive Officer of i-Stat Corporation, a development-stage medical
diagnostics company. Mr. Prior earned a B.S. in biophysics from Lyman Briggs
College, a residential science and mathematics college within Michigan State
University, and received an M.B.A. from Harvard Business School.
Gerald S.J. Cassidy -- Mr. Cassidy has served as a member of the Board
of Directors of the Company since December 1987. Mr. Cassidy is the founder
and, since 1975, Chairman of The Cassidy Companies, Inc., a holding company
specializing in corporate public affairs services. Prior to the establishment
of The Cassidy Companies, Mr. Cassidy worked as a Trial Attorney in the South
Florida Migrant Legal Services Program, as Executive Director and General
Counsel of the Democratic National Committee's 1973 Reform Commission, and on
two separate occasions, from 1969 to 1973 and from 1974 to 1975, as Counsel to
the U.S. Senate's Select Committee on Nutrition and Human Needs. He has been
a featured speaker on legislative issues at numerous governmental, university,
industry, and trade association conferences. He is a member of the Steering
Committee of the Capital Campaign for Villanova University, the Board of
Overseers for the School of Nutrition at Tufts University, and the
Board of Trustees of the Washington Theological Union. Mr. Cassidy holds a
B.S. from Villanova University and a J.D. from the Cornell University School
of Law. In 1995 he received an honorary Doctor of Social Science from
Villanova University.
<PAGE> 8
Kenneth G. Condon, C.P.A., C.F.P. -- Mr. Condon has served as a member of the
Board of Directors of the Company since January 1992. Mr. Condon has also
served as Boston University's Treasurer since 1992 and its Vice President for
Financial Affairs since 1986. Prior to his serving in those capacities, Mr.
Condon served as Associate Vice President for Financial and Business Affairs,
Comptroller, Acting Comptroller and Manager of Unrestricted Funds of Boston
University. Mr. Condon serves as President and as a Director of the Financial
Executives Institute of Massachusetts, and is a member of the Board of
Trustees of Newbury College and a director of the Boston Municipal Research
Bureau. Mr. Condon also is on the BankBoston advisory board. Mr. Condon is a
Certified Public Accountant and a Certified Financial Planner, and holds a
B.S. in Economics and Mathematics from Tufts University and an M.B.A. in
Finance from the Wharton School of Finance.
Norman A. Jacobs -- Mr. Jacobs has served as a member of the Board of
Directors of the Company since 1990. Mr. Jacobs has served as President
of Becton Dickinson Transdermal Systems, a unit of Becton Dickinson and
Company, since September 1990. Mr. Jacobs also serves as a director of
Medi-Ject Corporation. From January 1990 to September 1990, Mr. Jacobs
acted as a consultant to biotechnology companies, including the Company.
From 1986 through 1989, Mr. Jacobs was President of BioTechnica International,
a genetic engineering research company. Mr. Jacobs was one of the founders,
in 1962, of Amicon Corporation, which is a manufacturer of laboratory separation
systems and adhesives and polymer specialty materials. He served as President
of Amicon from 1971 through 1983, and as President of the Amicon Division of
W.R. Grace from 1983 to 1985. He earned an M.B.A. from Harvard Business School
an M.S. in Chemical Engineering from M.I.T., and a B.E. in Chemical Engineering
from Yale.
Jean C. Nichols, Ph.D. -- Dr. Nichols was elected President and Chief
Technology Officer and a member of the Board of Directors of the Company in
November 1996. From 1992 to 1996, she served as Senior Vice President, and
from 1987 to 1992, as Vice President of Development for the Company. From 1984
to 1987, Dr. Nichols was Director of Research and Development, and from 1983
to 1984, served as the Company's scientific liaison. Dr. Nichols received a
B.S. in Biology and a Ph.D. in Bacteriology and Immunology from the University
of North Carolina. Upon completion of her studies, Dr. Nichols was a Research
Fellow at the Harvard Medical School. Before joining the Company, she held
the position of Instructor in the Department of Microbiology and Molecular
Genetics at the Harvard Medical School.
John R. Silber, Ph.D. -- Dr. Silber has served as a member of the Board
of Directors of the Company since August 1987. He is the Chancellor of
Boston University and has been a member of its Board of Trustees since 1971.
Dr. Silber received a B.A. from Trinity University and an M.A. and Ph.D.
in philosophy from Yale University. Dr. Silber is Chairman of the
Massachusetts State Board of Education, Vice President of the United
States Strategic Institute, and a director of United States Surgical
Corporation. Dr. Silber is also a director of Americans for Medical Progress.
Unless authority to vote for a nominee is withheld, the shares
represented by the enclosed proxy will be voted FOR the election of each of
the nominees. In the event that any nominee shall become unable or unwilling
to accept nomination or election, the shares represented by the enclosed proxy
will be voted for the election of a replacement nominee designated by the
Board of Directors or, if no such replacement nominee is designated, the
number of directors to be elected will be reduced. The Board has no reason to
believe that any nominee will be unable or unwilling to serve.
Directors are elected by a plurality of the votes cast. The holders of
Common Stock and Series B Shares vote together as a single class. The holders
of Common Stock are entitled to one vote per share. The holders of Series B
Shares are entitled to 250 votes per share. Abstentions and broker non-votes
will not be counted as votes cast and, accordingly, will have no effect on the
vote.
<PAGE> 9
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF REED R. PRIOR, GERALD
S.J.
CASSIDY, KENNETH G. CONDON, NORMAN A. JACOBS, JEAN C. NICHOLS AND
JOHN R.
SILBER AS DIRECTORS.
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board Meetings
During 1996, the Board of Directors held thirteen meetings. All
incumbent directors attended more than 75% of the meetings of the Board and
the Board committees on which they served during the year.
Certain Committees of the Board
Following are the current members and functions of the Compensation and
Audit Committees of the Board of Directors. The Company has no standing
nominating committee.
The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company and
reviews general policy matters relating to compensation and benefits of
employees of the Company. The Compensation Committee currently consists of
Messrs. Cassidy and Jacobs. During 1996, the Compensation Committee met one
time and acted three times without a meeting by unanimous written consent.
The Audit Committee oversees the performance and reviews the scope of
the audit performed by the Company's independent auditors. The Audit
Committee also reviews audit plans and procedures, changes in accounting
policies and the use of the independent auditors for non-audit services. The
Audit Committee currently consists of Messrs. Cassidy, Condon and Jacobs.
During 1996, the Audit Committee met two times.
The Executive Committee previously was empowered to act on behalf of the
Board of Directors, except to the extent prohibited by law, on all matters
that arise between regular meetings of the Board of Directors. During 1996,
the Executive Committee met four times. The Executive Committee no longer
exists due to action of the Board of Directors on October 28, 1997. The
Executive Committee did not meet after Mr. Prior became Chairman.
Director Compensation
Fees. The Company pays its Directors who are not officers or employees
of the Company, or Trustees of Boston University, an annual retainer of
$10,000, plus $1,000 per meeting of the Board of Directors of the Company and
$500 per meeting of any committee of the Board of Directors which occurs on a
day other than a day on which a Board of Directors meeting is held.
Non-Employee Director Stock Options. Under the Company's 1992 Non-
Employee Director Non-Qualified Stock Option Plan (the "Director Plan"), a
Director who is not an officer or employee of the Company or a Trustee of
Boston University (as long as Boston University owns greater than 5% of any
class of the Company's outstanding securities) on the date that an eligible
Director is first elected as a Director is eligible to receive option grants
to purchase 5,000 shares of Common Stock at an exercise price equal to the
fair market value of the Common Stock on the day the option is granted, except
that any such grant to a Director who was awarded options to purchase stock in
connection with his or her prior service as a Director of the Company is
reduced by the number of shares underlying the previous grants. At the
commencement of each subsequent 12-month period in which an eligible Director
is elected to continue in office, the Director is granted an additional option
to purchase 1,000 shares of Common Stock at an exercise price equal to fair
market value of the Common Stock on the grant date. Each option has a term of
five years and becomes exercisable in full upon the recipient's completion
after the date of grant of a full term of office as a member of the Board of
Directors. If the term is not completed, or if the Director has failed to
attend at least 75% of the regularly called meetings during the term, the
option for that term is forfeited. Options cease to be exercisable 60 days
after the date the optionee ceases to be a Director for any reason other than
death or disability. Options cease to be exercisable 180 days after the date
the optionee ceases to be a Director by reason of disability or death. In no
event, however, is an option exercisable after the expiration date of the
option.
<PAGE> 10
Under the Director Plan, on May 13, 1996, Dr. Bagalay, Mr. Cassidy, Mr.
Condon, Mr. Jacobs and Dr. Murphy each received an option to purchase 1,000
shares at an exercise price of $4.625 per share. As of October 7, 1997, no
other Director had received options under the Director Plan.
Other Director Arrangements
Dr. Murphy, a Director, has a consulting agreement with the Company.
Dr. Howell, a former Director, had a consulting agreement with the Company
that terminated November 30, 1996. See "Executive Compensation -- Employment
and Consulting Agreements; Change in Control Arrangements" and "Certain
Transactions."
On July 29, 1997, the Company granted to Dr. Murphy options to purchase
80,675 shares of Common Stock at $.72 per share (options to purchase 61,675
shares granted in exchange for outstanding options with exercise prices
ranging from $4.63 to $15.00, options to purchase 4,000 shares granted in
exchange for outstanding options granted under the Director Plan with exercise
prices ranging from $4.625 to $8.625, and a new grant of options to purchase
15,000 shares). These options were granted under the Company's Incentive
Plan. See "Amendment of the 1992 Long Term Incentive Plan -- Incentive Plan
Benefits."
Pursuant to a shareholders agreement, holders of shares representing a
majority of the voting power of the Company's securities have agreed to vote
their shares for the election of Mr. Prior as a Director. In addition, these
shareholders have agreed to vote their shares for the election of three
additional nominees with experience in the pharmaceutical industry who would
be "outside" Directors if elected and who are reasonably acceptable to Mr.
Prior. No such persons have yet been nominated. See "Certain Transactions."
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their positions held as officers,
and their respective ages as of October 7, 1997 are as follows:
Name Age Positions Held with the Company Officer of the
Company Since
Reed R. Prior 46 Chairman of the Board of 1996
Directors, Chief Executive
Officer and Treasurer
Jean C. Nichols,Ph.D. 46 President and Chief 1987
Technology Officer
Elizabeth Chen 34 Vice President of Business 1997
Development
Information concerning the business experience of Mr. Prior and Dr.
Nichols is provided above under "Election of Directors."
Elizabeth C. Chen -- Ms. Chen joined the Company in January 1997 as Vice
President of Business Development. Prior to joining the Company, Ms. Chen had
been Vice President - General Manager of ActiMed Laboratories, Inc., a
privately-held medical technology company. From 1992 to 1996, Ms. Chen was an
independent consultant to a number of venture capital funds and a variety of
start-up biotech companies. From 1985 to 1992, Ms. Chen held a number of
positions in business development, market research and marketing planning at
Merck & Company, Inc., Migliara/Kaplan and T. Rowe Price. Ms. Chen holds a
B.A. in Organizational Behavior from Yale University and an M.B.A. from The
Wharton School of the University of Pennsylvania.
<PAGE> 11
Management Restructuring
On November 6, 1996, the Company's then Chief Executive Officer and Vice
Chairman of the Board of Directors, George Masters, retired and resigned from
the Board. In addition, James Howell, then Chairman of the Board of
Directors, retired from the Board.
The Company's then Chief Financial Officer, Thomas Konatich, resigned
from the Company effective November 15, 1996. Leonard Estis, the Company's
then Vice President for Research and Development, resigned effective November
29, 1996.
In connection with this management restructuring, the Board of Directors
elected Mr. Prior as Chief Executive Officer and Treasurer and Dr. Nichols as
President and Chief Technology Officer. The Board also elected Mr. Prior as
Chairman of the Board and Dr. Nichols to the Board of Directors to fill two
vacancies created on the Board by the retirements of Dr. Howell and Mr.
Masters.
Terms of Office; Relationships
The officers of the Company are elected annually by the Board of
Directors at a meeting held immediately following each annual meeting of
shareholders or as soon afterward as necessary and convenient in order to fill
vacancies or newly created offices. Each officer holds office until his or
her successor is duly elected and qualified or until his or her death,
resignation or removal, if earlier. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Company will be served thereby, but
such removal is to be without prejudice to the contractual rights, if any, of
any person so removed.
There are no family relationships among the executive officers and
Directors of the Company. Pursuant to the terms of a service agreement dated
as of February 14, 1997, between the Company and Boston University, the
Company has the right to employ Ms. Chen on a part-time basis for up to 25% of
her time. See "Sale of the Operating Division to Boston University --
Description of the Service Agreement." There are no other arrangements or
understandings between any officer and any other person pursuant to which that
officer was selected.
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the fiscal years
ended December 31, 1996, 1995, and 1994, of the chief executive officer of the
Company and each of the four most highly compensated persons who served as
executive officers of the Company during the last fiscal year (the "Named
Executive Officers") for services rendered to the Company in all capacities.
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------
OTHER LONG-TERM
NAME AND ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
SECURITIES
- - ------------------ ---- --------- -------- ------------ UNDERLYING
OPTIONS #
---------
<S> <C> <C> <C> <C> <C>
Reed R. Prior 1996 $ 55,417(2) $100,000(3) $17,845(4) 4,885,747
Chairman, Chief Executive
Officer and Treasurer
George W. Masters(5) 1996 237,812(6) 30,000(7) 41,130(8) 50,000
Vice Chairman, Chief Executive 1995 300,000 - 42,248(9) 40,000
Officer and President 1994 275,000(10) 70,000(11) 44,716(12) 40,000
Jean C. Nichols, Ph.D. 1996 195,542(13) - - 692,752(14)
President and Chief 1995 190,000 - - 18,000(15)
Technology Officer 1994 175,000 38,500(11) - 17,500(15)
Leonard F. Estis, Ph.D.(16) 1996 146,667 - - 9,328
Vice President for Research & 1995 160,000 - - 15,000
Development 1994 152,000 30,000(11) - 17,500
Thomas N. Konatich(17) 1996 138,125(18) - 21,372(19) 10,348
Vice President for Finance, 1995 145,000 - - 12,000
Chief Financial Officer 1994 130,000 26,000(11) - 15,000
</TABLE>
(1) Portions of Annual Compensation have been deferred under the Company's
Employee Savings Plan. These amounts are included in calculation of
"Salary" and "Bonus" as reflected in the table.
(2) In fiscal year 1996, Mr. Prior was paid $55,417 base salary for his
partial year of service to the Company. His annual base salary was
$350,000.
(3) In fiscal year 1996, Mr. Prior was paid a $100,000 signing bonus.
(4) Represents payment of a housing allowance of $17,845.
(5) Mr. Masters served as Vice Chairman, Chief Executive Officer and
President through November 5, 1996. Pursuant to the terms of his
Retirement and Consulting Contract, he remained a consultant to the
Company through February 28, 1997.
(6) Mr. Masters was paid $237,812 for his partial year of service to the
Company. His annual base salary was $300,000. Included in Mr.
Masters' salary is $25,000 for consulting fees rendered to the Company
in 1996 pursuant to Mr. Masters' Retirement and Consulting Agreement.
(7) Pursuant to Mr. Masters' Retirement and Consulting Agreement, bonus
payments for services rendered to the Company in fiscal year 1996 were
paid in fiscal year 1997.
(8) Represents payment of a housing allowance of $21,130 and accrued
vacation payment of $20,000.
(9) Includes payment of a housing allowance of $35,248.
(10) In fiscal year 1994, Mr. Masters was paid $275,000, which represents
three months at $200,000 base salary, and nine months at $300,000 base
salary.
(11) Bonus payments for services rendered to the Company in fiscal year
1994 were paid in fiscal year 1995.
(12) Represents payment of a housing allowance of $44,716.
(13) In fiscal year 1996, Dr. Nichols was paid $195,542, which represents
$190,000 base salary through November 5, 1996, and $225,000 base
salary from November 6, 1996 through December 31, 1996.
(14) Represents an option granted on December 18, 1996 comprised of (i)
514,164 shares and (ii) 164,409 shares which were granted upon
cancellation of options for an equal number of shares. Also includes
an option for 14,179 shares which was canceled on December 18, 1996.
See "Aggregated Fiscal Year-end Option Values" table and "Ten-Year
Option Repricings" table.
(15) Represents options which were canceled as of December 18, 1996, and
reissued at a lower price. Such options are included in fiscal year
1996. See "Aggregated Fiscal Year-end Option Values" table and "Ten-
Year Option Repricings" table.
(16) Dr. Estis served as Vice President of Research and Development through
November 29, 1996.
(17) Mr. Konatich served as Vice President for Finance and Chief Financial
Officer through November 15, 1996.
(18) In fiscal year 1996, Mr. Konatich was paid $138,125, which represents
six months at $145,000 base salary, and four and one-half months at
$175,000 base salary.
(19) Represents payment of accrued vacation of $21,372.
<PAGE> 13
Option Grants
The following table sets out the material terms of each grant of a stock
option to a Named Executive Officer during the last fiscal year, including the
number of options granted, the exercise price and the expiration date as well
as the percentage that the grant represents of total options granted to
employees during the fiscal year. In addition, in accordance with rules of
the Securities and Exchange Commission (the "SEC"), the table discloses
hypothetical gains that would be realized by the holders of the options if the
options were exercised on the expiration dates. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10% from
the date the options were granted over the full option term. Actual gains, if
any, on stock option exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall market conditions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
REALIZED VALUE
------------------------- AT ASSUMED
ANNUAL RATE
% OF TOTAL OF STOCK PRICE
NO. OF SECURITIES OPTIONS
APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE
TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION
----
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE
5%($) 10%($)
- - ---- ------------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Reed R. Prior 4,885,747 85.4% $1.31 12/18/06 4,034,350
10,223,835
George W. Masters(2) 50,000 0.9% $5.00 12/05/06 --
--
Jean C. Nichols, Ph.D. 14,179(3) 0.2% $4.25 04/26/06 37,897
96,040
678,573(4) 11.9% $1.31 02/18/06 560,324
1,419,970
Leonard F. Estis, Ph.D.(5) 9,328 0.2% $4.25 04/26/06 24,932
63,182
Thomas N. Konatich(6) 10,348 0.2% $4.25 04/26/06 27,658
70,091
</TABLE>
1 All options were granted under the Company's Incentive Plan and have an
exercise price equal to the fair market value of the Company's Common
Stock on the date of grant except in the case of the option granted to
George Masters, which had an exercise price equal to $5.00. All options
vest either monthly or quarterly over a three to five year period. Under
the terms of the Incentive Plan, upon a change in control or a potential
change in control (each as defined in the Incentive Plan), all options
will be fully vested and, unless otherwise determined by the committee
administering the plan, cashed out. In the event of a merger or
consolidation, the options terminate unless they are assumed by the
merged or consolidated corporation or that corporation issues substitute
options; however, if that corporation does not assume the options or
issue substitute options, the options immediately vest in full. Under
the Incentive Plan, optionees may settle any tax withholding obligations
with the Company's Common Stock. The committee that administers the
Incentive Plan has authority: to substitute new options for previously
granted options (including previously granted options having higher
exercise prices); to accelerate the vesting of options upon termination
of the optionee's employment due to death, disability or retirement; and
generally to amend the terms of any option, including the exercise price
(so long as the optionee consents to any amendment that impairs his or
her rights).
(2) Mr. Masters terminated employment with the Company on November 6,1996.
(3) Represents options which were canceled as of December 18, 1996, and
reissued at a lower price. See "Summary Compensation Table" and "Ten-
Year Option Repricings."
(4) Represents an option granted on December 18, 1996, covering (i)
514,164 shares and (ii) 164,409 shares which were granted on
cancellation of existing options for an equal number of shares. See
"Summary Compensation Table" and "Ten-Year Option Repricings."
(5) Dr. Estis terminated employment with the Company on November 29, 1996.
None of the options was exercised prior to expiration of the options.
(6) Mr. Konatich terminated employment with the Company on November 15,
1996. None of the options was exercised prior to expiration of the
options.
<PAGE> 14
Fiscal Year-End Option Values
No stock options were exercised by any of the Named Executive Officers
in fiscal year 1996. The following table sets forth the number of shares
covered by both exercisable and unexercisable stock options held by each of
the Named Executive Officers as of December 31, 1996, and the value of
"in-the-money" options, which represent the positive spread, if any, between
the exercise price of a stock option and the year-end price of Common Stock.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
YEAR
OPTIONS AT FISCAL YEAR END(#) END($)(1)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE
UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Reed R. Prior 203,571 4,682,176 0 0
George W. Masters(2) 246,000 154,000 0 0
Jean C. Nichols, Ph.D. 87,698 640,874 0 0
Leonard F. Estis, Ph.D.(3) 115,903 0 0 0
Thomas N. Konatich(4) 48,198 0 0 0
</TABLE>
1 Amounts based on the last reported sale price of the Common Stock as
of December 31, 1996 of $1.00.
(2) Mr. Masters terminated employment with the Company on November 6 ,1996.
None of the options was exercised prior to expiration of the
options. All options expired unexercised, except for options to
purchase 50,000 shares of Common Stock which were granted in December
1996, and which remain outstanding and unexercised.
(3) Dr. Estis terminated employment with the Company on November 29, 1996.
None of the options was exercised prior to expiration of the options.
(4) Mr. Konatich terminated employment with the Company on November 15,
1996. None of the options was exercised prior to expiration of the
options.
Compensation Committee Report on Option Repricing
The Company's Incentive Plan was established as an employment incentive
to retain the persons necessary for the Company's development and financial
success. On December 18, 1996, the Compensation Committee determined that
stock options previously issued to the Company's President and Chief
Technology Officer, Dr. Nichols, had an exercise price substantially higher
than the market price of the Company's Common Stock. The Compensation
Committee determined that these options were unlikely to provide the desired
incentive, and the Compensation Committee voted to cancel some of Dr. Nichols'
outstanding unexercised options and to issue new options to her with an
exercise price of $1.31 per share, the market price of the Company's Common
Stock on the date of the repricing. All repriced options commenced vesting on
December 18, 1996, and have a three-year term. The table below sets forth the
original exercise prices of the options replaced.
The Committee did not reprice options held by any other Named Executive
Officer. The Compensation Committee did not cancel two stock option grants
previously awarded to Dr. Nichols, one for 50,000 shares exercisable at $1.50
per share, and one for 4,000 shares exercisable at $.75 per share. The
options held by the Company's Chief Executive Officer, Mr. Prior, already had
an exercise price of $1.31. The other Named Executive Officers were no longer
employed by the Company on December 18, 1996, and, therefore, their options
were not repriced.
Compensation Committee
Norman A. Jacobs, Chairman
Gerald S. J. Cassidy
15
<PAGE>
Option Repricings
The following table sets forth information regarding all repricing of
options held by any executive officer during the last ten fiscal years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE EXERCISE
SECURITIES OF STOCK AT PRICE AT TIME
LENGTH OF ORIGINAL
UNDERLYING TIME OF OF REPRICING
OPTION TERM
OPTIONS REPRICING OR OR NEW
REMAINING AT DATE OF
REPRICED OR AMENDMENT AMENDMENT
EXERCISE REPRICING OR
NAME DATE AMENDED(#) ($) ($) PRICE($)
AMENDMENT NAME
- ----- ---- ---------- --- --- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jean C. Nichols,Ph.D.(1) 12/18/96 19,230 1.313 15.00 1.313 1
Year & 9 Months
12/18/96 15,000 1.313 15.00 1.313 2 Years & 2
Months
12/18/96 80,500 1.313 15.00 1.313 5 Years & 1
Month
12/18/96 17,500 1.313 6.50 1.313 7 Years & 2
Months
12/18/96 18,000 1.313 5.50 1.313 8 Years & 4
Months
12/18/96 14,179 1.313 4.25 1.313 9 Years & 4
Months
</TABLE>
1 All prior vesting of original options for Dr. Nichols has been
forfeited. All repriced options commenced vesting on December 18,
1996, and have a three year term.
Compensation Committee Report on Executive Compensation
The Compensation Committee is composed entirely of outside Directors.
The Compensation Committee approves stock option grants for key employees and
is responsible for developing and making recommendations to the Board of
Directors with respect to the Company's executive compensation policies. In
addition, the Compensation Committee, pursuant to authority delegated by the
Board, determines on an annual basis the compensation to be paid to the Chief
Executive Officer and to each of the other executive officers of the Company.
The objectives of the Company's executive compensation program are to:
- Provide a competitive compensation package that will attract and
retain superior talent and reward performance.
- Support the achievement of desired Company performance.
- Align the interests of executives with the long-term interests of
shareholders through award opportunities that can result in
ownership of Common Stock.
<PAGE> 16
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of base salary, annual bonus, long-term
incentive compensation in the form of stock options, and various benefits,
including health, life and disability plans, generally available to employees
of the Company.
In considering compensation of the Company's executives, one of the
factors the Compensation Committee takes into account is the anticipated tax
treatment to the Company of various components of compensation. In that
connection, the Company evaluates and considers the potential impact of
Section 162(m) of the Internal Revenue Code, which was added to the tax code
by the Omnibus Budget Reconciliation Act of 1993. Section 162(m) eliminates
the deductibility by the Company of certain executive compensation in excess
of $1 million per year per person. The Compensation Committee's policy is to
take reasonable measures to preserve the full deductibility of executive
compensation, to the extent consistent with its other compensation objectives.
Base Salary. The Compensation Committee reviews base salary levels for
the Company's executive officers on an annual basis. Base salaries are set
competitively relative to companies in the biotechnology industry and other
comparable companies, which may not be the same companies included in the
Company's peer group for purposes of the Performance Graph below. In
determining salaries, the Compensation Committee also takes into consideration
individual experience and performance, and competitive compensation data
provided through independent sources. The Compensation Committee seeks to
compare the salaries paid by companies similar in size and stage of
development to the Company. Within this comparison group, the Company seeks
to make comparisons to executives at a comparable level of experience and at a
comparable level of responsibility and expected level of contribution to the
Company's performance. In setting base salaries, the Compensation Committee
also takes into account the intense competition among biotechnology companies
to attract talented personnel.
Annual Bonus. The Compensation Committee determines the amount of
annual cash bonuses for each executive based on achievements of the Company
and individual performance. In this way, the Company seeks to reward teamwork
as well as individual effort.
Long Term Incentive Compensation. The Company's Incentive Plan
authorizes a committee of not less than two disinterested Directors to grant
stock-based awards to executive officers. This plan is designed to align a
significant portion of the executive compensation program with shareholder
interests. The amounts of the awards are designed to reward past performance
and to create incentives to meet long-term objectives. Awards are made at a
level calculated to be competitive within the biotechnology industry, which
may not include the same companies included in the Company's peer group for
purposes of the Performance Graph below, as well as a broader group of
companies of comparable size and complexity. In determining the amount of
each grant, the Compensation Committee takes into account the number of shares
held by the executive prior to the grant. In April 1996, Mr. Konatich and Dr.
Estis were granted options to purchase 10,348 shares and 9,328 shares,
respectively, at an exercise price of $4.25, which represents the fair market
value on the date of grant. In December 1996, Mr. Prior and Dr. Nichols were
granted options to purchase 4,885,747 shares and 678,573 shares, respectively,
at an exercise price of $1.31, which represents the fair market value on the
date of grant. In December 1996, Mr. Masters was granted an option to
purchase 50,000 shares at an exercise price of $5.00, which represents an
exercise price above the fair market value on the date of grant. As described
above, some of Dr. Nichols' options reflect repriced options. The options
awarded to Mr. Prior and Dr. Nichols contain certain anti-dilution provisions,
as described below under "Employment and Consulting Agreements; Change in
Control Arrangements."
<PAGE> 17
Benefits. The Company provides to the executive officers health, life
and disability benefits that are generally available to Company employees.
Chief Executive Officer Compensation. Mr. Prior was elected to the
positions of Chairman, Chief Executive Officer and Treasurer in November 1996.
At the time he was hired by the Company, Mr. Prior entered into an employment
agreement with the Company which was negotiated as a condition to his joining
the Company. Under the agreement, Mr. Prior received a signing bonus of
$100,000 and an annual salary of $350,000. Under Mr. Prior's employment
agreement, Mr. Prior is entitled to receive salary increases and bonuses as
determined by the Board of Directors or Compensation Committee. For his
partial year of service to the Company during fiscal year 1996, Mr. Prior was
paid $55,417.
As part of the compensation package negotiated with Mr. Prior at the
time of his hiring in November 1996, the Company granted a stock option to Mr.
Prior to purchase 4,885,747 shares at an exercise price of $1.31, which
represents the fair market value on the date of grant.
In connection with the hiring of Mr. Prior, the Company entered into
an agreement (the "Shareholders Agreement") with Boston University and the
other holders of the Series B Shares, and Mr. Prior. Pursuant to this
agreement, the holders of the Series B Shares have agreed to vote their
respective shares of the Company's capital stock to: (i) maintain the number
of persons comprising the Board of Directors at nine; (ii) not to elect more
than two persons designated by or affiliated with Boston University to the
Board of Directors; (iii) to elect Mr. Prior as a Director; and (iv) to elect
three outside directors with experience in the pharmaceutical industry
reasonably acceptable to Mr. Prior. In addition, the Shareholders Agreement
grants Mr. Prior rights of co-sale in the event Boston University chooses to
sell over 50% of its stock in the Company to a third party. Boston University
also agrees to pay its pro rata share of Mr. Prior's Asset Value Realization
Bonus (as defined in Mr. Prior's employment agreement) in the event that the
Company fails to pay such bonus. See "Certain Transactions."
The Compensation Committee determined that Mr. Prior's compensation
package is competitive with compensation paid to executive officers of similar
companies in the biotechnology industry who have similar experience to Mr.
Prior's experience. The Board of Directors engaged a professional recruiting
firm to assist in identifying and negotiating with suitable candidates for
Chief Executive Officer. In connection with this search, the Board of
Directors considered a pool of over ten candidates for the position.
Following identification of initial candidates, the Board narrowed its search
in recognition that difficulties that the Company had encountered demanded a
combination of skills in the biotechnology industry coupled with skills in
turn-around situations. Furthermore, the executive had to be immediately
available to assume the position of chief executive officer. The Compensation
Committee discussed financial arrangements with three candidates who
successfully passed the initial screening. Each candidate requested a
different combination of long and short-term incentives, but in the opinion of
the Compensation Committee, Mr. Prior's request as a whole was comparable to
the compensation package that the Company expected would be required to
recruit any one of the other candidates. Although no formal survey of
compensation was conducted for the industry, based on the knowledge of the
members of the Compensation Committee, and the previous advice of the
professional recruiter regarding other candidates, the compensation package
agreed to with Mr. Prior was reasonable. The signing bonus paid to Mr. Prior
is reasonable for the industry. In determining Mr. Prior's compensation, the
Compensation Committee also considered the factors described above under "Base
Salary."
Compensation Committee
Norman A. Jacobs, Chairman
Gerald S. J. Cassidy
<PAGE> 18
<PAGE>
Performance Graph
The following graph compares the annual percentage change in cumulative
total shareholder return, assuming reinvestment of dividends, during a period
commencing on January 1, 1992, and ending December 31, 1996, of the Nasdaq
Stock Market Total Return Index and an index composed of the Company's peer
industry group, with the annual percentage change in the cumulative total
return of the Company's Common Stock for the period from April 1, 1992 through
December 31, 1996. The index representing the Company's peer industry group
is the Nasdaq Pharmaceutical Stocks Total Return Index, calculated and
supplied by the Center for Research in Security Prices. This index represents
all companies trading on Nasdaq under the Standard Industrial Classification
(SIC) Code for pharmaceuticals, including biotechnology companies. The stock
performance on the graph is not necessarily indicative of future price
performance.
[INSERT GRAPH]
<PAGE>
Employment and Consulting Agreements; Change in Control Arrangements
Employment Agreement with Reed R. Prior. On November 6, 1996, the
Company entered into an employment agreement with Reed R. Prior pursuant to
which Mr. Prior is serving as Chief Executive Officer and Treasurer of the
Company. Mr. Prior's initial annual base salary is $350,000. Mr. Prior was
reimbursed for his moving expenses in relocating to an apartment in the Boston
area. In addition, the Company pays Mr. Prior up to $4,500 per month as
reimbursement for rental of an apartment, living expenses and weekly commuting
between the Company's offices and his permanent residence. The Company will
reimburse Mr. Prior for any additional taxes that he incurs as a result of the
Company's reimbursement of living, commuting or moving expenses. Mr. Prior is
entitled to participate in the bonus and benefit programs that are available
to the Company's employees, and is entitled to health, life and disability
insurance.
Pursuant to Mr. Prior's employment agreement, in December 1996, the
Company issued to Mr. Prior an option to purchase 4,885,747 shares of Common
Stock, which number of shares was equal to 8.5% of the Company's Common Stock
outstanding on the grant date on a fully diluted basis, at a price of $1.31
per share, to vest in 48 monthly increments during the term of the employment
agreement. The agreement also provides for anti-dilution protections which,
among other things, require the Company to issue additional options to
Mr. Prior as necessary to cause the number of shares underlying his stock
options to equal but not exceed 8.5% of the Company's outstanding Common Stock
on a fully diluted basis. These anti-dilution provisions will be applicable
until the Company sells a cumulative total of $20,000,000 in equity or
convertible securities to non-affiliated persons. The Company has the
obligation to register all of the shares underlying options for resale. See
"Amendment of the 1992 Long Term Incentive Plan -- Incentive Plan Benefits."
Under the agreement, Mr. Prior is entitled to receive payments in the
event of certain transactions that may be deemed a "change in ownership" of
the Company. A "change in ownership" includes: (i) any acquisition of all or
substantially all of the Company's equity securities or operating assets,
whether by way of merger, sale of assets, stock purchase, tender offer or
otherwise; or (ii) the sale or out-licensing of the majority (in value) of the
Company's technology assets. In this event, Mr. Prior is entitled to receive
an "Asset Value Realization Bonus" equal to 8.5% of the net proceeds from the
change in ownership transaction. The amount that the Company must pay Mr.
Prior will be reduced by the amount of gain recognized by Mr. Prior as a
result of his sale of Common Stock of the Company acquired as a result of
exercise of options (or deemed sales in certain circumstances when he is able
to, but does not, sell). Mr. Prior has executed a waiver releasing the
Company from any obligations that it may have under his employment agreement
with respect to the Company's sale of its operating facility to Boston
University.
The agreement with Mr. Prior continues until terminated by either party
on written notice of not less than 30 days. The agreement may be terminated
by the Company with or without "just cause." In the event the Company
terminates Mr. Prior's employment other than for "just cause," or in the event
that Mr. Prior terminates his employment for "good reason," the Company is
required to pay Mr. Prior as severance a lump sum payment equal to one year's
salary based on the annual rate in effect on the date of termination. Upon
such termination, Mr. Prior will also be entitled to accelerated vesting of
his stock options. "Just cause," as defined in the agreement, consists of
fraud, a felony conviction, or a breach of a material term of the agreement or
willful failure to perform material duties, which default is not cured
following written notice (all as defined in the agreement). "Good reason," as
defined in the agreement, includes: (i) the refusal by the Board of Directors
of a bona fide financing offer; (ii) refusal of the Board of Directors to
approve major spending cuts or operational changes; (iii) breach by the
Company of a material term under the employment agreement; (iv) a "change in
ownership" as defined in Mr. Prior's employment agreement; or (v) a "change in
control" as defined under the Incentive Plan. Mr. Prior is entitled to
receive a lump sum payment equal to one year's salary in the event of death or
of physical or mental disability of a nature sufficient to result in his
termination by the Board. Pursuant to the terms of the agreement, the Company
established an irrevocable letter of credit in an amount equal to $175,000,
naming Mr. Prior as the beneficiary, as partial security for the Company's
severance obligations. The agreement also includes non-competition,
confidentiality and indemnification provisions.
Mr. Prior also is party to the Shareholders Agreement. See "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
<PAGE> 19
Employment Agreement with Jean C. Nichols. On November 6, 1996, the
Company entered into an employment agreement with Jean C. Nichols, Ph.D.,
pursuant to which Dr. Nichols was promoted to and serves as President and
Chief Technology Officer of the Company. The agreement was amended in certain
respects and restated as of September 22, 1997. Dr. Nichols' agreement also
provides that she serve as a Director of the Company. Dr. Nichols' annual
base salary is $225,000. Dr. Nichols is entitled to participate in the bonus
and benefit programs that are available to the Company's employees, and is
entitled to health, life and disability insurance.
Pursuant to Dr. Nichols' employment agreement, in December 1996, the
Company issued to Dr. Nichols an option to purchase 678,573 shares of Common
Stock, which number of shares was equal to 1.275% of the Company's Common
Stock outstanding on the grant date less 54,000 shares covered by options
previously granted to Dr. Nichols, at a price of $1.31 per share, to vest in
36 monthly increments during the term of the agreement, and canceled options
for 164,409 shares of Common Stock. On September 30, 1997, the Company is
obligated to issue additional options to Dr. Nichols sufficient to bring her
total options to a number giving her the right to purchase Common Stock equal
to 2.75% of the Company's Common Stock, on a fully diluted basis. The
agreement also provides for anti-dilution protections which, among other
things, require the Company to issue additional options as necessary to cause
the number of shares underlying her stock options to equal but not exceed
2.75% of the Company's outstanding Common Stock on a fully diluted basis.
These anti-dilution provisions will be applicable until the Company sells a
cumulative total of $20,000,000 in equity or convertible securities to non-
affiliated persons. The Company has the obligation to register all of the
shares underlying options for resale. See "Amendment of 1992 Long Term
Incentive Plan -- Incentive Plan Benefits."
Under the agreement, Dr. Nichols is entitled to receive payments in the
event of certain transactions that may be deemed a "change in ownership" of
the Company. A "change in ownership" includes: (i) any acquisition of all or
substantially all of the Company's equity securities or operating assets,
whether by way of merger, sale of assets, stock purchase, tender offer or
otherwise; or (ii) the sale or out-licensing of the majority (in value) of the
Company's technology assets. The Company's sale of its operating facility to
Boston University does not constitute a "change in ownership" for purposes of
Dr. Nichols' agreement. In the event of a "change in ownership," Dr. Nichols
is entitled to receive an "Asset Value Realization Bonus" equal to 2.75% of
the net proceeds from the change in ownership transaction. The amount that
the Company must pay Dr. Nichols will be reduced by the amount of gain
recognized by Dr. Nichols as a result of her sale of Common Stock of the
Company acquired as a result of exercise of options (or deemed sales in
certain circumstances when she is able to, but does not, sell). In the event
of a change in ownership after which the purchaser makes Dr. Nichols a bona
fide employment offer, Dr. Nichols' Asset Value Realization Bonus will be
payable to her as follows: 25% on the closing of the change in ownership, 25%
two months after closing, 25% four months after closing, and 25% six months
after closing, the obligation of the Company to make each such payment in
respect of the Asset Value Realization Bonus being subject to Dr. Nichols'
continued employment with the purchaser at the time the payment falls due. If
the purchaser terminates Dr. Nichols' employment without "just cause" or if
Dr. Nichols terminates her employment with the purchaser for "good reason" (as
defined below, except that a change in ownership or a change in control will
not constitute good reason for this purpose and the termination of
Dr. Nichols' employment by agreement, death, or disability will constitute
good reason for this purpose), Dr. Nichols will be entitled to receive the
entire amount of her Asset Value Realization Bonus as a lump sum payment.
The Company's agreement with Dr. Nichols continues until terminated by
either party on written notice of not less than 30 days. The agreement may be
terminated by the Company with or without just cause. In the event the
Company terminates Dr. Nichols' employment other than for just cause, or in
the event that Dr. Nichols terminates her employment for good reason, the
Company is required to pay Dr. Nichols as severance a lump sum payment equal
to one year's salary based on the annual rate in effect on the date of
termination. Upon such termination, the Company will also provide Dr. Nichols
with accelerated vesting of her stock options. "Just cause," as defined in
the agreement, consists of fraud, a felony conviction, or a breach of a
material term of the agreement or willful failure to perform material duties
which default is not cured following written notice (all as defined in the
agreement). "Good reason," as defined in the agreement, includes: (i) the
failure of Dr. Nichols to continue as a member of the Board of Directors,
unless Dr. Nichols resigns from that position; (ii) an act of bad faith by the
Company resulting in Dr. Nichols' resignation from the Company; (iii) breach
by the Company of a material term under the employment agreement; (iv) a
"change in ownership" as defined in Dr. Nichols' employment agreement; or (v)
a "change in control" as defined under the Incentive Plan. Dr. Nichols is
entitled to receive one year's salary in the event of death or disability.
The agreement also includes non-competition, confidentiality and
indemnification provisions.
<PAGE> 20
Option Plans. Under the Company's Incentive Plan, upon a change in
control or a potential change in control (each as defined in the Incentive
Plan), the vesting of options granted to the Named Executive Officers under
the Incentive Plan will be accelerated, and the value of the options will,
unless otherwise determined by the Compensation Committee, be cashed out at a
price to be determined at the time of the cash out. For a definition of
"change in control" and "potential change in control," and for a more detailed
description of these provisions, see "Amendment of the 1992 Long Term
Incentive Plan to Increase Available Shares -- Description of Incentive Plan -
- - Change in Control Provisions." Although the exact amount to be paid by the
Company cannot be determined, such amount could be in excess of $100,000 for
each of the Named Executive Officers.
Agreements with Others. In November 1996, the Company entered into a
retirement and consulting agreement with Mr. Masters, former Chief Executive
Officer and President. Pursuant to this agreement, Mr. Masters was paid a
consulting fee of $12,500 per month during the initial consulting period
beginning November 6, 1996, and ending December 31, 1996. Mr. Masters was
paid $5,000 per month during the period beginning January 1, 1997, and ending
February 28, 1997. Mr. Masters received a $30,000 bonus for services rendered
during fiscal year 1996, which was paid in 1997.
The Company had a consulting agreement with Dr. Murphy, a Director of
the Company who has declined to stand for reelection in 1997. Pursuant to
this agreement, Dr. Murphy was paid a consulting fee of $100,000 per year, and
was paid that amount during the fiscal year ended 1996, to provide consulting
services on biotechnology matters. The agreement expired December 31, 1996.
The Company extended this agreement to December 31, 1997 at a rate of $50,000
per year. The Company may elect to impose a two year non-competition period
following the termination or cancellation of the agreement, provided the
Company compensates Dr. Murphy during such period at one-half the rate of
compensation in effect at the time the termination or cancellation occurs.
Dr. James M. Howell, former Chairman of the Board of Directors, also had
a consulting agreement with the Company. Pursuant to this agreement,
Dr. Howell was paid a consulting fee of $68,750 in fiscal year 1996 to provide
consulting services on business matters. The agreement was terminated on
November 30, 1996. Pursuant to the agreement, Dr. Howell agreed not to
compete with the Company during the term of the agreement and for a period of
one year following the termination of the agreement. Dr. Howell is also
subject to certain confidentiality obligations.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal year 1996 were
Messrs. Cassidy and Jacobs.
In June 1995, the Company finalized three separate lines of credit,
which were guaranteed by three different parties, for a total of $23.8 million
in guaranteed bank financing for the Company. The Company issued warrants to
the guarantors for the purchase of 2,776,664 shares of Common Stock at an
exercise price of $4.75 per share. These warrants were immediately exercisable
and expire in 2005. Boston University, the Company's majority shareholder,
was the lead guarantor, providing a guaranty of $11.8 million in exchange for
a warrant to purchase 1,376,666 shares of Common Stock. Gerald S.J. Cassidy,
a member of the Company's Board of Directors, provided a guaranty of $2
million in exchange for a warrant to purchase 233,332 shares of Common Stock.
Leon C. Hirsch and Turi Josefsen provided guaranties of the remaining $10
million in exchange for warrants to purchase an aggregate of 1,166,666 shares
of Common Stock (see "Common Stock Ownership of Certain Beneficial Owners and
Management").
<PAGE> 21
In July 1996, the Company restructured its arrangement with the
guarantors of the Company's $23.8 million loan financing to release the
Company from its obligations to the bank lenders. Under the restructured
arrangement, the guarantors assumed the Company's obligations to the banks,
and in consideration the Company issued Series B preferred stock ("Series B
Shares") and warrants to the guarantors. The Company issued an aggregate of
23,800 Series B Shares. Each Series B Share is convertible at any time at the
investor's option into a number of shares of Common Stock determined by
dividing $1,000 by the average of the closing sale prices of the Common Stock
as reported on Nasdaq for the ten consecutive trading days immediately
preceding the conversion date. The holders of Series B Shares are entitled to
receive a cumulative dividend payable in arrears in cash, quarterly on the
last day of each calendar quarter, commencing on September 30, 1996 at an
annual rate equal to the prime rate plus 1-1/2% through June 1999 and at an
increasing percentage rate thereafter up to a maximum rate of the prime rate
plus 5% from and after July 1, 2003. The holders of Series B Shares are
entitled to vote on any matters submitted to the Company's shareholders. Each
Series B Share is entitled to a vote equivalent to 250 shares of Common Stock.
Each Series B Share has a liquidation preference equal to $1,000 plus an
amount equal to any accrued and unpaid dividends from the date of issuance of
the Series B Shares. At any time, with the approval of the Company's Board of
Directors, Audit Committee or comparable body, the Company may redeem any or
all of the Series B Shares for cash. The redemption price per Series B Share
is $1,000 plus an amount equal to any accrued and unpaid dividends from the
date of issuance of the Series B Shares. The recipients of the Series B
Shares also were issued warrants to purchase a total of 5,950,000 shares of
Common Stock (warrants for the purchase of 250,000 shares of Common Stock for
every $1,000,000 of Series B Shares purchased) at an exercise price of $4.00
per share. The warrants are exercisable commencing on January 1, 1997, and
expire on July 1, 2006. In addition, each holder of Series B Shares is
entitled to receive additional warrants pursuant to certain anti-dilution
provisions. Each such additional warrant will have an exercise price of $4.00
per share, will be exercisable commencing on January 1, 1997, and will expire
on July 1, 2006 (see "Common Stock Ownership of Certain Beneficial Owners and
Management").
In connection with the issuance of the Series B Shares, the Company
formed Seragen Technology, Inc. ("STI"). The Company transferred all of its
existing and future United States patents and patent applications (the
"Patents") to STI in exchange for 214,200 shares of STI's Class A Common Stock
and 23,800 shares of STI's Class B Common Stock (the "Class B Shares"). Each
share of STI Class A Common Stock is owned by the Company. The Company has
transferred the Class B Shares to the holders of the Series B Shares.
STI has no operations, and its sole asset is the Patents. Its
authorized capital stock consists of 214,200 shares of Class A Common Stock
and 23,800 shares of Class B Common Stock, all of which, as described in the
paragraph above, is issued and outstanding. Each share of STI Class A Common
Stock and STI Class B Common Stock is entitled to one vote on all matters
submitted to a vote of STI shareholders, voting together as a single class.
Simultaneously with the contribution of the Patents to STI, the Company
entered into a license agreement with STI pursuant to which STI granted to the
Company an irrevocable worldwide exclusive license with respect to the Patents
(the "Irrevocable License Agreement"). Under the terms of the Irrevocable
License Agreement, the Company is obligated to pay quarterly royalties to STI
in an amount equal to the amount of any dividend that the holders of the
Series B Shares are entitled to receive but have not received by the royalty
due date (which is one day after each quarterly dividend payment date for the
Series B Shares). The shares of STI Class B Common Stock, in turn, are
entitled to receive cumulative dividends equal to any royalty payable to STI
under the Irrevocable License Agreement.
<PAGE> 22
STI has executed a collateral assignment of the Patents in favor of the
holders of the Class B Shares, which is being held by an escrow agent. The
escrow agent is required to deliver the collateral assignment to the holders
of the Class B Shares if dividends on the Class B Shares are in arrears and
STI fails for 60 days, after the receipt of notice from the holders of the
Class B Shares, to pay the dividends due. Likewise, the holders of Class B
Shares have executed a reassignment of the Patents to STI, which also is being
held by the escrow agent. The escrow agent is obligated to deliver the
reassignment of the Patents to STI upon the redemption by STI of all of the
Class B Shares. The Class B Shares are required to be redeemed upon the
redemption or conversion of Series B Shares in a number equal to the number of
Series B Shares redeemed or converted. The collateral assignment of the
Patents secures only STI's dividend payment obligations on the Class B Shares
and does not secure any other amounts (e.g., the liquidation preference of the
Series B Shares). The collateral assignment of the Patents has no effect
until the escrow agent is instructed to deliver it to the holders of the Class
B Shares.
The Company has not paid the cash dividends due December 31, 1996,
March 31, 1997, June 30, 1997, and September 30, 1997, on the Series B Shares,
nor has the Company made the royalty payments due to STI on January 1, 1997,
April 1, 1997, July 1, 1997, and October 1, 1997. Correspondingly, STI has
not paid the dividends due January 1, 1997, April 1, 1997, July 1, 1997, and
October 1, 1997, on the Class B Shares. The Company does not expect STI to
make the dividend payments due on the Class B Shares on January 1, 1998.
Delivery of notice by the agent for the holders of the Class B Shares to
the escrow agent in accordance with the collateral assignment of the Patents
is the only condition to delivery of the collateral assignment of the Patents
to the holders of the Class B Shares. If the holders of the Class B Shares
were to deliver this notice to the escrow agent, they would thereafter have
the right to foreclose on the Patents, subject to the Company's rights under
the Irrevocable License Agreement. The holders of the Series B Shares have
agreed to forbear from exercising their right to deliver a notice of default
to the escrow agent until March 1, 1998.
On November 6, 1996, the Company entered into a shareholders agreement
(the "Shareholders Agreement") with Boston University, Leon C. Hirsch, Turi
Josefsen, Gerald S.J. Cassidy and Loretta P. Cassidy (collectively, the
"Shareholders") and Reed R. Prior with respect to the election of directors
and other matters. Pursuant to this agreement, the Shareholders have agreed
to vote their respective shares to: (i) maintain the number of persons
comprising the Board of Directors at nine; (ii) not to elect more than two
persons designated by or affiliated with Boston University to the Board of
Directors; (iii) to elect Mr. Prior as a Director; and (iv) to elect three
outside directors with experience in the pharmaceutical industry reasonably
acceptable to Mr. Prior. In addition, the Shareholders Agreement grants Mr.
Prior rights of co-sale in the event Boston University chooses to sell over
50% of its stock in the Company to a third party. Boston University also
agrees to pay its pro-rata share of Mr. Prior's Asset Value Realization Bonus
(as defined in Mr. Prior's employment agreement) in the event that the Company
fails to pay such bonus.
CERTAIN TRANSACTIONS
In August 1987, Boston University, Nycomed (formerly Nyegaard & Co. AS)
and the Company entered into a purchase and sale agreement pursuant to which
oston University, which then owned approximately 6% of the Company's
outstanding Common Stock, acquired from Nycomed 1,691,761 shares of the
Company's Common Stock, which represented all of Nycomed's ownership interest
in the Company and approximately 71% of the then outstanding Common Stock of
the Company. As part of this transaction, Boston University acquired all of
Nycomed's rights to technology, inventions, patents and other proprietary
rights (the "Technology") which were primarily related to or useful in the
development of the Company's fusion protein products and also acquired the
world-wide exclusive rights to manufacture, use, sell and market products (the
"Products") derived from or including the Technology (the "Technology and
Marketing Rights"). In exchange for the acquisition of these assets, Boston
University paid $25,000,000 to Nycomed and assumed Nycomed's obligations to
the Company, including a commitment to finance and carry out the Company's
research and development program and an obligation to guaranty the Company's
leases at its facilities in Hopkinton, Massachusetts. In addition, pursuant to
the agreement, the Company is obligated to pay Nycomed a continuing royalty
with respect to sales of the Products and to give Nycomed rights of first
negotiation to market the Products in the territory covered by the agreement.
In connection with this agreement, Nycomed and Boston University entered into
a Noncompetition and Confidentiality Agreement under which Nycomed agreed to
maintain in confidence proprietary information and intellectual property in
connection with the Company's business and not to compete with the Company's
business. The Noncompetition and Confidentiality Agreement expired in August
1992. The Company believes that the expiration of this Agreement will not
materially adversely affect the Company's business.
<PAGE> 23
In connection with the sale of stock to Boston University, Nycomed also
transferred to Boston University a debt owed to Nycomed by the Company in the
principal amount of $1,050,000. In 1988, Boston University converted this debt
plus accrued interest thereon into 95,488 shares of Common Stock, based on a
conversion price equal to $15.00 per share of Common Stock.
In connection with Boston University's acquisition of the majority
interest in the Company in 1987, Boston University guaranteed the Company's
obligations under a $10,000,000 line of credit with The First National Bank of
Chicago (the "Bank") to provide short-term operating funds for the Company
(the "Guaranty"). Boston University pledged certain collateral to the Bank to
secure the Guaranty. In 1992, the Company repaid the line of credit,
resulting in a termination of the Guaranty. In return for providing the
Guaranty, the Company issued to Boston University a warrant (the "Bank
Warrant") that was exercisable to purchase up to 500,000 shares of Common
Stock, at an exercise price of $11.80 per share, at any time prior to
January 28, 1993. The Bank Warrant expired unexercised.
In January 1988, pursuant to a Technology Purchase and Royalty Agreement
(the "Technology Agreement"), which was contemplated at the time Boston
University acquired the Technology from Nycomed, Boston University transferred
to the Company the Technology and Marketing Rights obtained from Nycomed in
exchange for a continuing royalty on sales of the Products until the
expiration of all patents. Thereafter, the Company agreed to pay Boston
University a reduced royalty based on a percentage of net sales for a period
of 10 years after the expiration of such patents. The Technology Agreement
provides Boston University with a security interest in the Technology and
Marketing Rights to secure the Company's compliance with the terms of the
agreement and also provides that upon a default by the Company in the terms of
the Technology Agreement, the agreement will terminate and the Technology and
Marketing Rights will revert to Boston University. The Technology Agreement
provides for default in the event that (i) the Company defaults in the
performance of any material term of that agreement, (ii) the Company defaults
in the performance of a related financing agreement (which since has been
terminated) or in any indebtedness guaranteed by Boston University (none of
which currently exists), (iii) the Company ceases to continue as a going
concern, or (iv) the Company is placed under receivership.
As of October 7, 1997, Boston University beneficially owned 8,299,077
shares (or approximately 40%) of the Company's outstanding Common Stock. In
addition, Boston University beneficially owns a stock option to purchase
15,000 shares, a warrant to purchase 1,376,666 shares, a warrant to purchase
6,651,347 shares subject to anti-dilution provisions (as defined), shares
issuable on conversion of 11,800 Series B Shares and shares issuable on
conversion of 5,000 Series C Shares. As of October 7, 1997, if all
outstanding securities were converted to Common Stock, Boston University would
own 39,369,382 shares of Common Stock.
Dr. John R. Murphy, a director of the Company who has declined to stand
for reelection in 1997, had a consulting agreement with the Company pursuant
to which he received consulting fees of $100,000 in the fiscal year ended
1996. The Company has extended this agreement through December 31, 1997, at a
rate of $50,000 per year.
Dr. James M. Howell, former Chairman of the Board of Directors, had a
consulting agreement with the Company pursuant to which he received consulting
fees of $68,750 in the fiscal year ended 1996.
In June 1995, the Company finalized three separate lines of credit for a
total of $23.8 million in guaranteed bank financing for the Company. The
lines of credit were guaranteed in various amounts by Boston University, Leon
C. Hirsch, Turi Josefsen, and Gerald S.J. Cassidy, in exchange for which the
Company provided warrants to the guarantors. For a description of this
transaction, see "Compensation Committee Interlocks and Insider
Participation."
<PAGE> 24
In July 1996, the Company restructured its arrangement with the
guarantors of the Company's $23.8 million loan financing to release the
Company of its liability to the bank lenders. Under the restructured
arrangement, the guarantors assumed the Company's obligations to the banks,
and in consideration the Company issued Series B Shares and warrants to the
guarantors. For a description of this transaction, see "Compensation
Committee Interlocks and Insider Participation."
In September 1996, the Company raised $5 million through the sale of
5,000 Series C Shares in a private placement with Boston University. The
Series C Shares are convertible at the option of the holder into shares of the
Company's Common Stock at a conversion price equal to the lesser of $2.75 or
73 percent of the average closing bid prices for a five-day period prior to
the conversion date, up to a maximum of 3,360,625 shares of Common Stock. Any
shares the investor is unable to convert due to this limitation may be
exchanged for $1,150 per share in cash. Terms of the Series C Shares also
provide for 8% cumulative dividends payable in shares of Common Stock at the
time of each conversion. Each Series C Share has a liquidation preference
equal to $1,000 plus an amount equal to any accrued and unpaid dividends from
the date of issuance of the Series C Shares in the event of liquidation,
dissolution or winding up of the Company. The holders of the Series C shares
are not entitled to vote, separately as a series or otherwise, on any matter
submitted to a vote of the Company's shareholders. Series C Shares that
remain outstanding on March 30, 1998, will be automatically converted into
shares of Common Stock.
On November 6, 1996, the Company entered into the Shareholders Agreement
with the Shareholders and Reed R. Prior. For a description of the
Shareholders Agreement, see "Compensation Committee Interlocks and Insider
Participation."
On February 18, 1997, the Company entered into an agreement to sell its
operating division, which includes substantially all of the Company's assets
and personnel other than (i) its patents (which have been previously pledged
to secure certain dividend obligations; see "Executive Compensation --
Compensation Committee Interlocks and Insider Participation") and other
intellectual property, (ii) certain management personnel, and (iii) assets
utilized by the retained management personnel in the performance of their
duties (collectively, the "Operating Division"), to Boston University or a
designated affiliate for $5 million and an agreement pursuant to which Boston
University will provide certain services related to product research,
manufacturing, clinical trials, quality control, and quality assurance.
For a description of this transaction, see "Sale of the Operating Division to
Boston University."
On July 31, 1997, the Company entered into an evaluation license and
option agreement (the "USSC License Agreement") with United States Surgical
Corporation ("USSC") granting USSC an option on worldwide rights to the
Company's DAB389EGF molecule (the "EGF Fusion Protein") for restenosis in
cardiovascular applications. Leon C. Hirsch, who beneficially owns more than
5% of the Company's Common Stock, is the Chairman of USSC and beneficially
owns 7.8% of the common stock of USSC. Turi Josefsen, who beneficially owns
more than 5% of the Company's Common Stock, is a director of USSC and
benefically owns 1.8% of the common stock of USSC. John R. Silber, a director
of the Company, is a director of USSC and benefically owns .02% of the common
stock of USSC. Pursuant to the USSC License Agreement, USSC made an initial
payment to the Company of $5.0 million on July 31, 1997. Under the USSC
License Agreement, USSC is entitled to acquire an exclusive license to the EGF
Fusion Protein technology, at any time during a 15-month evaluation period,
upon the payment to the Company of an additional $5.0 million. In addition,
the Company issued to USSC a warrant for the purchase of 500,000 shares of the
Company's Common Stock at a purchase price of $.5625 per share, the closing
sale price for shares of the Company's Common Stock on the date prior to the
date the warrant was issued. The Company will value this warrant and record
it as a charge to general and administrative expense in the quarter ending
September 30, 1997. USSC has agreed to fund trials associated with the
development of EGF Fusion Protein for restenosis. If USSC's option to obtain
any exclusive license of the EGF Fusion Protein technology is exercised,
milestone payments will be payable by USSC to the Company up to a maximum
amount of $22.5 million. In addition, USSC will be obligated to pay the
Company royalties on commercial sales of the licensed product. In the event
USSC chooses not to exercise the option, the USSC License Agreement will
terminate, and, in exchange, USSC will receive $5.0 million worth of the
Company's Common Stock valued at the average of the closing prices of the
Company's Common Stock (i) for the ten trading days preceding the date of the
USSC License Agreement or (ii) for the ten trading days preceding the date on
which USSC chooses not to exercise the option, whichever is lower. The
Company will record the $5.0 million initial payment from USSC as a liability.
In the event that USSC exercises its option to license the EGF Fusion Protein,
the $5.0 million will be recorded as revenue at that time. In the event that
USSC chooses not to exercise the option, the $5.0 million will be recorded as
stockholders' equity.
<PAGE> 25
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who beneficially own
more than 10% of the Company's Common Stock to file with the SEC initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, there was compliance during the fiscal year ended
December 31, 1996, with all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10% beneficial owners.
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of October 7, 1997,
by: (i) each person known by the Company to own beneficially 5% or more of
its outstanding Common Stock; (ii) each Director; (iii) each Named Executive
Officer; and (iv) all Directors and executive officers as a group. Except as
otherwise indicated, the named beneficial owner has sole voting and sole
investment power with respect to the shares shown as beneficially owned.
Unless otherwise indicated, the address of each person or entity listed below
is c/o Seragen, Inc., 97 South Street, Hopkinton, Massachusetts 01748.
SHARE OWNERSHIP
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
OWNED (1)(2)
NAME(**) NUMBER OF SHARES PERCENT
- -------- ---------------- -------
<S> <C> <C>
Boston University 39,369,382 (3)(4)(5) 75.9%
881 Commonwealth Avenue
Boston, MA 02215
Leon C. Hirsch 16,429,041 (3)(6) 44.1%
150 Glover Avenue
Norwalk, CT 06856
Turi Josefsen 7,041,016 (3)(7) 25.3%
150 Glover Avenue
Norwalk, CT 06856
John E. Bagalay, Jr 4,000 (5)(9) *
Eli Lilly and Company 1,787,092 8.6%
Lilly Corporate Center
Indianapolis, IN 46285
Gerald S.J. Cassidy 4,724,193 (3)(8) 18.5%
700 13th Street, N.W., Suite 400
Washington, DC 20005
Kenneth G. Condon, C.P.A. 5,200 (5)(10) *
Leonard F. Estis, Ph.D. 1,136 (1) *
Norman A. Jacobs 19,000 (12) *
Thomas N. Konatich 905 (13) *
George W. Masters 67,313 (14) *
John R. Murphy, Ph.D. 96,875 (15) *
Jean C. Nichols, Ph.D. 688,538 (16) 3.2%
Reed R. Prior 2,439,587 (17) 10.5%
John R. Silber, Ph.D. 178,500 (5)(18) *
All Officers and Directors as a Group 8,823,123 30.1%
</TABLE>
26
<PAGE>
______________________
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) A person or group is deemed to have "beneficial ownership" of any
shares as of October 7, 1997, that such person or persons comprising
the group has the right to acquire within 60 days after such date.
Any securities not outstanding which are subject to options, warrants,
rights or conversion privileges of which a person or group has ownership
are deemed to be outstanding only for the purpose of computing the
percentage of outstanding securities of the class owned by such person
or group; but are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
(2) Percentage ownership is based on 20,788,805 shares of Common Stock
outstanding as of October 7, 1997.
(3) Consists of 39,666,667 shares of Common Stock issuable upon conversion
of 23,800 Series B Shares and assumes that Series B Shares are convertible
at a conversion price of $0.60, the conversion price in effect on October
7, 1997, based on the average of the closing sale prices of the Common
Stock for the ten consecutive trading days preceding that date.
(4) Includes 3,360,625 shares of Common Stock (the maximum number of shares
of Common Stock into which the Series C Shares may convert) issuable upon
conversion of 5,000 Series C Shares and accrued dividends thereon.
(5) The Boston University Nominee Partnership is a partnership that was
created to act as the record holder of certain securities owned by
Boston University. Dr. Bagalay and Mr. Condon are general partners of
the partnership and are required to vote and take other actions with
respect to such shares of Common Stock as instructed by duly authorized
officers of Boston University. The officers of Boston University are
duly authorized by the actions of the Trustees of Boston University.
Dr. Bagalay and Mr. Condon (general partners of the Boston University
Nominee Partnership) and Dr. Silber (a Trustee of Boston University)
disclaim beneficial ownership of these shares. The ownership of the
partnership consists of 15,000 shares issuable upon exercise of stock
options, a warrant to purchase 1,376,666 shares exercisable at $4.75
per share, a warrant to purchase 6,651,347 shares exercisable at $4.00 per
share, 19,666,667 shares of Common Stock issuable upon conversion of
11,800 Series B Shares and 3,360,625 shares of Common Stock issuable
upon conversion of 5,000 Series C Shares. Pursuant to the anti-dilution
provisions of certain of its warrants, Boston University may be entitled
to receive additional warrants in the event that USSC declines to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology and thereby becomes entitled to receive
shares of Common Stock. See "Certain Transactions."
Due to the fact that the price at which shares of Common Stock would be
issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, the Company is
unable at this time to determine the number of additional warrants that
would be issuable to Boston University in the event that USSC were to
decline to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology. Boston University has
entered into the Shareholders Agreement with respect to the election of
directors and other matters.
See "Certain Transactions."
(6) Consists of a warrant to purchase 816,666 shares exercisable at $4.75
per share, a warrant to purchase 3,945,708 shares exercisable at $4.00
per share, and 7,000 Series B Shares convertible into 11,666,667 shares
of Common Stock. Does not include 1,691,016 shares issuable upon exercise
of warrants and does not include 5,000,000 shares of Common Stock issuable
upon conversion of 3,000 Series B Shares held by Turi Josefsen, Mr.
Hirsch's wife, as to which Mr. Hirsch disclaims beneficial ownership.
Pursuant to the anti-dilution provisions of certain of its warrants, Mr.
Hirsch may be entitled to receive additional warrants in the event that
USSC declines to exercise its option under the USSC License Agreement
to acquire the EGF Fusion Protein technology and thereby becomes
entitled to receive shares of Common Stock. See "Certain Transactions."
Due to the fact that the price at which shares of Common Stock would be
issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, the Company
is unable at this time to determine the number of additional warrants that
would be issuable to Mr. Hirsch in the event that USSC were to decline to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology. Mr. Hirsch has entered into the Shareholders
Agreement with respect to the election of directors and other matters.
See "Certain Transactions."
(7) Consists of a warrant to purchase 350,000 shares exercisable at $4.75
per share, a warrant to purchase 1,691,016 shares exercisable at $4.00
per share, and 3,000 Series B Shares convertible into 5,000,000 shares
of Common Stock. Does not include 3,945,708 shares issuable upon exercise
of warrants and does not include 11,666,667 shares of Common Stock
issuable upon conversion of 7,000 Series B Shares held by Leon C.
Hirsch, Ms. Josefsen's husband, as to which Ms. Josefsen disclaims
beneficial ownership. Pursuant to the anti-dilution provisions of
certain of its warrants, Ms. Josefsen may be entitled to receive
additional warrants in the event that USSC declines to exercise its
option under the USSC License Agreement to acquire the EGF Fusion
Protein technology and thereby becomes entitled to receive shares of
Common Stock. See "Certain Transactions." Due to the fact that the
price at which shares of Common Stock would be issuable to USSC under
the USSC License Agreement cannot be determined until USSC declines
to exercise its option under the USSC License Agreement to acquire the
EGF Fusion Protein technology, the Company is unable at this time to
determine the number of additional warrants that would be issuable to
Ms. Josefsen in the event that USSC were to decline to exercise its
option under the USSC License Agreement to acquire the EGF Fusion
Protein technology. Ms. Josefsen has entered into the Shareholders
Agreement with respect to the election of directors and other matters.
See "Certain Transactions."
(8) Includes 9,000 shares issuable upon exercise of options held by Mr.
Cassidy, a warrant to purchase 233,332 shares exercisable at $4.75 per
share, a warrant to purchase 1,127,359 shares exercisable at $4.00 per
share, and 3,333,333 shares of Common Stock issuable upon conversion of
2,000 Series B Shares. Mr. Cassidy's Series B Shares and warrants are
owned jointly with his wife, Loretta P. Cassidy. Pursuant to the
anti-dilution provisions of certain of its warrants, Mr. Cassidy may be
entitled to receive additional warrants in the event that USSC declines
to exercise its option under the USSC License Agreement to acquire the
EGF Fusion Protein technology and thereby becomes entitled to receive
shares of Common Stock. See "Certain Transactions." Due to the fact
that the price at which shares of Common Stock would be issuable to USSC
under the USSC License Agreement cannot be determined until USSC declines
to exercise its option under the USSC License Agreement to acquire the
EGF Fusion Protein technology, the Company is unable at this time to
determine the number of additional warrants that would be issuable to
Mr. Cassidy in the event that USSC were to decline to exercise its option
under the USSC License Agreement to acquire the EGF Fusion Protein
technology. Mr. and Mrs. Cassidy have entered into the Shareholders
Agreement with respect to the election of directors and other matters.
See "Certain Transactions."
(9) Consists of 4,000 shares issuable upon exercise of options held
by Dr. Bagalay that are exercisable within 60 days.
(10) Consists of 4,000 shares issuable upon exercise of options held
by Mr. Condon.
(11) Dr. Estis resigned as Vice President of Research and Development
effective November 29, 1996.
(12) Consists of 19,000 shares issuable upon exercise of options
held by Mr. Jacobs.
(13) Mr. Konatich resigned as Chief Financial Officer effective
November 15, 1996.
(14) Includes 50,000 shares issuable upon exercise of options exercisable
by Mr. Masters within 60 days and a warrant to purchase 1,250 shares
exercisable at $10.00 per share. Mr. Masters retired from his position
as Vice Chairman, Chief Executive Officer, President and a member of
the Board of Directors effective November 6, 1996.
(15) Includes 45,825 shares issuable upon exercise of options held
by Dr. Murphy.
(16) Includes 680,032 shares issuable upon exercise of options held by
Dr. Nichols. Pursuant to the anti-dilution provisions of her options,
Dr. Nichols may be entitled to receive additional options in the event
that USSC declines to exercise its option under the USSC License Agreement
to acquire the EGF Fusion Protein technology and thereby becomes entitled
to receive shares of Common Stock. See "Certain Transactions." Due to
the fact that the price at which shares of Common Stock would be issuable
to USSC under the USSC License Agreement cannot be determined until USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology, the Company is unable at this
time to determine the number of additional options that would be
issuable to Dr. Nichols in the event that USSC were to decline to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology.
(17) Consists of 2,439,587 shares issuable upon exercise of options held by
Mr. Prior. Pursuant to the anti-dilution provisions of his options, Mr.
Prior may be entitled to receive additional options in the event that USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology and thereby becomes entitled
to receive shares of Common Stock. See "Certain Transactions." Due to
the fact that the price at which shares of Common Stock would be
issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, the Company is
unable at this time to determine the number of additional options that
would be issuable to Mr. Prior in the event that USSC were to decline
to exercise its option under the USSC License Agreement to acquire the
EGF Fusion Protein technology. Mr. Prior has entered into the
Shareholders Agreement with respect to the election of directors and
other matters. See "Certain Transactions."
(18) Includes a warrant to purchase 7,500 shares exercisable at $10.00 per
share. Dr. Silber's shares and warrant are owned jointly with his
wife, Kathryn U. Silber.
<PAGE> 28
SALE OF THE OPERATING DIVISION TO BOSTON UNIVERSITY
PROPOSAL 2
GENERAL
On February 6, 1997, the Company's Board of Directors unanimously
approved the sale of the Operating Division to Boston University. Conditions
to the proposed sale are approval of the transaction by the Company's
shareholders and ratification by disinterested shareholders.
Pursuant to the terms of the Asset Purchase Agreement, the Company will
transfer the Operating Division to Boston University for $5,000,000.
As part of this transaction, the Company and Boston University also entered
into the Service Agreement, under which Boston University will provide
specified research, development, clinical trial, and manufacturing services
("Services") to the Company using the Operating Division from February 14,
1997, to January 31, 1999 (with the Company having the right to extend the
Service Agreement for two additional one-year periods, subject to certain
conditions).
The Operating Division includes substantially all of the Company's assets and
personnel other than (i) its patents (which have been previously pledged to
secure certain dividend obligations; see "Election of Directors -- Executive
Compensation -- Compensation Committee Interlocks and Insider Participation")
and other intellectual property, (ii) certain management personnel, and (iii)
assets utilized by the retained management personnel in the performance of
their duties. The Operating Division includes all of the Company's
manufacturing, clinical trial, and product development facilities and related
assets. As described more fully in this section, the Company will transfer
to Boston University all assets and personnel associated with the Operating
Division. The Company will assign its rights under certain of its contracts
relating to the Operating Division (e.g., clinical trial contracts) to Boston
University. The Company will convey to Boston University the Operating
Division equipment and other property that the Company owns. The Company will
assign to Boston University the leases for Operating Division equipment and
other property that the Company leases.
In addition, the Company will assign to Boston University the leases for the
Company's premises (all of which are leased by the Company), subject to an
obligation on the part of Boston University to sublet a portion of the
premises back to the Company for use by the Company as its executive
offices. Upon the closing of the sale of the Operating Division, the
Company's employees associated with the Operating Division will be offered
employment by Boston University.
For a period of two years (extendible for two one-year extensions), the
Company will obtain from Boston University research, development, clinical
trial, and manufacturing services comparable to those for which the Company
currently has internal capacity. Boston University will provide these
services through the Operating Division. For a description of the risks
associated with the sale of the Operating Division, see "Risks."
If the sale of the Operating Division is completed, the Company will no
longer have an internal research, development, clinical trial, or
manufacturing capacity. The Company will, however, retain ownership of
all of its patents, trademarks, copyrights, trade names, logos, proprietary
information, and other intellectual property. The Company's Patents
currently secure the Company's dividend payment obligations on the Series B
Shares, although the Company retains full use of the Patents pursuant to an
irrevocable license. The Company currently is in arrears with respect to
these dividend payments; however, the holders of the Series B Shares have
agreed to forbear from exercising their right to foreclose on the Patents
until March 1, 1998. See "Election of Directors -- Executive Compensation
- -- Compensation Committee Interlocks and Insider Participation."
As discussed in detail under "Reasons for and Effects of the Sale of the
Operating Division," the Board of Directors concluded that the terms of the
Asset Purchase Agreement and Service Agreement together provide for terms at
least as favorable as those that the Company could have obtained from an
unaffiliated third party. There is a risk that the purchase price that Boston
University will pay for the Operating Division may be less than the price the
Company could have obtained from an unaffiliated third party. The Company did
not perform any evaluation of the market value of the Operating Division and
did not seek to appraise the assets to be transferred to Boston University.
The Company did not seek or obtain an opinion regarding the fairness of the
Asset Purchase Agreement and Service Agreement. The Company did not solicit
third party offers for the Operating Division or the assets of the Operating
Division. However, as more fully described under "Description of Service
Agreement -- Disposition of Operating Division Assets," the Company has the
right for a four-year period to repurchase the Operating Division from Boston
University for an amount equal to the purchase price paid by Boston University
for the Operating Division, plus interest and cumulative operating losses
incurred by Boston University with respect to the Operating Division.
<PAGE> 29
The Board considered the risks and benefits of the transaction to the
Company and to the Company's shareholders who do not have an interest in the
transaction and concluded that the terms of the Asset Purchase Agreement and
Service Agreement together are not unfair to these shareholders and that the
benefits of the transaction outweigh the risks. The Board concluded that the
transaction was superior to other alternatives available to the Company
because the Asset Purchase Agreement and Service Agreement together would
satisfy the Company's immediate need for cash for continuing operations and
reduction in operating expenses and provide the Company with the services it
needs for product development and clinical trials at a cost less than the cost
of continuing the operations of the Operating Division. In addition, the
Board concluded that the Asset Purchase Agreement and Service Agreement would
provide these benefits without the delay that might have resulted from
attempts to solicit third party offers for the Operating Division assets, a
delay that the Board believed the Company could not accept due to its
financial position. For a description of the risks and benefits the Board
considered, see "Reasons for and Effects of the Sale of the Operating Division
- -- Advisability of Sale of Operating Division; Board Deliberations."
Because the Company's sale of the Operating Division does not require
the issuance of additional shares of the Company's Common Stock or any other
securities, the transaction will not materially change the relative legal
rights and preferences of any of the Company's security holders. Each
shareholder's relative interest in the Company and its assets remaining after
completion of the sale of the Operating Division will remain unchanged.
Shareholders will not be entitled to appraisal rights with respect to the
transaction.
Although the Company will retain its patents and other intellectual
property, the transaction may nevertheless constitute a sale by the Company of
substantially all of its assets for purposes of section 271 of the Delaware
General Corporation Law and thereby require approval by the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote on the matter.
Because of their relationships with the Company, Boston University, Leon
Hirsch, and Turi Josefsen may be viewed as having an interest in the sale of
the Operating Division that is not shared by the Company's other shareholders.
See "Approvals Required for the Operating Division Sale -- Shareholder
Approval and Interest of Controlling Shareholder in the Transaction." In
light of these interests, the Board of Directors has determined that it also
will seek ratification of the transaction by the affirmative vote of a
majority of the shares of capital stock issued and outstanding and entitled to
vote on the matter, excluding shares owned by, or the voting of which is
controlled by, Boston University, Leon C. Hirsch, and Turi Josefsen or their
affiliates (the "Disinterested Shareholder Ratification").
The Disinterested Shareholder Ratification is not required by Delaware law.
However, DGCL Section 144 provides in relevant part that no contract or
transaction between a corporation and another corporation in which one or more
of its directors are directors or officers or have a financial interest shall
be void or voidable solely for that reason, or solely because the director is
present at or participates in the meeting of the board which authorized the
contract or transaction, or solely because the director's vote is counted for
such purpose, if the material facts as to the director's relationship or
interest and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote on the matter and the contract or
transaction is specifically approved in good faith by vote of the
shareholders. The Disinterested Shareholder Ratification is intended to
comply with the referenced provisions of DGCL Section 144. In the absence
of compliance with DGCL Section 144, directors involved in the sale of the
Operating Division would bear the burden of clearly proving their utmost good
faith in connection with the transaction and the entire fairness of the
transaction to the Company. In the event that the Disinterested Shareholder
Ratification is obtained, on the other hand, a shareholder objecting to the
transaction may as a result bear the burden of proving the unfairness of the
transaction to the Company, which burden of proof may be difficult for an
objecting shareholder to meet, and any court reviewing the transaction in
response to a shareholder challenge may accord greater deference to
determinations made by the Board of Directors in connection with its approval
of the transaction. See "Approvals Required for the Operating Division
Sale -- Shareholder Approval and Interest of Controlling Shareholder in the
Transaction."
<PAGE> 30
A copy of the Asset Purchase Agreement is attached as Appendix A to this
Proxy Statement, and a copy of the Service Agreement is attached as Appendix B
to this Proxy Statement. The copy of the Service Agreement attached as
Appendix B omits certain information that is the subject of a grant of
confidential treatment by the SEC. The Company believes that the omitted
information is not material to an evaluation by shareholders of the proposed
transaction and is confidential commercial information that, if disclosed,
would cause the Company competitive harm. The discussion in this Proxy
Statement of the proposed sale of the Operating Division and the description
of the principal terms of the Asset Purchase Agreement and the Service
Agreement are subject to and qualified in their entirety by reference to the
Asset Purchase Agreement and the Service Agreement.
Risks
The proposed transaction provides no guarantee that the Company will
have further access to the services of the Operating Division after January
31, 1999. The Company may not have sufficient funds to exercise its options
to extend the Service Agreement.
If, at any time during the term of the Service Agreement, Boston
University's operating losses for any contract year exceed a specified amount
and the Company fails to pay Boston University the difference between its
actual operating losses and the specified amount after receiving notice from
Boston University, Boston University may terminate the Service Agreement.
There can be no assurance that Boston University will not incur excess losses
and, if it does, that the Company will have sufficient funds to permit the
Company to cover the excess losses.
The Company may not have sufficient funds to repurchase the assets
comprising the Operating Division by January 31, 2001 (until which date the
Company has an option to repurchase the assets comprising the Operating
Division under the terms of the Service Agreement). After January 31, 2001,
if the Company has not exercised its option to repurchase the assets
comprising the Operating Division, Boston University is under no obligation to
provide any further Services to the Company.
If at any point the Company is unable to obtain further services of the
Operating Division, it will be required to negotiate with another service
provider for these services. There can be no assurance that the Company will
be able to secure comparable services at a price similar to that available
under the Service Agreement. In addition, if the services of the Operating
Division should cease to be available to the Company, the need to obtain
similar services from other providers could have a material and adverse effect
on the Company's ability to proceed with its product development, clinical
trial, and commercialization efforts on a timely basis. As such, any
termination of the Service Agreement might have a material adverse effect on
the Company.
Background of the Sale
The Company has experienced significant operating losses in each year
since its inception and, as of December 31, 1996, had an accumulated deficit
of approximately $187 million. The Company expects to incur additional
operating losses over the next several years and expects cumulative losses to
increase as the Company's research and development and clinical trial efforts
continue. See "Business," "Management's Discussion and Analysis" and
"Financial Statements" in the Company's Annual Report to Shareholders (which
accompanies this Proxy Statement) and in this Proxy Statement.
The proposed asset sale and service arrangement will reduce the
Company's cash needs and operating losses. These transactions are not
expected to reduce the Company's product development or commercialization
programs. Subject to the minimum payment obligations described below, the
Company's expenses related to the Operating Division will be limited to the
services it actually uses. By so reducing the Company's cash requirements,
management believes that the proposed asset sale and service arrangement may
reduce the Company's future need to raise funds through debt or equity
offerings. Under the terms of the Service Agreement, Boston University may
make the services of the Operating Division available to third parties to the
extent consistent with the fulfillment by Boston University of its obligations
under the Service Agreement to provide Services to the Company.
Boston University
Boston University owns approximately 40% of the total shares of the
Company's outstanding Common Stock and 11,800 Series B Shares, which together
represent 42% of the total voting power of the capital stock of the Company
entitled to vote as of October 7, 1997. See "Election of Directors --
Common Stock Ownership of Certain Beneficial Owners and Management" and
"Election of Directors -- Certain Transactions." Boston University is a
Massachusetts not-for-profit corporation with its principal place of business
at 881 Commonwealth Avenue, Boston, Massachusetts. Founded in 1839, it is an
independent, coeducational, nonsectarian university with fifteen schools and
colleges. Boston University has nearly 30,000 students and over 2,600 faculty
members.
<PAGE> 31
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
Transferred Assets
The assets to be transferred to Boston University pursuant to the Asset
Purchase Agreement include all assets, both those owned by the Company and
those leased by the Company, comprising the Operating Division. The
transferred assets will include the leases for the Company's premises (all of
which are leased by the Company), subject to an obligation on the part of
Boston University to sublet a portion of the premises back to the Company for
use by the Company as its executive offices.
Operating Division property that is owned by the Company includes
leasehold improvements to the Company's manufacturing and laboratory
facilities and manufacturing, production and laboratory equipment. All such
property will be conveyed to Boston University by the Company in connection
with the closing of the transaction. The Company will also assign its rights
under certain of its contracts relating to the Operating Division (e.g.,
clinical trial contracts) to Boston University.
The Company leases certain Operating Division equipment and other
Operating Division personal property. Substantially all of these leases are
operating, rather than capital, leases. All of these leases will be assigned
by the Company to Boston University in connection with the closing of the
transaction.
The Company leases its premises at 97 South Street, 99 South Street, and
116-120 South Street, Hopkinton, Massachusetts pursuant to three separate
leases. The Company leases its primary facility, approximately 64,000 square
feet at 97 South Street, pursuant to a renewable ten-year lease. The current
term of the lease expires in August 2002. The Company has options to renew
this lease for two additional successive period of five years each. The lease
provides for annual lease payments of $631,997. The Company leases another
facility, approximately 15,000 square feet at 116-120 South Street, pursuant
to a lease expiring in December 1997, but with an option on the Company's part
to extend the lease for an additional period of five years. The lease
provides for annual lease payments of $130,320. The Company leases a third
facility, approximately 5,600 square feet at 99 South Street, pursuant to a
lease expiring in October 2005. The lease provides for an escalating annual
lease payment of from $60,000 to $84,000. In connection with each of these
leases, the Company is obligated to pay its proportionate share of all real
estate taxes and building operating costs paid by the lessors and attributable
to the leased premises. All of these leases will be assigned by the Company
to Boston University in connection with the closing of the transaction,
subject to the need to obtain consent of the lessor. Following the closing,
Boston University is obligated, under the terms of the Asset Purchase
Agreement, to sublease a portion of the premises at 97 South Street to the
Company for use by the Company as its executive offices.
The transferred assets will not include: (i) any of the Company's
interest in patents, trademarks, copyrights, trade names, logos, proprietary
information or other industrial secrets, or other intellectual property of
whatever nature; or (ii) any of the capital stock held by the Company in STI
and Seragen Biopharmaceuticals Ltd. The Company's subsidiary STI owns all of
the Company's Patents. Pursuant to an escrow arrangement, a collateral
assignment of the Patents is required to be delivered to the holders of the
Series B Shares in the event that the holders of the Series B Shares provide
notice to the escrow agent of STI's failure to pay dividends on its Class B
Shares. The holders of the Series B Shares have agreed to forbear from
exercising their right to deliver a notice of default to the escrow agent
until March 1, 1998. See "Election of Directors -- Compensation Committee
Interlocks and Insider Participation."
The Company has provided Boston University with access to Operating
Division facilities and to the services of specified Company employees since
February 14, 1997. Pursuant to this arrangement, Boston University is
required to make when due all payments required under contracts related to the
Operating Division, and is required to discharge when due all liabilities and
obligations under existing claims relating to the Operating Division. In
addition, Boston University is required to reimburse the Company for all
operating expenses of the Operating Division, including wages and benefits
(including accrued vacation and severance payments) of Company employees whose
services the Company has made available to Boston University pending closing
of the transactions contemplated by the Asset Purchase Agreement. In the
event that the Company breaches its obligations under the Service Agreement
(described further below), or that Boston University exercises its specified
rights to terminate the Service Agreement, the Company will be required to
repay Boston University these reimbursed wages and benefits and other
operating expenses paid by Boston University with respect to the Operating
Division (with interest).
<PAGE> 32
Boston University has the option to consummate the transactions
contemplated by the Asset Purchase Agreement through a nominee. In the event
that Boston University's nominee is an entity whose sole asset will be the
Operating Division or that otherwise has insufficient net assets to provide
commercially reasonable creditworthiness for its obligations under the Asset
Purchase Agreement, a subsidiary of Boston University with assets sufficient
to provide commercially reasonable creditworthiness is required to guarantee
the nominee's performance. For ease of reference, this Proxy Statement refers
to the actual purchaser under the Asset Purchase Agreement, which may be
Boston University or a nominee, as "Boston University."
Purchase Price for Assets
After negotiation, Boston University has agreed to pay the Company
$5,000,000 for the Operating Division assets. Boston University paid
$3,500,000 as a deposit when it signed the Asset Purchase Agreement, and an
additional $1,000,000 as a deposit on March 1, 1997. The Company has had
access to the funds held on deposit, and has used these funds as necessary to
fund its operations. The balance of the purchase price is due at closing.
The Company must refund the deposits (with interest) if the transaction
is not consummated because of the Company's default, the failure of the
shareholders of the Company to approve the transaction or of the disinterested
shareholders of the Company to ratify the transaction, or the failure of the
parties to obtain the consent or approval of any third party whose approval is
required pursuant to the terms of the Asset Purchase Agreement. The Company
has granted Boston University a security interest in all of its unencumbered
tangible physical assets and personal property to secure the Company's
obligation to refund the deposits.
Consummation of Operating Division Sale
Boston University's obligation to consummate the transaction is
conditioned on satisfaction (or waiver by Boston University) of certain
conditions as of the closing, including the receipt of required governmental
or third party consents. The Company's obligation to consummate the
transaction is conditioned on satisfaction (or waiver by the Company) of
certain conditions as of the closing, including approval of the transaction by
the Company's shareholders and ratification by disinterested shareholders,
although the Company may waive satisfaction of any of these conditions.
The Asset Purchase Agreement will terminate automatically in the event
that before closing: (i) the Company breaches its obligations under the
Service Agreement; or (ii) Boston University exercises an option that it has
to terminate the Service Agreement if its operating losses in connection with
the Service Agreement exceed $9 million on an annual basis and the Company
fails to pay Boston University the excess over $9 million on 30 days' notice.
See "Description of the Service Agreement -- Term."
Unless the parties agree otherwise, the transaction is required to close
on or before December 31, 1997.
Indemnification
The Company has made certain customary representations and warranties to
Boston University pursuant to the Asset Purchase Agreement, including certain
representations and warranties regarding the Operating Division. Among these
are compliance with government regulations, the location and description of
the Company's leased premises, the tangible personal property included in the
Operating Division, the absence of undisclosed pending and threatened
litigation, the absence of undisclosed liabilities (including environmental
liabilities), the nature of labor relations, the absence of breach of any
confidentiality agreements, and compliance with environmental laws. These
representations and warranties survive for one year after the closing date.
The Company is obligated to indemnify Boston University for: (i)
inaccuracies in its representations or breaches of its warranties; (ii)
failure by the Company to perform its obligations under the Asset Purchase
Agreement and related agreements (unless waived by Boston University); and
(iii) any liabilities arising from operations of the Operating Division prior
to closing (unless Boston University expressly assumes the liability).
Similarly, Boston University is obligated to indemnify the Company for:
(i) inaccuracies in its representations or breaches of its warranties; (ii)
failure by Boston University to perform its obligations under the Asset
Purchase Agreement and related agreements (unless waived by the Company); and
(iii) any liabilities arising from operations of the Operating Division after
closing (unless the Company expressly assumes the liability).
Neither party is required to make indemnification payments until that
party's cumulative obligations under the indemnity provisions exceed $50,000.
<PAGE> 33
DESCRIPTION OF THE SERVICE AGREEMENT
Services to be Provided
As an integral part of the sale of the Operating Division, the Company
and Boston University also entered into a Service Agreement, pursuant to which
Boston University will provide Services of the Operating Division to the
Company for a minimum period of approximately two years beginning as of
February 14, 1997. The particular Services to be provided are set forth in
the Service Agreement, and may be amended from time to time by mutual
agreement as the Company's research requirements change. These Services
include product research and development, manufacturing, quality control and
quality assurance, and clinical trials. The Company will direct and supervise
Boston University in the provision of these Services. Should the Company
require additional services not specified in the Service Agreement, it will be
required to purchase those additional services from Boston University,
provided that Boston University has the capacity to perform them within the
necessary time frame. Boston University may not subcontract its obligations
under the Service Agreement without the Company's prior written consent.
Employee Matters
Boston University has agreed under the Asset Purchase Agreement to offer
employment to certain existing employees of the Company. Under the Service
Agreement, the Company has the right to make future employment offers to
rehire certain specified employees at any time. The Company also has the
right to make offers of part-time employment to certain specified employees
during the term of the Service Agreement. Boston University will make
employment offers to approximately 90 of the Company's approximately 105
current employees. Approximately fifteen persons will remain employees of the
Company after the consummation of the sale of the Operating Division.
The Company has granted options to purchase Common Stock to the
employees to whom Boston University will make offers of employment following
completion of the sale of the Operating Division as an inducement for them to
remain employed with the Company up to the closing of the Asset Purchase
Agreement and to accept and continue employment with Boston University
thereafter in connection with the provision of Services to the Company under
the Service Agreement. These options have an exercise price equal to the
market price of the Common Stock on the grant date and a term of ten years.
The closing of the sale of the Operating Division will have no effect on the
expiration date of these options. See "Amendment of the 1992 Long Term
Incentive Plan -- Incentive Plan Benefits."
Term
The term of the Service Agreement began on February 14, 1997 and will
end on January 31, 1999. It will terminate earlier if: (i) the Asset Purchase
Agreement is terminated; (ii) a material breach exists, provided that the
non-breaching party provides notification of the breach and the breach is not
cured within 30 days after the breaching party receives notice; or (iii)
Boston University's losses in respect of the Operating Division for any year
exceed $9,000,000, provided that, after notice, the Company does not pay
Boston University the difference between its actual losses and $9,000,000.
After January 31, 1999, the Company has two successive options to extend
the Service Agreement for a period of one year at prevailing market rates.
For each year that the Service Agreement is extended, the Company must pay
Boston University an amount equal to Boston University's Operating Division
operating losses for the contract year multiplied by a ratio equal to (i)
gross payments by the Company during the contract year for Services provided
to the Company under the Service Agreement divided by (ii) the total gross
revenues received by Boston University during the contract year from all
parties purchasing Operating Division services.
Disposition of Operating Division Assets
During the term of the Service Agreement, Boston University may not sell
Operating Division assets outside the ordinary course of business except in
response to a bona fide third party offer. In this case, the Company will
have the right to purchase the assets on the same terms and conditions as
those that are the subject of the third party offer. If the Company exercises
this right, it must purchase all (but not less than all) of the assets offered
to the third party. Boston University may not sell assets in response to any
third party offer if the sale would leave it with insufficient assets to
perform its obligations under the Service Agreement.
<PAGE> 34
The Company also has the right, for four years from the date of the
Service Agreement, to repurchase the Operating Division assets at a price
equal to: (i) $5,000,000 plus interest at a 10% annual rate accrued from the
date of the Service Agreement; plus (ii) the amount of Boston University's
cumulative operating losses during the term of the Service Agreement plus
interest at a 10% annual rate.
Payment for Services
The Company is obligated to pay Boston University $5,521,342 during the
first year of the Service Agreement and $6,605,651 in the second year of the
Service Agreement, prorated for any portion of a year the Service Agreement is
in effect. Any reductions in or additions to the required services will
adjust the amount that the Company is required to pay, but in no event will
the amount be less than $4,300,000 per year (prorated as above) for each of
the two initial years of the Service Agreement. The Company will pay the
costs incurred by Boston University (inclusive of overhead), plus 10%, for any
additional services provided by Boston University to the Company. If the
Company does not require additional services, Boston University will be
responsible for all operating costs. Boston University will maintain books
and records sufficient to permit the Company to audit the costs of these
additional services.
The payments under the Service Agreement were based on the estimated
cost of the budgeted research and development work required to be performed by
Boston University under the Service Agreement in 1997 and 1998, including the
recovery of reasonable overhead expenses. These budgets were based on the
historical research and development expenditures and activity levels of the
Company. The Company may increase or decrease the level of services to be
received from Boston University under the Service Agreement, but in no event
will the amount charged be less than a base level of $4.3 million per year.
In determining the impact on the service fee of changes in services requested
under the Service Agreement, the amount charged will be increased by the
actual costs incurred by Boston University plus 10% for any additional
services provided by, or decreased using such formula for services no longer
required from, Boston University. In the event the cost to perform the agreed
upon services exceeds the negotiated amount under the Service Agreement,
Boston University is responsible for the excess cost. However, the Service
Agreement is subject to termination if the Company does not reimburse Boston
University for losses incurred in excess of $9.0 million in a contract year.
See "Description of the Service Agreement -- Term."
The Company is required to pay Boston University a 1% royalty on the net
revenues of any product produced under a patent issued to the Company. The
royalty rate will increase to 2% if the December 13, 1994 License Agreement
between the Company and a third party is terminated. The Company will not be
obligated to pay royalties on any product sales occurring after the Service
Agreement is terminated due to termination of the Asset Purchase Agreement
(provided that the Company has paid all amounts owed to Boston University in
connection with a termination of the Asset Purchase Agreement).
Obligations Related to Services
Boston University is required to provide the Services in accordance with
the Company's manufacturing and quality control specifications, and is
required to comply with all applicable laws and regulations. Boston
University must cooperate with the Company in filing all necessary documents
and obtaining all necessary approvals from the U.S. Food and Drug
Administration. Boston University is required to maintain sufficient
staffing, supplies and equipment to perform the Services, and the naming of
the chief executive officer for the Boston University entity actually
responsible for providing the Services is subject to the Company's written
approval. The Company has the right to have access to the Operating Division
premises during normal business hours, and also to have access to the
Operating Division's officers, employees, books and records, and technical
information related to the provision of Services.
Boston University must notify the Company of any adverse events arising
in connection with manufacturing, testing, or use of the Company's products
and any communications from government regulators. Boston University also
must notify the Company of any potential liability arising under environmental
laws.
Boston University may assign its obligations under the Service Agreement
to its nominee under the Asset Purchase Agreement if it elects to effect the
purchase of the Operating Division through a nominee, as discussed above under
"Transferred Assets." In this event, Boston University must provide the
Company with notice of the assignment and deliver an instrument from the
nominee to the Company pursuant to which the nominee assumes all of Boston
University's obligations and liabilities under the Service Agreement.
The Company has the right to approve the annual budget for the Operating
Division. Boston University has covenanted to make all payments regarding the
Operating Division in a timely manner. If it does not, the Company has the
right to make those payments and to offset them against amounts it owes to
Boston University under the Service Agreement.
<PAGE> 35
Boston University is required to keep confidential all information and
technical developments in its possession as a result of the Service Agreement,
which information and developments will remain the Company's property. On
termination of the Service Agreement, all such information, along with
technical developments, products, and work-in-progress, are required to be
returned to the Company.
The Company will have sole and complete ownership of any developments
arising from the Services provided by Boston University under the Service
Agreement. Any patents or copyrights resulting from research conducted by
Boston University for the Company using the Operating Division facilities will
be the Company's property.
Boston University may provide services of the Operating Division to
other parties, but only to the extent provision of those services will not
impair Boston University's ability to perform required Services for the
Company. Unless the Company consents, Boston University may not enter into
any third party service contract that would cause the Operating Division to
incur an operating loss from total services provided to third parties.
Boston University's Operating Income
As owner of the Operating Division, Boston University will be entitled
to all income from the Operating Division and will bear all losses of the
Operating Division. However, Boston University has the right to terminate the
Service Agreement (with notice) at any time when its operating losses for any
contract year exceed a specified amount and its operating losses will not
decrease during the remainder of the contract year. If Boston University
provides the Company with a notice of termination under this provision, the
Company has the option to pay Boston University its excess operating losses
incurred within 30 days of receipt of the notice, which action will continue
the Service Agreement without interruption. For additional details, see
"Description of Service Agreement -- Term." If the Service Agreement
terminates, Boston University will continue to own and have the right to
operate the Operating Division.
REASONS FOR AND EFFECTS OF THE SALE OF THE OPERATING DIVISION
Advisability of Sale of Operating Division; Board Deliberations
The Board has proposed the sale of the Operating Division to Boston
University as a means to reduce the Company's cash requirements with minimal
disruption to the Company's ongoing operations. The Board evaluated the terms
of the Asset Purchase Agreement and the Service Agreement together in
approving the sale of the Operating Division. In determining that the sale of
the Operating Division is in the Company's interest, the Board considered the
factors discussed in the following paragraphs of this section.
During the initial two-year term of the Service Agreement, Boston
University will continue to make services of the Operating Division required
by the Company available to the Company on a pricing basis that is expected to
provide substantial savings to the Company when compared to the Company's
Operating Division-related expenses prior to the sale. These savings are
principally due to the fact that the Company no longer will be required to
support excess capacity of the Operating Division and generally will be
required to pay only for those services that it requires. As a result of the
sale of the Operating Division to Boston University, the Company anticipates a
reduction of approximately $8 million (including anticipated reductions in
payroll, facilities costs, and costs of research and manufacturing supplies,
offset by the amount the Company is obligated to pay to Boston University
under the Service Agreement) in its annual operating expenses. Given the
proposed structure of the transaction with Boston University, the Company
believes that this reduction can be accomplished without significant delays or
disruptions in its product development and clinical trial efforts.
<PAGE> 36
The Company began assembling the components of the Operating Division
over five years ago. The Company developed the Operating Division in a manner
that provided excess capacity in order to meet anticipated commercial demand
for the Company's products. The Operating Division never operated at full
capacity. The Company, however, maintained a relatively high level of
staffing in order to comply with regulatory requirements. The Company
maintained the Operating Division, despite its high costs, because of the
delays and disruptions in the Company's product development and clinical trial
efforts that the Board and management believed would have resulted had the
Company discontinued the operations of the Operating Division and sought to
obtain the services provided by the Operating Division from third parties.
(The Service Agreement will not result in these disruptions because the
Company is not altering its operating facility or personnel and, consequently,
its clinical data developed with the Operating Division will not be
invalidated for regulatory purposes by reason of the Service Agreement.) The
Company does not now have adequate financial resources to maintain the
Operating Division in accordance with its initial plans or to develop
additional products utilizing the Operating Division.
Pursuant to the proposed transaction, Boston University will bear all
losses associated with the Operating Division, subject to its right to
terminate the Service Agreement if its losses exceed certain amounts and the
Company does not reimburse the excess losses. See "Description of the Service
Agreement -- Term." It is the Company's understanding that Boston University
hopes to reduce the losses associated with the Operating Division by selling
the services of the Operating Division to third parties and by itself making
use of services of the Operating Division, both of which it is permitted to do
by the Service Agreement so long as such activities do not interfere with its
ability to provide Services to the Company. In addition, the Company believes
that Boston University hopes to be able to reduce the losses associated with
the Operating Division because its strategic focus will be the provision of
contract services in the most efficient manner possible, without the focus on
the development and exploitation of intellectual property that characterized
the Company's operation of the Operating Division. It is the Company's
understanding that the Operating Division will complement assets and
operations that Boston University currently has.
During the initial two-year term of the Service Agreement, Boston
University is required to make available to the Company services of the
Operating Division required by the Company. In the opinion of management of
the Company, this arrangement will be sufficient to ensure that during the
initial two-year term of the Service Agreement there will be no significant
delays or disruptions in the Company's product development and clinical trial
efforts.
After the initial two-year term of the Service Agreement, the Company
has the option to extend the Service Agreement for two additional one-year
terms, though in connection with such extensions it must pay to Boston
University its pro rata share of operating losses incurred by Boston
University with respect to the Operating Division during the relevant periods.
In the alternative, for the period following the initial two-year term of the
Service Agreement, the Company may make arrangements to obtain services
previously provided by the Operating Division from third parties. The lead
time provided by the initial two-year term of the Service Agreement will,
management of the Company believes, permit the Company, if necessary, to
transition to third party service providers without significant delays or
disruptions in the Company's product development and clinical trial efforts.
In the course of reaching its decision to approve the transaction, the
Board did not assign any weight to the individual factors listed above. The
Board concluded that each of the factors listed above supported the Board's
conclusion that the transaction is expected to reduce the Company's operating
expenses without any significant disruption in the Company's product
development and clinical trial efforts. It also should be noted that the
Company has taken other steps to reduce its operating expenses, such as
reducing the Company's workforce and re-negotiating its agreements with Eli
Lilly and Company and Ajinomoto Co., Inc.
The Board concluded that the transaction was superior to other
alternatives available to the Company because the Asset Purchase Agreement and
Service Agreement together would satisfy the Company's immediate need for cash
for continuing operations and reduction in operating expenses and provide the
Company with the services it needs for product development and clinical trials
at a cost less than the cost of continuing the operations of the Operating
Division. In addition, the Board concluded that the Asset Purchase Agreement
and Service Agreement would provide these benefits without the delay that
might have resulted from attempts to solicit third party offers for the
Operating Division assets, a delay that the Board believed the Company could
not accept due to its financial position.
The Board concluded that the limited term of the Service Agreement poses
some risk that the Company may not be able to obtain the services of the
Operating Division after two years, but determined that the transaction is in
the Company's interest due to the transition time permitted by the Company's
option to extend the Service Agreement for two additional one-year terms.
The $5,000,000 purchase price under the Asset Purchase Agreement
approximated the book value of the Operating Division assets, as reflected in
the Company's balance sheet as of December 31, 1996, as reported in the
Company's Form 10-K for the year ended December 31, 1996. The transferred
assets reflected in the aforesaid book value consist of laboratory and
manufacturing equipment and leasehold improvements, all of which are located
in several leased locations. See "Description of Asset Purchase Agreement --
Transferred Assets." The Board of Directors did not reach a determination of
whether the purchase price payable under the Asset Purchase Agreement,
excluding consideration of benefits obtained by the Company under the Service
Agreement, approximates the market value of the Operating Division sold as a
going concern. In the opinion of management based on its experience in the
<PAGE> 37
industry, the purchase price payable under the Asset Purchase Agreement
approximates the amount that could be obtained by selling the Operating
Division assets in a liquidation, and the Company considered this in
negotiating the purchase price.
The Board of Directors did not seek an appraisal of any of the assets
constituting the Operating Division. In evaluating the transaction, the Board
of Directors did not consider the amount of insurance carried by the Company
on the assets to be transferred to Boston University under the Asset Purchase
Agreement. The Company currently maintains insurance on these assets in an
amount capped at approximately $14.8 million. This insured amount reflects
the estimated original cost of the Company's leasehold improvements and
laboratory and manufacturing equipment and, as such, does not reflect the
depreciated book value of the assets. Because it is based on the original
cost, the amount of insurance carried by the Company on the assets to be
transferred is not necessarily indicative of the cost of replacing the assets.
Some of the insured assets are owned by the Company, while others are leased.
Only a $300,000 portion of the leased assets is reflected on the Company's
balance sheet because the remaining leased assets are leased by the Company
under operating leases. The amount of insurance carried by the Company on the
assets to be transferred also does not reflect the cost to rebuild the
buildings where the Company's facilities are located because that risk is
insured by the Company's lessors. In determining the purchase price, the
Board of Directors did not assign any value to the Operating Division
workforce or to any other intangible assets associated with the Operating
Division.
In setting the purchase price to be paid by Boston University for the
Operating Division, the Board of Directors negotiated for and obtained for the
Company the right during a four-year period to repurchase the Operating
Division from Boston University for an amount equal to the purchase price paid
by Boston University for the Operating Division, plus interest and cumulative
operating losses incurred by Boston University with respect to the Operating
Division. See "Description of Service Agreement -- Disposition of Operating
Division Assets." The Board believes that this provision affords the Company
an important right to reacquire the Operating Division in the event that such
a reacquisition becomes desirable and possible (in light of the Company's
financial position) during the permitted period and also provides protection
to the Company in the event that it is subsequently determined by the Board or
management during the period permitted for reacquisition that the value of the
Operating Division is in excess of the value of consideration received and
receivable by the Company pursuant to the Asset Purchase Agreement and Service
Agreement.
The Board believes that the Asset Purchase Agreement and Service
Agreement together provide for terms at least as favorable as those that the
Company could have obtained from an unaffiliated third party and achieve the
Company's objectives of obtaining continued services of the Operating Division
and realizing immediate reductions in operating expenses. Based on this and
the other factors described in this section, the Board believes that the
transaction is fair to the Company.
In negotiating with Boston University for the sale of the Operating
Division, the Company did not solicit third party offers for the Operating
Division assets. The Company determined not to seek third party offers for
the Operating Division due to management's belief that the Company would be
unable to obtain on advantageous terms the services necessary for continued
and uninterrupted development of the Company's products. The Company
discussed the possibility of selling the Operating Division with one third
party, but that third party expressed unwillingness to agree to provide
services of the Operating Division in a manner as favorable to the Company as
under the transaction with Boston University. Based on this third party
contact and management's experience in the industry, management concluded that
it was unlikely that a potential bidder would be willing to purchase the
Operating Division and agree to provide uninterrupted services to the Company.
In addition, management did not believe that an unaffiliated purchaser would
be willing to assume responsibility for the Operating Division expenses
immediately. The Company considered the possibility of providing additional
services to third parties utilizing the services of the Operating Division,
but this would have been inconsistent with the Company's core business and, in
any event, would not have reduced the Company's operating losses as
immediately as a sale of the Operating Division. In addition, management of
the Company believed that it was unlikely that third parties would have been
willing to contract for services with the Company due to its financial
position.
The Company's management reviewed the transaction with the Company's
financial advisors and reported on those conversations to the Board. In
discussing the transaction with the Company's financial advisors, management
discussed the general effects of the proposed transaction on the Company's
business and financial prospects, but did not discuss the fairness of the
consideration to be paid for the Operating Division.
<PAGE> 38
The Company's management considered the possible sale of the Company and
reviewed that possibility with the Company's financial advisors. Based on
these discussions, management determined that there was unlikely to be
interest among prospective purchasers and, as a result, that the sale of the
Company was not likely to be a viable alternative to the sale of the Operating
Division. The Company's management also considered and discussed with the
Company's financial and legal advisors the possible reorganization or
liquidation of the Company in bankruptcy, but determined that such a course
would be unlikely to maximize shareholder value.
In the course of reaching its decision to approve the transactions, the
Board consulted with its legal advisors, as well as the Company's management.
The Board of Directors did not seek or obtain a fairness opinion relating to
the amount of consideration that Boston University will pay for the Operating
Division. The Board determined not to seek a fairness opinion based on the
additional costs the Company would have incurred (approximately $100,000) in
obtaining such an opinion and because of the delay involved in obtaining such
an opinion.
The transaction was unanimously approved by the Company's Board of
Directors, including the two directors who were not interested in the
transaction by reason of employment with the Company or affiliation with
Boston University. (Although the Company believes that Gerald Cassidy was
"disinterested" for this purpose, a company controlled by him provides
government relations services to Boston University.) The Board considered the
interest in the transaction of Boston University and the Company's directors
affiliated with Boston University. After deliberation, the Board concluded
that the Asset Purchase Agreement and Service Agreement together provided for
terms at least as favorable as those that the Company could have obtained from
an unaffiliated third party.
The Board also considered the risks of the transaction to the Company
and to the Company's shareholders who do not have an interest in the
transaction. Specifically, the Board considered the risks described under
"General- Risks." The Board concluded that the terms
of the Asset Purchase Agreement and Service Agreement together were not unfair
to these shareholders and that the benefits of the transaction outweighed the
risks, based on the same factors discussed above.
Tax Consequences
In the opinion of the Board, the Asset Purchase Agreement and the
Service Agreement together provide for terms at least as favorable to those
that the Company could have obtained from an unaffiliated third party. On
this basis, the following is a description of the material federal income tax
consequences of the proposed transactions.
Upon the sale of the Operating Division to Boston University, the Company will
recognize gain or loss for federal income tax purposes. The Company's gain or
loss will be measured on an asset-by-asset basis by the difference between the
Company's basis in each asset and the portion of the cash received allocated
to that asset pursuant to Section 1060 of the Internal Revenue Code (the
"Code"). To the extent the assets comprising the Operating Division are
capital assets, the Company will recognize capital gain or loss on the sale,
subject to the recapture rules of Sections 1245 and 1250 of the Code.
Under Sections 1245 and 1250 of the Code, a portion of the gain from the sale
of capital assets or real property may be treated as ordinary income.
To the extent the assets comprising the Operating Division are other than
capital assets, the Company will recognize ordinary income or loss, subject
to the provisions of Section 1231 of the Code. Section 1231 of the Code
treats, in certain circumstances and subject to a number of restrictions, as
capital gain certain gain that otherwise would be taxed as ordinary income.
Boston University currently owns less than 50 percent of the total combined
voting power and value of the Company. However, if Boston University exercises
certain outstanding warrants or options, or converts certain preferred stock,
Boston University potentially could own more than 50 percent of the vote or
value of the Company on the closing date of the Company's sale of the
Operating Division. If Boston University owns, or were deemed to own for
tax purposes, more than 50 percent of the vote or value of the Company on the
closing date of the Company's sale of the Operating Division, the Company
would not recognize any losses on the sale. In addition, the Company would
have ordinary income rather than capital gain on the sale to the extent
that the Company sells property to Boston University that is subject to an
allowance for depreciation in the hands of Boston University.
The Company may offset gain recognized on the sale of the Operating
Division by unrelated deductions and operating losses, including net
operating loss carryforwards the Company currently has available.
Shareholders of the Company other than Boston University will not recognize
gain or loss on the disposition of the Operating Division for federal income
tax purposes. The Company believes that the Service Agreement will not give
rise to any federal income tax consequences to shareholders of the Company
other than Boston University.
<PAGE> 39
This discussion is a general and abbreviated summary of certain federal
income tax considerations affecting the Company and its shareholders, and is
based on an interpretation of existing sources of law. The discussion does
not address non-federal tax consequences. The Company will not obtain an
opinion of tax counsel regarding the tax treatment of the sale of the
Operating Division. The Company is not requesting a ruling from the Internal
Revenue Service regarding the tax consequences of the sale of the Operating
Division, and there is no assurance that the Internal Revenue Service will
follow the interpretations set out above. Because the Company does not
provide any guarantee regarding the tax consequences of the proposed
transaction, shareholders should consult with their own tax counsel regarding
specific questions as to federal, state, local, or foreign taxes.
Accounting Treatment
The Company will record the sale of the Operating Division to Boston
University in the period in which shareholder approval is obtained and all
conditions to closing are met. The historical financial statements of the
Company prior to closing reflect all costs incurred by the Company related to
the Operating Division and the operations being acquired by Boston University.
The $4.5 million deposit received by the Company from Boston University for
the purchase of the Operating Division and payments from Boston University for
operating costs prior to closing (as Boston University is required to
reimburse the Company for such costs currently) are subject to refund and will
be recorded by the Company as a current liability until closing occurs.
Upon closing, the Company will record a gain for the excess of the
purchase price of the Operating Division assets over their net book value on
the date of closing. Such gain is not expected to be significant and will be
recorded as additional paid-in-capital as Boston University is a significant
shareholder. The Company also will record a gain, upon closing, for the
excess of the operating costs of the Operating Division for the period between
entering into agreement with Boston University (February 14, 1997) and the
closing date, over the amount due Boston University under the Service
Agreement for the same period. This gain will be recorded as additional
paid-in-capital as Boston University is a significant shareholder.
Pro Forma Financial Information
The Company has prepared pro forma balance sheet information as of June
30, 1997, which gives effect to the sale of the Operating Division to Boston
University and the consummation of the Service Agreement with Boston
University as if they occurred on February 14, 1997. This pro forma balance
sheet information is located at pages F-7 through F-9 of this Proxy Statement.
Selected Financial Data
The following table presents selected financial data for, and as of the end
of, each of the years in the five-year period ended December 31, 1996, which
have been derived from the audited financial statements of the Company. The
financial statements for the year ended December 31, 1996 are restated. See
note O in the notes to the financial statements in the Company's Annual Report
to Shareholders (included with this Proxy Statement) for additional
discussion. Also presented is the selected financial data for the six
months ended June 30, 1997, and pro forma balance sheet information as of June
30, 1997, which has been derived from the unaudited financial statements of
the Company for the six months ended June 30, 1997, and which are included
elsewhere in this Proxy Statement. The selected financial data should be read
in conjunction with the financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The pro forma balance sheet information reflects the sale
of the Company's Operating Division to Boston University and the consummation
of the Service Agreement with Boston University as if they occurred on
February 14, 1997. See "Accounting Treatment" for complete information on the
accounting treatment.
<PAGE> 40
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
(As Restated)(1)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue and
license fees ........................... $ 12,500 $ 138,226 $ 588,350 $ 3,337,388
$ 5,542,315
Operating Expenses:
Cost of contract revenue
and license fees .................... - - 588,350 3,337,388
4,504,243
Research and development .............. 15,319,750 13,718,973 15,240,195
14,086,632 13,959,405
General and administrative ............ 5,096,643 4,357,563 4,903,963
4,904,226 5,148,465
Licensed technology for research
and development ..................... - - 2,824,217 - -
------------ ------------ ------------ ------------ ------------
Total operating expenses ............ 20,416,393 18,076,536 23,556,725
22,328,246 23,612,113
------------ ------------ ------------ ------------ ------------
Loss from operations .................. (20,403,893) (17,938,310) (22,968,375)
(18,990,858) (18,069,798)
Loss incurred in connection with
Canadian affiliate .................. - - - (390,136)
(2,923,864)
Interest income ....................... 610,033 611,784 438,338 92,924
120,740
Interest expense ...................... (1,554,102) (53,505) (113,756) (1,813,128)
(5,453,638)
------------ ------------ ------------ ------------ ------------
Net loss .............................. (21,347,962) (17,380,031) (22,643,793) (21,101,198)
(26,326,560)
============ ============ ============
============ ============
Preferred stock dividends ............. - - - -
10,394,918
============ ============ ============
============ ============
Net loss applicable to common
stockholders ........................ $(21,347,962) $(17,380,031) $(22,643,793)
$(21,101,198) $(36,721,478)
============ ============ ============
============ ============
Net loss per common share ............. $ (2.13) $ (1.26) $ (1.45) $ (1.29)
$ (2.20)
============ ============ ============
============ ============
Weighted average common shares
used in computing net loss
per share ........................... 10,030,965 13,775,341 15,631,333 16,355,587
16,724,493
=========== =========== ===========
========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the
Six Months
Ended
June 30,
1997
<S> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue and
license fees ........................... $ 2,159,447
Operating Expenses:
Cost of contract revenue
and license fees .................... 2,129,856
Research and development .............. 5,800,166
General and administrative ............ 2,600,579
Licensed technology for research
and development ..................... -
------------
Total operating expenses ............ 10,530,601
------------
Loss from operations .................. (8,371,154)
Loss incurred in connection with
Canadian affiliate .................. -
Interest income ....................... 29,464
Interest expense ...................... (172,366)
------------
Net loss before extraordinary income.. (8,514,056)
============
Extaordinary income. . . . . . . . . . . 2,050,000
------------
Net loss. . . . . . . . . . . . . . . . . (6,464,056)
============
Preferred stock dividends ............. 1,801,797
============
Net loss applicable to common
stockholders ........................ $ (8,265,853)
=============
Net loss per common share ............. $ (.44)
=============
Weighted average common shares
used in computing net loss
per share ........................... 18,885,360
=============
</TABLE>
<TABLE>
<CAPTION>
<PAGE> 41
As of DECEMBER 31,
- ----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
(As Restated)(1)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 12,196,639 $ 10,104,179 $ 5,536,782 $
435,460 $ 1,548,392
Marketable securities ................... - - 2,034,948 - -
Working capital (deficit) ............... 10,605,189 8,612,996 3,859,854
(1,298,886) (5,927,902)
Total assets ............................ 17,726,047 18,099,705 17,039,292 16,299,508
10,504,608
Short-term debt ......................... - 170,572 197,453 248,494
5,402,268
Long-term debt .......................... - 483,364 3,038,778 15,977,899
---
Deferred revenue ........................ - - 5,000,000 5,000,000
5,000,000
Canadian affiliate put option
liability ............................. - - - 2,076,000 2,400,000
Total liabilities ....................... 2,007,588 2,893,194 13,255,070 26,741,003
17,091,212
Accumulated deficit ..................... (91,148,311) (108,528,342) (131,172,135)
(152,273,333) (188,994,811)
Total stockholders's equity (deficit) . 15,718,459 15,206,511 3,784,222
(10,441,495) (6,586,604)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
Pro Forma(2)
As of June 30, As of
1997 June 30,
As Restated(1) 1997
------------- ------------
<S> <C> <C>
Cash and cash equivalents ............... $ 2,078,750 $ 1,363,590
Marketable securities ................... - --
Working capital (deficit) ............... (10,711,169) (3,526,590)
Total assets ............................ 10,334,053 5,470,050
Short-term debt ......................... 1,922,614 1,922,619
Long-term debt .......................... 1,450,000 1,450,000
Deferred revenue ........................ 5,000,000 5,000,000
Canadian affiliate put option liaability 2,400,000 2,400,000
Total liabilities ....................... 23,633,842 15,734,103
Accumulated deficit ..................... (197,260,664) (197,260,664)
Total stockholders's equity (deficit) . (13,299,789) (10,264,053)
</TABLE>
1 The financial statements have been restated to reflect a change in
accounting treatment for the Company's Amended Sales and Distribution
Agreement with Eli Lilly and Company. See Note O to notes to
financial statements in the Company's annual report to shareholders
(included with this Proxy Statement) for additional discussion.
(2) Presented on a pro forma basis to give effect to the sale of the
Operating Division to Boston University and the consummation of the
Service Agreement with Boston University as if they occurred on
February 14, 1997. See "Accounting Treatment."
<PAGE> 42<PAGE>
Effect on Security Holders
Because the Company's sale of the Operating Division does not require
the issuance of additional shares of the Company's Common Stock or any other
securities, the transaction will not materially change the relative legal
rights and preferences of any of the Company's security holders. Each
shareholder's relative interest in the Company and its assets remaining after
completion of the sale of the Operating Division will remain unchanged.
Shareholders will not be entitled to appraisal rights with respect to the
transaction.
Market Price of the Company's Common Stock
The last reported sale price of the Common Stock as reported on the OTC
Bulletin Board on October 28, 1997 was $0.625. OTC Bulletin Board quotations
reflect inter-dealer prices, without retail mark-up, mark-down, or commission,
and may not represent actual transactions. On February 18, 1997, the day
before the Company announced the sale of the Operating Division, the high and
low reported sale prices of the Company's Common Stock as reported on the
Nasdaq National Market were $1.375 and $1.25, respectively.
APPROVALS REQUIRED FOR THE OPERATING DIVISION SALE
Regulatory Approvals Applicable to Boston University
Boston University is a charitable, non-profit corporation. Its
operations and investments are subject to review and monitoring by the
Massachusetts Attorney General. The Public Charities Division of the Office
of the Massachusetts Attorney General was notified of Boston University's
acquisition of the Operating Division and has advised Boston University that
it will not object to the transaction.
No other government or regulatory approvals are required.
Shareholder Approval and Interest of Controlling Shareholder in the
Transaction
As of December 31, 1996, the Operating Division comprised substantially
all of the Company's tangible assets, property and equipment, determined on
the basis of book value. Although the Company will retain its patents and
other intellectual property, the transaction may nevertheless constitute a
sale by the Company of substantially all of its assets for purposes of section
271 of the Delaware General Corporation Law and thereby require approval by
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote on the matter. The Company's Patents currently
secure the Company's dividend payment obligations on the Series B Shares,
although the Company retains full use of the Patents pursuant to an
irrevocable license. The Company currently is in arrears with respect to
these dividend payments. The holders of the Series B Shares have agreed to
forbear from exercising their right to foreclose on the Patents until March 1,
1998. See "Election of Directors -- Compensation Committee Interlocks and
Insider Participation."
Boston University, the purchaser of the Operating Division, owns
approximately 40% of the total shares of the Company's outstanding Common
Stock and 11,800 Series B Shares, which together represent 42% of the total
voting power of the capital stock entitled to vote on the transaction as of
October 7, 1997. Leon C. Hirsch, a member of the Board of Trustees of
Boston University, owns 7,000 Series B Shares, which represent 7% of the total
voting power of the capital stock entitled to vote on the transaction. Turi
Josefsen, Mr. Hirsch's spouse, owns 3,000 Series B Shares, which represent 3%
of the total voting power of the capital stock entitled to vote on the
transaction. See "Election of Directors -- Certain Transactions" and
"Election of Directors -- Common Stock Ownership of Certain Beneficial Owners
and Management." Because of these relationships, Boston University, Mr.
Hirsch, and Ms. Josefsen may be viewed as having an interest in the sale of
the Operating Division that is not shared by the Company's other shareholders.
In light of the interest of Boston University, Mr. Hirsch, and Ms.
Josefsen in the transaction, the Board of Directors has determined that it
also will seek the Disinterested Shareholder Ratification. The Disinterested
Shareholder Ratification is a condition to closing of the Asset Purchase
Agreement, although the Company may waive this condition in its sole
discretion. In the event that the Disinterested Shareholder Ratification is
not obtained, the Board of Directors will reconsider whether to proceed with
the transaction.
<PAGE> 43
The Disinterested Shareholder Ratification is not required by Delaware
law. However, DGCL Section 144 provides in relevant part that no contract or
transaction between a corporation and another corporation in which one or more
of its directors are directors or officers or have a financial interest shall
be void or voidable solely for that reason, or solely because the director is
present at or participates in the meeting of the board which authorized the
contract or transaction, or solely because the director's vote is counted for
such purpose, if the material facts as to the director's relationship or
interest and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote on the matter and the contract or
transaction is specifically approved in good faith by vote of the
shareholders. The Disinterested Shareholder Ratification is intended to
comply with the referenced provisions of DGCL Section 144. In the absence of
compliance with DGCL Section 144, directors involved in the sale of the
Operating Division would bear the burden of clearly proving their utmost good
faith in connection with the transaction and the entire fairness of the
transaction to the Company. In the event that the Disinterested Shareholder
Ratification is obtained, on the other hand, a shareholder objecting to the
transaction may as a result bear the burden of proving the unfairness of the
transaction to the Company, which burden of proof may be difficult for an
objecting shareholder to meet, and any court reviewing the transaction in
response to a shareholder challenge may accord greater deference to
determinations made by the Board of Directors in connection with its approval
of the transaction.
Holders of Common Stock are entitled to one vote per share. Holders of
Series B Shares are entitled to 250 votes per share. Holders of Common Stock
and Series B Shares will vote together as a single class on the proposal.
With respect to the tabulation of votes on the sale of the Operating Division,
abstentions and broker non-votes will be treated as "no" votes.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL AND RATIFICATION OF
THE SALE OF THE
COMPANY'S OPERATING DIVISION TO BOSTON UNIVERSITY AND THE RELATED
CONTRACT
SERVICE ARRANGEMENT.
AMENDMENT OF THE 1992 LONG TERM INCENTIVE PLAN
PROPOSAL 3
The Company is seeking shareholder approval of an amendment to the 1992
Long Term Incentive Plan (the "Incentive Plan") to increase from 2.3 million
to 16.0 million the number of shares of Common Stock available for issuance
under the Incentive Plan.
AMENDMENTS TO THE INCENTIVE PLAN
The Board of Directors has approved several amendments to the Incentive
Plan:
(1) The Board has adopted an amendment to increase the number of
shares of Common Stock available for issuance from 2.3 million to
16.0 million, subject to shareholder approval.
(2) In order to prevent any dilution of the interest of award
recipients under the Incentive Plan, the Board has amended the
Incentive Plan to give the Board committee administering the plan
(currently the Compensation Committee) discretion to adjust the
number and purchase price of shares subject to outstanding awards
and the number of shares of Common Stock available for issuance
under the plan in the event of an issuance of Common Stock by the
Company.
(3) The Board has amended the Incentive Plan to give the Compensation
Committee discretion to provide that awards not terminate
automatically in the event of a merger or consolidation of the
Company with another entity.
(4) The Board has amended the Incentive Plan to provide that optionees
may exercise Stock Options through a cashless exercise program
established with a securities brokerage firm and approved by the
Compensation Committee and to allow optionees greater flexibility
in determining the method of payment of the exercise price for a
Stock Option.
(5) The Board has amended the Incentive Plan to provide the
Compensation Committee with flexibility to grant transferable
Stock Options.
(6) The Board has amended the Incentive Plan to prohibit grants to any
individual in any calendar year of Stock Options to purchase more
than 5.0 million shares of Common Stock.
(7) The Board has amended the Incentive Plan to provide that the
estate of an employee terminated without cause who dies within
three months of termination of employment may exercise any
exercisable options within twelve months after the former
employee's death.
<PAGE> 44
(8) The Board has amended the Incentive Plan to eliminate a number of
provisions that no longer are necessary to qualify the plan under
Rule 16b-3 under the Securities Exchange Act of 1934 and to make a
number of technical changes to the plan that do not materially
affect the terms of the plan.
Pursuant to the terms of the Incentive Plan, only the amendment to
increase the number of shares of Common Stock available for distribution under
the Plan requires shareholder approval.
DESCRIPTION OF INCENTIVE PLAN
The complete text of the Incentive Plan (as proposed to be amended) is
attached as Appendix C to this Proxy Statement. The following summary of the
material terms of the Incentive Plan is qualified in its entirety by reference
to the text of the Incentive Plan.
Purposes Of The Incentive Plan
The Incentive Plan is intended to promote the interests of the Company
and its shareholders by enabling the Company to attract, retain, and reward
employees of and consultants to the Company. In addition, the Incentive Plan
is intended to align the interests of the recipients of awards with those of
the Company by providing such persons with performance-based stock incentives,
other equity interests or equity-based incentives, and performance-based
incentives payable in cash.
Administration
The Incentive Plan currently is administered by the Compensation
Committee of the Board of Directors. The Compensation Committee has full
authority to select the persons to whom awards are made and to establish,
within the limits of the Incentive Plan, the terms of such awards. The
Compensation Committee also has authority to adopt, alter and repeal rules,
guidelines and practices for the administration of the Incentive Plan, to
interpret the terms of the Incentive Plan and any awards issued under the
Incentive Plan, and otherwise to supervise the administration of the Incentive
Plan.
Eligibility
Any employee or consultant of the Company or any of its subsidiaries or
affiliates (including such persons who also are directors of the Company), and
any member of the Scientific and Medical Advisory Board, who the Compensation
Committee determines is responsible for or contributes to the management
growth or profitability of the Company (or any of its subsidiaries or
affiliates) generally is eligible to receive an award under the Incentive
Plan. Directors of the Company who are not employees or consultants are not
eligible to participate in the plan. Approximately 105 persons currently are
eligible to participate in the Incentive Plan, but if the sale of the
Operating Division is approved, that number will decrease to approximately 15.
Shares Available For Awards
Currently the maximum aggregate number of shares authorized for
distribution pursuant to awards under the Incentive Plan is 2.3 million. Such
shares may be previously unissued shares or Treasury shares. Any shares of
Common Stock that are the subject of a Stock Option award that is not
exercised, or a Restricted Stock or other award that is forfeited, are
reinstated as shares available for distribution under the Incentive Plan.
Awards Under The Incentive Plan
The Compensation Committee may make the following types of awards under
the Incentive Plan.
Stock Options. Stock Options may be granted alone, in addition to, or
in tandem with other awards granted under the Incentive Plan. Stock Options
may be either Incentive Stock Options or Non-Qualified Stock Options.
However, Incentive Stock Options may be granted only to employees. The
exercise price of a Stock Option is determined by the Compensation Committee
and may be equal to, greater than, or less than the fair market price of the
Common Stock on the grant date, except that the exercise price of an Incentive
Stock Option generally may not be less than 100% of fair market value of the
Common Stock on the grant date. The term of each Stock Option generally may
not be longer than 10 years from the date of the grant. No individual
employee may be granted in any calendar year Stock Options to purchase more
than 5.0 million shares of Common Stock.
<PAGE> 45
Stock Options become exercisable at such times and subject to such terms
and conditions as the Compensation Committee may determine on or after the
date of grant; provided that, unless the Compensation Committee determines
otherwise, no Stock Option may be exercisable during the first six months
following the grant date, except in the event of a Change in Control or on the
death or disability of the recipient. The Compensation Committee may provide
that a Stock Option is exercisable only in installments. In the Compensation
Committee's discretion, the holder of a Stock Option may pay the exercise
price: (i) in full or in part with shares of Common Stock; (ii) in the case
of a Non-Qualified Stock Option, with Restricted Stock or Deferred Stock;
(iii) pursuant to a cashless exercise program approved by the Compensation
Committee; or (iv) in any combination of (i), (ii), or (iii). Unless
otherwise provided by the terms of the Stock Option grant, Stock Options are
not transferable other than by will or by the laws of descent and
distribution.
At any time, the Compensation Committee may offer to purchase, in
exchange for a payment in cash, Common Stock, Restricted Stock or Deferred
Stock, a previously granted Stock Option on such terms and conditions as the
Compensation Committee determines. If the terms of the Stock Option so
provide, the Compensation Committee may require that all or part of the shares
issued on exercise of a Stock Option take the form of Restricted Stock or
Deferred Stock.
Stock Appreciation Rights. A stock appreciation right (a "SAR")
entitles the holder to receive upon exercise either cash in an amount, or
shares of Common Stock having a value, equal to the excess of the fair market
value of a share of Common Stock on the date of exercise over the exercise
price of the SAR. SARs may be granted only in tandem with Stock Options,
which means that when the Stock Option is exercised the corresponding SAR is
cancelled or when the SAR is exercised the corresponding Stock Option is
cancelled. In the case of a Non-Qualified Stock Option, a corresponding SAR
may be granted at or after the grant date of the Stock Option. In the case of
an Incentive Stock Option, the corresponding SAR may be granted only at the
time of the grant of the Stock Option. A SAR is exercisable only to the
extent that the corresponding Stock Option is exercisable and is transferable
only to the extent that the corresponding Stock Option is transferrable.
Restricted Stock. A Restricted Stock award consists of shares of Common
Stock that are awarded subject to forfeiture if certain terms and conditions
of the award are not satisfied. Restricted Stock may be issued either alone,
in addition to, or in tandem with other awards granted under the Incentive
Plan. The Compensation Committee may condition a grant of Restricted Stock on
the attainment of specified performance goals or other factors. During the
restricted period, the recipient may not sell or transfer shares of Restricted
Stock. The Compensation Committee may provide for the lapse of restrictions
in installments and may accelerate or waive restrictions in whole or in part
based on service, performance, or other factors or criteria. A holder of
Restricted Stock has all other rights of a holder of Common Stock, including
the right to vote the shares and the right to receive dividends. However, the
Compensation Committee may require or permit the deferral of cash dividend
payments or may require the reinvestment of cash dividends in additional
shares of Restricted Stock.
Deferred Stock. A Deferred Stock award represents the right to receive
shares of Common Stock at the end of a specific deferral period. Deferred
Stock may be issued either alone, in addition to, or in tandem with other
awards granted under the Incentive Plan. The Compensation Committee may
condition a grant of Deferred Stock on the attainment of specified performance
goals or other factors or criteria. During the deferral period, the recipient
may not sell or transfer shares of Deferred Stock. The Compensation Committee
may accelerate the vesting of a Deferred Stock award or may waive the deferral
limitations, in whole or in part, based on service, performance, or other
factors or criteria. Unless determined otherwise by the Compensation
Committee, a holder of Deferred Stock has the right to receive payments equal
to the amount of dividends declared during the deferral period. However, the
Compensation Committee may require that such payments be deferred and deemed
reinvested in additional shares of Deferred Stock.
Stock Purchase Rights. Stock Purchase Rights entitle the recipient to
purchase shares of Common Stock (including Restricted Stock and Deferred
Stock) at a purchase price determined by the Compensation Committee that is
equal to: (i) the fair market value of the Common Stock on the grant date;
(ii) 50% of fair market value on the grant date; (iii) an amount equal to the
book value of the Common Stock on the grant date; or (iv) an amount equal to
the par value of the Common Stock on the grant date. The Compensation
Committee may impose deferral, forfeiture, or other terms and conditions on
the Stock Purchase Rights. Stock Purchase Rights generally are exercisable
for a period after the grant date, not exceeding 30 days, that is determined
by the Compensation Committee.
<PAGE> 46
Other Stock-Based Awards. The Compensation Committee also may make
other awards of Common Stock and other awards that are valued in whole or in
part by reference to Common Stock. These Other Stock-Based Awards may
include, without limitation, performance shares, convertible preferred stock,
convertible debentures, exchangeable securities, and Common Stock or options
valued by reference to book value or subsidiary performance. Other
Stock-Based Awards may be granted alone, in addition to, or in tandem with
other awards under the Incentive Plan. Shares of Common Stock subject to
Other Stock-Based Awards may not be sold or transferred before the later of:
(i) the date on which shares of Common Stock are issued in connection with the
award; and (ii) the date on which any applicable restriction, performance, or
deferral period lapses. The Compensation Committee may grant a recipient of
an Other Stock-Based Award the right to receive dividends or interest
currently or on a deferred basis or may require that such payments be
reinvested in additional shares of Common Stock or otherwise be reinvested.
Common Stock issued on a bonus basis under an Other Stock-Based Award may be
issued for no cash consideration. Common Stock purchased pursuant to a
purchase right granted as an Other Stock-Based Award must be priced at least
50% of the fair market value of the Common Stock on the grant date.
Change in Control Provisions
In the event of (i) a Change in Control, or (ii) a Potential Change in
Control but only if and to the extent determined by the Board of Directors or
the Compensation Committee: (a) all SARs outstanding for at least six months
and all Stock Options will become fully exercisable and vested; (b) all
limitations applicable to any award of Restricted Stock, Deferred Stock, or an
Other Stock-Based Award will lapse and the shares to which the award relates
will be deemed fully vested; and (c) unless the Compensation Committee
determines otherwise prior to a Change in Control, the value of all vested
awards under the Incentive Plan will be cashed out on the basis of the Change
in Control Price, which generally is defined as the highest price per share of
Common Stock paid in any transaction during the 60-day period preceding the
Change in Control.
A "Change in Control" generally is deemed to occur if: (i) any person or
group (other than Boston University) acquires, directly or indirectly,
beneficial ownership of 20% or more of the combined voting power of the
Company's then-outstanding securities; (ii) within any 24-month period there
is a change in a majority of the Company's Directors that is not approved by
the incumbent Directors; or (iii) a transaction occurs requiring shareholder
approval for the acquisition of the Company by another entity through asset
purchase, merger, or otherwise.
A "Potential Change in Control" generally is deemed to occur if: (i)
shareholders approve an agreement by the Company, the consummation of which
would result in a Change in Control; or (ii) any person or group (other than
Boston University) acquires, directly or indirectly, beneficial ownership of 5%
or more of the combined voting power of the Company's then-outstanding
securities and the Board of Directors adopts a resolution declaring that a
Potential Change in Control has occurred.
Adjustments
In the event of a recapitalization, stock dividend, stock split,
reclassification, or other change in corporate structure affecting the Common
Stock, an adjustment will be made in the aggregate number of shares of Common
Stock reserved for issuance under the Incentive Plan, the number and option
price of shares subject to outstanding Stock Options and SARs, and the number
and purchase price of shares subject to other outstanding awards as the
Compensation Committee determines to be appropriate. In the event of an
issuance of Common Stock by the Company that may have a dilutive effect on the
recipients of outstanding awards under the Incentive Plan, the Compensation
Committee has discretion to adjust the number and purchase price of shares
subject to outstanding awards and the number of shares available for issuance
under the plan.
In the event of a merger or consolidation of the Company with another
entity, all outstanding Stock Options and other awards will terminate or be
forfeited, unless the Board of Directors arranges to have the surviving entity
assume the Company's obligations under the awards or the Compensation
Committee determines otherwise. If the surviving entity in a merger or
consolidation does not assume the Company's obligations under the awards or
issue substitute awards, all awards will be immediately exercisable and fully
vested without regard to any restrictions otherwise imposed by the Incentive
Plan.
Amendments of the Incentive Plan
The Board of Directors may amend, alter, or discontinue the Incentive
Plan, but shareholder approval is required in the case of any amendment that
would: (i) increase the number of shares available for distribution under the
Incentive Plan; (ii) change the pricing terms applicable to Stock Purchase
Rights; (iii) change the classification of persons eligible to participate in
the Incentive Plan; or (iv) extend the maximum term of Stock Options.
<PAGE> 47
Duration of the Incentive Plan
The Incentive Plan became effective on January 31, 1992, and unless
earlier terminated by the Board of Directors will expire on January 31, 2002.
INCENTIVE PLAN BENEFITS
As of December 17, 1996, there were 942,541 shares remaining available
for distribution under the Incentive Plan. On December 18, 1996, the Company
granted to Mr. Prior options to purchase 4,885,747 shares of Common Stock and
to Dr. Nichols options to purchase 678,573 shares of Common Stock. Of the
options awarded on December 18, 1996, the Board determined that all Incentive
Stock Options awarded (304,645 to Mr. Prior and 228,500 to Dr. Nichols) were
from shares available for distribution under the Incentive Plan. The
remaining options awarded on that date were Non-Qualified Stock Options.
After award of the Incentive Stock Options and cancellation of 83,295 options
previously granted to Dr. Nichols, 492,691 shares remained available for
distribution. Accordingly, the Board determined to grant out of shares
remaining available for distribution under the Incentive Plan a pro rata
portion of the Non-Qualified Stock Options to Mr. Prior and Dr. Nichols (i.e.,
options to purchase 448,349 shares to Mr. Prior and options to purchase 44,342
shares to Dr. Nichols). The remaining Non-Qualified Stock Options were
granted subject to either the availability of additional shares under the
Incentive Plan for distribution arising from award forfeitures or shareholder
approval of an amendment to the Incentive Plan to increase the authorized
shares.
Pursuant to anti-dilution provisions of the Company's employment agreements
with Mr. Prior and Dr. Nichols and an amendment to the Company's employment
agreement with Dr. Nichols, on March 31, 1997, June 30, 1997, and September
30, 1997, the Company granted to Mr. Prior options to purchase 898,828, 473,828
and 2,105,981 shares of Common Stock, respectively, and to Dr. Nichols options
to purchase 124,894, 135,293 and 681,336 shares of Common Stock, respectively.
See "Election of Directors -- Executive Compensation -- Employment and
Consulting Agreements; Change in Control Arrangements." Between December 19,
1996, and September 30, 1997, options to purchase 682,166 shares that had
been granted to various individual employees and that expired unexercised
reverted to the pool of shares available for distribution pursuant to the
terms of the Incentive Plan. Because of the availability of new shares
authorized for distribution under the Incentive Plan as a result of these
forfeitures, an additional 3,110,267 shares in the case of Mr. Prior and
839,198 shares in the case of Dr. Nichols have been granted subject to
shareholder approval.
The Company is obligated in certain circumstances pursuant to
anti-dilution provisions in their employment agreements with the Company
to issue additional options to Mr. Prior and Dr. Nichols. Under the Company's
employment agreement with Mr. Prior, the Company has agreed to issue additional
options as necessary to cause the number of shares underlying his options to
equal 8.5% of the Company's outstanding Common Stock on a fully diluted basis.
Under the Company's employment agreement with Dr. Nichols, the Company has
agreed to issue additional options as necessary to cause the number of shares
underlying her stock options to equal 2.75% of the Company's outstanding Common
Sock on a fully diluted basis.These anti-dilution provisions will be applicable
until the Company raises a cumulative total of $20 million from the sale of
equity or convertible securities to non-affiliated persons. Pursuant to
these agreements, the Company will issue additional options to Mr. Prior and
Dr. Nichols on December 31, 1997, as a result of conversion of Series A
Shares into Common Stock and any other issuances of Common Stock occurring
before December 31, 1997. The number of options to be granted on December
31, 1997 is not determinable at this time, although it is likely that the
number of options granted will be significant.
Pursuant to the Company's employment agreement with Ms. Chen, on
July 29, 1997, the Company granted to Ms. Chen options to purchase 1,544,102
shares of Common Stock, subject to shareholder approval. This amount reflects
a number of options necessary to cause the number of shares underlying her
options to equal 2.0% of the Company's outstanding Common Stock on a fully
diluted basis as of June 30, 1997. Under the Company's employment agreement
with Ms. Chen, the Company has agreed to issue additional options as necessary
to cause the number of shares underlying her options to equal 2.0% of the
Company's outstanding Common Stock on a fully diluted basis.This anti-dilution
provision will be applicable until the Company raises a cumulative total of $20
million from the sale of equity or convertible securities to non-affiliated
persons. Pursuant to this anti-dilution provision, the Company granted to Ms.
Chen options to purchase 495,525 shares of Common Stock on September 30, 1997.
Because of the availability of new shares authorized for distribution under
the Incentive Plan as a result of forfeitures, 1,821,334 shares have been
granted to Ms. Chen subject to shareholder approval. In addition, the Company
will issue additional options to Ms. Chen on December 31, 1997, as a result of
conversion of Series A Shares into Common Stock and any other issuances of
Common Stock occurring before December 31, 1997. The number of options to be
granted pursuant to this anti-dilution provision is not determinable at this
time, although it is likely that the number of options granted will be
significant.
The Company has granted Non-Qualified Stock Options to its existing
employees to whom Boston University will make offers of employment after
consummation of the sale of the Operating Division (approximately 90 persons).
The Company believes that these employees have made important contributions to
the Company's operations and that it is in the Company's interest to provide
them with options to purchase shares of the Company's stock to induce these
employees to accept employment with Boston University and to remain in the
employ of Boston University in connection with the operation of the Operating
Division and the provision of services to the Company under the Service
Agreement. The Company granted options to purchase a total of 293,000 shares
of Common Stock at $.72 per share, an exercise price equal to the market price
of the Common Stock on the grant date. The Company also granted to these
employees options to purchase a total of 271,111 shares of Common Stock at
$.72 per share in exchange for outstanding options with exercise prices
ranging from $4.25 to $15.00 per share. These replacement options vest on the
later of January 29, 1998, or the date(s) set forth in the original option
grant. The sale of the Operating Division will have no effect on the options
granted to these employees; the terms of the grant will provide that the
options will be exercisable up to the stated expiration date, provided that
the recipient remains an employee of the Boston University entity operating
the Operating Division. In the event that a recipient no longer is employed
by Boston University as a result of death, disability, retirement, or for any
other reason, the options will terminate in accordance with the terms of the
Incentive Plan in the same manner as would be the case for employees of the
Company. The Compensation Committee will have discretion to adjust the number
and purchase price of shares subject to these options to prevent dilution in
the event of a future issuance of Common Stock by the Company.
The Company has granted to Dr. John Murphy, currently a Director of the
Company who also serves as a consultant to the Company, options to purchase
80,675 shares of Common Stock at $.72 per share (options to purchase 61,675
shares granted in exchange for outstanding options with exercise prices
ranging from $4.63 to $15.00, options to purchase 4,000 shares granted in
exchange for outstanding options granted under the Director Plan with exercise
prices ranging from $4.625 to $8.625, and a new grant of options to purchase
15,000 shares). The Company also has granted to Dr. Terry Strom, a consultant
to the Company, options to purchase 75,000 shares of Common Stock at $.72 per
share (options to purchase 10,000 shares granted in exchange for outstanding
options with an exercise price of $15.00, and a new grant of options to
purchase 65,000 shares to replace options that had expired unexercised). The
exercise price of the options granted to Dr. Murphy and Dr. Strom is equal to
the market price of the Company's Common Stock on the grant date. These
options vest on the later of January 29, 1998, or the date(s) set forth in the
original option agreement.
Other future awards under the Incentive Plan will be made in the
Compensation Committee's discretion in accordance with the provisions of the
Incentive Plan. As such, other future awards are not determinable.
The following table sets forth as of September 30, 1997, the number of
shares underlying options that have been granted to the named individuals and
groups subject only to either the availability of additional shares for
distribution arising from award forfeitures or shareholder approval of the
proposed amendment to increase the number of shares authorized under the
Incentive Plan.
<PAGE> 49
NEW PLAN BENEFITS
Name and
Principal Position
Number of Shares
Underlying Options
Reed R. Prior 7,243,021
Chairman, Chief Executive
Officer
and Treasurer
George W. Masters(1) 0
Jean C. Nichols, Ph.D. 1,244,929
President and Chief
Technology
Officer
Leonard F. Estis, Ph.D.(2) 0
Thomas N. Konatich(3) 0
All Current Executive 10,309,283
Officers
as a Group
All Current Non-Executive 19,000
Directors
as a Group
All Non-Executive Officer 293,000
Employees
as a Group
_________________________
(1) Mr. Masters served as Vice Chairman, Chief Executive Officer and
President through November 6, 1996. Pursuant to the terms of his
Retirement and Consulting Contract, he remained a consultant to the
Company through February 28, 1997.
(2) Dr. Estis served as Vice President of Research and Development through
November 29, 1996.
(3) Mr. Konatich served as Vice President for Finance and Chief Financial
Officer through November 15, 1996.
REASONS FOR THE PROPOSED AMENDMENT
Pursuant to the terms of the Incentive Plan, only the amendment to
increase the number of shares of Common Stock available for distribution under
the Plan requires shareholder approval.
All of the 2.3 million shares of Common Stock originally authorized for
distribution under the Incentive Plan either have been distributed or are
reserved for issuance pursuant to outstanding awards. As of September 30,
1997, the Company has awarded Stock Options to purchase a total of 13,119,930
shares of Common Stock (net of cancellations), which exceeds the number of
shares originally authorized for distribution under the Incentive Plan. Thus,
the Company has granted Stock Options subject to shareholder approval.
<PAGE> 50
The Board of Directors believes that it is necessary to increase the
number of shares authorized for distribution under the Incentive Plan for
several reasons. In December 1996, shareholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 30 million to 70 million. The Board believes that
a corresponding increase in the number of shares authorized for distribution
under the Incentive Plan is appropriate. The Board also believes that it is
necessary to increase the number of shares authorized for distribution under
the Incentive Plan in order to be able to attract and maintain qualified
personnel, including executive officers. The Company's employment agreements
with its executive officers require the Company to issue options to purchase
more shares of Common Stock than currently are authorized for distribution
under the Incentive Plan and, as a result, the increase is necessary because
the Company already has granted Stock Options to Mr. Prior, Dr. Nichols, and
Ms. Chen subject to shareholder approval of the increase in the number of
authorized shares under the Incentive Plan and is required to grant additional
Stock Options pursuant to anti-dilution provisions in these executives'
employment agreements. The Company also has granted, subject to shareholder
approval of the increase in the number of authorized shares under the
Incentive Plan, options to purchase 15,000 shares of Common Stock to Dr.
Murphy, a Director of the Company, and options to purchase 65,000 shares of
Common Stock to Dr. Strom, a consultant to the Company. Finally, the Company
has granted options to purchase shares of Common Stock to certain employees to
whom Boston University will make offers of employment following completion of
the sale of the Operating Division, subject to shareholder approval of the
increase in the number of authorized shares under the Incentive Plan.
MARKET PRICE OF THE COMPANY'S COMMON STOCK
The last reported sale price of the Company's Common Stock as reported
on the OTC Bulletin Board on October 28, 1997 was $0.625 OTC Bulletin Board
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not represent actual transactions.
FEDERAL INCOME TAX CONSEQUENCES OF GRANTS
Incentive Stock Options
The Incentive Stock Options under the Incentive Plan are intended to
constitute "incentive stock options" within the meaning of section 422 of the
Internal Revenue Code ("Code"). Incentive stock options are subject to special
federal income tax treatment. No federal income tax is imposed on the optionee
upon the grant or the exercise of an incentive stock option if the optionee
does not dispose of shares acquired pursuant to the exercise within the
two-year period beginning on the date the option was granted or within the
one-year period beginning on the date the option was exercised (collectively,
the "Holding Period"), and if the optionee has continuously been an employee
of the Company from the date of grant to three months before the date of
exercise (or twelve months in the event of retirement, death or disability).
If the optionee does not dispose of shares acquired pursuant to the exercise
within the Holding Period and if the optionee meets the above-mentioned
employment requirements, the Company would not be entitled to any deduction
for federal income tax purposes in connection with the grant or exercise of
the option or the disposition of the shares so acquired. With respect to an
incentive stock option, the difference between the fair market value of the
shares on the date of exercise and the exercise price must be included in the
optionee's alternative minimum taxable income. However, if the optionee
exercises an incentive stock option and disposes of the shares received in the
same year and the amount realized is less than the fair market value of the
shares on the date of exercise, the amount included in alternative minimum
taxable income will not exceed the amount realized over the adjusted basis of
the shares.
Upon disposition of the shares received upon exercise of an incentive
stock option after the Holding Period by an optionee who meets the
above-mentioned employment requirements, any appreciation of the shares above
the exercise price should constitute capital gain. If an optionee disposes of
shares acquired pursuant to the exercise of an incentive stock option prior to
the end of the Holding Period or if an optionee does not meet the
above-mentioned employment requirements, the optionee will be treated as
having received, at the time of disposition, ordinary income. In such event,
the Company may claim a deduction at the same time and in the same amount as
the optionee recognizes ordinary income. The amount recognized as ordinary
income is the excess of the fair market value of the shares at the time of
exercise (or in the case of a sale in which a loss would be recognized, the
amount realized on the sale if less) over the exercise price; any amount
realized in excess of the fair market value of the shares at the time of
exercise would be treated as capital gain.
Non-Qualified Stock Options
As a general rule, no federal income tax is imposed on the optionee upon
the grant of a Non-Qualified Stock Option such as those available under the
Incentive Plan, and the Company is not entitled to a tax deduction by reason
of such a grant. Generally, upon the exercise of a Non-Qualified Stock Option,
the optionee will be treated as receiving ordinary income in the year of
exercise in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the exercise price paid for such shares.
Upon the exercise of a Non-Qualified Stock Option, the Company may claim a
deduction at the same time and in the same amount as ordinary income is
recognized by the optionee. Upon a subsequent disposition of the shares
received upon exercise of a Non-Qualified Stock Option, any appreciation after
the date of exercise should qualify as capital gain.
If the shares received upon the exercise of a Non-Qualified Stock Option
are transferred to the optionee subject to certain restrictions, then, unless
the optionee elects otherwise, realization of ordinary income by the optionee
will be deferred, along with the Company's tax deduction, until the time the
restrictions lapse. When the restrictions lapse, the optionee will be treated
as receiving ordinary income in an amount equal to the excess of the fair
market value of the shares at the time the restrictions lapse over the
exercise price paid for the shares.
<PAGE> 51
SARs/Limited SARs
No tax is imposed on an optionee pursuant to a grant of a SAR or Limited
SAR. Upon exercise of a SAR or Limited SAR, the optionee will recognize
ordinary income equal to the amount of cash received (or, if payment is made
in Common Stock, the fair market value on the date of exercise of the Common
Stock received), and the Company will be entitled to a corresponding
deduction. SARs and Limited SARs issued in tandem with Incentive Stock Options
under the Incentive Plan are intended to satisfy the requirements of
applicable federal income tax regulations so as not to disqualify the related
Incentive Stock Options from treatment as "incentive stock options" under
section 422 of the Code.
Restricted Stock
A grantee who has been granted Restricted Stock under the Incentive Plan
consisting of Common Stock that is subject to restrictions will not recognize
income for federal income tax purposes at the time of grant, and the Company
will not be entitled to a deduction at that time, if the restrictions -
simultaneously prevent the stock's transfer and constitute a substantial risk
of forfeiture for federal income tax purposes. When the restrictions lapse,
the grantee will recognize ordinary income in an amount equal to the excess of
the fair market value of the shares at such time over the amount (if any) paid
for the shares, and the Company will be entitled to a corresponding deduction.
If dividends are paid in cash to the grantee during the period that the
restrictions apply, the dividends will constitute ordinary income to the
grantee for federal income tax purposes at the time they are paid, and the
Company will be entitled to a corresponding deduction.
Notwithstanding the foregoing, the grantee may elect to recognize income
with respect to a grant of Restricted Stock at the time the grant is made
rather than later on when the restrictions lapse. If the grantee makes such an
election, the grantee will recognize ordinary income for federal income tax
purposes in an amount equal to the fair market value of the Restricted Stock
on the date of grant, determined as if the restrictions did not apply, less
the amount (if any) the grantee pays for the stock. In such case: (i) the
Company will be entitled to a deduction at the same time and in the same
amount as the grantee recognizes ordinary income; (ii) dividends paid to the
grantee on or after the date of grant will constitute ordinary income taxable
as dividends to the grantee and will not be deductible by the Company, even
though the dividends are paid during the period the restrictions apply; and
(iii) there generally will be no further federal income tax consequences to
the grantee or the Company when the restrictions lapse.
Deferred Stock
Deferred Stock awarded to a grantee will not be delivered to the grantee
until after a specified period of time (the "Deferral Period"). Upon delivery
of the shares at the close of the Deferral Period, the grantee may be required
to make a payment for the shares and/or the shares may be subject to
restrictions similar to those imposed on Restricted Stock. In general, once
the shares have been delivered, the Deferred Stock will constitute ordinary
income to the grantee for federal income tax purposes at the earlier of the
time the shares are freely transferable or are no longer subject to a
substantial risk of forfeiture. The Company will be entitled to a deduction in
the same amount and at the same time as the grantee recognizes ordinary
income. The amount of the grantee's ordinary income and of the Company's
deduction will equal the excess of the fair market value of the Deferred Stock
at the time of income inclusion over the price (if any) the grantee pays for
the stock. In general, any dividends paid to the grantee with respect to the
Deferred Stock (and not deemed reinvested in additional Deferred Stock) prior
to the time of income inclusion will be treated as ordinary income at the time
of payment and will be deductible by the Company at such time.
Stock Purchase Rights
Stock Purchase Rights generally will be taxed in the same manner as
Non-Qualified Stock Options, that is, the purchaser will not recognize
ordinary income upon issuance of the rights but rather upon their exercise in
an amount equal to the excess of the fair market value of the stock at that
time over the purchase price paid. The Company will be entitled to a deduction
at the same time and in the same amount.
<PAGE> 52
Notwithstanding the foregoing, if Restricted Stock is issued to the
purchaser upon the exercise of a Stock Purchase Right and is subject to
restrictions that simultaneously prevent the stock's transfer and constitute a
substantial risk of forfeiture for federal income tax purposes, the purchaser
will not recognize ordinary income at the time of purchase, but rather at the
time the restrictions lapse. The amount of ordinary income realized will be
the excess of the fair market value of the stock at the time the restrictions
lapse over the purchase price paid. However, the purchaser may elect to
recognize ordinary income with respect to the purchase of Restricted Stock at
the time of purchase, rather than later on when the restrictions lapse, in
much the same manner as previously described above in the discussion of the
taxation of Restricted Stock.
Other Stock-Based Awards
The Compensation Committee may issue Other Stock-Based Awards, includ-
ing, without limitation, performance shares, convertible preferred stock,
convertible debentures, exchangeable securities, and Common Stock or Options
valued by reference to book value or subsidiary performance. These awards may
be subject to such restrictions as may be imposed by the Compensation
Committee. In general, grantees receiving such awards will be required to
recognize the fair market value of the award as ordinary income on the date
that the award becomes freely transferable or is no longer subject to a
substantial risk of forfeiture, and the Company will be entitled to a
corresponding deduction at that time.
Section 83(h) of the Code
Regulations under section 83(h) of the Code generally require the
Company to satisfy applicable federal income tax reporting requirements as a
precondition to claiming deductions in connection with the Incentive Plan.
Section 162(m) of the Code
Section 162(m) of the Code generally precludes a public corporation from
taking a deduction for annual compensation in excess of $1 million paid to its
chief executive officer or any of its four other highest-paid officers.
However, compensation that qualifies under section 162(m) of the Code as
"performance-based" is specifically exempt from the deduction limit. Based on
section 162(m) of the Code and the regulations issued thereunder, the Company
believes that the income generated in connection with the exercise of Stock
Options granted under the Incentive Plan that have an exercise price that is
at least equal to the fair market value of the shares subject to the Option on
the date of grant should qualify as performance-based compensation, and,
accordingly, the Company's deduction for such compensation should not be
limited by section 162(m) of the Code. However, section 162(m) of the Code
could limit the Company's deduction with respect to income generated in con-
nection with the exercise of an Option granted that had an exercise price less
than the fair market value of the shares on the date of grant. The Incentive
Plan has been designed to provide flexibility with respect to whether shares
awarded by the Compensation Committee will qualify as performance-based
compensation under section 162(m) of the Code. The Company believes that
certain awards of Stock by the Compensation Committee under the Incentive Plan
will so qualify and the Company's deductions with respect to such awards
should not be limited by section 162(m). However, other awards of Stock and
Options might not qualify as performance-based compensation, and, therefore,
the Company's deductions relating to such awards will be subject to the
section 162(m) deduction limitation.
Other Tax Consequences
The Incentive Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of
certain of the federal tax consequences relating to the Incentive Plan. No
consideration has been given to the effects of state, local, or other tax laws
(including other federal tax laws) on the Incentive Plan or grantees
thereunder. As a general matter, the Company will be subject to federal income
tax reporting requirements with respect to all grantees and to federal
withholding and employment tax requirements with respect to grantees who are
employees of the Company.
In view of the complexity of the tax aspects of transactions involving
the grant and exercise of Incentive Stock Options, Non-Qualified Stock
Options, SARs, Limited SARs, Restricted Stock, Deferred Stock, Stock Purchase
Rights, and the receipt and disposition of shares of Common Stock in connec-
tion with these and other awards under the Incentive Plan, and because the
impact of taxes will vary depending on individual circumstances, each grantee
receiving an award under the Incentive Plan should consult his or her own tax
advisor to determine the tax consequences in his or her particular
circumstances.
APPROVAL REQUIRED FOR AMENDMENT TO INCENTIVE PLAN
Approval of the amendments to the Company's Incentive Plan requires the
affirmative vote of a majority of the votes cast at the Annual Meeting.
Holders of Common Stock are entitled to one vote per share. Holders of Series
B Shares are entitled to 250 votes per share. Holders of Common Stock and
Series B Shares will vote together as a class on the proposal. With respect
to the tabulation of votes, abstentions and broker non-votes will not be
counted as votes cast and, accordingly, will have no effect on the vote.
<PAGE> 53
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE
PROPOSED
AMENDMENT TO THE COMPANY'S 1992 LONG TERM INCENTIVE PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
PROPOSAL 4
The Audit Committee recommended and the Board of Directors approved the
appointment of Arthur Andersen LLP as independent auditors for the fiscal year
ending December 31, 1997.
On March 12, 1997, the Board of Directors of the Company, at the
recommendation of the Company's Audit Committee, voted to replace Coopers &
Lybrand L.L.P., with Arthur Andersen LLP as the Company's independent auditors
effective March 12, 1997. Coopers & Lybrand L.L.P.'s reports for the last two
fiscal years contained no adverse opinions, disclaimers, or qualifications or
modifications as to uncertainty, audit scope or accounting principles, except
that the report on the 1995 financial statements included an explanatory
paragraph concerning factors which raise substantial doubt about the Company's
ability to continue as a going concern. During such two fiscal year period
and the subsequent interim period since then, there have been no disagreements
with Coopers & Lybrand L.L.P. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of Coopers & Lybrand L.L.P., would
have caused it to make reference to the subject matter of disagreement in
connection with its reports.
Ratification of Arthur Andersen LLP as the Company's independent
auditors requires the affirmative vote of a majority of the votes cast at the
Annual Meeting. Holders of Common Stock are entitled to one vote per share.
Holders of Series B Shares are entitled to 250 votes per share. Holders of
Common Stock and Series B Shares will vote together as a class on the
ratification. With respect to the tabulation of votes, abstentions and broker
non-votes will not be counted as votes cast and, accordingly, will have no
effect on the vote.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE SELECTION OF
ARTHUR ANDERSEN
LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER
31, 1997.
MARKET FOR THE COMPANY'S SECURITIES AND RELATED STOCK MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
SRGN. Until September 9, 1997, the Common Stock was quoted on the Nasdaq
National Market. The following table sets forth for the periods indicated
high and low reported sale prices for the Company's Common Stock as reported
on Nasdaq.
High LOW
1995
First Quarter 7 1/8 4 1/4
Second Quarter 7 1/8 5 1/4
Third Quarter 8 1/8 5 1/8
Fourth Quarter 7 3 3/4
1996
First Quarter 5 5/8 2 7/8
Second Quarter 5 3/4 3 3/4
Third Quarter 4 1/2 2 5/8
Fourth Quarter 3 1/8 2 9/32
1997
First Quarter 1 5/8 15/16
Second Quarter 2 1/8 15/16
<PAGE> 54
The last reported sale price of the Common Stock as reported on the OTC
Bulletin Board on October 28, 1997 was $0.625. OTC Bulletin Board
quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions. As
of October 28, 1997, there were 683 holders of record of the Company's
Common Stock. On February 18, 1997, the day before the Company announced
the sale of the Operating Division, the high and low reported sale prices
of the Company's Common Stock as reported on the Nasdaq National Market
were $1.375 and $1.25.
The Company has never paid cash dividends on its Common Stock. The
Company is required to pay cash dividends on its Series B Shares, although
these dividends currently are in arrears. The Company is required to pay
Common Stock dividends on its Series A Shares and Series C Shares.
As of September 9, 1997, the Company's Common Stock was delisted from
trading on the Nasdaq National Market due to failure of the Company to comply
with Nasdaq's minimum net tangible assets requirement. The delisting of the
Common Stock from the Nasdaq National Market could have a material adverse
effect on the Company's efforts to raise additional equity capital. In
addition, as a result of the delisting of the Common Stock from the Nasdaq
National Market, the investors in Seragen Biopharmaceuticals Ltd. ("SBL"), a
company 49% owned by the Company, may claim that they are entitled to require
the Company to purchase their shares in SBL for cash. The Company believes
that it has meritorious defenses to assert against this potential claim.
There is no assurance that the Company will have sufficient cash to purchase
the investors' shares in SBL for cash. See "Management's Discussion and
Analysis."
The Company intends to re-apply for listing on the Nasdaq National
Market or the Nasdaq Small-Cap Market as soon as possible after the Company is
able to satisfy applicable listing requirements. There is no assurance that
the Company will be able to satisfy these requirements.<PAGE>
PROXY SOLICITATION
The cost of the solicitation of proxies will be borne by the Company.
In addition to solicitation by mail, directors and officers of the Company,
without receiving any additional compensation, may solicit proxies personally
or by telephone or facsimile. The Company anticipates that it may, at its own
expense, engage a solicitation agent to solicit proxies by telephone. The
Company will request brokerage houses, banks, and other custodians or nominees
holding stock in their names for others to forward proxy materials to their
customers or principals who are the beneficial owners of shares and will
reimburse them for their expenses in doing so.
<PAGE> 55
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR NEXT YEAR'S ANNUAL MEETING
The proxy rules adopted by the SEC provide that certain shareholder
proposals must be included in the Proxy Statement for the Company's Annual
Meeting. For a proposal to be considered for inclusion in next year's proxy
statement, it must be received by the Company no later than December 19, 1997.
ATTENDANCE OF INDEPENDENT AUDITORS AT ANNUAL MEETING
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting and will have the opportunity to make such statements as they may
desire. They also will be available to respond to appropriate questions from
the shareholders present.
ANNUAL REPORT TO SHAREHOLDERS
AND INCORPORATION BY REFERENCE
Included in this mailing is the Company's Annual Report to Shareholders,
which includes the Company's audited financial statements for the year ended
December 31, 1996.
Certain information contained in the accompanying Annual Report is
incorporated by reference into this Proxy Statement. Only the following
items are incorporated by reference: "Business" on pages 1 to 24; "Management's
Discussion and Analysis" appearing on pages 25 to 31; "Changes in and
Disagreements with Accountants" on page 53; and the financial statements
appearing on pages 32 to 53. No other information in the Annual Report or
in any other document filed by the Company with the SEC or otherwise is
deemed to be incorporated by reference into this Proxy Statement. Any
statement contained in a document incorporated by reference shall be deemed
to be modified or superseded for all purposes to the extent that it is modified
or replaced by a statement contained in this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented at the
Annual Meeting. However, if any other business properly comes up for action
at the Annual Meeting or any adjournment of the Annual Meeting, the persons
acting under the proxies in the form enclosed with this Proxy Statement will
vote on these other matters according to their discretion.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Reed R. Prior________________
Reed R. Prior
Chairman, Chief Executive Officer and
Treasurer
Hopkinton, Massachusetts
November 4, 1997
<PAGE> 56<PAGE>
Unaudited Financial Statements and
Management's Discussion and Analysis for
the Quarter Ended June 30, 1997
<TABLE>
SERAGEN, INC.
BALANCE SHEETS
<CAPTION>
Assets December 31, June 30, 1997
1996 (Unaudited)
____________ _____________
(As Restated) (As Restated)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,548,392 $ 2,078,750
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . 610,318 610,318
Contract receivable . . . . . . . . . . . . . . . . . . . . . . . 485,261 512,126
Unbilled contract receivable. . . . . . . . . . . . . . . . . . . 833,983 773,866
Prepaid expenses and other current assets . . . . . . . . . . . . 285,356 97,613
__________ _______
Total current assets . . . . . . . . . . . . . 3,763,310 4,072,673
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . 4,604,115 4,163,141
Deferred Commission. . . . . . . . . . . . . . . . . . . . . . . . . 2,060,000 2,060,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,183 38,239
_________ ________
Total assets . . . . . . . . . . . . . . . . . $ 10,504,608 $ 10,334,053
============ ===========
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 1,111,477 927,444
Current maturities of long-term debt. . . . . . . . . . . . . . 37,418 -
Deposits received from Boston University . . . . . . . . . . . . - 7,899,739
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . 3,177,467 4,034,040
Preferred stock redemption liability . . . . . . . . . . . . . 1,236,753 1,122,619
Short-term obligation.. . . . . . . . . . . . . . . . . . . . . 4,128,097 800,000
_________ _________
Total current liabilities. . . . . . . . . . . 9,691,212 14,783,842
________ _________
Non-current liabilities:
Deferred Revenue. . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,000,000
Long-term obligation. . . . . . . . . . . . . . . . . . . . . . - 1,450,000
Canadian affiliate put option liability . . . . . . . . . . . . 2,400,000 2,400,000
_________ ________
Total non-current liabilities. . . . . . . . . 7,400,000 8,850,000
________ ________
Commitments and contingencies
Stockholders' (deficit);
Preferred stock, $.01 par value; 5,000,000 shares authorized
Convertible preferred stock, Series A,$.01 par value; issued and
outstanding 3,105 and 1,500 shares atDecember 31,1996 and
June 30,1997, respectively, at liquidation preference . . . . . . . 2,015,522
508,059
Convertible preferred stock, Series B,$.01 par value; issued and
outstanding 23,800 and 23,800 at December 31, 1996, and June
30,1997, respectively, at liquidation preference . . . . . . . . . . 23,800,000
23,800,000
Convertible preferred stock, Series C,$.01 par value; issued and
outstanding 5,000 and 5,000 at December 31,1996, and June
30,respectively, at liquidation preference . . . . . . . . . . . . . 5,100,000
5,300,000
Common stock, $.01 par value;70,000,000 shares authorized;
issued 17,199,458 and 20,034,050 shares at December
31,1996 and June 30, 1997, respectively . . . . . . . . . . . . . 171,994
200,340
Additional paid in capital. . . . . . . . . . . . . . . . . . . . 151,323,022 154,154,807
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (188,994,811) (197,260,664)
_____________ _____________
(6,584,273) (13,297,458)
Less-treasury stock (777 shares at cost at December 31,1996 and
June 30, 1997, respectively) . . . . . . . . . . . . . . . . . . (2,331) (2,331)
____________ ___________
Total stockholders' (deficit) . . . . . . . . (6,586,604)
(13,299,789)
Total liabilities and stockholders' (deficit). 10,504,608
10,334,053
=============
=============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 57
<TABLE>
SERAGEN, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
____________________
____________________
1996 1997 1996 1997
______________________
_____________________
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Revenue:
Contract revenue and license fees. . . . . . $ 1,247,250 $ 1,247,822 $ 2,746,242
2,159,447
_________ _________ _________
_________
Operating expenses:
Cost of contract revenue. . . . . . . . . . 1,194,253 1,247,822 2,593,245
2,129,856
Research and development. . . . . . . . . . 3,302,357 3,285,185 6,875,331
5,800,166
General and administrati. . . . . . . . . . 1,149,037 1,408,916 2,510,393
2,600,579
____________ ___________ ___________
___________
5,645,647 5,941,923 11,978,969 10,530,601
_________ _________ __________
__________
Loss from operations . . . . . . (4,398,397) (4,694,101) (9,232,727)
(8,371,154)
Loss incurred in connection with Canadian
affiliate . . . . . . . . . . . . . . . . . (471,561) - (1,641,969) -
Interest income. . . . . . . . . . . . . . . 25,454 14,761 41,109 29,464
Interest expense . . . . . . . . . . . . . (818,444) - (1,612,419) (172,366)
_______ _________ _________
_________
Net loss before extraordinary item. . (5,662,948) (4,679,340) (12,446,006)
(8,514,056)
_________ _________ __________
_________
Etraordinary income. . . . . . . . . . . . - 2,050,000 - 2,050,000
_________ _________ _________
_________
Net loss. . . . . . . . . . . (5,662,948) (2,629,340) (12,446,006)
(6,464,056)
_________ _________ _________
_________
Preferred stock dividends and accretion. . . 26,667 1,081,094 26,667
1,801,797
Net loss applicable to common
stockholders . . . . . . . . . . . . . . . . . . $ (5,689,615) $ (3,710,434) $ (12,472,673) $
(8,265,853)
============= ============
============ ============
Net loss per common share.. . . . . . . . . $ (0.34) $ (0.19) $ (0.75) $
(0.44)
============= ============ ===========
============
Weighted average common shares used in
computing net loss per share. . .. . . . . . . 16,607,713 19,823,618 16,582,940
18,885,360
============= ============ ============
=============
The accompanying notes are an integral part of the financial statements.
<PAGE> 58
</TABLE>
<TABLE> SERAGEN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months
ended June 30,
___________________
1996 1997
___________ ___________
(As Restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,446,006) (6,464,056)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 463,651 464,293
Loss incurred in connection with Canadian affiliate . . . . . . . . 1,641,969 -
Gain/loss on disposal of property and equipment. . . . . . . . . . - 2,491
Amortization of discount on long-term debt . . . . . . . . . . . . 343,807 171,903
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . - (2,050,000)
Amortization of prepaid interest . . . . . . . . . . . . . . . . . 520,625 -
Amortization of debt issuance costs. . . . . . . . . . . . . . . . 83,045 -
Non-cash charge for issuance of common shares. . . . . . . . . . . - 800,000
Changes in operating assets and liabilities:
Contract receivable. . . . . . . . . . . . . . . . . . . . . . . . (224,159) (26,865)
Unbilled contract receivable . . . . . . . . . . . . . . . . . . . (275,487) 60,117
Prepaid expenses and other current assets . . . . . . . . . . . . . (32,791) 187,744
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . (129,993) (184,032)
Accrued commission payable . . . . . . . . . . . . . . . . . . . . (300,000) -
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 126,170 (306,768)
__________ _________
Net cash (used in) provided by operating activities . . . . . . . . (10,229,169) (7,345,173)
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . (296,489) (25,809)
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . 944 38,944
________ ________
Net cash (used in) provided by investing activities . . . . . . . . . (295,545) 13,135
___________ ________
Cash flows from financing activities:
Net proceeds from common stock issuances. . . . . . . . . . . . . . . 3,929,642 75
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . (76,875) -
Proceeds from issuance of long-term debt. . . . . . . . . . . . . . . 11,300,000 -
Repayments of long-term debt. . . . . . . . . . . . . . . . . . . . . (110,105) (37,418)
Debt and preferred stock issuance costs . . . . . . . . . . . . . . . (64,156) -
Deposits received from Boston University . . . . . . . . . . . . . . - 7,899,739
__________ __________
Net cash (used in) provided by financing activities . . . . . . . . . 14,978,506 7,862,396
__________ _________
Net increase (decrease) in cash and cash equivalents . . . . . . . . 4,453,792 530,358
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 435,460 1,548,392
__________ ________
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 4,889,252 $ 2,078,750
============ =============
Supplemental disclosures of cash flows information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . $ 367,495 $ 463
============ =============
Supplemental non cash activities:
Conversion of series A preferred stock to common stock . . . . . . . . $ - $ 2,060,056
Preferred stock diidends. . . . . . . . . . . . . . . . . . . . . . . . $ - $ 638,458
Issuance of Common Stock to Lilly . . . . . . . . . . . . . . . . . . . $ - $ 800,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
59
<PAGE>
1. Basis of Presentation
The accompanying financial statements are unaudited and have been
prepared by the Company in accordance with generally accepted accounting
principles.
Certain information and footnote disclosure normally included in the
Company's audited annual financial statements has been condensed or omitted in
the Company's interim financial statements. In the opinion of management, the
interim financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair representation of the results for the
interim periods presented.
The results of operations for the interim periods may not necessarily be
indicative of the results of operations expected for the full year, although
the Company expects to incur a significant loss for the year ending
December 31, 1997. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1996, which are contained in the Company's most recent Annual Report on
Form 10-K.
In September 1997, the Company restated its 1996 financial statements to
reflect a change in the accounting treatment for the Company's Amended Sales
and Distribution Agreement with Eli Lilly and Company on May 28, 1996 (see
Note 8).
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the
financial statements and the reported amounts of revenues and expenses during
the reporting period(s). Actual results could differ from those estimates.
3. Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
No. 128"). SFAS No. 128 establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This statement is effective for fiscal years ending
after December 15, 1997, and early adoption is not permitted. When adopted,
the statement will not require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ending
December 31, 1997.
4. Amendment to Lilly Agreements
On April 7, 1997, the Company entered into an amendment (the "Amendment") to
its Sales and Distribution Agreement and Development Agreement with Eli Lilly
and Company ("Lilly") pursuant to which Lilly had originally obtained the
development and marketing rights to the Company's lead molecule DAB389IL-2
("IL-2 Fusion Protein") for all cancer and certain non-cancer indications.
Under the terms of the Amendment, subject to certain limitations, Lilly
relinquished all other development and marketing rights to IL-2 Fusion
Protein for non-cancer indications, as well as rights to other molecules.
In addition, Lilly agreed to pay to Ajinomoto Co., Inc. ("Ajinomoto") on
behalf of the Company $4.3 million: Lilly paid $2.15 million to Ajinomoto for
a license granted by Ajinomoto directly to Lilly; and Lilly has agreed to
pay, subject to certain conditions, up to $2.15 million of the Company's
$2.25 obligation to Ajinomoto under the Company's restructured agreement with
Ajinomoto (See Note 5). Pursuant to the Amendment, Lilly is permitted to
credit $1.5 million of the amount paid by Lilly to Ajinomoto on behalf
of the Company against the next $1.5 million milestone payment that falls due
from Lilly to the Company under the Sales and Distribution Agreement between
the Company and Lilly on the submission by the Company of a U.S. Biologics
License Application ("BLA") for cutaneous T-cell lymphoma ("CTCL") to the
Food and Drug Administration ("FDA"). Lilly is not obligated to make
any further payments in respect of the Company's obligations to Ajinomoto if
Lilly terminates the Sales and Distribution Agreement and Development
Agreement between it and the Company as a result of a failure by the Company
to meet specified clinical, regulatory and financial milestones and other
requirements. Among the relevant milestones and requirements referenced in the
preceding sentence are the Company's obtaining commitments for $5.0 million
of new investment capital by July 1, 1997, and closing on the same by August
1, 1997, the Company obtaining $15.0 million of new investment capital by
October 1, 1997, and the Company closing the sale of the Operating Division
to Boston University by October 31, 1997.
<PAGE> 60
In exchange, the Company issued to Lilly, in a private placement, 1.0
million shares of its common stock. The shares of common stock issued to
Lilly are valued at the closing price of the Company's Common Stock as
reported on Nasdaq on the date of issuance of the shares to Lilly, less a
discount of 20% to reflect a discount from the Nasdaq closing price because
the shares are not registered under the Securities Act of 1933. In the
quarter ended June 30, 1997, the Company has valued the 1.0 million shares of
common stock issued to Lilly at $800,000 based on the April 7, 1997 Nasdaq
closing price of $1.00, less 20%, and has recorded it as research and
development expense.
The Company did not obtain $15.0 million of new investment capital by
October 1, 1997, and did not close the sale of the operating Division by
October 31, 1997. As a result, Lilly has the right currently, with 30 days'
notice, to terminate its agreements with the Company. The Company has
received no indication from Lilly that Lilly intends to exercise that right.
If Lilly were to terminate its agreements with the Company, the Company
would be obligated to pay the $2.15 million payment to Ajinomoto that Lilly
has agreed to make on the Company's behalf, and Lilly's obligations under
the agreements to provide financial support to the Company's clinical trial
efforts would cease.
5. Amendment to Ajinomoto License Agreement
On June 1, 1997, the Company restructured (the "Restructuring") its
License Agreement with Ajinomoto pursuant to which Ajinomoto had granted the
Company worldwide rights to certain IL-2 gene patents owned by the Japanese
Foundation for Cancer Research and Ajinomoto for potential use in the
development of the Company's lead product, IL-2 Fusion Protein. Prior to the
Restructuring, the Company was obligated to pay Ajinomoto a license fee of
$4.3 million payable upon the occurrence of certain specified events, but no
later than March 31, 1997 (previously extended by agreement of Ajinomoto to
May 31, 1997); and royalties ranging from 2% to 4% on sales of the licensed
product by the Company or its sublicensees, but with minimum royalties of
$100,000 for the third year of the agreement, $200,000 for the fourth year of
the agreement, and $300,000 for the fifth and following years of the
agreement. In addition, prior to the Restructuring, the rights granted by
Ajinomoto to the Company pursuant to the License Agreement were exclusive.
Under the terms of the Restructuring, the future license fees payable by the
Company to Ajinomoto were reduced to the following amounts: a $2.25 million
fee payable in the amount of $800,000 by June 30, 1998, or approval by the FDA
of a BLA filed by the Company for the licensed product, whichever comes first,
in the amount of $800,000 by June 30, 1999, and in the amount of $650,000 by
March 31, 2000; and a reduced royalty of 1% on end-user net sales of the
licensed product by the Company or its sublicenses. The Company amended its
agreements with Lilly whereby Lilly will pay license fees to Ajinomoto on
behalf of the Company, subject to certain limitations (See Note 4). The
Restructuring provides that the license granted by Ajinomoto to the Company
will be non-exclusive. Accordingly, in the quarter ended June 30, 1997, the
Company reduced its obligation to Ajinomoto from $4.3 million to $2.25 million
and recorded extraordinary income of $2,050,000 for the reduction of this
liability.
6. Sale of Manufacturing and Clinical Operations to Boston University
On February 14, 1997, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") to sell its manufacturing and
clinical operations division to Boston University or a designated affiliate
for $5.0 million. The closing of the transaction is subject to, among other
things, approval by the Company's stockholders. Boston University has paid
the Company $4.5 million as a deposit and, from the time of execution of the
agreement, has assumed responsibility for the division operations, including
responsibility for operating costs. The Company is permitted to use the
purchase price and operating cost deposits to fund its current operations,
although as of June 30, 1997, such deposit was recorded as a liability.
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into a service agreement ("the Service Agreement") with
Boston University providing for the purchase by the Company of certain
services related to product research, development, manufacturing, clinical
trials, quality control, and quality assurance. The Service Agreement expires
in January 1999, and is subject to certain early termination provisions,
including the option of Boston University to terminate the agreement if losses
during a contract year exceed $9.0 million and the Company does not reimburse
Boston University for the losses in excess of $9.0 million. The Service
Agreement may be renewed for two successive one-year terms at the option of
the Company. The Company has the option to repurchase the assets comprising
the manufacturing and clinical operations facilities. The Company has agreed
to pay Boston University fees of approximately $5.5 million and $6.6 million
in years 1 and 2 of the Service Agreement, respectively. The fees can be
increased or decreased by agreement of the parties, but may not be reduced to
less than $4.3 million per contract year. The Service Agreement is expected
to reduce substantially the Company's operating costs in research and
development, as the Company will be contracting solely for the services that
the Company requires for clinical and manufacturing purposes. The Company
will give effect to this transaction in its financial statements after
closing.
<PAGE> 61
At the closing, most of the Company's employees involved in the
manufacturing and clinical operations will become employees of Boston
University. Both the purchase price and operating cost deposits are subject
to refund to Boston University in the event that conditions for closing are
not met. Upon the closing of this transaction, the Company will account for
the gain and the sale of the operating division and the excess of the
reimbursed operating costs over the amount due to Boston University, pursuant
to the Service Agreement for the period from February 14, 1997 until the
closing of the transaction, as a contribution of capital. As of June 30,
1997, the net amount due to Boston University from the Company in respect of
the operating division's operating expenses for the period from February 14,
1997 to June 30, 1997, was approximately $1,215,160.
7. Subsequent Event
On July 31, 1997, the Company entered into an evaluation license and
option agreement (the "USSC License Agreement") with United States Surgical
Corporation ("USSC") granting USSC an option on worldwide rights to the
Company's DAB389EGF molecule (the "EGF Fusion Protein") for restenosis in
cardiovascular applications. Leon C. Hirsch, who beneficially owns more than
5% of the Company's Common Stock, is the Chairman of USSC and beneficially
owns 7.8% of the common stock of USSC. Turi Josefsen, who beneficially owns
more than 5% of the Company's Common Stock, is a director of USSC and
benefically owns 1.8% of the common stock of USSC. John R. Silber, a director
of the Company, is a director of USSC and benefically owns .02% of the common
stock of USSC. Pursuant to the USSC License Agreement, USSC made an initial
payment to the Company of $5.0 million on July 31, 1997. Under the USSC
License Agreement, USSC is entitled to acquire an exclusive license to the
technology, at any time during a 15-month evaluation period, upon the payment
to the Company of an additional $5.0 million. In addition, the Company issued
to USSC a warrant for the purchase of 500,000 shares of the Company's Common
Stock at a purchase price of $.5625 per share, the closing sale price for
shares of the Company's Common Stock on the date prior to the date the warrant
was issued. The Company will value this warrant and record it as a charge to
general and administrative expense in the quarter ending September 30, 1997.
USSC has agreed to fund trials associated with the development of EGF Fusion
Protein for restenosis. If USSC's option to obtain any exclusive license of
the EGF Fusion Protein technology is exercised, milestone payments will be
payable by USSC to Seragen up to a maximum amount of $22.5 million. In
addition, USSC will be obligated to pay Seragen royalties on commercial sales
of the licensed product. In the event USSC chooses not to exercise the
option, the USSC License Agreement will terminate, and, in exchange, USSC will
receive $5.0 million worth of the Company's Common Stock valued at the average
of the closing prices of the Company's Common Stock (i) for the ten trading
days preceding the date of the USSC License Agreement or (ii) for the ten
trading days preceding the date on which USSC chooses not to exercise the
option, whichever is lower. The Company will record the $5.0 million initial
payment from USSC as a liability. In the event that USSC exercises its option
to license the EGF Fusion Protein, the $5.0 million will be recorded as
revenue at that time. In the event that USSC chooses not to exercise the
option, the $5.0 million will be recorded as stockholders' equity.
8. Restatement of 1996 Financial Statements
In September 1997, the Company restated its 1996 financial statements to
reflect a change in the accounting treatment for the Company's amended Sales
and Distribution Agreement with Lilly on May 28, 1996. The restatement
consists of (1) recording the $5.0 million payment by Lilly in 1994 as an
advance against future purchases of bulk product by Lilly (the Company had
previously recorded such amount as revenue in the quarter ended June 30,
1996), (2) capitalizing as a deferred expense $2,060,000 of commissions paid
by the Company in connection with the $5.0 million payment from Lilly in 1994,
and (3) reversing a $1.2 million expense accrual associated with providing
the bulk material to Lilly (previously recorded by the Company in the fourth
quarter of 1996). The following table presents the net loss, net loss
applicable to common stockholders, and net loss per share as originally
reported, and as restated.
<TABLE>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
__________________ ________________
As reported As restated As reported As restated
<CAPTION>
<S> <C> <C> <C> <C>
Net loss $(2,722,948) $(5,662,948) $(9,506,006) $(12,446,006)
Net loss applicable to
common stockholders (2,749,615) (5,689,615) (9,532,673) (12,472,673)
Net loss per share $(0.17) $(0.34) $(0.57) $(0.75)
</TABLE>
62
<PAGE>
9. Unaudited Pro Forma Information
The following unaudited pro forma financial information reflects the
Company's balance sheet as of June 30, 1997 (as restated), assuming the
transaction with Boston University described in Note 6 was consummated on
February 14, 1997. If the transaction had been consummated on February 14,
1997, the Company's operating loss for the six months ended June 30, 1997,
would have been reduced by approximately $2,185,000. (See Note (d) to the pro
forma Balance Sheet.) The unaudited pro forma financial statement does not
purport to be indicative of the results which would actually have been
reported if the transaction had been effected on February 14, 1997, or which
may be reported in the future.
<TABLE> SERAGEN, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
<CAPTION>
Assets June 30, 1997 Adjustments Pro Forma
(As restated)
__________ ___________ _________
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . $ 2,078,750 $ (715,160) a) $
1,363,590
Restricted cash . . . . . . . . . . . . . . . . . . . . . . 610,318 - 610,318
Contract receivable . . . . . . . . . . . . . . . . . . . 512,126 - 512,126
Unbilled contract receivable. . . . . . . . . . . . . . . . 773,866 - 773,866
Prepaid expenses and other current assets . . . . . . . . . 97,613 - 97,613
__________ ___________ _________
Total current assets . . . . . . . 4,072,673 (715,160) 3,357,513
Property and equipment, net. . . . . . . . . . . . . . . . . . . 4,163,141 (4,148,843) (b) 14,298
Deferred Commission. . . . . . . . . . . . . . . . . . . . . . . 2,060,000 2,060,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 38,239 - 38,239
Total assets . . . . . . . . . . . $ 10,334,053 $ (4,864,003) $ 5,470,050
========== ===========
==========
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 927,444 - 927,444
Deposit received from Boston University . . . . . . . . . . 7,899,739 (7,899,739) (c)
- -
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . 4,034,040 - 4,034,040
Preferred stock redemption liability. . . . . . . . . . . . 1,122,619 - 1,122,619
Short-term obligation . . . . . . . . . . . . . . . . . . . 800,000 - 800,000
_________ _________ _________
Total current liabilities. . . . . 14,783,842 (7,899,739) 6,884,103
__________ _________ _________
Non-current liabilities:
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . 5,000,000 - 5,000,000
Long-term obligation. . . . . . . . . . . . . . . . . . . . 1,450,000 - 1,450,000
Canadian affiliate put option liability . . . . . . . . . . 2,400,000 - 2,400,000
_________ __________ _________
Total non-current liabilities. . . 8,850,000 - 8,850,000
_________ __________ _________
Commitments and contingencies
Stockholders' (deficit);
Preferred stock, $.01 par value; 5,000,000 shares authorized
Convertible preferred stock, Series A, $.01 par value; issued
and outstanding 1,500 shares at June 30, 1997, $151,406
liquidation preference. . . . . . . . . . . . 508,059 - 508,059
Convertible preferred stock, Series B, $.01 par value; issued
and outstanding 23,800 shares at June 30, 1997, $23,800,000
liquidation preference. . . . . . . . . . 23,800,000 - 23,800,000
Convertible preferred stock, Series C, $.01 par value; issued
and outstanding 5,000 shares at June 30, 1997, $5,300,000
liquidation preference . . . . . . . . . . . . . . . . 5,300,000 - 5,300,000
Common stock, $.01 par value; 70,000,000 shares authorized;
issued 20,034,050 shares at June 30, 1997 . . . . . . . . . . 200,340 - 200,340
Additional paid in capital . . . . . . . . . . . . . . . . . . 154,154,807 3,035,73) (d)
157,190,543
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (197,260,664) - (197,260,664)
___________ _________ ___________
(13,297,458) 3,035,736 (10,261,722)
Less-treasury stock (777 shares at cost at June 30, 1997). . . ( 2,331) -
(2,331)
__________ _________ __________
Total stockholders' (deficit) . . (13,299,789) 3,035,736 (10,264,053)
__________ _________ __________
Total liabilities and stockholders' (deficit). $ 10,334,053 $ (4,864,003) $
5,470,050
============ ============
=============
</TABLE>
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
__________
The following pro forma adjustments are required to reflect the sale of
the majority of the Company's property and equipment, the assignment of
certain capital and operating leases to Boston University and the Company's
Service Agreement with Boston University as discussed in Note 6. The net book
value and estimated disposition costs are based on the estimated fair value,
as determined by the management of the Company. Such allocation will be
revised to reflect changes in assets through the date of closing and the
determination of actual disposition costs.
Notes to pro forma Balance Sheet
(a) Reflects (i) $500,000 due to the Company from Boston University for
the remaining purchase price and (ii) the net amount due to
Boston University of $1,215,160. $ 715,160
(b) Reflects a reduction in property and equipment for the net book value
of assets sold. $4,148,843
(c) Reflects the Boston University deposits of $4.5 million for the
purchase price and the $3,399,739 for the operating costs as
non-refundable payments upon closing. $7,899,739
(d) Reflects (i) the excess of the purchase price over the net book value
of the assets sold of $851,157 and (ii) the difference between the
amount reimburseable from Boston University and the amounts due to
Boston University under the Service Agreement of $2,184,579.
$3,035,736
<PAGE> 63<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is engaged in the discovery, research and development of
pharmaceutical products for human therapeutic applications. Since 1985, the
Company has focused substantially all of its efforts and resources on research
and development of its fusion protein technology. The Company's fusion
proteins were developed using proprietary technology and have potential
applications in a wide range of human diseases. To date, the Company has not
generated any revenues from the sale of fusion protein products, and the
Company does not expect to receive any such revenues for several years. The
Company has generated no profit since its inception and expects to incur
additional operating losses over the next several years.
In February 1997, the Company entered into an Asset Purchase Agreement
to sell its manufacturing and clinical operations division to Boston
University or a designated affiliate for $5.0 million and in connection
therewith entered into a Service Agreement with Boston University pursuant to
which Boston University will provide the Company with certain services related
to product research, development, manufacturing, clinical trials, quality
control and quality assurance. The terms of this transaction are discussed
more fully below under "Liquidity and Capital Resources."
On April 7, 1997, the Company entered into the Amendment to its Sales
and Distribution Agreement and Development Agreement with Lilly pursuant to
which Lilly had the development and marketing rights to the Company's lead
molecule IL-2 Fusion Protein for all cancer and certain non-cancer
indications. The terms of this transaction are discussed more fully below
under "Liquidity and Capital Resources."
On June 1, 1997, the Company entered into the Amendment to its License
Agreement with Ajinomoto pursuant to which Ajinomoto granted the Company
worldwide rights to certain IL-2 gene patents owned by the Japanese Foundation
for Cancer Research and Ajinomoto for potential use in the development of the
Company's lead product, IL-2 Fusion Protein. The terms of this transaction
are discussed more fully below under "Liquidity and Capital Resources."
On July 31, 1997, the Company entered into an evaluation license and
option agreement with USSC granting USSC an option on worldwide rights to the
Company's EGF Fusion Protein for restenosis in cardiovascular applications.
USSC has acquired the option in exchange for an initial payment to the Company
of $5.0 million. The terms of this transaction are discussed more fully below
under "Liquidity and Capital Resources."
Restatement of 1996 Financial Statements. In September 1997, the
Company restated its 1996 financial statements to reflect a change in the
accounting treatment for the Company's amended Sales and Distribution
Agreement with Lilly on May 28, 1996. The restatement consists of
(1) recording the $5.0 million payment by Lilly in 1994 as an advance against
future purchases of bulk product by Lilly (the Company had previously recorded
such amount as revenue in the quarter ended June 30, 1996), (2) capitalizing
as a deferred expense $2,060,000 of commissions paid by the Company in
connection with the $5.0 million payment from Lilly in 1994, and (3) reversing
a $1.2 million expense accrual associated with providing the bulk material to
Lilly (previously recorded by the Company in the fourth quarter of 1996).
(See Note 8.)
Results of Operations
Three Months Ended June 30, 1997 and 1996. The Company's net loss for
the three-month period ended June 30, 1997 was $3.7 million compared to $5.7
million for the period ended June 30, 1996. The decrease in net loss during
the second three months of 1997 was primarily due to an increase of $1.1
million in preferred stock dividends in 1997. The increase to the net loss
was partially offset by a decrease in 1997 in operating expenses of $1.8
million, a reduction in the loss incurred in connection with the Company's
Canadian affiliate of $472,000 in 1997, a decrease of $818,000 in 1997 of
interest expense and an extraordinary gain of $2.1 million reflecting the
restructuring of the Ajinomoto agreement in June 1997.
The Company's revenues for the three months ended June 30, 1997 and 1996
were substantially unchanged and consisted primarily of contract revenue from
Lilly for certain development costs of IL-2 Fusion Protein for CTCL.
<PAGE> 64
Total operating expenses for the three months ended June 30, 1997
increased by $0.3 million to $5.9 million in 1997 from $5.6 million in 1996.
The cost of contract revenue was substantially unchanged for the three-month
period ended June 30, 1997 as compared to the same period in 1996. Research
and development expenses remained constant at $3.3 million in the three months
ended June 30, 1997 in comparison to the three months ended June 30, 1996,
however, there was an $800,000 increase in 1997 associated with the issuance
of 1.0 million shares of Common Stock to Lilly in 1997. This increase was
partially offset by $800,000 as a result of a reduction in the workforce and
related expenses. General and administrative expenses increased by $0.3
million to $1.4 million in the second three months of 1997 as compared to
$1.1 million in the second three months of 1996. This increase was primarily
due to an increase in legal fees.
The loss incurred in connection with the Company's Canadian affiliate
decreased by $472,000 in the three months ended June 30, 1997 as compared to
the three months ended June 30, 1996. The Company believes the current
maximum obligation to the Canadian affiliate is $2.4 million, which was
accrued as of December 31, 1996. Interest income decreased in the second
quarter of 1997 as compared to the second quarter of 1996 reflecting lower
cash balances. Interest expense decreased by $818,000 in the second quarter
of 1997 as compared to the second quarter of 1996 due to the elimination of
the lines of credit in exchange for Series B Preferred Stock which occurred in
July 1996. The extraordinary income of $2.1 million in 1997 reflects the gain
recorded in connection with the reduction in the amount payable to Ajinomoto
as a result of the restructuring of the Ajinomoto license agreement.
Preferred stock dividends and accretion increased by $1.1 million in the
three months ended June 30, 1997 as compared to the three months ended June
30, 1996. This increase in 1997 is due to the accrual of dividends on the
issuances of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock in May 1996, July 1996 and September 1996, respectively. In
addition, in the three months ended June 30, 1997, the Company recorded
$356,653 representing the conversion discount on the Series A Preferred Stock
conversions.
Six Months Ended June 30, 1997 and 1996. The Company's net loss for the
six-month period ended June 30, 1997 was $8.3 million compared to $12.5
million for the period ended June 30, 1996. The decrease in the net loss
during the six months ended June 30, 1997 was primarily due to a reduction in
operating expenses of $1.5 million, a reduction in the loss incurred in
connection with the Company's Canadian affiliate of $1.6 million, a decrease
of $1.4 million in interest expense and an extraordinary gain of $2.1 million
reflecting the restructuring of the Ajinomoto license agreement. These
decreases were partially offset by a $0.6 million reduction in revenue and an
increase in preferred stock dividends of $1.8 million.
The Company's revenues for the six months ended June 30, 1997 and 1996
were $2.2 million and $2.7 million, respectively. Contract revenue from Lilly
decreased in the six months ended June 30, 1997 by $500,000 primarily due to
the completion of certain clinical data management milestones in 1996 and the
winding down of patient enrollment in 1997 for a Phase III clinical trial for
IL-2 Fusion Protein for CTCL.
Total operating expenses for the six months ended June 30, 1997
decreased by $1.5 million to $10.5 million in 1997 from $12.0 million in 1996.
The cost of contract revenue was $2.1 million in the six months ended June 30,
1997 as compared to $2.6 million in the six months ended June 30, 1996, a
decrease of $500,000, reflecting the completion of certain clinical data
management milestones in 1996 and the winding down of patient enrollment in
1997 for a Phase III clinical trial for IL-2 Fusion Protein for CTCL.
Research and development expenses decreased by $1.1 million to $5.8 million in
the six months ended June 30, 1997 from $6.9 million for the six months ended
June 30, 1996. This decrease was primarily the result of a reduction in the
workforce and related expenses of approximately $1.9 million. This decrease
was partially offset by an $800,000 charge associated with the issuance of 1.0
million shares of common stock to Lilly in 1997 in conjunction with the
Amendment. General and administrative expenses decreased by $0.1 million to
$2.6 million in the six months ended June 30, 1997 as compared to $2.5 million
in the six months ended June 30, 1996.
The loss incurred in connection with the Company's Canadian affiliate
decreased by $1.6 million in the six months ended June 30, 1997 as compared to
the six months ended June 30, 1996. The Company believes the current maximum
obligation to the Canadian affiliate is $2.4 million, which was accrued as of
December 31, 1996. Interest income was substantially unchanged in the six
months ended June 30, 1997 as compared to the six months ended June 30, 1996.
Interest expense decreased by $1.4 million to $172,000 in the six months ended
June 30, 1997 from $1.6 million in the six months ended June 30, 1996 due to
the elimination of the lines of credit in exchange for Series B Preferred
Stock which occurred in July 1996. The extraordinary gain of $2.1 million in
1997 reflects the gain recorded in connection with the reduction in the amount
payable to Ajinomoto as a result of the restructuring of the Ajinomoto license
agreement.
<PAGE> 65
Preferred stock dividends and accretion increased by $1.8 million in the
six months ended June 30, 1997 as compared to the six months ended June 30,
1996. This increase in 1997 is due to the accrual of dividends on the
issuances of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock in May 1996, July 1996 and September 1996, respectively. In
addition, in the six months ended June 30, 1997, the Company recorded $356,653
representing the conversion discount on the Series A Preferred Stock
conversions.
Restatement of 1996 Financial Statements. In September 1997, the
Company restated its 1996 financial statements to reflect a change in the
accounting treatment for the Company's amended Sales and Distribution
Agreement with Lilly on May 28, 1996. The restatement consists of
(1) recording the $5.0 million payment by Lilly in 1994 as an advance against
future purchases of bulk product by Lilly (the Company had previously recorded
such amount as revenue in the quarter ended June 30, 1996), (2) capitalizing
as a deferred expense $2,060,000 of commissions paid by the Company in
connection with the $5.0 million payment from Lilly in 1994, and (3) reversing
a $1.2 million expense accrual associated with providing the bulk material to
Lilly (previously recorded by the Company in the fourth quarter of 1996). The
following table presents the net loss, net loss applicable to common
stockholders, and net loss per share as originally reported, and as restated.
(See Note 8.)
<TABLE>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
__________________ ________________
As reported As restated As reported As restated
<CAPTION>
<S> <C> <C> <C> <C>
Net loss $(2,722,948) $(5,662,948) $(9,506,006) $(12,446,006)
Net loss applicable to
common stockholders (2,749,615) (5,689,615) (9,532,673) (12,472,673)
Net loss per share $(0.17) $(0.34) $(0.57) $(0.75)
</TABLE>
Liquidity and Capital Resources
As of June 30, 1997, the Company had approximately $2.1 million in cash
and cash equivalents, which was comprised of the remainder of the deposit made
by Boston University with respect to the operating facility's operating costs
of $3.4 million in connection with the sale of the Company's manufacturing and
clinical operations to Boston University. Subsequent to June 30, 1997, the
Company received $5.0 million from USSC pursuant to the USSC License
Agreement.
The Company expects to incur substantial additional research and
development expenses as it continues development of its fusion proteins. The
Company also expects to incur substantial administrative and commercialization
expenses in the future. The Company's continuing operating losses and
requirements for working capital will depend on many factors, including
progress in and costs associated with its research, pre-clinical and clinical
development efforts, and the level of resources which the Company must devote
to obtaining regulatory approvals to manufacture and sell its products.
The Company began assembling the components of the Company's operating
division, which includes substantially all of the Company's assets and personnel
other than (i) its patents (which have been previously pledged to secure
certain dividend obligations) and other intellectual property, (ii) certain
management personnel, and (iii) assets utilized by retained management
personnel in the performance of their duties (collectively, the "Operating
Division"), over five years ago. The Company developed the Operating
Division in a manner that provided excess capacity in order to meet
anticipated commercial demand for the Company's products. Historically,
the Operating Division has never operated at full capacity because the
Company has not yet begun manufacturing product for commercial purposes and
due to the limited financial resources that the Company has available
to develop other products. The Company, however, maintained a relatively
high level of staffing in order to comply with regulatory requirements. The
Company maintained the Operating Division, despite its high costs, because of
the delays and disruptions in the Company's product development and clinical
trial efforts that the Board and management believed would have resulted had
the Company discontinued the operations of the Operating Division and sought
to obtain the services provided by the Operating Division from third parties.
The Company does not now have adequate financial resources to maintain the
Operating Division in accordance with its initial plans or to develop
additional products utilizing the Operating Division. The Company did not
provide services to third parties using the services of the Operating
Division due to regulatory guidelines that prevented it from doing so.
In recent years, the FDA has relaxed these guidelines. However, the
Company chose not to contract out excess capacity because this
would not have led to a substantial and rapid reduction in expenditures and
because of the potential resulting distraction to key management.
As of February 14, 1997, the Company entered into the Asset
Purchase Agreement to sell the Operating Division to Boston University
or a designated affiliate for $5.0 million. The closing of the transaction
is subject to, among other things, approval and ratification by the Company's
stockholders. Boston University has paid the Company $4.5 million as a deposit
and, from the time of execution of the agreement, has assumed responsibility for
the operations of the Operating Division, including responsibility for
operating costs. The Company is permitted to use the purchase price and
operating costs deposits to fund its current operations although, as of June
30, 1997, such deposit was recorded as a liability. The net book value of
the assets to be sold to Boston University was $4.2 million as of June 30,
1997. These assets represent substantially all of the Company's property and
equipment and consist primarily of leasehold improvements to the Company's
manufacturing facility, laboratory facilities and laboratory equipment.
The Company expects that the transactions with Boston University
discussed above will effectively outsource the Company's research and
development activities and reduce the Company's cash needs, both for capital
expenditures and operating expenses. The Company is subject to certain
additional risks and expenditures, including termination of its contract
service agreement if the Company does not reimburse Boston University for the
losses in excess of $9.0 million in a contract year, provided that, after
notice, the Company does not pay Boston University the difference between its
actual losses for that year and $9.0 million. If the Company is unable to or
chooses not to make the additional payments, it will be forced to change to a
new service provider. This could adversely affect the Company's research and
development efforts.
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into the Service Agreement with Boston University providing
for the purchase by the Company of certain services related to product
research, development, manufacturing, clinical trials, quality control, and
quality assurance. The Service Agreement expires in January 1999 and is
subject to certain early termination provisions, including the option of
Boston University to terminate the agreement if losses during a contract year
exceed $9.0 million and the Company does not reimburse Boston University for
the losses in excess of $9.0 million. The Service Agreement may be renewed
for two successive one-year terms at the option of the Company. The Company
has the option to repurchase the assets comprising the manufacturing and
clinical operations facilities. The Company has agreed to pay Boston
University fees of approximately $5.5 million and $6.6 million in years 1 and
2 of the Service Agreement, respectively. The fees can be increased or
decreased by agreement of the parties, but may not be reduced to less than
$4.3 million per contract year. The Service Agreement is expected to
substantially reduce operating costs in research and development, as the
Company will be contracting solely for the services that the Company requires
for clinical and manufacturing purposes. The Company will give effect to this
transaction in its financial statements after closing.
At the closing, most of the Company's employees involved in the
manufacturing and clinical operations will become employees of Boston
University. Both the purchase price and the operating costs deposits are
subject to refund to Boston University in the event that conditions for
closing are not met. Upon the closing of this transaction, the Company will
account for the gain and the sale of the operating facility and the excess of
the reimbursed operating costs over the amount due to Boston University,
pursuant to the Service Agreement for the period from February 14, 1997 until
the closing of the transaction, as a contribution of capital. As of June 30,
1997, the net amount due to Boston University from the Company in respect of
the operating facility's operating expenses for the period from February 14,
1997 to June 30, 1997 was approximately $1,215,160.
<PAGE> 67
On April 7, 1997, the Company entered into the Amendment to its Sales and
Distribution Agreement and Development Agreement with Lilly pursuant to which
Lilly had originally obtained the development and marketing rights to the
Company's lead molecule IL-2 Fusion Protein for all cancer and certain
non-cancer indications. Under the terms of the Amendment, subject to
certain limitations, Lilly relinquished all other development and marketing
rights to IL-2 Fusion Protein for non-cancer indications, as well as rights
to other molecules. In addition, Lilly agreed to pay to Ajinomoto on behalf
of the Company $4.3 million: Lilly paid $2.15 million to Ajinomoto for a
license granted by Ajinomoto directly to Lilly; and Lilly has agreed to pay,
subject to certain conditions, up to $2.15 million of the Company's $2.25
million obligation to Ajinomoto under the Company's restructured agreement
with Ajinomoto. Pursuant to the Amendment, Lilly is permitted to credit $1.5
million of the amount paid by Lilly to Ajinomoto on behalf of the Company
against the next $1.5 million milestone payment that falls due from Lilly to
the Company under the Sales and Distribution Agreement between the Company
and Lilly upon the submission by the Company of a BLA for CTCL to the FDA.
Lilly is not obligated to make any further payments in respect of the
Company's obligations to Ajinomoto if Lilly terminates the Sales and
Distribution Agreement and Development Agreement between it and the
Company as a result of a failure by the Company to meet specified clinical,
regulatory and financial milestones and other requirements. Among the
relevant milestones and requirements referenced in the preceding sentence
are the Company's obtaining commitments for $5.0 million of new investment
capital by July 1, 1997, and closing on the same by August 1, 1997, the
Company obtaining $15.0 million of new investment capital by October 1,
1997, and the Company closing the sale of the Operating Division to Boston
University by October 31,1997.
In exchange, the Company issued to Lilly, in a private placement, 1.0
million shares of its common stock. In the quarter ended June 30, 1997, the
Company has valued the 1.0 million shares of common stock issued to Lilly at
$800,000 based on the April 7, 1997 Nasdaq closing price of $1.00, less 20%
(because the shares are not registered), and has recorded it as research and
development expense.
The Company did not obtain $15.0 million of new investment capital by October
1, 1997, and did not close the sale of the Operating Division by October 31,
1997. As a result, Lilly has the right currently, with 30 days' notice, to
terminate its agreements with the Company. The Company has received no
indication from Lilly that Lilly intends to exercise that right. If Lilly
were to terminate its agreements with the Company, the Company would be
obligated to pay the $2.15 million payment to Ajinomoto that Lilly has
agreed to make on the Company's behalf and Lilly's obligations under the
agreements to provide financial support to the Company's clinical trial efforts
would cease.
On June 1, 1997, the Company restructured its License Agreement with
Ajinomoto pursuant to which Ajinomoto had granted the Company worldwide rights
to certain IL-2 gene patents owned by the Japanese Foundation for Cancer
Research and Ajinomoto for potential use in the development of the Company's
lead product, IL-2 Fusion Protein. Prior to the restructuring, the Company
was obligated to pay Ajinomoto a license fee of $4.3 million payable upon the
occurrence of certain specified events, but no later than March 31, 1997
(previously extended by agreement of Ajinomoto to May 31, 1997); and royalties
ranging from 2% to 4% on sales of the licensed product by the Company or its
sublicensees, but with minimum royalties of $100,000 for the third year of the
agreement, $200,000 for the fourth year of the agreement, and $300,000 for the
fifth and following years of the agreement. In addition, prior to the
restructuring, the rights granted by Ajinomoto to the Company pursuant to the
License Agreement were exclusive. Under the terms of the restructuring, the
future license fees payable by the Company to Ajinomoto were reduced to the
following amounts: a $2.25 million fee payable in the amount of $800,000 by
June 30, 1998, or approval by the FDA of a BLA filed by the Company for the
licensed product, whichever comes first, in the amount of $800,000 by June 30,
1999, and in the amount of $650,000 by March 31, 2000; and a reduced royalty
of 1% on end user net sales of the licensed product by the Company or its
sublicenses. The Company amended its agreements with Lilly whereby Lilly will
pay license fees to Ajinomoto on behalf of the Company, subject to certain
limitations. The restructuring provides that the license granted by Ajinomoto
to the Company will be non-exclusive. Accordingly, in the quarter ended June
30, 1997, the Company reduced its obligation to Ajinomoto from $4.3 million to
$2.25 million and recorded extraordinary income of $2,050,000 for the
reduction of this liability.
On July 31, 1997, the Company entered into the USSC License Agreement
with USSC granting USSC an option on worldwide rights to the EGF Fusion
Protein for restenosis in cardiovascular applications. Leon C. Hirsch, who
beneficially owns more than 5% of the Company's Common Stock, is the Chairman
of USSC and beneficially owns 7.8% of the common stock of USSC. Turi
Josefsen, who beneficially owns more than 5% of the Company's Common Stock, is
a director of USSC and benefically owns 1.8% of the common stock of USSC.
John R. Silber, a director of the Company, is a director of USSC and
benefically owns .02% of the common stock of USSC. Pursuant to the USSC
License Agreement, USSC made an initial payment to the Company of $5.0 million
on July 31, 1997. Under the USSC License Agreement, USSC is entitled to
acquire an exclusive license to the EGF Fusion Protein technology, at any time
during a 15-month evaluation period, upon the payment to the Company of an
additional $5.0 million. In addition, the Company issued to USSC a warrant
for the purchase of 500,000 shares of the Company's Common Stock at a purchase
price of $.5625 per share, the closing sale price for shares of the Company's
Common Stock on the date prior to the date the warrant was issued. The
Company will value this warrant and record it as a charge to general and
administrative expense in the quarter ending September 30, 1997. USSC has
agreed to fund trials associated with the development of EGF Fusion Protein
for restenosis. If USSC's option to obtain any exclusive license of the EGF
Fusion Protein technology is exercised, milestone payments will be payable by
USSC to the Company up to a maximum amount of $22.5 million. In addition,
USSC will be obligated to pay the Company royalties on commercial sales of the
licensed product. In the event USSC chooses not to exercise the option, the
USSC License Agreement will terminate, and, in exchange, USSC will receive
$5.0 million worth of the Company's Common Stock valued at the average of the
closing prices of the Company's Common Stock (i) for the ten trading days
preceding the date of the USSC License Agreement or (ii) for the ten trading
days preceding the date on which USSC chooses not to exercise the option,
whichever is lower. The Company will record the $5.0 million initial payment
from USSC as a liability. In the event that USSC exercises its option to
license the EGF Fusion Protein, the $5.0 million will be recorded as revenue
at that time. In the event that USSC chooses not to exercise the option, the
$5.0 million will be recorded as stockholders' equity.
<PAGE> 68
On May 29, 1996, the Company issued 4,000 shares of Series A
Preferred stock ("Series A Shares"), to investors outside the United
States in reliance on Regulation S of the Securities Act, for gross
proceeds of $4 million (approximately $3.8 million net of offering
fees). Each Series A Share is convertible into shares of the Company's
Common Stock at a conversion price equal to the lesser of $4.125 or
73 percent of the average closing bid prices for a five-day period
prior to the conversion date, up to a maximum of 3,321,563 shares
of Common Stock. Any share the investor is unable to convert due
to this limitation may be exchanged for $1,150 per share in cash.
The holders of the Series A Shares also are entitled to receive
cumulative dividends at an 8% annual rate upon conversion, payable
in shares of Common Stock. Any Series A Shares remaining outstanding
on November 29, 1997, will be automatically converted into shares of
Common Stock. As of October 7, 1997, 2,865 Series A Shares had been
converted into 3,156,445 shares of Common Stock. If the holders of
the Series A Shares convert an additional 22 shares into Common Stock,
the Company will be obligated to exchange any remaining Series A Shares
for $1,150 per share in cash, which is currently estimated at approximately
$1.3 million. There can be no assurance that the Company will have
sufficient funds to pay these amounts to the holders of the Series A Shares.
The Company has not paid the cash dividends due December 31, 1996, March
31, 1997, June 30, 1997, and September 30, 1997, on shares of its Series B
Preferred stock ("Series B Shares"), nor has the Company made the royalty
payments due to its subsidiary, Seragen Technology, Inc. ("STI"), on January
1, 1997, April 1, 1997, July 1, 1997, and October 1, 1997. Correspondingly,
STI has not paid the dividends due January 1, 1997, April 1, 1997, July 1,
1997, and October 1, 1997, on shares of its Class B common stock ("Class B
Shares"). The Company does not expect STI to make the dividend payments due
on the Class B Shares on January 1, 1998. As a result, the holders of the
Class B Shares have the right under an escrow agreement to seek delivery to
them of a collateral assignment of the Company's patents. The holders of the
Class B Shares have, however, agreed to forbear until March 1, 1998 from
exercising their right to foreclose on the patents.
The Company anticipates that existing cash and cash equivalents, the
reimbursement of clinical costs for the development of IL-2 Fusion Protein for
cancer therapy from Lilly, the reimbursement of operating costs by Boston
University and the $5.0 million received by USSC for a license option will be
sufficient to fund the Company's working capital requirements through
approximately December 1997. In addition, the Company must complete the sale
of its manufacturing and clinical operation facilities to Boston University or
the $4.5 million deposit and the $3.4 million operating expenses that have
been paid as of June 30, 1997, on such facility will be subject to refund to
Boston University (See Note 6 in the "Notes to the Financial Statements"
regarding significant future obligations). The Report of Independent
Accountants on the Company's Financial Statements for the fiscal year ended
December 31, 1996 includes an explanatory paragraph concerning uncertainties
surrounding the Company's ability to continue as a going concern. This may
adversely affect the Company's ability to raise additional capital. See Note
A in the Annual Report on Form 10-K for the year ended December 31, 1996 in
the "Notes to the Financial Statements." The Company's ability to finance its
operations is dependent upon its ability to raise additional capital through
debt or equity financings, possible additional payments under the strategic
alliance with Lilly, or such other sources of financing, including strategic
partnerships, as may be available.
The Company's Common Stock was delisted from trading on the Nasdaq
National Market on September 9, 1997, due to failure to comply with Nasdaq's
minimum net tangible assets requirement. The delisting of the Common Stock
from the Nasdaq National Market could have a material adverse effect on the
Company's efforts to raise additional equity capital. In addition, as a
result of the delisting of the Common Stock from the Nasdaq National Market,
the investors in Seragen Biopharmaceuticals Ltd. ("SBL"), a company 49% owned
by the Company, may claim that they are entitled to require the Company to
purchase their shares in SBL for cash. The Company believes that it has
meritorious defenses to assert against this potential claim. There is no
assurance that the Company will have sufficient cash to purchase the
investors' shares in SBL for cash. The Company intends to re-apply for
listing on the Nasdaq National Market or the Nasdaq Small-Cap Market as soon
as possible after the Company is able to satisfy applicable listing
requirements. There is no assurance that the Company will be able to satisfy
these requirements.
<PAGE> 69
The Company is exploring a possible equity offering, although the terms
of such offering have not been finalized. There can be no assurance that the
Company will be successful in an equity offering or that the amount raised
will be sufficient to fund the Company's operating expenses until other
sources of funds can be secured. Management of the Company believes that to
be able to complete a new equity financing successfully, the holders of the
Company's Series A, Series B and Series C preferred stock will be required to
convert such securities in connection with the offering. Management is in
discussions with such holders, but there is no assurance that such agreements
can be reached on terms satisfactory to the Company. Any such offering would
likely result in a significant dilution to holders of Common Stock.
The Company also continues to seek additional funds through collaborative
or other arrangements with corporate partners and others. There can be no
assurance that the Company will be successful in securing collaborative or
other arrangements with corporate partners or others on acceptable terms, if
at all.
If the Company does not consummate an equity financing or additional
collaborative or other arrangements with corporate partners, then the
Company's current cash position may not be sufficient to meet its financial
obligations or to fund operations at the current level beyond December 1997.
If adequate additional funds are not available, the Company may be required to
delay, scale back or eliminate some or all of its clinical trials,
manufacturing or development activities or certain other aspects of its
business and may be required to cease operations. The Company also is
exploring other alternatives that could result in a merger or sale of the
Company.
Safe Harbor Information
Some of the statements contained in this document are forward-looking,
including statements relating directly or by implication to the Company's
products, operations, strategic partnerships, and ability to fund its
operations. These statements are based on current expectations and involve a
number of uncertainties and risks, including (but not limited to) the
Company's ability to proceed with successful development, testing, and
licensing of its products and the Company's ability to enter into additional
strategic partnerships and other collaborative arrangements or to raise
additional capital on satisfactory terms, or to complete a merger or sale of
the Company. For further information, refer to the "Business Outlook" section
in the Company's Form 10-K as filed with the Securities and Exchange
Commission. Actual results may differ materially from such expectations.
<PAGE> 71
EXHIBIT A-1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into
as of this 14th day of February, 1997 by and between Seragen, Inc., a Delaware
corporation having a usual place of business at 97 South Street, Hopkinton,
Massachusetts (the "Seller"), and Trustees of Boston University, a
Massachusetts not-for-profit corporation having a usual place of business at
881 Commonwealth Avenue, Boston, Massachusetts (the "Buyer").
WHEREAS, the Seller is in the business of biotechnical research,
development, design, manufacture, sale and distribution of pharmaceutical and
health care and related products; and WHEREAS, the Seller conducts its
business
in leased premises located in Hopkinton, Massachusetts, as more particularly
described herein; and WHEREAS, the Seller is the owner of all of the right,
title and interest in various physical assets and equipment which it utilizes
in the conduct of its business; and WHEREAS, the Seller is the lessee of
various other physical assets and equipment which it utilizes in the conduct
of its business; and WHEREAS, the above-described physical assets are
primarily utilized in roduct manufacturing, clinical trials, and research
and development activities; and WHEREAS, the Buyer desires to purchase and
acquire from the Seller, and the Seller desires to sell and transfer to the
Buyer, all of the physical assets (except for those assets specifically
excluded) owned by the Seller and used in the conduct of the Seller's
business, on the terms and subject to the conditions set forth n this
Agreement; and WHEREAS, the Buyer desires to take an assignment of the
Seller's equipment eases and the Seller's real estate leases, on the terms
and subject to the conditions set forth in this Agreement; and WHEREAS, in
connection with all of the foregoing, the Buyer desires to utilize the
physical assets so acquired and the equipment and real estate leases
so assigned to operate the product manufacturing, clinical trial and research
and development facilities currently operated by the Seller, both as a
research and development facility for its own use and as a commercial
contract product manufacturing, clinical trial and research and development
facility to third parties, including the Seller (such facility being
referred to herein as the "Biotech Incubator Facility");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows.
ARTICLE I
PURCHASE AND SALE OF ASSETS
SECTION 1.01 Transfer of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as hereinafter
defined) theSeller shall transfer to the Buyer, free and clear of all claims,
charges, liens,contracts, rights,options, security interests, mortgages,
encumbrances and restrictions whatsoever(collectively, "Claims"), all of the
tangible physical assets and personal property, including, without limitation,
inventory, raw materials, machines, machinery, warehouse equipment, furniture,
fixtures, vehicles, supplies, packaging and shipping materials, software
(including, without limitation, source codes, object codes and
documentation), property, equipment, licenses and permits pertaining to the
foregoing physical assets, know-how pertaining to the operation of the
foregoing physical assets, computers and computer equipment, that are
currently owned by the Seller free and clear of any Claims and used by Seller
in its business (collectively, the "Unencumbered Assets"). The Unencumbered
Assets are more particularly described in Schedule 1.01U attached hereto
and incorporated by reference herein. In addition, at the Closing (as
hereinafter defined) the Seller shall transfer to the Buyer, subject only to
Claims existing as of the date hereof, all of the tangible physical assets and
personal property including, without imitation, inventory, raw materials,
machines, machinery, warehouse equipment, furniture, fixtures, vehicles,
supplies, packaging and shipping materials, software (including, without
limitation, source codes, object codes and documentation), property,
equipment, licenses and permits pertaining to the foregoing physical assets,
know-how pertaining to the operation of the foregoing physical assets,
computers and computer equipment, that are owned by the Seller subject to
Claims existing as of the date hereof and used by Seller in its business
(collectively, the "Encumbered Assets"). The Encumbered Assets are more
particularly described in Schedule 1.01E attached hereto and incorporated by
reference herein. The Unencumbered Assets, the Encumbered Assets and the
Contracts (as hereinafter defined) are collectively referred to herein as "the
Transferred Assets". Notwithstanding any of the foregoing, the Transferred
Assets shall not include those assets designated as "Excluded Assets" on
Schedule 1.01X attached hereto and incorporated by reference herein. Without
limiting the generality of the foregoing, all tangible assets and physical
property of the Seller located at the facilities listed in Schedule 1.03,
other than Excluded Assets, shall be included in the Transferred Assets.
The Seller shall transfer the Transferred Assets to the Buyer
pursuant to a bill of sale substantially in the form of Exhibit 1.01 attached
hereto (the "Bill of Sale") and such other documents and instruments as the
Buyer, or its counsel, may reasonably request.
SECTION 1.02 Consideration for the Transferred Assets. In
consideration for the conveyance of the Transferred Assets, upon the terms and
subject to the conditions set forth in this Agreement, on the Closing Date,
the Buyer, in addition to assuming the Assumed Liabilities, will pay to the
Seller an aggregate consideration of Five Million and 00/100 Dollars
($5,000,000.00) (the "Purchase Price"). Upon the execution of this
Agreement, the Buyer shall deposit the sum of Three Million Five Hundred
Thousand and 00/100 Dollars ($3,500,000.00) with the Seller (the "Signing
Deposit"). On March 1, 1997, the Buyer shall deposit the further sum of One
Million and 00/100 Dollars ($1,000,000.00) with the Seller (the "Additional
Deposit"). The Signing Deposit and the Additional Deposit are herein
collectively referred to as the "Deposit." The Deposit shall be secured as
provided in Section 1.08 hereof. The balance of the Purchase Price shall be
paid at Closing. The total consideration paid by the Buyer to the Seller for
the Transferred Assets shall be allocated among the Transferred Assets
pursuant to a written allocation mutually agreed to between the Buyer and the
Seller prior to the Closing. The Buyer and the Seller shall file all
information returns, income tax returns and other similar documents with
appropriate taxing authorities, including the Asset Acquisition Statement on
Form 8594 required by Section 1060 of the Internal Revenue Code of 1986, as
amended, in a manner consistent with such written allocation.
SECTION 1.03 Assignment of Contracts. At the Closing, the Seller
shall assign to the Buyer all of its right, title and interest in and to, and
the Buyer shall take an assignment of and assume the obligations of the Seller
under, those certain equipment leases more particularly described in Schedule
1.03E attached hereto and incorporated by reference herein, those certain
real estate leases more particularly described in Schedule 1.03R attached
hereto and incorporated by reference herein, those certain licenses and
permits described on Schedules 1.01U and 1.01E, and the Service Agreements (as
hereinafter defined) (such equipment leases, real estate leases and Service
Agreements being collectively called the "Contracts"). Notwithstanding the
foregoing, this Agreement shall not constitute an agreement to assign any
Contract if an attempted assignment thereof, without the consent of another
party thereto or any governmental authority, would constitute a breach
of any such Contract or in any way affect the rights of the Seller thereunder
or the Buyer as assignee hereunder. The Seller shall use all reasonable
efforts and the Buyer shall cooperate in all reasonable respects with the
Seller to obtain all consents and waivers and to resolve all impracticalities
of assignments or transfers necessary to assign and convey the Contracts to
the Buyer. If any such consent or waiver are not obtained, or if an attempted
assignment would be ineffective, the Seller shall use all reasonable efforts
to provide the Buyer with the benefits of any such Contract, and the
Seller shall promptly pay to the Buyer when received all moneys received by
the Seller under any such Contract and, to the extent the Buyer is provided
with the benefits of any such Contract, the Buyer shall perform or
discharge on behalf of the Seller all obligations and liabilities under each
such Contract in accordance with the provisions hereof, as fully and
effectually as if such Contract was assigned hereunder.
SECTION 1.04 Assumption of Liabilities. At the Closing, the Buyer
shall assume, and shall thereafter pay, perform and discharge as and when due,
the following liabilities and obligations (collectively, the "Assumed
Liabilities"):
(a) Claims. All liabilities and obligations relating to the
Claims against the Encumbered Assets, as such Claims exist as of the date
hereof;
(b) Contracts. All liabilities and obligations of the Seller
under the Contracts to the extent that such liabilities and obligations arise,
accrue or are otherwise properly attributable to the period commencing on or
after the Closing Date, provided that such Contracts are assigned to
the Buyer as of the Closing Date or the Buyer is receiving the benefits of
such Contracts;
(c) Post-Closing Operation. All obligations, liabilities and
claims which arise out of the Buyer's ownership, operation, use, possession or
sale of the Transferred Assets on and after the Closing Date;
(d) Accrued Vacation; Severance. All liabilities and
obligations of the Seller for accrued vacation and severance expense existing
as of the Closing Date with respect to such of the Seller's employees set
forth on Schedule 2.11 as are employed by the Buyer as of the Closing Date;
and
(e) Certain Other Liabilities. Those additional liabilities
and obligations of the Seller set forth on Schedule 1.04. There shall be no
material default of any contract or other arrangement giving rise to
such obligations and liabilities as of the Closing Date. The Seller shall
duly provide to the satisfaction of the Buyer for the payment of all of its
liabilities due and owing as of the Closing, except for the Assumed
Liabilities, to the extent that the Buyer reasonably determines that failure
to satisfy such liabilities could result in the imposition of liens on any of
the Transferred Assets. Except for the Assumed Liabilities in the amount and
to the extent provided in this Section, the Buyer shall not assume, nor be
responsible for, any liabilities or obligations which relate in any
manner to the Seller or the operation of its business or any of its equipment,
property or real estate.
SECTION 1.05 Closing. Subject to the satisfaction or waiver of
each of the conditions set forth in Articles VI an VII of this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Boston University, 881 Commonwealth Avenue,
Boston, Massachusetts at 10 o'clock a.m., on June 2, 1997, or such other
location, date and time as the Buyer and the Seller shall agree upon in
writing (such date and time being called the "Closing Date"). Time is of the
essence hereof. At the Closing:
A. The Seller shall deliver or cause to be delivered to the Buyer
the following:
(i) The Bill of Sale conveying the Transferred Assets to the
Buyer;
(ii) The certificates required by Sections 6.02 and 6.03;
(iii) A copy of resolutions of the board of directors and
shareholders of the Seller, certified by its Secretary or
Assistant Secretary, authorizing and approving the
execution, delivery and performance of this Agreement and
the transactions contemplated hereby and the acts of the
officers and employees of the Seller in carrying out the
terms and provisions hereof; and
(iv) Such written consents and written approvals of third
parties, real estate lessors, equipment lessors, and
their respective mortgagees, lenders and secured parties
as shall be required under any leases or financing
documents so as to permit the transfer of all material
Transferred Assets and the assignment of all material
Contracts in connection with the transactions
contemplated hereby.
B. The Buyer shall deliver or cause to be delivered to the Seller
the following:
(i) A copy of the resolutions of the board of directors or
other governing board of the Buyer (or its Nominee
pursuant to Section 1.06 hereof) certified by
its Secretary or Clerk, authorizing and approving the
performance of this Agreement and the transactions
contemplated hereby and the acts of the officers and
employees of the Buyer (or its Nominee) in carrying out
the terms and provisions hereof;
(ii) The UCC-3 Termination Statements contemplated by Section
1.03 hereof; and
(iii) The balance of the Purchase Price by wire transfer of
immediately available funds to such bank account as the
Seller shall designate.
C. The Buyer and the Seller shall deliver, or cause to be
delivered, as appropriate:
(i) An Instrument of Assumption of Liabilities substantially
in the form of Exhibit 1.05(C)(i) attached hereto,
pursuant to which the Buyer shall assume the Assumed
Liabilities;
(ii) An Assignment of Leases in form and substance satisfactory
to the Buyer assigning all right, title and interest of
the Seller in and to those certain Leases for real
property set forth in Schedule 1.03R hereof, together with
the consents of the lessors of such premises and any
mortgagees or secured parties of such lessors required
hereunder, and pursuant to which Assignment the
Buyer shall assume all obligations of the tenant
thereunder.
(iii) An Assignment of Equipment Leases in form and substance
satisfactory to the Buyer assigning all right, title and
interest of the Seller in and to all material equipment
leases set forth in Schedule 1.03E hereof, together with
the consents of the lessors of all material equipment and
any mortgagees or secured parties of such lessors required
hereunder, and pursuant to which Assignment the Buyer
shall assume all obligations of the Seller thereunder;
(iv) A Sublease in form and substance satisfactory to the
Seller and the Buyer pursuant to which the Buyer shall
Sublease to the Seller the premises described in
Schedule 1.05 hereof for the Seller's general office
purposes, all on such terms and conditions and
at the rents (pro rated as necessary on the basis of
square footage) as are applicable to the Buyer under its
lease(s) for such space, subject to any consent
or approval of any lessor(s) or mortgagee or secured party
of such lessor(s) required to effectuate such Sublease;
(v) Such further documents, resolutions, certificates and
instruments as any party or its counsel reasonably
requests to facilitate the consummation of the ransactions
contemplated hereby.
SECTION 1.06 Nomination by the Buyer. Notwithstanding any other
provision hereof to the contrary, it is understood and agreed that the Buyer
shall have the option at all times of consummating the transactions
contemplated hereby by and through a corporation, limited liability company or
other entity of its choosing, which is created by and wholly owned, directly
or indirectly, by the Buyer as of the Closing Date (as the context requires, a
or the "Nominee"). If the Buyer shall elect to consummate the transactions
contemplated hereby through a Nominee, the Buyer shall give written notice to
the Seller of such nomination and designation not less than seven (7) days
prior to the Closing Date hereunder, and the Nominee shall, at such time,
deliver to the Seller an instrument assuming all of the Buyer's obligations
and liabilities hereunder, such instrument to be in form and substance
reasonably satisfactory to the Seller. Upon such nomination, this Agreement
shall be deemed to be assigned to the Nominee, and the Nominee shall be deemed
to be the Buyer hereunder for all purposes, completely and effectively as if
the Nominee were the Buyer named herein. In the event that such Nominee shall
be an entity whose sole assets are or will be the Transferred Assets or that
otherwise has insufficient net assets to provide commercially reasonable
credit-worthiness for its obligations set forth herein, a subsidiary of the
Buyer with assets sufficient to provide commercially reasonable
credit-worthiness shall execute and deliver at the Closing a guarantee of the
Nominee's obligations hereunder, such guarantee to be in form and substance
reasonably satisfactory to the Buyer and the Seller.
SECTION 1.07 Further Assurances. At any time and from time to time
after the Closing Date, at the request of the Buyer and without further
consideration, the Seller will execute and deliver such other instruments of
sale, transfer, conveyance, assignment and confirmation as may be requested
in order to more effectively transfer, convey and assign to the Buyer and to
confirm the Buyer's title to the Transferred Assets and the assignment of the
equipment leases and real estate leases hereunder. At any time and from time
to time after the Closing Date, at the request of the Seller and without
further consideration, the Buyer shall execute and deliver such other
instruments of assumption as may be requested in order to more effectively
confirm the Buyer's assumption of, and obligation to fulfill and discharge,
the Assumed Liabilities.
SECTION 1.08 Deposit. At the Closing, the Deposit (or so much
thereof as has been paid by the Buyer) shall be applied to the payment of the
Purchase Price. In the event that the transactions contemplated hereby
are not consummated on or before the Closing Date, time being of the essence,
as a result of (i) material default by the Seller of its obligations hereunder
or any of its covenants or agreements hereunder or material breach by
the Seller of any of its representations or warranties hereunder; or (ii) the
failure of the Office of the Attorney General of the Commonwealth of
Massachusetts, Public Charities Division, to approve the transactions
contemplated by this Agreement; or (iii) the failure of a majority of the
disinterested stockholders of the Seller in attendance, in person or by proxy,
at a meeting of stockholders of the Seller to consider the transactions
contemplated by this Agreement to approve the transactions contemplated by
this Agreement; or (iv) the failure of any third party, lessor, mortgagee,
secured party, or other person or entity whose approval or consent is required
pursuant to the terms hereof as a condition to the obligation of the parties
hereunder to consummate the transactions contemplated hereby to so approve or
consent to the transactions contemplated hereby; then, in any such event, the
Deposit (or so much thereof as has been paid by the Buyer) shall be forthwith
refunded by the Seller to the Buyer. The foregoing shall not be deemed to be
in limitation of any right or remedy otherwise available to the Buyer, at law
or in equity, in the event of a default by the Seller hereunder.
To secure the Seller's obligation to return the Deposit in the event
that the transactions contemplated hereby are not consummated in a timely
manner for any of the reasons set forth in the foregoing provisions of this
Section 1.08, the Seller does hereby grant to the Buyer a security interest in
and to all of the Unencumbered Assets, together with all proceeds from and
substitutions therefor, with all of the rights of a secured party under the
Massachusetts Uniform Commercial Code. In connection therewith, the Seller
shall, contemporaneously with the execution of this Agreement, execute and
deliver so-called UCC-1 Financing Statements for filing in the appropriate
state and local offices. In the event that the Deposit is returned
by the Seller to the Buyer in accordance with the provisions of this Section
1.08, or upon the Closing hereunder, the Buyer shall promptly execute and
deliver so-called UCC-3 Termination Statements acknowledging its release of
the security interests created hereby.
In the event that the Buyer shall be entitled to a return of the
Deposit hereunder, said Deposit shall be refunded together with interest
thereon at the annual rate of ten percent (10%). In the event that the
Deposit is applied to the Purchase Price hereunder, the Buyer shall not be
entitled to the payment of or any credit for interest on the Deposit.
SECTION 1.09 Prorations. Utility charges, rent with respect to
real or personal property, personal property taxes, and other similar
proratable items which are attributable to the Transferred Assets
shall be apportioned between the Buyer and the Seller as of the Closing Date.
Any such item which relates to the period on or prior to the Closing Date
shall be apportioned to the Seller and any such item which relates
to the period after the Closing Date shall be apportioned to the Buyer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller hereby represents
and warrants to the Buyer as follows:
SECTION 2.01 Organization and Qualification. The Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Seller has the corporate power
and authority to own and hold its properties and to carry on its business as
currently conducted.
SECTION 2.02 Corporate Power and Authority. The Seller has the
corporate powerand authority to execute, deliver and perform this Agreement
and the other documents and instruments contemplated hereby.
The execution, delivery and performance of this Agreement and the documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by the Seller's
Board of Directors, subject to approval of Seller's stockholders as
contemplated herein. Subject only to such stockholder approval, this
Agreement, and each of the other agreements, documents and
instruments to be executed and delivered by the Seller have been duly executed
and delivered by, and constitute the valid and binding obligation of the
Seller, enforceable against the Seller in accordance with their terms,
subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws now or hereafter in effect, as well as
limitations imposed by general principles of equity upon the specific
enforceability of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
SECTION 2.03 Validity, Etc. Subject in all respects to the
approval of the Seller's stockholders as contemplated hereby, neither the
execution and delivery of this Agreement and the other documents and
instruments contemplated hereby, the consummation of the transactions
contemplated hereby or thereby, nor the performance of this Agreement and such
other agreements in compliance with the terms and conditions hereof and
thereof will, except as set forth on Schedule 2.03, (i) conflict with or
result in any breach of any trust agreement, articles of organization or
by-law of the Seller, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or
regulatory authority, (iii) result in a breach of or default (or give rise to
any right of termination, cancellation or acceleration) under any law, rule or
regulation or any judgment, decree, order, governmental permit (other than
permits set forth in a Schedule hereto which are not transferable), license or
order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation to which
the Seller is a party or by which the Seller or its property is bound, or (iv)
result in the creation of any Claim upon the Transferred Assets.
SECTION 2.04 Absence of Undisclosed Liabilities. Except as and to
the extent specifically reflected in Schedule 1.01E or Schedule 1.04, or, with
respect to the Contracts, except as specifically set forth on the face
thereof, the Transferred Assets are not encumbered by any liabilities,
obligations or Claims and there are no liabilities, obligations or Claims with
respect thereto.
SECTION 2.05 Taxes. Except as set forth on Schedule 2.05, all
Federal, state, local and foreign tax returns and tax reports required to be
filed by the Seller or its affiliates on or before the date hereof have been
timely filed with the appropriate governmental agencies in all jurisdictions
in which such returns and reports are required to be filed and all amounts
shown as owing thereon have been paid. All taxes (including, without
limitation, income, accumulated earnings, property, sales, use, franchise,
value added, fuel, employees' income withholding and social security taxes)
which have become due or payable or required to be collected by the Seller or
its affiliates or as otherwise attributable to any periods ending
on or before the date hereof and the Closing Date and all interest and
penalties thereon, whether disputed or not, have been paid or will be paid in
full on or prior to the Closing Date, except where the Seller has
a reasonable basis for determining that the taxes are not then due and
payable. All deposits required by law to be made by the Seller or its
affiliates with respect to employees' withholding taxes have been duly
made, and, as of the Closing Date, all such deposits will have been made. The
Seller is not, on the date hereof, and will not, on the Closing Date, be
liable for the payment of any taxes, and the Buyer shall have no liability for
any taxes related to the ownership or operation of the Transferred Assets
or the Biotech ncubator Facility prior to the Closing Date. The Seller is
not presently under, has not received notice of an, nor to the Seller's
knowledge is there any contemplated, investigation or audit by the
Internal Revenue Service or any state tax agency. The Seller has not taken or
failed to take any action which could create any tax lien on any of the
Transferred Assets.
SECTION 2.06 Litigation. Except as set forth on Schedule 2.06,
there is no action, suit, claim, proceeding, arbitration proceeding or
investigation with respect to which the Seller has received notice
pending or, to the Seller's knowledge, threatened against or materially
affecting the Seller (whether or not the Seller is a party or a prospective
party), at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. The Seller has not received any written
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability or disadvantage to the
business, prospects, financial condition, operations, property or affairs of
the Biotech Incubator Facility. There are no outstanding orders, writs,
injunctions or decrees of any court, governmental agency or arbitration
tribunal against, or materially affecting, the Seller of which the Seller has
received notice, and to the Seller's knowledge, there are no facts or
circumstances which could reasonably be expected to result in institution
of any action, suit, claim or legal, administrative or arbitration proceeding
or investigation against, involving or affecting the Seller or the
transactions contemplated hereby. The Seller is not in default with respect to
any order, writ, injunction or decree known to or served upon it from any
court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
SECTION 2.07 Certain Practices. The Seller has not, directly or
indirectly, given or agreed to give any significant rebate, gift or similar
benefit to any supplier, customer, governmental employee or other person who
was, is or may be in a position to help or hinder the Seller (or assist in
connection with any actual or proposed transaction) which (i) could subject
the Seller or the Buyer to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (ii) if not continued in the
future, could have a material adverse effect on the Biotech Incubator
Facility.
SECTION 2.08 Compliance with Law. The Seller is not subject to any
judgment, order, writ, injunction, or decree that adversely affects,
individually or in the aggregate, the Biotech Incubator Facility, or its
operations, properties, assets or condition (financial or otherwise).
The Seller has complied with all laws, rules, regulations and orders
applicable to it in relation to its ownership and operation of the Biotech
Incubator Facility. The Seller is not aware of any existing law, rule,
regulation or order, or of any proposed law, rule, regulation or order
currently pending before any governmental body or agency, whether Federal or
state, which would prohibit or restrict the Buyer from, or otherwise adversely
affect the Buyer in, owning and operating the Biotech Incubator Facility as
presently owned and operated by the Seller.
SECTION 2.09 Licenses and Permits. Schedule 2.09 lists all
licenses, permits, pending applications, consents, approvals and
authorizations held by the Seller of or from any public or governmental
agency, used or useable in or otherwise necessary to the operation of the
Biotech Incubator Facility (collectively, the "Permits"). Except as noted on
Schedule 2.09, the Permits will be duly and validly transferred to the Buyer.
The Seller has complied with all conditions and requirements imposed by
the Permits and the Seller has not received any notice, and has no reason to
believe, that any appropriate authority intends to cancel or terminate any of
the Permits or that valid grounds for such cancellation or termination exist.
Except as set forth on Schedule 2.09, to the Seller's knowledge no other
permits are necessary to operate the Biotech Incubator Facility. The Seller
owns or has the right to use the Permits in accordance with the terms thereof
without any conflict or alleged conflict or infringement with the rights of
others and subject to no Claim, and each Permit is in full force and effect.
Except as noted on Schedule 2.09, no Permit will be terminated or adversely
affected by the transactions contemplated hereby.
SECTION 2.10 Labor and Employee Relations. The Seller is not a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees, and the
Seller has no knowledge of any attempt to organize any of its employees
by any person, unit or group seeking to act as their bargaining agent. Except
as set forth on Schedule 2.06, there are no pending or, to the Seller's
knowledge, threatened charges (by employees, their representatives or
governmental authorities) of unfair labor practices or of employment
discrimination or of any other wrongful action with respect to any aspect of
employment of any person employed or formerly employed by the Seller. No
union representation elections relating to employees of the Seller have been
scheduled by any governmental agency or authority, no organizational effort is
being made with respect to any of such employees, and there is no
investigation of the Seller's employment policies or practices by any
governmental agency or authority pending or, to the Seller's knowledge,
threatened. The Seller is not currently, and has not within the last three
years been, involved in labor negotiations with any unit or group seeking to
become the bargaining unit for any employees of the Seller's employees. The
Seller has not experienced any work stoppages during the last three years, and
to the Seller's knowledge, no work stoppage has been threatened or is
planned.
SECTION 2.11 Certain Employees. Set forth on Schedule 2.11 is a
list of the names of the Seller's employees and consultants as of the date
hereof involved in the management and operation of the Biotech Incubator
Facility, together with the title or job classification of each such
person and the total compensation (with wages and bonuses, if any, separately
detailed) paid in 1996 and the current rate of pay for each such person on the
Closing Date. None of such persons has an employment agreement or
understanding, whether oral or written, with the Seller which is not
terminable on notice by the Seller without cost or other liability to the
Seller. As of the date hereof, no person listed on Schedule 2.11 has
indicated to the Seller that he or she intends to terminate his or her
employment with the Seller or seek a material change in his or her duties or
status.
SECTION 2.12 Employee Benefits. Set forth on Schedule 2.12 is a
list of all pension, profit sharing, retirement, deferred compensation, stock
purchase, stock option, incentive, vacation, severance, disability,
hospitalization, medical insurance, life insurance, fringe benefit, welfare
and other employee benefit plans, programs or arrangements to which employees
of the Seller may be entitled.
The Seller will maintain the benefits listed on Schedule 2.12 in
full force and effect through the Closing Date, and, except as noted on
Schedule 2.12, thereafter with respect to events occurring on or prior
to the Closing. Except as otherwise expressly set forth herein, the Buyer
shall not have any obligation of any kind or nature for any compensation or
benefits of any kind or nature to the employees or consultants of the Seller
for services rendered prior to the Closing Date.
Each "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
covering any present or former employee of the Seller subject to the
requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") complies with all requirements for continuation coverage under
group health benefit plans under COBRA and there are no claims against the
Seller for a failure or alleged failure to comply with the COBRA continuation
requirements.
Each employee plan which is subject to ERISA conforms to, and its
operation and administration are in compliance with, all applicable
requirements of ERISA. There are no actions, suits or claims pending
(other than routine claims for benefits) or threatened against any employee
plan or against the assets of any employee plan.
SECTION 2.13 Tangible Properties. Schedule 1.01E and Schedule
1.01U set forth a true and complete list of all tangible personal property
owned by the Seller with an original purchase price in excess of
$1,500.00 and used or useable in the Biotech Incubator Facility. The tangible
personal property included in the Transferred Assets will be, at the Closing,
all of the tangible personal property currently owned by the Seller and used
or useable in the Biotech Incubator Facility. The Seller is the owner of all
of the right, title and interest in and to, and has good and marketable title,
free and clear of all Claims, to the Unencumbered Assets listed on Schedule
1.01U. The Seller is the owner of all of the right, title and interest in and
to, and has good and marketable title to, the Encumbered Assets, subject only
to those Claims described in Schedule 1.01E. Schedule 1.03E sets forth a true
and complete list of all tangible personal property leased by the Seller as
lessee and used or useable in the Biotech Incubator Facility. With respect to
such equipment leased by the Seller, all leases, conditional sale contracts,
franchises or licenses pursuant to which the Seller may hold or use (or permit
others to hold or use) such equipment or property are valid and in full force
and effect, and there is not, under any of such instruments, any existing
default or event of default or event which with notice or lapse of time or
both would constitute such a default. The Seller's possession and use of such
property has not been disturbed and no claim has been asserted against the
Seller adverse to its rights in such leasehold interests. All Transferred
Assets, equipment and property being sold, transferred or assigned hereunder
is adequate and usable for the purposes for which it is currently used and is
in good operating condition and repair, ordinary wear and tear excepted.
SECTION 2.14 Premises. Schedule 1.03R sets forth a true and
complete list and description of each parcel of real property leased by the
Seller and used in the Biotech Incubator Facility (the "Leased Premises").
Each lease covering a Leased Premises is in full force and effect
(there existing no default under any such lease which, with the lapse of time
or notice or otherwise, would entitle the lessor to terminate the same),
conveys the leased real estate purported to be conveyed thereunder and is
enforceable by the Seller. The Seller has the right to use the Leased
Premises in accordance with the terms of such leases free and clear of all
Claims or other interests or rights of third parties, except those which do
not or would not have an adverse effect on the Leased Premises as
used in the operation of the Biotech Incubator Facility. Seller has not
received notice of any pending or threatened condemnation or similar
proceedings or assessments affecting any of the Leased Premises,
nor to the Seller's knowledge is any such condemnation or assessment
contemplated by any governmental authority.
SECTION 2.15 Insurance. Schedule 2.15 correctly describes (by
type, carrier, policy number, limits, premium, and expiration date) the
insurance coverages carried by the Seller.
SECTION 2.16 Outstanding Commitments. Schedule 2.16 sets forth a
description of all existing material contracts, agreements, commitments,
licenses and franchises (other than those which can be canceled upon not more
than 30 days notice without penalty to the Seller), whether written
or oral, relating to the ownership or operation of the Biotech Incubator
Facility (collectively "Service Agreements"). The Seller has delivered or
made available to the Buyer true, correct and complete copies
of all of the Service Agreements specified on Schedule 2.16 which are in
writing, and Schedule 2.16 contains an accurate and complete description of
all Service Agreements which are not in writing. Except as otherwise
disclosed on Schedule 2.16, the Seller has paid in full all amounts due as of
the date hereof under each Service Agreement identified on Schedule 2.16 and
as of the Closing Date will have satisfied in full all of its liabilities and
obligations thereunder due in the ordinary course of business prior to the
Closing. All of the Service Agreements described on Schedule 2.16 are in full
force and effect. The Seller and each other party thereto have substantially
performed all the obligations required to be performed by them under such
Agreements to date, performance of which has not been waived, have received
no notice of default and are not in default (with due notice or lapse of time
or both) under any such Agreement. The Seller has no present expectation or
intention of not fully performing all its obligations under each Agreement,
and the Seller has no knowledge of any breach or anticipated breach
by the other party to any contract or commitment to which the Seller is a
party. None of such Service Agreements has beenterminated, no notice has been
given by any party thereto of any alleged default by any party thereunder,
and the Seller is not aware of any intention or right of any party to default
another party to any such Service Agreement. There exists no actual or, to
the knowledge of the Seller, threatened termination, cancellation or
limitation of the business relationship of the Seller with any party to
any such Service Agreement.
SECTION 2.17 Proprietary Information of Third Parties. No third
party has claimed or, to the Seller's knowledge, has reason to claim that any
person employed by or affiliated with the Seller in connection with its
ownership and operation of the Biotech Incubator Facility has (a) violated or
may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (b)
disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Seller which suggests that such a claim might
be contemplated. To the Seller's knowledge, no person employed by or
affiliated with the Seller in connection with the operation of the Biotech
Incubator Facility has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer and no
person employed by or affiliated with the Seller in connection with the
operation of the Biotech Incubator Facility has violated any confidential
relationship which such person may have had with any third party, in
connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Biotech Incubator Facility, and the Seller has no reason to believe
there will be any such employment or violation.
SECTION 2.18 Governmental Approvals. No registration or filing
with, or consent or approval of or other action by, any Federal, state or
other governmental agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by the Seller of this Agreement.
SECTION 2.19 Environmental Liability.
(a) Environmental Substance Liability. To the Seller's knowledge,
no event has occurred or condition exists or operating practice is being
employed that could give rise to material liability on the part of the Seller
under existing law for any losses, liabilities, damages (whether consequential
or otherwise), settlements, penalties, interest and expenses, including
closure expenses, costs of assessment, containment, or removal (other than
transportation or disposal of materials required to be transported or disposed
of in the ordinary course of business, remedial work, or monitoring) arising
under any presently enacted Federal, state, or local statute, or any
regulation that has been promulgated pursuant thereto, or common law, as a
result of or in connection with, or alleged to be a result of or in connection
with, the following:
(i) the handling, storage, use, transportation or disposal of
any Substances (as hereinafter defined) in or near or from
the Biotech Incubator Facility, by the Seller or any owner
of any property used or owned by the Seller;
(ii) the handling, storage, use, transportation or disposal of
any Substances by the Seller which Substances were a
product, by-product or otherwise resulted from
the operations conducted by or on behalf of the Seller;
(iii) any intentional or unintentional emission, discharge or
release of any Substances in, from or near facilities or
plants into or upon the air, surface water, ground water
or land or any disposal, handling, manufacturing,
processing, distribution, use, treatment, or transport of
such Substances in, from or near the Biotech Incubator
Facility; or
(iv) the presence of any toxic or hazardous building materials
(including but not limited to asbestos or similar
substances) in the Biotech Incubator Facility, including
but not limited to the inclusion of such materials in the
exterior and interior walls, floors, ceilings, tile,
insulation or any other portion of building structures.
As used in this Section 2.19, the term "Substances" shall mean any
pollutant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted Federal, state or local statute or
any regulation that has been promulgated pursuant thereto.
(b) Environmental Permits. To the Seller's knowledge it has
obtained and holds all registrations, permits, licenses, and approvals issued
by or on behalf of any Federal, state or local government body or agency
("Environmental Permits"), that are required in connection with the
discharge or emission of Substances (as hereinabove defined) from the Biotech
Incubator Facility or the generation, treatment, storage, transportation or
disposal of any such Substances. Such Environmental Permits, which are
described in Schedule 2.19, are currently effective and sufficient for the
ownership and operation of the plants and facilities as currently conducted,
used or owned by the Seller.
SECTION 2.20 Disclosure. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains any untrue statement of a material fact,
taken together with all other statements made in this Agreement or any
Schedule or Exhibit to this Agreement, or omits a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller as follows:
SECTION 3.01 Organization. Buyer is duly incorporated, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts.
SECTION 3.02 Buyer Power and Authority. Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and the
other documents and instruments contemplated hereby. The execution, delivery
and performance of this Agreement and the documents contemplated hereby and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized and approved by the Buyer, subject only to final approval by
the Oversight Committee referred to in Section 6.04 hereof. This Agreement,
and each of the other agreements, documents and instruments to be executed
and delivered by the Buyer have been duly executed and delivered by, and
constitute the valid and binding obligation of the Buyer enforceable against
the Buyer in accordance with their terms subject to the effect of bankruptcy,
insolvency, reorganization, arrangements, moratorium, and other similar
laws now or hereafter in effect, as well as limitations imposed by general
principles of equity upon the specific enforceability of any of the remedies,
covenants or other provisions, and the availability of injunctive relief or
other equitable remedies.
SECTION 3.03 Validity, Etc. Except for the consent or approval of
the Office of the Attorney General of the Commonwealth of Massachusetts,
Public Charities Division, none of the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby,
the consummation of the transactions contemplated hereby or thereby, or the
performance of this Agreement and such other agreements in compliance with the
terms and conditions hereof and thereof will (i) conflict with or result in
any breach of any trust agreement, articles of organization, by-law,
judgment, decree, order, statute or regulation applicable to the Buyer (ii)
require anyconsent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, (iii) result in a
breach of or default (or give rise to any right of termination, cancellation
or acceleration) under any law, rule or regulation or any judgment, decree,
order, governmental permit, license or order or any of the terms, conditions
or provisions of any mortgage, indenture, note, license, agreement or other
instrument to which the Buyer is a party by which the Buyer or its property is
bound, or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Buyer.
SECTION 3.04 No Violation of Laws or Contracts. Provided that the
Office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, consents or approves the transactions contemplated hereby,
neither the execution and performance of this Agreement or the other
agreements executed by the Buyer in accordance with the terms hereof, nor the
consummation of the transactions contemplated hereby and thereby, will violate
any provisions of law, any order of any court or other agency or government,
or any ordinance, indenture or agreement to which the Buyer is a party,
or by which the Buyer or its property is bound, which would materially impair
the Buyer's ability to consummate the transactions contemplated hereby, nor is
the Buyer aware of any existing law, rule, regulation or order, or proposed
law, rule, regulation or order currently pending before any governmental body
or agency, whether Federal or state, which would prohibit or restrict
the Buyer from, or otherwise adversely affect the Buyer in, owning and
operating the Biotech Incubator Facility as presently owned and operated by
the Seller.
SECTION 3.05 Governmental Approvals. Except for the consent or
approval of the Office of the Attorney General of the Commonwealth of
Massachusetts, Public Charities Division, of the transactions contemplated
hereby, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for the valid execution, delivery and performance by
the Buyer of this Agreement.
SECTION 3.06 Buyer's Nominee. Any Nominee designated by the Buyer
shall be deemed to have made the representations and warranties set forth in
this Article III, with such changes as the context shall require in the event
that the Nominee is an entity other than a corporation (e.g., a limited
liability company); provided, however, that if the Nominee is other than
a corporation, it shall be deemed to represent and warrant that it is duly
organized, validly existing and with the appropriate power and authority to
consummate the transactions contemplated hereby, all as set forth in this
Article III, but subject to all of the express limitations set forth in this
Article III.
ARTICLE IV
COVENANTS OF SELLER
The Seller covenants and agrees with the Buyer as follows:
SECTION 4.01 Cooperation. The Seller shall use its commercially
reasonable efforts to perform and fulfill all conditions and obligations to be
fulfilled or performed by it hereunder, to the end that the transactions
contemplated hereby will be fully and timely consummated.
SECTION 4.02 Access. Until the Closing, the Seller shall give the
Buyer, its attorneys, accountants and other authorized representatives
reasonable access, upon reasonable notice and at reasonable times, to the
Biotech Incubator Facility and suppliers, employees, products, technology,
business and financial records, contracts, business plans, budgets and
projections, agreements and commitments relating to the operation of the
Biotech Incubator Facility. The Buyer agrees that, prior to the Closing, it
shall not contact or otherwise communicate with the Seller's customers,
suppliers or other third parties with whom the Seller has a relationship in
connection with the Seller's operation of the Biotech Incubator Facility,
without in each case obtaining the prior approval of the Seller, which
approval shall not be unreasonably withheld, delayed or conditioned.
SECTION 4.03 Insurance. The Seller shall maintain its existing
insurance policies relating to the ownership and operation of the Biotech
Incubator Facility through the Closing.
SECTION 4.04 Compliance with Laws. The Seller shall operate the
Biotech Incubator Facility in compliance with all applicable laws, rules,
regulations and orders, except for minor failures to be in compliance with
applicable laws, rules, regulation and orders that would not, individually or
in the aggregate, have a material adverse effect on the Transferred Assets
or the operation or condition (financial or otherwise) or prospects of the
Biotech Incubator Facility.
SECTION 4.05 Keeping of Books and Records. The Seller shall
continue to keep adequate records and books of account, in which complete
entries will be made in accordance with its existing accounting principles
consistently applied, reflecting all financial transactions and in
which all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
ownership and operation of the Biotech Incubator Facility.
SECTION 4.06 Actions Prior to Closing. The Seller shall operate
the Biotech Incubator Facility, pending the Closing, only in the ordinary and
usual course of its usual business. Without limiting the generality of the
foregoing, the Seller will not, except in the ordinary and usual course of
business, without the prior written consent of the Buyer, (i) make any
disposition of any Transferred Asset, (ii) enter into any contract or release
or relinquish any contract or other right with respect to the ownership or
operation of the Biotech Incubator Facility, or (iii) enter into or
renew any employment agreement with any employees or consultants or grant any
increases in the compensation or benefits to, or agree to pay any bonus,
severance or termination payment or other special compensation to, any
employees or consultants involved in the operation of the Biotech Incubator
Facility.
SECTION 4.07 Litigation. The Seller will promptly notify the Buyer
of any lawsuits, claims, proceedings or investigations which are commenced or,
to the Seller's knowledge, threatened against the Seller, or against any
employee, consultant or director of the Seller, involving in any way the
ownership or operation of the Biotech Incubator Facility or which may
threaten the consummation by Seller of the transactions contemplated hereby.
SECTION 4.08 Continued Effectiveness of Representations and
Warranties. From the date hereof up to and including the Closing Date, (i)
the Seller will continue to operate the Biotech Incubator Facility in such
manner that the representations and warranties contained herein shall continue
to be true and correct on and as of the Closing Date as if made on and as of
the Closing Date, except for changes and the consequences of events arising in
the ordinary and usual course of business after the date hereof none of which
would have a material adverse effect on the Transferred Assets or the
operation or condition (financial or otherwise) or prospects of the Biotech
Incubator Facility; and (ii) the Seller will advise the Buyer promptly in
writing of any condition or circumstance occurring from the date hereof up to
and including the Closing Date which could cause any representation or
warranty of the Seller to become untrue in any material respect.
SECTION 4.09 Tax Returns. The Seller shall cause to be prepared
and timely filed all of its required tax returns for all periods up to and
including the Closing Date.
ARTICLE V
COVENANTS OF BUYER
The Buyer covenants and agrees with the Seller as follows:
SECTION 5.01 Cooperation. The Buyer shall use its commercially
reasonable efforts to perform and fulfill all conditions and obligations to be
fulfilled or performed by it hereunder to the end that the transactions
contemplated hereby will be fully and timely consummated.
SECTION 5.02 Litigation. The Buyer will promptly notify the Seller
of any lawsuits, claims, proceedings or investigations which are threatened or
commenced against the Buyer, or against any employee, consultant or director
of the Buyer, involving in any way the ability of the Buyer to purchase, own
or operate the Biotech Incubator Facility or which may threaten the
consummation by the Buyer of the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of the Buyer to pay the Purchase Price on the Closing
Date and to consummate the other transactions contemplated hereby is subject
to the satisfaction, on or before the Closing Date, of the following
conditions, each of which may be waived by the Buyer in its sole discretion:
SECTION 6.01 Consents. All requisite governmental approvals and
consents of third parties identified as required to be received to prevent any
material lease, license, permit or agreement relating to the ownership and
operation of the Biotech Incubator Facility from terminating prior to its
scheduled termination, as a result of the consummation of the transactions
contemplated hereby, shall have been obtained, or the Seller shall have
provided the Buyer with the benefit of any such material lease, license,
permit or agreement to which such approvals or consents have not been obtained
as contemplated by Section 1.03 hereof.
SECTION 6.02 Representations and Warranties True. All of the
representations and warranties of the Seller contained in this Agreement or in
any Schedules or other documents attached hereto or referred to herein or
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be true, correct and complete in all material respects on and as
of the date hereof and on and as of the Closing Date, as if made on and as of
the Closing Date. On the Closing Date, the Seller shall have executed and
delivered to the Buyer a certificate, in form and substance satisfactory to
the Buyer and its counsel, to such effect.
SECTION 6.03 Performance. The Seller shall have performed and
complied in allmaterial respects with all covenants and agreements contained
herein required to be performed or complied with by it prior to or at the
Closing Date. The Seller shall have executed and delivered to the Buyer a
certificate, in form and substance satisfactory to the Buyer and its
counsel, in writing to such effect and to the further effect that all of the
conditions set forth in this Article VI have been satisfied.
SECTION 6.04 Approval of Oversight Committee. The Oversight
Committee, a committee of the Board of Trustees of Buyer, shall have approved
the transactions contemplated hereby.
SECTION 6.05 Approval of Attorney General. The Office of the
Attorney General of the Commonwealth of Massachusetts, Public Charities
Division, shall have approved the transactions contemplated hereby to the
satisfaction of the Buyer and its counsel.
SECTION 6.06 No Actions, Suits or Proceedings. As of the Closing
Date, no action, suit, investigation or proceeding brought by any person,
corporation, governmental agency or other entity, other than the Buyer or its
affiliates, shall be pending or, to the knowledge of the parties to this
Agreement, threatened, before any court or governmental body (i) to restrain,
prohibit, restrict or delay, or to obtain damages in respect of, this
Agreement or the consummation of the transactions contemplated hereby, or (ii)
which has had or may have an adverse effect on the condition (financial or
other) or prospects of the Seller. No order, decree or judgment of any
court or governmental body shall have been issued restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or
arrangement with creditors, voluntary or involuntary, affecting the Seller
shall be pending, and the Seller shall not have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings.
SECTION 6.07 Closing Documents. The Seller shall have delivered
all of the resolutions, certificates, documents and instruments required by
this Agreement.
SECTION 6.08 Approval of the Buyer and Its Counsel. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest or direction of, the Seller hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VII
CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Transferred Assets to
the Buyer and to consummate the other transactions contemplated hereby is
subject to the satisfaction, on or before the Closing Date, of the following
conditions, each of which may be waived by the Seller in its sole discretion:
SECTION 7.01 Representations and Warranties to be True and Correct.
The representations and warranties of the Buyer contained in this Agreement or
any Schedule or other document referred to herein, or delivered pursuant
hereto in connection with the transactions contemplated hereby, shall
be true, complete and correct, on and as of the date hereof and as of the
Closing Date, as if made on and as of such date. On the Closing Date, the
Buyer shall have delivered to the Seller a certificate, in form and substance
satisfactory to the Seller and its counsel, to such effect.
SECTION 7.02 Performance. The Buyer shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date, and the Buyer shall have
delivered a certificate to the Seller, in form and substance satisfactory to
the Seller and its counsel to such effect.
SECTION 7.03 Stockholder Approval. The Seller shall have received
the approval of the transactions contemplated hereby by a majority of the
disinterested stockholders of the Seller in attendance, by person or proxy, at
a meeting of stockholders to consider the transactions contemplated by this
Agreement.
SECTION 7.04 Closing Documents. The Buyer shall have delivered the
Purchase Price and shall have made any other payment required to be made by
the Buyer hereunder or under any other agreement, instrument or document
executed and delivered in connection herewith, including, without limitation,
the Facility Service Agreement (hereafter defined), and the Buyer shall have
executed and delivered all of the resolutions, certificates, documents and
instruments required by this Agreement.
SECTION 7.05 Approval of the Seller and Its Counsel. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest or direction of, the Buyer hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Seller and its counsel.
SECTION 7.06 No Actions, Suits or Proceedings. As of the Closing
Date, no action, suit, investigation or proceeding brought by any person,
corporation, governmental agency or other entity, other than the Seller, shall
be pending or, to the knowledge of the parties to this Agreement, threatened,
before any court or governmental body to restrain, prohibit, restrict or
delay, or to obtain damages in respect of, this Agreement or the consummation
of the transactions contemplated hereby. No order, decree or judgment of any
court or governmental body shall have been issued restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated
by this Agreement. No insolvency proceeding of any character, including
without limitation, bankruptcy, receivership, reorganization, dissolution or
arrangement with creditors, voluntary or involuntary, affecting the Buyer or
any Nominee shall be pending, and neither the Buyer nor any Nominee
shall have taken any action in contemplation of, or which would constitute the
basis for, the institution of any such proceedings.
SECTION 7.07 Guaranty. In the event that the Buyer shall nominate
a Nominee hereunder, and shall have assigned its interest in the Facility
Service Agreement (as hereafter defined) to such Nominee, and delegated its
duties and responsibilities under the Facility Service Agreement to such
Nominee, the Nominee shall deliver the guaranty contemplated by Section 1.06
hereof. Such guaranty shall include a guaranty of the Nominee's obligations
under the Facility Service Agreement.
SECTION 7.08 Buyer's Offer to Employ Seller's Employees. As of the
Closing Date, and effective thereon, the Buyer shall have offered employment
to such of the Seller's employees listed on Schedule 2.11 hereto who are then
employed by Seller. In connection therewith, it is understood and agreed that
Buyer shall not assume, as a part of the Assumed Liabilities, any liability
for accrued vacation or severance with respect to any of such employees who
choose to decline employment with the Buyer from and after the Closing Date.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 Survival. All representations and warranties by the
Seller and the Buyer in this Agreement, or in any instrument or document
furnished in connection with this Agreement or the transactions contemplated
hereby, shall survive the Closing and any investigation at any time made by or
on behalf of any party for a period of one (1) year. All such representations
and warranties shall expire on the first anniversary of the Closing Date,
except that claims, if any, asserted in writing prior to such first
anniversary identified as a claim for indemnification pursuant to this Article
VIII shall survive until finally resolved and satisfied in full.
SECTION 8.02 Indemnification.
(a) The Seller shall indemnify, defend, and hold the Buyer and its
officers, directors, employees, and their successors and assigns harmless
from, against and with respect to any claim, liability, obligation, loss,
damage, assessment, judgment, cost and expense (including, without limitation,
reasonable attorneys' and accountants' fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand) of any kind or
character asserted or made by a party or parties other than the Buyer or the
Seller (the "Damages") against the Buyer, arising out of or in any manner
incident, relating or attributable to:
(i) Any inaccuracy in any representation or breach of warranty
of the Seller contained in this Agreement or in any
certificate, instrument of transfer or other document or
agreement executed by the Seller in connection with
this Agreement;
(ii) Any failure by the Seller or its affiliates to perform or
observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or
observed by them under this Agreement or under any
certificates or other documents or agreements
executed by the Seller or its affiliates in connection
with this Agreement, except for those expressly waived by
the Buyer; and
(iii) Liabilities or obligations of, or claims against, the
Buyer (whether absolute, accrued, contingent or
otherwise) relating to, or arising out of, the operation
of the Biotech Incubator Facility prior to the
Closing Date which are not expressly assumed by the Buyer
pursuant to this Agreement.
(b) The Buyer shall indemnify, defend, and hold the Seller and its
officers, directors, employees, and their successors and assigns harmless
from, against and with respect to any Damages against the Seller arising out
of or in any manner incident, relating or attributable to:
(i) Any inaccuracy in any representation or breach of warranty
of the Buyer contained in this Agreement or in any
certificate, instrument of transfer or other document or
agreement executed by the Buyer in connection with this
Agreement;
(ii) Any failure by the Buyer or its affiliates to perform or
observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or
observed by them under this Agreement or under any
certificates or other documents or agreements executed by
the Buyer or its affiliates in connection with this
Agreement, except for those expressly waived by
the Seller; and
(iii) Liabilities or obligations of, or claims against, the
Seller (whether absolute, accrued, contingent or
otherwise) relating to, or arising out of, the
operation of the Biotech Incubator Facility after the
Closing Date which are not expressly assumed by the Seller
pursuant to this Agreement.
SECTION 8.03 Limitations on Liability. Notwithstanding the
foregoing provisions of this Article VIII, neither party shall be liable to
the other party for any breach of its representations or warranties hereunder,
nor shall either party be liable under its indemnity to the other party,
unless and until the cumulative amount of any party's claims in respect of the
foregoing shall exceed the sum of $50,000 in the aggregate, and then only to
the extent of the cumulative excess of such claims and Damages over the sum of
$50,000.
SECTION 8.04 Notice and Defense of Claims.
(a) Notice of Claims. Any party entitled to indemnification under
this Article VIII or otherwise under this Agreement (the "Indemnified Party")
shall give the party from whom indemnification is sought (the "Indemnifying
Party") prompt written notice of the claim and, when known, the facts
constituting the basis for such claim. In the event of any claim for
indemnification made hereunder resulting from or in connection with any claim
or legal proceedings by a person or party who is not a party to this
Agreement, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
Except as provided in Section 8.04(c) hereof, the Indemnified Party shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the
Indemnifying Party, unless suit shall have been instituted against it and the
Indemnifying Party shall not have taken control of such suit after
notification thereof as provided in Section 8.04(b) hereof.
(b) Defense of Claims. In connection with any claim giving rise to
indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person or party who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may (but shall not
be required to), upon written notice to the Indemnified Party, assume the
defense of any such claim or legal proceeding if it acknowledges to the
Indemnified Party in writing its obligation to indemnify the Indemnified Party
with respect to such claim. The Indemnified Party shall be entitled to
participate in (but not control) the defense of any such action, with its own
counsel and at its own expense. If the Indemnifying Party does not assume the
defense of any such claim or litigation resulting therefrom, (i) the
Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling
such claim or litigation (after giving notice of the same to the Indemnifying
Party) on such terms as the Indemnified Party may deem appropriate, and (ii)
the Indemnifying Party shall be entitled to participate in (but not control)
the defense of such action, with its own counsel and at its own expense.
(c) Restrictions on Indemnifying Party's Defense of Claims.
Anything in this Section 8.04 to the contrary notwithstanding, (i) if there is
a substantial probability in the Indemnified Party's reasonable judgment that
a claim may materially and adversely affect the Indemnified Party
or its subsidiaries, affiliates, directors, officers or employees against whom
such claim is asserted, other than as a result of money damages or other money
payments, the Indemnified Party shall have the right (A) to defend or
co-defend such claim and (B) to compromise or settle such claim with the
Indemnifying Party's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed, and (ii) if the Indemnified
Party has notified the Indemnifying Party that the Indemnified Party is
invoking its rights under this Section 8.04(c) with regard to a claim, the
Indemnifying Party shall not, without the prior written consent of
the Indemnified Party, settle or compromise any such claim or consent to entry
of any judgment relating to any such claim, which settlement, compromise or
judgment does not include as an unconditional term thereof the giving by the
claimant to the Indemnified Party, or its subsidiaries, affiliates, directors,
officers or employees against whom such claim is asserted, a release from all
liability in respect of such claim.
(d) Access to Records. The Indemnifying Party and the
Indemnified Party shall each provide the other with access to all records and
documents in their possession relating to any claim indemnifiable hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by
recognized overnight courier, or (iv) sent by registered or certified mail,
return receipt requested, postage prepaid.
If to the Buyer:
Trustees of Boston University
881 Commonwealth Avenue
Boston, MA 02215
Attn: Kenneth G. Condon, Treasurer
With copies to:
Stephen A. Williams, Esq.
Office of the General Counsel
Boston University
125 Bay State Road
Boston, MA 02215
and
Richard D. Dionne, Esq.
Dionne & Gass
73 Tremont Street
Boston, MA 02108
If to the Seller:
Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Attention: Chief Financial Officer
With a copy to:
Edward C. Britton, Esq.
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, DC 20044-7566
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
SECTION 9.02 Entire Agreement. This Agreement, together with the
Exhibits and Schedules hereto and the other documents executed in connection
herewith (together, the "Documents"), embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in the
Documents shall affect, or be used to interpret, change or restrict, the
expressed terms and provisions of this Agreement.
SECTION 9.03 Modifications and Amendments. The terms and
provisions of this Agreement may be modified or amended only by written
agreement executed by all parties hereto.
SECTION 9.04 Waivers and Consents. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of
any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The election
of any remedy by a party hereto shall not constitute a waiver of the right of
such party to pursue other available remedies. No notice to or demand on a
party not expressly required under this Agreement shall entitle the party
receiving such notice or demand to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
party giving such notice or demand to any other or further action in any
circumstances without such notice or demand. The terms and provisions of this
Agreement may be waived, or consent for the departure therefrom granted, only
by written document executed by the party entitled to the benefits of such
terms or provisions. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or provisions
of this Agreement, whether or not similar. Each such waiver or consent shall
be effective only in the specific instance and for the purpose for which it
was given, and shall not constitute a continuing waiver or consent.
SECTION 9.05 Assignment. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties. Notwithstanding the foregoing, the
Buyer shall have the right to designate a Nominee in accordance with the
provisions of Section 1.06 hereof.
SECTION 9.06 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and their permitted
assigns, and nothing in this Agreement, expressed or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement shall be
construed to create any rights or obligations except among the parties
hereto, and no person or entity shall be regarded as a third-party beneficiary
of this Agreement.
SECTION 9.07 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of The Commonwealth of Massachusetts, without
giving effect to the conflict of law principles thereof.
SECTION 9.08 Jurisdiction and Service of Process. Any legal action
or proceeding with respect to this Agreement may be brought in the courts of
The Commonwealth of Massachusetts or of the United States of America for the
District of Massachusetts. By execution and delivery of this Agreement, each
of the parties hereto accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
parties hereby irrevocably waive any objection or defense that they may now or
hereafter have to the assertion of personal jurisdiction by any such court in
any such action or to the laying of the venue of any such action in any such
court, and hereby waive, to the extent not prohibited by law, and agree not to
assert, by way of motion, as a defense, or otherwise, in any such proceeding,
any claim that it is not subject to the jurisdiction of the above-named courts
for such proceedings. Each of the parties hereto irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered mail, postage
prepaid, to the party at its address set forth in Section 11.01 hereof and
irrevocably waive any objection or defense that it may now or hereafter have
to the sufficiency of any such service of process in any such action. Nothing
in this Section 11.08 shall affect the rights of the parties to commence any
such action in any other forum or to serve process in any such action in any
other manner permitted by law.
SECTION 9.09 Severability. In the event that any court of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that
such court determines it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall determine any such
provision, or portion thereof, wholly unenforceable, the remaining provisions
of this Agreement shall nevertheless remain in full force and effect.
SECTION 9.10 Interpretation. The parties hereto acknowledge and
agree that:(i) each party and its counsel reviewed and negotiated the terms
and provisions of this Agreement and have contributed to its revision; (ii)
the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
SECTION 9.11 Headings and Captions. The headings and captions of
the various subdivisions of this Agreement are for convenience of reference
only and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 9.12 Enforcement. Each of the parties hereto acknowledges
and agrees that the rights acquired by each party hereunder are unique and
that irreparable damage would occur in the event that any of the provisions of
this Agreement to be performed by the other party were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
in addition to any other remedy to which the parties hereto are entitled at
law or in equity, each party hereto shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the other party and to
enforce specifically the terms and provisions hereof in any Federal or state
court to which the parties have agreed hereunder to submit to jurisdiction.
SECTION 9.13 Reliance. The parties hereto agree that,
notwithstanding any right of any party to this Agreement to investigate the
affairs of any other party to this Agreement, the party having such right to
investigate shall have the right to rely fully upon the representations and
warranties of the other party expressly contained in this Agreement and on the
accuracy of any schedule or other document attached hereto or referred to
herein or delivered by such other party or pursuant to this Agreement.
SECTION 9.14 Expenses. Each of the parties hereto shall pay its
own fees and expenses (including the fees of any attorneys, accountants or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
SECTION 9.15 No Broker or Finder. Each of the parties hereto
represents and warrants to the other that no broker, finder or other financial
consultant has acted on its behalf in connection with this Agreement or the
transactions contemplated hereby in such a way as to create any liability on
the other, except that the Buyer has previously disclosed to the Seller that
it will be liable to a certain third party for a finder's fee in connection
with the consummation of this transaction. Each of the parties hereto agrees
to indemnify and save the other harmless from any claim or demand for
commission or other compensation by any broker, finder, financial consultant
or similar agent claiming to have been employed by or on behalf of such party
and to bear the cost of legal expenses incurred in defending against any such
claim.
SECTION 9.16 Confidentiality. Each party acknowledges and agrees
that any information or data it has acquired from the other party, not
otherwise properly in the public domain, was received in confidence. Each
party hereto agrees not to divulge, communicate or disclose, except as may be
required by law or for the performance of this Agreement (including obtaining
financing and conducting due diligence), or use to the detriment of the
disclosing party or for the benefit of any other person or persons,
or misuse in any way, any confidential information of the disclosing party
concerning the subject matter hereof, including any trade or business secrets
of the disclosing party and any technical or business materials that are
treated by the disclosing party as confidential or proprietary, including
without limitation information (whether in written, oral or machine
readable form) concerning: general business operations; methods of doing
business, servicing clients, client relations, and of pricing and making
charge for services and products; financial information, including costs,
profits and sales; marketing strategies; business forms developed by or for
the disclosing party; names of suppliers, personnel, customers, clients and
potential clients; negotiations or other business contacts with suppliers,
personnel, customers, clients and potential clients; form and content of bids,
proposals and contracts; the disclosing party's internal reporting methods;
technical and business data, documentation and drawings; software programs,
however embodied; manufacturing processes; inventions; and information
obtained by or given to the disclosing party about or belonging to
third parties.
SECTION 9.17 Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
ARTICLE X
PRE-CLOSING OPERATION OF BIOTECH INCUBATOR FACILITY
SECTION 10.1 Facility Service Agreement. Contemporaneously with
the execution and delivery of this Agreement, the parties hereto have executed
and delivered that certain Service Agreement (the "Facility Service
Agreement") pursuant to which the Buyer has agreed to perform and provide
services to the Seller at the Biotech Incubator Facility, all for
the payments by the Seller and other consideration and on the terms and
conditions more particularly set forth therein.
SECTION 10.2 Access to Facilities. In order to permit the Buyer to
perform its obligations under the Facility Service Agreement from and after
the date of the execution of this Agreement, the Seller shall, and does hereby
grant to the Buyer, full access to, and possession and use of the Transferred
Assets, including, without limitation, the real property leased by the Seller
and described in Schedule 1.03R hereof (except the premises described in
Schedule 1.05 hereof) and the equipment leased by the Seller and described
in Schedule 1.03E hereof, all as fully and effectively as if the Closing
hereunder had occurred on the date of the execution of this Agreement. In
connection therewith, the Seller shall provide the services of those employees
of the Seller listed on Schedule 2.11 hereof.
SECTION 10.3 Payments by the Buyer. In connection with the
foregoing provisions of this Article X, the Buyer shall pay, for or on behalf
of the Seller, all of the payments required under Contracts and all
liabilities and obligations relating to the Claims against the Encumbered
Assets (as such Claims exist as of the date hereof), when and as the same
become due and payable. Such payments shall be made, where possible and
practicable, directly by the Buyer to the applicable lessor, vendor or other
party entitled to such payments for the account of and on behalf of the
Seller. Where such direct payments to lessors, vendors or such other parties
are not possible or practicable, the Seller shall make such payments and the
Buyer shall reimburse the Seller therefor. In addition to the foregoing, the
Buyer shall reimburse the Seller for the wages and benefits (including accrued
vacation and severance payments, as applicable) of those employees listed
on Schedule 2.11 hereof whose services are provided by the Seller to the Buyer
pursuant to Section 10.02 hereof. Reimbursement by the Buyer for items paid
by the Seller shall commence on the fourteenth (14th) day after the date of
execution of this Agreement and shall be made each fourteenth (14th) day
thereafter, with a final reimbursement payment to be made at the Closing.
Each such reimbursement payment shall be made in respect of the period ending
seven (7) days prior to the date on which the payment is to be made. Not less
than three (3) days prior to each such reimbursement payment date, the Seller
shall provide the Buyer with a statement setting forth the amount due to be
paid by the Buyer to the Seller as reimbursement hereunder and setting forth
in reasonable detail the calculation of such amount. The Seller shall keep
books and records adequate to establish the amount of any reimbursement
payments hereunder and shall make the same available for inspection and audit
by the Buyer or its representatives at all reasonable times.
SECTION 10.04 Termination. In the event that, prior to the Closing
hereunder, the Facility Services Agreement shall be terminated by the Buyer as
a result of (i) breach by the Seller of covenants and obligations thereunder,
or (ii) exercise by the Buyer of its option to terminate pursuant to Section
7.03 thereof, then, in such event, this Agreement shall automatically
terminate and, in addition to return of the Deposit pursuant to Section 1.08
hereof, the Seller shall reimburse the Buyer for all payments made by the
Buyer under this Article X, together with interest on any and all such
payments at the annual rate of ten percent (10%).
IN WITNESS WHEREOF, the Buyer and the Seller have executed this
Agreement as an instrument under seal on this 14th day of February, all as of
the day and year first above written.
SERAGEN, INC.
By: \s\ Reed R. Prior
Reed R. Prior, Chairman and CEO
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
Kenneth G. Condon, Treasurer
<PAGE>
EXHIBIT A-2
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 to Asset Purchase Agreement is made
between Seragen, Inc., a Delaware corporation having a usual place of
business at 97 South Street, Hopkinton, Massachusetts (the "Seller"), and
Trustees of Boston University, a Massachusetts not-for-profit corporation
having a usual place of business at 881 Commonwealth Avenue, Boston,
Massachusetts (the "Buyer"), as of May 16, 1997, for the purpose of
amending that certain Asset Purchase Agreement, dated as of February 14,
1997 (the "Asset Purchase Agreement"), between the Seller and the Buyer.
THE PARTIES AGREE AS FOLLOWS:
1. Section 1.05 of the Asset Purchase Agreement is
amended by deleting therefrom the date "June 2, 1997," and replacing it with
"August 29, 1997."
2. Clause (iii) of the second sentence of Section
1.08 of the Asset Purchase Agreement is amended to read in its entirety as
follows:
(iii)the failure of both (A) a majority of the shares of
capital stock of the Seller issued and outstanding and
entitled to vote on the matter and (B) a majority of
the shares of capital stock of the Seller issued and
outstanding, entitled to vote on the matter, and held
by, and the voting of which is controlled by, persons
other than (1) Boston University, (2) persons affiliated
with Boston University, and (3) persons otherwise
interested in the relevant transactions other than in their
capacity as shareholders of the Seller, to approve the
transactions contemplated by this Agreement; or
3. Section 7.03 of the Asset Purchase Agreement is amended
to read in its entirety as follows:
SECTION 7.03 Stockholder Approval. The Seller shall
have received the approval of the transactions
contemplated hereby by both (a) a majority
of the shares of capital stock of the Seller issued and
outstanding and entitled to vote on the matter and (b) a
majority of the shares of capital stock of the Seller
issued and outstanding, entitled to vote on the matter,
and held by, and the voting of which is controlled by,
persons other than (i) Boston University, (ii) persons
affiliated with Boston University, and (iii) persons
otherwise interested in the relevant transactions other
than in their capacity as shareholders of the Seller.
4. As between the parties hereto, this amendment shall be deemed
for all purposes to be and have become effective as of February 14, 1997.
5. Except as modified by this Amendment No. 1, the Asset Purchase
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Buyer and Seller have executed this
Amendment No. 1 as of the date first set forth above.
SERAGEN, INC.
By: \s\ Reed R. Prior
Reed R. Prior, Chairman,
Chief Executive Officer
and Treasurer
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
Kenneth G. Condon, Treasurer
EXHIBIT A-3
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This Amendment No. 2 to Asset Purchase Agreement is made between
Seragen, Inc., a Delaware corporation having a usual place of business at 97
South Street, Hopkinton, Massachusetts (the "Seller"), and Trustees of Boston
University, a Massachusetts not-for-profit corporation having a usual place of
business at 881 Commonwealth Avenue, Boston, Massachusetts (the "Buyer"), as
of August 25, 1997, for the purpose of amending that certain Asset Purchase
Agreement, dated as of February 14, 1997, and amended as of May 16, 1997
(as amended, the "Asset Purchase Agreement"), between the Seller and the
Buyer.
THE PARTIES AGREE AS FOLLOWS:
1. Section 1.05 of the Asset Purchase Agreement is amended by
deleting therefrom the date "August 29, 1997," and replacing it with "November
28, 1997."
2. As between the parties hereto, this amendment shall be deemed
for all purposes to be and have become effective as of February 14, 1997.
3. Except as modified by this Amendment No. 2, the Asset Purchase
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Buyer and Seller have executed this
Amendment No. 2 as of the date first set forth above.
SERAGEN, INC.
By: \s\ Reed R. Prior
Reed R. Prior, Chairman,
Chief Executive Officer
and Treasurer
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
Kenneth G. Condon, Treasurer
EXHIBIT A-4
AMENDMENT NO. 3 TO ASSET PURCHASE AGREEMENT
This Amendment No. 3 to Asset Purchase Agreement is made
between Seragen, Inc., a Delaware corporation having a usual place of business
at 97 South Street, Hopkinton, Massachusetts (the "Seller"), and Trustees of
Boston University, a Massachusetts not-for-profit corporation having a usual
place of business at 881 Commonwealth Avenue, Boston, Massachusetts (the
"Buyer"), as of October 21, 1997, for the purpose of amending that certain
Asset Purchase Agreement, dated as of February 14, 1997, and amended as of May
16, 1997, and August 25, 1997 (as amended, the "Asset Purchase Agreement"),
between the Seller and the Buyer.
THE PARTIES AGREE AS FOLLOWS:
1. Section 1.05 of the Asset Purchase Agreement is amended
by deleting therefrom the date "November 28, 1997," and replacing it with
"December 31, 1997."
2. As between the parties hereto, this amendment shall be
deemed for all purposes to be and have become effective as of February 14,
1997.
3. Except as modified by this Amendment No. 3, the Asset
Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Buyer and Seller have executed this
Amendment No. 3 as of the date first set forth above.
SERAGEN, INC.
By: \s\ Reed R. Prior
Reed R. Prior, Chairman,
Chief Executive Officer
and Treasurer
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
Kenneth G. Condon, Treasurer
EXHIBIT B
SERVICE AGREEMENT
THIS SERVICE AGREEMENT, made and entered into this 14th day of February,
1997, by and among SERAGEN, INC., a corporation organized and existing under
the laws of Delaware, having its principal place of business at 97 South
Street, Hopkinton, Massachusetts 01748 (hereinafter referred to as "Seragen"),
and TRUSTEES OF BOSTON UNIVERSITY, a corporation organized and existing under
the laws of Massachusetts, having its principal place of business at 881
Commonwealth Avenue, Boston, Massachusetts 02215 (hereinafter referred to as
"Service Provider").
W I T N E S S E T H :
WHEREAS, Seragen desires to purchase from Service Provider, and Service
Provider desires to provide, certain services relating to product research,
development, manufacturing, clinical trials, quality control and quality
assurance, all subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
INTERPRETATION AND APPLICATION
1.01 Defined Terms. In addition to terms otherwise defined herein, the
following terms shall have the following meanings for purposes of this
Agreement:
"Agreement" shall mean this Service Agreement entered into by and
between Seragen and Service Provider, as amended or modified from time to
time.
"Asset Purchase Agreement" means that certain Asset Purchase
Agreement, dated as of the date hereof, by and between Seragen and Service
Provider, as it may be amended from time to time.
"Contract Year" shall mean the period commencing on the date hereof
and terminating on January 31, 1998, and each annual period thereafter
commencing on February 1 and terminating on the following January 31 occurring
during the term of this Agreement.
"Developments" shall include any ideas, products, concepts,
techniques, methods, formulae, trade secrets, systems, inventions, processes,
works of authorship, knowhow or improvements made by Service Provider or under
Service Provider's direction or by the employees, consultants or agents
(including subcontractors) of Service Provider in connection with the
Technology Services or the Additional Services.
"Information" shall include processes, methods, techniques, systems,
formulae, trade secrets, drawings, photographs, machine readable records,
computer software and programs (including source codes), database
technologies, patterns, models, devices, compilations, supplier, customer and
dealer data, market information, internal financial information, or any other
information that Seragen treats as confidential or proprietary and
that is not freely available to the public, transmitted to or acquired by
Service Provider or any Service Provider employees, consultants or agents in
the course of Service Provider's performance of its obligations hereunder, but
shall not include information that is a matter of public knowledge or
information that Service Provider is required to disclose under law.
"Operating Losses" with respect to any Contract Year or portion
thereof shall mean the difference between (a) all cash actually expended by
Service Provider during such period (whether the same would be capitalized or
expended in accordance with U.S. generally accepted accounting principles),
exclusive of the $5.0 million purchase price paid by Service Provider for the
Purchased Assets in the first Contract Year, less (b) all cash revenues
actually received by Service Provider during such period.
"Purchased Assets" means those certain assets to be sold by Seragen
to Service Provider pursuant to and subject to the terms and conditions
contained in the Asset Purchase Agreement.
"Third Party" means any individual, corporation, partnership,
limited partnership, limited liability company, limited liability partnership,
joint venture, association, trust, unincorporated organization, government or
governmental agency, or other legal entity, other than the parties hereto.
1.02 Other Rules of Construction. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
The headings inserted in this Agreement are for reference purposes only and
shall in no way affect the construction of this Agreement. All references to
"party" and "parties" shall be deemed references to the parties to this
Agreement and to a party's successor in title unless the context shall
otherwise require. All references to articles, sections and paragraphs shall
be deemed references to articles, sections and paragraphs of this Agreement,
unless the context shall otherwise require. All references herein to
schedules shall be deemed to be references to the schedules attached to this
Agreement. The terms "this Agreement," "hereof," "hereunder," and similar
expressions refer to this Agreement as a whole and not to any particular
article, section or other portion of this Agreement and include any agreement
supplemental hereto. The conjunction "or" shall be understood in its
inclusive sense.
ARTICLE II
SERVICES
2.01 Technology Services. Seragen has developed and provided Schedule 1
to Service Provider. Those services and products which are reflected on
Schedule 1 (collectively, the "Technology Services") represent services and
products which are required in order to continue Seragen's current research
projects. Service Provider, under Seragen's direction, agrees to provide and
deliver the Technology Services to Seragen, upon the terms set forth herein
and on Schedule 1. Service Provider and Seragen from time to time shall in
good faith negotiate amendments (including appropriate price reductions) to
Schedule 1 in the event that Seragen's research and development requirements
change and, as a result thereof, Seragen determines that any services or
products described on Schedule 1 are no longer required or that the standards
or requirements with respect to any described services or products needs to be
changed.
2.02 Additional Services. If Seragen shall require any research and
development services during the Term (as defined in Section 6.01) in addition
to the Technology Services ("Additional Services"), Seragen shall be required
to purchase such Additional Services from Service Provider, provided that
Service Provider has the capacity (including, without limitation, the ability
to make material suitable for the applicable phase of clinical trials or
market manufacture as defined by applicable regulations as promulgated by the
U.S. Food and Drug Administration ("FDA") and interpreted by Seragen) to
perform such Additional Services within the time frame in which Seragen
reasonably requires the delivery of such Additional Services and in accordance
with any standards reasonably required by Seragen, including those set forth
in Article III. Seragen shall provide written notice (the "Additional Service
Request") to Service Provider if it requires any Additional Services,
specifying the Additional Services required and the reasonable time frame in
which Seragen expects such Additional Services to be performed. Service
Provider shall provide notice to Seragen on or prior to the twentieth (20th)
day following Service Provider's receipt of the Additional Service Request as
to whether it cannot perform the requested Additional Services; provided,
however, that if Service Provider shall fail to provide such notice within
such twenty (20) day period, Service Provider shall be deemed to have
agreed to provide the Additional Services upon the terms set forth in the
Additional Service Request. Service Provider shall be obligated to, and
shall, accept any Additional Service Offer if, and only if, it has the ability
and resources to timely perform, in accordance with the terms set
forth herein, the Additional Services being requested.
2.03 Facilities; Staffing; Supplies; Equipment. Service Provider, at
all times during the term, shall provide the Technology Services and
Additional Services from its facilities located at 97 South Street, 99 South
Street and 116-120 South Street, all in Hopkinton, Massachusetts (the
"Premises"). Service Provider shall maintain at all times such staffing,
supplies and equipment as is sufficient to ensure that it has the ability to
perform the Technology Services (as well as any Additional Services that it
has become obligated to provide pursuant to the provisions of Section
2.02) in accordance with the terms hereof. The Chief Executive Officer of
Service Provider shall be subject to Seragen's prior written approval, which
will not be unreasonably withheld. (All Service Provider personnel and
consultants providing research and development services in connection with
the Technology Services or any Additional Services are referred to herein
collectively as "Employees".)
2.04 Subcontracting. Without Seragen's prior written consent, which
shall not be unreasonably withheld, Service Provider shall not enter into any
subcontract with any Third Party for the provision of Technology Services or
Additional Services.
2.05 Access. During normal business hours and on reasonable notice,
Service Provider shall permit Seragen (and its respective representatives and
consultants) to have access to Service Provider's Premises, equipment,
officers and employees and to all books and records (as described in Section
2.09), Legal Records (as defined in Section 3.02), and other technical
information and data in Service Provider's possession relating to this
Agreement or the services provided hereunder; provided, however, that
Service Provider shall not be obligated to provide Seragen with access to that
portion of its Premises, equipment, officers and employees which, at the time
of any request for access, are being utilized in the performance of services
of a proprietary or confidential nature for a Third Party. Seragen shall have
the right to make copies of the books and records, Legal Records and other
information and data relating to this Agreement and the services provided
hereunder. Without limiting the foregoing, Service Provider shall provide all
reasonable cooperation in order that Seragen, among other things, may from
time to time confirm Service Provider's compliance with the provisions of
Article III hereof, including Service Provider's due and reasonable care in
the storage of biological materials and Service Provider's full compliance
with all applicable regulations and legal requirements.
2.06 Manufacturing Process. Under Seragen's direction, Service Provider
shall at all times perform the Technology Services and Additional Services in
accordance with Seragen's manufacturing and quality control specifications.
Unless Seragen directs Service Provider to do so, Service Provider shall not
change its manufacturing processes, equipment or vendors relating to this
Agreement or the services performed by Service Provider hereunder.
2.07 Third Party Service Agreements. Service Provider shall not enter
into any service agreement with a Third Party to the extent that Service
Provider's provision of services under such agreement would in any way
compromise, impair, or delay the ability of Service Provider to perform the
services required to be performed by it hereunder. In addition, without
Seragen's prior written approval, Service Provider shall not enter
into any service agreement with a Third Party if the aggregate expenses
incurred by Service Provider in connection therewith in any Contract Year,
when aggregated with all other expenses incurred by Service Provider during
such Contract Year under other service agreements with Third Parties, would
exceed the revenues received by Service Provider under all such contracts
during such Contract Year.
2.08 Approval of Annual Budget and Incurrence of Expenses. Within
thirty (30) days following the execution hereof, and within sixty (60) days
prior to the end of each Contract Year thereafter, Service Provider shall
propose to Seragen an annual projected budget for the upcoming Contract Year.
Such budget shall be subject to the approval of Seragen, which shall not be
unreasonably withheld. Service Provider hereby covenants and agrees that it
shall reasonably endeavor to reasonably limit the expenses incurred by Service
Provider during each Contract Year. Service Provider agrees that it shall
fulfill all of its monetary obligations to third parties in a timely manner,
including its obligations to make payments on the leases for the Premises. If
Service Provider fails to make any such payments in a timely manner, Seragen
shall have the right, but no obligation, to make such payments on Service
Provider's behalf and, in addition to any other remedies it may have at law or
in equity, to set off any such payment against the amounts payable to Service
Provider pursuant hereto.
2.09 Maintenance of Books and Records. Service Provider shall keep
complete and accurate books and records in accordance with generally accepted
accounting principles, consistently applied. Such books and records shall
contain all particulars which may be necessary for the purpose of ascertaining
the Additional Service Fees payable pursuant to Section 4.02 hereof during the
term of this Agreement and any Operating Losses incurred hereunder. Such
books and records shall be kept by Service Provider for not less than
three (3) years following the expiration of the Term. Such records shall be
kept at Service Provider's principal place of business.
ARTICLE III
STANDARDS OF CARE AND COMPLIANCE WITH LAW
3.01 General. Service Provider, under Seragen's direction, shall supply
the Technology Services and Additional Services in accordance with current
scientific, professional, commercial and regulatory standards prevailing in
the biopharmaceutical industry. Without limiting the foregoing, Service
Provider, under Seragen's direction, shall exercise all due and reasonable
care with regard to any biological raw materials, work-in-process, clinical
products or finished products in its custody, including any DAB389IL-2,
DAB389EGF and DAB486IL2 delivered by Seragen to Service Provider hereunder.
3.02 Compliance with Applicable Law. Service Provider, under Seragen's
direction, shall comply with all applicable laws (including the Food, Drug and
Cosmetic Act), requirements, rules, regulations and standards prescribed by
public authorities in providing the Technology Services and Additional
Services, and shall maintain all necessary records to so comply (the "Legal
Records"). Without limiting the foregoing, Service Provider, under Seragen's
direction, shall comply with all applicable requirements relating to current
good laboratory practice, current good clinical practice, and current good
manufacturing practice.
3.03 FDA Documents and Reports. Service Provider shall cooperate fully
with Seragen in promptly filing all documents and reports required or
requested by the FDA in a form acceptable to Seragen, and shall provide
Seragen with such information and assistance as Seragen may require with
regard to such filings, including all reports, authorizations, certificates,
methodologies, specifications and other documentation in the possession of or
under the control of Service Provider, and shall ensure that the content of
all such submissions is suitable for regulatory filings. Without limiting the
foregoing, Service Provider, with regard to any drug or biopharmaceutical
product to be manufactured by Service Provider pursuant to this Agreement,
shall (a) cooperate fully with Seragen and use best efforts in promptly filing
a Biologic License Application, or in promptly filing an Establishment License
Application and a Product License Application, with respect to any such
product, in each case as may be required under FDA regulations, and in each
case in form and substance satisfactory to Seragen; (b) take all actions that
may be required in order to ensure that any Biologic License, or Establishment
License and Product License, as applicable, with respect to any such product
will be issued in the name of Seragen, rather than Service Provider; and (c)
take all actions required to maintain in full force and effect any Biologic
License, Establishment License or Product License issued with respect to any
such product. Seragen, as the Product Licensee for FDA purposes, shall have
the right to exercise full functional control as described in this Service
Agreement and as required by all applicable regulations.
3.04 Debarment. Service Provider agrees to inform Seragen in writing
immediately if it or any person who is performing services hereunder is
debarred or is the subject of a debarment investigation or proceeding under
section 306 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 335a, or
any successor thereto, or is the subject of a conviction described therein.
3.05 Serious Adverse Event Notification. Service Provider shall notify
Seragen as soon as is reasonably possible following the receipt of any
information, reports or complaints concerning side effects, injury, toxicity
or sensitivity reaction associated with any product developed, produced,
manufactured or tested by Service Provider hereunder (an "Adverse Event"),
shall cooperate fully with Seragen to investigate any such Adverse Event, and
shall provide such information or assistance as is requested by Seragen in
order to support Seragen's compliance with all applicable laws, requirements,
rules, regulations and standards prescribed by public authorities with regard
to any such Adverse Event. The parties shall exchange reports on the
resolution of Adverse Events monthly, or more frequently if requested by
Seragen.
3.06 Notification of Potential Liability. Service Provider shall notify
Seragen in writing as soon as is reasonably possible following any event,
including the receipt of any notice, warning, citation, finding, report or
service of process or the occurrence of any release, spill, upset or discharge
of hazardous wastes or substances, related to the Technology Services or
Additional Services that may give rise to liability on the part of Seragen
under any law, requirement, rule, regulation or standard prescribed by a
public authority.
3.07 Governmental Communications and Inspections. Service Provider
shall as soon as is reasonably possible notify Seragen of any communications
from or inspections by the FDA or any other governmental agency, state or
federal, including, without limitation, any communication or directive from
the FDA or any other governmental agency, state or federal, commencing or
threatening seizure of any manufactured product or other removal from the
market of a manufactured product. If a written communication, Service
Provider shall attach a copy; otherwise, Service Provider shall provide a
reasonable description to Seragen of any such communication or inspection.
Seragen shall have the right to be present at any such inspection and to
review in advance and approve any response to such communication or
investigation submitted by Service Provider. If the written communication is
in regard to any product or any manufacturing process or regulatory
filing for which Seragen is the license holder, Seragen will be the
respondent. Service Provider will have the right to review such
communication. Service Provider will cooperate fully in providing the
information needed for the communication.
3.08 Disclaimer of Warranties. The parties hereto acknowledge and agree
that all Technology Services and Additional Services provided hereunder shall
be performed by Service Provider at the direction and under the supervision of
Seragen, and Service Provider disclaims any and all warranties, express or
implied, with respect to any products delivered hereunder, including without
limitation, warranties of fitness for a particular purpose and
merchantability.
ARTICLE IV
SERVICE FEES
4.01 Technology Service Fees. In consideration of Service Provider's
providing the Technology Services set forth on Schedule 1 (but no Additional
Services), Seragen agrees to pay Service Provider $5,521,342 in the first
Contract Year and $6,605,651 in the second Contract Year (which such amounts
shall be prorated to the extent that this Agreement is in effect for any
portion of any Contract Year, based on the number of days in which this
Agreement is in effect divided by 365) (collectively, the "Technology Service
Fees"). In the event Service Provider and Seragen agree in accordance with
Section 2.01 to amend the scope of the Technology Services to be provided with
respect to any Contract Year, the parties, in connection with such agreement,
shall agree upon appropriate adjustments to the Technology Service Fees
payable with respect to such Contract Year; provided, however, that in no
event shall the Technology Service Fees payable with respect to any Contract
Year be reduced to less than $4,300,000 (subject to proration in the event
that this Agreement is in effect for any portion of any Contract Year). The
Technology Service Fees shall be payable in equal monthly installments,
in advance, on or prior to the tenth (10th) day of each month occurring during
the Term.
4.02 Additional Service Fees. (a) Should Service Provider provide any
Additional Services hereunder, the fees (the "Additional Service Fees")
payable with respect to such Additional Services shall equal the direct costs
(inclusive of overhead) incurred by Service Provider in providing such
Additional Services (including costs associated with employees, consultants,
Premises and equipment), multiplied by 1.10. Any costs incurred by Service
Provider shall be appropriately prorated between Seragen and other parties
based upon the percentage of total time spent on providing the Additional
Services to Seragen.
(b) Payments required to be made pursuant to this Section 4.02
shall be invoiced by Service Provider to Seragen monthly, within thirty (30)
days of the end of each month, and shall be paid by Seragen within ten (10)
days of its receipt of Service Provider's invoice, unless Seragen in writing
disputes the invoice, in which case Seragen shall pay so much of the invoice
as is not in dispute. Service Provider shall, with each invoice for amounts
to be paid hereunder, break down the invoice total by appropriate categories,
and for each such category shall show in reasonable detail the financial data
underlying the amount invoiced. Invoices that are not disputed in writing by
Seragen within six (6) months of the date of their issue shall be deemed
correct and not subject to further audit or dispute. Service Provider shall
provide reasonable assistance and cooperation to Seragen with respect to
Seragen's preparation of invoices to be delivered to Eli Lilly and Company
pursuant to that certain Strategic Alliance between Seragen and Eli Lilly and
Company dated August 3, 1994.
(c) During the Term and for a period of one (1) year thereafter,
Seragen shall, at its own cost, be entitled to have its own representatives
and accountants review Service Provider's books and records with respect to
the Additional Services and all receipts with respect thereto (which books and
records shall include all information required to verify the invoices
described in Section 4.02(b)), upon reasonable notice to Service Provider,
during business hours, and subject to the limitations set forth in Section
2.05 hereof. Service Provider or Seragen, as applicable, shall promptly pay
to the other any over or underpayment of Additional Service Fees discovered
and agreed upon in connection with any such review.
4.03 Royalties. Seragen shall pay Service Provider a royalty of one
percent (1.0%) of the net revenues received by Seragen from the sale of any
products produced under protection of a patent issued to Seragen; provided,
that, such revenues are received by Seragen with respect to sales of the
product occurring following the issuance of, and prior to the termination of,
the patent. The applicable royalty rate set forth in the preceding
sentence shall increase from 1% to 2% if, and only if, and effective as of and
after the date that, Seragen's obligation to pay royalties under that certain
License Agreement, dated December 13, 1994, between Ajinomoto Co., Inc. and
Seragen shall terminate. Notwithstanding any other provision hereof to the
contrary, Seragen shall not be obligated to pay any royalties to Service
Provider on product sales occurring at any time following the date, if any,
that both (a) this Agreement is terminated pursuant to Section 6.04 hereof and
(b) Seragen has paid to Service Provider all amounts which are owing from
Seragen to Service Provider in accordance with the terms of the Asset Purchase
Agreement as a result of such termination.
ARTICLE V
CONFIDENTIALITY OF INFORMATION
AND OWNERSHIP OF DEVELOPMENTS
5.01 Confidentiality of Information. Service Provider agrees for itself
and on behalf of the Employees and any other Service Provider employees,
consultants or agents to at all times during the Term and thereafter hold in
confidence all Information at any time in Service Provider's possession or
control and not to use, disclose, reproduce or dispose of any such Information
in any manner except as necessary to carry out the Technology Services and
Additional Services. Without limiting the foregoing, Service Provider agrees,
for itself and on behalf of the Employees and its other employees,
consultants, and agents, to hold in confidence all Information, if any,
developed pursuant to the Technology Services or the Additional Services. All
Information, including Information developed by Service Provider or its
employees, consultants or subcontractors while performing the Technology
Services or the Additional Services (including any copies) shall remain the
property of Seragen. Promptly upon the termination of this Agreement or, if
earlier, upon Seragen's request, Service Provider shall return to Seragen all
Information, Developments and biological raw materials, work-in-process,
clinical products or finished products in its custody, which are owned by, or
produced by Service Provider for, Seragen (any such delivery of biological
materials to be made with due care and in accordance with the standards
referenced in Section 3.01).
5.02 Injunctive Relief. Service Provider recognizes that the disclosure
of Information will cause irreparable harm to Seragen, inadequately
compensable in damages. In the event of any breach of this Article VI,
Service Provider agrees that, in addition to its other remedies and
notwithstanding Section 8.03, Seragen shall be authorized and entitled to
obtain from any court of competent jurisdiction injunctive relief, whether
preliminary or permanent.
5.03 Ownership of Developments. Service Provider agrees that any
Developments shall be the sole and complete property of Seragen and that any
patents or copyrights resulting from the same shall belong solely and
completely to Seragen. For purposes of the copyright laws of all relevant
jurisdictions, any such Developments shall be considered "works made for
hire." Service Provider agrees that during and after the term hereof,
Service Provider will execute, and will cause its employees, consultants and
agents (including subcontractors) to execute, any assignments or other
documents necessary to vest full title in any such Developments in Seragen.
5.04 Agreements by Personnel. Except for employees to be transferred
from Seragen to Service Provider pursuant to the Asset Purchase Agreement (for
which it shall be the responsibility of Seragen to obtain appropriate
confidentiality and related agreements), Service Provider agrees to cause each
of the Employees and any other employee, consultant or agent (including any
subcontractor) of Service Provider involved in the Technology Services or
Additional Services or receiving or having access to Information to enter into
an agreement with Service Provider, which shall be in form and substance
reasonably acceptable to Seragen, pursuant to which the employee, consultant
or agent agrees, in his individual capacity, (a) to be bound by the provisions
of Sections 5.01, 5.02 and 5.03 and (b) to the extent allowable under law,
that Seragen shall be an intended third party beneficiary of such agreement,
with the right to enforce the provisions of such agreement without the need to
join Service Provider as a party.
ARTICLE VI
TERM AND TERMINATION
6.01 Term. This Agreement shall commence on the date hereof and
continue in full force and effect through January 31, 1999, subject to earlier
termination pursuant to the provisions of section 6.02, 6.03, or 6.04 (the
"Term").
6.02 Termination for Breach. Upon any material breach of or default
under this Agreement by either party (the "Breaching Party"), the other party
(the "Non-Breaching Party") shall have the right to serve notice upon (a
"Preliminary Termination Notice") the Breaching Party of the Non-Breaching
Party's intention to terminate this Agreement if the breach is not cured
within thirty (30) days following the Breaching Party's receipt of the
Preliminary Termination Notice. The Preliminary Notice shall state the cause
for the Non -Breaching Party's intention to terminate this Agreement.
If the Breaching Party does not remedy such breach or default within such
thirty (30) day period, the Non-Breaching Party shall have the right to
terminate this Agreement effective immediately upon provision of further
notice (the "Final Termination Notice") to the Breaching Party, and following
the provision of such Final Termination Notice, this Agreement and all rights,
privileges and licenses granted hereunder shall automatically terminate and
neither party shall have any further rights, duties or obligations hereunder
except as may have then accrued under this Agreement before such termination
or except as otherwise provided herein. If, at any time prior to receipt of
the Final Termination Notice the Breaching Party shall have remedied such
default, this Agreement shall continue in full force and effect as it would
have done if such notice had not been given.
6.03 Termination By Service Provider. In the event Service Provider's
Operating Losses at any time during any Contract Year exceed $9.0 million and
will not decrease during the remainder of the Contract Year, Service Provider
shall have the right at any time thereafter and prior to expiration of the
Term (excluding any extension thereof) to serve notice upon Seragen of Service
Provider's intention to terminate this Agreement. Such notice shall include a
detailed computation of Service Provider's Operating Losses during the
applicable portion of the Contract Year and the projected additional Operating
Losses for the remainder of the Contract Year, as well as all financial
information necessary in order to determine the amount of the Operating
Losses. If Seragen does not pay an amount to Service Provider equal to the
difference between the amount of the Operating Losses incurred and $9.0
million within thirty (30) days of its receipt of the notice of termination
from Service Provider and does not also agree in writing to pay all additional
Operating Losses incurred during the remainder of such Contract Year, this
Agreement and all rights, privileges and licenses granted hereunder shall
automatically terminate upon the thirtieth (30th) day following Seragen's
receipt of the notice and neither party shall have any further rights, duties
or obligations hereunder except as may have then accrued under this
Agreement before such termination or except as otherwise provided herein.
If, during the thirty (30) day period Seragen shall have made the required
payment and also shall have agreed in writing to pay all additional Operating
Losses incurred during the remainder of such Contract Year, this Agreement
shall continue in full force and effect as it would have done if such notice
had not been given. Seragen shall, at its own cost, be entitled to have its
own representatives and accountants review Service Provider's books and
records with respect to the Operating Losses (which books and records shall
include all information required to verify the amount of the Operating Losses)
at all times during the Term and, if this Agreement shall have terminated, for
a period of one year thereafter. Service Provider or Seragen, as applicable,
shall promptly pay to the other any over or underpayment made under this
Section 6.03 which is discovered and agreed upon in connection with any such
review.
6.04 Termination upon Cancellation of Asset Purchase. If the Asset
Purchase Agreement terminates and the transactions contemplated thereby are
not consummated, this Agreement automatically and without further action of
the parties shall terminate as of the date of termination of the Asset
Purchase Agreement.
6.05 Consequences of Termination. Except as set forth in last sentence
of this Section 6.05, nothing herein shall be construed to release either
party from any obligation which matured or any breach of this Agreement which
occurred prior to the effective date of termination. Without limiting the
foregoing, the provisions of Article V and Sections 7.01, 7.02, 7.03, 8.03,
and 8.14 shall survive any termination of this Agreement. In addition, except
to the extent provided therein, the provisions of Section 4.03 shall survive
any termination of this Agreement. In the event, and only in the event, that
this Agreement is terminated in accordance with Section 6.04 hereof, Service
Provider shall be obligated to reimburse to Seragen any amounts paid by
Seragen to Service Provider under Article IV hereof on or prior to the date of
such termination; provided, however, that Service Provider shall have the
right to set-off against any such amounts any amounts which Seragen owes to
Service Provider under Section 1.08 or Article X of the Asset Purchase
Agreement.
6.06 Term Extension. (a) Unless this Agreement has been terminated
in accordance with Section 6.02, 6.03 or 6.04 hereof prior to January 31,
1999, Seragen shall have two successive options to extend the term of this
Agreement each for a period of one year at then prevailing competitive market
rates (i.e., if, and only if, Seragen exercises the option to extend the term
for an additional year, it will have an option at the end of such year to
extend the term for a second year); provided, that, in connection with any
such extension, Seragen, at the end of each Contract Year of the term
extension, and within thirty (30) days of receiving notice from Service
Provider of the amount payable, shall pay to Service Provider, in addition to
any other fees which Seragen is obligated to pay to Service Provider,
an amount equal to the Operating Losses (if any) incurred by Service Provider
during such Contract Year, multiplied by a ratio equal to the gross revenues
paid by Seragen to Service Provider during such Contract Year divided by the
total gross revenues received by Service Provider during such Contract Year.
If Seragen desires to extend this Agreement, it shall provide written notice
to Service Provider not less than one hundred and twenty (120) nor more than
one hundred and fifty (150) days prior to the termination of the Agreement.
ARTICLE VII
PURCHASE RIGHTS
7.01 Right of First Refusal. (a) Service Provider shall not, during
the Term, sell, transfer, convey or otherwise dispose of any of the assets
used by Service Provider to provide services to Seragen hereunder outside of
the ordinary course of business otherwise than pursuant to a bona fide offer
to buy such assets from a Third Party that is not an affiliate of Service
Provider and after having complied with the provisions of this Section 7.01
(provided, that, the foregoing shall not limit Service Provider from
terminating any employees or consultants during the Term, provided that,
following such terminations, Service Provider possesses the assets necessary
in order for it to fully and timely perform all of its obligations hereunder).
(b) If Service Provider at any time during the Term receives
a bona fide offer from a Third Party to buy any of its assets outside of the
ordinary course of business and desires to accept said offer, Service Provider
shall first make an offer (the "Offer") to sell such assets (the "Offered
Assets") to Seragen in accordance with the procedure set forth in this Section
7.01. Such Offer shall be at the same price and upon the same terms and
conditions as the offer from the Third Party or, if the Third Party provides
for a type of consideration or sets forth other terms and conditions that are
not practically attainable by Seragen, for consideration and on terms and
conditions substantially equivalent to those contained in the Third Party
offer. Service Provider shall send written notice of the Offer (the "Service
Provider Notice") to Seragen, which shall describe the Offered Assets and any
liabilities to be assumed in detail, the price and the other terms and
conditions of the Offer and the name of the prospective purchaser (together
with a copy of all writings between such party and Service Provider necessary
to establish the terms of any such offer).
(c) Notwithstanding any provision hereof to the contrary,
Service Provider shall not pursue or entertain any Third Party offer, and the
Third Party offer shall not be deemed to be "bona-fide," if, following the
sale of the Offered Assets, Service Provider would not possess the assets
necessary in order for it to fully and timely perform all of its obligations
hereunder (in accordance with Section 8.02 hereof, Service Provider shall not
have the right to assign this Agreement to the Third Party without Seragen's
prior written consent, which may be withheld by Seragen in its sole
discretion). In addition, Service Provider shall not pursue or entertain any
Third Party offer, and the Third Party offer shall not be deemed to be "bona
fide," if (i) the Third Party purchaser does not have the financial capability
to pay the consideration for the Offered Assets, unless the Third Party
purchaser has obtained financing commitments of a type customary for
transactions similar to the proposed transaction; (ii) any condition to the
closing of the proposed transfer that is not within the control of the parties
is not reasonably likely to be satisfied within a reasonable period; (iii) the
closing of the proposed transfer is subject to due diligence or other
conditions the conduct and satisfaction of which are solely within the control
of the Third Party purchaser; (iv) the Third Party is not an affiliate of
Service Provider; or (v) for any other reason the offer would not be
reasonably regarded as bona fide.
(d) In the event of a bona fide Third Party offer, Seragen
shall have the right to purchase all (but not less than all) of the Offered
Assets, which right shall be exercisable by written notice to Service Provider
given within fifteen (15) business days after receipt of the Service Provider
Notice. If Seragen shall fail to respond within that period, such failure
shall be regarded as a rejection by Seragen of the Offer.
(e) Unless Seragen elects to purchase all of the Offered
Assets, Service Provider may sell all (but not less than all) of the Offered
Assets to the Third Party on the same terms and conditions as the Offer
described in the Service Provider Notice to Seragen, provided that such sale
is bona fide (as set forth in Section 7.01(c)) and made within ninety (90)
days from the date of the Service Provider Notice. If such sale is not
consummated within such 90-day period, the restrictions provided for herein
shall again become effective, and no sale, transfer, or assignment of such
Service Provider's assets outside of the ordinary course may be made
thereafter without the prior written consent of Seragen or without again
offering the same to Seragen in accordance with this Agreement.
(f) The closing of any purchase by Seragen of Offered Assets
shall be held at the principal office of Seragen at 11:00 A.M. local time on
the ninetieth (90th) day after the receipt of the Service Provider Notice, or
at such other time and place as the parties to the transaction may agree upon.
At such closing, Service Provider shall deliver such instruments of sale and
assignment as Seragen shall reasonably require, accompanied by all requisite
transfer taxes, and the Offered Assets to be transferred shall be free and
clear of any liens, claims, options, charges, encumbrances, or rights of
others (except for any liens, claims, options, charges, encumbrances, or
rights of others assumed by Service Provider from Seragen in connection with
the transactions contemplated by the Asset Purchase Agreement) and Service
Provider shall so represent and warrant, and further represent and warrant
that it is the holder of all right, title and interest in the Offered Assets.
Seragen shall deliver at such closing, by certified or official bank check,
so much of the purchase price as is payable in cash. Both parties to the
transaction shall execute such additional documents as are otherwise
appropriate. Service Provider shall fully cooperate in obtaining all third
party consents required, and in taking all other actions reasonably requested
by Seragen, in connection with the sale.
7.02 Purchase Option. (a) Seragen shall have the right, exercisable in
its discretion at any time during the four (4) year period following the date
of this Agreement, to purchase all (but not less than all) of Service
Provider's assets at a purchase price in cash equal to the "Purchase Price"
(as determined in accordance with Section 7.03). If Seragen desires to
exercise its purchase right, it shall do so by providing written notice to
Service Provider on or prior to the fourth anniversary of the date hereof.
(b) The closing of any such purchase by Seragen shall be held at
the principal office of Seragen at 11:00 A.M. local time on the ninetieth
(90th) day after the receipt by Service Provider of Seragen's election to
exercise its purchase option, or at such other time and place as the parties
to the transaction may agree. At such closing, Service Provider shall deliver
such instruments of sale and assignment as Seragen shall reasonably require,
accompanied by all requisite transfer taxes, and the assets to be transferred
shall be free and clear of any liabilities, obligations, liens, claims,
options, charges, encumbrances, or rights of others (except for any liens,
claims, options, charges, encumbrances, or rights of others assumed by
Service Provider from Seragen in connection with the transactions contemplated
by the Asset Purchase Agreement) and Service Provider shall so represent and
warrant, and further represent and warrant that it is the holder of all right,
title and interest in the assets being transferred. Seragen shall deliver at
such closing, by certified or official bank check, the purchase price for the
assets. Both parties to thetransaction shall execute such additional
documents as are otherwise appropriate. Seragen shall not be required to
assume any liabilities with respect to the purchased assets, except for
liabilities arising after the closing date under written contracts assumed by
Seragen and for any liens, claims, options, charges, encumbrances, or rights
of others assumed by Service Provider from Seragen in connection with the
transactions contemplated by the Asset Purchase Agreement. Service Provider
shall fully cooperate in obtaining all third party consents required, and in
taking all other actions reasonably requested by Seragen, in connection with
the transaction.
7.03 Determination of Purchase Price. "Purchase Price" shall equal:
(a) $5.0 million, plus interest accrued thereon from the date
hereof to the date of payment at the rate of 10% per annum; plus
(b) the greater of (i) the sum of the Operating Losses incurred by
Service Provider during each month or portion thereof occurring during the
Term, with interest accrued on the Operating Losses incurred in any such month
at a rate of 10% per annum from the final day of such month, compounded
quarterly (if Operating Losses in any month are negative (i.e., Service
Provider has an operating profit in any month), the amount of such operating
profit shall be subtracted from the Operating Losses incurred with respect to
other months occurring during the Term) and (ii) zero.
ARTICLE IX
MISCELLANEOUS
8.01 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered by registered or certified mail, return receipt
requested, postage prepaid, by facsimile transmission or in hand, addressed as
follows:
If to Seragen:
Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Facsimile: 508-435-9805
Attention: Chief Executive Officer
If to Service Provider:
Trustees of Boston University
881 Commonwealth Avenue
Boston, MA 02215
Attention: Kenneth G. Condon
8.02 Assignment. No Party hereto shall assign any of its rights
or delegate any of its obligations hereunder to any Third Party without the
express prior written consent of the other party hereto. Notwithstanding any
other provision hereof to the contrary, it is understood and agreed that the
Service Provider may assign this Agreement, and all of its rights, benefits,
duties and obligations hereunder, to a corporation, limited liability company
or other entity which is created by and wholly owned, directly or indirectly,
by Service Provider and which acts or will act as the "Nominee" to purchase
the Purchased Assets pursuant to Section 1.06 of the Asset Purchase Agreement
(the "Nominee"). If Service Provider shall elect to consummate the
transactions contemplated by the Asset Purchase Agreement through a Nominee
and therefor assign this Agreement to the Nominee, the Service Provider shall
give written notice to Seragen of such nomination and designation not less
than seven (7) days prior to the Closing Date (as defined in the Asset
Purchase Agreement), and the Nominee shall, at such time, deliver to Seragen
an instrument assuming all of Service Provider's obligations and liabilities
hereunder, such instrument to be in form and substance reasonably satisfactory
to Seragen. Upon such nomination, this Agreement shall be deemed to be
assigned to the Nominee, and the Nominee shall be deemed to be the Service
Provider hereunder for all purposes, completely and effectively as if the
Nominee were the Service Provider named herein. In the event that such
Nominee shall be an entity whose sole assets are or will be the Purchased
Assets or that otherwise has insufficient assets to provide commercially
reasonable credit-worthiness for its obligations set forth herein, a
subsidiary of Trustees of Boston University with assets sufficient to provide
commercially reasonably credit-worthiness shall execute and deliver as a
condition to the assignment to Nominee a guarantee of the Nominee's
obligations under this Service Agreement, such guarantee to be in form and
substance reasonably satisfactory to Service Provider and Seragen.
8.03 Arbitration. (a) Subject to paragraph (b) of this Section 8.03,
any dispute arising out of or in connection with this Agreement, including any
question regarding its existence, validity or termination, shall be referred
to final and binding arbitration, to the exclusion of any other court, forum
or jurisdiction. Such arbitration shall be conducted under the commercial
arbitration rules of the American Arbitration Association in effect from time
to time, which rules are deemed to be incorporated by reference into this
clause. The tribunal shall consist of three arbitrators. Each party shall
appoint one arbitrator, and the two party-appointed arbitrators shall select a
third arbitrator, who shall act as chairman. If the party-appointed
arbitrators cannot agree on a chairman, the chairman shall be appointed by the
American Arbitration Association. The place of arbitration shall be Boston,
Massachusetts. Unless the arbitral tribunal shall determine otherwise,
the costs of the arbitration shall be borne by the parties equally and each
party shall bear its other legal costs, including the fees of its attorneys.
(b) In the event that Seragen at any time proposes adjustment
to invoices submitted by Service Provider pursuant to Section 4.02(b), Seragen
and Service Provider shall in good faith attempt to resolve such dispute by
negotiation. If Seragen and Service Provider are unable to resolve any
dispute within fourteen (14) days after the date on which Service Provider
receives notice of such dispute, Seragen and Service Provider shall promptly
submit the dispute for resolution to a qualified accountant selected by the
head of the audit department at the Boston, Massachusetts office of Coopers &
Lybrand (such accountant, the "Accountant"). Within thirty (30) days after
the Accountant is so selected, Seragen and Service Provider each shall submit
to him their respective proposals with respect to resolution of the dispute,
together with such supporting documentation as they deem necessary of as the
Accountant requests. Within thirty (30) days after receiving such proposals
and supporting documentation, the Accountant shall render his findings with
respect to the dispute (including an equitable allocation of the fees and
expenses of the Accountant based upon the relative merits of the positions
asserted by the parties), which finding shall be final and binding upon the
parties. Within seven (7) days after the Accountant renders his findings,
Seragen or Service Provider, as the case may be, shall pay any amount
owing to the other.
8.04 Injunctive Relief. Service Provider agrees that a breach of this
Agreement during the Term will cause irreparable harm to Seragen, inadequately
compensable in damages. In the event of any breach of this Agreement during
the Term, Service Provider agrees that, in addition to its other remedies and
notwithstanding Section 8.03, Seragen shall be authorized and entitled to
obtain from any court of competent jurisdiction injunctive relief, whether
preliminary or permanent.
8.05 Further Assurances. Each party hereto covenants and agrees that it
will promptly, during the Term and upon the request of the other party,
execute, acknowledge and deliver or otherwise properly authenticate, as may be
required by law, all documents, instruments or applications, assignments,
registrations, or other legal papers which may be necessary to carry into
effect the provisions of this Agreement.
8.06 Effects. This Agreement shall be binding upon, and shall redound
to the benefit of, the parties hereto and their respective successors and
permitted assigns. Except as otherwise expressly provided herein, this
Agreement shall not create or confer, or be construed as creating or
conferring, any right, remedy, claim or benefit upon any Third Party, other
than the respective successors and permitted assigns of the parties
hereto.
8.07 Waivers and Amendments. Any amendment or supplementation of this
Agreement or any waiver of any term or condition thereof shall be effective
only if in writing. A waiver of any breach of any of the terms or conditions
of this Agreement shall not in any way be construed as a waiver of any
subsequent breach.
8.08 Severability. In the event that any one or more of the provisions
contained in this Agreement shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Agreement shall not, at the election of the party for
whom the benefit of the provision exists, be in any way impaired.
8.09 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same
instrument.
8.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, without
regard to the conflict-of-laws rules thereof.
8.11 Entire Agreement. This Agreement, and the schedules attached
hereto, contains the entire agreement between Seragen and Service Provider in
respect of the transactions contemplated by this Agreement and supersedes all
prior arrangements or understandings with respect thereto.
8.12 Force Majeure. No liability under this Agreement shall result to
a party from delay in performance caused by force majeure, that is,
circumstances beyond the reasonable control of the party affected thereby,
including acts of God, fire, flood, war, changes in government regulations,
labor unrest, or shortage of or an inability to obtain material or equipment.
8.13 Employee Matters. Service Provider acknowledges that Seragen has
the right to make an offer of employment at any time during the Term to any
Employee listed on Schedule 2, and Service Provider agrees not to enter into
any contract or arrangement with any such Employee which would impair that
Employee's ability to accept any such offer from Seragen. In addition,
Service Provider acknowledges and agrees that Seragen shall have the right to
employ, on a part time basis, the Employees listed on Schedule 3, and that,
during the term in which such persons are employed on a part time basis by
Seragen, Service Provider shall continue to employ such persons for the
remainder of their business time and to provide full benefits (medical,
dental, 401(K) and any other benefits generally applicable to Service Provider
full-time employees) to such persons. As partial reimbursement for Service
Provider providing full benefits to such part time employees, Seragen shall
pay to Service Provider within 10 days of the close of each month occurring
during the term in which any such employee is employed by Seragen on a part
time basis, an amount equal to 30% of the salary paid by Seragen to such part
time employee with respect to such month.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
SERAGEN, INC.
By: \s\ Reed R. Prior
Name: Reed R. Prior
Title: Chairman and CEO
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
Name: Kenneth G. Condon
Title: Treasurer
SERVICE AGREEMENT
Schedule 1
Services to be performed by Service Provider for Seragen in 1997:
Manufacturing of Batches - 1997: *
Manufacturing Fill of Batches - 1997: *
Quality Control and Release Testing of Batches - 1997: *
Quality Assurance - 1997: *
Product Development - 1997: *
Clinical/Pre-Clinical/Regulatory Studies - 1997: *
Clinical/Pre-Clinical/Regulatory Studies and Other - 1997: *
Price for services rendered in 1997 - $5,521,342
* - Confidential treatment requested
Services to be performed by Service Provider for Seragen in 1998:
Manufacturing of Batches - 1998: *
Manufacturing Fill of Batches - 1998: *
Quality Control and Release Testing of Batches - 1998: *
Quality Assurance - 1998: *
Product Development - 1998: *
Clinical/Pre-Clinical/Regulatory Studies - 1998: *
Clinical/Pre-Clinical/Regulatory Studies and Other - 1998: *
Price for services rendered in 1998 - $6,605,651
* - Confidential treatment requested
SERVICE AGREEMENT
Schedule 2
Employees Subject to Rehiring by Seragen: *
* - Confidential treatment requested
SERVICE AGREEMENT
Schedule 3
Part-Time Employees: *
* - Confidential treatment requested
EXHIBIT C
1992 LONG TERM INCENTIVE PLAN
SERAGEN, INC.
1992 LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
Page
SECTION 1. Purpose 3
SECTION 2. Stock Subject to the Plan 3
SECTION 3. Eligibility 4
SECTION 4. Administration 4
SECTION 5. Stock Options 5
SECTION 6. Stock Appreciation Rights 9
SECTION 7. Restricted Stock 10
SECTION 8. Deferred Stock 11
SECTION 9. Stock Purchase Rights 12
SECTION 10. Other Stock-Based Awards 13
SECTION 11. Change in Control Provisions 14
SECTION 12. Amendment and Termination 15
SECTION 13. Unfunded Status of Plan 16
SECTION 14. General Provisions 16
SECTION 15. Effective Date of Plan 17
SECTION 16. Term of Plan 17
SECTION 17. Definitions 17
As amended through October 28, 1997
SERAGEN, INC.
1992 LONG TERM INCENTIVE PLAN
SECTION 1. Purpose.
The purpose of the Seragen, Inc. 1992 Long Term
Incentive Plan (the "Plan") is to promote the interests of Seragen,
Inc. (the "Company") and its Subsidiaries, Affiliates and stockholders
by enabling the Company to attract, retain and reward persons who
serve as employees of and consultants to the Company and its Subsidiaries
and Affiliates, and strengthening the mutuality of interests between such
employees, consultants and the Company's shareholders, by offering them
performance-based stock incentives and/or other equity interests or
equity-based incentives in the Company, as well as performance based
incentives payable in cash.
Certain terms used herein are defined in Section 17 of the Plan.
SECTION 2. Stock Subject to the Plan.
The maximum aggregate number of shares of Stock reserved and
available for distribution under the Plan shall be sixteen million
(16,000,000) shares of Stock. Such shares may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
Subject to Section 6(b)(iv) below, if any shares of Stock that
have been optioned under the Plan cease to be subject to a Stock Option, or if
any such shares of Stock that are subject to any Restricted Stock or Deferred
Stock award, Stock Purchase Right or Other Stock-Based Award granted hereunder
are forfeited or any such award otherwise terminates without a payment being
made to the participant in the form of Stock, such shares shall be available
for distribution in connection with future awards under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future
distribution under the Plan.
In the event of any recapitalization, Stock dividend, Stock
split, reclassification or other change in corporate structure affecting the
Stock, the aggregate number of shares reserved for issuance under the Plan,
the number and option price of shares subject to outstanding Options granted
under the Plan, the number and purchase price of shares subject to outstanding
Stock Appreciation Rights under the Plan, and the number of shares subject to
other outstanding awards granted under the Plan shall be appropriately
increased or decreased proportionately, provided that the number of shares
subject to any award shall always be a whole number. In the event of an
issuance of Stock, the Committee in its discretion may make any such
adjustments with respect to outstanding awards as it deems appropriate in
order to prevent a dilution of the rights of recipients of awards. Any such
adjusted option price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation Right or Limited Stock
Appreciation Right associated with any Stock Option.
Subject to the provisions of Section 11 hereof, in the event of
a merger or consolidation of the Company with another corporation, all the
outstanding Stock Options issued hereunder shall terminate, unless otherwise
determined by the Committee, and all Deferred Stock and Restricted Stock which
is subject to forfeiture or which has not been received shall be forfeited or
not received, unless otherwise determined by the Committee or unless the Board
arranges to have the merged or consolidated corporation assume such Stock
Options, Deferred Stock or Restricted Stock or issue substitute Stock
Options, Deferred Stock or Restricted Stock therefor; provided, however, that
in the event the merged or consolidated corporation does not assume such Stock
Options, Deferred Stock or Restricted Stock or issue substitute Stock Options,
Deferred Stock or Restricted Stock therefor, (i) each optionee shall have the
right, immediately prior to such merger or consolidation, to exercise his
Stock Option(s) in whole or in part without regard to any installment
restrictions as to time of exercise otherwise imposed under the Plan,
and (ii) each holder of Deferred Stock or Restricted Stock shall have the
right, immediately prior thereto, to receive and own all such Stock without
regard to any restrictions otherwise imposed under the Plan.
SECTION 3. Eligibility
Employees (including employees who serve as officers and directors)
and consultants (including directors who serve as consultants) and members of
the Scientific and Medical Advisory Board (whether or not employees or serving
in other consulting roles) of the Company and its Subsidiaries and Affiliates
and who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company and/or its Subsidiaries and
Affiliates are eligible to be granted awards under the Plan; provided,
however, that only Employees of the Company and its Subsidiaries are eligible
to be granted Incentive Stock Options under the Plan.
SECTION 4. Administration
The Plan shall be administered by a Committee of not less than
two (2) Non-Employee Directors, who shall be appointed by the Board and who
shall serve at the pleasure of the Board. If no Committee has been appointed
to administer the Plan, the functions of the Committee specified in the Plan
shall be administered by the Board.
The Committee shall have full authority to grant, pursuant to
the terms of the Plan, to Employees eligible under Section 3: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Limited Stock Appreciation
Rights, (iv) Restricted Stock, (v) Deferred Stock, (vi) Stock Purchase Rights
or (vii) Other Stock-Based Awards.
In particular, the Committee shall have the authority subject
to the terms of the Plan:
(i) to select the persons to whom Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Purchase Rights
and/or Other Stock-Based Awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Purchase Rights
and/or Other Stock-Based Awards, or any combination thereof,
are to be granted hereunder to one or more eligible persons;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any
restriction or limitation, or any vesting, acceleration or
waiver of forfeiture restrictions regarding any Stock Option
or other award and/or Deferred Stock under Sections 5(k) or
5(l), as applicable, instead of Stock);
(v) to determine whether and under what circumstances a Stock
Option may be settled in Stock, Restricted Stock and/or
Deferred Stock under Sections 5(k) or (l), as applicable,
instead of cash;
(vi) to determine whether, to what extent and under what circumstances
grants and/or other awards under the Plan and/or other cash
awards made by the Company are to be made, and operate, on a
tandem basis vis-a-vis other awards under the Plan, and/or
cash awards made outside of the Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at
the election of the participant (including providing for and
determining the amount (if any) of any deemed earnings on any
deferred amount during any deferral period); and
(viii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Stock purchased by exercising such Rights.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of
the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions
of the Plan shall be made in the Committee's sole discretion and shall be
final and binding on all persons, including the Company and Plan participants.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act (and
with any amended or successor rule) for those persons who are subject to
Section 16(b) of said Act. If any provision in this Plan with respect to such
persons would be contrary to said Rule, it shall be deemed to be null and void
to the extent permissible by law and deemed appropriate by the Committee.
SECTION 5. Stock Options.
Stock Options may be granted alone, in addition to or in tandem
with other awards granted under the Plan and/or cash awards made outside of
the Plan. Each Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options, and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any
optionee Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation
Rights or Limited Stock Appreciation Rights); provided that in no event
shall any employee be granted in any calendar year Stock Options to
purchase more than five million (5,000,000) shares of Stock.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
a. Option Price. The option price per share of
Stock purchasable under a Stock Option shall be determined by the Committee
at the time of grant and may be equal to, greater than or less than one
hundred percent (100%) of the Fair Market Value of the Stock at the date
of grant; provided, however, that the option price per share of Stock
purchasable under an Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value of the Stock at the date
of grant; and provided further however, that in the case of an Incentive
Stock Option granted to an Employee who, at the time of grant, owns Stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of Stock of the Company, its Subsidiaries or Affiliates, the
option price per share of Stock shall not be less than one hundred ten percent
(110%) of the Fair Market Value of the Stock at the date of grant.
b. Option Term. The term of each Stock Option shall
be fixed by the Committee, but no Stock Option shall be exercisable more
than ten (10) years after the date the Option is granted or more than five
(5) years after grant in the case of any employee who owns stock constituting
ten percent (10%) of the total combined voting power of the Company or any
parent or Subsidiary.
c. Exercisability. Stock Options shall be exercisable
at such time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that, except
as provided in Sections 2, 5(f) and 5(g), unless otherwise determined by the
Committee at or after grant, no Stock Option shall be exercisable in the first
six (6) months following the granting of the option. If the Committee
provides, in its sole discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine in its sole discretion.
d. Method of Exercise. Subject to whatever installment
exercise provisions apply under Section 5(c), Stock Options may be exercised
in whole or in part at any time during the option period, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by check, note or such other instrument as the
Committee may accept. As determined by the Committee, in its sole discretion,
at or after grant, (a) payment in full or in part may be made in the form of
unrestricted Stock already owned by the optionee, (b) in the case of the
exercise of a Non-Qualified Stock Option, payment in full or in part may be
made in the form of Restricted Stock or Deferred Stock subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised, as determined by the Committee), (c) payment in
full or in part may be made in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Committee,
or (d) payment in full or in part may be made by any combination of (a), (b)
or (c) above.
If payment of the option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted Stock or
Deferred Stock, such Restricted Stock or Deferred Stock (and any replacement
shares relating thereto) shall remain (or be) restricted or deferred, as the
case may be, in accordance with the original terms of the Restricted Stock
award or Deferred Stock award in question, and any additional Stock received
upon the exercise shall be subject to the same forfeiture restrictions or
deferral limitations, unless otherwise determined by the Committee, in
its sole discretion, at or after grant.
No shares of Stock shall be issued until full payment therefor
has been made. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Stock, and compliance with
the applicable requirements, if any, of Section 13(a), no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to such Stock Option.
e. Non-Transferability of Options. No Stock Option
shall be transferable by the optionee other than by will or by the laws
of descent and distribution or as required pursuant to a qualified
domestic relations order as defined by the Code or Title I of The
Employee Retirement Income Security Act or the rules thereunder,
or as otherwise deemed appropriate by the Committee and set forth
in the applicable option agreement.
f. Termination by Death. Subject to Section
5(j), if an optionee's employment by the Company and any Subsidiary
or Affiliate terminates by reason of death, any Stock Option held by
such optionee may thereafter be exercised, to the extent such option
was exercisable at the time of death or on such accelerated basis
as the Committee may determine at or after grant (or as may be determined
in accordance with procedures established by the Committee), by the legal
representative of the estate or by the legatee of the optionee under the
will of the optionee, for a period of one year (or such other period as the
Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
g. Termination by Reason of Disability. Subject
to Section 5(j), if optionee's employment by the Company and any Subsidiary
or Affiliate terminates by reason of Disability, any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent
it was exercisable at the time of termination or on such accelerated basis
as the Committee may determine at or after grant (or as may be determined
in accordance with procedures established by the Committee), for a period
of twelve (12) months (or such period as the Committee may specify at grant)
from the date of such termination of employment or until the expiration of
the stated term of such Stock Option, whichever period is the shorter;
provided, however, that, if the optionee dies within such twelve (12) month
period (or such shorter period as the Committee shall specify at grant), any
unexercised Stock Option held by such optionee shall thereafter be exercisable
to the extent to which it was exercisable at the time of death for a period of
twelve (12) months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercisable after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
h. Termination by Reason of Retirement. Subject
to Section 5 (j), if an optionee's employment by the Company and any
Subsidiary or Affiliate terminates by reason of Normal Retirement or
Early Retirement, any Stock Option held by such optionee may thereafter
be exercised by the optionee, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee
may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of ninety
(90) days (or such other period as the Committee may specify at grant)
from the date of such termination of employment or the expiration of
the stated term of such Stock Option, whichever period is the shorter;
provided, however, that, if the optionee dies within such ninety (90) day
period (or such other period as the Committee may specify at grant), any
unexercised Stock Option held by such optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death,
for a period of twelve (12) months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Retirement,
if an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
i. Other Termination. Subject to Section 5(j),
unless otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or after grant, if an optionee's employment
by the Company and any Subsidiary or Affiliate terminates for any reason other
than death, Disability or Retirement, any Stock Option shall thereupon
terminate, except that such Stock Option may be exercised, to the extent
otherwise then exercisable, for the lesser of three (3) months or the balance
of such Stock Option's term if the optionee is involuntarily terminated
without Cause by the Company and any Subsidiary or Affiliate; provided,
however, that, if the optionee dies within such three (3) month period (or
such other period as the Committee may specify at grant), any unexercised
Stock Option held by such optionee shall thereafter be exercisable, to the
extent to which it was exercisable at the time of death, for a period of
twelve (12) months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. For
purposes of the Plan, "Cause" means a felony conviction of a
participant or the failure of a participant to contest prosecution for a
felony, or a participant's willful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of the Company
or any Subsidiary or Affiliate.
j. Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section 422.
Incentive Stock Options shall not be treated as "incentive
stock options" to the extent that the aggregate Fair Market Value (determined
at the time an Incentive Stock Option is granted) of Stock with respect to
which Incentive Stock Options meeting the requirements of Section 422(b)
of the Code are exercisable for the first time by any participant during
any calendar year (under all plans of the Company and its Subsidiaries)
exceeds $100,000, and such excess shall be treated as a Non-Qualified Stock
Option.
To the extent permitted under Section 422 of the
Code or the applicable regulations thereunder or any applicable Internal
Revenue Service pronouncement:
(i) if (x) a participant's employment is terminated by reason
of death, Disability or Retirement, and (y) the portion
of any Incentive Stock Option exercisable during the post-
termination period specified under Sections 5(f), (g) or (h)
that is greater than the portion of such option that
is exercisable as an "incentive stock option" during such
post-termination period under Section 422, shall be treated
as a Non-Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option is accelerated
by reason of a Change in Control, any portion of such option
that is not exercisable as an Incentive Stock Option by
reason of the $100,000 limitation contained in Section 422(d)
of the Code shall be treated as a Non-Qualified Stock Option.
k. Buyout Provisions. The Committee may at any time offer
to purchase an Option previously granted for a payment in cash, Stock,
Deferred Stock or Restricted Stock, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time that
such offer is made.
l. Settlement Provisions. If the option agreement so
provides at grant or is amended after grant and prior to exercise to so
provide (with the optionee's consent), the Committee may require that all or
part of the shares to be issued with respect to an exercised option take the
form of Deferred or Restricted Stock, which shall be valued on the date of
exercise on the basis of the Fair Market Value (as determined by the
Committee) of such Deferred Stock or Restricted Stock determined without
regard to the deferral limitations and/or forfeiture restrictions involved.
m. Additional Options. The Committee in its sole
discretion may authorize the grant of Non-Qualified Stock Options which
provide for the subsequent grant of additional Non-Qualified Stock Options
effective upon the occurrence of certain events specified in the applicable
option agreement.
<PAGE>
SECTION 6. Stock Appreciation Rights.
a. Grant and Exercise. Stock Appreciation
Rights may be granted in conjunction with all or part of any Stock
Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the
grant of such Stock Option. In the case of an Incentive Stock Option,
such rights may be granted only at the time of the grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer
be exercisable upon the termination or exercise of the related Stock Option,
subject to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full number of
shares covered by a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee,
subject to Section 6(b), in accordance with the procedures established by the
Committee for such purpose. Upon such exercise, the optionee shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options relating to exercised Stock Appreciation Rights shall no
longer be exercisable to the extent that the related Stock Appreciation Rights
have been exercised.
b. Terms and Conditions. Stock Appreciation Rights
shall be subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that Stock Options to which
they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash and/or shares
of Stock equal in value to the excess of the Fair Market Value
of one share of Stock over the option price per share
specified in the related Stock Option multiplied by the number
of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the right
to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be
transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right
is related shall be deemed to have been exercised for the
purpose of the limitation set forth in Section 3 of the Plan
on the number of shares of Stock to be issued under the Plan,
but only to the extent of the number of shares issued under
the Stock Appreciation Right at the time of exercise
based on the value of the Stock Appreciation Right at such
time.
(v) In its sole discretion, the Committee may grant Limited Stock
Appreciation Rights under this Section 6, i.e., Stock
Appreciation Rights that become exercisable only in the event
of a Change in Control or a Potential Change in Control,
subject to such terms and conditions as the Committee may
specify or grant. Such Limited Stock Appreciation
Rights shall be settled solely in cash.
(vi) The Committee, in its sole discretion, may also provide that,
in the event of a Change in Control or a Potential Change in
Control, the amount to be paid upon the exercise of a Stock
Appreciation Right or Limited Stock Appreciation Right shall
be based on the Change of Control Price, subject to such terms
and conditions as the Committee may specify at grant.
SECTION 7. Restricted Stock.
a. Administration. Shares of Restricted Stock may be
issued either alone, in addition to or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient of Restricted Stock (subject to
Section 7(b)), the time or times within which such awards may be subject to
forfeiture, and all other terms and conditions of the awards. The Committee
may condition the grant of Restricted Stock upon the attainment of specified
performance goals or such other factors as the Committee may determine,
in its sole discretion. The provisions of Restricted Stock awards need not be
the same with respect to each recipient.
b. Awards and Certificates. The prospective
recipient of a Restricted Stock award shall not have any rights with
respect to such award, unless and until such recipient has executed an
agreement evidencing the award and has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the applicable
terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall
be equal to, less than or greater than their par value
and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period
of sixty (60) days (or such shorter period as the Committee
may specify at grant) after the award date, by executing
a Restricted Stock award agreement and paying whatever price
(if any) is required under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in
the name of such participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions
applicable to such award.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the participant
shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
c. Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of the Plan and the award, during a period
set by the Committee commencing with the date of such award
(the "Restricted Period"), the participant shall not be permitted to
sell, transfer, pledge or assign shares of Restricted Stock awarded
under the Plan. Within these limits, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in
installments and may accelerate or waive such restriction in whole
or in part, based on service, performance and/or such other factors
or criteria as the Committee may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including
the right to vote the shares, and the right to receive any cash
dividends. The Committee, in its sole discretion, as determined at
the time of award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines,
reinvested, subject to Section 13(e), in additional Restricted Stock
to the extent shares are available under Section 3, or otherwise
reinvested. Pursuant to Section 3 above, Stock dividends issued
with respect to Restricted Stock shall be treated as additional
shares of Restricted Stock that are subject to the same
restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued.
(iii) Subject to the applicable provisions of the award agreement and
this Section 7, upon termination of a participant's employment with
the Company and any Subsidiary or Affiliate for any reason during
the Restricted Period, all shares still subject to restriction will
vest, or be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
(iv) If and when the Restricted Period expires without a prior forfeiture
of the Restricted Stock subject to such Restricted Period,
certificates for an appropriate number of unrestricted shares shall
be delivered to the participant promptly.
d. Minimum Value Provision. In order to better ensure that
award payments actually reflect the performance of the Company and service of
the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Restricted Stock award,
subjectto such performance, future service deferral and other terms and
conditions as may be specified by the Committee.
SECTION 8. Deferred Stock.
a. Administration. Deferred Stock may be awarded either alone,
in addition to or in tandem with other awards granted under the Plan and/or
cash awards made outside the Plan. The Committee shall determine the eligible
persons to whom and the time or times at which Deferred Stock shall be
awarded, the number of shares of Deferred Stock to be awarded to any person,
the price (if any) to be paid by the recipient of Deferred Stock, the duration
of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the other terms
and conditions of the award in addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Stock upon the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine, in its sole discretion. The provisions of Deferred
Stock awards need not be the same with respect to each recipient.
b. Terms and Conditions. The shares of Deferred
Stock awarded pursuant to this Section 8 shall be subject to the following
terms and conditions:
(i) Subject to the provisions of the Plan and the award
agreement referred to in Section 8(b)(vi) below, Deferred
Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the
expiration of the Deferral Period (or the Elective Deferral
Period referred to in Section 8(b)(v), where applicable),
share certificates shall be delivered to the participant,
or his legal representative, in a number equal to the shares
covered by the Deferred Stock award.
(ii) Unless otherwise determined by the Committee at grant,
amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently,
or deferred and deemed to be reinvested in additional Deferred
Stock, or otherwise reinvested, all as determined at or after
the time of the award by the Committee, in its sole discretion.
(iii) Subject to the provision of the award agreement and this Section
8, upon termination of a participant's employment with the
Company and any Subsidiary or Affiliate for any reason during the
Deferral Period for a given award, the Deferred Stock in question
will vest, or be forfeited, in accordance with the terms and
conditions established by the Committee at or after grant.
(iv) Based on service, performance and/or such other factors or criteria
as the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any Deferred
Stock award and/or waive the deferral limitations for all or any
part of such award.
(v) A participant may elect to further defer receipt of an award (or an
installment of an award) for a specified period or until a specified
event (the "Elective Deferral Period"), subject in each case to the
Committee's approval and to such terms as are determined by the
Committee, all in its sole discretion. Subject to any exceptions
adopted by the Committee, such election must generally be made at
least twelve (12) months prior to completion of the Deferral
Period for such Deferred Stock award (or such installment).
(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock agreement executed by the Company and the
participant.
c. Minimum Value Provisions. In order to better ensure
that award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole discretion,
for a tandem performance-based or other award designed to guarantee a minimum
value, payable in cash or Stock to the recipient of a Deferred Stock award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
SECTION 9. Stock Purchase Rights.
a. Awards and Administration. Subject to Section 3 above,
the Committee may grant eligible participants Stock Purchase Rights which
shall enable such participants to purchase Stock (including Deferred Stock and
Restricted Stock):
(i) at its Fair Market Value on the date of grant;
(ii) at fifty percent (50%) of such Fair Market Value on such date;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Stock on such date.
The Committee shall also impose such deferral, forfeiture and/or
other terms and conditions as it shall determine, in its sole discretion, on
such Stock Purchase Rights or the exercise thereof. The terms of Stock
Purchase Rights awards need not be the same with respect to each participant.
Each Stock Purchase Right award shall be confirmed by, and be subject to the
terms of, a Stock Purchase Rights agreement.
b. Exercisability. Stock Purchase Rights shall
generally be exercisable for such period after grant as is determined
by the Committee, not to exceed thirty (30) days.
SECTION 10. Other Stock-Based Awards.
a. Administration. Other awards of Stock
and other awards that are valued in whole or in part by reference
to, or are otherwise based on, Stock ("Other Stock-Based Awards"),
including, without limitation, performance shares, convertible
preferred stock, convertible debentures, exchangeable securities
and Stock awards or options valued by reference to Book Value or
Subsidiary performance, may be granted alone, in addition to or
in tandem with Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock or Stock Purchase Rights granted under the
Plan and/or cash awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee
shall have authority to determine the persons to whom and the time or
times at which such awards shall be made, the number of shares of Stock
to be awarded pursuant to such awards, and all other conditions of the
awards. The Committee shall also provide for the grant of Stock upon
the completion of a specified performance period.
The provisions of Other Stock-Based Awards need not be
the same with respect to each recipient.
b. Terms and Conditions. Other Stock-Based
Awards made pursuant to this Section 10 shall be subject to the
following terms and conditions:
(i) Subject to the provisions of this Plan and the
award agreement referred to in Section 10(b)(v)
below, shares subject to awards made under this
Section 10 may not be sold, assigned, transferred,
pledged or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on
which any applicable restriction, performance or deferral
period lapses.
(ii) Subject to the provisions of this Plan and the award
agreement and unless otherwise determined by the Committee
at grant, the recipient of an award under this Section 10
shall be entitled to receive, currently or on a deferred
basis, interest or dividends, or interest or dividend
equivalents with respect to the number of shares covered
by award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have been
reinvested in additional Stock or otherwise reinvested.
(iii) Any award under Section 10 and any Stock covered by any such
award shall vest or be forfeited to the extent so provided
in the award agreements, as determined by the Committee,
in its sole discretion.
(iv) In the event of the participant's Retirement, Disability or
death, or in cases of special circumstances, the Committee
may, in its sole discretion, waive in whole or in part any
or all of the remaining limitations imposed hereunder (if
any) with respect to any or all of an award under this
Section 10.
(v) Each award under this Section 10 shall be confirmed by, and
subject to the terms of, an agreement or other instrument
by the Company and by the participant.
(vi) Stock (including securities convertible into Stock) issued
on a bonus basis under this Section 10 may be issued for
no cash consideration. Stock (including securities convertible
into Stock) purchased pursuant to a purchase right awarded under
this Section 10 shall be priced at an amount of not less than fifty
percent (50%) of the Fair Market Value of the Stock on the date
of grant.
SECTION 11. Change in Control Provisions.
a. Impact of Event. In the event of:
(1) a Change in Control, or
(2) a Potential Change in Control, but only if and to the
extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly
reserved by the Committee or the Board at the time of such
determination), the following acceleration and valuation
provisions shall apply:
(i) Any Stock Appreciation Rights (including, without limitation,
any Limited Stock Appreciation Rights) outstanding for at
least six (6) months and any Stock Options awarded under the
Plan not previously exercisable and vested shall become fully
exercisable and vested.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock, Stock Purchase Rights and
other Stock Based Awards, in each case to the extent not already
reinstated under the Plan, shall lapse and such shares shall
be deemed fully vested.
(iii) The value of all outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, Stock Purchase Rights
and other Stock-Based Awards, in each case to the extent vested,
shall, unless otherwise determined by the Committee in its sole
discretion at or after grant but prior to any Change in Control,
be cashed out on the basis of the Change in Control Price as of
the date such Change in Control or such Potential Change in Control
is determined to have occurred or such other date as the Committee
may determine prior to the Change in Control.
(b) Definition of "Change in Control." For purposes of Section 11(a),
a "Change in Control" means the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, other than
Boston University (collectively, the Group), including a "group" as
defined in Section 13(d) of the Exchange Act but excluding the
Company and any Subsidiary and any employee benefit program
sponsored or maintained by the Company or any Subsidiary (including
any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's
then outstanding securities; or
(ii) when, during any period of twenty-four (24) consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to constitute
at least a majority thereof, provided, however, that a director
who was not a director at the beginning of such twenty-four (24)
month period shall be deemed to have satisfied such twenty-four
(24) month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors either actually (because they were directors
at the beginning of such twenty-four (24) month period) or by prior
operation of this Section 11(b)(ii); or
(iii) the occurrence of a transaction requiring shareholder approval
for the acquisition of the Company by an entity other than the
Company or a Subsidiary through purchase of assets, or by merger,
or otherwise.
(c) Definition of "Potential Change in Control". For purposes of
Section 11(a), a "Potential Change in Control" means the happening
of any one of the following:
(i) the approval by shareholders of an agreement by the Company,
the consummation of which would result in a Change in Control
of the Company as defined in Section 11(b); or
(ii) the acquisition of beneficial ownership, directly or indirectly,
by an entity, person or group, other than the Company or a
Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee) or Boston University,
of securities of the Company representing five percent (5%) or more
of the combined voting power of the Company's outstanding securities
and the adoption by the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred for the
purposes of the Plan.
d. Change in Control Price. For purposes of this Section 11,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the National Association of Securities Dealers
Automated Quotation System, or paid or offered in any bona fide transaction
related to a potential or actual Change in Control of the Company, at any time
during the sixty (60) day period immediately preceding the occurrence of the
Change in Control period (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee, except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Stock Options, such price shall be based only
on transactions reported for the date on which the optionee exercises such
Stock Appreciation Rights (or Limited Stock Appreciation Rights) or, where
applicable, the date on which a cashout occurs under Section 11(a)(2)(iii).
SECTION 12. Amendment and Termination.
The Board may amend, alter, or discontinue the Plan,
but no amendment, alteration, or discontinuation shall be made which would
impair the rights of an optionee or participant under a Stock Option,
Stock Appreciation Right, Limited Stock Appreciation Right, Restricted
Stock or Deferred Stock award, Stock Purchase Right or Other Stock-Based Award
theretofore granted, without the optionee or participant's consent, or which,
without the approval of the Company's shareholders, would:
a. except as generally provided in this Plan, increase the
total number of shares reserved for the purpose of the Plan;
b. change the pricing terms of Section 9(a);
c. change the classification of persons eligible to participate in
the Plan; or
d. extend the maximum Option period under Section 5(d) of the Plan.
The Committee may amend the terms of any Stock Option or
other award theretofore granted, prospectively or retroactively, but, subject
to Section 3 above, no such amendment shall impair the rights of any holder
without the holder's consent. The Committee may also substitute new Stock
Options for previously granted Stock Options (on a one-for-one or other
basis), including previously granted Stock Options having higher option
exercise prices.
Subject to the above provisions, the Board shall have broad
authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
However, no amendment shall be effective if shareholder approval is required
under Section 16 of the Exchange Act or Section 422 of the Code unless the
shareholders approve or ratify the amendment within the requisite timeframe
pursuant to such procedures as may be required by the Exchange Act or the
Code, as applicable.
SECTION 13. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet
made to a participant or optionee by the Company, nothing contained herein
shall give any such participant or optionee any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Stock or payments in lieu of
or with respect to awards hereunder, provided, however, that, unless the Board
determines otherwise with the consent of the affected participant, the
existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan.
SECTION 14. General Provisions.
a. The Committee may require each person purchasing
shares of Stock pursuant to a Stock Option or other award under the Plan to
represent to and agree with the Company in writing that the optionee or
participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to compliance with such stock
transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Commission, any
stock exchange upon which the Stock is then listed, and any applicable Federal
or state securities law, and shall further be subject to the approval of
counsel for the Company with respect to such compliance. The Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
b. Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
c. The adoption of the Plan shall not confer upon
any person any right to continue as an employee or in any other status with
the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or
Affiliate to terminate the employment or any contractual arrangement of any
person participating hereunder at any time.
d. No later than the date as of which an amount
first becomes includable in the gross income of the participant for Federal
income tax purposes with respect to any award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Committee, withholding obligations may be settled with
Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company and its
Subsidiaries or Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the participant.
e. The actual or deemed reinvestment of dividends
or dividend equivalents in additional Restricted Stock (or in Deferred Stock
or other types of Plan awards) at the time of any dividend payment shall only
be permissible if sufficient shares of Stock are available under Section 2 for
such reinvestment (taking into account then outstanding Stock Options, Stock
Purchase Rights and other Plan awards).
f. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware.
g. No security or derivative security hereunder
shall be transferable by a participant other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as referenced in Rule 16b-3 of the Exchange Act.
SECTION 15. Effective Date of Plan.
The Plan shall be effective as of January 31, 1992,
subject to the approval of the Plan by a majority of the votes cast by
the holders of the Company's Common Stock pursuant to Rule 16b-3(b) of the
Exchange Act. Any grants made under the Plan prior to such approval shall
be effective when made (unless otherwise specified by the Board at the time of
grant), but shall be conditioned on, and subject to, such approval of the
Plan by such shareholders.
SECTION 16. Term of Plan.
No Stock Option, Stock Appreciation Right, Restricted
Stock award, Deferred Stock award, Stock Purchase Right or Other Stock-
Based Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of shareholder approval or Board approval,
whichever is earlier, but awards granted prior to such tenth anniversary
may extend beyond that date.
SECTION 17. Definitions.
For purposes of the Plan, the following terms shall
be defined as set forth below:
a. "Affiliate" means any entity other than the
Company and its Subsidiaries that is designated by the Board as a
participating employer under the Plan, provided that the Company
directly or indirectly owns at least twenty percent (20%) of the combined
voting power of all classes of stock of such entity or at least twenty
percent (20%) of the ownership interests in such entity.
b. "Board" means the Board of Directors of the Company.
c. "Book Value" means, as of any given date, on a per
share basis, (i), the shareholders' equity in the Company as of the end of the
immediately preceding fiscal year as reflected in the Company's consolidated
balance sheet, subject to such adjustments as the Board shall specify at or
after grant, divided by (ii) the number of then outstanding shares of Stock as
of such year-end date (as adjusted by the Committee for subsequent events).
d. "Cause" has the meaning set forth in Section 5(i) above.
e. "Change in Control" has the meaning set forth in Section
11(b) above.
f. "Change in Control Price" has the meaning set forth in
Section 11(d) above.
g. "Code" means the Internal Revenue Code of 1986, as amended.
h. "Commission" means the Securities and Exchange Commission.
i. "Committee" means the Committee referred to in Section 4
of the Plan.
j. "Company" has the meaning set forth in Section 1 above.
k. "Deferral Period" has the meaning set forth in Section
8(a) above.
l. "Deferred Stock" means an award made pursuant to Section
8 above of the right to receive Stock at the end of a
specified deferral period.
m. "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
n. "Early Retirement" means retirement, with the express consent
of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary
or Affiliate pursuant to the early retirement provisions of
the applicable qualified retirement plan of such entity.
o. "Elective Deferral Period" has the meaning set forth in
Section 8(b)(v) above.
p. "Employee" means any person, including officers and directors,
employed by the Company or any Affiliate or Subsidiary of the
Company. The payment of a director's fee by the Company shall
not be sufficient to constitute "employment" by the Company.
q. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
r. "Fair Market Value" means, as of any given date, the last
reported sales price of such share on the current day (or most
recent business day for trading if a holiday or weekend) on the
New York Stock Exchange, or, if the Common Stock is not then
listed or admitted to trading on the New York Stock Exchange,
on such other principal stock exchange on which such stock is
then listed or admitted to trading, or, if no sale takes place
on such day on any such exchange, the average of the closing
bid and asked prices on such day as officially quoted on any
such exchange, or, if the Common Stock is not then listed or
admitted to trading on any stock exchange, the market price for
each such trading day shall be the last sale reported on the
Nasdaq National Market as published in The Wall Street Journal
or, if no such sale is so reported, the average of the reported
closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National
Association of Securities Dealers Automated Quotation system,
or, if such price at the time is not available
from such system, as furnished by any similar system then
engaged in the business of reporting such prices and selected
by the Board or, if there is no such system, as furnished by
any member of the National Association of Securities Dealers
selected by the Board. If the Common Stock is neither listed
on a national securities exchange nor reported on the Nasdaq
National Market nor traded on the over-the-counter market, fair
market value shall be such value as the Board, in good faith,
shall determine. Notwithstanding any provision of the Plan to
the contrary, no determination made with respect to the Fair
Market Value of Common Stock subject to an Option shall be
inconsistent with the method required for incentive stock
options under Code Section 422.
s. "Incentive Stock Option" means any Stock Option intended to
qualify as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
t. "Incumbent Directors" has the meaning set forth in Section
11(b)(ii) above.
u. "Limited Stock Appreciation Right" has the meaning set forth in
Section 6(b)(v) above.
v. "Non-Employee Director" has the meaning set forth in Rule
16b-3(b)(3) as promulgated by the Commission under the Exchange
Act, or any successor definition adopted by the Commission.
w. "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
x. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Affiliate on or after
age 65.
y. "Other Stock-Based Award" means an award under Section 10 above
that is valued in whole or in part by reference to, or is
otherwise based on, Stock.
z. "Plan" has the meaning set forth in Section 1 above.
aa. "Potential Change in Control" has the meaning set forth in
Section 11(c) above.
bb. "Restricted Period" has the meaning set forth in Section
7(c)(i) above.
cc. "Restricted Stock" means an award of shares of Stock that
is subject to restrictions under Section 7 above.
dd. "Retirement" means Normal Retirement or Early Retirement.
ee. "Stock" means the common stock, $.01 par value, of the Company.
ff. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 above to surrender to the Company all
(or a portion) of a Stock Option in exchange for an amount
equal to the difference between (i) the Fair Market Value, as
of the date such Stock Option (or portion thereof) is
surrendered, of the shares of Stock covered by such Stock
Option (or such portion thereof), subject, where applicable,
to the pricing provisions in Section 6(b)(ii), and (ii) the
aggregate exercise price of such Stock Option (or such portion
thereof).
gg. "Stock Option" or "Option" means any option to purchase shares
of Stock (including Restricted Stock and Deferred Stock, if the
Committee so determines) granted pursuant to Section 5 above.
hh. "Stock Purchase Right" means the right to purchase Stock
pursuant to Section 9.
ii. "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
SERAGEN, INC.
97 South Street, Hopkinton, MA 01748
Proxy for 1997 Annual Meeting of Shareholders
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby acknowledges receipt of the Seragen, Inc.
Notice of Annual Meeting of Shareholders and Proxy Statement dated November
4, 1997, and, revoking all previous proxies, hereby appoints Reed R. Prior
and Jean C. Nichols, or either of them, as the undersigned's attorneys-in-
fact and proxies, each with power of substitution and with all the powers
the undersigned would possess if present, to vote all shares of the Common
Stock of Seragen, Inc. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders to be held on
December 16, 1997 at 12:00 noon at the offices of the Company at 97
South Street, Hopkinton, Massachusetts, and any adjournments thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Please mark votes as in this example.
The shares represented hereby will be voted as directed by this proxy,
but if no determination is made they will be voted FOR the election of
all nominees, FOR the sale of the Operating Division, FOR the amendment
of the 1992 Long Term Incentive Plan, and FOR ratification of the independent
auditors. The Board of Directors recommends a vote for proposals 1, 2, 3 and
4.
1. ELECTION OF DIRECTORS
Nominees: Reed R. Prior,
Gerald S.J. Cassidy,
Kenneth G. Condon,
Norman A. Jacobs,
Jean C. Nichols
John R. Silber.
FOR WITHHELD
FOR except vote withheld from the following nominee(s):
______________________________________________________
2. SALE OF OPERATING DIVISION TO BOSTON UNIVERSITY AND RELATED
CONTRACT SERVICE ARRANGEMENT BETWEEN THE COMPANY AND
BOSTON
UNIVERSITY
FOR AGAINST ABSTAIN
3. AMENDMENT OF 1992 LONG TERM INCENTIVE
PLAN TO INCREASE SHARES AVAILABLE FROM 2.3 MILLION
TO 16 MILLION
FOR AGAINST ABSTAIN
4. RATIFICATION OF SELECTION OF INDEPENDENT
AUDITORS
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote upon
such other matters as may lawfully come before the meeting and
all adjournments thereof. If one or more of the nominees for
Director becomes unavailable for election and the Board of
Directors designates one or more substitute nominees, the
proxies are authorized to vote for such substitute nominees.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT
NOTE: Please date and sign exactly as your name(s) appear(s)
hereon. If acting as attorney, executor, trustee, or in any
other representative capacity, sign name and title.
Signature: ____________________________
Date _________________________________
Signature: ____________________________
Date _________________________________
