<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission file number 0-19267
ALKERMES, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2472830
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 Sidney Street, Cambridge, MA 02139-4136
- --------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 494-0171
----------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year,
if changed since last report
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.
Class Shares Outstanding as of January 9, 1997
----- ----------------------------------------
Common Stock, par value $.01 18,543,309
<PAGE> 2
ALKERMES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- December 31, 1996 and March 31, 1996
Consolidated Statements of Operations 4
- Three months ended December 31, 1996 and 1995
Nine months ended December 31, 1996 and 1995
Consolidated Statement of Shareholders' Equity 5
- Nine months ended December 31, 1996
Consolidated Statements of Cash Flows 6
- Nine months ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
(2)
<PAGE> 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------- -------------
A S S E T S
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 210,783 $ 445,150
Short-term investments 42,464,335 31,929,214
Receivables from collaborative arrangements 3,367,935 500,000
Prepaid expenses and other current assets 894,539 1,457,477
------------- -------------
Total current assets 46,937,592 34,331,841
------------- -------------
Property, Plant and Equipment:
Land 225,000 225,000
Building 1,275,000 1,275,000
Furniture, fixtures and equipment 11,148,987 9,864,501
Leasehold improvements 2,174,927 2,008,193
Construction in progress -- 147,326
------------- -------------
14,823,914 13,520,020
Less accumulated depreciation and amortization (6,695,737) (5,097,882)
------------- -------------
8,128,177 8,422,138
------------- -------------
Investments 1,371,192 1,372,789
------------- -------------
Other Assets 620,233 747,377
------------- -------------
Other Investments 554,070 877,928
------------- -------------
$ 57,611,264 $ 45,752,073
============= =============
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Current Liabilities:
Accounts payable and accrued expenses $ 2,368,478 $ 3,522,178
Long-term debt, current portion 3,838,710 2,925,756
------------- -------------
Total current liabilities 6,207,188 6,447,934
------------- -------------
Long-Term Debt, less current portion 11,610,721 9,876,347
------------- -------------
Other Long-Term Liabilities 1,303,083 915,241
------------- -------------
Deferred Revenue 5,000,000 5,000,000
------------- -------------
Shareholders' Equity:
Capital stock, par value $.01 per share:
Authorized, 5,000,000 shares; none issued
Common stock, par value $.01 per share:
Authorized 40,000,000 shares; issued 18,517,394 shares at
December 31, 1996 and 15,966,942 shares at March 31, 1996 185,174 159,669
Additional paid-in capital 148,273,154 124,239,023
Receivable for warrants and deferred compensation (153,175) (317,682)
Cumulative foreign currency translation adjustments 8,665 (24,354)
Unrealized gain on marketable securities 193,125 502,500
Accumulated deficit (115,016,671) (101,046,605)
------------- -------------
Total shareholders' equity 33,490,272 23,512,551
------------- -------------
$ 57,611,264 $ 45,752,073
============= =============
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE> 4
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue under
collaborative arrangements $ 4,913,099 $ 374,525 $10,827,964 $ 1,772,624
Research and development revenue under
collaborative arrangement with related party -- 2,679,595 1,415,313 7,898,348
Interest income 591,945 616,268 1,763,905 1,360,283
------------ ------------ ------------ ------------
5,505,044 3,670,388 14,007,182 11,031,255
------------ ------------ ------------ ------------
Expenses:
Research and development 7,657,829 4,873,939 21,213,773 14,913,361
General and administrative 1,683,749 1,305,913 5,753,367 3,601,825
Interest expense 400,157 262,351 1,010,108 717,218
------------ ------------ ------------ ------------
9,741,735 6,442,203 27,977,248 19,232,404
------------ ------------ ------------ ------------
Net loss $( 4,236,691) $( 2,771,815) $(13,970,066) $( 8,201,149)
============ ============ ============ ============
Net loss per weighted average number of common
shares ($0.23) ($0.17) ($0.77) ($0.57)
============ ============ ============ ============
Weighted average number of common shares
outstanding 18,479,498 15,852,081 18,076,420 14,387,290
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE> 5
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Receivable
Common Stock Additional for Warrants
------------ Paid-in and Deferred
Shares Amount Capital Compensation
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Balance, April 1, 1996 15,966,942 $ 159,669 $ 124,239,023 $ (317,682)
Issuance of common stock 4/96 through 6/96,
net of issuance costs of $65,000 2,398,204 23,982 23,346,771 --
Amortization of receivable for warrants -- -- -- 34,687
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,274
Unrealized loss on marketable securities -- -- -- --
Cumulative foreign currency translation adjustments -- -- -- --
Net loss for period -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1996 18,365,146 183,651 147,585,794 (239,721)
Issuance of common stock 7/96 through 9/96 82,865 829 359,830 --
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,273
Unrealized loss on marketable securities -- -- -- --
Cumulative foreign currency translation adjustments -- -- -- --
Net loss for period -- -- -- --
------------- ------------- ------------- -------------
Balance, September 30, 1996 18,448,011 184,480 147,945,624 (196,448)
Issuance of common stock 10/96 through 12/96 69,383 694 327,530 --
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,273
Unrealized gain on marketable securities -- -- -- --
Cumulative foreign currency translation adjustments -- -- -- --
Net loss for period -- -- -- --
------------- ------------- ------------- -------------
Balance, December 31, 1996 18,517,394 $ 185,174 $ 148,273,154 $ (153,175)
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Cumulative Unrealized
Foreign Currency Gain (Loss)
Translation on Marketable Accumulated
Adjustments Securities Deficit Total
----------- ---------- ------- -----
<S> <C> <C> <C> <C>
Balance, April 1, 1996 $ (24,354) $ 502,500 $(101,046,605) $ 23,512,551
Issuance of common stock 4/96 through 6/96,
net of issuance costs of $65,000 -- -- -- 23,370,753
Amortization of receivable for warrants -- -- -- 34,687
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,274
Unrealized loss on marketable securities -- (206,250) -- (206,250)
Cumulative foreign currency translation adjustments 7,134 -- -- 7,134
Net loss for period -- -- (4,943,991) (4,943,991)
------------- ------------- ------------- -------------
Balance, June 30, 1996 (17,220) 296,250 (105,990,596) 41,818,158
Issuance of common stock 7/96 through 9/96 -- -- -- 360,659
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,273
Unrealized loss on marketable securities -- (206,250) -- (206,250)
Cumulative foreign currency translation adjustments 503 -- -- 503
Net loss for period -- -- (4,789,384) (4,789,384)
------------- ------------- ------------- -------------
Balance, September 30, 1996 (16,717) 90,000 (110,779,980) 37,226,959
Issuance of common stock 10/96 through 12/96 -- -- -- 328,224
Amortization of compensation relating to grant
of stock options and awards made -- -- -- 43,273
Unrealized gain on marketable securities -- 103,125 -- 103,125
Cumulative foreign currency translation adjustments 25,382 -- -- 25,382
Net loss for period -- -- (4,236,691) (4,236,691)
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 8,665 $ 193,125 $(115,016,671) $ 33,490,272
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE> 6
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,970,066) $ (8,201,149)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 1,734,763 1,227,975
Amortization of amounts receivable for warrants and compensation
relating to grant of stock options and awards made 164,507 421,916
Adjustments to other investments 14,483 87,712
Other noncash items -- 418,234
Changes in assets and liabilities:
Receivables from collaborative arrangements (2,867,935) --
Prepaid expenses and other current assets 558,546 (397,303)
Accounts payable and accrued expenses (1,134,615) (243,430)
Deferred revenue from Alkermes Clinical Partners, L.P. -- (1,085,000)
Other long-term liabilities 387,842 46,209
Deferred revenue -- 5,000,000
------------ ------------
Net cash used by operating activities (15,112,475) (2,724,836)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (1,349,023) (1,780,883)
Purchases of short-term investments, net (10,535,121) (21,082,142)
Sales of investments, net 1,597 2,994,437
Investment in Alkermes Clinical Partners, L.P. -- (113,463)
Other assets 10,500 40,500
Repayment of loan to Alkermes Clinical Partners, L.P. -- 4,735,000
------------ ------------
Net cash used by investing activities (11,872,047) (15,206,551)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 24,059,636 14,930,715
Proceeds from issuance of long-term debt 5,000,000 4,500,000
Payment of long-term debt (2,346,535) (2,003,776)
------------ ------------
Net cash provided by financing activities 26,713,101 17,426,939
------------ ------------
Effect of exchange rate changes on cash 37,054 (13,666)
------------ ------------
Net decrease in cash and cash equivalents (234,367) (518,114)
Cash and cash equivalents, beginning of period 445,150 1,086,627
------------ ------------
Cash and cash equivalents, end of period $ 210,783 $ 568,513
============ ============
Supplementary information:
Interest paid $ 541,876 $ 369,103
============ ============
</TABLE>
See notes to consolidated financial statements.
(6)
<PAGE> 7
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and nine month periods ended
December 31, 1996 and 1995, are unaudited and include all adjustments which, in
the opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. These financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended March 31, 1996,
which includes consolidated financial statements and notes thereto for the years
ended March 31, 1996, 1995 and 1994. In addition, the financial statements
include the accounts of Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II, Alkermes Investments, Inc., Alkermes Europe,
Ltd. and Alkermes Development Corporation II, wholly owned subsidiaries of the
Company.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" which requires
the Company to review for impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be recognized. The
Company adopted SFAS No. 121 in the quarter ended June 30, 1996. The adoption
did not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which is effective in fiscal 1997 for the Company. The Company
intends to continue to account for its stock-based transactions with employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and will include the pro forma disclosures required
by SFAS No. 123 at March 31, 1997. The adoption of SFAS No. 123 did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.
(7)
<PAGE> 8
3. LONG-TERM DEBT
In September 1996, the Company amended its loan with an existing bank and
increased the principal amount of the loan by $5,000,000, securing the existing
and the additional principal amounts with a building and the real property
pursuant to a mortgage and certain of the Company's equipment pursuant to a
security agreement. The additional principal amount of the loan is payable over
five years in equal monthly installments of $83,333, which commenced November 1,
1996 and bears interest at the fixed rate of 8.54% per annum.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1996 amounts to conform
to the presentation used in fiscal 1997.
(8)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Alkermes is developing sophisticated products based on innovative drug delivery
technologies. Since its inception in 1987, the Company has devoted substantially
all of its resources to its research and development programs. Alkermes has not
received any revenue from the sales of products. The Company has been
unprofitable since inception and expects to incur substantial additional
operating losses over the next several years. At December 31, 1996, the Company
had an accumulated deficit of approximately $115.0 million.
The Company has funded its operations primarily through public offerings and
private placements of equity securities, bank loans and payments under research
and development agreements with collaborators, including Alkermes Clinical
Partners, L.P. ("Clinical Partners"), a research and development limited
partnership whose operations commenced in April 1992. Funding from Clinical
Partners ended as of June 30, 1996. The Company intends to develop its product
candidates in collaboration with others on whom the Company will rely for
funding, development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally by the
Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company makes such statements based on assumptions which it believes to be
reasonable, the Company's business is subject to significant risks and there can
be no assurance that actual results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ from
any results which might be projected, forecasted or estimated by the Company in
any such forward-looking statements: (i) the Company and its collaborators could
not be permitted by regulatory authorities to undertake additional clinical
trials for RMP-7(TM), ProLease(R) or Medisorb(R); (ii) product candidates could
be ineffective or unsafe during clinical trials; (iii) the Company could incur
difficulties or set-backs in obtaining the substantial additional funding
required to continue research and development programs and clinical trials; (iv)
even if product candidates appear promising at an early stage of development,
product candidates could fail to receive necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical, fail to achieve
market acceptance, be precluded from commercialization by proprietary rights of
third parties or experience substantial competition in the marketplace; (v)
technological change in the biotechnology or pharmaceutical industries could
render the Company's product candidates obsolete or noncompetitive; (vi)
disputes with collaborators, termination of collaborations or failure to
negotiate acceptable new collaborative arrangements for ProLease and Medisorb
technologies, which are not independently commercializable, could occur; (vii)
disputes with Clinical Partners over rights to the RMP-7 and related technology
could occur, or the Company could fail to purchase this technology from Clinical
Partners pursuant to the purchase option (the "Purchase Option"), or, if the
Company did purchase RMP technology from Clinical Partners (a) in shares of the
Company's common stock, the Company's shareholders would be substantially
diluted or (b) in cash, the Company's capital resources would be substantially
depleted; and (viii) difficulties or set-backs in obtaining and enforcing
Alkermes' patents and with the patent rights of others could occur.
(9)
<PAGE> 10
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative arrangement
with related party for the three and nine months ended December 31, 1996 was
zero and $1,415,313 compared to $2,679,595 and $7,898,348 for the corresponding
periods of the prior year. This revenue was received from Clinical Partners
under a product development agreement for RMP-7 entered into in March 1992. The
decrease in such revenue for the three and nine months ended December 31, 1996
as compared to the corresponding periods of the prior year was a result of the
completion of the funding pursuant to the product development agreement during
the quarter ended June 30, 1996. Since the completion of funding from Clinical
Partners, Alkermes has used its own resources, and intends to continue to use
its own resources, to develop RMP-7. The Company's research and development
revenue under collaborative arrangements for the three and nine months ended
December 31, 1996 was $4,913,099 and $10,827,964 compared to $374,525 and
$1,772,624 for the corresponding periods of the prior year. The increase in such
revenue for the three and nine months ended December 31, 1996 as compared to the
corresponding periods of the prior year was mainly a result of the funding and
milestones earned under new or expanded collaborative agreements related to
the Company's ProLease and Medisorb technologies.
Interest income for the three and nine months ended December 31, 1996 was
$591,945 and $1,763,905 compared to $616,268 and $1,360,283 for the
corresponding periods of the prior year. The decrease in the revenue for the
three months ended December 31, 1996 as compared to the corresponding period of
the prior year was mainly a result of a decrease in interest rates during the
past quarter as compared to the same quarter last year. The increase in such
revenue for the nine months ended December 31, 1996 as compared to the
corresponding period of the prior year was primarily a result of the investment
of the net proceeds of approximately $22.9 million received upon the
consummation of a public offering of the Company's common stock in May 1996.
The Company's total operating expenses were $9,741,735 and $27,977,248 for the
three and nine months ended December 31, 1996 as compared to $6,442,203 and
$19,232,404 for the three and nine months ended December 31, 1995. Research and
development expenses for the three and nine months ended December 31, 1996 were
$7,657,829 and $21,213,773 compared to $4,873,939 and $14,913,361 for the
corresponding periods of the prior year. The increase in research and
development expenses for the three and nine months ended December 31, 1996 as
compared to the three and nine months ended December 31, 1995 was mainly the
result of salary and related benefits and other operating costs associated with
the acquisition of the Medisorb technology and certain related assets in March
1996. During the three and nine months ended December 31, 1996, there was also
an increase in purchases of lab supplies and clinical expenses related primarily
to the Company's ProLease, RMP-7 and Medisorb programs, partially offset by a
reduction in the preclinical costs of the Company's RMP-7 program which were
completed during the prior year.
General and administrative expenses for the three and nine months ended December
31, 1996 were $1,683,749 and $5,753,367 compared to $1,305,913 and $3,601,825
for the corresponding periods of the prior year. The increase in the three and
nine months ended December 31, 1996 as compared to the three and nine months
ended December 31, 1995 was mainly the result of salary and related benefits and
other operating costs associated with the acquisition of the Medisorb technology
and certain related assets in March 1996 as well as an increase in patent legal
costs. In addition, there were non-cash charges related to the write-down of the
Company's investment in Clinical Partners in the three months ended June 30,
1996.
The Company does not believe that inflation and changing prices have had a
material impact on its results of operations.
(10)
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had current assets totaling $46,937,592,
primarily consisting of $210,783 in cash and cash equivalents and $42,464,335 in
Government obligations having a maturity of less than one year; and current
liabilities of $6,207,188. The Company's short-term investment objectives are,
first, to assure conservation of principal, and second, to obtain investment
income. As a result, the Company invests primarily in high grade government or
government-backed securities.
During the three months ended December 31, 1996, the Company announced three new
or expanded collaborative agreements. Development funding and milestone payments
to Alkermes for these phases of the collaborations could exceed $60 million,
assuming the development of the product candidates proceed as planned.
In September 1996, the Company amended its loan with an existing bank and
increased the principal amount of the loan by $5,000,000, securing the existing
and the additional principal amounts with a building and the real property
pursuant to a mortgage and certain of the Company's equipment pursuant to a
security agreement.
In May 1996, the Company completed a public offering of 2,300,000 shares of its
common stock at $10 per share. Net proceeds to the Company were approximately
$22.9 million.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and research and development
collaborative arrangements. The Company expects to incur significant research
and development and other costs, including costs related to preclinical studies,
clinical trials and facilities expansion. The research and development revenue
from Clinical Partners ended during the quarter ended June 30, 1996. Such
funding was not sufficient to complete clinical trials and seek regulatory
approval of RMP-7. Since the completion of funding from Clinical Partners,
Alkermes has used its own resources, and intends to continue to use its own
resources, to develop RMP-7, but may be forced to seek alternative sources of
funding, including additional collaborators. The Company is required to fund the
development of RMP-7 to maintain its Purchase Option with Clinical Partners.
The Company expects that its research and development and other costs will
exceed revenues significantly for the next several years, which will result in
continuing losses from operations. The Company's capital expenditures for
equipment, facilities and building improvements have been financed to date
primarily with proceeds from bank loans and the sales of equity securities. The
Company will continue to pursue opportunities to obtain additional financing in
the future. Such financing may be sought through various sources, including
equity offerings, bank borrowings, lease arrangements relating to fixed assets
or other financing methods. The source, timing and availability of any
financings will depend on market conditions, interest rates and other factors.
(11)
<PAGE> 12
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing facilities and of
commercialization activities and arrangements and the cost of product
in-licensing and any possible acquisitions.
The Company will need to raise substantial additional funds for longer-term
product development, regulatory approvals and manufacturing or marketing
activities that it might undertake in the future. There can be no assurance that
additional funds will be available on favorable terms, if at all. If adequate
funds are not available, the Company may be required to curtail significantly
one or more of its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
future products.
(12)
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C> <C>
3.1(a) Second Amended and Restated
Articles of Incorporation, as
filed with the Pennsylvania
Secretary of State on July 23,
1991 (Incorporated by reference
to Exhibit 4.1(a) to the
Company's Report on Form 10-Q
for the quarter ended June 30,
1991).
3.1(b) Statement of Change of
Registered Office, as filed
with the Pennsylvania Secretary
of State on July 23, 1991
(Incorporated by reference to
Exhibit 4.1(b) to the Company's
Report on Form 10-Q for the
quarter ended June 30, 1991).
3.1(c) Amendment to the Second Amended
and Restated Articles of
Incorporation, as filed with
the Pennsylvania Secretary of
State on November 1, 1991.
(Incorporated by reference to
Exhibit 4.1(c) to the Company's
Report on Form 10-Q for the
quarter ended September 30,
1991).
3.1(d) Amendment to the Second Amended
and Restated Articles of
Incorporation, as filed with
the Pennsylvania Secretary of
State on February 12, 1993.
(Incorporated by reference to
Exhibit 4.1(d) to the Company's
Report on Form 10-Q for the
quarter ended December 31,
1992).
3.2 Amended and Restated By-Laws of
Alkermes, Inc., effective as of
July 1, 1994. (Incorporated by
reference to Exhibit 4.2 to the
Company's Report on Form 10-Q
for the quarter ended June 30,
1994).
4.1 Specimen of Common Stock
Certificate of Alkermes, Inc.
(Incorporated by reference to
Exhibit 4 to the Company's
Registration Statement on Form
S-1, as amended (File No.
33-40250)).
4.2 Form of 1992 Warrant to
purchase 2,800 shares of the
Company's Common Stock.
(Incorporated by reference to
Exhibit 4.2 to the Company's
Report on Form 10-K for the
fiscal year ended March 31,
1992).
4.3 Form of 1995 Warrant to
purchase 300 shares of the
Company's Common Stock.
(Incorporated by reference to
Exhibit 4.3 to the Company's
Report on Form 10-K for the
fiscal year ended March 31,
1992).
</TABLE>
(13)
<PAGE> 14
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C> <C>
4.4 Form of Global Warrant
Certificate for 1994 Class A
Warrants. (Incorporated by
reference to Exhibit 4.6 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.5 Form of Global Warrant
Certificate for 1994 Class B
Warrants. (Incorporated by
reference to Exhibit 4.7 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.6 Form of Global Warrant
Certificate for 1994 Affiliate
Warrants. (Incorporated by
reference to Exhibit 4.8 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.7 Form of Global Warrant
Certificate for 1994 Incentive
Warrants. (Incorporated by
reference to Exhibit 4.9 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.8 Warrant Agreement, dated as of
November 18, 1994, by and
between the Company and The
First National Bank of Boston.
(Incorporated by reference to
Exhibit 4.10 to the Company's
Report on Form 10-Q for the
quarter ended December 31,
1994).
10.1 Development and License
Agreement, dated as of August
1, 1996, by and between The R.
W. Johnson Pharmaceutical
Research Institute, the
Registrant and Alkermes
Controlled Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.1 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.2 Supply and License Agreement,
dated as of August 1, 1996, by
and between the R. W. Johnson
Pharmaceutical Research
Institute, the Registrant and
Alkermes Controlled
Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.2 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.3 License Agreement, dated as of
November 13, 1996, by and
between Genentech, Inc. and
Alkermes Controlled
Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.3 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.4 Omnibus Amendment to Loan
Documents, dated as of July 26,
1996, among the Registrant,
Alkermes Investments, Inc. and
The Sumitomo Bank, Limited (as
assignee of The Daiwa Bank,
Limited).
</TABLE>
(14)
<PAGE> 15
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C> <C>
10.5 Second Amended and Restated
Note, dated July 26, 1996, by
the Registrant and Alkermes
Investments, Inc. to The
Sumitomo Bank, Limited.
11 Statement regarding computation
of per share loss.
27 Financial Data Schedule.
</TABLE>
* Confidential status has been requested for certain portions thereof. Such
provisions have been filed separately with the Commission.
(b) The Registrant has filed no Reports on Form 8-K during the quarter ended
December 31, 1996. A Report on Form 8-K dated November 14, 1996 was filed
by the Registrant on January 3, 1997.
(15)
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALKERMES, INC.
(Registrant)
Date: January 17, 1997 By: /s/ Richard F. Pops
----------------------
Richard F. Pops
Chief Executive Officer
(Principal Executive Officer)
Date: January 17, 1997 By: /s/ Michael J. Landine
-------------------------
Michael J. Landine
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
(16)
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
3.1(a) Second Amended and Restated
Articles of Incorporation, as
filed with the Pennsylvania
Secretary of State on July 23,
1991 (Incorporated by reference
to Exhibit 4.1(a) to the
Company's Report on Form 10-Q
for the quarter ended June 30,
1991).
3.1(b) Statement of Change of
Registered Office, as filed
with the Pennsylvania Secretary
of State on July 23, 1991
(Incorporated by reference to
Exhibit 4.1(b) to the Company's
Report on Form 10-Q for the
quarter ended June 30, 1991).
3.1(c) Amendment to the Second Amended
and Restated Articles of
Incorporation, as filed with
the Pennsylvania Secretary of
State on November 1, 1991.
(Incorporated by reference to
Exhibit 4.1(c) to the Company's
Report on Form 10-Q for the
quarter ended September 30,
1991).
3.1(d) Amendment to the Second Amended
and Restated Articles of
Incorporation, as filed with
the Pennsylvania Secretary of
State on February 12, 1993.
(Incorporated by reference to
Exhibit 4.1(d) to the Company's
Report on Form 10-Q for the
quarter ended December 31,
1992).
3.2 Amended and Restated By-Laws of
Alkermes, Inc., effective as of
July 1, 1994. (Incorporated by
reference to Exhibit 4.2 to the
Company's Report on Form 10-Q
for the quarter ended June 30,
1994).
4.1 Specimen of Common Stock
Certificate of Alkermes, Inc.
(Incorporated by reference to
Exhibit 4 to the Company's
Registration Statement on Form
S-1, as amended (File No.
33-40250)).
4.2 Form of 1992 Warrant to
purchase 2,800 shares of the
Company's Common Stock.
(Incorporated by reference to
Exhibit 4.2 to the Company's
Report on Form 10-K for the
fiscal year ended March 31,
1992).
4.3 Form of 1995 Warrant to
purchase 300 shares of the
Company's Common Stock.
(Incorporated by reference to
Exhibit 4.3 to the Company's
Report on Form 10-K for the
fiscal year ended March 31,
1992).
</TABLE>
(17)
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
4.4 Form of Global Warrant
Certificate for 1994 Class A
Warrants. (Incorporated by
reference to Exhibit 4.6 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.5 Form of Global Warrant
Certificate for 1994 Class B
Warrants. (Incorporated by
reference to Exhibit 4.7 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.6 Form of Global Warrant
Certificate for 1994 Affiliate
Warrants. (Incorporated by
reference to Exhibit 4.8 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.7 Form of Global Warrant
Certificate for 1994 Incentive
Warrants. (Incorporated by
reference to Exhibit 4.9 to the
Company's Report on Form 10-Q
for the quarter ended December
31, 1994).
4.8 Warrant Agreement, dated as of
November 18, 1994, by and
between the Company and The
First National Bank of Boston.
(Incorporated by reference to
Exhibit 4.10 to the Company's
Report on Form 10-Q for the
quarter ended December 31,
1994).
10.1 Development and License
Agreement, dated as of August
1, 1996, by and between The R.
W. Johnson Pharmaceutical
Research Institute, the
Registrant and Alkermes
Controlled Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.1 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.2 Supply and License Agreement,
dated as of August 1, 1996, by
and between the R. W. Johnson
Pharmaceutical Research
Institute, the Registrant and
Alkermes Controlled
Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.2 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.3 License Agreement, dated as of
November 13, 1996, by and
between Genentech, Inc. and
Alkermes Controlled
Therapeutics, Inc.
(Incorporated by reference to
Exhibit 10.3 to the Company's
Report on Form 8-K dated
November 14, 1996).*
10.4 Omnibus Amendment to Loan
Documents, dated as of July 26,
1996, among the Registrant,
Alkermes Investments, Inc. and
The Sumitomo Bank, Limited (as
assignee of The Daiwa Bank,
Limited).
</TABLE>
(18)
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
10.5 Second Amended and Restated
Note, dated July 26, 1996, by
the Registrant and Alkermes
Investments, Inc. to The
Sumitomo Bank, Limited.
11 Statement regarding computation
of per share loss.
27 Financial Data Schedule.
</TABLE>
* Confidential status has been requested for certain portions thereof. Such
provisions have been filed separately with the Commission.
(19)
<PAGE> 1
Exhibit 10.4
OMNIBUS AMENDMENT TO LOAN DOCUMENTS
This Omnibus Amendment to Loan Documents (the "Amendment") is made as
of July 26, 1996 among Alkermes, Inc., a Pennsylvania corporation ("Parent"),
its wholly owned subsidiary Alkermes Investments, Inc., a Delaware corporation
("Subsidiary" and jointly and severally together with Parent, the "Borrower"),
The Sumitomo Bank, Limited, a Japanese banking corporation (the "Bank") (as
assignee of The Daiwa Bank, Limited) and Sumitomo Bank of New York Trust
Company (the "Trust") (as assignee of Daiwa Bank Trust Company).
W I T N E S S E T H :
WHEREAS, the Borrower and the Bank, as assignee, are parties to that
certain Loan Agreement dated as of December 30, 1993, as amended by Amendment
No. 1 To Loan Agreement dated as of December 31, 1994, as further amended by
Amendment No. 2 To Loan Agreement dated as of August 31, 1995, as further
amended by Amendment No. 3 To Loan Agreement dated as of December 29, 1995 (as
so amended, the "Loan Agreement"); and
WHEREAS, pursuant to the Loan Agreement, the Borrower issued the Note
(as defined in the Loan Agreement) in favor of The Daiwa Bank, Limited and the
parties hereto entered into various collateral agreements, including, without
limitation, the Collateral Bailment Agreement, the Restricted Account and
Security Agreement, the Irrevocable Instructions and Power of Attorney and UCC
Financing Statements, as the same have been amended from time to time prior to
the date hereof (collectively, the "Loan Documents"); and
WHEREAS, as of February 2, 1996, The Daiwa Bank, Limited and Daiwa
Bank Trust Company assigned their interests in the Loan Agreement and the
accompanying Loan Documents to The Sumitomo Bank, Limited and Sumitomo Bank of
New York Trust Company, respectively; and
WHEREAS, in connection therewith, the Bank and the Borrower desire to
amend the Loan Agreement and the other Loan Documents to reflect such
assignment of interest; and
WHEREAS, the Borrower has also requested the Bank to amend the terms
of the Loan Agreement to permit the Borrower to elect a fixed rate interest
option on the Second Tranche (as defined therein); and
WHEREAS, the Bank and the Borrower have agreed to amend the Loan
Agreement for such purposes pursuant to the terms and
<PAGE> 2
conditions set forth in this Amendment and the Borrower has agreed to provide
to the Bank a substitute promissory note; and
WHEREAS, the parties hereto have agreed to amend the various Loan
Documents to which they are a party pursuant to the terms and conditions set
forth in this Amendment;
NOW THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Loan Agreement.
SECTION 2. Amendments To Loan Documents.
SECTION 2.1 - AMENDMENTS TO THE LOAN AGREEMENT - The terms and
provisions of the Loan Agreement are hereby amended as follows:
(a) The term "The Daiwa Bank, Limited, a Japanese banking
corporation (the "Bank")" as used throughout the Loan Agreement is hereby
deleted and replaced with the term "The Sumitomo Bank, Limited, a Japanese
banking corporation (the "Bank")".
(b) Section 2.1(b) of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"(b) with respect to all or certain portions of the Second
Tranche, the rate shall be, at the Borrower's option, the Base
Rate, the LIBOR Rate and/or the Fixed Rate."
(c) Section 2.3(b) of the Loan Agreement is hereby amended by
deleting the phrase "The Daiwa Bank, Limited Chicago Branch, ABA 071006075"
appearing in the fifth and sixth lines thereof and replacing it with the phrase
"The Sumitomo Bank, Limited Chicago Branch, ABA 071001850."
(d) Section 2.3(d) of the Loan Agreement is hereby amended as
follows:
(i) by adding the words "or Fixed Rate Loans" after
the words "Base Rate Loans" appearing on the second
line thereof;
(ii) by adding the words "or Fixed Rate Loan" after
the words "Base Rate Loan" appearing on the
twenty-second line thereof;
2
<PAGE> 3
(iii) by adding the following paragraph as (d)(2)
thereof: "Whenever the Borrower desires to have the
Fixed Rate apply to any portion of the Second
Tranche, the Borrower shall notify the Bank (which
notice shall be irrevocable) in writing, by telephone
(to be promptly confirmed in writing) or by telecopy
no later than the third Business Day preceding the
date on which the Fixed Rate is to go into effect."
and renumbering the following paragraphs; and
(iv) by adding the words "Interest Rate" before the
word "Loan" in the first line of current subsection
(d)(3) thereof.
(v) by deleting the word "and" and inserting a comma
before the phrase "(iii)" in the thirteenth line of
current subsection (d)(4) thereof, and adding the
following immediately before the period at the end of
such subsection: "and (iv) in the case of payments in
connection with a Fixed Rate Loan, two percent (2%)
per annum over the applicable Fixed Rate."
(e) Section 2.4 of the Loan Agreement is hereby amended by adding
the following new section as Section 2.4(d):
"(d) The Borrower may, at its option and upon three (3)
Business Days prior written notice to the Bank, voluntarily
prepay all or any portion of the Second Tranche which is a
Fixed Rate Loan; provided that in addition to any such
prepayment, the Borrower shall pay to the Bank the applicable
Rate Swap Expense. As used herein, the term "Rate Swap Expense"
means all reasonable fees, costs and expenses arising out of
the Bank's termination of the interest rate swap contract
pursuant to which the Bank based the applicable Fixed Rate. The
Bank shall provide to the Borrower a certificate claiming
compensation under this Section 2.4(d), setting forth the
amount of the Rate Swap Expense to be paid to it hereunder and
showing in reasonable detail the Bank's calculation thereof,
which shall be presumed to be correct absent manifest error."
(f) The Loan Agreement is hereby amended by adding the following
definition to Appendix A thereto:
"Fixed Rate Loan" -- any portion of the Second Tranche bearing
interest calculated by reference to the Fixed Rate.
3
<PAGE> 4
"Interest Rate Loan" -- all portions of the Second Tranche
bearing interest calculated at either the Base Rate, the LIBOR
Rate or the Fixed Rate".
(g) The definition of "Interest Period" as included in Appendix A
to the Loan Agreement, is hereby deleted in its entirety and replaced with the
following:
"'Interest Period' -- With respect to each Interest Rate Loan
(a) initially, the period commencing on the Drawdown Date of
such Interest Rate Loan and ending on the last day of one of
the periods set forth below, as selected by the Borrower (i)
for any Base Rate Loan, the calendar month; (ii) for any LIBOR
Rate Loan, 1, 3, 6 or, subject to availability, 12 months; and
(iii) for any Fixed Rate Loan, the Maturity Date; and (b)
thereafter, for any Base Rate Loan or LIBOR Rate Loan, each
period commencing on the last day of the next preceding
Interest Period applicable to such Interest Rate Loan and
ending on the last day of one of the periods set forth above,
as selected by the Borrower."
(h) The definition of "Drawdown Date" as included in Appendix A to
the Loan Agreement is hereby amended by adding the words "Interest Rate" before
the word "Loan" each time it appears in such definition.
(i) The definition of "Make-Whole Premium" as included in Appendix
A to the Loan Agreement is hereby amended by adding the words "Interest Rate"
before the word "Loan" each time it appears in such definition.
(j) Exhibit 2.1 to the Loan Agreement, which is the form of Note,
is hereby amended and replaced by the form of Exhibit 2.1 hereto.
(k) The Debtor confirms and agrees that, as used throughout the
Loan Agreement: (i) the term "Agreement" includes the Loan Agreement as
amended by this Amendment; (ii) the term "Collateral Bailment Agreement"
includes the Collateral Bailment Agreement as amended, supplemented and
modified prior to the date hereof and as amended by this Amendment, and (iii)
the term "Restricted Account and Security Agreement" includes the term
Restricted Account and Security Agreement as amended, supplemented and modified
prior to the date hereof and as amended by this Amendment, and (iv) the term
"Note" means the Second Amended and Restated Note dated as of the date hereof
in the original principal amount of $6,000,000, issued by Borrower to the Bank,
and (v) the term "Irrevocable Instructions and Power of Attorney"
4
<PAGE> 5
means the Irrevocable Instructions and Power of Attorney dated as of February
2, 1996 in the form attached hereto as Exhibit A.
SECTION 2.2 - AMENDMENTS TO THE COLLATERAL BAILMENT AGREEMENT - The
terms and provisions of the Collateral Bailment Agreement are hereby amended as
follows:
(a) The terms "The Daiwa Bank, Limited, a Japanese banking
corporation (the "Lender")" and "Daiwa Bank Trust Company ("Bailee")" as used
throughout the Collateral Bailment Agreement are hereby deleted and replaced
with the terms "The Sumitomo Bank, Limited, a Japanese banking corporation (the
"Lender")" and "Sumitomo Bank of New York Trust Company ("Bailee")",
respectively.
(b) The term "Restricted Account Custodial Services Agreement" as
used throughout the Collateral Bailment Agreement is hereby deleted and
replaced with the term "Custodian Agreement".
(c) The last two lines of Section 1.2 of the Collateral Bailment
Agreement are hereby deleted in their entirety and replaced with the following:
" Restricted Account and Security Agreement dated December 30,
1993, as amended by that certain Amendment No. 1 to Restricted Account
and Security Agreement dated as of December 29, 1995, as further
amended by that certain Omnibus Amendment to Loan Documents dated as
of July 26, 1996 (as amended, the 'Restricted Account Agreement')."
(d) Exhibit A to the Collateral Bailment Agreement, which is the
form of the Custodian Agreement, is hereby amended and replaced by the form of
Exhibit 2.2(d) hereto.
(e) Exhibit B to the Collateral Bailment Agreement, which is the
description of certain collateral in which the Bank has been granted a security
interest pursuant to the Restricted Account and Security Agreement, is hereby
amended and replaced with Exhibit 2.2(e) hereto.
SECTION 2.3 - AMENDMENTS TO THE RESTRICTED ACCOUNT AND SECURITY
AGREEMENT - The terms and provisions of the Restricted Account and Security
Agreement are hereby amended as follows:
(a) The term "The Daiwa Bank, Limited, a Japanese banking
corporation ("Bank")" and "Daiwa Bank Trust Company ("Bailee")" as used
throughout the Restricted Account and Security Agreement are hereby deleted and
replaced with the terms "The Sumitomo Bank, Limited, a Japanese banking
corporation ("Bank")" and
5
<PAGE> 6
"Sumitomo Bank of New York Trust Company ("Bailee")" respectively.
(b) The Debtor confirms and agrees that: (i) the term "Loan
Agreement" as used throughout the Restricted Account and Security Agreement
includes the Loan Agreement as amended by this Amendment; (ii) the term
"Collateral Bailment Agreement" as used throughout the Security Agreement
includes the Collateral Bailment Agreement as amended, supplemented and
modified prior to the date hereof and as amended by this Amendment; and (iii)
that the term "Obligations" as defined in the Security Agreement includes the
obligations of the Borrower under and with respect to the Loan Agreement as
amended by this Amendment, the Second Amended and Restated Note and the other
Loan Documents as amended, modified and supplemented through and including the
date hereof.
(c) The term "Restricted Account Custodial Services Agreement" as
used throughout the Restricted Account and Security Agreement is hereby deleted
and replaced with the term "Custodian Agreement".
(d) Exhibit 2.3 to the Restricted Account and Security Agreement,
which lists the collateral in which the Bank is granted a security interest
pursuant to such agreement, is hereby amended and replaced with Exhibit 2.3(d)
hereto.
SECTION 3. Other Agreements. The Borrower further agrees:
(a) To execute and deliver, for substitution of the Amended and
Restated Note dated December 29, 1995, an amended and restated note in the form
of Exhibit 2.1 hereto.
(b) To cause to be executed and delivered, on or before the date
hereof, the Irrevocable Instructions and Power of Attorney in the form of
Exhibit A hereto.
(c) To cause to be executed and delivered, on or before the date
hereof, the Custodian Agreement in the form of Exhibit 2.2(d) hereto.
(d) To execute and deliver amended UCC Financing Statements to
reflect the amendment to the Collateral Bailment Agreement and the change in
name of the Bank as secured party.
SECTION 4. Ratification and Confirmation of Loan Documents. Each of
the parties hereto hereby ratifies and confirms its obligations under and all
other terms and provisions of the Loan Agreement and the other Loan Documents,
as amended, modified or supplemented hereunder, to which such party is a party.
Each of the parties hereto hereby further acknowledges, agrees,
6
<PAGE> 7
represents and warrants that except as expressly amended and modified as set
forth in this Amendment, the Loan Agreement and the other Loan Documents to
which it is a party remain in full force and effect as of the date hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by each of the undersigned as of the date first written above.
ATTEST: ALKERMES, INC., a
Pennsylvania corporation
By: /s/ Patricia L. Allen By: /s/ Michael Landine
----------------------- ---------------------------------
Title: Assistant Secretary Title: Senior Vice President
and Chief Financial Officer
ATTEST: ALKERMES INVESTMENTS, INC.,
a Delaware corporation
By: /s/ Patricia L. Allen By: /s/ Michael Landine
----------------------- ---------------------------------
Title: Assistant Secretary Title: Vice President and
Chief Financial Officer
THE SUMITOMO BANK, LIMITED, a
Japanese banking corporation
By: /s/ Daniel J. Gurst
---------------------------------
Title: Vice President and
Manager
By: /s/ Stephen Sullivan
---------------------------------
Title: Assistant Vice
President
SUMITOMO BANK OF NEW YORK
TRUST COMPANY
By: /s/ Shinichi Ito
---------------------------------
Title: President
7
<PAGE> 8
Exhibit 2.1
SECOND AMENDED AND RESTATED NOTE
$6,000,000 Boston, Massachusetts
July 26, 1996
FOR VALUE RECEIVED, Alkermes, Inc. a Pennsylvania corporation and its
wholly owned subsidiary Alkermes Investments, Inc., a Delaware corporation,
(together, "Makers") hereby promise to pay, jointly and severally, to the order
of The Sumitomo Bank, Limited, a Japanese banking corporation ("Bank"), without
counterclaim, offset or deduction, the principal sum of SIX MILLION DOLLARS
($6,000,000), with interest, as specified in the Amended Loan Agreement (as
defined below). Each payment of principal shall first be applied to any
outstanding principal under the First Tranche until such loan is paid in full,
and then any remaining amount shall be applied to the principal outstanding
under the Second Tranche.
Makers shall make all payments hereunder in lawful money of the United
States and in immediately available funds to Bank's account by means of a wire
transfer addressed as follows: The Sumitomo Bank, Limited, Chicago Branch, ABA
071001850, through the Federal Reserve Bank of Chicago, Reference: Alkermes,
Inc.
All agreements between Makers and Bank, whether now existing or
hereafter arising, are hereby limited so that in no event shall the interest
charged hereunder or agreed to be paid to Bank exceed the maximum amount
permissible under applicable law. Bank shall be entitled to amortize, prorate
and spread throughout the full term of this Note all interest paid or payable
so that the interest paid does not exceed the maximum amount permitted by law.
This Second Amended and Restated Note amends, restates and replaces in
its entirety that certain Amended and Restated Note dated December 29, 1995 in
the original principal amount of $6,000,000 issued by Makers in favor of The
Daiwa Bank, Limited, which assigned its interest therein to Bank on February 2,
1996. This Second Amended and Restated Note is the Second Amended and Restated
Note referred to in the Omnibus Amendment to Loan Documents dated as of the
date hereof between Makers, Bank and the Sumitomo Bank of New York Trust
Company, which amends that certain Loan Agreement, dated as of December 30,
1993, between Makers and Bank, as previously amended (as amended, modified and
supplemented through and including the date hereof, including the amendments
contained in Omnibus Amendment to Loan Documents, the "Amended Loan Agreement")
and is subject to all of the terms and conditions, representations and
warranties thereof, including the rights of prepayment and the rights of
acceleration of maturity.
<PAGE> 9
Terms used herein have the meanings assigned to those terms in the Amended Loan
Agreement, unless otherwise defined herein.
Makers shall pay all reasonable fees, costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the preparation and negotiation
of this Second Amended and Restated Note and the Amended Loan Agreement and in
the enforcement or attempt to enforce any of Makers' obligations hereunder not
performed when due, whether or not any legal action is actually filed,
litigated or prosecuted to judgment of award. This Second Amended and Restated
Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
Time is of the essence in the performance of the obligations evidenced
by this Second Amended and Restated Note. All parties to this Second Amended
and Restated Note waive presentment, notice of dishonor, protest and all other
demands and notices.
If this Second Amended and Restated Note is destroyed, lost or stolen,
Makers shall deliver a new note to Bank on the same terms and conditions as
this Note, with all appropriate schedules annexed thereto, in substitution of
the prior Second Amended and Restated Note. Bank shall furnish to Makers
reasonable evidence that the Second Amended and Restated Note was destroyed,
lost or stolen and any security or indemnity that may be reasonably required by
Makers in connection with the replacement of the Second Amended and Restated
Note.
Executed under seal as of the day and date referred to above.
ALKERMES, INC., a Pennsylvania
corporation
ATTEST:
By: ___________________________________
Name: _________________________________
__________________________ Title: ________________________________
ALKERMES INVESTMENTS, INC., a
Delaware corporation
ATTEST:
By: ___________________________________
Name: _________________________________
__________________________ Title: ________________________________
2
<PAGE> 10
Exhibit 2.2(d)
Exhibit A To Collateral Bailment Agreement
As of February 2, 1996
Sumitomo Bank of New York Trust Company
277 Park Avenue
New York, NY 10172
Re: Custodian Agreement
Dear Sirs:
Alkermes Investments, Inc. (the "Company") hereby requests you to open
a Custodian Account (the "Custodian Account") to hold such securities and
monies owned by the Company as the Company may deliver or cause to be delivered
to you pursuant to this agreement, and in connection with which you will
perform custodian services as hereinafter described.
1. You will hold in custody for safekeeping in the Custodian Account such
securities owned by the Company as you may from time to time receive,
pursuant to the provisions hereof. With respect to all securities
held in the Custodian Account, you will promptly provide the Company
with a copy of all notices, information statements, reports and other
documents received by you as the holder of record of such securities.
2. You may hold physical securities either on your bank premises or in
your account with any depository institution.
3. The Company authorizes you to receive all dividends, interest, other
income, principal and all other amounts becoming due or payable in
money on securities held in the Custodian Account, and to remit to the
Company monies so received less expenses immediately thereafter.
4. The Company authorizes you to receive all stock dividends or any other
securities granted or distributed on account of securities held in the
Custodian Account, and to hold securities so received in the Custodian
Account.
5. With regard to the purchase and sale of securities held or to be held
in the Custodian Account:
a. Whenever instructed by the Company to receive against payment
securities to be held in the Custodian Account
<PAGE> 11
Sumitomo Bank of New York Trust Company
As of February 2, 1996
Page 2
and provided there are sufficient funds available for this
purpose in the Custodian Account, you will make payment to the
bank, broker or other persons designated by the Company against
delivery of such securities by such person, debiting the
Custodian Account for such payment; and
b. Whenever instructed by the Company to deliver to a bank,
broker or other person designated by the Company securities
from the Custodian Account against payment by such person, you
will make delivery of such securities as instructed, crediting
any payments received to the Custodian Account.
6. With regard to voting rights appertaining to securities held in the
Custodian Account, you will execute proxies and such other forms or
documents as are required to be executed by the holder of record of
such securities in connection with the exercise of such rights and
promptly forward them to the Company together with the proxy
statements or other communications received with respect to such
proxies or forms. You will make no decisions as to the exercise of
such rights.
7. You will promptly notify the Company of redemptions, conversion
privileges, and issuance of rights pertaining to securities held in
the Custodian Account, and when action is required you will promptly
request instructions from the Company and act upon instructions timely
received.
8. You will promptly notify the Company of proposed exchanges of any
securities held in the Custodian Account for other securities or
property in connection with any merger, consolidation, reorganization,
recapitalization, readjustment of debt, stock split, change of par
value or conversion, or otherwise, and if so instructed by the
Company, you will surrender or deposit such securities for exchange in
the manner provided.
9. Upon receipt of instructions from the Company, you will deliver or
transfer securities held in or monies credited to the Custodian
Account to such other accounts or other persons as may be designated
by the Company.
10. The Company hereby authorizes you to execute, as Custodian, any
necessary declarations, certificates of ownership or other documents
required under any tax laws now or hereafter in effect (provided that
you shall promptly furnish the
2
<PAGE> 12
Sumitomo Bank of New York Trust Company
As of February 2, 1996
Page 3
Company with copies of all such declarations, certificates and other
documents), and to pay any taxes required to be paid in connection
with the Custodian Account.
11. The Company agrees to be responsible for any direct, out-of-pocket
expenses reasonably incurred by you in connection with the Custodian
Account (including without limitation telephone, telex, cable and mail
costs and all costs of transporting securities) and for any taxes and
other charges which you are required to pay in connection therewith.
The Company authorizes you to deduct such expenses from its income
described in Paragraph 3.
The Company further agrees that any property at any time in the
Custodian Account shall be security for the advance of cash for any
purpose made by you resulting from the Company's written order or
instructions.
12. The Company agrees to pay you fees for the services rendered by you
hereunder, on an annual basis in accordance with the schedule attached
hereto as Schedule 1, as such schedule may from time to time be
adjusted by you (with the Company's written approval).
13. You will provide to the Company the following statements with respect
to the Custodian Account:
a. A monthly statement listing the holdings and cash in the
Custodian Account as of the end of the immediately preceding
(calendar) month;
b. A monthly statement of all expenses incurred by you for which
the Company is responsible pursuant to Paragraph 11.
c. Such other statements as you may be required by law to furnish
or as the Company may (with your approval, not to be
unreasonably withheld) request.
14. It is understood and agreed that you are not at any time under any
duty or responsibility to supervise the investment of, or to advise or
make any recommendation for the sale, purchase, or other disposition
of, securities and money held by you in the Custodian Account, and
that such securities and monies are subject at all times to the
Company's control.
3
<PAGE> 13
Sumitomo Bank of New York Trust Company
As of February 2, 1996
Page 4
It is further understood and agreed that all directions with respect
to the Custodian Account will be in writing and signed by a person
authorized to sign on behalf of the Company, but that you may, in your
discretion, accept and act upon orders, whether given orally, by
telephone or otherwise, which you reasonably believe to be genuine,
and that you will not be held liable for executing, or failing to
execute, or for any mistakes in the execution of any such order,
except for your own gross negligence or willful misconduct.
Notwithstanding the foregoing provisions of this Section 14, you will
inform the Company of any undue delay in the delivery of securities or
of other departure from regular and normal procedures that you believe
should be brought to the attention of the Company.
15. Either party may terminate this agreement by written notice delivered
to the other not less than 60 days prior to the date upon which such
termination shall become effective (the "Termination Date").
On the Termination Date, the Company will pay you all fees owing for
services rendered by you under this agreement to and including the
Termination Date (such fees to be calculated on the basis of a 365-day
year for the number of days actually involved) and will reimburse you
for all expenses incurred by you pursuant to this agreement and for
which the Company is responsible pursuant to Paragraph 11 to and
including such date. Upon such payment and reimbursement, you will at
the Company's expense transfer, deliver and pay over to the Company or
to a person appointed by the Company all securities and money held by
you in the Custodian Account.
16. Singular words herein include the plural and plural the singular when
the sense or circumstances so indicate.
17. All notices to be delivered hereunder shall be in writing, including
telegraphic communications and mailed or telegraphed or delivered to
the other party at its address given herein or such other address as
such party may by notice designate.
18. This agreement is to be governed by and construed in accordance with
the laws of the State of New York.
4
<PAGE> 14
Sumitomo Bank of New York Trust Company
As of February 2, 1996
Page 5
This agreement is intended to replace that Restricted Account
Custodial Services Agreement dated as of December 30, 1993 by and between Daiwa
Bank Trust Company and the Company.
Your signature below will indicate your acceptance of this agreement
as of the date first written above.
Very truly yours,
ALKERMES INVESTMENTS, INC.
By: ___________________________________
Michael J. Landine
Vice President
Accepted And Agreed To:
SUMITOMO BANK OF NEW YORK
TRUST COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
5
<PAGE> 15
Exhibit 2.2(e)
EXHIBIT A
Description of Collateral
All property, including, without limitation, all property described in
clauses (a), (b), (c) and (d) below, held by Sumitomo Bank of New York Trust
Company, as Bailee ("Bailee") under that certain Collateral Bailment Agreement
dated as of December 30, 1993 among the Bailee, The Daiwa Bank, Limited
("Daiwa"), Alkermes, Inc. and Alkermes Investments, Inc., as amended and as may
further be amended, modified, supplemented or assigned from time to time,
including, without limitation, the assignment of the interests of Daiwa
thereunder to The Sumitomo Bank, Limited ("Sumitomo").
(a) All accounts, money, deposit accounts, certificated
securities, uncertificated securities, chattel paper, documents, instruments,
general intangibles and all other investments or property of any sort held,
maintained or administered or to be held, maintained or administered for
Alkermes, Inc. and/or Alkermes Investments, Inc. (collectively, the "Borrower")
by Bailee under the Custodian Agreement dated as of February 2, 1996 by and
between Alkermes Investments, Inc. and Bailee (the "Custodian Agreement")
together with any stock or conversion rights, rights to subscribe, liquidation
dividends or preferences, stock dividends, dividends, rights to interest,
interest payments, dividends paid in stock, distributions thereon, new
securities or other property which Borrower is or may hereafter become entitled
to receive on account of such property.
(b) All property now owned or hereafter acquired by or
for Borrower of the type or class described in any schedule supplementary
hereto or in any financing statement filed by Sumitomo and Borrower pursuant to
the Custodian Agreement.
(c) The proceeds (including without limitation insurance
proceeds from the Federal Deposit Insurance Corporation, the Federal Savings
and Loan Insurance Corporation or the Securities Investor Protection
Corporation or any other insurance company), increase and products of any of
the foregoing or replacements thereof or substitutions therefor.
(d) Collateral includes without limitation all items
listed in the attachments hereto and all replacements thereof or other items
purchased with any of said items or their proceeds.
<PAGE> 16
Exhibit 2.3(d)
EXHIBIT A
Description of Collateral
All property, including, without limitation, all property described in
clauses (a), (b), (c) and (d) below, held by Sumitomo Bank of New York Trust
Company, as Bailee ("Bailee") under that certain Collateral Bailment Agreement
dated as of December 30, 1993 among the Bailee, The Daiwa Bank, Limited
("Daiwa"), Alkermes, Inc. and Alkermes Investments, Inc., as amended and as may
further be amended, modified, supplemented or assigned from time to time,
including, without limitation, the assignment of the interests of Daiwa
thereunder to The Sumitomo Bank, Limited ("Sumitomo").
(a) All accounts, money, deposit accounts, certificated
securities, uncertificated securities, chattel paper, documents, instruments,
general intangibles and all other investments or property of any sort held,
maintained or administered or to be held, maintained or administered for
Alkermes, Inc. and/or Alkermes Investments, Inc. (collectively, the "Borrower")
by Bailee under the Custodian Agreement dated as of February 2, 1996 by and
between Alkermes Investments, Inc. and Bailee (the "Custodian Agreement")
together with any stock or conversion rights, rights to subscribe, liquidation
dividends or preferences, stock dividends, dividends, rights to interest,
interest payments, dividends paid in stock, distributions thereon, new
securities or other property which Borrower is or may hereafter become entitled
to receive on account of such property.
(b) All property now owned or hereafter acquired by or
for Borrower of the type or class described in any schedule supplementary
hereto or in any financing statement filed by Sumitomo and Borrower pursuant to
the Custodian Agreement.
(c) The proceeds (including without limitation insurance
proceeds from the Federal Deposit Insurance Corporation, the Federal Savings
and Loan Insurance Corporation or the Securities Investor Protection
Corporation or any other insurance company), increase and products of any of
the foregoing or replacements thereof or substitutions therefor.
(d) Collateral includes without limitation all items
listed in the attachments hereto and all replacements thereof or other items
purchased with any of said items or their proceeds.
<PAGE> 1
Exhibit 10.5
SECOND AMENDED AND RESTATED NOTE
$6,000,000 Boston, Massachusetts
July 26, 1996
FOR VALUE RECEIVED, Alkermes, Inc. a Pennsylvania corporation and its
wholly owned subsidiary Alkermes Investments, Inc., a Delaware corporation,
(together, "Makers") hereby promise to pay, jointly and severally, to the order
of The Sumitomo Bank, Limited, a Japanese banking corporation ("Bank"), without
counterclaim, offset or deduction, the principal sum of SIX MILLION DOLLARS
($6,000,000), with interest, as specified in the Amended Loan Agreement (as
defined below). Each payment of principal shall first be applied to any
outstanding principal under the First Tranche until such loan is paid in full,
and then any remaining amount shall be applied to the principal outstanding
under the Second Tranche.
Makers shall make all payments hereunder in lawful money of the United
States and in immediately available funds to Bank's account by means of a wire
transfer addressed as follows: The Sumitomo Bank, Limited, Chicago Branch, ABA
071001850, through the Federal Reserve Bank of Chicago, Reference: Alkermes,
Inc.
All agreements between Makers and Bank, whether now existing or
hereafter arising, are hereby limited so that in no event shall the interest
charged hereunder or agreed to be paid to Bank exceed the maximum amount
permissible under applicable law. Bank shall be entitled to amortize, prorate
and spread throughout the full term of this Note all interest paid or payable
so that the interest paid does not exceed the maximum amount permitted by law.
This Second Amended and Restated Note amends, restates and replaces in
its entirety that certain Amended and Restated Note dated December 29, 1995 in
the original principal amount of $6,000,000 issued by Makers in favor of The
Daiwa Bank, Limited, which assigned its interest therein to Bank on February 2,
1996. This Second Amended and Restated Note is the Second Amended and Restated
Note referred to in the Omnibus Amendment to Loan Documents dated as of the
date hereof between Makers, Bank and the Sumitomo Bank of New York Trust
Company, which amends that certain Loan Agreement, dated as of December 30,
1993, between Makers and Bank, as previously amended (as amended, modified and
supplemented through and including the date hereof, including the amendments
contained in Omnibus Amendment to Loan Documents, the "Amended Loan Agreement")
and is subject to all of the terms and conditions, representations and
warranties thereof, including the rights of prepayment and the rights of
acceleration of maturity. Terms used herein have the meanings assigned to
those terms in the Amended Loan Agreement, unless otherwise defined herein.
<PAGE> 2
Makers shall pay all reasonable fees, costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the preparation and negotiation
of this Second Amended and Restated Note and the Amended Loan Agreement and in
the enforcement or attempt to enforce any of Makers' obligations hereunder not
performed when due, whether or not any legal action is actually filed,
litigated or prosecuted to judgment of award. This Second Amended and Restated
Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
Time is of the essence in the performance of the obligations evidenced
by this Second Amended and Restated Note. All parties to this Second Amended
and Restated Note waive presentment, notice of dishonor, protest and all other
demands and notices.
If this Second Amended and Restated Note is destroyed, lost or stolen,
Makers shall deliver a new note to Bank on the same terms and conditions as
this Note, with all appropriate schedules annexed thereto, in substitution of
the prior Second Amended and Restated Note. Bank shall furnish to Makers
reasonable evidence that the Second Amended and Restated Note was destroyed,
lost or stolen and any security or indemnity that may be reasonably required by
Makers in connection with the replacement of the Second Amended and Restated
Note.
Executed under seal as of the day and date referred to above.
ALKERMES, INC., a Pennsylvania
corporation
ATTEST: By: /s/ Michael Landine
--------------------------
Name: Michael J. Landine
Patricia L. Allen Title: Senior VP & CFO
ALKERMES INVESTMENTS, INC.,
a Delaware corporation
ATTEST: By: /s/ Michael Landine
--------------------------
Name: Michael J. Landine
Patricia L. Allen Title: VP & CFO
2
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net loss ($4,236,691) ($2,771,815) ($13,970,066) ($8,201,149)
============ ============ ============= ============
Calculation of shares outstanding:
Weighted average common shares
outstanding used in calculating net
loss per share in accordance with
generally accepted accounting
principles 18,479,498 15,852,081 18,076,420 14,387,290
---------- ---------- ---------- ----------
Total 18,479,498 15,852,081 18,076,420 14,387,290
========== ========== ========== ==========
Net loss per share ($0.23) ($0.17) ($0.77) ($0.57)
======= ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE NINE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 211
<SECURITIES> 42,464
<RECEIVABLES> 3,368
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,938
<PP&E> 14,824
<DEPRECIATION> (6,696)
<TOTAL-ASSETS> 57,611
<CURRENT-LIABILITIES> 6,207
<BONDS> 11,611
0
0
<COMMON> 185
<OTHER-SE> 33,305
<TOTAL-LIABILITY-AND-EQUITY> 57,611
<SALES> 0
<TOTAL-REVENUES> 14,007
<CGS> 0
<TOTAL-COSTS> 21,214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,010
<INCOME-PRETAX> (13,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,970)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
