<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 June 30, 1998
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission file number 0-19267
ALKERMES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2472830
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 Sidney Street, Cambridge, MA 02139-4136
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 494-0171
----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Shares Outstanding as of August 4, 1998
----- ---------------------------------------
<S> <C>
Common Stock, par value $.01 21,116,519
</TABLE>
<PAGE> 2
ALKERMES, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- June 30, 1998 and March 31, 1998
Consolidated Statements of Operations 4
- Three months ended June 30, 1998 and 1997
Consolidated Statement of Shareholders' Equity 5
- Three months ended June 30, 1998
Consolidated Statements of Cash Flows 6
- Three months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Shareholder Proposals 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
(2)
<PAGE> 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,478,523 $ 3,495,265
Short-term investments 168,709,969 190,556,898
Prepaid expenses and other current assets 8,700,204 8,555,368
------------ ------------
Total current assets 180,888,696 202,607,531
------------ ------------
Property, Plant and Equipment:
Land 235,000 235,000
Building 3,146,770 1,275,000
Furniture, fixtures and equipment 18,340,431 14,782,341
Leasehold improvements 2,583,654 2,507,973
Construction in progress 10,602,723 4,275,985
------------ ------------
34,908,578 23,076,299
Less accumulated depreciation and
amortization (10,675,720) (9,578,571)
------------ ------------
24,232,858 13,497,728
------------ ------------
Investments 6,198,111 3,422,726
------------ ------------
Other Assets 937,544 466,712
------------ ------------
Other Investments 282,150 263,400
------------ ------------
$212,539,359 $220,258,097
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 7,204,880 $ 7,067,972
Deferred revenue 6,965,860 7,415,980
Long-term obligations--current portion 4,100,000 4,104,533
------------ ------------
Total current liabilities 18,270,740 18,588,485
------------ ------------
Long-Term Obligations 12,108,333 12,933,333
------------ ------------
Other Long-Term Liabilities 2,224,484 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 $.01 per share:
authorized and issued, 2,300,000 shares at
June 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 21,095,876
shares at June 30, 1998 and 21,072,282 shares
at March 31, 1998 210,959 210,723
Additional paid-in capital 311,565,750 311,213,755
Deferred compensation (296,265) (119,719)
Cumulative foreign currency translation adjustments (8,730) (10,638)
Unrealized loss on marketable securities (18,750) (37,500)
Accumulated deficit (136,540,162) (129,615,554)
------------ ------------
Total shareholders' equity 174,935,802 181,664,067
------------ ------------
$212,539,359 $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
Ended Ended
June 30, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Research and development revenue under
collaborative arrangements $7,667,634 $4,781,843
Interest income 2,591,547 1,149,554
----------- -----------
10,259,181 5,931,397
----------- -----------
Expenses:
Research and development 9,011,102 7,607,927
General and administrative 2,666,197 1,914,020
Interest expense 437,187 437,182
Acquisition of in-process research and
development 3,221,253 --
----------- -----------
15,335,739 9,959,129
----------- -----------
Net loss (5,076,558) (4,027,732)
Preferred stock dividends (1,848,050) --
----------- -----------
Net loss attributable to common shareholders ($6,924,608) ($4,027,732)
=========== ===========
Basic and diluted loss per common share ($0.33) ($0.19)
=========== ===========
Weighted average number of common shares
outstanding 21,087,991 20,752,848
=========== ===========
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE> 5
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Unrealized
Convertible Foreign (Loss) Gain
Exchangeable Additional Currency on
Preferred Stock Common Stock Paid-in Deferred Translation Marketable Accumulated
Shares Amount Shares Amount Capital Compensation Adjustments Securities Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
April 1, 1998 2,300,000 $23,000 21,072,282 $210,723 $311,213,755 ($119,719) ($10,638) ($37,500) ($129,615,554) $181,664,067
Issuance of
common stock 4/98
through 6/98 -- -- 23,594 236 134,495 -- -- -- -- 134,731
Compensation
relating to
options granted -- -- -- -- 217,500 (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 2,300,000 $23,000 21,095,876 $210,959 $311,565,750 ($296,265) ($8,730) ($18,750) ($136,540,162) $174,935,802
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE> 6
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($5,076,558) ($4,027,732)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 1,124,992 769,938
Amortization of compensation relating to stock
options granted and awards made 40,954 15,614
Adjustments to other investments -- 2
Changes in assets and liabilities:
Prepaid expenses and other current assets (144,886) 294,605
Accounts payable and accrued expenses 138,083 (1,522,399)
Deferred revenue (450,120) --
Other long-term liabilities 152,272 192,547
----------- -----------
Net cash used by operating activities (4,215,263) (4,277,425)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment, net (11,830,118) (1,162,572)
Maturities of short-term investments, net 21,846,929 867,565
Maturities (purchases) of long-term investments, net (2,775,385) 4,003,732
Increase in other assets (500,000) (8,000)
----------- -----------
Net cash provided by investing activities 6,741,426 3,700,725
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 134,731 262,232
Proceeds from issuance of long-term debt -- 2,500,000
Payment of preferred stock dividends (1,848,050) --
Payment of long-term obligations (829,505) (978,274)
----------- -----------
Net cash (used by) provided by financing
activities (2,542,824) 1,783,958
----------- -----------
Effect of exchange rate changes on cash (81) 9,901
----------- -----------
Net (decrease) increase in cash and cash equivalents (16,742) 1,217,159
Cash and cash equivalents, beginning of period 3,495,265 2,799,012
----------- -----------
Cash and cash equivalents, end of period $3,478,523 $4,016,171
=========== ===========
Supplementary information:
Interest paid $260,786 $217,733
=========== ===========
</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 month periods ended June 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 months ended June 30, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss ($5,076,558) ($4,027,732)
Cumulative foreign currency translation adjustments 1,908 9,053
Unrealized gain on marketable securities 18,750 37,500
----------- ------------
Comprehensive loss ($5,055,900) ($3,981,179)
=========== ============
</TABLE>
(7)
<PAGE> 8
The accumulated other comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance March 31, 1998 ($48,138)
Current period change 20,658
--------
Balance June 30, 1998 ($27,480)
========
</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.
(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
principal 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 June 30, 1998, the Company had an
accumulated deficit of approximately $136.5 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 months ended June 30, 1998 was $7,667,634 compared to $4,781,843
for the corresponding period of the prior year. The increase in such revenue for
the three months ended June 30, 1998 as compared to the corresponding period of
the prior year was mainly a result of the increased funding earned under
collaborative agreements related to the Company's ProLease, Medisorb and
Cereport technologies.
Interest income for the three months ended June 30, 1998 was $2,591,547 compared
to $1,149,554 for the corresponding period of the prior year. The increase in
such income for the three months ended June 30, 1998 as compared to the
corresponding period 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 $12,114,486 for the three months
ended June 30, 1998 as compared to $9,959,129 for the three months ended June
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 months ended June 30, 1998 were
$9,011,102 compared to $7,607,927 for the corresponding period of the prior
year. The increase in research and development expenses for the three months
ended June 30, 1998 as compared to the three months ended June 30, 1997 was
mainly the result of an increase in salary and related benefits and other costs
associated primarily with an increase in personnel as the Company advances its
product candidates through development and clinical trials and prepares for
process development and commercial scale manufacturing.
General and administrative expenses for the three months ended June 30, 1998
were $2,666,197 compared to $1,914,020 for the corresponding period of the prior
year. The increase in the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997 was mainly the result of an increase in salary
and related benefits and consulting costs relating primarily to an increase in
personnel.
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 $172.2
million at June 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 of the license agreement with ALZA related to
the RingCap and DST technologies and the payment of the initial dividend on the
Company's Preferred Stock. 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.
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,
(10)
<PAGE> 11
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 $6.9 million has been recorded as deferred
revenue at June 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 pay the Company certain milestone payments. Alkermes would be
responsible for the manufacturing of Cereport, and the two companies would share
approximately equally in profits from sales of products.
Capital expenditures were approximately $11.8 million for the three months ended
June 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 total cost for both facilities is expected to be
approximately $18 to $20 million. The Company's capital expenditures for
equipment, facilities and building improvements have been financed to date
primarily with proceeds from bank loans and the sales of equity securities.
The Company will continue to pursue opportunities to obtain additional financing
in the future. Such financing may be sought through various sources, including
equity offerings, bank borrowings, lease arrangements relating to fixed assets
or other financing methods. The source, timing and availability of any
financings will depend on market conditions, interest rates and other factors.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing facilities and of
commercialization activities and arrangements and the cost of product
in-licensing and any possible acquisitions.
The Company may need to raise substantial additional funds for longer-term
product development, regulatory approvals and manufacturing or marketing
activities that it might undertake in the future. There can be no assurance that
additional funds will be available on favorable terms, if at all. If adequate
funds are not available, the Company may be required to curtail significantly
one or more of its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
future products.
The Company and the companies with which it does business use software systems
and embedded technology in the conduct of their operations. Many software
systems and much technology in use today are unable to distinguish between the
year 2000 and the year 1900 because they use a two-digit shorthand for calendar
dates. If the Company does not identify and correct 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.
(11)
<PAGE> 12
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 using internal resources. The Company cannot
estimate the cost of completion of the project until the Company completes the
second step, and there can be no assurance that the cost of completion of the
project will not be material, that the project will be completed on a timely
basis or that the use of the Company's internal resources to complete the
project will not adversely affect other aspects of the Company's business. In
the event that any of the companies with which the Company does significant
business do not successfully achieve year 2000 compliance on a timely basis, the
Company's business could be adversely affected.
(12)
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on July 29, 1998, the
holders of Common Stock approved the amendment to the Alkermes Amended and
Restated 1990 Omnibus Stock Option Plan, as amended, to increase to 3,250,000
the number of shares issuable upon the exercise of options granted thereunder,
an increase of 750,000 shares. There were 14,290,649 votes for, and 4,680,037
votes against, the adoption, 59,888 broker non-votes and 77,315 abstentions.
Also at the Annual Meeting of Shareholders, the holders of Common Stock elected
the following as directors for terms of one year expiring on the date of the
1999 annual meeting or until their respective successors are duly elected and
shall qualify:
<TABLE>
<CAPTION>
Votes Authority
Nominee For Withheld
- ------- --- --------
<S> <C> <C>
Floyd E. Bloom 18,634,371 473,518
---------- -------
Robert A. Breyer 18,567,221 540,668
---------- -------
John K. Clarke 18,634,812 473,077
---------- -------
Robert S. Langer 18,567,126 540,763
---------- -------
Richard F. Pops 18,566,844 541,045
---------- -------
Alexander Rich 18,633,994 473,895
---------- -------
Paul Schimmel 18,567,544 540,345
---------- -------
Michael A. Wall 18,567,060 540,829
---------- -------
</TABLE>
ITEM 5. SHAREHOLDER PROPOSALS
If any shareholder wishes to present a proposal to the 1999 Annual Meeting of
Shareholders that is not included in the Company's proxy statement relating to
such meeting and fails to submit such proposal to the Secretary of the Company
on or before May 15, 1999, then the Company will be allowed to use its
discretionary voting authority when the proposal is raised at the Annual Meeting
without any discussion of the matter in its proxy statement.
(13)
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
Number Exhibit
------ -------
<S> <C> <C>
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
</TABLE>
(14)
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
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 Amended and Restated 1990 Omnibus
Stock Option Plan, as amended.
11 Statement regarding computation of
per share loss.
27 Financial Data Schedule.
</TABLE>
(b) The Registrant has filed no Reports on Form 8-K during the quarter ended
June 30, 1998.
(15)
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALKERMES, INC.
(Registrant)
Date: August 14, 1998 By: /s/ Richard F. Pops
-----------------------------------------
Richard F. Pops
Chief Executive Officer and
Director
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ James M. Frates
-----------------------------------------
James M. Frates
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
(16)
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
3.1(a) Second Amended and Restated Articles
of Incorporation 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).
</TABLE>
(17)
<PAGE> 18
<TABLE>
<S> <C>
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 Amended and Restated 1990 Omnibus
Stock Option Plan, as amended.
11 Statement regarding computation of
per share loss.
27 Financial Data Schedule.
</TABLE>
(18)
<PAGE> 1
EXHIBIT 10.1
ALKERMES, INC.
AMENDED AND RESTATED 1990 OMNIBUS STOCK OPTION PLAN
(ADOPTED ON SEPTEMBER 19, 1990, AS AMENDED
THROUGH JULY 29, 1998)
1. OBJECTIVES
The objectives of this Plan are to assist Alkermes, Inc. (the
"Company") in attracting and retaining employees, officers and directors of and
consultants to the Company and in promoting the identification of such persons'
interests with those of the Company's shareholders.
2. DEFINITIONS
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute or codification of the income tax laws of the
United States.
"Committee" shall mean the Stock Option Committee of the Board
of Directors, which shall consist of at least two directors, each of whom is a
disinterested person within the meaning of Rule 16b-3(c)(2)(i) under the
Exchange Act.
"Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
"Date of Grant" in relation to any option granted under this
Plan shall mean the date on which, or the future date as of which, the Board or
the Committee grants that option.
"Eligible Person" shall mean any employee, consultant, officer
or director of the Company or any Parent or Subsidiary. For the purposes of
Incentive Stock Options, Eligible Persons must meet all the requirements under
Section 422 of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Exercise" in respect of an option shall mean the delivery by
the Optionee to the Company of (a) written notice of exercise of the option as
to a specified number of Shares; (b) payment of the option exercise price for
such Shares; and (c) any other statement or evidence required pursuant to
Section 9 hereof.
"Fair Market Value" of a Share with respect to any day shall
mean (i) the average of the high and low price on such day for a share of Common
Stock as reported on the principal securities
<PAGE> 2
exchange on which shares of Common Stock are then listed or as quoted on the
NASDAQ National Market System, (ii) if not so listed or quoted, the average of
the closing bid and asked prices on such day as reported on NASDAQ, and (iii) if
not so listed, quoted or reported, the value as determined in good faith by the
Board or the Committee, as the case may be.
"Incentive Stock Option" shall mean any option that, at the
time of grant, meets the requirements of Section 422 of the Code and is
identified as an incentive stock option.
"ISO Plans" shall mean the Plan and all other incentive stock
option plans under Section 422 of the Code adopted or assumed by corporations
that are Qualified Employers.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System.
"Non-Qualified Stock Option" shall mean any option granted
under the Plan other than an Incentive Stock Option.
"Non-Section 16 Eligible Person" shall mean an Eligible Person
who is not an Officer or a director of the Company.
"Officer" shall mean a person who has been designated by the
Board as an officer of the Company within the meaning of Rule 16a-1(f) of the
Exchange Act.
"Optionee" shall mean a person holding an option granted under
this Plan which has not been exercised or surrendered and has not expired.
"Parent" shall mean a corporation which, at the time in
question, owns at least 50% of the total combined voting power of all classes of
outstanding stock of the Company (or of a corporation that has issued or assumed
a stock option of the Company in a transaction to which Section 424(a) of the
Code applies) and a corporation which, at such time, owns at least 50% of the
total combined voting power of all classes of stock in another Parent.
"Plan" means this Amended and Restated 1990 Omnibus Stock
Option Plan, as amended from time to time.
"Qualified Employer" shall mean the Company, any Parent or any
Subsidiary.
"Section 16 Eligible Person" shall mean an Eligible Person who
is an Officer or a director of the Company.
"Shares" shall mean shares of Common Stock of the Company for
which options may be granted hereunder.
"Subsidiary" shall mean a corporation in which, at the time in
question, the Company (or a corporation that issued or assumed a stock option of
the Company in a transaction to which Section 424(a) of the Code applies) owns
at least 50% of the total combined voting power of all classes of stock
2
<PAGE> 3
outstanding and a corporation in which, at such time, another Subsidiary owns at
least 50% of the total combined voting power of all classes of stock
outstanding.
"Ten Percent Shareholder" shall mean an Eligible Person who
owns at the Date of Grant more than 10% of the total combined voting power of
all classes of stock of a Qualified Employer.
3. MAXIMUM NUMBER OF SHARES TO BE OPTIONED AND ADJUSTMENTS IN OPTIONED
SHARES
The maximum number of Shares for which options may be granted
hereunder is 3,250,000. This number shall be adjusted if the number of
outstanding shares of Common Stock of the Company is increased or
reduced by split-up, reclassification, stock dividend, or the like. The
number of Shares previously optioned and not theretofore delivered and
the option exercise price per Share shall likewise be adjusted whenever
the number of outstanding shares of Common Stock is increased or
reduced by any such procedure. Shares for which options have expired or
have been surrendered may again be optioned pursuant to the Plan.
4. ADMINISTRATION AND INTERPRETATION
Except to the extent provided below, this Plan shall be
administered by the Board. The Board may delegate responsibility for
administration to the Committee. The Board, or such Committee, may make
such rules and establish such procedures as it deems appropriate for
the administration of the Plan. In the event of any disagreement as to
the interpretation of the Plan or any rule or procedure thereunder, the
decision of the Board, or such Committee, shall be final and binding
upon all persons in interest. Members of the Board who are eligible to
participate in or have been granted options under the Plan may vote on
matters affecting administration of the Plan; provided, however, that
the Committee shall have the authority and sole responsibility for
granting options to Section 16 Eligible Persons and authorizing the
issuance of Shares upon the exercise thereof, and for the
administration of the Plan with respect thereto.
5. GRANTING OF OPTIONS
The Board is authorized to grant options to Non-Section 16
Eligible Persons pursuant to this Plan. The number of Shares, if any,
optioned in each year, the Non-Section 16 Eligible Persons to whom and
the time or times at which options are granted, the number of Shares
optioned to each Non-Section 16 Eligible Person and the other terms and
provisions of such options shall be wholly within the discretion of the
Board, subject to the limitation that no option shall be granted
(notwithstanding any other provisions of this Plan to the contrary)
later than September 19, 2000.
The Committee is authorized to grant options to Section 16
Eligible Persons pursuant to this Plan. The number of Shares, if any,
optioned in each year, the Section 16 Eligible Persons to whom and the
time or times at which options are granted, the number of Shares
optioned to each Section 16 Eligible Person and the other terms and
provisions of such options shall be wholly within the discretion of the
Committee, subject to the limitation that no option shall be granted
(notwithstanding any other provisions of this Plan to the contrary)
later than September 19, 2000.
3
<PAGE> 4
6. TYPE OF OPTIONS
This Plan permits the grant of Non-Qualified Stock Options, as
well as Incentive Stock Options. Options granted under the Plan will be
designated as Non-Qualified Stock Options or Incentive Stock Options at the time
of their grant.
7. OPTION TERMS
Subject to the limitation prescribed in Section 5 above, the
options granted under this Plan shall be on the terms stated in clauses (a)
through (h) below. The Board or the Committee, as the case may be, may specify
additional terms not inconsistent with this Plan by rules of general application
or by specific direction in connection with a particular option or group of
options.
(a) The option exercise price shall be fixed by the Board or
the Committee, as the case may be, but shall not be less than 100% (110% in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder) of the
Fair Market Value of the underlying Shares on the Date of Grant.
(b) The option exercise price shall be payable in cash,
property, services rendered or, under certain circumstances, in shares of Common
Stock of the Company having a Fair Market Value equal to the option exercise
price on the date of exercise, or any combination thereof, or any other means
which the Board or the Committee, as the case may be, determines are consistent
with the Plan's purpose and applicable laws.
(c) The option shall not be transferable otherwise than by
will or the laws of descent and distribution and shall be exercisable during the
Optionee's lifetime only by the Optionee or after his death by the person or
persons entitled thereto by will or the laws of descent and distribution.
(d) The term of the option shall be fixed by the Board or the
Committee, as the case may be, but no option shall be granted for a term to
exceed ten years or, in the case of an Incentive Stock Option being granted to a
Ten Percent Shareholder, for a term to exceed five years.
(e) The option shall terminate and may not be exercised if the
Optionee ceases for any reason (including death, retirement or disability) to be
an employee of the Qualified Employer, except to the extent provided in Section
9 hereof.
(f) In the event that the Company is succeeded by another
company in a reorganization, merger, consolidation, acquisition of property or
stock, separation or liquidation, the successor company shall assume the
outstanding options granted under this Plan or shall substitute new options for
them, which shall provide that the Optionee, at the same cost, shall be entitled
upon the exercise of such option to receive such securities of the surviving or
resulting corporation as the Board of Directors of such corporation shall
determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of shares of stock or other securities to which the Optionee
would have been entitled under the terms of the agreement governing the
reorganization, merger, consolidation, acquisition of property or stock,
separation or liquidation as if, immediately prior to such event, the Optionee
had been the holder of record of the number of Shares which were then subject to
such option.
4
<PAGE> 5
(g) The aggregate Fair Market Value (determined as of the Date
of Grant) of the Shares for which Incentive Stock Options are granted under the
ISO Plans to any one Eligible Person that are exercisable for the first time
during any calendar year shall not exceed $100,000.
(h) The terms and conditions of the grant of each option
granted hereunder shall be embodied in a written award certificate in a form
prescribed by the Board or by the Committee, as the case may be, which (i) has
been completed with the date, name of Optionee, number of Shares to which it
relates, type of option, term of option, option price per Share, name of
Optionee's employing company and (with respect to Incentive Stock Options) the
conditions required to qualify as an incentive stock option under Section 422 of
the Code, (ii) has been signed by a member of the Board or the Committee or an
officer of the Company designated by the Board or by the Committee, as the case
may be, and (iii) has been delivered to the Optionee.
8. LIMITED STOCK APPRECIATION RIGHTS
(a) The Committee is authorized, in its discretion, to grant
limited stock appreciation rights ("LSARs") with respect to all or any portion
of the Shares covered by stock options granted hereunder to Officers and
directors of the Company, simultaneously with the grant of, or at any time
during the term of, non-qualified options or simultaneously with the grant of
incentive stock options. The grant of the LSAR will not be effective until six
months after the date of its grant. Those options with respect to which an LSAR
has been granted and become effective shall become immediately exercisable upon
the occurrence of any of the following events (each, a "Triggering Event"): (i)
the consummation by the Company of a reorganization, merger, or consolidation
after approval of any such transaction by shareholders, other than Section 16
Eligible Persons, holding at least the minimum number of shares necessary to
approve such transaction under the Company's Articles of Incorporation and
applicable law, (ii) the consummation by the Company of a sale of substantially
all its assets after approval of any such transaction by shareholders, other
than Section 16 Eligible Persons, holding at least the minimum number of shares
necessary to approve such transaction under the Company's Articles of
Incorporation and applicable law, or (iii) the acquisition by a single purchaser
or group of related purchasers of in excess of 51% of the issued and outstanding
shares of Common Stock from shareholders of the Company other than Section 16
Eligible Persons, in any case other than in a transaction in which the surviving
corporation or the purchaser is the Company or a Subsidiary of the Company
(other than a transaction in which the surviving corporation or the purchaser is
the Company or a Subsidiary of the Company but the capital stock of the Company
or a Subsidiary of the Company is converted into capital stock of any entity
other than the Company or any such Subsidiary) or an entity controlled by
Section 16 Eligible Persons.
(b) The LSARs shall provide that upon the occurrence of any
Triggering Event, the Optionee shall receive from the Company, for each LSAR, an
amount in cash equal to the amount by which the option exercise price per Share
of the option to which the LSAR relates is exceeded by the Fair Market Value of
the Shares issuable upon exercise of such option on the date such Triggering
Event occurs. When a Triggering Event occurs, the option to which the LSAR
relates will cease to be exercisable, but will be deemed to have been exercised
for purposes of determining the number of Shares for which options may be
granted hereunder.
(c) An LSAR shall be expressly subject to the following
additional requirements: (i) the LSAR shall expire no later than the expiration
of the underlying option; (ii) the LSAR shall be transferable only when the
underlying option is transferable, and under the same conditions; and (iii) a
5
<PAGE> 6
Triggering Event shall be deemed to have occurred only when the Fair Market
Value of the Shares subject to the underlying option exceeds the exercise price
of such option.
9. EXERCISE RIGHTS UPON CEASING TO BE AN EMPLOYEE, OFFICER, CONSULTANT
OR DIRECTOR
(a) If an Optionee becomes permanently and totally disabled,
he may exercise his option for up to one year after the date he ceases to be an
employee, officer or director of or a consultant to a Qualified Employer on
account of such disability, but in no event later than the date on which the
option would have expired if the Optionee had not become disabled. During such
period, the option may be exercised only to the extent that the Optionee was
entitled to do so at the date of disability and, to the extent the option is not
so exercised, it shall expire at the end of such period. For purposes of this
Section 9(a), an Optionee shall be deemed to be disabled if, in the
determination of the Board or the Committee, as the case may be, he is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
(b) If an Optionee dies during a period in which he is
entitled to exercise an option (including the period referred to in subsection
(a) above), the option shall terminate one year after the date of death, but in
no event later than the date on which the option would have expired if the
Optionee had lived. During such period, the option may be exercised by the
Optionee's executor or administrator or by any person or persons who shall have
acquired the option directly from the Optionee by bequest or inheritance or by
reason of the death of the Optionee, but only to the extent that the Optionee
was entitled to do so at the date of death and, to the extent the option is not
so exercised, it shall expire at the end of such period.
(c) If an Optionee ceases to be an employee, officer or
director of or consultant to any and all Qualified Employers in circumstances
other than those described in subsections (a) or (b) above, he may exercise
options granted hereunder for a period not to exceed three months after the date
of such cessation, but in no event later than the date on which the option would
have expired if the Optionee had remained an employee, officer or director of or
consultant to a Qualified Employer. During such period, the option may be
exercised only to the extent that the Optionee was entitled to do so on the date
of cessation and, to the extent the option is not so exercised, it shall expire
at the end of such three-month period. This provision shall not apply if the
Optionee's employment or consultant relationship was terminated for "cause," or
if the officer or director was removed for "cause," which shall include theft,
falsification of records, fraud, embezzlement, gross negligence or willful
misconduct, causing a Qualified Employer to violate any federal, state, or local
law, or administrative regulation or ruling having the force and effect of law,
insubordination, conflict of interest, diversion of corporate opportunity, or
conduct that results in publicity that reflects unfavorably on a Qualified
Employer.
(d) For purposes of this section an Optionee who is an
employee shall not be treated as having ceased employment if (1) the Optionee is
on military, sick leave or other bona fide leave of absence (such as temporary
employment by the United States Government); and (2) the period of such leave
does not exceed 90 days, or, if longer, so long as the Optionee's right to
reemployment with a Qualified Employer is guaranteed by statute or by contract.
Where the period of leave exceeds 90 days and the Optionee's right to
reemployment is not guaranteed by statute or by contract, such Optionee shall be
deemed to have ceased being an employee on the 91st day of such leave.
6
<PAGE> 7
10. ADDITIONAL REQUIREMENTS
Upon the exercise of an option granted hereunder the Board or
the Committee, as the case may be, may require the Optionee to deliver the
following:
(a) A written statement satisfactory to the Company or its
counsel that the Optionee is purchasing the Shares for investment and not with a
view toward their distribution or sale and will not sell or transfer any Shares
received upon the exercise of the option except in accordance with the
Securities Act of 1933 and applicable state securities laws; and
(b) Evidence reasonably satisfactory to the Company that at
the time of exercise the Optionee meets such other requirements as the Board or
the Committee, as the case may be, may determine.
11. SHARES SUBJECT TO OPTION
The Shares issuable upon exercise of options granted hereunder
may be unissued shares or treasury shares, including shares bought on the open
market. The Company at all times during the term of this Plan shall reserve for
issuance the number of Shares issuable upon exercise of options granted
hereunder.
12. COMPLIANCE WITH GOVERNMENTAL AND OTHER REGULATIONS
The Company will not be obligated to issue and sell the Shares
issued pursuant to options granted hereunder if, in the opinion of its counsel,
such issuance and sale would violate any applicable federal or state securities
laws. The Company will seek to obtain from each regulatory commission or agency
having jurisdiction such authority as may be required to issue and sell Shares
issuable upon exercise of any option granted hereunder. Inability of the Company
to obtain from any such regulatory commission or agency authority which counsel
for the Company deems necessary for the lawful issuance and sale of Shares upon
exercise of an option granted hereunder shall relieve the Company from any
liability for failure to issue and sell such Shares until the time when such
authority is obtained or is obtainable.
13. NONASSIGNMENT OF OPTIONS
Except as otherwise provided in Paragraph 7(c) hereof, any
option granted hereunder and the rights and privileges conferred hereby shall
not be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law otherwise) and shall not be subject to execution, attachment,
or similar process. Upon any attempt to transfer, assign, pledge, hypothecate,
or otherwise dispose of such option, right or privilege contrary to the
provisions hereof, or upon the levy or any attachment or similar process upon
the rights and privileges conferred hereby, such option and the rights and
privileges conferred hereby shall immediately terminate.
7
<PAGE> 8
14. RIGHTS OF OPTIONEE IN SHARES
Neither any Optionee nor the legal representatives, heirs,
legatees, or distributees of any Optionee, shall be deemed to be the holder of,
or to have any rights of a holder with respect to, any Shares issuable upon
exercise of an option granted hereunder unless and until such Shares are issued
to him or them.
15. DELIVERY OF SHARES ISSUED PURSUANT TO OPTION
Subject to the other terms and conditions of this Plan, upon
the exercise of an option granted hereunder, the Company shall sell to the
Optionee the Shares with respect to which the option has been exercised.
16. WITHHOLDING OF APPLICABLE TAXES
A Qualified Employer shall have the right to reduce the number
of Shares otherwise required to be issued upon exercise of an option granted
hereunder by an amount which would have a Fair Market Value on the date of such
exercise equal to all Federal, state, city, or other taxes as shall be required
to be withheld by the Qualified Employer pursuant to any statute or other
governmental regulation or ruling. In connection with all such withholding
obligations (whether arising in connection with an exercise of an option granted
hereunder or in connection with a disqualifying disposition (as defined in
Section 421(b) of the Code) of stock obtained upon exercise of an Incentive
Stock Option granted hereunder), a Qualified Employer may make any other
arrangements consistent with this Plan as it may deem appropriate, including but
not limited to withholding such taxes from cash compensation payable to the
Optionee and requiring the Optionee to remit cash in an amount equal to the
taxes required to be withheld.
17. PLAN AND OPTIONS NOT TO AFFECT EMPLOYMENT OR OTHER AFFILIATION
Neither this Plan nor any options granted hereunder shall
confer upon any Eligible Person any right to continue employment or affiliation
with any Qualified Employer.
18. AMENDMENT OF PLAN
The Board may make such amendments to this Plan as it deems
necessary or advisable, provided that, without further action by the
shareholders of the Company, no such amendment shall (a) materially increase the
maximum number of Shares for which options may be granted, except as provided in
Section 3, (b) materially increase the benefits under the Plan, or (c)
materially modify the requirements as to eligibility for participation in the
Plan, and in no event shall any such amendment impair the rights of any
participant under any option theretofore granted.
19. NOTICES
Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, postage
prepaid, addressed to the Company, 26 Landsdowne Street, Cambridge, MA 02139 and
to the Optionee at the address on file with the Company at the time of grant
8
<PAGE> 9
hereunder, or to such other address as either party may hereafter designate in
writing by notice similarly given by one party to the other.
20. SUCCESSORS
The Plan shall be binding upon and inure to the benefit of any
successor, successors or assigns of the Company.
21. SEVERABILITY
If any part of this Plan shall be determined to be invalid or
void in any respect, such determination shall not affect, impair, invalidate, or
nullify the remaining provisions of this Plan which shall continue in full force
and effect.
22. TERMINATION OF THE PLAN
The Board may terminate this Plan at any time; otherwise this
Plan shall terminate September 19, 2000. Termination of the Plan shall not
deprive Optionees of their rights under previously granted options.
23. GRANTS OF OPTIONS AFTER AMENDMENTS TO PLAN
The grant of any option hereunder on or after the date the
Board has adopted any amendments to the Plan that require shareholder approval
pursuant to Section 18 hereof, is subject to the express condition that within
12 months after such date, the holders of a majority of the outstanding shares
of Common Stock present, or represented, and entitled to vote thereon shall have
approved the Plan at a duly held meeting of the shareholders of the Company.
9
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss attributable to common shareholders ($6,924,608) ($4,027,732)
=========== ===========
Calculation of shares outstanding:
Weighted average common shares
outstanding used in calculating net
loss per share 21,087,991 20,752,848
------------ -----------
Total 21,087,991 20,752,848
============ ===========
Basic and diluted loss per common share ($0.33) ($0.19)
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,479
<SECURITIES> 168,710
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180,889
<PP&E> 34,909
<DEPRECIATION> (10,676)
<TOTAL-ASSETS> 212,539
<CURRENT-LIABILITIES> 18,271
<BONDS> 12,108
0
23
<COMMON> 211
<OTHER-SE> 174,702
<TOTAL-LIABILITY-AND-EQUITY> 212,539
<SALES> 0
<TOTAL-REVENUES> 10,259
<CGS> 0
<TOTAL-COSTS> 9,011
<OTHER-EXPENSES> 3,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> (5,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,077)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
