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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-19267
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
64 Sidney Street, Cambridge, MA 02139-4234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 494-0171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
("Common Stock")
1994 Class A Warrants to purchase shares of
Common Stock $3.25
Convertible Exchangeable Preferred Stock
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X ]
Based upon the last sale price of the Registrant's Common Stock on June
10, 1998, the aggregate market value of the 19,726,305 outstanding shares of
voting and non-voting common equity held by non-affiliates of the Registrant was
$399,457,676.
As of June 10, 1998, 21,094,353 shares of the Registrant's Common Stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
this Report on Form 10-K:
1) Proxy Statement dated June 29, 1998 for the Registrant's
Annual Shareholders' Meeting to be held on July 29, 1998 (Part
III).
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PART I
ITEM 1. BUSINESS
The following Business section contains forward-looking statements
which involve risks and uncertainties. The Registrant's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Forward-Looking Statements."
GENERAL
Alkermes, Inc. (together with its subsidiaries, "Alkermes", the
"Company" or the "Registrant"), a Pennsylvania corporation organized in 1987, is
applying the tools of biotechnology to the development of sophisticated
proprietary drug delivery systems. The Registrant is developing product
candidates based on its independent drug delivery technologies: ProLease(R),
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(TM) (formerly known as RMP-7(TM)), which is designed to
enable increased drug delivery to the brain by transiently opening the
blood-brain barrier; and Medisorb(R), which extends Alkermes' technology for
injectable sustained release and is designed for more traditional small molecule
pharmaceutical compounds. Utilizing these drug delivery systems, the Registrant
is currently in various stages of preclinical and clinical development of
several product candidates.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These products are
generally novel, cost-effective dosage forms that provide any of several
benefits including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products, as well as expanding existing drug
franchises.
The drug delivery industry emerged to address the opportunities for
advanced delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and advanced tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products. In
addition, certain traditional small molecule pharmaceuticals are delivered by
means of encapsulation in polymeric microspheres.
With the advent of biotechnology, new opportunities in drug delivery
have arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example utilizing natural properties of the blood-brain barrier to
facilitate drug delivery to the central nervous system.
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Proteins and peptides present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have limited
ability to cross cell membranes and generally cannot be delivered orally. As a
result, many biopharmaceuticals must be administered by injection, often
multiple times per day or per week. Consequently, the methods of administration
of biopharmaceuticals can limit their clinical applications to certain disease
states that warrant the expense and inconvenience of frequent injection.
Drug delivery to the central nervous system is complicated by the
existence of the blood-brain barrier, the layer of tightly joined endothelial
cells which comprise the walls of the capillaries of the brain and limit the
free flow of many blood constituents into the brain. Many drugs cannot easily
cross the blood-brain barrier, and therefore must be administered in relatively
high doses that may result in systemic toxicity or high cost. Drugs with limited
ability to cross the blood-brain barrier include many water soluble
chemotherapeutic and anti-infective agents that are frequently used in the
treatment of diseases outside of the central nervous system.
BUSINESS STRATEGY
Alkermes' business strategy is to develop and acquire drug delivery
systems to address significant new drug delivery opportunities arising in the
pharmaceutical industry. There are four key elements to Alkermes' strategy:
Develop and Acquire Broadly Applicable Drug Delivery Systems and Apply
Them to Multiple Pharmaceutical Products. The Registrant develops or acquires
drug delivery systems that have the potential to be applied to multiple
proteins, peptides and small molecule pharmaceutical compounds to create new
product opportunities. For example, the Registrant has developed the Cereport
technology independently and acquired the ProLease and Medisorb technologies.
The Registrant currently has several product candidates utilizing those
technologies in development.
Collaborate to Develop and Finance Product Candidates. In addition to
conducting product development activities on its own, the Registrant has entered
into collaborations with pharmaceutical and biotechnology companies and others
to develop product candidates incorporating the Registrant's technologies,
provide capital for product development independent of capital markets and share
development risk. Currently, the Registrant is collaborating with major
pharmaceutical companies, including ALZA Corporation ("ALZA"), Genentech, Inc.
("Genentech"), Johnson & Johnson, Schering-Plough Corporation
("Schering-Plough") and Janssen Pharmaceutica International ("Janssen").
Apply Drug Delivery Systems to Both Approved Drugs and Drugs in
Development. The Registrant is applying its drug delivery technologies to novel
applications and formulations of pharmaceutical products that have already been
approved by the Food and Drug Administration ("FDA") or other regulatory
authorities. In such cases, the Registrant and its partners can develop a novel
dosage form or application with the knowledge of a drug's safety and efficacy
profile and a body of clinical experience from which to draw information for the
design of clinical trials and for regulatory submissions. The Registrant is also
applying its technologies to new pharmaceuticals that require a sustained
release delivery system for successful development.
Establish Independent Product Development Capabilities. Alkermes has
assembled its own product development organization to enable it to develop
product candidates for itself and its collaborators based on its drug delivery
technologies. This capability gives the Registrant flexibility in
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structuring development programs and the ability to conduct both feasibility
studies and clinical development programs for its collaborators. For example,
the Registrant has developed Cereport independently and is currently conducting
clinical trials of ProLease human growth hormone ("hGH") for Genentech.
DRUG DELIVERY TECHNOLOGY
The Registrant's current focus is on the development of broadly
applicable drug delivery technologies addressing several important drug delivery
opportunities, including injectable sustained release of proteins, peptides and
small molecule pharmaceutical compounds, drug delivery to the brain across the
blood-brain barrier and oral drug delivery systems. The Registrant is developing
product candidates based on its independent drug delivery technologies.
ProLease: injectable sustained release of fragile proteins and peptides
ProLease is Alkermes' proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. The Registrant's proprietary expertise in this field lies in
its ability to preserve the biological activity of fragile drugs over an
extended period of time and to manufacture these formulations using components
and processes believed to be suitable for human pharmaceutical use. ProLease is
designed to enable novel formulations of proteins and peptides by replacing
frequent injections with controlled, sustained release over time. The Registrant
believes ProLease formulations have the potential to improve patient compliance
and ease of use by reducing the need for frequent self-injection, to lower costs
by reducing the need for frequent office visits and to improve safety and
efficacy by reducing both the variability in drug levels inherent in frequent
injections and the aggregate amount of drug given over the course of therapy. In
addition, ProLease may provide access to important new markets currently
inaccessible to drugs that require frequent injections or are administered
orally.
The ProLease formulation process has been designed to assure stability
of fragile compounds during the manufacturing process, during storage and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps. First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated at very low temperatures. Incorporation of the drug substance
as a stabilized solid under very low temperatures is critical to protecting
fragile molecules from degradation during the manufacturing process and is a key
element of the ProLease technology. The microspheres are suspended in a small
volume of liquid prior to administration to a patient by injection under the
skin or into a muscle. The Registrant believes drug release from the ProLease
drug delivery system can be controlled to last from a few days to several
months.
Drug release from the microsphere is controlled by diffusion of the
drug through the microsphere and by biodegradation of the polymer. These
processes can be modulated through a number of formulation and fabrication
variables, including drug substance and microsphere particle sizing and choice
of polymers and excipients.
The Registrant's experience with the application of ProLease to a wide
range of proteins and peptides has shown that high incorporation efficiencies
and high drug loads can be achieved. Proteins and peptides incorporated into
ProLease microspheres have maintained their integrity, stability and
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biological activity for up to 30 days in in vitro experiments conducted on
formulations manufactured at the preclinical and clinical trials scale.
Cereport: drug delivery across the blood-brain barrier
Cereport, a member of a family of Receptor-Mediated Permeabilizers(TM)
("RMPs(TM)"), is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability.
Cereport is a proprietary, synthetic analog of bradykinin developed by Alkermes
to increase transiently the permeability of the blood-brain barrier. Following
injection, Cereport increases permeability by triggering a brief relaxation of
the tight cellular junctions of the blood-brain barrier. During the time the
tight junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without Cereport. Preclinical and clinical data also suggest
that Cereport increases the uptake of pharmaceuticals in the region of brain
tumor and other pathology.
Cereport exerts a pharmacologic effect on the vasculature of the brain
and does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. The Registrant is developing Cereport to be manufactured,
packaged and dispensed as a standalone product. In the clinical setting,
Cereport is administered in conjunction with the therapeutic or diagnostic
agent. Timing of Cereport administration relative to that of the therapeutic or
diagnostic agent is determined on a drug-by-drug basis to optimize barrier
permeability during the time of peak drug plasma concentrations.
Cereport is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with it. The
Registrant believes Cereport may be administered along with cancer
chemotherapeutic and anti-infective agents not currently used in the treatment
of central nervous system disorders because of their limited ability to
penetrate the blood-brain barrier.
Medisorb: injectable sustained release of traditional small molecule
pharmaceuticals
Medisorb is a proprietary technology for encapsulating traditional
small molecule pharmaceuticals in microspheres made of common medical polymers.
Like ProLease, Medisorb is designed to enable novel formulations of
pharmaceuticals by providing controlled, sustained release over time. The
Registrant believes Medisorb is suitable for encapsulating stable, water
soluble, small molecule pharmaceuticals at a large scale. The Registrant
believes that Medisorb formulations may have superior features of safety,
efficacy, compliance and ease of use for drugs currently administered by
frequent injection or administered orally. Drug release from the microsphere is
controlled by diffusion of the pharmaceutical through the microsphere and by
biodegradation of the polymer. These processes can be modulated through a number
of formulation and fabrication variables, including drug substance and
microsphere particle sizing and choice of polymers and excipients.
The Medisorb drug delivery system uses manufacturing processes
different from the ProLease manufacturing process. The formulation and
manufacturing process consists of three basic steps. First, the drug is combined
with a polymer solution. Second, the drug/polymer solution is mixed in water to
form liquid microspheres (an emulsion). Third, the liquid microspheres are dried
to produce finished product. The microspheres are suspended in a small volume of
liquid prior to administration to a patient by injection under the skin or into
a muscle. Drug release from Medisorb can be controlled to last from a few days
to several weeks.
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RECENT DEVELOPMENTS
RingCap(TM) and DST (Dose Sipping Technology): oral drug delivery
systems
RingCap and DST are two oral drug delivery technologies recently
licensed from ALZA. RingCap is designed to reduce the frequency of oral drugs
given multiple times per day. It is a system for controlling the erosion rate of
a drug tablet within the gastrointestinal tract by imprinting the tablet with a
series of insoluble polymeric rings.
DST is designed to provide an easier means of taking oral medications
for patients with difficulty swallowing pills, such as children and the elderly.
DST involves packaging the granulated form of a drug in a ready-to-use drinking
straw.
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PRODUCT CANDIDATES IN DEVELOPMENT
The following table summarizes the primary indications, delivery
method, development status and collaborative partner for each of the
Registrant's product candidates. This table is qualified in its entirety by
reference to the more detailed descriptions appearing elsewhere in this Form
10-K. 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 Registrant's or its collaborators' clinical trials will
demonstrate the safety and efficacy of any product candidates necessary to
obtain regulatory approval.
<TABLE>
<CAPTION>
PRODUCT Delivery Collaborative
CANDIDATE Indication Method Status(1) Partner
- --------- ---------- ------ --------- -------
<S> <C> <C> <C> <C>
PROLEASE
hGH Short Stature SR Injection(2) Phase III Genentech
Undisclosed Hormone-Mediated Disorders SR Injection Phase I Johnson & Johnson
Erythropoietin Anemia SR Injection Preclinical Johnson & Johnson
Intron A Infectious Disease, Cancer SR Injection Preclinical Schering-Plough
Others Undisclosed SR Injection Feasibility Undisclosed
MEDISORB
Undisclosed Undisclosed SR Injection Phase II Janssen
Others Undisclosed SR Injection Feasibility Undisclosed
CEREPORT(3)
Cereport and Newly-Diagnosed Glioma Intravenous Phase III Alkermes Clinical Partners,L.P.
Carboplatin (Global) (the "Partnership")
Recurrent Malignant Intravenous Phase II complete Partnership
Glioma (Europe)
Recurrent Malignant Intravenous Phase II complete Partnership
Glioma (U.S.)
Recurrent Malignant Glioma Intra-arterial Phase II complete Partnership
Metastatic Brain Tumor Intravenous Phase I/II Partnership
Metastatic Brain Tumor Intra-arterial Phase I/II Partnership
Pediatric Brain Tumor Intravenous Phase I/II(4) Partnership
RINGCAP
Undisclosed Various Oral Controlled Release Preclinical None
DST/DOSE
SIPPING
TECHNOLOGY
Undisclosed Various Oral Preclinical None
</TABLE>
- ----------
(1) "Phase III" clinical trials indicates that the compound is being tested in
humans to obtain efficacy and safety information required for marketing
approval. "Phase II" clinical trials indicates that the compound is being
tested in humans for safety, optimal dosage and efficacy for the targeted
indication. "Phase I/II" clinical trials indicates that the compound is
being tested in humans for safety and preliminary indications of biological
activity in a limited patient population. "Phase I" clinical trials
indicates that the compound is being tested in humans for preliminary
safety and pharmacologic profile in a volunteer population.
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"Preclinical" indicates that Alkermes or its partners are conducting
efficacy, pharmacology and/or toxicology testing of a lead compound in
animal models or biochemical or cell culture assays.
(2) Sustained Release Injection.
(3) ALZA has an option to obtain co-development and worldwide marketing rights
to Cereport pursuant to an agreement entered into in September 1997.
(4) This clinical trial is being sponsored and conducted by the Pediatric
Branch of the National Cancer Institute ("NCI").
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PROLEASE
Product Development Strategy. The Registrant's strategy is to generate
multiple product opportunities by applying ProLease technology to the
development of superior formulations of proteins and peptides that the
Registrant believes address significant market opportunities. The Registrant
believes these formulations have the potential to expand the utilization of
these products and improve the competitive advantage of its collaborators in
major markets.
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various ProLease formulations for a particular drug in vitro and in vivo.
Second, following the successful completion of the feasibility stage,
preclinical development and manufacturing scale-up activities directed toward
the initiation of clinical trials of the ProLease formulation would be conducted
in collaboration with a partner. See "Collaborative Arrangements."
ProLease Human Growth Hormone. Alkermes is developing a ProLease
formulation of Genentech's hGH in collaboration with Genentech. Growth hormone
deficiency results in short stature and potentially other developmental defects.
Genentech is the leading supplier of hGH in the United States. hGH is approved
for use in the treatment of children with growth hormone deficiency, Turner's
syndrome, chronic renal insufficiency and other indications and is being tested
in additional indications in adults. hGH is currently administered frequently,
often daily, by subcutaneous injection.
In November 1996, Alkermes completed a Phase I clinical trial of
ProLease hGH in 13 growth hormone deficient adults. The results showed that a
single injection of Prolease hGH resulted in elevated levels of hGH (its key
growth promoting protein), insulin-like growth factor-1 ("IGF-1") and IGF-1's
binding protein IGFBP-3, for three to four weeks in adult patients with growth
hormone deficiency.
In November 1997, Alkermes completed a Phase II clinical trial of
ProLease hGH in 64 growth hormone deficient children at 12 sites in the United
States. Based on the results of this study, Genentech decided to proceed to a
Phase III clinical trial of ProLease hGH.
In December 1997, Alkermes initiated a Phase III clinical trial of
ProLease hGH in 70 growth hormone deficient children at an estimated 30 sites in
the United States.
ProLease Alpha Interferon. Alkermes is developing a ProLease
formulation of Schering-Plough's Intron(R) A (interferon alpha 2b) product in
collaboration with Schering-Plough. Schering-Plough is the leading supplier of
alpha interferon in the world. Intron A is approved for use in several
infectious diseases and certain oncology indications. Intron A is currently
administered by frequent injection. Schering-Plough is conducting preclinical
studies and will be responsible for clinical development, if any.
ProLease Product for Hormone-Mediated Disorders. Alkermes is developing
a ProLease formulation of a product for the treatment of hormone-mediated
disorders with Johnson & Johnson. The product development program was announced
in November 1996 following the completion by Alkermes of a feasibility study
initiated in early 1996. Johnson & Johnson is conducting preclinical studies and
will be responsible for clinical development, if any.
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ProLease Erythropoietin. Alkermes is developing a ProLease formulation
of erythropoietin ("EPO") with Johnson & Johnson. EPO is a naturally occurring
protein that stimulates the production of red blood cells. The product
development program was announced in January 1998 following the completion of a
feasibility study in September 1997. Johnson & Johnson is conducting preclinical
studies and will be responsible for clinical development, if any.
Additional ProLease Formulations. Alkermes continues to develop
Prolease formulations of other unspecified compounds pursuant to feasibility
agreements with several pharmaceutical and biotechnology companies.
CEREPORT
Product Development Strategy. The Registrant's strategy to date has
been to advance Cereport through clinical trials while establishing its safety,
permeability effects in humans and efficacy when used in combination with other
drugs. To support the clinical development of Cereport, Alkermes formed and
transferred substantially all of its rights to Cereport technology to Alkermes
Clinical Partners, L.P. (the "Partnership"), which completed a $46 million unit
offering in April 1992. Alkermes has the option to purchase all of the limited
partnership interests in the Partnership. As of September 30, 1997, Alkermes
entered into an agreement with ALZA relating to the development and
commercialization of Cereport. Under the terms of the agreement, ALZA made an
upfront payment of $10.0 million to Alkermes to fund clinical development in
return for an option to obtain exclusive worldwide commercialization rights to
Cereport, subject to the rights of the Partnership. See "Collaborative
Arrangements--Alkermes Clinical Partners, L.P." and "Collaborative
Arrangements--ALZA Corporation."
Cereport has the potential to be used in combination with a variety of
agents in various disease settings. The Registrant's goal is to expand the
applications of Cereport through its own development activities and, when
appropriate, collaborations with pharmaceutical companies, subject to any
commercialization rights of ALZA. Alkermes may collaborate with companies having
drugs whose uses could be expanded to include central nervous system
indications. In such cases, Alkermes and its partner could collaborate in the
clinical development of the combination without any exchange of product rights.
Brain Tumor. Cereport is being tested for the treatment of primary
brain tumor, recurrent malignant glioma, metastatic brain tumor and pediatric
brain tumor. Brain tumors can be classified into two major groups: primary brain
tumors, which originate and recur in the brain, and metastatic brain tumors,
which are tumors that have spread to the brain from other parts of the body.
Each year in the United States and Europe a total of 40,000 patients are
diagnosed with primary brain tumors, of which approximately 60%-70% are
malignant glioma, and 150,000 patients are diagnosed with metastatic brain
tumors.
Current treatment for brain tumors is limited and inadequate. Standard
treatment typically involves surgery to remove cancerous tissue, followed by
radiation therapy. After initial treatment with surgery and/or radiotherapy,
brain tumors often recur. Upon recurrence, tumors typically progress rapidly,
neurological function and quality of life deteriorate and patients die within
months. Chemotherapy has played only a limited role in treatment, in part due to
the limited access of many chemotherapeutic agents to the brain because of the
normally restrictive blood-brain barrier. Carboplatin is a chemotherapeutic
approved for use by the FDA and other regulatory authorities
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worldwide for use in the treatment of various tumor types outside of the brain,
but is limited in its ability to penetrate into the brain. Cereport is designed
to enable more effective use of chemotherapeutic agents like carboplatin in the
treatment of brain tumors by transiently increasing the permeability of the
blood-brain barrier.
Alkermes is pursuing two alternative treatment strategies for Cereport
and carboplatin in patients with malignant brain tumor: intravenous and
intra-arterial administration. The Registrant believes that pursuing both
treatment methods strengthens the scientific foundation of the clinical trials
program and increases the likelihood of observing a treatment effect in
patients.
Newly-Diagnosed Brain Tumor: Phase III Clinical Trial. In March 1998,
Alkermes commenced a Phase III clinical trial of intravenous Cereport and
carboplatin in newly-diagnosed patients with brain tumor. This Phase III study
is a randomized controlled Phase III clinical trial of Cereport administered in
combination with carboplatin in patients with newly-diagnosed glioblastoma
multiforme, the highest grade and most rapidly fatal classification of primary
brain tumor.
In the study, patients will be randomized to receive one of three
treatments following their initial surgery or biopsy and prior to standard
radiotherapy: (i) the combination of Cereport/carboplatin administered once
every three weeks for up to three months (four cycles), followed by standard
radiotherapy, (ii) the combination of placebo/carboplatin administered once
every three weeks for up to three months (four cycles), followed by standard
radiotherapy, or (iii) no chemotherapy prior to standard radiotherapy.
The Phase III trial was initiated following the completion of a series
of Phase I and Phase II studies of Cereport/carboplatin in over 200 patients
with recurrent brain tumor. These studies provide extensive evidence of the
safety of the combination of Cereport and carboplatin and of preliminary
efficacy in recurrent brain tumor patients as measured by MRI response rates,
objective functional assessment and survival. Further, these studies showed that
patients who had received less previous treatment (radiotherapy and/or
chemotherapy) had better outcomes than more heavily pretreated patients. Based
on these data, the Phase III study is focused on the treatment of newly-
diagnosed patients immediately following initial surgery. Treatment at this
time, prior to the damaging effects of radiotherapy, is expected to provide the
greatest clinical benefit to patients.
Recurrent Malignant Glioma Clinical Trials. The Registrant's clinical
strategy for Cereport has been to establish a foundation of safety and
pharmacologic effect of increasing blood-brain barrier permeability prior to
entering Phase III clinical trials of Cereport administered in combination with
carboplatin. To date, over 600 human subjects have received Cereport in a series
of clinical trials in all indications studied. Through the Phase I and Phase
I/II clinical trials, Cereport was shown to have a good safety profile in
volunteers and patients. Transient flushing was the most consistent adverse
event noted and nausea and vomiting were determined to be the dose limiting
toxicity. There was no evidence of increased toxicity associated with the
combination of Cereport and carboplatin, and the drug combination was generally
well tolerated by patients.
Based on the successful completion of Phase I and Phase I/II clinical
trials, Alkermes initiated multiple Phase II clinical trials both of intravenous
and intra-arterial Cereport and carboplatin in patients with recurrent malignant
glioma. Three multi-center Phase II clinical trials of intravenous Cereport and
carboplatin and one multi-center Phase II clinical trial of intra-arterial
Cereport and carboplatin were completed. The results of the three Phase II
intravenous Cereport clinical trials provided the basis for
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the Registrant's decision to proceed into a global Phase III clinical trial of
intravenous Cereport and carboplatin in patients with brain tumors.
Recurrent Malignant Glioma: Intra-arterial Phase II Clinical Trial.
Alkermes initiated a multi-center, open label Phase II clinical trial in the
United States of intra-arterial Cereport and carboplatin in March 1996.
Enrollment of 51 patients with recurrent malignant glioma was completed in
September 1996 at nine medical centers. The preliminary results showed that
treatment with intra-arterial Cereport and carboplatin was generally well
tolerated, and resulted in positive responses in 63% of patients as measured by
stabilization or reduction in tumor volume as measured by MRI, and overall
median survival of 47 weeks.
Metastatic Brain Tumor Clinical Trials. Alkermes initiated a
multi-center Phase I/II non-controlled, open label clinical trial in Europe of
intravenous Cereport and carboplatin in patients with metastatic brain tumors in
April 1996. The study is being conducted at two medical centers and is expected
to enroll approximately 80 patients.
Alkermes also initiated a Phase I/II non-controlled, open label
clinical trial in the United States of intra-arterial Cereport and carboplatin
in patients with metastatic brain tumors in October 1995. The study is being
conducted at one medical center and is expected to enroll approximately 18
patients.
Pediatric Brain Tumor Clinical Trial. In August 1996, Alkermes, in
collaboration with the NCI, initiated a non-controlled, open label Phase I/II
clinical trial of intravenous Cereport and carboplatin in pediatric brain tumor
patients who had failed other therapies. The study is being sponsored and
conducted by the Pediatric Branch of the NCI and is expected to enroll
approximately 24 patients.
MEDISORB
Product Development Strategy. The Registrant's strategy is to generate
multiple product opportunities by applying Medisorb technology to the
development of superior formulations of small molecule pharmaceutical products.
The Registrant believes these formulations have the potential to expand the
utilization of these products and improve the competitive advantage of its
collaborators in major markets.
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various Medisorb formulations for a particular drug in vitro and in vivo.
Following the successful completion of the feasibility stage, preclinical
development and manufacturing scale-up activities directed toward the initiation
of clinical trials of the Medisorb formulation would be conducted in
collaboration with a partner. See "Collaborative Arrangements."
Undisclosed Medisorb Product Candidate. Alkermes is developing and
manufacturing a Medisorb product candidate in collaboration with Janssen, an
affiliate of Johnson & Johnson. In August 1997, Janssen commenced a Phase II
clinical trial of this Medisorb product candidate. The collaboration is focused
on process scale-up and manufacturing in anticipation of late-stage clinical
trials and, if successful, product commercialization. Janssen is responsible for
conducting all clinical trials.
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COLLABORATIVE ARRANGEMENTS
The Registrant's business strategy includes forming collaborations to
provide technological, financial, marketing, manufacturing and other resources.
The Registrant has entered into several corporate collaborations.
Genentech, Inc.
In November 1996, Alkermes announced the completion of a Phase I
clinical trial of a ProLease hGH formulation in adults. Based in part on the
successful completion of the Phase I trial, Genentech exercised its option to
enter into a license agreement and obtained from Alkermes a license coexclusive
in the United States and exclusive in the rest of the world for a ProLease
formulation of hGH. Under the terms of the agreement, Genentech could provide an
estimated $20.0 million in development funding for scale-up activities, clinical
trial materials, manufacturing and clinical trial expenses over the development
period. In addition, Alkermes could receive milestone payments of approximately
$10.0 million if the ProLease hGH formulation is successfully developed and is
approved by regulatory authorities. As of March 31, 1998, Alkermes has earned
approximately $14.7 million of the development funding and milestone payments.
Alkermes will be responsible for conducting clinical trials and manufacturing
the ProLease hGH formulation and is to receive manufacturing revenues and
royalties on sales.
Genentech has the right to terminate the agreement for any reason upon
30 days' written notice or, if the Registrant has begun manufacturing the
ProLease product for commercial sale, upon six months' written notice. In
addition, either party may terminate the agreement upon the other party's
material default which is not cured within 90 days of written notice, or upon
the other party's insolvency or bankruptcy.
To fund the Registrant's activities during the initial phase of the
collaboration, Genentech loaned the Registrant the aggregate amount of $3.5
million pursuant to a Convertible Promissory Note dated January 31, 1995 (the
"Note"). The outstanding principal amount of the Note accrues interest at the
prime rate of interest as reported by the Bank of America NT & SA from time to
time. The outstanding principal amount of the Note and accrued but unpaid
interest thereon becomes due and payable on January 31, 2000.
Under the terms of the Note, Alkermes has the option to convert, at any
time, all outstanding principal and accrued but unpaid interest thereon (as such
amount may exist from time to time, the "Conversion Amount") into shares of
Common Stock at the average closing price of the Common Stock for the 20 trading
days ending the day before the conversion date (the "Conversion Price"). In
addition, Genentech shall have the right to convert the Conversion Amount into
shares of Common Stock at the Conversion Price if at any time the total cash,
cash equivalents and marketable debt instruments of the Registrant shall be less
than the sum of (i) all indebtedness which ranks senior to the indebtedness
evidenced by the Note, and (ii) the Conversion Amount. Genentech also has the
right to demand that the Common Stock be registered under certain circumstances.
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Johnson & Johnson - Hormone-Mediated Disorders
In November 1996, the Registrant entered into a development and license
agreement with Ortho Pharmaceutical Corporation ("Ortho Pharmaceutical"), an
affiliate of Johnson & Johnson, for the development of a ProLease formulation of
an undisclosed Johnson & Johnson proprietary compound (the "J&J Product
Candidate"). The Registrant is developing a sustained release formulation of
this compound to treat hormone-mediated disorders. The J&J Product Candidate has
completed a Phase I clinical trial and the results are being evaluated to
determine further clinical development, if any.
Pursuant to the development agreement, Johnson & Johnson obtained an
exclusive, worldwide, royalty-bearing license to make, use and sell products
resulting from such agreement. In exchange, Johnson & Johnson is to provide the
Registrant with research and development funding, milestone payments and royalty
payments based on sales, if any, of the J&J Product Candidate. Development
funding and milestone payments could aggregate approximately $20.0 million,
assuming the development of the J&J Product Candidate proceeds in accordance
with its development plan. As of March 31, 1998, Alkermes had earned
approximately $2.1 million of the development funding and milestone payments.
Johnson & Johnson is to be responsible for conducting clinical trials and
securing regulatory approvals and, together with its affiliates, is to be
responsible for the marketing of any products that result from the
collaboration. The Registrant expects to manufacture any such products for
commercial sales.
Johnson & Johnson may terminate the development agreement for any
reason, upon 90 days' written notice if such termination notice occurs prior to
filing a New Drug Application ("NDA") with the FDA, or upon six months' written
notice if such notice occurs subsequent to such a filing. In addition, either
party may terminate the development agreement and the related manufacturing
agreement upon a material default or breach by the other party of such agreement
which is not cured within 60 days' notice, or upon the other party's insolvency
or bankruptcy.
Johnson & Johnson - Erythropoietin
In January 1998, the Company entered into a development and license
agreement and a supply and license agreement with Ortho Pharmaceutical, an
affiliate of Johnson & Johnson, for the development of a ProLease formulation of
erythropoietin ("ProLease EPO"). The Company is developing a sustained release
formulation of EPO for the treatment of various types of anemia.
Pursuant to the development agreement, Johnson & Johnson obtained an
exclusive, worldwide, royalty-bearing license to make, use and sell products
resulting from such agreement. In exchange, Johnson & Johnson is to provide the
Company with research and development funding, milestone payments and royalty
payments based on sales, if any, of ProLease EPO. Development funding and
milestone payments could aggregate approximately $30.0 million, assuming the
development of ProLease EPO proceeds in accordance with its development plan. As
of March 31, 1998, Alkermes had earned approximately $1.8 million of the
development funding payments. Johnson & Johnson will be responsible for
conducting clinical trials, if any, and securing regulatory approvals and,
together with its affiliates, will be responsible for the marketing of any
products that result from the collaboration. The Company will manufacture any
such products for commercial sale.
Johnson & Johnson may terminate the development agreement for any
reason, upon 90 days' written notice if such termination notice occurs prior to
filing an NDA with the FDA, or upon six
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months' written notice if such notice occurs subsequent to such a filing. In
addition, either party may terminate the development agreement and the related
supply agreement upon a material default or breach by the other party of such
agreement which is not cured within 60 days' notice, or upon the other party's
insolvency or bankruptcy.
Schering-Plough Corporation
Under an amended development and license agreement with
Schering-Plough, the Registrant has agreed to develop an injectable delivery
system which incorporates Intron A as an active ingredient utilizing the
Registrant's ProLease delivery system and has granted to Schering-Plough an
exclusive, worldwide, royalty-bearing license to manufacture, use and sell any
such system that may be developed pursuant to the amended agreement. Under the
amended agreement, Schering-Plough will also be responsible for conducting
clinical trials and securing regulatory approvals. The amended agreement
provides for development funding to the Registrant and provides for certain
payments to be made by Schering-Plough to the Registrant for its achievement of
certain milestones. The Registrant and Schering-Plough entered into a prepaid
royalty agreement pursuant to which Schering-Plough has prepaid certain
royalties. Payments to the Registrant were approximately $7.0 million through
March 31, 1998, and future milestone payments could exceed an additional $5.0
million, not including royalties.
Schering-Plough has the right to terminate the amended agreement upon
60 days' written notice upon the occurrence of certain events, including if the
Registrant fails to meet product specifications or an agreed upon delivery
schedule, the results of a safety and pharmacokinetics study provide Schering-
Plough with reasonable justification not to proceed to a Phase II clinical
trial, the use of the product results in adverse effects that justify
termination of clinical trials, Schering-Plough is unable to manufacture the
product on a commercial scale, or upon completion or permanent discontinuation
of the clinical trials. Either party may terminate the amended agreement upon
the insolvency or bankruptcy of the other party or upon a breach by the other
party which has not been cured after 60 days' notice. Schering-Plough also has
the right to terminate the amended agreement upon 90 days' written notice or
continue the development project on its own in the event Alkermes fails by an
agreed upon date to deliver batches of a ProLease formulation of Intron A that
meet agreed upon specifications. In the event Schering-Plough elects to continue
the development project after termination, it will remain obligated to pay
Alkermes milestone payments and royalties upon commercial sale. In the event
Schering-Plough terminates the amended agreement for any reason, Alkermes must
repay the prepaid royalties received from Schering-Plough with interest. Such
repayment obligation would be evidenced by an interest-bearing note and would be
payable in full on the third anniversary of the date of the note. Alkermes will
have the right, subject to the satisfaction of certain conditions, to satisfy
its repayment obligation through the issuance of shares of its Common Stock. The
number of shares that may be issued would be based upon the average closing
price of Alkermes Common Stock on the Nasdaq National Market for the 30 business
days immediately preceding the date on which the shares are delivered. Any
Common Stock issued to Schering-Plough must be freely resalable.
Janssen Pharmaceutica International
Pursuant to a development agreement, the Registrant is collaborating
with Janssen, an affiliate of Johnson & Johnson, in the development of sustained
release formulations, utilizing the Medisorb technology, of an undisclosed
Janssen product candidate. Under the development agreement, the Registrant is
responsible for production of the Janssen product candidate for clinical trials.
Janssen is
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responsible for conducting clinical trials of the Janssen product candidate and
securing all necessary regulatory approvals.
In October 1996, the Registrant announced the expansion of the
development agreement. Janssen has agreed to provide development funding of
approximately $20.0 million over a two-year period, assuming the product
continues in clinical development. The funding will be used for manufacturing
clinical trials material and scale-up for commercial sale. As of March 31, 1998,
Alkermes had earned approximately $17.1 million of this development funding.
Under related license agreements, Janssen and an affiliate have
exclusive worldwide licenses from the Registrant to manufacture, use and sell
the Janssen product candidate. If Janssen decides to employ third-party
suppliers of the commercialized Janssen product developed under the development
agreement, the Registrant has a right of first refusal for the manufacture and
supply of such product, and component bio-absorbable polymers thereof. Under the
license agreements, Janssen is required to pay Alkermes certain royalties with
respect to all Medisorb formulations of the Janssen product sold to customers.
Janssen can terminate the development agreement or the license agreement upon 30
days' prior written notice.
Alkermes Clinical Partners, L.P.
In April 1992, units consisting of limited partnership interests in the
Partnership and warrants to purchase the Registrant's Common Stock were sold to
investors in a private placement (the "Private Placement"). The proceeds of the
$46 million Private Placement have been used to fund the further development and
clinical testing of Cereport for human pharmaceutical use in the United States,
Canada and Europe. Such funding was not sufficient to complete clinical trials
and seek regulatory approval of Cereport. Since the completion of funding from
the Partnership, which ended during the quarter ended June 30, 1996, Alkermes
has used, and intends to continue to use, its own resources to develop Cereport,
but may be forced to seek alternative sources of funding, including additional
collaborators.
Pursuant to a product development agreement (the "Product Development
Agreement"), dated March 6, 1992, Alkermes transferred substantially all of its
rights to the RMP technology, including Cereport, to the Partnership. Alkermes
has an option to purchase all of the limited partnership interests in the
Partnership (the "Purchase Option") and thereby reacquire the transferred
technology. The Registrant is required to fund the development of Cereport to
maintain its Purchase Option.
The Partnership may terminate the research program for any or all
products upon the affirmative vote of 75% of the directors of the general
partner of the Partnership, Alkermes Development Corporation II ("ADC II"), a
wholly owned subsidiary of Alkermes, that such research is not feasible or is
uneconomic. The Partnership may terminate the marketing program for any or all
products upon the affirmative vote of 75% of the directors of ADC II based on
the directors' good faith business judgment. The Partnership may also terminate
the research or marketing program if Alkermes has materially breached the
agreement and not cured such breach within 30 days' written notice. Both parties
may terminate the research or marketing program upon mutual consent to terminate
or upon the insolvency or bankruptcy of the other party.
The Partnership has granted Alkermes an exclusive interim license to
manufacture and market Cereport for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of Cereport by the FDA,
Alkermes is obligated to make a payment to the Partnership equal to
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20% of the aggregate capital contributions of all limited partners.
Additionally, Alkermes will pay a 12% royalty on revenues from any sales of
Cereport in the United States and Canada and, in certain circumstances, a 10%
royalty on revenues from any sales of Cereport in Europe. The interim license
will terminate if Alkermes does not exercise the Purchase Option. Alkermes can
exercise the Purchase Option by making a payment to the Partnership equal to 80%
of the aggregate capital contributions of all limited partners in addition to
royalty payments in the same percentages as provided for under the interim
license agreement.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated with
Alkermes. Such non-affiliated persons were nominated by the sales agent for the
Private Placement. The sales agent will continue to have the right to nominate
at least half of the members of ADC II's board of directors until ADC II or some
other affiliate of Alkermes ceases to be the general partner of the Partnership,
the Partnership terminates in accordance with the terms of the Limited
Partnership Agreement or the sales agent's venture capital investment
partnership ceases to be a limited partner of the Partnership.
ALZA Corporation
In October 1997, Alkermes and ALZA announced that they had entered into
an agreement relating to the development and commercialization of Cereport.
Under the terms of the agreement, ALZA made a $10.0 million upfront payment to
Alkermes to fund clinical development; in return, ALZA has the option to acquire
exclusive, worldwide, commercialization rights to Cereport, subject to the
rights and obligations of the Partnership. If ALZA chooses to exercise its
option, ALZA will make additional payments to cover costs associated with
advanced clinical development. If Cereport is commercialized successfully by
ALZA, ALZA will pay Alkermes certain milestone payments. Alkermes would be
responsible for the manufacturing of Cereport, and the two companies would share
approximately equally in profits from sales of the product.
MANUFACTURING
Each of the Registrant's drug delivery systems utilizes a distinct
manufacturing process.
ProLease
ProLease manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborators in small polymeric microspheres using
extremely cold processing conditions suitable for fragile molecules. The
ProLease manufacturing process consists of two basic steps. First, the drug is
formulated with stabilizing agents and dried to create a fine powder. Second,
the powder is microencapsulated at very low temperatures.
Alkermes has completed construction of an in-house pilot production
facility that has been validated by the Registrant for manufacturing in
accordance with GMP (good manufacturing practices). The facility is being used
to manufacture product candidates incorporating its ProLease sustained release
delivery system for use in clinical trials. This facility is not capable of
manufacturing products on a commercial scale. Pursuant to agreements with
certain of its collaborators, Alkermes has the right to manufacture ProLease
products for commercial sale. Alkermes has completed the design of a new
commercial scale ProLease manufacturing facility of approximately 30,000 square
feet. Construction began in February 1998.
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Cereport
Cereport is a small peptide manufactured using standard synthetic
techniques. Alkermes relies on an independent European pharmaceutical company
for the manufacture and supply of Cereport. Scale-up of Cereport manufacturing
process to support international clinical trials and commercial launch has been
completed. Alkermes believes that, if necessary, there are other companies which
could manufacture and supply its requirements for Cereport.
Medisorb
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs,
provided by the Registrant's collaborator(s), in polymers using a large-scale
emulsification. The Medisorb manufacturing process consists of three basic
steps. First, the drug is combined with a polymer solution. Second, the
drug/polymer solution is mixed in water to form liquid microspheres (an
emulsion). Third, the liquid microspheres are dried to produce finished product.
Alkermes owns a 14,000 square foot GMP sterile manufacturing facility
in Wilmington, Ohio. Alkermes is manufacturing a product candidate incorporating
its Medisorb sustained release delivery system for use by Janssen in clinical
trials at this facility. In June 1998, Alkermes completed construction of a
20,000 square foot addition to and modification of its current manufacturing
facility for commercial scale Medisorb manufacturing.
The manufacture of the Registrant's products for clinical trials and
commercial purposes is subject to current GMP and other federal regulations. The
Registrant has never operated an FDA-approved manufacturing facility, and there
can be no assurance that it will obtain necessary approvals for commercial
manufacturing.
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. In addition, delays in obtaining regulatory approvals might
result, as well as delays of commercial sales if approvals are obtained. Such
delays could materially adversely affect the Registrant's competitive position
and its business, financial condition and results of operations.
MARKETING
In October 1997, Alkermes entered into an agreement with ALZA wherein
ALZA agreed to make an upfront payment of $10.0 million to fund clinical
development in exchange for an exclusive option to enter into a worldwide
exclusive commercialization agreement for Cereport. If Cereport is successfully
commercialized by ALZA, ALZA will pay Alkermes certain milestone payments. Under
the terms of the agreement, Alkermes is responsible for the manufacture of
Cereport, and the two companies will share approximately equally in profits from
the sale of the product.
Alkermes intends to market any ProLease and Medisorb products through
its corporate partners. Alkermes has entered into development agreements, which
include sales and marketing arrangements, for ProLease product candidates with
Genentech, Johnson & Johnson and Schering-Plough, and for a Medisorb product
candidate with Janssen. See "Collaborative Arrangements."
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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 Registrant 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 the Registrant enters into co-promotion or other sales and marketing
arrangements with other companies, any revenues received by the Registrant will
be dependent on the efforts of others, and there can be no assurance that such
efforts will be successful.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. Alkermes faces, and will continue to face,
intense competition in the development, manufacturing, marketing and
commercialization of its product candidates from academic institutions,
government agencies, research institutions, biotechnology and pharmaceutical
companies, including its collaborators, and drug delivery companies. There can
be no assurance that developments by others will not render the Registrant's
product candidates or technologies obsolete or noncompetitive, or that the
Registrant's collaborators will not choose to use competing drug delivery
methods. At the present time, Alkermes has no sales force or marketing or
commercial manufacturing experience. In addition, many of the Registrant'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 Alkermes in
undertaking preclinical testing and clinical trials of new pharmaceutical
products and obtaining FDA and other regulatory approvals.
With respect to Cereport, the Registrant believes that there are
currently no products approved by the FDA for increasing the permeability of the
blood-brain barrier. There are, however, many novel experimental therapies for
the treatment of brain tumors and central nervous system infections being tested
in the United States and Europe.
With respect to ProLease and Medisorb, the Registrant 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 Registrant's collaborators.
These chemical entities are being designed to have different mechanisms of
action or improved safety and efficacy. In addition, the Registrant's
collaborators may develop, either alone or with others, products that compete
with the development and marketing of the Registrant's product candidates.
There can be no assurance that the Registrant will be able to compete
successfully with such companies. The existence of products developed by the
Registrant's competitors, or other products or treatments of which the
Registrant is not aware, or products or treatments that may be developed in the
future, may adversely affect the marketability of products developed by the
Registrant.
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PATENTS AND PROPRIETARY RIGHTS
The Registrant's success will be dependent, in part, on its ability to
obtain 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 Registrant has a proprietary portfolio of patent rights and
exclusive licenses to patents and patent applications. The Registrant has filed
numerous United States and international patent applications directed to
composition of matter as well as processes of preparation and methods of use,
including applications relating to: permeabilizers, certain rights to which have
been licensed to the Partnership, of which one United States patent was issued
in each of May 1992, December 1993, April 1996, December 1996 and November 1997;
carriers for enabling passage into the brain of therapeutic compounds, of which
one United States patent was issued in each of October 1992, January 1993, June
1996 and September 1997; a ProLease microencapsulation process, of which one
United States patent was issued in May 1991; the formulation of ProLease
compositions of which one United States patent was issued in each of May 1995,
August 1997, September 1997, October 1997, January 1998 and February 1998; a
Medisorb microencapsulation process of which one United States patent was issued
in each of June 1983, July 1997 and August 1997; composition and methods of
treatment for a lead Medisorb composition of which one United States patent was
issued in each of November 1997 and June 1998; 14 additional United States
patents related to Medisorb methods and compositions that were issued between
July 1985 and March 1998; and methods of modulating release from polymer
sustained release devices of which one United States patent was issued in August
1997. In the future, the Registrant plans to file further United States and
foreign patent applications directed to new or improved products and processes.
The United States patents issued to the Registrant will expire between 2000 and
2015. Alkermes intends to file additional patent applications when appropriate
and intends to defend its patent position aggressively.
Alkermes has exclusive rights through licensing agreements with several
institutions to ten issued United States patents, a number of United States
patent applications and corresponding foreign patents and patent applications in
many countries, subject in certain instances to the rights of the United States
government to use the technology covered by such patents and patent
applications. The United States patents that have been licensed to the
Registrant will expire between the years 2003 and 2014. Under certain licensing
agreements, the Registrant currently pays annual license fees and/or minimum
annual royalties. During the fiscal year ended March 31, 1998, such fees were
$82,000. In addition, under all licensing agreements, Alkermes is obligated to
pay royalties on future sales of products, if any, covered by the licensed
patents.
The Registrant 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 Registrant, its collaborators or the Partnership
utilizing the ProLease, Cereport, and Medisorb delivery systems. In one case,
the Registrant has received a letter from the owner of a patent asking the
Registrant to compare the Registrant'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 the 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 Registrant or its
collaborators. There can be no assurance that a third party will not file an
infringement action, or that the Registrant 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
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on the Registrant's business, financial condition and results of operations. The
Registrant 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
Registrant's product candidates utilizing its ProLease, Cereport or Medisorb
delivery systems. Patents may issue from these applications which could preclude
the Registrant 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 Registrant 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 Registrant'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 or both the Registrant's product candidates or the
Partnership's product candidate, or both) will be sufficiently broad to protect
the Registrant's or the Partnership's technology or to provide Alkermes or the
Partnership with any competitive advantages. Moreover, no assurance can be given
that patents issued to Alkermes (in connection with either or both the
Registrant's product candidates or the Partnership's product candidate), or its
respective licensors, if any, will not be contested, invalidated or
circumvented. In addition, if Alkermes or the Partnership 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, and failure to obtain such licenses could result in delays in marketing the
Registrant's products or the inability to proceed with the development,
manufacture or sale of product candidates requiring such licenses.
The Registrant 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 Registrant would have adequate remedies for any
breach, or that the Registrant's trade secrets will not otherwise become known
or be independently discovered by competitors.
The Registrant's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Registrant. The agreements
provide that all confidential information developed or made known to an
individual during the course of the employment or consulting relationship shall
be kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual while employed by the Registrant shall be
the exclusive property of the Registrant. There can be no assurance, however,
that these agreements will provide meaningful protection for the Registrant's
trade secrets in the event of unauthorized use or disclosure of such
information.
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GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing facilities
are also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
Prior to marketing, any product 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 Registrant's
business, financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with GMP. Before approval of an NDA or PLA, the FDA
will perform a prelicensing inspection of the facility to determine its
compliance with GMP and other rules and regulations. In complying with GMP,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance. After the
establishment is licensed, it is subject to periodic inspections by the FDA.
The requirements which the Registrant must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries can be as rigorous and costly as those
described above.
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The Registrant is also subject to various laws and regulations relating
to safe working conditions, laboratory and manufacturing practices, experimental
use of animals and use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with the Registrant's research. Compliance with laws and
regulations relating to the protection of the environment has not had a material
effect on capital expenditures, earnings or the competitive position of the
Registrant. However, the extent of government regulation which might result from
any legislative or administrative action cannot be accurately predicted.
EMPLOYEES
As of June 10, 1998, the Registrant had 202 full-time employees. A
significant number of the Registrant's management and professional employees
have had prior experience with pharmaceutical, biotechnology or medical product
companies. Alkermes believes that it has been highly successful in attracting
skilled and experienced scientific personnel; however, competition for such
personnel is intense. None of the Registrant's employees is covered by a
collective bargaining agreement. The Registrant considers its relations with
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, who are elected to serve at
the pleasure of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard F. Pops 36 Chief Executive Officer and Director
Robert A. Breyer 54 President, Chief Operating Officer and Director
Raymond T. Bartus 51 Senior Vice President, Preclinical Research and
Development
Michael J. Landine 44 Senior Vice President, Chief Financial Officer and
Treasurer
Don G. Burstyn 43 Vice President, Regulatory Affairs
J. Duncan Higgons 43 Vice President, Business Development
Dennis M. Meka 45 Vice President, Operations
James L. Wright 50 Vice President, Pharmaceutical Development
</TABLE>
Mr. Pops has been Chief Executive Officer and a Director since February
1991. From February 1991 to June 1994, Mr. Pops was also President of the
Registrant. Mr. Pops currently serves on the Board of Directors of Neurocrine
Biosciences, Inc., the Biotechnology Industry Organization (BIO), The Brain
Tumor Society (a non-profit organization) and Immulogic Pharmaceutical
Corporation, a biopharmaceutical company. Mr. Pops is President of the
Massachusetts Biotechnology Council (MBC) and a member of the BIO Emerging
Companies Section Governing Body.
23
<PAGE> 24
Mr. Breyer has been President and Chief Operating Officer and a
Director since July 1994. From August 1991 to December 1993, Mr. Breyer was
President and General Manager of Eli Lilly Italy, a subsidiary of Eli Lilly &
Co.
Dr. Bartus has been Senior Vice President, Preclinical Research and
Development since December 1996. From November 1992 to December 1996, Dr. Bartus
served as Senior Vice President, Neurobiology of the Registrant. He holds an
M.S. in Experimental Psychology and a Ph.D. in Physiological Psychology from
North Carolina State University.
Mr. Landine has been the Chief Financial Officer since March 1988. From
March 1988 to December 1994, he also served as a Vice President, and since
December 1994 as a Senior Vice President. He has also been Treasurer of the
Registrant since April 1991. He is currently an advisor to Walker Magnetics
Group, an international manufacturer of industrial equipment. Mr. Landine is a
certified public accountant. Mr. Landine has resigned as Senior Vice President,
Chief Financial Officer and Treasurer of the Company effective June 30, 1998 and
will continue as a part-time employee of the Company.
Dr. Burstyn became Vice President, Regulatory Affairs in October 1993.
From 1987 to 1993, Dr. Burstyn was employed in various capacities at Biogen,
Inc., most recently as Director, Development Operations. Dr. Burstyn received
his B.S., M.S. and Ph.D. from the University of Maryland.
Mr. Higgons became Vice President, Business Development in December
1994. From 1986 to 1994, he was employed in various capacities at IVAC
Corporation, most recently as Senior Director of Sales, Western Area.
Mr. Meka became Vice President, Operations in January 1997. From 1994
to December 1996 he was employed by DuPont Merck Pharmaceuticals as Vice
President, Manufacturing and Corporate Services. From 1991 to 1994 he was
employed by DuPont Merck Pharma (Puerto Rico) as President and General Manager.
Dr. Wright became Vice President, Pharmaceutical Development in
December 1994. From 1989 to 1994, he was employed at Boehringer Ingelheim
Pharmaceutical, Inc., most recently as a Highly Distinguished Scientist. Dr.
Wright received a B.A. in Chemistry and Biology from the University of
California, Santa Barbara, and an M.S. in Pharmacy and a Ph.D. in Pharmacy from
the University of Wisconsin.
24
<PAGE> 25
ITEM 2. PROPERTIES
The Registrant leases and occupies approximately 97,000 square feet of
laboratory and office space in Cambridge, Massachusetts under five leases
expiring in the years 2001 to 2008. Several of the leases contain provisions
permitting the Registrant to extend the term of such leases for up to ten years.
The Registrant has completed construction of a GMP pilot suite at its
Massachusetts facility. Such suite is for the manufacture of product candidates
incorporating the ProLease delivery system for preclinical and clinical trials.
The Registrant has also begun construction of a new 30,000 square foot
commercial scale ProLease manufacturing facility in Cambridge, Massachusetts
that is expected to be completed in the fourth quarter of 1998. The Registrant
believes that its Massachusetts facilities are adequate for its preclinical and
clinical operations. The Registrant does not manufacture and does not expect to
manufacture Cereport for clinical trials. The Registrant has engaged a third
party to manufacture preclinical, clinical and commercial supplies of Cereport.
Alkermes Europe, Ltd., a wholly owned subsidiary of the Registrant,
leases and occupies approximately 4,600 square feet of office space in
Cambridge, England under a lease expiring in the year 2002.
The Registrant owns and occupies approximately 14,000 square feet of
manufacturing, office and laboratory space in Wilmington, Ohio. The facility
contains a state-of-the-art GMP sterile production facility specifically
designed for the production of Medisorb microspheres. In August 1997, Alkermes
began construction of a 20,000 square foot addition and renovation of its
facility to support commercial scale manufacture of Medisorb product candidates.
The construction was completed in June 1998. The Registrant believes that its
Wilmington facility is adequate for its preclinical, clinical and commercial
operations.
The Registrant also leases and occupies approximately 30,000 square
feet of laboratory and office space in Blue Ash, Ohio under a lease expiring in
2001. The Registrant believes that the Blue Ash facility is adequate for its
operations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
25
<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded on the Nasdaq National Market
under the symbol ALKS. Set forth below for the indicated periods are the high
and low sale prices for Alkermes' common stock.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $17 5/8 $10 3/8 $17 $ 8 1/2
2nd Quarter 23 3/8 12 1/2 16 1/8 8 1/2
3rd Quarter 25 15 7/8 25 1/2 11 7/8
4th Quarter 27 5/8 19 29 5/8 13 1/4
</TABLE>
The number of shareholders of record on June 10, 1998 was 512. No
dividends have been paid on the common stock to date, and the Registrant does
not expect to pay cash dividends in the foreseeable future.
In March 1998, the Registrant issued and sold 2,300,000 shares of $3.25
Convertible Exchangeable Preferred Stock, par value $.01 per share (the
"Preferred Stock") to certain initial purchasers (the "Initial Purchasers"). The
aggregate purchase price was $115,000,000, of which $4,025,000 constituted the
underwriting discounts and commissions. The Initial Purchasers were BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities LLC, Cowen & Company,
Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J. P. Morgan Securities Inc., PaineWebber Incorporated and Smith
Barney Inc.
The Preferred Stock was issued and sold 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.
Dividends on the 2,300,000 shares of 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
declining redemption prices, together with accrued dividends. 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 its 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
26
<PAGE> 27
Exchange Date. The Debentures, if issued, will contain conversion and optional
redemption provisions substantially identical to those of the Preferred Stock.
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.
On April 15, 1998, Alkermes filed a Registration Statement on Form S-3
to register the 2,300,000 shares of the Preferred Stock, the $115,000,000
Debentures and 3,881,940 shares of Common Stock, issuable upon conversion of the
Preferred Stock or upon conversion of the Debentures, if the Preferred Stock is
exchanged for Debentures. The effective date of such Registration Statement is
April 29, 1998.
27
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
ALKERMES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues $ 31,327 $ 19,827 $ 15,919 $ 13,903 $ 9,460
-------- -------- -------- -------- --------
Research and development expenses 31,339 29,554 21,586 18,955 20,480
-------- -------- -------- -------- --------
Total expenses 41,098 38,625 29,666 25,807 26,736
-------- -------- -------- -------- --------
Net loss $ (9,771) $(18,798) $(13,747) $(11,904) $(17,275)
-------- -------- -------- -------- --------
Basic and diluted loss per common share $ (0.47) $ (1.03) $ (0.93) $ (0.88) $ (1.29)
-------- -------- -------- -------- --------
Weighted average number of common
shares outstanding 20,834 18,288 14,775 13,535 13,362
-------- -------- -------- -------- --------
MARCH 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments $194,052 $ 85,297 $ 32,374 $ 21,351 $ 27,948
-------- -------- -------- -------- --------
Total assets 220,258 104,697 45,752 36,708 46,322
-------- -------- -------- -------- --------
Long-term obligations 12,933 10,914 9,876 8,376 6,598
-------- -------- -------- -------- --------
Shareholders' equity 181,664 79,151 23,513 21,163 31,874
-------- -------- -------- -------- --------
</TABLE>
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ALKERMES, INC. AND SUBSIDIARIES
INTRODUCTION
Alkermes is developing innovative pharmaceutical products based on
three proprietary drug delivery systems: ProLease(R), Cereport(TM) (formerly
known as RMP-7(TM)) and Medisorb(R). Since its inception in 1987, the Company
has devoted substantially all of its resources to its research and development
programs. Alkermes has not received any revenue from the sale of products. The
Company has been unprofitable since inception and expects to incur substantial
additional operating losses over the next few years. At March 31, 1998, the
Company had an accumulated deficit of $129.6 million.
The Company has funded its operations primarily through public
offerings and private placements of equity securities, bank loans and payments
under research and development agreements with collaborators, including Alkermes
Clinical Partners, L.P. ("Clinical Partners"), a research and development
limited partnership whose operations commenced in April 1992. The Company
intends to develop its product candidates in collaboration with others on which
the Company will rely for funding, development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally
by the Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company 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
product candidates 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; (v) even if product candidates appear promising at an early
stage of development, product candidates could fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance, be precluded from
commercialization by proprietary rights of third parties or experience
substantial competition in the marketplace; (vi) technological change in the
biotechnology or pharmaceutical industries could render the Company's product
candidates obsolete or noncompetitive; (vii) disputes with collaborators,
termination of collaborations or failure to negotiate acceptable new
collaborative arrangements for ProLease and Medisorb technologies, which are not
independently commercializable, or for Cereport, could occur; (viii) disputes
with Clinical Partners over rights to Cereport and related technology could
occur, or the Company could fail to purchase this technology from Clinical
Partners pursuant to the purchase option (the "Purchase Option"), or, if the
Company did purchase RMP(TM) technology from Clinical Partners (a) in shares of
the Company's common stock, the Company's shareholders would be substantially
diluted or (b) in cash, the Company's capital resources would be significantly
depleted; and (ix) difficulties or set-backs in obtaining and enforcing
Alkermes' patents and difficulties with the patent rights of others could occur.
29
<PAGE> 30
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative
arrangements was $25,547,558, $15,968,317 and $2,848,510 for the fiscal years
ended in 1998, 1997 and 1996, respectively. The increase in such revenue for
fiscal 1998 as compared to fiscal 1997 was mainly the result of the funding
earned and milestones achieved under new or expanded collaborative agreements
related to the Company's ProLease, Medisorb and Cereport technologies. The
increase in such revenue for fiscal 1997 as compared to fiscal 1996 was mainly
the result of the funding earned and milestones achieved under new or expanded
collaborative agreements related to the Company's ProLease and Medisorb
technologies. The Company's research and development revenue under collaborative
arrangement with related party was zero, $1,415,313 and $11,182,741 for the
fiscal years ended in 1998, 1997 and 1996, respectively. This revenue was
received from Clinical Partners under a product development agreement entered
into in March 1992. There has been no research and development revenue from
Clinical Partners since the quarter ended June 30, 1996. At that time, the
development funding under the Company's product development agreement with
Clinical Partners was completed.
Interest and other income was $5,779,090, $2,443,317 and $1,887,275 for
the fiscal years ended in 1998, 1997 and 1996, respectively. The increase in
such revenue for fiscal 1998 as compared to fiscal 1997 was primarily a result
of the interest income earned on $49.7 million in net proceeds from the sale of
2,000,000 shares of the Company's common stock to ALZA Corporation ("ALZA") in
March 1997. The increase in such revenue for fiscal 1997 as compared to fiscal
1996 was primarily a result of the investment of the net proceeds of
approximately $22.9 million received upon the consummation of a public offering
of the Company's common stock in May 1996, as well as the investment of the net
proceeds of approximately $49.7 million from the sale to ALZA of 2,000,000
shares of the Company's common stock in March 1997.
The Company's total operating expenses were $41,097,779 for the fiscal
year ended in 1998 as compared to $38,624,765 and $29,665,610 for the fiscal
years ended in 1997 and 1996, respectively. The Company separately recorded a
$750,000 nonrecurring charge in March 1996 for Medisorb technology purchased but
not yet commercially viable. The Company's research and development expenses
were $31,339,121 for the fiscal year ended in 1998 compared to $29,553,988 and
$21,586,316 for the fiscal years ended in 1997 and 1996, respectively. The
increase for fiscal 1998 as compared to fiscal 1997 was mainly as a result of an
increase in salary and related benefits and other costs as the Company advances
its product candidates through development and clinical trials and prepares for
process development and commercial scale manufacturing. The increase for fiscal
1997 as compared to fiscal 1996 was mainly as a result of salary and related
benefits and other operating costs associated with the acquisition of the
Medisorb technology and certain related assets in March 1996. In fiscal 1997,
there was also an increase in the purchase of lab supplies and clinical expenses
related primarily to the Company's ProLease and Cereport programs, partially
offset by a reduction in the costs of preclinical work in the Company's Cereport
program which was completed during the prior year.
General and administrative expenses were $8,133,760, $7,689,625 and
$6,285,700 for the fiscal years ended in 1998, 1997 and 1996, respectively. The
increase for fiscal 1998 as compared to fiscal 1997 was mainly the result of an
increase in salary and related benefits and consulting costs. The increase for
fiscal 1997 as compared to fiscal 1996 was primarily as a result of salary and
related benefits and other operating costs associated with the acquisition of
the Medisorb technology and certain related assets in March 1996, as well as an
increase in patent legal costs. In February and April 1996, the Company
purchased, for approximately $2.1 million, 74 Class A units in Clinical Partners
that were owned by investors who defaulted on their obligations to make
installment payments for such units. The Company wrote down its investment in
these Class A units ratably over the period February through June 1996 as
Clinical Partners used these and other funds to complete its obligation to
Alkermes to fund research and development of Cereport.
30
<PAGE> 31
The Company does not believe that inflation and changing prices have
had a material impact on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were approximately
$194.1 million at March 31, 1998 as compared to $85.3 million at March 31, 1997.
The primary uses of cash and investments were to finance the Company's
operations and for capital expenditures. Cash increased significantly during the
year ended March 31, 1998, principally as a result of the $110.5 million
received from the issuance in March 1998 of 2,300,000 shares of $3.25
convertible exchangeable preferred stock. In addition to cash, cash equivalents
and U.S. Government obligations, the Company now invests in high grade corporate
notes and commercial paper. The Company's short-term investment objectives are,
first, to assure conservation of principal, and second, to obtain investment
income.
During fiscal 1998, the Company announced an agreement for the
development of ProLease injectable sustained release formulations of
erythropoietin. Assuming the development of the product candidate proceeds as
planned, milestone payments and development funding to Alkermes could be in
excess of $30 million.
In March 1998, the Company completed a private placement of 2,300,000
shares of $3.25 convertible exchangeable preferred stock (the "Preferred Stock")
at $50 per share. The Preferred Stock is convertible at the option of the holder
at any time, at an initial conversion rate of 1.6878 shares of common stock for
each share of Preferred Stock. Dividends on the Preferred Stock will be
cumulative from the date of original issue and will be 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 (an
aggregate of approximately $7.5 million annually for the 2,300,000 shares of
Preferred Stock outstanding). 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 declining
redemption prices, together with accrued dividends. 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 the
Company on any dividend payment date beginning March 1, 1999 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 contain conversion and optional redemption
provisions substantially identical to those of the Preferred Stock.
During fiscal 1998, the Company twice amended its loan agreement with a
bank to increase the principal amount of the loan by an aggregate of $6.5
million, securing the existing and the additional principal amount of the loan
with a building and real property pursuant to a mortgage and certain of the
Company's equipment pursuant to a security agreement.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and research and development
collaborative arrangements. The Company expects to incur significant research
and development and other costs, including costs related to preclinical studies,
clinical trials and facilities expansion. Therefore, the Company expects that
its costs, including research and development costs for all of its product
candidates, will exceed revenues significantly for the next few years, which
will result in continuing losses from operations.
Since the research and development revenue from Clinical Partners ended
during the quarter ended June 30, 1996, Alkermes has been using its own
resources to continue to develop Cereport. The Company is required to fund the
development of Cereport to maintain its option to purchase the limited
partnership interests in Clinical Partners. Effective September 30, 1997, the
Company entered into an agreement with ALZA relating to the development and
commercialization of Cereport. ALZA made a $10 million upfront payment to
Alkermes to fund clinical development of Cereport, of which $7.1 million has
been recorded as deferred revenue at March 31, 1998. In return, ALZA will have
the option to acquire exclusive worldwide commercialization rights to Cereport.
If ALZA exercises its option, ALZA will make additional payments
31
<PAGE> 32
to cover costs associated with advanced clinical development. If Cereport is
commercialized successfully by ALZA, ALZA will pay the Company certain milestone
payments. Alkermes would be responsible for the manufacturing of Cereport, and
the two companies would share approximately equally in profits from sales of
products.
Capital expenditures were approximately $8.0 million for the year ended
March 31, 1998, principally reflecting equipment purchases and construction in
progress for the expansion of the Wilmington, Ohio facility and for construction
costs relating to the new commercial scale ProLease manufacturing facility in
Cambridge, Massachusetts. The Company began an expansion of its Medisorb
manufacturing facility in Wilmington during the quarter ended September 30,
1997. The Company began construction of the new commercial scale ProLease
manufacturing facility in Cambridge in February 1998. The total cost for both
facilities is expected to be approximately $18 to $20 million. The Company's
capital expenditures for equipment, facilities and building improvements have
been financed to date primarily with proceeds from bank loans and the sales of
equity securities. The Company will continue to pursue opportunities to obtain
additional financing in the future. Such financing may be sought through various
sources, including equity offerings, bank borrowings, lease arrangements
relating to fixed assets or other financing methods. The source, timing and
availability of any financings will depend on market conditions, interest rates
and other factors.
The Company believes its current cash and cash equivalents and
short-term investments, combined with anticipated interest income and research
and development revenues under collaborative arrangements, will be sufficient to
meet its anticipated capital requirements through at least March 31, 2000. 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 may need to raise substantial additional funds for
longer-term product development, regulatory approvals and manufacturing or
marketing activities that it might undertake in the future. There can be no
assurance that additional funds will be available on favorable terms, if at all.
If adequate funds are not available, the Company may be required to curtail
significantly one or more of its research and development programs and/or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or future products.
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 are not year 2000 compliant, 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. The second step is to determine whether any of
the Company's software and technology use the two-digit shorthand and to
determine whether the companies with which it does significant business will be
year 2000 compliant. The third step is to correct or replace all such software
and technology of the Company and then to test the corrected or replacement
software and technology. The Company has completed the first step of the
32
<PAGE> 33
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, that the project will be completed on a timely
basis 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. In
the event that any of the companies with which the Company does significant
business do not successfully achieve year 2000 compliance on a timely basis, the
Company's business could be adversely affected.
As disclosed in Note 2 to the Consolidated Financial Statements, the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," require additional disclosures to be
adopted during fiscal 1999. The Company is evaluating the impact of these
requirements on its disclosures, if any.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND 1997
AND FOR THE THREE YEARS IN THE PERIOD
ENDED MARCH 31, 1998 AND INDEPENDENT AUDITORS' REPORT
34
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Directors
Alkermes, Inc.
Cambridge, Massachusetts
We have audited the accompanying consolidated balance sheets of Alkermes, Inc.
and subsidiaries as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alkermes, Inc. and subsidiaries as
of March 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1998 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
May 22, 1998
Boston, Massachusetts
35
<PAGE> 36
ALKERMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,495,265 $ 2,799,012
Short-term investments 190,556,898 82,497,939
Prepaid expenses and other current assets 8,555,368 4,571,089
------------- -------------
Total current assets 202,607,531 89,868,040
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 235,000 225,000
Building 1,275,000 1,275,000
Furniture, fixtures and equipment 14,782,341 11,963,945
Leasehold improvements 2,507,973 2,183,280
Construction in progress 4,275,985 90,000
------------- -------------
23,076,299 15,737,225
Less accumulated depreciation and amortization (9,578,571) (7,289,446)
------------- -------------
13,497,728 8,447,779
------------- -------------
INVESTMENTS 3,422,726 5,366,291
------------- -------------
OTHER ASSETS 466,712 582,732
------------- -------------
OTHER INVESTMENTS 263,400 432,176
------------- -------------
$ 220,258,097 $ 104,697,018
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,067,972 $ 4,653,081
Deferred revenue 7,415,980 --
Long-term obligations - current portion 4,104,533 3,547,542
------------- -------------
Total current liabilities 18,588,485 8,200,623
------------- -------------
LONG-TERM OBLIGATIONS 12,933,333 10,914,127
------------- -------------
OTHER LONG-TERM LIABILITIES 2,072,212 1,430,832
------------- -------------
DEFERRED REVENUE 5,000,000 5,000,000
------------- -------------
COMMITMENTS (Note 9)
SHAREHOLDERS' EQUITY:
Capital stock, par value $.01 per share:
authorized, 2,700,000 shares; none issued
Convertible exchangeable preferred stock,
par value $.01 per share:
authorized and issued, 2,300,000 shares at
March 31, 1998 (liquidation preference
of $115,000,000) 23,000 --
Common stock, par value $.01 per share:
authorized, 40,000,000 shares; issued,
21,072,282 and 20,718,790 shares at
March 31, 1998 and 1997, respectively 210,723 207,188
Additional paid-in capital 311,213,755 198,844,191
Deferred compensation (119,719) (109,901)
Cumulative foreign currency translation adjustments (10,638) (16,869)
Unrealized (loss) gain on marketable securities (37,500) 71,250
Accumulated deficit (129,615,554) (119,844,423)
------------- -------------
Total shareholders' equity 181,664,067 79,151,436
------------- -------------
$ 220,258,097 $ 104,697,018
============= =============
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 37
ALKERMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
REVENUES:
Research and development revenue under
collaborative arrangements $25,547,558 $ 15,968,317 $ 2,848,510
Research and development revenue under
collaborative arrangement with related party -- 1,415,313 11,182,741
Interest and other income 5,779,090 2,443,317 1,887,275
----------- ------------ ------------
Total revenues 31,326,648 19,826,947 15,918,526
----------- ------------ ------------
EXPENSES:
Research and development 31,339,121 29,553,988 21,586,316
General and administrative 8,133,760 7,689,625 6,285,700
Interest expense 1,624,898 1,381,152 1,043,594
Purchase of in-process research and
development -- -- 750,000
----------- ------------ ------------
Total expenses 41,097,779 38,624,765 29,665,610
----------- ------------ ------------
NET LOSS $(9,771,131) $(18,797,818) $(13,747,084)
=========== ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.47) $ (1.03) $ (0.93)
=========== ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,834,085 18,288,334 14,774,584
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
37
<PAGE> 38
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE EXCHANGEABLE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1995 -- $-- 13,571,838 $135,718 $109,149,171
Issuance of common stock, April 1995
through March 1996, net of
issuance costs of $1,281,445 -- -- 2,395,104 23,951 15,002,862
Amortization of receivable for warrants -- -- -- -- --
Amortization of compensation relating to
grant of stock options and awards made -- -- -- -- 86,990
Cumulative foreign currency translation
adjustments -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- --
Net loss for year -- -- -- -- --
------ ------ ---------- -------- -------------
BALANCE, MARCH 31, 1996 -- -- 15,966,942 159,669 124,239,023
Issuance of common stock, April 1996
through March 1997, net of
issuance costs of $390,705 -- -- 4,751,848 47,519 74,605,168
Amortization of receivable for warrants -- -- -- -- --
Amortization of compensation relating to
grant of stock options and awards made -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- --
Net loss for year -- -- -- -- --
-------- ------- ----------- ------------ -----------
BALANCE, MARCH 31, 1997 -- -- 20,718,790 207,188 198,844,191
<CAPTION>
RECEIVABLE CUMULATIVE
FOR FOREIGN UNREALIZED
WARRANTS AND CURRENCY GAIN (LOSS) ON
DEFERRED TRANSLATION MARKETABLE ACCUMULATED
COMPENSATION ADJUSTMENTS SECURITIES DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1995 $(812,318) $(10,301) $ -- $(87,299,521) $ 21,162,749
Issuance of common stock, April 1995
through March 1996, net of
issuance costs of $1,281,445 -- -- -- -- 15,026,813
Amortization of receivable for warrants 402,259 -- -- -- 402,259
Amortization of compensation relating to
grant of stock options and awards made 92,377 -- -- -- 179,367
Cumulative foreign currency translation
adjustments -- (14,053) -- -- (14,053)
Unrealized gain on marketable securities -- -- 502,500 -- 502,500
Net loss for year -- -- -- (13,747,084) (13,747,084)
-------- ------- ----------- ------------ -----------
BALANCE, MARCH 31, 1996 (317,682) (24,354) 502,500 (101,046,605) 23,512,551
Issuance of common stock, April 1996
through March 1997, net of
issuance costs of $390,705 -- -- -- -- 74,652,687
Amortization of receivable for warrants 34,687 -- -- -- 34,687
Amortization of compensation relating to
grant of stock options and awards made 173,094 -- -- -- 173,094
Cumulative foreign currency translation
adjustments -- 7,485 -- -- 7,485
Unrealized loss on marketable securities -- -- (431,250) -- (431,250)
Net loss for year -- -- -- (18,797,818) (18,797,818)
-------- ------- ----------- ------------ -----------
BALANCE, MARCH 31, 1997 (109,901) (16,869) 71,250 (119,844,423) 79,151,436
(Continued)
</TABLE>
38
<PAGE> 39
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE EXCHANGEABLE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997
(CARRIED FORWARD) -- -- 20,718,790 207,188 198,844,191
Issuance of common stock, April 1997
through March 1998 -- -- 353,492 3,535 1,757,378
Issuance of convertible exchangeable
preferred stock, March 1998, net of
issuance costs of $441,043 2,300,000 23,000 -- -- 110,510,956
Compensation relating to stock awards made -- -- -- -- 101,230
Amortization of compensation relating to
grant of stock options and awards made -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- --
Net loss for year -- -- -- -- --
----------- -------- ----------- ------------- ------------
BALANCE, MARCH 31, 1998 2,300,000 $ 23,000 21,072,282 $ 210,723 $311,213,755
=========== ======== =========== ============= ============
<CAPTION>
RECEIVABLE CUMULATIVE
FOR FOREIGN UNREALIZED
WARRANTS AND CURRENCY GAIN (LOSS) ON
DEFERRED TRANSLATION MARKETABLE ACCUMULATED
COMPENSATION ADJUSTMENTS SECURITIES DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997
(CARRIED FORWARD) (109,901) (16,869) 71,250 (119,844,423) 79,151,436
Issuance of common stock, April 1997
through March 1998 -- -- -- -- 1,760,913
Issuance of convertible exchangeable
preferred stock, March 1998, net of
issuance costs of $441,043 -- -- -- -- 110,533,956
Compensation relating to stock awards made (101,230) -- -- -- --
Amortization of compensation relating to
grant of stock options and awards made 91,412 -- -- -- 91,412
Cumulative foreign currency translation
adjustments -- 6,231 -- -- 6,231
Unrealized loss on marketable securities -- -- (108,750) -- (108,750)
Net loss for year -- -- -- (9,771,131) (9,771,131)
----------- -------- ----------- ------------- ------------
BALANCE, MARCH 31, 1998 $ (119,719) $(10,638) $ (37,500) $(129,615,554) $181,664,067
=========== ======== =========== ============= ============
(Concluded)
</TABLE>
See notes to consolidated financial statements.
39
<PAGE> 40
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,771,131) $(18,797,818) $(13,747,084)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,559,595 2,358,843 1,770,242
Amortization of amounts receivable for warrants
and compensation relating to grant of stock
options and awards made 91,412 207,781 581,626
Adjustments to other investments 60,026 14,502 101,742
Gain on sale of equipment (567,623) -- --
Changes in assets and liabilities:
Prepaid expenses and other current assets (3,985,935) (2,617,365) 830,500
Accounts payable and accrued expenses 2,419,609 1,143,447 960,670
Deferred revenue 7,415,980 -- 5,000,000
Deferred revenue from Alkermes Clinical Partners, L.P. -- -- (1,585,000)
Other long-term liabilities 641,380 515,591 540,406
------------- ------------ ------------
Net cash used by operating activities (1,136,687) (17,175,019) (5,546,898)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,994,273) (2,243,476) (5,606,737)
Disposals of equipment 1,080,815 -- --
(Purchases) maturities of short-term investments, net (108,058,959) (50,568,725) (11,665,073)
Maturities (purchases) of long-term investments, net 1,943,565 (3,993,502) 2,994,437
(Increase) decrease in other assets (17,320) 10,500 (209,500)
Investment in Alkermes Clinical Partners, L.P. -- -- (2,122,463)
Repayment - loan to Alkermes Clinical Partners, L.P. -- -- 4,735,000
------------- ------------ ------------
Net cash used by investing activities (113,046,172) (56,795,203) (11,874,336)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible exchangeable
preferred stock, net 110,533,956 -- --
Proceeds from issuance of common stock, net 1,760,913 74,652,687 15,026,813
Proceeds from issuance of long-term debt 6,500,000 5,000,000 4,500,000
Payment of long-term obligations (3,923,366) (3,338,054) (2,733,061)
------------- ------------ ------------
Net cash provided by financing activities 114,871,503 76,314,633 16,793,752
------------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,609 9,451 (13,995)
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 696,253 2,353,862 (641,477)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,799,012 445,150 1,086,627
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,495,265 $ 2,799,012 $ 445,150
============= ============ ============
SUPPLEMENTARY INFORMATION - Interest paid $ 915,808 $ 788,102 $ 492,731
============= ============ ============
</TABLE>
See notes to consolidated financial statements
40
<PAGE> 41
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. FORMATION OF THE COMPANY
Alkermes, Inc. (the "Company") was incorporated in July 1987 and is a
leader in the development of products based on sophisticated drug delivery
technologies. Alkermes' focus is on two important drug delivery
opportunities: (i) controlled, sustained release of injectable drugs
lasting several days to several weeks, utilizing its ProLease(R) and
Medisorb(R) technologies; and (ii) the delivery of drugs into the brain
past the blood-brain barrier, utilizing its Cereport(TM) technology,
formerly known as RMP-7(TM).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Alkermes, Inc. and its wholly owned subsidiaries,
Alkermes Controlled Therapeutics, Inc. ("ACTI"), Alkermes Controlled
Therapeutics Inc. II ("ACT II") (see Note 3), Alkermes Investments, Inc.,
Alkermes Development Corporation II ("ADC II") and Alkermes Europe, Ltd.
ADC II serves as the one percent general partner of Alkermes Clinical
Partners, L.P. ("Clinical Partners"), a limited partnership engaged in a
research and development project with the Company (see Note 7). ADC II's
investment in Clinical Partners is accounted for under the equity method
of accounting. Such carrying value was zero at March 31, 1998 (see Note
7). All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
payable and accrued expenses approximate fair value because of their
short-term nature. Marketable equity securities are recorded in the
consolidated financial statements at fair value. The carrying amounts of
the Company's debt instruments approximate fair value.
NET LOSS PER SHARE - Basic and diluted net loss per share are computed
using the weighted average number of common shares outstanding during the
period.
On December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." SFAS No. 128 requires companies to change the method used to
compute earnings per share and to restate all prior periods for
comparability. The adoption of SFAS No. 128 did not have any impact on the
Company's consolidated financial statements because the Company continues
to be in a net loss position and, consequently, common equivalent shares
from stock options, warrants and convertible exchangeable preferred stock
are excluded as their effect is antidilutive.
RESEARCH AND DEVELOPMENT REVENUES - Research and development revenues are
recorded as services are performed. Revenue earned upon the achievement of
research and development milestones is recorded when achieved.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations as incurred.
41
<PAGE> 42
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of
deferred tax assets and liabilities relating to the expected future tax
consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns (see Note 6).
CASH EQUIVALENTS - Cash equivalents, with purchased maturities of three
months or less, consist of money market accounts, mutual funds and an
overnight repurchase agreement. The repurchase agreement is fully
collateralized by U.S. Government securities.
INVESTMENTS - Debt securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost and are
classified as "held-to-maturity."
Short-Term Investments and Investments consist of U.S. Treasury and other
government securities, commercial paper and corporate notes which are
classified as "held-to-maturity" and reported at amortized cost.
Short-Term Investments have maturity dates within one year of the balance
sheet date. Investments classified as long-term have maturity dates up to
fifteen months from March 31, 1998 and include securities held as
collateral. The carrying value of all Short-Term Investments and
Investments, individually and in the aggregate, approximated market value
at March 31, 1998 and 1997.
Included in Other Investments is an investment in Cortex Pharmaceutical
Inc.'s common stock, which is classified as "available-for-sale" and
reported at fair market value.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives of the
assets: buildings - 25 years; furniture, fixtures and equipment - 3 to 5
years; or, in the case of leasehold improvements and capital leases, over
the lease terms - 3 to 10 years.
DEFERRED REVENUE - LONG-TERM - During fiscal 1996, the Company received a
$5,000,000 prepayment of royalties under a collaborative agreement. This
amount has been recorded as deferred revenue at March 31, 1998 and 1997
and accrues interest (included in other long-term liabilities) at a rate
(6.16875% at March 31, 1998) equal to .20% above the one-year LIBOR rate.
PURCHASED PATENTS - Purchased patents, included in other assets, are
amortized on a straight-line basis over a period of five years.
DEFERRED COMPENSATION - Deferred compensation is related to both the
Company's 1991 Restricted Common Stock Award Plan and compensatory stock
options and is amortized over vesting periods ranging from one to five
years.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 requires companies to disclose
certain pertinent information relating to their various securities
outstanding. The Company has adopted SFAS No. 129 on March 31, 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which require additional disclosures to be
adopted during fiscal 1999. Under SFAS No. 130, the Company is required to
display comprehensive income and its components as part of the Company's
full set of consolidated financial statements. SFAS No. 131 requires that
the Company report financial and descriptive information about its
reportable operating segments. The Company is evaluating the impact on its
disclosures, if any.
42
<PAGE> 43
3. ACQUISITION OF CERTAIN ASSETS AND TECHNOLOGY
On March 8, 1996, ACT II acquired certain assets and technology owned or
used by Medisorb Technologies International L.P., which developed
injectable controlled release drug delivery technologies for the
pharmaceutical industry. The assets acquired included a large scale
pharmaceutical production facility and equipment. The Company paid
$4,000,000 in cash for the assets and certain drug delivery technology. A
nonrecurring charge totaling $750,000 for technology purchased but not yet
commercially viable was recorded by the Company at the acquisition date.
This charge represents that portion of the purchase price of the acquired
technology that was allocated to research and development in-process.
4. SHAREHOLDERS' EQUITY
COMMON STOCK - In May 1996, the Company completed a direct public offering
of 2,300,000 shares of its common stock at $10.00 per share. Net proceeds
to the Company were approximately $22,900,000.
In March 1997, the Company completed a private placement of 2,000,000
shares of its common stock at $25.00 per share. Net proceeds to the
Company were approximately $49,700,000.
PREFERRED STOCK - In March 1998, the Company completed a private placement
of 2,300,000 shares of its convertible exchangeable preferred stock (the
"Preferred Stock") at $50.00 per share. Net proceeds to the Company were
approximately $110,500,000.
The Preferred Stock is convertible at the option of the holder at any
time, unless previously redeemed or exchanged, into the Company's common
stock at an initial conversion rate of 1.6878 shares of common stock for
each share of Preferred Stock. The initial conversion rate is subject to
adjustment in certain events. The Company has reserved 3,881,940 common
shares for issuance upon conversion.
Dividends on the Preferred Stock will be cumulative from the date of
original issue and will be 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. The Board of
Directors of the Company has declared a dividend on the Preferred Stock
for shareholders of record on May 12, 1998, payable June 1, 1998. 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 declining redemption prices, together
with accrued dividends. 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) the per share redemption prices are $52.275
in 2001, $51.950 in 2002, $51.625 in 2003, $51.300 in 2004, $50.975 in
2005, $50.650 in 2006, $50.325 in 2007 and $50 at March 1, 2008 and
thereafter. 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 the Company on any dividend payment date beginning 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. The Debentures,
if issued, will contain conversion and optional redemption provisions
substantially identical to those of the Preferred Stock.
43
<PAGE> 44
5. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consist of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to a bank bearing interest at fixed rates
(7.69%-8.58%), payable in monthly installments,
maturing 2001 through 2003 $10,533,333 $ 6,436,903
Note payable to a bank bearing interest at a fixed rate
(7.96%), payable in quarterly installments
of $375,000, maturing in 2000 3,000,000 4,500,000
Note payable to corporate partner bearing interest at the
prime rate (8.50% at March 31, 1998), maturing in 2000 3,500,000 3,500,000
Other 4,533 24,766
----------- -----------
17,037,866 14,461,669
Less current portion 4,104,533 3,547,542
----------- -----------
$12,933,333 $10,914,127
=========== ===========
</TABLE>
The first bank loan is secured by a building and real property pursuant to
a mortgage and certain of the Company's equipment pursuant to security
agreements. The loan is also secured by cash collateral (included in
long-term investments at March 31, 1998) having a minimum market value of
the lesser of $1,000,000 or the outstanding principal amount of the loan.
Under the terms of the loan agreement, the Company is required to maintain
a minimum unencumbered balance of cash and permitted investments and a
minimum ratio of unencumbered cash and permitted investments to
indebtedness.
The second bank loan agreement requires the Company to maintain a minimum
net worth, a maximum ratio of total liabilities to net worth, a minimum
current ratio and a minimum unencumbered balance of cash and permitted
investments. Upon the breach of any of these financial covenants or the
occurrence of any other event of default under the loan agreement, the
Company would 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. Under the terms of the loan agreement,
the bank would 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 $5,000,000.
In January 1995, the Company borrowed $3,500,000 from a corporate partner.
The principal amount of the loan, together with interest, is payable in
the Company's common stock or cash, at the Company's option.
44
<PAGE> 45
5. LONG-TERM OBLIGATIONS (CONTINUED)
At March 31, 1998, the maturities of the long-term obligations are as
follows:
<TABLE>
<CAPTION>
NOTES PAYABLE
AND OTHER
<S> <C>
1999 $ 4,104,533
2000 7,600,000
2001 2,525,000
2002 1,883,333
2003 925,000
-----------
$17,037,866
===========
</TABLE>
6. INCOME TAXES
At March 31, 1998, the Company has approximately $62,275,000 of net
operating loss ("NOL") carryforwards for U.S. federal income tax purposes
and approximately $5,381,000 of research and development tax credits
available to offset future federal income tax, subject to limitations for
alternative minimum tax. The NOL and research and development credit
carryforwards are subject to examination by the tax authorities and expire
in various years from 2002 through 2013.
The components of the net deferred income tax assets at March 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Acquired technology $ 884,000 $ 884,000
Capitalized research and development
expenses, net of amortization 13,300,000 14,535,000
U.S. NOL carryforwards 24,412,000 21,495,000
Tax credit carryforwards 6,925,000 4,840,000
Alkermes Europe NOL carryforward 3,030,000 2,152,000
Other 1,064,000 1,070,000
Less valuation allowance (49,615,000) (44,976,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The valuation allowance has been provided because of the uncertainty of
realizing the future benefits of the net deferred income tax assets. The
valuation allowance increased by $10,816,000 from March 31, 1996 to
March 31, 1997.
The ACTI NOL carryforwards and ACTI research and development credit
carryforwards of approximately $4,780,000 and $790,000, respectively,
acquired from Enzytech, Inc. are only available to offset future taxable
income of ACTI.
45
<PAGE> 46
7. RELATED-PARTY TRANSACTIONS
On April 10, 1992, the Company and Clinical Partners, a limited
partnership of which ADC II is the general partner, sold in a private
placement (i) 920 Class A units, each unit (a "Class A Unit") consisting
of one Class A limited partnership interest in Clinical Partners, a 1992
warrant (a "Class A 1992 Warrant") to purchase 2,800 shares of the
Company's common stock and a 1995 warrant (a "Class A 1995 Warrant") to
purchase 300 shares of the Company's common stock; and (ii) one Class B
unit (the "Class B Unit"), consisting of one Class B limited partnership
interest in Clinical Partners, a 1992 warrant (the "Class B 1992 Warrant")
to purchase 5,600 shares of the Company's common stock and a 1995 warrant
(the "Class B 1995 Warrant") to purchase 600 shares of the Company's
common stock. The purchase price was $50,000 for each Class A Unit and
$100,000 for the Class B Unit.
The Company completed an exchange offer on January 27, 1995 with respect
to the warrants issued in 1992 in connection with the formation of
Clinical Partners. Pursuant to the exchange offer, Class A limited
partners had the option to exchange both their Class A 1992 Warrants and
Class A 1995 Warrants for a new 1994 Class A Warrant to purchase, at $5.00
per share, and during the period beginning on April 1, 1995 and ending on
March 31, 2000, 1,700 shares of the Company's common stock for every 3,100
shares of common stock issuable upon exercise of the Class A 1992 Warrant
and Class A 1995 Warrant exchanged therefor. The Class B limited partner
had the option to exchange both the Class B 1992 and Class B 1995 Warrants
for a new 1994 Class B Warrant to purchase 3,400 shares of the Company's
common stock at $5.00 per share. The 1994 Class B Warrant is exercisable
during the same period as the 1994 Class A Warrants.
The net proceeds of the offering were used primarily to fund the further
development and clinical testing of a family of molecules designated by
the Company as Receptor-Mediated Permeabilizers(TM) ("RMPs"(TM)) for human
pharmaceutical use in the United States and Canada. Proprietary RMP(TM)
molecules developed by the Company may enhance the passage of small drug
molecules from the bloodstream into the brain. Pursuant to the Product
Development Agreement entered into in March 1992, the Company licensed to
Clinical Partners certain of its technology relating to RMPs. Research and
development of RMPs is being conducted by the Company for Clinical
Partners pursuant to the Product Development Agreement. The Company was
reimbursed by Clinical Partners for its actual costs incurred in
conducting such research and development and also received a management
fee of 10% of such costs. Such funding ended during the quarter ended June
30, 1996. None of the partners of Clinical Partners is obligated to make
any further capital contributions. Since the funding was not sufficient to
complete clinical trials and seek regulatory approval of Cereport
(formerly known as RMP-7), Alkermes has used its own resources, and
intends to continue to use its own resources, to develop Cereport.
Alkermes has obtained and intends to continue to obtain such resources
through equity offerings, bank borrowings and collaborative arrangements.
The Company is required to fund the development of Cereport to maintain
its Purchase Option, as defined below, with the limited partners.
Clinical Partners has granted the Company an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product by
the United States Food and Drug Administration, the Company is obligated
to make a payment (approximately $8,300,000) to Clinical Partners equal to
20% of the aggregate capital contributions of all partners (the "milestone
payment"). Additionally, the Company will make royalty payments to
Clinical Partners equal to 12% of United States and Canadian revenues and
10% of European revenues, in certain circumstances, from any sales of RMPs
by the Company. The interim license will terminate if the Company does not
exercise the Purchase Option.
46
<PAGE> 47
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
The 1992 Warrants, the 1995 Warrants (collectively, the "Class A
Warrants"), the Class B 1992 Warrant and the Class B 1995 Warrant
(collectively, the "Class B Warrants") were issued by the Company in
consideration of the grant by each limited partner to the Company of an
option to purchase (the "Purchase Option"), under certain circumstances,
the limited partnership interests in Clinical Partners held by such
limited partner. Upon exercise of such Purchase Option, each Class A
limited partner will be entitled to receive an initial payment, at the
Company's option, of $40,000 in cash or approximately $42,100 in the
Company's common stock, as well as certain additional payments (which are
subject to certain limitations) based on the Company's net revenues from
sales of RMPs in the United States, Canada and Europe as follows:
- 12% of net revenues to the Company on sales of RMPs in the United
States and Canada and 10% of net revenues to the Company on sales of
RMPs in Europe, until each Class A limited partner has received an
aggregate of $400,000 per interest from the initial payment and the
royalty stream; thereafter,
- 9% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe, until each Class A limited partner has
received an aggregate of $500,000 per interest from the initial
payment and the royalty stream; and thereafter,
- 4% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe.
Royalties on sales of RMPs in Europe will be payable only to the extent
necessary to pay projected distributions in any year. If royalties on
sales of RMPs in the United States and Canada in any year equal or exceed
the projected distributions for such year, no royalties on European sales
will be paid in that year.
At March 31, 1998, warrants to purchase shares of the Company's common
stock were outstanding as follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF COMMON PRICE
SHARES ISSUABLE UPON EXPIRATION PER
EXERCISE OF WARRANTS DATE SHARE
<S> <C> <C>
147,000 July 31, 1999 $20.03
908,100 March 31, 2000 5.00
15,150 April 14, 2000 3.54
---------
1,070,250
=========
</TABLE>
47
<PAGE> 48
8. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into several collaborative agreements with
corporate partners ("partners") to provide research and development
activities relating to the partners' products. In connection with these
agreements, the Company has granted certain licenses or the right to
obtain certain licenses to technology developed by the Company. In return
for such grants, the Company will receive certain payments upon the
achievement of certain milestones and will receive royalties on sales of
products developed under the terms of the agreements. In addition to
research and development funding, during fiscal 1998 the Company received
$200,000, representing a milestone payment under one of these agreements.
Additionally, the Company may obtain the right to manufacture and supply
products developed under certain of these agreements.
During fiscal 1998 and 1997, research and development revenue under
collaborative arrangements from Genentech, Inc. amounted to 30% and 27%,
and Janssen Pharmaceutica International amounted to 27% and 41%,
respectively, of total revenues. During fiscal 1996, research and
development revenue under collaborative arrangement with Schering-Plough
Corporation amounted to 11% of total revenues.
9. COMMITMENTS
LEASE COMMITMENTS - The Company leases certain of its offices and research
laboratories under operating leases with initial terms of three to ten
years expiring between 2001 and 2008. Several of the leases contain
provisions for extensions for up to ten years. Total annual future minimum
lease payments are as follows:
<TABLE>
<S> <C>
1999 $2,575,000
2000 2,594,000
2001 2,015,000
2002 1,239,000
2003 301,000
Thereafter 1,677,000
</TABLE>
Rent expense charged to operations was approximately $3,590,000,
$3,342,000 and $2,439,000 for the years ended March 31, 1998, 1997 and
1996, respectively.
Additionally, a U.S. Treasury Bill with a total principal amount of
$250,000 is being held by a bank in the Company's name as a security
deposit on the leases and, accordingly, has been classified as a long-term
investment at March 31, 1998.
LICENSE AND ROYALTY COMMITMENTS - The Company has entered into license
agreements with certain corporations and universities which require the
Company to pay annual license fees and royalties based on a percentage of
revenues from sales of certain products and royalties from sublicenses
granted by the Company. Amounts paid under these agreements were
approximately $82,000, $92,000 and $127,000 for the years ended March 31,
1998, 1997 and 1996, respectively.
48
<PAGE> 49
10. STOCK OPTIONS AND AWARDS
The Company's Stock Option Plans (the "Plans") include the Amended and
Restated 1989 Non-Qualified Stock Option Plan (the "1989 Plan"), Amended
and Restated 1990 Omnibus Stock Option Plan, as amended (the "1990 Plan")
and the 1992 Non-Qualified Stock Option Plan (the "1992 Plan") which
provide for the granting of stock options to employees, officers and
directors of, and consultants to, the Company. In addition, the Stock
Option Plan for Non-Employee Directors (the "Director Plan") provides for
the granting of stock options to nonemployee directors of the Company.
Nonqualified options to purchase up to 225,000 shares of the Company's
common stock may be granted under the 1989 Plan, nonqualified and
incentive options to purchase up to 2,500,000 shares of the Company's
common stock may be granted under the 1990 Plan, nonqualified options to
purchase up to 1,000,000 shares of the Company's common stock may be
granted under the 1992 Plan and nonqualified options to purchase up to
150,000 shares of the Company's common stock may be granted under the
Director Plan. Unless sooner terminated, the 1989 Plan will terminate on
July 18, 1999, the 1990 Plan will terminate on September 19, 2000, the
1992 Plan will terminate on November 11, 2002 and the Director Plan will
terminate on March 18, 2006.
The Compensation Committee of the Board of Directors administers the 1989
Plan, the 1990 Plan and the 1992 Plan and determines who is to receive
options and the exercise price and terms of such options. The Compensation
Committee has delegated its authority to the Compensation Sub-Committee to
make grants and awards under the Plans to "officers." The Board of
Directors administers the Director Plan. The option exercise price of
stock options granted under the 1989 Plan, the 1990 Plan and the Director
Plan may not be less than 100% of the fair market value of the common
stock on the date of grant. Under the terms of the 1992 Plan, the option
exercise price may be below the fair market value, but not below par
value, of the underlying stock at the time the option is granted.
The 1989 Plan, the 1990 Plan and the 1992 Plan also provide that the
Compensation Committee may grant Limited Stock Appreciation Rights
("LSARs") with respect to all or any portion of the shares covered by
stock options granted to directors and executive officers. LSARs may be
granted with the grant of a nonqualified stock option or at any time
during the term of such option but may only be granted with the grant of
an incentive stock option. The grant of LSARs will not be effective until
six months after their date of grant. Upon the occurrence of certain
triggering events, the options with respect to which LSARs have been
granted shall become immediately exercisable and the persons who have
received LSARs will automatically receive a cash payment in lieu of
shares. Through March 31, 1998, LSARs have been granted under the 1990
Plan with respect to options to purchase 425,750 shares.
The Company has also adopted the 1991 Restricted Common Stock Award Plan
(the "Award Plan"). The Award Plan provides for the award to certain
eligible employees, officers and directors of, and consultants to, the
Company of up to a maximum of 250,000 shares of common stock. The Award
Plan is administered by the Compensation Committee. Awards generally vest
over five years. Through March 31, 1998, 1997 and 1996, an aggregate of
81,250, 77,000 and 77,000 shares of common stock, respectively, have been
awarded under the Award Plan, of which 2,400, 2,400 and 13,200 shares,
respectively, ceased to be subject to forfeiture and were issued during
the years ended March 31, 1998, 1997 and 1996. In addition, 1,800, zero
and 5,000 shares were canceled during the years ended March 31, 1998, 1997
and 1996, respectively. The Award Plan will terminate on November 15,
2001, unless sooner terminated by the Board of Directors.
The Company has reserved a total of 2,940,804 shares of common stock for
issuance under the five plans.
49
<PAGE> 50
10. STOCK OPTIONS AND AWARDS (CONTINUED)
The Company has elected to continue to follow Accounting Principles Board
("APB") No. 25 for accounting for its employee stock options. Under APB
No. 25, no compensation expense is recognized with respect to the grant of
any stock options in which the exercise price of the Company's employee
stock options equals the fair market price of the underlying stock on the
date the option is granted.
Pro forma information regarding net loss and basic and diluted loss per
common share in fiscal 1998, 1997 and 1996 has been determined as if the
Company had accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123. The resulting effect on pro forma net
loss and basic and diluted loss per common share disclosed below for
fiscal 1998, 1997 and 1996 is not likely to be representative of the
effects on net loss and basic and diluted loss per common share on a pro
forma basis in future years, because fiscal 1996, 1997 and 1998 pro forma
results include the impact of only one, two and three years, respectively,
of grants and related vesting. The fair value of options was estimated at
the date of grant using the Black-Scholes option valuation model with the
following weighted average assumptions: risk-free interest rates ranging
from 5.56% - 5.90% for fiscal 1998, 6.60% - 6.84% for fiscal 1997 and
5.96% - 6.17% for fiscal 1996; dividend yields of 0% in fiscal 1998, 1997
and 1996; volatility factors of the expected market price of the Company's
common stock of 65% in fiscal 1998, 67% in fiscal 1997 and 65% in fiscal
1996; and a weighted average expected life of 2.5 years in fiscal 1998,
1997 and 1996. Using the Black-Scholes option valuation model, the
weighted average fair value of options granted in fiscal 1998, 1997 and
1996 was $10.39, $8.00 and $2.96, respectively.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to pro forma expense over the vesting period of the option.
Pro forma information for the years ended March 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss - as reported $ (9,771,131) $(18,797,818) $(13,747,084)
Net loss - pro forma (12,301,217) (19,971,317) (13,972,561)
Basic and diluted loss per common share - as reported (0.47) (1.03) (0.93)
Basic and diluted loss per common share - pro forma (0.59) (1.09) (0.95)
</TABLE>
50
<PAGE> 51
10. STOCK OPTIONS AND AWARDS (CONTINUED)
A summary of option activity under the 1989, 1990, 1992 and Director Plans
is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF PER EXERCISE
SHARES SHARE PRICE
<S> <C> <C> <C> <C>
Balance, April 1, 1995 1,457,293 $ 0.56 - $14.875 $ 3.09
Granted 445,450 2.81 - 10.31 5.73
Exercised (60,199) 0.56 - 3.69 1.63
Canceled (106,540) 1.00 - 9.13 3.80
--------- ----------------- ------
Balance, March 31, 1996 1,736,004 0.56 - 14.875 3.78
Granted 449,650 9.31 - 28.75 14.53
Exercised (142,575) 0.56 - 14.875 3.43
Canceled (70,670) 1.00 - 14.88 4.90
--------- ----------------- ------
Balance, March 31, 1997 1,972,409 0.56 - 28.75 6.22
Granted 487,800 12.81 - 26.94 17.33
Exercised (183,648) 0.56 - 14.75 5.02
Canceled (153,613) 2.13 - 28.75 13.58
--------- ----------------- ------
Balance, March 31, 1998 2,122,948 $ 0.56 - $27.69 $ 8.34
========= ================= ======
</TABLE>
Options granted generally vest over four years, except options granted
under the Director Plan which vest after six months.
The following table summarizes information concerning outstanding and
exercisable options at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 0.56 - $ 3.69 900,748 5.68 $ 2.70 780,301 $ 2.62
3.75 - 15.75 764,025 7.68 9.61 368,937 7.84
15.88 - 27.69 458,175 9.43 17.31 19,376 16.64
--------------- --------- ---- ------ --------- ------
$ 0.56 - $27.69 2,122,948 7.21 $ 8.34 1,168,614 $ 4.50
=============== ========= ==== ====== ========= ======
</TABLE>
51
<PAGE> 52
10. STOCK OPTIONS AND AWARDS (CONTINUED)
For certain stock options granted and awards made, the Company recognizes,
as compensation expense, the excess of the intrinsic value for accounting
purposes of the common stock issuable upon exercise of such stock options
over the aggregate exercise price thereof and, in connection with stock
awards, the fair market value of the Company's common stock on the date of
the award. This compensation expense is amortized ratably over the vesting
period of each stock option and stock award. For the years ended March 31,
1998, 1997 and 1996, compensation expense of $83,816, $173,094 and
$179,367, respectively, was recorded and will aggregate a maximum of
$119,719 over the remaining terms of such stock options granted and stock
awards made.
* * * * * *
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information with respect to directors required by
this item is incorporated herein by reference to pages 2, 3, 11, 17 and 18 of
the Registrant's Proxy Statement dated June 29, 1998 for the Registrant's annual
shareholders' meeting to be held on July 29, 1998 (the "1998 Proxy Statement").
(b) Executive Officers. The information with respect to executive
officers required by this item is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to pages 7 through 16 of the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to pages 17 and 18 of the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to page 19 of the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the Report:
(1) Consolidated Financial Statements of the Registrant and
Independent Auditors' Report thereon:
Consolidated Balance Sheets, March 31, 1998 1997.
Consolidated Statements of Operations for the Years
Ended March 31, 1998, 1997 and 1996.
53
<PAGE> 54
Consolidated Statements of Shareholders' Equity for the
Years Ended March 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules have been omitted because of the absence of
conditions under which they are required or because the
required information is included in the financial
statements or the notes thereto.
(3) Exhibits
Exhibit No.
- -----------
3.1(a) 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.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991.)
3.1(c) 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.)
3.1(d) 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.)
3.1(e) Amendment to the 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, as
amended (File No. 333-50157).)
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of
July 1, 1994. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1994.)
54
<PAGE> 55
4.1 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).)
4.2 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, as amended (File No.
333-50157).)
4.3 Form of 1992 Warrant to purchase 2,800 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992.)
4.4 Form of 1995 Warrant to purchase 300 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992.)
4.5 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.6 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.7 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by referenced to Exhibit 4.8 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.8 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.9 Warrant Agreement, dated as of November 18, 1994, by and between
the Registrant and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.10 Stock Purchase Agreement, dated as of February 13, 1997, between
the Registrant and ALZA Corporation. (Incorporated by reference
to Exhibit 4.5 to the Registrant's Registration Statement on Form
S-3, as amended (File No. 333-19955).)
4.11 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, as amended (File No. 333-50157).)
4.12 Registration Rights Agreement, dated as of March 4, 1998, among
the Registrant and the Initial Purchasers.
55
<PAGE> 56
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-8 (File No.
33-44752).)!
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended.!
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by
reference to Exhibit 4.2(a) to the Registrant's Registration
Statement on Form S-8 (File No. 33-58330).)!
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.26 to the Registrant's Registration Statement on
Form S-4, as amended (File No. 33- 54932).)!
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1996.)!
10.6 Lease, dated as of September 18, 1991, between Forest City 64
Sidney Street, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.6(a) First Amendment of Lease, dated September 18, 1992, between
Forest City 64 Sidney Street, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.24 to the Registrant's
Registration Statement on Form S-4, as amended (File No. 33-
54932).)
10.7 Lease, dated as of March 16, 1990, between Forest City 64 Sidney
Street, Inc. and Enzytech, Inc. (Incorporated by reference to
Exhibit 10.25 to the Registrant's Registration Statement on Form
S-4, as amended (File No. 33-54932).)
10.8 Lease, dated July 26, 1993, between the Massachusetts Institute
of Technology and Alkermes, Inc. (Incorporated by reference to
Exhibit 10.8 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1997.)
10.8(a) First Amendment of Lease, dated June 9, 1997, between the
Massachusetts Institute of Technology and Alkermes, Inc.
(Incorporated by reference to Exhibit 10.8(a) to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1997.)
10.9 Product Development Agreement, dated as of March 6, 1992, between
the Partnership and the Registrant. (Incorporated by reference to
Exhibit 10.21 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.10 Purchase Agreement, dated as of March 6, 1992, by and among the
Registrant and each of the Limited Partners, from time to time,
of the Partnership. (Incorporated by reference to Exhibit 10.22
to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
56
<PAGE> 57
10.11 Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of February 7, 1992. (Incorporated by
reference to Exhibit 10.23 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.11(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of September 29, 1992.
(Incorporated by reference to Exhibit 10.22(a) to the
Registrant's Registration Statement on Form S-4, as amended (File
No. 33-54932).)
10.11(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of March 30, 1993. (Incorporated by
reference to Exhibit 10.22(b) to the Registrant's Registration
Statement on Form S-3, as amended (File No. 33-64964).)
10.12 Class A Note of Alkermes Development Corporation II, dated April
10, 1992, to PaineWebber Development Corporation in the amount of
$100.00. (Incorporated by reference to Exhibit 10.24 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992.)
10.13 License Agreement, dated February 5, 1990, between Enzytech, Inc.
and Massachusetts Institute of Technology. (Incorporated by
reference to Exhibit 10.36 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33- 54932).)*
10.14 Development and License Agreement, dated February 4, 1992,
between Enzytech, Inc. and Schering Corporation. (Incorporated by
reference to Exhibit 10.38 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)*
10.14(a) Amendment to Development and License Agreement, dated July 26,
1995, between Alkermes Controlled Therapeutics, Inc. and Schering
Corporation. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1995.)**
10.15 Prepaid Royalty Agreement, dated July 26, 1995, between Alkermes
Controlled Therapeutics, Inc. and Schering Corporation.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1995.)**
10.16 Development and License Agreement, dated as of August 1, 1996, by
and between The R.W. Johnson Pharmaceutical Research Institute,
Alkermes Controlled Therapeutics, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 8-K dated November 14, 1996.)***
10.17 Supply and License Agreement dated as of August 1, 1996, by and
between The R.W. Johnson Pharmaceutical Research Institute,
Alkermes Controlled Therapeutics, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 8-K dated November 14, 1996.)***
57
<PAGE> 58
10.18 Collaborative Development Agreement, dated as of January 9, 1995,
by and between Genentech, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit 10.27 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)****
10.19 Note Purchase Agreement, dated as of January 9, 1995, by and
between the Registrant and Genentech, Inc. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1994.)
10.20 Convertible Promissory Note of the Registrant dated January 31,
1995. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1994.)
10.21 License Agreement, dated as of November 13, 1996, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 8-K dated November 14, 1996.)***
10.22 Development Agreement, dated as of December 23, 1993, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to
Exhibit 10.18 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1996.)+
10.22(a) First Amendment to Development Agreement, dated as of December
23, 1993, between Medisorb Technologies International L.P. and
Janssen Pharmaceutica International. (Incorporated by reference
to Exhibit 10.18(a) to the Registrant's Report on Form 10-K for
the fiscal year ended March 31, 1996.)+
10.22(b) Second Amendment to the Development Agreement, dated April 28,
1997, by and between Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen Pharmaceutica
Inc. (Incorporated by reference to Exhibit 10.22(b) to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1997.)
10.23 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States). (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1996.)+
10.24 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States).
(Incorporated by reference to Exhibit 10.20 to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1996.)+
10.25 Development and License Agreement, dated as of January 19, 1998,
between The R.W. Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation, Alkermes, Inc. and
Alkermes Controlled Therapeutics, Inc.+++
58
<PAGE> 59
10.26 Supply and License Agreement dated as of January 19, 1998,
between The R.W. Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation, Janssen
Pharmaceutica International, a division of Cilag AG
International, Alkermes, Inc. and Alkermes Controlled
Therapeutics, Inc.+++
10.27 Loan Agreement, dated December 30, 1993, among the Registrant,
Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.33 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1993.)
10.27(a) Amendment No. 1 to Loan Agreement, dated as of December 31, 1994,
among the Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited. (Incorporated by reference to Exhibit 10.21(a) to
the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.)
10.27(b) Amendment to Loan Agreement, dated as of December 29, 1995, by
and among Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited (Incorporated by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1995.)
10.27(c) Omnibus Amendment to Loan Documents, dated as of July 26, 1996,
among the Registrant, Alkermes Investments, Inc. and The Sumitomo
Bank, Limited (as assignee of The Daiwa Bank, Limited).
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1996.)
10.28 Second Amended and Restated Note, dated July 26, 1996, by
Registrant and Alkermes Investments, Inc. to The Sumitomo Bank,
Limited. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1996.)
10.29 Letter Agreement, dated September 27, 1996, by and among Fleet
National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutic Inc. II and the Registrant. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996.)++
10.29(a) Loan Supplement and Modification Agreement, dated as of June 2,
1997, by and among Fleet National Bank, Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II and
the Registrant. (Incorporated by reference to Exhibit 10.27(a) to
the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.29(b) Second Loan Supplement and Modification Agreement, dated as of
March 19, 1998, by and among Fleet National Bank, Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics
Inc. II and the Registrant.
10.30 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutic Inc. II to Fleet
59
<PAGE> 60
National Bank. (Incorporated by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.31 Pledge Agreement, dated as of September 27, 1996, from the
Registrant to Fleet National Bank. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.32 Mortgage and Security Agreement, dated as of September 27, 1996,
from Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.33 Environmental Indemnity Agreement, dated as of September 27,
1996, from the Registrant and Alkermes Controlled Therapeutics
Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.7 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.34 Promissory Note of the Registrant, dated December 23, 1994, to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Report on Form 10-Q for the
quarter ended December 31, 1994.)
10.34(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.35 Promissory Note, dated December 19, 1995, by Registrant to Fleet
Bank of Massachusetts, N.A. (Incorporated by reference to Exhibit
10.2 to the Registrant's Report on Form 10-Q for the quarter
ended December 31, 1995.)
10.35(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.36 Promissory Note, dated September 27, 1996, from the Registrant
and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.37 Promissory Note, dated June 2, 1997, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibit 10.35 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1997.)
10.38 Promissory Note, dated March 19, 1998, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank.
60
<PAGE> 61
10.39 Employment Agreement, entered into as of February 7, 1991,
between Richard F. Pops and the Registrant. (Incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33- 40250).)!
10.40 Employment Agreement, entered into as of June 13, 1994, by and
between Robert A. Breyer and the Registrant. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1994.)!
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
22 Proxy Statement dated June 29, 1998.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted September 19, 1995. Such provisions have been
filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted April 25, 1997. Such provisions have been
filed separately with the Commission.
**** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted March 24, 1995. Such provisions have been
filed separately with the Commission.
+ Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted September 3, 1996. Such provisions have been
filed separately with the Commission.
++ Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted April 17, 1997. Such provisions have been
filed separately with the Commission.
+++ Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed June 29, 1998.
! Constitutes a management contract or compensatory plan required to be filed
as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.
(b) Since the beginning of the quarter ended March 31, 1998,
the Registrant filed reports on Form 8-K, dated February
18, 1998 and February 27, 1998, each reporting under Item
5.
61
<PAGE> 62
UNDERTAKING
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Registrant's Registration Statements on Form
S-8, Nos. 33-44752, 33-58330, 33-97468, 333-13283 and 333-50357.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, 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 of 1933 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 Act and
will be governed by the final adjudication of such issue.
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALKERMES, INC.
June 29, 1998 By: /s/ Richard F. Pops
--------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael A. Wall Director and Chairman of the June 29, 1998
- ----------------------------- Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive Officer June 29, 1998
- ----------------------------- (Principal Executive Officer)
Richard F. Pops
/s/ Michael J. Landine Senior Vice President, Chief June 29, 1998
- ----------------------------- Financial Officer and
Michael J. Landine Treasurer (Principal
Financial and Accounting
Officer)
/s/ Floyd E, Bloom Director June 29, 1998
- -----------------------------
Floyd E. Bloom
/s/ Robert A. Breyer President and Chief Operating June 29, 1998
- ----------------------------- Officer and Director
Robert A. Breyer
/s/ John K. Clarke Director June 29, 1998
- -----------------------------
John K. Clarke
</TABLE>
63
<PAGE> 64
<TABLE>
<S> <C> <C>
/s/ Robert S. Langer Director June 29, 1998
- -----------------------------
Robert S. Langer
/s/ Alexander Rich Director June 29, 1998
- -----------------------------
Alexander Rich
/s/ Paul Schimmel Director June 29, 1998
- -----------------------------
Paul Schimmel
</TABLE>
64
<PAGE> 65
EXHIBIT INDEX
3.1(a) 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.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc. effective
July 23, 1991. (Incorporated by reference to Exhibit 4.1(b) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1991.)
3.1(c) 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.)
3.1(d) 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.)
3.1(e) Amendment to the 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, as amended (File No. 333-50157).)
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of July 1,
1994. (Incorporated by reference to Exhibit 4.2 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1994.)
4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-1, as amended (File No. 33- 40250).)
4.2 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, as amended (File No. 333-50157).)
4.3 Form of 1992 Warrant to purchase 2,800 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992.)
4.4 Form of 1995 Warrant to purchase 300 shares of the Registrant's Common
Stock. (Incorporated by reference to Exhibit 4.3 to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1992.)
65
<PAGE> 66
4.5 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
4.6 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
4.7 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by referenced to Exhibit 4.8 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)
4.8 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
4.9 Warrant Agreement, dated as of November 18, 1994, by and between the
Registrant and The First National Bank of Boston. (Incorporated by
reference to Exhibit 4.10 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1994.)
4.10 Stock Purchase Agreement, dated as of February 13, 1997, between the
Registrant and ALZA Corporation. (Incorporated by reference to Exhibit
4.5 to the Registrant's Registration Statement on Form S-3, as amended
(File No. 333-19955).)
4.11 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,
as amended (File No. 333-50157).)
4.12 Registration Rights Agreement, dated as of March 4, 1998, among the
Registrant and the Initial Purchasers.
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 4.2(c) to the Registrant's
Registration Statement on Form S-8 (File No. 33-44752).)!
10.2 Second Amended and Restated 1990 Omnibus Stock Option Plan, as
amended.!
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by reference to
Exhibit 4.2(a) to the Registrant's Registration Statement on Form S-8
(File No. 33-58330).)!
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10.26 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)!
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form 10-K for
the fiscal year ended March 31, 1996.)!
66
<PAGE> 67
10.6 Lease, dated as of September 18, 1991, between Forest City 64 Sidney
Street, Inc. and the Registrant. (Incorporated by reference to Exhibit
10.19 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.6(a) First Amendment of Lease, dated September 18, 1992, between Forest City
64 Sidney Street, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.24 to the Registrant's Registration Statement on Form
S-4, as amended (File No. 33-54932).)
10.7 Lease, dated as of March 16, 1990, between Forest City 64 Sidney
Street, Inc. and Enzytech, Inc. (Incorporated by reference to Exhibit
10.25 to the Registrant's Registration Statement on Form S-4, as
amended (File No. 33-54932).)
10.8 Lease, dated July 26, 1993, between the Massachusetts Institute of
Technology and Alkermes, Inc. (Incorporated by reference to Exhibit
10.8 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.8(a) First Amendment of Lease, dated June 9, 1997, between the Massachusetts
Institute of Technology and Alkermes, Inc. (Incorporated by reference
to Exhibit 10.8(a) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1997.)
10.9 Product Development Agreement, dated as of March 6, 1992, between the
Partnership and the Registrant. (Incorporated by reference to Exhibit
10.21 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.10 Purchase Agreement, dated as of March 6, 1992, by and among the
Registrant and each of the Limited Partners, from time to time, of the
Partnership. (Incorporated by reference to Exhibit 10.22 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.11 Alkermes Clinical Partners, L.P. Agreement of Limited Partnership,
dated as of February 7, 1992. (Incorporated by reference to Exhibit
10.23 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.11(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of September 29, 1992. (Incorporated by
reference to Exhibit 10.22(a) to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)
10.11(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of March 30, 1993. (Incorporated by
reference to Exhibit 10.22(b) to the Registrant's Registration
Statement on Form S-3, as amended (File No. 33-64964).)
10.12 Class A Note of Alkermes Development Corporation II, dated April 10,
1992, to PaineWebber Development Corporation in the amount of $100.00.
(Incorporated by reference to Exhibit 10.24 to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 1992.)
67
<PAGE> 68
10.13 License Agreement, dated February 5, 1990, between Enzytech, Inc. and
Massachusetts Institute of Technology. (Incorporated by reference to
Exhibit 10.36 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)*
10.14 Development and License Agreement, dated February 4, 1992, between
Enzytech, Inc. and Schering Corporation. (Incorporated by reference to
Exhibit 10.38 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)*
10.14(a) Amendment to Development and License Agreement, dated July 26, 1995,
between Alkermes Controlled Therapeutics, Inc. and Schering
Corporation. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1995.)**
10.15 Prepaid Royalty Agreement, dated July 26, 1995, between Alkermes
Controlled Therapeutics, Inc. and Schering Corporation. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.)**
10.16 Development and License Agreement, dated as of August 1, 1996, by and
between The R.W. Johnson Pharmaceutical Research Institute, Alkermes
Controlled Therapeutics, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form 8-K dated
November 14, 1996.)***
10.17 Supply and License Agreement dated as of August 1, 1996, by and between
The R.W. Johnson Pharmaceutical Research Institute, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Report on Form 8-K dated November 14,
1996.)***
10.18 Collaborative Development Agreement, dated as of January 9, 1995, by
and between Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.27 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)****
10.19 Note Purchase Agreement, dated as of January 9, 1995, by and between
the Registrant and Genentech, Inc. (Incorporated by reference to
Exhibit 10.28 to the Registrant's Report on Form 10-Q for the quarter
ended December 31, 1994.)
10.20 Convertible Promissory Note of the Registrant dated January 31, 1995.
(Incorporated by reference to Exhibit 10.28 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)
10.21 License Agreement, dated as of November 13, 1996, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Report
on Form 8-K dated November 14, 1996.)***
10.22 Development Agreement, dated as of December 23, 1993, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica
International. (Incorporated by reference to Exhibit 10.18 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1996.)+
68
<PAGE> 69
10.22(a) First Amendment to Development Agreement, dated as of December 23,
1993, between Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to Exhibit
10.18(a) to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1996.)+
10.22(b) Second Amendment to the Development Agreement, dated April 28, 1997, by
and between Alkermes Controlled Therapeutics Inc. II, Janssen
Pharmaceutica International and Janssen Pharmaceutica Inc.
(Incorporated by reference to Exhibit 10.22(b) to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1997.)
10.23 License Agreement, dated as of February 13, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International
(United States). (Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1996.)+
10.24 License Agreement, dated as of February 21, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International
(worldwide except United States). (Incorporated by reference to Exhibit
10.20 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.)+
10.25 Development and License Agreement, dated as of January 19, 1998, by and
between The R.W. Johnson Pharmaceutical Research Institute, a division
of Ortho Pharmaceutical Corporation, Alkermes, Inc. and Alkermes
Controlled Therapeutics, Inc.+++
10.26 Supply and License Agreement dated as of January 19, 1998, by and
between The R.W. Johnson Pharmaceutical Research Institute, a division
of Ortho Pharmaceutical Corporation, Janssen Pharmaceutica
International, a division of Cilag AG International, Alkermes, Inc. and
Alkermes Controlled Therapeutics, Inc.+++
10.27 Loan Agreement, dated December 30, 1993, among the Registrant, Alkermes
Investments, Inc. and The Daiwa Bank, Limited. (Incorporated by
reference to Exhibit 10.33 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1993.)
10.27a) Amendment No. 1 to Loan Agreement, dated as of December 31, 1994, among
the Registrant, Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.21(a) to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1996.)
10.27(b) Amendment to Loan Agreement, dated as of December 29, 1995, by and
among Registrant, Alkermes Investments, Inc. and The Daiwa Bank,
Limited (Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1995.)
10.27(c) Omnibus Amendment to Loan Documents, dated as of July 26, 1996, among
the Registrant, Alkermes Investments, Inc. and The Sumitomo Bank,
Limited (as assignee of The Daiwa Bank, Limited). (Incorporated by
reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1996.)
69
<PAGE> 70
10.28 Second Amended and Restated Note, dated July 26, 1996, by Registrant
and Alkermes Investments, Inc. to The Sumitomo Bank, Limited.
(Incorporated by reference to Exhibit 10.5 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1996.)
10.29 Letter Agreement, dated September 27, 1996, by and among Fleet National
Bank, Alkermes Controlled Therapeutics, Inc., Alkermes Controlled
Therapeutic Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996.)++
10.29(a) Loan Supplement and Modification Agreement, dated as of June 2, 1997,
by and among Fleet National Bank, Alkermes Controlled Therapeutics,
Inc., Alkermes Controlled Therapeutics Inc. II and the Registrant.
(Incorporated by reference to Exhibit 10.27(a) to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1997.)
10.29(b) Second Loan Supplement and Modification Agreement, dated as of March
19, 1998, by and among Fleet National Bank, Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II and the
Registrant.
10.30 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutic Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.)
10.31 Pledge Agreement, dated as of September 27, 1996, from the Registrant
to Fleet National Bank. (Incorporated by reference to Exhibit 10.5 to
the Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.32 Mortgage and Security Agreement, dated as of September 27, 1996, from
Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.6 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.33 Environmental Indemnity Agreement, dated as of September 27, 1996, from
the Registrant and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank. (Incorporated by reference to Exhibit 10.7 to the
Registrant's Report on Form 10-Q for the quarter ended September 30,
1996.)
10.34 Promissory Note of the Registrant, dated December 23, 1994, to Fleet
Bank of Massachusetts, N.A. (Incorporated by reference to Exhibit 10.20
to the Registrant's Report on Form 10-Q for the quarter ended December
31, 1994.)
10.34(a) Allonge to Promissory Note, dated as of September 27, 1996, executed by
Fleet National Bank, Alkermes Controlled Therapeutics, Inc. and the
Registrant. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended September 30,
1996.)
70
<PAGE> 71
10.35 Promissory Note, dated December 19, 1995, by Registrant to Fleet Bank
of Massachusetts, N.A. (Incorporated by reference to Exhibit 10.2 to
the Registrant's Report on Form 10-Q for the quarter ended December 31,
1995.)
10.35(a) Allonge to Promissory Note, dated as of September 27, 1996, executed by
Fleet National Bank, Alkermes Controlled Therapeutics, Inc. and the
Registrant. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarter ended September 30,
1996.)
10.36 Promissory Note, dated September 27, 1996, from the Registrant and
Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.8 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.37 Promissory Note, dated June 2, 1997, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc.
II to Fleet National Bank. (Incorporated by reference to Exhibit 10.35
to the Registrant's Report on Form 10-K for the fiscal year ended March
31, 1997.)
10.38 Promissory Note, dated March 19, 1998, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc.
II to Fleet National Bank.
10.39 Employment Agreement, entered into as of February 7, 1991, between
Richard F. Pops and the Registrant. (Incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form S-1,
as amended (File No. 33-40250).)!
10.40 Employment Agreement, entered into as of June 13, 1994, by and between
Robert A. Breyer and the Registrant. (Incorporated by reference to
Exhibit 10.28 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1994.)!
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
22 Proxy Statement dated June 29, 1998.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 19, 1995. Such
provisions have been filed separately with the Commission.
71
<PAGE> 72
*** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 25, 1997. Such provisions
have been filed separately with the Commission.
**** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted March 24, 1995. Such provisions
have been filed separately with the Commission.
+ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
++ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 17, 1997. Such provisions
have been filed separately with the Commission.
+++ Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed on June 29, 1998.
! Constitutes a management contract or compensatory plan required to be
filed as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.
72
<PAGE> 1
EXHIBIT 4.12
$ 3.25 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
REGISTRATION RIGHTS AGREEMENT
Dated as of March 4, 1998
by and among
ALKERMES, INC.,
as the Company,
and
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
COWEN & COMPANY
CREDIT SUISSE FIRST BOSTON CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
J.P. MORGAN SECURITIES INC.
PAINEWEBBER INCORPORATED
and
SMITH BARNEY INC.,
as Purchasers
<PAGE> 2
This Registration Rights Agreement is made and entered into as of March
4, 1998, by and among Alkermes, Inc., a Pennsylvania corporation (the
"Company"), and BancAmerica Robertson Stephens, NationsBanc Montgomery
Securities LLC, Cowen & Company, Credit Suisse First Boston Corporation, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc.,
PaineWebber Incorporated, and Smith Barney Inc. (the "Purchasers") who have
purchased or have the right to purchase up to 2,300,000 shares of $3.25
Convertible Exchangeable Preferred Stock (the "Preferred Stock") of the Company
pursuant to the Purchase Agreement (as such term is defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 27, 1998, among the Company and the Purchasers (the "Purchase
Agreement"). In order to induce the Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights provided
for in this Agreement to the Purchasers and their respective direct and indirect
transferees (i) for the benefit of the Purchasers, (ii) for the benefit of the
holders from time to time of the Preferred Stock (including the Purchasers), the
holders from time to time of the Common Stock issuable or issued upon conversion
of the Preferred Stock and the Debentures, and the holders from time to time of
the Debentures issuable or issued upon exchange of the Preferred Stock, and
(iii) for the benefit of the securities constituting the Transfer Restricted
Securities. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
Act: As defined in this Section 1.
Additional Interest: As defined in Section 2.3 of the Indenture.
Advice: As defined in the last paragraph of Section 2(d) hereof.
Affiliate: An affiliate of any specified person shall mean any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and
the terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
1
<PAGE> 3
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
Preferred Stock Statement. The Statement with Respect to Shares
filed with the Secretary of State of the Commonwealth of Pennsylvania setting
forth the rights, preferences and limitations of the Preferred Stock.
Closing Date: March 4, 1998.
Common Stock: Common Stock, $.01 par value per share, of the
Company and any other shares of common stock as may constitute "Common Stock"
for purposes of the Preferred Stock Statement or the Indenture, in each case, as
issuable or issued upon conversion of the shares of Preferred Stock or the
Debentures.
Company: Alkermes, Inc., a Pennsylvania corporation, and any
successor corporation thereto.
controlling person: As defined in Section 6(a) hereof.
Damages Payment Date: Each of the quarterly dividend payment
dates provided in the Preferred Stock Statement.
Debentures. The Company's 6 1/2% Convertible Subordinated
Debentures issuable at the rate of $50 principal amount of Debentures for each
share of Preferred Stock.
Effectiveness Period: As defined in Section 2(a) hereof.
Effectiveness Target Date: The 120th day following the Closing
Date.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
Filing Date: The 60th day after the Closing Date.
Holder: Each owner of any Transfer Restricted Securities.
Indemnified Person: As defined in Section 6(a) hereof.
Indenture: The Indenture, dated as of the date hereof, between
the Company and the Trustee, pursuant to which the Debentures are to be issued,
as the same may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
Liquidated Damages: As defined in Section 3(a) hereof.
2
<PAGE> 4
Purchasers: As defined in the first paragraph hereof.
Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed in reliance upon Rule 430A), as
amended or supplemented by any prospectus supplement, with respect to the resale
of any of the Transfer Restricted Securities covered by such Registration
Statement, and all other amendments and supplements to any such prospectus,
including post-effective amendments, and all materials incorporated by reference
or deemed to be incorporated by reference, if any, in such prospectus.
Purchase Agreement: As defined in the second paragraph hereof.
Record Holder: (i) with respect to any Damages Payment Date
relating to any share of Preferred Stock as to which any such Liquidated Damages
have accrued, the registered Holder of such share of Preferred Stock on the
record date with respect to the dividend payment date under the Preferred Stock
Statement on which such Damages Payment Date shall occur, (ii) with respect to
any Damages Payment Date relating to any shares of Common Stock as to which any
such Liquidated Damages have accrued, the registered Holder of such shares 15
days prior to the next succeeding Damages Payment Date; and (iii) with respect
to any Damages Payment Date relating to any Debentures as to which any such
Liquidated Damages have accrued, the registered Holder of such Debentures 15
days prior to the next succeeding Damages Payment Date.
Registration Default: As defined in Section 3(a) hereof.
Registration Statement: Any registration statement of the Company
filed with the SEC pursuant to the Securities Act that covers the resale of any
of the Transfer Restricted Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
Requisite Information: As defined in Section 2(c) hereof.
Rule 144: Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
Rule 158: Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
3
<PAGE> 5
Rule 415: Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
Rule 424: Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
Rule 430A: Rule 430A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Shelf Registration Statement: As defined in Section 2(a) hereof.
Special Counsel: The special counsel to the Holders as more fully
described in Section 5(b).
TIA: The Trust Indenture Act of 1939, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Transfer Restricted Securities: The Preferred Stock, the shares
of Common Stock into which such shares of Preferred Stock or the Debentures are
converted or convertible (including any shares of Common Stock issued or
issuable thereon upon any stock split, stock combination, stock dividend or the
like), upon original issuance thereof and at all times subsequent thereto, and
the Debentures into which such shares of Preferred Stock are exchanged or
exchangeable, upon original issuance thereof and at all times subsequent
thereto, and associated related rights, if any, until, in the case of any such
shares of Preferred Stock, Common Stock or Debentures (and associated rights)
(i) the date on which the resale thereof has been effectively registered under
the Securities Act and disposed of in accordance with the Registration Statement
relating thereto, (ii) the date on which such security has been distributed to
the public pursuant to Rule 144 or is saleable pursuant to paragraph (k) of Rule
144 or (iii) the date on which it ceases to be outstanding, whichever date is
earliest.
Transfer Agent. The registrar and transfer agent for the
Company's Preferred Stock and Common Stock, as the case may be.
Trustee: The trustee under the Indenture.
Underwritten registration or underwritten offering: A
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective Registration
Statement.
4
<PAGE> 6
References herein to the term "Holders of a majority in interest
of Transfer Restricted Securities" or words to a similar effect shall mean, with
respect to any request, notice, demand, objection or other action by the Holders
hereunder or pursuant hereto (each, an "Act"), registered Holders of a number of
shares of then-outstanding Common Stock constituting Transfer Restricted
Securities and an aggregate amount of then outstanding Preferred Stock or
Debentures, as the case may be, constituting Transfer Restricted Securities,
such that the sum of such shares of Common Stock and the shares of Common Stock
issuable upon conversion of such Preferred Stock or Debentures, as the case may
be, constitutes in excess of 50% of the sum of all of the then-outstanding
shares of Common Stock constituting Transfer Restricted Securities and the
number of shares of Common Stock issuable upon conversion of then- outstanding
Preferred Stock or Debentures, as the case may be, constituting Transfer
Restricted Securities. For purposes of the preceding sentence, Transfer
Restricted Securities owned, directly or indirectly, by the Company or its
Affiliates shall be deemed not to be outstanding.
2. Shelf Registration Statement.
(a) The Company agrees to file with the SEC as soon as reasonably
practicable after the Closing Date, but in no event later than the Filing Date,
a Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 covering all of the Transfer Restricted Securities or
separate Registration Statements for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Preferred Stock constituting
Transfer Restricted Securities and all of the Common Stock constituting Transfer
Restricted Securities, respectively (such Registration Statement or Statements,
collectively, the "Shelf Registration Statement"). Each Shelf Registration
Statement shall be on Form S-3 under the Securities Act or another appropriate
form selected by the Company permitting registration of such Transfer Restricted
Securities for resale by the Holders in the manner or manners reasonably
designated by Holders of a majority in interest of Transfer Restricted
Securities being sold (including, without limitation, up to three underwritten
offerings). The Company shall not permit any securities other than the Transfer
Restricted Securities to be included in any Shelf Registration Statement (except
in the case of any underwritten offering of Common Stock which constitutes
Transfer Restricted Securities, the Company shall be entitled to permit shares
of Common Stock held by ALZA Corporation in compliance with registration rights
granted to ALZA Corporation by the Company). The Company shall use all
reasonable efforts to cause each Shelf Registration Statement to be declared
effective pursuant to the Securities Act as soon as reasonably practicable
following the filing thereof and to keep each Shelf Registration Statement
continuously effective under the Securities Act for two years after the date on
which all of the shares of Preferred Stock are sold (including those sold
pursuant to the over-allotment option granted to the Purchasers in the Purchase
Agreement) to the Purchasers (subject to extensions pursuant to Sections 2(d)
and 2(e) hereof) (the "Effectiveness Period"), or such shorter period ending
when there cease to be any Transfer Restricted Securities outstanding.
(b) Supplements and Amendments. The Company shall use all
reasonable efforts to keep each Shelf Registration Statement continuously
effective by supplementing and amending the Shelf Registration Statement if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration Statement, if required by the
5
<PAGE> 7
Securities Act or if reasonably requested by the Holders of a majority in
interest of the Transfer Restricted Securities or by any underwriter of such
Transfer Restricted Securities; provided, however, that the Effectiveness Period
shall be extended as provided in Sections 2(d) and 2(e) hereof.
(c) Selling Securityholder Information. Each Holder shall furnish
to the Company such information regarding the distribution of its Transfer
Restricted Securities as is required by law to be disclosed in the applicable
Registration Statement (the "Requisite Information") prior to effecting any sale
pursuant to such Registration Statement.
The Company shall file, within two Business Days after the
receipt of notice from any Holder which includes the Requisite Information with
respect to such Holder, a Prospectus supplement pursuant to Rule 424 or
otherwise amend or supplement such Registration Statement to include in the
Prospectus the Requisite Information as to such Holder (and the Transfer
Restricted Securities held by such Holder), and the Company shall provide such
Holder and the Special Counsel within two Business Days after receipt of such
notice with a copy of such Prospectus as so amended or supplemented containing
the Requisite Information in order to permit such Holder to comply with the
Prospectus delivery requirements of the Securities Act in a timely manner with
respect to any proposed disposition of such Holder's Transfer Restricted
Securities; provided, however, that notwithstanding the requirements of Section
4(a) hereof, the Company shall not be required to provide any Holder with a copy
of such Prospectus as so amended or supplemented solely to contain the Requisite
Information in advance of filing the same with the SEC.
If any such Registration Statement refers to any Holder by name
or otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require, in the event that such reference to such Holder
by name or otherwise is not required by the Securities Act or any similar
Federal statute then in force, the deletion of the reference to such Holder in
such Registration Statement at any time subsequent to the time that such
reference ceases to be required.
(d) Certain Notices; Suspension of Sales. Each Holder agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(c)(ii), 4(c)(iii), 4(c)(v) or 4(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Transfer Restricted Securities covered
by such Registration Statement and Prospectus (other than in transactions exempt
from the registration requirements under the Securities Act) until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Sections 4(c)(i) and 4(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each Holder shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Sections 4(c)(i) and 4(k) hereof or (y) the
6
<PAGE> 8
Advice, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
(e) Material Events; Suspension of Sales. Notwithstanding the
provisions contained in this Section 2, in the event that, in the judgment of
the Company's Board of Directors, it is advisable to suspend use of the
Prospectus due to pending corporate developments, public filings with the SEC or
similar events, the Company shall promptly deliver a written certificate to each
registered Holder, the Special Counsel and the managing underwriters, if any, to
the effect that the use of the Prospectus is to be suspended until the Company
shall deliver a written notice that the use of the Prospectus may be resumed.
Thereafter, the use of the Prospectus shall be suspended, and the Company shall
not be required to maintain the effectiveness of, or amend or update the Shelf
Registration Statement, or amend or supplement the Prospectus; provided,
however, that the Company shall only be permitted to suspend the use of the
Prospectus for a period not to exceed 30 days in any six-month period or two
periods not to exceed an aggregate of 60 days in any 12-month period. The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as soon as, in the judgment of the Company's Board of Directors,
disclosure of the material relating to such pending development, filing or event
would not have a materially adverse effect on the Company. If the Company shall
give any such suspension notice pursuant to this Section 2(e), the Effectiveness
Period shall be extended by the number of days during such period from and
including the date of giving such notice to and including the date when each
Holder shall have received notice that use of the Prospectus may be resumed.
3. Liquidated Damages and Additional Interest.
(a) The Company and the Purchasers agree that the Holders will
suffer damages if the Company fails to fulfill its obligations pursuant to
Section 2 hereof and that it would not be possible to ascertain the extent of
such damages. Accordingly, the Company hereby agrees to pay liquidated damages
("Liquidated Damages") or Additional Interest to each Holder under the
circumstances and to the extent set forth below:
(i) if the Shelf Registration Statement has not been
filed with the SEC on or prior to the Filing Date; or
(ii) if each Shelf Registration Statement is not
declared effective by the SEC on or prior to the applicable
Effectiveness Target Date; or
(iii) any Shelf Registration Statement ceases to be
effective or usable at any time during the Effectiveness
Period (without being succeeded on the same day immediately by
a post-effective amendment or supplement to such Registration
Statement that cures such failure and that is itself, in the
case of post-effective amendment, immediately declared
effective) for a period of time which shall exceed 90 days in
the aggregate in any period of 365 consecutive days; (any of
the foregoing, a "Registration Default").
7
<PAGE> 9
In the event of a Registration Default, the Company will pay Additional
Interest on Debentures constituting Transfer Restricted Securities pursuant to
the terms of the Indenture, and will pay Liquidated Damages to each holder of
Preferred Stock and/or Common Stock issued upon conversion of the Preferred
Stock or Debentures, as the case may be, that are Transfer Restricted
Securities, during the first 90-day period immediately following the occurrence
of such Registration Default in an amount equal to an additional one-quarter of
one percent (0.25%) of the liquidation amount and, if applicable, on an
equivalent basis per share (subject to adjustment in the event of stock splits,
stock recombinations, stock dividends and the like) of Common Stock constituting
Transfer Restricted Securities held by such holder. The rate of accrual of the
Liquidated Damages will increase to one-half of one percent (0.50%) of the
liquidation amount and, if applicable, by an equivalent amount per week per
share (subject to adjustment as set forth above) of Common Stock constituting
Transfer Restricted Securities for each subsequent 90-day period until the
applicable Registration Statement is filed, the applicable Registration
Statement is declared effective and becomes available for effecting sales of
securities, or the Shelf Registration Statement again becomes effective and
becomes available for effecting sales of securities, as the case may be, up to a
maximum amount of liquidated damages of 1.25% of the liquidation amount or if
applicable, an equivalent amount per week per share (subject to adjustment as
set forth above) of Common Stock constituting Restricted Securities. Following
the cure of a Registration Default, Liquidated Damages will cease to accrue with
respect to such Registration Default (without in any way limiting the effect of
any subsequent Registration Default). All accrued Liquidated Damages shall be
paid to the holders of Preferred Stock and/or shares of Common Stock (as
applicable), (i) in the case of the Preferred Stock, in the manner as dividend
payments on the Preferred Stock on dividend payment dates and, (ii) in the case
of Common Stock, (a) if such Common Stock was issued upon conversion of
Preferred Stock, in the manner as dividend payments on Preferred Stock on
dividend payment dates and, (b) if such Common Stock was issued upon conversion
of Debentures, in the manner as interest payments on the Debentures on
semiannual payment dates which correspond to interest payment dates for the
Debentures. The parties hereto hereby agree and acknowledge that the percentage
amounts of Additional Interest payable to holders of Debentures upon a
Registration Default pursuant to the Indenture shall be equivalent to the
percentage amounts set forth above in this Section 3(a) with respect to
Liquidated Damages payable to holders of Preferred Stock and Common Stock.
(b) The Company shall notify the Transfer Agent or the
Trustee, as the case may be, within one Business Day after each and every date
on which a Registration Default occurs. Liquidated Damages shall be paid by the
Company to the Record Holders of Preferred Stock and/or Common Stock, as the
case may be, on each Damages Payment Date by wire transfer of immediately
available funds to the accounts specified by them or by mailing checks to their
registered addresses as they appear in the register of the Company for the
Preferred Stock and Common Stock,, if no such accounts have been specified on or
before the Damages Payment Date; and Additional Interest shall be paid by the
Company to the Record Holders of Debentures on each semi-annual interest payment
date together with interest to be paid on the Debentures pursuant to the terms
of the Indenture (the "Additional Interest Payment Date"), by
8
<PAGE> 10
wire transfer of immediately available funds to the accounts specified by them
or by mailing checks to their registered addresses as they appear in the
Debenture register (as defined in the Indenture) if no such accounts have been
specified on or before the Additional Interest Payment Date; provided, however,
that any Liquidated Damages or Additional Interest, as the case may be, accrued
with respect to any shares of Preferred Stock or Debentures or portion thereof
called for redemption on a redemption date, repurchased on a repurchase date, or
converted into shares of Common Stock on a conversion date prior to the Damages
Payment Date or Additional Interest Payment Date, as the case may be, shall, in
any such event, be paid instead to the Holder who submitted such shares of
Preferred Stock or Debentures or portion thereof for redemption, repurchase or
conversion on the applicable redemption date, repurchase date or conversion
date, as the case may be, on such date. In no event shall the Company be
required to pay Liquidated Damages or Additional Interest in excess of the
applicable maximum amount set forth above or in the Indenture, as the case may
be, regardless of whether one or multiple Registration Defaults shall exist.
(c) All of the Company's obligations set forth in this Section
3 which are unsatisfied to any extent with respect to any Transfer Restricted
Securities at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security have been satisfied in full (notwithstanding the earlier termination of
this Agreement).
4. Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall effect such registrations
on the appropriate form selected by the Company to permit the resale of Transfer
Restricted Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
reasonably possible:
(a) No fewer than five Business Days prior to the initial
filing of a Registration Statement or Prospectus and no fewer than two Business
Days prior to the filing of any amendment or supplement thereto (excluding,
unless requested, any document that would be incorporated or deemed to be
incorporated therein by reference and then only to the Holder who so requested),
furnish to the registered (as of the most recent reasonably practicable date
which shall not be more than two Business Days prior to the date such document
is personally delivered, delivered to a next-day courier, deposited in the mail
or telecopied, as the case may be) Holders, Special Counsel and the managing
underwriters, if any, copies of all such documents proposed to be filed
(excluding, unless requested, those incorporated or deemed to be incorporated by
reference and then only to the Holder who so requested) and cause the officers
and directors of the Company, counsel to the Company and independent certified
public accountants to the Company to respond to such inquiries as shall be
necessary in connection with such Registration Statement, in the opinion of
Special Counsel and counsel to such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file any such Registration Statement or related Prospectus or any amendments or
supplements thereto (excluding any document that would be incorporated or deemed
incorporated by reference) to which the Holders of a majority in interest of the
Transfer
9
<PAGE> 11
Restricted Securities, Special Counsel, or the managing underwriters, if any,
shall reasonably object on a timely basis;
(b) Prepare and file with the SEC such amendments, including
post-effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable time
period set forth in Section 2(a) hereof; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended method or methods
of disposition by the Holder set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented (including, without limitation,
the filing of any Prospectus supplement pursuant to Rule 424 in order to add or
change any selling security holder information (including any such supplements
or amendments pursuant to Section 2(c) hereof, provided such Holder to which
such change applies complies with the Requisite Information requirements of
Section 2(c) hereof));
(c) Notify the registered (as of the most recent reasonably
practicable date which shall not be more than two Business Days prior to the
date such notice is personally delivered, delivered to a next-day courier,
deposited in the mail or telecopied, as the case may be) Holders, Special
Counsel and the managing underwriters, if any, promptly (and in the case of an
event specified by clause (i)(A) of this paragraph in no event fewer than two
Business Days prior to such filing), and (if requested by any such person),
confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment is proposed to be filed, and, (B) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request of the SEC or any other Federal
or state governmental authority for amendments or supplements to such
Registration Statement or related Prospectus or for additional information
related thereto, (iii) of the issuance by the SEC, any state securities
commission, any other governmental agency or any court of any stop order, order
or injunction suspending or enjoining the use or the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
by Section 4(m) hereof are not true and correct in all material respects, (v) of
the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Transfer
Restricted Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (vi) of the existence of any
fact and the happening of any event that makes any statement made in such
Registration Statement or related Prospectus untrue in any material respect, or
that requires the making of any changes in such Registration Statement or
Prospectus so that in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and that, in the case of the Prospectus, such Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
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<PAGE> 12
(d) Use all reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of any stop order or order enjoining or
suspending the use or effectiveness of a Registration Statement or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Transfer Restricted Securities for sale in any jurisdiction, at the
earliest practicable moment;
(e) If requested by the Special Counsel, the managing
underwriters, if any, or the Holders of a majority in interest of the Transfer
Restricted Securities being sold in connection with such offering, (i) promptly
include in a Prospectus supplement or post-effective amendment such information
as the Special Counsel, the managing underwriters, if any, and such Holders
agree should, in their reasonable judgment, be included therein, and (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as reasonably practicable after the Company has received
notification of the matters to be included in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 4(e) that, in the opinion
of counsel for the Company, would violate applicable law;
(f) Furnish to each Holder who so requests, Special Counsel
and each managing underwriter, if any, without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements (but excluding schedules, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits, unless
requested in writing by such Holder, Special Counsel or managing underwriter);
(g) Deliver to each Holder, the Special Counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of Prospectus) and each amendment or
supplement thereto as such persons may reasonably request; and, unless the
Company shall have given notice to such Holder pursuant to Section 4(c)(vi), the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Transfer Restricted
Securities and the underwriters, if any, in connection with the offering and
sale of the Transfer Restricted Securities covered by such Prospectus and any
amendment or supplement thereto, provided, however, that no Holder shall be
entitled to use the Prospectus unless and until such Holder shall have furnished
to the Company any and all Requisite Information pursuant to Section 2(c)
hereof;
(h) Use all reasonable efforts to register or qualify, or
cooperate with the Holders of Transfer Restricted Securities to be sold or
tendered for, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of, such Transfer Restricted Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder or underwriter reasonably requests in writing, keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things necessary legally to enable the
disposition in such jurisdictions of the Transfer Restricted Securities covered
by the applicable Registration Statement; provided, however, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, take any action that would subject it
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<PAGE> 13
to general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any tax in any such jurisdiction where it is
not then so subject;
(i) In connection with any sale or transfer of Transfer
Restricted Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the Holders and the managing
underwriters, if any, to (A) facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall not bear any restrictive legends, shall bear a CUSIP number
different from the CUSIP number for the Transfer Restricted Securities and shall
be in a form eligible for deposit with The Depository Trust Company and (B)
enable such Transfer Restricted Securities to be in such denominations and
registered in such names as the managing underwriters, if any, or Holders may
reasonably request at least two Business Days prior to any sale of Transfer
Restricted Securities;
(j) Use all reasonable efforts to cause the offering of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
within the United States, except as may be required as a consequence of the
nature of a Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be reasonably necessary to enable the seller
or sellers thereof or the underwriters, if any, to consummate the disposition of
such Transfer Restricted Securities; provided, however, that the Company shall
not be required to register the Transfer Restricted Securities in any
jurisdiction that would require the Company to qualify to do business in any
jurisdiction where it is not then so qualified, subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so subject or
to;
(k) Upon the occurrence of any event contemplated by Section
4(c)(vi) hereof, as promptly as reasonably practicable (subject to any
suspension of sales pursuant to Section 2(e) hereof), prepare a supplement or
amendment, including, if appropriate, a post-effective amendment, to each
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, such Prospectus will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(l) Prior to the effective date of the first Registration
Statement relating to the Transfer Restricted Securities, to provide a CUSIP
number for the Transfer Restricted Securities to be sold pursuant to the
Registration Statement;
(m) Enter into such agreements (including an underwriting
agreement in form, scope and substance as are customary in underwritten
offerings) reasonably satisfactory to the Company and take all such other
reasonable actions in connection therewith (including those reasonably requested
by the managing underwriters, if any, or the Holders of a majority in
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<PAGE> 14
interest of the Transfer Restricted Securities being sold) in order to expedite
or facilitate the sale of such Transfer Restricted Securities; provided,
however, that the Company is required to facilitate no more than three
underwritten offerings. In such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders of
such Transfer Restricted Securities and the underwriters, if any, with respect
to the business of the Company and its subsidiaries (including with respect to
businesses or assets acquired or to be acquired by any of them), and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and reasonably acceptable to the Company, and confirm the same if and
when requested; (ii) seek to obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and Special
Counsel to the Holders of the Transfer Restricted Securities being sold,
addressed to each selling Holder of Transfer Restricted Securities and each of
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings (including any such matters as may be
reasonably requested by such Special Counsel and underwriters); (iii) use all
reasonable efforts to obtain customary "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed (where reasonably possible) to each
selling Holder of Transfer Restricted Securities and each of the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders of Transfer Restricted Securities and the underwriters, if any,
than those set forth in Section 6 hereof (or such other provisions and
procedures acceptable to Holders of a majority in interest of the Transfer
Restricted Securities covered by such Registration Statement and the managing
underwriters); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of majority in interest of the Transfer
Restricted Securities being sold, their Special Counsel or the managing
underwriters, if any, to evidence the continued validity of the representations
and warranties made pursuant to clause (i) of this Section 4(m) and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company;
(n) Make available for inspection by a representative of the
Holders of Transfer Restricted Securities being sold, any underwriter
participating in any such disposition of Transfer Restricted Securities, if any,
and any attorney, consultant or accountant retained by such selling Holders or
underwriter, at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries as they may reasonably request,
and cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by any
such representative, underwriter, attorney, consultant or accountant in
connection with such Registration Statement, provided, however, that such
persons shall first
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<PAGE> 15
agree in writing with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the time of
delivery or inspection (as the case may be) of such information shall be kept
confidential by such persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration Statement or
the use of any Prospectus), (iii) such information becomes generally available
to the public other than as a result of a disclosure or failure to safeguard by
any such person or (iv) such information becomes available to any such person
from a source other than the Company and such source is not bound by a
confidentiality agreement.
(o) Use all reasonable efforts to cause the Indenture to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Transfer Restricted Securities; and in
connection therewith, cooperate with the Trustee and the Holders of Preferred
Stock constituting Transfer Restricted Securities to effect such changes to the
Indenture, if any, as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best efforts to
cause the Trustee to execute, all customary documents as may be required to
effect such changes, and all other forms and documents (including Form T-1)
required to be filed with the SEC to enable the Indenture to be so qualified
under the TIA in a timely manner.
(p) Comply with applicable rules and regulations of the SEC
and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act or Rule 158 (or
any similar rule promulgated under the Securities Act), no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Transfer Restricted Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of Rule 158;
and
(q) (i) list all shares of Common Stock covered by all
Registration Statements on any securities exchange on which the Common Stock is
then listed or (ii) authorize for quotation on the SmallCap Market or the
National Market of the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), all Common Stock covered by such Registration
Statement if the Common Stock is then so authorized for quotation.
(r) use all reasonable efforts to (i) list all shares of
Preferred Stock covered by such Registration Statement on any securities
exchange on which the Common Stock is then listed or (ii) authorize for
quotation on the SmallCap Market or the National Market of Nasdaq all Preferred
Stock covered by such Registration Statement if the Common Stock is then so
authorized for quotation.
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<PAGE> 16
5. Registration Expenses.
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by it whether or
not any Registration Statement is filed or becomes effective and whether or not
any securities are offered or sold pursuant to any Registration Statement. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filings fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the National Association of Securities Dealers, Inc. and (B) in compliance
with securities or Blue Sky laws (including, without limitation and in addition
to that provided for in (b) below, fees and disbursements of counsel for the
underwriters or the Special Counsel in connection with Blue Sky qualifications
of the Transfer Restricted Securities and determination of the eligibility of
the Transfer Restricted Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or Holders of a majority in
interest of Transfer Restricted Securities, may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Transfer Restricted Securities in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses if the printing of
Prospectuses is required by the managing underwriters, if any, or by the Holders
of a majority in interest of the Transfer Restricted Securities included), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and the Special Counsel (plus any local counsel deemed
appropriate by the Holders of a majority in interest of the Transfer Restricted
Securities) in accordance with the provisions of Section 5(b) hereof, (v) fees
and disbursements of all independent certified public accountants referred to in
Section 4(m)(iii) (including, without limitation, the expenses of any special
audit and "comfort" letters required by or incident to such performance), (vi)
Securities Act liability insurance, if the Company so desires such insurance,
and (vii) fees and expenses of all other persons retained by the Company. In
addition, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of an annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange or the Nasdaq SmallCap Market or the
Nasdaq National Market. Notwithstanding anything in this Agreement to the
contrary, each Holder shall pay all underwriting discounts and brokerage
commissions with respect to any Transfer Restricted Securities sold by it.
(b) In connection with any registration hereunder, the Company
shall reimburse the Holders of the Transfer Restricted Securities being
registered or tendered for in such registration for the fees and disbursements
of not more than one firm of attorneys representing the selling Holders (in
addition to any local counsel), which firm shall be chosen by the Holders of a
majority in interest of the Transfer Restricted Securities. Testa, Hurwitz &
Thibeault, LLP shall be Special Counsel for all purposes hereof unless and until
another Special Counsel shall have been selected by a majority in interests of
the Transfer Restricted Securities and notice hereof shall have been given to
the Company.
6. Indemnification
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<PAGE> 17
(a) The Company agrees to indemnify and hold harmless (i) each
of the Purchasers, (ii) each Holder, (iii) each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) any of the foregoing (any of the persons referred to in this
clause (iii) being hereinafter referred to as a "controlling person"), and (iv)
the respective officers, directors, partners, employees, representatives and
agents of the Purchasers, the Holders (including predecessor Holders), or any
controlling person (any person referred to in clause (i), (ii), (iii) or (iv)
may hereinafter be referred to as an "Indemnified Person"), from and against any
and all losses, claims, damages, liabilities, expenses and judgments caused by
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary Prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except insofar as such losses, claims, damages, liabilities,
expenses or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Indemnified Person furnished to the Company by or on behalf of such Indemnified
Person expressly for use therein; provided, however, that the foregoing
indemnity with respect to any preliminary Prospectus shall not inure to the
benefit of any Indemnified Person from whom the person asserting such losses,
claims, damages, liabilities, expenses and judgments purchased securities if
such untrue statement or omission or alleged untrue statement or omission made
in such preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus shall not have been furnished to such person in a timely
manner due to the wrongful action or wrongful inaction of such Indemnified
Person, whether as a result of negligence or otherwise.
(b) In case any action shall be brought against any
Indemnified Person, based upon any Registration Statement or any such Prospectus
or any amendment or supplement thereto and with respect to which indemnity may
be sought against the Company, such Indemnified Person shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person and
payment of all fees and expenses. Any Indemnified Person shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Company, (ii) the Company shall
have failed to assume the defense and employ counsel or (iii) such Indemnified
Person or Persons shall have been advised by counsel that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action or
proceeding or that there may be legal defenses available to such Indemnified
Person or Persons different from or in addition to those available to the
indemnifying party or parties (in which case the Company shall not have the
right to assume the defense of such action on behalf of such Indemnified Person,
it being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all such Indemnified Persons, which firm
shall
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<PAGE> 18
be designated in writing by such Indemnified Persons, and that all such fees and
expenses shall be reimbursed as they are incurred). The Company shall not be
liable for any settlement of any such action effected without its written
consent but if settled with the written consent of the Company, the Company
agrees to indemnify and hold harmless any Indemnified Person from and against
any loss or liability by reason of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(c) In connection with any Registration Statement pursuant to
which any Holder (or predecessor Holder) sold or offered for resale Transfer
Restricted Securities, such Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, officers, employees,
representatives and agents and any person controlling the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to each
Indemnified Person but only with reference to information relating to such
Indemnified Person furnished by or on behalf of such Indemnified Person
expressly for use in such Registration Statement. In case any action shall be
brought against the Company, any of its directors, officers, employees,
representatives and agents or any person controlling the Company based on such
Registration Statement and in respect of which indemnity may be sought against
any Indemnified Person, the Indemnified Person shall have the rights and duties
given to the Company (except that if the Company shall have assumed the defense
thereof, such Indemnified Person shall not be required to do so, but may employ
separate counsel therein and participate in defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person),
and the Company, its directors, officers, employees, representatives and agents
and any person controlling the Company shall have the rights and duties given to
the Indemnified Person by Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities, expenses or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities, expenses and judgments (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and each Indemnified Person on the other hand pursuant to the Purchase
Agreement or from the offering for resale of the Transfer Restricted Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and each such indemnified person in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities,
expenses or judgments, as well as any other relevant equitable considerations.
The relative fault of the Company and each such indemnified person shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied
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<PAGE> 19
by the Company or such Indemnified Person and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Holders and the Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 6(d)
were determined by pro rata allocation (even if the Indemnified Person were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities, expenses or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6, no Indemnified Person shall be required to contribute any amount in
excess of the amount by which the total net profit received by it in connection
with the sale of the Transfer Restricted Securities pursuant to this Agreement
exceeds the amount of any damages which such Indemnified Person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Indemnified Persons' obligations to contribute pursuant
to this Section 6(d) are several in proportion to the respective amount of
Transfer Restricted Securities included in and sold pursuant to any such
Registration Statement by each Indemnified Person and not joint.
7. Rules 144 and 144A
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time it is not required to file such reports but in the past had been required
to or did file such reports, it will, upon the request of any Holder, make
available other information as required by, and so long as necessary to permit
sales of, its Transfer Restricted Securities pursuant to Rule 144 and Rule 144A.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
8. Underwritten Registrations
If any of the Transfer Restricted Securities covered by any
Shelf Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be investment bankers of recognized national
standing selected by the Holders of a majority in interest of such Transfer
Restricted Securities included in such offering, subject to the consent of the
Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to
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<PAGE> 20
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
9. Miscellaneous
(e) Remedies. In the event of a breach by the Company or by a
Holder of any of their respective obligations under this Agreement, each Holder
or the Company, in addition to being entitled to exercise all rights granted by
law, including, without limitation, recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate. This Section 9(a) shall not apply to any breach
for which Liquidated Damages have been specifically provided hereunder.
(f) No Inconsistent Agreements. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in interest of the Transfer
Restricted Securities, the Company shall not grant to any person the right to
request it to register any of its securities under the Securities Act unless the
rights so granted are subject in all respect to the prior rights of the Holders
set forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(g) No Adverse Action Affecting the Transfer Restricted
Securities. The Company will not take any action with respect to the Transfer
Restricted Securities which would adversely affect the ability of any of the
Holders to include such Transfer Restricted Securities in a registration
undertaken pursuant to this Agreement.
(h) No Piggyback on Registrations. After the date hereof, the
Company shall not grant to any of its security holders (other than the Holders
in such capacity) the right to include any of its securities in any Shelf
Registration Statement.
(i) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof,
may not be given, without the written consent of the Holders of a majority in
interest of the Transfer Restricted Securities; provided, however, that, for the
purposes of this Agreement, Transfer Restricted Securities that are owned,
directly or indirectly, by either the Company or an Affiliate of the Company are
not deemed outstanding.
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Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders whose Transfer Restricted Securities are being sold pursuant to an
underwritten offering and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of a majority in interest of the
Transfer Restricted Securities being sold by such Holders pursuant to such an
underwritten offering; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(j) Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next day air courier,
certified first-class mail, return receipt requested or telecopy provided a copy
of any such telecopy is immediately followed up by next day courier:
(i) if to a Holder, to the address of such
Holder as it appears in the Preferred Stock,
Common Stock or Debenture register of the
Company, as applicable;
(ii) if to the Company, to:
Alkermes, Inc.
64 Sydney Street
Cambridge, MA 02139
Attn.: Chief Financial Officer
Telecopy No.: (617) 494-9255
(iii) if to the Special Counsel, to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: Mitchell S. Bloom, Esq.
Telecopy No.: (617) 248-7100
or such other Special Counsel at such other
address and telecopy number as a majority in
interest of the Transfer Restricted
Securities shall have given notice to the
Company as contemplated by Section 5(b)
hereof.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given, when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier, five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged by the
20
<PAGE> 22
recipient's telecopier machine, if telecopied; provided a copy of such telecopy
is immediately followed up by next day courier.
(k) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each existing and future Holder.
The Company may not assign its rights or obligations hereunder without the prior
written consent of the Holders of a majority in interest of the Transfer
Restricted Securities, other than by operation of law pursuant to a merger or
consolidation to which the Company is a party. In the event the Preferred Stock
constituting Transfer Restricted Securities become convertible into common stock
of another person pursuant to the Preferred Stock Statement or the Indenture,
the Company shall cause such person to assume the Company's obligations
hereunder.
(l) Counterparts. This Agreement may be executed in any number
of counterparts by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
(m) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(n) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(o) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. All references made in this Agreement to "Section" and
"paragraph" refer to such Section or paragraph of this Agreement, unless
expressly stated otherwise.
(p) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover its reasonable attorneys' fees in addition to any
other available remedy.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
21
<PAGE> 23
ALKERMES, INC.
By: /s/ Michael J. Landine
------------------------------
Name: Michael J. Landine
----------------------------
Title: Senior Vice President, CFO
& Treasurer
---------------------------
The foregoing Registration
Rights Agreement is hereby
confirmed and agreed to as
of the date first written
above:
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
COWEN & COMPANY
CREDIT SUISSE FIRST BOSTON CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
J.P. MORGAN SECURITIES INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
By: BANCAMERICA ROBERTSON STEPHENS
By: /s/ William S. Wisialowski
----------------------------
Authorized Signatory
Acting on behalf of itself and the other
Purchasers
22
<PAGE> 1
Exhibit 10.2
ALKERMES, INC.
AMENDED AND RESTATED 1990 OMNIBUS STOCK OPTION PLAN
(ADOPTED ON SEPTEMBER 19, 1990, AS AMENDED
THROUGH JUNE 11, 1997)
1. OBJECTIVES
The objectives of this Plan are to assist Alkermes, Inc. (the
"Company") in attracting and retaining employees, officers and directors of and
consultants to the Company and in promoting the identification of such persons'
interests with those of the Company's shareholders.
2. DEFINITIONS
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute or codification of the income tax laws of the
United States.
"Committee" shall mean the Stock Option Committee of the Board
of Directors, which shall consist of at least two directors, each of whom is a
disinterested person within the meaning of Rule 16b-3(c)(2)(i) under the
Exchange Act.
"Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
"Date of Grant" in relation to any option granted under this
Plan shall mean the date on which, or the future date as of which, the Board or
the Committee grants that option.
"Eligible Person" shall mean any employee, consultant, officer
or director of the Company or any Parent or Subsidiary. For the purposes of
Incentive Stock Options, Eligible Persons must meet all the requirements under
Section 422 of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Exercise" in respect of an option shall mean the delivery by
the Optionee to the Company of (a) written notice of exercise of the option as
to a specified number of Shares; (b) payment of the option exercise price for
such Shares; and (c) any other statement or evidence required pursuant to
Section 9 hereof.
"Fair Market Value" of a Share with respect to any day shall
mean (i) the average of the high and low price on such day for a share of Common
Stock as reported on the principal securities exchange on which shares of Common
Stock are then listed or as quoted on the NASDAQ National
<PAGE> 2
Market System, (ii) if not so listed or quoted, the average of the closing bid
and asked prices on such day as reported on NASDAQ, and (iii) if not so listed,
quoted or reported, the value as determined in good faith by the Board or the
Committee, as the case may be.
"Incentive Stock Option" shall mean any option that, at the
time of grant, meets the requirements of Section 422 of the Code and is
identified as an incentive stock option.
"ISO Plans" shall mean the Plan and all other incentive stock
option plans under Section 422 of the Code adopted or assumed by corporations
that are Qualified Employers.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System.
"Non-Qualified Stock Option" shall mean any option granted
under the Plan other than an Incentive Stock Option.
"Non-Section 16 Eligible Person" shall mean an Eligible Person
who is not an Officer or a director of the Company.
"Officer" shall mean a person who has been designated by the
Board as an officer of the Company within the meaning of Rule 16a-1(f) of the
Exchange Act.
"Optionee" shall mean a person holding an option granted under
this Plan which has not been exercised or surrendered and has not expired.
"Parent" shall mean a corporation which, at the time in
question, owns at least 50% of the total combined voting power of all classes of
outstanding stock of the Company (or of a corporation that has issued or assumed
a stock option of the Company in a transaction to which Section 424(a) of the
Code applies) and a corporation which, at such time, owns at least 50% of the
total combined voting power of all classes of stock in another Parent.
"Plan" means this Amended and Restated 1990 Omnibus Stock
Option Plan, as amended from time to time.
"Qualified Employer" shall mean the Company, any Parent or any
Subsidiary.
"Section 16 Eligible Person" shall mean an Eligible Person who
is an Officer or a director of the Company.
"Shares" shall mean shares of Common Stock of the Company for
which options may be granted hereunder.
"Subsidiary" shall mean a corporation in which, at the time in
question, the Company (or a corporation that issued or assumed a stock option of
the Company in a transaction to which Section 424(a) of the Code applies) owns
at least 50% of the total combined voting power of all classes of stock
outstanding and a corporation in which, at such time, another Subsidiary owns at
least 50% of the total combined voting power of all classes of stock
outstanding.
"Ten Percent Shareholder" shall mean an Eligible Person who
owns at the Date of Grant
2
<PAGE> 3
more than 10% of the total combined voting power of all classes of stock of a
Qualified Employer.
3. MAXIMUM NUMBER OF SHARES TO BE OPTIONED AND ADJUSTMENTS IN OPTIONED
SHARES
The maximum number of Shares for which options may be granted
hereunder is 2,500,000. This number shall be adjusted if the number of
outstanding shares of Common Stock of the Company is increased or reduced by
split-up, reclassification, stock dividend, or the like. The number of Shares
previously optioned and not theretofore delivered and the option exercise price
per Share shall likewise be adjusted whenever the number of outstanding shares
of Common Stock is increased or reduced by any such procedure. Shares for which
options have expired or have been surrendered may again be optioned pursuant to
the Plan.
4. ADMINISTRATION AND INTERPRETATION
Except to the extent provided below, this Plan shall be
administered by the Board. The Board may delegate responsibility for
administration to the Committee. The Board, or such Committee, may make such
rules and establish such procedures as it deems appropriate for the
administration of the Plan. In the event of any disagreement as to the
interpretation of the Plan or any rule or procedure thereunder, the decision of
the Board, or such Committee, shall be final and binding upon all persons in
interest. Members of the Board who are eligible to participate in or have been
granted options under the Plan may vote on matters affecting administration of
the Plan; provided, however, that the Committee shall have the authority and
sole responsibility for granting options to Section 16 Eligible Persons and
authorizing the issuance of Shares upon the exercise thereof, and for the
administration of the Plan with respect thereto.
5. GRANTING OF OPTIONS
The Board is authorized to grant options to Non-Section 16
Eligible Persons pursuant to this Plan. The number of Shares, if any, optioned
in each year, the Non-Section 16 Eligible Persons to whom and the time or times
at which options are granted, the number of Shares optioned to each Non-Section
16 Eligible Person and the other terms and provisions of such options shall be
wholly within the discretion of the Board, subject to the limitation that no
option shall be granted (notwithstanding any other provisions of this Plan to
the contrary) later than September 19, 2000.
The Committee is authorized to grant options to Section 16
Eligible Persons pursuant to this Plan. The number of Shares, if any, optioned
in each year, the Section 16 Eligible Persons to whom and the time or times at
which options are granted, the number of Shares optioned to each Section 16
Eligible Person and the other terms and provisions of such options shall be
wholly within the discretion of the Committee, subject to the limitation that no
option shall be granted (notwithstanding any other provisions of this Plan to
the contrary) later than September 19, 2000.
3
<PAGE> 4
6. TYPE OF OPTIONS
This Plan permits the grant of Non-Qualified Stock Options, as
well as Incentive Stock Options. Options granted under the Plan will be
designated as Non-Qualified Stock Options or Incentive Stock Options at the time
of their grant.
7. OPTION TERMS
Subject to the limitation prescribed in Section 5 above, the
options granted under this Plan shall be on the terms stated in clauses (a)
through (h) below. The Board or the Committee, as the case may be, may specify
additional terms not inconsistent with this Plan by rules of general application
or by specific direction in connection with a particular option or group of
options.
(a) The option exercise price shall be fixed by the Board or
the Committee, as the case may be, but shall not be less than 100% (110% in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder) of the
Fair Market Value of the underlying Shares on the Date of Grant.
(b) The option exercise price shall be payable in cash,
property, services rendered or, under certain circumstances, in shares of Common
Stock of the Company having a Fair Market Value equal to the option exercise
price on the date of exercise, or any combination thereof, or any other means
which the Board or the Committee, as the case may be, determines are consistent
with the Plan's purpose and applicable laws.
(c) The option shall not be transferable otherwise than by
will or the laws of descent and distribution and shall be exercisable during the
Optionee's lifetime only by the Optionee or after his death by the person or
persons entitled thereto by will or the laws of descent and distribution.
(d) The term of the option shall be fixed by the Board or the
Committee, as the case may be, but no option shall be granted for a term to
exceed ten years or, in the case of an Incentive Stock Option being granted to a
Ten Percent Shareholder, for a term to exceed five years.
(e) The option shall terminate and may not be exercised if the
Optionee ceases for any reason (including death, retirement or disability) to be
an employee of the Qualified Employer, except to the extent provided in Section
9 hereof.
(f) In the event that the Company is succeeded by another
company in a reorganization, merger, consolidation, acquisition of property or
stock, separation or liquidation, the successor company shall assume the
outstanding options granted under this Plan or shall substitute new options for
them, which shall provide that the Optionee, at the same cost, shall be entitled
upon the exercise of such option to receive such securities of the surviving or
resulting corporation as the Board of Directors of such corporation shall
determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of shares of stock or other securities to which the Optionee
would have been entitled under the terms of the agreement governing the
reorganization, merger, consolidation, acquisition of property or stock,
separation or liquidation as if, immediately prior to such event, the Optionee
had been the holder of record of the number of Shares which were then subject to
such option.
(g) The aggregate Fair Market Value (determined as of the Date
of Grant) of the Shares for which Incentive Stock Options are granted under the
ISO Plans to any one Eligible Person that are exercisable for the first time
during any calendar year shall not exceed $100,000.
4
<PAGE> 5
(h) The terms and conditions of the grant of each option
granted hereunder shall be embodied in a written award certificate in a form
prescribed by the Board or by the Committee, as the case may be, which (i) has
been completed with the date, name of Optionee, number of Shares to which it
relates, type of option, term of option, option price per Share, name of
Optionee's employing company and (with respect to Incentive Stock Options) the
conditions required to qualify as an incentive stock option under Section 422 of
the Code, (ii) has been signed by a member of the Board or the Committee or an
officer of the Company designated by the Board or by the Committee, as the case
may be, and (iii) has been delivered to the Optionee.
8. LIMITED STOCK APPRECIATION RIGHTS
(a) The Committee is authorized, in its discretion, to grant
limited stock appreciation rights ("LSARs") with respect to all or any portion
of the Shares covered by stock options granted hereunder to Officers and
directors of the Company, simultaneously with the grant of, or at any time
during the term of, non-qualified options or simultaneously with the grant of
incentive stock options. The grant of the LSAR will not be effective until six
months after the date of its grant. Those options with respect to which an LSAR
has been granted and become effective shall become immediately exercisable upon
the occurrence of any of the following events (each, a "Triggering Event"): (i)
the consummation by the Company of a reorganization, merger, or consolidation
after approval of any such transaction by shareholders, other than Section 16
Eligible Persons, holding at least the minimum number of shares necessary to
approve such transaction under the Company's Articles of Incorporation and
applicable law, (ii) the consummation by the Company of a sale of substantially
all its assets after approval of any such transaction by shareholders, other
than Section 16 Eligible Persons, holding at least the minimum number of shares
necessary to approve such transaction under the Company's Articles of
Incorporation and applicable law, or (iii) the acquisition by a single purchaser
or group of related purchasers of in excess of 51% of the issued and outstanding
shares of Common Stock from shareholders of the Company other than Section 16
Eligible Persons, in any case other than in a transaction in which the surviving
corporation or the purchaser is the Company or a Subsidiary of the Company
(other than a transaction in which the surviving corporation or the purchaser is
the Company or a Subsidiary of the Company but the capital stock of the Company
or a Subsidiary of the Company is converted into capital stock of any entity
other than the Company or any such Subsidiary) or an entity controlled by
Section 16 Eligible Persons.
(b) The LSARs shall provide that upon the occurrence of any
Triggering Event, the Optionee shall receive from the Company, for each LSAR, an
amount in cash equal to the amount by which the option exercise price per Share
of the option to which the LSAR relates is exceeded by the Fair Market Value of
the Shares issuable upon exercise of such option on the date such Triggering
Event occurs. When a Triggering Event occurs, the option to which the LSAR
relates will cease to be exercisable, but will be deemed to have been exercised
for purposes of determining the number of Shares for which options may be
granted hereunder.
(c) An LSAR shall be expressly subject to the following
additional requirements: (i) the LSAR shall expire no later than the expiration
of the underlying option; (ii) the LSAR shall be transferable only when the
underlying option is transferable, and under the same conditions; and (iii) a
Triggering Event shall be deemed to have occurred only when the Fair Market
Value of the Shares subject to the underlying option exceeds the exercise price
of such option.
5
<PAGE> 6
9. EXERCISE RIGHTS UPON CEASING TO BE AN EMPLOYEE, OFFICER, CONSULTANT OR
DIRECTOR
(a) If an Optionee becomes permanently and totally disabled,
he may exercise his option for up to one year after the date he ceases to be an
employee, officer or director of or a consultant to a Qualified Employer on
account of such disability, but in no event later than the date on which the
option would have expired if the Optionee had not become disabled. During such
period, the option may be exercised only to the extent that the Optionee was
entitled to do so at the date of disability and, to the extent the option is not
so exercised, it shall expire at the end of such period. For purposes of this
Section 9(a), an Optionee shall be deemed to be disabled if, in the
determination of the Board or the Committee, as the case may be, he is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
(b) If an Optionee dies during a period in which he is
entitled to exercise an option (including the period referred to in subsection
(a) above), the option shall terminate one year after the date of death, but in
no event later than the date on which the option would have expired if the
Optionee had lived. During such period, the option may be exercised by the
Optionee's executor or administrator or by any person or persons who shall have
acquired the option directly from the Optionee by bequest or inheritance or by
reason of the death of the Optionee, but only to the extent that the Optionee
was entitled to do so at the date of death and, to the extent the option is not
so exercised, it shall expire at the end of such period.
(c) If an Optionee ceases to be an employee, officer or
director of or consultant to any and all Qualified Employers in circumstances
other than those described in subsections (a) or (b) above, he may exercise
options granted hereunder for a period not to exceed three months after the date
of such cessation, but in no event later than the date on which the option would
have expired if the Optionee had remained an employee, officer or director of or
consultant to a Qualified Employer. During such period, the option may be
exercised only to the extent that the Optionee was entitled to do so on the date
of cessation and, to the extent the option is not so exercised, it shall expire
at the end of such three-month period. This provision shall not apply if the
Optionee's employment or consultant relationship was terminated for "cause," or
if the officer or director was removed for "cause," which shall include theft,
falsification of records, fraud, embezzlement, gross negligence or willful
misconduct, causing a Qualified Employer to violate any federal, state, or local
law, or administrative regulation or ruling having the force and effect of law,
insubordination, conflict of interest, diversion of corporate opportunity, or
conduct that results in publicity that reflects unfavorably on a Qualified
Employer.
(d) For purposes of this section an Optionee who is an
employee shall not be treated as having ceased employment if (1) the Optionee is
on military, sick leave or other bona fide leave of absence (such as temporary
employment by the United States Government); and (2) the period of such leave
does not exceed 90 days, or, if longer, so long as the Optionee's right to
reemployment with a Qualified Employer is guaranteed by statute or by contract.
Where the period of leave exceeds 90 days and the Optionee's right to
reemployment is not guaranteed by statute or by contract, such Optionee shall be
deemed to have ceased being an employee on the 91st day of such leave.
6
<PAGE> 7
10. ADDITIONAL REQUIREMENTS
Upon the exercise of an option granted hereunder the Board or
the Committee, as the case may be, may require the Optionee to deliver the
following:
(a) A written statement satisfactory to the Company or its
counsel that the Optionee is purchasing the Shares for investment and not with a
view toward their distribution or sale and will not sell or transfer any Shares
received upon the exercise of the option except in accordance with the
Securities Act of 1933 and applicable state securities laws; and
(b) Evidence reasonably satisfactory to the Company that at
the time of exercise the Optionee meets such other requirements as the Board or
the Committee, as the case may be, may determine.
11. SHARES SUBJECT TO OPTION
The Shares issuable upon exercise of options granted hereunder
may be unissued shares or treasury shares, including shares bought on the open
market. The Company at all times during the term of this Plan shall reserve for
issuance the number of Shares issuable upon exercise of options granted
hereunder.
12. COMPLIANCE WITH GOVERNMENTAL AND OTHER REGULATIONS
The Company will not be obligated to issue and sell the Shares
issued pursuant to options granted hereunder if, in the opinion of its counsel,
such issuance and sale would violate any applicable federal or state securities
laws. The Company will seek to obtain from each regulatory commission or agency
having jurisdiction such authority as may be required to issue and sell Shares
issuable upon exercise of any option granted hereunder. Inability of the Company
to obtain from any such regulatory commission or agency authority which counsel
for the Company deems necessary for the lawful issuance and sale of Shares upon
exercise of an option granted hereunder shall relieve the Company from any
liability for failure to issue and sell such Shares until the time when such
authority is obtained or is obtainable.
13. NONASSIGNMENT OF OPTIONS
Except as otherwise provided in Paragraph 7(c) hereof, any
option granted hereunder and the rights and privileges conferred hereby shall
not be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law otherwise) and shall not be subject to execution, attachment,
or similar process. Upon any attempt to transfer, assign, pledge, hypothecate,
or otherwise dispose of such option, right or privilege contrary to the
provisions hereof, or upon the levy or any attachment or similar process upon
the rights and privileges conferred hereby, such option and the rights and
privileges conferred hereby shall immediately terminate.
7
<PAGE> 8
14. RIGHTS OF OPTIONEE IN SHARES
Neither any Optionee nor the legal representatives, heirs,
legatees, or distributees of any Optionee, shall be deemed to be the holder of,
or to have any rights of a holder with respect to, any Shares issuable upon
exercise of an option granted hereunder unless and until such Shares are issued
to him or them.
15. DELIVERY OF SHARES ISSUED PURSUANT TO OPTION
Subject to the other terms and conditions of this Plan, upon
the exercise of an option granted hereunder, the Company shall sell to the
Optionee the Shares with respect to which the option has been exercised.
16. WITHHOLDING OF APPLICABLE TAXES
A Qualified Employer shall have the right to reduce the number
of Shares otherwise required to be issued upon exercise of an option granted
hereunder by an amount which would have a Fair Market Value on the date of such
exercise equal to all Federal, state, city, or other taxes as shall be required
to be withheld by the Qualified Employer pursuant to any statute or other
governmental regulation or ruling. In connection with all such withholding
obligations (whether arising in connection with an exercise of an option granted
hereunder or in connection with a disqualifying disposition (as defined in
Section 421(b) of the Code) of stock obtained upon exercise of an Incentive
Stock Option granted hereunder), a Qualified Employer may make any other
arrangements consistent with this Plan as it may deem appropriate, including but
not limited to withholding such taxes from cash compensation payable to the
Optionee and requiring the Optionee to remit cash in an amount equal to the
taxes required to be withheld.
17. PLAN AND OPTIONS NOT TO AFFECT EMPLOYMENT OR OTHER AFFILIATION
Neither this Plan nor any options granted hereunder shall
confer upon any Eligible Person any right to continue employment or affiliation
with any Qualified Employer.
18. AMENDMENT OF PLAN
The Board may make such amendments to this Plan as it deems
necessary or advisable, provided that, without further action by the
shareholders of the Company, no such amendment shall (a) materially increase the
maximum number of Shares for which options may be granted, except as provided in
Section 3, (b) materially increase the benefits under the Plan, or (c)
materially modify the requirements as to eligibility for participation in the
Plan, and in no event shall any such amendment impair the rights of any
participant under any option theretofore granted.
19. NOTICES
Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, postage
prepaid, addressed to the Company, 26 Landsdowne Street, Cambridge, MA 02139 and
to the Optionee at the address on file with the Company at the time of grant
hereunder, or to such other address as either party may hereafter designate in
writing by notice similarly given by one party to the other.
8
<PAGE> 9
20. SUCCESSORS
The Plan shall be binding upon and inure to the benefit of any
successor, successors or assigns of the Company.
21. SEVERABILITY
If any part of this Plan shall be determined to be invalid or
void in any respect, such determination shall not affect, impair, invalidate, or
nullify the remaining provisions of this Plan which shall continue in full force
and effect.
22. TERMINATION OF THE PLAN
The Board may terminate this Plan at any time; otherwise this
Plan shall terminate September 19, 2000. Termination of the Plan shall not
deprive Optionees of their rights under previously granted options.
23. GRANTS OF OPTIONS AFTER AMENDMENTS TO PLAN
The grant of any option hereunder on or after the date the
Board has adopted any amendments to the Plan that require shareholder approval
pursuant to Section 18 hereof, is subject to the express condition that within
12 months after such date, the holders of a majority of the outstanding shares
of Common Stock present, or represented, and entitled to vote thereon shall have
approved the Plan at a duly held meeting of the shareholders of the Company.
9
<PAGE> 1
Exhibit 10.25
DEVELOPMENT
AND
LICENSE
AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - DEFINITION....................................................... 1
1.1 "ACT Know-How"................................................... 1
1.2 "ACT Patent"..................................................... 1
1.3 "Affiliate"...................................................... 2
1.4 "BLA"............................................................ 2
1.5 "Collaboration Product".......................................... 2
1.6 "Collaboration Tangible Research Product"........................ 2
1.7 "Control"........................................................ 2
1.8 "Date of First Sale"............................................. 2
1.9 "Development Supply Cost"........................................ 2
1.10 "Drug Approval Application"...................................... 2
1.11 "Effective Date"................................................. 2
1.12 "FDA"............................................................ 2
1.13 "Field".......................................................... 2
1.14 "FTE"............................................................ 2
1.15 "Information".................................................... 3
1.16 "Major European Country"......................................... 3
1.17 "Negotiated Labor Rate".......................................... 3
1.18 "Net Sales"...................................................... 3
1.19 "Non-Product Program Patent"..................................... 4
1.20 "Patent"......................................................... 4
1.21 "Patent Costs" .................................................. 4
1.22 "Peptidal rHuEPO"................................................ 4
1.23 "Phase I"........................................................ 4
1.24 "Phase II"....................................................... 4
1.25 "Phase III"...................................................... 4
1.26 "Pre-Phase I".................................................... 4
1.27 "PRI Know-how"................................................... 5
1.28 "PRI Patent"..................................................... 5
1.29 "Program Patent"................................................. 5
1.30 "Regulatory Approval"............................................ 5
1.31 "Research"....................................................... 5
1.32 "Research Plan".................................................. 5
1.33 "Research Services Cost"......................................... 5
1.34 "Research Term".................................................. 5
1.35 "Third Party".................................................... 5
1.36 "Valid Patent Claim"............................................. 5
ARTICLE II - DEFINITION...................................................... 6
2.1 Collaborative Research Program................................... 6
2.2 The JRC.......................................................... 6
2.3 Information and Reports.......................................... 6
2.4 ACT Research Efforts............................................. 7
2.5 PRI's Research Efforts........................................... 7
2.6 Research Capital Expenditures.................................... 7
2.7 PRI's Option to Extend Research Term............................. 7
2.8 Additional Extension by Mutual Consent........................... 7
2.9 Research Products................................................ 7
2.10 Research Audit................................................... 7
ARTICLE III - PRODUCT DEVELOPMENT............................................ 8
3.1 PRI's Responsibilities........................................... 8
3.2 ACT's Responsibilities........................................... 8
3.3 Adverse Event Reporting Requirement.............................. 8
3.4 Filing Reports................................................... 9
</TABLE>
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<TABLE>
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ARTICLE IV - COMMERCIALIZATION............................................... 9
4.1 Marketing Obligations............................................ 9
4.2 Trademarks....................................................... 9
ARTICLE V - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS............. 9
5.1 Ownership Of Program Patents..................................... 9
5.2 Ownership Of Non-Product Program Patents......................... 10
5.3 Disclosure Of Patentable Inventions.............................. 10
5.4 Non-Product Program Patent Filings............................... 10
5.5 Program Patent Filings........................................... 10
5.6 Enforcement Rights - Non-Product Program Patents................. 11
5.7 Enforcement Rights - Program Patents............................. 11
5.8 Defense and Settlement of Third Party Claims to
Collaboration Products........................................... 12
ARTICLE VI - LICENSE GRANTS.................................................. 12
6.1 Patents for Collaboration Product................................ 12
6.2 Know-How for Collaboration Product............................... 12
6.3 Patent Licenses for Research..................................... 12
6.4 Other Exclusive Licenses......................................... 12
ARTICLE VII - PAYMENTS....................................................... 12
7.1 Research Payments................................................ 12
7.2 Development Payments............................................. 13
7.3 Milestone Payments............................................... 13
7.4 Milestone Payment Timing......................................... 14
7.5 Earned Royalties for Collaboration Products...................... 14
7.6 Generic Competition.............................................. 15
7.7 Collaboration Product Earned Royalty Term........................ 15
7.8 Special European Union Provisions................................ 15
7.9 Foreign Exchange................................................. 16
7.10 Blocked Currency................................................. 16
7.11 Taxes............................................................ 16
7.12 Records and Reports.............................................. 16
7.13 Accounting....................................................... 16
7.14 Third Party Patents.............................................. 17
7.15 Compulsory License............................................... 17
ARTICLE VIII - MANUFACTURE................................................... 17
8.1 PRI's Responsibility............................................. 17
8.2 ACT's Duties..................................................... 17
ARTICLE IX - CONFIDENTIALITY................................................. 17
9.1 Disclosed Confidential Information............................... 17
9.2 Shared Confidential Information.................................. 18
9.3 Permitted Disclosure............................................. 18
9.4 Integration...................................................... 19
ARTICLE X - REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY...................... 19
10.1 Representations and Warranties................................... 19
10.2 Performance By Affiliates........................................ 19
ARTICLE XI - TERM AND TERMINATION............................................ 19
11.1 Term............................................................. 19
11.2 Termination For Breach........................................... 20
11.3 Termination For Bankruptcy....................................... 20
11.4 Termination By PRI For Cause..................................... 20
11.5 Termination By PRI Without Cause................................. 20
11.6 Surviving Rights................................................. 20
</TABLE>
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<TABLE>
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11.7 Accrued Rights, Surviving Obligations............................ 20
11.8 Termination Not Sole Remedy...................................... 20
ARTICLE XII - INDEMNIFICATION................................................ 21
12.1 Research and Development Indemnification......................... 21
12.2 PRI Indemnification.............................................. 21
12.3 Notification..................................................... 21
ARTICLE XIII - DISPUTE RESOLUTION............................................ 21
13.1 Disputes......................................................... 21
13.2 Alternative Dispute Resolution................................... 21
13.3 Arbitration Procedure............................................ 22
13.4 Survivability.................................................... 22
13.5 Jurisdiction..................................................... 23
ARTICLE XIV - LICENSOR BANKRUPTCY............................................ 23
14.1 Licensor Bankruptcy............................................. 23
ARTICLE XV- NOTICES.......................................................... 23
15.1 Notice.......................................................... 23
ARTICLE XVI - ASSIGNMENT..................................................... 24
16.1 Assignment...................................................... 24
ARTICLE XVII - PUBLICITY..................................................... 24
17.1 Publicity....................................................... 24
ARTICLE XVIII - FORCE MAJEURE................................................ 25
18.1 Force Majeure................................................... 25
ARTICLE XIX - INTEGRATION.................................................... 25
19.1 Integration..................................................... 25
ARTICLE XX - MISCELLANEOUS................................................... 25
20.1 Amendments...................................................... 25
20.2 Laws............................................................ 25
20.3 Severability.................................................... 25
20.4 Headings........................................................ 25
20.5 Waiver.......................................................... 26
20.6 Representations................................................. 26
20.7 Compliance with Laws............................................ 26
20.8 Relationship of Parties......................................... 26
20.9 Counterparts.................................................... 26
20.10 Limited Liability............................................... 26
20.11 Electronic Copies............................................... 26
</TABLE>
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DEVELOPMENT AND LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the 19th day of January, 1998 by
and between, The R. W. Johnson Pharmaceutical Research Institute, a division of
Ortho Pharmaceutical Corporation, having a business address at U. S. Route 202,
Raritan, New Jersey 08869-0602 (hereinafter referred to as "PRI"), and Alkermes,
Inc. and Alkermes Controlled Therapeutics, Inc., both having a business address
at 64 Sidney Street, Cambridge, MA 02139-4136 (hereinafter collectively referred
to as "ACT"). ACT and PRI are each referred to herein by name or as a "Party"
or, collectively, as "Parties".
RECITALS
1. ACT has an on-going research program in the field of injectable
biodegradeable polymers for the sustained delivery of peptides and has
developed certain technology in this field.
2. PRI and its Affiliates possess pharmaceutical research,
development and commercialization capabilities, as well as proprietary
technology in the field of peptidal rHuEPO (recombinant human Erythropoietin).
3. The Parties desire to engage in collaborative research to conduct
a discovery program to identify and develop a delivery system for a Peptidal
rHuEPO as initially described in the Research Plan attached hereto as Exhibit A.
4. If the collaborative research is successful, the resulting rHuEPO
and delivery system may be employed in the therapeutic treatment, prevention
and/or diagnosis of diseases.
5. PRI and ACT are interested in a collaborative research arrangement
with PRI and its Affiliates developing and commercializing any rHuEPO and
delivery system combination resulting from such research.
Now, therefore, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I - DEFINITION
The following terms shall have the following meanings as used in this Agreement:
1.1 "ACT KNOW-HOW" means Information which (a) ACT discloses to PRI or
its Affiliates under or in connection with this Agreement and (b) is within the
Control of ACT. Notwithstanding anything herein to the contrary, ACT Know-How
excludes ACT Patents.
1.2 "ACT PATENT" means the rights granted by any governmental
authority under a Patent which covers a method, apparatus, material or
manufacture relating to formulations containing bioabsorbable polymers leading
to sustained release upon injection, which Patent is owned or Controlled by ACT,
including its interest in Program Patents and Non-Product Program Patents.
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1.3 "AFFILIATE" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which
(directly or indirectly) is controlled by, controls or is under common control
with a Party. For the purposes of this definition, the term "control"
(including, with correlative meanings, the term "controlled by" and "under
common control with") as used with respect to any Party, shall mean the
possession (directly or indirectly) of power to direct or cause the direction of
the management or policies of such Party.
1.4 "BLA" means a complete Biologics License Application and all
supplements thereto filed with the FDA including all documents, data, and other
information concerning a product which are necessary for, or included in, FDA
approval to market such product as more fully defined in 21 C.F.R.
ss.600 et seq.
1.5 "COLLABORATION PRODUCT" means any and all formulations in any form
or dosage for pharmaceutical use in humans or animals of a Peptidal rHuEPO (A)
based on bioabsorbable polymers leading to sustained release of such rHuEPO upon
injection and (B) is discovered, identified or formulated by or on behalf of ACT
during the Research Term.
1.6 "COLLABORATION TANGIBLE RESEARCH PRODUCT" means any product of
Research, including, but not limited to, compounds, compositions of matter,
research tools, screening methods, techniques and components thereof, including
Collaboration Products.
1.7 "CONTROL" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
or other arrangements with any Third Party.
1.8 "DATE OF FIRST SALE" means the day on which PRI, its Affiliate or
its sublicensee first sells a Collaboration Product to a Third Party in an arms
length transaction.
1.9 "DEVELOPMENT SUPPLY COST" means the unit cost calculated as
follows:
unit cost = Negotiated Labor Rate x actual FTE required/unit.
It is acknowledged by both Parties that this unit cost is inclusive of
all expenses, including supplies (not including active), laboratories,
equipment, labor, etc., and that no other costs for supply of product for
development will be owed.
1.10 "DRUG APPROVAL APPLICATION" means an application for Regulatory
Approval required before commercial sale or use of a Collaboration Product as a
drug in a regulatory jurisdiction.
1.11 "EFFECTIVE DATE" means the date first written above.
1.12 "FDA" means the United States Food and Drug Administration.
1.13 "FIELD" means the discovery, identification, synthesis and
manufacturing scale-up of Collaboration Products and the development, use,
manufacture, marketing, distribution, packaging and sale of Collaboration
Products.
1.14 "FTE" means a full-time person dedicated to work directly related
to Research or other work funded by PRI hereunder, or in the case of less than
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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
a full-time dedicated person, a full-time, equivalent person year, based upon a
total of forty-six (46) weeks or eighteen hundred forty (1,840) hours per year
of work, on or directly related to Research or other work funded by PRI
hereunder, carried out by an employee. In the case of Research and when
calculating the FTEs required, work on or directly related to Research to be
performed by employees can include, but is not limited to, experimental
laboratory work, recording and writing up results, reviewing literature and
references, holding scientific discussions, attending appropriate seminars and
symposia, managing and leading scientific staff, and carrying out management
duties related to the Research. Generally when calculating the FTEs required,
work specifically excludes work associated with business development and
marketing and with non-work specific administration, finance, accounting, legal
and human resources.
1.15 "INFORMATION" means information generally not known to the public
directly relating to the Field including, but not limited to, (a) techniques and
data relating to the Field, including, but not limited to, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, marketing, pricing, distribution, costs, sales, manufacturing,
patent and legal data or descriptions; and (b) compositions of matter, assays
and biological materials relating to the Field.
1.16 "MAJOR EUROPEAN COUNTRY" means Germany, France, United Kingdom or
Italy.
1.17 "NEGOTIATED LABOR RATE" is calculated at the start of ACT's fiscal
year by dividing the total expenses of ACT by the number of direct personnel.
These personnel exclude G&A, finance, legal and human resources. The 1998 fiscal
year Negotiated Labor Rate is $[ ]. This Negotiated Labor Rate will be adjusted
at the start of each ACT fiscal year following 1998 according to the Producer's
Price Index as published in the Federal Register for the preceding calendar
year.
1.18 "NET SALES" means the gross sales price billed by PRI or an
Affiliate or a sublicensee for sales of Collaboration Products to an unrelated
Third Party less: (a) standard trade discounts, including cash discounts, or
rebates, retroactive price reductions or allowances actually allowed or granted
from the billed amount, (b) credits or allowances actually granted upon claims,
rejections or returns of Collaboration Products, including recalls, regardless
of the Party requesting such, (c) freight, postage, shipping and insurance
charges, to the extent billed, and (d) taxes, duties or other governmental
charges levied on or measured by the billing amount when included in billing, as
adjusted for rebates and refunds and (e) provisions for actual uncollectible
accounts determined in accordance with reasonable accounting methods,
consistently applied. In the event ACT is receiving royalties under this
Agreement from any Collaboration Product sold in a form containing in addition
to simple Collaboration Product, a further component or components related to
the Collaboration Product, Net Sales for such combination Collaboration Product
will be calculated by multiplying actual Net Sales of such combination
Collaboration Product by the fraction A/(A+B) where A is the invoice price of
the Collaboration Product if sold separately, and B is the total invoice price
of any other component or components, including devices, in the combination, if
sold separately. For purposes of clarification, further component or components
will not include standard packaging, which includes, optionally, diluents and
standard hardware for administration. If, on a country-by-country basis, the
other component or
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components in the combination are not sold separately in said country, Net Sales
for the purpose of determining royalties of the combination Collaboration
Product shall be calculated by multiplying actual Net Sales of such combination
Collaboration Product by the fraction A/C where A is the invoice price of the
Collaboration Product, if sold separately, and C is the invoice price of the
combination Collaboration Product. If, on a country-by- country basis, neither
the Collaboration Product nor the other component or components of the
combination Collaboration Product is sold separately in said country, Net Sales
for the purposes of determining royalties of the combination Collaboration
Product shall be determined by the Parties in good faith.
In general, the Parties agree to negotiate in good faith for an
equitable determination of Net Sales of Collaboration Product, on a country-
by-country basis, in the event that PRI sells Collaboration Product in such a
manner that gross sales of the same are not readily identifiable.
1.19 "NON-PRODUCT PROGRAM PATENT" means any Patent, the subject of
which is an invention directed to a Collaboration Tangible Research Product
which is other than a Collaboration Product and which is conceived or reduced to
practice by ACT, or by PRI and ACT jointly, or by a Third Party under a contract
with ACT or in each case an Affiliate of PRI or ACT, in the course of the
Research, or prior to the first anniversary of the end of the Research Term.
1.20 "PATENT" means (a) valid and enforceable Letters Patent in any
country, including any extension, registration, confirmation, reissue,
continuation, divisionals, continuation-in-part or re-examination or renewal
thereof and (b) pending applications for Letters Patents.
1.21 "PATENT COSTS" means the fees and expenses paid to outside legal
counsel and other Third Parties, and filing and maintenance expenses, incurred
in connection with the establishment and maintenance of rights under Patents.
1.22 "PEPTIDAL RHUEPO" means recombinantly produced erythropoietin
which is substantially genetically encoded.
1.23 "PHASE I" shall mean that portion of the FDA submission and
approval process which provides for the first introduction into humans of a
product with the purpose of determining human toxicity, metabolism, absorption,
elimination and other pharmacological action as more fully defined in 21 C.F.R.
ss.312.21(a).
1.24 "PHASE II" means that portion of the FDA submission and approval
process which provides for the initial trials of product on a limited number of
patients for the purposes of determining dose and evaluating safety and efficacy
in the proposed therapeutic indication as more fully defined in 21 C.F.R.
ss.312.21(b)
1.25 "PHASE III" means that portion of the clinical development program
which provides for continued trials of a product on sufficient numbers of
patients to establish the safety and efficacy of a product and generate, if
required, pharmacoeconomics data to support regulatory approval in the proposed
therapeutic indication as more fully defined in 21 C.F.R. ss.312.21(c).
1.26 "PRE-PHASE I" means that portion of the development program which
starts with the selection of a Collaboration Product for development and the
beginning of at least toxicological studies relating to such compound. Pre-
Phase I includes, but is not limited to, toxicological and pharmacological
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studies and manufacturing development, including scale up for clinical supplies,
necessary to obtain the permission of regulatory authorities to begin and
continue subsequent human clinical testing.
1.27 "PRI KNOW-HOW" means Information which (a) PRI discloses to ACT
under or in connection with this Agreement and (b) is within the Control of PRI
or an Affiliate. Notwithstanding anything herein to the contrary, PRI Know-how
shall exclude PRI Patents.
1.28 "PRI PATENT" means the rights granted by any governmental
authority under a Patent which covers a method, apparatus, material or
manufacture relating to the Field, which Patent is owned or Controlled by PRI,
including its interest in Program Patents and Non-Product Program Patents.
1.29 "PROGRAM PATENT" means any Patent, the subject of which is an
invention directed to a Collaboration Product conceived or reduced to practice
by ACT or by PRI and ACT, jointly, by a Third Party under a contract with ACT or
in each case an Affiliate of PRI or ACT, in the course of the Research, or ACT's
work in the Field during the one year period following the end of the Research
Term.
1.30 "REGULATORY APPROVAL" means any and all approvals (including
pricing and reimbursement approvals), licenses, registrations or authorizations
of any federal, state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture, use, storage, import,
transport or sale of products in a regulatory jurisdiction.
1.31 "RESEARCH" means all work performed by the Parties or on their
behalf directly related to the discovery, identification, synthesis and the
manufacturing scale-up of Collaboration Products during the Research Term.
1.32 "RESEARCH PLAN" has the meaning described in Paragraph 2.1 hereof
and shall be attached as Exhibit A.
1.33 "RESEARCH SERVICES COST" means the sum payable for Research and
calculated as follows:
sum = Negotiated Labor Rate x actual FTE required for Research.
It is acknowledged by both Parties that this sum is inclusive of all
expenses, including supplies (not including active), laboratories, equipment,
labor, etc., and that no other costs for Research will be owed.
1.34 "RESEARCH TERM" means the period commencing on the Effective Date
and ending on the first to occur of (i) termination of this Agreement by either
Party under Paragraphs 11.2 or 11.3 hereof or (ii) termination of the Agreement
at the convenience of PRI according to Paragraph 11.5; or (iii) three years from
the Effective Date, which may be extended under Paragraph 2.7.
1.35 "THIRD PARTY" means any entity other than ACT or PRI, and their
respective Affiliates.
1.36 "VALID PATENT CLAIM" means a claim in any unexpired ACT Patent,
including its interest in Program Patents and Non-Product Program Patents, which
has matured into an issued patent or in any pending application for a Patent for
which not more than five (5) years have elapsed since the filing date of such
application for priority purposes, in each case which has not been held invalid
by a non-appealed or unappealable decision by a court or
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other appropriate body of competent jurisdiction. The scope of a Valid Patent
Claim shall be limited to its terms as set forth in the Patent itself or as
defined by any court or appropriate body of competent jurisdiction.
ARTICLE II - DEFINITION
2.1 COLLABORATIVE RESEARCH PROGRAM. ACT and PRI agree that they will
conduct the Research on a collaborative basis with a goal of discovering,
identifying, synthesizing and scaling-up for manufacture Collaboration Products
that are suitable for development into product for commercialization. The
Parties have agreed to an initial Research Plan, as described in Exhibit A
attached hereto.
2.2 THE JRC. The Parties shall establish a Joint Research Committee
("JRC") promptly after the Effective Date. The JRC shall be comprised of
representatives of each Party with the size of the JRC to be agreed upon by the
Parties from time-to-time. The purpose of the JRC is to coordinate the Research
effort of the Parties and to expedite the progress of work being done under the
Research Plan and other work directed to developing a Collaboration Product
under this Agreement. The JRC will set specific Research goals, will evaluate
the results of the Research, discuss information relating to the Research and;
will ensure that there is appropriate scientific direction for the
collaboration. The JRC shall develop and periodically modify the Research Plan,
commencing with the current Research Plan attached hereto as Exhibit A. The
Research Plan, among other things, shall specify scientific direction and
Research milestones and allocate Research responsibilities and resources
(including the estimated Research Services Cost, on an activity by activity
basis, for such Research) in a manner consistent with this Agreement. Regardless
of the number of representatives from each Party, each Party shall present one
consolidated view on any issue in dispute. If the JRC fails to reach unanimous
agreement on any matter before it for consideration, the matter shall be
resolved consistent with PRI's position (except where the disagreement concerns
the amount of the estimated Research Services Cost for Research payable under
Paragraph 7.1 or a substantial increase in the total manpower committed by ACT
to Research or the scheduling of ACT critical facilities where the scheduling is
less than one year in advance). For clarification, the Research Plan might be
modified according to the following procedure: the JRC meets to discuss a
modified plan; a draft plan is formed as finally decided by PRI and the costs
are estimated by ACT; the draft plan is revised based on the estimated costs to
appropriately allocate resources; and a modified Research Plan is formed as
finally decided by PRI based on the Research Services Costs as estimated by ACT.
Disputes involving the estimated Research Services Cost and other issues on
which PRI does not have final say will be referred to the President of ACT and
the Chairman of PRI. The JRC shall meet from time-to-time as agreed to by the
Parties.
2.3 INFORMATION AND REPORTS. ACT will make available and disclose to
PRI all Information known by ACT as of the Effective Date and at any time on or
before the end of the Research Term or prior to the first anniversary of the end
of the Research Term. All discoveries or inventions made by ACT in the Field,
including, but not limited to information regarding initial lead compositions,
activities of lead compositions, modifications of lead compositions, results of
in vitro and in vivo studies, assay techniques, new assays, manufacture and
sources of starting materials, processes for manufacture and diagrams of
machinery for manufacture, including commercial manufacture, will be promptly
disclosed, with significant discoveries or advances being communicated as soon
as practical after such Information is obtained or its significance is
appreciated. Compositions shall be
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transferred by ACT to PRI as reasonably required by PRI. The Parties will
exchange, at a minimum, monthly verbal or written reports, and quarterly, a
written report presenting a meaningful summary of Research done under this
Agreement. The quarterly written reports shall be issued within 30 days of the
end of the quarter. PRI and ACT shall continue to provide such quarterly written
reports in the one (1) year period after the end of the Research Term. Each
Party will make periodic presentations to the other of its Research under this
Agreement to inform the other Party of the work done under this Agreement
including any work done prior to the Effective Date thereof. Each Party will use
reasonable efforts consistent with its normal business practices not to
communicate information to the other which has no application to the Field. Each
Party will provide the other with copies of raw data for work carried out in the
course of the Research under this Agreement if requested.
2.4 ACT RESEARCH EFFORTS. ACT agrees to commit the resources set forth
in this Paragraph 2.4, to exert the efforts necessary and reasonable and
consistent with its normal business practices to execute and substantially
perform the Research Plan (including extensions for the balance of the Research
Term), to maintain and utilize the scientific staff, laboratories, offices and
other facilities consistent with such undertaking, and to reasonably cooperate
with PRI in the conduct of the Research. The Parties hereby agree that ACT's
current laboratories, offices and other facilities are satisfactory for purposes
of this Paragraph 2.4.
2.5 PRI'S RESEARCH EFFORTS. PRI agrees to commit to its own Research
efforts the resources which it believes are reasonable and necessary based upon
the outcome of the Research conducted by ACT. At a minimum, PRI agrees to commit
reasonable efforts to Research through its own resources or by funding the
efforts of ACT commensurate in scope to efforts which it commits to similar
projects of similar potential.
2.6 RESEARCH CAPITAL EXPENDITURES. The purchase of any capital item
reasonably required by ACT to conduct Research shall be ACT's obligation and
responsibility and all costs associated therewith are to the account of ACT.
2.7 PRI'S OPTION TO EXTEND RESEARCH TERM. PRI shall have an option to
extend the Research Term under this Agreement on an annual basis for up to three
(3) additional one-year terms beyond the initial term of three years by giving
notice to ACT that it intends to exercise its option to extend for an additional
year at least ninety (90) days prior to the end of the Research Term then in
effect.
2.8 ADDITIONAL EXTENSION BY MUTUAL CONSENT. The Parties may, by mutual
written consent, extend the Research Term beyond the period set forth above, on
such terms and conditions as the Parties may then agree in writing.
2.9 RESEARCH PRODUCTS. Collaboration Tangible Research Products,
excepting compositions embodying Collaboration Products, shall be jointly owned
by ACT and PRI. After the first anniversary of the end of the Research Term,
neither Party shall be required to provide the other with data or other
information relating to Collaboration Tangible Research Products. The physical
Collaboration Product shall be the property of PRI.
2.10 RESEARCH AUDIT. ACT will maintain complete and accurate records
which are relevant to its expenditure of Research manpower provided to it under
this Agreement pursuant to the Research Plan. With reasonable notice, such
records shall be open during reasonable business hours for a period of three
years from the creation of individual records for examination at PRI's expense
and not more often than once each year by an independent certified
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public accountant appointed by PRI and reasonably acceptable to ACT. Such
examination will be for the sole purpose of verifying for PRI the cost of the
Research conducted and whether or not funds received by ACT from PRI were used
for conducting Research.
ARTICLE III - PRODUCT DEVELOPMENT
3.1 PRI'S RESPONSIBILITIES. PRI shall be solely responsible for and
have the sole right to select a Collaboration Product to enter Pre-Phase I. Once
a Collaboration Product is selected to enter Pre-Phase I, PRI shall be solely
responsible for and shall have the sole right to develop the Collaboration
Product through Pre-Phases I and Phases I, II and III including making all Drug
Approval Applications and obtaining all Regulatory Approvals on a worldwide
basis. In this regard, PRI agrees to commit reasonable efforts to carry out
development of such Collaboration Product to file for approval to market in at
least one country selected from Germany, France, United Kingdom, Italy or the
United States. Moreover, PRI shall be responsible for all cost and expenses in
connection with such development efforts. At the time that PRI chooses not to
commit reasonable efforts to carry out development of such Collaboration Product
to file for approval in the United States, then the license grant of Paragraph
6.4 by ACT to PRI will be limited, for the United States only, to a
recombinantly produced erythropoietin receptor agonist which is substantially
genetically encoded in a bioabsorbable polymeric delivery system.
3.2 ACT'S RESPONSIBILITIES. As reasonably requested by PRI, ACT will
provide PRI all Information in ACT's Control relating to Collaboration Products
selected for development and/or being developed by PRI, including formulations,
manufacture and sources of starting materials, processes for manufacture,
diagrams of machinery for manufacture, including commercial manufacture, etc.
According to a plan developed and approved by the JRC, ACT agrees to maintain a
validated facility and process and supply any Collaboration Product reasonably
required for development and clinical trials. The specifications for such
clinical trial Collaboration Product will be established by the JRC. ACT's
requirements of active rHuEPO to supply PRI clinical trial Collaboration Product
will be supplied to ACT at no cost to ACT. In addition to supplying any
Collaboration Product reasonably required for development or clinical trials,
ACT will supply PRI with all required CM&C documentation and data. ACT agrees to
carry out any further developmental work reasonably within its capabilities as
requested by the JRC. Any Information disclosed by PRI to ACT about development
hereunder may be used by ACT solely in connection with the Research.
3.3 ADVERSE EVENT REPORTING REQUIREMENT. The Parties recognize that
PRI as the holder of all Drug Approval Applications and Regulatory Approval may
be required to submit information and file reports to various governmental
agencies on Collaboration Products under clinical investigation, Collaboration
Products proposed for marketing, or marketed Collaboration Products. The
information must be submitted at the time of initial filing for investigational
use in humans and at the time of a request for market approval of a new
Collaboration Product. In addition, supplemental information must be provided on
Collaboration Products at periodic intervals and adverse drug experiences must
be reported at more frequent intervals depending on the severity of the
experience. Consequently, to the extent ACT obtains the following and
appropriate persons within ACT are aware thereof, ACT agrees to:
(a) provide to PRI for initial and/or periodic submission to
government agencies significant information on the Collaboration Product and
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components thereof from preclinical laboratory, animal toxicology and
pharmacology studies, as well as adverse drug experience reports from clinical
trials and commercial experiences with the Collaboration Product or components
thereof;
(b) in connection with investigational drugs, report to PRI
within three (3) business days of the initial receipt of a report of any serious
adverse experiences with the Collaboration Product or components thereof, or
sooner if required, for PRI to comply with regulatory requirements; and
(c) in connection with marketed Collaboration Products, report
to PRI including, but not limited to, by telephone and telefax within three (3)
business days of the initial receipt of a report of any adverse experience with
the Collaboration Product that is serious or sooner if required for PRI to
comply with regulatory requirements. For the purposes of this Agreement, serious
adverse experiences mean any experience that suggests a significant hazard,
contraindication, side effect or precaution, or any experience that is fatal or
life threatening, is permanently disabling, requires or prolongs inpatient
hospitalization, or is a congenital anomaly, cancer, or overdose or as defined
in the most current US regulations and/or regulations of a Major European
Country.
PRI recognizes that ACT has a reporting requirement to Regulatory
Authorities on delivery systems that may be similar to delivery systems employed
in Collaboration Products. Accordingly, PRI agrees to a reciprocal obligation to
ACT under this Paragraph.
The Parties will agree to reasonable procedures for data exchange
hereunder.
3.4 FILING REPORTS. Reports made to regulatory agencies in connection
with any Collaboration Product hereunder including adverse reaction reports
shall be made exclusively by PRI.
ARTICLE IV - COMMERCIALIZATION
4.1 MARKETING OBLIGATIONS. All business decisions, including, but not
limited to, the design, sale, price and promotion of Collaboration Products
under this Agreement and the decision whether to market any particular
Collaboration Product shall be within the sole discretion of PRI and its
Affiliates. Any marketing of a Collaboration Product in one market or country
shall not obligate PRI to market said Collaboration Product in any other market
or country. Furthermore, PRI makes no representation or warranty that the
marketing of a Collaboration Product shall be the exclusive means by which PRI
or an Affiliate will participate in any therapeutic field.
4.2 TRADEMARKS. PRI or its Affiliates shall select their own
trademarks under which they will market Collaboration Products and shall own all
such trademarks.
ARTICLE V - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
5.1 OWNERSHIP OF PROGRAM PATENTS. All inventions and discoveries
which may be filed as Program Patents shall be owned jointly by PRI and ACT.
Except as exclusively licensed in Article VI herein, the Parties may freely
make, use and sell Program Patents.
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5.2 OWNERSHIP OF NON-PRODUCT PROGRAM PATENTS. Non-Product Program
Patents shall be owned by the Party inventing the same, and if invented by joint
inventors where there is one or more inventor from each Party, the Non- Product
Program Patents shall be jointly owned. Except as exclusively licensed in
Article VI herein, the Parties may freely make, use and sell jointly owned
Non-Product Program Patents.
5.3 DISCLOSURE OF PATENTABLE INVENTIONS. In addition to the
disclosures required under Article II hereof, each Party shall provide to the
other any invention disclosure related to the Field which has been submitted in
the normal course of disclosing an invention and which has arisen in the course
of the Research hereunder. Such invention disclosures shall be provided to the
other Party promptly after submission and in no event later than ten (10) days
after the end of the calendar quarter in which the disclosure was submitted.
5.4 NON-PRODUCT PROGRAM PATENT FILINGS. If the invention is solely
owned, the Non-Product Program Patents will be filed by the Party who is the
sole owner of the same according to Paragraph 5.2. The sole owner of Non-
Product Program Patents will bear all Patent Costs related thereto and make all
decisions regarding the same without obligation to the other Party.
If the invention is jointly owned, the Non-Product Program Patent will
be filed by the Party on whose site the invention was identified. The Party
which is responsible for filing the jointly owned Non-Product Program Patent
will be termed the "filing Party". The filing Party shall keep the other Party
apprised of the status of each jointly owned Non-Product Program Patent and
shall seek the advice of the other Party with respect to Non-Product Program
Patent strategy and draft applications and shall give reasonable consideration
to any suggestions or recommendations of the other Party concerning the
preparation, filing, prosecution, maintenance and defense thereof. The Parties
shall cooperate reasonably in the prosecution of all jointly owned Non-Product
Program Patents hereunder and will share all Patent costs associated therewith
and all material information relating thereto promptly after receipt of such
information. The determination of the countries in which to file shall be made
by mutual agreement of the Parties. If, however, there is dispute as to where to
file, the filing Party shall decide, provided that, in the case where the
non-filing Party requests worldwide filing, the filing Party shall at least file
in the U.S., EPO designating all EPO countries, Canada, Australia, and Japan
either directly or through the PCT route. In the event either Party, for
whatever reason, does not wish to obtain such patent or other intellectual
property protection, the other Party shall be entitled to apply in its sole
name, at its own expense, for such protection and the first Party shall
cooperate in any reasonable manner therein. Further, if, during the term of this
Agreement, either Party desires to allow any jointly owned Non-Product Program
Patent to lapse or become abandoned without having first filed a substitute,
that Party shall, whenever practicable, notify the other Party of such intention
at least sixty (60) days prior to the date upon which such jointly owned
Non-Product Program Patent shall lapse or become abandoned without further
action, and the other Party shall thereupon have the right, but not the
obligation, to assume responsibility for the prosecution, maintenance and
defense thereof in its sole name and at its own expense. Neither Party makes any
warranty with respect to the validity, perfection or dominance of any jointly
owned Non- Product Program Patent or other proprietary right.
5.5 PROGRAM PATENT FILINGS. PRI and ACT shall prosecute Program
Patents to cover effectively and broadly discoveries and inventions relating to
the Field and shall use reasonable efforts to file initially all applications as
follows. The Parties will engage the services of outside
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counsel, mutually agreeable to both Parties, to file and prosecute the Program
Patents. The outside counsel will keep both Parties fully informed of all
actions in the course of its work and provide adequate opportunity for both
Parties to comment on any decisions or actions undertaken. The Parties will
cooperate reasonably in filing and prosecuting the Program Patents with such
outside counsel and with each other and will share all material information
relating thereto promptly after receipt. In the event the Parties, working with
the outside counsel are unable to agree as to any action or decision in regard
to the filing and prosecution of Program Patents, then the Chief Patent Counsel
of Johnson and Johnson will have the final say on the matter with the basis for
the decision being effective and broad coverage of discoveries and inventions by
Program Patents.
If there is a dispute as to where to file, Program Patents will be
filed in at least the U.S., EPO designating all EPO countries, Canada, Australia
and Japan either directly or through the PCT route.
Neither Party makes any warranty with respect to the validity,
perfection or dominance of any jointly owned Program Patent or other proprietary
right.
The Parties' Patent Costs relating to the Program Patents shall be the
sole responsibility of PRI. ACT may choose to file at its own expense Program
Patents in disputed countries.
5.6 ENFORCEMENT RIGHTS - NON-PRODUCT PROGRAM PATENTS. With respect to
infringement of any Non-Product Program Patent, in the absence of agreement with
respect to infringement, each Party may proceed in such manner as the law
permits.
5.7 ENFORCEMENT RIGHTS - PROGRAM PATENTS. If any Program Patent is
infringed by a Third Party in any country in connection with the manufacture,
use and sale of a product, the Party to this Agreement first having knowledge of
such infringement shall promptly notify the other in writing, setting forth the
known facts of that infringement in reasonable detail. The Party marketing the
Collaboration Product shall have the primary right, but not the obligation, to
institute, prosecute, and control any action or proceeding with respect to such
infringement of the Program Patent, by counsel of its own choice, and the Party
due royalties shall have the right, at its own expense, to be represented in
that action by counsel of its own choice. If the Party marketing the
Collaboration Product fails to bring an action or proceeding within a period of
one hundred eighty (180) days after a request by the other Party to do so, the
Party due royalties shall have the right to bring and control any such action by
counsel of its own choice, and the Party marketing the Collaboration Product
shall have the right to be represented in any such action by counsel of its own
choice at its own expense. If one Party brings any such action or proceeding,
the second Party agrees to be joined as a Party plaintiff and to give the first
Party reasonable assistance and authority to file and prosecute the suit. The
costs and expenses of the Party bringing suit under this Paragraph and any
damages or other monetary awards recovered shall be retained by the Party
bringing suit. A settlement or consent judgment or other voluntary final
disposition of a suit under this Paragraph 5.7 may be entered into without the
consent of the Party not bringing the suit; provided that such settlement,
consent judgment or other disposition does not admit the invalidity or
unenforceability of any Program Patent; and provided further, that any right of
a Third Party to continue the infringing activity in such settlement, consent
judgment or other disposition shall be limited to the product or activity that
was the subject of the suit.
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5.8 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS TO COLLABORATION
PRODUCTS. If a Third Party asserts that a Patent or other right owned by it is
infringed by the manufacture, use or sale of any Collaboration Product, PRI
shall be solely responsible for defending against any such assertions at its
cost and expense.
ARTICLE VI - LICENSE GRANTS
6.1 PATENTS FOR COLLABORATION PRODUCT. ACT hereby grants to PRI an
exclusive, worldwide, royalty bearing license with the right to grant
sublicenses to Affiliates and to ACT only, under ACT Patents, including its
interest in Program Patents and Non-Product Program Patents, to make and have
made Collaboration Products. ACT hereby grants to PRI an exclusive, worldwide,
royalty bearing license with the right to grant sublicenses, under ACT Patents,
including its interest in Program Patents and Non-Product Program Patents, to
use, sell and have sold Collaboration Products.
6.2 KNOW-HOW FOR COLLABORATION PRODUCT. ACT hereby grants to PRI an
exclusive, worldwide, royalty bearing license with the right to grant
sublicenses to Affiliates and ACT only, under ACT Know-How to make and have made
Collaboration Products. ACT hereby grants to PRI an exclusive, worldwide,
royalty bearing license with the right to grant sublicenses, under ACT Know-How
to use, sell and have sold Collaboration Products.
6.3 PATENT LICENSES FOR RESEARCH. Notwithstanding anything herein to
the contrary ACT grants PRI an exclusive (except as to ACT) paid-up, worldwide
license, with the right to grant sublicenses to Affiliates only, under ACT
Patents, including its interest in Non-Product Program Patents and Program
Patents, to make and use methods and materials solely to carry out the Research.
PRI grants ACT a non-exclusive, paid-up, worldwide license, with the right to
grant sublicenses to Affiliates only, under PRI Patents, including its interest
in Non-Product Program Patents and Program Patents, to make and use methods and
materials solely to carry out the Research.
6.4 OTHER EXCLUSIVE LICENSES. In addition to and overlapping with any
of the above licenses and without effecting other licenses granted herein, ACT
hereby grants to PRI an exclusive, worldwide, royalty free license with the
right to grant sublicenses, under ACT Patents and ACT Know-How, including its
interest in Program Patents and Non-Product Program Patents, to make, have made
or use, but not to sell and have sold injectable pharmaceutical products for use
in humans or animals containing a compound or the precursor to a compound the
primary purpose or effect of which is to promote red blood cell production in a
bioabsorbable polymeric delivery system. Except as to ACT Patents filed or ACT
Know-How developed prior to the date of first sale anywhere, this exclusive
license will terminate in the European Union beginning four years after the Date
of First Sale anywhere.
ARTICLE VII - PAYMENTS
In consideration of the assignments, rights and licenses granted under
this Agreement, PRI agrees to pay ACT as follows:
7.1 RESEARCH PAYMENTS. PRI shall pay to ACT its Research Services
Costs as based on the number of FTEs ordinarily and necessarily required for
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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
execution of Research as approved in the Research Plan. Payments by PRI to ACT
for Research shall be made quarterly in arrears beginning after the Effective
Date, within 30 days of receiving an invoice therefor. Such invoice will itemize
all Research Services Costs to a level of detail commensurate to the level of
detail contained in the Research Plan, so that all Research Services Costs can
be allocated to the various projects of the Research Plan. Cost overruns where
the actual Research Services Cost exceeds the estimated Research Services Costs
as approved in the Research Plan of up to %[ ] are expected by the Parties. Cost
overruns exceeding %[ ] are to the account of ACT except that PRI, in its sole
discretion, may choose to pay such overruns where circumstances warrant. ACT
will notify PRI of cost overruns of which it becomes aware within five business
days.
7.2 DEVELOPMENT PAYMENTS. PRI shall pay to ACT its Development Supply
Costs as based on the number of FTEs ordinarily and necessarily required for the
supply of Collaboration Product for development or clinical trials. PRI will pay
ACT for all other developmental work required or requested by PRI based on the
number of FTEs ordinarily and necessarily required for execution of such work as
approved by PRI. Payments by PRI to ACT hereunder shall be made after the
Effective Date, within 30 days of receiving an invoice for expenses owed from
previous work or clinical supply Collaboration Product delivered. Such invoice
will itemize all expenses to a level of detail commensurate to the level of
detail contained in PRI's request, so that all expenses can be allocated to the
various projects of such request. Cost overruns where the actual Development
Supply Costs exceeds the estimated Development Supply Costs as approved in the
Research Plan of up to %[ ] are expected by the Parties. Cost overruns exceeding
%[ ] are to the account of ACT except that PRI, in its sole discretion, may
choose to pay such overruns where circumstances warrant. ACT will notify PRI of
cost overruns of which it becomes aware within five business days.
The purchase of any item reasonably required by ACT to supply
Collaboration Product for development or clinical trials, including the
investment for materials and supplies required to plan, construct and validate a
facility, shall be ACT's obligation and responsibility.
7.3 MILESTONE PAYMENTS. PRI agrees to make the following payments
recited hereinafter in this Paragraph to ACT upon the first occurrence of each
milestone event for a Collaboration Product during the term of this Agreement.
The total milestone payments that may be due and payable hereunder cannot exceed
$[ ]. It is understood that milestones will be paid only once, even though
multiple formulations may be made and developed for multiple indications. For
example, if a first Collaboration Product achieves the first two (2) milestones,
the payments are made by PRI, and development of the Collaboration Product is
discontinued, PRI shall not be obligated to again pay the same two (2) payments
in connection with subsequent Collaboration Products.
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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
MILESTONE CASH PAYMENT
$[ --------- ------------
]
An BLA or equivalent filing will not be considered filed hereunder
until the U.S. FDA or other regulatory authority accepts such filing for review
at which point the milestone of BLA or equivalent filing shall be considered to
have occurred.
7.4 MILESTONE PAYMENT TIMING. The payments set forth in Paragraph 7.3
hereof shall each be due and payable by PRI to ACT within thirty (30) days of
the demonstration of the milestone event set forth therein.
7.5 EARNED ROYALTIES FOR COLLABORATION PRODUCTS. PRI shall pay ACT,
from the date of First Sale, a royalty based on Net Sales in connection with the
annual Net Sales of Collaboration Products sold for the therapeutic treatment of
humans or animals by PRI or its Affiliates or sublicensees. Total royalties paid
will be calculated according to the following formula:
Total Royalties = [sum]Royalty Bands Adjusted Net Sales x Royalty Rate.
The Royalty Rate and Royalty Bands are given according to the following table:
Royalty Bands, annual Adjusted Net Sales Royalty Rate
$/%[
]
Adjusted Net Sales are calculated from Net Sales on a county-by-country basis
according to the following formula:
Adjusted Net Sales = [sum]country Net Sales x Adjustment Factor
The Adjustment Factor to be used for a particular country is given as follows:
(a) in countries and for the period in which a Valid Patent Claim
exists that would be infringed by the sale or use of the Collaboration Product,
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<PAGE> 19
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
(i) for Collaboration Product that is not manufactured by ACT
and where such non-manufacture by ACT is not due to breach by ACT of any supply
agreement between the Parties, the Adjustment Factor is #[ ], and
(ii) for Collaboration Product not meeting the criteria of
(a)(i), the Adjustment Factor is #[ ]; and
(b) in all other countries,
(i) for Collaboration Product that is not manufactured by ACT
and where such non-manufacture by ACT is not due to breach by ACT of any supply
agreement between the Parties, the Adjustment Factor is #[ ], and
(ii) for Collaboration Product not meeting the criteria of
(b)(i), the Adjustment Factor is #[ ].
7.6 GENERIC COMPETITION. The Adjustment Factors recited in Paragraph
7.5 hereof shall be reduced by %[ ], on a product-by-product and country-by-
country basis, should competition from the same product having substantially the
same formulation and substantially the same duration of release as the
Collaboration Product in question reach %[ ] market share on a unit basis by
such competition in that country. Notwithstanding anything herein to the
contrary, such Adjustment Factor reduction shall not be available if a Valid
Patent Claim in a PRI Patent covering the competing product exists and PRI does
not attempt to enforce it against the infringer or if a Valid Patent Claim in an
ACT Patent covering the competing product exists and ACT is attempting in good
faith to enforce it against the infringer.
7.7 COLLABORATION PRODUCT EARNED ROYALTY TERM. Royalties payable
under Paragraph 7.5 shall be paid on a country-by-country and product-by-
product basis from the Date of First Sale of each Collaboration Product with
respect to which a royalty is due for a period which is the longer of:
(a) the last to expire of any ACT Patent containing a Valid Patent
Claim in such country covering the composition of matter or use of the
Collaboration Product on which royalties are payable; or
(b) 10 years following the Date of First Sale of such Collaboration
Product in such country provided such 10 year period does not extend beyond the
last to expire of any ACT Patent containing a Valid Patent Claim covering a
composition of matter or use of a Collaboration Product anywhere.
Upon termination of the royalty payment obligation, PRI shall
thereafter have, in perpetuity, a fully paid up license under ACT patents or ACT
Know-How to make, have made, use, sell, have sold and import Collaboration
Products, without further accounting to ACT.
7.8 SPECIAL EUROPEAN UNION PROVISIONS. For all member countries of
the European Union only, the exclusive, worldwide, royalty bearing license with
the right to grant sublicenses, under ACT Know-How granted to PRI by ACT
hereunder, to the extent that such ACT Know-How is related to a Collaboration
Product, shall be converted to a non-exclusive license following the period of
ten (10) years from the Date of First Sale of such Collaboration Product in the
European Union. On a country-by-country basis in the European Union, where
royalties are being paid with the Adjustment Factor as determined by Paragraph
7.5(b) and upon the license being converted to a non-exclusive license by
operation of this Paragraph, then the Adjustment Factor of Paragraph 7.5(b)
shall be reduced by %[ ].
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7.9 FOREIGN EXCHANGE. The remittance of royalties payable on Net
Sales will be payable in U.S. dollars to ACT at a bank and to an account
designated by ACT. The method by which Net Sales outside the United States is
converted into US dollars shall be according to standard PRI procedures. All
references to dollars hereunder are references to US dollars.
7.10 BLOCKED CURRENCY. Where royalties are due for Net Sales in a
country where by reason of currency regulations of any kind or taxes of any kind
imposed after the Date of First Sale in such country it is impossible to make
royalty payments for that country's Net Sales in accordance with Paragraphs 7.5,
said royalties shall be deposited in whatever currency is allowable for the
benefit or credit of ACT in any accredited bank in that country as shall be
acceptable to ACT. Moreover, in order to facilitate payments from countries
other than the United States, when requested by PRI, ACT shall enter into direct
license agreements with PRI Affiliates or sublicensees designated by PRI,
whereby such Affiliate or sublicensee will be obligated to remit royalty
payments due for Net Sales in such country directly to ACT. Each such license
agreement shall recite generally the same terms as this Agreement insofar as
such terms are lawful under applicable laws and regulations of the particular
country.
7.11 TAXES. Any income tax required to be withheld by PRI or any
Affiliate or sublicensee under the laws of any foreign country for the account
of ACT under this Article VII shall be promptly paid by PRI or said Affiliate or
sublicensee for and on behalf of ACT to the appropriate governmental authority,
and PRI or the Affiliate shall furnish ACT with proof of payment of such income
tax together with official or other appropriate evidence issued by the
appropriate governmental authority sufficient to enable ACT to support a claim
for income tax credit in respect of any sum so withheld. Any such tax required
to be withheld shall be an expense of, and borne solely by ACT.
7.12 RECORDS AND REPORTS. PRI or its Affiliates shall keep complete
and accurate records of the sale of Collaboration Products with respect to which
a royalty is payable according to this Agreement. Within sixty (60) days
following each quarterly period of PRI's accounting year after the date on which
royalties are due under this Agreement, PRI or its Affiliates shall render to
ACT a written report setting forth the Net Sales of such Collaboration Products
sold and the royalty due and payable, and PRI shall, upon rendering such report,
remit to ACT the amount of royalty shown thereby to be due.
7.13 ACCOUNTING. A Party shall have the right, at its own expense and
with reasonable notice to the other Party, to nominate an independent certified
public accountant acceptable to and approved by the other Party, said approval
not to be unreasonably withheld, who shall have access to the other Party's
records during reasonable business hours for the purpose of verifying the
royalties payable for any period within the preceding three (3) years as
provided for in this Agreement or, in the case of PRI, for verifying the
expenditures by ACT of research funding paid hereunder to ACT. This right may
not be exercised more than once in any calendar year, and said accountant shall
disclose to the Party requesting the audit, only information relating solely to
the accuracy of the royalty report, the royalty payments, or research
expenditures according to this Agreement. If any audit or examination shall
reveal a deficiency of any royalty payment due, the Party owing the royalty
shall make payment to the other Party of such deficiency plus interest at the
prime rate + 2% (as published in the Wall Street Journal, New York Edition) for
the period of such deficiency or excess. If any audit or examination shall
reveal that ACT has not properly spent the research funding pursuant to the
terms of this Agreement and therefore misused such
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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
funding, ACT shall refund any moneys not so properly spent to PRI plus interest
at the prime rate + 2% (as published in the Wall Street Journal, New York
Edition) for the period of such misuse. Payment of such deficiencies or misused
research funding shall be made within five (5) days following notification of
the auditing Party to the Party being audited of the moneys owed. In the event
that such an audit or examination shall reveal a deficiency of any royalty
payment due in an amount equaling or exceeding five percent (5%) of accounting
of the undisputed royalties or expenditures, the Party shall reimburse the other
Party for the reasonable costs of such audit. All overpayments of any royalty
payment or research funding will be refunded within five (5) days following
notification of the auditing Party to the Party being audited of the moneys
owed.
7.14 THIRD PARTY PATENTS. If a Patent or Patents of a Third Party
should exist in any country during the term of this Agreement covering the
manufacture, use or sale of any Collaboration Product, and if it should prove in
PRI's reasonable judgment impractical or impossible for PRI or any Affiliate or
sublicensee to continue the activity or activities licensed hereunder without
obtaining a royalty bearing license from such third party under such Patent or
Patents in said country, then PRI shall be entitled to a credit against the
royalty payments due hereunder of an amount equal to the royalty paid to such
Third Party, not to exceed %[ ] of the royalty rate due under this Agreement,
arising from the manufacture, use or sale of the Collaboration Product in said
country.
7.15 COMPULSORY LICENSE. If at any time and from time to time a Third
Party in any country shall, under the right of a compulsory license granted or
ordered to be granted by a competent governmental authority, manufacture, use or
sell any Collaboration Product with respect to which royalties would be payable
pursuant to Paragraph 7.5 hereof, then PRI may reduce the royalty on sales in
such country of such Collaboration Product to an amount no greater than the
amount payable by said Third Party as consideration for the compulsory license.
ARTICLE VIII - MANUFACTURE
8.1 PRI'S RESPONSIBILITY. PRI shall be responsible for making or
having made Collaboration Products.
8.2 ACT'S DUTIES. The Parties refer to the License and Supply
Agreement between PRI and ACT of even date herewith. Regardless of the
foregoing, at any time during the term of this Agreement and coincidentally with
the planning and first execution by PRI, its Affiliates or Sublicensees or third
party manufacturer of their first manufacture of Collaboration Product, ACT will
reasonably assist PRI, its Affiliates or Sublicensees at their expense with such
planning and first execution of manufacture. This assistance would include and
not be limited to providing experts for on-site consultation, providing ACT
Know-How as required, making available ACT equipment for inspection, etc.
ARTICLE IX - CONFIDENTIALITY
9.1 DISCLOSED CONFIDENTIAL INFORMATION. In the course of performance
of this Agreement, one Party may disclose to the other or receive from the other
written Information and other confidential and proprietary written
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information disclosed or received pursuant to this Agreement which information,
if so identified in writing either pursuant to this Paragraph 9.1 or otherwise
upon disclosure, shall be considered to be the disclosing Party's "Disclosed
Confidential Information." Each Party agrees that it will take the same steps to
protect the confidentiality of the other Party's Disclosed Confidential
Information as it takes to protect its own proprietary and confidential
information. Each Party shall protect and keep confidential and shall not use
for any purpose, publish or otherwise disclose to any third party, except as
contemplated by this Agreement or with the other Party's written consent, the
other Party's Disclosed Confidential Information for a period of seven (7) years
from the date of termination of this Agreement.
9.2 SHARED CONFIDENTIAL INFORMATION. In the course of performance of
this Agreement, ACT or PRI and ACT, jointly, or a Third Party under a contract
with ACT or in each case an Affiliate of PRI or ACT, in the course of the
Research may develop, invent or discover Information, including such on
substances or processes, which shall be considered to be the "Shared
Confidential Information" of both Parties. Each Party agrees that it will take
the same steps to protect the confidentiality of the Shared Confidential
Information as it takes to protect its other proprietary and confidential
information. Each Party shall protect and keep confidential and shall not
publish or otherwise disclose to any third party, except as contemplated by this
Agreement or with the other Party's written consent, the Shared Confidential
Information for a period of seven (7) years from the date of termination of this
Agreement. Subject to the obligations of confidentiality hereunder, each Party
may, however, use any Shared Confidential Information for any purpose, with the
following exceptions: ACT may not use Shared Confidential Information that is
clinical data generated with Collaboration Product for any purpose. Permitted
uses of Shared Confidential Information shall not be deemed a license or a grant
of any additional right or license other than or in addition to the right and
license granted in this Agreement.
9.3 PERMITTED DISCLOSURE. Each Party shall be entitled to disclose,
under a binder of confidentiality containing provisions as protective as this
Article IX, "Confidential Information", which shall include Disclosed
Confidential Information and Shared Confidential Information to consultants and
other third parties, including potential or actual distributors or sublicensees,
for purposes under this Agreement related to the identification, development,
manufacture or marketing of a Collaboration Product. The scope of such
disclosure of Confidential Information to third parties is to be no broader than
that scope required by the third party to perform its intended purpose under
this Agreement and the permitted use of Confidential Information so disclosed to
such third party should be no broader than those uses required by the third
party to perform its intended purpose under this Agreement. The Parties shall
consult prior to the submission of any manuscript for publication if the
publication will contain any Confidential Information of the other Party,
including Shared Confidential Information. Such consultation shall include
providing a copy of the proposed manuscript to the other Party at least sixty
(60) days prior to the proposed date of submission to a publisher, incorporating
appropriate changes proposed by the other Party into the manuscript submission
and deletion of all Confidential Information of which such Party does not agree
to the publication. The refusal of one Party to permit the publication of
Confidential Information may be arbitrary and without basis. The foregoing
notwithstanding, Confidential Information may be disclosed, without restriction,
as a part of a patent application filed on inventions made under this Agreement
related to the identification and development of a Collaboration Product and
during any official proceeding before a court or governmental agency if
reasonably related and necessary to that proceeding. For the purposes of this
Agreement, Confidential Information shall not include such information that:
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(i) was known to the receiving Party at the time of disclosure
as evidenced by written records; or
(ii) was generally available to the public or was otherwise part
of the public domain at the time of disclosure or became generally available to
the public or otherwise part of the public domain after disclosure other than
through any act or omission of the receiving Party in breach of this Agreement;
or
(iii) became known to the receiving Party after disclosure from a
source that had a lawful right to disclose such information to others; or
(iv) was independently developed by the receiving Party where
such independent development can be established by written documentation.
9.4 INTEGRATION. This Article IX supersedes any confidential
disclosure agreement between the Parties as to the subject matter hereof. Any
confidential information under such agreement shall be treated as Confidential
Information hereunder.
ARTICLE X - REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY
10.1 REPRESENTATIONS AND WARRANTIES. Each Party hereby represents and
warrants and covenants as follows:
(a) This Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms. The execution, delivery and
performance of the Agreement by such Party does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it is bound, nor violate any law or regulation of any court, governmental body
or administrative or other agency having jurisdiction over it.
(b) Neither Party has granted, nor during the term of the Agreement
will grant any right to any Third Party relating to its respective technology in
the Field which would conflict with the rights granted to the other Party
hereunder.
(c) Each Party owns all of the rights, title and interest in and to
its Know-How.
10.2 PERFORMANCE BY AFFILIATES. The Parties recognize that each may
perform some or all of its obligations under this Agreement through Affiliates,
provided, however, that each Party shall remain responsible and be guarantor of
the performance by its Affiliates and shall cause its Affiliates to comply with
the provisions of this Agreement in connection with such performance.
ARTICLE XI - TERM AND TERMINATION
11.1 TERM. This Agreement shall commence as of the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect until the
latest of (a) the end of the Research Term or (b) the date on which ACT is no
longer entitled to receive a royalty on any Collaboration Product under this
Agreement.
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<PAGE> 24
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
11.2 TERMINATION FOR BREACH. In the event that (a) either Party shall
default or breach at any time in connection with any material obligation under
this Agreement and (b) such defaulting Party shall fail to remedy such default
or breach within sixty (60) days after the receipt of notice thereof by the
non-defaulting Party to the defaulting Party, then the non-defaulting Party may
at any time thereafter terminate this Agreement.
11.3 TERMINATION FOR BANKRUPTCY. Either Party hereto shall have the
right to terminate this Agreement forthwith by written notice to the other Party
(a) if the other Party is declared insolvent or bankrupt by a court of competent
jurisdiction, (b) if a voluntary or involuntary petition in bankruptcy filed in
any court of competent jurisdiction and any such involuntary petition is not
dismissed with 60 days of filing against the other Party, or (c) if the other
Party shall make or execute an assignment for the benefit of creditors.
11.4 TERMINATION BY PRI FOR CAUSE. In the event of termination of this
Agreement by PRI pursuant to Paragraph 11.2, the licenses granted in Article VI
hereof shall survive termination under this Paragraph. However, the royalty rate
recited in Paragraph 7.5 hereof shall be reduced to %[ ] of Net Sales.
11.5 TERMINATION BY PRI WITHOUT CAUSE. PRI may terminate this
Agreement for any reason (a) prior to filing an BLA on a Collaboration Product,
upon ninety (90) days prior written notice, (b) subsequent to filing an BLA on a
Collaboration Product, upon six (6) months prior written notice. In the case
where PRI terminates before the end of the scheduled Research Term, then PRI
shall pay Alkermes %[ ] of Research Services Costs estimated under the Research
Plan for a ninety (90) day period following such termination. No other payments
will be due to ACT. The above ninety (90) day periods of this Paragraph in both
cases will be reduced to thirty (30) days where if termination by PRI is based
on (i) material issues regarding the safety of the Collaboration Product or (ii)
clinical data reveal a materially and adversely different profile for the
Collaboration Product than the desired profile established in advance by the
Parties. The license grant of Paragraph 6.4 shall survive termination under this
Paragraph for TIME[ ] from the date of such termination.
11.6 SURVIVING RIGHTS. Except as modified above in Paragraphs 11.4 and
11.5 hereof, the obligations and rights of the Parties under Paragraphs 3.3,
3.4, 5.1, 5.2, 7.5 to 7.15, 10.1, 11.6, 11.7 and 11.8 and Articles I, IX, XII,
XIII, XV shall survive termination or expiration of this Agreement.
11.7 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination,
relinquishment or expiration of the Agreement for any reason shall be without
prejudice to any rights which shall have accrued to the benefit of either Party
prior to such termination, relinquishment or expiration, including damages, the
payment obligations hereof and any and all obligations arising from any breach
hereunder.
11.8 TERMINATION NOT SOLE REMEDY. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available except as agreed to otherwise herein.
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<PAGE> 25
ARTICLE XII - INDEMNIFICATION
12.1 RESEARCH AND DEVELOPMENT INDEMNIFICATION. Each Party (the
"Indemnifying Party") shall indemnify, defend and hold the other Party (the
"Indemnified Party") harmless from and against any and all liabilities, claims,
damages, costs, expenses or money judgments incurred by or rendered against the
Indemnified Party and its Affiliates and sublicensees arising out of any
injuries to person and/or damage to property resulting from (a) negligent acts
of the Indemnifying Party performed in carrying out its obligations hereunder,
including failure by the Indemnifying Party to provide the Indemnified Party
with any Information of the Indemnifying Party's which, if timely received would
have avoided injury, death or damage, provided such failure to provide such
Know-How is due to negligence on the part of the Indemnifying Party, and (b)
personal injury to the Indemnified Party's employees or agents or damage to the
Indemnified Party's property resulting from acts performed by, under the
direction of, or at the request of the Indemnifying Party in carrying out
activities contemplated by this Agreement.
12.2 PRI INDEMNIFICATION. In addition to its obligations in Paragraph
12.1 hereof PRI shall indemnify and hold ACT harmless from and against any and
all liabilities, claims, damages, costs, expenses or money judgments which
result from the manufacture, use, promotion and sale of products under this
Agreement.
12.3 NOTIFICATION. The Indemnifying Party's obligations hereunder as
to any claim are subject to (i) its being given prompt notice thereof; (ii) the
sole right to control the defense and settlement; and (iii) the lack of
negligence or willful misconduct leading to the claim by the Indemnified Party.
ARTICLE XIII - DISPUTE RESOLUTION
13.1 DISPUTES. The Parties recognize that disputes as to certain
matters may from time to time arise during the term of this Agreement which
relate to either Party's rights and/or obligations hereunder or thereunder. It
is the objective of the Parties to establish procedures to facilitate the
resolution of disputes arising under this Agreement in an expedient manner by
mutual cooperation and without resort to litigation. To accomplish this
objective, the Parties agree to follow the procedures set forth in this Article
XIII if and when a dispute arises under this Agreement.
13.2 ALTERNATIVE DISPUTE RESOLUTION. Any dispute controversy or claim
arising out of or relating to the validity, construction, enforceability or
performance of this Agreement, including disputes relating to alleged breach or
to termination of this Agreement or the scope of this arbitration provision or
the parties decision to enter into this contract, shall be settled by binding
Alternative Dispute Resolution ("ADR") in the manner described below:
(a) If a Party intends to begin an ADR to resolve, after an initial 30
day waiting period after any such dispute arises in which the Parties shall work
reasonably and in good faith to amicably resolve the dispute without resorting
to this article, a dispute, such Party shall provide written notice (the "ADR
Request") to counsel for the other Party informing such other Party of such
intention and the issues to be resolved. From the date of the ADR Request and
until such time as any matter has been finally settled by ADR, the running of
the time periods contained in Paragraph 11.2 as to which Party must cure a
breach of this Agreement shall be suspended as to the subject matter of the
dispute.
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<PAGE> 26
(b) Within thirty (30) business days after the receipt of the ADR
Request, the other Party may, by written notice to the counsel for the Party
initiating ADR, add additional issues to be resolved.
13.3 ARBITRATION PROCEDURE. The ADR and all pre-hearing, hearing and
post-hearing arbitration procedures, shall be conducted in English pursuant to
the Commercial Arbitration Rules of the American Arbitration Association for
Large, Complex Cases then in effect, as amended by the following provisions.
(a) Arbitrator. To the extent that the Parties cannot agree on a
single arbitrator, the arbitration shall be conducted by a panel of three
arbitrators ("the Panel"). Each Party shall have the right to appoint one (1)
member of the Panel, with the third member to be mutually agreed by the two
Panel members appointed by the Parties or appointed in accordance with the rules
of the American Arbitration Association.
(b) Law. The Panel shall, in rendering its decision, apply the
substantive law of the State of New York, without regard to its conflict of laws
provisions, except that the interpretation of and enforcement of this Article
shall be governed by the Federal Arbitration Act and the arbitrators shall base
their decision on the express terms, covenants and conditions of this Agreement.
The proceeding shall take place in New York, New York. The fees of the Panel
shall be paid by the losing Party which shall be designated by the Panel. If the
Panel is unable to designate a losing party, it shall so state and the fees
shall be split equally between the Parties.
(c) Discovery. The parties shall be entitled to discover all
documents and information reasonably necessary for a full understanding of any
legitimate issue raised in the arbitration. They may use all methods of
discovery, including but not limited to depositions, requests for admissions and
requests for production of documents. The time periods for compliance shall be
set by the arbitrator who may also set reasonable limits on the scope of such
discovery and shall not permit either party to take in excess of five
depositions except in exceptional circumstances and for good cause shown
(d) Award. The Panel is empowered to award any remedy allowed by law,
including money damages, multiple damages, prejudgment interest and attorneys'
fees, and to grant final, complete, interim, or interlocutory relief, including
injunctive relief. Notwithstanding the foregoing, punitive damages may not be
awarded and express terms of this Agreement may not be altered.
(e) Costs. Except as set forth in Paragraph 13.3(b), above, each
Party shall bear its own legal fees.
(f) Confidentiality. The ADR proceeding shall be confidential and the
Panel shall issue appropriate protective orders to safeguard each Party's
Confidential Information. Except as required by law, including applicable
securities law, no Party shall make (or instruct the panel to make) any public
announcement with respect to the proceedings or decision of the Panel without
prior written consent of each other Party. The existence of any dispute
submitted to ADR, and the award, shall be kept in confidence by the Parties and
the Panel, except as required in connection with the enforcement of such award
or as otherwise required by applicable law.
13.4 SURVIVABILITY. Any duty to arbitrate under this Agreement shall
remain in effect and enforceable after termination of this Agreement for any
reason.
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13.5 JURISDICTION. For the purposes of this Article XIII, the Parties
acknowledge their diversity (ACT having its principal place of business in
Cambridge, Massachusetts and PRI having its principal place of business in
Raritan, New Jersey) and agree to accept the non-exclusive jurisdiction of the
Federal District Court in Newark, New Jersey for the purposes of enforcing
awards entered pursuant to this Article XIII and for enforcing the agreements
reflected in this Article XIII.
ARTICLE XIV - LICENSOR BANKRUPTCY
14.1 LICENSOR BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by ACT to PRI are, and shall otherwise be deemed to
be, for purposes of Section 365(n) of Title 11, U.S. code (the "Bankruptcy
Code"), licenses of rights to "intellectual property" as defined under section
101(60) of the Bankruptcy Code. The Parties agree that PRI, as a licensee of
such rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the Bankruptcy Code. ACT agrees during the term of
this Agreement to create and maintain current copies or, if not amenable to
copying, detailed descriptions or other appropriate embodiments, of all such
intellectual property. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against ACT under the Bankruptcy
Code, PRI shall be entitled to a complete duplicate of (or complete access to,
as appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in its possession shall be
promptly delivered to PRI (a) upon any such commencement of a bankruptcy
proceeding upon written request therefor by PRI, unless ACT elects to continue
to perform all of its obligations under this Agreement or (b) if not delivered
under (a) above, upon the rejection of this Agreement by or on behalf of ACT
upon written request therefor by PRI.
ARTICLE XV - NOTICES
15.1 NOTICE. Any payment, notice or other communication required or
permitted to be made or given to either Party hereto pursuant to this Agreement
shall be in writing in case of a notice or communication and shall be deemed
given if delivered personally or by facsimile transmission (receipt verified),
telexed, mailed by registered or certified mail (return receipt requested),
postage prepaid, or sent by express courier service, to the Parties and be
deemed received upon actual receipt at the following addresses (or at such other
address for a Party as shall be specified by like notice; provided, that notices
of a change of address shall be effective only upon receipt thereof:
In the case of ACT:
Alkermes Controlled Therapeutics, Inc.
64 Sidney Street
Cambridge, MA 02139-4136
Attention: President
Telephone: (617) 494-0171
Telefax: (617) 494-9255
With a copy to:
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street, 51st Floor
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<PAGE> 28
Philadelphia, PA 19103
Attention: Morris Cheston, Jr. & Martha J. Hays
Telephone: (215) 665-8500
Telefax: (215) 864-8999
In case of PRI:
The R. W. Johnson Pharmaceutical Research Institute
700 U.S. Route 202 South
P.O. Box 300
Raritan, New Jersey 08869-0602
Attention: Chairman
Telephone: (908) 704-4210
Telefax: (908) 707-1895
With a copy to:
Office of General Counsel
Johnson and Johnson
One Johnson and Johnson Plaza
New Brunswick, New Jersey 08933
Telephone: (732) 524-2485
Telefax: (732) 524-2788
ARTICLE XVI - ASSIGNMENT
16.1 ASSIGNMENT. Neither Party shall have the right to assign,
transfer or encumber its rights or obligations under this Agreement without the
prior written consent of the other, except that PRI or ACT may make such
assignment without prior consent to any Affiliate or a purchaser or transferee
of all or substantially all of the assets of its business to which this
Agreement relates upon written notice to the other Party.
ARTICLE XVII - PUBLICITY
17.1 PUBLICITY. In the absence of specific agreement between the
Parties, neither Party shall originate any publicity, news release or public
announcement, written or oral, whether to the public or press, relating to this
Agreement, including its existence, the subject matter to which it relates,
performance under it or any of its terms, to any amendment hereto or save only
such announcements as in the opinion of counsel for the Party making such
announcement is required by law to be made. Any such announcements shall be
factual and as brief as possible. If a Party decides to make an announcement
required by law , it will give the other Party twenty (20) days' advance written
notice, where possible, of the text of the announcement so that the other Party
will have an opportunity to comment upon the announcement. Routine references to
this Agreement and the arrangements hereunder without undue frequency and
without emphasis shall be allowed in the usual course of business provided that
notice of such use is given to the other Party.
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<PAGE> 29
ARTICLE XVIII - FORCE MAJEURE
18.1 FORCE MAJEURE. Neither Party hereto shall be liable to the other
Party for any losses or damages attributable to a default in or breach of this
Agreement which is the result of war (whether declared or undeclared), acts of
God, revolution, strike, fire, earthquake, flood, pestilence, riot, enactment or
change of laws and regulations, accident(s), labor trouble, or shortage of or
inability to obtain material, equipment or transport or any other cause beyond
the reasonable control of the Parties, and the performance of obligations
hereunder shall be suspended during, but no longer than, the existence of such
cause.
ARTICLE XIX - INTEGRATION
19.1 INTEGRATION. It is the mutual desire and intent of the Parties to
provide certainty as to their future rights and remedies against each other by
defining the extent of their mutual undertakings as provided herein. The Parties
have in this Agreement incorporated all representations, warranties, covenants,
commitments, and understandings on which they have relied in entering into this
Agreement and, except as provided for herein, neither Party has made any
covenant or other commitment to them concerning its future action. Accordingly,
this Agreement and all Exhibits attached hereto (a) constitute the entire
agreement and understanding between the Parties with respect to the matters
contained herein, and there are no promises, representations, conditions,
provisions, or terms related thereto other than those set forth in this
Agreement, and (b) supersedes all previous understandings, agreements and all
exhibits attached hereto, and representations between the Parties, written or
oral relating to the subject matter hereof. The parties hereto may from time to
time during the continuance of this Agreement modify, vary or alter any of the
provisions of this Agreement and all exhibits attached hereto, but only by an
instrument duly executed by all Parties hereto.
ARTICLE XX- MISCELLANEOUS
20.1 AMENDMENTS. This Agreement will not be binding upon the Parties
until it has been signed hereinbelow by or on behalf of each Party, in which
event it shall be effective as of the Effective Date. No amendment or
modification hereof shall be valid or binding upon the Parties unless made in
writing and signed as aforesaid.
20.2 LAWS. All matters affecting the interpretation, validity, and
performance of this Agreement shall be governed by the internal laws of the
State of New York, U.S.A. without regard to its conflict of law principles,
except as otherwise expressly provided herein.
20.3 SEVERABILITY. Any provision hereof which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
20.4 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
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<PAGE> 30
20.5 WAIVER. No failure or delay by any Party to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement, or to exercise any right, power or remedy hereunder or consequent
upon a breach hereof shall constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy of any such breach or preclude such
Party from exercising any such right, power or remedy at any later time or
times.
20.6 REPRESENTATIONS. Each of the Parties hereto acknowledges and
agrees (a) that no representation or promise not expressly contained in this
Agreement has been made by the other Party hereto or by any of its agents,
employees, representatives or attorneys with respect to the subject matter of
this Agreement; (b) that this Agreement is not being entered into on the basis
of, of in reliance on, any promise or representation, expressed or implied,
covering the subject matter hereof, other than those which are set forth
expressly in this Agreement; and (c) that each Party has had the opportunity to
be represented by counsel of its own choice in this matter, including the
negotiations which preceded the execution of this Agreement.
20.7 COMPLIANCE WITH LAWS. The Parties shall comply with all
applicable laws, rules, regulations and orders of the United States and all
jurisdictions and any agency or court thereof in connection with this Agreement
and the transactions contemplated thereby.
20.8 RELATIONSHIP OF PARTIES. Nothing herein shall be construed to
create any relationship of employer and employee, agent and principal,
partnership or joint venture between the Parties. Each Party is an independent
contractor. Neither Party shall assume, either directly or indirectly, any
liability of or for the other Party. Neither Party shall have the authority to
bind or obligate the other Party and neither Party shall represent that it has
such authority.
20.9 COUNTERPARTS. This Agreement may be executed in counterparts, any
one of which need not contain the signatures of more than one Party, but both of
which, taken together, shall constitute one and the same agreement.
20.10 LIMITED LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS
AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT
TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
20.11 ELECTRONIC COPIES. Promptly upon ACT's request, PRI shall deliver
or cause to be delivered to ACT or its counsel a formatted diskette containing a
conformed copy of this Agreement that was prepared using PRI's or its counsel's
word processing system.
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
THE R. W. JOHNSON PHARMACEUTICAL
RESEARCH INSTITUTE
By /s/ William A.M. Duncan
----------------------------------
Title Chairman
-------------------------------
Date 1-20-98
--------------------------------
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ALKERMES CONTROLLED THERAPEUTICS, INC.
By /s/ Richard F. Pops
----------------------------------
Title President
-------------------------------
Date 1-20-98
--------------------------------
ALKERMES, INC.
By /s/ Michael Landine
----------------------------------
Title Chief Financial Officer
-------------------------------
Date 1-20-98
--------------------------------
27
<PAGE> 1
Exhibit 10.26
SUPPLY
AND
LICENSE
AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<C> <C>
1. Definitions............................................................. 1
1.1 "Standard Manufacturing Cost"...................................... 1
1.2 "Supply Territory" means the world................................ 2
1.3 "Supply Price" or "SP"............................................. 2
1.4 "Idle Capacity Allowance".......................................... 3
2. Purchase and Sale of Products........................................... 3
3. Licenses................................................................ 5
4. Forecasts and Orders.................................................... 5
5. Acceptance of Products; Corrective Actions.............................. 6
6. Representations and Warranties.......................................... 7
7. Inspection of Premises.................................................. 8
8. Labeling; Artwork; Proprietary Rights................................... 8
9. Indemnification......................................................... 8
10. Term.................................................................... 9
11. Termination............................................................. 9
12. Confidentiality......................................................... 10
13. Manufacturing Facilities................................................ 10
14. Taxes................................................................... 10
15. Relationship of the Parties............................................. 10
16. Publicity............................................................... 10
17. Construction............................................................ 10
18. Entire Agreement........................................................ 11
19. Headings................................................................ 11
20. Notices................................................................. 11
21. Failure to Exercise..................................................... 11
22. Assignment.............................................................. 11
23. Force Majeure........................................................... 11
24. Severability............................................................ 11
25. Electronic Copies....................................................... 12
26. Dispute Resolution...................................................... 12
</TABLE>
i
<PAGE> 3
SUPPLY AND LICENSE AGREEMENT
This Agreement (the "Agreement") is made as of the 19th day of January,
1998, ("Effective Date") by and between The R. W. Johnson Pharmaceutical
Research Institute, a division of Ortho Pharmaceutical Corporation, having a
business address at U. S. Route 202, Raritan, New Jersey 08869-0602 (hereinafter
"PRI") and Janssen Pharmaceutica International, a division of Cilag AG
International, having its registered office at Kollerstrasse 38, CH- 6300, Zug,
Switzerland (hereinafter "JPI"), and Alkermes, Inc., and Alkermes Controlled
Therapeutics, Inc., both having a business address at 64 Sidney Street,
Cambridge, MA 02139-4136 (hereinafter collectively referred to as "ACT" or
"Seller"). ACT and PRI along with JPI may each be referred to herein as a
"Party" or, collectively, as "Parties". PRI and JPI are Affiliates and are
collectively referred to herein as "Buyer".
The Parties refer to the Development and License Agreement of even date
herewith by and between the ACT and PRI (hereinafter the "Development and
License Agreement"). The capitalized terms defined therein, particularly in
Article I thereof, have the same meanings herein. Certain definitions are
repeated as a matter of convenience only.
In consideration of the mutual promises, covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
When used herein, the following capitalized terms shall have the
meanings specified below:
1.1 "STANDARD MANUFACTURING COST" shall include the following:
1) Material Cost shall mean the prices paid for raw material
components and purchased finished components which are purchased from outside
vendors a well as any freight and duty where applicable.
Standard Material Cost includes the quantity of the
components included in the bill of material times the purchase price and the
waste factor (i.e., scrap percentage) included in the bill of materials. It also
includes the normal quality assurance sample quantity which is included in the
bill of materials. Raw material prices shall be adjusted on an annual basis by
the purchasing department.
2) Direct Labor Costs shall mean the standard labor hours
required for an operation according to standard operating procedures multiplied
by the direct labor rate for work centers within the relevant manufacturing
operating unit.
3) Overhead Costs shall mean other costs associated with the
one or more operating unit(s) of at least standard production capacity
manufacturing a Collaboration Product, where the capacity of such operating
units is necessary for such manufacture to meet Seller's obligations to supply
Buyer hereunder (otherwise stated as "Dedicated Units"), provided, however, that
such Overhead Costs shall exclude costs associated with unused manufacturing
capacity, except as provided for in the Idle Capacity Allowance, and any
administrative costs other than indirect labor of the manufacturing department
specifically attributable to the Collaboration Product in question. Overhead
Costs shall include the Idle Capacity Allowance and expenses associated with
quality assurance, manufacturing and engineering associated with the operating
unit(s) manufacturing a Collaboration Product and shall include depreciation and
property taxes associated with the plant(s)
1
<PAGE> 4
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
manufacturing a Collaboration Product. These costs shall be allocated to each
product line in such operating unit(s) or plant(s), whichever is applicable,
based on specific criteria consistent with the standard operating procedures for
each Product and work center overhead rates of the Party performing the work
determined and allocated in a manner consistently applied within and across its
operating units.
4) Manufacturing Variances shall include:
(a) Purchase Price Variance shall mean the difference
between the actual price paid to the vendor versus the standard cost of such
material, times the quantity received.
(b) Spending Variance shall mean the difference between
actual department spending and the budgeted spending included in Standard
Manufacturing Cost for the relevant manufacturing operating unit.
(c) Absorption volume variances shall mean the difference
between actual product hours earned (or units produced) and the hours budgeted
for the period (or projected production units used) in the development of
Standard Manufacturing Costs times the standard labor and overhead content of
those units.
(d) Material usage variance shall mean the difference
between the actual quantity of component raw materials or work-in-process used
in the production of work-in-process or finished goods versus the standard
quantity included in the bill of materials times the standard cost of the
component or work-in-process item.
(e) Rework shall mean the additional standard cost of
components or work-in-process items used to turn rejected inventory into usable
inventory. No labor or overhead rate is assigned to rework orders, only the
additional value of the inventory which is issued to the order. Additionally, no
production/absorption credit is generated for rework orders since the credit was
already generated the first time the production occurred.
The purchase of any capital item reasonably required by ACT to
manufacture shall be ACT's obligation and responsibility.
ACT's costs associated with failed batches or batches that fail to meet
Product Specifications, except where such failure is attributable to PRI or its
Affiliates, shall not be included in the definition of Standard Manufacturing
Cost.
In the event that ACT, at its option, does not implement a standard
costing system, then the Parties will agree to a definition for Standard
Manufacturing Cost which makes reasonable allowances for the above factors and
meets generally accepted accounting procedures.
1.2 "SUPPLY TERRITORY" means the world.
1.3 "SUPPLY PRICE" OR "SP" will be calculated on a unit basis for any
year following the Date of First Sale anywhere on a Product-by-Product basis as
follows:
SPyear x = [(BMPyear x - CSPyear x )* [ ]] + CSPyear x
where
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<PAGE> 5
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
BMP = Bench Mark Price, which is the lower of %[ ] of Net Sales
adjusted to a unit basis in the first year of sale or the Calculated Supply
Price averaged over the first two years of sale and adjusted annually thereafter
according to %[ ] of the Producer's Price Index as published in the Federal
Register.
CSP = Calculated Supply Price, which is Standard Manufacturing
Cost + %[ ], adjusted to a unit basis.
In any year, where that BR * [ ] < AR, then the Parties agree to renegotiate in
good faith the terms of this supply agreement, and from that time forward,
regardless of Section 2(a), Buyer is free to manufacture Collaboration Product
or have a Third Party manufacture Collaboration Product and thereby supply up to
100% of Buyer's needs for Collaboration Product.
BR = the Base Exchange Rate, which is the exchange rate, Swiss
Franc/US Dollar, as quoted in the Wall Street Journal (New York Edition) seven
calendar days following the Effective Date of this Agreement.
AR = the Average Exchange Rate, which is the average of the
exchange rates, Swiss Franc/US Dollar, quoted in the Wall Street Journal (New
York Edition) for the last business day of each month (as published on the
following business day) of the twelve month period corresponding to the year of
interest.
1.4 "IDLE CAPACITY ALLOWANCE" will be the (average annual variable
operating cost, limited to Direct Labor Costs and variable overhead costs, per
operating unit based on all ACT operating units of at least standard production
capacity capable of producing Collaboration Product) x (Dedicated Units as
defined in Section 1.1) x [ ] x (1 - average utilization to produce any product
of Dedicated Units based on time). Where a facility or a partial facility exists
in accordance with a detailed plan of Section 13(b), then any idle capacity of
such facility will be addressed only under that detailed plan until the time
that such facility is actually utilized by Seller as an operating unit to
manufacture product in the ordinary course of its business.
2. PURCHASE AND SALE OF PRODUCTS.
(a) Beginning no more than 3 months after regulatory approval to
market Collaboration Product anywhere, Seller shall supply Buyer (or Affiliates
or sublicensees or distributors designated by Buyer) with those quantities of
Collaboration Products as ordered by Buyer (or Affiliates or sublicensees or
distributors designated by Buyer) pursuant to this Agreement and Buyer shall
order from Seller no less than 100% of Buyer's needs (or the needs of Buyer's
Affiliates or sublicensees or distributors) from Seller in the Supply Territory
for time[ ] from the Date of First Sale anywhere. The Products will conform to
the specifications (which specifications may include standard operating
procedures for product production and quality acceptance procedures) set forth
by the Seller (and approved by Buyer) for its own goods (the "Product
Specifications"). Once Product Specifications are established, any changes,
modifications or revisions, including such to process facilities, raw materials
and suppliers, must be approved by Buyer and
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<PAGE> 6
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION
Seller, which approval will not be unreasonably withheld. Buyer may elect, upon
90 days written notice to Seller, to perform itself or have performed certain
processes relating to the Collaboration Product, such as filling, packaging or
sterilization. Sellers requirements of active Peptidal rHuEPO to supply Buyer
will be supplied to Seller at no cost to Seller, except that risk of loss of
active Peptidal rHuEPO shall be borne by Buyer and Seller according to the terms
of Paragraph 5(a) below. Such active will conform to specifications set forth in
the current PLA/ELA for active as produced by Buyer, or the specifications set
forth in the PLA/ELA for active as produced by Buyer's licensor for active, and
necessary to permit its formulation into Collaboration Product and Buyer will
provide a certificate of analysis confirming conformity to specifications.
During the above period of two years from the Date of First Sale anywhere, if
Seller is unable to supply 100% of the requirements of Collaboration Product
hereunder for a period exceeding 2 months from the date on which Buyer is
otherwise entitled to such supply, then Buyer is free, regardless of Section
2(a) otherwise, to manufacture Collaboration Product or have a Third Party
manufacture Collaboration Product from that point forward and thereby supply up
to 100% of Buyer's needs for Collaboration Product regardless of whether such
failure to supply is a breach of this Agreement by Seller, but provided that
Buyer is meeting its obligations to supply active Peptidal rHuEPO.
(b) On a unit basis, the purchase price for the Collaboration
Product shall be the Supply Price, SP year x, according to Section 1.3.
Regardless of the stated formula of Section 1.3, SP year x cannot be less than
CSP year x. In no event, regardless of the foregoing including the formula of
Section 1.3, will the Supply Price, SP year x, on a unit basis for a given
accounting year of the Buyer, exceed %[ ] percent of Net Sales on a unit basis,
for that accounting year. For any year, Collaboration Product will be
provisionally paid for by Buyer (or a designated Affiliate or sublicensee or
distributor) at the prior year's Standard Manufacturing Cost + %[ ]. At each
year end, the Supply Price will be calculated and the Parties will reconcile any
differences between the Supply Price and the provisional payment. For the first
year's sales, provisional payment will be based on Seller's good faith estimate
of Standard Manufacturing Cost + %[ ]. Seller shall use reasonable efforts to
keep its Standard Manufacturing Costs down without sacrificing product quality.
If Buyer assumes responsibility for any of the processes related to the
Collaboration Product pursuant to Section 2(a) or if the deliverable
Collaboration Product is otherwise modified from that which was used as a basis
to calculate BMPyear 1 then BMPyear x shall be modified accordingly to reflect
the increased or decreased cost.
(c) The prices charged by Seller to Buyer shall include all
delivery costs for F.O.B. the site of the last process performed by Seller.
Seller will pack all Collaboration Products ordered hereunder in a manner
according to any specifications for shipment and to enable such to withstand the
effects of shipping, including handling during loading and unloading. Payment
terms shall be net 30 days, payable in U.S. Dollars for each respective shipment
of Collaboration Products from Buyer's receipt of such Collaboration Products
(and applicable invoices therefor), provided that such Collaboration Products
comply with the terms of this Agreement. Buyer's obligation to pay within 30
days hereunder will not be delayed by Buyer's time period to determine
conformity to Product Specifications below.
(d) Buyer shall have the right with reasonable notice to
Seller, at its own expense, to nominate an independent certified public
accountant acceptable to and approved by the Seller, said approval not to be
unreasonably withheld, who shall have access to the Seller's records during
reasonable
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<PAGE> 7
business hours for the purpose of verifying the Supply Price (including the
Standard Manufacturing Cost and the Idle Capacity allowance used in the
calculation thereof) payable for any period within the preceding two (2) years
as provided for in this Agreement. This right may not be exercised more than
once in any calendar year, and said accountant shall disclose to the Buyer
requesting the audit, only information relating solely to the accuracy of the
Supply Price. If any audit or examination shall reveal a deficiency or excess of
any payment due, the Party owing the deficiency or excess shall make payment to
the other Party of such deficiency or excess plus interest at the prime rate +
2% (as published in the Wall Street Journal, New York Edition) for the period of
such deficiency or excess. Payment of such sums shall be made within fifteen
(15) days following the report of the auditor of the monies owed. In the event
that such an audit or examination shall reveal an excess of any payment due in
an amount equaling or exceeding five percent (5%) of accounting of the
undisputed payments or expenditures, the Seller shall reimburse the Buyer for
the reasonable costs of such audit.
3. LICENSES.
(a) PRI hereby grants to ACT a non-exclusive, license fee free
and royalty free license with no right to grant sublicenses, under ACT Patents
(under which PRI is an exclusive licensee) and under PRI Patents to make, or
have made Collaboration Products in the United States or European Union as
ordered by Buyer under this Agreement.
(b) PRI hereby grants to ACT a non-exclusive, license fee free
and royalty free license with no right to grant sublicenses, under ACT Know- How
and PRI Know-How to make or have made Collaboration Products in the United
States or European Union as ordered by Buyer under this Agreement.
4. FORECASTS AND ORDERS.
(a) Buyer shall provide Seller with a consolidated, non-binding,
36-month rolling forecast of the expected requirements for Collaboration
Products in the Supply Territory of Buyer (and Affiliates and sublicensees and
distributors). Months 13 - 36 of such forecast will be a quarterly estimate of
the expected requirements. Months 4 - 9 will be a monthly estimate of the
expected requirements. The first three months of any forecast shall be a binding
purchase order for Collaboration Products, which shall be placed in writing at
least 90 days prior to the desired date of delivery. The Parties acknowledge
that Buyer is not obligated to buy any specific amount of Products under this
Agreement, except for the quantities which Buyer shall actually order through
binding purchase orders. Seller will use reasonable efforts to supply any
quantities of Collaboration Product ordered in excess of the amounts stated in
the binding purchase orders derived through the rolling forecast.
Notwithstanding the foregoing, if Buyer places a binding purchase order for
quantities of Collaboration Product greater than 150% of the amount previously
estimated in months 4 - 6 of the rolling forecast estimates (the "estimated
amount"), then Seller shall supply that amount equal to 150% of the estimated
amount and shall use commercially reasonable efforts to supply that amount
exceeding 150% of the estimated amount and any failure to supply such excess
amount shall not be a default under this Agreement.
(b) Buyer shall place binding purchase orders for Collaboration
Products with accompanying schedules of delivery from time to time pursuant to
this Agreement. ACT shall deliver such binding purchase orders +/- 10 business
days from the specified delivery date and +/- 4% of the ordered quantity
specified in the binding purchase order.
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<PAGE> 8
(c) To the extent of any conflict or inconsistency between this
Agreement and any purchase order, purchase order release, confirmation,
acceptance or any similar document, the terms of this Agreement shall govern.
5. ACCEPTANCE OF PRODUCTS; CORRECTIVE ACTIONS.
(a) Delivery of any Collaboration Product by Seller to Buyer
shall constitute a certification by Seller that the Collaboration Product has
been tested and has been found to conform fully to the Product Specifications.
Consistent with such certification, Seller shall provide Buyer with a
Certificate of Compliance and a Certificate of Analysis, not more than one year
old and signed by the head of quality control for Seller, for each batch which
shows the tests, limits, and testing results for all Product Specifications and
verifying compliance with Product Specifications. After delivery of a shipment
of any Collaboration Products to Buyer, Buyer shall have 90 days to examine the
Collaboration Products to determine if they conform to the Product
Specifications, and, on the basis of such examination, to accept or reject such
shipment. Following a period of two years from the Date of First Sale anywhere,
either Buyer or Seller may request that the Parties renegotiate, in good faith,
the 90 day term to provide Buyer a reasonable time, under the circumstances, to
examine the Collaboration Products. Any claims for failure to so conform to
Product Specifications ("Claims") shall be made by Buyer in writing to Seller,
indicating the nonconforming characteristics of the Collaboration Products and
establishing that Buyer appropriately handled and stored the Collaboration
Product before and during testing. Buyer shall have no obligation to pay for
Collaboration Products that are subject to Claims. However, if payment has
already been made by Buyer, then within 30 days after the submission of a Claim
by Buyer, Seller shall, at Buyer's option, provide Buyer with (i) a refund of
the full amount paid by Buyer for such Products, (ii) a credit against future
billings equal to the full amount paid by Buyer for such Collaboration Products
or (iii) replacement Collaboration Products. Seller shall pay for all shipping
costs of returning Collaboration Products that are the subject of Claims and for
the destruction and disposal thereof. Seller shall bear the risk of loss for
such Collaboration Products, beginning at such time as they are taken at Buyer's
premises for return delivery.
Buyer shall bear 100% of the risk of loss of active Peptidal rHuEPO for
commercial supplies, whether in bulk form or formulated into Collaboration
Product, during the period that such is in the possession or control of Seller,
except in the case where the loss is due to an intentional act of an employee or
agent of ACT or where the loss is due to an error or omission in processing.
Where the loss of active rHuEPO is due an intentional act of an employee or
agent of ACT, then Seller shall bear 100% of the loss. Where the loss is due to
an error or omission in processing, the parties will share the risk of loss
according to the following schedule:
<TABLE>
<CAPTION>
Cumulative Commercial ACT Risk of Loss per PRI Risk of Loss per
Batches Produced Batch Batch
<S> <C> <C>
0 - 5 10% 90%
6 - 10 10% 90%
11 - 20 20% 80%
21 - 50 30% 70%
51 - 100 50% 50%
101 - 200 75% 25%
> 200 90% 10%
</TABLE>
where a failed batch will be included in Cumulative Batches Produced. In regard
to risk of loss of Peptidal rHuEPO in processing or formulating Collaboration
Product, Buyer must consent to the initial batch size employed
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<PAGE> 9
to make Collaboration Product and to subsequent changes to such batch size,
which consent will not be unreasonably withheld considering Seller's cost of
manufacture and the expense of regulatory review. For the purpose of
clarification, title to the active Peptidal rHuEPO for commercial supplies and
title to the Collaboration Product containing active Peptidal rHuEPO shall rest
with Buyer at all times.
(b) Any shipment of Collaboration Products for which Buyer shall
not submit a Claim within the allowed time periods for examination as laid out
above shall be deemed accepted. Upon acceptance, Buyer shall release Seller from
all Claims for non-conformity to Product Specifications. The acceptance by Buyer
of such Collaboration Products shall not constitute a waiver of any rights of
Buyer or a release of any obligations of Seller including, without limitation,
the obligations set forth in Section 9(a). For a period of one year from the
Date of First Sale anywhere of any Collaboration Product, if there is found to
be a defect in any such Collaboration Product following acceptance thereof by
Buyer, which could not have been found during inspection by Buyer of the
Collaboration Product relying on the specifications and pursuant to its
obligations to inspect under Section 5(a) (a "hidden defect"), then the parties
shall share the expenses associated with the handling of, disposal of and
liability for such shipment of product, with ACT responsible for 10% of such
expenses and PRI responsible for 90% of such expenses. In the event that Buyer
makes a Claim that Collaboration Product has not met the Product Specifications
and Seller does not agree, then an independent expert skilled in the art of
analysis (the "Expert) appointed by Seller and acceptable to Buyer shall visit
the Buyer. The Expert will repeat the analysis of the samples of the relevant
shipment in the presence of the appropriate Seller and Buyer personnel. After
the Expert shall have executed an appropriate Confidentiality Agreement approved
in form and substance by Seller and Buyer, Buyer and Seller shall supply the
Expert with copies of all tests, data, documentation, standards, etc., that the
Expert may reasonably require in connection with such analysis. The Expert's
decision as to whether such lot has met the Product Specifications shall be
final and binding on the Parties. All analytical tests and techniques performed
hereunder shall conform to the Product Specifications where applicable. All
expenses and costs of such expert shall be borne by the Party whose contention
is finally rejected by the Expert.
(c) Buyer shall be responsible for all costs and expenses of any
Collaboration Product recall, customer notice, restriction, change, corrective
action or market action or any Product change except as provided herein. In the
event any governmental agency having jurisdiction shall request or order, or if
Buyer shall reasonably determine to undertake, any corrective action with
respect to Collaboration Products supplied hereunder, including any
Collaboration Product recall, customer notice, restriction, change, corrective
action or market action or any product change, and the cause or basis of such
corrective action is primarily attributable to a breach by Seller of any of its
warranties, representations, obligations or covenants contained herein, then
Seller shall be liable, and shall reimburse Buyer for the reasonable costs of
such action including the cost of any Collaboration Product affected thereby
whether or not such particular Collaboration Product shall be established to be
in breach of any warranty by Seller hereunder.
6. REPRESENTATIONS AND WARRANTIES.
Seller represents and warrants to Buyer that, at the time of
manufacture, all Collaboration Products supplied in connection with this
Agreement shall be manufactured and provided by Seller (i) in accordance and
conformity with the Product Specifications and in compliance with this Agreement
and (ii) in compliance with all applicable federal, state or
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<PAGE> 10
municipal statutes, laws, rules or regulations, including those relating to the
environment, food or drugs and occupational health and safety, including,
without limitation, those enforced or promulgated by the United States Food and
Drug Administration (including, without limitation, compliance with then current
Good Manufacturing Practices). Seller further represents and warrants to Buyer
that the performance of its obligations under this Agreement will not result in
a violation or breach of, and will not conflict with or constitute a default
under its Articles of Incorporation or corporate bylaws or any agreement,
contract, commitment or obligation to which Seller or any of its Affiliates is a
party or by which it is bound. The foregoing warranties are exclusive and in
lieu of all other warranties written, oral or implied. THERE ARE NO WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. INSPECTION OF PREMISES.
Buyer shall have the right, upon reasonable notice to Seller and during
regular business hours, to inspect and audit the facilities being used by Seller
for production of the Collaboration Products, both during the time of such use
of the facilities and during the time of construction and approval of the
facilities, to assure compliance by Seller with applicable rules and regulations
and with other provisions of this Agreement. Seller shall, within fifteen
business days of any written notice of any deficiencies discovered during such
inspection, respond to Buyer with a plan to remedy any deficiencies within a
reasonable time which may be noted in any such audit, and the failure by Seller
to respond with such plan within such fifteen day period, or as agreed between
Buyer and Seller, shall be deemed a material breach of this Agreement unless
waived in writing. Seller acknowledges that the provisions of this Article
granting Buyer certain audit rights shall in no way relieve Seller of any of its
obligations under this Agreement, nor shall such provisions require Buyer to
conduct any such audits.
8. LABELING; ARTWORK; PROPRIETARY RIGHTS.
(a) Buyer shall have the right to determine the appearance and
text of all labeling used in connection with the Collaboration Products;
provided that Seller shall have the opportunity to review and comment on any
reference to or use of Seller's name or trademarks, if Buyer elects to use and
Seller agrees to the use of such name or trademarks.
(b) Seller acknowledges that Buyer is the exclusive owner of and
has all rights to its patents, trademarks, copyrights, plans, ideas, names,
slogans, artwork and all other intellectual property that appear on or are
otherwise used in connection with the packaging, marketing and sale of
Collaboration Products.
9. INDEMNIFICATION.
(a) Seller shall indemnify and hold harmless Buyer and its
Affiliates and their officers, directors and employees from and against any and
all claims, losses, damages, judgements, costs, awards, expenses (including
reasonable attorneys' fees) and liabilities of every kind (collectively,
"Losses") arising out of or resulting from any breach by Seller of any of its
warranties, representations, obligations or covenants contained herein.
(b) Buyer shall indemnify and hold harmless Seller and its
Affiliates and their officers, directors and employees from and against any and
all Losses arising out of or resulting from any breach by Buyer of any of its
obligations or covenants contained herein.
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<PAGE> 11
(c) Each indemnified Party agrees to give the indemnifying Party
prompt written notice of any matter upon which such indemnified Party intends to
base a claim for indemnification (an "Indemnity Claim") under Article 9. The
indemnifying Party shall have the right to participate jointly with the
indemnified Party in the indemnified Party's defense, settlement or other
disposition of any Indemnity Claim. With respect to any Indemnity Claim relating
solely to the payment of money damages and which could not result in the
indemnified Party's becoming subject to injunctive or other equitable relief or
otherwise adversely affect the business of the indemnified Party in any manner,
and as to which the indemnifying Party shall have acknowledged in writing the
obligation to indemnify the indemnified Party hereunder, the indemnifying Party
shall have the sole right to defend, settle or otherwise dispose of such
Indemnity Claim, on such terms as the indemnifying Party, in its sole
discretion, shall deem appropriate, provided that the indemnifying Party shall
provide reasonable evidence of its ability to pay any damages claimed and with
respect to any such settlement shall have obtained the written release of the
indemnified Party from the Indemnity Claim. The indemnifying Party shall obtain
the written consent of the indemnified Party, which shall not be unreasonably
withheld, prior to ceasing to defend, settling or otherwise disposing of any
Indemnity Claim if as a result thereof the indemnified Party would become
subject to injunctive or other equitable relief or the business of the
indemnified Party would be adversely affected in any manner.
(d) PRI shall indemnify and hold ACT harmless from and against
any and all liabilities, claims, damages, costs, expenses or money judgments
which result from the manufacture, use, promotion and sale of Collaboration
Products under this Agreement and in regard to which, ACT is not in breach of
this Agreement.
(e) This Article 9 shall survive any termination of this
Agreement.
10. TERM. This Agreement shall commence on the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect to
termination of the License and Development Agreement between ACT and PRI of
even date herewith.
11. TERMINATION.
(a) This Agreement may be terminated earlier than as provided by
Article 10, by either Party, if the other Party shall materially breach or
materially fail in the observance or performance of any representation,
warranty, covenant or obligation under this Agreement or the License and
Development Agreement of even date herewith, and if such material breach or
material failure remains uncured for sixty (60) days after notice thereof is
given to such other Party by the Party seeking to terminate.
(b) Notwithstanding the termination of this Agreement for any
reason, each Party hereto shall be entitled to recover any and all damages which
such Party shall have sustained by reason of the breach by the other Party
hereto of any of the terms of this Agreement. Termination of this Agreement for
any reason shall not release either Party hereto from any liability which at
such time has already accrued or which thereafter accrues from a breach or
default prior to such expiration or termination, nor affect in any way the
survival of any other right, duty or obligation of either Party hereto which is
expressly stated elsewhere in this Agreement to survive such termination. In the
case of a termination under Section 11(a) above, the non-defaulting Party may
pursue any remedy available in law or in equity with respect to such breach.
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<PAGE> 12
12. CONFIDENTIALITY. The Parties refer to the confidentiality
provisions of Article IX of the Development and License Agreement between ACT
and PRI of even date herewith. Any Information exchanged hereunder shall be
held in confidence in accordance with those provisions.
13. MANUFACTURING FACILITIES.
(a) Seller will establish a first manufacturing facility in the
United States. All costs associated with the construction and operation of ACT
manufacturing facilities shall be the responsibility of ACT. Seller shall
register its manufacturing facility or facilities for Collaboration Products
with the Federal Food and Drug Administration (the "FDA") or, the equivalent
appropriate regulatory authority in a country of the European Union or, other
regulatory authorities as requested by Buyer, and permit representatives of the
FDA or such regulatory authority to inspect any such facility upon request.
Seller will regularly inform Buyer in writing of substantial issues surrounding
and Seller's progress in regard to the construction and registration of the
manufacturing facilities. Buyer is responsible for obtaining FDA approval and
approval of other regulatory authorities for the Collaboration Products in the
Supply Territory as needed.
(b) To minimize the likelihood of a supply deficiency with
respect to a Collaboration Product, by the filing of the BLA or its equivalent
in a Major European Country for a Collaboration Product, Seller will demonstrate
an ability, in a detailed plan, to supply Collaboration Product within 3 months
of supply disruption, whether such supply disruption is due to destruction of
ACT's manufacturing facility, a force majeure under Article 23, or otherwise. In
the event that either Party can show both feasibility and economic savings, the
3 month requirement for supply, in the event of supply disruption, may be
extended based on maintaining adequate stocks of Collaboration Product. Where
the plan calls for transferring manufacture from one manufacturing facility to
another manufacturing facility of a Third Party, then such Third Party will be
an industry recognized reputable manufacturer having experience in making
injectable delivery systems and PRI will provide the necessary contingent
licenses.
14. TAXES. Buyer shall assume liability for all taxes, excises or
other charges which relate to the Collaboration Products and are imposed by any
local, state or federal authority after title to the Collaboration Products
passes to Buyer. Buyer further agrees to indemnify Seller against any and all
such liability for taxes as well as any reasonable legal fees or costs incurred
by Seller in connection therewith. To the best of Seller's knowledge, there are
no such taxes, excises or other charges now in effect.
15. RELATIONSHIP OF THE PARTIES. The relationship of Buyer and Seller
established by this Agreement is that of independent contractors, and nothing
contained herein shall be construed to (i) give either Party any right or
authority to create or assume any obligation of any kind on behalf of the other
or (ii) constitute the Parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking.
16. PUBLICITY. The Parties refer to the publicity provisions of
Article XVII of the Development and License Agreement between the Parties of
even date herewith. Any publicity hereunder shall be handled in accordance with
those provisions.
17. CONSTRUCTION. This Agreement shall be governed by, and shall be
construed in accordance with, the laws of the State of New York.
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<PAGE> 13
18. ENTIRE AGREEMENT. It is the mutual desire and intent of the
Parties to provide certainty as to their future rights and remedies against each
other by defining the extent of their mutual undertakings as provided herein.
The Parties have in this Agreement incorporated all representations, warranties,
covenants, commitments, and understandings on which they have relied in entering
into this Agreement and, except as provided for herein, neither Party has made
any covenant or other commitment to them concerning its future action.
Accordingly, this Agreement and all Exhibits attached hereto (a) constitutes the
entire agreement and understanding between the Parties with respect to the
matters contained herein, and there are no promises, representations,
conditions, provisions, or terms related thereto other than those set forth in
this Agreement, and (b) supersedes all previous understandings, agreements, and
representations between the Parties, written or oral relating to the subject
matter hereof. The Parties hereto may from time to time during the continuance
of this Agreement modify, vary or alter any of the provisions of this Agreement,
but only by an instrument duly executed by all Parties hereto.
19. HEADINGS. The headings used herein have been inserted for
convenience only and shall not affect the interpretation of this Agreement.
20. NOTICES. Notices are to be given under this Agreement as directed
in Paragraph 15.1 of the Development and License Agreement between the Parties
of even date herewith.
21. FAILURE TO EXERCISE. The failure of either Party to enforce at
any time for any period any provision hereof shall not be construed to be a
waiver of such provision or of the right of such Party thereafter to enforce
each such provision, nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy. Remedies provided herein are cumulative and not
exclusive of any remedies provided at law.
22. ASSIGNMENT. This Agreement may not be assigned by either Party
without the prior written consent of the other, except that either Party may
assign its rights and/or obligations hereunder to any of its Affiliates or that
PRI or ACT may make such assignment without prior consent to any purchaser or
transferee of all or substantially all of the assets of its business to which
this Agreement relates upon written notice to the other Party. Subject to the
foregoing sentence, this Agreement shall bind and inure to the benefit of the
Parties hereto and their respective successors and assigns.
23. FORCE MAJEURE. Neither Party hereto shall be liable to the other
Party for any losses or damages attributable to a default in or breach of this
Agreement which is the result of war (whether declared or undeclared), acts of
God, revolution, strike, fire, earthquake, flood, pestilence, riot, enactment or
change of laws and regulations, accident(s), labor trouble, or shortage of or
inability to obtain material, equipment or transport or any other cause beyond
the reasonable control of the Parties, and the performance of obligations
hereunder shall be suspended during, but no longer than, the existence of such
cause. In the event of a force majeure hereunder, Seller will allocate available
capacity among its customers based on allocation of capacity in the year
preceding the force majeure.
24. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, to the extent the economic
benefits conferred by this Agreement to both Parties remain substantially
unimpaired, be ineffective to the extent of such invalidity or
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<PAGE> 14
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.
25. ELECTRONIC COPIES. Promptly upon ACT's request, PRI shall deliver
or cause to be delivered to ACT or its counsel a formatted diskette containing a
conformed copy of this Agreement that was prepared using PRI's or its counsel's
word processing system.
26. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, or the Parties' decision to enter into this
Agreement, or the breach thereof, shall be settled by arbitration per Article
XIII of the Development and License Agreement. This Article will survive
termination of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
AGREED TO AND ACCEPTED BY: AGREED TO AND ACCEPTED BY:
ALKERMES CONTROLLED THE R. W. JOHNSON PHARMACEUTICAL
THERAPEUTICS, INC. RESEARCH INSTITUTE, A DIVISION OF
ORTHO PHARMACEUTICAL CORPORATION
By /s/ Richard F. Pops By /s/ William A.M. Duncan
---------------------------------- ----------------------------------
Title President Title Chairman
------------------------------- -------------------------------
Date 1-20-98 Date 1-20-98
-------------------------------- --------------------------------
AGREED TO AND ACCEPTED BY: AGREED TO AND ACCEPTED BY:
ALKERMES, INC. JANSSEN PHARMACEUTICA INTERNATIONAL,
A DIVISION OF CILAG AG INTERNATIONAL
By /s/ Michael Landine By /s/ H. Schmid
---------------------------------- ----------------------------------
Title Chief Financial Officer Title General Manager
------------------------------- -------------------------------
Date 1-20-98 Date 1-20-98
-------------------------------- --------------------------------
12
<PAGE> 1
Exhibit 10.29(b)
SECOND LOAN SUPPLEMENT AND MODIFICATION AGREEMENT
This Second Loan Supplement and Modification Agreement ("this
Agreement") is made as of March 19, 1998 by and among Alkermes, Inc., a
Pennsylvania corporation ("Alkermes"), Alkermes Controlled Therapeutics, Inc., a
Pennsylvania corporation ("ACT I"), Alkermes Controlled Therapeutics Inc. II, a
Pennsylvania corporation ("ACT II") (Alkermes, ACT I and ACT II being
hereinafter referred to collectively as the "Borrowers" and individually as a
"Borrower") and Fleet National Bank (the "Bank"). The Bank is the successor by
merger to Fleet Bank of Massachusetts, N.A. ("Fleet Mass"). For good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Bank agree as follows:
1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain
letter agreement dated September 27, 1996 among the Borrowers and the Bank, as
amended by the below-defined First Loan Supplement (as so amended, the "Letter
Agreement"); (ii) that certain $1,500,000 original principal amount promissory
note dated December 19, 1995 made by Alkermes and payable to the order of Fleet
Mass, as amended by Allonge to Note dated September 27, 1996 among Alkermes, ACT
I and the Bank (said December 19, 1995 promissory note, as so amended, being
hereinafter referred to as the "1995 Note"); (iii) that certain $5,000,000
original principal amount promissory note dated September 27, 1996 (the "Ohio
Term Note") made by Alkermes and ACT II and payable to the order of the Bank;
(iv) that certain $2,500,000 original principal amount promissory note dated
June 2, 1997 (the "1997 Term Note") made by the Borrowers and payable to the
order of the Bank; (v) that certain Security Agreement dated as of September 27,
1996 from the Borrowers to the Bank, as amended by the First Loan Supplement (as
so amended, the "Security Agreement"); (vi) that certain Pledge Agreement dated
as of September 27, 1996 from Alkermes to the Bank, as affected by the First
Loan Supplement (as so affected, the "Pledge"); (vii) that certain Mortgage and
Security Agreement dated as of September 27, 1996 from ACT II to the Bank
relating to premises of ACT II in Clinton County, Ohio, as affected by the First
Loan Supplement (as so affected, the "Ohio Mortgage"); and (viii) that certain
promissory note of even date herewith (the "1998 Term Note") in the face
principal amount of the $4,000,000 made by the Borrowers and payable to the
order of the Bank. The Letter Agreement, the 1995 Note, the Ohio Term Note, the
1997 Term Note, the Security Agreement, the Pledge, the Ohio Mortgage and the
1998 Term Note are hereinafter referred to collectively as the "Financing
Documents". A copy of the form of the 1998 Term Note is attached hereto as
Exhibit 1. As used herein, the term "First Loan Supplement" will be deemed to
refer to that certain Loan Supplement and Modification Agreement dated as of
June 2, 1997 among the Borrowers and the Bank.
2. 1998 TERM LOANS. (a) MAKING OF 1998 TERM LOANS. Subject to the
terms and conditions hereof, the Bank will make one or more loans (the "1998
Term Loans") to the Borrowers, as the Borrowers may request, on any Business Day
(as defined in the Letter Agreement) prior to the first to occur of (i) the
close of business on June 30, 1998 or (ii) the earlier termination, pursuant to
paragraph 2(e) below, of the within-described facility for 1998 Term Loans. A
1998 Term Loan shall be made not more than once per calendar quarter unless each
additional 1998 Term Loan in any one calendar quarter is in an amount of at
least $250,000.
<PAGE> 2
Each 1998 Term Loan will be in such amount as may be requested by the Borrowers;
provided that (i) no 1998 Term Loan will be made after the close of business on
June 30, 1998; (ii) the aggregate original principal amounts of all 1998 Term
Loans will not exceed $4,000,000; and (iii) no 1998 Term Loan will be in an
amount in excess of 100% of the invoiced actual costs of the tangible property
constituting the items of Qualifying Equipment with respect to which such 1998
Term Loan is made (excluding taxes, shipping, software, installation charges,
training fees and other "soft costs"). In connection with the making of each
1998 Term Loan, and as a precondition thereto, the Borrowers will provide the
Bank with: (i) invoices supporting the costs of the relevant Qualifying
Equipment; (ii) such evidence as the Bank may reasonably request showing that
each such item of Qualifying Equipment has been delivered to and installed at
Alkermes' or ACT I's premises in Cambridge, MA (in the case of Qualifying
Equipment owned by Alkermes or ACT I) or ACT II's premises in Clinton County,
Ohio or Hamilton County, Ohio (in the case of Qualifying Equipment owned by ACT
II), has become fully operational, has been paid for by the relevant Borrower
and is owned by the relevant Borrower free of all liens and interests of any
other person or entity (other than the security interest of the Bank pursuant to
the Security Agreement); (iii) executed Uniform Commercial Code financing
statements reflecting the items of Qualifying Equipment with respect to which
such 1998 Term Loan is being made and an appropriate supplement to the Security
Agreement reflecting such items; and (iv) evidence satisfactory to the Bank that
the Qualifying Equipment is fully insured against casualty loss, with insurance
naming the Bank as secured party and first loss payee. As used herein,
"Qualifying Equipment" means equipment purchased by the Borrowers after March 1,
1997 for use in the Borrowers' business which meets all of the following
criteria: (i) such equipment consists of one of the items shown on the Equipment
List heretofore delivered by the Borrowers to the Bank or has otherwise been
approved by the Bank for use in supporting a 1998 Term Loan, (ii) each item of
such equipment has been delivered to and installed at Alkermes' or ACT I's
premises in Cambridge, MA (in the case of Qualifying Equipment owned by Alkermes
or ACT I) or ACT II's premises in Clinton County, Ohio or Hamilton County, Ohio
(in the case of Qualifying Equipment owned by ACT II) and has become fully
operational, (iii) the relevant Borrower has paid in full for each item of such
equipment and holds title to same, free of all interests and claims of any other
person or entity (other than the security interest of the Bank), and (iv) the
Bank has a fully perfected first security interest in such equipment. The 1998
Term Loans will be evidenced by the 1998 Term Note. Interest on the 1998 Term
Loans shall be payable at the times and at the rate provided for in the 1998
Term Note. Overdue principal of any 1998 Term Loan and, to the extent permitted
by law, overdue interest shall bear interest at a rate per annum which at all
times shall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the
per annum rate otherwise payable under the 1998 Term Note (but in no event in
excess of the maximum rate from time to time permitted by then applicable law),
compounded monthly and payable on demand. Each Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
1998 Term Note or on the books of the Bank, at or following the time of the
making of any 1998 Term Loan and of receiving any payment of principal of any
1998 Term Loan, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the 1998 Term Loans. The amount so noted
shall constitute presumptive evidence as to the amount owed jointly and
severally by the Borrowers with respect to principal of the 1998 Term Loans.
Failure of the Bank to make any such notation shall not, however, affect any
obligation of any Borrower or any right of the Bank hereunder or under the 1998
Term Note. The 1998 Term Loans will be made jointly to the
-2-
<PAGE> 3
Borrowers and repayment thereof will be the joint and several obligation of the
Borrowers. The 1998 Term Loans will be used by the Borrowers solely to pay (or
to reimburse the Borrowers for) the costs of acquisition of Qualifying
Equipment.
(b) REPAYMENT OF 1998 TERM LOANS. The Borrowers shall repay (and
shall be jointly and severally obligated to repay) principal of the 1998 Term
Loans in 60 equal consecutive monthly installments, commencing on July 1, 1998
and continuing on the first Business Day of each month thereafter. Each such
monthly installment of principal payable with respect to the 1998 Term Loans
shall be in an amount equal to 1/60th of the aggregate principal amount of the
1998 Term Loans outstanding at the close of business on June 30, 1998. In any
event, the then outstanding principal balance of the 1998 Term Loans and all
interest then accrued but unpaid thereon shall be due and payable in full on
June 2, 2003. The Borrowers may prepay, at any time or from time to time, the
whole or any portion of the 1998 Term Loans; provided that each such principal
prepayment shall be accompanied by payment of all interest under the 1998 Term
Note accrued but unpaid to the date of payment; and further provided that at the
time of each such prepayment the Borrowers pay to the Bank the Make-Whole
Amount, if any, required by the second paragraph of Section 1.6 of the Letter
Agreement in respect of such prepayment. Any partial prepayment of principal of
the 1998 Term Loans will be applied to installments of principal of the 1998
Term Loans thereafter coming due in inverse order of normal maturity.
(c) FACILITY FEES. With respect to the 1998 Term Loans, the
Borrowers are paying to the Bank, at the date of execution and delivery of this
Agreement, a non-refundable facility fee in the amount of $20,000. The fee
described in this paragraph is in addition to any balances and fees required by
the Bank or any of its affiliates in connection with any other services now or
hereafter made available to Alkermes and/or any of its affiliates.
(d) CONDITIONS TO ADVANCE. Without limiting the foregoing, any
1998 Term Loan is subject to the further conditions precedent that on the date
on which such 1998 Term Loan is made (and after giving effect thereto):
(i) All statements, representations and warranties of each
Borrower made in the Letter Agreement and/or in the Security Agreement shall
continue to be correct in all material respects as of the date of such 1998 Term
Loan.
(ii) All covenants and agreements of each Borrower contained herein
and/or in any of the other Loan Documents (as defined in the Letter Agreement)
shall have been complied with in all material respects on and as of the date of
such 1998 Term Loan.
(iii) No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default (as defined in the Letter
Agreement) shall have occurred and be continuing.
(iv) No material adverse change shall have occurred in the
financial condition of any Borrower from that disclosed in the financial
statements then most recently furnished to the Bank.
-3-
<PAGE> 4
Each request by the Borrowers for any 1998 Term Loan, and each
acceptance by any Borrower of the proceeds of any 1998 Term Loan, will be deemed
a joint and several representation and warranty by the Borrowers that at the
date of such 1998 Term Loan and after giving effect thereto all of the
conditions set forth in the foregoing clauses (i)-(iv) of this paragraph 2(d)
will be satisfied.
(e) TERMINATION ON DEFAULT. The Borrowers agree that if any Event
of Default shall occur and be continuing, the Bank may, in addition to and not
in limitation of its other rights and remedies described in Section 5.2 of the
Letter Agreement, terminate the within facility for 1998 Term Loans by written
notice to the Borrowers (except that such termination will be deemed to have
occurred automatically and without any requirement for notice if there shall
occur any Event of Default described in clause (h) of Section 5.1 of the Letter
Agreement).
3. CONCERNING THE LETTER AGREEMENT. The parties agree as follows
with respect to the Letter Agreement:
a. That the 1998 Term Loans constitute "Additional Term Loans" as
defined in Section 1.5 of the Letter Agreement and are thus included within the
definitions of "Term Loan" and "Term Loans" for all purposes of the Letter
Agreement.
b. That the 1998 Term Note constitutes an "Additional Term Note"
as defined in Section 1.5 of the Letter Agreement and is thus included within
the definitions of "Note" and "Notes" for all purposes of the Letter Agreement.
Without limitation of the foregoing provisions of this paragraph 3b and of
paragraph 3a above, the Borrowers acknowledge that the provisions of the Letter
Agreement as to payment and collection of amounts owed thereunder (including,
without limitation, Sections 1.7, 5.2 and 5.3 of the Letter Agreement) and as to
costs, expenses and charges (including, without limitation, Sections 6.1 and 6.2
of the Letter Agreement) apply to the 1998 Term Loans and to the 1998 Term Note.
c. That each 1998 Term Loan is an "Additional Term Loan which
bears interest at a fixed rate" for the purposes of the second paragraph of
Section 1.6 of the Letter Agreement.
d. That Section 1.7 of the Letter Agreement is hereby amended by
inserting into the third sentence of the second paragraph of said Section 1.7,
immediately after the words "immediately available funds", the following:
"in lawful money of the United States"
e. That Section 3.6 of the Letter Agreement is hereby amended by
deleting therefrom the number "$12,500,000" and by substituting in its stead the
following:
"$15,000,000"
f. That Section 5.3 of the Letter Agreement is hereby amended by
adding, at the end of such Section, the following:
-4-
<PAGE> 5
"ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE
OBLIGATIONS PRIOR TO THE EXERCISE BY THE BANK OF ITS RIGHT OF SET-OFF
UNDER THIS SECTION ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED."
g. That, pursuant to Section 6.6 of the Letter Agreement, the
notice address for the Bank is hereby changed to:
"Fleet National Bank
High Technology Group
One Federal Street, 7th Floor
Boston, MA 02110
Attention: Irina Case, Assistant Vice President"
h. That Article VI of the Letter Agreement is hereby amended by
adding, at the end of such Article, the following:
"6.8. BINDING EFFECT; ASSIGNMENT. This letter agreement
shall be binding upon the Borrowers, their respective successors and
assigns and shall inure to the benefit of the Borrowers and the Bank
and their respective permitted successors and assigns. No Borrower may
assign this letter agreement or any rights hereunder without the
express written consent of the Bank. The Bank may, in accordance with
applicable law, from time to time assign or grant participations in
this letter agreement, any Term Loans and/or any Term Note. Without
limitation of the foregoing generality:
(i) The Bank may at any time pledge all or any portion of
its rights under the Loan Documents (including any
portion of any Term Note) to any of the 12 Federal
Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341. No such
pledge or the enforcement thereof shall release the
Bank from its obligations under any of the Loan
Documents.
(ii) The Bank shall have the unrestricted right at any
time and from time to time, and without the consent
of or notice to any Borrower, to grant to one or more
banks or other financial institutions (each, a
`Participant') participating interests in the Bank's
obligation to lend hereunder and/or any or all of the
Term Loans held by the Bank hereunder. In the event
of any such grant by the Bank of a participating
interest to a Participant, whether or not upon notice
to the Borrowers, the Bank shall remain responsible
for the performance of its obligations hereunder and
the Borrowers shall continue to deal solely and
directly with the Bank in connection with the Bank's
rights and obligations hereunder. The Bank may
furnish any information concerning the Borrowers in
its possession
-5-
<PAGE> 6
from time to time to prospective assignees and
Participants; provided that the Bank shall require
any such prospective assignee or Participant to agree
in writing to maintain the confidentiality of such
information to the same extent as the Bank would be
required to maintain such confidentiality.
6.9. CONSENT TO JURISDICTION. Each Borrower irrevocably
submits to the non-exclusive jurisdiction of any Massachusetts court or
any federal court sitting within The Commonwealth of Massachusetts over
any suit, action or proceeding arising out of or relating to this
letter agreement and/or any Term Note. Each Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it
may now or hereafter have to the laying of venue of any such suit,
action or proceeding brought in such a court and any claim that any
such suit, action or proceeding has been brought in an inconvenient
forum. Each Borrower agrees that final judgment in any such suit,
action or proceeding brought in such a court shall be enforced in any
court of proper jurisdiction by a suit upon such judgment, provided
that service of process in such action, suit or proceeding shall have
been effected upon such Borrower in one of the manners specified in the
following paragraph of this ss.6.9 or as otherwise permitted by law.
Each Borrower hereby consents to process being served in any
suit, action or proceeding of the nature referred to in the preceding
paragraph of this ss.6.9 either (i) by mailing a copy thereof by
registered or certified mail, postage prepaid, return receipt
requested, to it at its address set forth in ss.6.6 (as such address
may be changed from time to time pursuant to said ss.6.6) or (ii) by
serving a copy thereof upon it at its address set forth in ss.6.6 (as
such address may be changed from time to time pursuant to said ss.6.6).
6.10. SEVERABILITY. In the event that any provision of this
letter agreement or the application thereof to any Person, property or
circumstances shall be held to any extent to be invalid or
unenforceable, the remainder of this letter agreement, and the
application of such provision to Persons, properties or circumstances
other than those as to which it has been held invalid and
unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.11. REPLACEMENT NOTE. Upon receipt of an affidavit of an
officer of the Bank as to the loss, theft, destruction or mutilation of
any Term Note or of any other Loan Document which is not of public
record and, in the case of any such mutilation, upon surrender and
cancellation of such Term Note or other Loan Document, the Borrower
will issue, in lieu thereof, a replacement Term Note or other Loan
Document in the same principal amount (as to such Term Note) and in any
event of like tenor.
6.12. USURY. All agreements between any Borrower and the
Bank are hereby expressly limited so that in no contingency or event
whatsoever, whether
-6-
<PAGE> 7
by reason of acceleration of maturity of any Term Note or otherwise,
shall the amount paid or agreed to be paid to the Bank for the use or
the forbearance of the Indebtedness represented by any Term Note exceed
the maximum permissible under applicable law. In this regard, it is
expressly agreed that it is the intent of the Borrowers and the Bank,
in the execution, delivery and acceptance of the Term Notes, to
contract in strict compliance with the laws of The Commonwealth of
Massachusetts. If, under any circumstances whatsoever, performance or
fulfillment of any provision of any Term Note or any of the other Loan
Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable
law, then the obligation so to be performed or fulfilled shall be
reduced automatically to the limits of such validity, and if under any
circumstances whatsoever the Bank should ever receive as interest an
amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the
principal balance evidenced by the Term Notes and not to the payment of
interest. The provisions of this Section 6.12 shall control every other
provision of this letter agreement and of the Term Notes.
6.13. WAIVER OF JURY TRIAL. THE BORROWERS AND THE BANK
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS LETTER AGREEMENT, ANY TERM
NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK
TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE TERM LOANS AS
CONTEMPLATED HEREIN."
i. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into the definition of "Person" appearing in said Section 7.1,
immediately after the words "corporation, partnership," the following:
"limited liability company,"
j. That Section 7.1 of the Letter Agreement is hereby amended by
deleting from the definition of "Principal Office" appearing in said Section 7.1
the words "75 State Street, Boston, MA 02109" and by substituting in their stead
the following:
"One Federal Street, Boston, MA 02110"
4. CONCERNING THE SECURITY AGREEMENT. The parties agree as
follows with respect to the Security Agreement:
-7-
<PAGE> 8
a. That each 1998 Term Loan constitutes an "Additional Term Loan"
for the purposes of the Security Agreement and is thus included for all purposes
within the definition of "Obligations" appearing in Section 1 of the Security
Agreement; and that references in Section 17 of the Security Agreement, as
amended hereby, to the "1998 Term Loans" will be deemed to refer to the 1998
Term Loans, as hereinabove defined.
b. That the 1998 Term Note constitutes an "Additional Term Note"
for the purposes of the Security Agreement and is thus included within the
definition of "Loan Documents" appearing in Section 1 of the Security Agreement.
c. That the items listed on Exhibit 2 attached hereto (together
with all items constituting Qualified Equipment supporting any 1998 Term Loan
made subsequent to the date hereof) are deemed to be "Additional Loan
Collateral" for the purposes of the Security Agreement and are thus included
within the definitions of "Equipment" and "Collateral" appearing in Section 1 of
the Security Agreement; and that the items listed on Exhibit 2 attached hereto
(together with all items constituting Qualified Equipment supporting any 1998
Term Loan made subsequent to the date hereof) shall also be deemed to be "1998
Loan Collateral" for the purposes of Section 17 of the Security Agreement.
d. That the 1994 Loan Collateral (as defined in the Security
Agreement) is hereby released from the lien of the Security Agreement and no
longer constitutes Collateral thereunder.
e. That the equipment lists set forth in Exhibit A to the
Security Agreement are hereby amended by adding thereto (without releasing or
deleting any item shown on such lists immediately prior to the date hereof,
except for the release of the 1994 Loan Collateral described above) all of the
items appearing on Exhibit 2 attached hereto.
f. That Section 17 of the Security Agreement is hereby amended in
its entirety to read as follows:
"17. PARTIAL RELEASE. The Secured Party agrees that, upon the
satisfaction of the Partial Release Conditions (hereinafter defined) in
relation to the 1995 Term Loan, the Ohio Term Loan, the 1997 Term Loan
or the 1998 Term Loans, the Secured Party will, at the Debtors'
request, execute and deliver to the Debtors a release of the 1995 Loan
Collateral or the Ohio Loan Collateral or the 1997 Loan Collateral or
the 1998 Loan Collateral (as appropriate) from the lien of this
Security Agreement (including appropriate releases on Form UCC-3) and,
upon execution and delivery of such release, the 1995 Loan Collateral,
the Ohio Loan Collateral, the 1997 Loan Collateral or the 1998 Loan
Collateral (as the case may be) will no longer be deemed 'Collateral'
subject to this Security Agreement. As used herein, the 'Partial
Release Conditions' will be deemed satisfied only if ALL of the
following shall have occurred: (i) the 1995 Term Loan or the Ohio Term
Loan or the 1997 Term Loan or the 1998 Term Loans (as the case may be)
shall have been paid in full, (ii) the cash and/or readily-marketable
Government Securities pledged to the Secured Party under Section 1.8 of
the Letter Agreement shall have an aggregate fair market value of not
less than the 'Required Minimum
-8-
<PAGE> 9
Value' (as defined in the Letter Agreement) and Alkermes shall agree to
maintain such pledged cash and/or readily-marketable Government
Securities in such amount so that the fair market value thereof shall
never be less than such 'Required Minimum Value' and (iii) there shall
then exist no Event of Default nor any event or circumstance which,
with the passage of time or the giving of notice or both, could become
an Event of Default. At the time of the making of any Additional Term
Loan, the Bank and the Debtors may, by written modification to this
Security Agreement, set forth the circumstances, if any, under which a
partial release may be obtained with respect to the Additional Loan
Collateral pledged in connection with the relevant Additional Term
Loan."
5. CONCERNING THE PLEDGE. The parties agree as follows with
respect to the Pledge:
a. That the 1998 Term Note constitutes an "Additional Term Note"
as described in Section 2 of the Pledge, with the result that the 1998 Term Note
is included within the "Loan Documents" as defined in Section 2 of the Pledge.
b. That each 1998 Term Loan is included within the "Secured
Obligations" as defined in Section 2 of the Pledge.
6. CONCERNING THE OHIO MORTGAGE. The parties agree that the 1998
Term Note constitutes one of the "Other Term Notes" described in the WITNESSETH
clause of the Ohio Mortgage, with the result that the 1998 Term Loans are among
the obligations secured by the Ohio Mortgage. The Borrowers acknowledge that the
notice address of the Bank, for the purposes of Section 24 of the Ohio Mortgage,
has been changed to the address set forth in paragraph 3g above.
7. AMENDED DOCUMENTS. Wherever in any Financing Document, or in
any certificate or opinion to be delivered in connection therewith, reference is
made to the Letter Agreement, to the Security Agreement, to the Pledge and/or to
the Ohio Mortgage, from and after the date hereof same will be deemed to refer
to the relevant Financing Document as amended or otherwise affected hereby.
8. REPRESENTATIONS. In order to induce the Bank to enter into
this Agreement, each Borrower represents and warrants as follows:
a. The execution, delivery and performance of each of this
Agreement and the 1998 Term Note have been duly authorized by each Borrower by
all necessary corporate and other action, will not require the consent of any
third party and will not conflict with, violate the provisions of, or cause a
default or constitute an event which, with the passage of time or the giving of
notice or both, could cause a default on the part of any Borrower under its
charter documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance (except in favor of the Bank) on any property or
assets of any Borrower.
-9-
<PAGE> 10
b. Each Borrower has duly executed and delivered each of this
Agreement and the 1998 Term Note.
c. Each of this Agreement and the 1998 Term Note is the legal,
valid and binding joint and several obligation of each Borrower, enforceable
against each Borrower jointly and severally in accordance with its respective
terms.
d. The statements, representations and warranties made in the
Letter Agreement, in the Security Agreement and/or in the other Financing
Documents continue to be correct as of the date hereof; except as amended,
updated and/or supplemented by the attached Supplemental Disclosure Schedule.
e. The covenants and agreements of the Borrowers contained in the
Letter Agreement, in the Security Agreement and/or in the other Financing
Documents have been complied with on and as of the date hereof.
f. No event which constitutes or which, with notice or lapse of
time, or both, could constitute, an Event of Default (as defined in the Letter
Agreement) has occurred and is continuing.
g. No material adverse change has occurred in the financial
condition of any Borrower from that disclosed in the financial statements of
Alkermes dated December 31, 1997, heretofore furnished to the Bank.
9. FULL FORCE AND EFFECT. Except as expressly affected hereby,
the Letter Agreement and each of the other Financing Documents remains in full
force and effect as heretofore.
10. NO WAIVER. Nothing contained herein will be deemed to
constitute a waiver or a release of any provision of any of the Financing
Documents. Nothing contained herein will in any event be deemed to constitute an
agreement to give a waiver or release or to agree to any amendment or
modification of any provision of any of the Financing Documents on any other or
future occasion.
-10-
<PAGE> 11
Executed, as an instrument under seal, as of the day and year first
above written.
ALKERMES, INC.
By: /s/ Michael J. Landine
----------------------------------------
Name: Michael J. Landine
Title: Senior Vice President, CFO and
Treasurer
ALKERMES CONTROLLED THERAPEUTICS, INC.
By: /s/ Michael J. Landine
----------------------------------------
Name: Michael J. Landine
Title: Vice President
ALKERMES CONTROLLED THERAPEUTICS INC. II
By: /s/ Michael J. Landine
----------------------------------------
Name: Michael J. Landine
Title: Vice President
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Irina Case
-----------------------------
Name: Irina Case
Title: Vice President
-11-
<PAGE> 12
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C>
4/3/97 AMC Computers APCM5543LL PMAC 7300 157078 7,695.00
4/3/97 Entex So-Sony dat w/4 cart 2 4MB 156363 1,486.85
4/22/97 Superior Control Prolease 500 Data Acquisition system 157201 3,453.00
5/23/97 AMC Computers Powermac 8600/200 157954 6,115.00
5/6/97 Edwards High Vaccum pump E2M18, clean & overhaul kit, blade kit for E2M18 157371 3,443.73
5/14/97 FTS Systems Inc Recirculator, 230v/60hz, AC 157848 13,200.00
5/5/97 Geneva Group Ultra Wide hot Swapable drive, smart-2 Array PCI controller,
128mb memory module 156609 5,761.47
5/26/97 Kinematica Inc Dispersing & Homogenizing Unit, Frequency Inverter RECO 1/3
payment each 157693 5,941.65
5/26/97 Kinematica Inc Polytron PT-SO 45/2G, teflon seals, drive unit, RECO 81
Speed Stabilizer 157694 5,901.00
5/26/97 Kinematica Inc Polytron PT-SO 45/2G, teflon seals, drive unit, RECO 81
Speed Stabilizer 157695 5,941.70
5/9/97 la Calhene replacement canopy for two half suit isolator 157624 6,245.00
5/29/97 MacWarehouse Powermac 8600/200, Powermac 9600/200, Powerbool 3400c/200 157721 26,085.00
5/2/97 Munter Moisture part 30565-01 HC-150I 208/240VAC 1P 60HZ 157243 2,695.00
5/29/97 National Process 30% downpayment 75 gaallon cop tank w/controls and all
options 157825 12,084.30
5/7/97 Precision Stainless Inc 50 liter portable mix tank 157672 16,902.00
5/9/97 Precision Stainless Inc 50 liter portable mix tank 157670 16,902.00
5/5/97 R.A.S. Replacement Heat Exchanger bundle 158030 5,600.00
5/21/97 Superior Control Upgrade 1 PL 50 Data Acquisition System to Prolease 500 157512 9,367.50
4/28/97 VWR Corporation Balance level, printer, barometer, ultrason, anudisc, cart 157269 5,452.83
5/30/97 VWR Corporation Revco Ultima ULT 158099 6,660.00
5/12/97 Waters Corporation 2690 Colum heater ASSY (2) 157338 2,200.00
6/17/97 AMC Computer HP laser printer, 500sheet assembly w/paper 158857 6,597.00
5/9/97 bioMerieux Vitek Inc Vitek 32/datatrack S/N 3763-R 158503 42,200.00
6/20/97 Cotter Corporation FAB 4" polymer transfer container 158604 2,000.00
6/20/97 Cotter Corporation 18"X24" tray w/porous side filter 158605 1,925.00
6/27/97 Cotter Corporation clean stema modification system 158692 4,615.00
6/2/97 Cotter Corporation PL500 dispenser Tank B 159352 9,500.00
6/16/97 Getinge Castle 45% down on GE 6610 AR-2 sterilizer weld mapping boroscope 158419 58,095.00
6/7/97 Hewlett Packard Temperature conteol Autosampler 158237 2,928.00
6/24/97 Hewlett Packard Programmable fluorescence detector & equip. parts 159344 11,910.00
6/27/97 Lightnin PKS05E mixer 158882 42,189.28
9/3/97 Lightnin Returned Goods, Style 11 Seals (ref #158882) 162221 -8,288.00
6/6/97 M&O Perry industries model LM-14 manual powder filler w/ stainless steel fill gun 158366 3,542.37
6/5/97 MacWarehouse apple 166MHZ PC compatibility 158243 1,963.75
6/17/97 MacWarehouse power Mac 9600/233MHZ 158427 6,818.75
5/8/97 MacWarehouse Return - Ref #145693 (Fleet 1997 List) 158516 -1,598.00
6/27/97 Northern Business Machines Sharp facsimile 159316 1,876.35
6/24/97 Perkin Elmer Flexicool service, kit DSC cooling ACCY 158670 5,321.90
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C> <C>
4/3/97 AMC Computers APCM5543LL PMAC 7300 0.00 0.00 7,695.00
4/3/97 Entex So-Sony dat w/4 cart 2 4MB 22.10 69.75 1,395.00
4/22/97 Superior Control Prolease 500 Data Acquisition system 0.00 0.00 3,453.00
5/23/97 AMC Computers Powermac 8600/200 35.00 0.00 6,080.00
5/6/97 Edwards High Vaccum pump E2M18, clean & overhaul kit, blade kit for E2M18 58.73 0.00 3,385.00
5/14/97 FTS Systems Inc Recirculator, 230v/60hz, AC 0.00 0.00 13,200.00
5/5/97 Geneva Group Ultra Wide hot Swapable drive, smart-2 Array PCI controller,
128mb memory module 25.00 273.17 5,463.30
5/26/97 Kinematica Inc Dispersing & Homogenizing Unit, Frequency Inverter RECO 1/3
payment each 0.00 0.00 5,941.65
5/26/97 Kinematica Inc Polytron PT-SO 45/2G, teflon seals, drive unit, RECO 81
Speed Stabilizer 150.00 0.00 5,751.00
5/26/97 Kinematica Inc Polytron PT-SO 45/2G, teflon seals, drive unit, RECO 81
Speed Stabilizer 0.00 0.00 5,941.70
5/9/97 la Calhene replacement canopy for two half suit isolator 0.00 0.00 6,245.00
5/29/97 MacWarehouse Powermac 8600/200, Powermac 9600/200, Powerbool 3400c/200 120.00 0.00 25,965.00
5/2/97 Munter Moisture part 30565-01 HC-150I 208/240VAC 1P 60HZ 75.00 0.00 2,620.00
5/29/97 National Process 30% downpayment 75 gallon cop tank w/controls and all
options 0.00 0.00 12,084.30
5/7/97 Precision Stainless Inc 50 liter portable mix tank 0.00 0.00 16,902.00
5/9/97 Precision Stainless Inc 50 liter portable mix tank 0.00 0.00 16,902.00
5/5/97 R.A.S. Replacement Heat Exchanger bundle 0.00 0.00 5,600.00
5/21/97 Superior Control Upgrade 1 PL 50 Data Acquisition System to Prolease 500 0.00 0.00 9,367.50
4/28/97 VWR Corporation Balance level, printer, barometer, ultrason, anudisc, cart 0.00 0.00 5,452.83
5/30/97 VWR Corporation Revco Ultima ULT 0.00 0.00 6,660.00
5/12/97 Waters Corporation 2690 Colum heater ASSY (2) 0.00 0.00 2,200.00
6/17/97 AMC Computer HP laser printer, 500sheet assembly w/paper 62.00 0.00 6,535.00
5/9/97 bioMerieux Vitek Inc Vitek 32/datatrack S/N 3763-R 0.00 0.00 42,200.00
6/20/97 Cotter Corporation FAB 4" polymer transfer container 0.00 0.00 2,000.00
6/20/97 Cotter Corporation 18"X24" tray w/porous side filter 0.00 0.00 1,925.00
6/27/97 Cotter Corporation clean stema modification system 0.00 0.00 4,615.00
6/2/97 Cotter Corporation PL500 dispenser Tank B 0.00 0.00 9,500.00
6/16/97 Getinge Castle 45% down on GE 6610 AR-2 sterilizer weld mapping boroscope 0.00 0.00 58,095.00
6/7/97 Hewlett Packard Temperature conteol Autosampler 338.00 0.00 2,590.00
6/24/97 Hewlett Packard Programmable fluorescence detector & equip. parts 450.00 0.00 11,460.00
6/27/97 Lightnin PKS05E mixer 77.28 0.00 42,112.00
9/3/97 Lightnin Returned Goods, Style 11 Seals (ref #158882) 0.00 0.00 -8,288.00
6/6/97 M&O Perry industries model LM-14 manual powder filler w/ stainless steel fill gun 22.37 0.00 3,520.00
6/5/97 MacWarehouse apple 166MHZ PC compatibility 13.75 0.00 1,950.00
6/17/97 MacWarehouse power Mac 9600/233MHZ 88.75 0.00 6,730.00
5/8/97 MacWarehouse Return - Ref #145693 (Fleet 1997 List) 0.00 0.00 -1,598.00
6/27/97 Northern Business Machines Sharp facsimile 0.00 89.35 1,787.00
6/24/97 Perkin Elmer Flexicool service, kit DSC cooling ACCY 191.90 0.00 5,130.00
</TABLE>
Page 1
<PAGE> 13
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
6/6/97 Perrigo, Inc. 1 Cashco sanitary Reg. 158328 1,365.14
6/10/97 Superior Control 70%down PL500 Replacement 158380 17,906.00
7/1/97 Superior Control Upgrade 1PL 50 data acquisition system Prolease 500 159264 3,122.50
6/25/97 Sussman-Automatic solenoid S/S line pressure feed dystem & equip. parts 158740 14,765.00
6/11/97 VWR Scientific Masterpro, balance 12000G 158280 2,208.75
3/28/97 Waters Corporation Return - Ref #9091 (Fleet 1997 List) 158374 -22,150.00
6/20/97 AMSCO-PA Return - Ref #154755 (Fleet 1997 List) 159384 -1,835.25
3/6/97 Columbus Instrument 1440-D-35 Analgesia Hot Plate 159589 2,251.47
7/25/97 Cotter Corporation 3PCs Pl500 SC top Assy, extraction tank outlet ported valve 160092 5,255.00
7/14/97 Dell Direct Sales Dell 6200/OP GXpro, w/Pentium Integrades 3COM 159405 6,258.00
7/24/97 Harvard Apparatus PHD 200 program W/4X140 R 159674 3,100.69
7/31/97 Hewlett Packard Hewlett packard 6890 gas chromintograpgh 160082 43,597.35
7/17/97 Integrated Labeling 90Xi II Clea Media Door 159487 3,882.72
6/17/97 La Calhene 2 PN C7992 Polythylene container with handles 159715 3,404.00
6/17/97 La Calhene 2 PN C7992 Polythylene container with handles 159716 3,404.00
7/24/97 Lightnin (2) 270679PSP Mech seal assy style 13 159359 4,144.00
7/24/97 Lightnin (2) 270679PSP Mech seal assy style 13 160093 4,144.00
5/21/97 Millipore Corporation Return - Ref #6324 (Fleet 1997 List) 159385 -3,000.00
7/18/97 National Process Sinamatic sytem 75g Baskets value & acce. 159718 28,196.70
7/21/97 Power Computing PCP210 NT/16X/1MC/64MB/2GB/4MBV RPGR/PWER DISPLAY 17" 159590 30,583.40
7/3/97 Sensotec JPW500ZP Digital sanitary gauce 159358 5,230.03
7/15/97 Superior Control PL50 Rewire 159737 2,915.00
7/1/97 Superior Control PL500 Replacement 159170 2,558.00
7/29/97 VWR Scientific Centrifuge 5410 115V/60HZ CSA 160002 1,241.25
8/22/97 Alloy Products Co. vessel 14 gsl, electro-polish, 14gal vessel 160899 13,232.55
7/14/97 Cotter Corporation Extraction tank PP condesate drain, modify mixer 160312 2,295.00
8/25/97 Cotter Corporation Bioteck CMP Ported 160869 3,190.00
8/23/97 Coulter Corporation TN; small valume module (SVM) AA33082 160914 8,575.00
8/5/97 Edwards High Vaccum Pump E2M12 115/230V 160477 2,677.77
8/6/97 Genesis Machinery LW Apper Table Capper serial #LW320 160819 10,088.00
8/4/97 ITT Sherotec 6"TC ferrule FD top, 6"TC ferrule FD bottom, dispenser tank
for isolator, 160300 14,950.50
8/21/97 ITT Sherotec 6"TC ferrule FD bottom, dispersion tank a for SS isolator 160749 13,695.00
8/26/97 M&O Perry Industries 40% fown payment- model P1550 powder filling, stoppering
and Alu-crimp 160875 92,300.00
8/21/97 Precision Detectors Laser light scattering, detector, interface electronic board 160898 20,064.35
8/6/97 Sensotec Digital sanitary gauge 160518 1,047.76
8/13/97 VWR Corporation Master pro balance 12000G X.1G 160511 2,208.75
8/22/97 Waters Corporation 996 photodiode array detect 160678 14,606.95
9/10/97 AMC Computer Apple p/mac 8600/300 32/4gb/42x 161263 6,840.00
9/18/97 AMC Computer Apple p/mac 8600/300 32/4gb/42x 161508 3,419.00
9/22/97 CDW TOS 510CDT 5/133 2.1 GB 16MB CT 161867 5,312.21
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
6/6/97 Perrigo, Inc. 1 Cashco sanitary Reg. 7.96 0.00 1,357.18
6/10/97 Superior Control 70%down PL500 Replacement 0.00 0.00 17,906.00
7/1/97 Superior Control Upgrade 1PL 50 data acquisition system Prolease 500 0.00 0.00 3,122.50
6/25/97 Sussman-Automatic solenoid S/S line pressure feed dystem & equip. parts 0.00 0.00 14,765.00
6/11/97 VWR Scientific Masterpro, balance 12000G 0.00 0.00 2,208.75
3/28/97 Waters Corporation Return - Ref #9091 (Fleet 1997 List) 0.00 0.00 -22,150.00
6/20/97 AMSCO-PA Return - Ref #154755 (Fleet 1997 List) 0.00 0.00 -1,835.25
3/6/97 Columbus Instrument 1440-D-35 Analgesia Hot Plate 16.47 0.00 2,235.00
7/25/97 Cotter Corporation 3PCs Pl500 SC top Assy, extraction tank outlet ported valve 0.00 0.00 5,255.00
7/14/97 Dell Direct Sales Dell 6200/OP GXpro, w/Pentium Integrades 3COM 200.00 0.00 6,058.00
7/24/97 Harvard Apparatus PHD 200 program W/4X140 R 5.69 0.00 3,095.00
7/31/97 Hewlett Packard Hewlett packard 6890 gas chromintograpgh 500.00 0.00 43,097.35
7/17/97 Integrated Labeling 90Xi II Clea Media Door 17.72 0.00 3,865.00
6/17/97 La Calhene 2 PN C7992 Polythylene container with handles 0.00 0.00 3,404.00
6/17/97 La Calhene 2 PN C7992 Polythylene container with handles 0.00 0.00 3,404.00
7/24/97 Lightnin (2) 270679PSP Mech seal assy style 13 0.00 0.00 4,144.00
7/24/97 Lightnin (2) 270679PSP Mech seal assy style 13 0.00 0.00 4,144.00
5/21/97 Millipore Corporation Return - Ref #6324 (Fleet 1997 List) 0.00 0.00 -3,000.00
7/18/97 National Process Sinamatic sytem 75g Baskets value & acce. 0.00 0.00 28,196.70
7/21/97 Power Computing PCP210 NT/16X/1MC/64MB/2GB/4MBV RPGR/PWER DISPLAY 17" 300.00 0.00 30,283.40
7/3/97 Sensotec JPW500ZP Digital sanitary gauce 5.03 0.00 5,225.00
7/15/97 Superior Control PL50 Rewire 0.00 0.00 2,915.00
7/1/97 Superior Control PL500 Replacement 0.00 0.00 2,558.00
7/29/97 VWR Scientific Centrifuge 5410 115V/60HZ CSA 0.00 0.00 1,241.25
8/22/97 Alloy Products Co. vessel 14 gsl, electro-polish, 14gal vessel 0.00 62.55 13,170.00
7/14/97 Cotter Corporation Extraction tank PP condesate drain, modify mixer 0.00 0.00 2,295.00
8/25/97 Cotter Corporation Bioteck CMP Ported 0.00 0.00 3,190.00
8/23/97 Coulter Corporation TN; small valume module (SVM) AA33082 25.00 0.00 8,550.00
8/5/97 Edwards High Vaccum Pump E2M12 115/230V 97.77 0.00 2,580.00
8/6/97 Genesis Machinery LW Apper Table Capper serial #LW320 0.00 0.00 10,088.00
8/4/97 ITT Sherotec 6"TC ferrule FD top, 6"TC ferrule FD bottom, dispenser tank
for isolator, 95.50 0.00 14,855.00
8/21/97 ITT Sherotec 6"TC ferrule FD bottom, dispersion tank a for SS isolator 0.00 0.00 13,695.00
8/26/97 M&O Perry Industries 40% down payment- model P1550 powder filling, stoppering
and Alu-crimp 0.00 0.00 92,300.00
8/21/97 Precision Detectors Laser light scattering, detector, interface electronic board 64.35 0.00 20,000.00
8/6/97 Sensotec Digital sanitary gauge 2.76 0.00 1,045.00
8/13/97 VWR Corporation Master pro balance 12000G X.1G 0.00 0.00 2,208.75
8/22/97 Waters Corporation 996 photodiode array detect 6.95 0.00 14,600.00
9/10/97 AMC Computer Apple p/mac 8600/300 32/4gb/42x 50.00 0.00 6,790.00
9/18/97 AMC Computer Apple p/mac 8600/300 32/4gb/42x 24.00 0.00 3,395.00
9/22/97 CDW TOS 510CDT 5/133 2.1 GB 16MB CT 38.21 0.00 5,274.00
</TABLE>
Page 2
<PAGE> 14
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
9/22/97 Dell Dell p6266 /pgxa mt base with 2mb video memory integrated 161955 4,551.00
8/25/97 Dell Dell dimension xps 200mhz Pentium processor minitower 161468 2,452.80
9/10/97 Hewlett Packard Programmable fluorescence detector 161342 11,386.35
9/29/97 La Calhene flex wall turbulant flow transfer isolator, work station
isolator w/two adjacent half suite and stainless steel table 162475 100,809.00
8/15/97 MacWarehouse power mac 8600/300 32mb Ram/4.0gb hd/24x cd 161361 6,965.00
9/25/97 MacWarehouse Hitachi Monitor mc6315 17" .22honz 1280x1024Q@ 78hz 161853 7,842.00
9/24/97 MacWarehouse Laserjet 6mp 600dpi 8ppm 3mb 161923 982.45
9/30/97 MacWarehouse Power Mac 8600/300 32mb Ram/4 .ogb Hd /24x cd- 161980 3,508.75
9/20/97 MacWarehouse Scanmaker III color scanner w/full v photosh 161207 1,499.00
9/26/97 MacWarehouse power mac 8600/300 32mb Ram/4.0gb hd/24x cd 162404 7,017.50
9/30/97 Richards Industries Valve mk96 0.75 316L 162204 1,236.24
10/3/97 Sensotec Digital sanitary gauge 162205 5,229.83
9/18/97 Szafarz printer 2650 w/ext. peat. 161812 7,284.20
9/10/97 VWR Corporation Glassware clipps for 250ml, micro centrifuge 161324 1,783.25
9/10/97 VWR Corporation Shaker Bath, Gable Cover for model 2568 ,Universal Tray,
Glassware clips for 125ml and 500ml 161637 3,272.73
9/9/97 Walker Stainless Equipment Flow filling machine isolator,Air flow transport isolator
W/3 gloves 161412 67,993.65
8/30/97 Wright Line Inc. 84" Medialinx upri black uprights (Technical Furniture) 161474 8,957.78
10/6/97 Alloy Products Corp vessel 7 gal 12" ASME electro polish 162456 3,779.92
10/10/97 AMC Computer microtech 32 MB EDO upgradw, vectra XA pent-200 1.6GB-HD 162274 2,195.00
10/13/97 Apache Stainless Equipment 2 18" 37.4 -GAL 240 GRT 162484 4,090.00
Co.
10/27/97 APS Technologies dr st9100W/294ouw ext pro Mac (hardware) 163081 1,620.50
10/24/97 Bay State Computer Group SUN sparcstation & accesories 163080 4,714.75
10/7/97 CDW Computer TOS 440CDT (3) 3 PCM XJACK powerquest drivecopy 162277 8,523.00
10/20/97 CDW Computer NEC multisync E700 162770 1,923.00
10/7/97 Chemineer Inc 4-KMA-SAN Static mixer 162511 9,341.51
10/29/97 Cole-Parmer homogenizer, high-speed 115v 163264 1,750.00
10/28/97 Cotter Corporation PL500 Sc top IV 163295 1,345.00
10/13/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 162487 2,700.00
10/13/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 162488 6,414.00
10/9/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 162539 3,123.00
10/14/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 162594 2,422.00
10/20/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 162803 7,351.00
10/7/97 Kinematica Inc drive unit PT 45-80/110V RECO 81 speed stabilizer 110V 163563 6,501.50
10/7/97 Kinematica Inc screw, rotor, stator, mechanical , spacer, o-ring ball
bearing fork etc. 163564 5,944.80
10/9/97 la Calhene P/N C8088 Half-Suit PVC covered divetex D-5 style 162270 14,966.75
10/20/97 Lunaire Limited Advanced billing (mfg equipment) 7264 19,963.75
10/24/97 MacWarehouse power mac 8600/300 32MB 163064 3,042.75
10/29/97 Oliver Dean inc valve, saunders, saunders diaphragm 163032 6,842.69
10/13/97 Sensotec digital sanitary gauge 162570 3,744.63
10/14/97 Sigimil LTD 30' sanitary line w/steam jacket 162572 9,946.00
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
9/22/97 Dell Dell p6266 /pgxa mt base with 2mb video memory integrated 100.00 0.00 4,451.00
8/25/97 Dell Dell dimension xps 200mhz Pentium processor minitower 130.00 116.80 2,206.00
9/10/97 Hewlett Packard Programmable fluorescence detector 6.35 0.00 11,380.00
9/29/97 La Calhene flex wall turbulant flow transfer isolator, work station
isolator w/two adjacent half suite and stainless steel table 0.00 0.00 100,809.00
8/15/97 MacWarehouse power mac 8600/300 32mb Ram/4.0gb hd/24x cd 35.00 0.00 6,930.00
9/25/97 MacWarehouse Hitachi Monitor mc6315 17" .22honz 1280x1024Q@ 78hz 145.00 0.00 7,697.00
9/24/97 MacWarehouse Laserjet 6mp 600dpi 8ppm 3mb 32.50 0.00 949.95
9/30/97 MacWarehouse Power Mac 8600/300 32mb Ram/4 .ogb Hd /24x cd- 43.75 0.00 3,465.00
9/20/97 MacWarehouse Scanmaker III color scanner w/full v photosh 0.00 0.00 1,499.00
9/26/97 MacWarehouse power mac 8600/300 32mb Ram/4.0gb hd/24x cd 87.50 0.00 6,930.00
9/30/97 Richards Industries Valve mk96 0.75 316L 7.65 0.00 1,228.59
10/3/97 Sensotec Digital sanitary gauge 4.83 0.00 5,225.00
9/18/97 Szafarz printer 2650 w/ext. peat. 350.00 330.20 6,604.00
9/10/97 VWR Corporation Glassware clipps for 250ml, micro centrifuge 0.00 0.00 1,783.25
9/10/97 VWR Corporation Shaker Bath, Gable Cover for model 2568 ,Universal Tray,
Glassware clips for 125ml and 500ml 0.00 0.00 3,272.73
9/9/97 Walker Stainless Equipment Flow filling machine isolator,Air flow transport isolator
W/3 gloves 0.00 0.00 67,993.65
8/30/97 Wright Line Inc. 84" Medialinx upri black uprights (Technical Furniture) 275.00 384.18 8,298.60
10/6/97 Alloy Products Corp vessel 7 gal 12" ASME electro polish 18.92 0.00 3,761.00
10/10/97 AMC Computer microtech 32 MB EDO upgradw, vectra XA pent-200 1.6GB-HD 40.00 0.00 2,155.00
10/13/97 Apache Stainless Equipment 2 18" 37.4 -GAL 240 GRT
Co.
10/27/97 APS Technologies dr st9100W/294ouw ext pro Mac (hardware) 20.60 0.00 1,599.90
10/24/97 Bay State Computer Group SUN sparcstation & accesories 55.48 221.87 4,437.40
10/7/97 CDW Computer TOS 440CDT (3) 3 PCM XJACK powerquest drivecopy 0.00 0.00 8,523.00
10/20/97 CDW Computer NEC multisync E700 0.00 0.00 1,923.00
10/7/97 Chemineer Inc 4-KMA-SAN Static mixer 41.51 0.00 9,300.00
10/29/97 Cole-Parmer homogenizer, high-speed 115v 0.00 0.00 1,750.00
10/28/97 Cotter Corporation PL500 Sc top IV 0.00 0.00 1,345.00
10/13/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 0.00 0.00 2,700.00
10/13/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 110.00 0.00 6,304.00
10/9/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 55.00 0.00 3,068.00
10/14/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 0.00 0.00 2,422.00
10/20/97 Dell Dell P6233 base w/2mb video memory integrated audion WIN 95 100.00 0.00 7,251.00
10/7/97 Kinematica Inc drive unit PT 45-80/110V RECO 81 speed stabilizer 110V 0.00 0.00 6,501.50
10/7/97 Kinematica Inc screw, rotor, stator, mechanical , spacer, o-ring ball
bearing fork etc. 0.00 0.00 5,944.80
10/9/97 la Calhene P/N C8088 Half-Suit PVC covered divetex D-5 style 121.75 0.00 14,845.00
10/20/97 Lunaire Limited Advanced billing (mfg equipment) 0.00 0.00 19,963.75
10/24/97 MacWarehouse power mac 8600/300 32MB 43.75 0.00 2,999.00
10/29/97 Oliver Dean inc valve, saunders, saunders diaphragm 56.84 0.00 6,785.85
10/13/97 Sensotec digital sanitary gauge 4.63 0.00 3,740.00
10/14/97 Sigimil LTD 30' sanitary line w/steam jacket 146.00 0.00 9,800.00
</TABLE>
Page 3
<PAGE> 15
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C>
10/9/97 Vaisala Inc HMI38/HMP35E combination 162340 3,486.72
11/19/97 AMC Computer Corp laserwriter 8500 printer 164125 2,710.00
11/13/97 CDW Computer laptop TOS 460CDT 164132 3,289.00
11/17/97 Cotter Corporation 4 pcs rework existing 4" static 163625 1,975.00
11/12/97 Cotter Corporation 2pcs 4"X6" jacketed spool pc 163628 3,300.00
11/17/97 Cotter Corporation 2 pcs PL500 SC top 164130 2,185.00
11/5/97 Hewlett Packard HP 6890 series gas chromatograph 164638 36,696.53
11/6/97 Imaging Research sony model XC77 black & white CCD, video camera, power
supply & cables 164669 1,347.00
11/18/97 la Calhene flexible wall isolator & station 163899 11,201.00
11/18/97 la Calhene 2 flexible wall "turbulent flow" transfer isolator 164340 12,096.00
11/24/97 MacWarehouse PRN apple laserwriter 8500 164191 2,475.00
11/24/97 Superior Controls Inc PL500 replacement 20% down payment 164227 5,116.00
11/19/97 VWR Scientific balance prof level 164137 3,628.50
11/17/97 VWR Scientific printer, basic dot matrix, balance stnd, level 510GX0.001GT 164660 2,936.93
11/18/97 Walker Stainless Equip. 30% down payment 164437 30,340.50
11/7/97 Waters Corporation 2690XE separation module, 410 differential refractome 163782 35,805.00
11/10/97 Waters Corporation BUS SAT/IN module 164637 1,115.20
12/19/97 Alltech Associates CH-460 colum oven 120v 165166 1,480.00
12/31/97 Cotter Corporation spray chamber tank m IH spray chamber top, center back
connector 165799 9,105.00
12/11/97 Cozzoli Machine Co. 1/3 down payment (ship to Albany Street) 164749 16,773.34
12/9/97 Dell Direct Sales Dell P6233 base w/2mb video memory integrated audion WIN 95 164902 1,894.00
12/10/97 Dell Direct Sales Dell P6233 base w/2mb video memory integrated audion WIN 95 164903 1,894.00
12/5/97 Dell Direct Sales 2 Dell P6233 base w/2mb video memory integrated audion WIN 95 164904 3,630.00
12/24/97 Fisher Scientific vacuum pump 5.6 CFM MDL M8C 165110 1,740.00
11/26/97 La Calhene p/n C8007 divetex sleeve, polythylene containe,
autoclavable containers, replacement canopy 164610 23,246.00
12/5/97 La Calhene replacement canopy for 1/2 suit work station 164878 2,775.00
12/17/97 La Calhene flexible wall "turbulent flow" station w/ one 1/2 suit &
stainless steel table 165542 21,258.60
12/30/97 La Calhene freeze dryer isolator + instalation 20% down payment 165544 17,999.00
12/30/97 M&O Perry Industries Inc 30% down payment one model P1550 power filling stoppering
and alucrip capping 165545 69,225.00
12/3/97 MacWarehouse power mac 164606 2,967.50
12/4/97 MacWarehouse power book 164607 5,435.00
12/4/97 MacWarehouse 2 MON Sony 200gs 17" 164608 1,419.35
12/4/97 MacWarehouse 3 power mac, 1 mon apple 720 17" 164609 9,240.00
12/19/97 MacWarehouse 2 PRN HP 5 SIMX 165136 7,090.05
12/4/97 Met One A2408-1-115-1 2 channek, UUS software kit, chart paper,
manuel, ref., airbn, part 164922 5,889.75
12/19/97 Novex thermoFlow 115v etc 165256 1,300.00
12/5/97 Shiva Corporation lpe5-288-us-8, LR connecytivity kit 164849 4,275.53
12/1/97 So-Low Environmental Equip. SO-LOW freezer model U30-13 & instalation 164920 6,654.00
12/8/97 Stoelting Co. 6 manipulator Arm 3 Axes, RH 165158 9,647.27
12/12/97 URS Information APC feat pwr chute, compaq drive dat 164827 1,377.50
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C> <C>
10/9/97 Vaisala Inc HMI38/HMP35E combination 6.72 0.00 3,480.00
11/19/97 AMC Computer Corp laserwriter 8500 printer 0.00 0.00 2,710.00
11/13/97 CDW Computer laptop TOS 460CDT 0.00 0.00 3,289.00
11/17/97 Cotter Corporation 4 pcs rework existing 4" static 0.00 0.00 1,975.00
11/12/97 Cotter Corporation 2pcs 4"X6" jacketed spool pc 0.00 0.00 3,300.00
11/17/97 Cotter Corporation 2 pcs PL500 SC top 0.00 0.00 2,185.00
11/5/97 Hewlett Packard HP 6890 series gas chromatograph 360.00 0.00 36,336.53
11/6/97 Imaging Research sony model XC77 black & white CCD, video camera, power
supply & cables 0.00 0.00 1,347.00
11/18/97 la Calhene flexible wall isolator & station 0.00 0.00 11,201.00
11/18/97 la Calhene 2 flexible wall "turbulent flow" transfer isolator 0.00 0.00 12,096.00
11/24/97 MacWarehouse PRN apple laserwriter 8500 0.00 0.00 2,475.00
11/24/97 Superior Controls Inc PL500 replacement 20% down payment 0.00 0.00 5,116.00
11/19/97 VWR Scientific balance prof level 0.00 0.00 3,628.50
11/17/97 VWR Scientific printer, basic dot matrix, balance stnd, level 510GX0.001GT 0.00 211.25 2,725.68
11/18/97 Walker Stainless Equip. 30% down payment 0.00 0.00 30,340.50
11/7/97 Waters Corporation 2690XE separation module, 410 differential refractome 42.00 0.00 35,763.00
11/10/97 Waters Corporation BUS SAT/IN module 0.00 0.00 1,115.20
12/19/97 Alltech Associates CH-460 colum oven 120v 0.00 0.00 1,480.00
12/31/97 Cotter Corporation spray chamber tank m IH spray chamber top, center back
connector 0.00 0.00 9,105.00
12/11/97 Cozzoli Machine Co. 1/3 down payment (ship to Albany Street) 0.00 0.00 16,773.34
12/9/97 Dell Direct Sales Dell P6233 base w/2mb video memory integrated audion WIN 95 55.00 0.00 1,839.00
12/10/97 Dell Direct Sales Dell P6233 base w/2mb video memory integrated audion WIN 95 55.00 0.00 1,839.00
12/5/97 Dell Direct Sales 2 Dell P6233 base w/2mb video memory integrated audion WIN 95 110.00 0.00 3,520.00
12/24/97 Fisher Scientific vacuum pump 5.6 CFM MDL M8C 0.00 0.00 1,740.00
11/26/97 La Calhene p/n C8007 divetex sleeve, polythylene containe,
autoclavable containers, replacment canopy 0.00 0.00 23,246.00
12/5/97 La Calhene replacment canopy for 1/2 suit work station 0.00 0.00 2,775.00
12/17/97 La Calhene flexible wall "turbulent flow" station w/ one 1/2 suit &
stainless steel table 0.00 0.00 21,258.60
12/30/97 La Calhene freeze dryer isolator + instalation 20% down payment 0.00 0.00 17,999.00
12/30/97 M&O Perry Industries Inc 30% down payment one model P1550 power filling stoppering
and alucrip capping 0.00 0.00 69,225.00
12/3/97 MacWarehouse power mac 42.50 0.00 2,925.00
12/4/97 MacWarehouse power book 0.00 0.00 5,435.00
12/4/97 MacWarehouse 2 MON Sony 200gs 17" 101.35 0.00 1,318.00
12/4/97 MacWarehouse 3 power mac, 1 mon apple 720 17" 0.00 0.00 9,240.00
12/19/97 MacWarehouse 2 PRN HP 5 SIMX 140.05 0.00 6,950.00
12/4/97 Met One A2408-1-115-1 2 channek, UUS software kit, chart paper,
manuel, ref., airbn, part 389.75 0.00 5,500.00
12/19/97 Novex thermoFlow 115v etc 5.00 0.00 1,295.00
12/5/97 Shiva Coporation lpe5-288-us-8, LR connecytivity kit 14.00 202.93 4,058.60
12/1/97 So-Low Environmental SO-LOW freezer model U30-13 & instalation 359.00 0.00 6,295.00
Equip.
12/8/97 Stoelting Co. 6 manipulator Arm 3 Axes, RH 47.27 0.00 9,600.00
12/12/97 URS Information APC feat pwr chute, compaq drive dat 12.50 65.00 1,300.00
</TABLE>
Page 4
<PAGE> 16
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C>
12/24/97 VWR Scientific chart recorder free standing Revco 165801 1,000.00
12/29/97 Walker Stainless Equipment Co, 30% down payment 165546 20,955.00
12/2/97 Waters Corporation 474 scan fluorometer 16ul 164588 10,837.47
12/29/97 Waters Corporation separation module, sat/in for bus lac/e, scan fluorometer,
dual W.L. absorbance 165160 47,650.00
12/29/97 AMC Computer Corp powermac (3) powerbook (1) 167139 13,794.00
1/12/98 Bio-Tek Instruments 8 channel reader, powercordset, cable serial Univ 6 fltr
test plate 166028 9,876.49
12/31/97 BOC Edwards transducer 659AB 1TH-clamp 167140 1,755.70
1/17/98 Microtime Computer 233-MMX computer w/monitor and accessories 165977 1,344.00
1/17/98 Microtime Computer 233-MMX computer w/monitor and accessories 166108 1,344.00
12/31/97 CDW Computer Center NANAO flexscan 21in 166033 1,760.80
1/14/98 Cozzoli Machine 2nd 1/3 down payment 165940 16,773.33
1/26/98 Fisher Scientific analytic M120G/ 0.1mg 115V 167143 1,822.00
12/30/97 Getinge/Castle, Inc. GE 6610 Sterilizer 10% down payment 166877 12,910.00
12/30/97 Getinge/Castle, Inc. passive, weld mapping 45% down payment 166878 58,095.00
1/2/98 La Calhene 2 P/N C14851 pressure controller 166241 3,020.75
1/16/98 Northern Business Sharp facsimile 166062 2,293.20
1/8/98 Novex powerease 500 166061 1,420.15
1/13/98 Novex thermoflow system, thermoflow mini cell 166273 2,142.41
1/21/98 U.S. Filter R.O Pharmaceutical grade water system 10% down payment 166827 35,100.00
1/23/98 VWR Scientific frzr uprt , chrt record 7 day 166867 7,960.18
2/4/98 VWR Scientific BK362108, GH 3.8 horizontal rotor 167070 1,495.00
1/26/98 VWR Scientific Brinkman instrument column heater 167078 5,549.95
12/30/97 Waters Corporation sat/in for BUS gesa/HTR cool 2487 dual W.L. absorbance 165632 47,153.00
1/14/98 Waters Corporation in-line degasser 2- channel 166243 2,505.00
2/4/98 Lightnin complete unit: 115v/230v 166879 1,469.61
1/30/98 Dell Direct Sales dell computer 166918 3,080.94
1/28/98 Dell Direct Sales c/port for computer 166919 306.01
1/30/98 Dell Direct Sales dell computer 166920 8,804.61
1/29/98 Dell Direct Sales dell computer 166921 4,595.32
1/31/98 Osmonics control valve 166928 1,116.29
2/23/98 AMC Computer Corporation vectra PC 167397 1,979.00
2/18/98 AMC Computer Corporation designjet e-size plotter body 167454 7,235.00
2/5/98 Avestin, Inc. emulsiflex-c5 pumps 167036 7,640.00
2/20/98 Cole-Parmer sanitary flowmeter 167445 1,302.95
2/19/98 MetaChem Technologies metatherm, heather/controller 167480 910.00
2/12/98 Savant Instruments speedvac, auto bleeder valve 167511 3,683.70
2/19/98 VWR Scientific dispenser 167370 1,878.80
ALKERMES F&F
FY1998 (APRIL 1997-MARCH 1998)
5/15/97 First Office Concepts executive task chair 157542 467.25
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<C> <C> <C> <C> <C> <C>
12/24/97 VWR Scientific chart recorder free standing Revco 0.00 0.00 1,000.00
12/29/97 Walker Stainless Equipment
Co, 30% down payment 0.00 0.00 20,955.00
12/2/97 Waters Corporation 474 scan fluorometer 16ul 7.47 0.00 10,830.00
12/29/97 Waters Corporation separation module, sat/in for bus lac/e, scan fluorometer,
dual W.L. absorbance 42.00 0.00 47,608.00
12/29/97 AMC Computer Corp powermac (3) powerbook (1) 75.00 0.00 13,719.00
1/12/98 Bio-Tek Instruments 8 channel reader, powercordset, cable serial Univ 6 fltr
test plate 6.49 0.00 9,870.00
12/31/97 BOC Edwards transducer 659AB 1TH-clamp 25.70 0.00 1,730.00
1/17/98 Microtime Computer 233-MMX computer w/monitor and accessories 0.00 64.00 1,280.00
1/17/98 Microtime Computer 233-MMX computer w/monitor and accessories 0.00 64.00 1,280.00
12/31/97 CDW Computer Center NANAO flexscan 21in 80.80 0.00 1,680.00
1/14/98 Cozzoli Machine 2nd 1/3 down payment 0.00 0.00 16,773.33
1/26/98 Fisher Scientific analytic M120G/ 0.1mg 115V 0.00 0.00 1,822.00
12/30/97 Getinge/Castle, Inc. GE 6610 Sterilizer 10% down payment 0.00 0.00 12,910.00
12/30/97 Getinge/Castle, Inc. passive, weld mapping 45% down payment 0.00 0.00 58,095.00
1/2/98 La Calhene 2 P/N C14851 pressure controller 44.75 0.00 2,976.00
1/16/98 Northern Business Sharp facsimile 109.20 0.00 2,184.00
1/8/98 Novex powerease 500 35.15 0.00 1,385.00
1/13/98 Novex thermoflow system, thermoflow mini cell 57.41 0.00 2,085.00
1/21/98 U.S. Filter R.O Pharmaceutical grade water system 10% down payment 0.00 0.00 35,100.00
1/23/98 VWR Scientific frzr uprt , chrt record 7 day 0.00 0.00 7,960.18
2/4/98 VWR Scientific BK362108, GH 3.8 horizontal rotor 0.00 0.00 1,495.00
1/26/98 VWR Scientific Brinkman instrument column heater 0.00 0.00 5,549.95
12/30/97 Waters Corporation sat/in for BUS gesa/HTR cool 2487 dual W.L. absorbance 0.00 0.00 47,153.00
1/14/98 Waters Corporation in-line degasser 2- channel 5.00 0.00 2,500.00
2/4/98 Lightnin complete unit: 115v/230v 5.61 0.00 1,464.00
1/30/98 Dell Direct Sales dell computer 55.00 0.00 3,025.94
1/28/98 Dell Direct Sales c/port for computer 10.00 0.00 296.01
1/30/98 Dell Direct Sales dell computer 300.00 0.00 8,504.61
1/29/98 Dell Direct Sales dell computer 204.31 0.00 4,391.01
1/31/98 Osmonics control valve 4.49 0.00 1,111.80
2/23/98 AMC Computer Corporation vectra PC 0.00 0.00 1,979.00
2/18/98 AMC Computer Corporation designjet e-size plotter body 0.00 0.00 7,235.00
2/5/98 Avestin, Inc. emulsiflex-c5 pumps 0.00 0.00 7,640.00
2/20/98 Cole-Parmer sanitary flowmeter 33.95 0.00 1,269.00
2/19/98 MetaChem Technologies metatherm, heather/controller 15.00 0.00 895.00
2/12/98 Savant Instruments speedvac, auto bleeder valve 0.00 0.00 3,683.70
2/19/98 VWR Scientific dispenser 0.00 0.00 1,878.80
ALKERMES F&F
FY1998 (APRIL 1997-MARCH 1998)
5/15/97 First Office Concepts executive task chair 0.00 22.25 445.00
</TABLE>
Page 5
<PAGE> 17
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
6/13/97 First Office Concepts 3 lateral file cabinets 2 drawers 158216 1,295.69
6/11/97 First Office Concepts 7 steelcase stylr lateral files 158875 5,897.28
6/3/97 First Office Concepts 6 Haskell 5 drawer lateral file cabinet w/lock 158876 5,062.40
7/30/97 First Office Concepts full function chair w/height & width adj. arms 159960 344.43
7/21/97 Global Equipment Putty drwr, cabinet putty, 32 comp drwer dividers 159640 1,557.45
9/19/97 Creative Office Pavilion cubicals, partitions, wall first floor 161810 32,244.12
9/18/97 First Office Concepts full function ergonimic chair 162417 239.93
9/12/97 First Office Concepts storage cabinet 72" high, workstation table, hutch
for worktable 162427 1,885.95
10/15/97 First Office Concepts 8 ergonomic chairs 162284 2,502.30
10/15/97 First Office Concepts 3 ergonomic chairs 162381 870.78
9/30/97 WilTel opt 11/11E to11 two cab 162483 14,057.25
10/17/97 Global Equipment waste can liners, cabinets, compartments 162490 2,696.74
10/23/97 First Office Concepts ergonomic full funcation task 162969 292.45
10/30/97 The Pappas Co modernfold operable wall & ten cemco partition system 163133 9,804.00
10/29/97 Creative Office Pavilion cubicals, partitions wall first floor 163184 2,391.81
10/29/97 Creative Office Pavilion cubicals, partitions, wall first floor 163185 1,297.73
11/24/97 Creative Office Pavilion furniture, 1st floor clinical group 166420 9,183.14
11/24/97 Creative Office Pavilion furniture, 1st floor clinical group 166419 12,624.63
12/22/97 Hank Finkel security traveler shelves 165117 1,548.93
12/22/97 Hank Finkel shelves, post, mobil unit, floor pad, bench 165518 7,524.49
12/12/97 Office Depot mayline 24X72 console 165808 656.87
11/26/97 WilTel network re-wiring 165002 6,142.50
------------
TOTAL ALKERMES 1,971,964.15
------------
</TABLE>
<TABLE>
<CAPTION>
ACTII EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
4/3/97 Cozzoli table, turning disk, power filler, stoppering machine,
clean room exit screw, capping machine 4830 20,314.67
4/8/97 Cozzoli misc scrap parts 4831 834.00
4/3/97 Cozzoli 1/3 down payment 4832 2,828.67
4/3/97 Cozzoli 1/3 down payment 4833 49,158.67
4/3/97 Cozzoli 1/3 down payment 4834 31,791.00
4/3/97 Cozzoli 1/3 down payment 4835 24,685.00
4/14/97 AMC Computers Apple Photoconductor, apple transparencies 4811 6,344.00
5/13/97 Hewlett Packard dual channel chemserver/chemstation A/D 2750 2,750.00
5/30/97 DCI, Inc 2500 gallon round vertical insulated WFI starage tank 5511 28,397.00
5/13/97 Forma Scientific Inc 3919 Lab unit 32CF to 70C 5527 7,170.16
6/21/97 New Brunswick Co. Ref #2245 (Fleet 1997 List) 2245 -4,812.02
5/28/97 Vankel Technology Group custom basket, 20 MICR 99-122114 5513 2,383.00
7/1/97 Fisher Scientific Gen purpose FRZR 49CUFT 115V 5947 3,033.75
7/2/97 Kason Corporation Special KO-SS Cenrtu-sifter 20% doen payment 6196 21,952.00
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
6/13/97 First Office Concepts 3 lateral file cabinets 2 drawers 39.00 59.84 1,196.85
6/11/97 First Office Concepts 7 steelcase stylr lateral files 25.00 279.63 5,592.65
6/3/97 First Office Concepts 6 Haskell 5 drawer lateral file cabinet w/lock 35.00 239.40 4,788.00
7/30/97 First Office Concepts full function chair w/height & width adj. arms 10.00 15.93 318.50
7/21/97 Global Equipment Putty drwr, cabinet putty, 32 comp drwer dividers 307.30 0.00 1,250.15
9/19/97 Creative Office Pavilion cubicals, partitions, wall first floor 1,808.00 1,449.37 28,986.75
9/18/97 First Office Concepts full function ergonimic chair 0.00 11.43 228.50
9/12/97 First Office Concepts storage cabinet 72" high, workstation table, hutch
for worktable 39.00 87.95 1,759.00
10/15/97 First Office Concepts 8 ergonomic chairs 39.00 117.30 2,346.00
10/15/97 First Office Concepts 3 ergonomic chairs 25.00 40.28 805.50
9/30/97 WilTel opt 11/11E to11 two cab 2,250.00 562.25 11,245.00
10/17/97 Global Equipment waste can liners, cabinets, compartments 292.69 0.00 2,404.05
10/23/97 First Office Concepts ergonomic full funcation task 10.00 13.45 269.00
10/30/97 The Pappas Co modernfold operable wall & ten cemco partition system 0.00 0.00 9,804.00
10/29/97 Creative Office Pavilion cubicals, partitions wall first floor 378.00 95.91 1,917.90
10/29/97 Creative Office Pavilion cubicals, partitions, wall first floor 150.00 54.68 1,093.05
11/24/97 Creative Office Pavilion furniture, 1st floor clinical group 500.00 413.49 8,269.65
11/24/97 Creative Office Pavilion furniture, 1st floor clinical group 625.00 571.43 11,428.20
12/22/97 Hank Finkel security traveler shelves 131.32 67.51 1,350.10
12/22/97 Hank Finkel shelves, post, mobil unit, floor pad, bench 456.83 336.56 6,731.10
12/12/97 Office Depot mayline 24X72 console 0.00 31.28 625.59
11/26/97 WilTel network re-wiring 0.00 292.50 5,850.00
----------------------------------
TOTAL ALKERMES 15,197.96 6,917.49 1,949,848.70
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACTII EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
4/3/97 Cozzoli table, turning disk, power filler, stoppering machine,
clean room exit screw, capping machine 0.00 0.00 20,314.67
4/8/97 Cozzoli misc scrap parts 9.00 0.00 825.00
4/3/97 Cozzoli 1/3 down payment 0.00 0.00 2,828.67
4/3/97 Cozzoli 1/3 down payment 0.00 0.00 49,158.67
4/3/97 Cozzoli 1/3 down payment 0.00 0.00 31,791.00
4/3/97 Cozzoli 1/3 down payment 0.00 0.00 24,685.00
4/14/97 AMC Computers Apple Photoconductor, apple transparencies 0.00 0.00 6,344.00
5/13/97 Hewlett Packard dual channel chemserver/chemstation A/D 0.00 0.00 2,750.00
5/30/97 DCI, Inc 2500 gallon round vertical insulated WFI starage tank 0.00 0.00 28,397.00
5/13/97 Forma Scientific Inc 3919 Lab unit 32CF to 70C 226.66 0.00 6,943.50
6/21/97 New Brunswick Co. Ref #2245 (Fleet 1997 List) 0.00 0.00 -4,812.02
5/28/97 Vankel Technology Group custom basket, 20 MICR 99-122114 13.00 0.00 2,370.00
7/1/97 Fisher Scientific Gen purpose FRZR 49CUFT 115V 0.00 0.00 3,033.75
7/2/97 Kason Corporation Special KO-SS Cenrtu-sifter 20% doen payment 0.00 0.00 21,952.00
</TABLE>
Page 6
<PAGE> 18
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
7/15/97 The Fitzpatrick Company Model J code W-17-J Homoloid machine 30% down 5984 3,666.00
8/25/97 Dell Dell 6200/OP GXpro, w/pentium Pro 200Mhz/256K 6033 2,896.98
8/28/97 VWR Scientific PLYTRN/PT homggenizer 110V 6528 1,276.22
8/22/97 XLSource scanjet 5 ethernet 100-TX 6032 2,960.36
8/30/97 AMC Computers Thinkpad 760xl P-166 MMX 2.1 GB 32MB 12.1 6970 8,190.00
8/29/97 AMC Computers Thinkpad 560E P-150 MMX 2.1 GB 16MB 11.3 6971 20,530.00
9/30/97 AMC Computers HP 17in 1280x1024 VGA display 6979 8,301.00
9/24/97 Cozzoli Invoicing for 1/3 down payment provide parts 7 laber
upgradegw24 vial 6881 3,557.00
9/23/97 Dell P6233, cache, win95, microsoft, intellimouse 7193 22,310.88
10/15/97 Fitzpatrick Co w-17-J homoloid Fitzpatrick comminuting machine 7034 1,562.80
9/3/97 Mac Warehouse Deluxe jaz kit-jaz ext, 3 addt'l carts, jazz
carring case, 1 Omega jaz 1gb cartrige 3.5"
single pc for omnipage pro V7.0 f/win95 (CD- ROM) 6802 1,923.68
9/4/97 Mac Warehouse Monitor (Sony) 17" 1280 x 1024 75hz Max 6803 1,621.80
9/17/97 SaniFab Installation of 3 Tank Access Platforms 6745 20,141.10
9/12/97 The Fitzpatrick Company Homoloid Machine Serial #.1509 6725 7,332.00
9/30/97 Vankel VK 7000 8 spindle , 115, Paddle 15", Vessel clear glass 6975 10,256.36
11/17/97 Alloy Piping Supply transmitter 115vac, bottom sensor 10' cable, top
sensor 15' cable 7514 4,250.38
10/21/97 AMC Computer VGA display 7175 1,280.00
11/12/97 AMC Computer jet PC card, thinkpad, battery II, CD-ROM 7488 5,730.00
11/19/97 Cintron Scale portable plataform scale 7653 1,272.80
11/4/97 Cozzoli Machine Co 1/3 down payment, capping machine, reject system,
spare cap head 7377 31,473.08
11/4/97 Cozzoli Machine Co 33% down payment for engineering 7379 11,188.88
11/4/97 Cozzoli Machine Co 2nd 1/3 down payment upgrade GW24 7380 3,557.00
11/4/97 Cozzoli Machine Co 1/3 down payment for unscrambler table & accessories 7381 20,111.52
11/4/97 Cozzoli Machine Co. 1/3 down payment 7375 2,800.38
11/4/97 Cozzoli Machine Co. 2nd 1/3 doen payment 7376 38,157.90
11/4/97 Cozzoli Machine Co. 2nd 1/3 down payment RS 200 7378 24,438.15
11/14/97 DCI 30% down payment 50 gallon round vertical single shell
portable tank 7433 6,490.50
11/11//97Dell Direct dell P6233 w/2MB video memory, audio, win95, spacesaver (9) 7432 30,336.63
10/28/97 Hewlett Packard high performance HP-IB interface 7339 10,950.00
10/28/97 Hewlett-Packard HP 5890A to series II upgrade kit 7260 3,060.00
11/4/97 MacWarehouse MON sony 200SF 17" (3) 7494 2,406.57
11/23/97 MacWarehouse PRN apple laserwriter 8500 7654 2,521.74
10/31/97 OnGard Sterilization deposit on 20x20x38 sterilizer 7277 28,968.00
10/31/97 Sievers instruments PRD 30110 TOC online instrument, acid reservoir, persulphat 7262 19,800.00
10/30/97 Walker Co down payment insolator system 7341 64,873.80
12/5/97 AAA Computer HPV Si 7821 2,832.72
12/29/97 AAA Computer HPV Si 7921 2,832.57
12/22/97 Cole-Parmer Instruments mixer 90-1600RPM 8084 1,994.62
12/18/97 Cozzoli Machine 1/3 down payment 7983 7,598.67
11/26/97 Cozzoli Machine unscrambler transfer 7995 3,696.53
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
7/15/97 The Fitzpatrick Company Model J code W-17-J Homoloid machine 30% down 0.00 0.00 3,666.00
8/25/97 Dell Dell 6200/OP GXpro, w/pentium Pro 200Mhz/256K 100.00 163.98 2,633.00
8/28/97 VWR Scientific PLYTRN/PT homggenizer 110V 0.00 0.00 1,276.22
8/22/97 XLSource scanjet 5 ethernet 100-TX 110.02 161.34 2,689.00
8/30/97 AMC Computers Thinkpad 760xl P-166 MMX 2.1 GB 32MB 12.1 0.00 0.00 8,190.00
8/29/97 AMC Computers Thinkpad 560E P-150 MMX 2.1 GB 16MB 11.3 90.00 0.00 20,440.00
9/30/97 AMC Computers HP 17in 1280x1024 VGA display 25.00 0.00 8,276.00
9/24/97 Cozzoli Invoicing for 1/3 down payment provide parts 7 laber
upgradegw24 vial 0.00 0.00 3,557.00
9/23/97 Dell P6233, cache, win95, microsoft, intellimouse 1,262.88 330.00 20,718.00
10/15/97 Fitzpatrick Co w-17-J homoloid Fitzpatrick comminuting machine 340.80 0.00 1,222.00
9/3/97 Mac Warehouse Deluxe jaz kit-jaz ext, 3 addt'l carts, jazz
carring case, 1 Omega jaz 1gb cartrige 3.5"
single pc for omnipage pro V7.0 f/win95 (CD- ROM) 0.00 0.00 1,923.68
9/4/97 Mac Warehouse Monitor (Sony) 17" 1280 x 1024 75hz Max 0.00 91.80 1,530.00
9/17/97 SaniFab Installation of 3 Tank Access Platforms 0.00 0.00 20,141.10
9/12/97 The Fitzpatrick Company Homoloid Machine Serial #.1509 0.00 0.00 7,332.00
9/30/97 Vankel VK 7000 8 spindle , 115, Paddle 15", Vessel clear glass 140.76 0.00 10,115.60
11/17/97 Alloy Piping Supply transmitter 115vac, bottom sensor 10' cable, top
sensor 15' cable 16.66 220.72 4,013.00
10/21/97 AMC Computer VGA display 10.00 0.00 1,270.00
11/12/97 AMC Computer jet PC card, thinkpad, battery II, CD-ROM 10.00 0.00 5,720.00
11/19/97 Cintron Scale portable plataform scale 37.80 0.00 1,235.00
11/4/97 Cozzoli Machine Co 1/3 down payment, capping machine, reject system,
spare cap head 0.00 0.00 31,473.08
11/4/97 Cozzoli Machine Co 33% down payment for engineering 0.00 0.00 11,188.88
11/4/97 Cozzoli Machine Co 2nd 1/3 down payment upgrade GW24 0.00 0.00 3,557.00
11/4/97 Cozzoli Machine Co 1/3 down payment for unscrambler table & accessories 0.00 0.00 20,111.52
11/4/97 Cozzoli Machine Co. 1/3 down payment 0.00 0.00 2,800.38
11/4/97 Cozzoli Machine Co. 2nd 1/3 doen payment 0.00 0.00 38,157.90
11/4/97 Cozzoli Machine Co. 2nd 1/3 down payment RS 200 0.00 0.00 24,438.15
11/14/97 DCI 30% down payment 50 gallon round vertical single shell
portable tank 0.00 0.00 6,490.50
11/11//97Dell Direct dell P6233 w/2MB video memory, audio, win95, spacesaver (9) 495.00 1,717.17 28,124.46
10/28/97 Hewlett Packard high performance HP-IB interface 1,440.00 0.00 9,510.00
10/28/97 Hewlett-Packard HP 5890A to series II upgrade kit 0.00 0.00 3,060.00
11/4/97 MacWarehouse MON sony 200SF 17" (3) 183.75 125.82 2,097.00
11/23/97 MacWarehouse PRN apple laserwriter 8500 0.00 142.74 2,379.00
10/31/97 OnGard Sterilization deposit on 20x20x38 sterilizer 0.00 0.00 28,968.00
10/31/97 Sievers instruments PRD 30110 TOC online instrument, acid reservoir, persulphat 0.00 0.00 19,800.00
10/30/97 Walker Co down payment insolator system 0.00 0.00 64,873.80
12/5/97 AAA Computer HPV Si 280.72 0.00 2,552.00
12/29/97 AAA Computer HPV Si 280.57 0.00 2,552.00
12/22/97 Cole-Parmer Instruments mixer 90-1600RPM 13.62 0.00 1,981.00
12/18/97 Cozzoli Machine 1/3 down payment 0.00 0.00 7,598.67
11/26/97 Cozzoli Machine unscrambler transfer 0.00 0.00 3,696.53
</TABLE>
Page 7
<PAGE> 19
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total
Purchase Company Description Ref # Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C>
11/26/97 Cozzoli Machine power filler c/w make up & back up 7996 50,279.46
11/26/97 Cozzoli Machine automatic stoppering machine 7997 24,851.93
11/26/97 Cozzoli Machine continuous rotary crimper, reset system 7998 34,933.06
11/26/97 Cozzoli Machine automatic tray loader 7999 20,696.80
12/30/97 Cozzoli Machine continuous rotary crimper, reset system 8095 620.00
12/30/97 Cozzoli Machine powder filler make up and back up 8096 2,536.00
12/30/97 DCI, Inc 50 gallon round vertical single 7975 15,144.50
12/4/97 Ink Jet Printing printer w/software & accs. 7800 14,006.69
12/1/97 Office Depot fellows shredder 7759 1,901.64
12/26/97 Unitek Miyachi thermocouple welder, wire clamp 7990 3,152.11
12/26/97 Unitek Miyachi thermocouple welder, wire clamp 8078 3,140.00
12/5/97 AAA Computer Products jet printer 8167 2,832.62
12/5/97 AAA Computer Products jet printer 8215 2,832.57
1/29/98 Auger Fabrication horizontal screw conveyor PD1065 8390 8,990.50
1/30/98 Cozzoli Machine Co. power filler c/w make up back up controls 8626 1,031.08
1/23/98 Cozzoli Machine Co. 1/3 down payment 8329 7,598.66
1/28/98 Cozzoli Machine Co. unscramle transfer Cozzali model UT36 8333 1,787.57
12/30/97 DCI, Inc. 50 gallon round vertical single shell portable tank 7992 960.00
1/28/98 E.I. DuPont Equipment purchase - See Attachment I JE 750,000.00
1/21/98 Entex (8) CQ-compaq, (2) arcserver 8607 13,067.09
1/21/98 Entex CQ-Compaq 8611 2,334.55
1/29/98 Entex CQ-Compaq 8625 1,264.74
1/22/98 Kason Corporation Kason Centri-Sifter 8279 12,224.00
11/24/97 Kason Corporation 40% down payment 8293 21,952.00
1/19/98 LCI Corporation drive shaft, bearing 8529 3,712.00
1/21/98 SWECO, Inc. PH46 unit 216L ss clean Rm, MTD pharmasep scrn, 8610 193,299.20
1/8/98 Walker Stainless Equipment retrofit isolator 8099 3,795.00
1/6/98 Walker Stainless Equipment 30% down payment 8431 25,500.00
1/23/98 Walker Stainless Equipment mock up 8531 4,000.00
2/18/98 AMC Computer Corporation thinkpad computer 8644 4,780.00
2/13/98 Cad One, Inc. hp computer 8694 7,576.60
2/6/98 Coulter Corporation micro volume module 8493 5,500.00
-------------
TOTAL ACTII 1,892,278.89
-------------
TOTAL ALKERMES AND ACTII 3,864,243.04
=============
</TABLE>
EXHIBIT 2
1998 LOAN COLLATERAL
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Less Less Total
Purchase Company Description Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C>
11/26/97 Cozzoli Machine power filler c/w make up & back up 0.00 0.00 50,279.46
11/26/97 Cozzoli Machine automatic stoppering machine 0.00 0.00 24,851.93
11/26/97 Cozzoli Machine continuous rotary crimper, reset system 0.00 0.00 34,933.06
11/26/97 Cozzoli Machine automatic tray loader 0.00 0.00 20,696.80
12/30/97 Cozzoli Machine continuous rotary crimper, reset system 0.00 0.00 620.00
12/30/97 Cozzoli Machine powder filler make up and back up 0.00 0.00 2,536.00
12/30/97 DCI, Inc 50 gallon round vertical single 0.00 0.00 15,144.50
12/4/97 Ink Jet Printing printer w/software & accs. 633.69 0.00 13,373.00
12/1/97 Office Depot fellows shredder 0.00 107.64 1,794.00
12/26/97 Unitek Miyachi thermocouple welder, wire clamp 12.11 0.00 3,140.00
12/26/97 Unitek Miyachi thermocouple welder, wire clamp 0.00 0.00 3,140.00
12/5/97 AAA Computer Products jet printer 280.62 0.00 2,552.00
12/5/97 AAA Computer Products jet printer 280.57 0.00 2,552.00
1/29/98 Auger Fabrication horizontal screw conveyor PD1065 6.90 0.00 8,983.60
1/30/98 Cozzoli Machine Co. power filler c/w make up back up controls 4.08 0.00 1,027.00
1/23/98 Cozzoli Machine Co. 1/3 down payment 0.00 0.00 7,598.66
1/28/98 Cozzoli Machine Co. unscramle transfer Cozzali model UT36 0.00 0.00 1,787.57
12/30/97 DCI, Inc. 50 gallon round vertical single shell portable tank 0.00 0.00 960.00
1/28/98 E.I. DuPont Equipment purchase - See Attachment I 0.00 0.00 750,000.00
1/21/98 Entex (8) CQ-compaq, (2) arcserver 255.39 731.70 12,080.00
1/21/98 Entex CQ-Compaq 27.99 130.56 2,176.00
1/29/98 Entex CQ-Compaq 13.94 70.80 1,180.00
1/22/98 Kason Corporation Kason Centri-Sifter 0.00 0.00 12,224.00
11/24/97 Kason Corporation 40% down payment 0.00 0.00 21,952.00
1/19/98 LCI Corporation drive shaft, bearing 250.00 0.00 3,462.00
1/21/98 SWECO, Inc. PH46 unit 216L ss clean Rm, MTD pharmasep scrn, 0.00 0.00 193,299.20
1/8/98 Walker Stainless Equipment retrofit isolator 0.00 0.00 3,795.00
1/6/98 Walker Stainless Equipment 30% down payment 0.00 0.00 25,500.00
1/23/98 Walker Stainless Equipment mock up 0.00 0.00 4,000.00
2/18/98 AMC Computer Corporation thinkpad computer 5.00 0.00 4,775.00
2/13/98 Cad One, Inc. hp computer 0.00 462.42 7,114.18
2/6/98 Coulter Corporation micro volume module 0.00 0.00 5,500.00
----------------------------------
TOTAL ACTII 6,856.53 4,456.69 1,880,965.67
----------------------------------
TOTAL ALKERMES AND ACTII 22,054.49 11,374.18 3,830,814.37
==================================
</TABLE>
Page 8
<PAGE> 20
EXHIBIT 2
1998 LOAN COLLATERAL-ADDENDUM
ALKERMES/ACTII FIXED ASSET LIST
<TABLE>
<CAPTION>
Date of Total Less Less Total
Purchase Company Description Ref # Invoice Freight/Other Sales Tax Invoice
- ------------------------------------------------------------------------------------------------------------------------------------
ALKERMES EQUIPMENT
FY1998 (APRIL 1997-MARCH 1998)
<S> <C> <C> <C> <C> <C> <C>
2/2/98 Molecular Devices spectramax 250, softmax pro, power cord 166913 18,605.00 105.00 0.00 18,500.00
2/26/98 Sassafras Software key server 5.0.5 168052 5,842.00 1,313.00 0.00 4,529.00
3/13/98 Cotter Corporation LN2 separator filter w/level posrt 168095 2,675.00 0.00 0.00 2,675.00
3/10/98 Dell dell computer 168134 1,857.15 55.00 0.00 1,802.15
3/24/98 Dell (2) dell computers 168934 8,019.12 110.00 0.00 7,909.12
3/24/98 Dell (5) computer monitors 168935 1,494.05 14.00 0.00 1,480.05
3/25/98 Dell dell computer 168936 2,141.43 55.00 0.00 2,086.43
3/24/98 Dell 2 Dell P6266 168933 3,714.30 110.00 0.00 3,604.30
3/19/98 Fisher Scientific centrifuge MDL 168781 2,298.36 131.50 0.00 2,166.86
3/11/98 MacWarehouse powerbook 168100 5,418.95 19.95 0.00 5,399.00
3/18/98 MacWarehouse powerbook 168479 5,418.95 19.95 0.00 5,399.00
3/6/98 Micro Center (3) apple printers 168105 7,871.88 0.00 374.85 7,497.03
3/11/98 Micro Center (3) apple printers 168110 8,185.83 0.00 389.80 7,796.03
3/12/98 Osmonics pump, motor, assy for electric 168112 2,916.81 6.81 0.00 2,910.00
---------------------------------------------
TOTAL ALKERMES 76,458.83 1,940.21 764.65 73,753.97
---------------------------------------------
ACT II EQUIPMENT
2/23/98 AMC Computer Corporation thinkpad computer 8770 12,070.00 0.00 0.00 12,070.00
2/23/98 Cozzoli Machine Co parts for pf8-141 8676 7,719.17 120.17 0.00 7,599.00
2/26/98 Polymer Laboratories evaporative mass detector 8937 13,535.00 85.00 0.00 13,450.00
2/13/98 Spirax Sarco, Inc. ultrasonic leak detector 8829 2,930.06 4.46 0.00 2,925.60
2/20/98 AAA Computer Products printer 8953 6,704.18 664.38 0.00 6,039.80
2/20/98 AAA Computer Products printer 9130 6,704.08 664.28 0.00 6,039.80
2/20/98 AAA Computer Products printer 9129 6,704.13 664.33 0.00 6,039.80
2/26/98 Dell (6) dell computers 8892 17,157.11 330.00 971.15 15,855.96
3/19/98 Koflo Corp (2) static in-line mixers 9254 3,410.36 18.36 0.00 3,392.00
3/3/98 Kuhlman Technologies mobile rack & (2) transfer trollies 9065 22,150.00 0.00 0.00 22,150.00
Inc.
---------------------------------------------
TOTAL ACTII 99,084.09 2,550.98 971.15 95,561.96
---------------------------------------------
TOTAL ALKERMES AND ACTII 175,542.92 4,491.19 1,735.80 169,315.93
==============================================
</TABLE>
Page 1
<PAGE> 21
SUPPLEMENTAL DISCLOSURE SCHEDULE
ITEM 2.1(a)(i)
Jurisdictions In Which Each Borrower Is
Qualified As a Foreign Corporation
ALKERMES, INC.:
Massachusetts
Ohio
ALKERMES CONTROLLED THERAPEUTICS, INC.:
Massachusetts
ALKERMES CONTROLLED THERAPEUTICS INC. II:
Ohio
<PAGE> 22
ITEM 2.1(a)(ii)
Subsidiaries, Partnerships and Joint Ventures
SUBSIDIARIES
ALKERMES, INC.
Alkermes Controlled Therapeutics, Inc., a
Pennsylvania corporation
Alkermes Development Corporation II, a
Delaware corporation ("ADC II").(1)
Alkermes Europe Ltd., a corporation incorporated
under the laws of the United Kingdom
Alkermes Investments, Inc., a Delaware corporation ("AII")
Alkermes Controlled Therapeutics Inc. II, a
Pennsylvania corporation
ALKERMES CONTROLLED THERAPEUTICS, INC.
None
ALKERMES CONTROLLED THERAPEUTICS INC. II
None
PARTNERSHIPS
ALKERMES, INC.
Alkermes Clinical Partners, L.P., a Delaware limited partnership. ADC II is the
general partner of this partnership.
ALKERMES CONTROLLED THERAPEUTICS, INC.
None
ALKERMES CONTROLLED THERAPEUTICS INC. II
None
JOINT VENTURES
None
- --------
(1) Although ADC II is a wholly owned subsidiary of the Borrower, PaineWebber
Development Corporation has the right to nominate at least half of the
members of ADC II's board of directors until certain events occur.
<PAGE> 23
ITEM 2.1(b)
5 Percent Beneficial Owners
(Information as of February 12, 1998)
Number of
Shares % of
Beneficially Common Stock
Name Owned Owned
- ---- ------------ ------------
ALZA Corporation 2,000,000 9.55%
950 Page Mill Road
Palo Alto, CA 94303
Amerindo Investment Advisors Inc. 2,465,000 11.77%
One Embarcadero, Ste. 2300
San Francisco, CA 94111 (1)
FMR Corp. 1,142,800 5.46%
82 Devonshire Street
Boston, MA 02109 (2)
(1) Amerindo Investment Advisors Inc. holds these shares in its capacity as
investment advisor for various fiduciary accounts.
(2) A portion of these shares are held by FMR Corp. or its related entities
as investment advisor for various fiduciary accounts.
<PAGE> 24
ITEM 2.1(e)
Pending Litigation
None
<PAGE> 25
ITEM 2.1(j)
Location of Books, Records and Assets
Certain of each Borrowers' corporate books and records, including its
minute books, are located at the offices of Ballard Spahr Andrews & Ingersoll,
LLP, 1735 Market Street, 51st Floor, Philadelphia, PA 19103.
In addition, certain of Alkermes, Inc.'s corporate books, records and
assets relating to its European operations are located at the offices of
Alkermes Europe Ltd. in Cambridge, England.
In addition, certain of Alkermes, Inc.'s corporate books, records and
assets relating to AII are located at the offices of AII in Wilmington, Delaware
19805.
In addition, certain of Alkermes, Inc.'s stock records are located at the
offices of its transfer agent, BankBoston, N.A.
<PAGE> 26
ITEM 2.1(m)
Material Contracts and Long-Term Commitments
1. Form of 1992 Warrant to purchase 2,800 shares of Alkermes, Inc.'s Common
Stock.
2. Form of 1995 Warrant to purchase 300 shares of Alkermes, Inc.'s Common
Stock.
3. Form of Global Warrant Certificate for 1994 Class A Warrants to purchase
1,700 shares of Alkermes, Inc.'s Common Stock.
4. Form of Class B 1994 Warrant to purchase 3,400 shares of Alkermes, Inc.'s
Common Stock.
5. Form of Fund Warrant to purchase 7,293 shares of Alkermes, Inc.'s Common
Stock.
6. Form of Incentive Warrant to purchase 42,280 shares of Alkermes, Inc.'s
Common Stock.
7. Warrant Agreement, dated as of November 18, 1994, by and between Alkermes,
Inc. and The First National Bank of Boston.
8. Amended and Restated 1989 Non-Qualified Stock Option Plan, as amended.
9. Amended and Restated 1990 Omnibus Stock Option Plan, as amended.
10. 1991 Restricted Common Stock Award Plan.
11. 1992 Non-Qualified Stock Option Plan.
12. Stock Option Plan for Non-Employee Directors.
13. Lease, dated as of September 18, 1991, between Forest City 64 Sidney
Street, Inc. and Alkermes, Inc., as amended by a First Amendment of Lease
dated September 1, 1992.
14. Lease, dated as of March 16, 1990, between Forest City 64 Sidney Street,
Inc. and Enzytech, Inc.
15. Lease, dated as of July 26, 1993, between the Massachusetts Institute of
Technology and Alkermes, Inc.
16. Product Development Agreement, dated as of March 6, 1992, between Alkermes
Clinical Partners, L.P. and Alkermes, Inc.
17. Purchase Agreement, dated as of March 6, 1992, by and among Alkermes, Inc.
and each of the Limited Partners, from time
<PAGE> 27
to time, of Alkermes Clinical Partners, L.P.
18. Alkermes Clinical Partners, L.P. Agreement of Limited Partnership, dated as
of February 7, 1992, as amended by Amendment No. 1 to Agreement of Limited
Partnership, dated as of September 29, 1992, as further amended by
Amendment No. 2 to Agreement of Limited Partnership, dated as of March 30,
1993.
19. Class A Note of Alkermes Development Corporation II, dated April 10, 1992,
to PaineWebber Development Corporation in the amount of $100.00.
20. License Agreement, dated February 5, 1990, between Enzytech, Inc. and
Massachusetts Institute of Technology.
21. Development and License Agreement dated February 4, 1992, between Enzytech,
Inc. and Schering Corporation, as amended by an Amendment to Development
and License Agreement dated July 26, 1995 between Alkermes Controlled
Therapeutics, Inc. and Schering Corporation.
22. Prepaid Royalty Agreement dated July 26, 1995 between Alkermes Controlled
Therapeutics, Inc. and Schering Corporation.
23. Collaborative Development Agreement dated as of January 9, 1995 between
Alkermes Controlled Therapeutics, Inc. and Genentech, Inc.
24. Note Purchase Agreement, dated as of January 9, 1995, by and between
Alkermes, Inc. and Genentech, Inc.
25. License Agreement, dated as of November 13, 1996 by and between Genentech,
Inc. and Alkermes Controlled Therapeutics, Inc.
26. Convertible Promissory Note of Alkermes, Inc. dated January 31, 1995.
27. Clinical Collaboration and Option Agreement, dated as of September 30,
1997, between ALZA Corporation and Alkermes, Inc.
28. Development Agreement, dated as of December 23, 1993, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International, as
amended by the First Amendment to Development Agreement, dated as of
December 23, 1993, as further amended by the Second Amendment to
Development Agreement, dated as of April 28.
29. License Agreement, dated as of February 13, 1996, between Medisorb
Technologies International L.P. and Janssen
<PAGE> 28
Pharmaceutica International (United States).
30. License Agreement, dated as of February 21, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International
(worldwide except United States).
31. Development Agreement, dated as of August 1, 1996, by and between The R.W.
Johnson Pharmaceutical Research Institute, Alkermes, Inc. and Alkermes
Controlled Therapeutics, Inc.
32. Supply and License Agreement, dated as of August 1, 1996, by and between
The R.W. Johnson Pharmaceutical Research Institute, Alkermes, Inc. and
Alkermes Controlled Therapeutics, Inc.
33. Development and License Agreement, dated as of January 19, 1998, by and
between The R.W. Johnson Pharmaceutical Research Institute, Alkermes, Inc.
and Alkermes Controlled Therapeutics, Inc.
34. Supply and License Agreement, dated as of January 19, 1998, by and between
The R.W. Johnson Pharmaceutical Research Institute, Janssen Pharmaceutical
International and Alkermes Controlled Therapeutics, Inc.
35. Letter Agreement, dated September 27, 1996, between Fleet National Bank and
Alkermes, Inc., Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutice Inc. II.
36. Security Agreement, dated as of September 27, 1996, from Alkermes, Inc.,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutic
Inc. II to Fleet National Bank.
37. Pledge Agreement, dated as of September 27, 1996, from Alkermes, Inc. to
Fleet National Bank.
38. Mortgage and Security Agreement, dated as of September 27, 1996, from
Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
39. Environmental Indemnity Agreement, dated as of September 27, 1996, from
Alkermes, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank.
40. Promissory Note of Alkermes, Inc., dated December 23, 1994, to Fleet Bank
of Massachusetts, N.A., as amended by Allonge to Promissory Note, dated as
of September 27, 1996, executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and Alkermes.
<PAGE> 29
41. Promissory Note of Alkermes, Inc., dated December 19, 1995, to Fleet Bank
of Massachusetts, N.A., as amended by Allonge to Promissory Note, dated as
of September 27, 1996, executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and Alkermes.
42. Promissory Note, dated September 27, 1996, from Alkermes, Inc. and Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank.
43. Promissory Note of Alkermes, Inc., Alkermes Controlled Therapeutics, Inc.
and Alkermes Controlled Therapeutics Inc. II, dated June 2, 1997, to Fleet
National Bank.
44. Loan Agreement dated December 30, 1993, among The Daiwa Bank, Limited,
Alkermes Investments, Inc. and Alkermes, Inc., as amended by Amendment No.
1 to Loan Agreement, dated as of December 31, 1994, and as further amended
by Amendment to Loan Agreement, dated as of December 29, 1995, and as
further amended by Omnibus Amendment to Loan Documents, dated as of July
26, 1996, among The Sumitomo Bank, Limited (as assignee of The Daiwa Bank,
Limited), Alkermes, Inc. and Alkermes Investments, Inc.
45. Loan Supplement and Modification Agreement, dated June 2, 1997, among
Alkermes, Inc., Alkermes Controlled Therapeutics, Inc., Alkermes Controlled
Therapeutics Inc. II and Fleet National Bank.
46. Second Amended and Restated Note, dated July 26, 1996, by Alkermes, Inc.
and Alkermes Investments, Inc. to The Sumitomo Bank, Limited.
47. Employment Agreement, entered into as of February 7, 1991, between Richard
F. Pops and Alkermes, Inc.
48. Employment Agreement, entered into as of June 13, 1994, by and between
Robert A. Breyer and Alkermes, Inc.
<PAGE> 30
ITEM 4.1
Existing Indebtedness
ALKERMES, INC.
1. Indebtedness which may be incurred as the result of any transaction
contemplated by Section 7.1 of the Letter Agreement.
2. Note, dated December 30, 1993, to The Daiwa Bank, Limited.
3. Note, dated December 29, 1995, to The Daiwa Bank, Limited.
4. Note Purchase Agreement, dated as of January 9, 1995, by and between
Alkermes, Inc. and Genentech, Inc.
ALKERMES CONTROLLED THERAPEUTICS, INC.
None
ALKERMES CONTROLLED THERAPEUTICS INC. II
None
<PAGE> 31
ITEM 4.2
Existing Liens
Liens with respect to the Collateral, (as such term is defined in the Security
Agreement, dated as of September 27, 1996, by and among Alkermes, Inc., Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II and the
Bank), granted by Alkermes, Inc., Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutics Inc. II in favor of the Bank, which Liens were
created by the Security Agreement.
Pursuant to a Loan Agreement, dated December 30, 1993, as amended by the
Amendment No. 1 to Loan Agreement, dated December 31, 1994, the Amendment to
Loan Agreement, dated as of December 29, 1995, and the Omnibus Amendment to Loan
Documents, dated as of July 26, 1996, among The Sumitomo Bank, Limited
("Sumitomo"), as assignee of The Daiwa Bank, Limited, Alkermes Investments, Inc.
and Alkermes, Inc., Alkermes, Inc. has established for the benefit and on behalf
of Sumitomo Bank of New York Trust Company a restricted custodial account (the
"Restricted Account"). Pursuant to such Loan Agreement, as amended, and certain
other agreements executed in connection therewith, upon the occurrence of
certain specified events, Sumitomo has the right to require Morgan Stanley & Co.
to deliver certain funds of Alkermes, Inc. for which Morgan Stanley serves as
custodian to Sumitomo Bank of New York Trust Company for deposit into the
Restricted Account. Alkermes, Inc. has granted Sumitomo a security interest in
all of its right, title and interest in the Restricted Account and all deposits
or investments held therein.
<PAGE> 1
Exhibit 10.38
PROMISSORY NOTE
$4,000,000.00 Boston, Massachusetts
March 19, 1998
FOR VALUE RECEIVED, the undersigned Alkermes, Inc., a Pennsylvania
corporation ("Alkermes"), Alkermes Controlled Therapeutics, Inc., a Pennsylvania
corporation ("ACT I") and Alkermes Controlled Therapeutics Inc. II, a
Pennsylvania corporation ("ACT II") (Alkermes, ACT I and ACT II being referred
to herein individually as a "Borrower" and collectively as the "Borrowers")
hereby jointly and severally promise to pay to the order of FLEET NATIONAL BANK
(the "Bank") the principal amount of Four Million and 00/100 ($4,000,000.00)
Dollars or such portion thereof as may be advanced under Section 2 of the
below-described Loan Supplement and Modification Agreement ("Principal"), with
interest, at the rate hereinafter set forth, on the daily balance of all unpaid
Principal, from the date hereof until payment in full of all Principal and
interest hereunder. As used herein, (i) "Loan Supplement and Modification
Agreement" means that certain Second Loan Supplement and Modification Agreement
of even date herewith among the Borrowers and the Bank and (ii) "Letter
Agreement" means that certain letter agreement dated September 27, 1996 among
the Borrowers and the Bank, as amended.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first Business Day (as defined in the Letter Agreement) of each
month commencing on the first such day after the date of this note and
continuing on the first Business Day of each month thereafter and on the date of
payment of this note in full, at the rate of 7.69% per annum (computed on the
basis of a year of three hundred sixty (360) days for the actual number of days
elapsed). Overdue Principal shall bear interest at a rate per annum which at all
times shall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the
per annum rate otherwise payable under this note (but in no event in excess of
the maximum rate permitted by then applicable law), compounded monthly and
payable on demand. If the entire amount of any required Principal and/or
interest is not paid within ten (10) days after the same is due, the Borrowers
shall pay (and shall be jointly and severally obligated to pay) to the Bank a
late fee equal to five percent (5%) of the required payment.
The Principal of this note represents the 1998 Term Loans (as defined
in the Loan Supplement and Modification Agreement) made pursuant to Section 2 of
the Loan Supplement and Modification Agreement. The Principal of this note shall
be repaid by the Borrowers in fifty-nine (59) equal consecutive monthly
installments (each in an amount equal to 1/60th of the aggregate principal
amount of the 1998 Term Loans outstanding at the close of business on June 30,
1998), commencing on July 1, 1998 and continuing on the first Business Day of
each month thereafter through and including May 1, 2003, plus a sixtieth (60th)
and final payment due on June 2, 2003 in an amount equal to all then unpaid
Principal and all interest accrued but unpaid thereon. The Borrowers may at any
time and from time to time prepay all or any portion of Principal; provided that
each such prepayment of Principal shall be accompanied by (i) payment of all
interest under this note accrued but unpaid to the date of prepayment and (ii)
the "Make-Whole Amount", if any, required by the provisions of Section 1.6 of
the Letter Agreement. Any
<PAGE> 2
partial prepayment of Principal shall be applied against Principal installments
(including the final installment of Principal) thereafter coming due, in inverse
order of normal maturity.
Payments of both Principal and interest shall be made, in lawful money
of the United States in immediately available funds, at the office of the Bank
located at One Federal Street, Boston, Massachusetts 02110, or at such other
address as the Bank may from time to time designate.
Each of the undersigned Borrowers irrevocably authorizes the Bank to
make or cause to be made, on a schedule attached to this note or on the books of
the Bank, at or following the time of receiving any payment of Principal, an
appropriate notation reflecting such transaction and the then aggregate unpaid
balance of Principal. Failure of the Bank to make any such notation shall not,
however, affect any obligation of any Borrower hereunder or under the Letter
Agreement. The Principal balance of this note, as recorded by the Bank from time
to time on such schedule or on such books, shall constitute presumptive evidence
of the unpaid principal amount of the 1998 Term Loans.
Each Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Bank in enforcing this note and any collateral or security therefor, all
whether or not litigation is commenced.
This note is secured, INTER ALIA, by a Security Agreement dated as of
September 27, 1996, as amended (as so amended, the "Security Agreement") given
by the Borrowers to the Bank. This note is the "1998 Term Note" referred to in
the Loan Supplement and Modification Agreement and constitutes an "Additional
Term Note" as defined in the Letter Agreement and the Security Agreement and is
entitled to benefits thereof. This note is subject to prepayment under the
conditions set forth in the Letter Agreement, with the Make-Whole Amount, if
any, required by the Letter Agreement consequent upon such prepayment. The
maturity of this note may be accelerated upon the occurrence of an Event of
Default, as provided in the Letter Agreement. This note is the joint and several
obligation of the Borrowers.
EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED ON THIS NOTE OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENTS
OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY PERSON. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR THE BANK TO ACCEPT THIS NOTE AND TO MAKE TERM LOANS AS CONTEMPLATED IN THE
LETTER AGREEMENT.
-2-
<PAGE> 3
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE SEAL ALKERMES, INC.
ATTEST:
/s/ Patricia L. Allen By: /s/ Michael J. Landine
- ------------------------------- ---------------------------------
Assistant Secretary Name: Michael J. Landine
Title: Senior Vice President, CFO
& Treasurer
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS, INC.
ATTEST:
/s/ Patricia L. Allen By: /s/ Michael J. Landine
- ------------------------------- ---------------------------------
Assistant Secretary Name: Michael J. Landine
Title: Vice President
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS INC. II
ATTEST:
/s/ Patricia L. Allen By: /s/ Michael J. Landine
- ------------------------------- ---------------------------------
Assistant Secretary Name: Michael J. Landine
Title: Vice President
-3-
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
March 31, 1998 March 31, 1997 March 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss $ (9,771,131) $(18,797,818) $(13,747,084)
============ ============ ============
Calculation of shares outstanding:
Weighted average common shares
outstanding used in calculating
net loss per share in accordance
with generally accepted accounting
principles 20,834,085 18,288,334 14,774,584
------------ ------------ ------------
Total 20,834,085 18,288,334 14,774,584
============ ============ ============
Basic and diluted loss per common share $ (0.47) $ (1.03) $ (0.93)
============ ============ ============
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF ALKERMES, INC.
<TABLE>
<CAPTION>
State or
Percentage Country of
Registrant Ownership Incorporation
- ---------- --------- -------------
<S> <C> <C>
Alkermes Controlled Therapeutics, Inc. 100 Pennsylvania
Alkermes Controlled Therapeutics Inc. II 100 Pennsylvania
Alkermes Development Corporation II 100 Delaware
Alkermes Europe, Ltd. 100 United Kingdom
Alkermes Investments, Inc. 100 Delaware
</TABLE>
<PAGE> 1
ALKERMES, INC.
CAMBRIDGE, MASSACHUSETTS 02139
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 29, 1998
--------------------
TO THE SHAREHOLDERS:
The annual meeting of shareholders of Alkermes, Inc. (the
"Company") will be held at the offices of the Company, 64 Sidney Street,
Cambridge, Massachusetts 02139, on Wednesday, July 29, 1998, at 10:00 A.M. for
the following purposes:
1. To elect eight members of the Board of Directors, each to
serve until the next annual meeting of shareholders and until his successor is
duly elected and qualified.
2. To approve an amendment to the Alkermes Amended and
Restated 1990 Omnibus Stock Option Plan, as amended, to increase to 3,250,000
the number of shares issuable upon the exercise of options granted thereunder,
an increase of 750,000 shares.
3. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed June 10, 1998 as the record
date for determining the holders of Common Stock entitled to notice of and to
vote at the meeting. Consequently, only holders of Common Stock of record on the
transfer books of the Company at the close of business on June 10, 1998 will be
entitled to notice of and to vote at the meeting.
Please complete, date and sign the enclosed proxy and return
it promptly. If you attend the meeting, you may vote in person.
Morris Cheston, Jr.
Secretary
June 29, 1998
<PAGE> 2
ALKERMES, INC.
PROXY STATEMENT
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of
Alkermes, Inc., a Pennsylvania corporation ("Alkermes" or the "Company"), in
connection with its 1998 annual meeting of shareholders to be held at the
offices of the Company, 64 Sidney Street, Cambridge, Massachusetts 02139, at
10:00 a.m., on July 29, 1998 (the "Meeting"). Copies of this Proxy Statement and
the accompanying proxy are being mailed on or after June 29, 1998 to the holders
of record of Common Stock on June 10, 1998 (the "Record Date"). The proxy may be
revoked by a shareholder at any time prior to its use by giving notice of such
revocation to the Secretary of the Company, by appearing at the Meeting and
voting in person or by returning a later dated proxy. The expense of this
solicitation will be paid by the Company. Some of the officers and regular
employees of the Company may solicit proxies personally and by telephone.
Unless specific instructions are given to the contrary, the persons
named in the accompanying proxy will vote FOR an election to the Company's Board
of Directors of the nominees named herein and FOR approval of the amendment to
increase the number of shares available under the Amended and Restated 1990
Omnibus Stock Option Plan, as amended. With respect to all other matters, the
persons named in the accompanying proxy will vote as stated herein. See "Other
Business."
Holders of Common Stock of record at the close of business on the
Record Date will be entitled to cast one vote per share so held of record on
such date on all items of business properly presented at the Meeting, except
that the holders have cumulative voting rights in the election of directors.
Therefore, each shareholder is entitled to cast as many votes in the election of
directors as shall be equal to the number of shares of Common Stock held by such
shareholder on the Record Date, multiplied by the number of directors to be
elected. A shareholder may cast all such votes for a single nominee or may
distribute votes among nominees as the shareholder sees fit.
The Company had 21,094,353 shares of Common Stock outstanding on the
Record Date. The presence at the Meeting, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter will constitute a quorum for the
purposes of consideration and action on such matter.
ELECTION OF DIRECTORS
Eight directors are to be elected at the Meeting to serve one-year
terms until the 1999 annual meeting of shareholders and until their respective
successors are elected and shall qualify. The persons named in the accompanying
proxy intend to vote for the election of Floyd E. Bloom, Robert A. Breyer, John
K. Clarke, Robert S. Langer, Richard F. Pops, Alexander Rich, Paul Schimmel and
Michael A. Wall, unless authority to vote for one or more of such nominees is
specifically withheld in the proxy. All of the nominees are currently directors
of the Company. The persons named in the proxy will have
<PAGE> 3
the right to vote cumulatively and to distribute their votes among such nominees
as they consider advisable. The Board of Directors is informed that all the
nominees are willing to serve as directors, but if any of them should decline to
serve or become unavailable for election at the Meeting, an event which the
Board of Directors does not anticipate, the persons named in the proxy will vote
for such nominee or nominees as may be designated by the Board of Directors,
unless the Board of Directors reduces the number of directors accordingly.
The eight nominees for director receiving the highest number of votes
cast by shareholders entitled to vote thereon will be elected to serve on the
Board of Directors. Votes that are withheld will be counted in determining the
presence of a quorum, but will have no effect on the vote.
Set forth below is information regarding the nominees, as of June 10,
1998, including their recent employment, positions with the Company, other
directorships and age.
Dr. Bloom, age 61, is a founder of Alkermes and has been a director of
Alkermes since 1987. Dr. Bloom has been active in neuropharmacology for more
than 30 years, holding positions at Yale University, the National Institute of
Mental Health and The Salk Institute. Since 1983, he has been at The Scripps
Research Institute where he is currently Chairman, Department of
Neuropharmacology. Dr. Bloom serves as Editor-in-Chief of Science. He holds an
A.B. (Phi Beta Kappa) from Southern Methodist University and an M.D. (Alpha
Omega Alpha) from Washington University School of Medicine in St. Louis. He is a
member of the National Academy of Science, the Institute of Medicine and the
Royal Swedish Academy of Science.
Mr. Breyer, age 54, has been a director and President and Chief
Operating Officer of Alkermes since July 1994. From August 1991 to December
1993, Mr. Breyer was President and General Manager of Eli Lilly Italy, a
subsidiary of Eli Lilly & Co. From September 1987 to August 1991, he was Senior
Vice President, Marketing and Sales of IVAC Corporation, a medical device
company and a subsidiary of Eli Lilly & Co.
Mr. Clarke, age 44, has served as a director of Alkermes since 1987. He
is a general partner of DSV Partners III and DSV Management, the general partner
of DSV Partners IV. DSV Partners III and DSV Partners IV are venture capital
investment partnerships. Mr. Clarke has been associated with DSV since 1982. Mr.
Clarke has been the managing general partner of Cardinal Health Partners, a
venture capital fund, since October 1997. Mr. Clarke is a director of DNX
Corporation, Inc. and Cubist Pharmaceuticals, Inc., both biopharmaceutical
companies, and a number of private health care companies.
Professor Langer, age 49, has served as a director of Alkermes since
1993. He is the Kenneth J. Germeshausen Professor of Chemical and Biomedical
Engineering at the Massachusetts Institute of Technology and has been a member
of the Massachusetts Institute of Technology faculty since July 1977. In 1989,
Professor Langer was elected to the Institute of Medicine of the National
Academy of Sciences and in 1992 was elected to both the National Academy of
Engineering and the National Academy of Sciences. Professor Langer received his
bachelor's degree from Cornell University in 1970 and a Ph.D. from Massachusetts
Institute of Technology in 1974, both in chemical engineering. Professor Langer
is a director of Focal Inc., a medical device company.
Mr. Pops, age 36, has been a director and the Chief Executive Officer
of Alkermes since February 1991. From February 1991 to June 1994, Mr. Pops was
also President of Alkermes. Mr. Pops
2
<PAGE> 4
currently serves on the Board of Directors of Immulogic Pharmaceutical
Corporation, Neurocrine Biosciences, Inc., the Biotechnology Industry
Organization (BIO) and The Brain Tumor Society (a non-profit organization). Mr.
Pops is President of the Massachusetts Biotechnology Council (MBC) and a member
of the BIO Emerging Companies Section Governing Body.
Dr. Rich, age 73, is a founder of Alkermes and has been a director of
Alkermes since 1987. Dr. Rich has been a professor at the Massachusetts
Institute of Technology since 1958, and is the William Thompson Sedgwick
Professor of Biophysics and Biochemistry. Dr. Rich earned both an A.B. (magna
cum laude) and an M.D. (cum laude) from Harvard University. Dr. Rich has been a
member of the National Academy of Sciences since 1970 and a Senior Member of the
Institute of Medicine since 1990. Dr. Rich is Co-Chairman of the Board of
Directors of Repligen Corporation, a biopharmaceutical company.
Dr. Schimmel, age 57, is a founder of Alkermes and has been a director
of Alkermes since 1987. Dr. Schimmel is presently a member of the Skaggs
Institute for Chemical Biology at The Scripps Research Institute. Dr. Schimmel
was the John D. and Catherine T. MacArthur Professor of Biophysics and
Biochemistry at the Massachusetts Institute of Technology, where he was employed
from 1967 through 1997. A member of the National Academy of Sciences and the
American Academy of Arts and Sciences, Dr. Schimmel graduated from Ohio Wesleyan
University, completed his doctorate at Cornell University and the Massachusetts
Institute of Technology and did post doctoral work at Stanford University. Dr.
Schimmel is Co-Chairman of the Board of Directors of Repligen Corporation and is
a director of Cubist Pharmaceuticals, Inc.
Mr. Wall, age 69, is a founder of Alkermes and has been Chairman of the
Board of Alkermes since 1987. From April 1992 until June 1993, he was a director
and Chairman of the Executive Committee of Centocor, Inc. ("Centocor"), a
biopharmaceutical company. From November 1987 to June 30, 1993, he was Chairman
Emeritus of Centocor. Mr. Wall is a director of Kopin Corporation, a
manufacturer of high definition imaging products.
The Board of Directors held six meetings during the last fiscal year.
Each of the Company's directors attended at least 75% of the aggregate of all
meetings held during the year of the Board and of all committees of which he was
a member. The standing committees of the Board are the Audit Committee, the
Compensation Committee and the Compensation Sub-Committee. The Board does not
have a standing nominating committee. The Audit Committee, consisting of John K.
Clarke and Alexander Rich, met once during the last fiscal year. The Audit
Committee is responsible for determining the adequacy of the Company's internal
accounting and financial controls. The Compensation Committee, consisting of
John K. Clarke, Robert S. Langer, Paul Schimmel and Michael A. Wall, met once
during the last fiscal year and otherwise acted by unanimous written consent.
The Compensation Committee is responsible for reviewing matters pertaining to
the compensation of employees of, and consultants to, the Company, fixing the
compensation of officers of the Company and administering, and making grants and
awards under, the Company's stock option and restricted stock award plans. The
Compensation Sub-Committee is responsible for making grants and awards under the
Company's stock option and restricted stock award plans to "officers" as defined
under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Compensation Sub-Committee, consisting of John K. Clarke
and Paul Schimmel, did not meet during the last fiscal year but acted by
unanimous written consent.
3
<PAGE> 5
APPROVAL OF AMENDMENT TO AMENDED AND RESTATED
1990 OMNIBUS STOCK OPTION PLAN
The Company's Amended and Restated 1990 Omnibus Stock Option Plan, as
amended (the "Omnibus Plan"), authorizes the issuance of options to purchase up
to 2,500,000 shares of Common Stock. In June 1998, the Board amended the Omnibus
Plan, subject to shareholder approval, to increase the aggregate number of
shares authorized for issuance upon exercise of options granted under the
Omnibus Plan to 3,250,000. This amendment was designed to enhance the
flexibility of the Compensation Committee and the Compensation Sub-Committee of
the Board in granting stock options and limited stock appreciation rights to the
Company's employees, officers and consultants and to ensure that the Company can
continue to grant stock options to such persons at levels determined to be
appropriate by the Compensation Committee and the Compensation Sub-Committee.
The affirmative vote of a majority of the votes cast by all
shareholders entitled to vote will be required to approve the proposed amendment
to the Omnibus Plan. Abstentions will be counted as present for purposes of
determining the presence of a quorum for purposes of this proposal, but will not
be counted as votes cast. Broker non-votes (shares held by a broker or nominee
as to which the broker or nominee does not have the authority to vote on a
particular matter) will not be counted as present for purposes of determining
the presence of a quorum for purposes of this proposal and will not be voted.
Accordingly, neither abstentions nor broker non-votes will have any effect on
the outcome of the vote on this proposal.
The Board of Directors recommends that you vote FOR the approval of the
amendment to the Omnibus Plan.
DESCRIPTION OF THE OMNIBUS PLAN
The Omnibus Plan provides for the grant to employees, officers and
directors of, and consultants to, the Company and its subsidiaries of options to
purchase up to 2,500,000 shares of Common Stock. The proposed amendment, which
has been adopted by the Board of Directors, increases the number of shares which
may be issued upon exercise of options which may be granted under the Omnibus
Plan to 3,250,000. Such options may either be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or may be non-qualified options. The Omnibus Plan will terminate on
September 19, 2000 unless sooner terminated by the Board of Directors. The
Company estimates that there are currently approximately 225 persons who are
eligible to receive options under the Omnibus Plan.
The Omnibus Plan is administered by the Board of Directors with respect
to options granted to employees, officers and consultants who are not directors,
executive officers or significant employees of the Company, unless the Board
delegates administration of the Omnibus Plan to the Compensation Committee,
which the Board has done. The Compensation Sub-Committee administers the Omnibus
Plan with respect to options granted to directors, executive officers and
significant employees of the Company ("Reporting Persons"). The total number of
options to be granted in any year under the Omnibus Plan to participants, the
number and selection of the participants to receive options, the type and number
of options granted to each and the other terms and provisions of such options
are wholly within the discretion of the Compensation Committee and the
Compensation Sub-Committee, subject to the limitations set forth in the Omnibus
Plan. Therefore, the benefits and amounts that will be received by participants
under the Omnibus Plan are not currently determinable.
4
<PAGE> 6
Under the terms of the Omnibus Plan, the option exercise price may not
be less than 100% (or, with respect to incentive stock options, 110% if the
optionee owns 10% of the total combined voting power of all classes of stock of
the Company) of the fair market value of the underlying stock at the time the
option is granted. Options granted under the Omnibus Plan are generally
nontransferable and expire upon the earlier of an expiration date fixed by the
Compensation Committee and set forth in each individual option award
certificate, ten years (or with respect to incentive stock options, five years,
if the optionee owns 10% of the total combined voting power of all classes of
stock of the Company) from the date of grant, and either three months after the
date the optionee ceases to be an employee, officer or director of, or
consultant to, the Company or its subsidiaries or, if the optionee dies or
becomes disabled, one year after the date of death or the date the optionee
ceases to be an employee, officer, director or consultant because of disability.
Options which have expired or which have been cancelled unexercised will be
returned to the Omnibus Plan and may again be granted pursuant to the Omnibus
Plan.
Under the Omnibus Plan, the price payable upon exercise of options may
be paid in cash, property, services rendered or, under certain circumstances, in
shares of stock of the Company having a fair market value equal to the option
price on the date of exercise or any combination thereof.
The Compensation Committee and the Compensation Sub-Committee are
authorized, under the Omnibus Plan, to grant limited stock appreciation rights
("LSARs") with respect to all or any portion of the shares covered by options
granted to Reporting Persons simultaneously with the grant of the related
options if the related options are incentive stock options, or simultaneously
with the grant of, or at any time during the term of, the related options if the
related options are non-qualified options. The grant of an LSAR will not be
effective until six months after the date of its grant. Those options with
respect to which LSARs have been granted and become effective shall become
immediately exercisable upon the occurrence of any of the following events
(each, a "Triggering Event"): (i) consummation by the Company of a
reorganization, merger, or consolidation after approval of any such transaction
by shareholders, other than Reporting Persons, holding at least the minimum
number of shares necessary to approve such transaction under the Company's
Amended and Restated Articles of Incorporation, as amended (the "Articles") and
applicable law, (ii) consummation by the Company of a sale of substantially all
its assets after approval of any such transaction by shareholders, other than
Reporting Persons, holding at least the minimum number of shares necessary to
approve such transaction under the Articles and applicable law, or (iii)
acquisition by a single purchaser or group of related purchasers of in excess of
51% of the issued and outstanding shares of Common Stock from shareholders of
the Company other than Reporting Persons, in any case other than in a
transaction in which the surviving corporation or the purchaser is the Company
or a subsidiary of the Company (unless in such transaction the capital stock of
the Company or a subsidiary of the Company is converted into capital stock of an
entity other than the Company or any such subsidiary) or an entity controlled by
a Reporting Person.
Each LSAR provides that upon the occurrence of a Triggering Event, the
optionee will receive an amount in cash equal to the amount by which the fair
market value per share of the Common Stock issuable upon exercise of the option
on the date such Triggering Event occurs exceeds the exercise price per share of
the option to which the LSAR relates. A Triggering Event shall be deemed to have
occurred only when the fair market value of the shares subject to the underlying
option exceeds the exercise price of such option. When a Triggering Event
occurs, the related option will cease to be exercisable. LSARs have been granted
with respect to options to purchase 295,000 shares granted under the Omnibus
Plan to Richard F. Pops, Chief Executive Officer, options to purchase 74,500
shares granted to Michael J. Landine, Senior Vice President, Chief Financial
Officer and Treasurer and options to purchase 56,250 shares granted to Raymond
T. Bartus, Senior Vice President, Preclinical Research and Development.
5
<PAGE> 7
OPTIONS OUTSTANDING, EXERCISABLE AND AVAILABLE FOR FUTURE GRANT
As of June 10, 1998, options to purchase 1,734,871 shares were
outstanding under the Omnibus Plan, of which options to purchase 859,399 shares
were exercisable. The exercise prices for the outstanding options ranged from
$0.56 to $27.69 per share. On June 10, 1998, the last sale price of the
Company's Common Stock on the Nasdaq National Market was $20.25 per share. At
June 10, 1998, options to purchase 381,072 shares (plus any options that expire
unexercised or are cancelled in the future) were available for future grant,
exclusive of the additional shares covered by the proposed amendment.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax discussion set forth below is intended for
general information only and does not address the rates of taxation applicable
to specific categories of taxpayers or classes of income. State and local income
tax consequences are not discussed and may vary from locality to locality.
Under present Treasury regulations, a participant who is granted a
non-qualified option will not realize taxable income at the time the option is
granted. In general, a participant will be subject to tax for the year of
exercise on an amount of ordinary income equal to the excess of the fair market
value of the shares on the date of exercise over the option price, and the
Company will receive a corresponding deduction. The participant's basis in the
shares so acquired will be equal to the option price plus the amount of ordinary
income upon which he is taxed. Upon subsequent disposition of the shares, the
participant will realize capital gain or loss, long-term or short-term,
depending upon the length of time the shares are held after the option is
exercised.
A participant is not taxed at the time an incentive option is granted.
The tax consequences upon exercise and later disposition depend upon whether the
participant was an employee of the Company or a subsidiary at all times from the
date of grant until three months preceding exercise (one year in the case of
permanent and total disability) and on whether the participant holds the shares
for more than one year after exercising the option and two years after the date
of grant of the option.
If the participant satisfies both the employment rule and the holding
rule, for regular tax purposes the participant will not realize income upon
exercise of an incentive option and the Company will not be allowed an income
tax deduction at any time. The difference between the option price and the
amount realized upon disposition of the shares by the participant will generally
constitute a long-term capital gain or a long-term capital loss, as the case may
be.
If the participant meets the employment rule but fails to observe the
holding rule (a "disqualifying disposition"), the participant generally
recognizes as ordinary income, in the year of the disqualifying disposition
(whether by sale or gift), the excess of the fair market value of the shares at
the date of exercise over the option price. In the case of a sale, any excess of
the sales price over the fair market value at the date of exercise will be
recognized by the participant as capital gain (long-term or short-term depending
on the length of time the stock was held after the option was exercised). If,
however, the sales price is less than the fair market value at the date of
exercise, then the ordinary income recognized by the participant is limited to
the excess of the sales price over the option price. In the case of any
disqualifying disposition, the Company's tax deduction is limited to the amount
of ordinary income recognized by the participant.
Different consequences will apply for a participant subject to the
alternative minimum tax.
6
<PAGE> 8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by
the Company during its last three fiscal years to its Chief Executive Officer
and to each of the four other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during the fiscal
year ended March 31, 1998 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
Securities
Name and Underlying
Principal Options(1) All Other
Position Year Salary ($) Bonus ($) (#) Compensation ($)
---------- ---- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Richard F. Pops 1998 326,000 150,000 80,000 0
Chief Executive 1997 291,116 50,000 40,000 0
Officer 1996 266,346 15,000 87,500 0
Robert A. Breyer 1998 239,000 75,000 40,000 1,500(2)
President and Chief 1997 223,058 25,000 25,000 1,500(2)
Operating Officer 1996 204,231 10,000 50,000 1,500(2)
Raymond T. Bartus 1998 209,100 15,000 10,000 0
Senior Vice 1997 199,039 5,000 10,000 0
President, 1996 190,692 0 17,500 0
Preclinical Research
and Development
Michael J. Landine 1998 212,800 75,000 40,000 0
Senior Vice 1997 197,752 30,000 25,000 0
President, 1996 179,231 0 51,500 0
Chief Financial
Officer and
Treasurer
James L. Wright 1998 170,800 25,000 20,000 0
Vice President, 1997 159,742 10,000 20,000 0
Pharmaceutical 1996 151,587 0 20,000 0
Department
</TABLE>
- --------------
(1) Alkermes granted no LSARs.
(2) Consists of payment to Mr. Breyer for opting out of the Company's
health insurance plan.
7
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options
granted during the fiscal year ended March 31, 1998 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Potential Realizable
Number of Percent of Total Value at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees in or Base Expiration Appreciation for
Name Granted (#) Fiscal Year Price ($/Sh) Date Option Term
- ---- ----------- ---------------- ------------ ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
5% ($) 10% ($)
Richard F. Pops 80,000 16.92 15.88 07/25/07 798,948 2,024,690
Robert A. Breyer 40,000 8.46 15.88 07/25/07 399,474 1,012,345
Raymond T. Bartus 10,000 2.12 17.38 12/12/07 109,302 276,992
Michael J. Landine 40,000 8.46 15.88 07/25/07 399,474 1,012,345
James L. Wright 20,000 4.23 15.88 07/25/07 199,737 506,173
</TABLE>
8
<PAGE> 10
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth the number of shares acquired upon
exercise of options exercised by the Named Executive Officers during the fiscal
year ended March 31, 1998, the value realized upon exercise of such options, the
number of shares issuable on exercise of options held by such persons at the end
of the last fiscal year and the value of such unexercised options as of such
date.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Pops 0 0 354,375 / 155,625 7,899,072 / 1,954,353
Robert A. Breyer 13,000 190,070 171,875 / 135,625 3,508,972 / 2,148,666
Raymond T. Bartus 0 0 84,375 / 28,125 1,760,122 / 372,616
Michael J. Landine 0 0 112,126 / 86,374 2,376,171 / 1,126,186
James L. Wright 0 0 33,750 / 51,250 668,106 / 680,969
</TABLE>
- --------------------------------
(1) Value is measured by the difference between the closing price for the
Company's Common Stock on the Nasdaq National Market on March 31, 1998, $24.875,
and the exercise price of the options.
9
<PAGE> 11
TEN-YEAR OPTION/SAR REPRICING
The following table sets forth certain information with respect to the
stock options held by the Company's Named Executive Officers that have been
repriced since the formation of the Company in 1987.
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Term
Underlying Market Price of Exercise Price Remaining
Options/SARs Stock at Time at Time of New at Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended Amendment($) Amendment($) Price($) Amendment
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard F. Pops 7/21/94 50,000(1) $3.69 $11.375 $3.69 7 years 125 days
Chief Executive 7/21/94 75,000(1) 3.69 9.00 3.69 8 years 153 days
Officer 7/21/94 35,000(1) 3.69 7.94 3.69 9 years 182 days
11/25/91 50,000 11.375 15.875 11.375 9 years 324 days
Raymond T. Bartus 7/21/94 75,000(1) 3.69 9.00 3.69 8 years 102 days
Senior Vice 7/21/94 15,000(1) 3.69 9.00 3.69 8 years 153 days
President,
Preclinical
Research and
Development
Michael J. Landine 7/21/94 25,000(1) 3.69 11.375 3.69 7 years 125 days
Senior Vice 7/21/94 20,000(1) 3.69 9.00 3.69 8 years 153 days
President, 7/21/94 21,000(1) 3.69 7.94 3.69 9 years 182 days
Chief Financial 11/25/91 25,000 11.375 15.875 11.375 9 years 324 days
Officer and
Treasurer
</TABLE>
- ---------------
(1) All options indicated were exchanged for options to purchase 25% fewer
shares.
10
<PAGE> 12
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Under an agreement between Mr. Pops and the Company, dated February 7,
1991, in the event Mr. Pops' employment with the Company is terminated for any
reason other than as a result of his taking certain actions against or that have
a significant deleterious effect on the Company, Mr. Pops shall be entitled to
receive a payment equal to two-thirds of his then-current annual base salary.
Under an agreement between Mr. Breyer and the Company, dated June 13, 1994, in
the event Mr. Breyer's employment with the Company is terminated for any reason
other than as a result of his taking certain actions against or that have a
significant deleterious effect on the Company, Mr. Breyer shall be entitled to
receive payments at the monthly rate of his then-current annual base salary for
up to nine months. The Company and Mr. Landine have agreed that, in the event
Mr. Landine's employment with the Company is terminated for any reason other
than as a result of his taking certain actions against or that have a
significant deleterious effect on the Company, Mr. Landine shall be entitled to
receive payments for the following six months aggregating 50% of his
then-current annual salary.
Messrs. Pops and Landine and Dr. Bartus have been granted LSARs in
connection with a portion of the stock options previously granted to them. Each
LSAR provides that after the occurrence of one of several triggering events,
including a reorganization or merger of the Company, a sale of the assets of the
Company or the acquisition by a person or group of more than 51% of the Common
Stock of the Company, the optionee will receive an amount in cash equal to the
amount by which the fair market value per share of the Company's Common Stock
issuable upon exercise of the option on the date such a triggering event occurs
exceeds the exercise price per share of the option to which the LSAR relates. A
triggering event shall be deemed to have occurred only when the fair market
value of the shares subject to the underlying option exceeds the exercise price
of such option. When a triggering event occurs, the related option will cease to
be exercisable.
COMPENSATION OF DIRECTORS
Each non-employee director automatically receives 2,500 stock options under
the Stock Option Plan for Non-Employee Directors each year on the date of the
Company's annual meeting of shareholders. Such options are exercisable at the
fair market value of the Company's Common Stock on the date such options are
granted and vest in full six (6) months following their grant. Except for such
stock options, directors do not receive compensation for services on the Board
of Directors or any committee thereof. All of the directors, however, are
reimbursed for their expenses for each Board and committee meeting attended. In
addition, Floyd E. Bloom, Alexander Rich, Paul Schimmel and Michael A. Wall
receive consulting fees from Alkermes and Robert S. Langer receives consulting
fees from Alkermes Controlled Therapeutics, Inc. ("ACTI"), a wholly owned
subsidiary of the Company. During the fiscal year ended March 31, 1998, Alkermes
paid consulting fees to Drs. Bloom, Rich and Schimmel and Mr. Wall aggregating
$30,000, $30,000, $48,000 and $80,000, respectively, and ACTI paid consulting
fees to Professor Langer aggregating $86,572. Consulting fees are currently
being paid to each of Drs. Bloom and Rich at the rate of $2,500 per month, to
Dr. Schimmel at the rate of $4,000 per month, to Mr. Wall at the rate of $6,667
per month and to Professor Langer at the rate of $7,214 per month. Alkermes
believes that the terms of such consulting arrangements are no less favorable to
Alkermes and ACTI than those they could have received from an independent third
party.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, the Compensation Committee consisted of
John K. Clarke, Robert S. Langer, Paul Schimmel and Michael A. Wall. The
Compensation Sub-Committee consists of John K. Clarke and Paul Schimmel. Mr.
Wall and Dr. Schimmel are consultants to Alkermes and Professor Langer is a
consultant to ACTI. See "Compensation of Directors."
11
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is responsible for reviewing
and establishing the compensation, and the Compensation Sub-Committee is
responsible for reviewing and establishing compensation in the form of stock
options or restricted stock awards, of the Company's executive officers.
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation program is designed to attract, retain
and motivate experienced and well qualified executive officers who will promote
the Company's research and product development efforts. In establishing
executive compensation levels, the Committee is guided by a number of
considerations. Because the Company is still in the process of developing its
portfolio of product candidates, and because of the volatile nature of
biotechnology stocks, the Committee believes that traditional performance
criteria, such as revenue growth, profit margins and stock price are
inappropriate for evaluating and rewarding the efforts of the Company's
executive officers. Rather, the Committee bases executive compensation on the
achievement of certain product development, corporate partnering, financial,
strategic planning and other goals of the Company and the executive officer. In
establishing compensation levels, the Committee also evaluates each officer's
individual performance using certain subjective criteria, including an
evaluation of each officer's initiative, contribution to overall corporate
performance and managerial ability. No specific numerical weight is given to any
of the above-noted subjective or objective performance criteria. In making its
evaluations, the Committee consults on an informal basis with other members of
the Board and, with respect to officers other than the Chief Executive Officer,
reviews the recommendations of the Chief Executive Officer.
Another consideration which affects the Committee's decisions regarding
executive compensation is the high demand for well-qualified personnel in the
biotechnology industry. Given such demand, the Committee strives to maintain
compensation levels which are competitive with the compensation of other
executives in the industry. To that end, the Committee reviews data obtained
from a generally available outside survey of compensation and benefits in the
biotechnology industry and from proxy statements or personal knowledge regarding
executive compensation at a limited number of comparable companies, some of
which are included in the Nasdaq Pharmaceutical Index shown in the Performance
Graph on page 16.
A third factor which affects compensation levels is the Committee's belief
that stock ownership by management is beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value. In accordance
with such belief, the Committee and the Compensation Sub-Committee seek to
provide a significant portion of executive compensation in the form of stock
options. The Committee and the Compensation Sub-Committee have not, however,
targeted a range or specific number of options for each executive position, but
makes their decisions based on the above-mentioned survey and the general
experience of the Committee and the Compensation Sub-Committee members.
12
<PAGE> 14
COMPENSATION MIX
The Company's executive compensation packages generally include three
components: base salary; a discretionary annual cash bonus; and stock options.
The Committee generally reviews, and makes any changes to, the base salary and
bonus of each executive officer as of the beginning of each calendar year.
Base Salary
The Committee seeks to establish base salaries which are competitive for
each position and level of responsibility with those of executive officers at
various other biotechnology companies of comparable size and stage of
development.
Discretionary Cash Bonus
The Committee believes that discretionary cash bonuses are useful on a case
by case basis to motivate and reward executive officers. Bonuses for executive
officers are not guaranteed, but are awarded from time to time only in the
discretion of the Committee. Criteria for bonuses for executive officers range
from success in attracting equity capital to success in conducting clinical
trials to success in entering into new and expanded collaborations.
Stock Options
Grants of stock options under the Company's stock option award plan are
designed to promote the identity of the long-term interests between the
Company's executives and its shareholders and to assist in the retention of
executives. Since stock options granted by the Company generally become
exercisable over a four-year period, their ultimate value is dependent upon the
long-term appreciation of the Company's stock price and the executive's
continued employment with the Company. In addition, grants of stock options may
result in an increase in executive officers' equity interests in the Company,
thereby providing such persons with the opportunity to share in the future value
they are responsible for creating.
When granting stock options, the Committee and the Compensation
Sub-Committee consider the relative performance and contributions of each
officer compared to that of other officers within the Company with similar
levels of responsibility. The number of options granted to each executive
officer is generally determined by the Committee and the Compensation
Sub-Committee on the basis of the general experience and subjective judgment of
its members.
Section 162(m) of the Code limits the deductibility of annual compensation
over $1 million to the Chief Executive Officer and the other Named Executive
Officers unless certain conditions are met. The Company's Chief Executive
Officer and the other Named Executive Officers have not received annual
compensation over $1 million, and the Company has not yet determined what
measures, if any, it should take to comply with Section 162.
13
<PAGE> 15
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing Mr. Pops' compensation package, the Committee seeks to
maintain a level of total current compensation that is competitive with that of
chief executives of certain other companies in the biotechnology industry at
comparable stages of development. In addition, in order to align Mr. Pops'
interests with the long-term interests of the Company's shareholders, the
Committee and the Compensation Sub-Committee attempt to make a significant
portion of the value of his total compensation dependent on the long-term
appreciation of the Company's stock price.
At the Company's current stage of development, the Committee believes that
Mr. Pops' performance as Chief Executive Officer of the Company must be
evaluated almost exclusively using subjective criteria, including the
Committee's evaluation of the Company's progress in attracting and retaining
senior management, identifying new product candidates, identifying and securing
corporate collaborators for the development of product candidates, identifying
and acquiring new product development and technology opportunities, advancing
the Company's existing product candidates through the complex drug development
and regulatory approval process and raising the necessary capital to fund its
research and development efforts.
In evaluating and establishing Mr. Pops' current compensation package, the
Committee considered the following accomplishments of the Company during
calendar 1997:
In the first quarter of 1997, the Company successfully completed the sale
of 2,000,000 shares of its Common Stock to ALZA Corporation at $25 per share,
with net proceeds to the Company of approximately $49.7 million. In addition,
during the year the Company successfully obtained $6.5 million in equipment
loans from a bank.
In March 1997, the Company announced results of its U.S. Phase II clinical
trial of intravenous Cereport(TM) (formerly known as RMP-7(TM)) and carboplatin.
Based on this trial and the Company's two European Phase II clinical trials of
intravenous Cereport and carboplatin, the Company made a decision to proceed
into a global Phase III clinical trial of intravenous Cereport and carboplatin
in patients with newly-diagnosed brain tumors. The Company also completed a
Phase II clinical trial of intra-arterial Cereport during the year. In October,
the Company entered into an agreement with ALZA to develop and commercialize
Cereport. ALZA made a $10 million upfront payment to the Company to fund
clinical development; in return, ALZA will have the option to acquire exclusive
worldwide commercialization rights to Cereport.
In addition, during 1997, the Company completed a multi-center Phase II
clinical trial of ProLease(R) hGH in growth hormone deficient children. As a
result, in December 1997 the Company and Genentech, Inc. commenced a pivotal
Phase III clinical trial in the same indication. In connection with the decision
to proceed to Phase III, the Company began designing a 30,000 square foot GMP
(good manufacturing practices) ProLease production facility in Cambridge,
Massachusetts to support the anticipated commercial launch of ProLease hGH.
In August 1997, the Company entered into a supply agreement with Janssen
Pharmaceutica International, for commercial quantities of Alkermes' Medisorb(TM)
injectable sustained release formulation of a Janssen proprietary product. As a
result of the signing of the agreement, Alkermes began a 20,000 square foot
expansion of its GMP manufacturing facility in Wilmington, Ohio. During the
year, the Company successfully manufactured clinical trial material for a
multi-center Phase II clinical trial which was started in 1997 by Janssen.
14
<PAGE> 16
Given the significant role played by Mr. Pops in each of the above-noted
accomplishments, the Committee increased Mr. Pops' annual base salary effective
January 1, 1998 from $320,000 to $350,000 and granted Mr. Pops a cash bonus of
$150,000. As additional recognition of Mr. Pops' efforts in 1997, and in
furtherance of the Committee's belief that a significant portion of Mr. Pops'
total compensation should be dependent on the long-term appreciation of the
Company's stock price, in July 1997 the Committee granted Mr. Pops options to
purchase 80,000 shares of Common Stock, which was subsequently ratified by the
Compensation Sub-Committee. The Committee believes that each of these actions
was particularly appropriate given Mr. Pops' performance during calendar 1997
and in order to maintain his compensation at a competitive level compared to
that of the chief executive officers of other similarly sized and positioned
biotechnology companies.
Compensation Committee
John K. Clarke Paul Schimmel
Robert S. Langer Michael A. Wall
Compensation Sub-Committee
John K. Clarke Paul Schimmel
15
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock for the last five fiscal
years, with the cumulative total return on the Nasdaq Stock Market (U.S.) Index
and the Nasdaq Pharmaceutical Index, which includes biotechnology companies. The
comparison assumes $100 was invested on March 31, 1993 in the Company's Common
Stock and in each of the foregoing indices and further assumes reinvestment of
any dividends. The Company did not declare or pay any dividends during the
comparison period.
<TABLE>
<CAPTION>
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Alkermes, Inc. 100.00 87.50 34.38 114.06 175.00 310.94
Nasdaq Stock Market 100.00 107.94 120.07 163.03 181.21 275.21
(U.S. Index)
Nasdaq Pharmaceutical 100.00 100.99 100.61 177.38 162.38 194.23
Index
</TABLE>
16
<PAGE> 18
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of June 10, 1998 by (i) each person
who is known by the Company to be the owner of 5% or more of the Company's
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers, and (iv) all the directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percentage
Owned Beneficially Owned(1)
----- ---------------------
<S> <C> <C>
ALZA Corporation....................................................... 2,000,000 9.48%
950 Page Mill Road
Palo Alto, CA 94303
Amerindo Investment Advisors Inc.(2)................................... 2,465,000 11.69
One Embarcadero, Suite 2300
San Francisco, CA 94111
FMR Corporation(3)..................................................... 1,142,800 5.42
82 Devonshire Street
Boston, MA 02109
Floyd E. Bloom(4)...................................................... 168,500 *
Robert A. Breyer(5).................................................... 254,375 1.19
John K. Clarke(6)...................................................... 29,468 *
Robert S. Langer(7).................................................... 173,689 *
Richard F. Pops(8)..................................................... 398,841 1.86
Alexander Rich(9)...................................................... 186,700 *
Paul Schimmel(9)....................................................... 303,700 1.44
Michael A. Wall(10).................................................... 457,350 2.17
Raymond T. Bartus(11).................................................. 92,875 *
Michael J. Landine(12)................................................. 185,775 *
James L. Wright (13)................................................... 42,500 *
All directors and executive officers as a group (14 persons)(14)....... 2,402,798 10.86
</TABLE>
- ----------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) As of June 10, 1998, there were 21,094,353 shares of the Company's
Common Stock outstanding.
(2) Information is as of December 31, 1997. Amerindo Investment Advisors
Inc. holds these shares in its capacity as investment advisor for
various fiduciary accounts.
(3) Information is as of December 31, 1997. FMR Corporation holds these
shares in its capacity as investment advisor for various fiduciary
accounts.
(4) Includes 163,500 shares of Common Stock held by The Floyd E. Bloom
Charitable Trust, The Corey Bloom Family Trust and The Jody Corey-Bloom
Charitable Trust, of which Dr. Bloom is a Trustee. Also
17
<PAGE> 19
includes 5,000 shares of Common Stock subject to options which will
become exercisable within 60 days of June 10, 1998.
(5) Consists of 239,375 shares of Common Stock subject to options which are
exercisable or will become exercisable within 60 days of June 10, 1998.
(6) Includes 15,000 shares of Common Stock subject to options which will
become exercisable within 60 days of June 10, 1998. Also includes 850
shares of Common Stock issuable upon exercise of warrants which are
exercisable.
(7) Includes 167,857 shares of Common Stock held by The Wetmann Trust (the
"Trust"). Professor Langer is a beneficiary of the Trust, but has no
voting or investment power with respect to the shares held by the
Trust. Also includes 832 shares of Common Stock held by a trust, of
which Professor Langer's wife is trustee, for the benefit of his
children. Also includes 5,000 shares of Common Stock subject to options
which will become exercisable within 60 days of June 10, 1998.
(8) Includes 386,250 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of June 10,
1998.
(9) Includes 5,000 shares of Common Stock subject to options which will
become exercisable within 60 days of June 10, 1998. Also includes 1,700
shares of Common Stock issuable upon exercise of warrants which are
exercisable.
(10) Includes 5,000 shares of Common Stock subject to options which will
become exercisable within 60 days of June 10, 1998.
(11) Includes 86,875 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of June 10,
1998.
(12) Includes 130,875 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of June 10,
1998.
(13) Represents shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of June 10,
1998.
(14) Includes 1,034,750 shares of Common Stock subject to options or
issuable upon exercise of warrants which are exercisable or which will
become exercisable within 60 days of June 10, 1998. Also includes
332,189 shares of Common Stock held in trust.
18
<PAGE> 20
CERTAIN TRANSACTIONS
STOCK OPTIONS AND AWARDS
During the last fiscal year, each executive officer and director was
granted options to purchase shares of Common Stock pursuant to the Omnibus Plan
and the Stock Option Plan for Non-Employee Directors, respectively.
PRODUCT DEVELOPMENT AGREEMENT WITH ALKERMES CLINICAL PARTNERS, L.P.
Pursuant to a Product Development Agreement dated March 6, 1992 between
the Company and Alkermes Clinical Partners, L.P. (the "Partnership"), the
Company conducts certain research and development on behalf of the Partnership.
Alkermes Development Corporation II ("ADC II"), a wholly owned subsidiary of the
Company, is the general partner of the Partnership. Richard F. Pops, a director
and the Chief Executive Officer of the Company, is a director and the President
and Chief Executive Officer of ADC II. Until funding was completed in the
quarter ended June 30, 1996, the Company was reimbursed by the Partnership for
its actual costs incurred in conducting such research and development, and also
received a management fee of 10% of such costs. For the fiscal year ended March
31, 1998, the Company recorded no revenue from the Partnership pursuant to the
Product Development Agreement. Since the completion of funding from the
Partnership, Alkermes has used its own resources, and intends to continue to use
its own resources, to develop Cereport, but may be forced to seek alternative
sources of funding, including additional collaborators.
OTHER BUSINESS
The Board of Directors does not intend to present to the Meeting any
business other than the election of directors and the approval of the amendment
to the Omnibus Plan. If any other matter is presented to the Meeting which under
applicable proxy regulations need not be included in this Proxy Statement or
which the Board of Directors did not know a reasonable time before this
solicitation would be presented, the persons named in the accompanying proxy
will have discretionary authority to vote proxies with respect to such matter in
accordance with their best judgment.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, independent auditors, audited the consolidated
financial statements of the Company for the fiscal year ended March 31, 1998.
Representatives of Deloitte & Touche LLP are expected to attend the Meeting,
will have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions. The Board of
Directors has selected Deloitte & Touche LLP as the independent auditors to
audit the Company's consolidated financial statements for the fiscal year ending
March 31, 1999.
DEADLINE FOR SHAREHOLDERS PROPOSALS
The Company must receive any proposal which a shareholder wishes to
submit at the 1999 annual meeting of shareholders before March 1, 1999 if the
proposal is to be considered by the Board of Directors for inclusion in the
proxy material for that meeting.
19
<PAGE> 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of
the Company's Common Stock, to file with the Securities and Exchange Commission
("SEC") initial reports of ownership and reports of changes in ownership of
Common Stock. Executive officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. To the Company's knowledge, based solely
on review of the copies of such reports furnished to the Company and written
representations that no other reports were required, for the fiscal year ended
March 31, 1998, all Section 16(a) filing requirements applicable to its
executive officers, directors, officers and greater than ten percent
shareholders were complied with.
By Order of the Board of Directors
Morris Cheston, Jr.
Secretary
June 29, 1998
20
<PAGE> 22
DETACH HERE
ALK00 2
PROXY PROXY
ALKERMES, INC.
CAMBRIDGE, MASSACHUSETTS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JULY 29, 1998
The undersigned shareholder of Alkermes, Inc. hereby appoints James M.
Frates and Diane Fucci, and each of them, attorneys and proxies, with power of
substitution in each of them, to vote and act for and on behalf of the
undersigned at the annual meeting of shareholders of the Company to be held at
the offices of the Company, 64 Sidney Street, Cambridge, Massachusetts 02139, at
10:00 a.m., July 29, 1998, and at all adjournments thereof, according to the
number of shares which the undersigned would be entitled to vote if then
personally present, as indicated hereon and in their discretion upon such other
business as may come before the meeting, all as set forth in the notice of the
meeting and in the proxy statement furnished herewith, copies of which have been
received by the undersigned; hereby ratifying and confirming all that said
attorneys and proxies may do or cause to be done by virtue hereof.
IT IS AGREED THAT UNLESS OTHERWISE MARKED ON THE OTHER SIDE, SAID ATTORNEYS
AND PROXIES ARE APPOINTED WITH AUTHORITY TO VOTE FOR THE DIRECTORS AND THE
PROPOSAL LISTED ON THE OTHER SIDE HEREOF.
(PLEASE FILL IN, SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE)
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE> 23
DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSALS 1 AND 2.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS 2. Proposal to approve an amendment
to the Alkermes Amended and
NOMINEES: Floyd E. Bloom, Robert A. Breyer, John Restated 1990 Omnibus Stock FOR AGAINST ABSTAIN
K. Clarke, Robert S. Langer, Richard F. Pops, Option Plan, as amended, to [ ] [ ] [ ]
Alexander Rich, Paul Schimmel and Michael A. Wall. increase to 3,250,000 the number of
shares issuable upon the exercise of
FOR ALL WITHHOLD options granted thereunder, an
NOMINEES [ ] [ ] AUTHORITY increase of 750,000 shares.
(except as FOR ALL
indicated in NOMINEES
space below)
[ ]
------------------------------------------------- MARK HERE MARK HERE IF YOU
To Withhold Authority to vote for any individual FOR ADDRESS [ ] PLAN TO ATTEND [ ]
nominee, print the nominee's name above.) CHANGE AND THE MEETING
NOTE AT LEFT JULY 29, 1998
Signature should be the same as the name printed at the left.
Executors, administrators, trustees, guardians, attorneys, and
officers of corporations should add their title when signing.
Signature: _______________________________ Date: ___________ Signature: _______________________________ Date: ___________
</TABLE>
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements of
Alkermes, Inc. on Form S-8 (File Nos. 33-44752, 33-58330, 33-97468, 333-13283
and 333-50357) of our report dated May 22, 1998, appearing in the Annual Report
on Form 10-K of Alkermes, Inc. for the year ended March 31, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K FOR
THE YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,495
<SECURITIES> 190,557
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 202,608
<PP&E> 23,076
<DEPRECIATION> (9,579)
<TOTAL-ASSETS> 220,258
<CURRENT-LIABILITIES> 18,588
<BONDS> 12,933
0
23
<COMMON> 211
<OTHER-SE> 181,430
<TOTAL-LIABILITY-AND-EQUITY> 220,258
<SALES> 0
<TOTAL-REVENUES> 31,327
<CGS> 0
<TOTAL-COSTS> 31,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,625
<INCOME-PRETAX> (9,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,771)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
