<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 1998.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from ________ to _______.
Commission File Number 0-20023
ALPHA-BETA TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-2997834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Innovation Drive
Worcester, MA 01605
(Address of principal executive offices)
508-798-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X_ No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 5, 1998
Common stock, $.01 par value 20,592,726
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<PAGE> 2
ALPHA-BETA TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1997, and
June 30, 1998 ......................................................................3
Condensed Consolidated Statements of Operations for the three and six month
periods ended June 30, 1997 and 1998, and from the period from inception
through June 30, 1998 ..............................................................4
Condensed Consolidated Statements of Cash Flows for the six month periods
ended June 30, 1997 and 1998, and from the period from inception through
June 30, 1998 ......................................................................5
Notes to Condensed Consolidated Financial Statements..................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings...............................................................12
Item 2. Changes in Securities...........................................................12
Item 3. Defaults Upon Senior Securities.................................................12
Item 4. Submission of Matters to a Vote of Security Holders.............................12
Item 5. Other Information...............................................................12
Item 6. Exhibits and Reports on Form 8-K................................................12
SIGNATURES................................................................................13
</TABLE>
2
<PAGE> 3
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,288,035 $ 9,052,942
Marketable securities 3,324,936 1,287,713
Other current assets 212,131 313,002
------------ ------------
Total current assets 19,825,102 10,653,657
------------ ------------
Property and equipment, net of accumulated depreciation and amortization 25,469,751 24,400,933
------------ ------------
Other assets:
Bond issuance costs, net 1,007,767 977,459
Other 200,555 238,695
------------ ------------
Total other assets 1,208,322 1,216,154
------------ ------------
$ 46,503,175 $ 36,270,744
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable and
capital lease obligations $ 1,180,059 $ 1,040,247
Accounts payable 647,832 1,859,553
Accrued expenses 564,273 453,975
------------ ------------
Total current liabilities 2,392,164 3,353,775
------------ ------------
Term notes payable and capital lease obligations, net of current portion 24,767,335 24,405,105
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value - authorized -- 1,000,000 shares, issued - none - -
Common stock, $.01 par value - authorized -- 30,000,000 shares, issued and
outstanding -- 20,394,727 shares and 20,592,726 shares at December 31,
1997 and June 30, 1998, respectively 203,947 205,927
Additional paid-in capital 159,338,073 159,428,657
Deficit accumulated during the development stage (140,171,324) (151,109,616)
Deferred compensation (27,020) (13,104)
------------ ------------
Total stockholders' equity 19,343,676 8,511,864
------------ ------------
$ 46,503,175 $ 36,270,744
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Three months ended Six months ended (inception)
June 30, June 30, through
-------------------------- ---------------------------- June 30,
1997 1998 1997 1998 1998
------------ ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest $ 399,760 $ 166,498 $ 914,076 $ 394,518 $ 9,881,108
Other 2,193 210,091 2,533 514,331 1,045,603
----------- ----------- ------------ ------------ -------------
Total revenues 401,953 376,589 916,609 908,849 10,926,711
----------- ----------- ------------ ------------ -------------
Expenses:
Research and development 6,589,405 4,327,172 13,978,615 8,540,097 117,187,002
General and administrative 1,009,356 878,496 2,287,434 1,768,567 28,732,885
Acquired in-process research and development 2,014,004 - 2,014,004 - 2,514,004
Interest 783,846 756,902 1,591,001 1,537,910 13,601,826
----------- ----------- ------------ ------------ -------------
Total expenses 10,396,611 5,962,570 19,871,054 11,846,574 162,035,717
----------- ----------- ------------ ------------ -------------
Net loss $(9,994,658) $(5,585,981) $(18,954,445) $(10,937,725) $(151,109,006)
=========== =========== ============ ============ =============
Basic and diluted net loss per common share $ (0.60) $ (0.27) $ (1.13) $ (0.54)
=========== =========== ============ ============
Weighted average number of common
shares outstanding 16,757,501 20,468,876 16,744,725 20,432,583
=========== =========== ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Six months ended (inception)
June 30, through
----------------------------- June 30,
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,954,445) $(10,937,725) $(151,109,006)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,314,219 1,098,899 15,537,371
Amortization of investment premium 45,399 18,251 1,906,020
Amortization of deferred financing
and bond issuance costs 115,378 115,378 923,124
Noncash compensation related to stock
options, warrants and common stock 160,552 82,916 2,356,334
Charges related with acquired
in-process research and development 2,014,004 - 2,514,004
Changes in operating assets and liabilities:
Other current assets 132,144 (100,871) (310,282)
Accounts payable 619,542 1,211,721 1,823,386
Accrued expenses (169,233) (110,298) 411,118
------------ ------------ -------------
Net cash used for operating activities (14,722,440) (8,621,729) (125,947,931)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in marketable securities 6,812,319 2,018,405 (3,194,351)
Net cash used in the purchase of MycoTox (580,900) - (593,412)
Increase in property and equipment (275,405) (20,081) (39,702,321)
Increase in restricted cash - - (32,425,737)
Payments from restricted cash - - 32,425,737
Decrease (increase) in other assets 11,665 (48,140) (237,430)
Increase in bond issuance costs - - (1,303,237)
------------ ------------ -------------
Net cash provided by (used for)
investing activities 5,967,679 1,950,184 (45,030,751)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated
notes payable to stockholders - - 2,300,000
Proceeds from equipment line of credit - - 3,261,600
Proceeds from equipment lease 291,032 - 349,273
Payments on capital lease obligations - - (180,867)
Proceeds from notes payable - - 27,835,947
Payments on notes payable (557,112) (587,112) (5,587,637)
Proceeds from sale of convertible redeemable
preferred stock, net of issuance costs - - 24,560,465
Proceeds from sale of common stock,
net of issuance costs 95,529 23,564 127,492,843
------------ ------------ -------------
Net cash provided by (used for)
financing activities (170,551) (563,548) 180,031,624
------------ ------------ -------------
Net increase (decrease) in cash
and cash equivalents (8,925,312) (7,235,093) 9,052,942
Cash and cash equivalents,
beginning of period 21,885,111 16,288,035 -
------------ ------------ -------------
Cash and cash equivalents,
end of period $ 12,959,799 $ 9,052,942 $ 9,052,942
============ ============ =============
Interest paid (net of capitalized interest) $ 1,385,001 $ 1,442,530 $ 12,774,870
============ ============ =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
March 2, 1988
Six months ended (inception)
June 30, through
---------------------- June 30,
1997 1998 1998
-------- -------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
<S> <C> <C> <C>
Equipment under capital lease ................... $ -- $ -- $ (178,886)
Furniture and equipment under capital lease ..... -- -- 178,886
Conversion of line of credit to term note payable -- -- (2,144,525)
Issuance of term note payable ................... -- -- 2,144,525
Grant of common stock ........................... 28,162 91,585 468,632
Compensation related to common stock grant ...... (28,162) (91,585) (468,632)
Cancellation of stock options ................... (54,333) -- (166,170)
Grant of stock options and restricted stock ..... -- -- 1,996,153
Deferred compensation on stock options
and restricted stock .......................... 54,333 -- (1,829,983)
Grant of warrants ............................... -- -- 132,000
Deferred compensation on warrants ............... -- -- (132,000)
Conversion of subordinated notes payable to
redeemable preferred stock .................... -- -- (2,300,000)
Issuance of redeemable preferred stock .......... -- -- 2,300,000
Conversion of redeemable preferred
stock to common stock .......................... -- -- (20,674,454)
Common stock .................................... -- -- 20,674,454
Other assets .................................... -- -- (50,000)
Issuance costs associated with proceeds
on sale of redeemable preferred stock .......... -- -- 50,000
Note payable .................................... -- -- 2,679,165
Grant of warrants ............................... -- -- 974,627
Note payable discount ........................... -- -- (3,653,792)
Unrealized losses (gains) on
marketable securities .......................... 59,010 567 610
Accumulated deficit ............................. (59,010) (567) (610)
Capitalized interest in property
and equipment .................................. -- -- (312,476)
Amortization of bond issuance costs ............. -- -- 83,315
Amortization of note payable discount ........... -- -- 229,161
-------- -------- ------------
$ -- $ -- $ --
======== ======== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim unaudited condensed consolidated financial statements
contained herein have been prepared in accordance with generally accepted
accounting principles for interim financial information. They do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In management's opinion, the
unaudited information includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The results of
operations for the interim periods shown in this report are not necessarily
indicative of results expected for the full year. The financial statements
should be read in conjunction with the financial statements and notes for the
year ended December 31, 1997, included in the Company's Annual Report on Form
10-K.
2. NET LOSS PER COMMON SHARE
For the three and six month periods ended June 30, 1997 and 1998, basic
net loss per common share was computed using the weighted average number of
common shares outstanding during the period in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Diluted net
loss per share is the same as basic net loss, as the inclusion of common
equivalents would be antidilutive.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and marketable financial
instruments with original maturities of 90 days or less.
4. MARKETABLE SECURITIES
The amortized cost and estimated fair market values of the Company's
securities at June 30, 1998 are presented below. The Company did not realize any
gains or losses from securities sold in the three months ended June 30, 1997 and
1998.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------------------------ -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency obligations
(average maturity less than 1 month) $1,002,710 $ - $ 610 $1,002,100
Corporate debt securities
(average maturity of 2 months) 285,613 - - 285,613
-------------- ------------ ------------ -----------
$1,288,323 $ - $ 610 $1,287,713
============== ============ ============ ===========
</TABLE>
5. TERM NOTE PAYABLE
At June 30, 1998, approximately $312,000 was outstanding under a term note
with a bank. This note is payable in monthly installments of $40,352 and bears
interest at the lesser of 8-3/4% or the Prime Rate 8.0% at June 30, 1998) plus
1/2%. In the event that the Company's cash balances and marketable securities
fall below $18 million in the aggregate,
7
<PAGE> 8
ALPHA-BETA TECHNOLOGY, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the Company will be required to maintain, as restricted cash, a Repurchase
Agreement Investment Account ("the Investment Account") with the bank in an
amount equal to the then outstanding balance of the loan. If the Company's cash
balances and marketable securities subsequently fall below $10 million in the
aggregate, the Company will be required, on demand by the bank, to pledge the
Investment Account to the bank as security for the loan. The Company has
received a waiver from the bank releasing the Company from the obligation to
maintain the Investment Account as of June 30, 1998.
6. ACQUISITION OF MYCOTOX, INC.
On June 9, 1997, the Company acquired all the outstanding shares of
MycoTox, Inc., a privately owned biotechnology company located in Denver,
Colorado. Under the agreement, MycoTox shareholders received an up-front payment
valued at $1.0 million consisting of $500,000 in cash and 56,813 shares of
Alpha-Beta common stock. On June 9, 1998, an additional 113,636 shares of
common stock was issued to MycoTox shareholders. The 56,813 and 113,636 common
shares granted on June 9, 1997 and 1998, respectively, were valued at $8.80 per
share (the 10 day average price of the Company's common stock preceding June 9,
1997). An additional $1.0 million of common stock will be issued subject to the
attainment of performance milestones. On November 7, 1997, the first milestone
was met and resulted in the issuance of 180,551 shares of the Company's common
stock at $2.70 per share, resulting in an aggregate value of approximately
$500,000.
The aggregate purchase price of $2,664,024 consisted of the following:
<TABLE>
<S> <C>
Common stock $1,987,488
Liabilities assumed 79,024
Cash paid for acquisition
and acquisition costs 597,512
----------
$2,664,024
==========
</TABLE>
In conjunction with the acquisition, the Company recorded approximately
$2,514,000 as acquired in-process research and development expense. The
remaining $500,000 of common stock, which is subject to future performance
milestones, will be accounted for if those milestones are achieved. For
financial statement purposes, this acquisition was accounted for as a purchase,
and accordingly, the results of operations of MycoTox subsequent to June 9, 1997
are included in the Company's consolidated statements of operations.
The purchase price was allocated based upon the fair value of the assets
and intangible assets acquired. The purchase price has been allocated as
follows:
<TABLE>
<S> <C>
Current assets $ 6,820
Equipment 43,024
Goodwill 100,000
In-process research and
development 2,514,004
----------
$2,664,024
==========
</TABLE>
The acquired in-process research and development has been expensed as a
charge against operations as of the closing of the transaction, and is included
in the accompanying consolidated statement of operations. The amount allocated
to acquired in-process research and development relates to projects that had not
yet reached technological feasibility and that, until completion of development,
have no alternative future use. These projects will require substantial high
risk development and testing prior to reaching of technological feasibility.
7. NEW ACCOUNTING STANDARD
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
effective January 1, 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
The adoption of this did not have a material effect on the financial statements,
as the only element of comprehensive income related to the Company is unrealized
gains or losses in marketable securities.
8
<PAGE> 9
ALPHA-BETA TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Alpha-Beta Technology, Inc. is engaged in research and development of new
classes of carbohydrate and antifungal products. The Company has not received
significant revenues from the sale of its products and expects to incur
substantial operating losses for the next several years. As of June 30, 1998,
the Company's accumulated deficit was $151,109,616.
RESULTS OF OPERATIONS
REVENUES
Revenues to date have consisted primarily of funding for the antifungal
research program from the National Institutes of Health and interest earned from
the investment of cash balances. For the three month periods ended June 30, 1998
and 1997, revenues were $376,589 and $401,953 respectively. An increase in other
revenues of $207,898 was due to income from research grants. This increase in
other revenues was offset by a decrease in interest income of $233,262. This
decrease was primarily due to less interest earned as a result of lower average
cash and investment balances in the second quarter of 1998 compared with the
second quarter of 1997. Revenues in the six month periods ended June 30, 1998
and 1997 were $908,849 and $916,609, respectively. An increase in other revenues
of $511,798 was due to income from research grants. This increase in other
revenues was offset by a decrease in interest income of $519,558. This decrease
was primarily due to less interest earned as a result of lower average cash and
investment balances in the first half of 1998 compared with the first half of
1997.
OPERATING EXPENSES
For the three month periods ended June 30, 1998 and 1997, research and
development expenses were $4,327,172 and $6,589,405, respectively. For the six
month periods ended June 30, these expenses decreased 39% to $8,540,097 in 1998
from $13,978,615 in 1997. The decreases were primarily due to lower expenses as
a result of a corporate downsizing in September 1997 and costs related to
conducting the first Phase III clinical trial for Betafectin in 1997. The
Company does not expect research and development expenses to increase over 1997
levels for the remainder of 1998; however, these expenses may increase in future
years, reflecting activities related to further development and
commercialization of Betafectin, the development of additional products and the
operation of the Company's commercial manufacturing facility for research and
development purposes.
For the three month periods ended June 30, 1998 and 1997, general and
administrative expenses were $878,496 and $1,009,356, respectively. The decrease
of $130,860 in the second quarter of 1998 as compared to the second quarter of
1997 was primarily due to lower expenses as a result of the corporate downsizing
in September 1997. For the six month periods ended June 30, 1998 and 1997, these
expenses decreased 23% to $1,768,567 in 1998 from $2,287,434 in 1997. General
and administrative expenses are not expected to increase over 1997 levels in
1998; however, these expenses may increase in future years reflecting planned
efforts to commercialize Betafectin.
9
<PAGE> 10
For the three month periods ended June 30, 1998 and 1997, interest expense
was $756,902 and $783,846, respectively. For the six month periods ended June
30, interest expense decreased to $1,537,910 in 1998 from $1,591,001 in 1997.
This decrease of $53,091 was primarily due to lower loan balances in the first
half of 1998 compared with the first half of 1997.
NET LOSS
The net loss for the three months ended June 30, 1998 was $5,585,981
($0.27 per share) compared to $9,994,568 ($0.60 per share) for the same period
in 1997. The net loss for the six months ended June 30, 1998 was $10,937,725
($0.54 per share) compared to $18,954,445 ($1.13 per share) for the same period
in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $10,340,655 in cash, cash equivalents and marketable
securities at June 30, 1998, compared with $19,612,971 at December 31, 1997.
This decrease was primarily due to the expenditure of $8,621,729 in cash used
for operating activities during the first half of 1998.
The Company expects to incur substantial additional operating expenses in
1998 and in future years related to research, development, and clinical studies
of Betafectin and other products, as well as the establishment of commercial
manufacturing and sales and marketing capabilities. As of June 30, 1998, the
Company had working capital of approximately $7,300,000. The Company anticipates
that its existing capital resources are sufficient to maintain its operations
and capital expenditures through 1998, after taking into account certain
potential cost saving activities. The Company plans to implement these
activities should additional capital not be raised by the beginning of the
fourth quarter of 1998. The Company's actual capital requirements will depend
upon numerous factors, including the progress of the Company's research and
development programs, preclinical testing and clinical trials, the timing and
cost of obtaining regulatory approvals, and the costs associated with expanding
manufacturing and establishing marketing capabilities. The Company will need to
raise additional funds prior to obtaining regulatory approval for Betafectin
(and, if required, prior to the completion of the current Phase III clinical
trial of Betafectin) through collaborative alliances, equity or debt financings
or other arrangements. There can be no assurance that additional funds will be
available on favorable terms or at all or that the Company will enter into
collaborative or other arrangements. The Company's ability to raise additional
funds or to enter into collaborative or other arrangements may depend upon a
number of factors including the results of the Company's clinical development
programs, the status of its discussions with the FDA concerning obtaining
regulatory approval of Betafectin and the overall market for biotechnology
stocks.
In February 1993, the Company entered into a $30,000,000 loan agreement
with RIPA to finance the Betafectin commercial-scale manufacturing facility. The
total cost of this facility was approximately $39,600,000. The Company
contributed all funds, in addition to the RIPA loan, necessary to complete the
facility.
The Company is required to make payments to RIPA of approximately
$300,000 per month over a 20-year term. To finance its loan to the Company, RIPA
issued $30,000,000 of taxable revenue bonds. Borrowings under the loan accrue
interest at approximately 9.5% per annum and are secured by the Betafectin
manufacturing facility. The Company's obligation to repay the loan is subject to
acceleration if the Company fails to make any monthly debt service payments or
if certain events of default occur. The Company may also be required to repay
the loan on an accelerated basis over five years if the enabling legislation
under which RIPA issued the bonds used to fund the loan to the Company is
eliminated without an appropriate grandfathering provision, or if RIPA is
subject to any bankruptcy proceedings. The bonds mature through December 2024.
The RIPA bonds are subject to refinancing by RIPA on December 1, 1999 and the
terms of the RIPA loan to the company are subject to adjustment in connection
with such refinancing. If the bonds cannot be successfully remarketed, the bank
will become the owner of the then outstanding principal amount of the bonds, and
the interest rate will be adjusted to the bank's base rate plus 2%.
On January 12, 1998, the Company announced that it had begun a
confirmatory Phase III clinical trial of Betafectin for the prevention of
serious infections in upper gastrointestinal (GI ) surgery patients. This trial,
along with the results of the Company's first Phase III study, will provide the
basis for a PLA filing for Betafectin. The double-blind, placebo-controlled
study involves 618 patients at 30 sites throughout the United States. The study
is expected to be completed in approximately 18 months and will include an
interim analysis.
In April 1998, after the Company conducted an interim analysis of safety
and efficacy, patient enrollment was resumed in the Phase II clinical trial of
patients undergoing surgery for inflammatory bowel disease (IBD). The
double-blind, placebo-controlled Phase II trial is being conducted at twelve
sites in the United States and will enroll approximately 240 patients undergoing
surgery for Crohn's Disease or ulcerative colitis.
The Company plans to modify certain portions of its software so that its
computer and non-information technology systems will function properly with
respect to dates in the year 2000 and thereafter. The total cost of compliance
and the effect on the Company's future results is currently being determined as
part of the conversion planning, although the Company does not believe such cost
will be material. These costs will be expensed as incurred. The Company
anticipates substantial completion of the conversion process by June 1999. The
Company has begun an assessment of the Year 2000 preparedness of third parties
with which the Company has a material relationship with. The Company has not yet
drafted a contingency plan to outline the Company's actions in the event its
Year 2000 compliance plan is not successfully implemented. There can be no
assurance that the Company's or its suppliers' Year 2000 conversion will be
successfully completed. Actual results could differ materially from those
anticipated.
10
<PAGE> 11
CERTAIN FACTORS AFFECTING FUTURE EVENTS AND RESULTS
This Form 10-Q to Stockholders contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. Actual events and results could differ materially from
those set forth in the forward looking statements. Certain factors that might
cause such differences include, but are not limited to, the following: the
timing of the collection, verification and analysis of the clinical data for the
Company's Phase III trial; the results of the Company's Phase III trial and for
its other clinical development programs; obtaining the requisite regulatory
approvals for the Company's products from the U.S. Food and Drug
Administration; ability to obtain additional financing; the ability to achieve
potential cost savings; potential adverse consequences arising from Year 2000
issues; the competitive environment and market conditions for the biotechnology
industry; and general economic conditions.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Alpha-Beta Technology, Inc. was held
on May 20, 1998, for the purpose of the election of Gustav A. Christensen,
Lawrence C. Hoff and Michael E. Porter as the three Class III Directors of the
Company to serve until the 2001 Annual Meeting of Stockholders and until their
successors are duly elected and qualified. The following table describes the
results of the stockholder votes.
<TABLE>
<CAPTION>
VOTES VOTES
IN FAVOR WITHHELD
---------------------
<S> <C> <C>
Election of Gustav A. Christensen as a Class III Director 18,804,515 163,221
Election of Lawrence C. Hoff as a Class III Director 18,799,922 167,814
Election of Michael E. Porter as a Class III Director 18,807,415 160,321
</TABLE>
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits.
10.42F Ninth Amendment to the Three Biotech Park lease
dated as of January 1, 1998
10.52 Stock Purchase and Restriction Agreement dated as
of May 19, 1998 between the Company and
Joseph M. Grimm.
B. Reports on Form 8-K. None
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALPHA-BETA TECHNOLOGY, INC.
Date: August 14, 1998 By: /s/ JOSEPH GRIMM
----------------------------
Joseph Grimm,
Chief Financial Officer
13
<PAGE> 1
EXHIBIT 10.42F
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
THREE BIOTECH PARK
NINTH AMENDMENT TO LEASE
------------------------
This NINTH AMENDMENT TO LEASE dated effective as of January 1, 1998 is
between WORCESTER BUSINESS DEVELOPMENT CORPORATION ("Landlord") and ALPHA-BETA
TECHNOLOGY, INC. ("Tenant") and amends the Lease dated July 10, 1990 (or July
11, 1990) between Landlord and Tenant as amended by First Amendment to Lease
dated August 13, 1991, Second Amendment to Lease dated April 1, 1992, Third
Amendment to Lease dated December 21, 1992, Fourth Amendment to Lease dated
October 29, 1993, Fifth Amendment to Lease dated May 31, 1994, Sixth Amendment
to Lease dated March 24, 1995, Seventh Amendment to Lease effective as of June
26, 1996 and Eighth Amendment to Lease effective as of December 31,1997
(collectively, the "Lease"). The purposes of this Ninth Amendment are to (i)
adjust the Basic Rent, (ii) extend the term of the Lease, and (iii) amend other
provisions of the Lease.
1. AMENDMENT TO LEASE. Commencing on January 1, 1998, the terms and titles
applicable to the Lease as amended by this Ninth Amendment to Lease are as set
forth in the Revised Section 1.01 attached as EXHIBIT K.
2. EXPANSION OF PREMISES. Amend Paragraph 9 of the Sixth Amendment to Lease
as follows:
(a) Delete the first sentence of Paragraph 9.1 of the Sixth Amendment to
Lease in its entirety and insert in its place the following:
Landlord agrees that commencing on January 1, 1999 and continuing
throughout the Lease Term, Landlord will notify Tenant promptly after
Landlord learns that any previously occupied Expansion Space is or
will become available and Tenant has the option to lease the Expansion
Space identified in Landlord's notice by giving Landlord notice of its
exercise of the option within thirty (30) days after receipt of
Landlord's notice.
(b) Delete subclause (x) of Paragraph 9.2 of the Sixth Amendment to Lease
and insert in its place the following:
(x) $20.90 per square foot, and
3. SETTLEMENT OF OBLIGATION. Delete in its entirety the paragraph entitled
"Settlement of Obligation" which was added to the Lease pursuant to the Sixth
Amendment.
4. RATIFICATION OF LEASE. As amended by this Ninth Amendment, the Lease is
ratified and confirmed in all respects, except that this Amendment will prevail
over any other provisions of the Lease which are inconsistent with this
Amendment or the state of facts contemplated by this Amendment.
<PAGE> 2
EXECUTED as a sealed instrument as of the date first above written.
LANDLORD: TENANT:
- -------- ------
WORCESTER BUSINESS DEVELOPMENT ALPHA-BETA TECHNOLOGY, INC.
CORPORATION
By: /s/ John D. Hunt By: /s/ D. Davidson Easson, Jr.
-------------------------- ----------------------------------
John D. Hunt, Chairman D. Davidson Easson, Jr., Executive
Vice President and Chief Operating
Officer
- 2 -
<PAGE> 3
MASSACHUSETTS BIOTECHNOLOGY RESEARCH PARK
THREE BIOTECH PARK
EXHIBIT K
---------
TO
NINTH AMENDMENT TO LEASE
------------------------
REVISED SECTION 1.01 - TERMS AND TITLES REFERRED TO. Each reference in this
Lease to any of the following terms and titles incorporates the data stated for
that term or title in this Revised Section 1.01:
DATE OF LEASE: July 10, 1990
LANDLORD: WORCESTER BUSINESS DEVELOPMENT CORPORATION, a Massachusetts
corporation established pursuant to the provisions of Chapter 600 of the Acts of
1965, its successors and assigns.
LANDLORD'S ADDRESS: One Innovation Drive
Worcester, Massachusetts 01605
TENANT: ALPHA-BETA TECHNOLOGY, INC.
TENANT'S ADDRESS: One Innovation Drive
Worcester, Massachusetts 01605
TERM COMMENCEMENT DATE:
(a) ORIGINAL PREMISES: June 1, 1991
(b) FIRST AMENDMENT PREMISES: December 1, 1991
(c) SECOND AMENDMENT PREMISES: September 1, 1992
(d) THIRD AMENDMENT PREMISES: May 9, 1994
(e) SEVENTH AMENDMENT PREMISES: July 1, 1996 or date of
occupancy, if earlier
STATED EXPIRATION DATE: December 31, 2007
LAND: The parcel of land on Innovation Drive in Worcester, Worcester County,
Massachusetts, shown on the plan entitled "Plan of Property Owned by Worcester
Business Development Corporation, Three Biotech Park, off Plantation Street,
Worcester, Massachusetts" dated January 31, 1990 and recorded with the Worcester
District Registry of Deeds in Plan Book 633, Plan 79, containing a total area of
8.8048 acres, more or less, according to said plan, plus or minus any additions
or deletions resulting from the change of any abutting street line.
K - 1 of 4
<PAGE> 4
PREMISES:
(a) ORIGINAL PREMISES: That portion of the second floor of the Building
shown as outlined or hatched on the Lease Plan attached to the Lease
as EXHIBIT B.
(b) FIRST AMENDMENT PREMISES: That portion of the service floor of the
Building shown as outlined or hatched on the Lease Plan attached to
the First Amendment as EXHIBIT B-1 and labeled "First Amendment
Premises."
(c) SECOND AMENDMENT PREMISES: That portion of the second floor of the
Building shown as outlined or hatched on the Lease Plan attached to
the Second Amendment as EXHIBIT B-2 and labeled "Second Amendment
Premises."
(d) THIRD AMENDMENT PREMISES: Those portions of the Service Level and
second floor of the Building shown as outlined or hatched on the Lease
Plan attached to the Third Amendment as EXHIBIT B-3 and labeled "Third
Amendment Premises."
(e) SEVENTH AMENDMENT PREMISES: That portion of the first floor of the
Building shown as outlined or hatched on the Lease Plan attached to
the Seventh Amendment as EXHIBIT B-7 and labeled "Seventh Amendment
Premises."
RENTABLE AREA OF THE PREMISES:
(a) Original Premises 15,033 sq. ft.
(b) First Amendment Premises 2,957 sq. ft.
(c) Second Amendment Premises 8,483 sq. ft.
(d) Third Amendment Premises 4,269 sq. ft.
(e) Seventh Amendment Premises 7,544 sq. ft.
------
TOTAL 38,286 sq. ft.
RENTABLE AREA OF THE BUILDING: 114,000 square feet
TENANT'S SHARE:
(a) Original Premises 13.2%
(b) First Amendment Premises 2.6%
(c) Second Amendment Premises 7.4%
(d) Third Amendment Premises 3.7%
(e) Seventh Amendment Premises 6.7%
----
TOTAL 33.6%
DESIGN START DATE: Not Applicable
LEASE TERM: Sixteen (16) Lease Years and seven (7) months, commencing on June 1,
1991 and ending on December 31, 2007.
K - 2 of 4
<PAGE> 5
BASIC RENT:
January 1, 1998 through December 31, 1999
Per square foot of Rentable Area: $16.00
Annual: $612,600.00
Monthly Installment: $51,050.00
January 1, 2000 through December 31, 2001
Per square foot of Rentable Area: $18.00
Annual: $689,150.00
Monthly Installment: $57,429.17
January 1, 2002 through December 31, 2003
Per square foot of Rentable Area: $20.00
Annual: $765,720.00
Monthly Installment: $63,810.00
January 1, 2004 through December 31, 2005
Per square foot of Rentable Area: $22.00
Annual: $842,292.00
Monthly Installment: $70,191.00
January 1, 2006 through December 31, 2007
Per square foot of Rentable Area: $24.00
Annual: $918,864.00
Monthly Installment: $76,557.00
K - 3 of 4
<PAGE> 6
FIXED RENTAL PERIOD: Not Applicable
ESTIMATED OPERATING EXPENSES: Not Applicable
ESTIMATED TAXES: Not Applicable
INITIAL MONTHLY PAYMENT: Not Applicable
SECURITY DEPOSIT: Not Applicable
GUARANTOR: Not Applicable
PERMITTED USE: Research and development, general office and limited light
manufacturing including, but not limited to, production of microbial and yeast
compounds for product development and sale.
K - 4 of 4
<PAGE> 1
EXHIBIT 10.52
STOCK PURCHASE AND RESTRICTION AGREEMENT
----------------------------------------
STOCK PURCHASE AND RESTRICTION AGREEMENT by and between Alpha-Beta
Technology, Inc. (the "Company") and Joseph M. Grimm (the "Officer"), dated as
of May 19, 1998.
WHEREAS, the Officer is the Vice President, Finance and Chief Financial
Officer of the Company; and
WHEREAS, pursuant to the Company's 1997 Stock Option and Grant Plan (the
"Plan"), the Company desires to issue and sell, and the Officer desires to
purchase, 30,000 shares of the Company's common stock, par value $.01 per share,
at a purchase price of $.01 per share, subject to the terms and conditions set
forth herein and in the Plan.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
Section 1. DEFINITIONS. For the purposes of this Agreement, the following
terms shall have the following respective meanings:
(a) "ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(b) "COMMON STOCK" shall mean the Company's common stock, par
value $.01 per share.
(c) "DISABILITY" shall mean the physical or mental illness or
disability of the Officer such that, in the good faith judgment of a reputable
physician, he shall be unable to perform his duties as an officer of the Company
and such inability may reasonably be expected to be permanent.
(d) "NON-VESTED SHARES" shall mean all the Shares that are not
Vested Shares.
(e) "PERMITTED TRANSFEREES" shall mean the Officer's spouse,
parents, brothers, sisters, children (natural or adopted), stepchildren or
grandchildren or a trust for their sole benefit.
(f) "SHARES" shall mean the 30,000 shares of Common Stock being
purchased by the Officer pursuant to the terms of this Agreement.
<PAGE> 2
(g) "TERMINATION EVENT" shall mean the termination of the
Officer as a full-time employee of the Company, whether by reason of retirement,
discharge or any other reason, voluntary or involuntary, PROVIDED, HOWEVER, that
the death or Disability of the Officer shall not be a Termination Event.
(h) "VESTED SHARES" shall mean all Shares which have been vested
in accordance with the following vesting schedule, provided that the Officer
remains a full-time employee of the Company as of each respective Vesting Date:
<TABLE>
<CAPTION>
Number of Shares Cumulative Number of
Vesting Date Becoming Vested Shares Vested
------------ --------------- -------------
<S> <C> <C>
January 12, 1999 10,000 10,000
April 12, 1999 2,500 12,500
July 12, 1999 2,500 15,000
October 12, 1999 2,500 17,500
January 12, 2000 2,500 20,000
April 12, 2000 2,500 22,500
July 12, 2000 2,500 25,000
October 12, 2000 2,500 27,500
January 12, 2001 2,500 30,000
</TABLE>
Notwithstanding anything contained herein to the contrary, all of the
Shares issued to the Officer shall vest upon the occurrence of any one of the
following events if the Officer is a full-time employee of the Company on the
day prior to the date of such event: (i) a merger or consolidation in which the
Company is not the surviving entity; (ii) the sale of substantially all of the
Company's assets to another entity; (iii) a dissolution of the Company; or (iv)
the death or Disability of the Officer.
Section 2. PURCHASE AND SALE OF SHARES; INVESTMENT REPRESENTATIONS.
(a) PURCHASE AND SALE. Pursuant to the terms hereof, the Company
hereby sells to the Officer, and the Officer hereby purchases from the Company,
30,000 Shares at a purchase price of $.01 per Share.
2
<PAGE> 3
(b) INVESTMENT REPRESENTATIONS. In connection with the purchase
and sale of the Shares contemplated by Section 2(a) above, the Officer hereby
represents and warrants to the Company as follows:
(i) The Officer is purchasing the Shares for his own
account for investment only, and not for resale or with a view to the
distribution thereof.
(ii) The Officer has had such an opportunity as he has
deemed adequate to obtain from representatives of the Company such
information as is necessary to permit him to evaluate the merits and risks
of his investment in the Company.
(iii) The Officer has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved
in the purchase of the Shares and to make an informed investment decision
with respect to such purchase.
(iv) The Officer can afford a complete loss of the value
of the Shares and is able to bear the economic risk of holding such Shares
for an indefinite period.
(v) The Officer understands that the Shares are not
registered under the Act or any applicable state securities or "blue sky"
laws and may not be sold or otherwise transferred or disposed of in the
absence of an effective registration statement under the Act and under any
applicable state securities or "blue sky" laws (or exemptions from the
registration requirements thereof).
Section 3. REPURCHASE OPTION.
3.1 REPURCHASE OPTION. In the event of a Termination Event, the
Company shall have the right and option (the "Repurchase Option") to repurchase
all of the Non-Vested Shares at a repurchase price equal $.01 per Share. The
Company may elect to exercise its Repurchase Option pursuant to the provisions
of Section 3.2 below. In the event that the Company does not elect to exercise
its Repurchase Option in accordance with Section 3.2, all of the Non-Vested
Shares shall thereafter be deemed to be Vested Shares.
3.2 EXERCISE OF REPURCHASE OPTION AND CLOSING. The Company may
exercise the Repurchase Option by delivering or mailing to the Officer, in
accordance with Section 8.6, written notice of its election to exercise within
45 days after the Termination Event. If and to the extent the Repurchase Option
is not so exercised within such 45-day period, the Repurchase Option shall
automatically expire and terminate effective upon the expiration of such 45-day
period. The closing of any such repurchase of Non-Vested Shares shall be held at
the principal office of the Company, or at such other location as the parties to
such repurchase may mutually determine. At any such closing, the Company shall
pay to the Officer and/or any holder of the Non-Vested Shares the aggregate
repurchase price for the
3
<PAGE> 4
Non-Vested Shares to be purchased by certified or bank check. At such time, the
Officer and/or any holder of the Non-Vested Shares shall deliver to the Company
the certificate or certificates representing the Non-Vested Shares so
repurchased, duly endorsed for transfer, free and clear of any lien or
encumbrances.
Section 4. RESTRICTIONS ON TRANSFER OF SHARES. None of the Shares
(whether Vested Shares or Unvested Shares) now owned or hereafter acquired shall
be sold, assigned, transferred, pledged, hypothecated, given away or in any
other manner disposed of or encumbered, whether voluntarily or by operation of
law, unless such transfer is in compliance with all foreign, federal and state
securities laws (including, without limitation, the Act), and such disposition
is in accordance with the terms and conditions of this Section 4. In connection
with any transfer of Shares, the Company may require an opinion of counsel to
the transferor, satisfactory to the Company, that such transfer is in compliance
with all foreign, federal and state securities laws (including without
limitation, the Act). Any attempted disposition of Shares not in accordance with
the terms and conditions of this Section 4 shall be null and void, and the
Company shall not reflect on its records any change in record ownership of any
Shares as a result of any such disposition, shall otherwise refuse to recognize
any such disposition and shall not in any way give effect to any such
disposition of any Shares. Subject to the foregoing general provisions, the
Unvested Shares may only be transferred pursuant to the following specific terms
and conditions:
(a) TRANSFERS TO PERMITTED TRANSFEREES. The Officer may
sell, assign, transfer or give away any or all of the Unvested Shares to
Permitted Transferees; provided, however, that such Permitted Transferee(s)
shall, as a condition to any such transfer, agree to be subject to the
provisions of this Agreement (including without limitation, the provisions of
Section 3 and this Section 4) and shall have delivered a written acknowledgment
to that effect to the Company.
(b) TRANSFERS UPON DEATH. Upon the death of the Officer,
the Unvested Shares held by the Officer may be transferred and distributed by
will or other instrument taking effect at his death or by the laws of descent
and distribution to the Officer's estate, executors, administrators and personal
representatives, and then to the Officer's heirs, legatees or distributees
whether or not such heirs, legatees or distributees are Permitted Transferees;
provided, however, that any such transferees shall be subject to the provisions
of this Section 4.
Section 5. LEGEND. Any certificate(s) representing the Shares shall
carry the following legends:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND
CONDITIONS (INCLUDING REPURCHASE AND RESTRICTIONS AGAINST
TRANSFERS)
4
<PAGE> 5
CONTAINED IN A CERTAIN STOCK PURCHASE AND RESTRICTION AGREEMENT
DATED MAY 19, 1998 BETWEEN ALPHA-BETA TECHNOLOGY, INC. (THE
"COMPANY") AND JOSEPH M. GRIMM (COPIES OF WHICH ARE AVAILABLE AT
THE OFFICES OF THE COMPANY FOR EXAMINATION).
and
THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM
REGISTRATION.
Section 6. ESCROW. In order to more effectively carry out the
provisions of Sections 3 and 4 of this Agreement, the Company shall hold the
Shares in escrow together with separate stock powers executed by the Officer in
blank for transfer. The Company shall not dispose of the Shares except as
otherwise provided in this Agreement. If the Company exercises the Repurchase
Option, the Company is hereby authorized by the Officer to date and complete the
stock powers necessary for the transfer to the Company of the Shares it has duly
elected to purchase and to transfer the Shares being purchased to the Company.
At such time as any Vested Shares are transferred pursuant to the terms of this
Agreement, the Company shall, at the written request of the Officer, deliver to
the Officer (or his proposed transferee) a certificate representing such Shares
with the balance of the Shares to be held in escrow pursuant to this Section 6.
All Shares which remain in escrow upon the termination of this Agreement shall
then be delivered to the Officer and/or the record holders of such Shares. The
right to vote the Shares and to receive cash dividends on the Shares shall
remain in the Officer and any transferee of the Officer pursuant to the terms of
this Agreement unless and until the Shares are purchased by the Company pursuant
to the Repurchase Option.
Section 7. WITHHOLDING TAXES. The Officer has agreed to elect to
recognize ordinary income in the year of acquisition of the Shares in accordance
with Section 83(b) of the Internal Revenue Code of 1986, as amended. In
connection therewith, the Company hereby agrees to loan the Officer an amount up
to $57,862.00 representing the amount of income taxes incurred by the Officer in
connection with the purchase of the Shares. The Officer shall (i) apply the
proceeds of such loan to all withholding or other taxes determined to be due in
connection with the purchase of the Shares, and (ii) execute a promissory note
(the "Note") in favor of the Company in the form attached hereto as EXHIBIT A on
the date hereof. In addition to the foregoing, the Officer acknowledges and
agrees that the Company has the right to deduct from payments of any kind
otherwise due to the Officer, or from the Shares held pursuant to Section 6
hereof, any other federal, state or local taxes of any kind required by law to
be withheld with respect to the purchase of the Shares by the Officer.
5
<PAGE> 6
Section 8. MISCELLANEOUS PROVISIONS.
8.1 EQUITABLE RELIEF. The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Agreement and
that equitable relief, including specific performance and injunctive relief, may
be used to enforce the provisions of this Agreement.
8.2 CHANGE AND MODIFICATIONS. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Officer.
8.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts.
8.4 HEADINGS. The headings are intended only for convenience in
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
8.5 SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
8.6 NOTICES. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or when received if mailed by
first class registered or certified mail, postage prepaid. Notices to the
Company or the Officer shall be addressed as set forth underneath their
signatures below, or to such other address or addresses as may have been
furnished by such party in writing to the other. Notices to any holder of the
Shares other than the Officer shall be addressed to the address furnished by
such holder to the Company.
8.7 BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their respective
successors, assigns, and legal representatives. The Company has the right to
assign this Agreement, and such assignee shall become entitled to all the rights
of the Company hereunder to the extent of such assignment.
8.8 STOCK SPLIT, STOCK DIVIDEND, ETC. The provisions of this
Agreement shall be adjusted appropriately in the event of a stock split, stock
dividend, recapitalization or other similar event of the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Officer have executed this
Agreement as of the date first above written.
ALPHA-BETA TECHNOLOGY, INC.
One Innovation Drive
Worcester, MA 01605
By: /s/ Spiros Jamas
-------------------------------------
Name: Spiros Jamas
Title: President and Chief Executive
Officer
OFFICER
/s/ Jospeh M. Grimm
-----------------------------------------
Joseph M. Grimm
Address:
--------
P.O. Box 1735
Cotuit, MA 02635
<PAGE> 8
EXHIBIT A
[Form of Promissory Note]
May __, 1998
FOR VALUE RECEIVED, the undersigned, Joseph M. Grimm with an address of
1109 Main Street, Cotuit, Massachusetts 02635 (the "Debtor"), hereby promises to
pay to the order of Alpha-Beta Technology, Inc., a Massachusetts corporation
(the "Payee"), in lawful money of the United States of America in immediately
available funds, at the offices of the Payee located at One Innovation Drive,
Worcester, Massachusetts 01605 on January 12, 2001, the principal sum of
___________ DOLLARS ($________) or such lesser amount as shall equal the
principal amount of advances outstanding from the Payee to the Debtor pursuant
to Section 7 of that certain Stock Purchase and Restriction Agreement, dated as
of May __, 1998 (the "Agreement"), by and between the Payee and the Debtor, with
interest at the rate of 5.43% per annum, compounded semi-annually on the
outstanding balance.
Interest shall be payable on each of January 12, 1999, January 12, 2000
and January 12, 2001.
Upon the occurrence of a Termination Event (as defined in the
Agreement), the outstanding balance of and accrued interest on this Note shall
become immediately due and payable.
This Note is subject to the terms and conditions set forth in that
certain Letter Agreement, dated as of the date hereof, by and between the Payee
and the Debtor.
The debtor hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
This Note shall be construed in accordance with and be governed by the
laws of The Commonwealth of Massachusetts.
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Note on the date
first set forth above.
--------------------------
Joseph M. Grimm
A-2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,052,942
<SECURITIES> 1,287,713
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,653,657
<PP&E> 39,858,971
<DEPRECIATION> 15,458,038
<TOTAL-ASSETS> 36,270,744
<CURRENT-LIABILITIES> 3,353,775
<BONDS> 0
0
0
<COMMON> 205,927
<OTHER-SE> 8,305,937
<TOTAL-LIABILITY-AND-EQUITY> 36,270,744
<SALES> 17,665
<TOTAL-REVENUES> 908,849
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,308,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,537,910
<INCOME-PRETAX> (10,937,725)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,937,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,937,725)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
