<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] 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
incorporation or organization) Identification No.)
64 Sidney Street, Cambridge, MA 02139-4136
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 494-0171
----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding as of November 4, 1998
----- -----------------------------------------
Common Stock, par value $.01 21,163,935
<PAGE> 2
ALKERMES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- September 30, 1998 and March 31, 1998
Consolidated Statements of Operations 4
- Three months ended September 30, 1998 and 1997
- Six months ended September 30, 1998 and 1997
Consolidated Statement of Shareholders' Equity 5
- Six months ended September 30, 1998
Consolidated Statements of Cash Flows 6
- Six months ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 17
EXHIBIT INDEX 18
(2)
<PAGE> 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,441,199 $ 3,495,265
Short-term investments 165,396,020 190,556,898
Prepaid expenses and other current assets 12,512,862 8,555,368
------------- -------------
Total current assets 179,350,081 202,607,531
------------- -------------
Property, Plant and Equipment:
Land 235,000 235,000
Building 3,443,024 1,275,000
Furniture, fixtures and equipment 19,613,084 14,782,341
Leasehold improvements 2,627,577 2,507,973
Construction in progress 15,354,565 4,275,985
------------- -------------
41,273,250 23,076,299
Less accumulated depreciation and amortization (11,756,448) (9,578,571)
------------- -------------
29,516,802 13,497,728
------------- -------------
Investments 11,468,185 3,422,726
------------- -------------
Other Assets 963,043 466,712
------------- -------------
Other Investments 197,850 263,400
------------- -------------
$ 221,495,961 $ 220,258,097
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,770,114 $ 7,067,972
Deferred revenue 6,483,436 7,415,980
Long-term obligations -- current portion 5,361,791 4,104,533
------------- -------------
Total current liabilities 18,615,341 18,588,485
------------- -------------
Long-Term Obligations 24,967,932 12,933,333
------------- -------------
Other Long-Term Liabilities 2,378,481 2,072,212
------------- -------------
Deferred Revenue 5,000,000 5,000,000
------------- -------------
Shareholders' Equity:
Capital stock, par value $.01 per share:
authorized 2,700,000 shares; none issued
Convertible exchangeable preferred stock, par value per share:
authorized and issued, 2,300,000 shares at September 30, 1998
and March 31, 1998 (liquidation preference of $115,000,000) 23,000 23,000
Common stock, par value $.01 per share:
authorized, 40,000,000 shares; issued 21,126,170 shares
at September 30, 1998 and 21,072,282 shares at March 31, 1998 211,262 210,723
Additional paid-in capital 311,489,631 311,213,755
Deferred compensation (55,937) (119,719)
Cumulative foreign currency translation adjustments 4,182 (10,638)
Unrealized loss on marketable securities (103,050) (37,500)
Accumulated deficit (141,034,881) (129,615,554)
------------- -------------
Total shareholders' equity 170,534,207 181,664,067
------------- -------------
$ 221,495,961 $ 220,258,097
============= =============
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE> 4
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue under
collaborative arrangements $ 9,532,901 $ 7,330,623 $ 17,200,535 $ 12,112,466
Interest income 2,630,872 1,102,563 5,222,419 2,252,117
------------ ------------ ------------ ------------
12,163,773 8,433,186 22,422,954 14,364,583
------------ ------------ ------------ ------------
Expenses:
Research and development 11,437,814 7,094,597 20,448,916 14,702,524
General and administrative 2,910,574 1,885,643 5,576,771 3,799,663
Interest expense 441,354 412,500 878,541 849,682
Acquisition of in-process research
and development -- -- 3,221,253 --
------------ ------------ ------------ ------------
14,789,742 9,392,740 30,125,481 19,351,869
------------ ------------ ------------ ------------
Net loss (2,625,969) (959,554) (7,702,527) (4,987,286)
Preferred stock dividends (1,868,750) -- (3,716,800) --
------------ ------------ ------------ ------------
Net loss attributable to common shareholders $ (4,494,719) $ (959,554) $(11,419,327) $ (4,987,286)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.21) $ (0.05) $ (0.54) $ (0.24)
============ ============ ============ ============
Weighted average number of common shares
outstanding 21,115,909 20,792,074 21,102,026 20,772,568
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE> 5
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<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, 1998 2,300,000 $23,000 21,072,282 $210,723 $311,213,755
Issuance of common stock 4/98 through 6/98 -- -- 23,594 236 134,495
Compensation relating to options granted -- -- -- -- 217,500
Amortization of compensation relating to
stock options granted and awards made -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- --
Net loss for period -- -- -- -- --
Preferred stock dividends -- -- -- -- --
------------------------------------------------------------------------
Balance, June 30, 1998 2,300,000 23,000 21,095,876 210,959 311,565,750
Issuance of common stock 7/98 through 9/98 -- -- 30,294 303 141,381
Compensation relating to options canceled -- -- -- -- (217,500)
Amortization of compensation relating to
stock options granted and awards made -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- --
Net loss for period -- -- -- -- --
Preferred stock dividends -- -- -- -- --
------------------------------------------------------------------------
Balance, September 30, 1998 2,300,000 $23,000 21,126,170 $211,262 $311,489,631
========================================================================
<CAPTION>
Cumulative Unrealized
Foreign Currency (Loss) Gain
Deferred Translation on Marketable Accumulated
Compensation Adjustments Securities Deficit Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1998 $(119,719) $(10,638) $ (37,500) $(129,615,554) $181,664,067
Issuance of common stock 4/98 through 6/98 -- -- -- -- 134,731
Compensation relating to options granted (217,500) -- -- -- --
Amortization of compensation relating to
stock options granted and awards made 40,954 -- -- -- 40,954
Unrealized gain on marketable securities -- -- 18,750 -- 18,750
Cumulative foreign currency translation
adjustments -- 1,908 -- -- 1,908
Net loss for period -- -- -- (5,076,558) (5,076,558)
Preferred stock dividends -- -- -- (1,848,050) (1,848,050)
------------------------------------------------------------------------
Balance, June 30, 1998 (296,265) (8,730) (18,750) (136,540,162) 174,935,802
Issuance of common stock 7/98 through 9/98 -- -- -- -- 141,684
Compensation relating to options canceled 217,500 -- -- -- --
Amortization of compensation relating to
stock options granted and awards made 22,828 -- -- -- 22,828
Unrealized loss on marketable securities -- -- (84,300) -- (84,300)
Cumulative foreign currency translation
adjustments -- 12,912 -- -- 12,912
Net loss for period -- -- -- (2,625,969) (2,625,969)
Preferred stock dividends -- -- -- (1,868,750) (1,868,750)
------------------------------------------------------------------------
Balance, September 30, 1998 $ (55,937) $ 4,182 $(103,050) $(141,034,881) $170,534,207
========================================================================
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE> 6
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,702,527) $ (4,987,286)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,249,690 1,525,040
Amortization of compensation relating to stock
options granted and awards made 63,782 31,228
Loss on sale of equipment -- 8,527
Adjustments to other investments -- 26
Changes in assets and liabilities:
Prepaid expenses and other current assets (3,959,476) (11,337,237)
Accounts payable and accrued expenses (289,848) (1,603,797)
Deferred revenue (932,544) 8,157,500
Other long-term liabilities 306,269 341,461
------------ ------------
Net cash used by operating activities (10,264,654) (7,864,538)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (18,208,202) (2,485,574)
Maturities of short-term investments, net 25,160,878 8,727,864
Purchases of long-term investments, net (8,045,459) (67,866)
Increase in other assets (563,000) (2,320)
------------ ------------
Net cash (used by) provided by
investing activities (1,655,783) 6,172,104
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 276,415 373,906
Proceeds from issuance of long-term debt 15,146,390 2,500,000
Payment of preferred stock dividends (3,716,800) --
Payment of long-term obligations (1,854,426) (2,083,496)
------------ ------------
Net cash provided by financing
activities 9,851,579 790,410
------------ ------------
Effect of exchange rate changes on cash 14,792 (9,727)
------------ ------------
Net decrease in cash and cash equivalents (2,054,066) (911,751)
Cash and cash equivalents, beginning of period 3,495,265 2,799,012
------------ ------------
Cash and cash equivalents, end of period $ 1,441,199 $ 1,887,261
============ ============
Supplementary information:
Interest paid $ 520,257 $ 471,634
============ ============
</TABLE>
See notes to consolidated financial statements.
(6)
<PAGE> 7
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and six month periods ended
September 30, 1998 and 1997, are unaudited and include all adjustments which, in
the opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. These financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended March 31, 1998,
which includes consolidated financial statements and notes thereto for the years
ended March 31, 1998, 1997 and 1996. In addition, the financial statements
include the accounts of Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II, Alkermes Investments, Inc., Alkermes Europe,
Ltd. and Alkermes Development Corporation II ("ADC II"), wholly owned
subsidiaries of the Company.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which the Company adopted on April 1, 1998. SFAS No. 130
requires companies to display comprehensive income and its components as part of
the Company's full set of consolidated financial statements. Comprehensive
income is comprised of net income and other comprehensive income. The
measurement and presentation of net loss will not change. Other comprehensive
income includes certain changes in equity of the Company that are excluded from
the net loss. Specifically, SFAS No. 130 requires unrealized holding gains and
losses on the Company's available-for-sale securities and cumulative foreign
currency translation adjustments, which are currently reported separately in
shareholders' equity, to be included in other comprehensive income.
Comprehensive income (loss) for the three and six months ended September 30,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $(2,625,969) $ (959,554)
Cumulative foreign currency translation adjustments 12,912 (17,565)
Unrealized loss on marketable securities (84,300) (23,437)
----------- -----------
Comprehensive loss $(2,697,357) $(1,000,556)
=========== ===========
</TABLE>
(7)
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $(7,702,527) $(4,987,286)
Cumulative foreign currency translation adjustments 14,820 (8,512)
Unrealized (loss) gain on marketable securities (65,550) 14,063
----------- -----------
Comprehensive loss $(7,753,257) $(4,981,735)
=========== ===========
The accumulated other comprehensive income (loss) is as follows:
Balance March 31, 1998 $ (48,138)
Change for the three months ended June 30, 1998 20,658
-----------
Balance June 30, 1998 (27,480)
Change for the three months ended September 30, 1998 (71,388)
-----------
Balance September 30, 1998 $ (98,868)
===========
</TABLE>
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.
3. ACQUISITION OF CERTAIN ASSETS AND TECHNOLOGY
During the quarter ended June 30, 1998, Alkermes entered into an exclusive
license agreement with ALZA Corporation ("ALZA"), a pharmaceutical and drug
delivery company, for two of ALZA's oral drug delivery technologies: RingCap(TM)
and Dose Sipping Technology ("DST"). The assets acquired included equipment to
be used in the development of the technologies. A nonrecurring charge of
approximately $3.2 million for technology licensed but not yet commercially
viable was recorded by the Company at the acquisition date. This charge
represents that portion of the acquisition price of the acquired technology that
was allocated to research and development in-process.
4. LONG-TERM DEBT
In September 1998, the Company amended its loan agreement with a bank to
increase the principal amount available thereunder up to a total of $20,000,000
and to grant a security interest in certain building, equipment and leasehold
improvements as security for the entire principal of, and interest on, the loan.
The additional principal amount of $9,000,000 made available under the first
tranche ("Tranche A") of the loan is payable over five years in equal quarterly
installments of $500,000, which will commence June 30, 1999. The additional
principal amount of $11,000,000 made available under the second tranche
("Tranche B") of the loan is payable over five years in equal quarterly
installments of $275,000 and a balloon payment of $6,325,000 due on September
30, 2003. The principal payments of Tranche B will commence June 30, 1999. The
loans bear interest at the one month LIBOR plus 1.25% (6.84375% at September 30,
1998).
In September 1998, the Company drew down approximately $6.9 million under
Tranche A and approximately $8.2 million under Tranche B. The Company can make
monthly drawdowns through March 31, 1999.
(8)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Alkermes is developing innovative pharmaceutical products based on several
proprietary drug delivery systems: ProLease(R), Cereport(TM) (formerly known as
RMP-7(TM)), Medisorb(R), RingCap(TM) and Dose Sipping Technology ("DST"). 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
its inception and expects to incur substantial additional operating losses over
the next few years. At September 30, 1998, the Company had an accumulated
deficit of approximately $141.0 million.
The Company has funded its operations primarily through public offerings and
private placements of equity securities, bank loans and payments under research
and development agreements with collaborators, including Alkermes Clinical
Partners, L.P. ("Clinical Partners"), a research and development limited
partnership whose operations commenced in April 1992. The Company intends to
develop its product candidates in collaboration with others on whom the Company
will rely for funding, development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally by the
Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company 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 clinical trials for RingCap or DST or 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, Medisorb,
RingCap and DST 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.
(9)
<PAGE> 10
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative arrangements
for the three and six months ended September 30, 1998 was $9,532,901 and
$17,200,535 compared to $7,330,623 and $12,112,466 for the corresponding periods
of the prior year. The increase in such revenue for the three and six months
ended September 30, 1998 as compared to the corresponding periods of the prior
year was mainly a result of the increased funding and milestones earned under
collaborative agreements related to the Company's ProLease, Medisorb and
Cereport technologies.
Interest income for the three and six months ended September 30, 1998 was
$2,630,872 and $5,222,419 compared to $1,102,563 and $2,252,117 for the
corresponding periods of the prior year. The increase in such income for the
three and six months ended September 30, 1998 as compared to the corresponding
periods of the prior year was primarily a result of the interest income earned
on the net proceeds of $110.5 million from the sale of 2,300,000 shares of the
Company's $3.25 convertible exchangeable preferred stock (the "Preferred Stock")
in March 1998.
The Company's total operating expenses were $14,789,742 and $26,904,228 for the
three and six months ended September 30, 1998 as compared to $9,392,740 and
$19,351,869 for the three and six months ended September 30, 1997. The Company
separately recorded a $3,221,253 nonrecurring charge in the three months ended
June 30, 1998 for DST and RingCap technologies licensed from ALZA Corporation
("ALZA") which are not yet commercially viable. Research and development
expenses for the three and six months ended September 30, 1998 were $11,437,814
and $20,448,916 compared to $7,094,597 and $14,702,524 for the corresponding
periods of the prior year. The increase in research and development expenses for
the three and six months ended September 30, 1998 as compared to the three and
six months ended September 30, 1997 was mainly the result of an increase in
salary and related benefits and other costs associated with an increase in
personnel as the Company advances its product candidates through development and
clinical trials and prepares for commercial scale manufacturing.
General and administrative expenses for the three and six months ended September
30, 1998 were $2,910,574 and $5,576,771 compared to $1,885,643 and $3,799,663
for the corresponding periods of the prior year. The increase in the three and
six months ended September 30, 1998 as compared to the three and six months
ended September 30, 1997 was mainly the result of an increase in salary and
related benefits and other costs relating to an increase in personnel, as well
as an increase in consulting costs.
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 $166.8
million at September 30, 1998 as compared to $194.1 million at March 31, 1998.
The primary uses of cash and investments were to finance the Company's
operations, capital expenditures, the payment for the license from ALZA for the
RingCap and DST technologies and the payment of the dividends on the Company's
Preferred Stock. In addition, the Company has $8 million included in Investments
which have maturities ranging from 13 to 16 months. The Company invests in cash
equivalents, U.S. Government obligations, 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.
(10)
<PAGE> 11
The Company's research and development costs to date have been financed
primarily by sales of equity securities and payments under 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 $6.5 million has been recorded as deferred
revenue at September 30, 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 to cover costs associated with
advanced clinical development. If Cereport is commercialized successfully by
ALZA, ALZA will make certain milestone payments to the Company. 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 $18.2 million for the six months ended
September 30, 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 completed the expansion of its
Medisorb manufacturing facility in Wilmington during the quarter ended June 30,
1998. The Company began construction of the new commercial scale ProLease
manufacturing facility in Cambridge in February 1998 and anticipates completing
construction in the fall of 1998. The cost for both facilities is expected to
aggregate approximately $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'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
(11)
<PAGE> 12
shorthand for calendar dates. If the Company does not identify and correct any
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 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 primarily using internal resources. The Company
cannot estimate the cost of completion of the project or establish any
contingency plan until the Company completes the second step, and there can be
no assurance that the cost of completion of the project will not be material,
that the project will be completed on a timely basis, that any contingency plans
could be promptly developed and implemented 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.
(12)
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1. ProLease Erythropoietin
Alkermes has announced that R.W. Johnson Pharmaceutical Research Institute
(PRI), a Johnson & Johnson company, has successfully completed a first probative
human study of ProLease Erythropoietin.
According to the agreement between Alkermes and PRI, Alkermes will receive a
milestone payment of $2.0 million. Following this probative study in human
volunteers, both parties also agreed to proceed with the development of an
appropriate ProLease Erythropoietin formulation.
Alkermes and PRI announced their collaboration for the development of ProLease
injectable sustained release formulations of Erythropoietin in January 1998.
2. Undisclosed Compound
Relating to a separate agreement with PRI, Alkermes has announced the mutual
termination of a collaboration with PRI for the development of a sustained
release formulation of a PRI product candidate for the treatment of
hormone-mediated disorders.
The identity of the product candidate has never been disclosed by the parties.
With the termination of the collaboration, Alkermes regains rights licensed to
PRI for the development and marketing of sustained release formulations of this
class of compounds. Alkermes first announced the collaboration in December 1996.
The objective of the collaboration was to apply the ProLease drug delivery
system to a PRI proprietary compound being developed for the treatment of
hormone-mediated disorders. A ProLease formulation of the proprietary compound
completed a human clinical trial in 1997 and demonstrated sustained release for
the intended duration of time. PRI has discontinued further development of this
compound.
3. ProLease Intron A
Alkermes has announced the mutual termination of a collaboration with
Schering-Plough Corporation for the development of a sustained release
formulation of Schering-Plough's Intron(R) A (interferon alfa-2b) product. With
the termination of the collaboration, Alkermes regains rights licensed to
Schering-Plough for the development and marketing of sustained release
formulations of alpha interferon. The collaboration began in 1992 and was
extended in 1995.
(13)
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Exhibit
------ -------
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 Company'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
Company's Report on Form 10-Q for the quarter ended
June 30, 1991).
3.1(c) Amendment to the Second Amended and Restated
Articles of Incorporation, as filed with the
Pennsylvania Secretary of State on November 1, 1991.
(Incorporated by reference to Exhibit 4.1(c) to the
Company's Report on Form 10-Q for the quarter ended
September 30, 1991).
3.1(d) Amendment to the Second Amended and Restated
Articles of Incorporation, as amended, as filed with
the Pennsylvania Secretary of State on February 12,
1993. (Incorporated by reference to Exhibit 4.1(d)
to the Company's Report on Form 10-Q for the quarter
ended December 31, 1992).
3.1(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 Company'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 Company's Report on
Form 10-Q for the quarter ended June 30, 1994).
4.1 Specimen of Common Stock Certificate of Alkermes,
Inc. (Incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-1, as
amended (File No. 33-40250)).
4.2 Specimen of Preferred Stock Certificate of Alkermes,
Inc. (Incorporated by reference to Exhibit 4.1 to
the Company'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
Company's Common Stock. (Incorporated by reference
to Exhibit 4.2 to the Company's Report on Form 10-K
for the fiscal year ended March 31, 1992).
4.4 Form of 1995 Warrant to purchase 300 shares of the
Company's Common Stock. (Incorporated by reference
to
(14)
<PAGE> 15
Exhibit 4.3 to the Company'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 Company'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 Company'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 reference to
Exhibit 4.8 to the Company'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 Company'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 Company and The First National Bank
of Boston. (Incorporated by reference to Exhibit
4.10 to the Company's Report on Form 10-Q for the
quarter ended December 31, 1994).
4.10 Stock Purchase Agreement, dated as of February 13,
1997, between the Company and ALZA Corporation.
(Incorporated by reference to Exhibit 4.5 to the
Company'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 Company'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 Company and the Initial Purchasers.
(Incorporated by reference to Exhibit 4.12 to the
Company's Report on Form 10-K for the fiscal year
ended March 31, 1998).
10.1 Third Loan Supplement and Modification Agreement,
dated as of September 24, 1998, by and among Fleet
National Bank, Alkermes Controlled Therapeutics,
Inc., Alkermes Controlled Therapeutics Inc. II and
the Company.
10.2 $11,000,000 Promissory Note, dated September 24,
1998, from the Company, Alkermes Controlled
Therapeutics, Inc.
(15)
<PAGE> 16
and Alkermes Controlled Therapeutics Inc. II
to Fleet National Bank.
10.3 $9,000,000 Promissory Note, dated September 24,
1998, from the Company, Alkermes Controlled
Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank.
27 Financial Data Schedule.
(b) The Registrant has filed no Reports on Form 8-K during the quarter ended
September 30, 1998.
(16)
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALKERMES, INC.
(Registrant)
Date: November 16, 1998 By: /s/ Richard F. Pops
-------------------------------
Richard F. Pops
Chief Executive Officer and
Director
(Principal Executive Officer)
Date: November 16, 1998 By: /s/ James M. Frates
-------------------------------
James M. Frates
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
(17)
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
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 Company'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 Company's Report on Form 10-Q for the quarter ended
June 30, 1991).
3.1(c) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State
on November 1, 1991. (Incorporated by reference to Exhibit 4.1(c)
to the Company's Report on Form 10-Q for the quarter ended
September 30, 1991).
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Company's Report on Form 10-Q
for the quarter ended December 31, 1992).
3.1(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 Company'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
Company's Report on Form 10-Q for the quarter ended June 30,
1994).
4.1 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-1, as amended (File No.
33-40250)).
4.2 Specimen of Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.1 to the Company'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 Company's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Company's Report on Form 10-K for the fiscal year ended March 31,
1992).
(18)
<PAGE> 19
4.4 Form of 1995 Warrant to purchase 300 shares of the Company's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Company's Report on Form 10-K for the fiscal year ended March 31,
1992).
4.5 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.6 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.7 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by reference to Exhibit 4.8 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.8 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.9 Warrant Agreement, dated as of November 18, 1994, by and between
the Company and The First National Bank of Boston. (Incorporated
by reference to Exhibit 4.10 to the Company's Report on Form 10-Q
for the quarter ended December 31, 1994).
4.10 Stock Purchase Agreement, dated as of February 13, 1997, between
the Company and ALZA Corporation. (Incorporated by reference to
Exhibit 4.5 to the Company'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 Company'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 Company and the Initial Purchasers. (Incorporated by reference
to Exhibit 4.12 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1998).
10.1 Third Loan Supplement and Modification Agreement, dated as of
September 24, 1998, by and among Fleet National Bank, Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics
Inc. II and the Company.
(19)
<PAGE> 20
10.2 $11,000,000 Promissory Note, dated September 24, 1998, from the
Company, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank.
10.3 $9,000,000 Promissory Note, dated September 24, 1998, from the
Company, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank.
27 Financial Data Schedule.
(20)
<PAGE> 1
Exhibit 10.1
THIRD LOAN SUPPLEMENT AND MODIFICATION AGREEMENT
This Third Loan Supplement and Modification Agreement ("this
Agreement") is made as of September 24, 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 and the below-defined Second 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 and the Second 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 and the Second 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 and the Second Loan Supplement (as so
affected, the "Ohio Mortgage"); (viii) that certain promissory note dated March
19, 1998 (the "March 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; (ix) that
certain promissory note of even date herewith in the face principal amount of
$9,000,000 (the "Tranche A September 1998 Term Note") made by the Borrowers and
payable to the order of the Bank; and (x) that certain promissory note of even
date herewith in the face principal amount of $11,000,000 (the "Tranche B
September 1998 Term Note") 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, the March 1998 Term
Note, the Tranche A September 1998 Term Note and the Tranche B September 1998
Term Note are hereinafter referred to collectively as the "Financing Documents".
Copies of the forms of the Tranche A September 1998 Term Note and the Tranche B
September 1998 Term Note are attached hereto as Exhibits 1 and 2, respectively.
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
<PAGE> 2
among the Borrowers and the Bank, and the term "Second Loan Supplement" will be
deemed to refer to that certain Second Loan Supplement and Modification
Agreement dated as of March 19, 1998.
2. SEPTEMBER 1998 TERM LOANS. (a) MAKING OF TRANCHE A SEPTEMBER 1998
TERM LOANS. Subject to the terms and conditions hereof, the Bank will make one
or more loans (the "Tranche A September 1998 Term Loans") to the Borrowers, as
the Borrowers may request, on any Business Day prior to the first to occur of
(i) the close of business on March 31, 1999 or (ii) the earlier termination,
pursuant to Section 2(m) below, of the within-described facility for Tranche A
September 1998 Term Loans. A Tranche A September 1998 Term Loan will be made not
more than once per calendar month. Each Tranche A September 1998 Term Loan will
be in such amount as may be requested by the Borrowers in order to pay or
reimburse the costs of Qualifying Equipment; provided that (i) no Tranche A
September 1998 Term Loan will be made after the close of business on March 31,
1999; (ii) the aggregate original principal amounts of all Tranche A September
1998 Term Loans will not exceed $9,000,000; and (iii) no Tranche A September
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 Tranche A September 1998 Term Loan is made (excluding
taxes, shipping, software, installation charges, training fees and other "soft
costs"). In connection with the making of each Tranche A September 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' premises
at 281 Albany Street, Cambridge, MA (in the case of Qualifying Equipment owned
by Alkermes or ACT I) or ACT II's premises in Wilmington, 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 Tranche A September 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 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 Tranche
A September 1998 Term Loan, (ii) each item of such equipment shall have been
acquired by the Borrowers within 90 days prior to the date of the Tranche A
September 1998 Term Loan financing same (except that for the purposes of the
first Tranche A September 1998 Term Loan the Borrowers may include within
Qualifying Equipment items acquired more than 90 days prior to the date of such
first Tranche A September 1998 Term Loan (but in any event after January 1,
1997) and installed at ACT II's premises in Wilmington, Ohio and/or at Alkermes'
premises at 281 Albany Street, Cambridge, MA), (iii) no such item of equipment
shall have been used to support any prior loan made by the Bank, (iv) each item
of such equipment shall have been delivered to and installed at Alkermes'
premises in Cambridge,
-2-
<PAGE> 3
MA (in the case of Qualifying Equipment owned by Alkermes or ACT I) or ACT II's
premises in Wilmington, Ohio (in the case of Qualifying Equipment owned by ACT
II) and shall have become fully operational, (v) the relevant Borrower shall
have paid in full for each item of such equipment and shall hold title to same,
free of all interests and claims of any other person or entity (other than the
security interest of the Bank), and (vi) the Bank shall hold a fully perfected
first security interest in such equipment. The Tranche A September 1998 Term
Loans will be evidenced by the Tranche A September 1998 Term Note. Each Borrower
hereby irrevocably authorizes the Bank to make or cause to be made, on a
schedule attached to the Tranche A September 1998 Term Note or on the books of
the Bank, at or following the time of the making of any Tranche A September 1998
Term Loan and of receiving any payment of principal of any Tranche A September
1998 Term Loan, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Tranche A September 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 Tranche
A September 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 Tranche A September 1998 Term Note. The Tranche A
September 1998 Term Loans will be made jointly to the Borrowers and repayment
thereof will be the joint and several obligation of the Borrowers. The Tranche A
September 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 TRANCHE A SEPTEMBER 1998 TERM LOANS. The Borrowers
shall repay (and shall be jointly and severally obligated to repay) principal of
the Tranche A September 1998 Term Loans in 17 equal consecutive quarterly
installments (each in an amount equal to 1/18th of the aggregate principal
amount of the Tranche A September 1998 Term Loans outstanding at the close of
business on March 31, 1999), commencing on June 30, 1999 and continuing on the
last Business Day of each calendar quarter thereafter, PLUS an 18th and final
installment payment due and payable on September 30, 2003 in an amount equal to
the then outstanding principal balance of the Tranche A September 1998 Term
Loans and all interest then accrued but unpaid thereon. The Borrowers may
prepay, at any time or from time to time, without premium or penalty, the whole
or any portion of each Tranche A September 1998 Term Loan which then constitutes
a Floating Rate Loan; provided that on the date of each such prepayment the
Borrowers pay all interest under the Tranche A September 1998 Term Note accrued
but unpaid to the date of payment on the Tranche A September 1998 Term Loans or
the portion thereof so prepaid. The Borrowers may prepay at any time any Tranche
A September 1998 Term Loan which is a Fixed Rate Loan; provided that (i) the
Borrowers give the Bank not less than two (2) Business Days' prior written
notice of their intent so to prepay, (ii) the Borrowers pay all interest on each
Tranche A September 1998 Term Loan (or portion thereof) so prepaid accrued to
the date of prepayment, (iii) any voluntary prepayment with respect to any such
Tranche A September 1998 Term Loan (if less than the then aggregate balances of
all Tranche A September 1998 Term Loans then outstanding) shall be in the
principal amount of at least $1,000,000, and (iv) the Borrowers shall forthwith
pay (and shall be jointly and severally obligated to pay) all amounts owing to
the Bank pursuant to the provisions of Section 2(h). Any partial prepayment of
principal of the Tranche A September 1998 Term Loans will be applied to
-3-
<PAGE> 4
installments of principal (including, without limitation, the final installment)
of the Tranche A September 1998 Term Loans thereafter coming due in inverse
order of normal maturity. Amounts paid or prepaid with respect to any Tranche A
September 1998 Term Loan are not available for reborrowing.
(c) MAKING OF TRANCHE B SEPTEMBER 1998 TERM LOANS. Subject to the terms
and conditions hereof, the Bank will also make one or more loans (the "Tranche B
September 1998 Term Loans") to the Borrowers, as the Borrowers may request, on
any Business Day prior to the first to occur of (i) the close of business on
March 31, 1999 or (ii) the earlier termination, pursuant to Section 2(m) below,
of the within-described facility for Tranche B September 1998 Term Loans. A
Tranche B September 1998 Term Loan will be made not more than once per calendar
month. Each Tranche B September 1998 Term Loan will be in such amount as may be
requested by the Borrowers in order to pay or reimburse the costs of Qualifying
Leasehold Improvements; provided that (i) no Tranche B September 1998 Term Loan
will be made after the close of business on March 31, 1999; (ii) the aggregate
original principal amounts of all Tranche B September 1998 Term Loans will not
exceed $11,000,000; and (iii) no Tranche B September 1998 Term Loan will be in
an amount in excess of 100% of the invoiced actual costs of the fixtures and
other leasehold improvements constituting the items of Qualifying Leasehold
Improvements with respect to which such Tranche B September 1998 Term Loan is
made (excluding taxes, shipping, software, installation charges, training fees
and other "soft costs"). In connection with the making of each Tranche B
September 1998 Term Loan, and as a precondition thereto, the Borrowers will
provide the Bank with: (i) invoices supporting the costs of the relevant
Qualifying Leasehold Improvements; (ii) such evidence as the Bank may reasonably
request showing that each such item of Qualifying Leasehold Improvements has
been installed at, affixed to or incorporated into Alkermes' premises at 281
Albany Street, Cambridge, MA (in the case of Qualifying Leasehold Improvements
owned by Alkermes) or ACT II's premises in Wilmington, Ohio (in the case of
Qualifying Leasehold Improvements owned by ACT II), has become fully functional,
has been paid for by the relevant Borrower and is owned by the relevant Borrower
(being Alkermes or ACT II) 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 and except for any leasehold improvements which are so incorporated
into the relevant real estate that same become the property of the owner of such
real estate); (iii) except in the case of leasehold improvements which are so
incorporated into the relevant real estate that same become the property of the
owner of such real estate, executed Uniform Commercial Code financing statements
reflecting the items of Qualifying Leasehold Improvements with respect to which
such Tranche B September 1998 Term Loan is being made and an appropriate
supplement to the Security Agreement reflecting such items; and (iv) except in
the case of leasehold improvements which are so incorporated into the relevant
real estate that same become the property of the owner of such real estate,
evidence satisfactory to the Bank that the Qualifying Leasehold Improvements are
fully insured against casualty loss, with insurance naming the Bank as secured
party and first loss payee. As used herein, "Qualifying Leasehold Improvements"
means fixtures or other leasehold improvements purchased by the Borrowers for
use in connection with the Borrowers' business which meet all of the following
criteria: (i) such fixtures or other leasehold improvements consist of one of
the items shown on the Leasehold Improvements List heretofore delivered by the
Borrowers to the Bank or have otherwise been approved by the Bank for use in
-4-
<PAGE> 5
supporting a Tranche B September 1998 Term Loan, (ii) each item of such
Qualifying Leasehold Improvements shall have been acquired by the Borrowers
within 90 days prior to the date of the Tranche B September 1998 Term Loan
financing same (except that for the purposes of the first Tranche B September
1998 Term Loan the Borrowers may include within Qualifying Leasehold
Improvements items acquired more than 90 days prior to the date of such first
Tranche B September 1998 Term Loan (but in any event after January 1, 1997) and
installed at, affixed to or incorporated into ACT II's premises in Wilmington,
Ohio and/or installed at, affixed to or incorporated into Alkermes' premises at
281 Albany Street, Cambridge, MA), (iii) no such fixtures or other leasehold
improvements shall have been used to support any prior loan made by the Bank,
(iv) each item of such fixtures and other leasehold improvements shall have been
delivered to and installed at Alkermes' premises in Cambridge, MA (in the case
of Qualifying Leasehold Improvements owned by Alkermes) or ACT II's premises in
Wilmington, Ohio (in the case of Qualifying Leasehold Improvements owned by ACT
II) and shall have become fully functional, (v) the relevant Borrower shall have
paid in full for each item of such fixtures and other leasehold improvements and
shall hold title to same, free of all interests and claims of any other person
or entity (other than the security interest of the Bank and except for any
leasehold improvements so incorporated into the relevant real estate that same
become the property of the owner of such real estate), and (vi) except in the
case of leasehold improvements so incorporated into the relevant real estate
that same become the property of the owner of such real estate, the Bank shall
have a fully perfected first security interest in all such fixtures and other
leasehold improvements. The Tranche B September 1998 Term Loans will be
evidenced by the Tranche B September 1998 Term Note. Each Borrower hereby
irrevocably authorizes the Bank to make or cause to be made, on a schedule
attached to the Tranche B September 1998 Term Note or on the books of the Bank,
at or following the time of the making of any Tranche B September 1998 Term Loan
and of receiving any payment of principal of any Tranche B September 1998 Term
Loan, an appropriate notation reflecting such transaction and the then aggregate
unpaid principal balance of the Tranche B September 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 Tranche B September
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 Tranche B September 1998 Term Note. The Tranche B
September 1998 Term Loans will be made jointly to the Borrowers and repayment
thereof will be the joint and several obligation of the Borrowers. The Tranche B
September 1998 Term Loans will be used by the Borrowers solely to pay (or to
reimburse the Borrowers for) the costs of acquisition of Qualifying Leasehold
Improvements.
(d) REPAYMENT OF TRANCHE B SEPTEMBER 1998 TERM LOANS. The Borrowers
shall repay (and shall be jointly and severally obligated to repay) principal of
the Tranche B September 1998 Term Loans in 17 equal consecutive quarterly
installments (each in an amount equal to 1/40th of the aggregate principal
amount of Tranche B September 1998 Term Loans outstanding at the close of
business on March 31, 1999), commencing on June 30, 1999 and continuing on the
last Business Day of each calendar quarter thereafter, PLUS an 18th and final
"balloon" payment due and payable on September 30, 2003 in an amount equal to
the then outstanding principal balance of the Tranche B September 1998 Term
Loans and all interest then accrued but unpaid thereon. The Borrowers may
prepay, at any time or from time to time,
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<PAGE> 6
without premium or penalty, the whole or any portion of each Tranche B September
1998 Term Loan which then constitutes a Floating Rate Loan; provided that on the
date of each such prepayment the Borrowers pay all interest under the Tranche B
September 1998 Term Note accrued but unpaid to the date of payment on the
Tranche B September 1998 Term Loans or the portion thereof so prepaid. The
Borrowers may prepay at any time any Tranche B September 1998 Term Loan which is
a Fixed Rate Loan; provided that (i) the Borrowers give the Bank not less than
two (2) Business Days' prior written notice of their intent so to prepay, (ii)
the Borrowers pay all interest on each Tranche B September 1998 Term Loan (or
portion thereof) so prepaid accrued to the date of payment, (iii) any voluntary
prepayment with respect to any such Tranche B September 1998 Term Loan (if less
than the then aggregate balances of all Tranche B September 1998 Term Loans then
outstanding) shall be in the principal amount of at least $1,000,000, and (iv)
the Borrowers shall forthwith pay (and shall be jointly and severally obligated
to pay) all amounts owing to the Bank pursuant to the provisions of Section
2(h). Any partial prepayment of principal of the Tranche B September 1998 Term
Loans will be applied to installments of principal (including, without
limitation, the final "balloon" payment) of the Tranche B September 1998 Term
Loans thereafter coming due in inverse order of normal maturity. Amounts paid or
prepaid with respect to any Tranche B September 1998 Term Loan are not available
for reborrowing.
(e) INTEREST RATE FOR SEPTEMBER 1998 TERM LOANS. Except as otherwise
provided below in this Section 2(e), interest on the September 1998 Term Loans
will be payable at a fluctuating rate per annum (the "Floating Rate") which
shall at all times be equal to the Prime Rate as in effect from time to time,
with a change in such rate of interest to become effective on each day when a
change in the Prime Rate becomes effective. Subject to the conditions set forth
herein, the Borrowers may elect (i) that any September 1998 Term Loan to be made
under Section 2(a) or Section 2(c) will be made as a LIBOR Loan or (ii) that all
or a portion of any September 1998 Term Loan which is outstanding as a Floating
Rate Loan (but not any COF Loan) be converted to a LIBOR Loan. Each such
election shall be made by the Borrowers giving to the Bank a written notice
received by the Bank within the time period and containing the information
described in the next following sentence (a "LIBOR Borrowing/Conversion
Notice"). The LIBOR Borrowing/Conversion Notice must be received by the Bank no
later than 10:00 a.m. (Boston time) on that day which is two Business Days prior
to the date of the proposed borrowing or the proposed conversion, as the case
may be, must specify that the making of a LIBOR Loan is being requested or a
conversion to a LIBOR Loan is being requested, as the case may be, must state
the amount (which shall be $1,000,000 or an integral multiple of $100,000 in
excess of $1,000,000) of the LIBOR Loan requested to be made or into which a
Floating Rate Loan is to be converted and must specify the proposed commencement
date and the duration (one month, two months or three months) of the relevant
Interest Period. Notwithstanding anything provided elsewhere in this Agreement,
the Borrowers may not elect any Interest Period with respect to any principal
installment of a September 1998 Term Loan if such Interest Period would end
after the due date of such principal installment. Any LIBOR Borrowing/Conversion
Notice shall, upon receipt by the Bank, become irrevocable and binding on the
Borrowers, and the Borrowers shall, upon demand and receipt of a Bank
Certificate with respect thereto, forthwith indemnify (and shall be jointly and
severally obligated to indemnify) the Bank against any loss or expense incurred
by the Bank as a result of any failure by the
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<PAGE> 7
Borrowers to obtain or maintain any requested LIBOR Loan, including, without
limitation, any loss or expense incurred by reason of the liquidation or
redeployment of deposits or other funds acquired by the Bank to fund or maintain
such LIBOR Loan. At the end of any Interest Period for any LIBOR Loan, the
principal amount represented by such LIBOR Loan shall become a Floating Rate
Loan, unless continued as a LIBOR Loan to the extent and on the terms and
conditions contained in this Agreement by delivery to the Bank of a new LIBOR
Borrowing/Conversion Notice conforming to the requirements set forth above in
this Section. Notwithstanding any other provision of this Agreement, the Bank
need not make any LIBOR Loan at any time when there exists any Default or Event
of Default.
At any time, the Borrowers may convert to a COF Loan all (but not less
than all) of the September 1998 Term Loans then outstanding and not previously
so converted. If the Borrowers desire such conversion to a COF Loan, they must
notify the Bank of same not less than two Business Days prior to the proposed
conversion and request that the Bank offer with respect to such September 1998
Term Loans a rate of interest which shall be fixed (subject to adjustment as
provided in this Agreement) for the period commencing on the date of such
conversion and ending on the final maturity date applicable to such September
1998 Term Loans (a "Fixed Rate Period"). Following such request for a fixed
rate, the Bank will endeavor to offer a proposed COF Interest Rate for such
outstanding September 1998 Term Loans not previously so converted at a rate
determined as provided below and under conditions determined by the Bank in its
sole discretion. The Borrowers may elect to accept such offer in the manner and
within the time period specified in such offer. Any such election shall be
irrevocable on the part of the Borrowers. Upon such election, the interest rate
payable with respect to such outstanding September 1998 Term Loans not
previously so converted shall be fixed (subject to adjustment as provided in
this Agreement) for the relevant Fixed Rate Period and at the rate communicated
by the Bank for this purpose as its proposed COF Interest Rate. Any proposed COF
Interest Rate offered under this paragraph with respect to the September 1998
Term Loans will be a rate per annum equal to the sum of (i) 1.25% per annum PLUS
(ii) the COF Rate for the applicable Fixed Rate Period (expressed as a per annum
rate); provided, however, that the COF Interest Rate shall in no event exceed
the maximum rate permitted by applicable law. In any event, there will at no
time be more than four Fixed Rate Periods in effect with respect to the
September 1998 Term Loans or any of same.
No Borrower shall have any claim against the Bank with respect to
computation of any proposed COF Interest Rate. If any Borrower is dissatisfied
with any proposed COF Interest Rate, the Borrowers' sole remedy with respect
thereto shall be not to accept such proposed COF Interest Rate within the
applicable time period, and thus to cause interest on the relevant September
1998 Term Loans to continue to be payable at the Floating Rate (subject to the
ability of the Borrowers to elect LIBOR Loans as hereinabove provided).
Notwithstanding the foregoing provisions hereof, the Bank need not offer a
proposed COF Interest Rate for any period of time with respect to which the
Bank, in its sole discretion, determines that there are no recognized sources of
funding available to it for such time period or principal amount or that the
cost of funds with respect thereto would be unreasonably high or if there then
exists any Default or Event of Default.
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<PAGE> 8
(f) INTEREST PAYMENTS ON SEPTEMBER 1998 TERM LOANS. The Borrowers
will pay interest on the principal amount of the September 1998 Term Loans
outstanding from time to time, from the date hereof until payment of the
September 1998 Term Loans and the September 1998 Term Notes in full and the
termination of this Agreement. Interest on Floating Rate Loans and COF Loans
will be payable monthly in arrears on the first Business Day of each month.
Interest on each LIBOR Loan will be paid in arrears on the applicable Interest
Payment Date. In any event, interest on each September 1998 Term Loan shall also
be paid on the date of payment of such September 1998 Term Loan in full.
Interest on Floating Rate Loans shall be payable at the Floating Rate. The rate
of interest payable on any LIBOR Loan will be the LIBOR Interest Rate applicable
thereto. The rate of interest payable on any COF Loan will be the COF Interest
Rate applicable thereto. In any event, overdue principal of any September 1998
Term Loan and, to the extent permitted by law, overdue interest on any September
1998 Term Loan 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 Prime Rate,
compounded monthly and payable on demand.
(g) RATE DETERMINATION PROTECTION. In the event that:
(i) the Bank shall determine that, by reason of
circumstances affecting the London interbank market or
otherwise, adequate and reasonable methods do not exist for
ascertaining the LIBOR Interest Rate which would otherwise be
applicable during any Interest Period, or
(ii) the Bank shall determine that:
(A) the making or continuation of any LIBOR Loan has
been made impracticable or unlawful by (1) the
occurrence of any contingency that materially and
adversely affects the London interbank market or (2)
compliance by the Bank with any applicable law or
governmental regulation, guideline or order or
interpretation or change thereof by any governmental
authority charged with the interpretation or
administration thereof or with any request or
directive of any such governmental authority (whether
or not having the force of law); or
(B) LIBOR (as adjusted to take into account any
applicable Reserve Rate) will not, in the reasonable
determination of the Bank, adequately and fairly
reflect the cost to the Bank of funding LIBOR Loans
for such Interest Period
then the Bank shall forthwith give notice of such
determination (which shall be conclusive and binding on the
Borrowers) to the Borrowers. In such event the obligation of
the Bank to make LIBOR Loans shall be suspended until the Bank
determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Bank shall notify
the Borrowers.
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<PAGE> 9
(h) PREPAYMENT OF FIXED RATE LOANS. The following provisions of
this Section 2(h) shall be effective only with respect to Fixed Rate Loans: As
to any Fixed Rate Loan, the Borrowers shall have the right (subject to the
payment of the yield maintenance fee described below) to prepay such Fixed Rate
Loan at any time. If, due to acceleration of any September 1998 Term Note or due
to voluntary or mandatory repayment or prepayment or due to any other reason,
the Bank receives payment of any principal of a LIBOR Loan on any date prior to
the last day of the relevant Interest Period or receives payment of all or any
portion of any installment of a COF Loan prior to the regularly scheduled due
date for such installment or if any LIBOR Loan is converted to a COF Loan or to
a Floating Rate Loan (which conversion will not in any event occur except
pursuant to the second paragraph of Section 2(e) above or pursuant to Section
2(j) below), the Borrowers shall, upon demand and receipt of a Bank Certificate
from the Bank with respect thereto, pay (and shall be jointly and severally
obligated to pay) forthwith to the Bank a yield maintenance fee in an amount
computed as follows: The current rate for United States Treasury securities
(bills on a discounted basis shall be converted to a bond equivalent) with a
maturity date closest to the last day of the Interest Period applicable to the
affected LIBOR Loan (or, as to any prepayment of any installment of a COF Loan,
the due date of the installment so prepaid) shall be subtracted from the "cost
of funds" component of the fixed rate for the relevant Fixed Rate Loan in effect
at the date of prepayment or conversion. If the result is zero or a negative
number, there shall be no yield maintenance fee. If the result is a positive
number, then the resulting percentage shall be multiplied by the amount of the
principal balance being prepaid. The resulting amount shall be divided by 360
and multiplied by the number of days remaining in the relevant Interest Period
(or, as to any prepayment of any installment of a COF Loan, the number of days
remaining until the due date of the installment so prepaid). Said amount shall
be reduced to present value calculated by using the number of days remaining in
the relevant Interest Period (or, as to any prepayment of any installment of a
COF Loan, the number of days remaining until the due date of the installment so
prepaid) and by using the above-referenced United States Treasury security rate
as the discount rate. The resulting amount shall be the yield maintenance fee
due to the Bank upon prepayment or conversion of the applicable Fixed Rate Loan.
Any acceleration of a Fixed Rate Loan due to an Event of Default will give rise
to a yield maintenance fee calculated with the respect to such Fixed Rate Loan
on the date of such acceleration in the same manner as though the Borrowers had
exercised a right of prepayment at that date, such yield maintenance fee being
due and payable at that date. As to the September 1998 Term Loans, the
provisions of this Section 2(h) are in lieu of the last paragraph of Section 1.6
of the Letter Agreement.
(i) INCREASED COSTS; CAPITAL ADEQUACY.
(i) If the adoption, effectiveness or phase-in, after the
date hereof, of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
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<PAGE> 10
(A) shall subject the Bank to any Imposition or other
charge with respect to any Fixed Rate Loan or the
Bank's agreement to make Fixed Rate Loans, or shall
change the basis of taxation of payments to the Bank
of the principal of or interest on any Fixed Rate
Loan or any other amounts due under this Agreement in
respect of Fixed Rate Loans or the Bank's agreement
to make or maintain Fixed Rate Loans (except for
changes in the rate of tax on the over-all net income
of the Bank); or
(B) shall impose, modify or deem applicable any
reserve, special deposit, deposit insurance or
similar requirement (including, without limitation,
any such requirement imposed by the Board of
Governors of the Federal Reserve System, but
excluding, with respect to any LIBOR Loan, any such
requirement already included in the applicable
Reserve Rate) against assets of, deposits with or for
the account of, or credit extended by, the Bank or
shall impose on the Bank or on the London interbank
market any other condition affecting any Fixed Rate
Loans or the Bank's agreement to make Fixed Rate
Loans
and the result of any of the foregoing is to increase the cost
to the Bank of making or maintaining any Fixed Rate Loan or to
reduce the amount of any sum received or receivable by the
Bank under this Agreement and/or any September 1998 Term Note
and/or with respect to any Fixed Rate Loan by an amount deemed
by the Bank to be material, then, upon demand by the Bank and
receipt of a Bank Certificate from the Bank with respect
thereto, the Borrowers shall pay (and shall be jointly and
severally obligated to pay) to the Bank such additional amount
or amounts as the Bank certifies to be necessary to compensate
the Bank for such increased cost or reduction in amount
received or receivable.
(ii) If the Bank shall have determined that the adoption,
effectiveness or phase-in after the date hereof of any
applicable law, rule or regulation regarding capital
requirements for banks or bank holding companies, or any
change therein after the date hereof, or any change after the
date hereof in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such
entity regarding capital adequacy (whether or not having the
force of law) has or would have the effect of reducing the
return on the Bank's capital with respect to any September
1998 Term Loan or with respect to its agreement hereunder to
make September 1998 Term Loans (all such September 1998 Term
Loans, whether or not subject to any COF Interest Rate or any
LIBOR Interest Rate) to a level below that which the Bank
could have achieved (taking into consideration the Bank's
policies with respect to capital adequacy immediately before
such adoption, effectiveness, phase-in, change or compliance
and assuming that the Bank's capital was then fully utilized)
by any amount deemed by the Bank to be material: (A) the Bank
shall promptly after its determination of such occurrence
deliver a Bank Certificate with respect thereto to
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<PAGE> 11
the Borrowers; and (B) the Borrowers shall pay (and shall be
jointly and severally obligated to pay) to the Bank as an
additional fee from time to time on demand such amount as the
Bank certifies to be the amount that will compensate it for
such reduction.
(iii) A Bank Certificate of the Bank claiming compensation
under this Section 2(i) shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such claim for compensation, the
additional amount or amounts to be paid to the Bank hereunder
and the method by which such amounts are determined. In
determining any such amount, the Bank may use any reasonable
averaging and attribution methods.
(iv) No failure on the part of the Bank to demand
compensation on any one occasion shall constitute a waiver of
its right to demand such compensation on any other occasion
and no failure on the part of the Bank to deliver any Bank
Certificate in a timely manner shall in any way reduce any
obligation of the Borrowers to the Bank under this Section
2(i). As to the September 1998 Term Loans, the provisions of
this Section 2(i) are in lieu of the provisions of Section 6.2
of the Letter Agreement.
(j) ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any other
provision of this Agreement, if the introduction of or any change in or in the
interpretation or administration of any law or regulation applicable to the Bank
or the Bank's activities in the London interbank market shall make it unlawful,
or any central bank or other governmental authority having jurisdiction over the
Bank or the Bank's activities in the London interbank market shall assert that
it is unlawful, or otherwise make it impossible, for the Bank to perform its
obligations hereunder to make LIBOR Loans or to continue to fund or maintain
LIBOR Loans, then on notice thereof and demand therefor by the Bank to the
Borrowers, (i) the obligation of the Bank to fund LIBOR Loans shall terminate
and (ii) the Borrowers shall convert to Floating Rate Loans all of the affected
LIBOR Loans on or prior to the last day on which such LIBOR Loans may legally
remain outstanding.
(k) FACILITY FEES. With respect to the September 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 $100,000. The fee
described in this Section 2(k) 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.
(l) CONDITIONS TO ADVANCE. Without limiting the foregoing, any
September 1998 Term Loan is subject to the further conditions precedent that on
the date on which such September 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 September
1998 Term Loan.
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<PAGE> 12
(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 September 1998 Term Loan.
(iii) No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default 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.
Each request by the Borrowers for any September 1998 Term Loan, and
each acceptance by any Borrower of the proceeds of any September 1998 Term Loan,
will be deemed a joint and several representation and warranty by the Borrowers
that at the date of such September 1998 Term Loan and after giving effect
thereto all of the conditions set forth in the foregoing clauses (i)-(iv) of
this Section 2(l) will be satisfied.
(m) 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 September 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).
(n) DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, as used in this Agreement, the following terms have the following
respective meanings:
"Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrowers to the
Bank pursuant to Sections 2(e), 2(h) or 2(i) of this Agreement, which
certificate shall be submitted by the Bank to the Borrowers in connection with
each demand made at any time by the Bank upon the Borrowers with respect to any
such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrowers to the Bank upon each demand. A claim by the Bank for all
or any part of any additional amount required to be paid by the Borrowers may be
made before and/or after the end of the Interest Period or other period of time
to which such claim relates or during which such claim has arisen and before
and/or after any payment hereunder to which such claim relates. Each Bank
Certificate shall set forth in reasonable detail the basis for and the
calculation of the claim to which it relates.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank; provided, however,
that if the applicable provision relates to a LIBOR Loan, then the term
"Business Day" shall not include any day on which dealings are not
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<PAGE> 13
carried on in the London interbank market or on which banks are not open for
business in London.
"COF Interest Rate" - As to any COF Loan for any period of time, that
per annum rate of interest which is determined by the Bank to represent the sum
of (i) the COF Rate applicable to the relevant period of time for the relevant
principal amount as amortized over such period of time PLUS (ii) 1.25% per
annum.
"COF Loan" - If applicable, all or any portion of the outstanding
September 1998 Term Loans which bears interest at a COF Interest Rate.
"COF Rate" - As to any principal amount and for any period of time,
that per annum rate of interest which the Bank is required to pay, or is
offering to pay, for wholesale liabilities of a similar principal amount and for
a similar period of time, adjusted for reserve requirements and for such other
requirements as may from time to time be imposed by federal, state or local
governmental and/or regulatory agencies, all as determined from time to time in
its sole discretion by the Bank's treasury group.
"Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default.
"Eurocurrency Liabilities" - Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.
"Event of Default" - As defined in ss.5.1 of the Letter Agreement.
"Fixed Rate Loan" - All or any portion of any September 1998 Term Loan
which is either a LIBOR Loan or a COF Loan.
"Floating Rate" - As defined in Section 2(e).
"Floating Rate Loan" - All or any portion of the outstanding September
1998 Term Loans which bears interest calculated by reference to the Prime Rate.
"Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any Fixed Rate Loan, excluding, however, any taxes imposed directly
on the Bank's income and any franchise taxes imposed on it by the jurisdiction
under the laws of which the Bank is organized or any political subdivision
thereof.
"Interest Payment Date" - As to each LIBOR Loan, the Interest Payment
Date shall be the last day of the Interest Period applicable thereto.
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<PAGE> 14
"Interest Period" - As to each LIBOR Loan, the period commencing with
the date of the making of such LIBOR Loan and ending one month, two months or
three months thereafter (as selected by the Borrowers in their LIBOR
Borrowing/Conversion Notice relating thereto); provided that (A) any such
Interest Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day unless such Business Day
occurs in a new calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day, (B) any such Interest Period which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall end on the last
Business Day of such calendar month, and (C) no Interest Period may be selected
as to any principal amount of a September 1998 Term Loan if such Interest Period
would end after the regularly scheduled due date for such principal amount.
"LIBOR" - With respect to each Interest Period for a LIBOR Loan, that
rate per annum (rounded upward, if necessary, to the nearest 1/32nd of one
percent) which represents the offered rate for deposits in U.S. Dollars, for a
period of time comparable to such Interest Period, which appears on the Telerate
page 3750 as of 11:00 a.m. (London time) on that day that is two (2) London
Banking Days preceding the first day of such Interest Period; provided, however,
that if the rate described above does not appear on the Telerate System on any
applicable interest determination date, LIBOR for such Interest Period shall be
the rate (rounded upwards as described above, if necessary) for deposits in
dollars for a period substantially equal to such Interest Period shown on the
Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that
service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on that day that is two (2) London Banking Days prior to the beginning of
such Interest Period. "London Banking Day" shall mean any date on which
commercial banks are open for business in London. If both the Telerate and
Reuters systems are unavailable, then LIBOR for any Interest Period will be
determined on the basis of the offered rates for deposits in U.S. Dollars for a
period of time comparable to such Interest Period which are offered by four
major banks in the London interbank market at approximately 11:00 a.m., London
time, on that day that is two (2) London Banking Days preceding the first day of
such Interest Period, as selected by the Bank. The principal London office of
each of four major London banks will be requested to provide a quotation of its
U.S. Dollar deposit offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in U.S. Dollars to leading
European banks for a period of time comparable to such Interest Period offered
by major banks in New York City at approximately 11:00 a.m., New York City time,
on that day that is two London Banking Days preceding the first day of such
Interest Period. In the event that the Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR for the proposed
Interest Period cannot be determined. The Bank shall give prompt notice to the
Borrowers of LIBOR as determined for each LIBOR Loan and such notice shall be
conclusive and binding, absent manifest error.
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<PAGE> 15
"LIBOR Interest Rate" - For any Interest Period, an interest rate per
annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
*LIR = LIBOR + 1.25%
-----------
[1.00 - RR]
Where LIR = LIBOR Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
*LIR and each component thereof to be rounded upwards
to the next higher 1/32nd of 1%
The LIBOR Interest Rate will be adjusted during any Interest Period to reflect
any change in the Reserve Rate during such Interest Period.
"LIBOR Loan" - All or any portion of the outstanding September 1998
Term Loans which bears interest at a LIBOR Interest Rate.
"London" - The City of London in England.
"Prime Rate" - That variable rate of interest per annum designated by
the Bank from time to time as its prime rate, it being understood that such rate
is merely a reference rate and does not necessarily represent the lowest or best
rate being charged to any customer.
"Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Loans. The LIBOR Interest Rate shall be adjusted automatically on and
as of the effective date of any change in the Reserve Rate.
"September 1998 Term Loans" - Collectively, the Tranche A September
1998 Term Loans and the Tranche B September 1998 Term Loans.
"September 1998 Term Notes" - Collectively, the Tranche A September
1998 Term Note and the Tranche B September 1998 Term Note.
"Tranche A September 1998 Term Loan" - As defined in Section 2(a)
above.
"Tranche A September 1998 Term Note" - As defined in Section 1 above.
"Tranche B September 1998 Term Loan" - As defined in Section 2(c)
above.
"Tranche B September 1998 Term Note" - As defined in Section 1 above.
-15-
<PAGE> 16
3. CONCERNING THE LETTER AGREEMENT. The parties agree as follows
with respect to the Letter Agreement:
a. That the September 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 each of the September 1998 Term Notes 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, Section 6.1 of the Letter Agreement) apply to the September 1998
Term Loans and to the September 1998 Term Notes.
c. That the first sentence of Section 2.1(j) of the Letter
Agreement is hereby amended by inserting therein, immediately after the words
"(the `Cambridge Premises')", the following:
"(provided that the Borrowers may move their principal place
of business to 350 Massachusetts Avenue, Cambridge, MA 02139,
with notice of such move being promptly given to the Bank
together with such Uniform Commercial Code amendments and/or
financing statements as the Bank may reasonably request, and
upon such move and such notice said premises at 350
Massachusetts Avenue, Cambridge, MA 02139 will constitute the
`Cambridge Premises' of the Borrowers)"
d. That Section 3.4 of the Letter Agreement is hereby amended by
adding to such Section, at the end thereof, the following:
"Alkermes will maintain at all times its primary operating
accounts with the Bank."
e. That clause (i) of Section 3.5 of the Letter Agreement is
hereby amended by adding to such clause, at the end thereof, the following:
"Further, within 90 days after the beginning of each fiscal
year of Alkermes, Alkermes will deliver to the Bank a copy of
the operating budget of Alkermes for such fiscal year,
prepared by the management of Alkermes and approved by its
Board of Directors."
-16-
<PAGE> 17
f. That the Letter Agreement is hereby amended by deleting in its
entirety Section 3.6 thereof and by substituting in its stead the following:
"3.6. CASH BALANCE; CAPITAL BASE. Alkermes will maintain, as
at the end of each fiscal quarter of Alkermes (commencing with
September 30, 1998), (i) an Unencumbered Cash Balance of not
less than $40,000,000 and (ii) a consolidated Capital Base of
not less than $40,000,000."
g. That the Letter Agreement is hereby amended by deleting in its
entirety Section 3.7 thereof and by substituting in its stead the following:
"3.7. LIQUIDITY RATIO. Alkermes will maintain, as at the end
of each fiscal quarter of Alkermes (commencing with September
30, 1998), a Liquidity Ratio of not less than 1.5 to 1. As
used herein, `Liquidity Ratio' means the ratio of (x) Net
Quick Assets to (y) Total Liabilities."
h. That Section 4.1 of the Letter Agreement is hereby amended by
deleting the period at the end of such Section and by substituting in its stead
the following:
"; and (x) Alkermes' 6 1/2% Convertible Subordinated
Debentures issued under an Indenture, dated as of March 1,
1998, between Alkermes and State Street Bank and Trust
Company, as Trustee."
i. That Section 4.3 of the Letter Agreement is hereby amended by
deleting therefrom the number "$500,000" and by substituting in its stead the
following:
"$5,000,000"
j. That Section 4.4 of the Letter Agreement is hereby amended by
deleting therefrom the number "$1,000,000" and by substituting in its stead the
following:
"$5,000,000"
k. That Section 4.5 of the Letter Agreement is hereby amended by
deleting from the last sentence of such Section the words "ss.ss.3.7 and 3.8"
and by substituting in their stead the following:
"ss.3.6"
l. That Section 4.6 of the Letter Agreement is hereby amended by
deleting in its entirety clause (i) thereof.
m. That Article IV of the Letter Agreement is hereby amended by
adding to said Article, at the end thereof, the following:
-17-
<PAGE> 18
"4.11. DIVIDENDS. No Borrower will make any distributions to
its shareholders, pay any dividends (other than dividends
payable solely in the capital stock of such Borrower) or
redeem, purchase or otherwise acquire, directly or indirectly,
any of its capital stock; provided, however, that so long as
no Default or Event of Default exists at the date of payment
or could result therefrom, Alkermes may effect an exchange of
and pay dividends on its $3.25 Convertible Exchangeable
Preferred Stock at an annual rate of $3.25 per share.
4.12. SUBORDINATED DEBT. No Borrower will directly or
indirectly make any optional or voluntary prepayment or
purchase of Subordinated Debt or modify, alter or add any
provisions with respect to payment of Subordinated Debt. No
Borrower will make any payment of any principal of or interest
on any Subordinated Debt at any time when there exists, or if
there would result therefrom, any Default or Event of Default
hereunder."
n. That Section 5.1 of the Letter Agreement is hereby amended by
deleting the period at the end of clause (m) of said Section 5.1 and by
substituting in its stead the following:
"; or (n) any default shall exist and remain unwaived or
uncured with respect to any Subordinated Debt of any Borrower
or with respect to any instrument evidencing, guaranteeing,
securing or otherwise relating to any such Subordinated Debt,
or any such Subordinated Debt shall not have been paid when
due, whether by acceleration or otherwise, or shall have been
declared to be due and payable prior to its stated maturity,
or any event or circumstance shall occur which permits, or
with the lapse of time or the giving of notice or both would
permit, the acceleration of the maturity of any Subordinated
Debt by the holder or holders thereof."
o. That Section 6.5 of the Letter Agreement is hereby amended by
inserting into said Section, immediately after the words "letter agreement", the
following:
"and each of the Notes"
p. That Section 6.6 of the Letter Agreement is hereby amended by
deleting from such Section the words "Michael J. Landine, Senior Vice President
and Chief Financial Officer" and by substituting in their stead the following:
"Patricia L. Allen, Director of Finance"
q. That each of Sections 6.8, 6.9, 6.11, 6.12 and 6.13 of the
Letter Agreement (as inserted by the Second Loan Supplement) are modified by
deleting the words "Term Note" and "Term Notes" in each place in said Sections
where same appear and by substituting in their stead, in each such place, the
words "Note" and "Notes", respectively.
-18-
<PAGE> 19
r. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Cambridge
Premises", the following:
"`Capital Base' - As determined at any time, the sum of (i)
the consolidated Tangible Net Worth of Alkermes and
Subsidiaries then existing PLUS (ii) the principal amount of
Subordinated Debt of Alkermes then outstanding (nothing
contained herein being deemed to authorize the incurrence of
any additional Subordinated Debt)."
s. By deleting in its entirety the definition of "Cash
Equivalents" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:
"`Cash-Equivalents' - Any of the following: (i) readily
marketable direct obligations of or obligations guarantied by,
the United States of America or any agency thereof and
entitled to the full faith and credit of the United States of
America, (ii) demand deposits with the Bank or with any other
commercial bank chartered by the United States or by any state
and having undivided capital and surplus of not less than
$100,000,000, (iii) interests in mutual funds, substantially
all of the assets of which shall be governmental obligations
of the type described in clause (i) of this sentence, (iv)
repurchase agreements secured by U.S. Treasury or agency
obligations or (v) bankers' acceptances, commercial paper and
corporate notes, all rated A-1 or P-1 or better."
t. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Collateral",
the following:
"`Default' - Any event or circumstance which, with the passage
of time or the giving of notice or both, could become an Event
of Default."
u. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "ERISA", the
following:
"`Event of Default' - As defined in ss.5.1 of this letter
agreement."
v. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Mortgage", the
following:
"`Net Quick Assets' - Such current assets of the Borrowers as
consist of cash, Cash-Equivalents, short-term investments and
accounts receivable due from customers (less an allowance for
bad debt consistent with the Borrowers' prior experience).
-19-
<PAGE> 20
w. That Section 7.1 of the Letter Agreement is hereby amended by
deleting in its entirety the definition of "Prime Rate" appearing in such
Section and by substituting in its stead the following:
"`Prime Rate' - That variable rate of interest per annum
designated by the Bank from time to time as its prime rate, it
being understood that such rate is merely a reference rate and
does not necessarily represent the lowest or best rate being
charged to any customer."
x. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "R&D
Transaction", the following:
"`Subordinated Debt' - Any Indebtedness of Alkermes, including
its $3.25 Convertible Exchangeable Preferred Stock, which is
expressly subordinated, pursuant to a subordination agreement
in form and substance satisfactory to the Bank, to all
Indebtedness now or hereafter owed by Alkermes to the Bank."
y. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Subsidiary",
the following:
"`Tangible Net Worth' - An amount equal to the total assets of
any Person (excluding (i) the total intangible assets of such
Person and (ii) any assets representing amounts due from any
officer, employee or other affiliate of such Person) minus the
total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the
excess of cost over book value of acquired businesses
accounted for by the purchase method, formulae, trademarks,
trade names, patents, patent rights and deferred expenses
(including, but not limited to, unauthorized debt discount and
expense, organizational expense, capitalized software costs
and experimental and development expenses)."
z. That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Term Loans",
the following:
"`Total Liabilities' - As to Alkermes, all Indebtedness of
Alkermes and/or any of its Subsidiaries, taken on a
consolidated basis, which would properly be shown as
liabilities on the face of a consolidated balance sheet of
Alkermes (and not merely in the notes thereto), such
consolidated balance sheet being prepared consistently with
the annual audited financial statements of Alkermes and
Subsidiaries dated as at March 31, 1998 heretofore delivered
to the Bank."
aa. By deleting in its entirety the definition of "Unencumbered
Cash Balance" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:
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<PAGE> 21
"`Unencumbered Cash Balance' - At any time, the total of all
cash and Cash-Equivalents of Alkermes (and, to the extent
expressly provided below, certain Subsidiaries of Alkermes)
which are not subject to any pledge, lien, encumbrance or
right of set-off (other than a right of set-off in favor of an
investment manager for its normal management fees) in favor of
any other Person. The Unencumbered Cash Balance will in no
event be deemed to include the sums from time to time pledged
to the Bank pursuant to ss.1.8 above. Further, the
Unencumbered Cash Balance will in no event be deemed to
include any cash or Cash-Equivalents of any partnership or
other entity in which Alkermes now or hereafter may have an
interest, except that for the purposes of satisfying the
Unencumbered Cash Balance test set forth in Section 3.6 above
as at any date, Alkermes' `Unencumbered Cash Balance' will be
deemed to include both the unencumbered cash and unencumbered
Cash-Equivalents then held by a wholly-owned Subsidiary of
Alkermes which is operated pursuant to 30 Del. Code
ss.1902(b)(8) and the unencumbered cash and unencumbered
Cash-Equivalents then held by ACT I."
4. CONCERNING THE SECURITY AGREEMENT. The parties agree as
follows with respect to the Security Agreement:
a. That each September 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 "September 1998 Term Loans" will be deemed
to refer to the September 1998 Term Loans, as hereinabove defined.
b. That the September 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 3 attached hereto (together
with all items constituting Qualifying Equipment supporting any Tranche A
September 1998 Term Loan made subsequent to the date hereof and together with
all items constituting Qualifying Leasehold Improvements supporting any Tranche
B September 1998 Term Loan made subsequent to the date hereof, except for any
leasehold improvements which are so incorporated into the relevant real estate
that same become the property of the owner of such real estate) 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 3 attached hereto (together with all items constituting Qualifying
Equipment supporting any Tranche A September 1998 Term Loan made subsequent to
the date hereof and together with all items constituting Qualifying Leasehold
Improvements supporting any Tranche B September 1998 Term Loan made subsequent
to the date hereof, except for any leasehold improvements which are so
incorporated into the relevant real estate that same become the property of the
owner of such real estate) shall also be
-21-
<PAGE> 22
deemed to be "September 1998 Loan Collateral" for the purposes of Section 17 of
the Security Agreement.
d. 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) all
of the items appearing on Exhibit 3 attached hereto.
e. 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,
the 1998 Term Loans or the September 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 or the September 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, the 1998 Loan
Collateral or the September 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 or the September 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 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 each of the September 1998 Term Notes constitutes an
"Additional Term Note" as described in Section 2 of the Pledge, with the result
that each of the September 1998 Term Notes is included within the "Loan
Documents" as defined in Section 2 of the Pledge.
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<PAGE> 23
b. That each September 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 each of
the September 1998 Term Notes constitutes one of the "Other Term Notes"
described in the WITNESSETH clause of the Ohio Mortgage, with the result that
the September 1998 Term Loans are among the obligations secured by the Ohio
Mortgage.
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. FEES. In order to induce the Bank to enter into this
Agreement, the Borrowers jointly and severally agree to pay, on demand, all
costs and expenses (including, without limitation, reasonable fees and expenses
of the Bank's attorneys) incurred by the Bank in connection with this Agreement
and/or the transactions contemplated hereby.
9. 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 September 1998 Term Notes 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.
b. Each Borrower has duly executed and delivered each of this
Agreement and the September 1998 Term Notes.
c. Each of this Agreement and each of the September 1998 Term
Notes 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.
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<PAGE> 24
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 annual audited financial
statements of Alkermes dated March 31, 1998, heretofore furnished to the Bank.
10. 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.
11. 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.
-24-
<PAGE> 25
Executed, as an instrument under seal, as of the day and year first
above written.
ALKERMES, INC.
By: /s/ Robert A. Breyer
----------------------------------------
Name: Robert A. Breyer
Title: President
ALKERMES CONTROLLED
THERAPEUTICS, INC.
By: /s/ Robert A. Breyer
----------------------------------------
Name: Robert A. Breyer
Title: Vice President
ALKERMES CONTROLLED
THERAPEUTICS INC. II
By: /s/ Robert A. Breyer
----------------------------------------
Name: Robert A. Breyer
Title: Vice President
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Irina Case
-------------------------------
Name: Irina Case
Title: Vice President
-25-
<PAGE> 1
Exhibit 10.2
PROMISSORY NOTE
---------------
$11,000,000.00 Boston, Massachusetts
September 24, 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 Eleven Million and 00/100 ($11,000,000.00)
Dollars or such portion thereof as may be advanced under Section 2(c) 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 Third 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 Loan Supplement and
Modification Agreement) of each month, commencing on the first such date after
the advance of any Principal and continuing on the first Business Day of each
month thereafter and on the date of payment of this note in full, at a
fluctuating rate per annum (computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed) which shall at all times
(except as provided in the next following sentence) be equal to the Prime Rate,
as in effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law), with a change in the aforesaid rate of
interest to become effective on the same day on which any change in the Prime
Rate is effective; provided, however, that (A) if a LIBOR Interest Rate (as
defined in the Loan Supplement and Modification Agreement) shall have become
applicable to all or any portion of the outstanding Principal for any Interest
Period (as defined in the Loan Supplement and Modification Agreement), then
interest on such Principal or portion thereof shall accrue at said applicable
LIBOR Interest Rate for such Interest Period and shall be payable on the
Interest Payment Date (as defined in the Loan Supplement and Modification
Agreement) applicable to such Interest Period, and (B) if a COF Interest Rate
(as defined in the Loan Supplement and Modification Agreement) shall be
applicable to all or any portion of the outstanding Principal, then interest on
such outstanding Principal or portion thereof shall accrue at said COF Interest
Rate and shall be paid on the first Business Day of each month. Overdue
Principal and, to the extent permitted by law, overdue interest shall bear
interest at a fluctuating 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 with respect to the Principal which is overdue
(or as to which such interest is overdue) (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate"
<PAGE> 2
means that variable rate of interest per annum designated by the Bank from time
to time as its prime rate, it being understood that such rate is merely a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. 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 Tranche B September 1998 Term
Loans (as defined in the Loan Supplement and Modification Agreement) made
pursuant to Section 2(c) of the Loan Supplement and Modification Agreement. The
Principal of this note shall be repaid by the Borrowers in seventeen (17) equal
consecutive quarterly installments (each in an amount equal to 1/40th of the
aggregate principal amount of the Tranche B September 1998 Term Loans
outstanding at the close of business on March 31, 1999), such installments to
commence on June 30, 1999 and to continue on the last Business Day of each
calendar quarter thereafter through and including June 30, 2003, PLUS an
eighteenth (18th) and final "balloon" payment due on September 30, 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, but, as to Fixed Rate Loans (as defined in the Loan
Supplement and Modification Agreement), only at the times and in the manner, and
(under certain circumstances) with the additional payments, provided for in the
Loan Supplement and Modification Agreement. Any prepayment of Principal, in
whole or in part, will be without premium or penalty (but, in the case of Fixed
Rate Loans, may require payment of additional amounts, as provided for in the
Loan Supplement and Modification Agreement). Each Principal prepayment shall be
accompanied by payment of all interest on the prepaid amount accrued but unpaid
to the date of payment. Any partial prepayment of Principal shall be applied
against Principal installments (including the final "balloon" payment 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 Tranche B September 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
-2-
<PAGE> 3
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 "Tranche B September 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 the benefits thereof. This note is subject
to prepayment under the conditions set forth in the Letter Agreement and the
Loan Supplement and Modification Agreement (which, in the case of Fixed Rate
Loans, may require the making of certain additional payments, as provided for in
the Loan Supplement and Modification Agreement). 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 LOANS AS CONTEMPLATED IN THE LETTER
AGREEMENT AND THE LOAN SUPPLEMENT AND MODIFICATION AGREEMENT.
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE SEAL ALKERMES, INC.
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: President
-3-
<PAGE> 4
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS, INC.
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: Vice President
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS INC. II
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: Vice President
-4-
<PAGE> 1
Exhibit 10.3
PROMISSORY NOTE
---------------
$9,000,000.00 Boston, Massachusetts
September 24, 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 Nine Million and 00/100 ($9,000,000.00)
Dollars or such portion thereof as may be advanced under Section 2(a) 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 Third 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 Loan Supplement and
Modification Agreement) of each month, commencing on the first such date after
the advance of any Principal and continuing on the first Business Day of each
month thereafter and on the date of payment of this note in full, at a
fluctuating rate per annum (computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed) which shall at all times
(except as provided in the next following sentence) be equal to the Prime Rate,
as in effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law), with a change in the aforesaid rate of
interest to become effective on the same day on which any change in the Prime
Rate is effective; provided, however, that (A) if a LIBOR Interest Rate (as
defined in the Loan Supplement and Modification Agreement) shall have become
applicable to all or any portion of the outstanding Principal for any Interest
Period (as defined in the Loan Supplement and Modification Agreement), then
interest on such Principal or portion thereof shall accrue at said applicable
LIBOR Interest Rate for such Interest Period and shall be payable on the
Interest Payment Date (as defined in the Loan Supplement and Modification
Agreement) applicable to such Interest Period, and (B) if a COF Interest Rate
(as defined in the Loan Supplement and Modification Agreement) shall be
applicable to all or any portion of the outstanding Principal, then interest on
such outstanding Principal or portion thereof shall accrue at said COF Interest
Rate and shall be paid on the first Business Day of each month. Overdue
Principal and, to the extent permitted by law, overdue interest shall bear
interest at a fluctuating 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 with respect to the Principal which is overdue
(or as to which such interest is overdue) (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate"
<PAGE> 2
means that variable rate of interest per annum designated by the Bank from time
to time as its prime rate, it being understood that such rate is merely a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. 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 Tranche A September 1998 Term
Loans (as defined in the Loan Supplement and Modification Agreement) made
pursuant to Section 2(a) of the Loan Supplement and Modification Agreement. The
Principal of this note shall be repaid by the Borrowers in seventeen (17) equal
consecutive quarterly installments (each in an amount equal to 1/18th of the
aggregate principal amount of the Tranche A September 1998 Term Loans
outstanding at the close of business on March 31, 1999), such installments to
commence on June 30, 1999 and to continue on the last Business Day of each
calendar quarter thereafter through and including June 30, 2003, PLUS an
eighteenth (18th) and final installment payment due on September 30, 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, but, as to Fixed Rate Loans (as defined in the Loan
Supplement and Modification Agreement), only at the times and in the manner, and
(under certain circumstances) with the additional payments, provided for in the
Loan Supplement and Modification Agreement. Any prepayment of Principal, in
whole or in part, will be without premium or penalty (but, in the case of Fixed
Rate Loans, may require payment of additional amounts, as provided for in the
Loan Supplement and Modification Agreement). Each Principal prepayment shall be
accompanied by payment of all interest on the prepaid amount accrued but unpaid
to the date of payment. Any partial prepayment of Principal shall be applied
against Principal installments (including the final installment payment 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 Tranche A September 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
-2-
<PAGE> 3
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 "Tranche A September 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 the benefits thereof. This note is subject
to prepayment under the conditions set forth in the Letter Agreement and the
Loan Supplement and Modification Agreement (which, in the case of Fixed Rate
Loans, may require the making of certain additional payments, as provided for in
the Loan Supplement and Modification Agreement). 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 LOANS AS CONTEMPLATED IN THE LETTER
AGREEMENT AND THE LOAN SUPPLEMENT AND MODIFICATION AGREEMENT.
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE SEAL ALKERMES, INC.
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: President
-3-
<PAGE> 4
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS, INC.
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: Vice President
CORPORATE SEAL ALKERMES CONTROLLED
THERAPEUTICS INC. II
ATTEST:
By: /s/ Robert A. Breyer
/s/ Patricia L. Allen -------------------------------
- --------------------------------- Name: Robert A. Breyer
Assistant Secretary Title: Vice President
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,441
<SECURITIES> 165,396
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 179,350
<PP&E> 41,273
<DEPRECIATION> (11,756)
<TOTAL-ASSETS> 221,496
<CURRENT-LIABILITIES> 18,615
<BONDS> 24,968
0
23
<COMMON> 211
<OTHER-SE> 170,300
<TOTAL-LIABILITY-AND-EQUITY> 221,496
<SALES> 0
<TOTAL-REVENUES> 22,423
<CGS> 0
<TOTAL-COSTS> 20,449
<OTHER-EXPENSES> 3,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 879
<INCOME-PRETAX> (7,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,703)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
