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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: September 30, 1996.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________.
Commission File Number: 0-20032
PERSEPTIVE BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2987616
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
500 Old Connecticut Path 01701
Framingham, Massachusetts (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 383-7700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Class E Warrants to purchase shares of Common Stock
Class G Warrants to purchase shares of Common Stock
Class I Warrants to purchase shares of Common Stock
Series B Junior Participating Preferred Stock Purchase Rights
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value, as of December 10, 1996, of Common Stock held
by non-affiliates of the Company: $137,569,377 based on the last reported sale
price on The Nasdaq National Market.
Number of shares of Common Stock outstanding at December 10, 1996:
21,360,690
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended September 30,
1996. Portions of such proxy statement are incorporated by reference in Part III
of this Form 10-K.
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ITEM 1. BUSINESS
Overview
PerSeptive Biosystems, Inc. develops, manufactures and markets an
integrated line of proprietary advanced instrumentation systems and consumable
products for the purification, analysis and synthesis of biomolecules. The
Company's enabling products are used in the life sciences industry to
significantly reduce the time and costs required for the discovery, development
and manufacture of novel pharmaceutical products. The Company's current and
planned products are based on its patented core technologies in the fields of
chromatography, immunoassay, biological mass spectrometry, solid-phase synthesis
and microfluidic assay devices. Unless the context otherwise requires, all
references to "PerSeptive" or the "Company" are to PerSeptive Biosystems, Inc.
and its subsidiaries./1/
Recent Developments
Acquisition of PerSeptive Technologies II Corporation. In March 1996,
the Company completed its acquisition of PerSeptive Technologies II Corporation
("PTC-II"), which was organized in 1993 to accelerate research and development
of the application of PerSeptive's core technologies to certain commercial
opportunities in large life science markets. See "--Business Development--PTC-
II". Following the successful completion of an exchange offer for the 2,645,000
outstanding units of PTC-II, the Company acquired 2,603,125 of such units. The
PTC-II shareholders who participated in the exchange offer exchanged their units
for 2,603,125 shares of PerSeptive's Common Stock, $.01 par value per share
("Common Stock"), and 2,603,125 new Class I Warrants to purchase PerSeptive
Common Stock exercisable until August 8, 1997 at an exercise price per share of
$13.50. On March 13, 1996, PTC-II became a wholly owned subsidiary of the
Company. Each of the remaining 41,875 shares
- -----------------------
/1/ AutoPilot(R), BioCAD(R), BioMag(R), Biosearch(R), CytoFluor(R), MemSep(R),
Perfusion Chromatography(R), PerSeptive Biosystems(R), POROS(R), RPM(R),
SelfPack(R) and TiterZyme(R), are registered trademarks of the Company.
Biospectrometry(TM), Capillary-Perfusion(TM), ConSep(TM), DEcode(TM), Delayed
Extraction Technology(TM), Expedite(TM), GeneSpectrometry(TM),
ImmunoDetection(ID)(TM), INTEGRAL(TM), InterPlate(TM), MemSyn(TM), Oligo R3(TM),
OligoPak(TM), PEG-PS(TM), PepMap C18(TM), PinPoint(TM), Pioneer(TM),
Poroszyme(TM), Rational Surface Design(TM), SCOUT(TM), Sequazyme(TM),
SPRINT(TM), TiterFluor(TM), TiterScreen(TM), VISION(TM), Voyager-DE(TM), and
Voyager(TM) are trademarks of the Company. Microsoft(R) and Windows(R) are
registered trademarks of Microsoft Corporation. LifeSeq(TM) is a trademark of
Incyte Pharmaceuticals Inc. Any other trademarks or trade names used in this
Report are the property of their respective owners.
<PAGE>
of callable common stock of PTC-II not exchanged in the exchange offer were
automatically converted into a right to receive one share of the Company's
Common Stock. The total value of the Common Stock issued in the exchange offer
was approximately $16 million based on the market value of the Common Stock on
March 8, 1996. The Company recorded an in-process research and development
charge of approximately $6.8 million which represents the value of acquired
technologies which have not reached commercialization.
ChemGenics Transaction. In June 1996, the Company entered into a
transaction with ChemGenics Pharmaceuticals Inc. ("ChemGenics") (formerly, Myco
Pharmaceuticals Inc.), in which the Company transferred certain assets and
employees of the Company's drug discovery program to ChemGenics and granted a
non-exclusive license to ChemGenics to use the Company's technology (including
technology developed through PTC-II) in the field of drug discovery in exchange
for shares of ChemGenics' common stock, $.001 par value per share ("ChemGenics
Common Stock") and warrants to purchase additional shares of ChemGenics Common
Stock exercisable until June 28, 2000. The warrants are exercisable at $5.00 per
share ($13.25 per share after a proposed 2.65-for-1 reverse stock split). The
Company is subject to certain contractual restrictions on the sale or
distribution of its holdings of ChemGenics Common Stock. In December 1996, the
Company and ChemGenics executed amendments to their agreements pursuant to which
the Company exchanged a portion of its ChemGenics Common Stock for a promissory
note for $3 million payable on the earlier of the closing of ChemGenics' initial
public offering or December 31, 2002. The Company currently holds approximately
34% of the outstanding capital stock of ChemGenics, and warrants which, if
exercised, would increase the Company's holdings to approximately 47% (of which,
warrants sufficient to increase the Company's holdings to approximately 40% are
currently exercisable). On December 19, 1996, ChemGenics announced that it had
filed a registration statement with the Securities and Exchange Commission
("SEC") for the initial public offering of ChemGenics Common Stock.
ChemGenics is a drug discovery company that applies its two
complementary technology platforms, Drug Discovery Genomics and Advanced Drug
Selection Technologies, two key rate-limiting steps in identifying new drugs.
These rate-limiting steps are the translation of genomic information into novel
drug targets and the selection and identification from sources of chemical
diversity of drug leads that interact with drug targets. ChemGenics' Drug
Discovery Genomics platform includes proprietary gene technologies and expertise
in microbial model systems used to determine the function of genes and to
prioritize drug targets. ChemGenics' Advanced Drug Selection Technologies
combine the steps of drug screening, chemical selection and structural analysis
into an integrated process designed to identify drug leads faster than
conventional methods. These technology platforms are used with ChemGenics'
growing drug source of 50,000 chemical-producing fungi collected worldwide. The
breadth of ChemGenics' technology platforms allows it to pursue multiple
pharmaceutical and biotechnology alliances, such as its alliances with Pfizer,
Inc., which could provide over $50 million in equity, research funding and
development milestone payments, plus potential royalties, and with Wyeth-Ayerst
Laboratories, the pharmaceutical division of American Home Products Corporation,
which provides for up to $70 million in equity, research funding and development
milestone payments, plus potential royalties.
Any statements which are not historical facts contained in this Annual
Report on Form 10-K, including without limitation projections or statements
concerning use and success of technology, progress of programs, completion,
timing and benefits of development programs, liquidity, suitability of products
for specific applications, product performance, advantages or significance of
technology, benefits and results of acquisitions, collaborations and strategic
and other alliances, and improvements to operating and other results, are
forward-looking statements that involve risks and uncertainties, including but
not limited to those relating to product demand, pricing, market acceptance, the
effect of economic conditions, intellectual property rights and litigation, the
results of governmental proceedings, competitive products, risks in product and
technology development, the results of financing efforts, the ability to exploit
technologies, the ability to complete transactions, and other risks identified
under the caption "Certain Factors That May Affect Future Results" and elsewhere
in this Annual Report, as well as in the Company's other Securities and Exchange
Commission filings. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements.
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GLOSSARY OF TERMS
Analytes..................... the target molecules to be measured in diagnostic
tests.
Amino acids.................. a group of chemical compounds that are the basic
structural units of all proteins and peptides.
Antibody..................... a protein molecule capable of binding to an
antigen.
Antigen...................... a molecule, typically a portion of a protein,
that is recognized by the immune system as a
foreign substance.
Assay........................ analysis for one or more specific components.
Biomolecules................. molecules that have biological activity or are
derived from biological sources, such as
proteins, peptides, oligonucleotides and genes.
Biopharmaceuticals........... therapeutic drugs that are biomolecules.
Bioseparations............... a means of extracting a biomolecule from a
mixture of biomolecules for the purpose of
purification or analysis.
Biospectrometry.............. an analytical technique used to detect and
measure biomolecules based on their molecular
weight.
Chemiluminescence detection.. an analytical method for detecting biomolecules
using light-generated by a chemical reaction.
Cholesterol.................. a type of lipid found in cell membranes: high
cholesterol levels in circulating blood have been
linked to atheroschlerosis (accumulation of fatty
tissue on the lining of the arteries), coronary
heart disease and stroke.
Chromatography............... as used in this Report, liquid chromatography,
which is a method of separating biomolecules for
purification and analysis by binding them to the
internal surfaces of porous particles.
Chromatography skid.......... a portable, skid-mounted chromatography system
designed for pilot and production scale
purification of biomolecules.
Clinical diagnostics......... the testing of samples derived from body fluids.
Diffusion.................... random molecular motion.
DNA.......................... deoxyribonucleic acid, strands of nucleic acids
that contain genetic coding instructions.
Electrophoresis.............. an analytical technique that separates molecules
based on their differential movement in a
solution to which electrical charge has been
applied, such differential movement being
characteristic of the size and charge of the
molecule.
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ELISA immunoassays........... Enzyme Linked ImmunoSorbent Assays: i.e. assays
that use enzymes linked to antibodies to detect
antigens.
Enzymes...................... biomolecules that have a catalytic effect on
chemical reactions.
Fluorogenic.................. a non-fluorescent substrate for an enzyme that
when acted on by an enzyme induces fluorescence.
Fluorescent assay............ an assay using a very sensitive fluoregenic
substrate to detect and measure enzyme activity
in living cells.
Genomic(s)................... relating to genes encoded by DNA; used in
connection with the process of identifying the
sequence of nucleotides in DNA-encoded genes.
HPLC......................... high performance liquid chromatography, a
predominantly analytical chromatography technique
in which liquid samples are forced to flow
through columns using high pressure.
Immunoassay.................. a laboratory procedure that uses an antibody
reagent to detect the presence of a target
biomolecule based on its specific binding to such
antibody reagent.
ImmunoDetection.............. an immunoassay technique that can be performed
with antibodies in a flow-through cartridge
format.
In vitro..................... refers to laboratory measurements or tests
carried out in test tubes, microtitre plates and
similar devices.
Magnetic separation.......... a separation method in which a target is labeled
with specific surface binding molecules which
have magnetic properties, via iron groups and
then separated by attraction to a magnetic field.
Mass spectrometry............ an analytical technique used to identify chemical
compounds by their mass-to-charge ratio.
MALDI-TOF.................... Matrix Assisted Laser Desorption Ionization Time
of Flight Mass spectrometry systems for analyzing
the mass of proteins, peptides, and DNA molecules
based on measuring the time of flight of charged
molecules, where small molecules fly faster than
large molecules.
Microfluidic assay devices... an automated instrument designed to perform
assays at microscopic scale using capillaries not
much larger than human hairs and requiring 5-10
ul sample volumes instead of 50-10,000 ul
volumes.
mRNA......................... messenger ribonucleic acid, the form of RNA in a
cell which transfers genetic information from a
DNA molecule to the ribosome used in the
production of peptides and protein chains.
Nucleotides.................. building blocks of nucleic acids, each of which
consists of one of four different bases along
with sugar and phosphate groups to which each
base is attached.
Oligonucleotide.............. a short strand of DNA or RNA.
Peptide...................... a fragment of a protein consisting of at least
two amino acids.
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Peptide synthesis............ the combining of short chains of amino acids,
called peptides, ranging in length from 20 to 60
amino acids.
Perfusion Chromatography..... a liquid chromatography technique in which liquid
flows through and around chromatographic
particles to increase the rate at which
separations occur.
Phosphoramidites............. a family of nonnatural, organic molecules used to
synthesize RNA and DNA oligomers (molecules).
PNA.......................... peptide nucleic acid, a synthetic DNA analog of a
DNA molecule that can be used as a probe with
higher affinity and specificity than traditional
DNA and RNA probes.
Protein...................... chains of amino acids linked by peptide bonds and
often folded in various ways based on the
sequence of amino acids.
Rational Surface Design...... a technique for the creation of a non-biological,
synthetic surface to which target biomolecules
bind with the high specificity of antibodies.
Reagents..................... consumable products that are active ingredients
in scientific experiments and clinical
diagnostics.
Ribosome..................... any of several minute particles composed of
protein and RNA.
RNA.......................... ribonucleic acid, chains of nucleic acids that
transport and translate genetic instructions
encoded in DNA.
RPM.......................... a real-time, on-line product monitoring system
for the measurement of biomolecule purity,
concentration and product consistency.
Solid-phase synthesis........ chemical synthesis of molecules using an organic
or inorganic substrate in either a bead, membrane
or other matrix configuration.
Substrate.................... a substance acted upon by an enzyme.
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Industry Background
Biopharmaceutical Product Development and Manufacture
The identification, development and manufacture of a biopharmaceutical
product involve a number of interdependent stages that generally overlap in
time. In the discovery stage, scientists isolate and identify a candidate
biomolecule with potential therapeutic applications and analyze its physical,
chemical and biological characteristics. This can involve the synthesis of
multiple compounds to create a library of potential molecules from which certain
promising drug candidates are isolated. Next, a biopharmaceutical company must
develop an effective means of producing and purifying small quantities of the
target biomolecule for testing. Generally, cells are genetically engineered to
produce the target biomolecule. These engineered cells, however, produce only
small quantities of the desired biomolecule compared to the volume of culture
medium in which the cells are grown. For example, one liter of culture medium
containing mammalian cells engineered to produce a biopharmaceutical protein may
yield only milligrams of purified protein.
After the therapeutic potential of a biomolecule has been established by
preclinical testing, the biopharmaceutical company must complete three
interrelated development programs. First, it conducts clinical trials (in three
phases) to evaluate the safety and efficacy of the biopharmaceutical in humans.
Second, the biopharmaceutical company must develop a manufacturing process to
produce increasing amounts of the pure biopharmaceutical as the product passes
through each phase of clinical testing and into commercial manufacture. Third,
the company must develop commercial-scale manufacturing capacity with the
appropriate quality control and quality assurance programs to ensure that the
commercial product is of sufficient purity and consistent quality. In each case,
the U.S. Food and Drug Administration (the "FDA") either reviews purification
and analysis procedures directly or reviews data derived from those procedures
as part of the overall biopharmaceutical approval process.
Once approved by the FDA for commercial sale, the biopharmaceutical must
continue to be produced in a highly purified form with constant quality control
and quality assurance monitoring. Significant changes in the manufacturing
process, including purification, are subject to FDA review.
Synthesis, Purification and Analysis
A variety of synthesis, purification and analysis procedures are
conducted in each stage in the discovery, development and production of a
biopharmaceutical product. Synthesis involves the creation and replication of
multiple compounds that can be identical or subtly differentiated by as little
as one amino acid. Purification involves the isolation and separation of a
target biomolecule from other substances, such as contaminants, without
destroying the biological activity of the biomolecule. Analysis involves
techniques used to measure the quantity of a biomolecule, to identify its
biological characteristics and to assess the nature and quantity of
contaminants. The synthesis, purification and analysis of biopharmaceuticals,
especially proteins, is generally more difficult than for conventional drugs.
Only very small amounts of the target biomolecule are produced in large volumes
of cell culture medium containing many different kinds of contaminants. In
addition, biopharmaceuticals are often fragile molecules that can easily lose
their biological activity if subjected to excessive physical or chemical forces
during purification. Finally, the contaminants that must be identified by
analysis and removed by purification are often biomolecules that are similar in
structure to the target biomolecule and are consequently difficult to separate.
The purification process must produce target biopharmaceuticals that are
typically at least 99.9% pure, because contaminants can be harmful if
administered internally to humans.
Conventional Separations and Analysis Technologies
The biopharmaceutical industry today relies primarily on purification
and analysis technologies developed 10 to 20 years ago for small-scale research
use in biochemistry laboratories. Purification techniques are, in order of
increasing efficiency: centrifugation, membrane filtration and chromatography.
Efficiency in purification is the speed of the technique in separating the
target biomolecule from contaminants without loss of or damage to the
biomolecule. Analysis techniques are, in order of increasing sensitivity:
electrophoresis, chromatography and
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immunoassay. Sensitivity in analysis is the effectiveness of the technique in
detecting very small amounts of one specific biomolecule in a mixture of other
substances. The preferred technique for the purification of biomolecules is
chromatography. Chromatography and immunoassay are the preferred methods for
biomolecule analysis.
Chromatography. Chromatography is a method of separating biomolecules by
binding them to surfaces of porous particles (chromatography media) contained in
columns. Active chemical coatings may be applied to the internal surfaces of
these particles to bind selectively with biomolecules of interest. These
coatings determine performance factors, including degree of purification and
percentage of product recovery. Chromatography column volumes range from less
than one milliliter to more than 1,000 liters. A liquid mixture containing the
target biomolecule and contaminants is pumped into the top of the column. As the
mixture flows through the column, the target biomolecules move by diffusion
(random molecular motion) and bind to the surfaces of the pores in the
particles. A series of chemical washes are used to remove contaminants and
collect the target biomolecules in a purified form. When used for analysis,
chromatography also employs a detector to measure the concentration of each
component as it exits the column. There are two methods of chromatography used
for biomolecule separations: liquid chromatography ("LC") and high performance
liquid chromatography ("HPLC").
Conventional liquid chromatography is a slow process and previous
attempts to accelerate its performance have resulted in a reduction in
separation performance and capacity. Speed in conventional chromatography is
limited by the rate at which biomolecules diffuse into the pores of particles
and bind to their surfaces. The relatively large size of biomolecules causes
them to diffuse slowly, especially within the confines of the porous network of
conventional chromatography particles. Conventional LC purifications usually
require two to five hours to complete and, in commercial-scale applications, can
require 12 hours or more. For example, a commercial-scale purification of 200
grams of monoclonal antibodies from 4,000 liters of cell culture may require 100
hours and three or more separate purification steps to complete.
High performance liquid chromatography uses smaller diameter particles
and higher pressure within the column than are used with conventional LC to
reduce the time required to complete a separation. Consequently, a typical HPLC
separation can be completed in 30 to 60 minutes. HPLC is widely used for the
analysis of biomolecules, but it is infrequently used for commercial-scale
purification of biomolecules because of cost and safety concerns related to
pumping mixtures through large columns at high pressures.
Immunoassay. Immunoassays are laboratory procedures that use an antibody
reagent to detect the presence of a specific biomolecule and are conventionally
performed in shallow reservoirs contained in plastic devices known as
microtitre-well plates. During an immunoassay, a biological sample containing
the targeted biomolecule is first allowed to react with the antibody in a series
of processing steps, which usually requires several hours to complete. When
added to the sample, a second reagent generates a signal (for example, by
fluorescence) proportional to the amount of the biomolecule present. In addition
to being relatively slow, conventional immunoassays can have high margins of
error, are very labor intensive and are difficult and costly to automate.
PerSeptive's Technologies
PerSeptive's current and planned products for the purification, analysis
and synthesis of biomolecules are based on the following core technologies:
Perfusion Chromatography. The Company's patented Perfusion
Chromatography process and media, which use proprietary flow-through particles,
separate biomolecules 10 to 1,000 times faster than conventional LC or HPLC and
achieve the same or better levels of purity. Prior to the invention of Perfusion
Chromatography, it was generally accepted in the chromatography industry that
the slow speed of diffusion was an inherent limitation to the potential speed of
chromatography.
In conventional chromatography, liquid flows around porous particles and
biomolecules diffuse slowly from the flowing liquid into pores in those
particles where they bind. In contrast, the particles in the Company's Perfusion
Chromatography media have two types of pores. One type of pore is a large
transecting "throughpore,"
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which permits rapid flow of the liquid through the particles and ready access to
the interior of the particles. The other type of pore is a smaller pore that
lines the throughpores to provide a large surface area into which the targeted
biomolecules can diffuse and bind. This pore structure creates very short
diffusion paths to the large accessible surface area within the particles. This
reduction in diffusion distance is the main reason for the increased speed
associated with Perfusion Chromatography.
PerSeptive has developed a variety of coating techniques and surface
chemistries to separate biomolecules based on their electrical charge,
hydrophobicity, bioaffinity and other factors. These chemistries have enabled
the Company to offer a broad range of products that are more durable than
competing products because of the stability of the Company's proprietary coating
chemistries and base particle materials.
ImmunoDetection. PerSeptive has developed novel immunoassays that can be
performed using its Perfusion Chromatography technology with antibodies to
perform the steps of an immunoassay in a flow-through column format
("ImmunoDetection"). ImmunoDetection permits target molecule detection in
seconds or minutes, far faster than conventional immunoassay techniques, which
require several hours to complete. ImmunoDetection also takes advantage of the
higher degree of automation available in chromatography instruments, as compared
with immunoassay instruments, and can produce results with much lower margins of
error. The Company has filed a patent application for its ImmunoDetection
technology.
The Company has also developed a novel, patent-pending method for in-
line process monitoring that provides continuous analysis of the concentration,
purity and structural integrity of a target biomolecule during the manufacturing
process. In addition, the Company has developed a patented method of analyzing
extremely small amounts of contaminants in a biopharmaceutical product by
removing all of the biopharmaceutical from a sample and concentrating the
remaining contaminants until they are present in detectable quantities. The
Company is commercializing these techniques as a part of its INTEGRAL
workstation and RPM technology. See "Business--Analysis Products."
Rational Surface Design. The Company is working to develop products
based on Rational Surface Design ("RSD"), a method of creating synthetic
surfaces to which target biomolecules bind with the high specificity
characteristic of antibodies. This specificity is achieved by engineering RSD
surfaces to behave in a manner analogous to antibody binding sites. These
surfaces do not, however, contain any antibodies or other biological materials.
RSD is an extension of the Company's expertise in developing new chemistries to
coat the surfaces of chromatography media. The Company owns a U.S. patent
relating to its RSD technology and compositions of matter for surfaces
engineered for specific biomolecules.
Biospectrometry. PerSeptive owns a significant body of technology
relating to biological mass spectrometry ("Biospectrometry"). Biospectrometry is
an analytical technique used to detect and measure biomolecules based on their
molecular weight (mass). Mass spectrometers work by producing charged particles
of the injected molecular sample and then sorting ionized species of the
original molecule based on its mass/charge ratio. Although there are many
different kinds of mass spectrometers, most instruments are defined by
differences in two subsystems. One is the ionization source that creates the
ionic species and the other is the detection system. Biomolecular analysis using
mass spectrometry has been limited to date due to the inability of mass
spectrometers to resolve (identify) large biomolecules as well as the high cost
and difficulty of use of mass spectrometry. PerSeptive believes that the use of
its technology in the integration of mass spectrometry with liquid
chromatography and other separation systems, laser desorption and electrospray
ionization sources, and time-of-flight detection systems is broadly enabling in
overcoming the deficiencies of mass spectrometry for biomolecular analysis.
Microfluidic Assays. The Company is developing technology to perform
assays at microscopic scale using capillaries not much larger than human hairs
and requiring minimal sample volumes. The MicroElectrophoresis Assay System
(MEASure) technology evolved from PerSeptive's early expertise with immunoassays
and the Company's desire to develop a system that provides highly sensitive and
instantaneous detection in an easy to use, automated, low sample volume format.
Largely funded by PTC-II, the development work done to date on
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MEASure has extended beyond early feasibility and prototype phases. The Company
believes the use of this technology will enable the next generation of
diagnostic tests where low sample volumes, minimal sample handling, high
sensitivity and simultaneous detection are desired parameters.
DNA and Peptide Synthesis. PerSeptive owns leading technology for DNA
and peptide synthesis. The preparation of synthetic replicas or analogs of
naturally occurring molecules such as nucleic acids (DNA and RNA) and peptides
has been made routine through the use of instruments called synthesizers.
Synthesizers contain a small reaction chamber into which is placed disposable
"support" media on which the molecules are built. Synthesizers also contain an
array of bottles containing the building-block reagents: for DNA or RNA
synthesis, nucleotide monomers (each corresponding to a "base"); and for peptide
synthesis, the 20 amino acids from which peptides are formed. A personal
computer and dedicated software are used to program and control a pump which
adds these reagents in the programmed sequence (along with other
protecting/deprotecting, activator and wash reagents). After synthesis, the
material must be chemically removed from the support and be purified and
analyzed. PerSeptive's patented phosphoramidite chemistries (bulk and small-pack
DNA reagents) are the industry standard for synthesizing oligonucleotides.
PerSeptive has an exclusive license for technology to manufacture and
sell peptide nucleic acid ("PNA") for molecular biology research and, subject to
certain limited reservations, for other applications. PNA is a synthetic mimic
of the DNA molecule with a modified neutrally charged peptide-like "backbone."
The unique chemical structure of PNA enhances its affinity and specificity as a
DNA or RNA probe.
PerSeptive's peptide synthesis chemistry products are differentiated
from competing products by the use of proprietary support structures of
polyethylene glycol polystyrene and by innovative amino acid activation reagents
that allow synthesis of complex peptides, which are otherwise difficult to
synthesize.
Superparamagnetic Bead-Based Separations. PerSeptive owns technology
relating to magnetic separations particles and processes. Magnetic separations
enable biomedical researchers to improve the speed, purity and yield of many
common laboratory protocols, including separation of cell populations and
isolation and purification of nucleic acids. Researchers can perform techniques
based on magnetic separation either manually or with automated instruments.
Purification Products
PerSeptive's purification products can be incorporated readily into any
stage of the development and manufacture of a biopharmaceutical product and
offer productivity advantages over conventional counterparts. The Company
believes that the integration and use of a single family of purification
products, such as POROS columns and media and BioCAD Workstations, will
facilitate the transition of biopharmaceutical products from discovery, through
laboratory-scale development, to commercial-scale production. Companies using
conventional purification technology usually make several significant changes in
materials, equipment and processes in moving from the development stage to
commercial manufacture. As a result, an integrated line of purification products
is expected to enhance productivity by reducing or eliminating these costly and
time-consuming changes. Moreover, because the FDA must approve significant
changes in manufacturing processes, an integrated line of purification products
may simplify and expedite the process of obtaining approvals from the FDA.
The Company's family of purification products includes consumables and
instrumentation systems. The following table shows the Company's primary
purification products and their applications to the four main functional groups
within companies developing and commercializing biopharmaceuticals: research and
development; process development; quality control and quality assurance; and
manufacturing. The estimated timing of future product introductions, including
those described below and in the following sections, depends on a number of
factors, such as timely completion of current development programs. There can be
no assurance that these development programs will be completed successfully or
within the expected time frames:
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<TABLE>
<CAPTION>
Product
Product Launch Application/Use Target Markets*
- ------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Consumables and Reagents: R&D PD QC MFG
--- -- -- ---
POROS Chromatography 1990 Methods development, * * *
Prepacked Columns analysis and small-scale
purification
POROS Bulk Media 1991 Biopharmaceutical *
manufacturing
POROS Self Pack 1994 Laboratory-scale * *
purification and analysis
Oligo R3 1995 Purification of * * *
oligonucleotides and
antisense compounds
Instrument Systems:
BioCAD Workstation 1991- Laboratory and * * * *
Family 1996 development scale
purification and analysis
SCOUT 1995 Automated, multi-column * * * *
switching device
Vision Workstation 1996 Integrated purification * * *
and analysis system with
sample-handling robotics
and RPM
</TABLE>
_______________
* R&D - Research & Development; PD - Process Development; QC - Quality Control &
Assurance; MFG - Manufacturing.
Consumables and Reagents
PerSeptive's POROS products consist of a family of consumable
chromatography columns and media used to perform Perfusion Chromatography for
both purification and analysis. POROS products enable purification and analysis
procedures to be performed 10 to 1,000 times faster than with conventional
chromatography media. The POROS media particles are made of polystyrene polymers
and are coated with the Company's proprietary surface chemistries. These
materials are rigid and can withstand the high pressures associated with HPLC,
although high pressure is not required for their use. The coatings can also
withstand chemicals employed in cleaning that are harsher than those generally
tolerated by conventional media, significantly extending the useful life of
POROS products. The efficiency and durability of POROS products are significant
cost-saving features.
The Company has developed and currently markets a line of POROS products
representing different combinations of two particle types, three particle sizes,
more than 25 surface chemistries and various column configurations. These
products can be used with conventional HPLC and LC equipment for purposes
ranging from laboratory-scale analyses through large-scale manufacturing
processes. The Company's POROS 50 chromatography media provides high resolution
separations at the low pressures typical of pilot-scale production
10
<PAGE>
and manufacturing applications. PerSeptive sells POROS in prepacked columns for
methods development, analytical applications and small-scale purifications and
in bulk for biopharmaceutical manufacturing. The POROS Self Pack Column Packing
System allows for laboratory-scale purification and analysis at lower cost than
conventional prepacked columns.
Other purification media such as Olgio R3 have been designed for specific
purification applications. Oligo R3 was developed specifically to optimize the
purification of oligonucleotides.
Purification Instrumentation
The Company's BioCAD Workstation is a computer-aided instrumentation system
designed to achieve the optimal use of the Company's POROS chromatography media
for laboratory and development scale purifications and for analysis. Each BioCAD
Workstation combines high speed pumps, valves, detectors and a built-in computer
and proprietary software used with Microsoft Windows. The BioCAD Workstation is
able to collect and process the large amounts of data generated by Perfusion
Chromatography over short periods of time. Unlike conventional chromatography
instruments, the BioCAD Workstation can be used equally well for both analysis
and purification. The BioCAD Workstation facilitates the design, optimization
and execution of purification and analysis procedures by allowing the user to
test and optimize various operating parameters. Results of completed procedures
can be quickly reviewed and grouped using integrated computational and graphics
software.
The Company believes that a single BioCAD Workstation has the analytical
productivity of at least five HPLC instruments using POROS media and up to 15
HPLC instruments using conventional chromatographic media. For example, a BioCAD
Workstation using a POROS column typically has a separation cycle of two minutes
and can complete up to approximately 600 cycles in a day, taking into account
cleaning and preparation time. A conventional HPLC instrument using a POROS
column typically has a 12-minute cycle and can complete 100 cycles in a day. A
conventional HPLC instrument using a conventional HPLC column typically has a
30-minute cycle and can complete only 40 cycles in the same time period.
PerSeptive has developed and introduced new versions of the BioCAD
Workstation for specific markets, including BioCAD SPRINT, a lower cost model
directed at the academic market, and the BioCAD 700E, a second-generation
version of PerSeptive's industry leading BioCAD System introduced during fiscal
1996 with enhanced features. The SCOUT Column Switching Device, a fully
integrated, software-driven, automated multi-column switching device that
greatly enhances systematic purification methods of the Company's instruments,
was introduced in 1995.
PerSeptive recently introduced the Vision Workstation, the first
chromatography system to offer simultaneous biomolecule purification and
analysis in a single instrument through robotics. Components and features such
as the SCOUT and RPM are integrated into the Vision Workstation.
See "-- Analysis Products."
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<PAGE>
Analysis Products
The following table shows the Company's primary analysis products and their
applications to the four main functional groups within companies developing and
commercializing biopharmaceuticals:
<TABLE>
<CAPTION>
Product
Product Launch Application/Use Target Markets*
------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Consumables and Reagents: R&D PD QC MFG
--- -- -- ---
CytoFluor Reagent Kits 1990 Cell studies and fluorescence * *
immunoassays and other binding
assays
ID Sensor Cartridges and 1992- Immunoassay analysis * * * *
ID SelfPack 1995
TiterZyme, TiterScreen, 1992 Enzyme immunoassays for * *
and other Immunoassay research and clinical
Test Kits diagnostics
BioMag Magnetic Particles 1993 Molecular biology and cell * *
separations
Poroszyme Cartridges 1995 Enzyme digests * * *
TiterFluor Kits 1995- Fluorescence immunoassays * *
1996
PepMap C18 Pre-packed 1996 Peptide mapping *
Columns
Capillary Perfusion Tool 1996 Micro-analysis and
Kits purification *
Sequazyme Kits 1996 Enzyme digestion for mass * *
spectrometry analysis and
sequencing
Instrument Systems:
CytoFluor Fluorescence 1990 - Cell studies and fluorescence * *
Plate Readers 1996 immunoassays and other binding
assays
INTEGRAL Micro-Analytical 1993 Automated immunoassay analysis * * *
Workstation and peptide characterization
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Voyager Biospectrometry 1994 - Easy measurement and analysis * * *
Workstations and Delayed 1996 of molecular weight using Mass
Extraction Technology Spectrometry, suitable for
sequencing biomolecules
InterPlate Micro-Fraction 1996 Automated sample preparation * * *
Collector for MALDI analysis
mRPM 1997 On-line product monitoring in * *
manufacturing
</TABLE>
_______________
* R&D - Research & Development; PD - Process Development; QC - Quality Control &
Assurance; MFG - Manufacturing.
CytoFluor Reagent Kits
The Company sells a line of fluorescence assay reagent kits to be used with
its CytoFluor Fluorescence Plate Reader described below. Fluorescence assays
determine what kinds of cells will accept or receive an experimental therapeutic
agent or nutrient, can detect whether a cell is infected with a virus or other
microorganism and can determine toxicity of molecules that may be carcinogens.
CytoFluor is also used extensively as a fluorescence plate reader for the
increasing number of fluorescence-based assays for molecular biological research
and for immunoassays.
ID Sensor Cartridges and SelfPack
The Company's ID Sensor Cartridges are a line of new products designed to
combine the flow-through characteristics of Perfusion Chromatography with the
specificity and sensitivity of antibodies for immunoassays in a flow-through
column format, permitting target molecule detection in seconds to minutes, with
very low coefficients of variation. ID Sensor Cartridges are designed to be
customized with specific antibodies by users in order to perform immunoassays on
BioCAD and INTEGRAL Workstations or conventional HPLC instruments. The Company
introduced ID SelfPack for cost conscious customers in 1995.
Immunoassay Test Kits
PerSeptive sells a line of in vitro products that includes immunoassay test
kits for use in medical and pharmaceutical research applications. These tests
are used to measure levels of certain hormones, lymphokines, eicosanoids,
cytokines and growth factors in several applications, including the evaluation
of new pharmaceutical products. These kits are manufactured in microtitre plate
or coated tube formats. The Company also provides research, development and
manufacturing services related to in vitro diagnostic products on a fee basis to
third parties.
BioMAG Magnetic Particles
Magnetic separation enables the biomedical researcher to greatly improve the
speed, purity, and yield for many common laboratory protocols including
selection of cell subpopulations and the isolation of mRNA and DNA for genetic
studies and sequencing. PerSeptive's superparamagnetic bead technology offers
both a manual and an automatic system for separations.
Sequazyme Kits and DEcode software
Related to the launch of PerSeptive's Delayed Extraction (DE) Technology, the
Company developed Sequazyme Kits and DEcode software to enable scientists to
determine the sequence of proteins and peptides using Voyager Biospectrometry
Workstations. Sequazyme Kits use optimized enzyme digestion procedures to
sequentially eliminate either nucleic or amino acids from oligonucleotides or
peptides, respectively, and to allow
13
<PAGE>
scientists to unravel a given molecular sequence. DEcode software then automates
and facilitates the identification process using the mass to charge ratios
detected by the Voyager-DE Biospectrometry Workstation and the known molecular
weight of all amino acids or nucleotide bases.
CytoFluor Fluorescence Plate Reader
The Company's CytoFluor line of fluorescence detection and scanning
instruments are used principally for the monitoring of cell behavior by
fluorescence assays. The market for fluorescence scanners of the type produced
by the Company has grown due to the desire to replace radioactivity-based
research assays in order to alleviate health, safety and environmental concerns
and disposal expense inherent in the use of radioactive assays. The Company
launched the CytoFluor 4000 in 1996 with Temperature Control and enhanced
features and is currently launching TiterFluor fluorescence in vitro assays for
use with the CytoFluor 4000.
INTEGRAL Micro-Analytical Workstation
PerSeptive has introduced an automated workstation dedicated to research
diagnostics that will perform rapid immunoassays in seconds to minutes, rather
than the hours required for conventional immunoassay techniques. The
instrumentation for the INTEGRAL Workstation is based on hardware similar to the
BioCAD Workstation and uses the Company's proprietary, disposable ID Sensor
Cartridges and POROS chromatography media. Additionally, the Company's
subtractive quantitation, micro-scale Capillary Perfusion, peptide mapping
PepMap C18 columns, enzyme digestion Poroszyme cartridges and other novel
ImmunoDetection technologies are automatically performed by the
INTEGRALWorkstation. The INTEGRAL Workstation combines the Company's
ImmunoDetection techniques with standard enzyme-linked, fluorescence or
chemiluminescence detection techniques to further enhance its sensitivity. The
Company believes that the INTEGRAL Workstation detects minute concentrations of
target biomolecules to a level of sensitivity that exceeds the capabilities of
conventional instruments. The INTEGRAL Workstation combines purification
capabilities of the BioCAD Workstation with proprietary assay development
advantages in a single instrument.
Voyager Biospectrometry Workstations
The Voyager matrix-assisted laser desorption ionization time-of-flight
("MALDI-TOF") Biospectrometry Workstations enable molecular biologists and
biochemists to determine very accurately the purity and structure of a
biomolecule's mass in their laboratories, rather than in conventional
centralized mass spectrometry laboratories. Mass spectrometry is an analytical
technique used to identify the molecular weight of molecules. Molecular weight
determines the molecule's unique identity or "fingerprint." Mass spectrometry
can also be used to detect other impurities or foreign elements in a given
sample.
The Company is a leader in technical innovations in the field of mass
spectrometry. In recent years, the Company has focused on the application of
mass spectrometry to biopharmaceutical development. In 1995, the Company
introduced the Voyager Elite-Biospectrometry System for advanced research
applications, and recently launched a complete line of Voyager MALDI-TOF
Biospectrometry Workstations enhanced with PerSeptive's proprietary Delayed
Extraction ("DE") Technology which enables the sequencing of biomolecules.
InterPlate
PerSeptive has also recently launched the InterPlate Micro-fraction Collector
for MALDI analysis to further facilitate sample preparation for life scientists.
InterPlate can be used to automate the process by taking purified product from
an INTEGRAL workstation and depositing it directly onto a Voyager
Biospectrometry sample plate, for example. In December 1996, PerSeptive
announced the development of a range of new techniques called GeneSpectrometry
to accelerate high throughput identification of gene mutations using the
Company's PinPoint mutation detection technology, which allows you to detect
single point mutations.
14
<PAGE>
Real-time Process Monitor ("RPM") Technology
RPM technology is incorporated into several automated purification and
analysis instruments such as the Vision and BioCAD workstations to analyze and
monitor target biomolecules during production on a continuous basis.
Biopharmaceuticals are generally produced in cell culture and are extracted
through a series of purification steps. The Company believes that RPM technology
is the biopharmaceutical industry's first real-time, on-line product monitoring
system for the measurement of biomolecule purity, concentration and product
consistency. Prior to the introduction of RPM technology, biopharmaceutical
companies were unable to monitor these production and purification processes
without lengthy delays (typically one-half to two days) in obtaining the results
from conventional analytical techniques. The Company believes that RPM
technology represents an important tool in developing optimal purification and
fermentation processes. Furthermore, the Company also believes that RPM
technology has the potential to provide information important for process
monitoring, regulatory review and quality control.
15
<PAGE>
Synthesis Products
PerSeptive has been a technological leader in the development of new
chemistries and instruments for the synthesis of nucleic acids and peptides.
PerSeptive's family of over 3000 synthesis products includes instruments and
consumable reagents, supports, activators, linkers and other chemical products
used for nucleic acid and peptide synthesis. The following table shows
PerSeptive's primary synthesis products and the applications for which they are
used:
<TABLE>
<CAPTION>
Product
Product Launch Application/Use Target Markets*
- ------- ------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Synthesis Chemicals:
R&D PD QC MFG
Nucleic Acid and Peptide 1986 - Synthesis of DNA, * * *
Synthesis Reagents, 1996 PNA, and RNA
Activators, Linkers and
Supports
Nucleic Acid Synthesis
Products:
Expedite System 1992 - Synthesis of research * * *
1995 and manufacturing
quantities of DNA,
RNA and PNA
Multiple Oligo 1995 - Permits sixteen column * * *
Synthesizer System 1996 parallel oligonucleotide
(MOSS) synthesis
MemSyn, MemSyn HV 1995 - DNA and RNA membrane * * *
1996 synthesis devices
Peptide Synthesis
Products:
Pioneer Peptide 1996 Synthesis of both simple * * *
Synthesizer and complex peptides
Multiple Peptide 1997 Permits 32 column parallel * * *
Synthesis (MPS) peptide synthesis
</TABLE>
_______________
* R&D - Research & Development; PD - Process Development; QC - Quality Control &
Assurance; MFG - Manufacturing.
PerSeptive's patented phosphoramidite chemistries (bulk and small-pack DNA
reagents) are the industry standard for synthesizing oligonucleotides. In
addition, the Company believes that its Expedite family of reagents enables even
faster DNA/RNA synthesis than conventional systems. Expedite reagents are
compatible with PerSeptive's and competitors' instruments.
Synthesis Chemicals
PerSeptive offers a wide range of standard and specialty chemicals for
synthesis of nucleic acids, nucleic acid analogues, and peptides. Products
include standard and modified bases for nucleic acid synthesis, bead and
16
<PAGE>
membrane based synthesis supports for peptides, RNA and DNA, and other high
quality reagents manufactured under ISO 9002 guidelines. Certain chemistries
such as peptide activators including TFFH, HATU, and HOAT and PNA oligomers are
highly proprietary and exclusively available for research purposes from
PerSeptive.
Expedite System
The Expedite Nucleic Acid Synthesis System performs solid-phase synthesis of
DNA, RNA and PNA utilizing a unique and patented microfluidic system which is
designed to consume less reagent and generate less waste during operation than
prior and competing instruments, potentially allowing significant operational
savings for Expedite users. This results in a reduction of reagent consumption
of 50% and reduced cycle times, giving high quality oligonucleotide at
significantly lower cost. Expedite products can be used for the synthesis of
RNA, normally a very difficult task. While currently this is a relatively small
application, there is increasing customer interest in the synthesis of RNA for
use in RNA-based drugs that have either a catalytic or anti-sense effect on
genetic processes.
Multiple Oligo Synthesis System (MOSS)
The MOSS, when used in conjunction with the Expedite Nucleic Acid Synthesis
System, extends the synthesis throughput and overall capacity of PerSeptive's
synthesis instruments. The MOSS enables customers to efficiently synthesize
nucleic acid and peptides in less time and with less effort. The MOSS can be
used in conjunction with recently introduced MemSyn and reusable MemSyn HV
membrane devices to further facilitate ease of use and handling in the synthesis
process.
Pioneer Peptide Synthesizer
Pioneer Peptide Synthesizer is an automated, versatile peptide system
introduced in 1996 for research applications. The multiple column instrument
utilizes enhanced monitoring and flexible programming for high efficiency
synthesis of standard and difficult peptides. Innovative design lowers reagent
consumption and increases throughput.
Multiple Peptide Synthesis Option (MPS)
The MPS can be used in conjunction with the Pioneer to run up to 32 peptide
synthesis runs in parallel or to create two independent entry operated
synthesizers using the Pioneer as a workstation.
Business Development
The Company believes that its core technologies are directly applicable to
many biomedical industry applications as well as applications in other
industries. The Company plans to explore corporate collaborations or other
business arrangements to address the broader application of its technologies to
clinical diagnostics and other businesses.
PTC-II
In December 1993, the Company and PTC-II completed a public offering with
total net proceeds to PTC-II of $54.1 million. PerSeptive formed PTC-II as a
separate special purpose corporation in order to accelerate research and
development aimed at the application of PerSeptive's core technologies to
commercial opportunities in large life science markets. From December 1993 to
March 1996, PTC-II operated as a separate company from PerSeptive and pursued
applications of PerSeptive's technologies in four programs: DNA and peptide
synthesis; DNA and protein sequencing; clinical diagnostics; and systematic
screening of chemical and biological compounds for drug discovery. During this
time period, PerSeptive licensed to PTC-II the technology necessary to pursue
these programs and PTC-II contracted with PerSeptive to develop products and
services aimed at these market opportunities which extended beyond PerSeptive's
principal business.
In November 1995, PerSeptive, PerSeptive Acquisition Corporation ("PAC"), a
wholly owned subsidiary of PerSeptive, and PTC-II entered into a definitive
agreement pursuant to which PerSeptive agreed to an exchange offer for all of
the 2,645,000 outstanding units of PTC-II followed by a merger of PTC-II with
PAC. Each PTC-II unit consisted of one share of Callable Common Stock, $.01 par
value per share, of PTC-II and one Class E
17
<PAGE>
Warrant of PerSeptive exercisable for one share of PerSeptive Common Stock at
$33.00 per share until December 1998. Effective March 8, 1996, PerSeptive
acquired 2,603,125 PTC-II units that were validly tendered and not withdrawn in
the exchange offer. The PTC-II unit holders, who participated in the exchange
offer, exchanged their PTC-II units for 2,603,125 shares of PerSeptive Common
Stock and new Class I Warrants exercisable until August 8, 1997 for the purchase
of 2,603,125 shares of PerSeptive Common Stock at an exercise price of $13.50
per share. On March 13, 1996, PTC-II merged with PAC and became a wholly owned
subsidiary of PerSeptive. Each of the remaining 41,875 shares of callable common
stock of PTC-II not exchanged in the exchange offer were automatically converted
into a right to receive one share of PerSeptive Common Stock upon the merger of
PTC-II with PAC. As of December 10, 1996, 37,975 of these rights have been
exchanged for an equivalent number of PerSeptive's Common Stock. The total value
of the Company's Common Stock issued in the exchange offer was approximately $16
million based on the last reported sales price or closing price of the Company's
Common Stock on The Nasdaq National Market on March 8, 1996. See "--Recent
Developments."
PerSeptive pursued the following research and development programs on behalf
of PTC-II, and except for its Drug Discovery Program (See "--ChemGenics") will
continue to pursue certain of these projects through its own research and
development programs:
DNA and Peptide Synthesis Program. PerSeptive has worked towards the
development of DNA and peptide synthesis systems that are based on the superior
mass transport characteristics of PerSeptive's POROS media. PerSeptive believes
that the systems it is developing will substantially reduce the costs of DNA and
peptides synthesis and will more readily enable the large-scale manufacture and
commercialization of DNA- and peptide-based biotherapeutics.
DNA and Protein Sequencing Program. PerSeptive has pursued the use of its
high-resolution, high-sensitivity mass spectrometers and innovative separations
analysis of DNA and protein molecules. Sequencers identify the order of chemical
groups that constitute DNA and proteins. Continuing research directed toward an
understanding of biology at a molecular level has caused the expansion of the
market for automated sequencers. PerSeptive believes that the mass spectrometry
and separations technologies it is developing will substantially increase
productivity in sequencing of biomolecules and that this increase in sequencing
productivity at the gene and protein level can have an enabling effect on
biomedical research aimed at identifying better diagnostics and therapeutics.
Clinical Diagnostics Program. PerSeptive has pursued development of several
clinical diagnostic systems, which are being developed to include innovations
both in instrument and reagent technology. These systems will incorporate new
separation and detection formats that are designed to result in substantial
improvements in speed, precision, sensitivity and cost. For example, the MEASure
system has been extended beyond early feasibility and prototype development
stages and is expected to provide considerable advantages over current
technology. These systems will be designed to detect and measure target
molecules (analytes) currently measured by existing diagnostic systems, as well
as analytes related to the emerging genetic testing market.
Drug Discovery Program. Through its work for PTC-II, PerSeptive developed new
methodologies for the screening of libraries of biological and chemical
compounds based on its high-throughput separations technologies and automated
instrumentation systems. Pharmaceutical drug discovery has traditionally been
based on random screening techniques. The time-consuming and costly nature of
drug development, together with advances in life sciences technologies, have
propelled many developers to pursue rational drug design approaches that are
intended to enhance productivity in drug discovery. PerSeptive has developed
novel screening methods that it believes will combine the benefits of both
random and rational drug design approaches to increase productivity in drug
discovery significantly.
ChemGenics Transaction
In June 1996, the Company entered into a transaction with ChemGenics
(formerly, Myco Pharmaceuticals Inc.), in which the Company transferred certain
assets and employees of the Company's drug discovery program to ChemGenics and
granted a non-exclusive license to ChemGenics to use the Company's technology
(including
18
<PAGE>
technology developed through PTC-II) in the field of drug discovery in exchange
for shares of ChemGenics Common Stock and warrants to purchase additional shares
of ChemGenics Common Stock exercisable until June 28, 2000. The warrants are
exercisable at $5.00 per share ($13.25 per share after a proposed 2.65-for-1
reverse stock split). The Company is subject to certain contractual restrictions
on the sale or distribution of its holdings of ChemGenics Common Stock. In
December 1996, the Company and ChemGenics executed amendments to their
agreements pursuant to which the Company exchanged a portion of its ChemGenics
Common Stock for a promissory note for $3 million payable on the earlier of the
closing of ChemGenics' initial public offering or December 31, 2002. The Company
currently holds approximately 34% of the outstanding capital stock of
ChemGenics, and warrants which, if exercised, would increase the Company's
holdings to approximately 47% (of which, warrants sufficient to increase the
Company's holdings to approximately 40% are currently exercisable). On December
19, 1996, ChemGenics announced that it had filed a registration statement with
the SEC for the initial public offering of ChemGenics Common Stock.
Research and Development
As of December 10, 1996, PerSeptive's technical research and development group
consisted of, approximately 92 persons, many of whom have graduate degrees in
fields such as biochemistry, chemical engineering, organic chemistry, polymer
science and protein chemistry. During the Company's fiscal years ended
September 30, 1996, 1995 and 1994 research and development expenditures funded
internally were approximately $11.3 million, $7.0 million and $6.8 million,
respectively.
The Company believes that applications of its technologies extend beyond use
in biopharmaceutical and clinical applications to uses in the environmental
services, agriculture and food processing industries. PerSeptive may seek
collaborative arrangements to develop future products for these applications.
The Company is considering entering into research and development and
collaborative arrangements to develop specific products, processes and
technologies with third parties, including customers. No assurance can be given
that the Company will be successful in entering into such arrangements or
developing commercially valuable products or technologies as a result of such
arrangements.
Marketing and Sales
PerSeptive markets its products in the United States, Germany, France, the
United Kingdom, Canada and Japan through a direct sales and marketing staff.
Approximately 45% of the Company's product revenues are from outside North
America. As of December 10, 1996, the Company's sales, marketing and customer
support organization consisted of approximately 192 employees. PerSeptive also
has independent distributors in Australia, Austria, Benelux (Belgium, the
Netherlands, Luxembourg), the People's Republic of China, Denmark, Egypt,
Finland, Greece, Iceland, India, Israel, Italy, Korea, Malaysia, New Zealand,
Norway, Philippines, Singapore, South Africa, Spain, Sweden, Switzerland,
Taiwan, Thailand, Turkey, and Vietnam.
Customers
PerSeptive began sales of the first of its products, POROS chromatography
media, in April 1990 and its BioCAD Workstation in September 1991. No single
customer accounts for more than 10% of the Company's products sales. Contract
research and development revenue generated by the Company from PTC-II was 12%
and 22% of the Company's total revenues in fiscal 1996 and 1995, respectively.
At September 30, 1996, the Company had a backlog estimated at approximately $3.4
million.
Competition
PerSeptive's products compete on the basis of superior performance, cost
effectiveness, breadth of product line and expertise in application support. The
Company is not aware of any other companies with patented or proprietary
technologies comparable to its Perfusion Chromatography, ImmunoDetection, PNA,
Expedite or RSD technologies. The Company's products, however, compete with
products using a number of other technologies, including LC, HPLC, immunoassay
and other conventional technologies. Additional competitive products using new
technologies may also be introduced. Many of the companies selling or developing
such products have financial, manufacturing and distribution resources
significantly greater than those of the Company. In addition,
19
<PAGE>
many of these competing companies have had long-term supplier relationships with
the Company's existing and potential customers. See "Legal Proceedings," for
information concerning the Company's Perfusion Chromatography patent
infringement litigation.
The Company's POROS products compete primarily with products that differ in
base material, particle size and composition, surface chemistries and operating
environment. The dominant suppliers of chromatography instruments and supplies
are Pharmacia AB Biotech, Inc., a subsidiary of Pharmacia & Upjohn Co., and
Waters Corporation.
Direct competition for the Company's analysis products, INTEGRAL Micro-
Analytical Workstation and RPM process monitoring technology comes primarily
from conventional immunoassay technology. The Company believes that its products
offer cost-effectiveness and performance capabilities not available with
products based on other existing technologies.
In its biospectrometry products business, the Company competes with well-
established suppliers of mass spectrometers and other analytical instruments.
The Company believes, however, that it has a major presence in time-of-flight
mass spectrometry for biological analysis and that it is the only competitor
with a dedicated focus on biomolecular analysis. The Company also believes that
its products have superior performance capabilities, but the Company also
competes on the basis of price, technical support and service.
The Company's synthesis products business faces vigorous competition and it is
anticipated that competition will become more intense in the future. The
Company generally competes on the basis of product performance, innovative
product design and technology, superior technical support of customer
applications and cost effectiveness. With respect to its synthesis products,
the Company's principal competitor is the Applied Biosystems Division of The
Perkin-Elmer Corporation.
Competition in the marketing of immunodiagnostic tests and reagents is
intense. Many of the Company's competitors in this market have substantially
greater resources than those of the Company. PerSeptive believes that market
shares in its sector of the immunodiagnostic and research industry have
historically been volatile because of continuing technological developments.
PerSeptive believes that its ability to develop and manufacture superior and
novel products at commercially acceptable prices will in large part determine
its success in the immunodiagnostic and research market.
Manufacturing
PerSeptive manufactures substantially all of its own consumable products and
instrumentation systems. POROS media is manufactured from raw chemicals
utilizing standard synthesis techniques and proprietary Company technology.
Coating chemicals are synthesized and applied to the particles using the
Company's patented and proprietary techniques. POROS media is shipped in bulk
quantities or in columns pre-packed using proprietary techniques developed by
the Company.
Manufacturing activities for the Company's synthesis reagents are conducted
at the Company's manufacturing facility in Hamburg, Germany which was completed
during fiscal 1996. See "Properties."
Government Regulation
Government regulations play a significant role in the research, development,
production and commercialization of health care products, such as
biopharmaceuticals. While none of the Company's current purification, analysis
and synthesis products require FDA approval, many of the Company's customers are
required to obtain the approval of the FDA and similar health authorities in
foreign countries for the clinical testing and commercial sale of
biopharmaceuticals for human use. FDA regulations apply not only to health care
products, but also to the process and production facilities used to produce such
products. These regulations are called FDA current Good Manufacturing Practices
("cGMP"). The Company is often required to adopt aspects of cGMP regulations to
support its customer's use of its products.
20
<PAGE>
The Company's in vitro clinical diagnostic products, as well as any clinical
diagnostic applications of the Company's ImmunoDetection technologies, are
subject to FDA device and reagent approval and regulation. This means that
before any new medical devices can be commercially distributed, the manufacturer
must submit to the FDA either a premarket notification ("510(k)") or a premarket
approval ("PMA") application. A 510(k) notification can be submitted when the
Company believes the device is substantially equivalent to another device
currently being marketed by itself or by another organization. There can be no
assurance that the use of a 510(k) notification will be available for any of the
Company's future diagnostic products.
A PMA, which is required for medical devices not eligible to be marketed under
a 510(k) notification, must demonstrate that the product is safe and effective,
requires more time to prepare and is a much more complex submission to the FDA.
Following completion of laboratory evaluations and adequate controlled clinical
trials to establish safety and efficacy of the product for its intended use, the
Company would be required to file a PMA application, which includes the results
of all research and product development, clinical studies and related
information. FDA review and approval of a PMA application often takes 12 to 18
months, or even longer, and must be completed before the product may be sold for
clinical diagnostic use in the United States. The process of obtaining PMAs from
the FDA and other regulatory authorities can be costly, time consuming and
subject to unanticipated delays. There can be no assurance that the approvals of
the Company's or its customers' products, processes or facilities will be
granted. Any failure to obtain, or delay in obtaining, any such required
approval could adversely affect the Company's marketing efforts.
The Company believes that its production and documentation procedures for its
current clinical diagnostic products comply with FDA cGMP requirements. In
support of its customer's requirements to comply with FDA regulations regarding
the use of its purification, analysis, and synthesis products, the Company
strives to maintain production and documentation procedures for them that
parallel applicable parts of the FDA cGMP requirements.
In addition to the regulatory framework for clinical trials and product
approvals, PerSeptive is subject to regulation under federal, state and local
law, including requirements regarding occupational safety, laboratory practices,
environmental protection and hazardous substance control, and may be subject to
other present and possible future local, state, federal and foreign regulation.
Patents, Proprietary Technology and Licenses
PerSeptive's policy since its inception has been to seek patent protection for
certain of its inventions. The Company pursues patent protection in the United
States and files corresponding patent applications in certain foreign
jurisdictions. The Company believes that patent protection is an important
element in the protection of its competitive and proprietary position, but other
elements, including trade secrets and customer service, are of at least equal
importance. The Company owns or has exclusive rights to more than 90 patents
worldwide, of which more than 50 are U.S. patents. The Company has more than 80
patent applications on file worldwide, of which more than 30 are U.S. patent
applications.
PerSeptive currently holds four issued U.S. Patents and one allowed
application relating to its Perfusion Chromatography technology. See "--
PerSeptive's Technologies--Perfusion Chromatography." The last of these patents
expire in 2013. PerSeptive also has additional U.S. patents and pending U.S.
patent applications that relate to its Perfusion Chromatography, surface
coating, ImmunoDetection, RSD and related technologies. There can be no
assurance that any of such applications will result in the issuance of a patent
or that an issued patent will afford the Company any significant protection. The
invalidation of key patents owned by the Company or the failure of patents to
issue on pending patent applications could create increased competition, with
potential adverse effects on the Company and its business prospects. PerSeptive
has pending applications in various other technologies, including time-of-
flight, laser desorption mass spectrometry and its use in DNA sequencing,
isoelectric focusing, drug screening, peptides, sequencing of nucleic acids and
applications of magnetic particles to both biomolecule separations and binding
assays.
Certain of the Company's coating technologies and patent rights have been
derived in collaboration with Purdue University ("Purdue"). The Company has an
exclusive license to, including the right to sublicense, United
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States patents covering such technologies. Under the license agreement, the
Company has certain royalty obligations, including minimum royalties.
Certain of PerSeptive's patent rights were acquired from Millipore Corporation
in connection with PerSeptive's acquisition of its synthesis business. As a
result of this acquisition, PerSeptive either owns or holds license rights to
more than forty U.S. patents and pending U.S. patent applications related to
preparation of oligonucleotides using phosphoramidite reagent products, a
nucleic acid synthesis product, the Expedite Synthesizer and PNA products.
The Company also relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
techniques, gain access to the Company's trade secrets or disclose such
technology, or that the Company can effectively protect its trade secrets. The
unauthorized disclosure of the Company's trade secrets could have a material
adverse effect on the Company's business.
The Company's policy is to require each of its employees, consultants and
significant scientific collaborators to execute confidentiality agreements upon
the commencement of an employment or consulting relationship with the Company.
These agreements generally provide that all confidential information developed
or made known to the individual during the course of the individual's
relationship with the Company is to be kept confidential and not disclosed to
third parties except in specific circumstances. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual in the course of rendering services to the Company shall be the
exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection or adequate remedies for the
Company's trade secrets in the event of unauthorized use or disclosure of such
information.
Employees
As of December 10, 1996, the Company employed approximately 510 persons full
time. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
In connection with its core business, PerSeptive leases the following
properties: 196,000 square feet of space in Framingham, Massachusetts;
approximately 10,000 square feet of space in Cambridge, Massachusetts; and
additional space in: Weisbaden, Germany; Voisins le Bretonneux, France;
Hertfordshire, England; Ontario, Canada; and Tokyo and other locations in Japan.
In addition, PerSeptive leases approximately 16,000 square feet in Cambridge,
Massachusetts for its clinical diagnostics business; approximately 2,300 square
feet in San Francisco, California; and approximately 14,000 square feet in
Houston, Texas. These facilities are used for manufacturing, laboratories,
warehouses, distribution centers and offices. The leases expire beginning in
1997 through 2009.
In early calendar 1996, the Company moved its synthesis operations in Hamburg,
Germany to a new 58,000 square foot facility built on land purchased by
PerSeptive for manufacturing, office and laboratory use. See "--
Manufacturing." In addition, the Company's synthesis products business shares
distribution facilities with Millipore Corporation in Yonezawa, Japan.
ITEM 3. LEGAL PROCEEDINGS
1. Since November 1994, the Company has been responding to informal requests
for information from the SEC relating to certain of the Company's financial
matters. In May 1995, the Company was advised by the SEC that it had obtained a
formal order of investigation so that, among other matters, it could utilize
subpoena powers to obtain information relevant to its inquiry. The SEC has and
may in the future utilize its subpoena powers to obtain information variously
from officers, directors and employees of the Company and from persons
22
<PAGE>
not presently associated with the Company. If, after completion of its
investigation, the SEC finds that violations of the federal securities laws have
occurred, the SEC has the authority to order persons to cease and desist from
committing or causing such violations and any future violations. The SEC may
also seek administrative, civil and criminal fines and penalties and injunctive
relief. The Department of Justice has the authority in respect of criminal
matters. There can be no assurance as to the timeliness of the completion of the
investigation, or as to the final result thereof, and no assurance can be given
that the final result of the investigation will not have a material adverse
effect on the Company. The Company is cooperating fully with the investigation,
and has responded and will continue to respond to requests for information in
connection with the investigation.
2. On October 14, 1993, the Company filed suit against Pharmacia Biotech,
Inc., a New Jersey corporation, together with certain of its affiliates, and
their parent Pharmacia AB, a Swedish corporation (collectively, "Pharmacia"),
now part of Pharmacia & Upjohn Co., and Sepracor Inc., a Delaware corporation
("Sepracor"), in the United States District Court for the District of
Massachusetts (Civil Action No. 93-12237-PBS) for willful infringement of the
Company's US Patents Nos. 5,019,270 and 5,228,989 (collectively, the "Patents")
covering the process of Perfusion Chromatography and the manufacture, sale and
use of chromatography particles that enable Perfusion Chromatography. This
lawsuit seeks to enjoin the defendants from infringing the Patents and asks for
treble damages. On October 15, 1993, the Company filed a related action against
Sepracor in the United States District Court for the District of Massachusetts
(Civil Action No. 93-12249-PBS) in which the Company claims that Sepracor has
made false and misleading representations of fact with respect to the Company's
products in violation of applicable state and federal law. On October 12, 1993,
as a result of prior correspondence with the Company, Pharmacia filed a suit
against the Company in the United States District Court for the District of New
Jersey (Civil Action No. 93-4450 (HAA)) seeking a declaratory judgment: (i) that
Pharmacia's products do not infringe the Patents and (ii) that the Patents are
invalid and unenforceable.
On January 18, 1994, the United States District Court for the District of New
Jersey allowed the Company's motion to transfer all proceedings in Pharmacia's
action to the United States District Court for the District of Massachusetts. By
orders dated December 3, 1993 and March 29, 1994, the United States District
Court for the District of Massachusetts has consolidated all three actions
identified above for pretrial proceedings.
On May 19, 1994, the United States District Court for the District of
Massachusetts allowed the Company's motion to join BioSepra Inc., which is
partially owned by Sepracor ("BioSepra"), as a party and to amend the pleadings
to assert claims against BioSepra for willful infringement of the Patents and
for false and misleading advertising. The Company's claims against BioSepra are
consolidated with claims against Sepracor and Pharmacia for pretrial
proceedings.
On October 5, 1994, the Court allowed the Company's motion to amend its
pleadings to allege claims against Sepracor and BioSepra for infringement of
United States Patent No. 5,030,352, covering novel coatings for chromatography
media, which is assigned to the Purdue Research Foundation and exclusively
licensed to the Company.
On January 24, 1995, the US Patent and Trademark Office issued a third patent
assigned to the Company, US Patent No. 5,384,042 (the "'042 Patent"), covering
the manufacture, sale and use of matrices that enable Perfusion Chromatography.
On January 25, 1995, the Company filed a complaint in the United States District
Court for the District of Massachusetts against Pharmacia, Sepracor and BioSepra
alleging willful infringement of the '042 Patent. On February 14, 1995, the
Court allowed an assented-to motion to consolidate that action, designated Civil
Action No. 95-10157-PBS, with the pending actions described above.
Pharmacia, Sepracor and BioSepra each have asserted counterclaims against the
Company. On February 10, 1995, Sepracor and BioSepra filed a counterclaim
against the Company alleging that its allegations that Sepracor and BioSepra
have infringed the Patents and alleged statements concerning the litigation made
to customers constitute unfair competition, commercial disparagement, unfair
trade practices pursuant to Mass. Gen. Laws ch. 93A, tortious interference with
customer relationships and violation of the Lanham Act. Sepracor
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<PAGE>
requested relief in the form of an unspecified amount of damages, double or
treble damages to the extent permitted by Mass. Gen. Laws ch. 93A, dismissal of
all claims asserted by PerSeptive, and Sepracor's costs and attorney's fees. On
March 6, 1995, Pharmacia filed a counterclaim alleging that the Company's
allegations that Pharmacia has infringed the Patents and alleged statements
concerning the litigation made to customers constitute unfair competition,
commercial disparagement, unfair trade practices pursuant to Mass. Gen. Laws ch.
93A, and violation of the Lanham Act. Pharmacia requested relief in the form of
an unspecified amount of damages, double or treble damages to the extent
permitted by Mass. Gen. Laws ch. 93A, dismissal of all claims asserted by
PerSeptive, and Pharmacia's costs and attorney's fees. Since the Court has
bifurcated discovery on damages issues, Sepracor and Pharmacia have not
quantified the amount of damages sought in their respective counterclaims. The
Company has denied any liability on the counterclaims.
On January 9, 1996, the Court entered an order denying the Company's motion
for partial summary judgment relating to the inventorship of the three Perfusion
Chromatography patents, and granting the Defendants' motions for partial summary
judgment that inventorship of those patents is improper for failure to name two
or more persons as joint inventors. The Court, however, affirmed the Company's
inventorship. On March 19, 1996, PerSeptive filed a Motion to Vacate the
January 9 order and requested the Court to conduct an evidentiary hearing
pursuant to 35 U.S.C. (S) 256 to determine whether the patents can and should be
corrected by adding additional alleged inventors and, among other issues, if the
patents can be corrected, whether the alleged additional inventors should be
estopped from asserting any rights on account of their never having claimed to
have been inventors, among other factors. On April 29, 1996, the Court denied
the Motion to Vacate. An evidentiary hearing on the inventorship issue was
conducted in May and June 1996. Post-hearing submissions were filed by the
parties in July 1996 and closing arguments were heard by the Court on August 8,
1996. The Company has preserved its rights of appeal on a number of issues,
including the Court's January 9, 1996 order that inventorship of the patents was
improper for failure to name additional persons as joint inventors.
The Company may incur substantial additional expenses relating to these
lawsuits. There can be no assurance that the outcome of the litigation will not
have a material adverse effect on the Company. The Company intends to continue
vigorously pursuing this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market, Stockholder and Dividend Information
PerSeptive's Common Stock is quoted on The Nasdaq National Market under the
symbol "PBIO." The following table sets forth the range of quarterly high and
low sales prices for PerSeptive's Common Stock for the two most recent fiscal
years:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996
First Quarter...................... $ 11 1/8 $ 8 3/8
Second Quarter..................... 9 3/8 5 7/8
Third Quarter...................... 10 7/8 6 3/4
Fourth Quarter..................... 10 3/8 6 5/8
Fiscal 1995
First Quarter...................... $ 16 1/4 $ 3 3/4
Second Quarter..................... 6 3/4 4 1/8
Third Quarter...................... 12 5/8 5 3/8
Fourth Quarter..................... 12 1/8 8 3/4
</TABLE>
On December 10, 1996, the closing sale price of the Company's Common Stock was
$6.625 per share. As of December 10, 1996, there were approximately 1,074
holders of record of the Company's Common Stock and an estimated 4,895
additional beneficial holders.
The Company has never paid cash dividends on its Common Stock and has no
present intention to pay cash dividends in the future. The Company intends to
retain any future earnings to finance the growth of the Company.
Recent Sales of Unregistered Securities
On August 16, 1996, the Company completed a private placement of 2,579,286
shares of its Common Stock at a purchase price equal to $7.00 per share. The
Company claims that the offer and sale of the shares were exempt from
registration pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended, in reliance upon the representations and warranties by the
purchasers of the shares in the Securities Purchase Agreements, dated August 16,
1996, between the Company and each of the purchasers. The shares were offered
only to "accredited investors" (as such term is defined in Regulation D). The
Company received net proceeds of approximately $17 million after deducting
estimated fees and expenses of the transaction. Approximately $893,000 in fees
were paid by the Company to Payne Financial Group, Inc. in connection with this
transaction. The Company intends to use the net proceeds of the private
placement for working capital and other general corporate purposes. On August
20, 1996, the Company filed a registration statement on Form S-3 (File No. 333-
11229) with the SEC covering the resale of the shares sold in the private
placement and the registration statement became effective on September 13, 1996.
25
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Selected Consolidated Financial Data
The selected consolidated financial data of PerSeptive Biosystems, Inc.
set forth below as of and for each of the two years in the period ended
September 30, 1996 has been derived from PerSeptive's Consolidated Financial
Statements which have been audited by Cooper & Lybrand L.L.P., independent
accountants, and which are included elsewhere in this Annual Report on Form
10-K. The statement of operations data for the year ended September 30, 1994 has
been derived from PerSeptive's Consolidated Financial Statements which were
audited by Price Waterhouse LLP, independent accountants, and which are included
elsewhere in this Annual Report on Form 10-K. The statement of operations data
for each of the two years in the period ended September 30, 1993 and the balance
sheet data as of September 30, 1992, 1993 and 1994 were derived from
PerSeptive's audited Consolidated Financial Statements not included in this
Annual Report on Form 10-K. The data set forth below should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
of PerSeptive included elsewhere in this Annual Report on Form 10-K.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
1992 1993* 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product revenue $5,008 $10,535 $30,707 $69,430 $75,916
Contract revenue (1) - 4,431 15,348 19,999 10,102
----- ----- ------ ------ ------
Total revenue 5,008 14,966 46,055 89,429 86,018
Cost of revenue:
Cost of product revenue 1,923 3,756 15,524 33,169 37,813
Cost of contract revenue (1) - 2,924 13,009 16,968 8,571
Other charges (2) - - - - 9,906
----- ----- ------ ------ -----
Total cost of revenue 1,923 6,680 28,533 50,137 56,290
Gross Profit 3,085 8,286 17,522 39,292 29,728
Operating expenses:
Research and development 2,324 3,222 6,828 6,999 11,342
Selling, general and administrative 4,295 9,193 27,757 32,771 39,518
Other charges (2) - - 14,681 15,459 24,239
Amortization - 349 2,209 3,080 2,158
---- --- ----- ----- -----
Loss from operations (3,534) (4,478) (33,953) (19,017) (47,529)
Other income (expense), net 252 1,259 307 (1,553) (2,938)
Provision for income taxes - - (366) - -
----- ----- ----- ----- ------
Net loss ($3,282) ($3,219) ($34,012) ($20,570) ($50,467)
======== ======== ========= ========= =========
Net loss per common share (3)(4)(5)(8) ($1.00) ($0.31) ($2.88) ($1.88) ($3.22)
======= ======= ======= ======= =======
Weighted average common shares 4,027 10,240 11,903 12,340 16,296
outstanding (3)(4) ===== ====== ====== ====== ======
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- -------- -------- --------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and investments $17,174 $36,357 $36,794 $23,816 $24,657
Working capital 8,769 21,561 34,668 27,096 26,572
Total assets 22,209 54,888 137,246 138,209 121,655
Total long-term debt (including
obligations under capital lease) (6)(9) 365 137 27,230 32,559 35,437
Redeemable convertible preferred stock
(7)(10)(11) - - 33,342 - -
Total stockholder's equity (2)(3)(10)
(11)(12) 19,297 50,658 40,349 65,107 50,285
</TABLE>
- ------------------------
* The Consolidated Financial Statements of the Company for the year ended
September 30, 1993 have been restated. See Note 13 of Notes to the
Consolidated Financial Statements.
(1) In December 1992, March 1993 and December 1993, the Company entered into
certain technology license and research and development agreements with
PerSeptive Technologies Corporation ("PTC"), Perlsis II Development
Corporation ("PerIsis") and PTC-II, respectively. As of September 30,
1996, all technology rights granted to these entities have been re-acquired
by the Company and no further contract revenue is anticipated to be derived
from these entities. See Note 15 of Notes to the Consolidated Financial
Statements.
(2) Other charges of $9.9 million recorded as part of cost of goods sold during
the year ended September 30, 1996 relate to various actions taken to
realign the current product offering and to write-off certain manufacturing
related assets. Other charges of $24.2 million recorded as part of
operating expenses during the year ended September 30, 1996 related to
various matters including the write-off of in-process research and
development in connection with the acquisition of PTC-II, write-off of
certain intangibles related to acquisitions reported in prior years, and
additional provisions for estimated litigation costs associated with
certain matters including the ongoing patent litigation. Charges of $15.5
million in the year ended September 30, 1995 include charges associated
with the Company's settlement of shareholder litigation related to the
restatement of the consolidated financial statements for the year ended
September 30, 1993 and in-process research and development charges related
to the purchase of the outstanding shares of PerIsis. Other charges of
$14.7 million in the year ended September 30, 1994 reflect the write-off of
in-process research and development in connection with the acquisition of
PTC effective December 28, 1993 and Vestec Corporation in the year ended
September 30, 1994. See Notes 13, 14, 15, and 16 of Notes to the
Consolidated Financial Statements.
(3) On June 5, 1992, the Company completed an initial public offering of
2,500,000 shares of its Common Stock. The net proceeds to the Company were
approximately $15,520,000. On July 2, 1992, the Company issued 375,000
shares of its Common Stock in exchange for $2,441,000 in net proceeds
pursuant to the exercise of the underwriters' overallotment option
in connection with the Company's initial public offering. On March 4, 1993,
the Company completed a second public offering of 2,000,000 shares of its
Common Stock. The net proceeds to the Company were approximately
$33,840,000. On August 16, 1996, the Company completed a private placement
of 2,579,286 shares of its Common Stock. The net proceeds to the Company
were approximately $17 million (after commissions, but before offering
expenses).
(4) Effective March 27, 1992, the Company's Board of Directors authorized a
four-for-one stock split of the Company's Common Stock in the form of a
stock dividend. All common shares and per share amounts have been adjusted
to give retroactive effect to the Common Stock split for all years
presented.
(5) Prior to June 5, 1992, the date of the Company's initial public offering,
the calculation of the net loss per share includes accretion of the
redemption obligations associated with the Company's preferred stock that
was outstanding prior to that date. Common Stock options issued, preferred
stock, Common Stock and Common Stock warrants sold at prices below the
offering price per share in the twelve-month period preceding the initial
public offering have been included in the calculation as it outstanding for
all periods presented up to March 31, 1992 using the treasury stock method.
<PAGE>
(6) On August 22, 1994, the Company issued $25,000,000 aggregate principal
amount of 8-1/4% Convertible Subordinated Notes Due 2001 (the "Notes"). On
September 22, 1994, the Company issued an additional $2,230,000 aggregate
principal amount of the Notes pursuant to the exercise of the Initial
Purchasers' over-allotment option in connection with this offering. See
Note 8 of Notes to the Consolidated Financial Statements.
(7) On August 22, 1994, the Company issued to Millipore Corporation 4,000 shares
of a newly designated series of non-voting redeemable convertible preferred
stock (the "Series A Preferred Shares"). See Note 9 of Notes to the
Consolidated Financial Statements.
(8) Net loss per share for the years ended September 30, 1994, 1995 and 1996
includes accretion of the Series A Preferred Shares. See Note 2 of Notes to
the Consolidated Financial Statements.
(9) During the year ended September 30, 1995, the Company secured financing with
several banks and financial institutions including a line of credit for
borrowings up to 8.5 million DM (approximately $6 million at September 30,
1995) for use in financing the construction of a new manufacturing facility
in Hamburg, Germany, short-term financing collateralized by the Company's
short-term investments, and a sale-leaseback transaction for $5 million
secured by certain of the Company's fixed assets. See Note 8 of Notes to
the Consolidated Financial Statements.
(10) In August 1995 and in August 1996, the Company issued 912,199 shares and
1,248,050 shares, respectively, of Common Stock to satisfy the first and
second redemption payments of $10 million each to Millipore in connection
with the Series A Preferred Shares. See Note 9 of Notes to the
Consolidated Financial Statements.
(11) The Company has reclassified the redeemable convertible preferred stock to
stockholders' equity based on the Company's intent to redeem the future
remaining amounts through the issuance of Common Stock. See Note 9 of
Notes to the Consolidated Financial Statements.
(12) In September 1995, the Company issued 157,565 shares of Common Stock to
Boehringer Mannheim GmbH in exchange for $2 million. See Note 9 of Notes to
the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-K including Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward looking
statements. Factors that may cause such differences include, but are not
limited to, those discussed under the caption "Certain Factors That May Affect
Future Results" as well as elsewhere in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, and those discussed
in the Company's other filings with the Securities and Exchange Commission.
The following discussion and analysis is based on the Company's financial
statements and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto contained elsewhere herein.
Overview
During fiscal 1996, several actions were taken to position the Company for
the future. These actions included: the acquisition of PTC-II; the formation of
the Company's alliance with ChemGenics; the establishment of a business unit
organizational structure; significant reductions in the Company's quarterly
operating expense run rate; the introduction of several major new instrument and
reagent systems and related realignment of the Company's product offering;
further establishment of the Company's presence internationally; the addition of
several key members to the senior management team; and the raising of
approximately $17 million in net new capital through a private placement of the
Company's Common Stock.
Through the acquisition of PTC-II, the Company acquired important drug
discovery, sequencing, synthesis and diagnostic technologies. The joining of
these technologies with the Company's core technologies has enhanced the
Company's ability to establish important strategic alliances. For example, in
1996 the Company entered into strategic alliances with ChemGenics, see "Business
- -- Business Development." and most recently in December 1996, with Incyte
Pharmaceuticals, Inc. ("Incyte"). The ChemGenics transaction combined the
Company's proprietary chemistry and drug discovery technologies with ChemGenics'
gene technologies and drug discovery expertise, creating a broad set of enabling
technologies for transforming genomic information and chemical diversity into
therapeutic lead compounds. The Incyte alliance involves the Company's
GeneSpectrometry technology and the further development of PerSeptive
instruments to assist Incyte in the rapid generation of genomic data for
Incyte's LifeSeq database product. PerSeptive intends to build upon its
experience with development collaborations by seeking additional partnerships
for the development of innovative instrument and reagent products that satisfy
customer needs and accelerate the drug discovery process.
28
<PAGE>
The Company's strategy, in part, is to continue to enhance PerSeptive's
role in the protein characterization marketplace through its purification,
analysis and synthesis capabilities and knowledge and to apply this expertise to
further address the emerging high growth markets of genomics and drug discovery.
In addition, management intends to work to continue to augment the Company's
core business activities through additional alliances with leaders in these
fields.
Operationally, the Company made a strategic decision during fiscal 1996 to
move to a business unit management structure in order to establish more focus
and accountability at the product-line level. Through this initiative, steps
are being taken to rationalize the various product-line offerings and cost
structures to improve the overall operating performance of the Company in the
near term. Evidence of the success of this management approach has been
demonstrated by the significant operating cost reductions that have been
achieved since the acquisition of PTC-II in March 1996. Expenditures in the
areas of research and development and selling, general and administrative
expenses have been reduced on a quarterly run rate basis by approximately 25%,
declining from a high of $17 million in the second quarter of fiscal 1996 to
$12.6 million in the fourth quarter.
Significant product introductions were made during the current year in all
three product lines. Product introductions in the Purification product line
included the Vision Workstation and the BioCad 700E. The Vision Workstation is
the first chromatography system to offer simultaneous biomolecule purification
and analysis in a single instrument through robotics. The BioCad 700E is an
enhanced second-generation version of the Company's industry-leading BioCad
system. The primary Analysis product line introduction was the Voyager-DE
Biospectrometry Workstation. This Workstation is the first Time-of-Flight mass
spectrometer to incorporate PerSeptive's proprietary Delayed Extraction ("DE")
technology. Other Analysis product line introductions included Sequazyme
Sequencing Kits and Titerfluor Assay Kits. Synthesis product line introductions
included: the Pioneer Peptide Synthesizer, a new high throughput peptide
synthesis system; and chemistry and reagents for PNAs, a compound for which the
Company has obtained broad exclusive rights. (See "Business -PerSeptive's
Technologies--DNA and Peptide Synthesis"). In connection with these product
introductions, the Company recorded certain charges to cover costs associated
with the phase-out of previous generation instrumentation and non-strategic
products that were eliminated during the year.
Results of Operations
Years Ended September 30, 1996 and 1995
Product Revenue
Product revenue for fiscal 1996 was $75.9 million compared with $69.4
million for fiscal 1995, an increase of $6.5 million or 9.4%. Total product
revenue growth excluding the impact of adverse currency effects was
approximately $9.7 million or 14%. The principal product revenue growth was in
the Company's Purification and Analysis product lines.
From a geographic perspective, fiscal 1996 product revenue generated in
North America declined by approximately $2 million or 5% from fiscal 1995
levels. This decline was principally attributable to the decline experienced in
the Synthesis product line. Product revenue generated in Europe increased by
approximately $5.6 million or 49% and was primarily attributable to increased
product sales in the Purification and Analysis product lines. Product revenue
generated in the Pacific Rim increased by $3 million or 20%, and was due to
growth primarily in the Analysis product line.
Contract Revenue
Contract revenue for fiscal 1996 was $10.1 million compared with $20
million in fiscal 1995. The decrease in contract revenue is attributable to the
elimination of contract revenue previously recorded in connection with the
Company's development efforts on behalf of PTC-II, following the acquisition of
PTC-II during the quarter ended March 31, 1996. See Note 15 of Notes to the
Consolidated Financial Statements.
29
<PAGE>
In March 1996, the Company completed its acquisition of PTC-II, which was
organized in 1993 to accelerate research and development of the application of
PerSeptive's core technologies to certain commercial opportunities in large life
science markets. Following the successful completion of an exchange offer for
the 2,645,000 outstanding units of PTC-II, the Company acquired 2,603,125 of
such units. The PTC-II shareholders who participated in the exchange offer
exchanged their units for 2,603,125 shares of PerSeptive's Common Stock, and
2,603,125 new Class I Warrants to purchase PerSeptive Common Stock exercisable
until August 8, 1997 at an exercise price per share of $13.50. On March 13,
1996, PTC-II became a wholly owned subsidiary of the Company. Each of the
remaining 41,875 shares of callable common stock of PTC-II not exchanged in the
exchange offer were automatically converted into a right to receive one share of
the Company's Common Stock. The total value of the Common Stock issued in the
exchange offer was approximately $16 million based on the market value of the
Common Stock on March 8, 1996. The Company recorded an in-process research and
development charge of approximately $6.8 million which represents the value of
acquired technologies which have not reached commercialization.
Gross Profit
Gross profit from product sales for fiscal 1996 excluding other charges was
$38.1 million, or 50.2% of product sales, as compared with $36.3 million or
52.2% of product sales for fiscal 1995. The decline in gross profit as a
percentage of sales is primarily attributable to an increase in unabsorbed
overhead associated with the increase in manufacturing capacity resulting in
part from the addition of a new POROS manufacturing facility and the new
synthesis plant in Hamburg, Germany. In addition, unabsorbed overhead
associated with the Framingham instrumentation facility was higher during fiscal
1996. The Framingham facility was occupied beginning in March 1995, resulting in
the inclusion of only six months of under-absorption in fiscal 1995 and a full
year in fiscal 1996. Excess capacity currently exists within each of these
facilities. This excess capacity has been put in place to support future growth
within the product lines served by the respective facilities. See Notes 2 and
13 of Notes to the Consolidated Financial Statements.
Other charges of $9.9 million reported as part of costs of goods sold
relate to various charges recorded in connection with activities undertaken to
realign the Company's product offerings and to record impairment charges
associated with certain underutilized production assets. See Notes 2 and 13 of
Notes to the Consolidated Financial Statements.
Contract revenue gross margins during fiscal 1996 and 1995 equal the
contractual markup on contract research services provided by the Company as set
forth in the governing agreements between the Company and PTC-II, and the
inclusion of amortization of the license fee paid by PTC-II to the Company for
technology licensed to PTC-II at the time of its formation. These agreements in
general provided for a 10% profit on costs incurred by the Company on behalf of
PTC-II. Costs included in the cost of contract revenue for fiscal 1996 and 1995
include specifically allocable research and development expense and an
allocation of general and administrative expense as provided for under the
agreements.
Research and Development Expense
Research and development expense for fiscal 1996 was $11.3 million or 14.9%
of product sales, compared to $7.0 million or 10% of product sales for fiscal
1995. The increase in research and development expense as a percent of product
sales is attributable to the higher expense levels following the acquisition of
PTC-II in March 1996. The gross level of quarterly research and development
expenditures, which includes research and development expenditures reflected in
cost of contract revenue, following the acquisition was approximately $5.5
million. Various management initiatives were implemented following the
acquisition that resulted in the reduction of this quarterly expenditure run
rate by approximately $2 million or 35%. The Company entered into one agreement
during fiscal 1996 to license technology developed through the former PTC-II
drug discovery program to ChemGenics. (See "Business -- Business Development --
ChemGenics"). Although management intends to pursue additional commercialization
opportunities and alliances in order to obtain value from the technology
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acquired from PTC-II, the Company continues to evaluate the scope and direction
of various programs. There can be no assurance that funding sources and/or third
party arrangements will be obtained or established to defray the cost of
research and development or that any of these acquired technologies will
ultimately be successfully commercialized.
Selling, General and Administrative Expense
Selling, general and administrative expenses for fiscal 1996 were $39.5
million or 52% of product sales, compared with $32.8 million or 47% of product
sales for fiscal 1995. The increase in selling, general and administrative
expense both in aggregate dollars and as a percent of product sales is
attributable to various factors, including investment in the European
infrastructure and sales organization which delivered a significant increase in
fiscal 1996 product revenues, increased marketing expenditures associated with
the introduction of several new products, investment ramp-up in domestic sales
organization resources, and strategic investments in the general and
administration organization to add key members to the senior management team as
well as enhance the Company's management information system capabilities. On a
run-rate basis, selling, general and administrative expenses declined from a
high of 57% of product sales in the second quarter of fiscal 1996, to a low of
47% of product sales in the fourth quarter of fiscal 1996.
Other Charges
Other charges of $24.2 million were recognized during fiscal 1996 and
related to charges recorded in connection with the PTC-II acquisition, a
provision for the impairment of certain intangible assets, accruals for
estimated legal costs related primarily to the ongoing patent enforcement action
and other miscellaneous matters. Elements of the charge recorded in connection
with the PTC-II acquisition included a $6.8 million in-process research and
development charge and a charge for costs relating to an organizational
realignment following the acquisition of approximately $3.3 million. The charge
also included provisions recorded in connection with ongoing litigation matters
totaling $5.2 million. The impairment charge recorded in connection with the
write-off of the goodwill associated with the purchase of the In Vitro Division
of Advanced Magnetics, Inc. totaled $5.3 million. Charges related to other
miscellaneous matters totaled $3.6 million.
Amortization declined by approximately $900,000 during fiscal 1996 from
levels in fiscal 1995. The principal factor contributing to this decline relates
to the write-off of the unamortized portion of the PTC-II purchase options as
part of the PTC-II acquisition charge.
The increase in interest expense of $515,000 is attributable to incremental
interest expense associated with a full year of interest cost on capital lease
obligations as well as the mortgage obtained to partially fund the construction
of the Company's new synthesis plant in Hamburg, Germany.
The Company did not record a provision for taxes in either fiscal 1996 or
fiscal 1995.
Accretion of redeemable preferred stock to its redemption value amounted to
$2.1 million during fiscal 1996 as compared to $2.7 million for fiscal 1995.
The reduction in the level of accretion is principally associated with the $10
million reduction in the level preferred stock on which accretion is being
calculated for the current period.
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Years Ended September 30, 1995 and 1994
Revenue
Revenue for fiscal 1995 was $89.4 million compared with $46.1 million for
fiscal 1994, an increase of $43.3 million or approximately 94%. Revenue from
product sales during fiscal 1995 totaled $69.4 million as compared to $30.7
million for fiscal 1994, reflecting an increase of $38.7 million or
approximately 126%. Approximately $14.2 million or 36% of the product sales
increase is attributable to growth in the Company's core business lines of
purification and analysis. The $14.2 million increase in purification and
analysis revenues represents an increase of 52% over fiscal 1994 revenues for
the same business lines and is attributable to continued growth in all of the
Company's products contained therein. The remaining $24.5 million, or 64% of
the increase, is attributable to incremental revenues from the Synthesis
business for which the predominant source of product revenues is derived from
the Synthesis products business acquired from Millipore in August 1994 and
included in the Company's results since the acquisition date.
From a geographic perspective, fiscal 1995 product revenues generated in
North America constituted approximately 63% of total product revenues, Pacific
Rim sourced revenue contributed approximately 22% of total product revenues and
European sourced revenue comprised approximately 15% of total product revenues.
Total international revenues for fiscal 1994 were insignificant as a percentage
of total revenue.
The Company entered into its first significant strategic product
distribution alliance with Boehringer Mannheim GmbH during fiscal 1995. Under
the terms of this agreement, Boehringer Mannheim will share the co-exclusive
right, together with PerSeptive and its agents, to distribute the Company's
POROS chromatography columns on a worldwide basis. The alliance did not have a
significant impact on total fiscal 1995 revenues.
Contract revenues increased to $20.0 million in fiscal 1995 from $15.3
million in fiscal 1994, an increase of $4.7 million or 30% over fiscal 1994. See
Note 16 of Notes to the Consolidated Financial Statements. The fiscal 1995
revenue increase is attributable to a full year of research and development
activity performed by the Company on behalf of PTC-II versus three quarters of
activity completed in fiscal 1994 following the formation of PTC-II in December
of 1993. The research and development activities performed on behalf of PTC-II
by the Company were funded in total by PTC-II and were related to the pursuit of
applications of the Company's core technologies in biomedical fields that extend
beyond the Company's core business.
In conjunction with the formation of PTC-II in December 1993, PTC-II paid
the Company $4.0 million to license technology from the Company. Included in
contract research and license revenue are the 1995 and 1994 license fees of $1.3
million and $1.0 million, respectively, which represent the amortization of the
license fee paid by PTC-II to the Company for the technology. Prior to the
acquisition of PTC-II in March 1996, this fee was being amortized into income
over the original expected life of PTC-II at a rate of $333,333 per quarter. See
Note 14 of Notes to the Consolidated Financial Statements.
Gross Profit
Gross profit from product sales for fiscal 1995 was $36.3 million, or 52%
of product sales, as compared with $15.2 million or 49% of product sales for
fiscal 1994. Fiscal 1994 gross profit reflected significant fourth quarter
provisions related to charges recorded to provide for estimated inventory
obsolescence and warranty obligations. Fiscal 1995 gross profit as a percent of
sales was negatively impacted by changes in general product mix and pricing,
manufacturing overhead absorption variances that were recorded as a fiscal 1995
period expense and increased field service expenses. Manufacturing overhead
absorption variances for fiscal 1995 were attributable in part to management's
efforts to reduce inventory levels from fiscal 1994 levels resulting in limited
production of new units during the current period. Field service costs increased
significantly over fiscal 1994, due in part to the incorporation of the
synthesis products business. The level of service revenue generated during
fiscal 1995 did not offset the level of cost incurred and as a result, the
incremental amount of this cost component had a negative impact on fiscal 1995
margins.
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Contract revenue gross margins during fiscal 1995 and 1994 equal the
contractual markup provided for in the governing documents between the Company
and the respective entities for which the Company provides contract research
services, after adjusting for license fees included in contract research revenue
as discussed above. These agreements in general provide for a 10% profit on
costs incurred by the Company on behalf of the respective parties. Costs
included in cost of contract revenue for fiscal 1995 and 1994 include
specifically allocable research and development expense and an allocation of
general and administrative expense as provided for under the respective
agreements.
Research and Development Expense
Research and development expense for fiscal 1995 was $7.0 million, or 10%
of product sales, compared to $6.8 million or 22% of product sales for fiscal
1994. The decrease in research and development expense as a percentage of
product revenue is primarily attributable to increased product revenue. The
aggregate level of research and development expense during fiscal 1995 reflects
the Company's continued support of the purification, analysis and synthesis
product lines.
Selling, General and Administrative Expense
Selling, general and administrative expenses for fiscal 1995 were $32.8
million, or 47% of product sales, compared with $27.8 million, or 90% of product
sales, for fiscal 1994. Fiscal 1994 selling, general and administrative
expenditures included significant provisions totaling approximately $6.1 million
recorded during the third and fourth quarters, discussed in further detail
below. The higher level of aggregate spending during fiscal 1995 relates to
higher levels of staffing for sales, marketing and administrative functions and
the inclusion of the such expenses related to fiscal 1994 acquisitions for a
full year. During fiscal 1995, the Company made significant changes in its
financial organization from both a personnel perspective as well as from a
process perspective. The actions taken by management during the current period
have resulted in significant enhancements to the Company's financial reporting
capabilities as well as its internal control environment.
Other Charges
Other charges of $15.5 million relate primarily to charges recorded during
the third quarter of fiscal 1995 in connection with the shareholder settlement
that received final court approval in September 1995 and an in-process research
and development charge recorded in connection with the purchase of all of the
outstanding stock of PerIsis II, an independent research and development company
which was established in March 1993. See Notes 13 and 15 of Notes to the
Consolidated Financial Statements. Elements included in the charge recorded in
connection with the shareholder settlement include common stock and warrants
valued at approximately $7.0 million, cash payments of approximately $5.0
million, which were funded in part by third parties, and legal and other
professional fees incurred in connection with the shareholder litigation suits
that were filed in December 1994. The fiscal 1994 charges relate to in-process
research and development charges recorded in connection with the purchase of the
outstanding common stock of PerSeptive Technologies Corporation ("PTC") in
December 1994 and Vestec Corporation in October 1993.
Amortization of purchase options increased to $1.8 million in fiscal 1995
from $1.5 million in fiscal 1994. The increase in the amortization charge during
fiscal 1995 reflects four quarters of amortization compared to three quarters of
amortization activity during fiscal 1994 following the formation of PTC-II in
December of fiscal 1993. This charge relates to the amortization of value
attributed to the warrants issued by the Company in consideration of the options
to acquire all of the outstanding shares of PTC-II or certain of its research
and development programs.
Goodwill amortization increased to $1.3 million in fiscal 1995 from
$749,000 in fiscal 1994. The increase in the goodwill amortization charge
relates primarily to the amortization of goodwill recorded in connection with
the acquisition of the synthesis products business from Millipore offset by the
reduction in amortization due to the
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write-off of excess purchase price to purchase research and development in the
fourth quarter of 1994 in connection with the acquisition of Vestec Corporation.
See Note 16 of Notes to the Consolidated Financial Statements.
The significant increase in interest expense during fiscal 1995 is
primarily due to the issuance of $27.2 million of 8-1/4% convertible
subordinated notes in August 1994.
Other income (expense) for fiscal 1995 reflected income of approximately
$196,000 versus expense of $756,000 in fiscal 1994. The change is primarily due
to the reversal of previously recorded unrealized losses of $540,000 on the
Company's investment portfolio which were recorded during fiscal 1994. In
connection with the adoption of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), the recovery of these unrealized losses was recorded as other income.
The Company did not record a net provision for income taxes during fiscal
1995. Provision for income taxes for fiscal 1994 amounted to $366,000 and
represented taxes payable by certain subsidiaries which operated in foreign tax
jurisdictions which were acquired with the acquisition of the synthesis products
business. During fiscal 1995, the Company offset its current tax obligations
with certain deferred tax benefits residing in corresponding tax jurisdictions.
Accretion of redeemable preferred stock to its redemption value amounted to
$2.7 million during fiscal 1995 as compared to $221,000 for fiscal 1994. This
accretion charge represents the amortization of the difference between the face
value of the preferred stock issued to Millipore in connection with the
Company's August 1994 acquisition of the synthesis products business and its
estimated fair value at the date of issuance using the interest method. The
increase is due to a full year of accretion in fiscal 1995.
Liquidity and Capital Resources
From inception through the end of fiscal 1996, the Company has met its
funding needs primarily through private placements of equity and debt
securities, public offerings of Common Stock and to a lesser extent through
various other types of borrowing and financing arrangements. Management intends
to pursue various funding alternatives in order to obtain adequate capital to
fund the operating and capital needs of the Company. These alternatives include
but are not limited to the generation of cash through managed reductions in the
Company's working capital investment; bank financings; cash generation through
the establishment of strategic partnerships, alliances and technology license
arrangements; and the sale of securities through private placements or public
offerings of debt and/or equity securities. There can be no assurance however,
that management will be able to obtain adequate future funding sources on
acceptable terms, if at all.
At September 30, 1996, the Company had available cash and cash equivalents,
and short-term investments totaling $24.6 million as compared with cash and cash
equivalents and short-term investments totaling $23.8 million as of September
30, 1995. During the year the Company obtained infusions of cash from several
sources including $11.8 million through the acquisition of PTC-II, $18.3 million
in proceeds (before expenses) resulting principally from the sale of Common
Stock through a private placement and approximately $1.1 million in net proceeds
from various borrowing arrangements which were established during fiscal 1995.
On a net basis the Company consumed approximately $30.4 million of cash during
fiscal 1996. The principal uses of cash during fiscal 1996 were to: fund cash
operating losses of $5.6 million; to fund working capital changes of $14.1
million resulting principally from the reduction of various accrued and other
liabilities; to fund capital expenditures of $10.7 million related primarily to
the completion of the synthesis plant in Hamburg, Germany, finalization of the
construction of the POROS manufacturing facility in Cambridge, Massachusetts,
and the establishment of a distribution facility in Framingham, Massachusetts;
and to fund various other miscellaneous investments.
The Company's net accounts receivable declined to $16.1 million at
September 30, 1996 from $17.9 million as of September 30, 1995. This decline
occurred from management's efforts to control the quality of
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receivables and enhanced collection efforts. The average days sales outstanding
has been reduced to 75 days as of September 30, 1996 from 84 days as of
September 30, 1995.
The Company's net inventory declined to $21.1 million at September 30, 1996
from $22.9 million at September 30, 1995. The net $1.8 million reduction in
inventory reflects an increase in gross inventories of approximately $2.6
million, offset by an increase in inventory reserves of a net $4.4 million
during the year. The reserves established during fiscal 1996 were associated
with provisions recorded to eliminate identified inventory exposures that
resulted from the Company's fiscal 1996 product realignment initiatives and new
product introductions. Management intends to continue its focus on improving
relative inventory levels during fiscal 1997 and to take aggressive actions to
sell slow moving inventories.
During fiscal 1996, the Company completed several significant capital
projects that were commenced during fiscal 1995, including the synthesis
manufacturing facility in Hamburg, Germany, and the POROS manufacturing facility
in Cambridge, Massachusetts. No significant capital projects are planned for
fiscal 1997.
On August 22, 1994, the Company acquired the Synthesis product business
from Millipore Corporation ("Millipore"). Under the acquisition agreement, the
Company paid Millipore $1.1 million in cash, assumed certain liabilities of the
business and issued Millipore 4,000 shares of a newly created non-voting
redeemable convertible preferred stock. The preferred stock is redeemable in
four equal installments on each of the first four anniversaries of the closing
of the acquisition in $10 million installments payable at the Company's option
in cash or Common Stock. In August 1996, the Company issued 1,248,050 shares of
Common Stock to Millipore in satisfaction of the second of four annual
installments related to the preferred stock issued in connection with this
acquisition. In August 1995, the Company issued 912,199 shares of Common Stock
to Millipore in satisfaction of the first annual installment. Management's
intent is to satisfy the remaining future annual installments under this
preferred stock arrangement as they become due through the issuance of Common
Stock. As a result of the action taken during fiscal 1995 and management's
continued intent to satisfy future installments with Common Stock, the remaining
fair value of this outstanding security has been reflected as a component of the
Company's equity beginning in September 1995.
In March 1996, PTC-II merged with a wholly owned subsidiary of the Company
following the completion of an exchange offer through which the approximately
2.6 million shares of PTC-II units where exchanged for 2.6 million shares of the
Company's Common Stock and 2.6 million new Class I Warrants to purchase the
Company's Common Stock exercisable until August 8, 1997 at an exercise price per
share of $13.50. The total value of the securities issued in the exchange offer
was approximately $16 million based on the market value of the Company's Common
Stock on March 8, 1996. The transaction has been accounted for as a purchase and
the Company has recorded an in-process research and development charge of
approximately $6.8 million that represents the value of acquired technologies
which have not reached commercialization. Upon consummation of this
transaction, the Company obtained approximately $11.8 million in cash and short-
term investments held by PTC-II as of the effective date.
Although management intends to pursue additional commercialization
opportunities and alliances in order to obtain value from the technology
acquired from PTC-II, the Company continues to evaluate the scope and direction
of various programs. There can be no assurance that funding sources and/or
third party arrangements will be obtained or established to defray the cost of
research and development or that any of these acquired technologies will
ultimately be successfully commercialized.
In June 1996, the Company entered into a transaction with ChemGenics in
which the Company transferred certain assets and employees of the Company's drug
discovery program to ChemGenics and granted a non-exclusive license to
ChemGenics to use the Company's technology (including technology developed
through PTC-II) in the field of drug discovery in exchange for shares of
ChemGenics Common Stock and warrants to purchase additional shares of ChemGenics
Common Stock exercisable until June 28, 2000. The warrants are exercisable at
$5.00 per share ($13.25 per share after a proposed 2.65-for-1 reverse stock
split). The Company is subject to certain contractual restrictions on the sale
or distribution of its holdings of ChemGenics Common Stock. In
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December 1996, the Company and ChemGenics executed amendments to their
agreements pursuant to which the Company exchanged a portion of its ChemGenics
Common Stock for a promissory note for $3 million payable on the earlier of the
closing of ChemGenics' initial public offering or December 31, 2002. The Company
currently holds approximately 34% of the outstanding capital stock of
ChemGenics, and warrants which, if exercised, would increase the Company's
holdings to approximately 47% (of which warrants sufficient to increase the
Company's holdings to approximately 40% are currently exercisable). On December
19, 1996, ChemGenics announced that it had filed a registration statement with
the SEC for the initial public offering of ChemGenics Common Stock.
The ChemGenics transaction was accounted for under the equity method. The
book value of the assets transferred was not significant. The transaction will
combine the Company's proprietary technology in the field of drug discovery with
ChemGenics' gene technologies. The Company does not expect to recognize any
significant impact from this transaction in its results of operations or cash
flows in the near term with the exception of the potential payment of the
promissory note described above.
In August 1996, the Company completed a private placement under Regulation
D of the Securities Act of 1933, as amended, of 2,579,286 shares of Common Stock
at $7.00 per share. The Company received net proceeds of approximately $17
million, after estimated fees and expenses related to the transaction. The
Company intends to use the net proceeds of the private placement for working
capital and other general corporate purposes. The Company has filed a
registration statement on Form S-3 with the SEC covering the resale of the
shares sold in the private placement which statement became effective on
September 13, 1996.
At September 30, 1996, the Company had net operating loss carry forwards of
approximately $ 66 million for tax purposes. The net operating losses expire
through 2011. In addition, the Company has research and tax development credit
carryforwards which expire through 2011 of approximately $863,000. See Note 7
of Notes to the Consolidated Financial Statements.
The Company believes that its capital resources are sufficient to fund its
operations through the end of fiscal 1997. The Company believes that additional
financing will be required for the development of some of its currently planned
product introductions and to support the Company's future operations and revenue
growth. The Company's future working capital and capital requirements will
depend on numerous factors, including the progress of the Company's research and
development of new products, the level of resources that the Company devotes to
the development of manufacturing and marketing capabilities, the consistency of
cash collections, the ability to reduce working capital investment levels, the
success of cost containment initiatives, the competitive environment and the
growth in the Company's business, any of which factors may cause the Company's
actual future capital resources and needs to differ materially, notwithstanding
the forward looking statement in the first sentence of this paragraph. The
Company believes that the level of financial resources available to it is an
important competitive factor. The Company is actively seeking to raise
additional capital through various initiatives, including through an equity or
debt financing in the near future and/or corporate partnering arrangements.
There can be no assurance, however, that the Company will be able to
successfully raise additional capital at acceptable terms, and any failure to do
so could have adverse consequences on planned future product introductions and
the Company's growth and operations. In the event that additional financing is
not obtained, the Company is committed to take actions to significantly reduce
its cost structure in the future.
Certain Factors That May Affect Future Results
Additional Financing Requirements. The Company believes additional long-
term financing will be required for the development of some of its currently
planned product introductions and to support its planned operations and capital
expenditures in its core business relating to the purification, analysis and
synthesis of biomolecules. The Company is actively seeking to raise additional
capital through equity or debt financing or to enter into corporate partnering
arrangements; however, there can be no assurances that this funding will be made
available or that terms acceptable to the Company will be reached.
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Potential Fluctuations in Operating Results. The Company's operating
results may vary significantly from quarter to quarter or year to year,
depending on factors such as the timing of biopharmaceutical development and
commercialization programs of the Company's customers, the timing of increased
research and development and sales and marketing expenses, the timing and size
of orders, the introduction of new products by the Company and the capital
resources of the Company's customers. The Company's current and planned expense
levels are based in part on its expectations as to future revenue. Consequently,
revenue or profits may vary significantly from quarter to quarter or year to
year and revenue or profits in any period will not necessarily be predictive of
results in subsequent periods.
Uncertainties Associated With Future Performance. The Company expects to
continue to improve operating results in future periods; however, there can be
no assurance that the Company will achieve or maintain profitability or that its
revenue growth can be sustained in the future. The Company's success in the
market for biopharmaceutical purification, analysis and synthesis products will
depend, in part, on attracting and maintaining key employees, continued
development of foreign sales operations, successful integration of recent
acquisitions, continued support from current customers, development of new
customers and successful enforcement of the Company's patent rights. See "Legal
Proceedings" and Note 14 of Notes to the Consolidated Financial Statements.
Need to Integrate Acquisitions. In recent years, the Company has made
several acquisitions that have increased the number of the Company's employees
or the scope of its business, or both. The Company may make additional
acquisitions in the future. The success of these acquisitions will depend on a
number of factors, including the ability of the Company's management to
integrate the administrative, manufacturing and sales operations of the acquired
businesses with those of the Company, to retain key personnel of the acquired
businesses, to reduce costs and to preserve and expand the sales of the products
of the acquired businesses. There can be no assurance that the Company will be
able to successfully operate acquired businesses or that the Company will not
experience losses as a result of these acquisitions. With respect to the
acquisition of PTC-II, the success of the combined businesses will depend, in
part, on the continued availability of funding sources for the research and
development projects. The Company has licensed the technology developed through
PTC-II to ChemGenics for drug discovery purposes. See "Business--Business
Development--ChemGenics" and Note 16 of Notes to the Consolidated Financial
Statements. If other research and development programs formerly funded by PTC-II
are continued by the Company, they will be required to be funded in total by the
Company and it will be required to rely on its own resources or seek alternative
sources of capital and/or collaborative funding. There is no assurance that
sufficient sources of capital and other funding will be available to the Company
in the near term or long term to fund all the Company's current research and
development programs and those acquired from PTC-II.
Uncertainties Associated with Expansion of Marketing and Manufacturing
Operations. The Company intends to continue expanding its sales and marketing
efforts in the United States and other countries. The Company's ability to
accomplish this objective is dependent on many factors, including, among others:
attracting and retaining a significant number of additional sales and marketing
professionals; expanding foreign sales operations; and developing distributor
relationships in certain markets. This continued expansion will involve
significant additional expense and the risks inherent in integrating new sales
and marketing personnel into the Company's existing organization. Increasing
sales may also require expansion of the Company's manufacturing capabilities for
the Biospectrometry product line, which would require significant capital
expenditures and management attention. There can be no assurance that the
Company will be able to accomplish its sales, marketing and manufacturing
objectives.
Potential Costs Associated with Patent Litigation. Patent litigation is
widespread in the biotechnology industry and, in general, it is not possible to
predict how any such litigation would affect the Company's business. The
Company has sued two competitors for infringement of Company patents relating to
Perfusion Chromatography. The defendants in that suit are seeking to have these
patents declared invalid and have asserted counterclaims against the Company.
The Company may incur substantial additional expenses relating to this and
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other proceedings. There can be no assurance that the outcome of the litigation
will not have a material adverse effect on the Company. See "Legal Proceedings."
Patent and License Uncertainties. Proprietary rights relating to the
Company's products will be protected from unauthorized use by third parties only
to the extent that they are covered by valid and enforceable patents or are
maintained in confidence as trade secrets. There can be no assurance that any
pending patent applications filed by the Company will result in patents being
issued or that any patents now or hereafter owned by the Company will afford
protection against competitors. In the absence of patent protection, the
Company's business may be adversely affected by competitors that independently
develop functionally equivalent technology. The Company has established a
policy of vigorously enforcing its patent rights. See "Legal Proceedings" and
Note 14 of Notes to the Consolidated Financial Statements. If the Company
participates in interference or other proceedings under the jurisdiction of the
U.S. Patent and Trademark Office, such proceedings could result in substantial
costs to the Company. Competitors, including those with substantially greater
resources than those of the Company, may initiate litigation to challenge the
validity of the Company's patents. Others may use their resources to design
comparable products that do not infringe the Company's patents. There may also
be pending or issued patents, of which the Company is not aware, held by parties
not affiliated with the Company that relate to the Company's products or
technology. The Company may need to acquire licenses to, or contest the
validity of, any such patents. It is likely that significant funds would be
required to contest the validity of any such patents. There can be no assurance
that any license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
Pending Governmental Investigation. Since November 1994, the SEC has been
conducting an investigation into certain financial matters of the Company. If,
after completion of its investigation, the SEC finds that violations of the
federal securities laws have occurred, the SEC has the authority to order
persons to cease and desist from committing or causing such violations and any
future violations. The SEC may also seek administrative, civil and criminal
fines and penalties and injunctive relief. The Department of Justice has the
authority in respect of criminal matters. The Company has been cooperating
fully with the investigation. There can be no assurance as to the timeliness of
the completion of this investigation or as to the final result thereof, and no
assurance can be given that the final result of the investigation will not have
a material adverse effect on the Company. See "Legal Proceedings."
Intense Competition and Risk of Technological Obsolescence. The Company
encounters, and expects to continue to encounter, intense competition in the
sale of its current and future products. There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or non-competitive. Many of the Company's competitors and potential
competitors have substantially greater resources, manufacturing and marketing
capabilities, research and development staff and production facilities than
those of the Company.
38
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the financial
statements included elsewhere in this Annual Report on Form 10-K.
Consolidated Financial Statements.
Report of Independent Accountants.
Report of Independent Accountants.
Consolidated Balance Sheets at September 30, 1996 and 1995.
Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the years
ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994.
Notes to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the SEC not later than
120 days after the close of the Company's fiscal year ended September 30, 1996,
under the heading "Election of Directors."
Executive Officers
The information concerning executive officers of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the SEC not later than
120 days after the close of the Company's fiscal year ended September 30, 1996,
under the heading "Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the SEC not later than 120 days after the close of the
Company's fiscal year ended September 30, 1996, under the heading "Compensation
and Other Information Concerning Directors and Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the SEC not later than 120 days after the close of the
Company's fiscal year ended September 30, 1996, under the headings "Securities
Ownership of Management" and "Election of Directors."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the SEC within 120 days after the close of the Company's
fiscal year ended September 30, 1996, under the headings "Securities Ownership
of Management" and "Election of Directors."
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Consolidated Financial Statements.
For the following financial information included herein, see Index
on page F-1:
Report of Independent Accountants.
Report of Independent Accountants.
Consolidated Balance Sheets at September 30, 1996 and 1995.
Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the three years
ended September 30, 1996, 1995 and 1994.
Notes to the Consolidated Financial Statements.
2. Financial Statement Schedules.
For the following financial information included herein, see Index
on page F-1:
II - Valuation and Qualifying Accounts.
All other schedules are omitted because
they are not applicable, not required or
because the information is included in the
Consolidated Financial Statements or Notes
to the Consolidated Financial Statements.
3. List of Exhibits.
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Reorganization dated as of
October 8, 1993 by and among the Company, PV Merger
Corporation and Vestec Corporation, as amended (filed
as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated October 8, 1993, as amended and
incorporated herein by reference).
2.2 Agreement and Plan of Merger by and among the
Company, PV Merger Corporation and Vestec Corporation
(filed as Exhibit 2.2 to the Company's Current Report
on Form 8-K dated October 8, 1993, as amended and
incorporated herein by reference).
41
<PAGE>
2.3 Escrow and Exchange Agreement by and among the
Company, Vestec Corporation, Marvin L. Vestal as the
representative of the stockholders of Vestec,
American Stock Transfer & Trust Company and the
stockholders of Vestec Corporation whose names appear
on the signature pages thereto (filed as Exhibit 2.3
to the Company's Current Report on Form 8-K dated
October 8, 1993, as amended and incorporated herein
by reference).
2.4 Registration Rights Agreement by and among the
Company, PV Merger Corporation and Vestec Corporation
(filed as Exhibit 2.4 to the Company's Current Report
on Form 8-K dated October 8, 1993, as amended and
incorporated herein by reference).
2.5 Asset Purchase Agreement dated as of October 15, 1993
by and between the Company and Advanced Magnetics,
Inc. (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated October 15, 1993, as amended
and incorporated herein by reference).
2.6 Asset Purchase and Sale Agreement dated as of July
14, 1994 by and among the Company, Millipore
Corporation and Millipore Investment Holdings Limited
(filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K dated August 22, 1994, as amended and
incorporated herein by reference).
2.7 Registration Rights Agreement by and among the
Company, Millipore Corporation and Millipore
Investment Holdings Limited dated August 22, 1994
(filed as Exhibit 2.3 to the Company's Current Report
on Form 8-K dated August 22, 1994, as amended and
incorporated herein by reference).
2.8 Registration Rights Agreement by and among the
Company, Alex. Brown & Sons Incorporated and Lehman
Brothers Inc. dated August 26, 1994 (filed as Exhibit
4.2 to the Company's Registration Statement No.
33-74600 on Form S-3 and incorporated herein by
reference).
2.9 Agreement and Plan of Merger, dated as of November 1,
1995 among the Company, PerSeptive Acquisition
Corporation and PerSeptive Technologies II
Corporation (filed as Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended
September 30, 1995 and incorporated herein by
reference).
2.10 Amendment No. 1 to Agreement and Plan of Merger,
dated January 29, 1996 among the Company, PerSeptive
Acquisition Corporation and PerSeptive Technologies
II Corporation (filed as Exhibit 2.1 to the Company's
Registration Statement No. 333-1016 on Form S-4 and
incorporated herein by reference).
42
<PAGE>
3.1 Amended and Restated Certificate of Incorporation of
the Company (filed as Exhibit 3.2, 4.2 to the
Company's Registration Statement No. 33-46871 on
Form S-1 and incorporated herein by reference).
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company (filed as Exhibit 4.1 to
the Company's Registration Statement No. 33-80856 on
Form S-8 and incorporated herein by reference).
3.3 Amended and Restated By-Laws of the Company (filed as
Exhibit 3.4, 4.4 to the Company's Registration
Statement No. 33-46871 on Form S-1 and incorporated
herein by reference).
3.4 Certificate of Designations for the Series A
Redeemable Convertible Preferred Stock filed with the
Secretary of State of the State of Delaware on August
19, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 22, 1994, as
amended, and incorporated herein by reference).
3.5 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Company filed
with the Secretary of State of the State of Delaware
on May 8, 1995 (filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
June 30, 1995 and incorporated herein by reference).
3.6 Certificate of Designations for the Series B Junior
Participating Preferred Stock filed with the
Secretary of State of the State of Delaware on March
2, 1995 (exhibit to Exhibit 4.9) (filed as Exhibit
3.6 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1995 and incorporated
herein by reference).
3.7 Amended Certificate of Designation for the Series B
Junior Participating Preferred Stock filed with the
Secretary of State of the State of Delaware on
October 24, 1995 (filed as Exhibit 3.7 to the
Company's Annual Report on Form 10-K for the year
ended September 30, 1995 and incorporated herein by
reference).
4.1 Description of Capital Stock contained in the
Company's Amended and Restated Certificate of
Incorporation, as amended, filed as Exhibits 3.1
through 3.7 hereto.
4.2 Form of Class A Warrants for the purchase of the
Company's Common Stock dated as of December 23, 1992
issued to the stockholders of PTC-I (filed as Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q
for the three-month period ended March 31, 1993 and
incorporated herein by reference).
43
<PAGE>
4.3 Form of Class C Warrants for the purchase of the
Company's Common Stock dated as of March 15, 1993
issued to the stockholders of PerIsis II (filed as
Exhibit 4.3 to the Company's Report on Form 10-Q for
the three-month period ended March 31, 1993 and
incorporated herein by reference).
4.4 Warrant Agreement relating to the issuance of Class E
Warrants of the Company dated as of December 29,
1993, as executed (supersedes Exhibit 4.7 to
Amendment No. 1 to the Company's Registration
Statement Nos. 33-71812, 33-71814 on Form S-1/S-3)
(filed as Exhibit 4.2 to the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended
March 31, 1994 and incorporated herein by reference).
4.5 Specimen Class E Warrant Certificate (filed as
Exhibit 4.3 to Amendment No. 1 to the Company's
Registration Statement Nos. 33-71812, 33-71814 on
Form S-1/S-3 and incorporated herein by reference).
4.6 Specimen Unit Certificate (filed as Exhibit 4.1 to
Amendment No. 1 to the Company's Registration
Statement Nos. 33-71812, 33-71814 on Form S-1/S-3 and
incorporated herein by reference).
4.7 Indenture dated as of August 26, 1994 between the
Company and State Street Bank and Trust Company, as
Trustee (filed as Exhibit 4.9 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1994 and incorporated herein by reference).
4.8 Rights Agreement, dated as of March 1, 1995, between
the Company and American Stock Transfer & Trust
Company, (filed as Exhibit 4 to the Company's Current
Report on Form 8-K dated as of February 23, 1995 and
incorporated herein by reference).
4.9 Warrant Purchase Agreement relating to the issuance
of Class F Warrants (filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1995 and incorporated herein
by reference).
4.10 Form of Class F Warrant (filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1995 and incorporated herein
by reference).
4.11 Warrant Agreement dated as of September 11, 1995
between the Company and American Stock Transfer &
Trust Company relating to the Class G Warrants (filed
as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated as of September 11, 1995 and
incorporated herein by reference).
4.12 Specimen of Class G Warrant Certificate (filed as
Exhibit 4.2 to the Company's Current Report on Form
8-K dated as of September 11, 1995 and incorporated
herein by reference).
44
<PAGE>
4.13 Form of Amendment to Class C Warrants (filed as
Exhibit 4.15 to the Company's Annual Report on Form
10-K for the year ended September 30, 1995 and
incorporated herein by reference).
4.14 Class H Warrant dated as of September 1, 1995 (filed
as Exhibit 4.19 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 and
incorporated herein by reference).
4.15 Amendment No. 1, dated as of September 27, 1995, to
the Rights Agreement, dated as of March 1, 1995,
between the Company and American Stock Transfer &
Trust Company (filed as Exhibit 4.20 to the Company's
Annual Report on Form 10-K for the year ended
September 30, 1995 and incorporated herein by
reference).
4.16 Form of Warrant Agreement between the Company and
American Stock Transfer & Trust Company relating to
the Company's Class I Warrants (filed as Exhibit 4.7
to the Company's Registration Statement No. 333-1016
on Form S-4 and incorporated herein by reference).
4.17 Specimen of Class I Warrant Certificate (filed as
Exhibit 4.8 to the Company's Registration Statement
No. 333-1016 on Form S-4 and incorporated herein by
reference).
10.1+ 1989 Stock Plan (filed as Exhibit 10.1 to the
Company's Registration Statement No. 33-46871 on
Form S-1 and incorporated herein by reference).
10.2+ 1992 Stock Plan of the Company, as amended on
February 8, 1996 (filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the
Quarterly Period ended March 31, 1996 and
incorporated herein by reference).
10.3+ 1992 Employee Stock Purchase Plan (filed as Exhibit
10.3 to the Company's Registration Statement No. 33-
46871 on Form S-1 and incorporated herein by
reference).
10.4+ 1992 Non-Employee Director Stock Option Plan, as
amended on March 11, 1996 (filed as Exhibit 4.2 to
the Company's Quarterly Report on Form 10-Q for the
Quarterly Period ended March 31, 1996 and
incorporated herein by reference).
10.5 Consulting Agreement with Dr. Fred E. Regnier dated
June 1, 1988 (filed as Exhibit 10.7 to the Company's
Registration Statement No. 33-46871 on Form S-1 and
incorporated herein by reference).
45
<PAGE>
10.6 License Agreement with Purdue Research Foundation
dated as of June 16, 1990 (filed as Exhibit 10.8 to
the Company's Registration Statement No. 33-46871 on
Form S-1 and incorporated herein by reference).
10.7 Sublease Agreement with the Massachusetts Institute
of Technology dated October 1, 1990 (filed as Exhibit
10.10 to the Company's Registration Statement No. 33-
46871 on Form S-1 and incorporated herein by
reference).
10.8 Form of Indemnity Agreement with directors and
officers (filed as Exhibit 10.15 to the Company's
Registration Statement No. 33-46871 on Form S-1 and
incorporated herein by reference).
10.9 Product License and Supply Agreement between
Millipore Corporation and the Company granting the
Company an exclusive worldwide royalty free license
within the Life Science market to use certain
patented technology to process membrane products and
to carry out certain processes useful to DNA
synthesis operations and providing for the supply of
membrane products (filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 and incorporated herein
by reference).
10.10 OEM Purchase and Supply Agreement between BioSearch,
Inc. and the Waters Chromatography Division of
Millipore Corporation with respect to the supply of
certain high performance liquid chromatography
components, machined parts and other materials to
BioSearch, Inc. (filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 and incorporated herein
by reference).
10.11 Assignment of Settlement Agreement between Millipore
Corporation, University Patents, Inc. and Applied
Biosystems, Inc. ("ABI") involving cross license of
certain patents, granting ABI a license under U.S.
Patent No. 4,725,677, "Process for the Preparation of
Oligonucleotides" and Millipore a license under U.S.
Patent Nos. 4,458,066 and 4,415,732 (filed as Exhibit
10.26 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994 and
incorporated herein by reference).
10.12 License Agreement dated January 23, 1991 between the
University of Minnesota and Millipore Corporation
granting Millipore an exclusive worldwide license to
make, use and sell products under U.S. Patent Nos.
5,235,028, 5,196,566 and 5,117,009 and related
pending applications covering support structures for
peptide synthesis operations (filed as Exhibit 10.27
to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 and incorporated
herein by reference).
46
<PAGE>
10.13 License Agreement dated January 1, 1988 between
Hoffman-La Roche Inc. and Millipore Corporation
granting Millipore a non-exclusive license to make,
use and sell so-called FMOC chemistries on laboratory
instruments (filed as Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 and incorporated herein by
reference).
10.14 License Agreement dated March 9, 1992 between
Novabiochem AG and Millipore Corporation granting
Millipore a non-exclusive license to make, use and
sell instruments for the monitoring of certain
peptide reactions related to the synthesis of
peptides (filed as Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 and incorporated herein by
reference).
10.15 License Agreement dated December 17, 1991 between Ole
Burkhardt, Peter E. Nielsen, Rolf H. Berg, Michael
Egholm and Millipore Corporation granting an
exclusive, worldwide license Danish Patent
Application No. 0986/91 "Oligonucleotide Analogs
Termed PNA" and corresponding international
counterparts (filed as Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 and incorporated herein by
reference).
10.16 Lease Agreement between the Company and the
Massachusetts Institute of Technology dated March 19,
1993 for space located at 12 Emily Street, Cambridge,
Massachusetts (filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 and incorporated herein
by reference).
10.17 Lease Agreement between the Company and 500 Old
Connecticut Path Limited Partnership for space
located at 500 Old Connecticut Path, Framingham,
Massachusetts (filed as Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 and incorporated herein
by reference).
10.18 Master Lease Agreement between the Company and
Hambrecht & Quist Guaranty Finance, L.P. dated March
31, 1995 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
March 31, 1995 and incorporated herein by reference).
10.19 Security Agreement between the Company and Hambrecht
& Quist Guaranty Finance, L.P. dated March 31, 1995
(filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31,
1995 and incorporated herein by reference).
47
<PAGE>
10.20 Stipulation and Compromise of Settlement dated as of
June 14, 1995 relating to the action entitled In re:
PerSeptive Biosystems, Inc. Securities Litigation,
Civ. Action No. 94-12575(PBS), brought in the U.S.
District Court for the District of Massachusetts
(filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated as of September 11, 1995 and
incorporated herein by reference).
10.21 Credit Agreements between the Company's subsidiary
PerSeptive Biosystems GmbH - Hamburg (formerly,
"BioSearch GmbH") IKB Deutsche Industriebank and
Dresdner Bank (filed as Exhibit 10.27 to Form 10K/A
Amendment No. 1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 and
incorporated herein by reference).
10.22 Master Agreement, dated as of May 7, 1996, between
the Company and ChemGenics Pharmaceuticals a d/b/a of
Myco Pharmaceuticals Inc. (filed as Exhibit 2 to the
Company's Current Report on Form 8-K dated as of
June 28, 1996 and incorporated herein by reference).
10.23* Omnibus Amendment Agreement dated December 18, 1996
between the Company and ChemGenics Pharmaceuticals,
Inc.
21* Subsidiaries of the Company.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Price Waterhouse LLP.
24 Power of Attorney (included in the signature page to
the Company's Annual Report on Form 10-K for the year
ended September 30, 1996).
--------------------------------
*Indicates exhibits filed herewith. All other exhibits have been
previously filed unless otherwise indicated.
+Indicates a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated August 16, 1996 reporting under
Item 5 (i) the completion of the Company's private placement of
2,579,286 shares of its Common Stock, and (ii) the issuance by the
Company of 1,248,050 shares of its Common Stock, to Millipore
Corporation in payment of the second $10 million installment due
upon redemption by Millipore Corporation of 1,000 shares of the
Company's Series A Redeemable Convertible Preferred Stock, $.01 par
value per share.
(c) Exhibits.
The Company hereby files as exhibits to this Annual Report on Form
10-K those exhibits listed in Item 14(a)(3), above and denoted with an
asterisk.
48
<PAGE>
(d) Financial Statement Schedules.
The Company hereby files as financial statement schedules to this
Annual Report on Form 10-K those financial statement schedules
listed in Item 14(a)(2), above, which are attached hereto.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the Town of
Framingham, Commonwealth of Massachusetts, on the 26th day of December, 1996.
PERSEPTIVE BIOSYSTEMS, INC.
By: /s/ Noubar B. Afeyan
----------------------------
Noubar B. Afeyan
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of the Registrant, hereby
severally constitute and appoint Noubar B. Afeyan, John F. Smith and Thomas G.
Ruane, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Annual Report on Form 10-K filed herewith and any and all
amendments to said Annual Report on Form 10-K, and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable the Company to comply with the provisions of the Securities
and Exchange Act of 1934, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Annual Report on Form
10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Noubar B. Afeyan Chief Executive Officer (Principal December 26, 1996
- ----------------------- Executive Officer), Director and
Noubar B. Afeyan Chairman of the Board of
Directors
/s/ John F. Smith President and Director December 26, 1996
- -----------------------
John F. Smith
/s/ Thomas G. Ruane Senior Vice President December 26, 1996
- ----------------------- and Chief Financial
Thomas G. Ruane Officer (Principal Financial
and Accounting Officer)
50
<PAGE>
/s/ Daniel I.C. Wang Director December 26, 1996
- ------------------------
Daniel I.C. Wang
/s/ Edwin M. Kania, Jr. Director December 26, 1996
- ------------------------
Edwin M. Kania, Jr.
/s/ William F. Pounds Director December 26, 1996
- ------------------------
William F. Pounds
/s/ Bruce J. Ryan Director December 26, 1996
- ------------------------
Bruce J. Ryan
51
<PAGE>
PERSEPTIVE BIOSYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants
------------------------------------------------------------------------------- F-2
Report of Independent Accountants
------------------------------------------------------------------------------- F-3
Consolidated Balance Sheets at September 30, 1996 and 1995
------------------------------------------------------ F-4
Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994
---------------------------------------------------------------------------- F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994
---------------------------------------------------------------------------- F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994
---------------------------------------------------------------------------- F-7
Notes to the Consolidated Financial Statements
------------------------------------------------------------------ F-8
Financial Statement Schedules:
Report of Independent Accountants
------------------------------------------------------------------------------- S-1
Report of Independent Accountants
------------------------------------------------------------------------------- S-2
II - Valuation and Qualifying Accounts
----------------------------------------------------------------------- S-3
</TABLE>
All other schedules are omitted because they are not applicable, not required or
because the information is included in the Consolidated Financial Statements or
Notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PerSeptive Biosystems, Inc.:
We have audited the accompanying consolidated balance sheets of PerSeptive
Biosystems, Inc. as of September 30, 1996 and 1995 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
two years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements of PerSeptive Biosystems, Inc. for the year
ended September 30, 1994 were audited by other independent accountants whose
report, dated December 28, 1994 except for Note 13, as to which the date is
August 11, 1995, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PerSeptive
Biosystems, Inc. as of September 30, 1996 and 1995 and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
November 20, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PerSeptive Biosystems, Inc.:
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended September 30, 1994
present fairly, in all material respects, the results of operations and cash
flows of PerSeptive Biosystems, Inc. and its subsidiaries for the year ended
September 30, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of PerSeptive
Biosystems, Inc. and its subsidiaries for any period subsequent to September 30,
1994.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 28, 1994, except for
Note 13, as to which the date
is August 11, 1995
F-3
<PAGE>
PerSeptive Biosystems, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- --------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $5,384 $12,215
Short-term investments, available-for-sale 19,273 11,601
Trade accounts receivable, net of allowance for doubtful accounts
of $2,386 and $1,690 at September 30, 1996 and 1995, respectively 16,052 17,865
Inventories, net 21,074 22,911
Other current assets 2,107 1,913
------------- --------------
Total current assets 63,890 66,505
Fixed assets, net 32,017 35,584
Patent and license costs, net 5,913 6,681
Goodwill, net 18,518 25,144
Other long-term assets 1,317 4,295
------------- --------------
Total assets $121,655 $138,209
============= ==============
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $9,292 $9,351
Accrued expenses 18,699 16,154
Advances from PerSeptive Technologies II Corporation 1,779
Current portion of deferred revenue 1,158 2,485
Short-term borrowing 5,032 3,943
Accrued purchase cost - 3,423
Current portion of obligations and other current liabilities 3,137 2,274
------------- --------------
Total current liabilities 37,318 39,409
Long-term liabilities:
Convertible subordinated notes 27,230 27,230
Long-term debt 5,574 3,170
Capital lease obligations, less current portion 361 2,159
Deferred revenue and other liabilities 887 1,134
------------- --------------
Total long-term liabilities 34,052 33,693
Commitments & contingencies (Note 12)
Stockholders' equity:
Redeemable convertible preferred stock, $10 par value; 4000 shares
authorized; 2,000 and 3,000 shares issued and outstanding at
September 30, 1996 and 1995, respectively; redemption value
$20,000 and $30,000 at September 30, 1996 and 1995, respectively 18,053 25,992
Common stock, $.01 par value; 100,000,000 shares authorized;
21,315,456 and 13,909,764 shares issued and outstanding
at September 30, 1996 and 1995, respectively 213 140
Additional paid-in capital 158,556 111,372
Accumulated deficit (125,094) (72,566)
------------- --------------
51,728 64,938
Cumulative translation adjustment (1,373) 225
Unrealized loss on investments (70) -
Deferred compensation (56)
------------- --------------
Total stockholders' equity 50,285 65,107
------------- --------------
Total liabilities and stockholders' equity $121,655 $138,209
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
PerSeptive Biosystems, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------------
1996 1995 1994
-------------------- --------------------- --------------------
<S> <C> <C> <C>
Revenue:
Product revenue $75,916 $69,430 $30,707
Contract revenue 10,102 19,999 15,348
-------------------- --------------------- --------------------
86,018 89,429 46,055
-------------------- --------------------- --------------------
Cost of goods sold:
Cost of product revenue 37,813 33,169 15,524
Cost of contract revenue 8,571 16,968 13,009
Other charges 9,906
-------------------- --------------------- --------------------
56,290 50,137 28,533
-------------------- --------------------- --------------------
Gross profit 29,728 39,292 17,522
Operating expenses:
Research and development 11,342 6,999 6,828
Selling, general and administrative 39,518 32,771 27,757
Other charges 24,239 15,459 14,681
Amortization 2,158 3,080 2,209
-------------------- --------------------- --------------------
77,257 58,309 51,475
-------------------- --------------------- --------------------
Loss from operations (47,529) (19,017) (33,953)
-------------------- --------------------- --------------------
Other income (expense):
Interest income $482 $1,209 1,316
Interest expense (3,473) (2,958) (253)
Other income (expense), net 53 196 (756)
-------------------- --------------------- --------------------
Loss before provision for income taxes (50,467) (20,570) (33,646)
Provision for income taxes - - (366)
-------------------- --------------------- --------------------
Net loss ($50,467) ($20,570) ($34,012)
==================== ===================== ====================
Net loss per common share ($3.22) ($1.88) ($2.88)
==================== ===================== ====================
Weighted average common shares outstanding 16,296 12,340 11,903
==================== ===================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PerSeptive Biosystems, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the Three Years in the Period Ended September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Redeemable
Convertible
Preferred Stock Common Stock
Shares Par Value Shares Par Value
----------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 - $0 11,242 $112
Issuance of common stock pursuant to the purchase of the
assets of the In Vitro Clinical Diagnostics Division of
Advanced Magnetics, Inc. 152 2
Issuance of common stock pursuant to the
acquisition of Vestec Corporation 203 2
Issuance of common stock pursuant to the
acquisition of PTC 356 3
Issuance of warrants in exchange for options to purchase
research and development technology of PTC II
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 144 1
Accretion on redeemable convertible preferred stock
Amortization of deferred compensation
Net loss
----------- -------------- ------------- -------------
Balance at September 30, 1994 - - 12,097 120
Modification of warrants in connection with the
acquisition of Perlsis II
Issuance of warrants pursuant to shareholder
litigation settlement
Issuance of common stock pursuant to shareholder
litigation settlement 494 5
Reclassification of redeemable preferred stock pursuant
to the acquisition of the synthesis products business 3,000 25,709
Conversion of preferred stock into common stock 912 9
Sale of common stock pursuant to stock
purchase agreement 158 2
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 249 4
Accretion on redeemable convertible preferred stock 283
Cumulative translation adjustment
Amortization of deferred compensation
Net loss
----------- -------------- ------------- -------------
Balance at September 30, 1995 3,000 25,992 13,910 140
Issuance of contengent consideration relating to the
acquisition of AMI 373 4
Issuance of common stock pursuant to the
acquisition of PTC II 2,640 26
Issuance of common stock, through a private placement,
net of issuance costs 2,579 26
Conversion of warrants into common stock 331 3
Conversion of preferred stock into common stock (1,000) (10,000) 1,248 12
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 235 2
Accretion on redeemable convertible preferred stock 2,061
Cumulative translation adjustment
Unrealized loss on investments
Amortization of deferred compensation
Net loss
----------- -------------- ------------- -------------
Balance at September 30, 1996 2,000 $18,053 21,316 $213
=========== ============== ============= =============
<CAPTION>
Additional Cumulative
Paid-in Accumulated Translation
Capital Deficit Adjustment
--------------- ---------------- --------------
<S> <C> <C> <C>
Balance at September 30, 1993 $65,939 ($15,113) $0
Issuance of common stock pursuant to the purchase of the
assets of the In Vitro Clinical Diagnostics Division of
Advanced Magnetics, Inc. 4,155
Issuance of common stock pursuant to the
acquisition of Vestec Corporation 3,724
Issuance of common stock pursuant to the
acquisition of PTC 9,097
Issuance of warrants in exchange for options to purchase
research and development technology of PTC II 5,290
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 1,538
Accretion on redeemable convertible preferred stock (221)
Amortization of deferred compensation
Net loss (34,012)
--------------- ---------------- --------------
Balance at September 30, 1994 89,743 (49,346) -
Modification of warrants in connection with the
acquisition of Perlsis II 1,870
Issuance of warrants pursuant to shareholder
litigation settlement 2,000
Issuance of common stock pursuant to shareholder
litigation settlement 5,071
Reclassification of redeemable preferred stock pursuant
to the acquisition of the synthesis products business
Conversion of preferred stock into common stock 9,991
Sale of common stock pursuant to stock
purchase agreement 1,998
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 699
Accretion on redeemable convertible preferred stock (2,650)
Cumulative translation adjustment 225
Amortization of deferred compensation
Net loss (20,570)
--------------- ---------------- --------------
Balance at September 30, 1995 111,372 (72,566) 225
Issuance of contengent consideration relating to the
acquisition of AMI 3,461
Issuance of common stock pursuant to the
acquisition of PTC II 15,534
Issuance of common stock, through a private placement,
net of issuance costs 16,822
Conversion of warrants into common stock
Conversion of preferred stock into common stock 9,988
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 1,379
Accretion on redeemable convertible preferred stock (2,061)
Cumulative translation adjustment (1,598)
Unrealized loss on investments
Amortization of deferred compensation
Net loss (50,467)
--------------- ---------------- --------------
Balance at September 30, 1996 $158,556 ($125,094) ($1,373)
=============== ================ ==============
<CAPTION>
Unrealized
Loss on Deferred Total
Investments Compensation Equity
--------------- ----------------- ------------
<S> <C> <C> <C>
Balance at September 30, 1993 $0 ($280) $50,658
Issuance of common stock pursuant to the purchase of the
assets of the In Vitro Clinical Diagnostics Division of
Advanced Magnetics, Inc. 4,157
Issuance of common stock pursuant to the
acquisition of Vestec Corporation 3,726
Issuance of common stock pursuant to the
acquisition of PTC 9,100
Issuance of warrants in exchange for options to purchase
research and development technology of PTC II 5,290
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 1,539
Accretion on redeemable convertible preferred stock (221)
Amortization of deferred compensation 112 112
Net loss (34,012)
--------------- ----------------- ------------
Balance at September 30, 1994 - (168) 40,349
Modification of warrants in connection with the
acquisition of Perlsis II 1,870
Issuance of warrants pursuant to shareholder
litigation settlement 2,000
Issuance of common stock pursuant to shareholder
litigation settlement 5,076
Reclassification of redeemable preferred stock pursuant
to the acquisition of the synthesis products business 25,709
Conversion of preferred stock into common stock 10,000
Sale of common stock pursuant to stock
purchase agreement 2,000
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 703
Accretion on redeemable convertible preferred stock (2,367)
Cumulative translation adjustment 225
Amortization of deferred compensation 112 112
Net loss (20,570)
--------------- ----------------- ------------
Balance at September 30, 1995 - (56) 65,107
Issuance of contengent consideration relating to the
acquisition of AMI 3,465
Issuance of common stock pursuant to the
acquisition of PTC II 15,560
Issuance of common stock, through a private placement,
net of issuance costs 16,848
Conversion of warrants into common stock 3
Conversion of preferred stock into common stock -
Sale of common stock pursuant to employee stock
purchase plan and exercise of stock options and warrants 1,381
Accretion on redeemable convertible preferred stock -
Cumulative translation adjustment (1,598)
Unrealized loss on investments (70) (70)
Amortization of deferred compensation 56 56
Net loss (50,467)
--------------- ----------------- ----------
Balance at September 30, 1996 ($70) $0 $50,285
=============== ================= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PerSeptive Biosystems, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------
1996 1995 1994
-------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 50,467) ($ 20,570) ($ 34,012)
Adjustments to reconcile net loss to net cash
used in operating activities, net of acquired amounts:
Net (gain) loss on securities available-for-sale 6 (537) 756
Depreciation and amortization 10,530 11,009 5,514
Bad debt expense 1,275 438 1,578
Non-cash portion of other charges 33,073 8,946 14,681
Changes in assets and liabilities:
Increase in accounts receivable 220 (6,589) (9,447)
Decrease (increase) in inventories (5,263) 3,059 (11,429)
Increase in other current assets (194)
Decrease (increase) in other assets 582 (651) 1,597
Increase (decrease) in accounts payable (59) (2,979) 4,950
Increase (decrease) in accrued expenses (6,935) 2,592 12,284
Increase (decrease) in other liabilities (2,488) 571 -
-------------- ---------------- ----------------
Net cash used in operating activities (19,720) (4,711) (13,528)
-------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of fixed assets, net (10,725) (21,328) (12,076)
Cash and securities available-for-sale acquired from PTC II 11,851
Cash acquired from PTC 2,238
Purchase of securities available-for-sale (88,498) (53,156) (49,563)
Proceeds from sale and maturities of securities available-for-sale 80,750 72,152 50,378
Cash paid to retire debt of Vestec at acquisition date (1,621)
Cash paid for acquisition of Biosearch, net of cash acquired (588)
Increase in patents and licenses (27) (1,442) (467)
-------------- ---------------- ----------------
Net cash used in investing activities (6,649) (3,774) (11,699)
-------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from capital lease financing 373 5,000
Principal payments under capital lease obligations (2,173) (687) (281)
Net proceeds from facility financing 2,404 3,170
Payment of finance costs (225) (254) (1,253)
Net proceeds from short-term borrowing 1,089 3,943
Proceeds from issuance of convertible subordinated note,
net of issuance costs 27,230
Proceeds from issuance of common stock 18,298 2,706 1,539
-------------- ---------------- ----------------
Net cash provided by financing activities 19,766 13,878 27,235
-------------- ---------------- ----------------
Effect of exchange rate changes on cash and cash equivalents (228) 222 -
-------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents (6,831) 5,615 2,008
Cash and cash equivalents at beginning of year 12,215 6,600 4,592
-------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 5,384 $ 12,215 $ 6,600
============== ================ ================
Supplemental disclosure of cash flow information:
Interest paid $ 3,259 $ 2,634 $ 59
Supplemental disclosure of non-cash activities:
Accretion of Series A Preferred Stock $ 2,061 $ 2,650 $ 221
Issuance of stock in exchange for redemption of Series A Preferred Stock 10,000 10,000
Stock and warrants issued in connection with acquisition of PTC II,
net of warrants exchanged 15,592
Issuance of stock and warrants pursuant to shareholder litigation settlement 7,076
Stock issued in connection with acquisition of Perlsis II 1,870
Stock issued in connection with acquisition of In Vitro Clinical
Division of AMI 4,157
Stock issued to AMI in exchange for remaining acquisition costs 3,423
Stock issued in connection with acquisition of Vestec Corporation 3,726
Stock issued in connection with acquisition of PTC 9,100
Warrants issued in exchange for options to purchase research and
development technology of PTC II 5,290
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
1. Organization
Organization
PerSeptive Biosystems, Inc. (the "Company") develops, manufactures, and markets
proprietary products and systems for the purification, analysis and synthesis of
biomolecules.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Revenue Recognition
The Company recognizes revenue upon shipment of its products to the customer.
Significant future obligations, such as satisfaction of subjective or more than
perfunctory customer-mandated performance criteria, and sales-related
contingencies, such as unilateral rights to return product, delay revenue
recognition until the obligation is satisfied or the contingency is resolved.
Cost of insignificant obligations are accrued when revenue is recognized.
The Company recognizes revenue from research contracts as the related costs are
incurred on a cost-plus basis and from development contracts using the
percentage of completion method.
Foreign Currency
Effective July 1, 1995, the Company changed the functional currency designation
of its foreign subsidiaries from the U.S. dollar to the local currency of its
subsidiaries. The change was based on significant changes in the nature of the
Company's foreign operations. Accordingly, the Company's foreign subsidiaries
translate assets and liabilities at year-end exchange rates and capital accounts
at historical exchanges rates. Income and expense accounts are translated at
the average exchange rates in effect during the year. The resulting translation
gains and losses are reported as a separate component of stockholders' equity.
The functional currency designation in the first three quarters of 1995 and in
previous years' financial statements was the U.S. dollar. Monetary assets and
liabilities were translated at year-end exchange rates, while nonmonetary items
were translated at historical exchange rates. Income and expense accounts were
translated at the average exchange rates in effect during the year, except for
depreciation, amortization, and cost of revenue which were translated at
historical rates. Gains and losses from changes in exchange rates were
recognized in the statement of operations. Translation gains and losses prior
to the change in functional currency designation were not material. Transaction
gains and losses which are immaterial, are included in other income.
Cash and Cash Equivalents
Cash equivalents consist of investments in money market funds and highly liquid
commercial paper of companies in varied industries. Accordingly, these
investments are subject to minimal credit and market risk. The Company
considers investments with an original maturity of three months or less, at date
of acquisition, to be cash equivalents.
F-8
<PAGE>
Investments
The Company limits its investments to high credit quality, interest-bearing
instruments, primarily government and corporate debt securities.
Investments that mature within one year or that are expected to be sold within
the year to meet cash-flow requirements are classified as current assets. All
other investments are classified as long-term assets and are recorded at market
value, while securities classified as held-to-maturity are recorded at amortized
cost. Unrealized gains and losses on available-for-sale securities are reported
as a separate component of stockholders' equity. At September 30, 1996 and
1995, all of the Company's investments are classified as available-for-sale.
Investment income consists primarily of interest income, net realized losses
from the sale of securities, and the amortization of premiums and discounts.
The cost of securities sold is based on the specific identification method.
Inventories
Inventories are stated at the lower of cost or market with cost being determined
on the first-in, first-out basis (FIFO).
Fixed Assets
Fixed assets are recorded at cost and are depreciated over their estimated
useful lives on a straight-line basis. Leasehold improvements are depreciated
over their estimated useful lives or the terms of the lease, if shorter. Upon
retirement or other disposition of fixed assets the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
reflected in income. Additions, renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Intangible Assets
Organization costs are amortized on a straight-line basis over a five year
period. Costs associated with patents and the licensing of patents are
capitalized as incurred and amortized on a straight-line basis over the shorter
of the legal term or the estimated economic life of the patent. Purchase
options, consisting of the value ascribed to the options to acquire the callable
stock of certain research and development corporations, were amortized over the
term of the option. All purchase options outstanding at September 30, 1995 were
exercised during fiscal year 1996 in connection with the acquisition of PTC-II.
Goodwill is amortized on a straight-line basis over 20 years. Intangible assets
are shown net of accumulated amortization of $5,174,000 and $6,467,000 at
September 30, 1996 and 1995, respectively. Amortization expense for intangible
assets amounted to $3,022,000 $3,993,000, and $2,328,000 in fiscal year 1996,
1995 and 1994, respectively.
Deferred Financing Costs
Deferred financing costs, which consist of the costs associated with the
issuance of convertible subordinated notes, and obtaining other sources of
financing, are deferred and amortized on a straight-line basis, which
approximates the effective interest method, over the term of the debt.
Income Taxes
The Company accounts for income taxes on the liability method, which requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities, measured
F-9
<PAGE>
using the enacted tax rates to be in effect when those differences reverse net
of any required valuation allowance.
Product Warranty
The Company provides customers with up to a one year warranty from the date of
installation. Estimated warranty obligations, which are included in the results
of operations, are evaluated and provided for at the time of sale. Product
warranty costs were not significant.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized if the sum of the estimated future cash flows expected to result from
use of the asset is less than the carrying amount of the asset. Accordingly,
the Company compared the estimated future cash flows expected to result from
previous acquisitions and noted that the cash flows were greater than the
respective net goodwill amounts associated with those acquisitions, except for
the goodwill associated with the fiscal 1994 acquisition of the In Vitro
Division of Advanced Magnetics, Inc. which was written off during the fourth
quarter of fiscal 1996 (Note 13).
Concentrations of Credit and Market Risk
Financial instruments which subject the Company to concentrations of credit risk
consist primarily of accounts receivable, cash equivalents and investments.
In the normal course of business, the Company extends credit, on open accounts,
to its customers after credit and business analysis. The Company performs on-
going credit evaluation of its customers, does not require collateral and
maintains a reserve for potential credit losses. Historically, the Company has
not experienced significant losses related to its accounts receivables.
In addition, the Company has certain receivables, payables, borrowings and other
assets and liabilities denominated in foreign currencies, which are not hedged
and therefore are subject to exchange rate fluctuations. To date, the Company
has not incurred significant losses as a result of currency fluctuations.
Net Loss Per Share
Net loss per share applicable to common shareholders is determined by dividing
net loss, including accretion on preferred stock, by the weighted average common
shares outstanding during the period. Common stock equivalents, consisting of
options, warrants, contingently issuable shares and shares held in escrow, have
been excluded from the calculation of weighted average common shares
outstanding, as inclusion would be anti-dilutive. Net loss (in thousands) and
net loss per common share after preferred stock accretion for the year ended
September 30, 1996, 1995 and 1994 are as follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Net loss before preferred stock accretion ($50,467) ($20,570) ($34,012)
Accretion of redeemable preferred stock (2,061) (2,650) (221)
-------- -------- --------
Net loss after preferred stock accretion ($52,528) ($23,220) ($34,233)
======== ======== ========
Net loss per common share after
accretion ($3.22) ($1.88) ($2.88)
======== ======== ========
Weighted average common shares
outstanding 16,296 12,340 11,903
======== ======== ========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the fiscal 1995 and 1994 Consolidated Financial Statements
have been reclassified to conform to current year presentation.
3. Investments
As of September 30, 1996 all securities available-for-sale are stated at market
value. These securities consist of U.S. Government and U.S. Government Agency
debt securities and are included in current assets based on the securities'
maturity dates and the Company's expected utilization of the securities.
The estimated fair value of investments available for sale, by contractual
maturity, at September 30, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Due in one year or less $16,344
Due through two years 2,929
-----
$19,273
=======
</TABLE>
Securities with an estimated fair market value of approximately $5,535,000 and
$4,337,000 at September 30, 1996 and 1995 are pledged as collateral to secure
foreign borrowings and short-term borrowings, respectively.
F-11
<PAGE>
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
1996 1995
----------------------------
<S> <C> <C>
Raw materials $7,368 $10,838
Work in progress 2,751 2,495
Finished goods 10,955 9,578
------- -------
$21,074 $22,911
======= =======
</TABLE>
5. Fixed Assets
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Estimated September 30,
useful life (years) 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Land $ 1,496 $ 961
Building 20 9,084
Construction in progress 917 7,621
Demonstration equipment 3 4,317 2,798
Laboratory equipment 3-10 10,762 11,413
Computer and office equipment 3-7 4,814 5,972
Production equipment 3-10 4,970 4,744
Leasehold improvements 5 9,789 11,371
----- ------
46,149 44,880
Accumulated depreciation and
amortization (14,132) (9,296)
------- ------
$32,017 $35,584
======= =======
</TABLE>
Depreciation and amortization expense amounted to $7,508,000, $6,851,000 and
$3,074,000 in fiscal years 1996, 1995, and 1994, respectively.
At September 30, 1996 and 1995, laboratory, computer and office equipment under
capital leases included in fixed assets amounted to approximately $5,891,000 and
$5,380,000, respectively. Accumulated amortization related to assets under
capital leases was approximately $2,731,000 and $871,000 at September 30, 1996
and 1995, respectively, and is included in accumulated depreciation and
amortization. Fixed assets under capital leases are depreciated over the
shorter of the term of the lease or the useful life of the asset.
F-12
<PAGE>
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
1996 1995
----------------------
<S> <C> <C>
Accrued professional fees $ 5,041 $ 2,298
Accrued transaction fees and purchase
accounting costs 1,732 1,318
Accrued warranty costs 1,297 1,337
Accrued wages and commissions 2,807 1,008
Other accrued expenses 7,822 10,193
------- -------
$18,699 $16,154
======= =======
</TABLE>
7. Income Taxes
Pre-tax loss incurred under the following jurisdictions (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Loss before income taxes:
Domestic $(44,777) $(21,781) $(31,869)
Foreign (5,690) 1,211 (1,777)
-------- -------- --------
$(50,467) $(20,570) $(33,646)
======== ======== ========
</TABLE>
The provision for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Current tax expense:
State and local $ - $ - $ 90
Foreign - 527 629
--------- ------- --------
Total current $ - $ 527 $ 719
--------- ------- --------
Deferred tax expense (benefit)
Federal $(17,521) $(898) $(6,507)
State (1,947) (148) (1,056)
Foreign (974) (527) (1,666)
--------- ------- --------
Total deferred (20,442) (1,573) (9,229)
--------- ------- --------
Deferred tax asset valuation allowance 20,442 1,046 8,876
--------- ------- --------
Total provision $ - $ - $ 366
========= ======= ========
</TABLE>
F-13
<PAGE>
Deferred tax assets (liabilities) are comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
1996 1995
-------------------------
<S> <C> <C>
Net operating loss carryforwards $ 32,869 $ 11,700
Research and development credit 863 714
Expense accruals 2,607 1,929
Deferred revenue - 130
Depreciation 44 135
Inventory reserves 3,553 1,243
Amortization of purchase options - 1,335
Patent amortization (355) 315
Accounts receivable 888 553
Warranty reserve 536 423
Other reserves and temporary differences 3,887 1,936
-------- --------
Gross deferred tax assets 44,892 20,413
Deferred tax assets valuation allowance (43,619) (19,140)
-------- --------
$ 1,273 $ 1,273
======== ========
</TABLE>
A reconciliation between the amount of reported income tax expense and the
amount computed using the U.S. Federal Statutory rate of 35% is as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended September 30,
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Loss at statutory rate $(20,757) $(7,200) $(11,776)
Foreign loss at other than U.S. rates - - (419)
Shareholder settlement (2,020) 3,546 -
Nondeductible amortization - 194 51
ChemGenics Gain 1,250 - -
PDI book goodwill write-off 1,446 - -
Charge for purchased research and
development acquired from PTC-II, net
of anticipated tax benefit 2,375 - -
Charge for purchased research and
development acquired from PTC, net
of anticipated tax benefit - - 3,110
Charge for purchased research and
development acquired from Vestec, net
of anticipated tax benefit - - 2,160
State tax benefit, net of federal tax
liability (2,613) - (1,310)
R & D Credit (149)
Other 26 2 (326)
-------- ------- --------
(20,442) (3,458) (8,510)
Benefit of loss not recognized 20,442 3,458 8,876
-------- ------- --------
Provision for income taxes $ - $ - $ 366
======== ======= ========
</TABLE>
The Company has provided a valuation allowance for certain deferred tax assets,
since it is not more likely than not that future benefits will be realized. If
the Company achieves profitability,
F-14
<PAGE>
these deferred assets would be available to offset future income tax liabilities
and expense, subject to the limitations described below.
At September 30, 1996, the Company has net operating loss carryforwards and
research and development tax credits for federal income tax reporting purposes
of approximately $66 million and $863,000, respectively, which will expire
between 2003 and 2011. The net operating loss carryforward has been reduced by
$3,745,000 relating to deductions for non-qualified stock option exercises which
will be credited to additional paid-in-capital upon realization. The Company has
a net operating loss carryforward for foreign income tax reporting of $5.1
million some of which will expire between 1998 and 2001 and the rest with an
unlimited carryforward period.
Ownership changes, as defined in the Internal Revenue Code, resulting from the
issuance of Series A, Series B and Series C convertible preferred stock and from
the issuance of common stock may have limited the amount of net operating loss
and tax credit carryforwards that can be utilized annually to offset future
taxable income or tax liability.
8. Credit Facilities and Borrowings
Convertible Subordinated Notes
In August 1994, the Company issued $27,230,000 aggregate principal amount of
8-1/4% Convertible Subordinated Notes Due 2001 (the "Notes"). The Notes are
convertible into the Company's common stock at any time after the expiration of
60 days following the last date of original issuance through maturity, unless
previously redeemed or repurchased, at a conversion price of $13.80 per share,
subject to adjustment in certain circumstances. Beginning on August 15, 1998
and on each anniversary date through the year 2000, the Company is required to
deposit in a sinking fund, cash sufficient to redeem, on each August 15, 25% of
the outstanding principal and accrued interest.
Interest on the Notes is payable semi-annually on each February 15 and August
15, commencing on February 15, 1995, and the Notes will mature on August 15,
2001, unless previously redeemed or repurchased. Interest expense in fiscal
year 1996 and 1995 was $2,246,000. The Notes are not redeemable by the Company
prior to August 25, 1997. Thereafter, the Notes will be redeemable at the
option of the Company, in whole or in part, at any time, at specified redemption
prices plus accrued and unpaid interest to the date of redemption. The Notes
are unsecured general obligations of the Company and are subordinated to all
existing and future senior indebtedness (as defined in the agreement) of the
Company.
Long-term Debt
The Company secured financing totaling 8.5 million DM (approximately $6 million
at September 30, 1995) in bank loans from two German banks during fiscal year
1995 to contribute to the construction of the Company's new manufacturing
facility in Hamburg, Germany. During fiscal year 1996 additional proceeds were
received to complete the construction. At September 30, 1996, total proceeds of
8.5 million DM (approximately $6 million at September 30, 1996) were received
from the Facility Financing.
The bank loans are payable in semi-annual installments of 363,640 DM
(approximately $238,000 at September 30, 1996) beginning March 31, 1997 through
September 30, 2007. Interest is
F-15
<PAGE>
calculated at 7.5% per annum and is payable at the end of each year. The bank
loans are collateralized by all real estate and buildings owned by the Company
in Hamburg, Germany.
Short-term Borrowing
The Company has secured short-term financing from an investment bank which is
collateralized by the Company's short-term investments. The short-term
borrowing is classified as a current liability and approximates $5 million and
$3.9 million at September 30, 1996 and 1995, respectively. Interest is payable
monthly and is calculated daily, based on the broker call rate plus a percentage
of the amount borrowed. The rate paid in fiscal year 1996 and 1995 ranged from
6.10% to 8.25%.
9. Stockholders' Equity
Redeemable Convertible Preferred Stock
In connection with its acquisition of the synthesis products business acquired
from Millipore Corporation ("Millipore"), the Company's Board of Directors
authorized the designation and issuance to Millipore of 4,000 shares of a newly
designated series of non-voting redeemable convertible preferred stock (the
"Series A Preferred Shares"), valued at approximately $33,121,000 as of the
acquisition date using an imputed interest rate of 8% (Note 16). The Series A
Preferred Shares are redeemable in four equal installments on each of the first
four anniversaries of the closing of the acquisition in $10 million
installments, payable at the Company's option in cash or the Company's common
stock. The Company will have the right to redeem all or any part of the Series A
Preferred Shares prior to their stated redemption date by paying cash or by
delivering shares of its common stock with a market value equal to the
redemption price. The holders of the Series A Preferred Shares will have
certain rights to convert, at the election of holders of 66-2/3% of the Series A
Preferred Shares, all, but not less than all, of the outstanding Series A
Preferred Shares into shares of common stock in the first year if the market
price of the stock exceeds $32.00 per share, and in the second year, if the
market price exceeds $38.00 per share. The conversion rate will be determined
by dividing the redemption value of the Series A Preferred Shares to be
converted by the then fair market value of the common stock at the time of
conversion.
In August 1995, the Company issued 912,199 shares of common stock at $10.96 per
share to satisfy its first redemption payment due August 22, 1995. In August
1996, the Company issued 1,248,050 shares of common stock at $8.01 per share to
satisfy its second redemption payment due August 22, 1996. Management's intent
is to satisfy the remaining two annual installments under this preferred stock
arrangement as they become due through the issuance of common stock. As a
result of the action taken during fiscal year 1995 to convert the first
installment of the preferred stock to common stock and management's intent to
satisfy future installments with common stock, the remaining fair value of this
outstanding security has been reflected as a component of the Company's equity
beginning in September 30, 1995.
The difference between the fair value of the Series A Preferred Shares recorded
at the date of issuance and the redemption value is accreted as a charge to
accumulated deficit using the effective interest method.
Capital Stock
In May 1995, the Company's authorized shares of common stock were increased from
40,000,000 to 100,000,000.
F-16
<PAGE>
The authorized capital stock of the Company consists of (i) 100,000,000 shares
of common stock and (ii) 1,000,000 shares of preferred stock, par value $.01 per
share, of which 4,000 shares have been designated Series A Redeemable
Convertible Preferred Stock ("Series A Preferred Stock") and 400,000 shares have
been designated Series B Junior Participating Preferred Stock ("Series B
Preferred Stock").
As of September 30, 1996 the Company had reserved 3,661,539 shares of common
stock for use in the Company's 1989 and 1992 Stock Plans and the Company's 1992
Non-Employee Director Plan (Note 10) and 113,000 shares of common stock for use
in the Company's 1992 Employee Stock Purchase Plan (Note 10).
Warrants
In addition, the Company also has outstanding the following warrants to purchase
common stock:
<TABLE>
<CAPTION>
Note Number of Exercise Date Expiration
Reference Shares Price Exercisable Date
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Warrants 15 401,100 $20.00 December 1992 December 1997
Class C Warrants 15 40,000 7.31 September 1993 March 1999
Class E Warrants 15 41,875 33.00 January 1996 December 1998
Class F Warrants 12 100,000 7.62 March 1996 October 2002
Class G Warrants 13 279,330 12.66 March 1996 September 2003
Class H Warrants 9 78,802 12.69 September 1995 September 1997
Class I Warrants 16 2,603,125 13.50 March 1996 August 1997
</TABLE>
The Company entered into a Strategic Alliance Agreement with Boehringer Mannheim
GmbH ("Boehringer") in which Boehringer will distribute and market the Company's
proprietary products during fiscal 1995. In a separate agreement, Boehringer
received 157,565 shares of the Company's common stock in exchange for $2 million
and Class H warrants to purchase 78,802 of the Company's common stock at an
exercise price of $12.69 per share, exercisable for the period from September 1,
1995 through September 1, 1997. The value of the warrants has been determined
to be de minimus, and, therefore, no value has been ascribed.
The exercise prices and the number of shares of the Company's common stock
issuable upon exercise of the Class A, C, E, G, H and I warrants will be
appropriately adjusted in the event of stock splits, combinations, rights
offering, stock dividends or certain other special dividends with respect to the
Company's common stock.
10. Stock Option Plans and Other Benefits
1989 and 1992 Stock Plans
In June 1989 and March 1992, the Company adopted the 1989 and 1992 Stock Plans,
respectively (the "1989 Plan" and the "1992 Plan"), which provide for the
granting of incentive stock options, non-qualified stock options, stock purchase
rights and awards of stock. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted, whether
restrictions will be imposed on the shares subject to options, and the rate at
which each option is exercisable. The exercise price for incentive stock
options granted
F-17
<PAGE>
generally may not be less than the fair market value per share of the underlying
common stock on the date granted. The exercise price per share for non-qualified
options will be as determined by the Board of Directors. Additionally, the term
of the options cannot exceed ten years (five years for options granted to
holders of more than 10% of the voting stock of the Company). The options vest
on an annual or quarterly basis from the date of grant over periods determined
by the Board of Directors.
As a result of the decline in the market price of the Company's common stock,
during fiscal year 1995, the Company allowed holders of 1,230,000 options to
surrender their existing options having exercise prices ranging from $7.63 to
$26.75 in exchange for new options totaling 615,000 at an exercise price of
$5.38.
Under the 1989 Plan, 984,000 options were authorized for issuance and options
covering 134,000 shares are currently outstanding, of which 125,100 options were
exercisable as of September 30, 1996. No further options will be granted under
this plan.
On June 16, 1993, the Company amended the 1992 Plan to increase the number of
shares of common stock authorized for issuance under the 1992 Plan from 800,000
to 1,700,000. On March 10, 1994, May 1, 1995, and May 6, 1996 the Company
amended the 1992 Plan to increase the number of shares of common stock
authorized for issuance to 2,300,000; 2,900,500; and 3,585,500, respectively.
In addition, the 1992 Plan was amended to limit the number of shares of common
stock that any participant may purchase under the Plan to 600,000. Under the
1992 Plan, options covering 3,329,039 shares are currently outstanding, of which
1,035,759 options were exercisable and no options were available for grant as of
September 30, 1996.
1992 Non-Employee Director Plan
During March 1992, the Company adopted the 1992 Non-Employee Director Stock
Option Plan. This plan provides for grants of non-qualified options to non-
employee members of the Board of Directors. The exercise prices of options
granted under this plan will equal the fair market value of the underlying
common stock on the date granted. The term of options under this plan is ten
years. The original plan provided that Directors receive 1,500 non-qualified
options per year, except that persons who were directors on June 1, 1992
received an initial grant of 6,000 options, and persons first elected as
directors subsequent to June 1, 1992 receive an initial grant of 10,000 options.
On March 11, 1996, the plan was amended to increase the annual automatic grant
under the Director Plan from 1,500 to 7,500 shares of the Company's Common
Stock. Initial and annual grants of options will vest in four and three equal
annual amounts, respectively, commencing on the grant date. In the event that a
director ceases to be a member of the Board of Directors, any unexercised
portion of options granted will terminate. Under this plan, 200,000 shares of
common stock have been authorized for issuance, and options covering 97,000
shares are currently outstanding, of which 47,325 options were exercisable and
101,500 were available for grant as of September 30, 1996.
F-18
<PAGE>
A summary of option activity under the 1989 and 1992 Stock Plans and the 1992
Non-Employee Director Plan is as follows (in thousands):
<TABLE>
<CAPTION>
Number of Option price
shares range
------------------------------------
<S> <C> <C>
Balance at September 30, 1993 1,368
Granted 1,205 $12.50 - $31.50
Exercised (87) $ .39 - $16.50
Canceled (154) $ .39 - $31.50
------
Balance at September 30, 1994 2,332
Granted 1,908 $ 4.50 - $ 8.75
Exercised (190) $ .42 - $12.75
Canceled (1,559) $ .42 - $26.75
------
Balance at September 30, 1995 2,491 $ .39 - $31.50
Granted 1,604 $ 7.13 - $10.13
Exercised (180) $ .42 - $8.50
Canceled (355) $ 5.38 - $19.50
------
Balance at September 30, 1996 3,560 $ .39 - $31.50
------
</TABLE>
Employee Stock Purchase Plan
On May 29, 1992, the Company adopted the 1992 Employee Stock Purchase Plan.
This plan provides eligible employees the opportunity to purchase shares of
common stock annually at 85% of the fair market value of the shares during two
six-month periods of each year. A maximum of 250,000 shares of common stock
have been authorized for issuance under this plan. The term of this plan is ten
years. Purchases under this plan were 54,000 shares in fiscal year 1996 at
prices ranging between $7.50 and $8.25 per share and 137,000 shares since
inception through September 30, 1996.
Savings Plan
Effective May 1, 1993 the Company established the PerSeptive Biosystems, Inc.
401(k) Savings Plan (the "Plan") to provide employees the opportunity to defer
taxes on their savings. The Plan is a defined contribution plan covering all
full-time employees of the Company who have completed six months of service and
are age twenty-one or older. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974. The Company is not required to
contribute to, and has made no contributions, to the Plan.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation,
(SFAS 123). SFAS 123 encourages but does not require the recognition of
compensation expense for grants of stock, stock options, and other equity
instruments based upon new fair value accounting rules (the "recognition
method"). Companies that choose not to adopt the recognition method may
continue to apply the existing accounting principles however, SFAS 123 requires
companies that choose not to adopt the new fair value accounting rules to
disclose pro forma net income and earnings per share amounts under the new fair
value method (the "disclosure method"). The Company plans to adopt the
disclosure method in 1997 and will report the pro forma effect (which has not
yet been determined) of applying fair value accounting rules to grants of stock-
based awards on net income and earnings per share in its 1997 financial
statements.
F-19
<PAGE>
11. Stockholder Rights Plan
Effective March 2, 1995, the Company's Board of Directors implemented a
Stockholder Rights Plan by declaring a dividend of one preferred stock purchase
right (a "Right") for each outstanding share of the Company's common stock.
Each Right entitles the registered holder to purchase from the Company one one-
hundredth of a share (a "Unit") of Series B Junior Participating Preferred
Stock, $.01 par value per share at a purchase price of $47.00 per Unit (the
"Purchase Price"), subject to adjustment. Such rights are transferred with any
change in ownership of the Company's common stock.
The Rights will be exercisable only upon the occurrence of certain triggering
events. Such events would include the acquisition of or a tender offer that, in
the aggregate, equals or exceeds 15% of the outstanding shares of common stock
of the Company. Until a Right is exercised, the holder thereof will have no
rights as a stockholder of the Company. Until a triggering event occurs, the
Rights will not trade separately from the Company's common stock. The Rights
are not exercisable until the occurrence of a triggering event and will expire
at the close of business on March 2, 2005, unless earlier redeemed by the
Company.
12. Commitments and Contingencies
Commitments
The Company has entered into license agreements pursuant to which it pays
royalties generally ranging from 1% to 6% on sales of certain consumable
products contained in the Company's finished goods. Royalty rates will be
higher on bulk sales of consumable products to other resellers. Royalty expense
incurred in connection with these agreements for the years ended September 30,
1996, 1995 and 1994 totaled $965,000, $572,000 and $363,000, respectively.
The Company leases manufacturing facilities, office space and equipment under
noncancelable operating and capital leases expiring at various dates through
2009. The approximate minimum rental commitments under all noncancelable leases
as of September 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
leases leases
-----------------------
<S> <C> <C>
1997 $ 2,632 2,630
1998 2,255 386
1999 1,871 377
2000 1,685 217
2001 1,395 121
Thereafter 10,910 -
------- ------
Total minimum lease payments $20,748 3,731
=======
Less-amount representing interest (360)
------
Present value of obligations under
capital leases $3,371
======
</TABLE>
Total rent expense was approximately $2,651,000, $4,415,000 and $2,150,000 for
the years ended September 30, 1996, 1995, and 1994, respectively.
F-20
<PAGE>
On March 31, 1995, the Company entered into an agreement for the subsequent sale
and leaseback of equipment totaling $4,790,000 for $5 million. Under the terms
of the lease agreement, the Company has the option to repurchase the equipment
and is required to remit 30 equal monthly lease payments of approximately
$186,000 commencing March 31, 1995. Interest on the lease is calculated at 9%
per annum. For financial accounting purposes this lease has been recorded as a
capital lease. At September 30, 1996, the Company classified the remaining
lease payments approximating $2.1 million as short-term lease obligations.
In conjunction with the sale and leaseback transaction: (1) Class F warrants to
purchase 100,000 shares of the Company's common stock were issued at an initial
per share exercise price of $7.25 and were exercised by the lessor during fiscal
1996; (2) the Company did not elect to exercise its right to repurchase the
equipment during fiscal 1996 and as a result additional Class F warrants to
purchase 100,000 shares of the Company's common stock were issued at an initial
per share exercise price of $7.62 and are exercisable any time on or after March
31, 1996 and on or before October 1, 2002. The value of the warrants issued has
been determined to be de minimus, and, therefore, no value has been ascribed.
Contingencies
During 1996, the Company sold certain receivables for approximately $11,936,000
to a financial institution with recourse. At September 30, 1996, approximately
$2,636,000 of the receivables sold had not been collected by the financial
institution. The Company paid interest on receivables sold of approximately
$55,000 during fiscal year 1996.
13. Other Charges
Other charges consist of costs of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------
<S> <C> <C> <C>
In-process research and development (Notes 15,16) $ 6,785 $ 1,879 $14,681
Other charges 27,360 13,580 -
------------------------------
Total other charges $34,145 $15,459 $14,681
==============================
</TABLE>
1996 Charges
Other charges of $9,900,000 reported as part of costs of goods sold relate to
various charges recorded in connection with activities undertaken to realign the
Company's product offerings and to record impairment charges associated with
certain underutilized production assets.
Other charges of $17,460,000 were recognized during fiscal 1996 and related to
charges recorded in connection with the PTC-II acquisition, a provision for the
impairment of certain intangible assets, accruals for estimated legal costs
related primarily to the enforcement of the ongoing patent enforcement action
and other miscellaneous matters. The charge recorded in connection with the PTC-
II acquisition related to costs associated with organizational realignment
following the acquisition of approximately $3,300,000. The charge also included
provisions recorded in connection with ongoing litigation matters totaling
$5,200,000. The impairment charge recorded in connection with the write-off of
the goodwill associated with the purchase of the In Vitro Division of Advanced
Magnetics, Inc. ("AMI") totaled $5,300,000. Charges related to other
miscellaneous matters totaled $3,660,000.
F-21
<PAGE>
1995 Charges
On December 26, 1994, the Company announced a restatement of its financial
results for its fiscal year ended September 30, 1993 and for the first three
quarters of its 1994 fiscal year. Shortly thereafter, a number of class action
lawsuits were filed in the U.S. District Court for the District of Massachusetts
against the Company and certain of its officers. These lawsuits were
consolidated in an amended complaint filed on March 8, 1995. The complaint
asserted, on behalf of the class of all purchasers of the Company's common stock
from February 2, 1993 through December 26, 1994, violations of federal
securities laws and common law consisting of the issuing of allegedly materially
false and misleading financial results with respect to the Company's quarterly
and year-end fiscal 1993 financial statements and the Company's quarterly
financial statements for the first, second and third quarters of fiscal 1994.
The complaint sought unspecified damages, interest, costs and fees. On May 8,
1995, the Company filed its answer which denied all of plaintiffs' material
allegations and raised several affirmative defenses.
On June 14, 1995, the Court entered a preliminary order of approval of a
stipulation of compromise and settlement (the "Stipulation") between the
defendants in this action and the plaintiff class. On August 11, 1995, the
court approved the Stipulation. Pursuant to the terms of the Stipulation, the
purchasers of (a) the Company's Class E Warrants, which were originally issued
as part of units with the common stock of PerSeptive Technologies II
Corporation, and (b) its 8 1/4% Convertible Subordinated Notes due 2001, are
included in the plaintiff class in addition to the purchasers of the Company's
common stock. In exchange for releases of the defendants, the plaintiff class
is entitled to receive: $5,000,000 in cash, a portion of which is paid by third
parties; $5,000,000 in shares of the Company's common stock; and $2,000,000 in
warrants to purchase shares of the Company's common stock. In August of 1995,
the Company issued 493,827 shares of common stock with an aggregate market value
of $5,000,000. The final cash payment of $1.5 million due under a promissory
note issued pursuant to the Stipulation, together with interest thereon, was
made on April 1, 1996. The Company issued the Class G Warrants to purchase up
to 279,330 shares of the Company's common stock for $12.66 per share. The
warrants became exercisable at any time on or after March 11, 1996 and will
expire September 11, 2003. The costs of the settlement, including professional
fees associated with the settlement were recorded as a charge during the quarter
ended June 30, 1995.
14. Litigation
Since November 1994, the Company has been responding to informal requests for
information from the Securities and Exchange Commission (the "SEC") relating to
certain of the Company's financial matters. In May 1995, the Company was
advised by the SEC that it had obtained a formal order of investigation so that,
among other matters, it could utilize subpoena powers to obtain information
relevant to its inquiry. The SEC has and may in the future utilize its subpoena
powers to obtain information variously from officers, directors and employees of
the Company and from persons not presently associated with the Company. If,
after completion of its investigation, the SEC finds that violations of the
federal securities laws have occurred, the SEC has the authority to order
persons to cease and desist from committing or causing such violations and any
future violations. The SEC may also seek administrative, civil and criminal
fines and penalties and injunctive relief. The Department of Justice has the
authority in respect of criminal matters. There can be no assurance as to the
timeliness of the completion of the investigation, or as to the final result
thereof, and no assurance can be given that the final result of the
investigation will not have a material adverse effect on the Company. The
Company is
F-22
<PAGE>
cooperating fully with the investigation, and has responded and will continue to
respond to requests for information in connection with the investigation.
On October 14, 1993, the Company filed suit against Pharmacia Biotech, Inc., a
New Jersey corporation, together with certain of its affiliates, and their
parent Pharmacia AB, a Swedish corporation (collectively, "Pharmacia"), now part
of Pharmacia & Upjohn Co., and Sepracor Inc., a Delaware corporation
("Sepracor"), in the United States District Court for the District of
Massachusetts (Civil Action No. 93-12237-PBS) for willful infringement of the
Company's US Patents Nos. 5,019,270 and 5,228,989 (collectively, the "Patents")
covering the process of Perfusion Chromatography and the manufacture, sale and
use of chromatography particles that enable Perfusion Chromatography. This
lawsuit seeks to enjoin the defendants from infringing the Patents and asks for
treble damages. On October 15, 1993, the Company filed a related action against
Sepracor in the United States District Court for the District of Massachusetts
(Civil Action No. 93-12249-PBS) in which the Company claims that Sepracor has
made false and misleading representations of fact with respect to the Company's
products in violation of applicable state and federal law. On October 12, 1993,
as a result of prior correspondence with the Company, Pharmacia filed a suit
against the Company in the United States District Court for the District of New
Jersey (Civil Action No. 93-4450 (HAA)) seeking a declaratory judgment: (i) that
Pharmacia's products do not infringe the Patents and (ii) that the Patents are
invalid and unenforceable.
On January 18, 1994, the United States District Court for the District of New
Jersey allowed the Company's motion to transfer all proceedings in Pharmacia's
action to the United States District Court for the District of Massachusetts. By
orders dated December 3, 1993 and March 29, 1994, the United States District
Court for the District of Massachusetts has consolidated all three actions
identified above for pretrial proceedings.
On May 19, 1994, the United States District Court for the District of
Massachusetts allowed the Company's motion to join BioSepra Inc., which is
partially owned by Sepracor ("BioSepra"), as a party and to amend the pleadings
to assert claims against BioSepra for willful infringement of the Patents and
for false and misleading advertising. The Company's claims against BioSepra are
consolidated with claims against Sepracor and Pharmacia for pretrial
proceedings.
On October 5, 1994, the Court allowed the Company's motion to amend its
pleadings to allege claims against Sepracor and BioSepra for infringement of
United States Patent No. 5,030,352, covering novel coatings for chromatography
media, which is assigned to the Purdue Research Foundation and exclusively
licensed to the Company.
On January 24, 1995, the US Patent and Trademark Office issued a third patent
assigned to the Company, US Patent No. 5,384,042 (the "`042 Patent"), covering
the manufacture, sale and use of matrices that enable Perfusion Chromatography.
On January 25, 1995, the Company filed a complaint in the United States District
Court for the District of Massachusetts against Pharmacia, Sepracor and BioSepra
alleging willful infringement of the `042 Patent. On February 14, 1995, the
Court allowed an assented-to motion to consolidate that action, designated Civil
Action No. 95-10157-PBS, with the pending actions described above.
Pharmacia, Sepracor and BioSepra each have asserted counterclaims against the
Company. On February 10, 1995, Sepracor and BioSepra filed a counterclaim
against the Company alleging
F-23
<PAGE>
that its allegations that Sepracor and BioSepra have infringed the Patents and
alleged statements concerning the litigation made to customers constitute unfair
competition, commercial disparagement, unfair trade practices pursuant to Mass.
Gen. Laws ch. 93A, tortuous interference with customer relationships and
violation of the Lanham Act. Sepracor requested relief in the form of an
unspecified amount of damages, double or treble damages to the extent permitted
by Mass. Gen. Laws ch. 93A, dismissal of all claims asserted by PerSeptive, and
Sepracor's costs and attorney's fees. On March 6, 1995, Pharmacia filed a
counterclaim alleging that the Company's allegations that Pharmacia has
infringed the Patents and alleged statements concerning the litigation made to
customers constitute unfair competition, commercial disparagement, unfair trade
practices pursuant to Mass. Gen. Laws ch. 93A, and violation of the Lanham Act.
Pharmacia requested relief in the form of an unspecified amount of damages,
double or treble damages to the extent permitted by Mass. Gen. Laws ch. 93A,
dismissal of all claims asserted by PerSeptive, and Pharmacia's costs and
attorney's fees. Since the Court has bifurcated discovery on damages issues,
Sepracor and Pharmacia have not quantified the amount of damages sought in their
respective counterclaims. The Company has denied any liability on the
counterclaims.
On January 9, 1996, the Court entered an order denying the Company's motion for
partial summary judgment relating to the inventorship of the three Perfusion
Chromatography patents, and granting the Defendants' motions for partial summary
judgment that inventorship of those patents is improper for failure to name two
or more persons as joint inventors. The Court, however, affirmed the Company's
inventorship. On March 19, 1996, PerSeptive filed a Motion to Vacate the January
9 order and requested the Court to conduct an evidentiary hearing pursuant to 35
U.S.C. (S) 256 to determine whether the patents can and should be corrected
by adding additional alleged inventors and, among other issues, if the patents
can be corrected, whether the alleged additional inventors should be estopped
from asserting any rights on account of their never having claimed to have been
inventors, among other factors. On April 29, 1996, the Court denied the Motion
to Vacate. An evidentiary hearing on the inventorship issue was conducted in May
and June 1996. Post-hearing submissions were filed by the parties in July 1996
and closing arguments were heard by the Court on August 8, 1996. The Company has
preserved its rights of appeal on a number of issues, including the Court's
January 9, 1996 order that inventorship of the patents was improper for failure
to name additional persons as joint inventors.
The Company may incur substantial additional expenses relating to these
lawsuits. There can be no assurance that the outcome of the litigation will not
have a material adverse effect on the Company. The Company intends to continue
vigorously pursuing this litigation.
15. Contract Research and Contract Development
PerSeptive Technologies II Corporation
In December 1993, the Company and PerSeptive Technologies II Corporation
("PTC-II") completed an initial public offering of 2,645,000 units for net
proceeds of approximately $53.2 million (including the underwriters
overallotment). Each unit consisted of one share of callable common stock of
PTC-II and one Class E warrant to purchase one share of the Company's common
stock. The Company had an option exercisable at any time through December 31,
1997 to purchase all (but not less than all) of the shares of PTC-II common
stock that form a part of the units at a premium over the public offering price
per unit; the option price per share ranged from $33.83 to $57.23 depending on
the date of exercise. The Company also had options to acquire PTC-II's rights
under certain development programs at option prices per share ranging
F-24
<PAGE>
from $5.58 to $15.74 depending both on the program acquired and the date of
exercise. The option prices may be paid in cash, shares of the company's common
stock, or any combination thereof, at the Company's discretion. The Company had
no obligation to exercise the stock purchase option or any of the program
purchase options. Any warrants not exchanged in the exchange offer discussed
below are exercisable at any time from January 1, 1996 through December 31,
1998. The exercise price of the warrants is $33.00 per share.
In connection with the unit offering, the Company and PTC-II entered into
various agreements, including a technology license agreement and a research and
development agreement. Pursuant to the technology license agreement, the Company
licensed technology to PTC-II for the development of products for certain life
sciences applications. In this respect, the Company received a non-refundable
license fee of $4.0 million, recorded as deferred revenue, which was being
amortized into income over a 36 month period at a rate of $333,333 per quarter.
In accordance with the research and development agreement, PTC-II agreed to use
the Company's services exclusively to develop the licensed technology. During
the years ended September 30, 1996, 1995, and 1994 the Company recognized $10.1
million, $19.8 million, and $12.8 million respectively, in research and
development revenue in connection with these agreements, including the
amortization of the license fee. The Company considers the warrants issued to
the investors to have been in exchange for the call option on PTC-II's stock.
Accordingly, such option has been recorded at the $5.3 million valuation of the
warrants in other intangible assets in the accompanying balance sheet and was
being amortized over the 36-month life of the option. The value of the warrant
remaining as of the acquisition date was included in the extra space in-process
research and development charge described below.
Effective March 8, 1996, the Company completed an exchange offer in which PTC-II
unit holders exchanged 2,603,125 of their units for 2,603,125 shares of the
Company's common stock and 2,603,125 new Class I warrants to purchase the
Company's common stock exercisable until August 8, 1997 at an exercise price per
share of $13.50. The total value of common stock and warrants issued in the
exchange offer was approximately $16 million based on the market value of the
common stock on March 8, 1996. The Company recorded an in-process research and
development charge of approximately $6.8 million, which represents the
approximated value of acquired technologies which have not reached
commercialization (Note 16).
F-25
<PAGE>
PerIsis II Development Corporation
In March 1993, the Company completed a transaction related to the formation of
two research and development corporations. In connection with this transaction,
the Company and Isis Pharmaceuticals, Inc. ("Isis") licensed certain
applications of their technologies to two newly formed research and development
corporations. One of these corporations ("PerIsis I") was pursuing the
development of products for the purification, analysis and synthesis of
oligonucleotides manufactured by Isis and the second corporation ("PerIsis II")
was pursuing the development of such products for commercialization and sale to
all other entities. Under the agreements, the Company was paid for performing
contract research and development services over a period of approximately two
years. During the years ended September 30, 1995 and 1994, the Company
recognized research and development revenue totaling $0.2 million and $0.5
million respectively, in connection with these agreements.
In exchange for an option to purchase all of the stock of PerIsis II at a price
ranging from approximately $2.7 million to $3.6 million, the Company issued
Class C warrants to purchase 40,000 shares of the Company's common stock at an
exercise price of $25.00 per share, exercisable from the period beginning
September 15, 1993 and ending March 15, 1999, and Class D warrants that, if they
become exercisable, will be exercisable from the period beginning March 15, 1996
and ending September 15, 2000 for a number of shares ranging from 172,914 to
345,829, determined as defined by the agreement.
In April 1995, the Company exercised its option to purchase all of the common
stock of PerIsis II. In consideration for all of the stock of PerIsis II, the
exercise price of the Class C Warrants was amended to $7.31 per share and the
Class D Warrants were amended to be exercisable for 300,573 shares of common
stock at an exercise price of $0.01 per share. The Class D Warrants were
exercised during fiscal 1996. There were no tangible assets of PerIsis II
acquired, therefore, the value of the consideration paid of $1.8 million was
recorded an in-process research and development charge during the quarter ended
June 30, 1995.
PerSeptive Technologies Corporation
In December 1992, the Company and PerSeptive Technologies Corporation ("PTC")
completed a $10 million joint private placement transaction of 10,000 units.
Each unit consisted of (a) one share of common stock of PTC, callable by the
Company through June 1995; (b) one Class A Warrant to purchase 40.11 shares of
the Company's common stock, exercisable at $20 per warrant for the period
beginning one year after the initial closing and ending five years after the
initial closing; and (c) one Class B Warrant to purchase 80.22 shares of the
Company's common stock exercisable at $20 per warrant for the period beginning
10 days after the 30th month anniversary of the closing and ending seven years
and six months after the closing. The Class B Warrants were callable by the
Company at $.01 per share. The Company considers the warrants issued to the
investors to have been in exchange for the purchase option on PTC's stock.
Accordingly, options valued at $1,000,000 were recorded in other intangible
assets as of September 30, 1993, and are being amortized over the 30 month life
of the option.
In connection with the units offering, the Company and PTC entered into various
agreements, including a technology license agreement and a research and
development agreement. Pursuant to the technology license agreement, the Company
licensed technology to PTC for the development of products for certain life
science applications and received a license fee of $833,000. In accordance with
the research and development agreement, PTC agreed to use the
F-26
<PAGE>
Company's services exclusively to develop the licensed technology. During the
year ended September 30, 1994, the Company recognized research and development
revenue totaling $2.0 million in connection with these agreements, including the
license fee discussed above.
Effective December 28, 1993, the Company acquired all of the issued and
outstanding capital stock of PTC. PTC was a privately-held research and
development company formed to fund the development of novel tools for clinical
diagnostics and systematic screening of biological compounds for therapeutic
drug discovery. PTC shareholders exchanged their shares for 355,786 shares of
Company stock. The value of common stock issued was approximately $9.1 million
based on the market value as of the date of the transaction. In connection with
this acquisition, a charge of $8.9 million was recorded in the first quarter of
1994 representing the portion of the purchase price allocated to in-process
research and development. During fiscal 1994 through the date of acquisition of
PTC, the Company recognized research and development revenue from PTC totaling
approximately $3.8 million. The Company also exercised its right to call the
Class B warrants issued in connections with the PTC offering at $.01 per share.
16. Acquisitions
Synthesis Products Business
Effective August 22, 1994, the Company acquired its synthesis products business
from Millipore. In connection with this acquisition, the Company paid Millipore
$1,141,000 in cash and issued to Millipore 4,000 shares of newly created
non-voting redeemable convertible preferred stock (the "Series A Preferred
Shares"). The Series A Preferred shares were recorded at their estimated fair
value of $33.1 million.
The acquisition was accounted for by the purchase method. Initially, the
purchase price was allocated based on the estimated fair value of assets
acquired and liabilities assumed. Goodwill, representing the difference between
the purchase price and the fair value of the tangible and identifiable
intangible net assets acquired, was recorded in the amount of $19.2 million. In
the third quarter of 1995, the Company completed its valuation of the fair
values of the net assets acquired and liabilities assumed. As a result,
additional goodwill and liabilities were recorded. The liabilities recorded in
connection with the acquisition of the synthesis products business were expensed
during fiscal 1995 and 1996.
Advanced Magnetics, Inc. - In Vitro Diagnostics Division
At September 30, 1995, the Company had a liability of approximately $3.4 million
for the final settlement of the Company's acquisition of the In Vitro
Diagnostics Division of AMI. In December 1995, the Company issued 373,080 shares
of common stock with a value of $3.4 million, to satisfy this obligation.
PerSeptive Technologies II Corporation
On November 1, 1995, the Company, PerSeptive Acquisition Corporation ("PAC"), a
wholly owned subsidiary of the Company, and PTC-II entered into a definitive
agreement pursuant to which the Company agreed to an exchange offer for all of
the 2,645,000 outstanding units of PTC-II followed by a merger of PTC-II with
PAC. Each PTC-II unit consisted of one share of callable common stock of PTC-II
and one Class E Warrant of the Company, exercisable at $33.00 until December
1998. Effective March 8, 1996, the Company acquired 2,603,125 units of PTC-II
that were validly tendered and not withdrawn in the exchange offer. The PTC-II
shareholders, who participated in the exchange offer, exchanged their units for
2,603,125 shares
F-27
<PAGE>
of the Company's common stock and 2,603,125 new Class I Warrants to purchase the
Company's common stock, exercisable until August 8, 1997 at an exercise price
per share of $13.50. On March 13, 1996, PTC-II merged with PAC and became a
wholly owned subsidiary of the Company. Each of the remaining 41,875 shares of
callable common stock of PTC-II not exchanged in the exchange offer were
automatically converted into a right to receive one share of the Company's
common stock upon the merger of PTC-II with PAC. During the quarter ended June
30, 1996, 36,475 rights were exchanged for an equivalent number of shares of the
Company's common stock. The total value of the common stock issued in the
exchange offer was approximately $16 million based on the market value of the
Company's common stock on March 8, 1996. The transaction has been accounted for
as a purchase and the Company has recorded an in-process research and
development charge of approximately $6.8 million which represents the value of
acquired technologies which have not reached commercialization. During the six
month period ended March 31, 1996, the Company recognized research and
development revenue from PTC-II totaling approximately $10.1 million.
The following is a summary of the purchase price and the allocation of the
purchase price to the net assets acquired, calculated using the closing price of
PerSeptive's common stock of $5.875 on March 8, 1996:
<TABLE>
<CAPTION>
Purchase Price: 000's
- --------------- -------------
<S> <C> <C>
Shares of Common Stock Issued 2,639,600 at $5.875 $15,508
Shares of Common Stock to be Issued 5,400 at $5.875 32
Warrants Issued 2,603,125 at $0.90 2,343
Warrants Returned 2,603,125 at $0.88 (2,291)
Provision For Purchase Obligations 1,000
Write off of Purchase Option Cost 1,082
Transaction costs (i) 1,620
-------------
Total purchase price $19,294
=============
</TABLE>
(i) Amount represents acquisition costs associated with the Transaction which
include professional fees, printing costs and regulatory filing fees.
<TABLE>
<CAPTION>
Allocation of the Purchase Price: March 8, 1996
- --------------------------------- 000's
---------------
<S> <C>
Net asset values:
Cash and investments $11,851
Other current assets 693
Accrued expenses (35)
In-process research and development 6,785
---------------
Allocation of consideration $19,294
===============
</TABLE>
F-28
<PAGE>
The unaudited pro forma results of operations for the years ended September 30,
1996 and 1995 reflecting the acquisition of PTC-II as if the companies had been
combined as of September 30, 1995 and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue $75,916 $69,613
Net loss ($57,263) ($37,108)
Net loss per share ($3.41) ($2.48)
</TABLE>
ChemGenics Pharmaceuticals Inc.
In June 1996, the Company entered into a transaction with ChemGenics
Pharmaceuticals Inc. ("ChemGenics") (formerly, Myco Pharmaceuticals Inc.), in
which the Company transferred certain assets and employees of the Company's drug
discovery program to ChemGenics and granted a non-exclusive license to GemGenics
to use the Company's technology (including technology developed through PTC-II)
in the field of drug discovery in exchange for shares of ChemGenics' common
stock, $.001 par value per share ("ChemGenics Common Stock") and warrants to
purchase additional shares of ChemGenics Common Stock exercisable until June 28,
2000. The warrants are exercisable at $5.00 per share ($13.25 per share after a
proposed 2.65-for-1 reverse stock split). The Company is subject to certain
contractual restrictions on the sale or distribution of its holdings of
ChemGenics Common Stock. In December 1996, the Company and ChemGenics executed
amendments to their agreements pursuant to which the Company exchanged a portion
of its ChemGenics Common Stock for a promissory note for $3 million payable on
the earlier of the closing of ChemGenics' initial public offering or December
31, 2002. The Company currently holds approximately 34% of the outstanding
capital stock of ChemGenics, and warrants which, if exercised, would increase
the Company's holdings to approximately 47% (of which, warrants sufficient to
increase the Company's holdings to approximately 40% are currently exercisable).
On December 19, 1996, ChemGenics announced that it had filed a registration
statement with the Securities and Exchange Commission for the initial public
offering of ChemGenics Common Stock.
17. Sales to Significant Customers
Sales to significant customers included $10.1 million, $19.8 million, and $12.8
million to PTC-II for the years ended September 30, 1996, 1995, and 1994. No
other customer accounted for greater than 10% of revenue for the years ended
September 30, 1996, 1995 and 1994.
18. Geographical Information
The Company's areas of operation outside of the North America include Europe and
Asia. Information about the Company's operations in different geographic
locations for the fiscal year 1996 is shown below (in thousands). The Company's
operations in geographic locations other than North America for prior years is
not significant.
F-29
<PAGE>
<TABLE>
<CAPTION>
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers $56,480 $13,447 $16,091 $ - $86,018
Transfer between areas 17,004 8,942 - (25,946) -
------- ------ -------- --------- -------
Total sales 73,484 22,389 16,091 (25,946) 86,018
Net income (loss) (48,176) (552) (1,739) - (50,467)
Identifiable assets 100,906 15,693 5,056 - 121,655
</TABLE>
Included in North America are the results of operations in Canada such results
are not material. Export sales for all years disclosed in the Consolidated
Financial Statements are not material. Inventory is transferred among the
Company's subsidiaries at previously established transfer prices and are
eliminated in consolidation.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of PerSeptive Biosystems, Inc.:
Our report on the consolidated financial statements of PerSeptive Biosystems,
Inc., is included on page F-2 of this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule for each of the two years in the
period ending September 30, 1996, listed in the index of this Annual Report
on Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 20, 1996
S-1
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
Our audit of the consolidated financial statements of PerSeptive Biosystems,
Inc. referred to in our report dated December 28, 1994 except for Note 13, as
to which the date is August 11, 1995, included within this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, the Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 28, 1994, except for
Note 13, as to which the date is
August 11, 1995
S-2
<PAGE>
PerSeptive Biosystems, Inc.
Financial Statement Schedules
Schedule II-Valuations and Qualifying Accounts
<TABLE>
<CAPTION>
Balance Additions Balance at
beginning charges to costs end of
Classifications of period and expenses Other Deductions period
- --------------- --------- ------------ ----- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
for the year ended
September 30.
1996 $1,699,000 $1,275,000 $0 ($588,000) $2,386,000
1995 $1,778,000 $438,000 $0 ($517,000) $1,699,000
1994 $200,000 $1,578,000 $0 $0 $1,778,000
Inventory reserves
for the year ended
September 30,
1996 $4,448,000 $6,682,000 $0 ($2,253,000) $8,877,000
1995 $4,594,000 $2,327,000 $0 ($2,473,000) $4,448,000
1994 $90,000 $2,010,000 $2,494,000 $0 $4,594,000
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Reorganization dated as of October
8, 1993 by and among the Company, PV Merger Corporation
and Vestec Corporation, as amended (filed as Exhibit 2.1
to the Company's Current Report on Form 8-K dated October
8, 1993, as amended and incorporated herein by
reference).
2.2 Agreement and Plan of Merger by and among the Company, PV
Merger Corporation and Vestec Corporation (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 8, 1993, as amended and incorporated herein
by reference).
2.3 Escrow and Exchange Agreement by and among the Company,
Vestec Corporation, Marvin L. Vestal as the
representative of the stockholders of Vestec, American
Stock Transfer & Trust Company and the stockholders of
Vestec Corporation whose names appear on the signature
pages thereto (filed as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated October 8, 1993, as
amended and incorporated herein by reference).
2.4 Registration Rights Agreement by and among the Company,
PV Merger Corporation and Vestec Corporation (filed as
Exhibit 2.4 to the Company's Current Report on Form 8-K
dated October 8, 1993, as amended and incorporated herein
by reference).
2.5 Asset Purchase Agreement dated as of October 15, 1993 by
and between the Company and Advanced Magnetics, Inc.
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated October 15, 1993, as amended and
incorporated herein by reference).
2.6 Asset Purchase and Sale Agreement dated as of July 14,
1994 by and among the Company, Millipore Corporation and
Millipore Investment Holdings Limited (filed as Exhibit
2.1 to the Company's Current Report on Form 8-K dated
August 22, 1994, as amended and incorporated herein by
reference).
2.7 Registration Rights Agreement by and among the Company,
Millipore Corporation and Millipore Investment Holdings
Limited dated August 22, 1994 (filed as Exhibit 2.3 to
the Company's Current Report on Form 8-K dated August 22,
1994, as amended and incorporated herein by reference).
<PAGE>
2.8 Registration Rights Agreement by and among the Company,
Alex. Brown & Sons Incorporated and Lehman Brothers Inc.
dated August 26, 1994 (filed as Exhibit 4.2 to the
Company's Registration Statement No. 33-74600 on Form S-3
and incorporated herein by reference).
2.9 Agreement and Plan of Merger, dated as of November 1,
1995 among the Company, PerSeptive Acquisition
Corporation and PerSeptive Technologies II Corporation
(filed as Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 and
incorporated herein by reference).
2.10 Amendment No. 1 to Agreement and Plan of Merger, dated
January 29, 1996 among the Company, PerSeptive
Acquisition Corporation and PerSeptive Technologies II
Corporation (filed as Exhibit 2.1 to the Company's
Registration Statement No. 333-1016 on Form S-4 and
incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.2, 4.2 to the Company's
Registration Statement No. 33-46871 on Form S-1 and
incorporated herein by reference).
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company (filed as Exhibit 4.1 to the
Company's Registration Statement No. 33-80856 on Form S-8
and incorporated herein by reference).
3.3 Amended and Restated By-Laws of the Company (filed as
Exhibit 3.4, 4.4 to the Company's Registration Statement
No. 33-46871 on Form S-1 and incorporated herein by
reference).
3.4 Certificate of Designations for the Series A Redeemable
Convertible Preferred Stock filed with the Secretary of
State of the State of Delaware on August 19, 1994 (filed
as Exhibit 2.2 to the Company's Current Report on Form 8-
K dated August 22, 1994, as amended, and incorporated
herein by reference).
3.5 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Company filed with
the Secretary of State of the State of Delaware on May 8,
1995 (filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1995
and incorporated herein by reference).
<PAGE>
3.6 Certificate of Designations for the Series B Junior
Participating Preferred Stock filed with the Secretary of
State of the State of Delaware on March 2, 1995 (exhibit
to Exhibit 4.9) (filed as Exhibit 3.6 to the Company's
Annual Report on Form 10-K for the year ended September
30, 1995 and incorporated herein by reference).
3.7 Amended Certificate of Designation for the Series B
Junior Participating Preferred Stock filed with the
Secretary of State of the State of Delaware on October
24, 1995 (filed as Exhibit 3.7 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995
and incorporated herein by reference).
4.1 Description of Capital Stock contained in the Company's
Amended and Restated Certificate of Incorporation, as
amended, filed as Exhibits 3.1 through 3.7 hereto.
4.2 Form of Class A Warrants for the purchase of the
Company's Common Stock dated as of December 23, 1992
issued to the stockholders of PTC-I (filed as Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1993 and incorporated
herein by reference).
4.3 Form of Class C Warrants for the purchase of the
Company's Common Stock dated as of March 15, 1993 issued
to the stockholders of PerIsis II (filed as Exhibit 4.3
to the Company's Report on Form 10-Q for the three-month
period ended March 31, 1993 and incorporated herein by
reference).
4.4 Warrant Agreement relating to the issuance of Class E
Warrants of the Company dated as of December 29, 1993, as
executed (supersedes Exhibit 4.7 to Amendment No. 1 to
the Company's Registration Statement Nos. 33-71812, 33-
71814 on Form S-1/S-3) (filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the Quarterly
Period ended March 31, 1994 and incorporated herein by
reference).
4.5 Specimen Class E Warrant Certificate (filed as Exhibit
4.3 to Amendment No. 1 to the Company's Registration
Statement Nos. 33-71812, 33-71814 on Form S-1/S-3 and
incorporated herein by reference).
4.6 Specimen Unit Certificate (filed as Exhibit 4.1 to
Amendment No. 1 to the Company's Registration Statement
Nos. 33-71812, 33-71814 on Form S-1/S-3 and incorporated
herein by reference).
<PAGE>
4.7 Indenture dated as of August 26, 1994 between the Company
and State Street Bank and Trust Company, as Trustee
(filed as Exhibit 4.9 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994 and
incorporated herein by reference).
4.8 Rights Agreement, dated as of March 1, 1995, between the
Company and American Stock Transfer & Trust Company,
(filed as Exhibit 4 to the Company's Current Report on
Form 8-K dated as of February 23, 1995 and incorporated
herein by reference).
4.9 Warrant Purchase Agreement relating to the issuance of
Class F Warrants (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March
31, 1995 and incorporated herein by reference).
4.10 Form of Class F Warrant (filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1995 and incorporated herein by
reference).
4.11 Warrant Agreement dated as of September 11, 1995 between
the Company and American Stock Transfer & Trust Company
relating to the Class G Warrants (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated as of
September 11, 1995 and incorporated herein by reference).
4.12 Specimen of Class G Warrant Certificate (filed as Exhibit
4.2 to the Company's Current Report on Form 8-K dated as
of September 11, 1995 and incorporated herein by
reference).
4.13 Form of Amendment to Class C Warrants (filed as Exhibit
4.15 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995 and incorporated herein by
reference).
4.14 Class H Warrant dated as of September 1, 1995 (filed as
Exhibit 4.19 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1995 and incorporated
herein by reference).
4.15 Amendment No. 1, dated as of September 27, 1995, to the
Rights Agreement, dated as of March 1, 1995, between the
Company and American Stock Transfer & Trust Company
(filed as Exhibit 4.20 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 and
incorporated herein by reference).
<PAGE>
4.16 Form of Warrant Agreement between the Company and
American Stock Transfer & Trust Company relating to the
Company's Class I Warrants (filed as Exhibit 4.7 to the
Company's Registration Statement No. 333-1016 on Form S-4
and incorporated herein by reference).
4.17 Specimen of Class I Warrant Certificate (filed as Exhibit
4.8 to the Company's Registration Statement No. 333-1016
on Form S-4 and incorporated herein by reference).
10.1+ 1989 Stock Plan (filed as Exhibit 10.1 to the Company's
Registration Statement No. 33-46871 on Form S-1 and
incorporated herein by reference).
10.2+ 1992 Stock Plan of the Company, as amended on February 8,
1996 (filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended March
31, 1996 and incorporated herein by reference).
10.3+ 1992 Employee Stock Purchase Plan (filed as Exhibit 10.3
to the Company's Registration Statement No. 33-46871 on
Form S-1 and incorporated herein by reference).
10.4+ 1992 Non-Employee Director Stock Option Plan, as amended
on March 11, 1996 (filed as Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the Quarterly Period
ended March 31, 1996 and incorporated herein by
reference).
10.5 Consulting Agreement with Dr. Fred E. Regnier dated June
1, 1988 (filed as Exhibit 10.7 to the Company's
Registration Statement No. 33-46871 on Form S-1 and
incorporated herein by reference).
10.6 License Agreement with Purdue Research Foundation dated
as of June 16, 1990 (filed as Exhibit 10.8 to the
Company's Registration Statement No. 33-46871 on Form S-1
and incorporated herein by reference).
10.7 Sublease Agreement with the Massachusetts Institute of
Technology dated October 1, 1990 (filed as Exhibit 10.10
to the Company's Registration Statement No. 33-46871 on
Form S-1 and incorporated herein by reference).
10.8 Form of Indemnity Agreement with directors and officers
(filed as Exhibit 10.15 to the Company's Registration
Statement No. 33-46871 on Form S-1 and incorporated
herein by reference).
<PAGE>
10.9 Product License and Supply Agreement between Millipore
Corporation and the Company granting the Company an
exclusive worldwide royalty free license within the Life
Science market to use certain patented technology to
process membrane products and to carry out certain
processes useful to DNA synthesis operations and
providing for the supply of membrane products (filed as
Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 and
incorporated herein by reference).
10.10 OEM Purchase and Supply Agreement between BioSearch, Inc.
and the Waters Chromatography Division of Millipore
Corporation with respect to the supply of certain high
performance liquid chromatography components, machined
parts and other materials to BioSearch, Inc. (filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 and
incorporated herein by reference).
10.11 Assignment of Settlement Agreement between Millipore
Corporation, University Patents, Inc. and Applied
Biosystems, Inc. ("ABI") involving cross license of
certain patents, granting ABI a license under U.S. Patent
No. 4,725,677, "Process for the Preparation of
Oligonucleotides" and Millipore a license under U.S.
Patent Nos. 4,458,066 and 4,415,732 (filed as Exhibit
10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 and incorporated
herein by reference).
10.12 License Agreement dated January 23, 1991 between the
University of Minnesota and Millipore Corporation
granting Millipore an exclusive worldwide license to
make, use and sell products under U.S. Patent Nos.
5,235,028, 5,196,566 and 5,117,009 and related pending
applications covering support structures for peptide
synthesis operations (filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 and incorporated herein by
reference).
10.13 License Agreement dated January 1, 1988 between Hoffman-
La Roche Inc. and Millipore Corporation granting
Millipore a non-exclusive license to make, use and sell
so-called FMOC chemistries on laboratory instruments
(filed as Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994
and incorporated herein by reference).
<PAGE>
10.14 License Agreement dated March 9, 1992 between Novabiochem
AG and Millipore Corporation granting Millipore a non-
exclusive license to make, use and sell instruments for
the monitoring of certain peptide reactions related to
the synthesis of peptides (filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 and incorporated herein by
reference).
10.15 License Agreement dated December 17, 1991 between Ole
Burkhardt, Peter E. Nielsen, Rolf H. Berg, Michael Egholm
and Millipore Corporation granting an exclusive,
worldwide license Danish Patent Application No. 0986/91
"Oligonucleotide Analogs Termed PNA" and corresponding
international counterparts (filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 and incorporated herein by
reference).
10.16 Lease Agreement between the Company and the Massachusetts
Institute of Technology dated March 19, 1993 for space
located at 12 Emily Street, Cambridge, Massachusetts
(filed as Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994
and incorporated herein by reference).
10.17 Lease Agreement between the Company and 500 Old
Connecticut Path Limited Partnership for space located at
500 Old Connecticut Path, Framingham, Massachusetts
(filed as Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994
and incorporated herein by reference).
10.18 Master Lease Agreement between the Company and Hambrecht
& Quist Guaranty Finance, L.P. dated March 31, 1995
(filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1995 and
incorporated herein by reference).
10.19 Security Agreement between the Company and Hambrecht &
Quist Guaranty Finance, L.P. dated March 31, 1995 (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1995 and incorporated
herein by reference).
10.20 Stipulation and Compromise of Settlement dated as of June
14, 1995 relating to the action entitled In re:
PerSeptive Biosystems, Inc. Securities Litigation, Civ.
Action No. 94-12575(PBS), brought in the U.S. District
Court for the District of Massachusetts (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated as
of September 11, 1995 and incorporated herein by
reference).
<PAGE>
10.21 Credit Agreements between the Company's subsidiary
PerSeptive Biosystems GmbH - Hamburg (formerly,
"BioSearch GmbH") IKB Deutsche Industriebank and Dresdner
Bank (filed as Exhibit 10.27 to Form 10K/A Amendment No.
1 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995 and incorporated herein by
reference).
10.22 Master Agreement, dated as of May 7, 1996, between the
Company and ChemGenics Pharmaceuticals a d/b/a of Myco
Pharmaceuticals Inc. (filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated as of June 28, 1996 and
incorporated herein by reference).
10.23* Omnibus Amendment Agreement dated December 18, 1996
between the Company and ChemGenics Pharmaceuticals, Inc.
21* Subsidiaries of the Company.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Price Waterhouse LLP.
24 Power of Attorney (included in the signature page to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1996).
________________________________
*Indicates exhibits filed herewith. All other exhibits have been previously
filed unless otherwise indicated.
+Indicates a management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10.23
OMNIBUS AMENDMENT AGREEMENT
This Omnibus Amendment Agreement (the "Amendment") is entered into this
18th day of December, 1996, by and between ChemGenics Pharmaceuticals Inc.
(formerly known as Myco Pharmaceuticals Inc.), a Delaware corporation
("ChemGenics") and PerSeptive Biosystems, Inc., a Delaware corporation
("PerSeptive" or "PBIO").
WHEREAS, ChemGenics and PerSeptive are parties to a Master Agreement
dated May 7, 1996 (the "Master Agreement");
WHEREAS, at the Closing under the Master Agreement, the parties executed
and delivered among other documents the various documents listed in Section
1.03 of the Master Agreement (the "Ancillary Agreements"), including without
limitation the Consulting and Interim Services Agreement, the Standstill and
Registration Rights Agreement and the Warrant (as such terms are defined in
the Master Agreement) and stock certificates for the Shares (as defined in
the Master Agreement); and
WHEREAS, ChemGenics and PerSeptive have agreed upon modifications to the
terms of the transaction reflected in the Master Agreement and the Ancillary
Agreements, and wish to set forth such modifications herein, to be effective
retroactively to the Closing Date (as defined in the Master Agreement), as if
initially set forth in the Master Agreement and the Ancillary Agreements.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained in the Master Agreement, the Ancillary Agreements and this
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. Definitions.
-----------
1.1 Terms which are defined in the Master Agreement and the Ancillary
Agreements are used herein as so defined.
2. Amendments to the Master Agreement.
----------------------------------
The Master Agreement is hereby amended as follows:
2.01 The first seven lines of Section 1.01.B are deleted from the Master
Agreement, and the following is inserted in lieu thereof:
"In consideration for the License Agreement and the transfer
of the Transferred Assets, upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date,
ChemGenics shall issue to PerSeptive an aggregate of 6,792,679
shares (the "Shares") of ChemGenics' Common Stock, $.001 par
value per share (the
<PAGE>
"Common Stock") and shall deliver to PerSeptive a Promissory
Note in the principal amount of $3,000,000, such Note to be in
the form of Exhibit 1.03(B). Of such shares, 662,500"
Section 1.01(B) is further amended by deleting the numbers
"979,268, 652,844 and 326,422" from the chart on page 3, and
inserting, in lieu thereof, the numbers "662,500, 441,667 and
220,833".
2.02 Section 8.04 is amended by deleting clause (ii) thereof, and
inserting in lieu thereof the following:
"(ii) PerSeptive will agree to restrictions on its sale or
transfer of Capital Stock of ChemGenics,"
2.03 Section 8.06 is amended by deleting the text thereof in its
entirety, and replacing it with the following:
"ChemGenics will use commercially reasonable efforts to
accomplish an underwritten registered initial public offering
of its Common Stock (a "Public Offering"), in which ChemGenics
will seek to raise at least $15,000,000 in gross proceeds on
or before June 30, 1997. If a Public Offering is not
consummated by June 30, 1997, then PerSeptive will deliver to
ChemGenics a certificate for 2,000,000 of the Shares delivered
to PerSeptive hereunder, leaving PerSeptive with an aggregate
of 4,792,679 Shares, and ChemGenics will deliver to PerSeptive
a Promissory Note in the principal amount of $2,000,000 in the
form of Exhibit 8.06. PerSeptive shall at its own cost,
assist and cooperate with ChemGenics as ChemGenics may
reasonably request in effecting the Public Offering in a
timely manner."
2.04 Section 8.07 is deleted from the Master Agreement.
2.05 It is understood and agreed that the terms of Exhibits 1.03(C)(i),
1.03(C)(ii), 1.03(C)(iii), 1.03(C)(iv) and Exhibit 1.03(C)(v) are
superseded in their entirety by the agreements executed at the
Closing as amended by this Agreement.
2.06 The last sentence of Section 8.03 and clause (i) of Section 10.15
of the Master Agreement are hereby deleted from the Master
Agreement.
3. Amendment of Consulting and Interim Services Agreement. The Consulting
------------------------------------------------------
and Interim Services Agreement is hereby amended as follows:
3.01 Section 3 is amended by adding the following sentence immediately
after the first sentence thereof:
<PAGE>
"The Supplies will be provided free of charge until the later
of (i) March 31, 1997 or (ii) the closing of the first Public
Offering (as defined in the Master Agreement), and thereafter
will be supplied for the balance of the three-year period at a
price equal to (a) fully-burdened manufacturing cost for
Supplies manufactured by PBIO, and (b) and the actual cost of
acquisition for Supplies distributed by PBIO."
3.02 Section 4.A is amended by deleting the words "During the three year
period commencing on the date hereof, PBIO shall loan to
ChemGenics" at the beginning thereof, and replacing them with the
words:
"Until the earlier of (i) June 30, 1997 or (ii) the closing of
the first Public Offering (as defined in the Master
Agreement), PBIO shall loan to ChemGenics, and thereafter
through June 27, 1999, shall sell to ChemGenics at fully-
burdened manufacturing cost for Equipment manufactured by PBIO
and the actual cost of acquisition for Equipment distributed
by PBIO"
Section 4.A is further amended by adding the phrase "or sold as
provided above" following the word "loaned" in the twelfth line on
page 4.
3.03 Section 5 is amended by deleting the numbers "979,268, 652,844 and
326,422" from the chart on page 7, and inserting, in lieu thereof,
the numbers "662,500, 441,667 and 220,833".
3.04 Section 9 is amended by deleting the third sentence thereof and
inserting the following:
"PBIO will on demand pay or reimburse ChemGenics for the
payment of all Severance Pay and other severance related costs
in excess of the Space Value for Drug Discovery Program
Employees terminated on or before the earlier of the closing
of the Public Offering or March 31, 1997."
and by adding the following to the last sentence of the first
paragraph thereof:
", provided the employment of such employee is terminated on
or before the earlier of the closing of the Public Offering or
March 31, 1997."
4. Amendment of Standstill and Registration Rights Agreement. The
---------------------------------------------------------
Standstill and Registration Rights Agreement is hereby amended as
follows:
<PAGE>
4.01 The number 9,792,679 in the first "whereas" clause is replaced with
the number 6,792,679.
4.02 Section 2.02 is amended by deleting the first paragraph thereof,
but not subparagraphs (a), (b), (c) and (d), and replacing it with
the following:
"A. PBIO agrees that until the Initial Release Date (which
shall be the earlier of (i) twelve months following the
Closing of the Company's first Public Offering ("IPO") or (ii)
December 30, 1998), it will not, nor will it permit any of its
affiliates or associates, to (x) distribute to its
shareholders, or (y) sell, solicit an offer to sell, agree to
sell, offer or propose to sell (collectively, "Sell") any
Voting Securities of the Company or derivative securities
relating thereto ("Company Securities"). After such period:
(1) (a) during the period from the Initial Release Date until
six (6) months thereafter, PBIO may distribute to the
shareholders of PBIO (i) up to one-third of the number of
shares of ChemGenics Common Stock held by PBIO as of the
earlier of the closing of the IPO or December 30, 1998,
excluding for this purpose any shares of ChemGenics Common
Stock issued upon exercise of the Warrant (the "Non-Warrant
Shares") and/or (ii) up to one-third of the number of shares
of Common Stock originally issuable to PBIO upon exercise of
the Warrant ("Warrant Shares"), but only to the extent PBIO
has exercised the Warrant and acquired Warrant Shares
("Exercised Warrant Shares"), (b) in the next two succeeding
six-month periods thereafter, PBIO may distribute to its
shareholders (i) up to one-third of the Non-Warrant Shares
and/or (ii) Exercised Warrant Shares up to one-third of the
Warrant Shares and/or (iii) the Non-Warrant Shares and the
Exercised Warrant Shares permitted to be but not distributed
by PBIO in the prior six-month period and (c) thereafter,
subject to the following clause 3 of this paragraph, Section
3.09 and applicable securities laws, PBIO shall be permitted
to distribute any or all of its Non-Warrant Shares and
Exercised Warrant Shares to its shareholders; (2) (a) during
the six-month period beginning on the earlier of (i) 18 months
from the closing of the Company's IPO or (ii) December 30,
1998, PBIO may Sell up to one-third of PBIO's
<PAGE>
Non-Warrant Shares and/or Exercised Warrant Shares up to one-
third of the Warrant Shares and (b) in the next two succeeding
six-month periods thereafter, PBIO may Sell (i) an additional
one-third of PBIO's Non-Warrant Shares and/or (ii) Exercised
Warrant Shares up to one-third of the Warrant Shares and/or
(iii) the Non-Warrant Shares and the Exercised Warrant Shares
permitted to be but not sold by PBIO in the prior six-month
period and (c) thereafter, subject to the following clause 3
of this paragraph, Section 3.09 and applicable securities
laws, PBIO shall be permitted to Sell any or all of its Non-
Warrant Shares and Exercised Warrant Shares; and
(3) In addition to the restrictions and limitations set forth
in the preceding clauses, in any six (6) month period ending
on or before (i) twenty four (24) months after the closing of
the IPO, if the IPO closes on or before June 30, 1997 or (ii)
the later of twelve months after the closing of the IPO or
June 30, 1999 if the IPO closes after June 30, 1997, PBIO
shall not distribute or Sell more than a total of one-third of
the Non-Warrant Shares and Exercised Warrant Shares up to one-
third of the Warrant Shares. As used herein, "Public
Offering" shall mean an underwritten public offering of
ChemGenics Common Stock registered with the SEC.
Notwithstanding the foregoing:"
4.03 Section 3.01 is amended by deleting the words commencing
immediately following the words "provided, however," where
-------- -------
appearing in the first sentence thereof and ending with the word
"Shares" at the beginning of the fifth line on page 6 and inserting
the following words: "that the Company shall not be required to
include in any such registration statement any Registrable Shares
which PBIO is not permitted to Sell pursuant to the initial
paragraph of Section 2.02 and provided further that as a condition
to including any shares issued or issuable upon exercise of the
Warrant ("Warrant Shares")
4.04 Sections 3.01 and 3.02 are amended by deleting the words "at any
time after the third anniversary of this Agreement" from the first
sentence thereof and replacing them with the words "at any time
when PBIO is permitted to Sell Company Securities pursuant to the
initial paragraph of Section 2.02,".
<PAGE>
4.05 Section 3.09 is amended by inserting after the words "held by it"
where appearing in the first sentence thereof, the following words:
"for such period of time, and on such other terms, as shall be
agreed to among the Company, the underwriters and a majority of the
venture capital partnerships that hold Company Securities as of the
IPO, nor will PBIO permit any of its affiliates to do any of the
foregoing" and deleting the remainder of the first sentence.
Section 3.09 is further amended by deleting the words "180-day"
where appearing in the last sentence thereof and inserting the
words "agreed-upon."
5. Exchange of Warrants.
--------------------
5.01 Contemporaneously with the execution hereof, PerSeptive will
deliver to ChemGenics the Warrant as delivered at the Closing, and
ChemGenics shall deliver to PerSeptive a new Warrant in the form
attached hereto. The new Warrant shall, for all purposes, be deemed
to be the "Warrant" under the Master Agreement and the Ancillary
Agreements.
6. Exchange of Stock Certificates. Contemporaneously with the execution
------------------------------
hereof, PerSeptive shall deliver to ChemGenics certificates numbered
C0028-31 for 8,813,411, 326,423, 326,423 and 326,422 shares of Common
Stock of ChemGenics and ChemGenics shall deliver to PerSeptive
certificates for 4,130,179, 2,000,000, 220,833, 220,833 and 220,834
shares of Common Stock of ChemGenics.
7. No Other Changes. In all other respects, the Master Agreement and the
----------------
Ancillary Agreements shall not be affected hereby, and shall remain in
force and effect as initially executed and delivered.
IN WITNESS WHEREOF, ChemGenics and PerSeptive have executed this
Amendment as of the day and year first above written.
CHEMGENICS PHARMACEUTICALS INC.
By: /s/ Barry Berkowitz
-----------------------------------
Barry Berkowitz
President
<PAGE>
PERSEPTIVE BIOSYSTEMS, INC.
By: /s/ Noubar B. Afeyan
------------------------------------
Noubar B. Afeyan
Chief Executive Officer
<PAGE>
EXHIBIT 1.03(B)
PROMISSORY NOTE
$3,000,000 December 18, 1996
For value received, ChemGenics Pharmaceuticals Inc. ("ChemGenics")
promises to pay to PerSeptive Biosystems, Inc. ("PerSeptive") in lawful money of
the United States of America the sum of $3,000,000 with interest at the lowest
applicable federal rate which would avoid imputed interest under the Internal
Revenue Code of 1986, as amended and regulations thereunder, in the manner and
at the time set forth below.
1. In the event (a) the closing of a Public Offering (as defined in Section
8.06 of the Master Agreement dated May 7, 1996 between ChemGenics and
PerSeptive, as amended, (the "Master Agreement")) takes place prior to
December 31, 1998 with gross proceeds of $15,000,000 or more, or (b)
ChemGenics shall, prior to December 31, 1998, consolidate or merge with
another party (other than a merger or consolidation with another party
where the stockholders of ChemGenics before such transaction directly or
indirectly own at least a majority of the voting stock of the combined
or acquired entity after such transaction) or convey, sell or lease to
another entity all or substantially all of the stock, assets or business
of ChemGenics and its subsidiaries, taken as a whole (an "Acquisition"),
then at the closing of such Public Offering or Acquisition, this Note
shall be payable in full.
2. In the event of the closing of a Public Offering prior to December 31,
1998 in which the gross proceeds to ChemGenics are less than
$15,000,000, then ten percent (10%) of the gross proceeds to ChemGenics
of such Public Offering shall be paid to PerSeptive at the closing of
such Public Offering, and the remainder of this Note shall be due in two
equal installments six months after said closing and twelve months after
said closing, each such payment to be made, at ChemGenics' option,
either in cash or in shares of Common Stock of ChemGenics valued at 75%
of the Market Value thereof at the time the payment is due or a
combination thereof. Either the issuance of such shares or the resale
thereof by PerSeptive shall to the extent permitted by the rules and
regulations of the Securities Exchange Commission be registered under
the Securities Act of 1933. As used herein, Market Value shall mean the
average of the closing prices on the NASDAQ National Market (or, if the
Common Stock of ChemGenics is not listed
<PAGE>
on the NASDAQ National Market, the principal stock exchange or
interdealer quotation system on which the ChemGenics Common Stock is
listed) for the five trading days preceding the date as of which Market
Value is determined, or if there is then no public market for the Common
Stock of ChemGenics, as reasonably determined by ChemGenics Board of
Directors.
3. In the event that there is no Closing of a Public Offering and no
closing of an Acquisition prior to December 31, 1998, this Note shall be
paid in full on December 31, 2002 by payment at ChemGenics' option
either in cash or in shares of Common Stock of ChemGenics valued at the
Market Value thereof at the time the payment is due or a combination
thereof.
4. Acceptance by PerSeptive of any partial payment shall not be deemed to
constitute a waiver by PerSeptive of the right to require prompt payment
of all sums when due. No delay or omission on the part of PerSeptive in
exercising any right hereunder shall operate as a waiver of such right
or of any other right under this Note. No waiver of any right shall be
effective unless in writing and signed by PerSeptive, nor shall a waiver
on any one occasion by construed as a bar to or waiver of any such right
on any future occasion.
5. ChemGenics waives presentment, demand, notice, protest and all other
notices (except for notice of default) in connection with the delivery,
acceptance, performance, default or enforcement of this Note and assents
to any extension or postponement of the time of payment or any other
indulgence under this Note.
6. ChemGenics agrees to pay costs of collection (including reasonable
counsel fees) if default is made in the payment hereof on this Note.
7. This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts.
8. This Note is delivered pursuant to the Master Agreement.
IN WITNESS WHEREOF, ChemGenics has caused this Note to executed under
seal by its duly authorized officer as of the date written above.
CHEMGENICS PHARMACEUTICALS INC.
By: /s/ Barry Berkowitz
----------------------------
Barry Berkowitz
President
[CORPORATE SEAL]
<PAGE>
EXHIBIT 8.06
PROMISSORY NOTE
$2,000,000 July 1, 1997
For value received, ChemGenics Pharmaceuticals Inc. ("ChemGenics")
promises to pay to PerSeptive Biosystems, Inc. ("PerSeptive") in lawful money of
the United States of America the sum of $2,000,000 plus interest at the lowest
applicable federal rate which would avoid imputed interest under the Internal
Revenue Code of 1986, as amended and regulations thereunder, in the manner and
at the time set forth below.
1. In the event (a) the closing of a Public Offering (as defined in Section
8.06 of the Master Agreement dated May 7, 1996 between ChemGenics and
PerSeptive, as amended, (the "Master Agreement") takes place prior to
December 31, 1998 with gross proceeds of $25,000,000 or more, or
(b) ChemGenics shall, prior to December 31, 1998, consolidate or merge with
another party (other than a merger or consolidation with another party
where the stockholders of ChemGenics before such transaction directly or
indirectly own at least a majority of the voting stock of the combined or
acquired entity after such transaction) or convey, sell or lease to another
entity all or substantially all of the stock, assets or business of
ChemGenics and its subsidiaries, taken as a whole (an "Acquisition"), then
at the closing of such Public Offering or Acquisition, this Note shall be
payable in full.
2. In the event of the closing of a Public Offering prior to December 31, 1998
in which the gross proceeds to ChemGenics are less than $25,000,000, then
twenty percent (20%) of the gross proceeds to ChemGenics of such Public
Offering in excess of $15,000,000 shall be paid to PerSeptive at the
closing of such Public Offering, and the remainder of this Note shall be
due and payable twelve months after said closing.
3. In the event that there is no Closing of a Public Offering and no closing
of an Acquisition prior to December 31, 1998, this Note shall be paid in
full on December 31, 2002 by payment at ChemGenics' option either in cash
or in shares of Common Stock of ChemGenics valued at the Market Value
thereof at the time the payment is due or a combination thereof. As used
herein, Market Value shall mean the average of the closing prices on the
NASDAQ National Market (or, if
<PAGE>
the Common Stock of ChemGenics is not listed on the NASDAQ National
Market, the principal stock exchange or interdealer quotation system on
which the ChemGenics Common Stock is listed) for the five trading days
preceding the date as of which Market Value is determined, or if there is
then no public market for the Common Stock of ChemGenics, as reasonably
determined by ChemGenics Board of Directors.
4. Acceptance by PerSeptive of any partial payment shall not be deemed to
constitute a waiver by PerSeptive of the right to require prompt payment
of all sums when due. No delay or omission on the part of PerSeptive in
exercising any right hereunder shall operate as a waiver of such right or
of any other right under this note. No waiver of any right shall be
effective unless in writing and signed by PerSeptive, nor shall a waiver
on any one occasion by construed as a bar to or waiver of any such right
on any future occasion.
5. ChemGenics waives presentment, demand, notice, protest and all other
notices (except for notice of default) in connection with the delivery,
acceptance, performance, default or enforcement of this Note and assents
to any extension or postponement of the time of payment or any other
indulgence under this Note.
6. ChemGenics agrees to pay costs of collection (including reasonable counsel
fees) if default is made in the payment hereof on this Note.
7. This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts.
8. This Note is delivered pursuant to the Master Agreement.
IN WITNESS WHEREOF, ChemGenics has caused this Note to executed under seal
by its duly authorized officer as of the date written above.
CHEMGENICS PHARMACEUTICALS INC.
By:________________________
Barry Berkowitz
President
[CORPORATE SEAL]
<PAGE>
EXHIBIT 21
PERSEPTIVE BIOSYSTEMS, INC.
LIST OF SUBSIDIARIES
State of Jurisdiction
Name of Incorporation
---- ----------------
PerSeptive Technologies II Corporation.................. Delaware
PerSeptive International Holdings, Ltd. ................ Delaware
Nihon PerSeptive K.K. .................................. Japan
PerSeptive Biosystems (Canada) Ltd. ..................... Canada
PerSeptive Biosystems GmbH.............................. Germany
PerSeptive Biosystems (U.K.) Ltd., a subsidiary of
PerSeptive International Holdings, Ltd. .......... England
PerSeptive Biosystems (France) Ltd., a subsidiary of
PerSeptive International Holdings, Ltd. .......... Delaware
PerSeptive Biosystems GmbH-Hamburg, a subsidiary of
PerSeptive Biosystems GmbH........................ Germany
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of PerSeptive Biosystems, Inc. on Form S-8 (File Nos. 333-8151, 33-94606, 33-
80856, 33-49642), Form S-4 (File No. 333-1016) and on Form S-3 (File Nos. 33-
71814, 33-72760, 33-72924, 33-94598, 33-94600, 33-94602, 33-94604, 33-94608,
33-80421, 333-8149, 333-11229) of our reports dated November 20, 1996, on our
audit of the consolidated financial statements and financial statement
schedule of PerSeptive Biosystems, Inc. as of September 30, 1996 and 1995 and
for the years ended September 30, 1996 and 1995 which reports are included in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 23, 1996
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-8151, No. 33-94606, No. 33-80856, and No. 33-
49642) and in the Prospectuses constituting part of the Registration
Statements on Form S-3 (No. 33-94598, No. 33-94600, No. 33-94602, No. 33-
72924, No. 33-72760, No. 33-94604, No. 33-94608, No. 33-80421, No. 333-8149,
No. 333-11229 and No. 33-71814) and the Registration Statement on Form S-4
(No. 333-1016) of PerSeptive Biosystems, Inc. of our report dated December
28, 1994, except for Note 13, as to which the date is August 11, 1995,
appearing on page F-3 of this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page S-2 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> OCT-01-1995 OCT-01-1994
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 5,384 12,215
<SECURITIES> 19,273 11,601
<RECEIVABLES> 18,438 19,555
<ALLOWANCES> (2,386) (1,690)
<INVENTORY> 21,074 22,911
<CURRENT-ASSETS> 63,890 66,505
<PP&E> 46,149 44,880
<DEPRECIATION> (14,132) (9,296)
<TOTAL-ASSETS> 121,655 138,209
<CURRENT-LIABILITIES> 37,318 39,409
<BONDS> 36,302 34,833
0 0
18,053 25,992
<COMMON> 213 140
<OTHER-SE> 32,019 38,975
<TOTAL-LIABILITY-AND-EQUITY> 121,655 138,209
<SALES> 75,916 69,430
<TOTAL-REVENUES> 86,018 89,429
<CGS> 37,813 33,169
<TOTAL-COSTS> 56,290 50,137
<OTHER-EXPENSES> 77,257 58,309
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,473 2,958
<INCOME-PRETAX> (50,467) (20,570)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (50,467) (20,570)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (50,467) (20,570)
<EPS-PRIMARY> (3.22) (1.88)
<EPS-DILUTED> (3.22) (1.88)
</TABLE>
