<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 28, 1997
or
( ) Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period From_____________ To ________
Commission File Number: 0-20032
PerSeptive Biosystems, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2987616
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
500 Old Connecticut Path, Framingham, MA 01701
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(508) 383-7700
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(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 21,508,119 Shares
- ------------ -----------------
(Class) (Outstanding at Aug 7, 1997)
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PERSEPTIVE BIOSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 28, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Balance Sheets at
June 28, 1997 (unaudited) and September 30, 1996 3
b) Consolidated Statements of Operations
for the three and nine-month periods ended
June 28, 1997 and June 29, 1996 (unaudited) 4
c) Consolidated Statements of Cash Flows
for the nine-month periods ended
June 28, 1997 and June 29, 1996 (unaudited) 5
d) Notes to the Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
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PERSEPTIVE BIOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 28, September 30,
1997 1996
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 7,069 $ 5,384
Short-term investments, available-for-sale 31,193 19,273
Trade accounts receivable, net of allowance for doubtful accounts
of $1,931 at June 28, 1997 and $2,386 at September 30, 1996,
respectively 18,930 16,052
Inventories, net 23,828 21,074
Other current assets 2,678 2,107
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Total current assets 83,698 63,890
Fixed assets, net 28,579 32,017
Patent and license costs, net 5,571 5,913
Goodwill, net 17,738 18,518
Other long-term assets 1,714 1,317
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Total assets $ 137,300 $ 121,655
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 11,930 $ 9,292
Accrued expenses 15,435 18,699
Current portion of deferred revenue 2,092 1,158
Short-term borrowing 5,019 5,032
Current portion of obligations and other current liabilities 2,110 3,137
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Total current liabilities 36,586 37,318
Long-term liabilities:
Convertible subordinated notes 27,230 27,230
Long-term debt 4,666 5,574
Capital lease obligations, less current portion 347 361
Deferred revenue and other liabilities 1,228 887
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Total long-term liabilities 33,471 34,052
Commitments and contingencies
STOCKHOLDERS' EQUITY
Redeemable convertible preferred stock, $.01 par value; 4000 shares
authorized; 2,000 shares issued and outstanding at
June 28, 1997 and September 30, 1996; redemption value
$20,000 at June 28, 1997 and September 30, 1996 19,123 18,053
Common stock, $.01 par value; 100,000,000 shares authorized;
21,461,072 and 21,315,456 shares issued and outstanding
at June 28, 1997 and September 30, 1996 , respectively 216 213
Additional paid-in capital 159,374 158,556
Accumulated deficit (108,332) (125,094)
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70,381 51,728
Cumulative translation adjustment (3,848) (1,373)
Unrealized loss on investments 710 (70)
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Total stockholders' equity 67,243 50,285
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Total liabilities and stockholders' equity $ 137,300 $ 121,655
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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PERSEPTIVE BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- ------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue $ 25,880 $ 18,170 $ 70,174 $ 56,601
Contract revenue - - - 10,101
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25,880 18,170 70,174 66,702
------------ ------------ ------------ -------------
Cost of goods sold:
Cost of product revenue 13,244 9,165 35,578 27,865
Cost of contract revenue - - - 8,571
Other charges - - - 4,837
------------ ------------ ------------ -------------
13,244 9,165 35,578 41,273
------------ ------------ ------------ -------------
Gross profit 12,636 9,005 34,596 25,429
Operating Expenses:
Research and development 3,768 4,450 10,892 7,720
Selling general and administrative 9,923 9,865 29,434 30,512
Other charges - - - 13,496
Amortization 260 320 780 1,838
------------ ------------ ------------ -------------
13,951 14,635 41,106 53,566
------------ ------------ ------------ -------------
Lose from operations (1,315) (5,630) (6,510) (28,137)
------------ ------------ ------------ -------------
Other income (expense):
Interest expense, net (750) (768) (2,212) (2,190)
Other income (expense), net 1,049 (79) 26,556 (90)
------------ ------------ ------------ -------------
Net (income)/loss before provision for income taxes (1,016) (6,477) 17,834 (30,417)
Provision for income taxes - - - 100
------------ ------------ ------------ -------------
Net income (loss) $ (1,016) $ (6,477) $ 17,834 $ (30,517)
============ ============ ============ =============
Net income/(loss) per common share
Primary ($0.06) ($0.40) $0.78 ($2.08)
Fully diluted $0.72
Weighted average common shares
Primary 21,439 17,357 21,388 15,412
Fully diluted 24,850
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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PERSEPTIVE BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 28, June 29,
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Cash from operating activities:
Net income (loss) $ 17,834 $ (30,517)
Adjustments to reconcile net income (loss) to net cash
used in operating activities, net of acquired amounts
Depreciation and amortization 5,613 7,846
Non-cash portion of gain on Chemgenics exchange (21,830) -
Non-cash portion of other charges - 17,261
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (3,637) 1,037
Increase in inventories (3,811) (4,326)
Decrease (increase) in other assets (968) 300
Increase in accounts payable 2,638 3,113
Decrease in accrued expenses (3,264) (5,857)
Increase (decrease) in other liabilities 1,275 (3,254)
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Net cash used in operating activities $ (6,150) $ (14,397)
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Cash flows from investing activities
Purchases of fixed assets (2,287) (8,180)
Cash and investments acquired from PTC II - 11,851
Net proceeds from sales of securities available-for-sale 10,690 1,604
Increases in patents and licenses - (27)
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Net cash provided by investing activities $ 8,403 $ 5,248
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Cash flows from financing activities
Proceeds from capital lease financing - 306
Principal payments under capital lease obligations (1,042) (1,135)
Net proceeds from facility financing - 2,407
Payment of finance costs (191)
Net proceeds (payments) from short-term borrowing (237) 1,154
Proceeds from issuance of common stock 821 1,312
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Net cash (used in) provided by financing activities $ (458) $ 3,853
--------------- ----------------
Effect of exchange rate changes on cash and cash equivalents (110) (233)
--------------- ----------------
Increase (decrease) in cash and cash equivalents 1,685 (5,529)
Cash and cash equivalents, beginning of period 5,384 12,215
--------------- ----------------
Cash and cash equivalents, end of period $ 7,069 $ 6,686
=============== ================
Supplemental disclosure of cash flow information:
Interest paid 2,203 1,896
Supplemental disclosure of non-cash activities:
Accretion of Series A Preferred Stock 1,070 1,546
Stock issued: purchase costs of AMI acquisition 3,423
Stock and warrants issued in connection with PTC II acquisition 15,592
</TABLE>
The accompanying notes are an integral part of these financial
statements
5
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated balance sheet at June 28, 1997, and the
consolidated statements of operations for the three- and nine-month periods
ended June 28, 1997 and June 29, 1996, and the consolidated statements of cash
flows for the nine-month periods ended June 28, 1997 and June 29, 1996 have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission"). Although certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, the Company
believes that the disclosures are adequate to make the information presented not
misleading and reflect all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of results of
operations for such periods. The results of operations for the three and nine-
month periods ended June 28, 1997 are not necessarily indicative of the results
expected for the year ended September 30, 1997. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements for the year ended September 30, 1996 and the notes thereto included
in the Company's Annual Report on Form 10-K.
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.
(2) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 28, 1997 September 30, 1996
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<S> <C> <C>
Raw material $ 9,470 $ 7,368
Work in process 2,191 2,751
Finished goods 12,167 10,955
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Total inventories $23,828 $21,074
======= =======
</TABLE>
(3) NET INCOME (LOSS) PER COMMON SHARE
Primary net income (loss) per common share is computed by dividing net income,
including accretion on preferred stock, by the weighted average common shares
and dilutive weighted average common stock equivalents outstanding during the
period. Accretion on preferred stock was $357,000 and $1,070,000 for the three
and nine months ended June 28, 1997 and $515,000 and $1,546,000 for the three
and nine months ended June 29, 1996, respectively. Common stock equivalents
consist of shares subject to stock options and warrants. Net loss per share for
the three-month period ended June 28, 1997 and the three and nine-month periods
ended June 29, 1996 exclude all common stock equivalents from the calculation of
weighted average common shares outstanding, as their inclusion would be anti-
dilutive.
Fully diluted net income per common share is computed by dividing net income
before accretion on preferred stock by the weighted average common shares
outstanding during the period plus weighted average common stock equivalents and
equivalent shares resulting from the assumed conversion of preferred stock.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years
ended after December 15, 1997, including interim periods. SFAS 128 requires the
presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which
replaces primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
6
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outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS under the existing rules. SFAS 128 requires
restatement of all prior-period earnings per share data presented after the
effective date. The Company will adopt SFAS 128 in its fiscal year ended
September 30, 1998 and has not yet determined the impact of such adoption.
(4) LITIGATION AND OTHER MATTERS
The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and
their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia &
Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company
partially owned by Sepracor, for willful infringement of three PerSeptive
patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of
Perfusion Chromatography/(R) /and the manufacture, sale and use of
chromatography particles and matrices that enable Perfusion Chromatography
(collectively, the "Original Perfusion Patents"). The Company commenced its
action against Pharmacia and Sepracor on October 14, 1993, and the consolidated
action has been pending in the United States District Court for the District of
Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also
claims that Sepracor and BioSepra made false and misleading representations of
fact with respect to the Company's products, and that BioSepra engaged in false
and misleading advertising. The lawsuit, in an amended complaint filed by
Purdue University and the Company, also claims that Sepracor and BioSepra
infringe a fourth patent ("the Coatings Patent"), licensed exclusively by
PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks
to enjoin the defendants from infringing the four patents and asks for treble
damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra
each have asserted that their products do not infringe the Original Perfusion
Patents and that the Original Perfusion Patents are invalid and unenforceable,
and have asserted counterclaims against the Company alleging that the Company's
assertions that they have infringed the patents, and that statements allegedly
made by the Company to customers concerning the litigation, constitute unfair
competition, commercial disparagement, unfair trade practices, tortious
interference with customer relationships and violation of the Lanham Act, and
seeking an unspecified amount of damages, and, under certain asserted claims,
double or treble damages, as well as attorneys' fees and expenses. The Company
has denied any liability on these 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 Original Perfusion
Patents, granting the Defendants' motions for partial summary judgment that
inventorship of the Original Perfusion Patents is improper for failure to name
one or more persons as additional joint inventors, and requiring the Company to
move to correct inventorship or have the patents declared invalid. On March 12,
1996, the Court entered a ruling directing the Company to correct inventorship
and placed on the Company the burden of proving the absence of deceptive intent
in the designation of inventors at a hearing. The Company moved to correct
inventorship. The Company has preserved its right to appeal a number of issues,
including the Court's January 9, 1996 order that the Original Perfusion Patents
failed to name additional persons as joint inventors and the Court's March 12,
1996 order imposing the burden of proof on PerSeptive. The hearing was held in
May and June 1996. On April 3, 1997, the Court issued a ruling denying the
Company's motion to correct inventorship, ruling that the Company had not met
its burden of proving that two British scientists, who worked for a company that
is not a party to the litigation, were not named on the Original Perfusion
Patents without deceptive intent within the meaning of Section 256 of Title 35
United States Code, and granted judgment in favor of Sepracor, BioSepra and
Pharmacia on the Company's claims relating to the Original Perfusion Patents.
On April 16, 1997, the Company filed a motion to permit an immediate appeal of
the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996
decisions, to the United States Court of Appeals for the Federal Circuit, which
has exclusive jurisdiction in the United States to hear appeals in patent cases.
On April 30, 1997, the defendants filed a motion requesting that the District
Court render a decision on the defendants' defense of inequitable conduct prior
to permitting the Company's appeal. On July 30, 1997, the Company filed a
motion seeking to (i) vacate the Court's April 3, 1997 decision and (ii) enter a
final judgment that will permit the Company to appeal the Court's earlier
January 9, 1996 and March 12, 1996 orders that the patents do not name all of
the inventors and imposing the burden of proof on PerSeptive. The Company's
motion is based on a decision by the Court of Appeals for the Federal Circuit in
an unrelated case, Stark v. Advanced Magnetics, Inc., issued on July 11, 1997,
----------------------------------
which the Company contends rendered the Court's April 3, 1997 decision
erroneous. The defendants filed motions again requesting that the District
Court render a decision on their defense of inequitable conduct prior to
permitting an appeal. The Court has not rendered a decision on the Company's or
the defendants' motions. The Court has not yet considered the issue of
infringement of the Original Perfusion Patents or the Coatings Patent. The
Company intends to continue to vigorously pursue this litigation.
7
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In September 1996 and February 1997, two new United States patents relating to
Perfusion Chromatography systems were issued to the Company. Neither of these
patents, which cover instruments and systems that perform the high-speed, high
resolution chromatography which is the subject of the Original Perfusion
Patents, are the subject of the current litigation. Prior to the issuance of
these patents, the Company had submitted to the patent examiner the District
Court's January 9, 1996 order, and non-confidential portions of related briefs
filed by the parties, and the patents were issued naming only PerSeptive's
scientific founders as the inventors nonetheless.
Since November 1994, the Company has been responding to informal requests for
information from the Commission relating to certain of the Company's financial
matters. In May 1995, the Company was advised by the Commission that it had
obtained a formal order of investigation so that, among other matters, it may
utilize subpoena powers to obtain information relevant to its inquiry. The
Commission has and may in the future utilize its subpoena powers to obtain
information from various officers, directors and employees of the Company and
from persons not presently associated with the Company. If, after completion of
its investigation, the Commission finds that violations of the federal
securities laws have occurred, the Commission has the authority to order persons
to cease and desist from committing or causing such violations and any future
violations. The Commission 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.
(5) CHEMGENICS AND MILLENNIUM TRANSACTIONS
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 PerSeptive Technologies II Corporation ("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 were exercisable at $5.00 per share. The Company was 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 held approximately 34% of the outstanding common
stock of ChemGenics as of December 28, 1996.
In January, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium")
entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of
the Agreement, the stockholders of ChemGenics received common stock of
Millennium in exchange for their common stock of ChemGenics. At the closing on
February 10, 1997, the Company received 1,612,582 shares of Millennium common
stock, $.001 par value per share ("Millennium common stock"), in exchange for
its shares of ChemGenics common stock. In addition, the Company received $4
million cash in exchange for the warrants for ChemGenics common stock and in
satisfaction of the above referenced promissory note. The parties to the
Agreement contemplate that the transaction will qualify as a tax-free merger.
The Company's shares of Millennium Common stock are subject to restrictions on
sale which expire in increments between June and September 1997. In connection
with this event, the Company recorded a gain of $25.8 million, reflecting the
fair market value of the cash received and the Company's investment in
Millennium common stock as of March 29, 1997. During the quarter ended June 28,
1997, the Company sold approximately 50% of its investment in Millennium for
$12.9 million and realized a gain on the sale of approximately $800,000. The
taxable gain arising from this transaction will be offset by available net
operating loss carryforwards with the exception of a portion of the gain
potentially subject to the federal Alternative Minimum Tax.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements which 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 a difference include, but are not limited to, those discussed below 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Product revenue for the three months ended June 28, 1997 was $25,880,000
compared with $18,170,000 for the comparable 1996 period representing an
increase of 42%. The increase in product revenue is attributable to continued
strong growth in each of the analysis, purification and synthesis product lines
as well as enhanced sales productivity arising from increased investments in the
Company's North American field sales organization.
Gross profit from product revenue for the three months ended June 28, 1997 and
June 29, 1996 was $12,636,000 and $9,005,000, respectively. Gross margin from
product revenue was 49% for the three months ended June 28, 1997 and 50% for the
comparable period in 1996. The slight decline in gross margin between the
comparable periods is attributable to various factors, including product and
geographical revenue mix and the sale of lower margin refurbished products
during the quarter.
Research and development expenses for the three months ended June 28, 1997
amounted to $3,768,000, or 15% of product revenue, as compared with $4,450,000,
or 24% of product revenue, for the comparable period in 1996. Actions have been
taken to control the level of research and development expense actually incurred
following the acquisition of PerSeptive Technologies II Corporation ("PTC II")
in March 1996. This has been accomplished, in part, through the restructuring
program that resulted in the elimination of a significant portion of the
Company's research and development staffing and related variable support costs.
Management intends to continue pursuing commercialization opportunities and
alliances in order to obtain value from the technologies acquired from PTC II,
as it has done in the transactions with ChemGenics Pharmaceuticals, Inc.
("ChemGenics") (formerly Myco Pharmaceuticals, Inc.)(subsequently merged with
Millennium Pharmaceuticals, Inc. ("Millennium"). See Note (5). Management
continues to evaluate the scope and direction of the various programs; however,
there is 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 under development will ultimately be
successfully commercialized.
Selling, general and administrative expenses amounted to $9,923,000, or 38% of
product revenue, during the three months ended June 28, 1997, as compared with
$9,865,000, or 54% of product revenue during the comparable period in the prior
year. The reduction in spending as a percent of sales is attributable to
management's efforts to control these costs as well as improve the productivity
of the resources utilized in these functional areas.
Other income was $1,049,000 for the three months ended June 28, 1997 compared
with other expense of $79,000 for the comparable period in 1996. This increase
was due primarily to the realization of an $800,000 gain on the sale during the
quarter of a portion of the Company's investment in Millennium common stock.
Net interest expense was $750,000 during the three months ended June 29, 1997,
as compared with $768,000 during the comparable period in the prior year.
NINE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Product revenue for the nine months ended June 28, 1997 was $70,174,000 compared
with $56,601,000 for the comparable period in 1996, representing an increase of
24%. The growth in product revenue is attributable to increasing sales in the
9
<PAGE>
purification, analysis and synthesis product lines and further expansion of the
Company's products into the international market place. Total revenue amounted
to $70,174,000 and $66,702,000 for the nine months ended June 28, 1997 and June
29, 1996, respectively. The increase in total revenue is attributable to the
continued sequential growth in the Company's core products business. This
growth has been offset by the elimination of approximately $10 million in
contract revenue previously derived under a contract research and development
agreement between the Company and PTC II. The Company acquired PTC II in March
1996.
Gross profit from product revenues for the nine months ended June 28, 1997 and
June 29, 1996 was $34,596,000 and $25,429,000, respectively. Gross margin was
49% during the nine months ended June 28, 1997 as compared to 38% during the
same period in the prior year. Factors contributing to the differences in gross
margins between the periods relate to the nonrecurrence of the provision for
other charges recorded in the prior period and the elimination of the $10
million of low margin contract research revenue in the current period. Included
in cost of revenue for the nine months ended June 29, 1996 are other charges
totaling $4.8 million. These charges represent provisions to write off
inventory and other assets associated with actions taken to discontinue product
lines as well as to reposition certain products within the purification,
analysis and synthesis product lines.
Research and development expenses for the nine months ended June 28, 1997
amounted to $10,892,000, or 16% of revenue, as compared with $7,720,000, or 14%
of product revenue for the comparable period in the prior year. Research and
development expenses, adjusted to include such expenses reflected in cost of
contract revenue, have declined to $10,892,000, or 16% of product revenue, from
$15,491,000, or 27% of product revenue, for the nine months ended June 28, 1997
and June 29, 1996, respectively. Actions have been taken to control the level
of research and development expense actually incurred following the acquisition
of PTC II in March 1996, including the restructuring program that resulted in
the elimination of a significant portion of the Company's research and
development staffing and related variable support costs. Management intends to
continue pursuing commercialization opportunities and alliances in order to
obtain value from the technologies acquired from PTC II, as it has done in the
ChemGenics/Millennium transactions. See Note (5). Management continues to
evaluate the scope and direction of the various programs; however, there is 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 expenses amounted to $29,434,000 or 42% of
revenue, during the nine months ended June 28, 1997, as compared with
$30,512,000, or 46% of revenue, during the comparable period in the prior year.
The reduction in both aggregate spending as well as spending as a percent of
sales is attributable to management's efforts to control these costs as well as
improve the productivity of the resources utilized in these functional areas.
Other income was $26,556,000 for the nine months ended June 28, 1997 as compared
to other expense of $90,000 for the comparable period in 1996. This increase
was due primarily to the gain on the exchange of the Company's ChemGenics common
stock, $.001 par value per share (the "ChemGenics common stock"), for Millennium
common stock, $.001 par value per share (the "Millennium common stock"), the
receipt of additional consideration in the form of cash upon the merger of
ChemGenics with Millennium and the subsequent sale of a portion of the Company's
investment in Millennium common stock.
Net interest expense was $2,212,000 during the nine months ended June 28, 1997,
as compared with $2,190,000 during the comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments at June 28, 1997 were $38,262,000 as
compared to $24,657,000 at September 30, 1996. The increase in cash, cash
equivalents and investments is due principally to the $25.8 million of cash and
fair market value of the Company's investment in Millennium common stock. This
was offset by expenditures of cash, cash equivalents and investments during the
nine months ended June 28, 1997 primarily related to the funding of operational
requirements and capital additions of $12,993,000 and the net repayment of
borrowings of $458,000. Management anticipates additional cash usage relating
to various factors including but not limited to expenditures relating to a
significant new product launch and cash requirements associated with capital
expenditures, ongoing litigation, working capital, operational needs and, if
10
<PAGE>
PerSeptive were to elect to exercise its option to redeem $10,000,000 of Series
A Preferred Stock in August, 1997 in cash, the satisfaction of redemption
obligations.
The Company believes that its capital resources are sufficient to fund its
planned operations at least through the end of fiscal 1997. The Company believes
that additional financing may 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 in general 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 success of cost
containment initiatives, the liquidation of investments, the amount of cash and
investments used in meeting the preferred stock redemption obligation in August
1997, the competitive environment and the growth in the Company's business,
which may cause the Company's actual future capital resources 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 continually
evaluating its liquidity position and may seek to raise additional capital
through equity or debt financing or to enter into corporate partnering
arrangements; however, there can be no assurance that the Company will be able
to successfully raise additional capital at acceptable terms.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years
ended after December 15, 1997, including interim periods. SFAS 128 requires the
presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which
replaces primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS under the existing rules. SFAS 128 requires
restatement of all prior-period earnings per share data presented after the
effective date. The Company will adopt SFAS 128 in its fiscal year ended
September 30, 1998 and has not yet determined the impact of such adoption.
CHEMGENICS AND MILLENNIUM TRANSACTIONS
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 and warrants to purchase additional shares of ChemGenics
Common stock exercisable until June 28, 2000. The warrants were exercisable at
$5.00 per share. The Company was 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 held approximately 34% of the outstanding common stock of ChemGenics as
of December 28, 1996.
In January, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium")
entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of
the Agreement, the stockholders of ChemGenics received common stock of
Millennium in exchange for their common stock of ChemGenics. At the closing on
February 10, 1997, the Company received 1,612,582 shares of Millennium common
stock, $.001 par value per share ("Millennium common stock"), in exchange for
its shares of ChemGenics common stock. In addition, the Company received $4
million cash in exchange for the warrants for ChemGenics common stock and in
satisfaction of the above referenced promissory note. The parties to the
Agreement contemplate that the transaction will qualify as a tax-free merger.
The Company's shares of Millennium Common stock are subject to restrictions on
sale which expire in increments between June and September 1997. In connection
with this event, the Company recorded a gain of $25.8 million, reflecting the
fair market value of the cash received and the Company's investment in
Millennium common stock as of March 29, 1997. During the quarter ended June 28,
1997, the Company sold approximately 50% of its investment in Millennium for
$12.9 million and realized a gain on the sale of approximately $800,000. The
taxable gain arising from this transaction will be offset by available net
operating loss carryforwards with the exeception of a portion of the gain
potentially subject to the federal Alternative Minimum Tax.
11
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Additional Financing Requirements. The Company believes additional long-term
financing may 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 may seek 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.
Investment in Millennium. The Company currently holds approximately 800,000
shares of registered Millennium common stock. Downward fluctuations in the
market price of Millennium common stock will have an adverse effect on the value
of the Company's investments. There can be no assurance that the Company will
be able to realize cash from the sale of this stock equal to the value reflected
in the Company's balance sheet as of June 28, 1997.
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 and 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, results may vary significantly from quarter to quarter or year to
year based on timing of revenue, and revenue or profits in any period will not
necessarily be indicative of results in subsequent periods. In addition, the
Company's stock price has been volatile and may be affected by general market
conditions beyond the Company's control.
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, continued support from current
customers, development of new customers, successful introduction and sale of new
products and successful enforcement of the Company's patent rights. See "Legal
Proceedings."
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 internationally. The Company's ability to
accomplish this objective is dependent on many factors including, among others,
attracting and retaining 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 the
expansion of the Company's manufacturing capabilities, 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 they have asserted counterclaims against the
Company. The Company may incur substantial additional expenses relating to this
and other proceedings. There can be no assurance that the outcome of litigation
and proceedings 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." 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 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
12
<PAGE>
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 Securities and
Exchange Commission (the "Commission") has been conducting an investigation into
certain financial matters of the Company arising from the Company's restatement
of its financial statements for Fiscal 1993 and the first three fiscal quarters
of Fiscal 1994, and related matters. If, after completion of its investigation,
the Commission finds that violations of the federal securities laws have
occurred, the Commission has the authority to order persons to cease and desist
from committing or causing such violations and any future violations. The
Commission 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 have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than those of the
Company.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and
their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia &
Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company
partially owned by Sepracor, for willful infringement of three PerSeptive
patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of
Perfusion Chromatography/(R) /and the manufacture, sale and use of
chromatography particles and matrices that enable Perfusion Chromatography
(collectively, the "Original Perfusion Patents"). The Company commenced its
action against Pharmacia and Sepracor on October 14, 1993, and the consolidated
action has been pending in the United States District Court for the District of
Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also
claims that Sepracor and BioSepra made false and misleading representations of
fact with respect to the Company's products, and that BioSepra engaged in false
and misleading advertising. The lawsuit, in an amended complaint filed by
Purdue University and the Company, also claims that Sepracor and BioSepra
infringe a fourth patent ("the Coatings Patent"), licensed exclusively by
PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks
to enjoin the defendants from infringing the four patents and asks for treble
damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra
each have asserted that their products do not infringe the Original Perfusion
Patents and that the Original Perfusion Patents are invalid and unenforceable,
and have asserted counterclaims against the Company alleging that the Company's
assertions that they have infringed the patents, and that statements allegedly
made by the Company to customers concerning the litigation, constitute unfair
competition, commercial disparagement, unfair trade practices, tortious
interference with customer relationships and violation of the Lanham Act, and
seeking an unspecified amount of damages, and, under certain asserted claims,
double or treble damages, as well as attorneys' fees and expenses. The Company
has denied any liability on these 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 Original Perfusion
Patents, granting the Defendants' motions for partial summary judgment that
inventorship of the Original Perfusion Patents is improper for failure to name
one or more persons as additional joint inventors, and requiring the Company to
move to correct inventorship or have the patents declared invalid. On March 12,
1996, the Court entered a ruling directing the Company to correct inventorship
and placed on the Company the burden of proving the absence of deceptive intent
in the designation of inventors at a hearing. The Company moved to correct
inventorship. The Company has preserved its right to appeal a number of issues,
including the Court's January 9, 1996 order that the Original Perfusion Patents
failed to name additional persons as joint inventors and the Court's March 12,
1996 order imposing the burden of proof on PerSeptive. The hearing was held in
May and June 1996. On April 3, 1997, the Court issued a ruling denying the
Company's motion to correct inventorship, ruling that the Company had not met
its burden of proving that two British scientists, who worked for a company that
is not a party to the litigation, were not named on the Original Perfusion
Patents without deceptive intent within the meaning of Section 256 of Title 35
United States Code, and granted judgment in favor of Sepracor, BioSepra and
Pharmacia on the Company's claims relating to the Original Perfusion Patents.
On April 16, 1997, the Company filed a motion to permit an immediate appeal of
the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996
decisions, to the United States Court of Appeals for the Federal Circuit, which
has exclusive jurisdiction in the United States to hear appeals in patent cases.
On April 30, 1997, the defendants filed a motion requesting that the District
Court render a decision on the defendants' defense of inequitable conduct prior
to permitting the Company's appeal. On July 30, 1997, the Company filed a motion
seeking to (i) vacate the Court's April 3, 1997 decision and (ii) enter a final
judgment that will permit the Company to appeal the Court's earlier January 9,
1996 and March 12, 1996 orders that the patents do not name all of the
inventors. The Company's motion is based on a decision by the Court of Appeals
for the Federal Circuit in an unrelated case, Stark v. Advanced Magnetics, Inc.,
----------------------------------
issued on July 11, 1997, which the Company contends rendered the Court's April
3, 1997 decision erroneous. The defendants filed motions again requesting that
the District Court render a decision on their defense of inequitable conduct
prior to permitting an appeal. The Court has not rendered a decision on the
Company's or the defendants' motions. The Court has not yet considered the issue
of infringement of the Original Perfusion Patents or the Coatings Patent. The
Company intends to continue to vigorously pursue this litigation.
In September 1996 and February 1997, two new United States patents relating to
Perfusion Chromatography systems were issued to the Company. Neither of these
patents, which cover instruments and systems that perform the high-speed, high
resolution chromatography which is the subject of the Original Perfusion
Patents, are the subject of the current litigation.
14
<PAGE>
Prior to the issuance of these patents, the Company had submitted to the patent
examiner the District Court's January 9, 1996 order, and non-confidential
portions of related briefs filed by the parties, and the patents were issued
naming only PerSeptive's scientific founders as the inventors nonetheless.
Since November 1994, the Company has been responding to informal requests for
information from the Commission relating to certain of the Company's financial
matters. In May 1995, the Company was advised by the Commission that it had
obtained a formal order of investigation so that, among other matters, it may
utilize subpoena powers to obtain information relevant to its inquiry. The
Commission has and may in the future utilize its subpoena powers to obtain
information from various officers, directors and employees of the Company and
from persons not presently associated with the Company. If, after completion of
its investigation, the Commission finds that violations of the federal
securities laws have occurred, the Commission has the authority to order persons
to cease and desist from committing or causing such violations and any future
violations. The Commission 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.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 10.1 - Employment Agreement dated as of January 17, 1997
between PerSeptive Biosystems, Inc. and John F. Smith
10.2 - Employment Agreement dated as of January 17, 1997
between PerSeptive Biosystems, Inc. and Noubar B.
Afeyan
27 - Financial Data Schedule
(b) Reports on Form 8-K - None
[The remainder of this page is intentionally left blank.]
16
<PAGE>
SIGNATURES
- ----------
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PERSEPTIVE BIOSYSTEMS, INC.
Date: August 12,1997 By:/s/ Noubar B. Afeyan
-------------- --------------------
Noubar B. Afeyan, Chairman
and Chief Executive Officer
(Principal Executive Officer)
By:/s/ John F. Smith
-----------------
John F. Smith, President
and Director
By:/s/ Thomas G. Ruane
-------------------
Thomas G. Ruane, Senior Vice
President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Employment Agreement dated as of January 17, 1997
between PerSeptive Biosystems, Inc. and John F. Smith
10.2 Employment Agreement dated as of January 17, 1997
between PerSeptive Biosystems, Inc. and
Noubar B. Afeyan
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 17th day of January, 1997 by and between
PerSeptive Biosystems, Inc., a Delaware corporation (the "Company") and John F.
Smith ("Smith" or the "Employee").
WHEREAS, the Employee is currently employed as the President of the
Company; and
WHEREAS, the Company believes that it is in its best interest to
ensure that the Employee continues to render services to the Company as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations herein contained, it is mutually agreed between the parties hereto
as follows:
1. Period of Employment. The Company hereby employs the Employee
and the Employee agrees to serve the Company as provided in Section 2 hereof
commencing on the date hereof (the "Commencement Date") and continuing until the
earlier to occur of (i) July 16, 2000 (the "Expiration Date") or (ii) the
occurrence of any of the circumstances described in Section 4 hereof. If the
Employee's employment terminates upon the Expiration Date pursuant to clause (i)
of the preceding sentence, the Employee shall not be entitled to receive any
severance payments or other termination benefits, other than those required
bylaw. The Employee retains the right to end his employment with the Company,
for any reason, with or without cause, at any time after July 16, 1999 without
any breach of the Employee's obligations under this Agreement.
2. Position and Responsibilities. The Employee shall be employed as
the President of the Company, and the Employee shall exercise such powers and
comply with and perform such directions and duties in relation thereto as may
from time to time be vested in or given to him by the Chief Executive Officer of
the Company, or, if there is no Chief Executive Officer of the Company other
than the Employee, by the Board of Directors of the Company, and shall use his
best endeavors to improve and extend the business of the Company. In his
capacity as President, the Employee shall at all times report to, and his
activities shall be subject to the direction and control of, the Chief Executive
Officer of the Company, or, if there is no Chief Executive Officer of the
Company other than the Employee, the Board of Directors of the Company, and the
Employee shall devote his full business time and attention to his duties
hereunder. The Employee hereby accepts said employment and agrees faithfully to
perform said duties and render said services for the term of his employment.
3. Compensation.
A. In consideration of all of the services to be rendered by
the Employee to the Company, the Company will pay to the Employee a salary of
$330,000 per annum, or such greater amount as the Chief Executive Officer or the
Compensation Committee of the Board of Directors may, from time to time,
determine. Such salary shall be payable in conformity with the Company's
prevailing compensation practice, as such practice shall be established or
modified
<PAGE>
from time to time and shall be subject to all taxes and other legally required
payroll deductions and withholdings.
B. At the sole discretion of the Compensation Committee of
the Board of Directors, the Employee may also be entitled to receive bonus
compensation or to participate in incentive compensation plans or programs as
may be determined or established from time to time by the Compensation
Committee.
C. The Employee will be entitled to participate on the same
basis with all other officers of the Company in the Company's standard benefits
package generally available to other executive officers of the Company.
D. The Company shall grant the Employee options to acquire
500,000 shares of common stock of the Company which options shall be granted as
provided pursuant to the stock option agreements (the "Stock Options"). The
Employee hereby acknowledges that such Options were granted effective July 16,
1996.
E. The Company shall reimburse the Employee for reasonable
expenses incurred directly by the employee in connection with his employment.
Further, the Employee agrees to provide suitable and accurate documentation
evidencing such costs incurred and the company shall provide reimbursement
within a reasonable time after the receipt of such documentation.
4. Termination. The Employee's employment may be terminated prior
to the Expiration Date as follows:
A. At the Employee's Option. Subject to the Company's right
to terminate the Employee's employment pursuant to Sections 4.B and 4.C below
and the Employee's right to terminate his employment pursuant to Section 4.D,
the Employee may terminate his employment for any reason, or for no reason, at
any time upon at least sixty (60) days' prior notice. In the event the Employee
terminates his employment pursuant to this Section, the Employee shall be
entitled to no severance or other termination benefits, except as required by
law.
B. At the Election of the Company for Misconduct. The Company
may, immediately and unilaterally, terminate the Employee's employment for
"misconduct" at any time by notice to the Employee. Termination of the
Employee's employment by the Company shall constitute a termination for
"misconduct" if such termination is for one or more of the following reasons:
dishonesty, gross negligence, or other wilful conduct which causes substantial
damages, liabilities or cost to the Company. In the event that the Employee's
employment is terminated for misconduct pursuant to this Section 4.B, the
Employee shall not be entitled to any severance or other termination benefits,
except as required by law.
C. At the Election of the Company for Reasons Other than
Misconduct. The Company may, immediately and unilaterally, terminate the
Employee's employment at any
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<PAGE>
time for any reasons, or for no reason, and without cause by giving written
notice to the Employee of the Company's election to so terminate. In the event
that the Company exercises its right to terminate under this Section 4.C, the
Employee shall be entitled to receive (i) severance payments in the form of
salary continuation for the period from the termination date of the employee's
employment through the Expiration Date, payable, at the election of the Company,
monthly or quarterly in arrears (hereinafter sometimes called the "Severance
Payments"), (ii) a cash performance bonus for each fiscal year of the company up
to and including the Company's fiscal year ending September 30, 2000 that ends
after the date of termination of the Employee's employment with the company for
which the Employee did not in fact earn a cash performance bonus, such cash
performance bonus to be in an amount equal to the highest cash performance bonus
in fact paid to the Employee, or in fact earned and payable to the Employee,
prior to the date of termination of his employment with the Company (the
"Performance Bonus Amount"), and (iii) the Stock Options as provided in Section
3.D. hereof. The Performance Bonus Amount may be paid, at the election of the
Company, in arrears in equal monthly or quarterly installments, and shall be
subject to all taxes and other legally required payroll deductions and
withholding. If the Employee neither received nor earned a cash performance
bonus during his employment with the Company pursuant to this Agreement, no
Performance Bonus Amount shall be payable pursuant to section 4.C.(ii) above.
Nothing herein contained shall be deemed to constitute an obligation to pay the
Employee a cash performance bonus with respect to any period during which the
Employee is employed by the Company or not employed by the Company, other than
as expressly set forth herein.
D. At the Election of the Employee for Good Reason. Not
withstanding any other provision of this Agreement, the Employee may terminate
his employment for Good Reason if: (a) there is a material breach of this
Agreement by the company, or (b) there is a Change In Control as defined in
Section 4.D.1.(i-v) and the conditions described in Section 4.D.2.(i-iv) exist.
In the event that the Employee exercises his right to terminate under this
Section 4.D, the Employee shall be entitled to receive the Severance Payments,
the Performance Bonus Amount if payable as provided in Section 4.C.(ii) hereof,
which shall be paid as set forth in Section 4.C., and the Stock Options as
provided in Section 3.D. hereof.
1. For purposes hereof, "Change In Control" means
the occurrence of any of the following events during the Employee's
employment during the term of this Agreement:
(i) The Company is merged or consolidated or reorganized
into or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization less
than a majority of the combined voting power of the then-
outstanding securities of such surviving, resulting or
reorganized corporation or person immediately after such
transaction is held in the aggregate by the holders of the
then-outstanding securities entitled to vote generally in the
election of directors of the Company ("Voting Stock")
immediately prior to such transaction;
-3-
<PAGE>
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and as a result of such sale or transfer
less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person
immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the 1934 Act, disclosing that any
"person" (as such term is used in Section 13(d)(3) or Section
14(d)(2) of the 1934 Act) has become the "beneficial owner" (as
such term is used in Rule 13d-3 under the 1934 Act) of
securities representing 35% or more of the Voting Stock of the
Company; or
(iv) The Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934 Act
disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
Change In Control of the Company has occurred:
(v) Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board;
provided, however, that a "Change In Control" shall not be deemed to have
occurred for purposes of this Agreement solely because (i) the Company, (ii) an
entity in which the Company directly or indirectly beneficially owns 50% or more
of the voting securities, or (iii) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company, either files
or becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report) under the Securities Exchange Act of 1934, disclosing
beneficial ownership by it of
-4-
<PAGE>
shares of Voting Stock or because the Company reports that a Change In Control
of the Company has or may have occurred or will or may occur in the future by
reason of such beneficial ownership.
2. For purposes hereof, "Good Reason" means the
occurrence of one or more of the following events following a Change In
Control:
(i) Failure to elect, reelect or otherwise
maintain the Employee in the office or position in the
Company which the Employee held immediately prior to a
Change In Control, or the removal of the Employee as a
director of the Company (or any successor thereto) if the
Employee shall have been a director of the Company
immediately prior to the Change In Control;
(ii) A significant adverse change in the nature or
scope of the authorities, powers, functions,
responsibilities or duties attached to the position with
the Company which the Employee held immediately prior to
the Change In Control, a material reduction in the
aggregate of the Employee's salary received from the
Company, or the termination of the Employee's rights to
any benefits to which he was entitled immediately prior to
the Change In Control or a material reduction in scope or
value thereof without the prior written consent of the
Employee, any of which is not remedied within ten (10)
calendar days after receipt by the Company of written
notice from the Employee of such change, reduction or
termination, as the case may be;
(iii) A determination by the Employee made in good
faith that as a result of a Change In Control and a change
in circumstances thereafter significantly affecting his
position, including without limitation a change in the
scope of the business or other activities for which he was
responsible immediately prior to the Change In Control, he
has been rendered substantially unable to carry out, has
been substantially hindered in the performance of, or has
suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties
attached to the position held by the Employee immediately
prior to the Change In Control, which situation is not
remedied within ten (10) calendar days after written
notice to the Company from the Employee of such
determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer
of all or a significant portion of its business and/or
assets, unless the successor or
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<PAGE>
successors (by liquidation, merger, consolidation,
reorganization or otherwise) to which all or a significant
portion of its business and/or assets have been
transferred (directly or by operation of law) shall have
assumed all duties and obligations of the Company under
this Agreement;
(v) The Company shall relocate its principal
executive offices, or require the Employee to have his
principal location of work changed, to any location which
is in excess of twenty (20) miles from the location
thereof immediately prior to the Change In Control or the
Company shall require the Employee to travel away from his
office in the course of discharging his responsibilities
or duties thereunder significantly more (in terms of
either consecutive days or aggregate days in any calendar
year) than was required of him prior to the Change In
Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by
the Company or any successor thereto.
E. By Reason of Death or Disability. If the Employee
dies during his employment during the term of this Agreement, the Company shall
have no further obligation to pay compensation or other benefits, except that
the Employee's estate shall be entitled to receive: (1) an amount equal to the
balance of the Employee's salary through July 16, 2000 at his then current rate,
(ii) if payable, an amount equal to the Performance Bonus Amount, payable in
arrears in monthly or quarterly installments at the election of the Company, and
(iii) Stock Options as provided in Section 3.D. If during the term of the
Employee's employment he becomes disabled (by reason of physical disability,
mental incompetence or otherwise) for such period of time and under circumstance
which entitle him to receive disability benefits under the terms of any
disability insurance policy now maintained or purchased for the Employee by the
Company, then the Board of Directors of the Company, in its discretion, may
elect to terminate the Employee's employment by reason of such disability as of
the date benefits first became payable under such disability policy by giving
the Employee written notice to such effect. Upon any such termination for
disability, the Employee shall be entitled to receive (i) severance payments
equal to the balance of the Employee's salary through July 16, 2000, at the
Employee's then current rate; (ii) if payable, an amount equal to the
Performance Bonus Amount, payable in arrears in monthly or quarterly
installments at the election of the Company, reduced by any amounts received by
the Employee pursuant to any disability insurance policy maintained or paid for
by the Company; and (iii) Stock Options as provided in Section 3.D. The Employee
shall be deemed to be disabled for the purposes of this Section 4.E. if he is
unable to perform his duties hereunder for a period of three consecutive months.
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<PAGE>
F. Any severance payments shall be calculated on the
basis of the Employee's annual salary rate at the time of termination and shall
be payable in conformity with the Company's then current payroll practices and
shall be subject to all taxes and other legally required payroll deductions and
withholding.
G. In the event of any termination of the Employees
employment, including any termination pursuant to Section 1(i) hereof, in
addition to any severance payments or Performance Bonus Amount which may be
payable hereunder, the Employee shall receive all earned but unpaid salary,
accrued but unused vacation and earned but unpaid bonus or incentive
compensation, each as of the termination date, and all other benefits required
by law.
H. In the vent of any voluntary termination of the
Employee's employment (other than for Good Reason) pursuant to Section 4.A, or
any termination of the Employee's employment by the Company for Misconduct
pursuant to Section 4.B, or as a result of disability pursuant to Section 4.E.,
then the Employee specifically agrees and acknowledges that he will be deemed to
have resigned from all offices and directorship he holds with the Company, its
subsidiaries, and/or affiliated entities effective as of his last day of
employment.
I. Gross-up. If any of the payments under Section 4 or
--------
any other payments made or deemed made to the Employee pursuant to this
Agreement or any other agreement including but not limited to the acceleration
of stock options upon a Change of Control or the Death or Disability of the
Employee (the "Payments") will be subject to the tax (the "Excise Tax") imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
(or any similar tax that may hereafter be imposed) the Company shall pay to the
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Employee, after deduction of any Excise Tax on the Payments,
without regard to this sentence, (after the deduction of any federal, state and
local income tax upon the Gross-Up Payment), shall be equal to the Payments,
without regard to this sentence. For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(A) any other payments or benefits received or to be received by the Employee in
connection with a Change in Control of the Company or the Employee's termination
of employment (whether pursuant to the terms of any Section of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Change In Control of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Employee such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax,
(B) the amount of the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (I) the total amount of the Payments or (II)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
(after
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<PAGE>
applying clause (A), above), and (C) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Employee's residence on the
Date of Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time of termination of the Employee's employment,
the Employee shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax imposed on the Gross-Up Payment being repaid by
the Employee if such repayment results in a reduction in Excise Tax) plus
interest on the amount of such repayment at the rate provided in Section
7872(f)(2) of the Code. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Employee's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
5. Non-Competition Agreement. The Employee and the Company have
entered into a Non-Competition, Proprietary Information and Inventions Agreement
dated as of July 16, 1996 (the "Non-Competition Agreement"), which shall remain
in full force and effect in accordance with its terms. The Non-Competition
Agreement shall survive, in accordance with its terms, any termination of
Employee's employment, for any reason whatsoever.
6. Consent and Waiver by Third Parties. The Employee hereby
represents and warrants that he has obtained all necessary waivers and/or
consents from third parties as to enable him to accept and continue employment
with the Company on the terms and conditions set forth herein and to execute and
perform this Agreement and the Non-competition Agreement without being in
conflict with any other agreement, obligation or understanding with any such
third party.
7. Waivers and Modifications. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in writing,
signed by both the Company and the Employee. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any such or other provision
of this Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
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<PAGE>
8. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts.
9. Severability. In case any one or more of the provisions
contained in this Agreement for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
10. Termination of All Prior Agreements; Entire Agreement. Upon
execution of this Agreement, all prior employment agreements shall be terminated
and of no further force or effect, except for the Non-Competition Agreement,
which shall continue in full force and effect in accordance with its terms. This
Agreement and the Non-Competition Agreement constitute the entire agreement and
understanding between the Company and the Employee with respect to the subject
matter hereof and thereof and supersede any other prior agreements or
understandings, whether oral or written.
11. Notices. Any notice required or permitted to be given pursuant
to this Agreement shall be in writing, and sent to the party for whom or which
it is intended, at the address of such parties set forth below, by registered or
certified mail, return receipt requested, or at such other address either party
shall designate by notice to the other in the manner provided herein for giving
notice.
If to the Company: PerSeptive Biosystems, Inc.
500 Old Connecticut Path
Framingham, MA 01701
Attn: Chairman of Compensation Committee
With a copy to:
Rufus C. King, Esquire
Testa, Hurwitz and Thibeault, LLP
125 High Street
High Street Tower
Boston, MA 02110
If to the Employee: John F. Smith
11 Samuel Parlin Drive
Acton, MA 01720
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement as of the date and year first above written.
PERSEPTIVE BIOSYSTEMS, INC.
By: /s/ Noubar B. Afeyan
--------------------------------
Title: Chief Executive Officer
John F. Smith
/s/ John F. Smith
-----------------------------------
Signature
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<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 17th day of January, 1997 by and between PerSeptive
Biosystems, Inc., a Delaware corporation (the "Company") and Noubar B. Afeyan
("Afeyan" or the "Employee").
WHEREAS, the Employee is currently employed as the Chief Executive Officer
and Chairman of the Board of Directors of the Company;
WHEREAS, the Company believes that it is in its best interest to ensure that
the Employee continues to render services to the Company as hereinafter
provided;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
herein contained, it is mutually agreed between the parties hereto as follows:
1. PERIOD OF EMPLOYMENT. The Company hereby employs the Employee and the
Employee agrees to serve the Company as provided in Section 2 hereof commencing
on the date hereof (the "Commencement Date") and continuing until the occurrence
of any of the circumstances described in Section 4 hereof.
2. POSITION AND RESPONSIBILITIES. The Employee shall be employed as the
Chief Executive Officer and Chairman of the Board of Directors of the Company,
and the Employee shall exercise such powers and comply with and perform such
directions and duties in relation thereto as may from time to time be vested in
or given to him by the board of Directors of the Company and shall use his best
endeavors to improve and extend the business of the Company. In his capacity as
Chief Executive Officer, the Employee shall at all times report to, and his
activities shall be subject to the direction and control of, the Board of
Directors of the Company and the Employee shall devote his full business time
and attention to his duties hereunder. The Employee hereby accepts said
employment and agrees faithfully to perform said duties and render said services
for the term of his employment.
3. COMPENSATION.
A. In consideration of all of the services to be rendered by the
Employee to the Company, the Company will pay to the Employee a salary of
$330,000 per annum, or such greater amount as the Compensation Committee of the
Board of Directors may, from time to time, determine. Such salary shall be
payable in conformity with the Company's prevailing compensation practice, as
such practice shall be established or modified from time to time and shall be
subject to all taxes and other legally required payroll deductions and
withholdings.
B. At the sole discretion of the Compensation Committee of the Board
of
<PAGE>
2
Directors, the Employee may also be entitled to receive bonus compensation or to
participate in incentive compensation plans or programs as may be determined or
established from time to time by the Compensation Committee.
C. The Employee will be entitled to participate on the same basis
with all other officers of the Company in the Company's standard benefits
package generally available to other executive officers of the Company.
D. The Company shall reimburse the Employee for reasonable expenses
incurred directly by the Employee in connection with his employment. Further,
the Employee agrees to provide suitable and accurate documentation evidencing
such costs incurred and the Company shall provide reimbursement within a
reasonable time after the receipt of such documentation.
4. TERMINATION. The Employee's employment may be terminated as follows:
A. AT THE EMPLOYEE'S OPTION. Subject to the Company's right to
terminate the Employee's employment pursuant to Sections 4.B and 4.C below and
the Employee's right to terminate his employment pursuant to Section 4.D, the
Employee may terminate his employment for any reason, or for no reason, at any
time upon at least sixty (60) days' prior notice. In the event the Employee
terminates his employment pursuant to this Section, the Employee shall be
entitled to no severance or other termination benefits, except as required by
law.
B. AT THE ELECTION OF THE COMPANY FOR MISCONDUCT. The Company may,
immediately and unilaterally, terminate the Employee's employment for
"misconduct" at any time by notice to the Employee. Termination of the
Employee's employment by the Company shall constitute a termination for
"misconduct" if such termination is for one or more of the following reasons:
dishonesty, gross negligence, or other willful conduct which causes substantial
damages, liabilities or cost to the Company. In the event that the Employee's
employment is terminated for misconduct pursuant to this Section 4.B, the
employee shall not be entitled to any severance or other termination benefits,
except as required by law.
C. AT THE ELECTION OF THE COMPANY FOR REASONS OTHER THAN MISCONDUCT.
The Company may, immediately and unilaterally, terminate the Employee's
employment at any time for any reason, or for no reason, and without cause by
giving written notice to the Employee of the Company's election to so terminate.
In the event that the Company exercises its right to terminate under this
Section 4.C, the Employee shall be entitled to receive (i) severance payments
equal to twenty-four (24) months salary at the Employee's then current rate
payable, at the Company's election, monthly or quarterly in arrears in equal
installments over twenty-four (24) months (herein sometimes called the
"Severance Payments"), (ii) continuation of health insurance coverage on the
same or substantially the same terms and conditions then applicable to such
coverage until the earlier of (a) twenty-four (24) months from the date of
termination or (b) the date on which Employee becomes eligible to participate in
the health insurance plans of a subsequent employer, and (iii) if the Employee
had received a cash performance bonus, or a cash performance bonus was earned
and payable, with respect to a fiscal year of the Company ending within the
three year period immediately preceding the date of such termination, an amount
equal
<PAGE>
3
to two (2) times the highest cash performance bonus in fact paid to the
Employee, or in fact earned and payable to the Employee, for any fiscal year of
the Company ending during such three year period (the "Performance Bonus
Amount"), payable on the date of termination of the Employee's employment. The
Performance Bonus Amount shall be subject to all taxes and other legally
required payroll deductions and withholding. If the employee neither received
nor earned a cash performance bonus during the three year period immediately
preceding the date of such termination, no Performance Bonus Amount shall be
payable pursuant to this section 4.C.(iii). Nothing herein contained shall be
deemed to constitute an obligation to pay the Employee a cash performance bonus
with respect to any period during which the Employee is employed by the Company
or not employed by the Company, other than as expressly set forth herein.
D. AT THE ELECTION OF THE EMPLOYEE FOR GOOD REASON. Not
withstanding any other provision of this Agreement, the Employee may terminate
his employment for Good Reason if: (a) there is a material breach of this
Agreement by the Company, or (b) there is a Change in Control as defined in
Section 4.D.1.(i-v) and the conditions described in Section 4.D.2.(i-iv) exist.
in the event that the Employee exercises his right to terminate under this
Section 4.D, the employee shall be entitled to receive the Severance Payments,
benefits and, if payable as provided in Section 4.C.(iii) hereof, the
Performance Bonus Amount, which shall be paid as set forth in Section 4.C.
1. For purposes hereof, "Change In Control" means the occurrence
of any of the following events:
(i) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such surviving, resulting
or reorganized corporation or person immediately after such transaction is
held in the aggregate by the holders of the then-outstanding securities
entitled to vote generally in the election of directors of the Company
("Voting Stock") immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such sale or
transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to the
1934 Act, disclosing that any "person" (as such term is used in Section
13(d)(3) or Section 14(d)(2) of the 1934 Act) has become the "beneficial
owner" (as such term is used in Rule 13d-3 under the 1934 Act) of securities
representing 35% or more of the Voting Stock of the Company;
<PAGE>
4
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the 1934 Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has occurred;
or
(v) Individuals who, as of the date of this Agreement, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual becoming a
director subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board:
provided, however, that a "Change In Control" shall not be deemed to have
occurred for purposes of this Agreement solely because (i) the Company, (ii) an
entity in which the Company directly or indirectly beneficially owns 50% or more
of the voting securities, or (iii) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company, either files
or becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report) under the Securities Exchange Act of 1934, disclosing
beneficial ownership by it of shares of Voting Stock or because the Company
reports that a change in control of the Company has or may have occurred or will
or may occur in the future by reason of such beneficial ownership.
2. For purposes hereof, "Good Reason" means the occurrence of one
or more of the following events following a Change In Control:
(i) Failure to elect, reelect or otherwise maintain the Employee in
the office or position in the Company which the Employee held immediately
prior to a Change In Control, or the removal of the Employee as the Chairman
of the Board or a director of the Company (or any successor thereto) if the
Employee shall have been the Chairman of the Board or a director of the
Company, as the case may be, immediately prior to the Change In Control;
(ii) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Employee held immediately prior to the
Change In Control, a material reduction in the aggregate of the Employee's
salary received from the Company, or the termination of the Employee's rights
to any benefits to which he was entitled immediately prior to the Change In
Control or a material reduction in scope or value thereof without the prior
written consent of the Employee, any of which is not remedied within ten (10)
calendar days after receipt by the Company of written notice from the
Employee of such change, reduction or termination,
<PAGE>
5
as the case may be;
(iii) A determination by the Employee made in good faith that as a
result of a Change In Control and a change in circumstances thereafter
significantly affecting his position, including without limitation a change
in the scope of the business or other activities for which he was responsible
immediately prior to the Change In Control, he has been rendered
substantially unable to carry out, has been substantially hindered in the
performance of, or has suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to the
position held by the Employee immediately prior to the Change In Control,
which situation is not remedied within ten (10) calendar days after written
notice to the Company from the Employee of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or a significant portion of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization or otherwise) to which all
or a significant portion of its business and/or assets have been transferred
(directly or by operation of law) shall have assumed all duties and
obligations of the Company under this Agreement;
(v) The Company shall relocate its principal executive offices, or
require the Employee to have his principal location of work changed, to any
location which is in excess of twenty (20) miles from the location thereof
immediately prior to the Change In Control or the Company shall require the
Employee to travel away from his office in the course of discharging his
responsibilities or duties thereunder significantly more (in terms of either
consecutive days or aggregate days in any calendar year) than was required of
him prior to the Change In Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto.
E. BY REASON OF DEATH OR DISABILITY. If the Employee dies
during his employment during the term of this Agreement, the Company shall have
no further obligation to pay compensation or other benefits, except that the
Employee's estate shall be entitled to receive an amount equal to twenty four
(24) months of the employee's salary at his then current rate, and, if the
Employee had received a cash performance bonus, or a cash performance bonus was
earned and payable, with respect to a fiscal year of the Company ending within
the three year period immediately preceding the date of the Employee's death, an
amount equal to two (2) times the highest performance cash bonus in fact paid to
the employee, or in fact earned and payable to the employee, for any fiscal year
of the Company ending during such three year period, such amounts to be payable,
at the election of the Company, monthly or quarterly in arrears over the twenty-
four (24) months subsequent to the Employee's death. if during the term of the
employee's employment he becomes disabled (by reason of physical disability,
mental incompetence or otherwise) for such period of time and under
circumstances which entitle him to receive disability benefits under the terms
of any disability insurance policy now maintained or
<PAGE>
6
to be purchased for the Employee by the Company, then the Board of Directors of
the Company, in its discretion, may elect to terminate the Employee's employment
by reason of such disability as of the date benefits first become payable under
such disability policy by giving the employee written notice to such effect.
Upon any such termination for disability, the employee shall be entitled to
receive severance payments equal to twenty four (24) months salary at the
Employee's then current rate payable over twenty four (24) months and, if the
employee had received a cash performance bonus, or a cash performance bonus was
earned and payable, with respect to a fiscal year of the Company ending within
the three year period immediately preceding the date of such termination, an
amount equal to two (2) times the highest performance cash bonus in fact paid to
the employee, or in fact earned and payable to the Employee, for any fiscal year
of the Company ending during such three year period, reduced by any amounts
received by the employee pursuant to any disability insurance policy maintained
or paid for by the Company. The employee shall be deemed to be disabled for the
purposes of this Section 4.E. if he is unable to perform his duties hereunder
for a period of three consecutive months.
F. Any severance payments shall be calculated on the basis of the
Employee's annual salary rate at the time of termination and shall be payable in
conformity with the Company's then current payroll practices and shall be
subject to all taxes and other legally required payroll deductions and
withholding.
G. In the event of any termination of the Employee's employment, in
addition to any severance payments, benefits or cash performance bonus which may
be payable hereunder, the Employee shall receive all earned but unpaid salary,
accrued but unused vacation and earned but unpaid bonus or incentive
compensation, each as of the termination date, and all other benefits required
by law.
H. In the event of any voluntary termination of the Employee's
employment (other than for Good Reason) pursuant to Section 4.A, or any
termination of the Employee's employment by the Company for Misconduct pursuant
to Section 4.B, or as a result of disability pursuant to Section 4.E, then the
Employee specifically agrees and acknowledges that he will be deemed to have
resigned from all offices and directorships (including without limitation his
position as Chairman of the Board and as a Director of the Company if he holds
such position(s) at the time of any such termination) he holds with the Company,
its subsidiaries, and/or affiliated entities, effective as of his last day of
employment.
I. Gross-up. If any of the payments under Section 4 or any other
--------
payments made or deemed made to the Employee pursuant to this Agreement or any
other agreement, including but not limited to the acceleration of stock options
upon a Change In Control, or the Death or Disability of the Employee, (the
"Payments," etc.) will be subject to the tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), (or
any similar tax that may hereafter be imposed) the Company shall pay to the
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Employee, after deduction of any Excise Tax on the Payments,
without regard to this sentence, (after the deduction of any federal, state and
local income tax upon the Gross-Up Payment), shall be equal to the Payments,
without regard to this sentence. For purposes of determining whether any of the
<PAGE>
7
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(A) any other payments or benefits received or to be received by the Employee in
connection with a Change in Control of the Company or the Employee's termination
of employment (whether pursuant to the terms of any Section of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Change in Control of the company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Employee such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax,
(B) the amount of the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (I) the total amount of the Payments or (II)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (A), above), and (C) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Employee's residence
on the Date of Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time of termination of the Employee's
employment, the Employee shall repay to the Company at the time that the amount
of such reduction in Excise Tax is finally determined the portion of the Gross-
Up Payment attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax imposed on the Gross-Up Payment being
repaid by the Employee if such repayment results in a reduction in Excise Tax)
plus interest on the amount of such repayment at the rate provided in Section
7872(f)(2) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination of
the Employee's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
5. NON-COMPETITION AGREEMENT. the employee and the Company have entered
into a Non-competition, Proprietary Information and Inventions Agreement dated
as of march 30, 1989 (the "Non-Competition Agreement"), which shall remain in
full force and effect in accordance with its terms. The Non-Competition
Agreement shall survive, in accordance with its terms, the termination of
Employee's employment with the Company for any reason whatsoever.
<PAGE>
8
6. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby represents and
warrants that he has obtained all necessary waivers and/or consents from third
parties as to enable him to accept and continue employment with the company on
the terms and conditions set forth herein and to execute and perform this
Agreement and the Non-Competition Agreement without being in conflict with any
other agreement, obligation or understanding with any such third party.
7. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in writing,
signed by both the Company and the Employee. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any such or other provision
of this Agreement. This agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
8. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts.
9. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
10. TERMINATION OF ALL PRIOR AGREEMENTS; ENTIRE AGREEMENT. Upon execution of
this Agreement, all prior employment agreements shall be terminated and of no
further force or effect, except for the Non-Competition Agreement, which shall
continue in full force and effect in accordance with its terms. This Agreement
and the Non-Competition Agreement constitute the entire agreement and
understanding between the Company and the Employee with respect to the subject
matter hereof and thereof and supersede any other prior agreements or
understandings, whether oral or written.
11. NOTICES. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing, and sent to the party for whom or which it is
intended, at the address of such parties set forth below, by registered or
certified mail, return receipt requested, or at such other address either party
shall designate by notice to the other in the manner provided herein for giving
notice.
If to the Company: PerSeptive Biosystems, Inc.
500 Old Connecticut Path
Framingham, MA 01701
Attention: Chairman of Compensation Committee
With a copy to:
<PAGE>
9
Rufus C. King, Esq.
Testa, Hurwitz and Thibeault, LLP
125 High Street
High Street Tower
Boston, MA 02110
If to the Employee: Dr. Noubar B. Afeyan
6 Fairfield Avenue
Lexington, MA 02173
IN WITNESS WHEREOF, each of the parties hereto has executed this Employment
Agreement as of the date and year first above written.
PERSEPTIVE BIOSYSTEMS, INC.
By: /s/ Edward M. Kania, Jr.
___________________________
Title: Chairman, Compensation Committee
Board of Directors
Noubar B. Afeyan
/s/ Noubar B. Afeyan
______________________________
Signature
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> JUN-28-1997 JUN-29-1996
<CASH> 7,069 6,686
<SECURITIES> 31,193 9,901
<RECEIVABLES> 20,861 18,765
<ALLOWANCES> 1,931 2,337
<INVENTORY> 23,828 22,957
<CURRENT-ASSETS> 2,678 2,170
<PP&E> 44,158 54,176
<DEPRECIATION> 15,579 19,330
<TOTAL-ASSETS> 137,300 124,614
<CURRENT-LIABILITIES> 36,586 37,237
<BONDS> 0 0
0 0
19,123 27,538
<COMMON> 216 172
<OTHER-SE> 47,904 25,070
<TOTAL-LIABILITY-AND-EQUITY> 137,300 124,614
<SALES> 70,174 56,601
<TOTAL-REVENUES> 70,174 66,702
<CGS> 35,578 27,865
<TOTAL-COSTS> 35,578 41,273
<OTHER-EXPENSES> 41,106 53,566
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,212 2,190
<INCOME-PRETAX> 17,834 (30,417)
<INCOME-TAX> 0 100
<INCOME-CONTINUING> 17,834 (30,517)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,834 (30,517)
<EPS-PRIMARY> 0.78 (2.08)
<EPS-DILUTED> 0.72 0
</TABLE>
