<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 1998
Registration No. 333-50157
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
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, Massachusetts 02139
(617) 494-0171
(Address, including zip code, and telephone
number, including area code,
of registrant's principal executive offices)
Richard F. Pops, Chief Executive Officer
Alkermes, Inc.
64 Sidney Street, Cambridge, Massachusetts 02139
(617) 494-0171
(Name, address, including zip code, and telephone
number, including area code,
of agent for service)
------------------------------
Copies to:
Morris Cheston, Jr., Esq.
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
(215) 665-8500
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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ALKERMES, INC.
2,300,000 shares of $3.25 Convertible Exchangeable Preferred Stock
$115,000,000 6 1/2% Convertible Subordinated Debentures
3,881,940 shares of Common Stock
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This Prospectus relates to the offering by the selling shareholders named
herein (the "Selling Shareholders") of $3.25 Convertible Exchangeable Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of Alkermes, Inc., a
Pennsylvania corporation ("Alkermes"). In addition, this Prospectus relates to
the offering by the Selling Shareholders of 6 1/2% Convertible Subordinated
Debentures (the "Debentures") of Alkermes in the aggregate principal amount of
up to $115,000,000, issued or issuable upon exchange, at the option of Alkermes,
of the Preferred Stock. Finally, this Prospectus relates to the offering by the
Selling Shareholders of up to 3,881,940 shares (subject to adjustment under
certain circumstances) of Alkermes's common stock, par value $.01 per share
("Common Stock" and, together with the Preferred Stock and the Debentures, the
"Securities"), issued or issuable upon conversion of the Preferred Stock or upon
conversion of the Debentures, if the Preferred Stock is exchanged for
Debentures.
The Preferred Stock was issued and sold in March 1998 in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), to persons reasonably believed by the managers
who placed the Preferred Stock (the "Initial Purchasers") to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) (each a
"QIB") or institutional accredited investors or sophisticated investors. Prior
to resale pursuant to this Prospectus, certain of the Preferred Stock was
eligible for trading on the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market. The Preferred Stock resold pursuant to
this Prospectus will no longer be eligible for trading on the PORTAL Market.
Dividends on the Preferred Stock are cumulative from the date of original
issue and are payable quarterly, commencing June 1, 1998 and payable each
September 1, December 1, March 1 and June 1 thereafter, at the annual rate of
$3.25 per share of Preferred Stock. Prior to March 6, 2001, the Preferred Stock
is not redeemable at the option of Alkermes. Thereafter the Preferred Stock is
redeemable at the option of Alkermes, in whole or in part, at the declining
redemption prices set forth herein, together with accrued dividends. See
"Description of Preferred Stock -- Optional Redemption." The Preferred Stock has
a liquidation preference of $50 per share, plus accrued and unpaid dividends.
The Preferred Stock is exchangeable, in whole but not in part, at the
option of Alkermes on any dividend payment date beginning March 1, 1999 (the
"Exchange Date") for the Debentures at the rate of $50 principal amount of
Debentures for each share of Preferred Stock. The Debentures, if issued, will
mature on the tenth anniversary of the Exchange Date. See "Description of
Preferred Stock -- Exchange Provisions." The Debentures, if issued, will contain
conversion and optional redemption provisions substantially identical to those
of the Preferred Stock. See "Description of Debentures."
Holders ("Holders") of the Preferred Stock are entitled at any time,
subject to prior redemption or repurchase, to convert any of the Preferred Stock
or portions thereof into Common Stock, at an initial conversion rate of 1.6878
shares of Common Stock for each share of Preferred Stock, subject to certain
adjustments including a Non-Stock Fundamental Charge or a Common Stock
Fundamental Charge (each as defined). See "Description of Preferred
Stock-Conversion Rights." The Common Stock is currently traded on The Nasdaq
National Market under the symbol "ALKS." On April 13, 1998, the reported closing
price of the Common Stock on The Nasdaq National Market was $22.875 per share.
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Alkermes will not receive any of the proceeds from the sale of the
Securities offered hereby. The Selling Shareholders directly, through agents
designated from time to time, or through brokers, dealers or underwriters to be
designated, may sell the Securities from time to time on terms to be determined
at the time of sale. To the extent required, the specific amount of Securities
to be sold, the respective purchase price and public offering price, the names
of any such agent, broker, dealer or underwriter, and any applicable commission
or discount with respect to the particular offer will be set forth in a
Prospectus Supplement. Alkermes has agreed to bear substantially all expenses of
registration of the Securities under federal and state securities laws, other
than, among other things, commissions, fees and discounts of underwriters,
brokers, dealers and agents. In addition, Alkermes has agreed to indemnify the
Selling Shareholders against certain liabilities. See "Plan of Distribution."
The Selling Shareholders and any broker, dealer, agents or underwriters
that participate with the Selling Shareholders in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profits on the
resale of the Securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Shareholders have
agreed to indemnify Alkermes against certain liabilities. See "Plan of
Distribution."
----------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 27, 1998
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act with respect to the Securities offered hereby. This Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, information statements
and other information with the Commission. Such reports, proxy and information
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's Regional Offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Avenue, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates, or from the Commission's internet
web site at http://www.sec.gov. The Common Stock is listed on The Nasdaq
National Market and, in connection with such listing, the Company also files
reports, proxy statements and other information with The Nasdaq National Market.
Such reports, proxy statements and other information filed by the Company can be
inspected and copied at the offices of the Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company filed with the Commission (File No.
0-15972) are incorporated herein by reference:
(i) Annual Report on Form 10-K for the year ended March 31, 1997;
(ii) Quarterly Reports on Form 10-Q for the quarters ended June 30, 1997,
September 30, 1997, and December 31, 1997;
(iii) Current Reports on Form 8-K dated September 30, 1997, February 18,
1998, February 27, 1998 and April 15, 1998; and
(iv) Item 1 of Registration Statement on Form 8-A dated June 28, 1991, as
amended by Form 8-A/A dated January 17, 1997 including any amendments
or reports filed for the purpose of updating such description.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act,
prior to the termination of the offering made hereby, shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained in this
Prospectus or in a document incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Alkermes, Inc., 64 Sidney Street,
Cambridge, MA 02139, Attention: Michael J. Landine, Senior Vice President and
Chief Financial Officer (telephone number (617) 494-0171).
Alkermes(R), ProLease(R), Medisorb(R) and the Alkermes logo are registered
trademarks of Alkermes, Inc. RMP(TM), RMPs(TM), RMP-7(TM), Cereport(TM) and
Receptor-Mediated Permeabilizers(TM) are trademarks of Alkermes, Inc.
Intron(R) is a registered trademark of Schering Corporation, a subsidiary
of Schering-Plough Corporation.
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SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
See "Important Factors Regarding Forward-Looking Statements."
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus or
incorporated by reference herein.
THE COMPANY
Alkermes, Inc. (together with its subsidiaries, for purposes of this
Summary and the Risk Factors, hereinafter referred to as "Alkermes" or the
"Company") is applying the tools of biotechnology to the development of
sophisticated proprietary drug delivery systems. The Company is developing
product candidates based on three independent drug delivery technologies:
ProLease, which is designed to enable single injections lasting a few days to
several months to be made of proteins or peptides otherwise given by more
frequent injection; Cereport, which is designed to enable increased drug
delivery to the brain by transiently opening the blood-brain barrier; and
Medisorb, which extends Alkermes' technology for injectable sustained release
and is designed for more traditional small molecule pharmaceutical compounds.
ProLease is a proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. Several ProLease product candidates are being developed in
collaboration with large pharmaceutical companies. With Genentech, Inc.
("Genentech"), Alkermes is developing a ProLease sustained-release formulation
of Genentech's human growth hormone ("hGH"). In December 1996, following the
completion of a feasibility agreement, Alkermes announced a collaboration with
Johnson & Johnson for a ProLease formulation of an undisclosed product for the
treatment of hormone-mediated disorders. In January 1998, following the
completion of a feasibility agreement, Alkermes announced a collaboration with
Johnson & Johnson for a ProLease formulation of erythropoietin ("EPO"). Also, in
collaboration with Schering-Plough Corporation ("Schering-Plough"), Alkermes is
developing a sustained-release formulation of Intron A, Schering-Plough's alpha
interferon, which is approved for use in several infectious diseases and certain
oncology indications.
Cereport, Alkermes' second drug delivery system, is a novel pharmaceutical
peptide based on bradykinin, a compound occurring naturally in the body and
known to affect vascular permeability. Following injection, Cereport increases
permeability by triggering a brief relaxation of the tight cellular junctions of
the blood-brain barrier. During the time that permeability is increased, drug
molecules in the bloodstream can diffuse into the brain in concentrations
greater than can usually be achieved.
To support the extensive clinical development of Cereport, Alkermes formed
and transferred substantially all of its rights to its Receptor-Mediated
Permeabilizer ("RMP") technology, including Cereport, to Alkermes Clinical
Partners, L.P. ("Clinical Partners"). The research and development funding from
Clinical Partners, which ended as of June 30, 1996, was not sufficient to
complete clinical trials and obtain regulatory approval of Cereport. The Company
has the right to reacquire such technology by purchasing all of the limited
partnership interests. This right will terminate in the event the Company ceases
funding the development of Cereport. Alkermes has used and intends to continue
to use its own resources to develop Cereport. In addition, the Company has
entered into an agreement with ALZA Corporation ("ALZA") pursuant to which ALZA
is providing to the Company certain development funding for Cereport and has the
option to acquire commercialization rights for Cereport. See "Risk Factors --
Need for Additional Funding; Uncertainty of Access to Capital" and "--
Assignment of Cereport Technology; Effect of Exercise of Clinical Partners
Purchase Option."
Medisorb, the Company's third drug delivery system, is a proprietary
technology for the stabilization and encapsulation of traditional, small
molecule drugs in microspheres made of common medical polymers. In May
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1996, Alkermes announced a collaboration with Janssen Pharmaceutica
International ("Janssen") for the development of a Medisorb formulation of an
undisclosed Janssen proprietary product.
Alkermes' business strategy is to develop and acquire drug delivery systems
to address significant new drug delivery opportunities arising in the
pharmaceutical industry. This strategy has four key elements: (i) develop and
acquire broadly applicable drug delivery systems and apply them to multiple
pharmaceutical products; (ii) collaborate to develop and finance product
candidates; (iii) apply drug delivery systems to both approved drugs and drugs
in development; and (iv) establish independent product development capabilities.
The Company was incorporated in Pennsylvania in 1987. The Company's
principal executive offices are located at 64 Sidney Street, Cambridge, MA 02139
and its telephone number is (617) 494-0171.
THE OFFERING
THE COMMON STOCK
<TABLE>
<S> <C> <C>
Common Stock outstanding as of April 2, 1998(1)......................................... 21,072,546 shares
Common Stock to be outstanding assuming conversion of the Preferred Stock(1)(2)......... 24,954,486 shares
Nasdaq National Market symbol........................................................... ALKS
</TABLE>
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(1) Excludes as of April 2, 1998 outstanding options and awards for 2,159,598
shares of Common Stock at a weighted average exercise price of $8.22 per
share and outstanding warrants to purchase 1,069,400 shares of Common Stock
at a weighted average exercise price of $7.05 per share.
(2) Assumes no adjustment to the conversion price of the Preferred Stock.
<TABLE>
THE PREFERRED STOCK AND DEBENTURES
<S> <C>
Securities Offered................ 2,300,000 shares of $3.25 Convertible
Exchangeable Preferred Stock (the "Preferred
Stock"), par value $0.01 per share.
Dividends on Preferred Stock...... Cumulative from the date of original issue
at the annual rate of $3.25 per share of
Preferred Stock, payable quarterly out of
funds legally available therefor on the
first day of March, June, September and
December, commencing June 1, 1998, when, as,
and if declared by the Board of Directors
out of funds legally available therefor. See
"Description of Preferred Stock --
Dividends."
Conversion Rights................. The Preferred Stock will be convertible at
the option of the holder at any time, unless
previously redeemed or exchanged, into
shares of Common Stock at an initial
conversion rate of 1.6878 shares of Common
Stock for each share of Preferred Stock
(equivalent to a conversion price of
approximately $29.625). The initial
conversion price with respect to the
Preferred Stock is subject to adjustment in
certain events, including a Non-Stock
Fundamental Change or a Common Stock
Fundamental Change (each as defined). See
"Description of Preferred Stock --
Conversion Rights."
Liquidation Preference............ $50 per share of Preferred Stock, plus
accrued and unpaid dividends. See
"Description of Preferred Stock--
Liquidation Rights."
</TABLE>
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<TABLE>
<S> <C>
Optional Redemption............... Prior to March 6, 2001, the Preferred Stock
is not redeemable at the option of the
Company. Thereafter, the Preferred Stock is
redeemable at the option of the Company, in
whole or in part, at the declining
redemption prices set forth herein, together
with accrued dividends. See "Description of
Preferred Stock -- Optional Redemption."
Exchange Provisions............... The Preferred Stock is exchangeable in
whole, but not in part, at the option of the
Company on any dividend payment date
beginning on March 1, 1999 (the "Exchange
Date") for the Company's 6 1/2% Convertible
Subordinated Debentures (the "Debentures")
at the rate of $50 principal amount of
Debentures for each share of Preferred
Stock. The Debentures, if issued, will
mature on the tenth anniversary of the
Exchange Date. See "Description of Preferred
Stock -- Exchange Provisions."
Voting Rights..................... Except as provided by law, holders of shares
of Preferred Stock will not be entitled to
any voting rights, except that, among other
things, holders will be entitled to vote as
a separate class to elect two directors if
the equivalent of six or more quarterly
dividends (whether or not consecutive) on
the Preferred Stock are in arrears. These
voting rights will continue until such time
as the dividend arrearage on the Preferred
Stock has been paid in full. See
"Description of Preferred Stock -- Voting
Rights."
Debentures........................ The Debentures, if issued, will bear
interest at a rate per annum of 6 1/2% of
the principal amount thereof payable
semiannually on March 1 and September 1 of
each year, commencing on the first interest
payment date following the date of exchange.
Prior to March 6, 2001, the Debentures are
not redeemable at the option of the Company.
Thereafter, the Debentures are redeemable at
the option of the Company, in whole or in
part, at the declining redemption prices set
forth herein, together with accrued
interest. The Debentures are not entitled to
the benefits of any mandatory sinking fund
payments. At the option of the holder, the
Debentures may be converted into Common
Stock at the same conversion price as would
have been applicable to the Preferred Stock
if the Preferred Stock were outstanding. The
Debentures will be subordinated to all
Senior Indebtedness (as defined). The
Indenture (as defined) will not limit the
amount of additional indebtedness, including
Senior Indebtedness, which the Company can
create, incur, assume or guarantee, nor will
the Indenture limit the amount of
indebtedness that any subsidiary can incur.
See "Description of Debentures."
Risk Factors...................... An investment in the Securities involves a
high degree of risk. See "Risk Factors" on
pages 8 through 18 for a discussion of
certain factors that should be considered in
evaluating an investment in the Securities.
</TABLE>
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Some of the information presented in this Prospectus constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, the Company's business is subject to
significant risks and there can be no assurance that actual results of the
Company's development activities and its results of operations will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, among others (i) the Company and its
collaborators could not be permitted by regulatory authorities to undertake
additional clinical trials for ProLease, Cereport or Medisorb or clinical trials
could be delayed; (ii) product candidates could be ineffective or unsafe during
clinical trials; (iii) the Company's collaborators could elect to terminate or
delay development programs; (iv) the Company could incur difficulties or
set-backs in obtaining the substantial additional funding required to continue
research and development programs and clinical trials; and (v) even if product
candidates appear promising at an early stage of development, product candidates
could fail to receive necessary regulatory approvals, could become
technologically obsolete, 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.
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RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. See "Important Factors Regarding Forward-Looking Statements".
In addition to the other information included or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Securities offered
hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of each of
its product candidates under development, Alkermes or its collaborators must
demonstrate through preclinical testing and clinical trials that the product
candidate is safe and efficacious. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in subsequent
clinical trials, and there can be no assurance that the Company's or its
collaborators' clinical trials will demonstrate the safety and efficacy of any
product candidates necessary to obtain regulatory approval. A number of
companies in the biotechnology and pharmaceutical industries have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. In addition, certain clinical trials are conducted
with patients having the most advanced stages of disease. During the course of
treatment, these patients often die or suffer other adverse medical effects for
reasons that may not be related to the pharmaceutical agent being tested. Such
events can adversely affect the statistical analysis of clinical trial results.
For example, the Company's Cereport clinical trial results for patients with
brain tumor may be adversely affected by the severity and advanced state of
disease in participating patients.
The risk and complexity of clinical trials of the Company's product
candidates is increased by the use of other pharmaceuticals in combination with
ProLease, Cereport, and Medisorb, the Company's drug delivery technologies. Even
if such other pharmaceutical has received approval by the United States Food and
Drug Administration ("FDA") or other regulatory agencies, the outcome of
clinical trials is dependent upon the performance of ProLease, Cereport, or
Medisorb in combination with the pharmaceutical agent.
Moreover, drugs used with the drug delivery systems may not have been
approved for the indication for which the Company is conducting clinical trials.
For example, Alkermes has completed Phase II clinical trials of Cereport
administered in combination with the chemotherapeutic agent carboplatin in
patients with recurrent malignant glioma. Carboplatin has not been approved for
the treatment of this indication. No assurance can be given that the FDA will
not require additional clinical trials to demonstrate the safety and efficacy of
carboplatin in the treatment of brain tumor.
In March 1997, the Company announced that the third intravenous Phase II
clinical trial, Study ALK01-017, did not meet its primary endpoint of time to
tumor progression as measured by changes in tumor volume on MRI. In March 1998,
Alkermes began a Phase III clinical trial of Cereport and carboplatin in newly
diagnosed patients with brain tumor. There can be no assurance that any results
of such Phase III clinical trial will support regulatory approval of Cereport.
The completion of clinical trials of the Company's product candidates may
be delayed by many factors and there can be no assurance that delays or
terminations will not occur. One such factor is the rate of enrollment of
patients, which generally varies throughout the course of a clinical trial and
which depends on the size of the patient population, the number of clinical
trial sites, the proximity of patients to clinical trial sites, the eligibility
criteria for the trial and the existence of competitive clinical trials. Neither
the Company nor its collaborators can control the rate at which patients present
themselves for enrollment, and there can be no assurance that the rate of
patient enrollment will be consistent with the Company's expectations or be
sufficient to enable clinical trials of the
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Company's product candidates to be completed in a timely manner. Any significant
delays in, or termination of, clinical trials of the Company's product
candidates would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that Alkermes or its collaborators will be
permitted by regulatory authorities to undertake additional clinical trials for
any of its technologies, or that if such trials are conducted, any of the
Company's product candidates will prove to be safe and efficacious or will
receive regulatory approvals. Any delays in or termination of the Company's or
its collaborator's clinical trial efforts would have a material adverse effect
on the Company's business, financial condition and results of operations.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Alkermes has had net operating losses since its inception in 1987, and has
a substantial accumulated deficit. The Company's losses have resulted
principally from costs incurred in research and development, including clinical
trials, the purchase of in-process research and development, and from general
and administrative costs associated with the Company's operations. These costs
have exceeded the Company's revenues, which to date have been generated almost
entirely from Clinical Partners, collaboration and development agreements,
research grants, and interest income. Alkermes expects to incur substantial
additional and increasing operating expenses over the next several years as its
research and development and clinical trial activities accelerate and as
manufacturing scale-up occurs. To the extent that the Company is unable to
obtain third-party funding for such expenses, the Company expects that such
increased expenses will result in increased losses from operations. Alkermes
does not expect to generate significant revenues from the sale of products, if
any, for several years. The Company's future profitability depends in part on
the Company and its collaborators obtaining regulatory approval for products,
entering into agreements for product development and commercialization and
developing the capacity, or entering into agreements, for the manufacture, and
marketing of any products. There can be no assurance that Alkermes or its
collaborators will obtain required regulatory approvals, or successfully
develop, commercialize, manufacture, and market product candidates or that the
Company will ever achieve significant product revenues or profitability.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
All of the Company's product candidates are in research or development. No
significant revenues have been generated from product sales. In order to achieve
profitability, Alkermes must successfully develop, commercialize, manufacture
and market its products, either alone or in collaboration with others. Any
products resulting from the Company's research and development programs may not
be commercially available for several years, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
will be found ineffective or cause harmful side effects during preclinical
testing or clinical trials, fail to receive necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical, fail to achieve
market acceptance, or be precluded from commercialization by proprietary rights
of third parties.
The Company's product candidates require significant additional research
and development efforts. The Company's principal drug delivery systems,
ProLease, Cereport, and Medisorb, which have not yet been proven safe and
effective in humans, target unsolved drug delivery problems. No assurance can be
given that any of the Company's development programs will be successfully
completed, that required regulatory approvals will be obtained on a timely
basis, if at all, or that any products for which approval is obtained will be
commercially successful. If any of the Company's development programs is not
successfully completed, required regulatory approvals are not obtained, or
products for which approvals are obtained are not commercially successful, the
Company's business, financial condition and results of operations would be
materially adversely affected.
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NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
Alkermes will require substantial additional funding in order to continue
its research and product development programs and preclinical testing and
clinical trials of its product candidates, for operating expenses, for the
pursuit of regulatory approvals for its product candidates, and for establishing
manufacturing and marketing capabilities. 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 has historically maintained cash reserves and other
liquid assets, that, together with amounts projected to be received from the
Company's collaborators, and interest income earned, were adequate to satisfy
its capital and operating requirements for a two-year period; however, there can
be no assurance that these funds will continue to be maintained at such level or
be sufficient to satisfy the Company's capital and operating requirements.
Alkermes intends to seek additional funding through arrangements with
corporate collaborators and through public or private sales of the Company's
securities, including equity securities. In addition, the Company has obtained
equipment, bank, and other loans and may continue to pursue opportunities to
obtain additional debt financing in the future. There can be no assurance,
however, that additional equity or debt funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's shareholders. If adequate funds are not available, Alkermes 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 Alkermes to relinquish rights to certain of its
technologies or product candidates.
The Company's research and development of Cereport has been funded by
Clinical Partners pursuant to a Product Development Agreement, dated as of March
6, 1992, between Alkermes and Clinical Partners (the "Product Development
Agreement"). Such funding, which ended as of June 30, 1996, was not sufficient
to complete clinical trials and obtain regulatory approval of Cereport. As a
result, Alkermes has used and intends to continue to use its own resources to
develop Cereport. The Company has the option to purchase the limited partnership
interests in Clinical Partners for cash or stock (the "Purchase Option"). The
Purchase Option will terminate in the event the Company ceases funding the
development of Cereport. If the Company elects to exercise its Purchase Option
it will be required to make a substantial cash payment. The Company would be
required to seek additional capital for such a payment and there is no assurance
that it would be able to obtain such capital on attractive terms or at all. If
Alkermes does not exercise its Purchase Option it may not recoup any investment
made by it in the development of Cereport. See "-- Assignment of Cereport
Technology; Effect of Exercise of Clinical Partners Purchase Option."
DEPENDENCE ON COLLABORATORS; POTENTIAL CONFLICTS OF INTEREST
The Company's strategy for research, development and commercialization of
its product candidates is to rely, in part, upon various corporate collaborators
and licensors and will in some cases be dependent upon these outside parties to
conduct preclinical testing and clinical trials, and to provide adequate funding
for the Company's development programs. The Company has collaborative
arrangements with Genentech, Johnson & Johnson and Schering-Plough, with respect
to its ProLease technology, with Clinical Partners and ALZA with respect to its
Cereport technology, and with Janssen with respect to its Medisorb technology.
The collaboration and license agreements may be terminated in some cases at the
discretion of the Company's collaborators with only limited notice to the
Company.
Neither ProLease nor Medisorb is an independently commercializable
technology. Both technologies are dependent on therapeutic products from third
parties, which may require licensing, collaboration or other arrangements. There
can be no assurance that the Company will be able to negotiate acceptable
additional collaborative arrangements that the Company deems necessary to
develop or commercialize its product candidates.
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Even if the Company is able to negotiate acceptable new collaborative
arrangements, there can be no assurance that such arrangements or the Company's
existing collaborations will be completed or will be successful or that the
Company will realize any revenues pursuant to such arrangements.
The amount and timing of resources which the parties to collaborative
arrangements with the Company devote to these activities is not within the
control of the Company. If any of the Company's collaborators breaches or
terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaborative agreement may be delayed, and the Company may be required to
devote unforeseen additional resources to such development or commercialization,
or terminate such programs. The termination of collaborative arrangements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that disputes will not
arise in the future with respect to the ownership of rights to any technology
developed with third parties. These and other possible disagreements between
collaborators and the Company could lead to delays in the collaborative
research, development or commercialization of certain product candidates, or
could require or result in litigation or arbitration, which would be time
consuming and expensive and would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, Alkermes' collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's product candidates. Competing products, either developed by the
Company's collaborators or to which the collaborators have rights, may result in
the Company's collaborators withdrawing research, development or marketing
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE; RELIANCE ON THIRD-PARTY MANUFACTURING
Alkermes has completed construction of an in-house pilot production
facility which has been validated by the Company for manufacturing in accordance
with Good Manufacturing Practices ("GMP") regulations promulgated by the FDA.
The facility is being used to manufacture product candidates incorporating its
ProLease sustained-release delivery system for clinical trials. Construction of
a commercial scale production facility for the Company's ProLease sustained
release delivery system began in February 1998. In connection with its March
1996 acquisition of certain Medisorb assets and technology, Alkermes acquired a
14,000 square foot manufacturing facility in Wilmington, Ohio at which it is
manufacturing a Medisorb product candidate for Janssen for clinical trials. In
August 1997, Alkermes began construction of a 20,000 square foot addition to
this manufacturing facility for commercial scale production of the Janssen
product candidate. Alkermes has no other experience, however, in manufacturing
or in conducting the testing programs required to obtain regulatory approvals.
The manufacture of ProLease and Medisorb products on a commercial scale would
require significant start-up expenses and expansion of facilities and personnel,
and no assurance can be given that Alkermes can develop such manufacturing
capability on a timely basis, if at all.
The manufacture of the Company's products for clinical trials and
commercial purposes is subject to GMP and other federal regulations. The Company
has never operated an FDA-approved manufacturing facility, and there can be no
assurance that it will obtain necessary approvals for commercial manufacturing.
Alkermes relies on a third party to manufacture Cereport for use in
clinical trials and expects to rely on such third party for commercial sales, if
any. There can be no assurance that this manufacturer will continue to meet the
Company's requirements for quality, quantity and timeliness, or that Alkermes
would be able to find alternative manufacturers, if necessary.
If Alkermes is not able to develop manufacturing capacity and experience or
to continue to contract for manufacturing capabilities on acceptable terms, its
ability to conduct preclinical testing and clinical trials will be compromised,
delays in obtaining regulatory approvals may result, and, if such approvals are
obtained, commercial
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sales may be delayed. Such delays would materially adversely affect the
Company's competitive position and its business, financial condition, and
results of operations.
ASSIGNMENT OF CEREPORT TECHNOLOGY; EFFECT OF EXERCISE OF CLINICAL PARTNERS
PURCHASE OPTION
Alkermes has transferred to Clinical Partners substantially all of its
technology and commercial rights relating to Cereport technology. Under the
Product Development Agreement with Clinical Partners, Alkermes performs research
and development with respect to such technology on behalf of Clinical Partners.
There can be no assurance that disputes will not arise with Clinical Partners
over the ownership of rights to any technology that may be developed by Alkermes
pursuant to such agreement. In addition, there can be no assurance that
conflicts of interest between the Company and Clinical Partners will not arise
in relation to rights to ownership of the technology or termination of research
or marketing programs.
The Purchase Option will terminate in the event the Company ceases funding
the development of Cereport. There can be no assurance that the Purchase Option
will not terminate because the Company fails to exercise the Purchase Option or
otherwise. If the Purchase Option terminates, the Company will have no rights to
the Cereport technology or products developed on behalf of Clinical Partners in
the United States and Canada.
If the Company exercises the Purchase Option, it will be required to make a
substantial cash payment or to issue shares of Common Stock. A payment in cash
could have a material adverse effect on the Company's capital resources. A
payment in shares of Common Stock could result in a substantial decrease in the
percentage ownership of the Company by its then-existing shareholders and could
negatively affect the market price of the Common Stock. The exercise of the
Purchase Option may require Alkermes to record a significant charge to earnings
for the purchase of in-process research and development. If Alkermes acquires
rights to the Cereport technology pursuant to the Purchase Option, the Company
will have continuing obligations to pay royalties pursuant to the Product
Development Agreement.
INTENSE COMPETITION
Alkermes faces and expects to continue to face intense competition in the
development and marketing of its product candidates from academic institutions,
government agencies, research institutions, biotechnology and pharmaceutical
companies, including its collaborators, and drug delivery companies. Competition
may arise from other drug delivery technologies, methods of preventing or
reducing the incidence of disease, including vaccines, and new small-molecule or
other classes of therapeutic agents that do not require the assistance of a drug
delivery system. There can be no assurance that developments by others will not
render the Company's product candidates or technologies obsolete or
noncompetitive or that the Company's collaborators will not choose to use
competing drug delivery methods. In addition, if Alkermes receives regulatory
approvals for products, manufacturing efficiency and marketing capabilities are
likely to be significant competitive factors. At the present time, Alkermes has
no sales force or marketing or commercial manufacturing experience. In addition,
many of the Company's competitors and potential competitors have substantially
greater capital resources, manufacturing and marketing experience, research and
development resources, and production facilities than does Alkermes. Many of
these competitors also have significantly greater experience than does Alkermes
in undertaking preclinical testing and clinical trials of new pharmaceutical
products and obtaining FDA and other regulatory approvals.
With respect to Cereport, the Company believes that there are currently no
products approved by the FDA or other regulatory authorities for increasing the
permeability of the blood-brain barrier. There are however many novel
experimental therapies being tested in the United States and Europe. With
respect to ProLease and Medisorb, the Company is aware that there are other
companies developing sustained-release delivery systems for pharmaceutical
products. In addition, other companies are developing new chemical entities
which, if developed successfully, could compete against sustained-release
formulations of products of the Company's collaborators. These chemical entities
are being designed to have different mechanisms of action or improved safety and
efficacy. In addition, Alkermes' collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's product candidates.
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There can be no assurance that the Company will be able to compete
successfully with such companies. The existence of products developed by the
Company's competitors, or other products or treatments of which the Company is
not aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by the Company.
RAPID AND SUBSTANTIAL TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. There can be no assurance that the Company's
competitors will not succeed in developing products based on technologies
similar to its own or completely new technologies, which are more effective than
any that are being developed by the Company, or which render the Company's
technologies or product candidates obsolete and noncompetitive. The development
of such products could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on obtaining patent
protection for its product candidates and those of its collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
The Company is aware of several United States patents issued to third
parties containing claims which could be construed to cover some of the product
candidates of the Company, its collaborators or Clinical Partners utilizing the
ProLease, Cereport and Medisorb delivery systems. In one case, the Company has
received a letter from the owner of a patent asking the Company to compare the
Company's Medisorb technology disclosed in a published international patent
application with such owner's patented technology. There can be no assurance
that the claims of these issued United States patents or claims that may issue
from foreign counterparts of United States applications, are not infringed by
the proposed manufacture, use, offer for sale, sale or importation of these
products by the Company or its collaborators. There can be no assurance that a
third party will not file an infringement action, or that the Company would
prevail in any such action. There can be no assurance that the cost of defending
an infringement action would not be substantial and would not have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is also aware of patent applications filed by third
parties in the United States and in various foreign countries which may cover
some of the Company's product candidates utilizing its ProLease, Cereport or
Medisorb delivery systems. Patents may issue from these applications which could
preclude the Company from manufacturing, using, offering for sale or selling
some of its ProLease, Cereport or Medisorb product candidates. Furthermore,
there can be no assurance that any licenses under such patents would be made
available on commercially viable terms, if at all. Failure to obtain any
required license could prevent the Company from commercializing one or more of
its products.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
firms, including Alkermes, are generally uncertain and involve complex legal and
factual questions. In addition, there can be no assurance that the Company's or
its licensors' current patent applications will be allowed or that the claims of
any patents issued to Alkermes or its licensors (in connection with either the
Company's product candidates or Clinical Partners' product candidate, or both)
will be sufficiently broad to protect the Company's or Clinical Partners'
technology or to provide Alkermes or Clinical Partners with any competitive
advantages. Moreover, no assurance can be given that patents issued to Alkermes
(in connection with either the Company's product candidates or Clinical
Partners' product candidate, or both), or its respective licensors, if any, will
not be contested, narrowed, invalidated or circumvented. In addition, if
Alkermes or Clinical Partners brings a patent infringement action or otherwise
brings an action to protect its own proprietary rights against third parties or
is required to defend against a charge of patent infringement, substantial costs
could be incurred.
In the future, Alkermes may be required to obtain additional licenses to
patents or other proprietary rights of third parties. There can be no assurance
that any such licenses will be available on acceptable terms, if at all,
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and failure to obtain such licenses could result in delays in marketing the
Company's products or the inability to proceed with the development, manufacture
or sale of product candidates requiring such licenses.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's research and preclinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product candidate developed by Alkermes or its
collaborators must undergo an extensive regulatory approval process, which
includes preclinical testing and clinical trials of such product candidate to
demonstrate safety and efficacy. This regulatory process can require many years
and the expenditure of substantial resources. Data obtained from preclinical
testing and clinical trials are subject to varying interpretations, which can
delay, limit or prevent FDA approval. In addition, changes in FDA approval
policies or requirements may occur or new regulations may be promulgated which
may result in delay or failure to receive FDA approval. Similar delays or
failures may be encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.
There can be no assurance that Cereport used in conjunction with any
pharmaceuticals, ProLease or Medisorb formulations or any other product
candidate developed by Alkermes or its collaborators will receive manufacturing
and marketing approval in the United States or any foreign country on a timely
basis, if at all. In the case of Cereport, the Company must obtain FDA approval
for Cereport for use in conjunction with a pharmaceutical agent. The Company is
in clinical trials with Cereport for use in conjunction with carboplatin in the
treatment of brain tumor. Carboplatin has not been approved for this specific
use and there can be no assurance that it or any other pharmaceutical agent to
be used with Cereport will receive regulatory approval. In the case of ProLease
and Medisorb, the Company or its collaborators must obtain FDA approval for each
formulation even if the pharmaceutical included in the formulation has received
FDA approval as a standalone product. There can be no assurance that any such
formulation will receive FDA approval. If any product were approved, there can
be no assurance that any such product would be capable of being produced in
commercial quantities at reasonable costs and successfully marketed. In
addition, if regulatory approval of any product is granted, it may entail
limitations on the uses for which the product may be marketed. Even if
regulatory approval is obtained, any marketed drug and its manufacturer are
subject to continual review and any discovery of previously unrecognized
problems with a product or manufacturer could result in restrictions on the
product, including withdrawal of the product from the market.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business may be materially adversely affected by the
continuing efforts of government and third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has and will continue to put pressure on
pharmaceutical pricing. Such initiatives and proposals, if adopted, could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations.
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Further, to the extent that such proposals or initiatives have a material
adverse effect on other pharmaceutical companies that are collaborators or
prospective collaborators for certain of the Company's potential products, the
Company's ability to commercialize its potential products may be adversely
affected.
The Company's ability to commercialize pharmaceutical products may depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health insurers, and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products, and by refusing, in
some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products would
be adversely affected.
NO MARKETING OR SALES EXPERIENCE
Alkermes currently has no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any product candidate
approved by the FDA, Alkermes must either develop a marketing and sales force or
enter into arrangements with third parties to market and sell its products.
There can be no assurance that Alkermes will successfully develop such
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well funded marketing and sales operations. To
the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by
Alkermes will be dependent on the efforts of others and there can be no
assurance that such efforts will be successful.
PRODUCT LIABILITY EXPOSURE
The use of the Company's product candidates in clinical trials and the sale
of any resulting products may expose Alkermes to liability claims resulting from
the use of such product candidates or products. These claims might be made
directly by consumers or by pharmaceutical companies or others selling such
products. Alkermes has obtained product liability insurance for coverage for
claims arising from the use of its products in clinical trials in the amount of
$5 million per occurrence and $5 million in the aggregate. There can be no
assurance that such insurance will be sufficient to satisfy any liabilities that
may arise. The Company's existing coverage will not be adequate as the Company's
product development activities progress. There can be no assurance that adequate
insurance coverage will be available in the future at an acceptable cost, if at
all. An inability to obtain sufficient insurance coverage at an acceptable cost
or to otherwise protect against potential product liability claims could prevent
or limit the commercialization of any products by the Company. In addition,
there can be no assurance that any product liability claims will not have a
material adverse effect on the business, financial condition and results of
operations of Alkermes.
RESTRICTIVE LOAN COVENANTS
The Company's loan agreements contain certain restrictive financial
covenants that require the Company to maintain minimum levels of working
capital, net worth and liquid assets. Under the terms of one loan agreement, the
Company is required to maintain an unencumbered balance of cash and permitted
investments of at least $15 million and a ratio of unencumbered cash and
permitted investments to indebtedness of 2.0 to 1.0. The second loan agreement
requires the Company to maintain a net worth of not less than $20.0 million, a
maximum ratio of total liabilities to net worth of 0.5 to 1.0, a minimum current
ratio of 2.0 to 1.0 and a minimum unencumbered balance of cash and permitted
investments equal to the greater of (i) $20.0 million, (ii) the Company's
projected cash loss over the next 14 months and (iii) an amount equal to the
Company's cash loss for the previous six months multiplied
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by 2.33. Upon the breach of any of these financial covenants or the occurrence
of any other event of default under this second loan agreement, the Company will
be required to deposit an amount equal to the then outstanding principal balance
of the loan plus three months interest into a restricted account at the bank. In
addition, the bank will have the right to liquidate such account and apply the
proceeds to repayment of the loan if the Company's unencumbered cash and
investment balance falls below $5.0 million. Upon the breach of any of these
covenants or the occurrence of any other event of default under the loan
agreements, the Company's business, financial condition and results of
operations could be materially adversely affected.
FUTURE SALES OF COMMON STOCK BY CERTAIN SHAREHOLDERS; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE OF COMMON STOCK
As part of its compensation policy, the Company issues stock options to its
directors, officers, employees and consultants and restricted stock awards to
certain officers, employees and consultants. In addition, the Company issued
warrants to the limited partners of Clinical Partners. The issuance of Common
Stock upon exercise of such stock options and warrants and the vesting of
awards, as well as future sales of such Common Stock or of shares of Common
Stock by existing shareholders, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock. The foregoing
shares will be freely tradeable upon issuance.
ALZA acquired 2,000,000 shares of Common Stock pursuant to a Stock Purchase
Agreement dated as of February 13, 1997 (the "Stock Purchase Agreement"). All of
such shares have been registered for resale pursuant to a registration statement
dated as of April 25, 1997. In addition, pursuant to the Stock Purchase
Agreement, ALZA has the right to include any of the shares in an underwritten
public offering of Common Stock by Alkermes, subject to customary underwriter
cutback provisions. This right could be exercised by ALZA in the event any
holders of the Preferred Stock or the Debentures convert such securities to
Common Stock and exercise their right to have such Common Stock registered in an
underwritten public offering. The sale by ALZA or the perception that ALZA could
sell all of the shares or a large amount of the shares, could adversely affect
the market price of the Common Stock.
Alkermes has issued to Genentech a Convertible Promissory Note (the
"Note"), dated January 31, 1995, in the principal amount of $3.5 million. The
Note provides that Alkermes has the option to convert the outstanding balance of
the Note, together with accrued and unpaid interest thereon, into shares of
Common Stock. Under certain circumstances, Genentech also has the right to
convert the Note into shares of Common Stock and to demand that the Common Stock
be registered. The Company's issuance of Common Stock, whether or not
registered, upon exercise by Alkermes or Genentech of its conversion rights, the
perception that such conversion could occur, the sale of such shares by
Genentech, or the perception that such sale could occur, could adversely affect
the market price of the Common Stock.
In addition, in July 1995, Alkermes received certain prepaid royalties from
Schering-Plough pursuant to their amended Development and License Agreement.
Schering-Plough is entitled to terminate such agreement under certain
circumstances, in which event Alkermes will be required to repay the prepaid
royalties with interest, either in cash or in Common Stock, at the Company's
election. Any Common Stock issued to Schering-Plough must be freely resalable.
The Company's issuance of Common Stock to Schering-Plough in repayment of the
prepaid royalties, the perception that it may do so, the sale of such shares by
Schering-Plough, or the perception that such sale could occur could adversely
affect the market price of the Common Stock.
VOLATILITY OF PREFERRED STOCK AND COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies, including Alkermes, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed
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by the Company or others, future sales of substantial amounts of Common Stock by
existing shareholders and general market conditions can have an adverse effect
on the market price of the Common Stock and, in turn, the market price of the
Preferred Stock. In particular, the realization of any of the risks described in
these "Risk Factors" could have a dramatic and adverse impact on the market
price of the Preferred Stock and Common Stock.
ANTI-TAKEOVER PROVISIONS
The Pennsylvania Business Corporation Law of 1988, as amended (the "1988
BCL"), contains certain provisions which could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contests involving the Company, even if such transaction would be
beneficial to the interests of the shareholders, or could discourage a third
party from attempting to acquire control of the Company. For example, the Board
of Directors may, in considering the best interests of the Company or the
effects of any action, consider the interests of shareholders, employees,
customers, creditors and the community where the Company is located, as well as
long-term and short-term interests of the Company. Moreover, when a
shareholder's voting power reaches certain thresholds, among other consequences,
its voting power is removed, its ability to enter into certain business
transactions with the Company is limited, it may be required to pay fair value
to certain existing shareholders, and it will be required to disgorge any
profits in the sale, if any, of the Company's securities within certain time
periods.
The Company's Second Amended and Restated Articles of Incorporation, as
amended (the "Restated Articles"), also contain certain provisions which could
have a similar effect. Under the Restated Articles, the Board of Directors may,
without shareholder approval, establish and issue from authorized and
undesignated shares, classes and series of stock having such voting rights,
preferences, limitations and special rights as the Board of Directors may
determine. The Preferred Stock being offered hereby was established pursuant to
such provisions. The Company has no current plans to establish and issue any
other class or series of its capital stock.
MARKET FOR PREFERRED STOCK AND DEBENTURES
The Preferred Stock is a new issue of securities for which there is
currently no public market. There can be no assurance that a liquid trading
market in the Preferred Stock will develop. In addition, if the Preferred Stock
is exchanged for Debentures, the Company is not obligated to list the
Debentures, and there can be no assurances that a market in the Debentures will
develop. See "Description of Preferred Stock" and "Description of Debentures."
NO COMMON STOCK DIVIDENDS
Alkermes has not paid cash dividends on the Common Stock and does not
expect to do so in the foreseeable future.
UNCERTAINTY OF PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS ON PREFERRED STOCK
Under Pennsylvania law, the Company may not make any distributions to
shareholders if, after giving effect to such distribution, the Company (i) would
be unable to pay its debts as they become due in the usual course of its
business or (ii) the total assets of the Company would be less than the sum of
its total liabilities plus (unless otherwise provided in the Restated Articles)
the amount that would be needed, if the Company were to be dissolved at the time
as of which the distribution is measured, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Under Pennsylvania law, a distribution would include
dividends payable to holders of Preferred Stock, redemption of the Preferred
Stock and exchange of the Preferred Stock for the Debentures. The Company's
ability to pay dividends and make other distributions in the future will depend
upon its financial results, liquidity and financial condition. There can be no
assurance that the Company will be able to pay the quarterly installments of the
cumulative annual dividend on the Preferred Stock or make any other
distributions. See "Description of Preferred Stock."
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<PAGE> 20
TAX CONSEQUENCES OF EXCHANGE FOR DEBENTURES
An exchange of Preferred Stock for Debentures will be a taxable event for
federal income tax purposes which may result in tax liability to the holder
without any corresponding receipt of cash by the holder.
YEAR 2000 ISSUES
The Company and the companies with which it does business use software
systems and embedded technology in the conduct of their operations. Many
software systems and much technology in use today are unable to distinguish
between the year 2000 and the year 1900 because they use a two-digit shorthand
for calendar dates. If the Company does not identify and correct such shorthand
prior to January 1, 2000, its operations could be disrupted. The Company's
operations could also be disrupted if the companies with which the Company does
business similarly do not identify and correct such shorthand, and such failure
adversely affects their ability to do business with the Company.
To address these issues, the Company has undertaken a three-step
comprehensive project. The first step is to identify all of the Company's
software and embedded technology as well as the software and embedded technology
of all companies with which it does business that would affect the Company. The
second step is to determine whether any of the Company's software and
technology, and any of the software and technology of the companies with which
it does business, use the two-digit shorthand. The third step is to correct or
replace all such software and technology, and then to test the corrected or
replacement software and technology. The Company has completed the first step of
the project, expects to complete the second step by the end of calendar year
1998, and will commence the third step promptly upon completion of the second
step. This project is being conducted by the Company using internal resources.
The Company cannot estimate the cost of completion of the project until the
Company completes the second step, and there can be no assurance that the cost
of completion will not be material or that the use of the Company's internal
resources to complete the project will not adversely affect other aspects of the
Company's business.
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<PAGE> 21
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------- Nine Months Ended
1993 1994 1995 1996 1997 December 31, 1997
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges and
Preferred Stock
Dividends(1)............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) For the fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 and
for the nine months ended December 31, 1997, earnings were insufficient to
cover fixed charges by $39,686,000, $16,239,000, $10,519,000, $11,971,000,
$16,414,000 and $5,948,000, respectively. There were no Preferred Stock
dividends declared or paid by the Company during any of the fiscal years in
the five year period ended March 31, 1997 nor in the nine months ended
December 31, 1997. For these reasons, no ratios are provided.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not anticipate paying any dividends on its Common Stock in
the foreseeable future. For a discussion of dividends payable on the Preferred
Stock, see "Description of Preferred Stock -- Dividends."
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<PAGE> 22
DESCRIPTION OF PREFERRED STOCK
The following is a summary of the terms of the Preferred Stock offered
hereby. This summary is not intended to be complete and is subject to and
qualified in its entirety by reference to the Statement with Respect to Shares
(the "Preferred Stock Statement") filed with the Secretary of State of the
Commonwealth of Pennsylvania, which constitutes part of the Restated Articles,
and setting forth the rights, preferences and limitations of the Preferred
Stock. Whenever particular Sections or defined terms of the Preferred Stock
Statement are referred to herein, such Sections or defined terms are
incorporated by reference herein.
The Board of Directors has the authority, from time to time and without
further action by the shareholders, to divide its unissued capital stock into
one or more classes and one or more series within any class and to make
determinations of the designation and number of shares of any class or series
and determinations of the voting rights, preferences, limitations and special
rights, if any, of the shares of any class or series. The rights, preferences,
limitations and special rights of different classes of capital stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The Preferred Stock offered hereby has been created out of the
undesignated, unissued capital stock of the Company.
The Preferred Stock is not subject to any sinking fund or other obligation
of the Company to redeem or retire the Preferred Stock. Unless earlier
converted, exchanged or redeemed by the Company, the Preferred Stock has a
perpetual maturity. Any Preferred Stock converted, exchanged or redeemed or
otherwise acquired by the Company will, upon cancellation of such shares, have
the status of authorized but unissued shares of Preferred Stock. (Section 6)
DIVIDENDS
Holders of the Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors, out of the funds of the Company legally
available therefor, cash dividends at an annual rate of $3.25 per share of
Preferred Stock, payable in equal quarterly installments on March 1, June 1,
September 1 and December 1, commencing June 1, 1998 (and, in the case of any
accrued but unpaid dividends, at such additional times and for such interim
periods, if any, as determined by the Board of Directors). Dividends on the
Preferred Stock are cumulative from the date of original issuance, and are
payable to holders of record as they appear on the stock books of the Company on
such record dates, which shall be not more than 60 days nor less than 10 days
preceding the payment dates, as shall be fixed by the Board of Directors.
(Section 3(a)) Holders of shares of Preferred Stock called for redemption on a
redemption date falling between a dividend payment record date and the dividend
payment date shall, in lieu of receiving such dividend on the dividend date
fixed therefor, receive such dividend payment together with all other accrued
and unpaid dividends on the date fixed for redemption (unless such holders
convert such shares in accordance with the Preferred Stock Statement). Dividends
payable on the Preferred Stock for any period greater or less than a full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Accrued but unpaid dividends will not bear interest.
(Section 3(b))
If dividends are not paid in full (or a sum sufficient for such payment is
not set aside) on the Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with the Preferred Stock, all dividends
declared upon shares of Preferred Stock and such other stock will be declared
pro rata so that in all cases the amount of dividends declared per share on the
Preferred Stock and such other stock bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of the Preferred Stock and
such other stock bear to each other. (Section 3(c)) Except as set forth above,
unless full cumulative dividends, if any, accrued on all outstanding shares of
Preferred Stock shall have been paid or set aside for payment, no other stock of
the Company ranking on a parity with the Preferred Stock as to dividends or upon
liquidation, dissolution or winding up shall be redeemed, purchased or otherwise
acquired. (Section 3(d)) Unless full cumulative dividends, if any, accrued on
all outstanding shares of Preferred Stock and any other stock of the Company
ranking on a parity with the Preferred Stock as to dividends shall have been
paid or set apart for payment, (i) no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights to subscribe for
or purchase shares of, Common Stock
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<PAGE> 23
or other stock ranking junior to the Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) shall be declared or paid or set apart
for payment on the Common Stock or any other stock of the Company ranking junior
to the Preferred Stock as to dividends or upon liquidation, dissolution or
winding up nor (ii) shall any other such stock of the Company ranking junior to
the Preferred Stock as to dividends or upon liquidation, dissolution or winding
up be redeemed, purchased or otherwise acquired. (Section 3(e))
Under Pennsylvania law, the Company may not make any distributions to
shareholders if, after giving effect to such distribution, the Company (i) would
be unable to pay its debts as they become due in the usual course of its
business or (ii) the total assets of the Company would be less than the sum of
its total liabilities plus (unless otherwise provided in the Restated Articles)
the amount that would be needed, if the Company were to be dissolved at the time
as of which the distribution is measured, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Under Pennsylvania law, a distribution would include
dividends payable to holders of Preferred Stock, redemption of the Preferred
Stock and exchange of the Preferred Stock for the Debentures. The Company's
ability to pay dividends and make any other distributions in the future will
depend upon its financial results, liquidity and financial condition.
CONVERSION RIGHTS
General.
Each share of Preferred Stock is convertible at the option of the holder at
any time into such number of shares of Common Stock determined by dividing the
liquidation preference set forth on the cover of this Prospectus by the
conversion price. The conversion price shall initially be $50 divided by the
conversion rate of 1.6878, subject to adjustment as described below. No
adjustment will be made on conversion of any share of Preferred Stock for
dividends accrued or unpaid thereon or for dividends on any Common Stock issued.
The Company is not required to issue fractional shares of Common Stock upon
conversion of Preferred Stock and, in lieu thereof, will pay a cash adjustment
based upon the market price of the Common Stock on the last Business Day
(determined as provided in the Preferred Stock Statement) prior to the date of
conversion. (Section 7(c)) In the case of Preferred Stock called for redemption,
conversion rights will expire at the close of business on the next business day
preceding the date fixed for redemption, unless the Company defaults in payment
of the redemption price. (Section 7(b))
The right of conversion attaching to each share of Preferred Stock may be
exercised by the holder by delivering the certificate representing such share of
Preferred Stock at the specified office of the transfer agent, accompanied by a
duly signed and completed notice of conversion, or if the Preferred Stock is
held in global form, according to the procedures set forth below under "Form,
Denomination and Registration." The conversion date shall be the date on which
the certificate representing such share of Preferred Stock and the duly signed
and completed notice of conversion have been delivered to the transfer agent.
(Section 7(b)) A holder delivering a certificate representing such share of
Preferred Stock for conversion will not be required to pay any taxes or duties
payable in respect of the issue or delivery of Common Stock on conversion, but
will be required to pay any tax or duty which may be payable in respect of any
transfer involved in the issue or delivery of the Common Stock in a name other
than the holder of the Preferred Stock. Certificates representing shares of
Common Stock will not be issued or delivered unless all taxes and duties, if
any, payable by the holder have been paid. (Section 7(f))
Conversion Price Adjustments -- General
The conversion price is subject to adjustment upon certain events,
including (i) the issuance of Common Stock as a dividend or distribution on
Common Stock; (ii) certain subdivisions and combinations of the Common Stock;
(iii) the issuance to all holders of Common Stock of certain rights or warrants
to purchase Common Stock at less than the current market price of the Common
Stock; (iv) the dividend or other distribution to all holders of Common Stock of
shares of capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding those
rights, warrants, dividends and distributions referred to above or paid
exclusively in cash); (v) dividends or other distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
clause (iv)) to all holders of Common Stock to the extent
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<PAGE> 24
that such distributions, combined together with (A) all other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made plus (B) any cash and the fair market value of other
consideration payable in respect of any tender offers by the Company or any of
its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then current market price of the
Common Stock times the number of shares of Common Stock outstanding) on the
record date for such distribution; (vi) the purchase of Common Stock pursuant to
a tender offer made by the Company or any of its subsidiaries to the extent that
the same involves an aggregate consideration that, together with (X) any cash
and the fair market value of any other consideration payable in any other tender
offer by the Company or any of its subsidiaries for Common Stock expiring within
the 12 months preceding such tender offer in respect of which no adjustment has
been made plus (Y) the aggregate amount of any such all-cash distributions
referred to in clause (v) above to all holders of Common Stock within the 12
months preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 10% of the Company's market capitalization
on the expiration of such tender offer; (vii) payment in respect of a tender
offer or exchange offer by a person other than the Company or any subsidiary of
the Company in which, as of the closing of the offer, the Board of Directors is
not recommending rejection of the offer; and (viii) the issuance of Common Stock
or securities convertible into, or exchangeable for, Common Stock at a price per
share (or having a conversion or exchange price per share) that is less than 95%
of the then current market price of the Common Stock (but excluding, among other
things, issuances: (a) pursuant to any bona fide plan for the benefit of
employees, directors or consultants of the Company now or hereafter in effect;
(b) to acquire all or any portion of a business in an arm's-length transaction
between the Company and an unaffiliated third party including, if applicable,
issuances upon exercise of options or warrants assumed in connection with such
an acquisition; (c) in a bona fide public offering pursuant to a firm commitment
underwriting or sales at the market pursuant to a continuous offering stock
program; (d) pursuant to the exercise of warrants, rights (including, without
limitation, earnout rights) or options, or upon the conversion of convertible
securities, which are issued and outstanding on the date hereof, or which may be
issued in the future at a fair value and with an exercise price or conversion
price at least equal to the current market price of the Common Stock at the time
of issuance of such warrant, right, option or convertible security; and (e)
pursuant to a dividend reinvestment plan or other plan hereafter adopted for the
reinvestment of dividends or interest provided that such Common Stock is issued
at a price at least equal to 95% of the current market price of the Common Stock
at the time of issuance). The Company is entitled, in lieu of making certain
adjustments under clause (v) above, to provide that, subject to satisfying
certain conditions, upon conversion of the Preferred Stock, the holders of the
Preferred Stock will receive, in addition to the Common Stock issuable upon
conversion of such Preferred Stock, the amount of such distribution referred to
in clause (v). The adjustment referred to in clause (vii) above will only be
made if the tender offer or exchange offer is for an amount which increases that
person's ownership of Common Stock to more than 25% of the total shares of
Common Stock outstanding, and only if the cash and value of any other
consideration included in such payment per share of Common Stock exceeds the
current market price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange. The adjustment referred to in clause (vii) above will
not be made, however, if, as of the closing of the offer, the offering documents
with respect to such offer disclose a plan or an intention to cause the Company
to engage in any consolidation with, merger into, or transfer of all or
substantially all of its properties to any other corporation organized under the
laws of the United States or any political subdivision thereof or therein,
provided that each share of Preferred Stock remains outstanding, is unaffected
or is converted into or exchanged for convertible exchangeable preferred stock
of the successor corporation having voting rights, preferences, limitations and
special rights substantially similar (but no less favorable) to the Preferred
Stock. (Sections 7(d)(i) through (viii))
The Preferred Stock Statement provides that if the Company implements a
shareholder rights plan, such rights plan must provide that upon conversion of
the Preferred Stock the holders will receive, in addition to the Common Stock
issuable upon such conversion, such rights, whether or not such rights have
separated from the Common Stock at the time of such conversion. (Section
7(d)(iv))
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Preferred Stock by any amount for any period of at
least 20 days, in which case the Company shall give at least 15 days' notice of
such decrease, if the Board of Directors has made a determination that such
decrease would be
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<PAGE> 25
in the best interests of the Company, which determination shall be conclusive.
The Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. (Section 7(d)(x))
Conversion Price Adjustment -- Merger, Consolidation or Sale of Assets of the
Company.
If any transaction shall occur (including, without limitation (a) any
recapitalization or reclassification of shares of Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination of Common Stock), (b)
any consolidation of the Company with, or merger of the Company into, any other
person, or any merger of another person into the Company (other than a merger
that does not result in a reclassification, conversion, exchange or cancellation
of Common Stock), (c) any sale, transfer or lease of all or substantially all of
the assets of the Company or (d) any compulsory share exchange) pursuant to
which either shares of Common Stock shall be converted into the right to receive
other securities, cash or other property, or, in the case of a sale or transfer
of all or substantially all of the assets of the Company, the holders of Common
Stock shall be entitled to receive other securities, cash or other property,
then appropriate provision shall be made so that the holder of each share of
Preferred Stock then outstanding shall have the right thereafter to convert such
Preferred Stock only into:
(x) in the case of any such transaction that does not constitute a Common
Stock Fundamental Change (as defined) and subject to funds being legally
available for such purpose under applicable law at the time of such
conversion, the kind and amount of the securities, cash or other property
that would have been receivable upon such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange
by a holder of the number of shares of Common Stock issuable upon
conversion of such Preferred Stock immediately prior to such
recapitalization, reclassification, consolidation, merger, sale, transfer
or share exchange, after giving effect, in the case of any Non-Stock
Fundamental Change (as defined), to any adjustment in the conversion price
in accordance with clause (i) of the following paragraph, and
(y) in the case of any such transaction that constitutes a Common Stock
Fundamental Change, common stock of the kind received by holders of Common
Stock as a result of such Common Stock Fundamental Change in an amount
determined in accordance with clause (ii) of the following paragraph.
The company formed by such consolidation or resulting from such merger or that
acquires such assets or that acquires the Company's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments that,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in the preceding
paragraphs and in this paragraph.
Notwithstanding any other provisions in the preceding paragraphs to the
contrary, if any Fundamental Change (as defined) occurs, then the conversion
price in effect will be adjusted immediately after such Fundamental Change as
follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion
price of the Preferred Stock immediately following such Non-Stock
Fundamental Change shall be the lower of (A) the conversion price in effect
immediately prior to such Non-Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to the preceding
paragraphs, and (B) the product of (1) the greater of the Applicable Price
(as defined) and the then applicable Reference Market Price (as defined)
and (2) a fraction, the numerator of which is $50 and the denominator of
which is (x) the amount of the redemption price for one share of Preferred
Stock if the redemption date were the date of such Non-Stock Fundamental
Change (or the date of the period commencing on the first date of original
issuance of the Preferred Stock
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and through February 28, 1999 or the twelve-month periods commencing March
1, 1999 and March 1, 2000, the product of 106.50%, 105.85% and 105.20%,
respectively, times $50) plus (y) any then-accrued and unpaid distributions
on one share of Preferred Stock; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Stock immediately following such Common Stock
Fundamental Change shall be the conversion price in effect immediately
prior to such Common Stock Fundamental Change, but after giving effect to
any other prior adjustments effected pursuant to the preceding paragraphs,
multiplied by a fraction, the numerator of which is the Purchaser Stock
Price (as defined) and the denominator of which is the Applicable Price;
provided, however, that in the event of a Common Stock Fundamental Change
in which (A) 100% of the value of the consideration received by a holder of
Common Stock is common stock of the successor, acquiror or other third
party (and cash, if any, paid with respect to any fractional interests in
such common stock resulting from such Common Stock Fundamental Change) and
(B) all of the Common Stock shall have been exchanged for, converted into
or acquired for, common stock of the successor, acquiror or other third
party (and any cash with respect to fractional interests), the conversion
price of the Preferred Stock immediately following such Common Stock
Fundamental Change shall be the conversion price in effect immediately
prior to such Common Stock Fundamental Change multiplied by a fraction, the
numerator of which is one (1) and the denominator of which is the number of
shares of common stock of the successor, acquiror or other third party
received by a holder of one share of Company Common Stock as a result of
such Common Stock Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock Fundamental
Change, the holder has the right to convert Preferred Stock into the kind and
amount of the shares of stock and other securities or property or assets
(including cash), except as otherwise provided above, as is determined by the
number of shares of Common Stock receivable upon conversion at the conversion
price as adjusted in accordance with clause (i) of the preceding paragraph.
However, in the event of a Common Stock Fundamental Change in which less than
100% of the value of the consideration received by a holder of Common Stock is
common stock of the successor, acquiror or other third party, a holder of
Preferred Stock who converts such Preferred Stock following the Common Stock
Fundamental Change will receive consideration in the form of such common stock
only, whereas a holder who converted such Preferred Stock prior to the Common
Stock Fundamental Change would have received consideration in the form of such
common stock as well as any other securities or assets (which may include cash)
issuable upon conversion of such Preferred Stock immediately prior to such
Common Stock Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of Common Stock receive only cash, the
amount of cash received by a holder of one share of Common Stock and (ii) in the
event of any other Fundamental Change, the average of the daily Closing Price
(determined as provided in the Preferred Stock Statement) for one share of
Common Stock during the 10 Trading Days (as defined in the Preferred Stock
Statement) immediately prior to the record date for the determination of the
holders of Common Stock entitled to receive cash, securities, property or other
assets in connection with such Fundamental Change or, if there is no such record
date, prior to the date upon which the holders of Common Stock shall have the
right to receive such cash, securities, property or other assets.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Common
Stock consists of common stock that, for the 10 Trading Days immediately prior
to such Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on The Nasdaq National Market, provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) the
Company continues to exist after the occurrence of such Fundamental Change and
the outstanding Preferred Stock continues to exist as outstanding Preferred
Stock, or (ii) not later than the occurrence of such Fundamental Change, the
outstanding Preferred Stock is converted into
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<PAGE> 27
or exchanged for shares of convertible preferred stock, which convertible
preferred stock has voting rights, preferences, limitations or special rights
substantially similar (but no less favorable) to those of the Preferred Stock.
The term "Fundamental Change" means the occurrence of any transaction or
event or series of transactions or events pursuant to which all or substantially
all of the Common Stock shall be exchanged for, converted into, acquired for or
shall constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); provided, however, in the case of any such series of transactions or
events, for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the Common
Stock shall have been exchanged for, converted into or acquired for, or shall
constitute solely the right to receive, such cash, securities, property or other
assets, but the adjustment shall be based upon the consideration that the
holders of the Common Stock received in the transaction or event as a result of
which more than 50% of the Common Stock shall have been exchanged for, converted
into or acquired for, or shall constitute solely the right to receive, such
cash, securities, property or other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of the
common stock received by holders of the Common Stock in such Common Stock
Fundamental Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of the Common Stock entitled to
receive such common stock or, if there is no such date, prior to the date upon
which the holders of the Common Stock shall have the right to receive such
common stock.
The term "Reference Market Price" shall initially mean $15 2/3 (which is an
amount equal to 66 2/3% of the reported last sale price for Company's Common
Stock on The Nasdaq National Market on February 27, 1998) and, in the event of
any adjustment to the conversion price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
The 1988 BCL contains certain provisions which could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving the Company, even if such transaction would be
beneficial to the interests of the Company's shareholders, or could discourage a
third party from attempting to acquire control of the Company.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets is made to holders
of Common Stock or any other stock of the Company ranking junior to the shares
of Preferred Stock upon liquidation, dissolution or winding up, the holders of
Preferred Stock shall receive a liquidation preference of $50 per share and
shall be entitled to receive all accrued and unpaid dividends through the date
of distribution, and the holders of any class or series of preferred stock
ranking on a parity with the Preferred Stock as to liquidation, dissolution or
winding up shall be entitled to receive the full respective liquidation
preferences (including any premium) to which they are entitled and shall receive
all accrued and unpaid dividends with respect to their respective shares through
and including the date of distribution. If, upon such a
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voluntary or involuntary liquidation, dissolution or winding up of the Company,
the assets of the Company are insufficient to pay in full the amounts described
above as payable with respect to the Preferred Stock and any class or series of
preferred stock of the Company ranking on a parity with the Preferred Stock as
to liquidation, dissolution or winding up, the holders of the Preferred Stock
and of such other class or series of preferred stock will share ratably in any
such distributions of assets of the Company first in proportion to their
respective liquidation preferences until such preferences are paid in full, and
then in proportion to their respective amounts of accrued but unpaid dividends.
After payment of any such liquidation preference and accrued dividends, the
shares of Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Company. Neither the sale of all or
substantially all of the assets of the Company, nor the merger or consolidation
of the Company into or with any other corporation, nor any liquidation,
dissolution, winding up or reorganization of the Company immediately followed by
reincorporation of another corporation, will be deemed to be a liquidation,
dissolution or winding up of the Company.
OPTIONAL REDEMPTION
The Preferred Stock will not be redeemable prior to March 6, 2001. At any
time on or after that date the shares of Preferred Stock may be redeemed at the
Company's option, out of funds legally available therefor, on at least 20 but
not more than 60 days notice, as a whole or from time to time in part, at the
following redemption prices per share, plus in each case, an amount equal to
accrued and unpaid dividends, if any, up to but excluding the date fixed for
redemption, whether or not earned or declared. (Section 5(a))
If redeemed during the 12-month period beginning March 1 (beginning March
6, 2001 and ending on February 28, 2002, in the case of the first such period):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001 $52.275
2002 51.950
2003 51.625
2004 51.300
2005 50.975
2006 50.650
2007 50.325
</TABLE>
and $50 at March 1, 2008 and thereafter.
If fewer than all of the shares of Preferred Stock are to be redeemed, the
shares to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Company in its sole discretion. On and after
the date fixed for redemption, provided that the redemption price (including any
accrued and unpaid dividends to but excluding the date fixed for redemption) has
been duly paid or provided for, dividends shall cease to accrue on the Preferred
Stock called for redemption, such shares shall no longer be deemed to be
outstanding and all rights of the holders of such shares as shareholders of the
Company shall cease, except the right to receive the monies payable upon such
redemption, without interest thereon, upon surrender of the certificates
evidencing such shares. (Section 5(c))
EXCHANGE PROVISIONS
The Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, for Debentures on any dividend payment date beginning on
March 1, 1999 at the rate of $50 principal amount of Debentures for each share
of Preferred Stock outstanding at the time of exchange; provided that the
Debentures will be issuable in denominations of $1,000 and integral multiples
thereof. See "Description of Debentures." If the exchange results in an amount
of Debentures that is not an integral multiple of $1,000, the amount in excess
of the closest integral multiple of $1,000 will be paid in cash by the Company.
The Company will mail written notice of
26
<PAGE> 29
its intention to exchange to each holder of record of the Preferred Stock not
less than 30 nor more than 60 days prior to the date fixed for exchange.
Upon the date fixed for exchange of Preferred Stock for Debentures (the
"Exchange Date"), the rights of holders of Preferred Stock as shareholders of
the Company shall cease and their shares of Preferred Stock no longer will be
deemed outstanding and will represent only the right to receive the Debentures
and any accrued and unpaid dividends, without interest thereon. (Section 10(c))
If full cumulative dividends on the Preferred Stock have not been paid to the
Exchange Date, or funds set aside to provide for payment in full of such
dividends, the Company may not exercise its option to exchange the Preferred
Stock for the Debentures. (Section 10(f)) The exchange of Preferred Stock for
Debentures will be a taxable event and, therefore, may result in tax liability
for the holder exchanging such stock without any correlative cash payment to
such holder.
VOTING RIGHTS
The holders of the Preferred Stock have no voting rights except as
described below or as required by law. In exercising any such vote, each
outstanding share of Preferred Stock will be entitled to one vote, excluding
shares held by the Company or any affiliate of the Company, which shares shall
have no voting rights. (Section 9(a))
Whenever dividends on the Preferred Stock or on any outstanding shares of
preferred stock ranking on a parity as to dividends with the Preferred Stock
have not been paid in an aggregate amount equal to at least six quarterly
dividends on such shares (whether or not consecutive), the number of members of
the Board of Directors will be increased by two, and the holders of the
Preferred Stock, voting separately as a class, with the holders of preferred
stock ranking on parity as to dividends with the Preferred Stock on which like
voting rights have been conferred and are exercisable, without regard to series,
will be entitled to elect such two additional directors at any meeting of
shareholders at which directors are to be elected held during the period such
dividends remain in arrears. Such voting rights will terminate when all such
accrued and unpaid dividends have been declared and paid or set apart for
payment. The terms of office of all directors so elected will terminate
immediately upon the termination of such voting rights. (Section 9(b))
In addition, so long as any Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least a
majority (unless a higher percentage shall then be required by applicable law)
of all outstanding shares of Preferred Stock, voting separately as a class with
the holders of preferred stock ranking on parity as to dividends with the
Preferred Stock on which like voting rights have been conferred and are
exercisable, without regard to series, (i) amend, alter or repeal any provision
of the Company's Restated Articles (including, without limitation, the Preferred
Stock Statement) or Bylaws so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions of the Preferred Stock
or (ii) create, authorize or issue, or reclassify any authorized stock of the
Company into, or increase the authorized amount of, or create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase, any shares of any series or class of stock that ranks senior to or on
a parity with the Preferred Stock as to dividends or distributions of assets
upon liquidation, dissolution or winding up of the stock. In addition, so long
as any Preferred Stock is outstanding, the Company may not, without the
affirmative vote or consent of the holders of at least a majority (unless a
higher percentage shall then be required by applicable law) of all outstanding
shares of Preferred Stock, voting separately as a class with the holders of
preferred stock ranking on parity as to dividends with the Preferred Stock on
which like voting rights have been conferred and are exercisable, without regard
to series, enter into a share exchange that affects the Preferred Stock,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into the Company, unless in each such case each share
of Preferred Stock remains outstanding and unaffected or is converted into or
exchanged for convertible preferred stock of the surviving entity having voting
rights, preferences, limitations or special rights thereof substantially similar
(but no less favorable) to that of a share of Preferred Stock (except for
changes that do not affect the holders of the Preferred Stock adversely).
(Section 9(c))
27
<PAGE> 30
FORM, DENOMINATION AND REGISTRATION
Global Preferred Stock; Book-Entry Form. Preferred Stock offered hereby is
evidenced by a global certificate (the "Global Certificate") which has been
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co. ("Cede") as DTC's nominee. Except as set
forth below, the Global Certificate may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
Holders may hold their interests in the Global Certificate directly through
DTC or indirectly through organizations which are participants in DTC (the
"Participants"). Transfers between Participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearing house funds.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Global Certificate to such persons may be limited.
Holders may beneficially own interests in the Global Certificate held by
DTC only through Participants, or certain banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). So long as Cede, as the nominee of DTC, is the registered owner
of the Global Certificate, Cede for all purposes will be considered the sole
holder of the Global Certificate. Except as provided below, owners of beneficial
interests in the Global Certificate will not be entitled to have certificates
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form, and will not be considered the
holders thereof.
Payment of dividends on and the redemption price of the Global Certificate
will be made to Cede, the nominee for DTC, as the registered owner of the Global
Certificate by wire transfer of immediately available funds. Neither the
Company, the Trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company has been informed by DTC that, with respect to any payment of
dividends on or the redemption price of the Global Certificate, DTC's practice
is to credit Participants' accounts on the payment date therefor with payments
in amounts proportionate to their respective beneficial interests in the
Preferred Stock represented by the Global Certificate as shown on the records of
DTC, unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
Preferred Stock represented by the Global Certificate held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Preferred Stock represented by the Global
Certificate to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company nor the transfer agent (or any registrar, paying agent
or conversion agent under the Preferred Stock Statement) will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations. DTC has advised the Company that it will take any
action permitted to be taken by a holder of Preferred Stock (including, without
limitation, the presentation of Preferred Stock for exchange as described below)
only at the direction of one or more Participants to whose account with DTC
interests in the Global Certificate are credited and only in respect of the
amount of shares of the Preferred Stock represented by the Global Certificate as
to which such Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section
28
<PAGE> 31
17A of the Exchange Act. DTC was created to hold securities for its Participants
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations
such as the Initial Purchasers. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the Company
will cause Preferred Stock to be issued in definitive form in exchange for the
Global Certificate.
Restrictions on Transfer; Legends. The Preferred Stock is subject to
certain transfer restrictions and certificates evidencing the Preferred Stock
bear a legend to such effect. Such transfer restrictions and restrictive legends
will be removed upon the resale of any Preferred Stock pursuant to this
Prospectus and the Registration Statement of which it is a part.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. is the transfer agent and registrar for the Preferred
Stock.
29
<PAGE> 32
DESCRIPTION OF DEBENTURES
If the Company elects to issue Debentures in exchange for the Preferred
Stock, the Debentures will be issued under an Indenture, dated as of March 1,
1998 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (together with any successor trustee, the "Trustee"), at a
rate of $50 principal amount of Debentures for each share of Preferred Stock so
exchanged. The following descriptions of certain provisions of the Indenture and
the Debentures are intended as summaries only and are qualified in their
entirety by reference to the Indenture and the Debentures, including the
definitions therein of certain terms. Copies of the proposed form of Indenture
and form of Debenture are available from the Company upon request. Whenever
particular sections and defined terms of the Indenture or the Debentures are
referred to herein, such sections and defined terms are to be incorporated by
reference herein. As used in this Description of Debentures, the "Company"
refers to Alkermes, Inc., and does not, unless the context otherwise indicates,
include any of its subsidiaries.
The Debentures will be general, unsecured, subordinated obligations of the
Company, limited to an aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock then outstanding (excluding accrued and
unpaid dividends payable upon liquidation) and will mature on the tenth year
anniversary of the Exchange Date, unless earlier converted by a holder thereof
or redeemed at the option of the Company.
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 2.3) No service charge will be made for any registration of transfer or
exchange of the Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with any such transaction. (Section 2.5)
Principal of, premium, if any, and interest on the Debentures will be
payable, and the transfer of Debentures will be registrable, at the office of
the Company maintained by the Company for such purposes in New York, New York,
which shall initially be an office or agency of the Trustee in New York, New
York. (Section 2.5)
The Debentures, if issued upon exchange of the Preferred Stock, will be
issued in the same form as the Preferred Stock that such Debentures replace. Any
Global Certificates will be replaced with one or more Global Debentures in the
same manner as set forth under "Description of Preferred Stock -- Form,
Denomination and Registration." Under certain limited circumstances, Debentures
may be issued in certificated form in exchange for a Global Debenture.
The Indenture does not contain any restrictions on the payment of dividends
or the repurchase of securities of the Company or any financial covenants.
INTEREST
The Debentures will bear interest at the rate of 6 1/2% per annum from the
date of issuance, or from the most recent interest payment date to which
interest has been paid or provided for, payable semiannually on March 1 and
September 1 of each year to the person in whose name the Debenture (or any
predecessor Debenture) is registered at the close of business on the preceding
February 15 and August 15, respectively. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Interest may, at the
Company's option, be paid by check mailed to such holders, provided that a
holder of Debentures with an aggregate principal amount in excess of $2,000,000
will be paid by wire transfer in immediately available funds at the election of
such holder.
CONVERSION RIGHTS
Each Debenture will be converted at the option of the holder at any time on
or prior to maturity, subject to prior redemption, into such number of shares of
Common Stock determined by dividing the principal amount of such Debenture by
the conversion price. The conversion price shall initially be $50 divided by the
conversion rate of 1.6878, subject to adjustment as described below. Except as
otherwise set forth herein, the conversion rights of
30
<PAGE> 33
holders of Debentures will be identical to the conversion rights granted to them
as holders of the Preferred Stock. See "Description of Preferred Stock --
Conversion Rights." (Section 15.1) If Debentures are converted after a record
date for the payment of interest and prior to (but excluding) the next
succeeding interest payment date, such Debentures, other than Debentures called
for redemption, must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount so converted. The
Company is not required to issue fractional shares of Common Stock upon
conversion of Debentures, and, in lieu thereof, will pay a cash adjustment based
upon the market price of the Common Stock on the last business day prior to the
date of conversion. (Section 15.3) In the case of Debentures called for
redemption, conversion rights will expire at the close of business on the
business day preceding the date fixed for redemption, unless the Company
defaults in payment of the redemption price. (Section 15.1)
The right of conversion attaching to any Debenture may be exercised by the
holder by delivering the Debenture at the specified office of a conversion
agent, accompanied by a duly signed and completed notice of conversion, together
with any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Debenture, the duly signed and
completed notice of conversion and any funds that may be required as described
in the preceding paragraph shall have been so delivered. (Section 15.2) A holder
delivering a Debenture for conversion will not be required to pay any taxes or
duties payable in respect of the issue or delivery of Common Stock on
conversion, but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than the holder of the Debenture. Certificates representing shares
of Common Stock will not be issued or delivered unless all taxes and duties, if
any, payable by the holder have been paid. (Section 15.7)
SUBORDINATION
The indebtedness evidenced by the Debentures is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness (as defined). (Section 4.1) Upon any distribution of assets of the
Company upon any dissolution, winding up, liquidation or reorganization, the
payment of the principal of, or premium, if any, and interest on the Debentures
is to be subordinated to the extent provided in the Indenture in right of
payment to the prior payment in full of all Senior Indebtedness (except that
holders of Debentures may receive securities that are subordinated at least to
the same extent as the Debentures are subordinated to Senior Indebtedness and
any securities issued in exchange for Senior Indebtedness).
In the event of the acceleration of the maturity of any Debentures as a
result of an Event of Default (as defined), the holders of all Senior
Indebtedness will first be entitled to receive payment in full in cash of all
amounts due or to become due thereon before the holders of the Debentures will
be entitled to receive any payment for the principal of or premium, if any,
interest on, or other obligations in respect of, the Debentures (except that
holders of Debentures may receive securities that are subordinated at least to
the same extent as the Debentures are subordinated to Senior Indebtedness and
any securities issued in exchange for Senior Indebtedness). The Indenture will
further require that the Company will promptly notify holders of Senior
Indebtedness if payment of the Debentures is accelerated because of an Event of
Default.
The Company also may not make any payment for the principal of or premium,
if any, interest on, or other obligations in respect of, the Debentures (except
that holders of Debentures may receive securities that are subordinated at least
to the same extent as the Debentures are subordinated to Senior Indebtedness and
any securities issued in exchange for Senior Indebtedness) if (i) a default in
the payment of the principal of, premium, if any, interest, rent or other
obligations in respect of Senior Indebtedness occurs and is continuing beyond
any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated Senior Indebtedness (as defined) that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or other person permitted
to give such notice under the Indenture. Payments on the Indenture may and shall
be resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived or ceases to exist and (b) in case of any other
default, the earlier of the date on which such other default is cured or waived
or ceases to exist or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the
31
<PAGE> 34
maturity of any Senior Indebtedness is accelerated. No new period of payment
blockage may be commenced under clause (ii) above unless and until (i) 365 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice and (ii) all scheduled payments of principal, premium, if any, and
interest on the Debentures that have come due have been paid in full in cash. No
default (other than a payment default) that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Debentures may
receive less, ratably, than the other creditors of the Company. Such
subordination will not prevent the occurrence of any Event of Default under the
Indenture.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on, rent under, and any other amounts payable on or in or in respect of
Indebtedness of the Company (including, without limitation, any interest
accruing after the filing of a petition by or against the Company under any
bankruptcy law, whether or not allowed as a claim after such filing in any
proceeding under such bankruptcy law), whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to the foregoing);
provided, however, that Senior Indebtedness does not include (v) Indebtedness
evidenced by the Debentures, (w) any liability for federal, state local or other
taxes owed or owing by the Company, (x) Indebtedness of the Company to any
subsidiary of the Company, (y) any trade payables of the Company incurred in the
ordinary course of business, and (z) any indebtedness in which the instrument
creating or evidencing the same or the assumption or thereof (or related
agreements or documents to which the Company is a party) expressly provides that
such Indebtedness shall not be senior in right of payment to, or is pari passu
with, or is subordinated or junior to, the Debentures.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i) (a) for borrowed money, (b) evidenced by a
note, debenture, bond or other written instrument, (c) under a lease required to
be capitalized on the balance sheet of the lessee under generally accepted
accounting principles or under any lease or related document (including a
purchase agreement) that provides that the Company is contractually obligated to
purchase or cause a third party to purchase and thereby guarantee a minimum
residual value of the lease property to the lessor and the obligations of the
Company under such lease or related document to purchase or to cause a third
party to purchase such leased property, (d) in respect of letters of credit,
bank guarantees or bankers' acceptances (including reimbursement obligations
with respect to any of the foregoing), (e) with respect to Indebtedness secured
by a mortgage, pledge, lien, encumbrance, charge or adverse claim affecting
title in an encumbrance to which the property or assets of such person are
subject, whether or not the obligation secured thereby shall have been assumed
by or shall otherwise be such person's legal liability, (f) in respect of the
balance of deferred and unpaid purchase price of any property or assets, (g)
under interest rate or currency swap agreements, cap, floor and collar
agreements, spot and forward contracts and similar agreements and arrangements;
(ii) with respect to any obligation of others of the type described in the
preceding clause (i) or under clause (iii) below assumed by or guaranteed in any
manner by such person or in effect guaranteed by such person through an
agreement to purchase (including, without limitation, "take or pay" and similar
arrangements), contingent or otherwise (and the obligations of such person under
any such assumptions, guarantees or other such arrangements); and (iii) any and
all Indebtedness constituting deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any of the
foregoing.
"Designated Senior Indebtedness" means any particular Senior Indebtedness
in which the instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the Company is a
party) expressly provides that such Senior Indebtedness shall be "Designated
Senior Indebtedness" for purposes of the Indenture (provided that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).
32
<PAGE> 35
In the event that, notwithstanding for foregoing, the Trustee or any holder
of Debentures receives any payment or distribution of assets of the Company of
any kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Debentures before all Senior Indebtedness is paid
in full, then such payment or distribution will be held by the recipient in
trust for the benefit of the holders of Senior Indebtedness of the Company, and
will be immediately paid over or delivered to the holders of Senior Indebtedness
of the Company or their representative or representatives to the extent
necessary to make payment in full of all Senior Indebtedness of the Company
remaining unpaid, after giving effect to any concurrent payment or distribution,
or provision therefor, to or for the holders of Senior Indebtedness of the
Company. (Section 4.2)
As of December 31, 1997, the Company had approximately $15.6 million of
indebtedness outstanding that would have constituted Senior Indebtedness. The
Indenture will not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor will
the Indenture limit the amount of indebtedness which any subsidiary of the
Company can create, incur, assume or guarantee.
OPTIONAL REDEMPTION
The Debentures are not redeemable at the option of the Company prior to
March 6, 2001. At any time on or after that date, the Debentures may be redeemed
at the Company's option on at least 20 but not more than 60 days notice, as a
whole or from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption; provided that if a redemption date is
an interest payment date, the semi-annual payment of interest becoming due on
such date shall be payable to the holders of record as of the relevant record
date.
If redeemed during the 12-month period beginning March 1 (beginning March
6, 2001 and ending on February 28, 2002, in the case of the first such period).
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2001 104.55%
2002 103.90
2003 103.25
2004 102.60
2005 101.95
2006 101.30
2007 100.65
</TABLE>
and 100% at March 1, 2008 and thereafter.
If fewer than all the Debentures are to be redeemed, the Trustee will
select the Debentures to be redeemed in principal amounts of $1,000 or multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Debenture is
to be redeemed in part only, a new Debenture or Debentures in principal amount
equal to the unredeemed principal portion thereof will be issued. If a portion
of a holder's Debentures is selected for partial redemption and such holder
converts a portion of such Debentures, such converted portion shall be deemed to
be taken from the portion selected for redemption.
No sinking fund is provided for the Debentures.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: (i) a default in
payment of the principal of, or premium, if any, on the Debentures (whether or
not such payment is prohibited by the subordination provisions of the
Indenture); (ii) default for 30 days in payment of any installment of interest
on the Debentures (whether or not
33
<PAGE> 36
such payment is prohibited by the subordination provisions of the Indenture);
(iii) default by the Company for 45 days after notice given in accordance with
the Indenture in the observance or performance of any other covenants in the
Indenture; (iv) failure of the Company to make any payment at maturity,
including any applicable grace period, in respect of Indebtedness in an amount
of in excess of $5,000,000 and continuance of such failure for 30 days after
notice given in accordance with the Indenture; (v) default by the Company with
respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an aggregate amount of in excess of $5,000,000 without such
Indebtedness having been discharged or such acceleration having been rescinded
or annulled for 30 days after notice given in accordance with the Indenture; or
(vi) certain events involving bankruptcy, insolvency or reorganization of the
Company. (Section 7.1)
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Debentures notice
of all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest to such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the Debentures when due or in the payment of any redemption
obligation. (Section 7.8)
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Debentures then outstanding may declare the principal of
and premium, if any, on the Debentures to be due and payable immediately, but if
the Company shall cure all defaults (except the nonpayment of interest on,
premium, if any, and principal of any Debentures which shall have become due by
acceleration) and certain other conditions are met, such declaration may be
canceled and past defaults may be waived by the holders of a majority in
principal amount of Debentures then outstanding. If an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization were
to occur, all unpaid principal of and accrued interest on the outstanding
Debentures will become due and payable immediately without any declaration or
other act on the part of the Trustee or any holders of Debentures, subject to
certain limitations. (Section 7.1)
The Indenture provides that the holders of a majority in principal amount
of the outstanding Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, subject to certain limitations
specified in the Indenture. (Section 7.7) Before proceeding to exercise any
right or power under the Indenture at the direction of such holders, the Trustee
shall be entitled to receive from such holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction. The right of a holder to institute a
proceeding with respect to the Indenture is subject to certain conditions
precedent, including the written notice by such holder of an Event of Default
and an offer to indemnify to the Trustee, along with the written request by the
holders of not less than 25% in aggregate principal amount of the outstanding
Debentures, that such a proceeding be instituted, but the holder has an absolute
right to institute suit for the enforcement of payment of the principal of, and
premium, if any, and interest on, such holder's Debentures when due and to
convert such Debentures. (Section 7.4)
The holders of not less than a majority in aggregate principal amount of
the outstanding Debentures may on behalf of the holders of all Debentures waive
any past defaults, except (i) a default in payment of the principal of, or
premium, if any, or interest on, any Debenture when due, (ii) a failure by the
Company to convert any Debentures into Common Stock or (iii) in respect of
certain provisions of the Indenture which cannot be modified or amended without
the consent of the holder of each outstanding Debenture affected thereby.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not consolidate with or merge
with or into another person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether
34
<PAGE> 37
in a single transaction or a series of related transactions, to another person
or group of affiliated persons, unless (i) either (a) the Company is the
surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by written agreement all of the
obligations of the Company in connection with the Debentures and the Indenture;
(ii) no default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; and (iii) certain other
conditions are satisfied.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Debentures at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Debenture, except
that no such modification shall (i) extend the fixed maturity of any Debenture,
reduce the rate or extend the time for payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, impair or adversely affect the right of a holder to
institute suit for the payment thereof, change the currency in which the
Debentures are payable, or impair or change in any respect adverse to the holder
of the Debentures the right to convert the Debentures into Common Stock subject
to the terms set forth in the Indenture or modify the provisions of the
Indenture with respect to the subordination of the Debentures in a manner
adverse to the holders of the Debentures, without the consent of the holder of
each Debenture so affected, or (ii) reduce the aforesaid percentage of
Debentures, without the consent of the holders of all of the Debentures then
outstanding.
GOVERNING LAW
The Indenture will be governed by, and construed in accordance with, the
laws of the State of New York. (Section 16.4)
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed by the Company as the initial paying agent, conversion agent,
registrar and custodian with regard to the Debentures. An affiliate of the
Trustee is the transfer agent for the Company's Common Stock. The Company may
maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree and
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. (Section 8.1) The
Indenture contains limitations of the rights of the Trustee, should it become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claim or
otherwise. (Section 8.13)
35
<PAGE> 38
SELLING SHAREHOLDERS
The Preferred Stock was originally issued by the Company in transactions
exempt from the registration requirements of the Securities Act to persons
believed by the Initial Purchasers to be QIBs, institutional accredited
investors or sophisticated investors. The Selling Shareholders (which term
includes their transferees, pledgees, donees and their successors) may from time
to time offer and sell pursuant to this Prospectus any or all of the Preferred
Stock, the Debentures, if issued in exchange for the Preferred Stock, and the
shares of Common Stock initially issued or issuable upon conversion of the
Preferred Stock or the Debentures, if issued, (the "Conversion Shares").
The following table sets forth information, with respect to the Selling
Shareholders and the respective amount of shares of Preferred Stock beneficially
owned by each such Selling Shareholder and that may be sold, the principal
amount of Debentures which would be beneficially owned by each Selling
Shareholder if the Debentures were exchanged for the Preferred Stock, and the
number of Conversion Shares that may be sold, by the Selling Shareholders
pursuant to this Prospectus. Except as set forth below, none of the Selling
Shareholders has, or within the past three years has had, any position, office
or other material relationship with the Company or any of its predecessors or
affiliates. Because the Selling Shareholders may offer all or a portion of the
Preferred Stock, the Debentures, if issued, and the Conversion Shares pursuant
to this Prospectus, no estimate can be given as to the amount of shares of
Preferred Stock, the Debentures, if issued or the Conversion Shares that will be
held by the Selling Shareholders upon termination of any such sale. The
following table is based upon information furnished to the Company by DTC and
the Selling Shareholders.
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL
SHARES OF AMOUNT OF
PREFERRED STOCK DEBENTURES NUMBER OF
BENEFICIALLY BENEFICIALLY CONVERSION
OWNED AND PERCENT OF OWNED AND SHARES
THAT MAY OUTSTANDING THAT MAY THAT MAY
NAME (1) BE SOLD PREFERRED STOCK BE SOLD BE SOLD(2)
- -------- ---------------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
AFTRA Health Fund(3) 20,000 * $1,000,000 33,756
Alexandra Global Investment
Fund 1, Ltd. 18,000 * 900,000 30,380
Alliance Fund 100,000 4.35% 5,000,000 168,780
Alltel Corporation Master Trust(4) 15,000 * 750,000 25,317
Ardsley Offshore Fund, Ltd. (4) 75,000 3.26 3,750,000 126,585
Ardsley Partners Fund I, L.P. (4) 30,000 1.30 1,500,000 50,634
Ardsley Partners Fund II, L.P. (4) 50,000 2.17 2,500,000 84,390
Ardsley Partners Institutional Fund,
L.P. (4) 30,000 1.30 1,500,000 50,634
Augusta Partners, L.P. (4) 35,000 1.52 1,750,000 59,073
BT Holdings 30,000 1.30 1,500,000 50,634
Carberry Investments, Inc. (4) 20,000 * 1,000,000 33,756
Dana Corporation Pension Plans
Trust 20,000 * 1,000,000 33,756
Declaration of Trust for the
Defined Benefit Plans of ICI
American Holdings Inc. (5) 14,900 * 745,000 25,148
Declaration of Trust for the
Defined Benefit Plans of ZENECA
Holdings, Inc. (5) 10,000 * 500,000 16,878
Delaware State Employees'
Retirement Fund (5) 60,000 2.61 3,000,000 101,268
Deutsche Bank A.G. 155,000 6.74 7,750,000 261,609
Equitable Life Assurance Separate
Account-Equities 80,000 3.48 4,000,000 135,024
Fidelity Financial Trust: Fidelity
Convertible Securities Fund 140,000 6.09 7,000,000 236,292
Forest Alternative Strategies
Fund II LP A5M 4,000 * 200,000 6,751
Forest Alternative Strategies
Fund II LP Series B-3 5,964 * 298,200 10,066
Forest Alternative Strategies II LP
A5I 8,000 * 400,000 13,502
Forest Alternative Strategies II LP
Series A-5 70,250 3.05 3,512,500 118,567
Forest Global Convertible Fund
Series A-1 1,400 * 70,000 2,362
Forest Global Convertible Fund
Series A-5 70,250 3.05 3,512,500 118,567
Forest Global Convertible Fund
Series B-1 4,300 * 215,000 7,257
Forest Global Convertible Fund
Series B-2 3,400 * 170,000 5,738
Forest Global Convertible Fund
Series B-3 3,900 * 195,000 6,582
Forest Global Convertible Fund 4,800 * 240,000 8,101
Series B-5
Forest Greyhound 4,100 * 205,000 6,919
Forest Performance Fund 3,436 * 171,800 5,799
Fox Family Foundation 10/10/87
c/o Forest Management Corp. 1,900 * 95,000 3,206
Fox Family Portfolio Partnership
c/o Forest Management Corp. 8,300 * 415,000 14,008
GAM Equity (No. 1) LDC (4) 15,000 * 750,000 25,317
General Motors Employees
Domestic Group Trust (5) 242,100 10.53 12,105,000 408,616
Haussmann Overseas, N.V. (4) 50,000 2.17 2,500,000 84,390
Hillside Capital Incorporated
Corporate Account (5) 2,500 * 125,000 4,219
The J.W. McConnell Family
Foundation (5) 7,500 * 375,000 12,658
LLT Limited (6) 6,000 * 300,000 10,126
MainStay Convertible Fund (3) 110,000 4.78 5,500,000 185,658
Millennium Trading Co., L.P. 39,500 1.72 1,975,000 66,668
New York Life Separate
Account #7 (3) 20,000 * 1,000,000 33,756
The Northwestern Mutual Life
Insurance Company 40,000(7) 1.74 2,000,000 67,512
Pacific Life Insurance Co. 20,000 * 1,000,000 33,756
Philip Morris Inc. Pension Trust
(4) 55,000 2.39 2,750,000 92,829
South Ferry No. 2, L.P. (4) 5,000 * 250,000 8,439
Summer Hill Global Partners L.P.
(5) 1,000 * 50,000 1,687
Swiss Bank Corporation-London
Branch (8) 140,000 6.09 7,000,000 236,292
Thermo Electron Balanced
Investment Fund (5) 12,000 * 600,000 20,253
Virginia Retirement System (4) 80,000 3.48 4,000,000 135,024
All Other Holders 357,500 15.54 17,875,000 603,388
--------- ------------ ---------
Total 2,300,000 $115,000,000 3,881,927(9)
========= ============ =========
</TABLE>
36
<PAGE> 39
- --------------
* Less than 1%.
(1) The information set forth herein is as of April 23, 1998 and will be
updated as required.
(2) Assumes conversion of the full amount of Preferred Stock held by such
holder at the initial conversion rate of 1.6878 shares of Common Stock for
each share of Preferred Stock.
(3) Mackay-Shields Financial Corp., a registered investment advisor, shares
voting and investment power over these shares with Selling Shareholder.
(4) Ardsley Advisory Partners, a registered investment advisor, has sole voting
and sole investment power over these shares.
(5) Peck Management Partners, Ltd., a registered investment advisor, has sole
voting power and sole investment power over these shares.
(6) Forest Investment Management L.P. shares voting power and investment power
over these shares with Selling Shareholder.
(7) Includes 5,000 shares held in the Northwestern Mutual Life Insurance
Company Group Annuity Separate Account. The Northwestern Mutual Life
Insurance Company has shared voting and shared investment power with
respect to these 5,000 shares.
(8) SBC Warburg Dillon Read Inc., a registered investment advisor, has sole
voting power and sole investment power over these shares.
(9) No fractional shares of Common Stock will be issued upon conversion of the
Preferred Stock or the Debentures. The total number of Conversion Shares in
this column does not equal the total number of shares of Common Stock being
registered (3,881,940) due to fractional shares.
Information concerning the Selling Shareholders may change from time to
time and will be set forth in supplements to this Prospectus. In addition, the
per share conversion rate and price, and therefore the number of shares of
Conversion Shares, are subject to adjustment under certain circumstances.
Accordingly, the number of shares of Conversion Shares offered hereby may
increase or decrease. As of the date of this Prospectus, the aggregate amount of
shares of Preferred Stock is 2,300,000, the aggregate principal amount of
Debentures, if issued, is $115,000,000 and the number of shares of Conversion
Shares is approximately 3,881,940 shares.
It is not possible to predict the number of shares of Preferred Stock, the
amount of Debentures, if issued, or the number of shares of Conversion Shares
that will be sold hereby. Consequently, it is not possible to predict the number
of shares of Preferred Stock, the amount of Debentures, if issued, or the number
of shares of Conversion Shares that will be owned by the Selling Shareholders
following completion of this offering.
37
<PAGE> 40
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Securities offered hereby. The Securities may be sold from time to time to
purchasers directly by the Selling Shareholders. Alternatively, the Selling
Shareholders may from time to time offer the Securities through underwriters,
brokers, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Securities for whom they may act as agent. The
Selling Shareholders and any such underwriters, brokers, dealers or agents who
participate in the distribution of the Securities may be deemed to be
"underwriters", and any profits on the sale of the Securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling Shareholders may
be deemed to be underwriters, the Selling Shareholders may be subject to certain
statutory liabilities of the Securities Act, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange
Act.
The Securities offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Securities may be sold by one or more of the following methods without
limitation: (i) to underwriters who will acquire Securities for their own
account and resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale (any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time); (ii)
a block trade in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (iii) purchases by a broker or dealer
as principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (iv) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (v) an exchange distribution in accordance with
the rules of such exchange; (vi) face-to-face transactions between sellers and
purchasers without a broker or dealer; (vii) through the writing of options; and
(viii) other legally available means. At any time a particular offering of
Securities is made, a revised Prospectus or Prospectus Supplement, if required,
will be distributed including the name or names of any underwriters, brokers,
dealers or agents, any discounts, commissions and other items constituting
compensation from the Selling Shareholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such revised Prospectus or
Prospectus Supplement and, if necessary, a post-effective amendment to the
registration statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the Securities. In addition, the Securities may be sold
in private transactions to QIBs in compliance with Rule 144A or under Rule 144
rather than pursuant to this Prospectus.
There is no assurance that any Selling Shareholder will sell any or all of
the Securities offered by it hereunder or that any such Selling Shareholder will
not transfer, devise or gift such Securities by other means not described
herein.
Underwriters participating in any offering made pursuant to this Prospectus
(as amended or supplemented from time to time) may receive underwriting
discounts and commissions, and discounts or concessions may be allowed or
reallowed or paid to dealers, and brokers or agents participating in such
transaction may receive brokerage or agent's commissions or fees.
The Selling Shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the Selling Shareholders and any other such person. Furthermore, Regulation M
may prohibit persons engaged in the distribution of the Securities from
simultaneously engaging in market making activities with respect to the
particular Securities for a period of up to five business days (or such other
applicable period as Regulation M may provide) prior to the commencement of such
distribution. All of the foregoing may affect the marketability of the
Securities and the ability of any person or entity to engage in market-making
activities with respect to the Securities.
38
<PAGE> 41
In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers.
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Preferred Stock by the Company, each of the
Company and the Selling Shareholders will be indemnified by the other against
certain liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania.
Morris Cheston, Jr., Secretary of Alkermes and of Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, and ADC II, all of
which are wholly owned subsidiaries of Alkermes, and Martha J. Hays, Secretary
of Alkermes Investments, Inc., a wholly owned subsidiary of Alkermes, are
partners in the law firm of Ballard Spahr Andrews & Ingersoll, LLP.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended March
31, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
39
<PAGE> 42
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Selling Shareholder. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the securities to which it relates or an offer to, or a solicitation
of, any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
-----------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION.................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 3
SUMMARY ................................................................ 4
THE OFFERING............................................................. 5
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS................... 7
RISK FACTORS............................................................. 8
USE OF PROCEEDS.......................................................... 19
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS......... 19
DIVIDEND POLICY.......................................................... 19
DESCRIPTION OF PREFERRED STOCK........................................... 20
DESCRIPTION OF DEBENTURES................................................ 30
SELLING SHAREHOLDERS..................................................... 36
PLAN OF DISTRIBUTION..................................................... 38
LEGAL MATTERS............................................................ 39
EXPERTS ................................................................ 39
</TABLE>
40
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the amounts of expenses attributed to the
issuance of the Securities offered pursuant to this Registration Statement which
shall be borne by the Company. All of the expenses listed below, except the
Securities and Exchange Commission Registration Fee, represent estimates only.
<TABLE>
<CAPTION>
Estimated
---------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 33,925.00
Nasdaq Listing Fee.......................................... 32,500.00
Printing and Engraving Expenses............................. 110,000.00
Accounting Fees and Expenses................................ 75,000.00
Legal Fees and Expenses..................................... 120,000.00
Transfer Agent Fees and Expenses............................ 10,000.00
Miscellaneous Fees and Expenses............................. 18,575.00
-----------
Total.............................................. $400,000.00
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation law of 1988 authorizes the Company to
grant indemnities to directors and officers in terms sufficiently broad to
permit indemnification of such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933. In addition, the Company has also obtained Directors'
and Officers' Liability Insurance in the amount of $5,000,000 which insures its
officers and directors against certain liabilities such persons may incur in
their capacities as officers or directors of the Company.
Article 5 of the Company's Amended and Restated By-Laws provides as
follows:
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The
Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of this
Article, a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "proceeding" (which shall mean for purposes
of this Article any threatened, pending or completed action, suit, appeal or
other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Corporation, its shareholders or otherwise) by reason of the fact
that such person was or is an authorized representative of the Corporation to
the fullest extent permitted by law, including without limitation
indemnification against expenses (which shall include for purposes of this
Article attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding unless the
act or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. If an authorized
representative is not entitled to indemnification in respect of a portion of any
liabilities to which such person may be subject, the
II-1
<PAGE> 44
Corporation shall nonetheless indemnify such person to the maximum extent for
the remaining portion of the liabilities.
5.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Section 5.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article and may pay such
expenses in advance on behalf of any employee or agent on receipt of a similar
undertaking. The financial ability of such authorized representative to make
such repayment shall not be prerequisite to the making of an advance.
5.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the Corporation
shall be deemed to have requested an officer, director, employee or agent to
serve s fiduciary with respect to an employee benefit plan where the performance
by such person of duties to the Corporation also imposes duties on, or otherwise
involves services by, such person as a fiduciary with respect to the plan;
excise taxes assessed on an authorized representative with respect to any
transaction with an employee benefit plan shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee benefit plan in the
performance of duties for a purpose reasonably believed to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.
5.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy or
secure the indemnification obligations provided herein or otherwise, the
Corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the Board of Directors shall deem
appropriate.
5.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized
representative of the Corporation shall b deemed to be doing so in reliance upon
the rights of indemnification provided by this Article.
5.6 AMENDMENT OR REPEAL. All rights of indemnification under this Article
shall be deemed a contract between the Corporation and the person entitled to
indemnification under this Article pursuant to which the Corporation and each
such person intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall no limit, but may expand, any rights
or obligations in respect of any proceeding whether commenced prior to or after
such change to the extent such proceeding pertains to actions or failures to act
occurring prior to such change.
5.7 SCOPE OF ARTICLE. The indemnification, as authorized by this Article,
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statu e,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in any other capacity while
holding such office. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article shall continue as to a person who has
ceased to be an officer, director, employee or agent in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors and administrators of such person.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit
Number Description
- ------ -----------
4.1 Specimen of Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3 (File No. 333-50157) which this
Amendment No. 1 hereby amends).
4.2 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated
by reference to Exhibit 4 to the Registrant's Registration Statement
on Form S-1 as amended (File No. 33-40250)).
II-2
<PAGE> 45
4.3 Second Amended and Restated Articles of Incorporation of Alkermes,
Inc. effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(a) to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1991).
4.4 Amendment to 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 Registrant's
Report on Form 10-Q for the quarter ended September 30, 1991).
4.5 Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania Secretary of
State on February 12, 1993. (Incorporated by reference to Exhibit
4.1(d) to the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1992).
4.6 Amendment to Second Amended and Restated Articles of Incorporation, as
filed with the Pennsylvania Secretary of State on February 26, 1998.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Registration Statement on Form S-3 (File No. 333-50157) which this
Amendment No. 1 hereby amends).
4.7 Indenture, dated as of March 1, 1998, between Alkermes, Inc. and State
Street Bank and Trust Company, as Trustee. (Incorporated by reference
to Exhibit 4.7 to the Registrant's Registration Statement on Form S-3
(File No. 333-50157) which this Amendment No. 1 hereby amends).
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP. (Incorporated by
reference to Exhibit 5 to the Registrant's Registration Statement
on Form S-3 (File No. 333-50157) which this Amendment No. 1 hereby
amends).
12 Statement Re Computation of Earnings to Fixed Charges and Preferred
Stock Dividends. (Incorporated by reference to Exhibit 12 to the
Registrant's Registration Statement on Form S-3 (File No. 333-50157)
which this Amendment No. 1 hereby amends).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (contained in
Exhibit 5).
24 Power of Attorney (included on signature page).
25 Form T-1, Statement of Eligibility and Qualification of State Street
Bank and Trust Company (Incorporated by reference to Exhibit 25 to the
Registrant's Registration Statement on Form S-3 (File No. 333-50157)
which this Amendment No. 1 hereby amends).
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II-3
<PAGE> 46
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cambridge, Commonwealth of
Massachusetts, on April 27, 1998.
ALKERMES, INC.
/s/ Richard F. Pops
By: __________________________________
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
____________________________________ Director and Chairman of the Board
Michael A. Wall
/s/ Richard F. Pops
____________________________________ Director and Chief Executive April 27, 1998
Richard F. Pops Officer (Principal Executive Officer)
/s/ Robert A. Breyer
____________________________________ Director, President and Chief April 27, 1998
Robert A. Breyer Operating Officer
/s/ Michael J. Landine
____________________________________ Senior Vice President, Chief April 27, 1998
Michael J. Landine Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
*
____________________________________ Director
Robert S. Langer
*
____________________________________ Director
Alexander Rich
</TABLE>
II-5
<PAGE> 48
<TABLE>
<S> <C>
*
____________________________________ Director
Paul Schimmel
*
____________________________________ Director
Floyd Bloom
*
____________________________________ Director
John K. Clarke
</TABLE>
*By: /s/ Michael J. Landine April 27, 1998
____________________________________
Michael J. Landine
Pursuant to a power of attorney
previously filed
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<PAGE> 49
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
23.1 Consent of Deloitte & Touche LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-50157 of Alkermes, Inc. on Form S-3 of our report
dated May 23, 1997, appearing in the Annual Report on Form 10-K of Alkermes,
Inc. for the year ended March 31, 1997 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 27, 1998
